advances in health care

review the Milken Institute’s 2014 presentation, Healthcare Delivery in the 21st Century. In this video, a panel of experts discusses 21st century advances in health care delivery, and how the delivery can enhance the quality of life for patients and their families.

identify specific examples of 21st century advances in health care delivery and assess ways in which these impact your strategic plan.

HEALTH CARE DELIVERY IN THE 21ST CENTURY

Richard Merkin :Good afternoon. We have a great group to discuss Health Care Delivery in the 21st Century. We have representatives on government, academia, venture capital and industry.

Medicine in the 21st century will be radically different than it was in the 20th century. We may not know what it will look like, but there is certainty that change will occur. There will be a converging of technology. The world will be different. The science will be different. The payers will be different. It is somewhat Darwinian, those who prepare for the future will survive and those who were blinded by preconceptions will fail to adapt to these new circumstances. Frequently, inertia both intellectual and emotional tends to trap people into antiquated ways of thinking even though circumstances radically change. Doing what others do and even doing it better is not going to get us there. We will have to in today innovate and our distinguished panel today will discuss many of the ways that innovation will occur.

First, we are going to have everyone introduce themselves. Sue, why do not you start?

 

Sue Siegel

Sure. Good afternoon, it is great to be here. My name is Sue Siegel and I am CEO of GE Ventures and Healthymagination.

 

Annie Lamont

Annie Lamont, Managing Partner of Oak Investment Partners and in charge of the healthcare and fintech group.

 

Larry Jameson

My name is Larry Jameson. I am a doctor and a scientist. I oversee the healthcare system in the medical school at the University of Pennsylvania.

 

Jared Bernstein

I am an economist and a Senior Fellow at the Center on Budget and Policy Priorities in Washington D.C.

 

Peter Bach

I am Peter Bach. I am a physician and I run the Health Policy Center of Memorial Sloan Kettering Cancer Center.

 

Richard Merkin

Okay. Let us get started. Annie, what are VC’s investing and that it will transform healthcare? And before you start, with transformation, does that mean better healthcare for those that can afford it? Or will people have to choose between doing what they know is right for their longterm health and putting food on the table for their family?

Annie Lamont

Why do we not deal with that, and the latter question last week and start with what we are investing in? Slide 26 maybe put up. We can talk about what the VC world investing in and whether it is really transformative or not. Some of this is and some of this is not.

So, there was two billion dollars in 2013 in slide 24. Two billion dollars last year invested in digital health. So, not biotech, not life sciences, not simply devices but digital health, and these were in these six areas principally. Electronic health records, big data, digital medical devices, wearables, population and health management, and consumer engagement. And what is interesting about this is I think four of these six areas are consumer oriented, and you might ask, “Could a healthcare consumers yet or consumers paying for healthcare?” Can you put up slide 30? Okay, that is not the slide. I am looking for the video. Can you run that? All right, we will just keep talking until they find it.

So, I think the real question is, “Who is paying in healthcare?” And when you think about who the real customers are and there are payers, providers, pharma, employers, but they are not consumers yet. And so, when we think about healthcare, I mean we think about investing in and our sort of motto is, “We make money by saving money.” And I think that is really where we have to be in the next decade or two in healthcare. Because we have got 800 billion dollars of waste in the system, I mean this is the meaning to your question. This is not a matter of depriving. Okay, now we have got our video.

Female Speaker

There are no prices on anything here.

Male Speaker

Oh, believe me, some of it is pretty spendy. Whoa! That has really gone up?

Female Speaker

Stop. I do not need both, just one or the other and it depends on the price.

Male Speaker

Oh! That is called shopping. We do not do that here. Thank you for coming in. Your bill, your version will be mailed to you in 30 days. Good luck trying to make some sense of it.

Annie Lamont

All right, so that is the world we all live in, right? I mean it is kind of amazing. You do not even think about understanding prices. So, when we think about investing, it is actually providing solutions to consumers but through employers or somebody who is actually going to pay for the solution and that I think is an example. There are really two parts of consumers when I am thinking healthcare right now.

First, you actually have healthcare.org, public exchanges, it is actually consumers. You are actually for the first time learning how to intelligently by healthcare. Benefit Focus, one of our company’s largest exchange. They actually have put 22 million people through employers and payers on healthcare exchanges, private exchanges effectively this January. And that is a real consumers and because you are actually given an essentially defined contribution amount of money and you know you are buying your insurance. So that I would call the first act.

The second act of being a consumer is understanding what does something cost you in the healthcare system and what are you getting for it? What is the quality? They do not have just the quality but you know, location? I mean there are lots of considerations when looking for value in healthcare and we do not have it yet. We are investing on what they call cast leg which went public last quarter. And what they are doing is through employers of B to B to C model is providing a website that effectively tells you where you are in your deductable. If you are at a soccer field on a Saturday and your child has broken their leg, or you think they might have, you look at the mobile application and you would say, “Gosh! I could go two miles for the local emergency room and it would cost $3,000 of which I am going to pay a thousand, or I could go to this clinic that is half a mile away. I would pay $200 and they have an X-ray equipment, and they are rated, you know have a four star rating.”

I mean that is the healthcare world that we are beginning to live in, and I think it is going to absolutely transform how we think about it.

 

Richard Merkin

So, is that healthcare for the more sophisticated consumer? If you are an unsophisticated consumer, and you have an issue, and your deductable is so high, you have to choose whether to follow your doctor’s instructions or not. And you might not be able to afford that deductable. So, I guess I have to two questions for you.

