““Parallel UniversesParallel Universes””Charting HealthcareCharting Healthcare’’s Possible s Possible

FuturesFutures

Kim D. SlocumKim D. SlocumPresident, KDS Consulting, LLCPresident, KDS Consulting, LLC

EphMRAEphMRA MeetingMeetingJune 2007June 2007

“The Median And The Edge”

Median

Edge

SOURCE: Harris Interactive, Strategic Health Perspectives

Basic Global Health PolicyBasic Global Health Policy……Three Views PredominateThree Views Predominate

•• ““Healthcare is a societal right supported primarily Healthcare is a societal right supported primarily through taxation, available to all at little/no charge through taxation, available to all at little/no charge to the patientto the patient””——public financing modelpublic financing model

•• ““Healthcare is a right generally available to all but Healthcare is a right generally available to all but patients should share the financial burden and patients should share the financial burden and government should not control the entire government should not control the entire systemsystem””——hybrid financing modelhybrid financing model

•• ““Healthcare is a market good much like any other Healthcare is a market good much like any other product or service, available to those whoproduct or service, available to those who can can afford to pay for itafford to pay for it””——private financing modelprivate financing model

How This Translates To How This Translates To PracticePractice

Beveridge Model

UK, Italy, Spain,Sweden, Denmark,Norway, Finland,

Canada

Public

Bismarck Model

France, Germany,Austria, Holland,Japan, Belgium,

Switzerland

Mix

Private Model

USA

Private

In RealityIn Reality……•• No country has a No country has a ““purepure”” model for healthcare (because model for healthcare (because

pure models donpure models don’’t satisfy everyone)t satisfy everyone)

•• US has significant public elementsUS has significant public elements•• Medicare (single largest payer)Medicare (single largest payer)•• MedicaidMedicaid

•• Private healthcare insurance systems are increasingly Private healthcare insurance systems are increasingly available in Europe (for a variety of reasons)available in Europe (for a variety of reasons)•• BMI Healthcare, BUPABMI Healthcare, BUPA——UKUK•• AdeslasAdeslas, , SanitasSanitas——SpainSpain•• PKV member firmsPKV member firms——GermanyGermany

TodayToday’’s Trends Trend——ConvergenceConvergence

•• The developed worldThe developed world’’s healthcare systems are s healthcare systems are becoming more similar, due to the common becoming more similar, due to the common challenges they all facechallenges they all face

•• Fundamental cultural differences between Fundamental cultural differences between countries preclude identical systems butcountries preclude identical systems but……

•• Blended funding models (public/private) with Blended funding models (public/private) with strong third party payers may become the strong third party payers may become the common model for the futurecommon model for the future

An “Age Wave” Is Sweeping The Developed World(% of Population Aged 60+)

0

5

10

15

20

25

30

US UK Germany France Italy Japan Malta Spain

19942004

SOURCE:

(Percent)

Healthcare Expenditures Among European Union Member States By Age

And Gender

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+Age (years)

Aver

age h

ealth

care

expe

nditu

re p

er p

erso

n as

a sh

are o

f GDP

pe

r cap

ita

European Union-15 MalesEuropean Union-15 Females

Source: Economic Policy Committee and the European Commission. 2006. The impact of ageing on public expenditure: projections for the EU25 Member States on pensions, health care, long-term care, education and unemployment transfers (2004-2050). Special Report No 1/2006, DG ECFIN, February 14, 2006.

Growing Healthcare Spending

2003 Healthcare Financing 2003 Healthcare Financing By PayerBy Payer

86% 81% 78% 76% 75%

45%

14% 19% 22% 24% 25%

55%

0%

20%

40%

60%

80%

100%

UK

Japa

n

German

y

France Ita

ly US

PrivateGovernment

SOURCE:

2003 Healthcare Financing 2003 Healthcare Financing By By Third PartiesThird Parties

89%81% 87% 89%

76% 81%

11%19%

13% 11%

24%19%

0%

20%

40%

60%

80%

100%

UK

Japa

n

German

y

France Ita

ly US

Out Of PocketThird Parties

SOURCE:

Percent Of Healthcare Spending Percent Of Healthcare Spending Devoted To PharmaceuticalsDevoted To Pharmaceuticals

(OECD Average: pharmaceuticals represent (OECD Average: pharmaceuticals represent 7%7%--10%10% of of incremental annual spendincremental annual spend——16%16% in US)in US)

0%

5%

10%

15%

20%

25%

USA Japan Germany UK France Italy

1990 2003

(SOURCE: )

The The ““PerceptualPerceptual”” AspectAspect

•• The rest of healthcare has a The rest of healthcare has a ““human facehuman face”” and is and is highly labor intensivehighly labor intensive•• Over half the cost of operating a hospital consists of staff Over half the cost of operating a hospital consists of staff

wageswages•• Cutting healthcare expenses equals cutting jobsCutting healthcare expenses equals cutting jobs

