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



Alternate Medicaid expansion: Crossing the proverbial bridge

by Jessica Blume, Vice Chairman, U.S. Public Sector Leader, Deloitte LLP

We say it to ourselves all the time: “At some point, we’re going to need a new car”; “This tax year is going to be complicated”; or – my personal favorite – “My children’s activities this weekend will require me to be in two places at the same time.” The typical response: “We’ll cross that bridge when we get to it.”

Now, nearly a year after I last covered alternate Medicaid expansion plans (see the February 4, 2014 Health Care Current), many states are crossing their proverbial bridges.

Arkansas, the first state to receive approval from the Centers for Medicare and Medicaid Services (CMS) in September 2013, has enrolled 210,000 individuals on the state’s alternate expansion plan.1 Since January 2014, Arkansas has been using the ACA’s Medicaid expansion funds to purchase qualified health plans (QHPs) through the health insurance marketplace for newly eligible adults. The uninsured rate in the state has dropped a dramatic 10 percent.2,3 More recently, CMS allowed Arkansas to amend its Section 1115 Waiver to include new cost-sharing requirements for enrollees of the private option plan. Beneficiaries will now make monthly contributions into new health independence accounts.

Soon after Arkansas received its waiver approval, Iowa followed. Using the new expansion funds, Iowa created two programs: the Iowa Marketplace Choice Plan and the Iowa Wellness Plan. The Iowa Marketplace Choice Plan has been purchasing coverage in QHPs for newly eligible beneficiaries whose incomes fall between 100-138 percent of the federal poverty level (FPL), and the Iowa Wellness Plan has enrolled newly eligible individuals with incomes below 100 percent of the FPL into managed care plans in traditional Medicaid. Many of the newly eligible are also responsible for some cost sharing through monthly premiums.4 As of December 2014, Iowa had enrolled nearly 120,000 into the expansion programs (three-fourths of whom enrolled in the Iowa Wellness Program) setting the state well on its way to meeting its goal of 150,000 enrollees.5

In 2014, CMS approved Michigan’s waiver program. Healthy Michigan built in copayment and cost-sharing requirements for all newly eligible individuals and gives enrollees discounts for healthy behavior. The program began enrolling the new population into Medicaid beginning in April, 2014. Today, Healthy Michigan has enrolled more than 546,000 beneficiaries.6 Most recently, Indiana received approval of its Section 1115 Waiver to expand Medicaid through the Healthy Indiana Program 2.0 (see the February 3, 2015 Health Care Current).

Even though these states are beginning to cross the Medicaid expansion bridge, it is still unclear what the other side will look like. States will likely face many questions as their journey continues:

  • A common thread built into each of the alternate expansion programs is cost sharing. Whether it’s in the form of health savings account “look-alikes” or monthly premium contributions, states are testing whether newly eligible can handle increased responsibility for the cost of their care. Some might consider the cost sharing modest—in Arkansas it is between $5 and $25 per month depending on an individual’s income level. But patient advocates have expressed concern about the requirements. Are these policies keeping individuals from enrolling? Or are they making people more cost aware in a positive way?
  • Early results indicate these expansions have decreased uninsured rates across the country. A recent study found that community health centers have seen more patients overall, but a sample of “regular” expansion states have seen larger reductions in uninsured patients than non-expansion states (see the January 20, 2015 Health Care Current). Will the states that opted for the alternate expansion see the same results?
  • While uninsured rates may be down, other evidence indicates that some areas of the country are still seeing an increase in emergency department visits. Giving individuals health insurance coverage does not necessarily mean that they will always seek care in the most appropriate setting. It could also mean that health care consumers are still struggling to modify their health behavior. Do patients need more education, do they know how to use their new coverage, and do the networks on their new plans offer sufficient coverage?
  • The policy that raises Medicaid rates to Medicare levels for primary care physicians expired at the end of 2014, leaving states to decide whether to continue the match program. Twenty-three states have indicated they have no intention to continue the increased payment level after 2014. Those states have tended to be the ones where the difference between Medicaid and Medicare rates are the highest; thus, rates there will fall even more than the average, at more than 47 percent.7 What impact will the expiration of this policy have on access?
  • Policies adopted in one state may result in different outcomes in another state. What impact will state demographics, social determinants of health, politics and more have on the implementation of each of these programs?
  • Some policymakers and proponents of expansion predicted that it would reduce uncompensated care costs for hospitals. The U.S. Department of Health and Human Services (HHS) estimated that hospitals’ uncompensated care costs were $5.7 billion lower due to the coverage expansions in 2014. Nearly three-fourths of these savings came from the states that expanded Medicaid.8 Will costs continue to decrease?