One, if you have some symptom and your asked to get an MRI, and you are not sophisticated enough to know if you need it or not and you would rather spend the money doing something else. Is that really healthcare, and is a healthcare a right or a privilege?

 

Sue Siegel

You get all the easy questions.

 

Annie Lamont

Yeah. So, I mean, I think it is very privileged. I think it is a combination. I think it is a right, and I also think they are different gradations. But I also think it is not just about consumers and it is also how we organize the healthcare system is the most important thing we can do. It is a lining incentives, and if you look at Kaiser, Intermountain, Geisinger, the most successful models from a quality perspective are also the lowest cost models in America. And so, it is really about integrated care, tightly integrating care, coordination of care. It is not about this particular surgeon is rated five star surgeon. It is really about the entire process of healthcare.

And if you think about the ’80s, I mean the one thing that actually worked, I think having some sort of gatekeeper and a system which cares about you as an individual and is following you through the system. It is ultimately going to be the only way, because obviously, it is a consumable that we can only have so much information on and you really need an educated system which are aligned and incented to keep you healthy. That is really the only way that we are going to be able treat people, care for people at the right cost.

Richard Merkin

Peter, as both a doctor and a spouse of a patient, you have a unique vantage point. You have been an outspoken critique of high drug prices, and I think you mentioned that the only factor that dictates a company’s prices is corporate –. Can you discuss this?

Peter Bach

Sure. Well thanks for asking. I will take a stance on this also. I do not think healthcare is a right. Unfortunately, it is currently a privilege and that is partially a product of high unit prices and high coinsurance for a lot of patients. So, even if we think it should be something that as a wealthy society we provide to all people. We do not currently so. Oh yikes! Sorry, we will get a slide up here, 27 please.

Great! So, I have actually been focused on drug prices. And a few years ago, I wrote a piece that this is an updated graph from arguing essentially that this system was rigged. And I did not mean that in a contentious way, just that we had a regulatory structure that will essentially allow new products coming on the market to price base really on what they felt was safe, as opposed to sort of garnering headlines in USA Today for critique. And what is shown in this graph, this is adjusted in constant dollars from the beginning of the Medicare program on the X axis, is every new drug for cancer introduced and approved by the FDA.

Shown on the Y axis, and every year I have to rescale this. Of course I have to extend the X axis. I have to extend the Y axis much more. But shown is the monthly price of each drug. And what you can see here is that the median cost of drugs is rising very rapidly, much faster than the rate of medical inflation overall. And this is heavy, we are heading to an unsustainable system, things that cannot go on forever and would not. But the question is really, “What are we going to do that is going to transform this?” And I would take the view, and I do not think anyone will oppose me on this. That the incremental cost rises here exceed the incremental value rises. In other words, we are at diminishing returns or we are maybe on the flat part of the curve. No matter how you measure value. No matter what the extent of it is, and there is no drug here for hepatitis C on this graph. We recently seen the introduction of a drug that if you do the back of the envelope math for hep C, and you go to the population that is affected, and you calculate based on the sticker price which is not totally appropriate. But if you did, right about 250 billion dollars for that drug if we get it to everybody.

 

Richard Merkin

And that is just in the United States?

 

Peter Bach

That is just in the U.S. The good news is, our system is so bad at delivering care, that probably only a small fraction of patients will get those drug that was meant to be snide by the way. So we will not spend that much, but this is sort of an example where we are going into this pricing into a market that has no lens around value, and so prices are just pulled out of thin air, very high, really to the point that they filter into premiums and patient’s bank accounts. Most patients with cancer for example are in the Medicare program. Most of them are on fixed incomes. The piece we had where we talked about another drug, Zaltrap. A few years ago, we made the point that a month of the coinsurance and a month of that therapy was equal to the median monthly income of the median beneficiary in Medicare. Meaning, it would be about 2,200 bucks out-of-pocket for the patient to get the drug. That was the take home pay of the median person in Medicare that year. So that is it, there are no other treatments, no bus fare, no nothing.

So, that is the reason that healthcare is often called the number two cause of bankruptcy. That is the reason we have weird structures around part D and these bronze and silver plans, and the exchanges, because the costs are so high that the coinsurance is a natural consequence of it.

You can argue that we should only have negative rights by the government which means why a reason healthcare is a right, but frankly it is not a right because we do not act like it is a right, and it is clearly a privilege of the few.

 

Richard Merkin

Can you discuss orphan drugs and explain to the audience how compensation to the pharmaceutical companies and orphan drugs works.

 

Peter Bach

Without talking about the details, there are actually quite a few categories of compounds, drugs, and devices that deserve special than earn special treatment. The same as through for providers, you build hospitals in certain places, you get more payment. You as a doctor practice in different payment. So, there is a whole scan of different kinds of incentive structures, all probably well meaning, but orphan drugs have both and FDA and a reimbursement kind of safe harbor where for arguments sake, does not take as much data necessarily. It does not take the same sort of population size. It does not have to pass the same standard of safety and efficacy necessary, safety usually, yes, but efficacy to get approved by the FDA. And that well meaning construct has benefited people. It has benefited patients but has also been taken to an extreme. So, we have compounds that are for metabolic deficiencies which are owned by companies that have multibillion dollar market caps and things like that because the prices have no limit. We have a drug out there that is half a million bucks a year for example in that area.

Richard Merkin

And how many people does that help?

