The peloton of health care: Breaking away from the pack

by Harry Greenspun, M.D., Director, Deloitte Center for Health Solutions, Deloitte LLP

My wife, Kerry, recently returned from a 10-day cycling trip in Italy, staying in a beautiful hotel near Tuscany that caters to professional cycling teams. Kerry’s group typically rode 50 to 70 miles each day through the countryside, culminating in a grueling 120-mile “gran fondo” with more than 12,000 feet of climbing. A highlight of the trip was when she watched at the finish line of one of the stages of the Giro d’Italia, a premier cycling race, along with the Tour de France and the Vuelta a Espana. 

While she was away, the boys and I got by as best we could, frequently falling back on the loneliness exception to our “no bad dessert” rule. One evening, ice cream sundaes in hand, we watched TV coverage of the Giro d’Italia. In most competitive cycling races, you can watch as the peloton – the main pack of riders from all teams – moves along together. Riders do this to save energy by remaining close. At some point, a “breakaway” group emerges. In it, competing riders have to work together, leading or drafting off each other to maintain their distance from the pack. Ultimately, there is a winner at the finish line, but in a multi-stage race, those who finish before the peloton still gain advantage, even if they do not win the stage.

This concept struck me recently while I led a panel discussion with representatives from organizations that are often viewed as competitors in health care: a large health plan, a health care system, a pharmaceutical company and a former government leader. In the traditional fee-for-service environment, success for one often comes at the expense of another. However, as progressive organizations focus on outcomes and react to the government’s priorities for value-based care, they have created remarkable synergies in their approach to the market.

The upcoming Deloitte Center for Health Solutions paper, The convergence of health care trends: Innovation strategies for emerging opportunities, outlines four colliding trends that are changing the health care landscape. New technologies, a demand for value, the growing health economy and influential government policies are creating growth opportunities and pushing health care organizations to innovate. Like the peloton that creates both forward momentum as well as some dramatic collisions for riders, these converging trends will create opportunities and challenges for innovation among industry stakeholders.

In particular four significant areas rise to the surface:

  • The shift from the traditional health care facility to “Everywhere care”
  • Wellness and preventive care
  • Personalized care
  • Aging, chronic and end-of-life care

“Innovation plays” that leverage all four of these colliding trends to utilize new technology, expand delivery options and access, improve patient experiences and form industry partnerships may help organizations gain a competitive edge in the changing health care landscape. For example, an organization seeking to capitalize on the challenge of wellness and preventive care could simplify and integrate the “monitored self” by harnessing a platform that aggregates consumer data from point-of-care devices and consumer actions, and seamlessly integrates them into the care system. Similarly, the shift to personalized care could create an opportunity for organizations to develop combinations of treatment, diagnostic, and care protocols that are optimized for impact and ease of use based on individuals’ specific needs.  Successful implementation of these programs will likely require collaboration across many industry stakeholders.

As the industry begins to tackle these innovation plays, there will be some tough uphill climbs. Connectivity is an area that all stakeholders are facing. One of the panelists said that while he believes that collaboration among the multiple stakeholders is challenging, it is doable. He cautioned that if 12 individual health plans designed their own proprietary systems, then there will be 12 that no one uses. Many organizations are already realizing this. These are the organizations that are breaking away from the peloton of the larger health care system and working in parallel with each other to differentiate themselves from the pack and address the needs of health care consumers.

The future of health care will likely be based on collaboration among competitors across the system, where everyone has the same shared capabilities and data standards. This may require some individual entities to invest in tools for population management, even if it benefits other organizations in the system. Along the way, members should be at the center of these initiatives and their data should be a tool to move toward value based care.

Ultimately, there will still be winners and losers. Just as in the Giro, leaders emerge and aggressively sprint to the finish to win the stage just ahead of the others in the breakaway. But by working together, they all finish ahead of the pack.


Read the entire Health Care Current here and subscribe to receive weekly updates.


Harry Greenspun, MD, Senior Advisor, Health Care Transformation and Technology, Deloitte Center for Health Solutions, Deloitte LLPDr. Greenspun, director with the Deloitte Center for Health Solutions, Deloitte Services LP,  serves health care, life sciences and government clients on key innovation and clinical transformation issues. He was named one of the “50 Most Influential Physician Executives in Healthcare” by Modern Healthcare, co-authored the book “Reengineering Healthcare” and has served on advisory boards for the World Economic Forum, WellPoint, HIMSS, and Georgetown University. He previously served as the CMO for Dell.

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State Medicaid programs: A tale of two Commonwealths

by Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP

I have had the chance to work in state government twice in my career. In fact, I have worked in two Commonwealths: Massachusetts and Virginia. Anyone that has spent time in both knows that the two states are very different. Massachusetts has the Red Sox, while, when I was living in Virginia, I spent a lot of nights going to AAA baseball games. Bostonians celebrate Patriots Day, while Virginia is now known as the Oyster Capital of the East Coast. They also opted into Medicaid at different times—Massachusetts in 1966 and Virginia in 1969.1

Historically, US Centers for Medicare and Medicaid Services (CMS) has given states latitude to tailor their Medicaid programs to the individual populations they serve. CMS set policies like mandatory benefits and minimum standards on what populations need to be covered and the Federal Medical Assistance Percentage, which determines how much federal funding states receive for their program. But, outside of these federal policies, state programs vary along many dimensions. Some states have been innovative, taking advantage of flexibility in the law to “waive” various provisions to run the programs their own way. Others have taken a highly regulatory approach. Some states have relatively generous payment rates for managed care plans, and in other states, many managed care plans struggle to stay above water.