Progress on the alternate expansion programs to date has also brought some larger questions. Will we see more unique expansion programs or have we reached a plateau? Several states have new legislatures and governors that might consider new approaches to expansion. But, many of those states are focused on adding employment requirements. Will CMS continue its hard line that states cannot use participation in a workplace program as eligibility criteria for Medicaid?

Expansion, whether traditional or alternate, will likely require an overhaul of operation strategies, technology functions and IT enhancements to support enrollment system changes. New IT processes and functions could help keep track of the changing enrollee population, especially as individuals’ incomes, and thus eligibility, changes.

Medicaid is the largest component of total state spending, and in 2014 accounted for more than 25 percent of total state spending, an increase over 2013.9 Many state leaders and lawmakers are beginning to weigh whether an alternate expansion program might be the best route for them, as well. As states that decided to expand their programs begin to see outcomes from these initiatives, others continue to watch.


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


Jessica Blume, U.S. Public Sector Leader, Deloitte LLPJessica Blume is the U.S. Public Sector Leader for Deloitte LLP, which includes audit, consulting, financial advisory and tax services to state and federal government clients. Jessica brings a depth of experience and passion for helping government develop and implement strategies for large-scale transformation. She has served government clients for over 20 years. 

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1 Arkansas Governor, “Transcript of Governor Asa Hutchinson’s Healthcare Speech,” January 22, 2015 
2 Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” February 15, 2015 
3 Ibid
4 Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” February 12, 2015 
5 Quad City Times, “Iowa: Nearly 120,000 signed up for Medicaid expansion program,” December 24, 2014 
6 Michigan Department of Community Health, “Healthy Michigan Plan Enrollment Statistics,” February 9, 2015 
7 Stephen Zuckerman, Laura Skopec, and Kristen McCormack, Urban Institute, “Reversing the Medicaid Fee Bump: How Much Could Medicaid Physician Fees for Primary Care Fall in 2015?” December 2014
8 HHS, Office of the Assistant Secretary for Planning and Evaluation, “Impact of Insurance Expansion on Hospital Uncompensated Care Costs, in 2014” September 24, 2014 
9 National Association of State Budget Officers, “Overview: Total State Spending Accelerates in Fiscal 2014 After Returning to Positive Growth in Fiscal 2013,” November 20, 2014



The PBM industry: A sea of constant change

by George Van Antwerp, Senior Manager, Deloitte Consulting LLP

I can remember almost 20 years ago when a few friends of mine went into the PBM industry. At the time, I had never even heard the term PBM (which means Pharmacy Benefit Manager) and didn’t know the companies for which they went to work. Since then, I’ve worked for a PBM and provided technology and consulting services to PBMs for the past 15 years.

The past decade has been a period of rapid growth for the industry with increased utilization of prescriptions (over 50% of Americans were taking a chronic medication in 2008) and an aging population (which uses more medications).

Traditionally, the industry has derived value for its customers through scale (i.e., the amount of lives managed). Because of that, the industry has experienced rapid consolidation focused on:

  • Increasing the use of lower cost prescription drugs (i.e., generics and formulary brand drugs);
  • Lowering the supply chain costs (i.e., costs paid to retail pharmacies); and
  • Increasing the use of the lowest cost channel for filling prescription drugs (i.e., mail order or 90-day retail).

This has been great. Clients have saved money. Consumers have saved money. And PBMs have grown to be large Fortune 100 companies. The key question I keep asking is, “What’s the limit on scale?” I’m not an economist, but I believe the cost curve has to flatten out at some point. Are we there yet? Perhaps not, but the differences in pricing have become much less over time.

The problem is that even with improvements, we’re still seeing an increasing drug trend. Two commonly discussed issues are: 1) the massive growth of specialty drugs which is expected to surpass traditional drug spend by 2018 and 2) the rise in generic drug prices.

In my opinion, there are four key things that PBMs should be focused on:

  1. How to manage specialty drugs
  2. Where to cut costs
  3. How to deal with regulation
  4. Which trends to “bet on” and how to innovate

Specialty drugs

While a clear definition of specialty drugs isn’t always agreed upon, most people usually focus on the high cost drugs and/or injectable medications. While these drugs represent only 1% of the total claims, they currently make up almost 30% of the total costs of pharmacy. Based on early data from the public health insurance marketplaces (also called exchanges), we may see a greater percentage of the population using specialty medications in several classes in that market.