Peter Bach

That is a great question. I do not have the number off the top of my head. It is a small number. It actually fits as an orphan disease, but we are seeing a trend towards segmentation where we use to think of as large population into sizes small enough to meet the orphan categories. So, we are subsegmenting cancer, that is a good thing into these different genomic alterations within organ types, that is again a good thing, but it is being used to some extent as a path for more easy approval. And that may or may not be good. We will have to see how that sort of shakes out.

Richard Merkin

Jared, as an economist we have had two views so far on cost structures, do you have any view from the Science?

Jared Bernstein

Not really. Sure, a couple of things come to mind vis-à-vis what we have heard so far that I think are interesting and let us see if you agree. First of all listening to Sue talk about some of the areas of investment and savings, I was thinking about where those cost savings, who they were down to, who they helped and who they hurt? So, to what extent is a physician incented in our current system to engage in practices like electronic records in such a way that could perhaps save cost for patients, but lower their income. So I am interested in hearing you speak about some of the poorly aligned incentives there and then vis-à-vis the very important information that was just shared, Peter, would you go to slide 22 please? Everything you just heard about drug causes is absolutely the case and that was just one area. You would be hard pressed to find any area of illness that did not have that characteristic yet. As it is well-known widely accepted I do not think this is at all controversial to members of the panel.

The rate at which healthcare spending has increased in recent years has slowed very markedly in ways that are critically important for the economy as a whole because we are talking about 17%, 18% of GDP for the fiscal budget. Because for all the noise we make about the discretionary spending and aspects of the budget which is where Congress has generally cut, everyone knows the real pressures in the out years come from increases it in healthcare spending matched with demographics. So if in fact we have really made some lasting progress against this seemingly inexorable increase in healthcare spending, that is very, very important creating more fiscal oxygen and by the way in my view underscoring some of what you have heard and what will hear from the panel in terms of the ways in which delivery changes have helped bend that curve. But they are at risk and so this slide shows probably the most important single aggregate measure of healthcare spending and its impact on the economy, the excess cost burden which is the number of percentage points that healthcare spending is rising above GDP.

And every time that happens the share of the economy just by arithmetic that we devote to healthcare goes up.

Well, I remember back in the mid-90s when shift to manage care really took that trend down and a lot of people were celebrating, myself as well. By the way the impact on the economy was dramatic, job growth accelerated in ways we really have not seen since in those small parts due to the deceleration and cost phase by employers on the healthcare side. But as you can see for all the WooHoo there was a big whoops following that, that clearly did not last at all and I suspect members of the audience know that shift PPOs and HMOs turned out to be an interception of not a slope shift.

So the question now is, are we in a WooHoo moment or a whoops moment. And there are some recent data out of various sources suggesting that once again prices are accelerating. But they are not accelerating to the extent that will get — the thinking is that we have not made some lasting gains.

And I will stop here, and tie it back to what we are talking about here, the ideology; the origin of those gains seems to come from two factors. One is the recession, it is a cyclical component as the recession ends, the demand for healthcare grows. But a lot of the staff is inelastically demanded especially in Medicare and we have seen cost savings in Medicare.

The second seems to be with delivery changes and I am sure we will talk more about that as the panel goes on, but I do not think we can effectively maintain the gains that we have made on the excess cost burden without digging more deeply into the kinds of ideas we have begun to talk about.

 

Richard Merkin

So for anybody on the panel and as an economist you probably have particular interest in this. When something becomes, let us say less invasive. It seems that more if it is done. So at one time gallbladder surgery was a major surgery and a certain amount was done. And then someone figured out how to do it laparoscopically. And they said this is terrific because now it is going to be less expensive. The result of course is more gallbladders were done. And I think that happens with many procedures. Now you have minimum base of surgery and it just means that more of it is done.

So, even though the time is less maybe the anesthesia cost is less because of shorter period of time in the operating room. It seems overall the cost pressures continue to increase. And I was wondering if anybody had any comments on that.

 

Jared Bernstein

I mean I think that one of the thing, at least where I go with that is you know the idea you hear a lot and the president himself talks about this, the idea that we definitely have a system that incentivizes quantity over quality. And I think that the way to think about what you said is a tiny bit of arithmetic. For me the key way to think about this is to think of price times quantity which is of course the aggregate of what we consume in healthcare. So price times quantity divided by quality. And every one of those factors will impinge on the future here.

Now, if by dent of lowering the price you increase the quantity that does not help you. If you increase the quality, that does help you. And so I think in the case of what you are suggesting where I see some delivery advances going particularly having to do with information from consumers with bundling, with getting away from payments for fee for service with more salaried kinds of things, with medical homes, all of these delivery mechanisms to my view kind of work against the incentives in your scenario because those are incentives that have bedeviled the system here to four.

Sue Siegel

Can I just ask a question, how do you define quality as your denominator and what is the universal healthcare quality metric because that seems to be one of the conundrums in healthcare. There is not really.

Richard Merkin

So I will answer that.

Sue Siegel

What are those then? Oh please.

Richard Merkin

Because I was going to ask them.

Jared Bernstein

I like the change in real roles.

Richard Merkin

In Africa, it is sometimes equivalent to mortality.

Male

I am sorry?

Richard Merkin

In Africa, so herein Africa its mortality if you live then you have good quality. In Europe it could be morbidity if you do not have too many complications you have good quality. In Canada, I have heard it is be said that it is motility if you can walk around afterwards and in the United States particularly in California it is how many threads in your hospital gown, do you have ballet parking, you know that is quality particularly in Beverly Hills maybe Manhattan.

