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The Netflix model and why it (kind of) works in healthcare


You’ve all heard about these ‘Netflix models’ in healthcare. For a moment, let’s just talk about Netflix on its own. Forget the healthcare. So, the model in its most simplistic form is this: you pay a set price and you get to access to as much ‘content’ as you want and as you can watch. The analog in healthcare is that you pay a set price and you get all the medicine you want.

And lately, it seems, the policy world is alight with starry-eyed wonder at this innovative model. So, why does this model work? Well, for starters, it works because manufacturers don’t have as much cost uncertainty as we think. The knee- jerk reaction is either “Oh my goodness, you’re going to give them as much of our drug as they want for one set price? We’re going to go bankrupt!” or “Wow! We get as much of this drug as we need for a flat rate?!” Until you stop and think about it.

Manufacturers can use the previous year’s patient numbers and then add some prevalence/incidence multipliers to effectively triangulate the number of patients in any given year with a high degree of accuracy. And these models all include language that stipulates the medicine being consumed for a set price must be used in approved indications (to prevent large unanticipated swings in patient numbers). And even if they miscalculate the number, how much could the manufacturer be off by? Five per cent? Ten? Twenty? It’s effectively a one-year rebate. It’s not a permanent volume commitment.

And here’s the other part of this scenario that makes the risk level really low: from a behavioural perspective, which individual hospital, health system or country (in the case of a national procurer) is going to buy more of a product just for the sake of it? Why would they? To stockpile it for a future cohort of sick people? To keep short-dated or soon-to-be- expired product on their shelves? To hoard a drug that might cause a shortage in another jurisdiction and have to deal with the guilt (not to mention bad PR) of causing patients to suffer? It wouldn’t happen. Will there be some bad actors? Of course. We will have scenarios in which medicines are procured by individuals or institutions and excess amounts are sold on the ‘grey’ market. But these instances will be few and far between.

Like any other business model in any other industry, it is the cost of doing business or the equivalent of writing off a bad debt.

Another reason these Netflix models work in healthcare is that not all the content (ie, medicines) is governed by these models. Again, using a simplistic example with the non-healthcare scenario: I pay you a fixed amount and I get access to all your content (TV shows and movies). In the healthcare model, this is not the case. I don’t pay you a fixed amount for a limitless supply of cardiovascular drug and also get a limitless supply of your oncology, CNS and rheumatoid arthritis drugs. I only get access to a limitless supply of your cardiovascular drug. That’s it. The other drugs will have their own Netflix models. Or none at all.

And while we’re on the subject of ‘content’, the manufacturers get to pick and choose which content they make available, which also helps immensely in ensuring the success of such models. In other words, we’re not seeing any $1m-per- year therapies or ultra-orphan drugs being made available under these models. The manufacturers are able to limit choice and their liability. Or, looked at from a different perspective, the manufacturers are not providing their highest-margin products under these models, by and large.

Because these models work, policymakers and clinicians are assured of (theoretically) guaranteed access to medicines. I mean, that’s the idea. You pay me a set amount – every month or every year – and I provide you with shipments of medicine for the patients we agree that you anticipate treating for this disease state, which is a known quantity because we calculated the volume based on last year’s numbers (plus some prevalence multiplier). That’s the other advantage. Not that consistent supply shortages have been a raging issue in the whole access debate, but it does eliminate one more potential speed bump from the equation. It should ensure that manufacturers don’t end up in a supply constraint situation and it should ensure that hospitals, health systems and providers are not relegated to turning patients away from accessing medicines due to cost or availability.

This is not the first time, or the last, that ‘big tech’ will teach us a thing or two about healthcare. The real question is whether we can adapt, evolve and take these learnings and turn them into win- win situations for all stakeholders.

Rohit Khanna is the Managing Director of Catalytic Health, a healthcare communication, advertising & strategy agency. He can be reached at:

8th May 2019


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