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— Analysis —
To help sort out the Obama administration's rapid first steps toward healthcare overhaul and what they mean for industry strategists, The Deal turned to Hamilton Moses III, a neurologist turned consultant whose career has included several positions at Johns Hopkins University in Baltimore, including chief medical officer of its health system. He's also been chief of psychiatry for Partners HealthCare System Inc. in Boston, an adviser to the U.K. National Health Service, a medical and business professor and partner with Boston Consulting Group Inc. He now runs healthcare consultancy Alerion Advisors LLC in North Garden, Va. Moses spoke with The Deal about the country's changing healthcare landscape. The Deal: The Obama administration has plunged into healthcare reform quickly. More than $100 billion of the stimulus bill went to health and biomedical research, and the 2010 budget outline released Feb. 26 promised sweeping changes -- and sent investors fleeing healthcare stocks. Is this the right time?
-- See other stories in this Healthcare Special Report -- Hamilton Moses: Reform is badly in need of doing to make the
dollar go further in healthcare and to extend coverage to those who do
not have it. When Medicare was created in the 1960s, the net effect was
to create demand where it didn't exist before by enfranchising
healthcare among the elderly, especially the frail elderly. Now there's
high expectation that Medicare will cover everything, and government
spending has become the majority of total healthcare spending in the
U.S. We are and will be involved in a great tension between access for
the many and choice and intensity of care for the few. There's an old
saying among doctors: "Get the right drug in the right patient at the
right dose." To that can be added "at the right price." Will the economy put a damper on the momentum for reform? It puts a damper on funds available but increases the motivation. Take Detroit: Healthcare is a major factor in the Big Three's expenses. They've made tremendous progress with the unions during the past three or four years in shifting the burden for healthcare for retirees to the unions, but the automakers still need to fund it. There's growing fatigue among employers for footing the bill. There has also been a sea change among insurers. The main lobbyist for the insurance companies said before the election the companies would embrace a greater government role, even universal coverage, if a position was preserved for the private sector. Some policy people say it gets harder and harder to preserve private insurance when you cover the uninsured because you create incentives for private employers to use that safety net, to drop older patients or those with higher costs, the ones most in need of coverage. This is known as "adverse selection." However, that hasn't happened in Massachusetts [which instituted universal coverage in 2007]. They created safeguards to prevent it. One of the antidotes is community ratings, where you set the premium based on the total experience of a very large population: an entire city, state or region. It averages the costs of the entire population. It's under active discussion in D.C., but the administration hasn't come down on any one side yet. Will the stimulus bill affect reform? The most important money in the stimulus bill was around $90 billion for Medicaid to the states. But in many respects the most interesting part to watch in the next five years is the $1.1 billion for the comparative effectiveness board. It's funding an activity that hasn't been done much by anyone in this country. How does the British National Health Service use its version of the comparative effectiveness board? Again, it's a tradeoff between access and choice. In the U.K. the National Institute for Health and Clinical Excellence has been controversial. It effectively operates as a treatment choice entity. In this country, every hospital has a formulary committee where doctors and pharmacists and nurses sit around and say this drug or device should or shouldn't be available in our hospital. NICE operates as a formulary committee for the entire country. They're mostly focused on clinical problems where drug X or Y works better and has significant costs. They will also sponsor trials that industry won't support. There are few studies to say which cholesterol-lowering statin is better in a class, or what kind of intervention is better for heart disease: angioplasty, open heart surgery or drugs. You'd think the insurance companies would want the answers to those questions as much as the federal government would. One limitation is that the data isn't available. Without electronic medical records, it's hard to get data from private doctors or hospitals, and there's no single entity that has it. But the privacy concerns may well limit the utility unless we can do better than the credit card companies. Critics say it's a slippery slope to government rationing. But isn't that what insurance companies do already? "Rationing" is a political dirty word. It connotes a heavy-handed entity that controls and commands access, which therapies, when and how much. Like I said, there is a tension between access for the many and choice for the few. Where you draw the line is the key issue we'll muddle through in the next decade or two. Unless the economy gets much worse for much longer, this country wouldn't embrace an NHS-like system. The stimulus bill boosted the National Institutes of Health budget by a third, or $10 billion. What affect will that have on early-stage science? About 30% of U.S. biomedical research funding comes from NIH. Even though two-thirds of research dollars come from industry, the actual funding of new drug discovery has dropped. That's the gap that needs to be filled. In this economic environment, the government is the only major source of funding for basic biology and biological mechanisms that go into drug development. Medical device R&D is less dependent on the government. Beyond researchers receiving grants, will the budget stimulate job creation in venture-backed startups? There are degrees of poetic license calling it "job stimulus." It's more like an investment in scientific infrastructure, just like a road or rail bed. It remains to be seen if VCs come back to early-stage research. We have a database that shows the odds are less than 100 to 1 that what you start researching will ever make it into a human patient. It's hard to make a case for venture investment. That's why I highlight the role of private foundations, which account for 2% to 3% of all private biomedical research funding. Even with the downturn they're playing a critical intermediary role replacing the venture funds. How will reform affect drug industry partnerships and mergers? Nothing on the near horizon would challenge the current mode. The trend in the past decade is that large pharmas are much more focused on marketing and late-stage development, while the smaller and intermediate companies provide the lion's share of compounds. Then they're acquired whole, or just the compounds themselves are acquired. Economically, it's the most rational scenario. Many advisers to the Obama administration have advocated changes at [the Food and Drug Administration] that mandate provisional time-limited approvals, probably linked to expedited review. If that occurs, it'll force pharma companies to be better at late-stage trials and after-market surveillance of their products, taking their resources away from early science. Again, that would give advantage to the smaller companies once we get through this economic turmoil. We'll also see risk shared in new ways. Instead of a single transaction around a drug, we'll see companies pooling their research in "pre-competitive" spaces, or consortia. We're already starting to see a few examples. We'll also see more limited partnerships of investors doing very specific project financing. Will we see health systems combine? There have already been two waves of consolidation. One was in the 1980s when Medicare trimmed hospital payments and there was a search for efficiencies. I was an executive at Hopkins at that time. At our peak we had five hospitals and it shrunk to three. A lot of others went through similar restructuring. Consolidation began again around 2000 to 2002, spurred by private insurers putting pressure on hospital reimbursement. The peak was about 6,000 hospitals in the early '80s. We're now under 5,000. The advantage of the integrated health system like Mayo, Kaiser or Hopkins is that they have hospitals, doctors and nurses within the same organization. This means greater coordination of care, a way to invest in quality by changing practice patterns and the ability to decide which procedures, drugs or devices actually work. Such systems have been among the first to adopt electronic medical records. We did all of these beginning in 1988 at Johns Hopkins. This was the cornerstone of my time as chief physician there. |
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