And thank you all and they're also, I'd like to introduce many of my students, especially rule palm. She is the manager and also some of my students here I see. Okay, Welcome everyone. It is my privilege to invite you to another exciting, exciting fireside chat. And as you know, far side charities away, we bring industry experts to meet our students, to connect and to talk about emerging issues in what's hot right now. So and fireside chat is also a great way for us to educate our students on some of the most important issues right now. So we, we, we like, or we, we have been using our students to be the moderators. Okay, So tonight's session is being moderated by David Murphy. David is a David, you will introduce yourself. You know, David is analysed in the trading room. And then you will also talk about himself and he would go but the protocols and things like that. And I also want to give a shout-out to Fred. Luckily, Fred is the MD professor now. He had an illustrious career. Now is joining Berkeley as a director of the Center for Technical, this science and technology, right? If I'm not incorrect. Okay. So with that, David, the floor is yours. Yes, sure. Thank thank you very much, Professor salt in it. Thank you everybody for joining us tonight. Like professors felt an alluded to. My name is David Murphy. I'm an analyst in the trading room here at Bentley. And I will be your host for this wonderful evening with another great fireside chat. So to start things off, I will introduce our wonderful speakers for you. Well, first up, we have kept McClellan. He is currently a senior partner at PWC. But prior to that, he was a partner at McKinsey. And at McKinsey, he led their North American pricing and health care practices. Along with that, Kevin brings over 30 years of experience in health care and other high-tech companies, help them out in a plethora of different ways. And Kevin received his bachelor's, his bachelor finance from Bentley, then went on to get his MBA from MIT Sloan School of Business. Then our second guest speaker is Dr. Irene box. She is currently a pediatrician at Einstein pediatric adolescent ambulatory care. Doctor box is also an attending physician at Albert Einstein Medical Center along with St. Christopher's Hospital for Children. Prior to these rules, doctor botched received her medical degree from Philadelphia University as well as Thomas Jefferson University. And she completed her residency and internship at the University of Arizona. So there'll be a speakers tonight. I'm very excited to get to. But before we do that, I'm just going to go over some Zoom etiquette and kind of a protocol for this evening that I'm showing you Rob. Familiar with at this point in the pandemic. So just a quick reminder, everyone should be on mute throughout most of the presentation except during Q and a sessions, which will primarily be at the end. But there may be an opportunity after Kevin explains the case that we're going through to pretty gas, ask any questions that you might have. Then as I said, the Q and a, it will be at the end. And then if you do have any questions in between those times, feel free to send them into the chat and we will, we should be able to address them as we go along and whenever it's convenient. So thank you guys all for joining us. And with that, I will turn it over to our panelists. Super. Thank you, David. The Great to be with you folks. It was it seems like not that long ago that I was sitting in your seats, although we weren't zooming in the early 90s. So, so that part is no, but thanks for inviting me and I think we'll have a rich discussion tonight. I'm sure we'll run out of time. Bonus points if we solve the, the US healthcare system on this, on this meeting. So, so I encourage you all to be creative. Look, I thought, I thought what we could do is start with a little bit of background here and I'm going to invite our aim the way and have Lisa, she actually knows the practice of medicine. And the rest of us kinda present from the outside. But the, the topic that you all teed up was, how do we price innovation in the health care system? And I think fair to say that that is a complicated question at, at, at least. But let's see if we can make some progress. And I, and, and we'll have an interactive exercise to help bring this to life as well. So I'll spin through here if there are questions along the way, please don't hesitate to to jump in. And what I thought we'd do is spend about 15 minutes on this upfront section so we can kind of ground ourselves and then move into the more fun part. So one of the interesting things about the US health care system is that it is quite complex, right? And so it's not at all obvious to the uninitiated who pays and where all that money goes, right? And I think many of you have probably heard about the cost of the system and the cost of care in the US being high. But it's not always clear exactly why that is. So I thought we could start there. Then there's this tension that is sort of persistent in many industries, particularly in health care. And I think over the last year maybe we'd seen it even more up close with the rapid development of vaccines, which is if you're going to invest and innovate here. And sometimes that can be a pretty high risk proposition. What's a fair return, right? And so we'll talk about that. And then the last part is, is the interactive part will try and spend about a half an hour on this, which is, what would you do You CEO for a day? How would you, how would you solve this problem? And then we'll talk about that. So the healthcare system Broadway, all right. And this is, this is from some research that my colleagues here at PWC did. That estimates that the industry is somewhere in North or 5 trillion right now this data is a few years old, but you got, if we sort of work from the top of the chart around clockwise, you've got care delivery, which you know, and Irene can speak to this this is a plethora of hospital-based, clinic based physician office space. Now virtually based health care services. You've got diagnostics and therapeutics, right? And this is everything from lab testing to medical devices like hips, knees, sense, pacemakers, etc. And the various pharmaceuticals that many of you will have undoubtedly heard about. Maybe one of the most interesting things about the pandemic from a pharma industry perspective is that you have companies like Regeneron being branded. As, you know, they had to pay. They