Just a few weeks ago, CMS proposed a rule that would make updates to policies for Medicaid managed care for the first time in more than a decade (see the June 2, 2015 Health Care Current). The proposed rule aims to create more national standards for the Medicaid programs using managed care and to align them with standards for exchange plans. It includes access, quality, managed long-term services and supports and rate-setting provisions and also proposes to cap how much of health plans’ premium dollars should be spent on administrative costs.

When I worked in Virginia, many states were just beginning to develop managed care programs for mothers and children. But today, Medicaid managed care is no longer an experiment. Now, 39 states and the District of Columbia have managed care programs, paying $115 billion to plans which earned $2.4 billion in operating profits last year. Nearly one in four Medicaid beneficiaries are in managed care plans.2 In these states, private plans provide coverage and access with state oversight. Arizona and Tennessee have been pioneers in transitioning their entire Medicaid programs into managed care.

As states show more interest in moving their Medicaid populations into managed care and health plans become more engrained into Medicaid programs, the medical loss ratio (MLR) and network adequacy requirements proposals in the rule are likely to be in focus for these stakeholders. At a high level, these provisions have constructive goals: to make managed care plans more efficient and give enrollees better access to care.

But, two questions come to light around these policies and may get attention over the next several months.

Could setting an MLR for Medicaid managed care penalize health plans that use administrative dollars for programs that aim to reduce health care spending, including fraud and abuse? The proposed regulation would set a standard MLR of 85 percent. This would require managed care plans to spend no more than 15 percent of the premium dollars that they receive on administration and profit. The rest would need to go to medical care. A few years ago, the National Association of Insurance Commissioners, managed care plans, regulators and consumer advocacy groups debated a similar policy for commercial plans and a compromise was reached for these stakeholders. CMS is considering a policy that would differ from that framework a bit. For example, it would create an allowance for fraud and abuse spending.

Should network adequacy requirements be based on time and distance requirements that typically start from current care patterns and get set into regulation? States should continue to have oversight over Medicaid managed care plans to make sure that enrollees have access to care. But, access is more than how far away a provider is. Quality and availability also matter. Policies that allow managed care plans to negotiate with providers may help drive down costs even more. Narrow networks are one tool that plans have to negotiate with increasingly concentrated providers. Non-face-to-face visits (e.g., telephone and video appointments) also have enormous potential to help reduce costs. These visits often leverage care teams that do not always include physicians.

Health plans that can work with providers to drive better health outcomes may see opportunities to expand and increase their market share. Flexible administrative solutions may help organizations to more effectively respond to future changes and opportunities. Health plans can take steps to improve care delivery by creating incentives for providers that reward medical cost containment and improve health outcomes at the same time. States that respond to changes in regulations by maintaining a policy of openness and transparency with health plans may find more opportunities for collaboration in their Medicaid program. Ultimately, flexibility and creativity may be a key to managing this transition.

As stakeholders mobilize around this regulation, I hope they will keep in mind that while a core set of standard measures to evaluate quality can bring out opportunities for improvement and highlight innovations that are bearing fruit, states and managed care plans may need flexibility to continue innovating. Excessively rigid regulation can work against innovation. CMS should consider whether these standards align well with its goal (and states’ goals) to get plans to manage risk effectively and develop innovative ways to do this.


Read the entire Health Care Current here and subscribe to receive weekly updates.


Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLPSarah Thomas is the director of research for the Deloitte Center for Health Solutions. Sarah has experience in public policy, ranging from reimbursement to addressing issues such as quality in Medicare, Medicaid and the private health insurance market, including health insurance exchanges and marketplaces. She has more than 13 years of government experience.

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1 Kaiser Family Foundation, “A Historical Review of How States Have Responded to the Availability of Federal Funds for Health Coverage,” August, 2012, https://kaiserfamilyfoundation.files.wordpress.com/2013/01/8349.pdf
2 Virgil Dickson and Bob Herman, Modern Healthcare, “New CMS rule could reshape Medicaid managed care,” May 30, 2015, http://www.modernhealthcare.com/article/20150530/MAGAZINE/305309986


US Supreme Court rules in favor of Administration: Tax credits will continue through all ACA Exchanges

by Anne Phelps, Principal, US Health Care Regulatory Leader, Deloitte & Touche LLP

Today, June 25, 2015, the United States Supreme Court ruled 6-3 in favor of the Administration to permit federal premium assistance tax credits under the Affordable Care Act (ACA) to continue to be made available through 34 federally-facilitated Exchanges, in addition to Exchanges established by the states, to help individuals purchase Exchange coverage.

The US Department of Health and Human Services (HHS) operates federally-facilitated Exchanges in states that have not established their own Exchanges under the ACA. Of the 7.3 million people who enrolled via ACA Exchanges in the open enrollment period for 2015 in states with federally-facilitated Exchanges, 87 percent were determined eligible for premium assistance tax credits.1

HHS currently operates federally-facilitated Exchanges in 34 states. Fourteen states (including the District of Columbia) as of 2015 have established their own Exchanges, and three states are considered to have state-based Exchanges but use the HealthCare.gov platform.

Basis for the decision

In the majority opinion, Chief Justice John Roberts wrote that “the Act’s context and structure compel the conclusion that [Internal Revenue Code] Section 36B allows tax credits for insurance purchased on any Exchanges created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”2

The Supreme Court based its decision on a reading of the statute and Congressional intent to resolve the underlying issue in the case. Thus, the Supreme Court’s decision is not based on the Administration’s regulatory interpretation of the statute.

The path forward

The decision in the case marks the second time that the Supreme Court has ruled on a challenge to a major coverage provision of the ACA. The life sciences and health care sectors have been awaiting the Supreme Court’s decision with great anticipation given its potential impact on the health care marketplace.

