the value of healthcare setting the stage: looking to the future ian morrison
TRANSCRIPT
The Value of HealthcareSetting the Stage: Looking to the Future
Ian Morrison
Outline
The Economic Value of Health and Healthcare Values, Perceptions and Attitudes The Case of Pharmaceuticals Scenarios for the Next Decade The Value of Healthcare: Toward an Action
Agenda
The Emerging Value Context
Rising costs Rising cost shifting to consumers The Fat Trapper, Bariatric Surgery and the “Swaning of America” Infatuation with Technology based care Evidence that Innovation makes a difference Expect more Innovation in long term although gaps in the short run Potential Paradigm Emerging
– High cost, High efficacy, High Customization but unaffordable – The Concorde Syndrome
The Quest for Value – IOM: Balancing cost, quality, access and equity– Evidence based medicine and evidence based benefit design– Pay for Performance– Value Purchasing
Attitudes toward Value
Strong argument that American healthcare is a poor value– The International Story– The Dartmouth Story
Americans love high technology medicine and think we as a society should spend more on it…..but, OPM (Other People’s Money)
Healthcare is a superior good, as we grow economically we will spend more, but it has to flow from……– Government– Employers– Households
Value is in the eye of the beholder …..and the payer Value is being redefined as we move to engage the consumer as payer
and decision-maker What is value to the millions left behind?
Value and the Transformation of the National Debate
It’s not just about cost containment It’s not just about affordability It’s not just about prices It’s not just about life expectancy It’s not just about societal level value It’s not just about the best, no matter how much
it costs It’s not just about healthcare as the last industry
to go offshore to China or India
Innovation Imperatives
Consumers love new technology Innovation is the pharmaceutical industry’s ace in price
control debates But if you don’t truly innovate in a way consumers
appreciate and pay for……. The new environment shifts responsibility for payment
increasingly and transparency of pricing to consumers for all aspects of healthcare not just drugs
Delivering innovation to an end user consumer that has value they are willing to pay their own money for
Do not overestimate (even) Americans willingness to trade up
Are we comfortable with overt tiering?
Percentage of consumers who say each industry does a good job serving their customers
1997
% 1998
% 1999
% 2000
% 2001
% 2002
% 2003
% Change
since ‘97 Change
since ‘02 Hospitals 77 73 71 72 67 73 73 -4 -
Banks 75 72 68 73 71 74 72 -3 -2
Computer hardware companies 80* 78 80 76 78 59 71 -9 +12
Computer software companies 80* 77 80 78 80 60 70 -10 +10
Car manufacturers 70 69 70 67 67 64 64 -6 -
Airlines N/A 78 71 66 51 63 64 -14 +1
Telephone companies 80 76 67 64 61 58 57 -23 -1
Life insurance 64 63 61 62 60 55 56 -8 +1
Pharmaceutical and drug companies
79 73 66 59 57 59 49 -30 -10
Oil companies 59 64 55 39 27 38 42 -17 +4
Health insurance companies 55 48 41 39 38 51 40 -15 -11
Managed care companies 51 45 34 29 29 33 30 -21 -3
Tobacco companies 34 32 31 28 28 25 30 -4 +5
How Consumers Rate Industries
* In 1997 “computer companies” were rated together (I.e. hardware and software companies were not measured separately
** Because airlines were not included in 1997, the trend for airlines is from 1998 - 2002
Health Care Tops List of Industries Public Wants to See More Regulated
20%
8%
10%
11%
21%
24%
26%
30%
31%
35%
35%
44%
52%
57%
59%
60%
None of these
Computer hardware companies
Supermarkets
Computer Software Companies
Banks
Car manufacturers
Packaged Food Companies
Telephone Companies
Airlines
Life Insurance Companies
Tobacco Companies
Oil Companies
37%
27%
40%
22%
35%
14%
23%
12%
20%
34%
11%
3%
4%
13%
7%
4%
Should Be More Regulated Generally Honest & Trustworthy
Hospitals
Managed Care Companies
Health Insurance Companies
Pharmaceutical Companies
The Value of Health Care
14%
21%
24%
32%
35%
36%
43%
63%
Health insurance companies
Brand name prescription drugs
Hospitals
Pharmacies
Doctors
OTC (non-prescription) drugs
Medical devices
Generic prescription drugs
Percentage of consumers rating each of the following a very good or fairly good value
Source: Harris Interactive/Wall Street Journal. Aug 19, 2003
The Argument For Consumer Responsibility for Payment
Consumers have been progressively insulated from the cost of care for the last 40 years
If they only knew how much healthcare cost and had to pay they would use it less
If they were responsible for paying they would also take more responsibility to become healthy and cost the system less
Consumers should have the right to choose and to trade up to better quality with their own money
When they are make rational consumer choices the market will be working and whatever is spent will be appropriate like any other market or sector of the economy
The Argument Against Consumer Responsibility for Payment
The 5/50 Problem: Most consumers that are heavy users have significant co-morbidity or serious illness like cancer, they didn’t choose this health status
One day in an American hospital and they are over their maximum deductible, so……
Catastrophic coverage is a green light for excessive care by hospitals and procedure-oriented specialists
While skin in the game can clearly move people around does it save money overall?
