January 2013 http://www.wipro.com | http://knowledge.wharton.upenn.eduKnowledge@Wharton-Wipro Future of Industry Series: Accountable HealthcareAccountability in Health Care:Collaboration and Analytics Are Key
Knowledge@Wharton | WIPROKnowledge@Wharton-Wipro Future of Industry Series: Accountable HealthcareAccountability in Health Care:Collaboration and Analytics Are KeyThe health care industry continues to face demands for cost control, while needing to demonstrateimprovements in quality of care and making care more patient-centric. Policy makers are taking thelead to achieve these goals. The U.S. Accountable Care Act, signed into law in March 2010 and upheldby the U.S. Supreme Court in June 2012, identifies these as its core goals. While there seems to be anequal split between enthusiasts and critics of the ACA, the “trend towards accountability in healthcareis irreversible, according to Sangita Singh, senior vice president and global business head - healthcare, ”life sciences and services business at Wipro Technologies. In the emerging environment, health care andlife sciences companies will have to reinvent their business strategies to survive and grow, says PatriciaDanzon, Wharton professor of health care management. One word defines the meanwhile, struggle to contain overhead and care opportunities and challenges for the uninsured, while insurers are stingier on ahead for health care reimbursements. And the insurers themselves are providers, insurers and now required to provide near-universal coverage. life sciences companies: In the background, regulators, politicians and accountability. Everybody public watchdogs are scrutinizing all players more wants affordable, quality closely than ever, prompted by recent scandals health care that is more involving drug recalls, inaccurate regulatory easily accessible. While that reporting and concerns over the pricing of drugs is the goal, each stakeholder and medical services. — pharmaceutical Given such stern tests, health care and life companies, medical device sciences companies are reworking businessmakers, hospitals and insurers — must navigate models and using technology more aggressivelytheir own path forward. to grow profits. Pharmaceutical companiesPharmaceutical companies, for example, face are adding generic drugs to their portfolios,expiring patents on blockbuster drugs, with few expanding in emerging markets and workingothers in line to replace them, at the same time harder to find new blockbuster molecules.they are under attack from cheaper generics. Medical device makers are tapping under-Medical device makers are being told to lower penetrated emerging markets with cheaper andcosts and innovate for emerging markets. Both often smaller devices. Hospitals are divertinghave to stretch R&D dollars even more as investors some procedures to out-patient ambulatory careraise the bar on expected returns. Hospitals, services, and fine-tuning data analytics to boost Accountability in Health Care: Collaboration and Analytics Are Key | 2
Knowledge@Wharton | WIPROpatient outcomes. And insurers are demanding BLOCKBUSTER DRUGS, PHARMA’S BEST BETtighter cost controls and better patient outcomes For pharmaceutical companies, accountabilityfrom health care providers. The entire health care in care will bring opportunities, according tocomplex is struggling to find a new order. Singh. True, they are grappling with a diminishing portfolio of blockbuster drugs, which still generateALL ROADS LEAD TO ACCOUNTABLE, the most profits. “But all that is in no way aEVIDENCE-BASED CARE deterrent to affordable care, the accessibility andPolicymakers are taking the lead in ensuring quality of care a patient can get.”universal or near-universal healthcare access at The emphasis on accountability begins with newreasonable cost. The best example, of course, is drug discovery. Until recently, “everything wasthe 2010 U.S. Patient Protection and Affordable gold plated in R&D, says Singh. “There were no ”Care Act (ACA) that the U.S. Supreme Court questions asked about the cost of getting a patent. ”upheld in June 2012. U.S. President Barack Today, pharmaceutical companies have to strikeObama championed and the U.S. Supreme Court a tighter cost-benefit balance in innovation. Nobacked in June 2012. It aims to provide affordable longer can they charge patent-protected, premiumcare to millions of previously uninsured people. prices for long as they did in the past because theAnd while the ACA remains controversial, the threat from cheap generics arrives sooner.