have a product that nobody can remember the name of, that. Everybody remembers that as the name of the company. So a little bit like what happened with Kleenex or Xerox. That's never happened. You've also got then financing and payment systems, right? These are the pairs and you know, some of the services that facilitate the, the, the, the money flows. You've got platforms and support infrastructure, right? And that's increasingly an area where there's technology innovation, right? And even third parties outside the health care systems coming in and trying to solve some of the coordination problems that exist in the industry. You'll hear about wellness, right? You know, this is from a US standpoint, really important because we tend to be from a population health standpoint. Despite all the spending worse off than many of the other developing economies are developed economies rather. Which, you know, it's hard to point to exactly why that is. But I think, you know, interestingly, you know, things like Peloton Fitbit, sort of this consumer wave of wellness are, are, are an interesting trend and that, that's a big industry and on its own. As you can see here, it's, it's quite sizable. And then the middle of all this, you have the government, right? There's a huge chunk of our healthcare spend, which is B and Medicare and Medicaid. For either retirees are folks that are unable to pay for care elsewhere. And then the employers pick up quite a bit of the health care cost burden right now. J ask the question, maybe before we, we we were prepping for this and he said, How much of this, how much of this cost is borne by consumers? Well, you know, oftentimes employers are providing health care as a benefit. And most of those larger employers are self-insured. Meaning, if I'm an employee of PwC, when I file a claim, PwC is paying for that medical care, right? It runs through an insurance company, but the insurance portion of that is actually borne by the employer. Employer. And that's typical of employee employers that are as small as 200 employees. So in some sense you could say that's actually a tax on employees, right? Because what you're not getting in salary, you're getting as some form of health care benefit that would otherwise flow into the economy through, through salaries and bonuses and so forth, right? So, so in facts, consumers are bearing a huge cost here of having a healthcare system that's relatively expensive compared to the rest of the developed world. Let me pause here because this is an important kind of structural understanding side. Would invite or read the comment and just make sure that there are no big questions before we keep going. So it's, it's thick of it. This is like a giant lake complicated slide. And as an academic physician, this is a slide that we try to teach our residents and our, and our up and coming physicians and I. And what I like about this slide is that it really illustrates the interconnected nature of each one of these components of health care. You can read, depending on the literature that you look at, care and delivery could come comes up as 30 to 60 percent of healthcare costs. And being a care and delivery provider, the hospital comes after me to reduce length of stay and to reduce the cost there. The hospital also needs me to be able to see patients frequently enough so that we can stay on top of illness to prevent hospitalization. But I can't really do my care delivery job unless patients can afford diagnostics and therapeutics depending on their payer plans and what they have to pay out of pocket. I also can't really ensure efficient and cost-effective care delivery. If we look at platforms and support and how our patients connecting with healthcare delivery in the first place. So, you know, you, you kind of try and put all of these things into little silos and say, Okay, I'm Anna, improved length of stay and reduce the cost of health care that way. But you can't really reduce length of stay without addressing diagnostics and platforms and support and what your payers are going to provide. So it's, it's super complicated and being on that ground level, we want to put everything in a little silo, but every time we try, it's like the little web rears its ugly head and you can just see how everything is interconnected. Thanks, sorry, that's a great point. And there's there are a lot of changes underway in every part of this. Right. And so I'll just I'll I'll touch on this briefly because I mean, we could have we could have probably a semester long course on this. But again, you know, kind of starting at the top, there's a shift from volume to value. Basically what that means is the traditional way that health care was charged for in the US was, was on a fee for service basis. Meaning, you know, if I see a patient, I'm going to send a bill for basically for my time. Right. And there's more to it than that, but that's the, that's the nature of it. Shifting to value means that instead of paying you for inputs, right? In that case, it's my time as a physician. I want to pay for outcomes, meaning I want to make sure that after somebody spends time with you, they're actually healthier, right? And so you can imagine the seismic shift that, that represents not the least of Is challenge of how do you measure outcomes. And so this has been talked about, but slow to be realized for that reason and for some others. But that's underway, right? And I think that's most, the most macro measure of that is population health. And again, as a population in the US, we're not as healthy as some other developed markets. And so, you know, people will say we spend more on healthcare, but we're not healthier. And of course, that's a very generalize statement. And I think hard to tie very directly to the cost of care. But certainly that's an input. You've got. Technology advances, advances in digitization. And some of that you don't see. For instance, in clinical trials, right? There is increasingly virtualization and database simulations of patient's reaction to a certain therapeutic. Mostly drugs, right? So you can imagine trying to manage trials, human trials where people have to show up to clinics. You have to make sure that they're following the regimen, that they're getting the right, those are the right frequency and all of that stuff. If you can do that digitally using AI and modelling, That's a huge, huge advantage. It's a huge improvement in speed and in some cases accuracy, right? So