The big question is whether traditional PBM cost management techniques – prior authorization, step therapy, formulary management – can contain the costs. While it’s possible that traditional tools can work, specialty drugs often require more complex care which leads to other questions about clinical management.

The PBM role in care management is still up for debate. Should they provide these services? Will payers expect them to? Will they get compensated for these services? Can they be more effective than other effects which have shown mixed results? I’m not sure. I believe that they should and can play a much broader role here, but I think it’s too early to tell.

Cost cutting

Years ago, PBMs had numerous levers to pull to reduce costs. They could push down the acquisition costs through use of mail-order. They could lower payments to pharmacies. They could increase demands for rebates from drug manufacturers. They could implement more step therapy-type programs to drive patients to use generics. All of these worked.

Today, savings are more challenging to find without massive cost shifting to the consumer. The focus now is on how to use technology to make PBM employees more efficient. That could include reducing customer service costs by re-engineering the call center and using new technology to increase efficiency. It might include looking at how technology can improve the prior authorization process and paper claims processing process. It could also include leveraging big data to segment and focus resources differently across the population. In many cases, PBMs can look outside the industry to see how other companies have embraced these solutions to drive down their costs.

Regulatory management

The biggest area of growth in the health care sector is in the regulated area of health care – Medicare, Medicaid, public marketplaces. Federal and state governments are clearly the biggest payers of health care costs, so PBMs have to think about how they create a culture of compliance and avoid sanctions.

This isn’t easy. Staying in front of regulatory changes and making sure to interpret them and institutionalize those requirements within the company requires significant focus and attention. This area alone has led to the growth of numerous companies that help with Star Ratings, build Accountable Care Organizations, and do reporting.

At the same time, the implementation of the regulations may be further complicated by the fact that some claims adjudication platforms or other IT applications don’t allow for agile development of new code. This forces companies to evaluate the trade-offs between modifying legacy systems or migrating platforms

Trends and innovation

This is an area I love. It’s fascinating to work with entrepreneurs and see their vision of the future and how to create value through innovation. The problem is that not everything works…something I’ve learned the hard way.

When you listen to some of these pitches, it’s easy to get focused on the “next shiny object.” Just look at the latest Rock Health report1, and you can see how much money has been flowing into the health care industry. You can also look at the latest focus on innovation across the corporate world and the “Lean Startup” movement as the large companies try to keep their edge in the industry.

Many companies are looking at how to offer solutions in the pharmacy space around digital technologies, big data, and customer experience. They are all focusing on different sources of value they can capture while leaving the PBMs focused on claims adjudication and supply chain management…leading to commoditization. PBMs have to decide whether to innovate or imitate and when and how to collaborate with these new companies.

The PBM marketplace continues to be an area of growth. Figuring out the specialty market and the regulated environment are critical to long-term survival, but determining how to grow through cost cutting, innovation, and new technology is equally as important. It’s an exciting time to navigate through the pitfalls and find value drivers to improve and sustain margins. This is the perfect time to step back; think about other industries; look at other areas of health care (e.g., pharma, providers); and re-invent the solution to find the next inflection point in the growth curve.

I’m excited about the opportunity. I hope you are too!

Related thinking: The Rising Tide of Pharmacy Benefit Cost and Complexity: A health plans roadmap to optimizing pharmacy services relationships


George Van Antwerp, Senior Manager, Deloitte Consulting LLP


George Van Antwerp is a senior manager within the Strategy & Operations practice of Deloitte Consulting LLP. He focuses on pharmacy strategy and the convergence of specialty pharmacy across payers, providers, and life sciences.

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1 Rock Health reports can be accessed online at http://rockhealth.com/resources/rock-reports/.  Deloitte Consulting LLP is one of Rock Health’s twenty partners.


Four actions to put health care on a path toward system-wide interoperability

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

Last year, I wrote about my sister-in-law Patricia who was pregnant with her first child and wondering how she could track health information for both her and her newborn. With this simple request, she was exposed to the state of interoperability in the health care industry.

She could not access her doctor’s electronic health record (EHR) through her personal health record, nor could she communicate electronically with her prospective pediatrician. At the time, it was a small concern, but that quickly changed after she delivered. Her newborn’s breathing problems prompted an extended stay in the NICU, multiple diagnostic procedures, consultations by numerous specialists and use of a host of monitoring devices in the hospital and following discharge.

