If ever an industry was in need of a disruption, it is the United States health care system. The world’s most costly, it gobbles up 17 percent of our gross domestic product. By 2020, that figure is likely to reach 20 percent, according to the federal Centers for Medicare and Medicaid Services.
But we get what we pay for, right? Well, not so much. In the World Health Organization’s ranking of health care systems, the U.S. holds the 37th spot, between Costa Rica and Slovenia, and is just two slots better than Cuba. (France and Italy top the WHO list.)
And yet many observers see hope for U.S. health care in a variety of disruptions and trends that could bring positive, long-overdue change to the system. Among these are genome mapping, data-storage apps, “the wellness model,” the habits of the Millennial Generation, whistle-blowers, and, perhaps the biggest shake-up of the past few years, the Affordable Care Act of 2010.
In September, members of the Carey Business School’s health care advisory board – executives who help guide Carey on curriculum and research, and who serve as a bridge between the school and industry – met at the Harbor East campus for their regular semi-annual meeting. While on campus, they gathered for a luncheon discussion, moderated by Dean Bernard T. Ferrari, of the disruptions (such as those mentioned above) that have already begun to alter the health care system and could change it even more in years to come.
Later, seven of the board members who attended the September meeting – Earl Steinberg, Kris Jenner, Christopher Kersey, Elizabeth Fowler, Jeffrey Kindler, John Dineen, and Stephen Immelt – took part in follow-up interviews to expand on points raised during the luncheon conversation. Excerpts from those interviews follow.
An Explosion of Discovery
Chief Executive Officer of xG Health Solutions, Executive Vice President of Innovation and Dissemination, and Chief, Healthcare Solutions, Geisinger Health System
What do you see as major health care disruptions on the horizon?
One has to do with electronic medical records [EMRs]. They have become widely adopted and are a success, if you measure success by the number of providers who have EMRs. But there are multiple problems with EMRs – for example, if all they’re used for is as an electronic documentation system, it’s a waste of money. Their real potential value is in the ability to use them for clinical decision support and for exchanging information among providers. But right now there is no interoperability among the EMRs. One hospital’s EMR system typically is not able to talk to another hospital’s EMR system. This interoperability problem should be solved in about five years.
I believe that within five years EMRs will be used for administrative tasks like scheduling, ordering, things of that sort. The more important activity will be in software apps. We will see the development of something like an Apple app store through which software apps for clinical decision support and care management will be available. EMRs will likely not be the data hub, because there will be so many new sources of data, like genomics data, whose magnitude is such that they won’t be storable in an EMR. There will be a whole industry around the purchasing and development of apps by health care systems.
How do you see the mapping of the genome affecting health care?
There is an explosion of discovery right now in understanding the human genome. Today, we talk about cancer by organ system: breast cancer, liver cancer, lung cancer. Ten years from now, that won’t be what we talk about. Treatment will be based on the particular genomic mutation each person has. What we do now for chemotherapy will look barbaric. Right now we typically use poisons that kill many kinds of cells. The therapies will become more and more targeted, for either turning a gene on or off [to stop a cancer from growing]. As those mutations are discovered, therapies are being developed that target the specific mutation or target the result of it. So instead of poisoning somebody with chemo, we will have a therapy that turns a mutation off or turns something on that was turned off by a mutation, and the cancer will melt away. I don’t know how often genome tests might be administered, but they will be used commonly. It’s mindboggling how rapidly these advances are being made. The cost of doing a genome test is down from hundreds of thousands of dollars to a thousand dollars. It will keep coming down.
“Until there is a financial incentive for providers to be more fiscally responsible,
they won’t do it.”
The biggest problem, of course, is that we don’t know how to interpret most of the mutations we identify. The number that we understand is small. It’s like a complex jigsaw puzzle, and a lot of big-data analytic firepower is being applied to it to try to understand the genomic data that’s emerging.
Is there a strong business model that can exist within a reformed health care system?