those types of things are happening. We talked about the surgeon in wellness. And again, this is a place where great that people are interested in being healthy. Great that a lot of pairs that the insurance companies are offering wellness benefits. But the link between those benefits and better outcomes, better health has been very hard to shell, right? And so that's, that's sort of investing on the KM if you will, with just logic, that if people are going to the gym or writing a peloton, that they are going to be better off. All right. It decentralization and I and I yeah, that was for my colleagues. I kind of added though the counterweight is continued. Consolidation in some sectors. Already mentioned the pressure from the hospital. Hospitals as they consolidate are trying to squeeze costs. And we'll talk a little bit about the valuables in a minute. But there's some tension there, right? And it's important to understand where are the different control points in this complex ecosystem. Where some of the health care market participants are trying to exert more control and that's shifting the economics. And then finally, and this might be the most powerful force here is the rise of consumerism. And this takes the form of really kind of shifting to a market based system. If, if I asked you three years ago, would it cost to go to the doctor? You probably most people probably wouldn't know. Right. And that's because your insurance covers more more than the than the majority. And you might have a $20 copay, but aside from that, you know, the rest is pretty opaque. If you had a surgery, it was even worse, right? And you might get five bills from five different departments in the hospital and never really understand the full costs of that care, right? That has changed and continues to change. But that is driving much more consumer-oriented market where consumers are being educated, educating themselves, and then making choices about where they get care, what care they, they choose to get versus differ. And that's all a very powerful force that's going to affect this, this industry or anything you would add here south. So what I, what I personally feel very passionate about is it then there's one of the big missions in terms of improving health care costs is the shift from that volume and bought the volume to value. And you know that the challenges in this are all know, it seems almost daunting and a measurable. So as you start kind of piecing down these five areas, the answer is not very easy and I have so many examples to talk about. But as a pediatrician, I take care of a lot of asthma. You hear about asthma a lot of times. But one of our metrics we've decided is to prevent hospitalization. But all of the factors that prevent a child from getting hospitalized for asthma. I don't even think you could fit onto this page. So I mean, I think the only thing I would add here is that it's, it's a very complicated ecosystem. And really each, each category here really has to work within the other to make it, to make it work. And I think one of the big things is kind of our goal of our stakeholders. I think Kevin, you mentioned, you know, the, the, the, the consumer kind of market. And I think here is a, is a big issue in the cost of health care in the United States. Like what is everybody's main goal? And I think if you were to make a chart of every stakeholder's goal, you can see that misalignment In, in goals and in tech and advances in digitization. The goal might be to make a profit on your new technology, but you're new technology might not be applicable for a giant portion, every population, maybe only one or 2% of the population benefits from your technology. So then you, you're here to make a profit. But then how do you balance that goal with improving quality of life and improving health outcomes? So I think misalignment of stakeholder goals is the, is a big issue and, and I think it'll be a challenging one to unify all stakeholders. Sorry to interrupt, but it looks like we do have one question from the audience I just saw in my chat. So this comes from vibrato. I mean, it's a two-part question. So I'm just gonna kinda fire away and I can repeat either question if you guys need. But for the first one is, is there a way to include the cost of training physicians in the market visual that you showed. And is the amount of care our system provides to the elderly comparable to other systems? So the first answer is yes. I mean, you could estimate and we know that the costs of medical education is, generally speaking, we know how many people, you know, matriculate through medical school every year. So that is that is certainly doable. I don't know is the answer on the other one. I don't know if arenas a perspective on how we do relative to other countries on elder care of. So I'm not entirely certain about elder care. I know compared to some some of our European counterparts in terms of screening and prevention of certain health conditions like breast cancer and cervical cancer, the US does tend to have higher benchmarks and improved outcomes compared to some of our a European counterparts. And then in terms of, of end of life care, which you could maybe use as a proxy for elder care. In the US, we tend to outspend many developed countries in terms of end of life care and end. And that end of life care is not necessarily applicable to a large portion of the population. So I do know that with end-of-life care we spend more and then we do have some preventative and screening benchmarks that we have better outcomes compared to our, to our counterparts. That's great. That's a good metric actually. We'll touch on that later here as we go into the case. So either scrape this together, to be honest, but I thought it was interesting because if there's, if there's one thing you take away from this, it's maybe not what you thought in terms of the distribution of profits. So this is again, this is profits in that i've, I've illustrated operating margin and net after-tax margin across the bottom here, right? So 80% of the industry's profits are in provider, farmer, pharma and pair, right? That the insurance companies. But you can see there the margin profile, quite different, right? The net after-tax margin, if you're a payer and provider are sort of less than what any of us would sort of accept that as a reasonable rate of return for a risky investment. Although j will probably can correct me based on the current treasury