This piece by Allan L. Shaw was originally published in Life Science Leader.
With over $3 trillion in annual healthcare spending, a relatively young population, and shorter life expectancies than other western nations, one would think there would be vast opportunities for the U.S. healthcare industry to rein in costs, weed out inefficiency, and improve outcomes. Instead of yielding to “regression toward the mean,” however, the highest global per capita healthcare machine marches to 20 percent of total GDP.
Unfortunately, reform is much easier said than done considering the number of factors and stakeholders that make up our complicated and varied healthcare landscape. The various operating segments within the health sector have traditionally made decisions according to their own business priorities, a silo mentality which propagates vast wastefulness and poor care coordination. This systemic misalignment is further compounded by stakeholders who are often focused on short-term cost and profit as opposed to outcomes (system value). The lack of correlation (accountability) between spending and outcomes in the face of global cost containment initiatives reflects the imperative to change the economic/ reimbursement model and shift emphasis from quantity to quality. This paradigm shift, which has already been bought into by Medicare, Medicaid, and commercial ACOs (accountable care organizations) will require openness to new forms of business harmonization and alignment of the various stakeholder perspectives to coexist and, more importantly, ensure a successful transition to a value-based reimbursement system.
In the backdrop of this healthcare industry renaissance, U.S. drug spending experienced the highest level of growth in nearly 15 years, which was driven by new and exciting specialty drugs in therapeutic areas such as hepatitis C, oncology, and MS (e.g., Solvadi/ Harvoni, Keytruda, Yervoy/Opdivo, Tecfidera). Specialty medicines have become a lightning rod for drug pricing, representing a growing one-third of total drug spend. This generates fear that the cost of these specialty drugs will break healthcare budgets and make these drugs the poster children for curbing healthcare costs.
Additionally, the growing cost of specialty medicines is sparking a marketing and policy battle between the pharmaceutical industry and healthcare plans that cover those drugs. There is an increased focus on pharmacoeconomics (used by purchasers in deciding which drugs to cover) as well as on price as a key component of a drug’s expected health benefit. This price emphasis has exposed significant structural misalignment in the healthcare ecosystem that, if not addressed, will not only impede stakeholder alignment but also will marginalize the importance of outcomes, particularly in chronic care settings.
THE NEED FOR A FOCUS ON CHRONIC DISEASES
The healthcare system’s approach to chronic disease epitomizes all that is wrong with the current system and highlights the need for structural change in disease and patient management among stakeholders. Given that chronic conditions represent 86 percent of total healthcare spend and that approximately 30 percent of patients have multiple chronic conditions, there must be a shift toward chronic care and away from acute treatment. This also reflects the overriding need for a holistic, outcomes-driven strategy to manage chronic disease.
The recent Sovaldi/Harvoni pricing debate (originally listed for $84K before decreasing in price by nearly 50 percent due to competitive pressure from an arguably a less-effective product) highlights this chronic disease schism. Sovaldi has led a revolution in the oral treatment of hep C and revealed the significant lack of alignment on a number of fundamental points impacting optimal treatment for chronic diseases. Perhaps the most salient revelation is the fundamental disconnect with employee-provided healthcare benefits.
Managed care underwrites risk that generally correlates with employment tenure patterns (e.g., three to five years). Unfortunately, these time horizons are completely disjointed from chronic illness, reflecting the inherent incompatibility with managed care’s fiscal objectives and the need to provide optimal patient care, or in the case of hep C, a cure for a debilitating chronic disease. For example, why would managed care want to pay for Solvadi to cure a patient, thereby avoiding a liver transplant in 20 years and saving millions of dollars, when those benefits will likely not accrue to them? Given that insurance companies don’t want to pay more money, managed care might argue that it is in its interests to let Medicare pay for the expensive innovative treatment after patients turn 65. From a purely business perspective, it is easy to understand why managed care organizations are taking on characteristics of our government and simply kicking the can. This dynamic underscores the concerns that the healthcare system, as presently configured, will not be able to support widespread access to innovative medicines that improve outcomes.
