What does value mean in health care?

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

This weekend I bought a new pair of running shoes at my local running store. While they were not especially cheap, I think I will get a lot of use out of them – they were custom fitted to my foot and should get me through the spring and summer running season. I have a mental calculation that if I buy an article of clothing or footwear and wear it enough times, it will have been a good value buy. But as a health care consumer, it is not as easy to make the same calculation. What does good value mean in an industry where the stakes are much higher (life or death) and more uncertain (whether the therapy will work for me or whether I’ll get better on my own) and insurance shields me from much of the costs?

The question of value in health care was on the agenda at the recent America’s Health Insurance Plans’ (AHIP) Policy Conference, which I was fortunate enough to attend. While the entire agenda was very interesting, the sessions I found most engaging took on the question of how to consider and assess value in the U.S. health care system, especially as it relates to spending on high cost specialty drugs.

Recent reports have found that spending for prescription drugs is picking up, even after a slowdown in spending on other areas. Altarum reported that spending for prescription drugs makes up 10 percent of the total spend, and reported spending growth in January 2015 reached almost 12 percent.

Whether this is good news or not depends on where you sit. Certainly from the perspective of the life sciences industry, this is good news. Measuring the return from pharmaceutical innovation 2014, published by the Deloitte U.K. Centre for Health Solutions with support from Deloitte Consulting LLP, also revealed a positive trend: the return on investment from drugs is improving. On the other hand, AHIP represents health plans and thus a payer perspective. From a consumer perspective, the Deloitte Center for Health Solutions' 2013 Survey of U.S. Health Care Consumers showed that as consumers take on more health care costs and choice-based health markets develop, value will likely become a driving force that shapes their perceptions, decisions, and long-term relationships with health care providers, payers, and other stakeholders. Value, for consumers, increasingly extends beyond price to include the quality of the patient-family experience and interpersonal interactions.

The main topic taken on by the panel at the conference was whether the additional cost of these high cost drugs is “worth it.” This speaks to a key issue of how to think about value. Each of the panelists approached the notion of value in a different way:

Quality-adjusted life years: The first speaker, a physician in academic medicine, focused on cost-per-quality-adjusted life year. This metric considers value in terms of additional years (or months) gained, taking into account disability and other issues that affect quality of life. He made the observation that the economic incentives in drug development have been to develop products for which high prices can be charged in niche areas.

What the government can afford: The second speaker, from a pharmaceutical benefit management (PBM) firm, defined value in terms of public spending through federal and state budgets. To him and many others, higher spending in health care means that government has less money available for other valued services, like education. He also presented a framework for assessing value called the incremental cost-effectiveness ratio, which maps individual products based on their clinical effectiveness and price. For many PBMs, the value proposition is negotiating hard on price and shifting patients to products with lower prices.

What an individual can afford: The third speaker came from a consumer organization. To him, value represents the amount that Medicare beneficiaries spend on drugs and how that compares with their income (one report shows that half of Medicare beneficiaries have an income of $22,000, and cost sharing for some of the new specialty drugs can range from $7,000-12,000). His organization offers a number of recommendations, many of which focus on lowering drug prices.

Survival rates: A fourth speaker from a pharmaceutical manufacturer articulated value in terms of the longevity we all enjoy because of drug therapies. To her, drug therapies can prevent higher spending on care in other settings like hospitals. The Congressional Budget Office (CBO), which tends to be more conservative in its predictions on savings, acknowledges this point in its estimate that a 1 percent increase in use of prescription drugs in Part D can cause Medicare spending on medical services to fall by roughly 0.20 percent. She urged the audience not to single out drugs and to consider all sources of cost and value in the health care system.

Return on research and development (R&D): Later that day in a different session, one more speaker addressed the question of spending for drugs, proposing that policymakers could consider tying biopharmaceutical companies’ potential revenues for a drug to the amount of money invested in R&D. In his proposal, manufacturers that changed lower prices relative to R&D costs would gain a longer period of exclusivity.

What I find so interesting about these diverse perspectives is that each has validity. Stakeholders agree that health care spending in general, not just on drugs, is an impending crisis. Society is looking for better value for the money spent on health care. As an individual, I want drugs available to take care of my health care conditions, and I don’t want to pay too much for them out of pocket.

But I also understand that if we want investors to put their money into biopharmaceutical companies, they need to see opportunities for profit. A flexible regulatory environment may stimulate more investment.

Finally, from a political perspective, this Congress has signaled strong interest in bringing new cures to the market through the 21st Century Cures initiative (see the March 3, 2015 Health Care Current).