Suddenly the challenge of interoperability was very real for her.

Many in the health care industry (and providers in particular) have long been frustrated by the lack of interoperability among health systems and IT vendors, medical devices and financial systems. Earlier this month, the Office of the National Coordinator for Health IT (ONC) took a step toward advancing interoperability by publishing the initial draft of “Connecting Health and Care for the Nation: A Shared Nationwide Interoperability Roadmap.”

The draft calls for ONC to ensure that four important actions are completed in the short term:

  • Establishing a governance framework for interoperability that includes “overarching rules of the road” and involves a public/private process for implementation
  • Improving standards and guidance so they are “scalable, high performing and simple”
  • Using policy and funding levers to create incentives to use common technical standards to share health information technology
  • Protecting privacy and security while helping health care organizations understand and abide by Health Insurance Portability and Accountability Act (HIPAA) rules

Some items within the roadmap are particularly notable. This roadmap is the first detailed vision the federal government has provided to the industry of a path toward system-wide interoperability. The ONC has received criticism inside and outside the beltway for not taking a stronger stance on interoperability earlier in the Meaningful Use program.

The draft also outlines how health plans can help advance interoperability. As organizations move from a volume- to value-based reimbursement model that needs to rely on population health management to a greater extent, connecting clinical and financial data will be essential. As an example, health plans with a focus on value-based care could make interoperability a condition of participation for providers seeking to partner with them in new payment arrangements.

This roadmap also identifies where the current issues lie and what may need to happen to allow the industry to get there. The “Standards Advisory,” which ONC is now soliciting public comments on, provides some of those details. This model will allow the industry to identify where stakeholders agree and disagree on standards and encourages an open dialogue on how to reach consensus on the points of disagreement.

While the roadmap provides a number of answers, it also raises a number of questions:

  • How will medical devices fit in? This roadmap focuses primarily on EHRs, but some providers struggle to integrate data from a wide range of devices. Integrating medical devices is very costly for health systems but can also impact patient safety.
  • What will be the future of health information exchanges (HIEs)? This perennial question around the purpose and sustainability model of HIEs becomes more acute as one of their primary functions – combining data in one place – may be rendered unnecessary by systems that speak with each other seamlessly.
  • Will EHR vendors have to change their systems or even their business models? The value of many lies in the comprehensiveness and integration of their various modules. How will free flow of data across vendors impact this competitive edge? Will interoperability become an opportunity for smaller players and will it help foster innovation generally?
  • How will the roadmap be enforced? Who will enforce agreed upon standards? How will we know when interoperability has been achieved? Simply certifying technology against criteria is not the same as certifying that something actually works. Health care may draw on experiences from other industries that have adopted centralized labs to test products in a real-world environment to measure this. 
  • What will be the broader impact on the health care ecosystem? Information flow is not just about solving technical issues of interoperability, but also touches on complex regulatory, privacy and commercial factors.

Thankfully, Patricia’s son made a complete recovery and is thriving today. The ONC has declared a goal of 2017 to achieve significant progress, so hopefully by the time he is ready to go to pre-school, many of these issues will have been resolved.


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 LLP

Harry Greenspun is a director with the Deloitte Center for Health Solutions. He has held a diverse range of clinical and executive roles across the health care industry, giving him a unique perspective on current and future challenges.

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Biosimilars: Making the most of an “inexact” science

by John Phillips, Director, Deloitte Transactions and Business Analytics LLP

Sometime in March, the Food and Drug Administration (FDA) could approve the first biosimilar drug for distribution in the United States: an oncology supportive care drug developed by Sandoz.

There’s no question that biosimilars are a revolution in life sciences. The development of these complex medications made from living cells, blood, and tissue is a brave new world, especially for generic manufacturers who may have less experience with the process than the drug designers in many branded companies. More than $67 billion in global biologics value is expected to face biosimilar competition by 2020.

As with most uncharted territory, however, generic and branded drugmakers should approach their entry into this new field strategically. There are key questions to answer: Is it a risk worth taking? Is the cost prohibitive? Can we afford to make the kinds of capital investments needed to succeed?

In addition to asking the tough questions, executives have to contend with comparisons to generics in terms of cost and development. Generics have provided consumers remarkable savings over the years, with discounts often approaching 90 percent over their branded counterparts.