The current system of fee per service is inherently inflationary, and it drives the delivery of a higher and higher volume of services, because it incents supplier-induced demand. Whatever the doctor provides, he or she gets paid. So there’s tremendous waste in the system – services that provide no value or, most discouragingly, that are downright harmful are being delivered because of a financial incentive to provide them. The movement to more accountable care, or care where the delivery system is taking on financial risk as well as responsibility for the quality of care, is turning the fee-for-service business model upside down. Changes in how we pay for care will drive changes in the delivery system that will improve quality and decrease cost. But until there is a financial incentive for providers to be more fiscally responsible, they won’t do it. Right now the incentive is to be fiscally irresponsible. Providers get paid more by doing more. It’s the sickness model.
Aggressively Managing the Cost
Former Chief Executive Officer and President of GE Healthcare
In the meeting, you mentioned that GE came around to the idea of “managing” its $2.5 billion health care expense, rather than continuing to regard it as something akin to an unavoidable tax. What brought about that change in attitude?
It was something that happened not just at GE but also at other companies. The Affordable Care Act debate stimulated a number of ancillary discussions. People started to think about health care and its costs more than they had in the past. It was a moment of pause and reflection. At GE, we started to look at our health care costs, both their size and rate of increase, and we wondered what we could do to manage them aggressively, the way we managed all our other cost pools. So we started to look at every aspect of it. We engaged our employees and improved the health and fitness capability around our sites. We realized we could have a great deal of influence on our employees, both how they lived and the health choices they made, pro-actively and reactively.
You also said that “people are going to shop to get answers, and it will change everything.”
What we’ve seen with the various health care plans and exchanges is that people are choosing higher-deductible plans. The moment they do that, they’re starting to pay a greater percentage of their health care costs out of their own pocket. They’re starting to look at the prices on the menu. They start asking questions. Do I need that service? Can I get it at another location for a lower cost?
“Consumerism, in terms of better economics and the pursuit of better quality, did not exist in health care the way it has in other industries. But now we’re starting to see more consumers turn into shoppers for health care.”
This consumerism, in terms of better economics and the pursuit of better quality, did not exist in health care the way it has in other industries. But now we’re starting to see more consumers turn into shoppers for health care.
Could you expand on another of your comments: “Medicine is the only industry in which technology is seen as decreasing productivity and increasing cost. In every other industry, it is the other way around.”
There’s a view that the introduction of higher technology – new hardware, medical devices, drugs – has been a contributor to the increased cost of health care. For the industry, that’s a dangerous connotation. In most sectors, technology has a direct linkage with productivity and quality. We can’t lose that in health care. We need to make sure technology is used to achieve better economic value propositions, and better-quality clinical propositions. We can’t adopt higher technology just for its own sake. We have to make sure we’re governing the use of technology, not just the introduction of new technology.
You remarked that science “has unlimited potential” in relation to health care. How so?
Don’t overestimate our understanding of diseases. We still do not really understand how diseases like cancer work. We’re still in the early innings, particularly our molecular understanding of these diseases and how we can intervene. We’ve been diagnosing and treating symptoms for a long time. We will continue to get a better understanding of the fundamental mechanisms of the many diseases and how we can intervene with much more precision.
That’s the exciting thing about health care. There’s still so much to be learned. And that should make people excited about the prospects for technology and for better outcomes. This is across the board: molecular diagnoses, new treatments, cell therapies, immunocell therapies, stem-cell therapies, some of the monoclonal antibody therapies out there. There’s a lot more that can be done from a technology standpoint.
The ACA and the Historical Lens
Vice President, Global Health Policy, Johnson & Johnson and Former Special Assistant to President Obama for Healthcare and Economic Policy at the National Economic Council
By playing such an important role in the passage of the Affordable Care Act, you personally helped introduce one of the biggest disruptions that the U.S. health care system has experienced in years. If “Reform 1” (as some experts call the version of the ACA signed into law in 2010) was primarily about adding more Americans to the ranks of the insured, what might reasonably be expected of a Reform 2?