The sessions and discussion around some of these issues during the breaks and other networking opportunities at the conference allowed me to tune into a multitude of different perspectives on value and how to define it. In a health care environment that is increasingly focused on value-based care, stakeholders should continue to articulate what value means to them. These continued discussions will likely influence evolving payment models, future funding and priorities for federal agencies and future strategies for advancing biomedical innovation.

Stakeholders will come to the issue of defining value and measuring it with different vantage points. I think a lot can be gained by articulating those perspectives and having an open dialogue. All aspects of value are important – just as I considered my budget, color, taste and utility in valuing a pair of shoes.


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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(Sources: Altarum Institute, “Health Sector Economic Indicators,” March 6, 2015; Kaiser Family Foundation, “Medicare Policy,” June 2011; Congressional Budget Office, Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services, November 2012)


Breaking the cycle of patching physician payment in Medicare

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

Every year, as long as I can remember, the US Congress has been forced to consider physician payment in Medicare, and this year is no different. Many years ago, an earlier Congress put into place a payment formula called the sustainable growth rate (SGR), which was supposed to cut physician payments if the volume of physician services increased much faster than economic growth. For a while, the formula had a good run for many physicians in Medicare: the pace of volume increases was relatively low, and rather than cutting payments, the formula increased them.

Then, in 2002, the volume of physician services accelerated, and physicians were confronted with payment cuts. This is the only year thus far where cuts have actually gone into effect. When push comes to shove, it is challenging to allow payment cuts to go into place – physician organizations oppose the cuts, as do Medicare beneficiary groups who worry about access. As a result, each year except for 2002, Congress has prevented the cuts from occurring. The way the formula works, this “override” has to be made up in future years’ payments.  With each successive override, the hole (the amount that the formula calls to be made up with subsequent cuts) gets deeper, making the need for another override inevitable regardless of whether volume has increased or not.

The rationale for the SGR formula at the time was to create an overall budget target that would control volume increases and total spending. But it hasn’t worked to control volume (even if it perhaps has controlled spending by limiting updates for physician payment to those that can be paid for through cuts made to other providers). The very nature of fee-for-service payment drives volume. If a physician sees more patients, he or she will get paid more. And a budget cap set at the national level does not mean much to an individual physician because his or her own actions will seem like a drop in the bucket compared to the total.

Last year, both parties in both houses of Congress agreed to, but did not enact, legislation that would have created a new payment system for physicians in the traditional Medicare fee-for-service program. This proposed legislation would put greater weight on performance and encourage physicians to migrate to value-based care, which would be consistent with what Medicare, Medicaid, and private purchasers are stressing. And in contrast to the old system that set a total budget cap on Medicare payments for physician services, the new system envisioned in the legislation would connect the incentives with individual physician performance. It would weigh quality and volume control much more heavily in reimbursement and create financial incentives for physicians to participate in alternative payment models (APMs) that incorporate value-based care.

Since Congress is considering movement on this legislation again this year, it is a good time to remember what’s in the bill.

  • First, if passed, it would repeal the old SGR formula and create a steady stream of modest updates going into the future. The legislation calls for higher updates for physicians participating in APMs.
  • Second, the Secretary of Health and Human Services (HHS) would consolidate all of the existing incentive programs – 1) electronic health record (EHR) meaningful use incentive program, 2) quality reporting program, and 3) value-based payment program – into one system called the merit-based incentive payment system (MIPS), which would start in 2018.  Like in the existing incentive programs, physicians could get increases if they meet performance goals or could have cuts if they miss them. However, the penalties scheduled to go into place around meaningful use this year would not occur; instead, hospitals and physicians would be rewarded for having systems, as has been the policy the last several years. The MIPS program would not only include physicians, but could also include physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists; the Secretary of HHS could expand this list after the first two years of the program.
  • Alternatively, physicians could participate in APMs which have different performance criteria than in MIPS. Physicians participating in these APMs could gain up to 5 percent higher payment through incentive payments between 2018 and 2023. The Medicare Shared Savings Program is one example of an APM.
  • The Secretary of HHS would pay for chronic care management services for patients with chronic care needs. HHS already has put this provision into place through regulatory authority.

The legislation would contain many other changes, together representing a significant piece of Medicare policy overall. While primarily focused on the traditional program, the legislation would have the Secretary study the feasibility of integrating APMs in the Medicare Advantage payment system.

