U.S. Healthcare: The Challenges and Opportunities

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Transcript U.S. Healthcare: The Challenges and Opportunities

CFA Society
Thursday, February 7, 2013
Harry R. Jacobson, M.D.
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Costs are too high and rising too fast
(Despite the fact that cost reduction has been a
central goal for over 20 years!)
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Quality problems are pervasive – medical
errors occur at high rates.
There is an amazing gap between what we
know and what we do.
Variability in practice is huge.
Proven medical advances take years to be
widely implemented.
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$2.70 Trillion
$ Trillions
2.5
$2.42 Trillion
$1.98 Trillion
2
$1.35 Trillion
1.5
1
0.5
$714 Billion
$253 Billion
0
1980
9%
GDP
1990
12%
GDP
2000
2005
13%
GDP
15%
GDP
2007
16%
GDP
2011
17.9%
GDP
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S.
Department of Commerce, Bureau of Economic Analysis, and U.S. Bureau of the Census.
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2002 – 2012
8.6% average annual growth rate in Medicare
spending. Enrollment growth only 2% annually
2012 – 2020
(Forecast)
5.9% average annual growth with enrollment
growth of 3% annually (probably too optimistic)
Why?
•Non-physician provider payment reductions (this
money will
go towards expanded government
coverage so no overall budget savings)
•Physician payment reduction from SGR in the BBA
of the 90’s (this will not happen)
•Reduction in payments to Medicare Advantage
Plans (Doesn’t address the 75% of Medicare
beneficiaries that are in fee-for-service)
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Price Providers Charge
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Salaries/Incomes of Health Care Workers (Doctors)
Costs for Prescription Drugs, Devices, Equipment, etc.
Uncompensated Care
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Administrative Costs for Billing, Collecting, Compliance, etc. Embedded in Providers
Readiness Factor – Cost of Building, Owning, Maintain Certain Infrastructure – Level 1 Trauma
Centers, etc.
Cost of “Over Capacity”
Malpractice
•
Administrative Costs Within Insurers
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Lack of Evidence-Based Decision Making
Variability in Practice
Overuse, Misuse, Underuse of Resources
“Overhead” Reflected in Price Providers Charge
“Overhead” Elsewhere
Volume
$9,000
$9,000
GAP
$6,000
$4,500
Price
$3,000
($100B)
$0
U.S.
Europe, U.K.,
Canada
Insurer
Provider
Overhead
($300B)
Volume /
Variability
($600B)
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Development of:
• Prospective payment systems
• Payment mechanisms
• Managed care plans
• Consumer-driven health plans
• Medical savings accounts
• Accountable Care Organizations - ?
No
Significant
Impact
Traverse City, MI
Fort Lauderdale, FL
Birmingham, AL
Columbia, SC
50.1%
41.8%
32.0%
19.6%
Dartmouth Atlas of Healthcare 1999
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Elyria, OH
16.9
Jonesboro, AR
15.0
Ashville, NC
2.6
York PA
2.5
Dartmouth Atlas of Healthcare
1999
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Redding, CA
11.5
Bloomington, IL
9.8
Santa Rosa, CA
3.6
Albuquerque, NM
3.1
Dartmouth Atlas of Healthcare 1999
McAllen, TX
$ 9,033
Miami, FL
$ 7,783
San Luis Obispo, CA
$ 3,553
Lynchburg, VA
$ 3,074
Dartmouth Atlas of Healthcare 1999
Source: Data from The Dartmouth Atlas of Health Care, www.dartmouthatlas.org
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Variation in practice results in:
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Excessive cost
Under intervention
Over intervention
Poor outcomes
Variation results from:
• Poor information sharing
• Lack of agreed upon standards
• “Cookbook” medicine opposition
6712 Individuals in 12 Cities
Only
Only
Only
Only
54.9%
54.9%
53.5%
56.1%
received
received
received
received
recommended
recommended
recommended
recommended
care
preventive care
acute care
chronic care
Examples: Hip Fracture
22.8% (Range 6.2-39.5%)
Atrial Fibrillation 24.7%
Depression
57.2%
Senile Cataract
78.7% (Best performance)
E.A. McGlynn, et. al., NEJM, June 26, 2003
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Screening
Prevention
Education
Routine Acute Care
Serious Acute Care
Management of Chronic Illness
Rehabilitation
Senior Care
End-of-Life Care
The New Paradigm
Innovative Service Delivery
SCIENCE
 Tools: drugs,
devices, diagnostics
 Knowledge:
evidence
OUTCOMES
Workforce
Supporting
Technology
 Quality
Cost
 Right care, right
place, right time
Process
Venue
Healthcare Services Demand Modules
Screening
Prevention
Education/
Behavior
Modification
Routine
Care
Acute Care
Chronic
Illness
Mgmt
2
1
1
4-5
4-5
2
Serious
Rehab
3
Elder Care
End of Life
2
1-2
Performance: 5 = Outstanding, 1 = Poor
Innovation in the Delivery of Healthcare
Services
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In 2011 12 million jobs in health care
(1 out of every 11 workers; 5.5 million
hospital jobs)
7 of the 20 fastest growing occupations are
health care related
Health care creates 250-300,000 new jobs a
year
1. Service Providers
2. Payors/Insurers
3. Pharmaceutical
4. Medical Devices
Hospitals, outpatient facilities,
specialty groups, etc.