In comments in the Rose Garden, President Obama said, “After multiple challenges to this law before the Supreme Court, the Affordable Care Act is here to stay.”3

The Court’s decision could drive some states to take the ACA back into their own hands and work toward establishing their own state-based Exchanges, but the looming 2016 presidential elections could prompt other states to continue to let HHS run their Exchanges while they wait to see what legislative and regulatory changes to the law will be made by a new Administration and Congress.

For more information on the decision and background on the King vs. Burwell case, see the Reg Pulse Blog post, “US Supreme Court rules in favor of Administration: Tax credits will continue through all ACA Exchanges.”

 Read the entire Health Care Current here and subscribe to receive weekly updates.

Anne PhelpsAnne Phelps is a principal with Deloitte & Touche LLP and the US Health Care Regulatory Leader. She has over twenty-five years of health care policy experience having worked in federal agencies, the US Senate, the White House and in consulting firms. She serves as a strategic business advisor to numerous health care stakeholders - including providers, health plans, employers, and life sciences companies - helping them navigate the complex health care regulatory environment and how it will impact their organizations. 
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1 “March 31, 2015 Effectuated Enrollment Snapshot,” Centers for Medicare and Medicaid Services, June 2, 2015.
2 Supreme Court of the United States, King et al v Burwell; Secretary of HHS, et al, Certiorari to the US Court of Appeals for the Fourth Circuit, No. 14-114. Argued March 4, 2015 – Decided June 25, 2015.
3 The White House Blog, “Live Updates: The Supreme Court Upholds A Key Part of the Affordable Care Act.”


Open innovation: The new frontier for biopharma?

by Matthew Hudes, Principal, Deloitte Consulting LLP

Recently I was chatting with some senior executives from a big pharma company and comparing notes about the potential of open innovation (OI) to impact biopharma.

Their view? The critical breakthroughs that have historically originated in their own laboratories are not going to come from there in the future. More likely, they will result from a sharing arrangement with other commercial and academic partners.

The concept of OI isn’t brand new, and it’s been growing across other industries. But in life sciences, it has been slow to materialize. The innovation engine in biopharma over the years has fired on all cylinders, and for many, the risks of opening up the innovation process have outweighed the benefits.

But I believe that tide is turning. OI may well be the engine that generates the most powerful future research tools and effective product development and marketing strategies—and ultimately yields more medicines that have a dramatic impact on disease. As an external network of creative thinking, it can help unlock new therapies and treatments and increase speed to market while lowering costs.

The value of OI can be measured in a number of ways. One is through the vibrancy of the biopharma IPO pipeline, which produced 82 start-ups in 2014. These companies are discovering the drugs that many large biopharmas will eventually take to market. It’s fair to say that the openness to externally discovered and developed drugs was a key environmental factor that allowed many innovators to press ahead with their entrepreneurial vision.

At the same time, big experiments in OI are underway, and still more are coming. It’s an opportunity to learn from what other industries are doing successfully, and to get a better sense of how inclusive this exercise will be. What will it mean in terms of intellectual property, R&D, marketing of ideas and products and, ultimately, competing vigorously in the marketplace?

What is particularly fascinating is the diversity of OI models. Some are open on the input (who gets to contribute?) and some are open on the output (who gets to use?). Some are completely “no strings attached,” some are “first right of refusal,” and some are “guaranteed commercialization” for productive results. With any of these models, companies will need to measure the impact and value of investments in external innovation.

Even with all of the potential benefit, still, there are risks to consider. Who handles and secures intellectual property? How is it controlled, shared, and disseminated? This is a legitimate concern in an industry that traditionally has been proprietary and protective of its creations.

The question for many organizations is how to walk that fine line between access in an open environment and maintaining ownership of the result. Sharing data is a vital part of the OI process, but it still makes more than a few executives anxious.

A second point of discussion has been how partners from different segments of the health care universe – drug makers, innovation facilities, academic centers, other commercial enterprises – can coexist productively. Will competing management styles and differences in organizational culture undermine collaborative efforts?

When an organization sponsors external innovation and retains commercialization rights to the fruits of that collaboration where does that leave the entity responsible for the discovery? How do these organizations structure reversion rights should the sponsoring organization elect not to move forward? Are the discoverers considered “damaged goods” if the sponsor does not elect to commercialize? The emerging debate over contractual terms and marketing strategy will be one to watch.

It’s an exciting time for the biopharma industry. The current and near-future pace of OI experimentation will no doubt influence the industry’s next generation, leading them down intriguing paths. We don’t know which of these business models are going to work. But that’s part of the adventure.

For more on the open innovation, check out Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies


 Matthew Hudes, Principal, Deloitte Consulting LLP

Matthew Hudes is the BioPharma segment leader for Deloitte LLP’s Life Sciences practice. In this role, he provides guidance to the practice’s tax, audit & enterprise risk, consulting, and financial advisory services teams. With 20+ years of experience, Matthew provides strategic professional services to leading Biotechnology, Pharmaceutical, & Medical Technology companies, as well as Academic Research Centers. He works with leading Life Sciences innovation centers in the US and globally.
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Building an open innovation approach to R&D

by Jennifer Malatesta-Johnson, Deloitte Advisory Principal and Life Sciences Sector Leader for Advisory Services, Deloitte & Touche LLP 

Open Innovation (OI) is gaining an important foothold across a number of major industries, from information technology to retail. Today, health care leaders are starting to recognize that OI can have great value in research and development and in marketing strategies to build or recover market share. Though entry has been slow, some major biopharmaceutical companies are beginning to make considerable moves to leverage the OI trend.