The legislation also calls for some changes to the underlying payment methodology for physician services. One example is adjusting practice expense calculations using additional data sources. Another example calls for HHS to examine more instances of services that may be paid too much (potentially creating a profit incentive to provide more of the service) or too little (potentially creating access and equity problems). The legislation calls these “misvalued” services. Observers have criticized aspects of the current process for setting payments for particular services, saying the process gives too much weight to new technology and specialized services over primary care. The legislation creates a 0.5 percent target reduction to payments to account for savings from lowering payment rates for “misvalued” services. A third potential change would be around geographic adjustment of payment rates.

It is too early to know whether the legislation will pass this year. Budgetary issues are significant, especially which policies will be brought forth to reduce the overall impact. Political issues are already cropping up as this is viewed by many as legislation that should move forward this year in order to prevent approximately 21 percent cuts to physician payment. The extension of the Children’s Health Insurance Program (CHIP) program, for example, might be part of the legislation to address the SGR; and one question on the table is how long the extension should last.

If Congress successfully works through these issues and enacts this legislation, my take is that this would be another step away from the traditional payment model toward value-based care.


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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Change happens at the speed of trust

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

I have wasted another day on a familiar ritual. As a result of a security breach at a nearby retailer, I’ve had to replace my credit card and now must update the myriad of businesses that keep my information on file. Sifting through my monthly statement, I’m struck by just how many places that is: toll tags and parking apps, grocery and produce delivery, wireless carrier, video streaming service, airline and hotel accounts, my kids’ afterschool programs and countless online retailers. While the sheer number is alarming, what is more concerning is the picture this data paints about me and my family: it reflects where we go, what we do, what we eat, what we watch and what we buy. My credit card data isn’t just about my finances; the data detail nearly every important aspect of my life—including my health.

Maintaining privacy in health care used to be relatively straightforward. As a physician, I was bound by doctor-patient confidentiality. This gave my patients the confidence that they could share with me intensely personal information. And, security used to focus on limiting access to paper charts. Breaches typically involved only a handful of individuals.

Now, in an era of electronic health records (EHR) and clinical data warehouses, consumers’ confidence in the security of their data continues to be shaken. From lapses in protocols to sophisticated cyber attacks, the public is confronted by exposure on a massive scale. The value of health care data on the black market is even beginning to outpace financial data, as scammers and hackers can use information about individuals’ physical characteristics to steal identities. The information that comes with a person’s medical identity is also more difficult to move back into the private realm once it leaks out into the public.

Some of this news could not come at a worse time. The future of health care depends on secure flow of information. Nearly every major delivery reform, from value-based care and population health to personalized medicine and use of real-world evidence relies on data and the willingness of those who have it to share it. The ability to better serve individuals depends on our ability to view their data in aggregate.

Compounding the problem is the awareness that our overall privacy – not just health privacy – is slowly eroding. A casual glance at the online ads served up to you reveals how quickly your consumer data gets shared, but technology has taken us well beyond that. Last year, while participating in a conference on privacy in Abu Dhabi, one of the speakers asked, “Who knows you’re here?” The list grew rapidly: my office, the airline, customs and immigration, the hotel, the taxi company, the coffee shop, my cell phone carrier, the conference center and the owners of the literally thousands of security cameras I’d passed during my trip. Adding notes to family and friends along with followers on social media, it was clear that the record of my trip had been broadly dispersed.

As we sit on the cusp of the era of “big data” in health care, there are several important things to consider:

  • Health data concerns are different. While the loss of financial information can be distressing, the impact can usually be mitigated and consumer liability is often limited. By contrast, disclosure of certain medical information can be devastating with far-reaching consequences. In addition, breaches and misuse can introduce inaccuracies into a medical record, potentially impacting patient safety.
  • Privacy preferences fall along a continuum and vary within individuals depending on the topic. While many consumers may freely share certain health information for clinical research, on social media and with disease-specific websites, they fiercely protect other data about themselves. As we strive to gather more data to advance health care, the tension between the need for individual privacy and knowledge for the greater good is only going to increase.
  • The industry has a communication challenge. Do your own survey and ask some friends, “What are the risks of having your medical information stored electronically?” Once they have talked your ear off about identity theft, discrimination and even extortion, ask them, “What are the benefits?” Having done this many times myself, I’ve found that few have a compelling answer. While we have invested heavily in EHRs and health information exchange, we have done little to educate the public whose data may be at risk.