rates, but, but essentially those are paltry returns, right? And so you can see why pharma becomes a big target. And especially all this talk about drug prices is, is not only is it a big chunk of the overall industry profit is on its own. You know, one of the highest. Margin businesses on the planet, right? And so, you know, as a, as an industry I think you're seeing folks wrestle with this. Now interestingly, medical technology, so device implants and so forth is a relatively small part of the industry, right? It's less than half of what the pharma businesses, distribution and pharmacy is really small and then healthcare IT IS, is pretty tiny. Now, you could, you could quibble with the line on healthcare IT and consumer technology. And I think that's blurring. But all that at this day, most of the actions and the provider farm and pay respects. All right, Now this is growing at about 5% Kakar projected. That would basically put us in the next few years at about 20 percent of GDP on health care, which is again about 26 that the rest of the planet. So that's, those are some grounding facts and, and I think will be helpful to you as you consider our exercise here. So I touched on some of this already. Let me spin through these quickly. We talked about the first, interestingly, from an innovation standpoint, 5% of our total health care costs on R&D is, is a solid R and D spend as a percentage of overall spend. But if you looked at high-tech companies, you'll see R and D budgets almost twice that many cases, right? And so, you know, you could argue that for all that we're spending, we may not be actually getting the innovation that we could be getting. There are definite outliers here, right? So I put some example. Some of the big pharma companies have almost ridiculously high margins. Now on the other hand, if you just looked at the 8 thousand biotechs in the US, the margin profile is low single digits because many of those companies are pre-revenue. They're just pure development operation. So just keep in mind some of this is tempered by the stats that you don't see. Back to the pressure on physicians. Hospitals service pricing. So the price you pay for care at a hospital grew North and 25 percent, right? But at the same time physician compensation grew and a fraction, right? And so again, what you're seeing here are shifts in the profit pools driven by things like consolidation. And also I think driven by There's a fact that didn't have on here, which is I think more than half of the physicians in the US now our employees, right. And that didn't used to be the case for the most part of physicians were in private practice. That's a big shift. And then of course, healthcare spending still growing faster than GDP, right? And so we're in some sense losing ground as a, as a, as a nation on the total cost of care. All right. Something to add between the for that hospital service pricing growth and a lot of service pricing is determined by what your pairs are willing to. To reimburse you. And so here in the state of Pennsylvania, reimbursements are rather low and so something as simple as IV fluids, which I mean, the actual cost of producing IV fluids is very low and many states, so charge a $100 a bag. But our pairs in Pennsylvania reimburse really poorly for IV fluids. And so in Pennsylvania are IV fluids or price like $500 a bag. And so the pair doesn't want to reimburse and then a lot of that burden ends up falling on the patient if they have private insurance to pay that copay or a chunk of that out-of-pocket costs? Yeah. What offerings referencing is that the the payers, the insurance companies have big influence in some places where there may be consolidated coverage, right? So if you're the only pair in the State of Michigan, you can demand from the Ford Clinic, the Ford Hospital, your rates, right? Because the automakers put all their insured lives with you and you as the payer go and negotiate with the hospitals for what they're going to pay. So that's what we're talking about. Marine reference that a couple of times the complexity here is there are a lot of intermediaries and a lot of financial relationships that drive what we as consumers end up realizing is the actual cost of care. Guys, sorry to interrupt again. It looks like we got a couple of questions in the chat from Jennifer soul and Corey Bogle. If you guys can see those or I can read them out to you again. Yeah, why don't you read about David? I'm still in full screen mode here, so yeah, sure thing. So the first one in the chat is from Jennifer Solon when it says, Do you find that investments in technology and digitization or starting to help track patient conditions and outcomes. Getting us closer to align incentives across the healthcare system? Yes, on the first part, no, on the second part. But already and you should get from actual practice. In actual practice, it's really exciting to hear about Apple making a glucose monitor on the back of your Apple Watch. But in terms of accessibility of this technology, really in, in real life, it's like the tech advances are happening, but I don't think the majority of people who would benefit from these advancements are able to utilize something like this. And so Until technology becomes more accessible to more people, I don't know that it'll it'll be useful in Jennifer's question in terms of tracking health outcomes. Right? Yeah, that's definitely an interesting dynamic. But then for the second question, it's from Corey Vogel and it says, on one side of things, pressing treatments and drugs for vulnerable populations are starting to get the focus they should. But what is your opinion on neglected populations that aren't getting new drugs slash treatments such as children because providing these aren't as profitable. So query this question is near and dear to my heart because I am a pediatrician. And I, in all honesty, I don't know how this impacts the the the financial aspect for the finances of what should I do to how this impacts the finances of the hospital? Generally, the pediatric departments that are big pharma users are Pediatric Hematology, Oncology. And pretty universally for every hospital is a giant money pit. They just lose thousands and thousands of dollars. Because I think this kind of takes, you know, administrators and providers back to a big question. And in its, well, what is our ultimate goal here? Is our ultimate goal here to make a profit? Or are we here to improve the lives