It isn’t quite the case that Reform 1 was just about coverage and Reform 2 will address cost. Reform 1 did address cost to some extent. The next version of reform will focus on what we can do to continue the momentum of the movement toward value-based care, as well as what might need to be fixed in Reform 1.
In the meeting, you mentioned a disconnect that exists between “the policy wonks” who say reform won’t stick and the providers who seem to have embraced reform.
“In spite of all the opposition and the continued partisan politics, by many measures [the ACA] is working in terms of covering the uninsured and sparking a national movement toward value-based care.”
—Elizabeth J. Fowler
I wouldn’t say that providers have wholeheartedly embraced it, though many have. But some are struggling to comply and keep up with new requirements while at the same time cope with payment cuts. Most providers are exploring new ways to meet the quality standards and avoid penalties and succeed in the new world of “population health.” Many policy wonks are skeptical because they look back historically and see that past efforts to control costs didn’t last long. [Diagnosis Related Groups], for example, were able to reduce hospital length of stay and Medicare spending, but eventually costs started to rise again. Managed care, another example, produced a dip in health care spending through gatekeepers and strict controls on access, but patients and the public rebelled, so controls were loosened and costs went back up. So policy wonks are looking at the ACA cost-containment initiatives through that historical lens. They figured we haven’t cracked that nut yet; so why would it work this time? That’s why many approach ACA reforms with a little bit of skepticism, and maybe a little bit of cynicism.
What is your assessment of the Affordable Care Act to date?
I am glad it’s still in place, and I want it to continue, obviously. In spite of all the opposition and the continued partisan politics, by many measures it’s working in terms of covering the uninsured and sparking a national movement toward value-based care.
Of Regulation and Innovation
Chief Executive Officer of Hogan Lovells (multinational law firm headquartered in Washington, D.C., and London)
In the luncheon meeting, you mentioned the threat that regulation poses to innovation in health care. Can you elaborate on that point?
There is a lot of potential for disruptive technology in the health care sector, but there are regulatory barriers to innovation that you don’t typically encounter in other sectors. Besides heavy regulation, you have coverage determinations made by Medicare and private insurance plans. Also, health care is a profession-driven sector, at least at the provider level; so, as professions often do, they create standards, licenses, and other requirements that arguably offer some assurance of quality but may hinder more innovative approaches. And because there are so many points of regulation, various players have the right to petition the government to say, “Don’t cover this or allow that.” You don’t encounter these levels of regulation when you buy a smartphone.
“Certainly there are very strong policy reasons why everyone should have access to health care, but the challenge is how you do that in the context of what now exists.”
—Stephen J. Immelt
Politics always seems to enter into the discussion when the topic is health care, and it is easy to understand why. Health is something that affects everybody. It affects our families. It can quickly become personal and emotional, as the debate over the Affordable Care Act showed. Certainly there are very strong policy reasons why everyone should have access to health care, but the challenge is how you do that in the context of what now exists. We are not starting with a whiteboard. And even when the economics are compelling, such as Medicaid expansion, the politics remain fierce. The debate continues, and everybody has a stake in it, so this sector will continue to be complex and contentious.
You’ve had a lot of experience defending medical device companies in False Claim Act matters. The number of False Claim Act cases related to the medical sector has greatly increased in the past 20 to 30 years. Can you explain why that has happened, and what the effect has been?
In 1986, the False Claim Act [FCA], which dates to the Civil War era, was amended to broaden what could be considered a claim and to change the standard of proof. Since then, FCA recoveries in the health care sector have exceeded $42 billion. As important, $5 billion of that amount has been paid to whistle-blowers who brought lawsuits and [to] their attorneys. That $5 billion has galvanized attention, so each year hundreds, if not thousands, of new cases are brought. This is, in essence, another form of regulation. The FCA has been the way that many issues in health care percolate up and get addressed. Most health care enforcement activity in the last 25 years has been driven by the FCA, rather than the government taking a pro-active approach to issues of concern. Policy priorities have thus been driven by private actors. You can debate whether that is good or bad, but it is a unique aspect of the U.S. health care sector.