•• Pharmaceutical companies are seen as Pharmaceutical companies are seen as ““facelessfaceless””transtrans--national bodies, often thought of as making national bodies, often thought of as making ““excessiveexcessive”” profitsprofits

Biopharmaceutical industry will Biopharmaceutical industry will alwaysalways be the be the easiest target for cost containment, therefore has easiest target for cost containment, therefore has the greatest obligation to the greatest obligation to understandunderstand and try to and try to transformtransform the healthcare delivery systemthe healthcare delivery system

Cost Shifting To Patients Is Cost Shifting To Patients Is A A ““Blunt InstrumentBlunt Instrument””

0%5%

10%15%20%25%30%35%40%

Not Fill Rx Not Visit MD Not GetFollow Up

Care

AUSCANNZUKUSGER

BASE: Adults with health problems—Access problems because of cost in past two years

2005 Commonwealth Fund International Health Policy Survey

Application to key primary care therapy areas such Application to key primary care therapy areas such as hypertension and as hypertension and hyperlipidemiahyperlipidemia in virtually all in virtually all developed marketsdeveloped markets——andand specialty markets are now specialty markets are now beginning to followbeginning to follow

EvidenceEvidence--based assessments are increasing with based assessments are increasing with NICENICE--type agencies announced in France, Germany, type agencies announced in France, Germany, Sweden and Spain, with US now starting to follow Sweden and Spain, with US now starting to follow (AHRQ)(AHRQ)

Two critical questions for industry:Two critical questions for industry:

WhoWho’’s defining s defining ““innovationinnovation”” (e.g what(e.g what’’s s ““good good enoughenough”” to generate reimbursement?)to generate reimbursement?)

What data are being used to evaluate What data are being used to evaluate innovation?innovation?

““Supply SideSupply Side”” RationingRationing

Care Coordination Concerns Care Coordination Concerns Are SignificantAre Significant……

Base: Adults With Health Problems

Percent saying in the past 2 years: AUS CAN GER NZ UK US

Test results or records not available at time of appointment 12 19 11

20

Percent who experienced either coordination problem 19 24 26 21 19 33

Percent of diabetics who received recommended care 41 38 55 40 58 56

16 16

91

Duplicate tests: doctor ordered test that had already been done 11 10 9 6

23

18

85Percent of hypertensive patients who received recommended care 78 85 77 72

2005 Commonwealth Fund International Health Policy Survey

...And Medical Errors Happen ...And Medical Errors Happen Too OftenToo Often

“Have you experienced any error: medical mistake, medication error, or test error in the past two years?”

Percent

2730

23 2522

34

0

25

50

AUS CAN GER NZ UK US

2005 Commonwealth Fund International Health Policy Survey

Information Technology Use Among Primary Care Physicians In Seven Countries

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AUS CAN GER NET NZ UK US

Use EMR?Share Data?Easy Patient Access?

SOURCE: “Health Affairs” Web Exclusive Page W558, Published 2 November 2006

Medical Tourism— “The World Is Flat”Comes To Healthcare

Procedure United States Mexico Costa Rica India Thailand SingaporeAngioplasty $33,000 $13,125 $14,500 $7,800 $9,200 $12,500Heart bypass $37,000 $14,400 $13,600 $6,650 $11,000 $13,500Hip replacement $45,000 $9,400 $13,000 $6,500 $8,000 $9,000Knee replacement $21,000 $10,500 $9,500 $6,500 $8,500 $10,000Laparoscopic hysterectomy $19,000 $4,275 $6,500 $2,238 $4,500 $4,500Laparoscopic prostatectomy $27,500 $16,800 $11,500 $5,900 $9,500 $16,000

Source: PlanetHospitalNote: Prices do not account for travel or accommodations costs. Expenses can also increase if there are complications with the procedure. United States rates reflect Medicare reimbursements for hospital services but not for medications or anesthesia.