I have also heard we call the James Brown effect in California everybody just wants to feel good. So that is the definition of quality. But I think that is a great question because I do not think anybody is standardized what quality is.

Peter Bach

I think that is true if I can jump in and the issue I think that was if you will have a schematic value, right? That is the new term in healthcare. It is one of I think we are all worried about we will start getting stock on things without any concrete definition. But we have had such a hard time just wrestling the piece and cues to the ground on this that the move towards value although it makes every sense in the world from a purchaser standpoint, from an improving health standpoint, from a basic economic standpoint it will be played by this challenges and I get the implication, the sort of lightweight metrics that you are talking about and that I actually will put forward the real metric that I think is extremely lightweight which is weight times and you are absolutely right that this is the question and I work at the hospital, we measure weight times and this is something that the hospitals and systems being measured against and it is really sort of a dumb way of thinking about how to use an extremely expensive resource is for surge capacity because that essentially dictates where times as, lines get longer, there are more people waiting, that is how the Math works.

We need to move along ways towards understanding value and I think the issue is and you know Castle it is a great example of transparency around pricing and there is a real effort with the star system and things like that to get something about quality in there. Like, I could go to this orthopedist or that orthopedist, but we do have this other tension and just further money the waters which is at as you start to post things like pricing and crude measures of value, you can have commoditization before you are ready. We are pretty sophisticated on drugs, brand versus generic. We are kind of sophisticated on devices certainly on disposables but you know when we get to the delivery of healthcare, commoditizing doctors services, surgical skills, and things like that, that is going to be really hard just the Math around that again measuring. For example, the quality of surgical care for a particular procedure requires denominators we do not have for many doctors. Not because we do not have the data, it is that they do not do enough.

 

Jared Bernstein

Just a very quick point because there are people we have not heard from them. So very quickly, I think that is true but it is very narrowly and detailed and nuance, then that is where ultimately I am sure we have to go. But is it not there a lot of low hanging fruit in the quality world? I mean, is it not widely understood that because of the incentives in the system, for example, we do tons of back surgeries that are just wasteful, induced pregnancies, I think there are heart treatments that I think are widely understood to be ineffective, inefficient and do not lead to better health outcomes. So at least at the low hanging fruit level, I think the identifying quality maybe is not as hard as all that.

 

Richard Merkin

Well that is a perfect transition, we are going to talk about Academic Medical Centers. Larry is an academic medical center, an anachronism in today’s world. You are charged with training our future doctors and you are charged with doing research and yet the payers do not want to pay for that. How in today’s world do you exist and you are the ones that are measuring quality and doing a lot of the research that will solve some of the problems that we are talking about today. So maybe you can answer that.

Larry Jameson

Sure. I will start out by saying that I think we are better at innovation than implementation, and I guess to some of these points. One of the things we are trying to do now is to actually innovate around implementation. And I want to restate some of the basic statistics that you have seen out here. Healthcare expenditures in the US are $3 trillion. My calculator does not go out that far. So as a scientist, you know, I can convert this into scientific notation. One comparison for me is the Human Genome Project. It takes on the Human Genome which is three billion basis, small by comparison to healthcare expenditures.

What we are trying to think about is, “How do we bend this healthcare cost curve?” because any effect even small will provide a huge amount of resources for the businesses and finances of the United States.

One of the projects we have been working on is the convergence of technology for chronic disease management with behavioral economics, and then ultimately to work in the policy arena so that we can align the incentives. I will give you a couple of examples. Most of our disease growth now is chronic disease: obesity, diabetes, high blood pressure, CPAP treatment for sleep apnea. You can go on and on. Unfortunately, there are a lot of tools that we can use in the technology sector that can measure these events outside the hospital.

Most patients will see a doctor or a nurse once every four to six months. That is one hour. They are back in the home environment for 5,000. What are we doing with those 5,000 hours? We need to make them productive to manage these chronic diseases. The linkage is between the tools to monitor, did you take your pill or not, did you measure your blood pressure and what was it, did you measure your glucose and what was that? All that information can be sent in to databases now and aggregated very inexpensively. The really crucial question is, “How do you incentivize the patient together with low cost health assistance to be compliant with their medications?”

Now believe it or not, most patients who have had a heart attack adhere to their drugs to lower cholesterol at a rate of around 50%. It does not make any sense because most chronic diseases do not hurt until you come back in with your next heart attack or you have had a stroke as a complication of diabetes. It is an essential question to develop strategies to change healthcare behavior. The group at PAN and Academic Medical Center has a collaboration between the doctors, the warden school where they have behavioral economist, and the biomedical and ethics groups where they are trying to experiment with lotteries where patients can receive a lottery that can either be donated to charity or perhaps go onto their bank account and the goal is not to pay the patients for managing their own disease, it is to find out which maneuvers incentivize behaviors.

How often should you interact with them? How big should the effect be? Should the lottery go to a family member instead of the patient, someone who can influence their behavior? Those kinds of experiments, I think, are the kinds of activities that academic medical centers can do that will provide a proof of principle that might be expanded more broadly.

 

Richard Merkin

Are you in jeopardy having a community hospital compete against you because in Aetna or United although going to an academic medical center is terrific for tertiary care but hernia gallbladder, you have to charge significantly more to maintain physical integrity? How do you work with that?