These are extraordinarily complex and highly personal issues that sit at the intersection of science, law, ethics and technology. Solving them may begin with establishing a firm foundation that addresses the pervasiveness of cyber risk and ensuring an organization’s strategy is secure, vigilant and resilient. This strategy might include:

  • Performing a risk review of the full health information supply chain of an organization
  • Articulating the organizational vision for security and privacy
  • Capturing policies and processes in an organization-wide plan that also includes business associates
  • Investing in and implementing a security and privacy program that includes continuous monitoring and updating

Change happens at the speed of trust. The need to transform health care is clear and the goals set are ambitious. However, progress will depend upon a public that is informed and confident that the industry will be a trustworthy steward of their data.


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 LLPAs a director with the Deloitte Center for Health Solutions, Deloitte Services LP, Dr. Greenspun 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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Thoughts on the future of medical research and development


Today it takes many years to translate scientific evidence from discovery into health care practice. Stakeholders are likely losing time, money, and opportunities to improve health outcomes, as well as chances to revive the global competitiveness of the US. In the recent Health Sciences Dbriefs webcast, Improving health outcomes: The future of medical research and development, we asked approximately 1,400 professionals for their views and opinions on the future of medical research and development (R&D).

 Below is a snapshot of their responses. For more information on this webcast or to register for upcoming webcasts, please visit: www.deloitte.com/us/dbriefs/healthsciences

For more on the future of medical R&D, check out: Measuring the return from pharmaceutical innovation




King v. Burwell: Will the Supreme Court decision spur states to action?

by Anne Phelps, Principal, U.S. Health Care Regulatory Leader, Deloitte & Touche LLP

Last week, the U.S. Supreme Court heard arguments in King v. Burwell, the case that challenges an important coverage provision of the Affordable Care Act (ACA). The major issue that the Supreme Court will determine is whether the Internal Revenue Service (IRS) has the authority to make federal tax credits available to individuals who purchase coverage through the federally facilitated Exchanges (FFEs), or what the U.S. Department of Health and Human Services (HHS) refers to as “marketplaces.” If the Supreme Court invalidates the IRS rule, millions of Americans who live in the 34 states that elected not to run their own Exchanges and who are receiving tax credits through the FFEs would lose these subsidies.

Last week, the justices presented key exploratory questions during the arguments: What was the federal statutory model after which the ACA was designed to establish national insurance rules and provide federal assistance to states? Does the ACA tie states' hands – in either a coercive or cooperative way – to receiving federal assistance only if they establish an insurance Exchange? Is it like Medicaid or the Clean Air Act?

While others struggle with these questions, one thing struck me as I reviewed the Court transcript and read the myriad of articles and opinions covering the case. I would argue – and many have overlooked as time passed – that the precursor to the ACA was the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

In 1996, I was a young staffer working on Capitol Hill with Senators Nancy Kassebaum and Ted Kennedy as they crafted the details of one of the most significant federal laws at that time to create national health insurance market rules. In the final legislation, HIPAA relied on both the states and the federal government to enforce the standards around the availability and portability of health insurance coverage. If a state failed to pass enacting legislation or enforce the HIPAA provisions, the Secretary of HHS was instructed under the law to step in and enforce the provisions. This scenario became known as the “federal fallback rules.” HIPAA amended the Public Health Service Act, the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code to set insurance standards and enforcement procedures for the individual and group markets. As of 2012, at least 9 states and the District of Columbia relied on the federal fallback approach to enforce the HIPAA standards.

Long before I was aware of the King v Burwell case, I thought that HIPAA was the precursor to the ACA. The structure of the laws are similar, they amend the same statutes and there are options provided for states, including the option to pass enacting legislation or “fallback” to the federal government. There is clearly one important difference: in establishing new insurance market rules, and in an effort to expand coverage under the ACA, Congress provided advanced premium assistance tax credits to help individuals purchase Exchange coverage.

In some ways, trying to look back now to surmise Congress’ intent to use coercion or cooperation with states and trying to guess which way the Supreme Court will rule are fruitless exercises for anyone who does not sit on the Supreme Court.

Either way, in my view, the decision by the Supreme Court should be a catalyst for action. If the Court strikes down the availability of tax credits in the FFEs, the structure of the law will remain in place and states will still have the option to move forward or not. If the Supreme Court upholds the credits in the FFEs, many states may interpret that as nearly a final word on the permanence of the law, decide to take the ACA back into their own hands and work toward establishing their own state-based Exchanges.