Population Health Megatrend
Partner and Managing Partner of Camden Partners (private equity firm based in Baltimore)
In the luncheon meeting, you said, “Population health is the No. 1 megatrend in health care.” First, can you briefly define “population health”? And can you explain your statement?
Population health management, an integral part of the Affordable Care Act, is the long-term medical and financial management of health outcomes for a specific, pre-defined patient population. Whenever reimbursement paradigms are changed and service providers are paid fundamentally differently than in the past, i.e., prospective payments vs. fee for service in the health care industry, you have to consider that a major trend within any industry.
You also mentioned risk as a megatrend. What kind of risk are we talking about, and who will be taking it?
Risk as a megatrend is, of course, highly related to population health management as a megatrend. We’re talking about the financial risk associated with long-term care of a given patient. The entities taking this risk will be the risk-savvy health care providers as well as certain payers.
“Whenever reimbursement paradigms are changed and service providers are paid fundamentally differently than in the past, you have to consider that a major trend within any industry.”
—Christopher W. Kersey
Can you amplify on a couple of terms you used in the discussion: “employeeism” and “consumerism”?
These terms relate to the ever-increasing ownership that employees as well as general consumers in the marketplace are taking as to their health care, including, among other insights, a better understanding of the quality of their health care providers and the costs associated with those providers.
You’re on the board of the Johns Hopkins Aramco Healthcare joint venture based in Dhahran, Saudi Arabia, which provides integrated, patient-centered care to employees of the Saudi Aramco oil company. It’s described as one of the world’s largest population health management initiatives. Could you describe how it works and what makes it so distinctive?
Besides the sheer scale of the project in terms of the number of citizens of that country who can be positively impacted, this joint venture is unique because there is both a hospital management component as well as a population health management component. The hospital management component will allow the facilities themselves to be operated more efficiently and effectively, while the population health component allows Hopkins and Aramco to work together to fundamentally change and improve the lifestyles of the citizens and prevent hospitalizations (and health episodes in general) in the first place.
Supply Creating Demand
Founder of Rock Springs Capital Management
In the Sept. 11 luncheon meeting, you mentioned watching the development of the technology associated with health care.
Watch the science. Our meeting discussion up to that point had to do with payment systems, provider organizations, increased financial responsibility on the part of the patient, increased transparency, having more information to make better decisions. All of those issues are very important. The thing that I wanted to remind people about is watch the science and how potentially disruptive it could be, and I was highlighting this very powerful new hepatitis C medicine [made by Gilead] in terms of being disruptive. So I was just trying to draw out that over the next decade and beyond, we’re going to have better therapies in disease areas for which today we don’t have good therapies, and I was using that one as a current example.
“Watch the science….Over the next decade and beyond, we’re going to have better therapies in disease areas for which today we don’t have good therapies.”
New supply creates new demand. Today we don’t really have a good Alzheimer’s medicine, yet we have a very substantial Alzheimer’s patient population, and the cost associated with the care of these patients including their institutionalization, the lost productivity, is in the tens of billions of dollars every year. Now, if we had a very good Alzheimer’s medicine that either slowed the cognitive decline or stopped it, or the ultimate “Eureka!” would be to somehow get you back to where you were, out of nowhere you would have a $50 billion-$100 billion market overnight. In the same way, overnight a very powerful medicine for hepatitis C, which is anywhere between 3 and 4 million individuals affected in this country, became available and created demand that heretofore didn’t exist. The point being, it’s incumbent upon the providers of these technologies to demonstrate the cost benefit.
With some therapies, we’ve seen where there might be a high demand globally but very little way to recoup the costs associated with it. Does that play a role here?