 

Larry Jameson

Most academic medical centers are now trying to develop a network either formally or informally so that patients can be best directed to the right level of care. For primary care and relatively straightforward medical programs, you want to be in the lowest cost easiest to access environment. But when you are coming in for your second radiation therapy or for reconstruction of a hip transplant that needs to be repaired, at that point, you may need to go into a higher cost environment with a surgeon who has got a lot of experience, minimal variation and outcomes, a lot of data about what those outcomes look like. And I think the transparency that we have heard about can be very helpful with that to help direct, not only the patients who rarely have the sophistication to maneuver through the healthcare system but rather their healthcare providers to try to direct them to the right level of care.

 

Richard Merkin

So, when one of the male surgery is needed, do you acquire local hospitals that are lower cost?

 

Larry Jameson

Yes. And I think through castlight and similar activities, there will be transparency about what the costs are in these different environments as well as what some of the outcomes are. And for many patients, the access will be easier in those environments because the wait time to get in will be more rapid and they can make a decision about, do I want to go to the sooner appointment where I can get equivalent care or wait to go into the tertiary environment which is by and large not the right place for relatively straightforward care.

 

Richard Merkin

Sue, last but not the least. Technology is enabling new models and healthcare, and I know you are big on partnerships. How does GE and how do you look at the new technologies, the new partnerships?

 

Sue Siegel

The world of SMAC technology, really looking at software and mobile and analytics and cloud really have converged and those had become absolutely necessary in this new ecosystem. We fundamentally believe that. Annie talked a little bit about what in fact the investing thesis are around those. In terms of community, in terms of partnerships, we do not fundamentally believe that anyone can do this by themselves. There is just not a possibility. But what we were seeing and GE has tried to do this is the following which is communities can actually self-serve. And when you think about the employer role in this and I am going to weave this together in a second, it goes like this.

Employers essentially pay for almost 80% of the healthcare bill here in the US, right. Jeff Immelt, our Chairman and CEO back in 2010, when all of these were starting to happen around Obama Care, if you like, was saying, “Why do we, as employers, have to wait for anybody to tell us how to go about doing this? And why do not we figure out how to work with local communities to see if we can in fact affect change?” And so what he invited was to go to Cincinnati, for example, where we have a big footprint and invited other large self-insured employers and said, “In essence, if the payers are in the room, and it is not really the insurance companies, right? It is the large self-insured employers or those that in fact, are paying the insurance companies to actually manage risk.

When you start to think about that, others will come. In fact, what ended up happening our providers came to the table, insurance companies came to the table, and this was the start of what we are calling our healthy cities program, but in essence, bringing together a self-assembly if you like articulating certain goals that, in fact, the community wants to embrace, and then figuring out how to sustain that. And what happened which was we were not quite expecting it because this is hard going as we know is that Cincinnati did a self-assemble and they have their health collaborative group that in fact continues to move this on. And there was lo and behold the following things that ended up occurring: pricing transparency due to connectivity that was agreed to amongst the 19 different hospital systems and other provider groups, the ability to really overtime put out what the true cost is for certain various provider groups, not all of them have done it yet, but they are working towards that.

In addition to that, they have adopted PCMHS, right, Patient Center Medical Homes, and that continuum of care model which has — just to give you a sense, there was almost zero of them in Cincinnati, and now there is about 300 or 400 of them which GE helped to get about 200 of them in place. And what that has done in terms of healthcare services delivery is that instead of having so many different specialists or different medical providers that really are desperate, you guys have experience these yourselves, right. You have got to figure out for yourself exactly what is going on in your medical care. If you have one actually trying to do that for you, it really helps in terms of the kind of care you receive.

Incorporated into all of these was really the notion of incorporating a lot of these technologies to bear and the ability for folks to get educated in that particular realm. And it has really helped. Some of the initial reports that we are getting in 2013, for example, there was $200 million in savings just an admissions and readmissions alone in a few of the hospitals. And RAND is working with us to really dig in to some of the real data overall in the City of Cincinnati.

But it gives you a little bit of a sense where community can actually impact how this works and you do not have to wait for major policy issues to actually occur. You can self-assemble. And it might sound like motherhood and apple pie, but we are doing this now in Erie, Pennsylvania and also in Louisville, Kentucky, hard going, we have just launched in Houston, hard going, but we have been amazed now in Erie and in Louisville how in fact the community wants to use this to become if you like one of the competitive cities to live in, in America, because now healthcare is becoming such a competitive issue for US that in fact, they want to be seen as a place to live and be able to be featured as a place to live and Cincinnati certainly have been working out towards that too.

 

Jared Bernstein

If you would put up slide 23 just to have a picture of what Sue was just talking about. I mean, this is a very striking trend in diminished readmissions relative to pretty long-term average there. Again, a lot of people look at these recent trends in cost savings and say well that must have something to do with the recession. It is hard to see to me why reduced readmissions would be obviously cyclical. I think it is probably more a function of what Sue was just talking about.

 

Annie Lamont

I think there is also a direct incentive or a penalty or a readmission.

 

Jared Bernstein

Right. No, I think that is what it is.

 

Annie Lamont

It is what it is.

 

Jared Bernstein

That is what it is driving it.

 

Annie Lamont

It was driving it.

 

Larry Jameson

I want to make Jared feel a lot more comfortable in his scan going forward because I think this trend is going to continue. I think I saw all the things that have just been said, but there has been a fundamental change in the profession of medicine. And it really began with the reports out of the Institute of Medicine on crossing the healthcare quality costs and the error is human.