Some states have begun conversations with their legislatures about moving forward. Others are waiting to see how the Supreme Court rules. Establishing a state-based Exchange may invite budget and political battles in many states. But, there are also opportunities for states that step in now and build Exchanges or coverage models that best suit their needs while applying the lessons others have learned from the past five years of ACA implementation.

With HIPAA on my mind, I always thought the Democratic architects of the ACA intended for states to establish their own Exchanges. I doubt many thought so many states would decline to do that. Many Republicans have expressed the view that states should govern their own insurance markets as they chose to do under HIPAA.

Health care stakeholders need certainty and want to see individuals obtain coverage. The Supreme Court may not only be the final arbiter on the law’s standing, but it may also be the catalyst that moves the debate and the resolution forward. Ultimately, I think the most pressing question is: Will the Supreme Court decision spur states to action?


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


 Matthew Hudes, Principal, Deloitte Consulting LLP Anne 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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King v. Burwell: the Supreme Court as a catalyst

by Anne Phelps, Principal, US Health Care Regulatory Leader

On March 4, 2015, the Supreme Court heard arguments 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 coverage on an insurance Exchange established by a state. If the state does not elect to establish an Exchange, the ACA charges the HHS Secretary with establishing and operating one within the state. The IRS has made the federal tax credits available to certain individuals who purchase health insurance on both state-run and federally facilitated Exchanges through regulatory rules.

The major issue that the Supreme Court will determine is whether the IRS has the authority to make federal tax credits available to individuals who purchase coverage through the federally facilitated Exchanges. To date, 34 states have elected not to run insurance Exchanges of their own and have defaulted to the federal government. 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.

While this outcome would likely be a major disruptor to the insurance markets, it is important to note that it would not dismantle the ACA. The structure of the law would remain intact.

If the Supreme Court invalidates the availability of tax credits through the federally facilitated Exchanges, the pivotal issue will be whether the current administration, the states, and/or the Congress will step in to keep them flowing. Even if the Supreme Court upholds the credits in the federally facilitated Exchanges, states may interpret that as nearly a “final word” on the permanence of the law—and decide to take the ACA back into their own hands and work toward establishing their own state-based Exchanges.

Will the Supreme Court decision spur states to action?

While many stakeholders fret over what the Supreme Court will decide, other keen observers view the Burwell case as a catalyst for action no matter what the Supreme Court says. Ultimately, the responsibility to act may fall primarily to the states.

In a February 24, 2015 letter to Senate Finance Committee Chair Orrin Hatch, HHS Secretary Sylvia Burwell wrote, “We know of no administrative actions that could, and therefore we have no plans that would, undo the massive damage to our health care system that would be caused by an adverse decision.” In other words, the administration is indicating it does not have the regulatory authority to restore the tax credits. Congress may wish to step in to restore the tax credits to the affected individuals, but the ensuing budget and political battles may weigh them down. There is no guarantee the President would sign legislation that stops short of permanently restoring tax credits through the federally-facilitated Exchanges.

Thus, it may be up to the states to determine what is in the best interest of their citizens who are at risk of losing subsidized coverage—and to weigh the impact on their local insurance markets and health care providers.

Some states have been opening conversations with their legislatures about moving forward with the establishment of their own Exchanges. Others are waiting to see how the Supreme Court rules. Moving forward with state-run Exchanges may invite budget and political battles, but there are also opportunities for states that step in now and build insurance Exchanges or coverage models that best suit their needs while applying the lessons others have learned from the past five years of ACA implementation.

The law’s Democratic architects always intended for states to establish their own Exchanges. Many Republicans have expressed the view that states should govern their own insurance markets. Health care stakeholders need certainty. The Supreme Court may not only be the final arbiter on the law’s standing, but it may also be the catalyst that moves the debate and the resolution forward.


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


 Matthew Hudes, Principal, Deloitte Consulting LLP

Anne 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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21st Century Cures: Revolutionizing the launch of new therapies

by Terri Cooper, PhD, Principal, Federal Health Sector Leader, Deloitte Consulting LLP

At a House Energy & Commerce Committee 21st Century Cures roundtable, Dr. Francis Collins, Director of the National Institutes of Health, remarked, “We are at risk of losing something which has been one of America’s greatest glories: our success in biomedical research.” While tremendous progress has been made to advance our understanding of disease, there are currently treatments for only 500 of the 7,000 rare diseases. Dr. Collins shared his vision for how the U.S. can harness advances in science and technology, including supporting the next generation of talented investigators. He mentioned how energized he was by advances in medical technologies and the promise of personalized medicine. He concluded his remarks by saying, “We can fix this, but it will take the full power of all of you and the recognition that this needs to be […] a high priority for our nation.”

