Whats Ahead For US Healthcare

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Whats Ahead For US Healthcare? Implications For
The Pharmaceutical Industry
Kim D. Slocum, FHIMSS Director, Strategic
Planning Business Development AstraZeneca,
LP March 6, 2006
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(No Transcript)
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The Only US Rx Industry Story This Year?
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Pfizer's Funk
Feb. 28, 2005 Hank McKinnell helped pioneer the
age of blockbuster drugs. But a dearth of new
products and fears over drug safety are hurting
the entire industry. Is there a fix? "The
pharmaceutical industry is in the process of
transformation," says longtime Pfizer board
member Stanley O. Ikenberry. "We have to
reexamine all the assumptions that pharmaceutical
companies have made for as long as I can
remember."
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The US Pharmaceutical Industry (1980-2004?)

• Conduct most RD in high prevalence, low acuity
  chronic conditions
• Well-characterized targets (lower risk)
• But sometimes, approach yields modestly
  differentiated products with benefits not visible
  beyond physicians office
• Rely on indifference of third party payers in
  curbing Rx demand
• Use extensive marketing to drive product sales
• Professional promotion (large sales forces)
• Consumer promotion (DTC)
• Payer activity mostly contracting related

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National Health Expenditures Services And
Supplies 1960-2004
(US Billions)
SOURCE (HCFA/CMSOffice of the Actuary)
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But Your Mileage May Vary2004 National
Healthcare Spending
Prescription Drugs
47
189
25
Nursing Homes
115
81.5
Dental Services
32
28
400
Physician Clinical Services
36
44
40
Hospital Care
571
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of Segment Paid For Out-of-Pocket
Out-of-Pocket Expenditure (Billions)
HC Segment Expenditure (Billions)
Source CMS
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The US Pharmaceutical Market Has Grown, And The
Payer Mix Has Changed Dramatically
(Billions)
SOURCE CMS
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Critical Importance Of Employers

• About 160 million Americans receive healthcare
  insurance related to employment (active
  employees, their dependents, and retirees)
• Private sector pays for 54 of US healthcare, 47
  of all Rx (largest payer by group)
• Problems or opportunities that start with
  employers often are reflected later in
  governmental actions

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National Healthcare Spending As Share Of GDP
SOURCE CMS, Office of the Actuary
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The Challenge of Controlling Costs
Employer Health Insurance Premiums Vs Inflation
SOURCE (www.kff.org)
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Health Benefit Expense As A Percentage Of
Corporate Post-Tax Profits
Declining Profits Scenario
Health Benefit Expense
Low Growth Scenario
SOURCES McKinsey, CMS, US Dept. of Labor
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Tiered Pharmaceutical Benefits Are Now The Norm
In The Private Sector
Over 90 of employers have tiered prescription
drug benefits
(Number Of Tiers)
SOURCE (www.kff.org)
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Higher Co-Payments And Their Effects On Rx
Usage(Reduction in days supplied when
co-payments double)
SOURCE Goldman et.al., 2004
(JAMA 2004 291 2344-2350)
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Cost Shifting To Patients Is A Blunt Instrument
SOURCE Schoen et al. Health AffairsWeb
Exclusive W5-289 to W5-302, June 14, 2005
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Burden of Health Care CostsPostponed Medical
Care
SOURCE USA Today/KFF/Harvard School of Public
Health Health Care Costs Survey (conducted
April 25-June 9, 2005)
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Perceived Reasons For Rising Healthcare Costs
SOURCE USA Today/KFF/Harvard School of Public
Health Health Care Costs Survey (conducted
April 25-June 9, 2005)
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Healthcare Costs Increasing Much Faster Than Wages
Percent Cost Increase Since 2000
SOURCE Bureau of Labor Statistics, Hewitt
Associates
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Medicare Out-Patient Drug ProgramCoverage Began
January 06
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What Happens To Rx Funding With Medicare Part D?
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Key Issues To Watch For Medicare Rx

• How many elderly Americans without existing
  coverage enroll?
• What do employers do with retirees after 2006?
• How does the US pay for it (and who gets asked to
  make up the expected shortfall)?

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Growing Costs, Growing Concerns About Federal
Medicare/Medicaid Spending
SOURCE Congressional Budget Office
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Consumer Directed HealthcareThe Basic
Model Shared Employer/Employee Funding, But More
Accountable Employees
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Future Model For Pharmacy Coverage??