“trend towards accountability in healthcare isirreversible, says Singh. All industry players will ” Singh sees a distinctive strategy shift as pharmabe guided by two principles: accountability and weans off the blockbusters. “The problempatient-centric care, she says. would be serious if they did not realize what the ‘new normal’ is. There is declining R&DThe notion of a patient-centric approach is productivity, a declining flow of new drug patentspopular, but can be interpreted in many ways, and the patent cliffs — but I don’t think any ofsays Danzon. “The useful notion [of patient- the pharmaceutical companies are in denial. ”centricity] is that there is a push towards trying Their fundamental challenge is to develop newto measure outcomes and get a better evidence products that will be sufficiently superior to olderbase for medical decisions and treatments. ” drugs whose patents are expiring, says Danzon.But evidence-based medicine generally means Only then can they justify the much higher priceslooking at what works on average since it cannot that new drugs command relative to generics.be applied at an individual patient level, she adds.Also, it must incorporate sensitivity to patient Singh expects pharmaceutical companies topreferences and differences in co-morbidities. divest unprofitable businesses, stick to theirFor example, if one patient is young and healthy core competencies and grow more throughvs. another with a heart condition and diabetes, acquisitions. They already are expandingthen the optimal treatment may be quite different portfolios to include generic drugs, lifestylefor each one. Accountability in care also has to products (for example, health tonics and otherdo with evidence. “Providers and health care wellness offerings) and animal health medicines.companies are going to have to provide evidence Emerging markets are also a big, new area. “Ifthat what they are doing, and what they are you look at the CEO speeches of any of the topasking payers to pay for, does in fact deliver five pharmaceutical companies, you will see themvalue to patients, says Danzon. ” talk about diversification, emerging markets, R&D productivity increases, etc., Singh says. ” Accountability in Health Care: Collaboration and Analytics Are Key | 3
Knowledge@Wharton | WIPROGenerics can absorb only a limited amount of countries — face the same sort of patent cliffs whenthe revenue downturn as patents expire. While patents expire because the follow-on biologics willgenerics can bring in some stable revenues with not be as numerous, as cheap or as substitutablea well-executed strategy, they don’t offer the high as the follow-on chemical-based drugs.returns that successful new drugs deliver, Danzon Even as Big Pharma companies work tonotes. “In a way, the pharmaceutical industry discover new blockbuster medicines, smalleris a victim of its own past success, and we as biotechnology firms and generic drug makersconsumers benefit from that — we now have all will bring more innovation than in earlier years,these good, cheap generic drugs available. ” Singh predicts. She is especially bullish aboutThe potential in emerging markets looks personalized medicine, where gene-basedpromising. But here again, Danzon sees sequencing and other tools help customize drugssome obstacles. The market share of MNC based on patient profiles. Notable work is beingpharmaceutical companies in both India and done in this area by Amgen, Gilead Sciences,China is well under 40%, she points out. “So they Roche and Genzyme. “Personalized medicineare going into markets where they face tough is now beyond the idea stage. It has gained ”competitors, limited insurance coverage for drugs acceptance, and the challenges now are aboutand a limited ability to pay on the part of much getting scale and managing the cost of providingof the population. There is also often a mismatch such treatments.between the products the MNCs are currentlybringing to market and what consumers in those WANTED: A STEVE JOBS FOR MEDICALcountries want.” DEVICESAnd don’t expect big gains from efforts to increase The opportunities are different for medicalpatient compliance. “Improving compliance is device companies, where attention is focused onsomething the pharmaceutical industry has been miniaturizing products “to make them cool andstruggling with and trying to achieve for years, ” appealing, says Singh. Miniaturization also works ”she says. “It’s just not obvious that there is an easy well for emerging markets, she adds. “You need away to do this. Patients are non-compliant for ” Steve Jobs in that industry. These companies are ”many reasons – some have to do with costs, some also sourcing innovation from India and China towith a dislike of taking medicine, or some with a cut costs and customize products for those newfeeling by consumers they are not getting value. and expanding markets.“There is no magic bullet here. Singh agrees that ”increased patient would add only incremental The big medical device companies, including GE,revenue, whereas one blockbuster drug can Philips, Siemens and Johnson & Johnson, havegenerate “a billion dollars.” already established their presence in emerging economies by supplying devices adapted forStill, says Danzon, new drugs offer the “highest- those markets and sourcing innovation locally.risk, but it’s also the highest-return strategy. An ” GE, Philips, Siemens and others also have localindustry-wide shift away from chemical-based manufacturing units in India and China.drugs to biologics [a treatment made from abiologic process] will help. That is because the Medical device makers increasingly are usingbiologics will not – at least under the new U.S. technology to respond to the challenges. Onehealth care law and regimes in some other example: A large U.S.-based maker of cardiac Accountability in Health Care: Collaboration and Analytics Are Key | 4