In reflecting on the work of 21st Century Cures to date, I think about how we as a nation can unite the ecosystem, enhance translational sciences and revolutionize the launch of new therapies. How can we continue to build on opportunities and keep our footing as a global competitor in the area of life sciences innovation? The Energy & Commerce Committee’s 21st Century Cures draft discussion document released in January presented an early vision of a bold blueprint for modernizing the process around discovery, development and delivery of safe, effective therapies (see the February 3 Health Care Current).

The cost of getting new therapies to market has never been higher; the risk of failure for those who take on the risk is great. 21st Century Cures seeks to break through the silos within the research and development chain and throughout the approval and post-marketing stages. Its provisions aim to:

  • Incorporate patient perspectives into the regulatory process and help address their unmet medical needs
  • Build the foundation for 21st century medicine
  • Streamline clinical trials
  • Support continued innovation at our federal public health agencies
  • Modernize medical product regulation

It has been just over a decade since the U.S. Food and Drug Administration (FDA) launched the Critical Path Initiative. This effort was a call to action to modernize the tools necessary to evaluate and make predictions around the safety, effectiveness and manufacturability of medical products. Results from the Orphan Drug Act of 1983 emphasize that legislative changes can also create a huge impact to the ability to get new cures to those who need them most. In 2014, the FDA Office of Orphan Products Development approved more orphan drugs than any year before, according to analysis done by the FDA Law Blog. To me, 21st Century Cures represents a similar opportunity that could spur collaboration and biomedical innovation. Ultimately, some of these priorities could improve health care quality and outcomes for Americans.

The E&C Committee members traveled around the country, hosting eight hearings and several roundtables, calling for public comments and listening to patients, providers, industry, researchers, government agencies and policymakers. The multi-stakeholder approach the Committee has taken to inform the 21st Century Cures draft discussion document is testament to the many good ideas and talented individuals focused on the five areas that 21st Century Cures addresses. These voices are captured in the draft discussion document.

In my opinion, one of the most exciting and promising aspects of 21st Century Cures is the precision medicine initiative. Precision medicine involves tailoring medical treatment to the individual characteristics of each patient. It results in an individualized approach that takes into account variability in genes, environment and lifestyle.

The human genome project that began more than two decades ago was a critical breakthrough in medicine. In recent years, it has led to game-changing technological advances, such as the ability to sequence genomes more effectively, advances in imaging and cognitive computing and the ability to aggregate large volumes of data to inform clinical decision making. These have all contributed to more personalized approaches to treatment.

But, the health care industry’s quest to harness genomics and analytics to support researchers and providers so they can discover new ways to get the right treatments to the right patients at the right time is not over. There are still many unknowns about the underlying causes of many serious diseases, what treatments work best for what individuals and why individuals with the same disease can progress at different rates. A focused precision medicine initiative could get us one step closer to finding those answers.

The draft discussion document is the culmination of almost a year of stakeholder engagement, but the task at hand is not over. With so many voices invested in the initiative, the Committee has a challenging road ahead. But, with the demand for value-based care growing, and the U.S. health care system transformation underway, the U.S. appears ready to take on such a challenge. The road ahead involves incorporating the reactions and feedback the Committee receives into the next phase of the legislation, and for some of the provisions and placeholders, incorporating more detailed policies into the final version. Continued discussions on funding sources and federal budget impact will also be forthcoming before the legislation reaches the President’s desk. At this early stage, it is difficult to gauge the financial impact that these proposed ideas may have on government and the health care industry. A key question moving forward is, “What will the return on investment (ROI) be from these potential recommendations?”

I share the optimism of Dr. Collins that the U.S. can build on its past successes and prioritize biomedical innovation. I think the U.S. is ready to build upon the power of data, analytics, genomics and advances in care and collaborative research. Much of the groundwork has been laid through collaboration and consensus building to help meet the goal of bolstering global competitiveness and achieving improved health care quality and outcomes for Americans.