Generics are typically cheaper than biosimilars to produce for several reasons: They don’t require new Phase III clinical trials to prove efficacy and interchangeability, the exact active molecule can be obtained, and traditional manufacturing practices can be followed. They can be as easily and profitably manufactured by small regional companies as they can be by big multinational operators. The large number of generics companies leads to lower cost.

The public might think biosimilars will generate the same kind of broad competition as generics, leading to advantageous price discounts. Federal authorities may look at it as an opportunity to save money.

However, the cost savings will likely not be realized to the same extent as generics. There’s a reason they’re called “biosimilars,” and not “bio-exacts.” They are not generic substitutes. Demonstrating that a new biosimilar is efficacious and safe is only one hurdle manufacturers will need to overcome; they will also need to demonstrate interchangeability.

Developing a biosimilar can be complex, riskier, and more expensive than creating traditional small molecule generics. The manufacturing process, since it involves living cells, can be variable in producing a molecule that is similar but not exact. A manufacturer could produce a molecule that may meet the first hurdle, but not show that it is interchangeable with the branded product – leading the FDA to deem it a new product. The cost and risk are already clear to many major manufacturers. Large molecule biosimilar production requires significant investment in plants and manufacturing equipment.

The kind of scale the makers of biosimilars will need to achieve could make it extremely difficult for smaller, less well-capitalized organizations to compete with the major industry players.

Additionally, projected biosimilars cost savings for consumers are more likely to fall in the 25-30 percent range. We won’t be seeing the level of price discounts that have come to define the explosive growth of generic pharmaceuticals over the years. As a result, many smaller companies facing smaller margins, even those that have demonstrated success with generics, may find themselves squeezed out of a demanding and dynamic new market.

Success may depend on an organization’s ability to absorb cost and make the required capital investments in production and facilities, and whether it can buy or build the competencies needed to compete. They’ll need to invest in developing the knowledge required to conduct Phase III trials, something generics manufacturers haven’t had to do.

Biosimilars may provide a particular opportunity for branded pharmaceutical manufacturers with access to sufficient capital and for those mid-sized and large generic manufacturers able to scale up quickly and determine they have the investment capability to compete.

For those who make a strategic decision to enter this new field, tens of billions in revenue could be waiting at the end of the process.


John Phillips, Director, Deloitte Transactions and Business Analytics LLPJohn Phillips is the Financial Advisory Services Lead for the Generics Pharmaceutical Segment and the Life Science Lead for Capital Efficiency Practice, Business Valuation, Deloitte Transactions and Business Analytics LLP


A look at the FDA guidance on medical device security

by Veronica Lim, Senior Manager, AERS, Deloitte & Touche LLP and Geoffrey Pascoe, Specialist Master, AERS, Deloitte & Touche LLP

Recent guidance issued by the U.S. Food and Drug Administration (FDA) has put the security of medical devices back in the spotlight. The FDA is urging manufacturers and health care facilities to be more deliberate in applying safeguards to mitigate cyber threats.

But FDA guidance is just that—guidance, not a mandate to move toward more comprehensive regulations. While valuable in helping to frame the discussion, the guidance is not prescriptive in order to give manufacturers flexibility in achieving not just compliance to the regulations, but guidance to produce safer medical devices.

The FDA guidance, therefore, provides a good starting point for organizations to develop their approach to cybersecurity. We support the FDA’s decision to provide guidance, which gives manufacturers flexibility in addressing the challenge of cybersecurity, rather than codifying one hard and fast approach in regulation. While the new guidance is focused on the content of premarket submissions, it has important implications for how manufacturers address cybersecurity of medical devices throughout a device’s lifecycle, including:

  • Cybersecurity-related design inputs
  • Cybersecurity risk assessment and management
  • Baseline set of cybersecurity functions

But, following the FDA guidance should be just a start. Creating secure products and maintaining that security throughout the product lifecycle requires diligence from corporate leadership. Manufacturers should be aware that the content of their premarket submissions must be backed by the substance of a comprehensive and systematic approach to cybersecurity.

Good cyber risk management is synonymous with the ability of organizations to meet or exceed their strategic goals. The ability to manufacture medical devices that are safe depends on an organization having a corporate vision that is clear and rooted in its commitment to its customers and patients.

At a minimum, corporate leaders should:

  • Raise awareness at the board level of cyber risk trends and developments, and how they could impact their business
  • Understand the risks to business and strategic objectives of not addressing cybersecurity in their devices
  • Establish a programmatic approach to cyber risk

While some companies are taking one or more of these steps to address existing and emerging threats, a mature medical device security program is paramount. Cyber threats are growing more serious and difficult to contain. Organizations need to be more vigilant in addressing cyber threats and vulnerabilities as devices are getting more complex, health information is more highly valued, and health care providers are becoming more dependent on these innovative, but potentially vulnerable, devices.

