Launch failure of Healthcare.gov provides useful lesson for Pharma

The abysmal launch failure of the federal government's healthcare.gov website should provide a useful lesson for pharma.  This week Aarti Shahani of National Public Radio spoke to several Silicon Valley CEOs (listen here) about why the signup website for the Affordable Care Act failed and what could have been done make it a success.

One exec who used to work at the Department of Defense claims that the Center for Medicare and Medicaid Services (CMS), the agency tasked with making the website functional by October 1, used what amounts to a preferred vendor approach common at pharma companies these days.  CMS essentially outsourced the management and coordination task to a large vendor (in this case, one that was removed from previous engagements for its subpar performance) that could offer volume-based, cost discounts.  The ex-DOD manager claims that in the Defense Department, the importance assigned to IT tasks allowed professionals there to pick and choose smaller vendors based on their particular capabilities, regardless of size or cost-per-unit calculations.

The implicit message is that if an organization decides to remove decision making from appropriate professionals and hand it to finance/accounting and their henchmen in purchasing, screwups can be expected.  Most of the time, however, pharma managements don't care about most operations failures.  Their focus is principally on earnings and share price.

Perhaps some of those managements will learn something from Johnson & Johnson which this week, according to reports (see here), agreed to pay $4 billion to resolve several thousand lawsuits over the faulty hip implants of its DePuy subsidiary.  The company still faces additional liability from plaintiffs unwilling to accept the settlement.  Moreover, the $4 billion does not cover claims from people who will need future adjustments on their implants.  J&J claims it already has paid nearly $1 billion for medical costs and informing patients and surgeons about product recalls.  Then J&J will also be liable for claims by Medicare and private insurers that paid for the faulty implants.  Those repayments, estimated at several hundred million dollars, will represent an additional hit to J&J above the $4 billion.  All of these costs related to faulty hip implants come on top of $2 billion worth of fines and penalties J&J agreed to pay earlier this month for giving kickbacks to a pharmacy provider and retirement facility personnel for dosing elderly residents with J&J's antipsychotic, Risperdal.

These multi-billion dollar fines, ultimately paid by shareholders, show that pharma's finance/accounting managers are failing dismally at their ostensible task of saving their companies money.  So will pharma managements be chastened by such dollar costs and dissuaded from phlegmatically outsourcing services to large vendors instead of relying on experienced professionals?  Not likely!

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