of families and children? And I so, and so with pediatrics, I think that we're able to pull on people's heartstrings. And the system accepts that it's going to be a money pit, for example. But then the impacts that has downstream for the hospital and how other departments might have to to kinda pick up the slack. I'm not sure if that's if that's a big issue or not. But at least from a pediatric perspective, in real life, it doesn't really impact our kids. And now other neglected populations include our geriatric patients, some of our black and brown patients as well. And I know that for adult patients, it can be really challenging to get them the care that they need. One of the, one of the newer drugs for the management of hepatitis C, for example, it could cure a person of hepatitis C, which which can cause cancer, which can cause early death. But it's like $90 thousand a dose. And so it has extremely, extremely strict criteria to qualify for it. And the majority of hepatitis C patients don't end up getting the drug, but it could help so many more people. So really tough situation. Yeah, no, I think that's right. Many of the, many of the pharma companies now you're starting to see this. You'll see it in some of the TV commercials, right? This little note at the bottom it says if you can afford your medicine, there may be programs, usually when these big pharma companies are launching these very expensive treatments. And there are many, right? Some of the new biologics are quite expensive. They will carve out a, almost have funds to help with patients who couldn't otherwise afford it, right? Or who's insurance wouldn't cover it. And so I don't offer that as a panacea. More to say. Folks are paying attention to that in our keenly aware of it. And it does get worked into the plans for some of these innovative therapies, right? Not to say it's perfect. Well good. Let's let's keep moving through. We have a good amount of time for the case. So what is the dilemma here? I think some of these questions have touched on this. We want innovation, right? And some of these problems are quite difficult. Both chronic disease, things like diabetes are there, there are huge disease burden. There's a huge, oftentimes set of complications. And not great complications and things like diabetes. There are increasingly, they're finding that we're finding rare diseases. Things that might affect as few as 1000 or 10 thousand people on the planet. And in companies are developing therapies for those, right? And then of course, cancer and in other kind of big, problematic disease areas we're trying to solve, right? And so you need money for that. But we can't keep going at this rate. And we're having a hard time figuring out, are we actually doing any better? You can measure, we're doing better on some discrete areas, but overall, are we doing better? Hi, Jay, raise this. Who owns the IP when their government grants and that kind of funding. And I think this is where maybe health care could take a page from some of the research university playbooks. You know, when I was at MIT, we were quite good at getting technology out of MIT through the technology licensing office. That was kind of best practice. But how do we, how do we maximize the value and the return on the government grants that are out there today. We need folks like Irene delivering health care. Uh-huh. You know, you don't get good care with just products. This is a person, a person thing. You need. People with problem-solving skills, people who care and who are willing to invest in the knowledge that you need to be effective. And yet, when you look at the value proposition of becoming a doctor or physician, that's getting worse over time, right? And so that's an issue. We want everyone to have access, but not everyone can have access to everything, right? It's just not feasible. So how do you make those trade-offs? Already mentioned that we spend more on elder care. We don't put a limit on that. That's not necessarily true in all parts of the world, right? And that's something that's really hard to wrestle with. I'm in response to all this, what could we expect? Well, you can always expect the government to try and step in. But traditionally speaking, the government's not great at running health care. You can look at the BA, you can look at the NHS. I mean, there's a reason that the US is the largest medical tourism destination, right? It's because actually when the chips are down, This is where do you want to get care? And then, as we talked about early on, the market mechanisms here are skewed. There are, there are many intermediaries like group purchasing organizations, GPOs, which by the way, Congress legislated into existence, basically leach about 3% of the cost of health care out of the device and pharma space because they are claiming to be intermediaries lowering costs, right? So that's almost like an additional tax that's been legislated in I'm using that as an example of where there's just inefficiency all over the place. So, so how do we ensure the continued innovation that matters, right, that actually delivers better population health, better outcome, better health that we can afford, right? And I think that's the, that's the conundrum, if you will. Clear any uttering? Well, I think the thing that I would add is a lot of these conversations about controlling cost of care in the US. It's centralised a lot on kind of traditional divers of profits and revenues and costs. And now in health care and medicine, there is a lot of talk about studying. It's a concept called social determinants of health. And so it looks kind of these non traditional factors that impact a person's house. So as the primary care provider, I know that people that come from families with intimate partner violence tend to have worse health outcomes in their adulthood. So, so if you come from a home with intimate partner violence or domestic violence, you're more likely to have poorly controlled diabetes, poorly controlled high blood pressure. And that in turn results in hospitalizations. Naep, a lot of need for medication. And so I think this new area of study in medicine has the potential to address health in a really different way, in a way that we're not addressing it right now because for addressing domestic violence at home, your parents education level, your access to school could improve, you know, the status of chronic disease. That that would potentially shift a lot of our focus