Knowledge@Wharton | WIPROdevices is introducing new product features that services for all residents, and the more expensive,enable communication with back-end patient private insurance U.S. health care model.history databases using mobile telephony, cloud One big organizational issue facing health caretechnology and business analytics. Some efforts providers is the likelihood that payers will movehave helped cut manufacturing costs by 80% for soon towards more bundled forms of payment,select devices. Others are creating new revenue according to Danzon. Those “bundles” wouldstreams, in one case by analyzing patient data cover payments for the pre-hospital diagnosis,from devices such as insulin pumps. hospitalization, post-hospital care and possiblyBusiness transformation is the key theme all drugs used in the treatment. That approachat another large U.S.-based medical device would also incentivize providers to be more costcompany. One example: Since 2011, the company conscious. “The basic idea is to move away fromhas set up a global complaints management the fee-for-service approach to reimbursement,center in the Philippines, hiring hundreds of where the more services you provide, the morenurses and biomedical engineers to resolve user you are paid, says Danzon. The transition won’t ”problems and report adverse events as required be easy. “In the short run, it could mean painby the FDA. The company wanted to reduce the for some providers as they face the need tocosts of complaints management and harmonize reorganize and change the way they practice. ”the global complaints management process. With the pressure to contain costs, hospitalsMeanwhile, makers of big medical equipment are pushing more for home care, outpatientface business-model changes as hospitals treatments that avoid hospitalization, theincreasingly rent rather than buy. Called the parceling out of specialist services to ambulatory“loaner model, it could be “a very profitable ” care centers, and remote patient monitoringstrategy” for makers of expensive equipment, and wellness programs. Moving some hospitalsays Danzon. Medical device companies are also services out of the inpatient sector into moreimproving margins by removing the “bells and ambulatory care settings “is good news forwhistles” from products, while retaining basic patients and payers, says Danzon. She is not ”technology and functionalities. Danzon says as optimistic about the impact of wellnessthat helps them extract more sales by varying programs. Billions of health care dollars couldthe features and the price points based on each be saved if people could be persuaded to leadcustomer’s ability to pay. healthier lifestyles, she says. “But there is not a lot of evidence that wellness programs actuallyHEALTH CARE’S HUNT FOR EQUILIBRIUM have such results. ”Given that accountability will be the chiefdriver for health care organizations as policy MIXED FORTUNES FOR INSURERSmakers globally seek to rein in costs, expect For insurers, laws such as the ACA may heraldphysicians, hospitals and insurers, to seek new gains, but not without some pain. Theequilibrium between the lowest-cost treatments focus on coverage for just about everyoneand expanding access to patients, says Singh. means insurers could enroll millions of potentialThat equilibrium most likely will rest somewhere additional “lives, or customers, but there are ”between the U.K.’s taxpayer-funded National obstacles. Danzon points to constraints on theHealth Service, which provides almost free types of policies that can be offered, limits on Accountability in Health Care: Collaboration and Analytics Are Key | 5
Knowledge@Wharton | WIPROmedical loss ratios (a measure of the portion this information is retrospective in nature and hasof health care premiums insurers spend on limited ability to affect point-of-care decisions.administrative costs and profits), restrictions on Hospitals and large provider groups have accesspolicy exclusions and the elimination of caps on to real-time clinical data that can improve point-total expenditures per patient. of-care decision making. However, they have limited historical data for patients.The good news for insurance companies is thatthe rules apply to all. That will make it easier for Clearly, a key need is to integrate data fromthem to adjust premiums to accommodate the payers and providers to improve the outcomesadditional costs, says Danzon. But premiums will and quality. Today, collaboration betweentend to go up. “That is a big concern. Payers will providers and payers is occurring on a scalehave to pay for additional services, and that will “we have never seen before, says Singh. These ”add to costs and add to premiums. There is not collaborations help cut costs, improve care andmuch [in the ACA] to help them control the fees create better reimbursement models based onof providers, or the prices of drugs or the prices outcomes. “It is classic B-to-C consumerization,”they pay hospitals. Insurers will have to develop ” says Singh. Also of help: technology such asnew strategies to control reimbursements. cloud platforms (where data sits on remote servers, accessible to multiple users) connectingInsurers have been eagerly awaiting electronic hospitals, physicians and patients.health records to bring new efficiencies. Butdespite more than a decade of talk progress is