There are 150 million infected hepatitis C patients on a global basis. The minority of those are in developed economies such as Western Europe, the U.S., Japan, Canada, Australia – places where the expectation is that the system can pay. Gilead is working with manufacturers to provide their medicine on a global basis at a fraction of the cost of what it would be here. In this particular case, Gilead is incredibly responsive to the global burden of disease and realizes that in Asia, the Middle East, certain countries in Latin America, people can’t pay the market price that’s charged in the developed economies. Some therapies require a meaningful infrastructure to be in place in order for that therapy to be realized. But because the medicine is so good and has such a high cure rate, and is only needed for a reasonably short duration of therapy, the benefits of this technology are going to be felt on a global basis.
Consumers With Skin in the Game
Chief Executive Officer of Centrexion and Former Chief Executive Officer of Pfizer
You spoke of health care consumers as being disempowered and uninformed, perhaps more so than consumers of other kinds of products and services. Could you elaborate on why that may be the case?
I want to make sure I don’t sound like I’m blaming the consumers. Compared to other products and services available to consumers, the health care system is nontransparent, disempowering of the ultimate consumer, and in general not consumer-friendly. It’s an extremely complex system that has elements of the federal government, state governments, and the private sector, and within each of those are multiple payers and providers. Among all of these players, there is a complex set of different interests and often opposing interests. People and firms other than the ultimate consumer make many, if not most, of the critical decisions regarding products, services, and payment. As a result, the ultimate consumer is simply not in the driver’s seat the way he or she is when they go to buy wine or a car or any other purchase they may make.
That’s not sustainable, and won’t be sustained, as at least three trends accelerate. One is technology, which will increase the availability, transparency, and usefulness of information for consumers. Second, the enormous costs of the evolving health care system will demand more efficiency and will probably involve consumers’ having more financial skin in the game, which is one effective way of reducing costs. And the third factor is generational. People today, especially younger people, are accustomed to having a lot of information that empowers them to make decisions, and as they age and require more of the health care system, they will demand no less when it comes to their health and wellness.
Even with the ready availability of information, are most of today’s consumers able to make the best decisions about their health care?
There is always going to be a need for professional medical advice. But there’s a big difference between the historical relationship whereby the doctor is at the center of the decision making and the patient pretty much does what the doctor recommends – versus the patient being empowered with lots of information and having the doctor as one, maybe the most important one but only one, of the sources of information and advice that go into making those decisions. For example, we’re going to have more and more information about the quality and effectiveness of hospitals. That’s the kind of thing a potential patient, armed with the right knowledge, can make judgments about – definitely in consultation with a physician, but the patient is driving the bus and is no longer just a passenger in the back.
“People today, especially younger people, are accustomed to having a lot of information that empowers them to make decisions.”
We already have a model of the future of health care: Consider people with diabetes, especially adults who have lived with Type 1 diabetes all of their lives. They know as much if not more about their condition, how to treat it, what medicines are available, what interventions are required, than maybe many doctors do. They live with it every day, they do the research. They go online and talk to each other and to experts about their condition. The same is true with respect to the parents of children afflicted with orphan genetic diseases. So as people want to take more control over their health, they will be able to do a lot of this work themselves, and will have the tools and ability to do so.
Health care reform is happening in the private sector, you said in the meeting. Is it mainly a matter of the industry’s seeking to stay ahead of the curve, in anticipation of new regulations?
No, I think it’s about finding opportunities to solve problems and create value. We’re talking about for-profit businesses, and they are always going to look for opportunities in the marketplace to create value, and in this case the way to create value is by reducing cost, improving efficiency, improving outcomes, improving measurements of outcomes, and meeting the unmet needs of hospitals, physicians, patients, and everybody else in the system. The Affordable Care Act has lit a virtual fire in the private sector to take on these challenges. This is what entrepreneurship and innovation are always all about. Amazon, for instance, saw an opportunity to create a much better way, from the customer’s perspective, for people to buy books and later other products. They came into the marketplace and provided innovation and created a business out of it. That’s the kind of thing most people in the private sector are focused on.