into, into putting time and effort and resources in our public sector even more than we do now to bring down the cost of care. Yeah, great, great point. It's getting at the root cause drivers, which I think for the most part are relatively poorly understood. Okay, and I see there's some chat activity, but let's let's keep going. So one of my favorite things when I was at Bentley was the capstone. You know, I don't know if she's still do this, but the capstone case, case example, right, what would you do? So this is completely made up with made up numbers and a ridiculously simplified set of choices at the end, but, but bear with me. So imagine you're the CEO of hope cow and you have found the cure for pandemic related depression. This is a big deal, right? You know, in, in all kidding aside, depression as a very serious issue, even, even these are stats actually pre-pandemic, 18 million adults in any given year, right? That is a huge, huge portion of the population. And it's, it's debilitating, right? You can see that young people suffer greatly from this. It drives suicides and well in excess of a typical homicide rate. So it's a big problem. You invest 25 million of your own money and you build the therapy, you get it through the FDA, you create a company. You also convince a bunch of investors who are generally skeptical folks that they ought to give me 25 million. So you're in for 50. And you think that your therapy is effective as it is, will take some time to get out there. But if you get to about 5%, you want to try and strike this balance, right? And try and address some of this dilemma. And so you want to balance access with ensuring a fair return. And just to complicate matters, You hear that there might be praise caps for these therapies and you're a little bit slow to develop this. So on your 20 year patent, you've only got three years left. Okay, So that's the setup. And so what I love to do is maybe we take just five minutes, so we have some time to discuss at the end, what's the right price and how will you balance innovation and affordability? And I'll let Jay and David cold call on a couple of lucky folks that to describe their, their logic. Here is my basic spreadsheet of a three-year outlook for this treatment depending on this cost per year, right? Which is what you would charge basically. And the number of patients you would reach and the revenue and margin for for, for each year. Okay. So you can see this is the total revenue. I did not subtract out the initial $50 million investment. So you can do that math. And why don't we just take five minutes to work through what you would choose which of these pricing strategies and, and why. So Kevin, if I can jump in. So basically there are three strategies, right? The premium strategy and the increased access and the low price strategy, right? I mean, T1, the students to pick one. All right. Correct. It is a therapy. Right. So everyone, please put your thinking had together and work in groups. And we're also going to do a quick poll. Before we call you. When I'm going to call you, really? Just don't be worried. Yeah. And yeah, great if we could do the polls. Yeah, that's a great thing. We'll do the polling pretty soon. So it gives you some time to think about. So this is how you prepare for your case. Interviews with the McKinsey is in Boston Consulting and try and write a trait PwC now. Yeah. That's right. I said that we are hiring j, so okay. Well, you've got all these people read them now, pick any. When I was in business school, I said there are two things I would never do. I said I would never be a consultant and I would've never work in health care. So you YouTube my graduate with a finance degree and end up as. I think that's a universal law because when I started medical school, I said I would never be a pediatrician. And here I am. So Kevin and if I can quote you remember, never say no, Right? That's right. Never say never. Yeah. Yeah. Both my parents were in the healthcare field and so I ended up spending my childhood and a speech and hearing clinic, which I thought was hopelessly boring. I could probably, I could probably recreate the 3D model of the ear that we had. I feel like in every room of the house. All right. The poll is up. And maybe, maybe you just remember that you've got outside investors. It put half the money. We have 1, 1, 0, 2 brave souls who went for premium pricing. Is that almost everybody? Well, while those are rolling in, can we hear from maybe one of the foci to the premium strategy as to what your rationality. And I think what I'll do is I'll just, you can unmute yourself to ask this question. Keep it very short, you know. And just let me know. I mean, David David, you are the boss. Okay. If I'm the boss of them are in trouble, but yeah, like I said, feel free to unmute yourself and give whatever. And so you have premium, premium price. Can we hear from somebody, some people here maybe, or anybody who wants to jump in and just explain the rationale, whether regardless of what strategy you choose. Let's just hear from a few folks. Yes, I can go first. I chose low price ultimately because I am a firm believer in like social capital. So even though profits may be diminished now if you're kinda releasing this and the masses could get it when you try to enter new markets. Ultimately, it might be conceived better by the, either the governments of the mass population. So if you want to scale it out more, I believe kind of getting it to the most people as possible would be the best course of action. Okay, So you're kind of taking the long view and said, You know, forget your three-year view. Mcclellan, I'm a big picture guy and I'm going to expand the, expand the pie. All right, That's good. Who else wants to, wants to describe their strategy? I'll, I'll take the flip side that I'm trying to maximize shareholder value. And sorry, gang that fiduciary duty in fulfilling that psi one with the increase access scene. Now you have a 184 million to tell profits and the first year alone you're getting 20 million. So you're again, a pretty quick return on that. And sorry for that. Like broader access to all the groups. Once it goes off Patton in three years, you'll have tons of generics coming out releasing this product and a lot more people will be able to get to it then. But for these first three years, we really got reward those people that put 25 million and to the company. And they kinda go off with that. I was also