It is ironic that a longstanding fringe benefit such as medical insurance could actually serve as an antithesis to an optimal patient care system focused on outcomes and system savings. This disconnect requires structural reform to facilitate a homogeneous risk pool to align cost-effective patient outcomes with financial incentives (e.g., risk sharing) that benefit all stakeholders. In my view, employee health benefits as we know them will ultimately go the way of the dinosaur, supplanted by the healthcare exchanges, very much akin to our migration from defined benefit plans to defined contribution plans. It should be noted that the Affordable Care Act (ACA) foresaw this inevitability and has provided employers with incentives to facilitate this migration. Furthermore, this evolution also would alleviate ongoing changes in insurance designs and the consequential fragmentation of care patterns that can often disrupt medication adherence and put patients at risk.
ACCOUNTABILITY HAS TO INCREASE
Indeed, behaviors within our current health system must change to ensure that outcomes really matter. Perhaps with structural reform, pharmacy benefit managers (PBMs) will switch from focusing on minimizing current period costs to emphasizing outcomes and enabling overall healthcare system savings. Until such changes are implemented, optimal patient access to innovative products for other chronic indications will be challenging due to the lack of accountability concerning medical spending and health outcomes. For example, with PCSK9 inhibitor therapies that are designed to reduce cholesterol, the jury is still out on their cost-effectiveness since their value will ultimately depend on their ability to fulfill their promise of lowering mortality and/or clinical cardiac events in large scale trials. These studies will not only illustrate the cost-effectiveness of innovative therapies like PCSK9, but they also will help maximize the commercial value of these products, facilitate patient access to innovative medicines, and foster alignment among stakeholders.
Unfortunately, putting drug costs into context will require many things such as:
- Capturing and measuring outcome data to understand its clinical and economic impact. This is fundamental to demonstrating and enabling risk sharing, particularly in an environment where the stakes are high and there is a lack of trust.
- There will be an ongoing need to measure patient outcomes after a drug receives FDA approval to quantify its pharmacoeconomic impact on the healthcare system.
- More collaboration and partnerships will be needed to facilitate access to patient data and evidence that connects drug intervention to cost-effective outcomes.
- Establishing objective, standard definitions and quality measures that drive value. For instance, I do not believe a standard definition for quality exists.
- Patient rehospitalization rates provide a good example of a quality measure, particularly given the high level of readmittance (e.g., 20 percent readmitted within 30 days, and 60 percent are readmitted within 60 days). Simply put, demonstrating a reduction in rehospitalization would highlight a drug’s value while eliminating wasteful healthcare spending; for example, ACA reforms already include penalties for heart failure patients who are readmitted for heart failure to the hospital within 30 days of discharge.
- Improving patient compliance by establishing support programs and optimizing administration. Patient noncompliance diminishes the value of biopharmaceutical products. It also reflects a growing concern that drug development doesn’t adequately address patient needs and medication adherence outside of the clinic, underscoring the call for real-world outcome data.
There is no denying it — change is inevitable and must be embraced. Optimal patient outcomes must be the overarching goal as we seek compromise and alignment with stakeholders. This shared vision is a prerequisite to optimizing patient access and improving the quality of care while reducing overall system costs, irrespective of whether it is an acute or chronic disease.
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Allan L. Shaw is a Senior Biopharmaceutical Executive / Chief Financial Officer: Currently member of Akari Therapeutics’ board of directors and serves as chairman of the audit committee as well as an independent board member of VIVUS, recently managing director – life science practice leader for Alvarez & Marsal’s Healthcare Industry Group and formerly CFO of Serono, possessing more than 20 years of corporate governance and executive/financial management experience and responsible for more than $ 4 billion of public & private financings (including an IPO) and numerous business development transactions.