By Suresh Kumar
The objective of good healthcare policy, infrastructure, and systems is keeping people productive, healthy, and safe at work and in their homes — and out of the hospital. But doing so affordably requires innovation and transparency across the healthcare delivery chain and a focus on improving outcomes. Only then will we be able to bend the trajectory of healthcare costs.
When talking about the cost of healthcare in the U.S., remember that there are more of us today, and we live longer. If that trend persists, healthcare spending will continue to increase, but healthcare spending as a percent of GDP need not — and should not — go up.
According to the CDC, healthcare spending as a percent of GDP more than doubled from 7.9 percent in 1975 to 17.8 percent in 2015. Prescription drug spending as a percent of GDP grew from 7.1 percent to 11.9 percent during that same time period and contributed to fewer visits and overnight stays at hospitals and reduced surgical procedures. Hospital spending declined from 45.3 percent of total personal healthcare costs to 38.1 percent. Similarly, nursing and continuing care expenditures declined from 7.1 percent to 5.8 percent.
ANTIQUATED PRACTICES/PROCESSES NEED TO BE UPDATED AND MODERNIZED
Infectious diseases and hospital procedures may get the headlines, but chronic diseases, which account for nearly two-thirds of all mortality, are what break the bank. That’s why we need more affordable care-delivery models that leverage medical advances and enable care outside of a traditional hospital setting. For example:
- offer more services/treatments at outpatient facilities
- adjust treatment protocols to redistribute responsibilities between physicians, PAs, and RNs
- utilize more remote monitoring/counseling and telemedicine for more timely interventions
- move care delivery closer to the patient (e.g., mobile care center, pharmacy clinic, urgent care facility)
- bundle payments, and offer transparent billing that is understandable to all
Pharmaceutical companies also need to make changes if we’re to provide better access to affordable medicines. For instance, the following are some ways to review and re-engineer various operations:
A. PRODUCT DEVELOPMENT PRACTICES
- collaborate with advisory panels, regulators, and CROs to streamline the discovery-to-development and manufacturing-to-market pathways for drugs
- fundamentally change the approach to clinical studies and patient recruitment
- embrace technology and advanced analytics for early identification and pruning of drug candidates that are unlikely to reach clinical and cost thresholds
- gather and incorporate real-world evidence (RWE)
B. COMMERCIAL PRACTICES
- create a different pricing basis for products to manage chronic diseases as compared to those for treating acute emergencies
- ensure access and price tradeoffs result in lower prices and/or system cost
- make sure scale efficiencies (e.g., the more products you sell the cheaper the price should be) are realized and passed on to patients
- make discounts and incentives to payers, providers, and middlemen transparent
- scale up value- and outcomes-based payment-model partnerships with providers and payers
The last decade will be remembered as much for advances in medical science and technology as it will be for questionable commercial practices surrounding pricing, discounts, and incentives.
Over 40 percent of healthcare spending in 2015 came from federal or state government funds. Not surprisingly then, the HHS Secretary and the FDA Commissioner recently threatened potential executive orders if cost containment and transparency were not forthcoming.
LOOK BEYOND M&As FOR INNOVATION
Recently, there has been much focus on reducing delivery- chain fragmentation via M&As that provide greater vertical integration along with managing more lives to realize scale economies (e.g., CVS-Aetna, Cigna-Express Scripts, Walgreens-AmerisourceBergen). These changes also have the potential to bring greater pricing transparency by removing contractual gags that preclude pharmacists from informing patients of the cost of treatment options and co-pays.
"We need more affordable care-delivery models that leverage medical advances and enable care outside of a traditional hospital setting."
More innovative approaches are required to bend the healthcare cost. For example, insurance products must encourage more home and community-based care programs. Also, establishing SOPs for care, bundled payment programs, pay-for-value incentives, and all providers providing a price list for managing disease before delivering care will be helpful.
Essentially, our industry must come up with a better way. If not, there are other nonindustry players who will tread boldly as catalysts of change; IBM (Watson), Verily, and a host of other nimble technology companies are already embedded in the healthcare arena. Consider what Amazon did for retail or how Apple transformed the way we buy, enjoy, and store music and video. Nontraditional industry players like these have an insatiable desire to infiltrate structurally inefficient business sectors that are riddled with complexity and redundant processes. For example, what the Amazon, Berkshire Hathaway, and JPM Chase collaboration will do remains unclear, but managing 1.2 million employee lives gives clout to negotiate better deals and jump-start the process of bringing change and innovation.
GOVERNMENTS MUST CONVENE, ENROLL, AND COAX STAKEHOLDERS TO CHANGE THE STATUS QUO
The U.S. spent $3.2 trillion on healthcare in 2015. For several years, healthcare spending has outpaced inflation, and each year we appear to spend between $100 billion and $200 billion more than the previous year.
Tackling runaway costs is everyone’s responsibility. Industry will benefit from voluntarily providing government options for consideration or risk having to comply with new government directives that may add cost and complexity. It is in everyone’s interest to collaboratively develop the framework of:
- how each stakeholder would change, not by pointing fingers at each other, but by offering innovation solutions for change within their sectors
- what transparency will look like
- how to provide rapid and early up or down decisions on new product approvals.
Government, via executive orders and/or legislation, will likely establish a timetable for:
- reducing bureaucracy to streamline regulatory pathways and cost of drug discovery
- modifying payments and incentives in Medicare and Medicaid
- enforcing transparency provisions
- linking pricing to inflation.
WHAT DOES ALL THIS MEAN, AND HOW CAN WE FUNDAMENTALLY RESHAPE HEALTHCARE?
We are in exciting times; science-driven developments in biotechnology and gene therapy offer the promise of changing the course of diseases. The last two years have seen record new product approvals. Technology adoption in healthcare is on the rise, and patients and caregivers have more control in their hands. There is no better time for a change.
The benefits of new therapies must reach more people, and this can happen only if they are affordable. The future also will be a time when patients can understand a hospital bill without getting vertigo, or the price of a pill, which in many countries already comes in a package that says “suggested manufacturing price not to exceed … .”
A sustainable healthcare system is one where more people have early access to products, procedures, and services. It’s the kind of system that provides value to the patient by reducing or preventing hospital visits. And it’s a system where patients know what they are getting, why, and at what cost. Ultimately, innovation and transparency across the healthcare delivery chain must be bounded only by the need to simultaneously compress cost, improve outcomes, and enhance service quality.
SURESH KUMAR serves on the board of Jubilant Pharmaceuticals and Medocity. Formerly, he was U.S. Assistant Secretary of Commerce and Executive VP at Sanofi.