Challenges Entrepreneurs Can Expect In Healthcare Next Year
Year end is the time when we wonder what to expect next year. 2018 brings unusual uncertainty: will the unprecedented longevity of the bull market continue with the Fed raising rates? What effect will the speed-dating tax “reform” have on the economy? And what will happen to the cost and quality of our healthcare as the Republicans strip down Obamacare while the chronic disease epidemic and a technology revolution driven by genetics and AI roll on?
The annual December Forbes Healthcare Summit is a unique gathering of high-level leaders and technologists: for example, five CEOs of major pharma companies participated in the final panel. What follows is a summary of key insights from the conference from an entrepreneur’s perspective.
Multiple speakers warned that the percentage of the U.S. economy devoted to healthcare will continue to rise and become unbearable. This is driven by increasing prevalence of lifestyle diseases (diabetes, heart disease, pulmonary diseases, many cancers) which drive over 80% of healthcare cost*. Many chronically ill people are in the workforce and hence employers are concerned about their health and healthcare cost. Longer lifespans are a second factor driving higher healthcare cost, with the main burden falling on government and then indirectly on employers/employees via taxes.
On the technology front, Vast Narasimhan, the incoming Novartis CEO, laid it out: “Biology is now tractable for many diseases.” Two families told stories of a mother and son entering the CAR T-cell therapy trials as a last resort with months to live, and emerging with no detectable cancer. Many of the earliest patients have remained cancer free for several years. CAR T-cell therapy is based on removing immune system cells from the patient, modifying their genome to circumvent the cancer’s natural defenses, and inserting the modified immune cells into the body. It is expensive because the immune cell modification must be performed specifically for each patient. But it works for a large percentage of patients and shows promise of long-lasting or permanent cure. This is the latest and most dramatic of a series of new drugs discovered in recent years with these factors in common: they are based on genetic and biochemical science; they are very effective for limited groups of patients selected on the basis of genetic characteristics and/or protein expression; they offer long term relief or cure in many cases; and their cost ranges from $50,000 to as much as $500,000 per patient.
Advances in artificial intelligence applications for healthcare help payers predict more accurately which patients will benefit from which treatments/interventions. This makes the silver (or platinum) bullets more accurate but does not reduce their cost. AI promises to reduce costs by automating professional work and increasing accuracy in specific areas of medicine such as pathology, radiology, dermatology, and diagnosis generally.
Critics of the pharmaceutical industry observed that drugs have been one of the main drivers of healthcare cost increases in recent years, mainly due to the introduction of new very-high-cost therapies and in some cases aggressive price increases for established drugs (e.g., epi pens). The pharma CEOs responded that they are innovating powerful therapies that cure or control fatal diseases; the lifetime savings resulting from a cure justify a steep one-time price; patients benefit tremendously from the 90% of U.S. prescriptions that are relatively cheap generic drugs previously invented by pharma companies; pharma manufacturers receive only 60% of drug spending because the supply chain swallows 40% of the U.S. drug dollar and drives most of the overall increase in drug costs; and rewards for innovation need to be powerful to keep cures coming. From all this it’s clear that high-cost therapies will continue to arrive and present big cost challenges to plan sponsors and employees.
What does all this mean for entrepreneurs? Ultra-high-cost therapies mean that employees need health insurance more than ever. And options other than employer sponsored insurance are fewer and more expensive with an uncertain future. The Trump administration and Congressional Republicans continue to weaken the provisions of Obamacare that underpin universal healthcare: e.g., Medicaid expansion, the individual mandate, co-pay subsidies for the poorest exchange participants. This has driven big premium increases and reduced the number of products available for individuals to buy on the exchanges. Costs for employer sponsored plans are reasonably under control, partly because the well established trend to increased employee skin in the game has demonstrated success controlling costs. This is an opportunity for employers: if you can offer a good health plan, it is a powerful recruiting/retention tool.
New approaches to the drug benefit portion of health plans are another opportunity. The pharma CEOs point out that the middlemen are getting too much of the drug dollar and absorbing manufacturer coupons and rebates that are intended to help patients with insufficient insurance benefits gain access to high cost drugs. This is an arcane space where professional help is needed. It appears that new approaches to pharmacy benefits emphasizing mail order pharmacies and coupon targeting programs can drive lower costs.
Diane Holder, CEO of UPMC’s health plan, reminded us that behavior change is the most powerful lever for health cost reduction, and mobile technologies offer new and effective behavior change tools. Elimination of poor diet, inactivity, and smoking would reduce major heart diseases, stroke, and diabetes by 80% and cancer 40%. About one-third of the total benefit comes from smoking cessation alone. Effective approaches to behavior change based on smart phone technology and coaching of both physicians and patients have been demonstrated. As Ms. Holder put it, “We know what to do, we just don’t use what we know. A smartphone makes better choices more likely for many.” Behavior change programs enable employers to both control costs and improve employee health, particularly for long-term employees.
Next year will be a challenge in health care; that should not be a surprise. But opportunity beckons as well. Doctors have new weapons and are able to use them more precisely; employers and health plans can use AI to target interventions and new drug contracting approaches to control costs; and behavioral change, the mother of all therapies, is gaining traction with tools built on mobile devices.
*All the statistics I quote pertain to the U.S. healthcare.
First posted @ blogs.forbes.com/toddhixon on December 20, 2017.