Join me on March 10 to continue the conversation on improving health outcomes on the Deloitte Dbriefs webcast: Improving health outcomes: The future of medical research and development

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


 Terri Cooper, Principal, Deloitte Consulting LLP

Dr. Terri Cooper is a Deloitte Consulting LLP Principal, Lead Client Service Partner for the NIH, and the Federal Health Sector Leader. Previously, Terri served as the National Life Sciences R&D practice leader and the National Inclusion Leader for Consulting. She has more than two decades of experience in the LS industry and has provided a broad range of strategic advisory services. She holds a Joint Honors BS Degree in Chemistry/Pharmacology and a PhD in Pharmacology from the University of London.
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A balancing act: Four elements driving successful R&D

by Matthew Hudes, Principal, Deloitte Consulting LLP

Recent research shows that financial returns from biopharma research and development (R&D), after years of struggle, might be turning the corner. Business development and M&A activity in the biotech sector was up in 2014 with 82 new IPOs issued— a one-year record. Revenue is growing and is expected to continue on an upward trajectory.

But that’s only one part of the much larger picture. Grading sector stability and growth principally on cost/revenue generation is just one measure of progress and predictor of future viability.

The question isn’t only whether R&D has turned the corner, based on revenue and profit considerations, but whether companies are using strategies, methodology, and resources most effectively to bring promising new drugs and treatments to market. It’s really a question of balance.

Increasingly, organizations are making strategic choices about increasing the use of innovative resources that originate outside of their own laboratories. Recently, Deloitte published its annual analysis of sector activity, Measuring the return from pharmaceutical innovation.” Our study found that large biopharma companies are continuing to trend in this direction to bolster internal R&D portfolios – 58 percent of late-stage pipeline valuation was coming from external sources.

In my discussions with industry innovators and visits to U.S. research facilities, I’ve found that balancing private enterprise, risk-taking investment, government policy, and strong academic and foundation research in more creative ways can help tap these external assets and build a more entrepreneurial network.

Four factors are essential in establishing such a balance.

  1. Alignment: The first is a clearer and more workable alignment of science with the private sector – one that can better channel the flow of scientific research developed in university labs and innovation centers to commercial viability.
  2. Financing: The second is financing. It can come from various sources, but investors must know how to take a risk – capital infusions by pharma enterprises and outside investors who envision a big payoff but have the capacity and willingness to absorb risk.
  3. Customer presence: A third element is customer presence, and how a biopharma company or disease foundation, as the customer of scientific research, can adapt important research to what will be commercially successful and may ultimately make a difference to patients’ wellbeing.
  4. Environment: Finally, the establishment of a physical environment where companies can launch or expand with minimal friction, and without always having to reinvent the wheel, can be pivotal.

The development of Mission Bay in San Francisco is a good illustration.  A decade ago, the city had just a handful of biotech companies. Today, there are a couple of hundred built
in state of the art facilities atop an old abandoned rail yard, from start-ups to big pharma companies. The city wisely elected to partner with private enterprise and public universities to create a sprawling urban environment where innovation could thrive.

For all stakeholders involved in a more balanced approach, it’s not as much doing one thing exceedingly well, but creating a multi-tiered system in which innovators have access to critical science, investment and development information.

The timing for pursuing and achieving this type of R&D balance couldn’t be better. We’re seeing remarkable early stage work in the area of cancer drugs, immunotherapy, cell therapy, gene therapy, and the first wave of game-changing innovation in digital medicine and treatments for our aging population.

Understanding what works, what doesn’t, and whether the conventional thinking reflects reality can help determine the best path.

In a recent study, for instance, the California firm Bioscience Advisors presented some data about 2014 biopharma IPOs that seemed to contradict some common assumptions. Biotechs partnering to develop products and services on average fared more poorly in IPOs than those going it alone. Mid-stage IPOs often did better than late stage. Younger companies tended to do better than mature companies.

The lesson for stakeholders is that relying on conventional wisdom about what it takes to have a successful biopharma IPO may be misleading. And so, there are implications about which emerging companies might be most promising for R&D partnerships. Clearly, the market is evolving. Sluggish investment and ROI is giving way to more optimistic views of future activity as shown by the current hyperactive IPO environment.

Now, it’s imperative to rethink how we embrace an exciting and potentially lucrative scientific, funding, and public policy synergy. It’s not how much we spend or the revenue generated. Strategically, it should be how best to align these four essential factors that go into achieving the necessary balance, for the ultimate benefit of the industry and the consumer.


For more on the future of medical R&D, tune into the Dbriefs webcast “Improving health outcomes: The future of medical research and development” next Tuesday, March 10 at 1:00 p.m. ET.


 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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A new chapter in value-based care

by Mitch Morris, M.D., Vice Chairman and National Health Care Provider Lead, Deloitte LLP

In early February, the U.S. Department of Health and Human Services (HHS) announced that it will accelerate the shift toward payments based on value over volume (see the February 3, 2015 Health Care Current). HHS aims to have 90 percent of all payments in the traditional program tied to quality and value and 50 percent of all Medicare payments tied to quality or value through alternative payment models such as accountable care organizations (ACO) by 2018.