As an example, regional innovation centers established by Johnson & Johnson are attracting scientists, entrepreneurs, academics and other businesses and are embracing the value of building partnerships. These centers are innovation hubs that are helping to develop new medical, diagnostic and marketing capabilities.1

Eli Lilly’s Open Innovation Drug Discovery laboratory provides access for outside partners to two complementary scientific platforms. Data and intellectual property (IP) generated by the alliance stays with the institution or medical investigator. The value to Eli Lilly is its right to negotiate for access to molecules or to continue to partner to advance promising breakthroughs.2

Such efforts show an industry that’s starting to “get it,” and move in the right direction. As outlined in a recent Deloitte report, Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies, analysis reveals that the success rate of OI pursuits in biopharma is higher than for closed-model product development. Fifty-four percent of all active drugs were sourced through an OI model, compared to the 46 percent derived from a more traditional closed model. But, life sciences companies are comparatively late to the OI game; adoption has been slow, and so far infrequent. According to analysis performed by Deloitte researchers, organizations are still sourcing about 80 percent of their research and development (R&D) pipeline through the more closed end of the OI spectrum.

The heavy reliance that has been placed on the traditional closed model could well have a stifling effect on innovation. At this point, it is probably fair to say that those organizations resistant to some aspect of OI – recruiting external partners and crafting a truly collaborative model – could find themselves lagging behind. The main areas of concern tend to be uncertainty about OI-centered R&D models, questions of IP rights and issues pertaining to management style, culture and company outlook. The expansion of data-sharing is critical to creative success down the line, but it continues to keep some companies nervous about proprietary control.

These are legitimate concerns and questions that need to be answered to each organization’s satisfaction. But one thing is clear when it comes to the broader application of OI sources and strategies within biopharma: OI likely will be integral to future of pharmaceutical industry R&D and product development.

In this new age, competitive balance can be established by those companies willing to allocate time and resources to partner with innovation centers, academic sources, venture capitalists and other entrepreneurial sources.

OI can be part of the roadmap for that journey ahead. Companies looking to start or restart OI projects should consider taking the following steps:

  • Measuring the current state of their existing OI activities against each OI framework element
  • Developing strategic goals for the future state of OI
  • Conducting a gap analysis and developing an execution roadmap
  • Garnering leadership support and gaining stakeholder alignment to integrate OI with existing R&D initiatives and striving for consistent success measures
  • Mitigating execution risks

The potential of OI methodologies to bring drugs to market in a more cost-conscious and time-effective way is tangible – especially as participants pursue efforts at the most open end of the spectrum. The biopharma industry, as has been seen across the provider and health plan sectors, is in the midst of a transformative change. Collaboration is replacing direct competition as the driver of exciting new research and product development breakthroughs.


Read the entire Health Care Current here and subscribe to receive weekly updates.


JMJJennifer Malatesta-Johnson brings more than 20 years of experience to Deloitte & Touche LLP from both the public and private sectors and is one of the leading professionals in our Life Sciences Governance Regulatory & Risk practice and a U.S. subject matter expert on strategic risk management and compliance issues in Life Sciences.  She serves Life Sciences clients, including global pharma, med tech, CROs and public research organizations such as the NIH.

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PS. The concept of OI is likely to be front and center at two important industry events this week – the 2015 BIO International Convention and DIA 2015.



1Diego Miralles, “Averting an Innovation Cliff,” Scientific American, 2013, accessed October 1, 2014: http://www.janssenhealthcareinnovation.com/news-and-events/in-the-news/scientific-american-averting-innovation-cliff 

2Eli Lilly & Company, “Lilly Open Innovation Drug Discovery Program,” https://openinnovation.lilly.com/dd/includes/pdf/1010-6x9Brochure_Single_for_Web_V8.pdf


What can health care learn from the FIFA scandal?

by Jeremy Perisho, Partner, Deloitte Financial Advisory Services LLP

During the 2014 Fédération Internationale de Football Association (FIFA) World Cup Brazil™, 166 goals were scored by 32 qualifying teams in the 64 matches that were played. More than 3.3 million spectators from across the world were in attendance.1 The games brought in a spectacular $330 million to the local economy in Natal, Brazil in just two weeks.2

On May 27, 2015, FIFA made headlines across the world in a different way. According to recent allegations, 14 leaders from the association have accepted kickbacks and bribes that total more than $100 million over the last 25 years.3 FIFA’s story changed overnight.

When stories of health care fraud and abuse reach the headlines, the case is usually big, large health care systems are often named and the settlements can be substantial. And, just as in FIFA’s case, the actual violations could have happened years ago. As cautionary tales, these stories can offer big lessons for health care organizations. Don’t commit fraud. Don’t compromise patient safety. Don’t cut corners.

There’s a problem with big cautionary tales: they’re hard to scale to the everyday decisions and situations that make up so much of health care. Fraud isn’t always as big as FIFA’s is claimed to be. It might not always dominate headlines. It might take the form of one employee doing the wrong thing without knowing it or management making an important decision based on outdated information.

Each year, the US Department of Health and Human Services (HHS) and the Department of Justice (DOJ) recover more than $3 billion in improper health care payments.4 HHS, DOJ and other federal agencies prevent and monitor fraud by enforcing laws such as the False Claims Act the Anti-Kickback Statute, the Sherman Act and more.