Aetna, Cigna, United, Anthem,
Blue Cross Blue Shield, etc.
Merck, Pfizer, Lily, Novartis,
etc.
Medtronic, Boston Scientific,
Stryker, etc.
5. Information Technology McKesson, Cerner, Eclipsys, etc.
6. Biotechnology
Amgen, Biogen, Genentech, etc.
ADMINISTRATORS/WATCHDOGS
Media
Insurers
Regulators
Professional
Societies/
Special Interests
INNOVATORS
Pharma
Academic
Medicine
BioTech
Employers
HCIT
Device
SERVICE PROVIDERS
Hospitals
BIOTECH
Long Term
Care
DM
Allied Health
Professionals
Physicians
CONSUMERS
Outpatient
Facilities
CAM
Accrediting
Agencies
Advances in science are creating unprecedented
opportunities to create diagnostics and
therapeutics that can improve quality of care,
make care more individualized, and bring true
value (better outcomes at a lower cost) to care.
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Advances in Medical Technology –
The Opportunity
Genomics
Proteomics
Pharmacogenomics
PERSONALIZED MEDICINE
Biomedical Engineering
Physics
Chemistry
Nano-Science
NEW DIAGNOSTIC AND THERAPEUTIC DEVICES
Chemical Biology
Structural Biology
Pharmacology
Biotechnology
NEW SMALL MOLECULE AND BIOLOGIC THERAPEUTICS
The marriage of Physics, Chemistry, Biology, Mathematics
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Sir William Osler (Circa 1910) was not the last man
to think he knew everything there was to know – he
was just the last man to be right about it
Ignorance has increased as information has
exploded
Informatics – the science that deals with the
structure, acquisition, and use of information – it’s
not about recording things o a computer but about
the tough job of orchestrating an ever changing
evidence based toward the goal of efficiently
improving health outcomes
At its core the maintenance of health and the
restoration of health depends on making the
right decisions based on the best evidence.
Health care is an information dependent
service business – the right information, in
the right setting, at the right time. When this
fails, we get variability in practice, overuse
and misuse of resources, and suboptimal
outcomes (including medical errors).
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All investments focused on healthcare
All portfolio companies should improve patient
care
The funds:
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TriStar I – TNINVESCO-$500,000-$1.5 million
TriStar II - $500,000 - $2.5 million
Medcare - $5 million - $150 million
Epiphany – Startup - $50 million
Only invests in service innovation
Portfolio Company
Fund
BioStable
2
Cerebrotech
2
Cobra Stylet
2
Device Innovation Group
1
Diabetes Care Group (DCG)
1&2
Diagnovus
1
Goba
1
MedCenterDisplay
1&2
Molecular Sensing
1
OnFocus Healthcare
1
Pathfinder
1
VenX
1
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Ambulatory Services of
America (ASA)
BioNumerik
Cardiovascular Care
Group (CCG)
CeloNova Biosciences
Diabetes Care Group
(DCG)
digiChart
G-Con
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Informatics
Corporation of America
(ICA)
MedSolutions
Outpatient Imagining
Affiliates (OIA)
Quality Health Care
International (QHCI)
Refocus Group
Seno Medical
Sector
Revenues
R&D as % of
Revenues
Pharma
$200 Billion
12-14%
Biotech
$75 Billion
15-20%
$140 Billion
10-12%
$1.6 Trillion
Almost nothing**
Medical Technology
Services (hospitals,
clinics, extended
care facilities,
physicians)
* U.S. total R & D spending as % of GDP – 2.62%
** AHCs should be the R&D engine for the service sector just like they participate in R&D in the other sectors
Healthcare Services Innovation
U.S. Healthcare Expenditures: 2010
 Services are largest system cost
 Conduit for biotech, devices and IT
innovation
Source: Centers for Medicare and Medicaid Services.