The things that we measure now are in the hundreds. We look at our cardiac surgeons and we know how long their patients are in the hospital, how many complications they have had, and when there is variation, there is feedback to minimize that. Every operating room now has a protocol before you start the procedure. Is it standard of care, what is the role of everyone? We see length to stay dropping pretty much across the board, sometimes it is a new minimally invasive procedure. You save a lot of cost that way even though the quantity goes up. But I think the profession of medicine is now very focused on reducing unnecessary errors, reducing errors, and reducing unnecessary variation and care. And the incentives are beginning to press that even more. One of the things that we see happening in the Philadelphia market are experiments for some of the payers like you described, Sue?

Sue Siegel

Right.

Larry Jameson

If a patient is discharged from the hospital and readmitted, three or four years ago, the hospital receives reimbursement for the new admission actually at a very high level. And it is not good for the payer either. There is an incentive on both sides to prevent that readmission. We are starting to share the expense and share the games with the payers so that now services can be provided to manage patients outside of the hospital, it is win-win.

Sue Siegel

Can I just comment on that a second? One of the things that is starting to happen here and you refer to it is as the medical profession, but medicine is becoming an industry, right, business. And when you start to think about that from a business perspective, why cannot you treat health as such? All right, I know it is personal and I know it is emotional. But if you think about it and this was sort of an awakening for me and maybe many of you have come to this many moons ago. At GE, one of the things — we have a $3 billion healthcare bill every year and it was growing at double digit rate. That is not sustainable, right? And we all know the story of GM versus Toyota on how they want about the healthcare benefits and other benefits per employee and what happened overtime. We have climbed out of that but it took a long time.

For the sake of national competitives, when you look at the medical industry on how it is really becoming a business, the metrics become important. The way you go about treating those metrics become important. The business models associated to it, all of a sudden become like other industries. You are going to be applying all these various business models that we see in retail and putting them into medicine all of a sudden, because the consumer is going to fill it in our pockets. And because we are going to fill it in our pockets, we have to be able to make those decisions, so we are going to need that support system to allow us to understand what kind of medical decisions we are making. And so, more and more this whole notion of the digitization of medicine, the industrialization of medicine, the retailization of medicine, it is the business of medicine. And it is becoming one where like it or not, it is the reality.

 

Richard Merkin

For those in the hospital industry, there are a few things that will lower readmissions. One, a 400-bed hospital has more readmissions than a smaller hospital. Patients that have English as a second language have more readmissions and things that are common sense. And when a primary care physician is separate from the hospital, and the patient feels their primary care doctor is at the hospital, there are more readmissions.

Something is simple as that. Most of the staff is simply blocking and tackling, it is not particularly complicated but the incentives are cross-purposes in healthcare as you pointed out. So much of this is culture. A few years ago, they measured Dade County, Florida and an average 21 days and the last month in a person’s life was in the ICU. In Minnesota and San Francisco, it was three days. If you go to Dade County, Florida and you could provide a new process then you might be able to lower from 21 days down to 16 days, and they would say, “Is this not terrific? Look how well we have done.” But it is sort of like the fruit is so low hanging, it is actually on the floor that a cost, an MRI cost, does anybody know, have any feeling the difference between MRIs at the most expensive level and the lease expensive level?

 

Sue Siegel

It can range.

 

Male Speaker

It costs 20 fold.

 

Sue Siegel

Yeah.

 

Male Speaker

Twenty fold in some markets.

 

Richard Merkin

Okay, 20 fold. Someone could say, you know, I did this research and I lowered it 10%, so now it is only 18 fold. And there is a lot of clapping and there is a lot of collaboration between hospitals and inefficient medical groups and health plans. And people usually blame the health plans, but really, it is the employer as you pointed out. They are the ones that are being impacted.

 

Female Speaker

Open arms.

Richard Merkin

Open arms. Open arms. On one hand, I think that there is going to be more attention and costs are going to be lower. Number one, we had a recession, number two, it is so expensive, number three, the health plans are responding by holding the patient, the member, more responsible. And when they have to pay their own nickel, they are not going to buy as much. That is on one hand.

On the other hand, Annie, you are helping Sue with innovation and there is going to be more drugs, more everything in medicine, and it is going to help quality and it is going to help outcomes but not everybody in my view, not everybody is going to be able to afford it. Currently, I am going to ask about Obama Care. Currently, people are subsidized, so that is going to help for another couple of years, but what is going to happen after the subsidy disappears and I will open it up to anybody that wants to comment on it.

Jared Bernstein

Well first of all, I am not sure what you mean. I mean the subsidized premiums are part of Obama Care that are going to be there as long as there is Obama Care. Are you talking about the Medicaid expansion? I am not sure what you mean.

Annie Lamont

Yeah. And there are two parts there, right? One is, are the States going to be subsidized? And the subsidization of the states’ Medicaid program is going down. But I think individual subsidies will remain.

Jared Bernstein

Yes. And when they go down, the States’ subsidies go down from 100% to 90%. I mean it is going down but I still think it is a good deal for the States, but I am not a governor.

Richard Merkin

How many States embraced it?

Jared Bernstein

Let me see. Is it 27?

Annie Lamont

Twenty-seven, I think it is, yeah.

Jared Bernstein

Is that right? Something like that. And you know, it is not over.

Larry Jameson

It is over 50%.

Richard Merkin

Alexander Hamilton versus Jefferson.

Sue Siegel

Yeah, one commentary. Instead of Affordability Act, you might have named it Accessibility Act. Because when you think about what it really addressed and there is a lot of questions to this. I would not comment on all of the economics associated to it. But it was really about being able to get much more accessible care for everyone, right.

Richard Merkin

And are physicians accepting the compensation that they are receiving. Or they are saying, “We will not see these patients.”