The equity problems:– A de facto reallocation of resources from poor to rich (my access to the
collective social capital of health insurance is better because I can come up with the economic down payment for physician visits and tests)
– Poor people with chronic illnesses will be disproportionately affected by consumer responsibility for payment
Consumer Exposure to Health Care Costs is About to Increase
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1980 1988 1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030%
5%
10%
15%
20%
25%
30%
Percentage of total personal health care expenditures paid out-of-pocket
Source: Centers for Medicare and Medicaid Services Projected
Per capita amount of personal health care expenditures paid out-of-pocket
The Case of Pharmaceuticals
Coverage and Value Tiering and consumer strategies How do consumers behave? What are the challenges?
Who Pays for Drugs?
48.2%
42.7%
39.5%
34.9%33.4%
32.0%
32.1%
37.1%40.0%
44.0%45.3% 46.2%
17.3% 18.0% 18.8%20.1% 20.6% 20.8% 21.2% 21.3% 21.8%
36.8%
54.7%56.2%
52.7%
59.1%
42.4%
27.3%26.5%28.5%
24.4%
16.6%
19.8%
10%
20%
30%
40%
50%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: Kaiser Family Foundation and Sonderegger Research Center analysis of CMS data
Percent of Total National Prescription Drug Expenditures by Type of Payer
Private insurance
Out-of-pocket
Government programs
The Five-Tier Formulary
Old Generic
New Generic
Rebated Brands
Non-Rebated Brands
Look Good / Feel Good
Lowest Copay
Highest Copay and/or
Coinsurance
James Brown and Fernando Lamas Effect
Mortality
Morbidity
Mobility
Feel Good
Look Good
Quality of Life
Affluence of the Individual or Society
End-Point
“Skin in the Game” Matters
Trading down twice as often as trading up Rapid increase in generic and therapeutic
substitution Poor, chronically ill most effected Starting to lead to adverse health outcomes like the
uninsured Simple cost shifting without sophisticated disease
management is not the right answer in the long-term
Big Increase in Trading Down on Drugs
17%
34%
51%
11%
20%
37%
Not fill aprescription
Asked doctorto prescribe
less expensivedrug
Asked doctoror pharmacistfor a generic
drug
2003 2002
Base: Total cost of prescription drugs increased last year (53%)
Rx co-pay increase: More bargain-hunting since 2002. Low- and middle-income
equally likely to “trade-down”
Percentage of consumers who did the following in response to an increase in prescription drugs cost sharing
2003 by Income
2002
% 2003
% <$35k $35-
75k $75k+
Ask doctor or pharmacist for generic 37 51 56 61 40
Ask doctor for less expensive alternative 20 34 44 39 23
Use mail order service to fill Rx 16 20 18 18 22
Not get a prescription filled 11 17 31 21 7
Take medication less often than you should N/A 13 32 12 5
Base: Copays for prescription drugs increased a lot or a little in past year
The Transformation of Pharmaceuticals
Discover a unique white powder
Search for a therapeutic action Establish safety and efficacy Make sure it’s better than
available alternatives Promote to the profession Get a passive payer to pay for
it
Design a white powder with a predictable therapeutic action
Establish safety, efficacy and cost-effectiveness
Make sure it meets a previously unmet medical need or has an effect that is detectable to human beings
Promote to all the Ps (patient, physician, PBM, payer, pharmacist, politician, press)
Get an active payer to pay for it
Past Future
% o
f P
atie
nts
Do nothing
Chronic pill popping
(Rolaids for Yuppies)
Me-too Fast Followers
& Generics
Higher PriceHigher Efficacy
InnovativeTechnology
Big Pharma Success
Heavy-duty traditional therapy
Evidence-based medicine
Consumer payment
Marketing
Demonstration of clinical efficacy
Traditional Pharmaceuticals vs. Advanced Therapeutics
Cost
Happy Biotechnologist Scenario
We have the best stuff Sure it’s expensive, but it works Because it works there are savings elsewhere This is complex – do not try this stuff at home As generic competition makes costs go down for
