The healthcare business continues to battle explosive costs and other challenges including patients who would rather visit the Internet than a doctor, the "fragmentation" of the hospital, and under use of technology.
Focusing specifically on healthcare costs, five participants with expertise in the business of treating disease offered their views at the 2003 Alumni Healthcare Conference on November 7. They also outlined the opportunities and structural challenges facing the industry over the next five years.
In general, the financial situation for people in the business of healthcare is stable for some, more critical for others, the panelists agreed.
Moderator Eileen Naughton, president of Time magazine, set the scene by saying that healthcare expenditures in the U.S. are 14 percent of GDP and growing, she said.
According to Jerome Grossman, MD, director of the Harvard/Kennedy School Health Care Delivery Policy Program, three issues loom large for the coming years: a "first-party market" in which patients take increasingly more responsibility for their own care; the nature of the supplier industry; and pricing.
Patients' new independence means the ballgame has changed, he said. The new scenario relies on harmony between patient desires and the medical profession. He reminded the audience—comprised mainly of businesspeople and physicians—that patients come in all shapes, sizes, and degrees of willingness to accept care. There are three types of patients who make up this market, he said:
- Those who "never, ever" want to see a doctor and have no desire for a relationship with the medical profession. They get all the information they need from books and the Internet. Their attitude is, "Doc, if I have a problem, tell me how to fix it and then leave me alone."
- Those who want treatment but seek it from a so-called alternative provider. "They don't like what they get from us," Grossman said. These people comprise around one-third of Americans, he estimated.
- Those dedicated, health-conscious fans of the medical profession who would like to roll out of bed every morning and monitor their well-being with a combined scale and MRI machine, if such a device existed. "They want to wake up each morning and be assured that they do not have a fatal disease," he said.
These are rather different niche markets, he told the audience. On the other hand, the medical community consists of similarly idiosyncratic types. There are doctors who don't want to see patients at all. "Other physicians want to be Marcus Welby," he said, referring to the wise, caring doctor on a popular American TV show of the 1970s. These doctors "want to spend their entire lives with you. They want to know everything about you. Well, they're a very bad match for the people who never want to see a doctor," said Grossman.
| If properly focused, technology can actually reduce costs in the management of chronic disease. |
Issue two deals with the nature of the supplier industry: doctors, hospitals, drugs. All of them are currently in a "non-system," he said, since they do not seem to do a good job coordinating their activities.
Issue three is prices. Specialty hospitals that are cropping up in addition to outpatient surgery centers are "potentially the final explosive fragmentation of the hospital, because for thirty years Medicare has not leveled the pricing field, so orthopedic and cardiac procedures are highly profitable. Now they're taking those out [of typical hospitals]. So I think we're in for an interesting time," concluded Grossman.
The promise of technology
Efficient technology was a theme for panelist George Halvorson, chairman and CEO of Kaiser Foundation Health Plan and Hospitals.
Halvorson said it is "criminal" that in the U.S. no healthcare policy exists to cover every citizen, and that the situation as a whole requires a radical re-tooling on par with an industrial revolution. The textile industry, for example, never would have adapted to the times by making incremental improvements or changing handloom operators' cultural motivations, he said. A recent Rand study found that 45 percent of the 20,000 Americans surveyed did not receive adequate healthcare in the U.S., even though the country has "the most intensive healthcare delivery system in the world by a factor of two."
Pointing to the urgency of people living with untreated illness and substandard care, he suggested that healthcare has been far slower than other professions to adopt computer technology.
Healthcare is dependent on information, yet the information is often difficult to get, he said.
"Paper medical records are often illegible and are generally inaccessible. ... In engineering, architecture, and law, everyone else has managed to bring the computer into their practice [yet] we have an inconsistent and incomplete information flow," said Halvorson. Medical recording often relies on the memory of already overextended medical professionals who see new patients every fifteen minutes. Add that to noncompliance on the part of some patients and it is a dangerous brew. Reforms need to take all these factors into account, he said. "Reform is doomed to fail if it relies on memory and memos," Halvorson said.
"The good news is that medical science works. Intervention works. But the computer has to support it and public policy isn't even talking about that," he said.
If properly focused, technology can actually reduce costs in the management of chronic disease, said Robert Ryan (HBS MBA '70), senior vice president and CFO of Medtronic. People often hear that technology is the culprit in driving up costs, he said. The treatment of chronic disease takes up about 80 percent of total healthcare expenditures in the U.S., he said. But technology can save and extend life, greatly improve the quality of life, and reduce costs.
Take the example of diabetes, which he said costs the country $40 billion in direct costs and $100 billion in indirect costs. Ryan cited the use of sensor technology and a drug pump, both functioning as a sort of artificial pancreas, to keep glucose levels within a safe band. The technology has the added benefit of helping to educate those who use it to make better lifestyle choices so they can avoid serious problems that can accompany diabetes, from numbness, blindness, and kidney failure to coma and death. Improving patients' quality of life leads to better health and less financial outlay both personally and at the national public health level, he said.
The capital view
Views differed on the degree to which capital markets support innovation.
The capital markets for the support of biotech are in flux now, said panelist Francis Lunger, chairman, CEO and president of Millipore Corporation. Two years ago, he said, Germany had more than 2,000 biotech companies supported by venture capital. Now there are only 400; the rest are gone. There is no funding available. In the U.S., smaller firms have trouble getting sufficient capital. Investors are reluctant to fund advanced research when they may not see revenue for another fifteen years, Lunger said.
Michael Astrue, president and CEO of Transkaryotic Therapies, countered that "in general, the markets have worked pretty well." Given the supply of capital to biotech over the past fifteen years, considering its high risk, high cost, and long development times, the capital markets are doing surprisingly well.
"It depends on where you are, what your technology is, the economic cycles," he concluded.