The Value of Healthcare Setting the Stage: Looking to the Future

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The Value of HealthcareSetting the Stage
Looking to the Future

• Ian Morrison

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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

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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

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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 Peoples 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?

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Value and the Transformation of the National
Debate

• Its not just about cost containment
• Its not just about affordability
• Its not just about prices
• Its not just about life expectancy
• Its not just about societal level value
• Its not just about the best, no matter how much
  it costs
• Its not just about healthcare as the last
  industry to go offshore to China or India

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Innovation Imperatives

• Consumers love new technology
• Innovation is the pharmaceutical industrys ace
  in price control debates
• But if you dont 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?

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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
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Health Care Tops List of Industries Public Wants
to See More Regulated
Should Be More Regulated
Generally Honest Trustworthy
Managed Care Companies
Health Insurance Companies
Pharmaceutical Companies
Hospitals
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The Value of Health Care
Percentage of consumers rating each of the
following a very good or fairly good value
63
Generic prescription drugs
Medical devices
43
36
OTC (non-prescription) drugs
Doctors
35
32
Pharmacies
Hospitals
24
21
Brand name prescription drugs
Health insurance companies
14
Source Harris Interactive/Wall Street Journal.
Aug 19, 2003
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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

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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 didnt 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

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Consumer Exposure to Health Care Costs is About
to Increase
Per capita amount of personal health care
expenditures paid out-of-pocket
Percentage of total personal health care
expenditures paid out-of-pocket
Projected
Source Centers for Medicare and Medicaid Services
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The Case of Pharmaceuticals

• Coverage and Value
• Tiering and consumer strategies
• How do consumers behave?
• What are the challenges?

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Who Pays for Drugs?
Percent of Total National Prescription Drug
Expenditures by Type of Payer
Private insurance
Out-of-pocket
Government programs
Source Kaiser Family Foundation and Sonderegger
Research Center analysis of CMS data
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The Five-Tier Formulary
Highest Copay and/or Coinsurance
Lowest Copay
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James Brown and Fernando Lamas Effect
End-Point
Look Good
Feel Good
Quality of Life
Mobility
Morbidity
Mortality
Affluence of the Individual or Society
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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

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Big Increase in Trading Down on Drugs
Base Total cost of prescription drugs increased
last year (53)
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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
Base Copays for prescription drugs increased a
lot or a little in past year
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The Transformation of Pharmaceuticals
Future
Past

• 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

• Discover a unique white powder
• Search for a therapeutic action
• Establish safety and efficacy
• Make sure its better than available alternatives
• Promote to the profession
• Get a passive payer to pay for it

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Traditional Pharmaceuticals vs. Advanced
Therapeutics
Big Pharma Success
Higher Price Higher Efficacy Innovative Technolog
y
Do nothing
of Patients
Me-too Fast Followers Generics
Chronic pill popping (Rolaids for Yuppies)
Heavy-duty traditional therapy
Cost
Evidence-based medicine
Marketing
Consumer payment
Demonstration of clinical efficacy
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Happy Biotechnologist Scenario

• We have the best stuff
• Sure its 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

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Biotechnologists Nightmare Scenario

• Public, physicians, policymakers could care less
  about large molecules we dont buy drugs by the
  atom
• Its 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?

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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

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Four Scenarios for Health Care 2004-2010
Minor Delivery System Reform
Bigger Government
Tiers RUs
National Rational Healthcare
Major Delivery System Reform
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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

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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

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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
• Americas economic base as private sector
  healthcare
• High quality, high service, low equity

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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

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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

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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