The increased attention to cybersecurity in medical devices reflects the changing nature of health care. As devices have become more connected, they have become enablers of better care and greater efficiency, resulting in a powerful wave of game-changing innovation for the industry. Already, these new connected devices are transforming patient care in life-saving ways by transmitting data faster and more accurately, delivering information to clinicians where and when they need it. But, the connectivity that enables this innovation makes devices susceptible to cyber threats.

If individual patients, health care providers, or insurance companies lose faith in these devices, public confidence is jeopardized. This loss of confidence may negatively impact innovation and a medical device manufacturer’s reputation, leading to significant brand damage, decreased revenue, higher support cost, increased cost of sales, and greater regulatory scrutiny.

Corporate leaders need to recognize the risks they and their shareholders face, understand what is required to address these risks, and develop the proper systems and programs to control that risk. Ultimately, they should recognize that cybersecurity and safety of patients are inextricably intertwined. Proper attention to cybersecurity in their medical devices not only will reduce business and safety risk, but can be a competitive advantage.

Related thinking: Secure, vigilant, and resilient: three pillars of health care cyber risk protection




Beyond the buzzword: In pursuit of innovation

by Jason Girzadas, Principal, National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP

For 2015, I’m committed to improving my professional responsiveness and personally practicing more mindfulness in my day-to-day activities. So far so good, but it’s only the beginning of February! I’m always looking for ways to improve my chances of success and recently learned of one study that found that people who wrote down their goals achieved 50 percent more of them than those who did not write them down.

For CEOs and boards of directors of health care organizations who have committed to leveraging innovation to drive organizational performance in 2015, the challenge is similar: How to stay the course toward innovation and increase the probability of real success.

This challenge is made even more complicated by the array of thought-provoking and illuminating industry conferences that occur this time of year that focus on change and disruption – Singularity University’s Exponential Medicine conference, J.P. Morgan’s Healthcare Conference, Health 2.0 and the World Economic Forum confab in Davos. These sessions are educational and inspiring and give health care organizations a wealth of information to consider as they think about their strategies for the coming year.

Leveraging all of the information available in the marketplace can be overwhelming. Despite this, leading health care organizations must find a way to chart their course through unprecedented market uncertainty and consistently execute on innovation.

Unfortunately, “innovation” is a word that has found its way onto many top business buzzwords lists. Despite its possible over- and misuse, CEOs and boards might find it useful to regularly re-center on its full definition. I think my Deloitte colleague and innovation leader, Michael E. Raynor, describes innovation very clearly. Raynor says innovation is “any combination of activities or technologies that breaks existing performance tradeoffs in the attainment of an outcome, in a manner that expands the realm of the possible.” Innovation is not just about developing new products and services—it can apply to many aspects of the organization, including partnerships, market positioning, and customer relations.

Too often there is a wide chasm between stating the need or goal to innovate and implementing a process and platform by which to do so. Many of us have experienced the all too common scenario of an executive proclaiming to their team – “Go innovate!” – with nothing to underpin the statement.

For CEOs and boards of health care organizations, taking stock of where an organization is on the innovation journey is important. And while it may not be immediately obvious, it is also something that can be objectively measured. One place to start is by looking at successfully innovative companies.

When doing so, Doblin, a global leader in innovations and part of Deloitte Consulting LLP, found that 92 percent of innovative organizations have instituted a system of innovation built around four key components:

  • Approach: An organization’s method for establishing clear definitions for the work to be done in creating innovations.
  • Organization: The units that house innovation competency and the connections among those charged with driving innovation within the broader enterprise and the world.
  • Resources & competencies: The individuals who perform the work; the skills, tools, and training they need to perform that work capably; and the funding and time to fuel the work.
  • Metrics & incentives: The targets to guide performance, the measures to evaluate progress, and the incentives (monetary and otherwise) to drive supporting behaviors.


In pursuit of innovation: A CEO checklist combines Deloitte’s research and work in the market with health care organizations from all sectors. This series of questions, developed for CEOs and other senior leaders, includes essential components of a credible and broad innovation plan.

Health care organizations that have resolved to be more innovative or to differentiate through innovation can leverage the checklist to objectively evaluate progress, to challenge their teams and to accelerate the path forward.

