One Way Out: Health Care and The Innovation Pathway

Health care, or more specifically how we will pay for health care now and in the years to come,  is once again on center stage as budget talks continue to stalemate in Washington and clock ticks on towards the sequestration deadline.  Perhaps its time to look for a new solution…

Healthcare 1 wayOver the next three weeks, politicians from both sides of the aisle,  industry leaders, and constituents from a wide range of areas and viewpoints will all chime in with positions and proposals as Congress tries to off set a shortfall of  $1.2 TRILLION.

This is an incredible challenge for any team united in working together to create a solution.  For leaders that are not united, the challenge is much more daunting.

No talk of balanced budgets can be addressed without entering the health care debate.  Three federal programs, Medicare, Medicaid, and CHIP together represented 21% of the total United States Budget in 2011 according to the Office of Management and Budget (OMB) reports.

We already know that change is coming to the health care arena in 2013 and 2014 as major provisions of the Affordable Care Act become effective.  Other changes will be driven to by the need to address the budget issues. The question is, how can we drive smart and effective change?

Last Wednesday, the Kaiser Family Foundation released a 216 page report detailing 150  cost-cutting policies.  By their calculations, if you enacted all of them all at once, we would cut $9.4 trillion in Medicare spending alone over the course of the next decade.  At the  same time, no one would leave the room happy for the simple reason that everyone would have to sacrifice something.  (The full 216 page report is available online here  for  download.)

The new Medical Device Tax that was enacted under the Affordable Care Act went into effect in January and levying an excise tax of 2.3% on innovative medical device companies.  OMB estimates began at $20 Billion and now approaches $30 Billion in tax revenue impact.   Unfortunately the unintended impact on both jobs and R&D is already being felt.  Congressional support is building on both sides of the aisle to once again try to repeal the tax for reasons explained by  Representative Bob Latta (R-Ohio)  on The Hill Blog:

 As a result,  companies are looking at a host of options to offset this tax in order to remain  competitive and profitable, including increased consumer prices, relocating  business to overseas where tax rates are much lower, and layoffs. In a recent  Reuters report, publicly traded medical technology companies have cut  approximately 7,000 American jobs in 2012, and according to an AdvaMed survey  conducted in late December of last year, 62 percent of companies surveyed said  they are planning layoffs or reduced hiring to help offset the  tax.Along with the loss of domestic jobs, budgets for research and  development have been slashed. A report from the Pacific Research Institute  shows that it is estimated that the medical device tax will reduce industry  research and development investment by $2 billion annually. Ultimately, medical  devices will be produced outside of the United States and our national health  care quality hindered. (Source:  The Hill)

Targeted cost savings with unintended negative effects are not restricted to the medical device industry.  Patient access to key drugs and therapies may also face unintended consequences should changes be made to Medicare Part B and/or Medicare Part D.  These two programs that have been highly  successful to date in both providing patient access and controlling costs.  At a time when most of our healthcare programs are exceeding their cost estimates, changing the formulas for programs that are operating under budget just does not make economic sense.

So what is the answer?innovation path

When we cut spending, or impose costs on others that causes them to reduce their  ability to invest in new life saving and cost saving innovations, we end up with a net loss in almost every case.  And, as in the case of the medical device tax or changes to Medicare Part B and Medicare Part D, the indirect costs may actually exceed the direct cost  savings.   So what should we do?

It may sound counterintuitive, but the answer may be that instead of short term cuts that have short term returns, the time has come to actually start heavily investing in life science and health care innovation.

One example would be  in the area discovery, development and delivery of  new and innovative medical  diagnostics and personalized therapies that help us detect and treat disease in the earlier stages of disease progression and in ways that are custom tailored to what can  work best for the individual patient.

Food For Thought:

  • —7 out of 10 deaths among Americans each year are from chronic diseases. Heart disease, cancer and stroke account for more than 50% of all deaths each year.(1)
  • In 2005, 133 million Americans – almost 1 out of every 2 adults – had at least one chronic illness. (1)
  • According to the CDC, 75% of our total healthcare spend is dedicated to treating chronic disease.
  • Critical opportunities exist in all diseases for better molecular diagnostics to improve patient outcomes while reducing health care costs:
    • Risk assessment: Identifying individuals at greater risk of developing specific diseases will enable the implementation of preventive measures that could eliminate both the suffering from disease and the costs associated with treatment.
    • Early detection: For many diseases, diagnosis at earlier stages of disease progression allows intervention when there is a greater likelihood of effective treatment and cure. For example, in nearly all forms of cancer, early diagnosis can lead to a cure at a fraction of the cost of ineffective treatments for late-stage disease.
    • Definitive diagnosis: The diagnosis of many diseases is challenging due to a lack of distinctive symptoms. Improved diagnostics will allow more rapid and effective implementation of appropriate treatments for those who will benefit while preventing adverse side effects and the costs of treatment for those who will not.(2)
  • Diagnostics are involved in over 60%  of clinical decision-making but account for only 2% of overall health care spend (3)
  • —Diagnostics are needed to focus treatment as drugs are effective only 50%  of the time they are prescribed (This equals $160 billion drug spend used ineffectively) Companion diagnostics alone could save $15 billion in patient care. (3)

What do you think?  Is it  time we stopped fighting about what to cut out of the health care cost equation and instead started focused investing on the solutions that just might be the answer?

Posted in AZBio News, CEO, Uncategorized.