Consider the following scenarios, each based on real-world risks that the HHS Office of Inspector General (OIG) has warned about:

  • A provider practice sole-sources a lab for all its patient testing. In order to retain the contract, the lab waives fees that insurance doesn’t cover. This could be seen by the OIG as a kickback.5
  • The rent paid by a private medical practice to operate in a hospital turns out to be less than fair market value. This could also be seen as a kickback.
  • A hospital network discovers that its new affiliate has unpaid Medicare debt. This could threaten the entire network’s continued participation in Medicare.7

While these scenarios may not have the drama of a data breach involving millions of patient records, each could result in serious fraud and abuse violations. More importantly, as outlined in a recent Deloitte Center for Health Solutions report, Health care fraud and abuse enforcement: Relationship scrutiny, many of the unwanted outcomes might be avoided with a strong risk mitigation program.

Informed by analytics, refined by experience and anchored in actionable knowledge, an effective fraud and abuse risk program can help organizations identify, adjust, communicate and learn.

June 9 Current

If applied correctly, analytics can help identify issues before they start. For the sole-source lab in the example above, real-time monitoring of organizational data could have warned the organization that some patients were not being billed for services they received. Managers could start a conversation with the lab about its billing practices, using their understanding of regulatory rules to guide the conversation and using this knowledge to make protocol adjustments to avoid this specific risk.

As another example, the private medical practice that found itself in the rent scenario could be addressed in a similar way. Since the regulatory risk is not new, program administrators could integrate rules into the analytics system to monitor agreements between hospitals and medical practices that rent space within it. Such a system could even integrate updated market rate data from a third party information source to help monitor this risk area.

Finally, for the new affiliate with unpaid Medicare debt, analytics could help to identify such a liability before any agreement is signed. Prior to the deal, analytics can be used in the due diligence process to identify relationships that exist between the two organizations, their stakeholders, vendors and affiliates. In this process, employees and contractors can be screened against lists of those with outstanding Medicare debt and other risk factors.

In each scenario, identifying potential issues through analytics is only part of the solution. Also important is adjusting strategy and tactics to mitigate risk, communicating the risk of fraud and abuse so that all within an organization can watch for it and continual learning to stay ahead of the compliance curve.

Sometimes fraud and abuse can grab headlines and change the game forever. But managing the risk doesn’t have to be dramatic. It isn’t just about avoiding the big things. It’s about using all the tools at the disposal of an organization, including analytics, to address potential issues before they start. Equally important is using what can be learned from past issues, from the evolving regulatory landscape and from the sea of data that health care organizations create to improve readiness.


Read the entire Health Care Current here and subscribe to receive weekly updates.


Jeremy Perisho, Partner, Deloitte Financial Advisory Services LLPJeremy Perisho is the National Industry Leader for the Life Sciences & Health Care practice at Deloitte Financial Advisory Services LLP (“Deloitte FAS”). Jeremy has more than 20 years of experience with Deloitte and served as client service and engagement partner on Financial Advisory Services projects for some of the leading global companies in the life sciences industry. In particular, she has wide-ranging experience in handling both internal and government investigations of health care fraud, as well as SEC accounting investigations.

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1 http://www.fifa.com/worldcup/archive/brazil2014/
2 http://www.copa2014.gov.br/en/noticia/tourists-inject-over-r-330-million-natal-13-days-during-world-cup
3 http://edition.cnn.com/2015/05/27/us/fifa-corruption-investigation-why/
4 http://oig.hhs.gov/publications/docs/hcfac/FY2014-hcfac.pdf
5 https://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/POD_Special_Fraud_Alert.pdf
6 https://oig.hhs.gov/fraud/docs/alertsandbulletins/office%20space.htm
7 http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-03.html


A matter of choice, not chance: Challenges in providing health care for the elderly

by Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP

I participate in a regular game of Bunco with friends from my old neighborhood. For those not familiar with this game, here’s how it’s played:

  • People form into tables of four—the person sitting across from you is your partner for that round.
  • Each person rolls three dice. The round starts with rolling for ones. If you get a one, you can keep going and you tally up your ones as you go along. If you get three ones, that’s a “Bunco.” If you get three of another number, you get five points, and so does your partner.
  • The bell rings, and you move on to “twos.”

This game involves no strategy whatsoever. One’s score is a question of chance (well, okay, careful counting helps). The great benefit of the simplicity of the game is that we get to talk about what is going on in our lives.

Two members of my Bunco group are social workers, steeped in experiences with the “oldest old.” The topic of hoarding, for example, comes up as does that of the challenges of supporting a parent with dementia. Many of the rest of us are trying to figure out how to support aging parents. While it is true that there are some things people can do to prepare for aging—eating right and exercising and saving money—just as in Bunco, a lot also seems to depend on chance.

By 2030, one in five Americans will be 65 or older,1 and spending on aging, chronic, and long-term care in the US net Medicare expenditure (which doesn’t even cover long-term care) is expected to increase from $512 billion in 2014 to $858 billion in 2024.2 Estimates for long-term care spending range from $210 billion to $306 billion, with Medicaid spending on long-term care totaling $123 billion in 2013.3, 4

An upcoming paper from Deloitte’s Center for Health Solutions, The convergence of trends in health care, highlights aging, chronic, and end-of-life care as a significant opportunity area for innovation. Due to new technologies, the demand for value, a growing health economy, and government incentives, the industry is shifting from aging in isolation to community-supported aging.

Online resources to help with these issues seem to be in demand. According to the Deloitte Center for Health Solutions’ 2015 survey of US consumers, two in five (43 percent) respondents are likely to use online pricing tools that help them compare and possibly negotiate health care prices with providers. Interest varies by age, with, of course, the younger generations, already familiar and comfortable with using online tools for other purposes, showing a greater interest: 47 percent of Millennials, 46 percent of Gen X, 42 percent of Boomers, and 25 percent of seniors say they are likely to use these tools.