 

Sue Siegel

Well that is a whole different question because physicians frankly now as we are learning, and in fact by 2020, are they not talking about 80% of those physicians will be hospital employed. And so the kind of compensation now is not down to the physician level, it is down to the entity level and you are starting to look at how they are in fact, making those decisions and being able to have the, if you would like, systems to be able to decide whether to take them on or not.

 

Richard Merkin

And why are hospitals, not why our hospitals embracing physicians, but why our physicians embracing hospitals?

 

Sue Siegel

Because they cannot compete.

 

Richard Merkin

There is not enough revenue in the system for them to be independent.

 

Annie Lamont

I think there is plenty —

 

Peter Bach

I do not think that explains the trend. I think there are several things. First of all, if you look at the — there is a huge secular effect, right. Younger — doctors have proclivity for being an employer-based model or in a staff model. We are seeing a huge migration towards a sort of I want to work for a big hospital. I want to be part of the system. I do not want to take weekend call, and you know, it hanged up my shingle. We also have this perversity in the system around drug reimbursement, this 340B Drug Discount Program which the Affordable Care Act extended to numerous hospitals, I think we are at 1,500 hospitals now that have access to these drug discounts. That creates an incentive for them to buy practices or otherwise affiliate. There are a couple of structures that are legal and then they can move drugs either outpatients drugs through contact pharmacies like Walgreens is the one that has got the most headlines or physician administer drugs like the drugs I tend to be interested in which are cancer drugs and things like that.

And when they move them through these doctors’ offices, they capture this huge difference with the reimbursement rate from Medicare or insurance companies like United and what they acquire which are mandatory discounts of 40% or 50%. They are buying up these practices left and right essentially as distribution channels. And regulators are nowhere insight worried about this. But that is causing unbelievable market for their patients far more than doctors not being able to compete. If we look at the Medicare data that was released a couple of weeks ago, these doctors were doing just fine.

Male Speaker

That is Brooklyn.

Larry Jameson

There are several reasons why few of them were in Florida. Several reasons why physicians want to come under these large umbrellas and we have touched a few of them. One is in rolling out electronic health records across the system. This is a very expensive undertaking for an individual practice. And most physicians in the US were still in solo practice, were very small groups. And to invest in the capital, the training can be $75,000 or $150,000 per practice. And if health systems can roll these out, there is that incentive to come under.

It does health not to have to run the business with medicine at the same time that you are practicing. If a large system of care can take care of that part, negotiate with the payers, take on the billing. There are multiple forces bringing people in. What I wanted to underscore is I think it is a healthy thing for healthcare, because we can put teams of people around the problems of patients much more readily when you do not have individual doctors, all trying to take care of different parts. So, if you have got an infectious disease specialist or pulmonary specialist, anesthesiologist, surgeon, all working in different business units, now they can come in together and you could really focus on how to deliver whatever is needed most effectively, and the doctors become sallaried.

And so there is not this independent driver to increase the number of procedures as part of the way they are trying to run their businesses. I think it is a healthy trend.

Jared Bernstein

I have a couple of observations/questions for fellow panelists on some points that just came up. You make the point, Larry, about the individual doctor in their office. I mean I actually have a dentist so I do not think has a computer system. I mean you talk to them and they write down your next appointment on a file card. And I think while the hospitals seem to be engaging in some of the network externalities that you really benefit from that are essential to moving forward as Annie and others have mentioned, I worry about the individual physicians and the small practices. I do not even really understand what incentive they have to do that other than maybe a patient crisis, “Gee, I would like to be able to do this by email.” instead of “You give me a file card.”

Is there something anyone can think of that would help crack that nut? Interestingly by the way, and the recovery act of all places, remember the recovery act, the stimulus act, there was a $50 billion program to incentivize electronic records, but I believe it was largely on the hospital side. I do not know that it reached out.

Sue Siegel

No, it went to the practices too and they had $44,000 a year.

 

Jared Bernstein

I guess part of my question, is there a role for government in helping to crack this nut? I do not know. Just secondly, so look, the prescription on the drug piece, what are your favorite solutions for this problem? Because it does seem to be — when I look at the delivery mechanism chain, we have been talking about the bundling, the incentives, the physicians, readmissions, I can totally get why those incentives work. I have not been able to figure out what helps in your area, so I wonder if you have thoughts about that.

 

Peter Bach

Sure. I think it is a hard problem to solve which means I will have a job for a while and which is, of course, my incentive. I mean I think bundling or shifting risk to the prescribing physician, if you do it right, creates an incentive for the doctor or prescribing entity to seek lower cost inputs, right, in the classic sense. If we had enough risk shift to people who had credibility in terms of the practice of medicine rather than the insurance companies which have always been sort of separated from that pretty effectively through PR and stuff. But if we had doc standing up and saying, “Okay, I can do this thing that is lower cost,” it does filter back up to the supply chain. And I have argued for a while that these prices are largely a fiction and most of these companies can sell into other countries for 50% discount, 60% discount and they are doing just fine. They are obviously making money or they would not do it, I mean except for a few rare things like Africa or Egypt, things like that.

That bundling works for this, if we have quality controls in place, I think that is one piece of it. On this doc thing being swallowed up by hospitals, we got to be cautious. I am looking at the national health expenditure slide here in front of me. I guess it is not up there, but it does not matter, it is going up in case we have not seen the slide, hospitals eke out more reimbursement per unit of service than doctors do and I work for a hospital, so it has been a full disclosure here. On the drug side, the average reimbursement for chemotherapy drug in the hospital is four to five times from private insurers as what it is from the doc office. Never Medicare fixes its rate.