• Catastrophic illness products
• Cancer, AIDS
• Consumer choice products
• Lifestyle products (ED drugs, Botox)
• What happens to chronic disease medications?
• Diabetes, hypertension, high cholesterol,
  asthma, etc.
• Can industry build a case for preventative
  maintenance products to be covered at little or
  no out-of-pocket cost to employees?

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The Pharmaceutical Industrys Future?
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US 3rd Party Payers Are Not MonolithicHealthcare
Purchasing Behavior and Influencing Patterns
(Value)
(Cost)
Medicare (CMS)
Medicaid (States)
Public Payer
Large Employers
Mid/small Employers
Private Payer
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A Movement Gathering Steam

• Growing chorus agrees that quality of medical
  care in US is not what it should be
• Increasing agreement on some root causes
• The US healthcare system isnt a system at all
• Episodic care of sickness, not active management
  of health
• Poorly designed incentive systems that pay for
  piecework rather than results
• Rewards activity, not patient outcomes
• 21st century medical technology supported by 3rd
  world IT infrastructure

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Governmental Groups Take Action

• President Bush HHS Secretaries strongly
  supports widespread adoption of HIT, electronic
  health records, information sharing networks
• CMS starting to move to quality incentive
  reimbursement policy
• Congressional action expected to support this
  change
• 98 HIT-related bills introduced in 37 states
  during 2005 (www.himss.org/advocacy/news_tracker.a
  sp)

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The Private Sector Is Active As Well

• Payer interest in transformational healthcare
  purchasing (pay for outcomes) growing rapidly
• Bridges To Excellence programs involve pay for
  performance with mix of HIT-related
  incentivesnow moving to national rollout
• Care-Focused Purchasing alliance creating
  database for MD report cards and new incentives
• Slowly increasing awareness that penalizing Rx
  use may be penny wise/pound foolish

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For The Pharmaceutical Industrys Commercial
Employees

• Profound changes coming
• Implications for
• Who industry sells to
• What it sells
• How industry sells it
• How industry measures reports
• Different doesnt have to mean worse

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Never mistake a clear view for a short
distance -Amaras Law
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New Reality In Pharmaceutical Marketing
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What Is Innovation?

• Previously a question asked (and answered)
  internally by Rx companies R D functions and
  promoted by commercial functions
• In the future, decision-making will be shared
  between the industry and its stakeholders
• How good is good enough in chronic diseases?
• What adds real value in specialty care?

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The Product/Service Mix Issue

• In a global economy round white tablets are
  increasingly a commodity
• Industrys stock and trade is biology and
  chemistry
• Are all healthcare problems biology/chemistry
  related?
• For many disease states, delivery system
  breakdowns contribute as much to poor results as
  do older pharmaceuticals
• What services need to accompany products in order
  to
• Address these breakdowns
• Improve the value proposition
• Protect against commoditization

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Value Myopia From Todays Healthcare Data Flows
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Value Transparency From Future Healthcare Data
Flows
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Implications For How Industry Sells

• Multiple future information streams for doctors,
  patients, payers, policy makers
• Reduces need to high promotional spending, but
• Pharmaceutical sales/marketing will no longer be
  the dominant voice
• Pay-for-performance means physicians personal
  compensation is at risk as a result of Rx
  decisions
• Effectiveness of promotion not aligned with
  bonus-able behaviors diminishes significantly

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Data, Data Everywhere

• New information sources offer potential for far
  more granular and real-time analysis than ever
  before
• Electronic health records capture details never
  before known
• Aggregation of disparate data sources means
  potentially rapid feedback on product uptake
  effectiveness
• BUTHIPAA limits whats accessible
• Opt-ina premium on relationship building
• De-personalized aggregate data sets are OK

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So, Whats Achievable?(Five to Ten Year Horizon)

• Macro (population) level analysis using RHIO data
• Disease prevalence (diagnosed)
• Rx treated prevalence
• Adherence rates (Rx fills as surrogate)
• Intermediate/surrogate clinical outcomes
• Differential value within classes
• Micro (individual) analysis on opt-in basis
• Symptom scores
• Treatment progress
• Satisfaction with therapy

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Thank You