In the end, the risk of touting the promise of innovation but not truly executing on the vision is one that CEOs and boards cannot afford to take. Progress toward an organization’s innovation goals in 2015 can differentiate the winners from losers – this checklist can be used to identify where CEOs and senior leadership should focus their efforts to ensure they don’t get lost along the way.


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


Jason Girzadas, Principal, National Managing Director, Life Sciences & Health Care, Deloitte Consulting LLP

Jason Girzadas serves as Managing Director of the US Life Sciences & Health Care Practice, Deloitte Consulting LLP. With 20+ years of experience, he helps many of the nation’s top health care organizations navigate challenges including implementing latest technologies, creating operating efficiencies, improving performance and addressing industry reform. Passionate about others’ success, he co-led the creation of a talent development program for Deloitte and served as Dean of the New Leader Program.

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The urgent need in value-based care

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

Two weeks ago, I spent a full day talking to private equity companies, venture capitalists and others at the J.P. Morgan Healthcare Conference in San Francisco. The meetings gave me the opportunity to share what I’m seeing around Washington and the changes in the health care system I am seeing in our research. They also gave me some time to learn about pressing issues for some of the top investors in the health care industry.

Until recently, the value-based care conversation has centered on traditional players—hospitals, health plans and physicians. Many health plans are partnering with hospitals to share insurance and care functions, and many hospitals are working to align incentives and to clinically integrate with physicians—physicians from the practices they have acquired and physicians in the community.

The conversations I had in San Francisco echoed a question that many investors have been weighing: What does value-based care mean for other types of providers in the health care system? We know that accountable care and value-based care models call for performance on total cost of care, quality outcomes and patient experience measures. How does this translate to a new business model for outpatient providers?

Take urgent care clinics as an example. The Urgent Care Association of America estimates that 83 percent of these centers saw growth in utilization in 2013. They had nearly 14,000 patient visits in 2013, and handled an average of 40 visits per day.1

How do urgent care clinics, pain centers and others fit into health care’s value-based care future?

On the one hand, these organizations might be at a disadvantage in value-based care contracts if they are freestanding entities. Hospitals and their associated physicians might be more prone to direct patients to their own facilities so they can have better control of their patients’ care. Doing so might ensure they get the information they need about what services the individual got and allow them to easily follow up and coordinate care after procedures.

On the other hand, outpatient care providers – whether they are urgent care, retail or other clinics – that approach value-based care payers (health plans, health systems or others) might be able to show a value proposition that allows them to win business and competitive advantage. After all, most of the patients that are seen in urgent care clinics have a regular primary care physician.2

The business case for urgent care clinics has traditionally been rooted in two areas:

  • Price: Obviously, providers that offer discounts for procedures (including for implantables and other high ticket items) below what they cost in other settings can help lower the overall cost of care.
  • Patient experience and convenience: Many patients are attracted to the convenience outpatient provider settings offer – they may be closer to home, easier to find and easier to park at than hospital-based facilities. Deloitte’s 2012 Survey of U.S. Health Care Consumers found that 58 percent of consumers chose to visit retail clinics for their convenience, and 50 percent chose them so they could get in and out quickly and because they were available after normal business hours.3

As health care transitions toward a system based on value, I believe that both of these factors will likely continue to be important. But, I think the future could require more:

  • Volume and appropriateness: “Cracking the nut” of total cost of care must go beyond getting lower prices for services. Providers that focus only on providing necessary services and helping patients choose the right procedures (even if that means choosing the less high tech or intensive ones sometimes) might help accountable care organizations (ACO) succeed in meeting performance goals.
  • Safety: For outpatient surgery in particular, providers that can demonstrate low rates of infections, punctures and other errors could be more likely to be targeted for strategic relationships.
  • Care coordination: ACOs and their associated physicians might be more successful if they have the ability to share clinical and other relevant information with outpatient providers that informs appropriateness and surgical risks before a procedure is conducted. ACOs also will likely want to receive information about how the surgery went and be able to follow up with the patient after he or she gets home to take the recommended steps for recovery, including medications as needed. This type of information requires not only technology, but a work process to use the information.

The real winners in the outpatient provider and retail health space may be those who can approach health systems and investors with information that shows they can deliver on the new business case and that they are prepared to make the transition with them to value-based care.