Each time a doc pracs gets swallowed up, those unit costs go up many fold and that filters right back to insurers that filters right back to employers, that filters right back to me with base premiums. And so, you would have to show me that value by your equation goes up five times to normalize that numerator and denominator. That is not happening. And the truth is that many of these doctor practices being swallowed up are just sort of doing business as transformations, their paper transformations, the doc does not move, the patient panel does not change, they got a new logo, they do get the EMR absolutely. Now one is showing that that either saved costs or improves quality but so be it. And they are just business as usual and then they pass through this unbelievably higher reimbursement.

Richard Merkin

Most docs find electronic medical records makes in much less efficient. They can see fewer patients a day, they are not used to it and we have, I think, 2,000 licenses and we will give it to the doctors. They do not want it.

Peter Bach

I had a full head of hair before I got.

Annie Lamont

I think there is another program and when you think that HITECH Act actually inspired doctors into moving an implant model, there is affordable care act, but we have not even talked about what is going about with dual eligibles in terms of the state waiver program. They say the dual eligibles are the sickest of the sick, it is $300 billion of expenditures in the United States. They say they receive Medicare and Medicaid and they have been incredibly mismanaged because there is no caregiver. The doctor does not even know whether it is going to be reimbursed by Medicaid or Medicare and there is nobody watching these patients.

The Obama administration created these waiver programs that States have applied for: Illinois, Florida was the first, I mean Hawaii, California, it has gone across the country. So that Medicaid to each most are mostly winning these bids to manage these patients with sort of be that integrated system for them. And I think there is enormous opportunity in savings there as well as much better care for these people. I think that is actually we talk about inflation curve going down, I think that is actually another area that is going to be less spending, not more in the future.

Richard Merkin

We have a few more minutes would each panelists sort of summarize what they would like the audience to get out of this.

Sue Siegel

Well I think we need to think about healthcare as a business and really start applying just like in any other industry, the disciplines of business in a way that makes it much more competitive, much more open and one that does not have as many protections as currently exists in the healthcare ecosystem. And I mean I could go on for a long time about this but I will leave it with that.

Ann Lamont

Yeah, I think just reinforcing in 800 billion of ways. We know we can improve care and spend a lot less. I think we just got to keep putting pressure on the system because the stakeholders have not really transformed themselves for a very long time and you have got to keep pressure. I mean when was the last time you heard of your local hospital going out of business? You know, it does not happen. I actually do not other than academic medical centers, I am not a big believer and not for profit hospitals. They behave like for profits, I spend a lot of time with these people and they are not paying taxes.

I think keep the pressure on. It has been the most exciting time in terms of an investor and healthcare, tremendous innovation, lots of great actually technologists and innovators coming in this entrepreneurs in the area. It is fun.

 

Larry Jameson

Disruptive innovation is happening. It is happening in the technology sector. Our ability to do minimally invasive surgery to target drugs for particular mutations in cancers so that you minimize side effects are there, but the consequence of that is going to be more people wanting these things. The volume will be going up. I think we have to focus very sharply on implementation so that we do it cost effectively and we have to align the incentives with tweaks of the incentives and the reimbursement system, magic can happen. And it is the most challenging part because you have to go from the current state where everyone is driving towards the current incentives whether it is to admit people to the hospital or to do more procedures. But if we shift it, the system will change. And the workforce is coming along very quickly. While it may be true that some physicians are less efficient on new electronic health records, we are training a lot of people in medical school today who will be very comfortable with that. You take it forward, another 10 years, and I think we will have a lot of data to work with.

 

Jared Bernstein

Slide 20 shows that over the next 10 years according to the congressional budget office, the savings from the kinds of advances we have talked about today much from the delivery side, some of which maybe cyclically related to the recession reduce spending projections over the next decade by 1.2 trillion, so you can keep your calculator. And so, the point is, the punch line for me is that taking away these ideas, running with them, trying to figure out what works, what does not has the potential to create tremendous fiscal oxygen and economic benefits.

 

Peter Bach

That is great. I guess the caveat for me is the point of where I would have like to meet earlier so I will make it now is that when I look at these solutions and I think I showed the optimism of everyone else in this panel. We have to be very cautious about trying to change consumer behavior through economic or financial incentive. And the reason is that our experience in its decades and decades including randomized trials is that when we start doing things like making patients cost share, they do exactly what we do not desire them to do which is not improve their health.

Women stop taking Tamoxifen, the generic drug that has prevented more cancer deaths than any other drug we have and they stop taking it with minimal copays, they stop taking Gleevec. Women stop having mammograms when we added $10 copay in some Medicare and manage care plans about 12% to 15% of women. We cannot modulate our utilization for co-insurance without losing the primary purpose of healthcare which is improving health.

 

Richard Merkin

Great summary from everyone, thank you very much. It was my pleasure to

moderate.

 

 

 

 

REFERENCES

<section id=”citation” class=”clearfix”><h1>Cite This Media</h1><p>2016, The Milken Institute. <em></em></p></section><section id=”credits” class=”clearfix”><h1>Credits</h1><dl><dt>Course Subject Matter Expert:</dt><dd>Owen Borda</dd><dt>Interactive Design:</dt><dd>Patrick Lapinski</dd><dt>Course Instructional Design:</dt><dd>Elise Braden</dd><dt>Project Management:</dt><dd>Sue Cracraft</dd></dl></section>

 

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