thinking like with the increase profit, also help with research and development. Like maybe this would be a drug or a therapy that could be improved, or this could be an opportunity to develop new therapies. Yeah, Great points, great points all valid by the way. These are all, you know, this is the tension, right? But other thoughts, other people at a different point of view. This is something we didn't know. Yeah. I mean I mean, I know that the defense in these dances in no place of profits is insignificant. But, you know, NCES that the company can create a lot of significant mates. So that could be anything that I'm being the long run if it smaller and since you know, okay, good. You have brand equity, certainly valuable in the space of how much brand equity via think the vaccine manufacturers have at the moment. At any, any, any premium price, the strategists that one share their thoughts there. There is a good rationale for that strategy. By the way, del j, what would you get the cold color, Professor? Hey, now that's why I have all this, is how my students are here to help you out. I think I will do. I chose increased access. Okay. Essentially, because there's a high turnover in this sort of terror therapies. And so I would rather be a Walmart in terms of delivery in this sort of therapy and NAB, lot of, lot of patients. And if 5% in person goes away, I'll still have enough people to hang onto my business model. Okay? And and so I'm just going to hang my hat on volume. That's it. All right. Of course already and it's going to disagree with me probably. Going next. So this is really interesting. So I'm a pediatrician, I wear my heart on my sleeves and so my gut reaction was to kind of go the low price because long-term, we're looking at increasing access to this therapy and hopefully bringing down health care costs. But I'm going to, I'm going to throw a big monkey wrench into our scenario because I just looked up the most recent guidelines on the, the different therapies available for the treatment of depression. And they bring this up because I think this goes back to my point about what are the goals of our stakeholders and are they aligned or are they not align? So the 2019 guideline actually says for treating depression and young people and young adults, that pharmaceutical therapy and other kinds of psychotherapies, whether it's nature walks are going to see a psychologists are equivalent. So you have equivalent outcomes, whether you take a walk in nature or take an antidepressant. And then shortly thereafter, study was published and the second most popular Medical Journal globally that demonstrated that about 60 percent of people who took anti-depressants habit resolution of symptoms. 40% of patients who did not take antidepressants had resolution of symptoms. And about 60 percent of the people that took the antidepressants faced negative side effects that brought them to the doctor or the emergency room and lead to hospitalization. So this new data shows that taking medication might cause unnecessary side effects. Not taking medication and using alternative therapies might be equally as effective. So then me as the provider. Reading this information and the second most popular journal in the globe makes me think, well, I might be less inclined to prescribe medication. But if you're a consultant for pharmaceutical company, what does that do for you and your goal, if enough? I love it. It's great in an arena is raising one of the ones that one of the principal issues here that we didn't really cover, which is, you know, there's all this stuff matter. I worked in the in the epilepsy space, which is another sector of the pharmaceutical industry. I work on the device side, but what that research shows is that exactly what I said. It's absolutely true on an epileptic patients, right? They'll cycle through about eight different therapies before they get to any of the devices. And by the way, those eight therapies, none of them work, right? And that takes years. And so, you know, there is, there's a bit of a false XI and in our society that a pill can solve it. And that's a more fundamental issue, right? The notion that Eastern medicine or just nature walks or kind of changing your routine at home can have an impact on your health is not usually what you hear when you go to the doctor. Right. And that's, you know, that's a big issue. I had one question too about the different strategies. Is there one that would spur competition for other therapies that will compete more than another strategy. Yeah, I mean, it's a complex set of dynamics, right? Part of the reason you might pursue the premium strategy, just put the specifics of this case. The side are so that, you know, you don't, you don't kind of destroy the market. Because these things when they go off patent generally do go generic. Although that's less true with, with some of the biologics. You know, there's, there's sort of, you know, if you're a drug company, what you're looking at, the pattern that I've created, I had invested a certain amount and I've got a certain amount of time to kinda yield that return. And so that does drive some of the, the pricing strategies for those therapies. And, you know, there are, of course, competitive dynamics to depend on when competitors are watching it and yeah, How much time is between your launch a narrows and how much between the patent expiration. So the short answer to your question is, yes, that has an impact on, on how companies think about these things. Right or wrong. It has an int back. Thank you, sir. Let me as a as a host of this session, I wanted to answer. I also had the epiblast. You could come to them equal called progressive feared leveling. Hello, thread 2, I make a comment, they see you're chatting somebody. Oh, yeah, I'm just being a gadfly. Yeah. So first of all, our aim, it's really incredible to have another pediatrician about campus, even if virtually the only physician on the faculty. Nutrition. Welcome, making, making my day habit. Thank you so much. It's great to have you do this. That's really wonderful. Yeah. I mean, these are our key issues, I guess. Let me just ask a question because you guys are the experts here. The high drug prices in essence is a classic market failure. Right? To any patient who is unable to afford their drugs or an insurance company chooses not to cover it, or company chooses not to launch it because they don't think they'll get the reimbursement. And, and yet