The Way Forward?The Way Forward?……Three Potential Future ScenariosThree Potential Future Scenarios

“Hamster Care” “Two Tiers” “Triumph of Reason”

““Hamster CareHamster Care””•• Healthcare seen as a societal rightHealthcare seen as a societal right•• Willingness to pay Willingness to pay does notdoes not increase in proportion increase in proportion

to demandto demand•• Payers treat healthcare as a group of Payers treat healthcare as a group of

unconnected costs to be minimizedunconnected costs to be minimized•• Rate setters must reduce reimbursement for each Rate setters must reduce reimbursement for each

unit of service delivered (physician visits, hospital unit of service delivered (physician visits, hospital stays, prescriptions) to balance budgets each stays, prescriptions) to balance budgets each yearyear

•• Everyone must run harder just to stay in the same Everyone must run harder just to stay in the same place financiallyplace financially

•• For the biopharmaceutical industryFor the biopharmaceutical industry——priceprice--based based competition and the eventual end of significant competition and the eventual end of significant R&D based productsR&D based products

““Two TiersTwo Tiers””•• Health care seen (at least partly) as market good Health care seen (at least partly) as market good

rationed on ability to payrationed on ability to pay•• A public A public ““safety netsafety net”” system for the general system for the general

populace with the right to buy more care with your populace with the right to buy more care with your own moneyown money

•• What is included/excluded from the What is included/excluded from the ““safety net?safety net?””•• Where does the group that decides elections Where does the group that decides elections

reside?reside?•• For the pharmaceutical industryFor the pharmaceutical industry——a split business a split business

modelmodel•• ““Cheap and cheerfulCheap and cheerful”” for the masses?for the masses?•• ““LifestyleLifestyle”” products targeted to the affluent?products targeted to the affluent?

““Triumph of ReasonTriumph of Reason””•• Healthcare still seem primarily as a societal rightHealthcare still seem primarily as a societal right•• Viewed as an Viewed as an investmentinvestment, the value (, the value (outcomes outcomes

divided by costdivided by cost) of which should be maximized) of which should be maximized•• Advances in HIT mean information on costs and Advances in HIT mean information on costs and

outcomes can be obtained, aggregated, analyzed outcomes can be obtained, aggregated, analyzed and sharedand shared

•• Incentives for all parties are matched to resultsIncentives for all parties are matched to results--focused behaviorsfocused behaviors

•• For the pharmaceutical industryFor the pharmaceutical industry——products with products with strong value propositions get premium strong value propositions get premium pricing/reimbursement, pricing/reimbursement, ““meme--toostoos”” are are commoditizedcommoditized

Future Industry Business Models?

“Big Pharma”

“Mass Market”Chronic Disease

Products

“Niche”/SpecialistDisease

Products

“Biotech”

HIT/EBMP4P

GeneticDx

Generics

ManufacturingLed

“1st Party Pay”ConsumerProducts

“High Volume/Low Margin”

(NSA/PPI/NSAID)

“Low Volume/High Margin”

(ED/”cosmeceuticals”)

Marketing Led

“Value Based”Products

“PersonalizedMedicine”(Herceptin)

“MixedOfferings”

(Dis. Mgmt.)

Science & Technology-Led

Cost Concerns2005

Cost Concerns2007-8

“So What” For Marketing Research?

• Diminishing universe

• “Cheaper faster”

• “Voice of the patient/consumer”

• Taking a page from consumer packaged goods• What can/will a

patient pay for?

• Early partnership with payers—unmet needs are key

• What services need to be combined with products?

• How best to exploit the genetic revolution?

“He Who Does Not Look Ahead Remains Behind”-Spanish Proverb

Broad Health Care Environment(e.g. actions of governments, providers,

consumers, NGOs, disruptive forces, etc.)

Biopharmaceutical IndustryBusiness Conditions

Individual Therapy Areas Most MR Focuses

Here

Little/NoEffort Here

“Strategic Early Warning”

• Identify “big picture” forces likely to impact health care & your business environment over next several years

• Develop alternative views on how these might combine and how they could affect business conditions

• Track the movement of the “big picture” forces and identify threats/opportunities for brand teams, functional areas, senior management

In SummaryIn Summary……•• Success in the developed world will Success in the developed world will ““make or breakmake or break”” our industry our industry

over the next decadeover the next decade

•• The developed worldThe developed world’’s healthcare systems are becoming more s healthcare systems are becoming more alike as they face a alike as they face a commoncommon set of problemsset of problems

•• There are several There are several ““parallel universesparallel universes””——different potential different potential scenarios for future evolution of the external environment of scenarios for future evolution of the external environment of varying degrees of attractivenessvarying degrees of attractiveness

•• There are several, nonThere are several, non--mutually exclusive potential industry mutually exclusive potential industry responsesresponses---- each would have quite different effects on each would have quite different effects on professional marketing researchersprofessional marketing researchers

•• The pharmaceutical industry is the most attractive target for coThe pharmaceutical industry is the most attractive target for cost st containment, therefore it containment, therefore it mustmust be active in understanding and be active in understanding and influencing its external environmentinfluencing its external environment

Thank YouThank You

““It is not the strongest of the It is not the strongest of the species that survives, nor the species that survives, nor the most intelligent, but the most most intelligent, but the most

responsive to change.responsive to change.””----Charles DarwinCharles Darwin

(Questions: kdsconsulting@verizon.net)