Yuan Gao
Blog Submission #4
Outsourcing in Healthcare System
From
my health system class, I learned the U.S spends far more than any other
industrialized country on pharmaceuticals. Drug pricing runs the gamut from $48
per year for generics at Walmart to $1,500 per year for the common cholesterol
drug Lipitor to $409,500 per year for Soliris (treat paroxysmal nocturnal
hemoglobinuria). One reason for such a high cost will be the R&D cost: The
average cost of developing a single drug is 1.3 billion, and only 1 in 5,000
compounds are successful. However, production cost and salary for hiring
experts during & after the drug is developed is still way higher than other
industrial countries.
Traditional
pharmaceutical/Medical Devices companies usually are “Fully Integrated
Pharmaceutical Company” (FIPCo). They have in--house research, development,
manufacturing, clinical, regulatory affairs, data management, sales and
marketing, etc.
One
solution to reduce cost is outsourcing some of the R&D and production line.
There are three popular outsourcing strategies:
1.
Contracting with an
independent firm to accomplish a defined task required for the discovery and
development of a new drug
2.
“renting” expertise rather than “buying” it
3.
Contract
Research/Manufacturing CRO’s and CMO’s (CO’s), now exist to handle activities
from early research and pre development to clinical development and post--NDA
approval activities
A complex medical
device may call for hundreds of components and materials, each with specific
requirements, associated standards and applicable regulations. A large, global
design, and manufacturing services companies typically have robust supply
chains that they qualify, strictly monitor and proactively manage on an ongoing
basis. In fact, Medical device outsourcing is projected to reach $44.7 billion
by 2017, according to Global Industry Analysts, Inc. Cost reduction and faster
time to market are the major factors why companies want outsourcing their
R&D and manufactory.
With Healthcare
Reform, many
policy changes come for a majority of hospitals around the nation. Strategic sourcing is becoming
more important in the healthcare industry because healthcare institutions are
looking for ways to ensure that they can provide the same level of care to the
communities they serve, despite what is likely to be diminishing revenues.
Hospitals and health supplier turn their attention to outsourcing (which is the
easiest on to implement), help their organizations save up to 10% on their
capital equipment purchases, equating to possibly millions of dollars in
savings.
Pros and Cons For
Outsourcing
Advantages:
-
Convert fixed costs
to variable costs
-
Rent expertise as
needed
-
Reduce
overhead/infrastructure costs
-
Faster to get on the
market
Disadvantage:
-
Possible data leak
(especially for patent application or clinical trail data)
- Lose some of control of the progress
- Less efficient
communication over professional topics
It is true that
outsourcing the medical devices/medicine can reduce cost for
pharmaceutical/medical devices firms. However, how to develop a secure and
accountable partnership with manufactory? Although there are patent protect the
brand drug/devices about 12 years, but most of the patent is issued before FDA
approval, and when it come to production, there is only 5 year left.
Outsourcing may result in leak information/data and emergence of early generic competitors.
Reference:
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