Slightly more (46 percent) say they are likely to use online quality rankings, satisfaction ratings, and patient reviews for specific doctors and hospitals. Interest levels vary less than with pricing tools: 47 percent of Millennials, 45 percent of Gen X, 47 percent of Boomers, and 41 percent of seniors are likely to use them.

Resources exist of course. In looking at options for my aunt who lives outside of Philadelphia, for example, I found a treasure trove from the local Area Agency on Aging. But these resources are a far cry from interactive. The Department of Health and Human Services’ Administration on Aging has a good website—longtermcare.gov—which explains what Medicare and Medicaid cover. Various app stores, carry a few apps related to planning for the cost of long-term care. We need more tools to help people of my generation help their parents (and themselves as caregivers) navigate not only the health care system, but that grey area between health care and housing that is long-term care.

I am lucky to have friends to play Bunco with, rolling the dice, talking about supporting our parents. Too bad everyone doesn’t have geriatric social workers as part of their network. Everyone should feel well-prepared—financially and having weighed all the options—and not leave the choice to chance.

This posting originally appeared in the Essays section of Deloitte University Press.


Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLPSarah Thomas is  the director of research for the Deloitte Center for Health Solutions. Sarah has experience in public policy, ranging from reimbursement to addressing issues such as quality in Medicare, Medicaid and the private health insurance market, including health insurance exchanges and marketplaces. She has more than 13 years of government experience.

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1Sandra L. Colby and Jennifer M. Ortman, US census projections of the size and composition of the U.S. population: 2014 to 2060, United States Census Bureau, March 2015,  https://www.census.gov/content/dam/Census/library/publications/2015/demo/p25-1143.pdf, accessed March 2015.

2Kaiser Family Foundation, “The facts on Medicare spending and financing,” July 2014, http://kff.org/medicare/fact-sheet/medicare-spending-and-financing-fact-sheet/, accessed April 2015.

3Lauren Harris-Kojetin, Manisha Sengupta, Eunice Park-Lee, and Roberto Valverde, Long-term care services in the United States: 2013 overview, National Center for Health Statistics, December 2013,  http://www.cdc.gov/nchs/data/nsltcp/long_term_care_services_2013.pdf, accessed March 2015.

4Kaiser Family Foundation, “Distribution of medicaid spending on long term care,” http://kff.org/medicaid/state-indicator/spending-on-long-term-care/, accessed April 2015.



The five unanswered questions surrounding biosimilars

by Homi Kapadia, Vice Chairman, US Life Sciences Leader, Deloitte LLP

After James Wilson Marshall discovered a certain shiny metal in the America River in California, he later recalled that his discovery “made my heart thump, for I was certain it was gold.” It was 1848, the year before the gold rush began. By the end of 1849, California’s population had grown to 100,000, nearly 80,000 more than the end of the prior year.1 It was all for gold.

The biologics market has grown exponentially over the last several years. These products represented more than $150 billion in global sales in 2013 and are projected to generate $290 billion and make up 27 percent of the pharmaceutical market by 2020.2 This, along with the increasing worldwide focus on improving health care access and costs, presents an attractive opportunity for biosimilar – or follow-on biologic – manufacturers. Analysts expect the worldwide biosimilars market to reach $25 to $35 billion by 2020. Since the first biosimilar approval in EU in 2006, there are now more than 700 biosimilars approved or in the pipeline globally.3

But do industry players currently view it as a possible gold rush, or a misguided hunt for fool’s gold? While it may not be as easy to mine as gold was in California back in the mid-19th century, there’s little question in my mind that the biosimilars market could be a prospective gold mine for major pharma companies, generics manufacturers and even smaller drug producers. There could be potential for this market to make an enormous impact in the development, manufacturing and marketing of complex medicines for years to come.

However, health care and life sciences organizations must tackle a series of critical assessments before determining how quickly they rush to the scene. While many believe that biosimilars hold exciting promise for drug manufacturers, their leaders should consider the answers to five key questions before they proceed and expect to achieve that promise.

Can the business afford it? Certainly the largest pharma companies may be best positioned by virtue of the fact they have higher revenue, greater resources, existing manufacturing capacity and broader research and development capabilities to facilitate including biosimilars as a core part of their business model and organizational strategy. This may yield a competitive advantage for branded drug manufacturers that have enough capital and the ability to build to scale. It may also prove to be an opportunity for a number of smaller manufacturers that have the ability to scale up sufficiently to become profitable. But there may be a number of companies that simply won’t have the financial wherewithal to compete.

What are the state and federal legislative mandates that may determine the growth and expansion of this new sector? Predicting future regulatory pressures is a tough business. Biosimilars are, after all, not an exact match. They involve living tissue, not small molecule generics that can be easily applied. Interchangeability is a key consideration. In more than a dozen states, products cannot be switched unless they are classified as interchangeable. That means additional clinical trials and higher expenses. For companies working to launch new products, the process can be slowed, if not made prohibitive altogether.

What is the organizational appetite for investment? At a time of industry change and contraction driven by evolving marketplace demands, will biopharma companies be as aggressive in devoting financial resources to an emerging segment of the market that requires substantial investment and carries additional risks? The approach may differ by organization: generic manufacturers may need to acquire capabilities, while biologic innovators may have to overlay this new business onto their current portfolio.

What kind of pricing structure needs to be put in place? How do organizations create enough margin to maintain a pricing model that will make the investment worthwhile? While branded pharma companies might view this as a challenge, it’s not an insurmountable one. However, many smaller companies facing smaller margins – even those that have demonstrated success with generics – may find this demanding and dynamic new market more difficult.

Will we experience the level of consumer discounts long associated with the growth of generic drugs? The short answer is probably not. Generic products have generated remarkable savings for consumers over the years. But generics and biosimilars are not an apples-to-apples comparison.

