cfa society thursday, february 7, 2013 harry r. jacobson, m.d. cfa... · • “cookbook”...
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CFA Society Thursday, February 7, 2013
Harry R. Jacobson, M.D.
Costs are too high and rising too fast (Despite the fact that cost reduction has been a
central goal for over 20 years!) 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.
$253 Billion
$714 Billion
$1.35 Trillion
$1.98 Trillion $2.42 Trillion
$2.70 Trillion
0
0.5
1
1.5
2
2.5
3
1980 1990 2000 2005 2007 2011
$ Tr
illio
ns
3
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.
9% GDP
17.9% GDP
16% GDP
15% GDP
12% GDP
13% GDP
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)
Price Providers Charge • Salaries/Incomes of Health Care Workers (Doctors) • Costs for Prescription Drugs, Devices, Equipment, etc. • Uncompensated Care
“Overhead” Reflected in Price Providers Charge • 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
“Overhead” Elsewhere • Administrative Costs Within Insurers
Volume • Lack of Evidence-Based Decision Making • Variability in Practice • Overuse, Misuse, Underuse of Resources
GAP
Price Overhead
Volume / Variability
Insurer
Provider
U.S. Europe, U.K., Canada
($100B) ($300B) ($600B)
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 50.1% Fort Lauderdale, FL 41.8% Birmingham, AL 32.0% Columbia, SC 19.6%
12 Dartmouth Atlas of Healthcare 1999
Elyria, OH Jonesboro, AR Ashville, NC York PA
16.9 15.0 2.6 2.5
13
Dartmouth Atlas of Healthcare 1999
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
Variation in practice results in: • 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 54.9% received recommended care Only 54.9% received recommended preventive care Only 53.5% received recommended acute care Only 56.1% received recommended 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
Screening Prevention Education Routine Acute Care Serious Acute Care Management of Chronic Illness Rehabilitation Senior Care End-of-Life Care
The New Paradigm
Innovation in the Delivery of Healthcare Services
Innovative Service Delivery
Healthcare Services Demand Modules
Screening Prevention Education/ Behavior
Modification
Routine Care
Serious Acute Care
Chronic Illness Mgmt
Rehab Elder Care End of Life
OUTCOMES Quality Cost Right care, right
place, right time
SCIENCE Tools: drugs,
devices, diagnostics Knowledge:
evidence
2 1 1 4 - 5 4 - 5 2 3 2 1 - 2
20
Workforce
Process
Venue
Supporting Technology
Performance: 5 = Outstanding, 1 = Poor
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 Hospitals, outpatient facilities, specialty groups, etc.
2. Payors/Insurers Aetna, Cigna, United, Anthem, Blue Cross Blue Shield, etc.
3. Pharmaceutical Merck, Pfizer, Lily, Novartis, etc.
4. Medical Devices Medtronic, Boston Scientific, Stryker, etc.
5. Information Technology McKesson, Cerner, Eclipsys, etc.
6. Biotechnology Amgen, Biogen, Genentech, etc.
BIOTECH
INNOVATORS
ADMINISTRATORS/WATCHDOGS
SERVICE PROVIDERS
Physicians
HCIT
Pharma
Device
Hospitals Outpatient
Facilities
Insurers
Regulators
Long Term Care
BioTech
Professional Societies/
Special Interests
Accrediting Agencies
DM
Employers
CAM
Media
Academic Medicine
CONSUMERS
Allied Health Professionals
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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Genomics Proteomics Pharmacogenomics
Biomedical Engineering Physics Chemistry Nano-Science
Chemical Biology Structural Biology Pharmacology Biotechnology
Advances in Medical Technology – The Opportunity
25
The marriage of Physics, Chemistry, Biology, Mathematics
NEW SMALL MOLECULE AND BIOLOGIC THERAPEUTICS
NEW DIAGNOSTIC AND THERAPEUTIC DEVICES
PERSONALIZED MEDICINE
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).
27
All investments focused on healthcare All portfolio companies should improve patient
care The funds: ◦ 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
Ambulatory Services of America (ASA)
BioNumerik Cardiovascular Care
Group (CCG) CeloNova Biosciences Diabetes Care Group
(DCG) digiChart G-Con
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% Medical Technology $140 Billion 10-12% Services (hospitals, clinics, extended care facilities, physicians)
$1.6 Trillion
Almost nothing**
* U.S. total R & D spending as % of GDP – 2.62% ** AHCs should be the R&D engine for the service sector just like they participate in R&D in the other sectors
Healthcare Services Innovation Services are largest system cost
Conduit for biotech, devices and IT innovation
Outdated governance and business models
Inefficient coordination, collaboration and consistency
Sub-optimal use of diagnostics, therapeutics and evidence-based medicine
Starved for innovation capital
Source: Centers for Medicare and Medicaid Services.
U.S. Healthcare Expenditures: 2010
Source: PriceWaterhouse and National Venture Capital Association MoneyTree Report.
Healthcare VC Investment by Sector 1995 – 2011 ($ billions)
Biotech Med Device & Equip Healthcare Services
$1.0
$0.0
1995 2000 2005 2010
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
Investment Process STAGE 1: CONCEPT DEVELOPMENT
- Identification -Risk / Return Assessment
- Preliminary Research - 20+ Concepts
STAGE 2: CONCEPT VALIDATION - Management Team Identification
- Preliminary Business Plan - Initial Investment Committee Review
STAGE 3: INITIAL SEED FUNDING - Management Team Engaged
- Detailed Market Research - Multi-year Strategy and Capital Plan
- Approximately 7 Companies - Average Investment of $750k per Company
STAGE 4: INVESTMENT COMMITTEE REVIEW - Assessment of Viability and Return Potential
LAUNCH FUNDING - Proof of Concept Phase
- Approximately 5 companies - Equity Financing of $2.0 - $3.0 MM
EXPANSION CAPITAL - Commercialization Phase
- Approximately 4 Companies - Equity Financing of Up to $10.0MM
GROWTH CAPITAL - 3 to 4 Companies
- Equity Financing of $30.0 - $40.0 MM
EXIT - Sale to Private Equity Firm
- Strategic Sale - Initial Public Offering
- Growth Recapitalization
Estimated 90%+ of investable capital deployed to most successful companies
Estimated 4-6 year cycle per company that achieves exit
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.
____________________________ 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
“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.”
DCG Outcomes / Economic Consequences
Actual twelve month outcomes for DCG patients with severely
out of control diabetes (A1c > 9.0)
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.