 Outdated governance and business models
Healthcare VC Investment by Sector
1995 – 2011 ($ billions)
Biotech
 Inefficient coordination, collaboration and
consistency
Med Device & Equip
Healthcare Services
$7.0
$6.0
$5.0
 Sub-optimal use of diagnostics,
therapeutics and evidence-based medicine
$4.0
$3.0
$2.0
$1.0
 Starved for innovation capital
$0.0
1995
2000
2005
2010
Source: PriceWaterhouse and National Venture Capital Association MoneyTree Report.
Investment Process
STAGE 1: CONCEPT DEVELOPMENT
EXIT
- Identification
- Sale to Private Equity Firm
-Risk / Return Assessment
- Strategic Sale
- Preliminary Research
- Initial Public Offering
- 20+ Concepts
- Growth Recapitalization
STAGE 2: CONCEPT VALIDATION
Estimated 4-6 year cycle per company that
achieves exit
- Management Team Identification
- Preliminary Business Plan
- Initial Investment Committee Review
GROWTH CAPITAL
- 3 to 4 Companies
- Equity Financing of $30.0 - $40.0 MM
STAGE 3: INITIAL SEED FUNDING
- Management Team Engaged
EXPANSION CAPITAL
- Detailed Market Research
- Commercialization Phase
- Multi-year Strategy and Capital Plan
- Approximately 4 Companies
- Approximately 7 Companies
- Equity Financing of Up to $10.0MM
- Average Investment of $750k per Company
Estimated 90%+ of investable capital
deployed to most successful companies
LAUNCH FUNDING
- Proof of Concept Phase
- Approximately 5 companies
- Equity Financing of $2.0 - $3.0 MM
STAGE 4: INVESTMENT COMMITTEE REVIEW
- Assessment of Viability and Return Potential
Costs of Diabetes
$ 4,400
Average annual health care costs /
person without diabetes.
$11,700
Average annual health care costs /
person with diabetes.
$20,700
Average annual health care costs /
person with diabetes and complications.
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Based on data from 10 million United Healthcare members.
“The United States of Diabetes: Challenges and Opportunities in the
Decade Ahead”
United HealthGroup Center for Health Reform & Modernization,
November 23, 2010.
Background
 Diabetes Care Group’s clinical model:
- enables individuals with diabetes and related metabolic
disorders to manage the disease
- allows health plans and self-insured employers to eliminate or
reduce the preventable medical costs of diabetes and its
related complications
 Developed as a prototype in a single market, the business model
has proven cost-effective, portable, reproducible, and scalable
within the market.
 The clinical model is the functional equivalent of a medical home
for individuals with metabolic disorders and is translatable to other
disease states and populations.
Economics of DCG Model
DCG Outcomes /
Economic Consequences
“The essence of the DCG model is its
proven ability to improve A1c levels among
diabetics. A clinician looking at the results
… understands the importance of what has
been achieved. The economic analyses are
designed to provide a full context for what
these clinical results mean for third party
payers, employers, and society.”
Donald H. Taylor, Jr., Ph.D.
Sanford School of Public Policy
Duke University
Virtually all medical costs associated with the
preventable complications of diabetes and other
metabolic disorders are preventable, and prevented,
by the timely application of the DCG program.
Actual twelve month outcomes
for DCG patients with severely
out of control diabetes (A1c > 9.0)