Consumers have become used to generic cost reductions in the neighborhood of 80-90 percent.4 Given the complexities of manufacturing and regulatory hurdles for biosimilars, the cost savings for consumers using biosimilars will probably fall in the 30-percent range, at least in the short term.5 Will consumers opt for a biosimilar treatment if it is not significantly cheaper than the reference product?

Once all of these questions have been addressed, one overarching question still remains: Is the risk worth it? By 1850, merely two years after the beginning of the gold rush, most of the surface gold in California had disappeared. Miners continued to flock to the area, but they faced difficult and dangerous conditions.

Making the strategic decision to compete in the biosimilars market is riskier than generics. But it could have enormous upside. For industry players, sitting on the sidelines may not be wise. Organizations can use scenario planning to determine what products may succeed in the marketplace, what products may not and how best to invest strategically.

For those determined to push ahead after weighing these five critical questions, they could end up capturing a significant share of the estimated tens, even hundreds, of billions in biosimilar-generated revenue over the next decade. That could be the gold that makes it worthwhile for companies to invest.


Read the entire Health Care Current here and subscribe to receive weekly updates. 


Homi Kapadia, Vice Chairman, US Life Sciences Leader, Deloitte LLP

Homi Kapadia, Vice Chairman at Deloitte LLP, has 30 years of experience with life sciences, consumer business, and process industry clients. As the National Life Sciences Leader, he leads Deloitte's life sciences practice that provides audit, consulting, enterprise risk, financial advisory, and tax services to pharmaceutical, biotechnology, medical technology, and consumer health care clients. Homi has also served on the Board of Directors for Deloitte LLP and the Consulting Executive Committee.

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2 IMS Health, 2013

3 BioWorld, 2014





What to look for in the Supreme Court decision in King v. Burwell

by Anne Phelps, Principal, US Health Care Regulatory Leader

In June 2015, the Supreme Court is expected to issue a ruling in King v. Burwell, a case that challenges an important coverage provision of the Affordable Care Act (ACA). The ACA makes federal tax credits available to certain individuals to help them offset their premiums when they purchase health coverage on an insurance Exchange established by a state. If the state does not elect to establish an Exchange, the ACA charges the Secretary of Health and Human Services with establishing and operating one within the state. To date, 34 states have elected not to run insurance Exchanges of their own and have fallen back to the federal government. The Department of the Treasury, through a regulation issued by the Internal Revenue Service, has made the federal tax credits available to individuals who purchase health insurance on both state-run and federally-facilitated Exchanges.

The major issue the Supreme Court will determine is whether it was an allowable interpretation of the ACA for the IRS to make federal tax credits available to individuals who purchase coverage through the federally-facilitated Exchanges. If the Supreme Court invalidates the IRS rule, millions of Americans who are receiving tax credits through the federally-facilitated Exchanges would lose these subsidies. Many in the health care community are extremely worried about the fallout from such a decision as it could result in individuals no longer being able to afford their coverage, a rise in premiums, and disruption in the insurance markets. But it is worth reminding ourselves that it is not the job of the Supreme Court to make health policy decisions. The Supreme Court will be evaluating the case based on a reading of the statute and an examination of the Obama Administration’s regulatory interpretation of the statute.

What are the various scenarios to look for in the Supreme Court decision?

While it is difficult to predict what the Supreme Court will decide in any given case, we can look to the questions raised before the Court and think through various decision scenarios to help prepare for the outcome. The King v Burwell case is a bit more straightforward as it does lend itself to a more “up or down” decision. Are the tax credits upheld or are they struck down? But the Supreme Court may render a decision with some unexpected twists as it did in its 2012 ruling on the individual mandate and state Medicaid expansion.

As the US Health Care Regulatory leader at Deloitte, I am looking at four possible scenarios when the decision is handed down next month.

  • Ruling in favor of the Administration based on the statutory language. In this scenario, the Supreme Court would rule that, based on a reading of the plain language of the ACA statute, the tax credits are intended to be made available to individuals who receive coverage in a federally-facilitated Exchange. In essence, the Court may find that the language and intent of the statute make it clear that if a state has chosen not to establish an Exchange, then the federally-facilitated Exchange that the law directs the Secretary of HHS to step in and establish, is for all intents and purposes under the ACA, an “Exchange established by the state,” and that tax credits should be available to individuals in those states. This would be the most clear cut decision in favor of the Administration. I often call this scenario “the period at the end of the sentence” as it resolves the underlying issue in the statute.

  • Ruling in favor of the Administration based on the Department of the Treasury’s regulatory authority. Under this scenario, the Supreme Court would rule in favor of the Administration’s position, but it may conclude that the plain reading of the statute is not clear. The Court would then need to look at the Administration’s interpretation of the statute and Treasury’s rule making authority. The Court will determine whether or not deference should be given to the Administration’s interpretation in the IRS rule that allows tax credits to be made available to individuals buying coverage in federally-facilitated Exchanges. The Court may give deference to the Administration’s interpretation and broad rule-making authority. However, an interesting twist in this scenario – while upholding the Administration’s position – it does leave the door open to a future Administration revisiting the regulatory rule and issuing its own or a different interpretation of the statute. So, it is more like an ellipsis…we may have to stay tuned for the possibility of further action down the road.

  • Ruling against the Administration, Court does not stay the decision. In this scenario, the Supreme Court would rule against the Administration either because the statute does not allow for the tax credits to be made available through the federally-facilitated Exchanges or the Court does not defer to the Administration’s interpretation of the statute in the IRS rule. Either way, in this scenario, the Administration’s position would be struck down. If the Supreme Court determines the tax credits to be unlawful, and they do not provide any further instructions or “stay” the decision, the tax credits (which are issued on a month by month basis) may cease to be made available as soon as the decision is rendered and final.