some technologies, there will be more gross margin left for us
Catastrophic drug coverage insulates consumers from caring about price
Biotechnologist’s Nightmare Scenario
Public, physicians, policymakers could care less about large molecules; we don’t buy drugs by the atom
It’s complex brewing not chemistry, but how hard could it be? Big ugly buyers and providers incensed about price of technology High efficacy focused on small sliver of needy, desperate patients Payers/purchasers
– Medicare inpatients – the stent effect– Medicare hospital outpatient – the value case– Administering Physicians e.g. oncologists
zero-sum game on incomes “Plop, plop” vs clinical efficacy
– Consumers Co-insurance on top tier All drugs in CDHP
Can you pass the NICE/Kaiser Test?
Demonstrating “Value”
What is value? Benefit / Cost? Quality/Cost? Access/Cost? Benefit to whom?
– Patient, physician, payer, insurer, employer, government, public(?), politician?
Cost to whom?– Patient, physician, payer, insurer, government, public
(taxpayer)? Is “value” (for money) the same as cost-effectiveness? Remember if you cut the price in half, you double the
value
Market Nirvana
Market Driven Government Driven
Minor Delivery System Reform
Major Delivery System Reform
Four Scenarios for Health Care2004-2010
Tiers R’Us
NationalRational
Healthcare
Bigger Government
Scenario 1: Tiers R’ Us
The SUVing of American Healthcare We pay more for choice and control WIPDBS brings the market to Medicare Chronically ill, low income beware Catastrophic coverage for the very sick The benefits of benefit design: save employers money Trading down more often than trading up A world of opportunity and risk Private sector celebrated
Scenario 2: Bigger Government
Major backlash against cost shifting to consumers 2008 election run on the retirement and health security issues of the middle
class Protect the baby-boom at all costs
– Medicare Advantage for All or– Pay or Play or– Expanded Medicare and FICA tax or– Fill the donut holes, stick it to pharma, shore up the entitlement
Live with the consequences– Politicization of healthcare spending– Rationing and restriction– Lower Innovation– Lower profits– Equity over efficiency– Rising costs and taxes
Scenario 3: Market Nirvana
Break the Culture of Entitlement Consumers learn to discriminate and pay We buy care not cars Incentives for health and personal responsibility Catastrophic coverage and retail medicine for all Utilization based on ability to pay The rise of cheapo plans and delivery systems Reaching high end retail customers is key Delivery reform is market-based not evidence-based Opportunities abound for the entrepreneurial America’s economic base as private sector healthcare High quality, high service, low equity
Scenario 4: National Rational Healthcare
Universality and Delivery System Redesign Evidence-based floors and ceilings Pay for Performance Reference-pricing and cost-effectiveness criteria for new technology Financial rewards for clinical redesign Universal Mandated Coverage
– Employer and individual mandates or– Expanded Medicare Advantage or– Expanded Safety Net Delivery Floor
Expanded Access and Rational Design Delivery System Innovation rewarded All enabled by a 21st century IT and bioscience infrastructure
Implications for Value
No matter what, we will need better value measures and more transparency of measures
Value based purchasing will become more prevalent and have a powerful influence on providers and vendors
Consumers will become more engaged in value decisions but we cannot rely on them absolutely
The systems of healthcare need to be continuously improved to deliver greater value
Towards an Action Agenda
The Need for Leadership Stakeholder Dialogue
– Not just IOM or NHI– Conversation for Action– Not about figure pointing– Constructive Engagement about Value Improvement in
Healthcare– Redesign of the systems of healthcare
Generate Enthusiasm Cultivate Broad Community Dialogue Identify Quick Victories