In the same week, a group of health systems, health plans, consumer groups and policy experts announced the formation of the Health Care Transformation Task Force. The Task Force aims to have 75 percent of their business based on value by 2020.

Maybe it’s just me, but I think the road ahead could be challenging. Not impossible, but challenging.

We’ve identified some of the barriers:

02.24.15 Blog Image

This last point is particularly salient to many health systems. While some payers are actively moving forward and testing new payment models in the value-based care space, others remain firmly rooted in their fee-for-service (FFS) ways. The road ahead could be especially difficult for health care providers that are trying to straddle the two canoes.

But, most agree that value-based care is going to happen. For many physicians, the current volume-based care mentality is going to be replaced by the sense that the better you do, the better your patients do and the more the population will benefit. That is going to be something worth paying for.

These ambitious goals represent a signal from the administration that the federal government may be moving more quickly than some had anticipated. This pace is creating some anxiety around whether the policies the government will use to make this move will be fair, systematic and flexible enough for health systems to respond without going under and patients to have even better outcomes than before.

How can it be done?

Pay attention earlier: Incentives in our current system have helped build a culture of fixing patients only when they are broken. Now, that culture is shifting. More and more, physicians are realizing that the culture needs to be one of helping patients maintain their health and catching problems early so the solution is minimally invasive.

Widen the focus on the patient: In the past, a doctor may have focused only on solving a very narrow problem. If a patient’s knee hurt, then a knee replacement was ordered to alleviate the pain. And the same was true for outcomes: If a patient had surgery, success was getting them discharged from the hospital in two days. Now, the scope has widened. That patient may be focused on the pain and also the fact that they cannot play golf. Now the desirable outcome is not only that they are discharged within a reasonable time, but that they can also return to the golf course within six months of their surgery.

Purchase the right tools: With the new dynamic of outcomes-focused care, organizations should invest in analytics and big data and the information technology to support them. You cannot pay for value if you can’t measure it. I worry that it could be very difficult to measure outcomes when so many patients – especially those on Medicare – have complex co-morbidities that muddy the waters. This reality may lead us back to full capitation where providers assume the full risk of a population sooner rather than later.

Look across the whole value chain: Care needs to become team-based and interdisciplinary. Health systems and physicians will need to look across the health care ecosystem for opportunities to help improve care and reduce spending. The typical knee replacement involves more than a surgeon. It also involves radiologists, anesthesiologists, occupational therapists, medical technology companies and more.

High costs and misaligned incentives are not a uniquely American issue. You might think that other countries are doing this better than we are in the U.S. It is true that many countries have national health programs. But, many do not focus on outcomes, and paying for value is not common. Having worked with health systems in many other developed economies in the past year, it is clear that population health management has not taken hold across the globe the way some may think it has.

There is a great deal of anxiety around how fast and how far value-based care will evolve. But some things won’t change: people will still get sick and they will still need health care. We have a shortage of health professionals that will probably get worse as the population ages. Even as the incentives in health care change, there always will be patients, work and opportunities for nurses and physicians.

Health care organizations looking to deliver on the promise of value-based care can begin to position themselves to win in the market now. Organizations that learn to manage risk, develop core competencies around the new provider-driven care management model, understand and act on data and define a strategic vision and business model with collaboration partners could be in a better position to successfully navigate this transformation.

The value-based care story is still unfolding. But, through HHS and private sector market forces, there is now an opportunity to join in and help write the ending.


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


Mitch Morris, MD, Vice Chairman and National Healthcare Provider Lead, Deloitte LLP Mitch Morris is the National Leader for the Health Care Provider sector at Deloitte including Consulting, Audit, Tax, and Financial Advisory Services. Dr. Morris has more than 30 years of health care experience in consulting, health care administration, research, technology, education, and clinical care.
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Infographic: 2015 global health care sector outlook

Across the globe, governments, health care delivery systems, insurers, and consumers are engaged in a persistent tug-of-war between competing priorities: meeting the increasing demand for health care services and reducing the rising cost of those services.

This infographic examines current issues impacting the global health care sector, provides a snapshot of activity in a number of geographic markets, and suggests considerations for stakeholders as they look ahead to 2015.

Check out the infographic of key findings below and click here to view the full report.

Deloitte | DeloitteHealth |Measuring the return from pharmaceutical innoation | #CHSBlog


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