Business analytics is already helpingslow, Danzon says. Electronic records will help pharmaceutical companies make wiser decisionsproviders know about a patient’s conditions and on which products they should sell where, whenprevious treatments, and that could potentially and at what price points, including offeringeliminate duplicated services. But providers will suggestions for dealer incentives, stock levelsadopt new technologies only if they save both and promotion strategies. Singh points to severalcosts and time. examples of the use of data analytics to help improve patient outcomes. AstraZeneca hasCOLLABORATION AND BUSINESS partnered with insurance and health benefitsANALYTICS — THE NEXT FRONTIERS provider WellPoint to gain more insight into patients. Once equipped with the medical historyThe key to measuring cost and quality is to of patients and their families, insurers can makeaggregate claims, financial and clinical data. But better-informed decisions on the coverage theythat does not necessarily ensure the appropriate provide. GE Healthcare recently joined up withdecision making to deliver high-quality care. Intel for remote patient monitoring services. InDelivering truly patient-centric care requires December 2011, it also partnered with Microsoftpredictive analytics and modeling, where in care management, using real-time businesshistorical data is used to identify risks and intelligence on health care quality and patientopportunities. This would also require a blurring experiences to boost outcomes. Philips isof the lines between the traditionally separate, experimenting with remote patient monitoringand often adversarial, positioning of those that where its devices are linked with patients whoprovide care and those that pay for it. Payers are connected with paramedics and doctors attypically have had access to analytics for patient its back offices. The UnitedHealth Group hasidentification and stratification. However, most of an in-house entity called OptumHealth that Accountability in Health Care: Collaboration and Analytics Are Key | 6
Knowledge@Wharton | WIPROdoes analysis for wellness, disease and care competing goals, says Danzon. “At a simplemanagement programs. level, broader access is in contradiction to cost control, because one approach to cost controlThe quest for accountability in care is forcing is to limit access, she says. “Hopefully we will ”health care and life sciences companies to retrace reconcile these goals and get universal access attheir steps, too. Expect medical management reasonable cost. The biggest challenges will be ”to be “the next big thing, with a focus on ” complexity, heterogeneity and volume of data.prevention before cure, says Singh. “There is a The ability to combine, normalize and harmonizeshift from treatment to wellness, and everybody this information from multiple stakeholders willin the food chain will be involved. But it should ” be the key to success.be understood that improving access to healthcare and making it affordable are to some extent Accountability in Health Care: Collaboration and Analytics Are Key | 7
Knowledge@Wharton | WIPRO Future of Industry Series: Accountable HealthcareThis article was produced by Knowledge@Wharton, the online businessjournal of The Wharton School of the University of Pennsylvania. Theproject was sponsored by Wipro Technologies.www.wipro.com http://knowledge.wharton.upenn.eduFounded in 1881 as the first collegiate business school, the Wharton School of theUniversity of Pennsylvania is recognized globally for intellectual leadership andongoing innovation across every major discipline of business education. With abroad global community and one of the most published business school faculties,Wharton creates ongoing economic and social value around the world. The Schoolhas 5,000 undergraduate, MBA, executive MBA, and doctoral students; more than9,000 annual participants in executive education programs; and a powerful alumninetwork of 91,000 graduates.ABOUT KNOWLEDGE@WHARTONKnowledge@Wharton is the online business analysis journal of the WhartonSchool of the University of Pennsylvania. The site, which is free, captures relevantknowledge generated at Wharton and beyond by offering articles and videosbased on research, conferences, speakers, books and interviews with faculty andother experts on current business topics. The Knowledge@Wharton network —including Chinese, Spanish, Portuguese, Indian, Arabic, Israeli and High Schooleditions — has more than 2.1 million subscribers worldwide.For more information: http://knowledge.wharton.upenn.eduABOUT WIPRO TECHNOLOGIESWipro Technologies, the global IT business of Wipro Limited (NYSE:WIT) is aleading Information Technology, Consulting and Outsourcing company that deliverssolutions to enable its clients do business better. Wipro Technologies deliverswinning business outcomes through its deep industry experience and a 360degree view of “Business through Technology”— helping clients create successfuland adaptive businesses. A company recognized globally for its comprehensiveportfolio of services, a practitioner’s approach to delivering innovation and anorganization wide commitment to sustainability, Wipro Technologies has 135,000employees and clients across 54 countries.