Supporting evidence for this case may need to come from clinical information systems that let outpatient providers analyze trends in financial and clinical performance on individual patients and physicians as well as the overall indicators that matter. A robust strategy for performance improvement – starting with measuring current baseline performance, working on identifying barriers to improvement and surmounting them – may also need to be part of the strategy, especially as other competitors also start demonstrating their value proposition. Finally, to deliver on coordination, the outpatient providers’ systems will likely need to collaborate with physicians and health systems.

Read the entire Health Care Current here and subscribe at: www.deloitte.com/centerforhealthsolutions/subscribe

Sarah Thomas Sign

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1Urgent Care Association of America, “2014 Benchmarking Survey”


3Deloitte 2012 Survey of Health Care Consumers

Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLP

Sarah Thomas is a director with Deloitte Services LP and the director of research for Deloitte's 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.


What’s the next big thing? What markets do you see emerging in health care?

An interview with Mitch Morris, M.D., vice chairman and U.S./global health care providers leader, Deloitte Consulting LLP; Greg Scott, U.S. health plans leader and vice chairman of Deloitte LLP; and Homi Kapadia, U.S. life sciences leader and vice chairman of Deloitte LLP

Deloitte Center for Health Solutions_LSHC Outlooks 2015_Question 3

Dr. Mitch Morris: VBC is certainly on the horizon for our sector, but will likely take multiple years to play out. In 2015, both physicians and health systems likely will be just dipping their toes in the water; no one has yet invested heavily in the necessary systems and processes. Deloitte’s 2014 Survey of U.S. Physicians reveals, however, physicians know that the shift to VBC is inevitable; as it becomes a more significant aspect of their income, physicians likely will choose to work with health systems that fully and fairly enable an equitable approach to compensation. Partners, therefore, will need to move quickly to attract and support physicians by providing them with the resources they need; doing so should enhance collaboration and, potentially, lead to market advantages over time.

In addition to consolidation between hospitals, cross-sector convergence is expected to increase. Health systems are investing in health plan capabilities and we also see plans buying providers. This convergence is occurring with the expectation that those who can better manage the risk of health care delivery and further reduce administrative waste will prosper. They also hope to create greater brand awareness and “stickiness” among consumers in order to better compete in an era of narrow networks and consumer choice.

The role of the consumer will likely gain more relevance over the coming years. How hospitals and health systems fare in a realigned market depends, in large measure, on their place within the health care hierarchy. Centers of Excellence (e.g., health systems focusing on children, cancer, hearts, and joints) likely will continue to proliferate. However, where there is acknowledgement that community hospitals can’t deliver similar outcomes to COEs or large systems, consumers may elect to go elsewhere for treatment.

Greg Scott: The much-hyped “rise of consumerism” is finally becoming a reality in the health care industry. The individual consumer insurance market is expected to grow in the coming years. Most health plans have placed big bets on this, investing greatly in building out their retail IT infrastructures. We are also seeing greater integration across the health care value chain – health plans entering the world of care delivery, providers starting insurance businesses, new health plan-provider collaboration models, etc. The health care ecosystem is rapidly evolving and these shifts are spawning new innovations and marketplaces. Non-traditional players are entering the marketplace (such as niche technology vendors, private exchange players, etc.). How the marketplace evolves is yet to be seen. But health plans that are able to clearly redefine and establish their value propositions in this new ecosystem will likely be winners.

Homi Kapadia: We see “big data” becoming an integral part of life sciences organizations encompassing the entire value chain. Regulatory compliance and patient safety will become board room topics. Life sciences companies will look to other industries and non-traditional players for disruptive technologies that could be applied to health care and foster product innovation, market expansion, and revenue growth. For example, mobile health (mHealth) is expected to be a valuable partner in health care’s shift towards a patient-centered, value-based delivery model. mHealth has the potential to improve workplace efficiencies, increase patient safety, better coordinate care, facilitate payments, and engage patients.

Additive manufacturing (AM), often referred to as “3D printing,” also has disruptive potential in health care. AM can spur additional innovation, improve patient access to life-saving devices, simplify and accelerate the supply chain and production process, and achieve considerable savings. The medtech industry already stands at the forefront of this transformative change—medical applications account for about one-sixth of AM market revenues.

In an era of specialty pharmaceuticals, life sciences companies will evaluate their role with regard to social responsibility and consider the overall impact of their corporation’s reputation.

Finally, given the level of transformation occurring in the overall health care industry, life sciences companies should pro-actively address many aspects of their strategy in order to maximize opportunities for their success.

Read more about the 2015 outlook for life sciences and health care at www.deloitte.com/us/2015lshc_outlooks

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