  • Ruling against the Administration, Court stays the decision. In part because there has been much discussion about the fallout of a ruling against the Administration, including by the Justices themselves in the March oral arguments, many have questioned whether the Supreme Court could “stay” its decision striking down the IRS rule for a period of time or provide instructions for a transition period, e.g., allow currently covered individuals to continue to receive tax credits until the end of the coverage or tax year (December 2015). This may be possible, but seems unlikely. The role of the Supreme Court is to read and interpret the statute and the Administration’s regulatory authority. It is not to set or make health policy decisions. How would they decide what was the best policy outcome here? Thus, if they determine the tax credits are unlawful, this scenario may tie their hands and prevent them from providing transition relief.

I, like many of the health care clients we serve, am waiting with anticipation for the Court’s decision and the determination of the next steps on the ACA’s historical path. Many of us know that change is the only constant in our dynamic health care system. In light of the high stakes of the Court’s decision, companies must be prepared to react, respond, and re-prioritize in short order.


This post originally appeared on the Deloitte Center for Regulatory Strategies Reg Pulse Blog.


 Anne PhelpsAnne Phelps is a principal with Deloitte & Touche LLP and the US Health Care Regulatory Leader. She has over twenty-five years of health care policy experience having worked in federal agencies, the US Senate, the White House and in consulting firms. She serves as a strategic business advisor to numerous health care stakeholders - including providers, health plans, employers, and life sciences companies - helping them navigate the complex health care regulatory environment and how it will impact their organizations. 
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A look inside health care’s innovation playbook

by Jeff Wordham, Doblin, Principal, Deloitte Consulting LLP

A lot of people talk a good game about innovation and transforming the culture. But that’s the problem—it’s mostly talk. Despite the promise of interventions, real and lasting change isn’t brought about through suggestion boxes, motivational speakers, or program campaign cheerleaders. Yet these myths persist.

As a result, innovation seems mysterious, somehow; something a company either innately embraces—or doesn’t. It’s a perception that unwittingly traps too many health care CEOs into believing there is nothing they can do to nurture innovation in their organizations.

Fortunately, they’re wrong.

After studying highly innovative companies across more than two dozen industries, we’ve discovered at Doblin that innovation really is more scientific discipline than art form. In essence, an innovation "playbook" does exist.

That playbook is especially valuable in today’s fast-changing health care environment, where innovation is an increasingly essential part of “future-proofing” your business. Let’s face it: the health care industry is not exactly known for its innovation track record. And the regulatory and risk factors are decidedly different in health care than in other industries. Yet the principles that make for effective and disciplined innovation apply just as much to health care as anywhere else.

Our report “In pursuit of innovation: A CEO checklist” is designed to help health care executives understand what makes innovation work and how to make it happen. We’ve found that an overwhelming majority of highly innovative organizations follow a system of innovation that includes four key components:

  1. Approach
  2. Organization
  3. Resources and competencies
  4. Metrics and incentives

Within each of these four components are three “levers” that drive innovation:


As we developed this checklist, it quickly became clear that discipline is equally as important to innovation as creativity. Generative thinking matters, yet rarely do companies lack for ideas. What they generally lack is a disciplined approach to get those ideas to market. So along with the four components of effective innovation, a few additional leading practices we discovered include:

Leadership matters. Contrary to popular belief, innovation does not just bubble up from ground level. Companies can benefit from giving employees at all levels a voice and platform to generate ideas. But leadership is responsible for creating the strategic direction for innovation and for creating the conditions for innovation to thrive. All of the most successful, scaled innovation programs we’ve seen were led by CEOs and other senior leaders in the organization. Taking innovation seriously is first and foremost a leadership challenge. The top of the house must own it, and take a disciplined and systemic approach to it.

Define your innovation strategy. This critical—but often overlooked—step requires both specificity and honesty. It’s easy to say, “We’re innovative,” but organizations need to identify how much change they really want, and in which direction they want change to go. Health care organizations with a reputation for innovation typically do a great job of: 1) defining a long-term goal, 2) mapping it to the current state, and 3) identifying and closing the gaps.

Be more iterative. Health care historically takes a long-term, linear, staged-gate approach to developing new products and ideas. (Picture the typical clinical trial process, for instance.) For success in the future, however, innovation will need to become more iterative. Much like the Agile software development methodology, organizations will need to build rapidly, test with customers, and use the feedback to pivot as needed. This approach helps lower an organization’s upfront investment in a new idea—and begins to de-risk innovation. Furthermore, as health care companies try to drive innovation in the face of fundamental reform (e.g., a growing shift to value-based payments, new care models, and shifting ownership of risk) a more agile approach will be required to succeed in a shifting ecosystem.

There is no question that it’s difficult to commit to innovation while under immense short-term cost pressures. Health care CEOs today are being asked to focus on making processes leaner—not reinvent them. But, when you boil it down, all health care organizations will eventually fall into one of two categories: Those that shape the pace of change, or those that fall victim to it. Innovation is not optional. But by following a systemic approach, you can be among those who shape the future.


Mitch Morris, MD, Vice Chairman and National Healthcare Provider Lead, Deloitte LLP Jeff Wordham is a principal of Deloitte Consulting LLP and a member of the Doblin leadership team. He focuses on helping companies future-proof their strategies and identify and exploit new sources of profitable growth through innovation. He specializes in developing and commercializing new businesses and building innovation capabilities within organizations. Jeff has deep knowledge in financial services and health care, having led multi-year innovation and strategy programs across both sectors.
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