That was a key topic addressed at the recent Vanguard Forum for Healthcare Leaders in New York City. The Forum brought together 70 executives: a faculty of today’s CEOs, board members and thought leaders to share their experience with an elite, invitation-only group of senior executive delegates.
The Critical Trends session was moderated by Jonathan Rockoff, Staff Writer, The Wall Street Journal. Faculty included Jeff Berkowitz, Past Executive Vice President, UnitedHealth Group; Shabbir Dahod, President and CEO, TraceLink, Inc.; Peter Hecht, CEO, Ironwood Pharmaceuticals; and Paul D. Rubin, Partner, Healthcare Group, Debevoise & Plimpton LLP.
Much of the session considered the challenges faced by the pharmaceutical industry and how they could be overcome. Rockoff kicked off with the provocative questions: “Why is pharma cast as the villain? Why does it have so much trouble getting its message across?”
The cost of drugs was the clear answer, and there was a spirited debate that included both panelists and delegates on perception versus reality. Rubin said: “Pharma has been tarnished by handful of incidents where drug prices have been perceived as unnaturally high. This was the case with some orphan drugs. It harms the whole industry but is not indicative of what’s happening overall.”
Hecht cautioned that pharmaceutical companies must understand perceptions about price. “If you have a copay at the beginning of every year, patients feel it and every drug seems overpriced.”
In response to Rockoff’s question about what the industry could do to change those concerns, Hecht responded: “We may think we are providing value but we haven’t done a very good job of connecting value to price.”
He also said the issue was beyond one of perception. “There’s room for innovators to get more efficient about how they make drugs. Margins in the future will be much tighter, but it can still be a good business model.” In fact, he believes that the industry is ignoring the need for cost containment. “Gross margins will be cut in half,” Hecht predicted.
Both panelists and delegates contributed to a discussion of risk versus reward in drug development. Andrew Thompson, President and CEO of Proteus Digital Health and a Forum faculty member said, “it took 12 years for us to get Proteus Discover approved. That’s well within the average.”
But advances may not continue to be rewarded by the marketplace. Berkowitz asked: “How do you price innovation? The industry comes up with a scientific difference and hopes someone will pay for it.” He added, “there aren’t very many industries where a 10% cost increase makes you seem like a hero.”
Rockoff asked whether healthcare industry consolidation could help.
Berkowitz responded: “In the US, we like to think of ourselves as not having a national health system, while we actually have two pharmacy chains and five insurance companies. We are national in many ways. Horizontal consolidation builds scale, while vertical integration creates unnatural partnerships, but is forcing conversations instead of silos.” He suggested bringing together pharma, payors, consumers and other groups to create a value proposition. “Now it’s mostly lip service,” he said.
Dahod, who called himself an outsider coming from the high tech industry, cited a number of inefficiencies in the current pharmaceutical landscape. “There’s a lack of transparency, which can cause problems as severe as counterfeit drugs. There’s a huge opportunity to integrate the supply chain and financial reporting.”
Rockoff asked: “How difficult would it be for a disruptor to come from outside?”
Dahod said: “Amazon could have a patient-centered approach. They are predominantly a customer-centric organization. That could be a real advantage.”
Rubin responded that there are high regulatory barriers to entry. “This is a slow process with all kinds of barriers. It could take years. It’s different than Amazon’s other businesses.”
In looking toward the future, Rockoff suggested that senior leaders may want to reach out – both within healthcare, and to other stakeholders. Berkowitz agreed: “I’m always surprised that pharmaceutical executives don’t go out more to talk to other players in the healthcare ecosystem.”
Hecht agreed: “The first step is understanding the reality of the landscape from diverse points of view.”
Thompson added: “We’ve built systems to deal with disease and trauma. Now we need to build a healthcare system. In the future, the smartphone will be the most profound care coordinator. Technology will close the gap and enable consumers to make better decisions on when and how to use drugs. In 20 years we will laugh at the idea that people continued to put drugs in their body without knowing if they work.”