the companies are working with government-granted monopolies. These aren't natural monopolies. In the context of finance and a class, what looks like a classic market failure. Does this have a different kind of perspective on how to look towards a resolution? Yeah. I mean, well, gallery, if you have l, I mean, when I look at these pricing models as the prescriber, I would never prescribe anything if I go with the premium strategy, if I had the option first strategies two or three. So I mean, I I don't know a ton about business, but I agree with Fred that the premium strategy just seems like a disaster from the star? Yeah, and I think, you know, the the, the complexity here for it, I think is in part due to, you know, you're talking about artificial monopolies, its patent law, really, right? And what's, where's the balance between giving people an incentive to invest and giving them enough time to, to kinda earn a return on that. Maybe that needs to be different in the pharmaceutical world as we get faster drug development than shorter times the market and increased ability to reach patients, right? So if you look at all of that, and again, I'm not primarily a farmer guy, but if you look at all the digital services that are out there to help reach patients, you look at all of the AI technology that's coming to help with faster drug discovery and development. Do we need to rethink that? I mean, I think that's a that's a reasonable question. There's a second dynamic around the profitability of the industry, which is, it tends to be driven by, by the largest companies, right? The quote unquote big pharma. And so there's a skew there with a very long tail of, you know, companies with little or no profit. So, you know, there's a second dynamic or a second-order effect here, which is the concentration of profits and a few large organizations that, you know, we see the same thing and high-tech, frankly, and those are natural monopolies because tech markets tend to be winner-take-all markets. But the Facebooks, the Googles, the Microsoft's, even the oracles. I mean, these are above average. Software industry profit. Companies with the same dynamic is just that, you know, your life doesn't depend on it. I mean, it's always been curious that given the given the scale of these large companies and their their ability to invest in R&D. The, the, the, the sort of things and pretty slaughterhouse been a leader in writing about this for a long time. The types of innovations that people are portraying are really not receiving industry investment. It's easier and cheaper to buy small biotech companies than to actually. Try to fix their structural problem. In some respects, they're doing more and more late-stage development, but less than, less real innovation. Anyway, it's, it's, uh, you know, it's, it's an incredibly complex market. And looking at both, I do a physician brain wants primetime, But now working much more on the business and finance side. It's almost an entirely different vocabulary, right? Yeah. Like, I mean, there's a reason that this hasn't been solved yet and it's not for lack of trying. Anyway. Thank you for being here. No, No, It's a pleasure. These are also great conversations because I think it's helpful to just take the pulse on how, how people outside the industry really look at this. I mean, it is to arrange point. It is kind of a disaster. But somehow, you know, generally speaking, the whole thing works in kind of moves forward. I actually, you know, if you were to ask me to vote for what's going to drive the biggest change here. It is the consumerization of health care, right? And sort of democratizing information plus the consumerization of healthcare. I think it could be maybe not, maybe not enough to shift the entire thing, but it is making a huge difference. If I think about my own experience with the healthcare system five years ago, 10 years ago, you couldn't, you couldn't figure out enough to be a smart consumer, right? And to talk to a surgeon and say, do I need that surgery or not right to our rems point on the medication. Now, anybody can look up that study, right? Anybody can find that information if they're, if they're resourceful and you don't have to be that resourceful to get smart. And so you are finding people really starting to shop for health care and not just where do I get it? Do I get to that place? A. Replace B. But do I need it? Right? Do I need that surgery? I my wife was told that she did in a spinal fusion. And I was like I told the guy who is crazy, this is the attending physician. It at Mass General in the orthopedics Department. Right? How do you go toe to tell us somebody like that? Well, you educate yourself and that's now possible, right? And I think that's a game changer. Hospitals are now having to make transparent the price for every procedure that just started in January. That's a game changer. So I think you're starting to see chefs. You know, it's a little bit like watching the grass grow. It's not happening. All that fast. Technology will make it go faster. My $0.02 anyway. I mean, Kevin, I really like your $0.02. It's very optimistic. But I, I'm very curious and I don't know the data, but that access to information and the ability to to advocate for what's necessary. I would be interested to know what segments of our population are impacted or can do that in relation to what segments of the population have the highest healthcare costs. Because my hypothesis is that probably some of the more underserved and under educated communities probably bring up some of the biggest costs. And I think those are probably communities that Don't have access to that information or don't have the relationship to really advocate for what's necessary and what's needed at the counter tier 2? Yes. No, I think but I think both are true. Right. So a good, very good friend of mine is in pediatric emergency medicine. So you guys would be in good company and she would tell stories of how patients at Boston Medical Center, which serves very under, under privileged population, you know, couldn't get to their appointments. So they would just call an ambulance, right? Why they didn't just talk about like, a waste of money. But exactly to your point. I mean, it's it's, you know, that's that's a big challenge. It comes back to the access question. I would say here that basic, basic macroeconomic theory still applies. So education matters, right? We have to have, we have to have to have a strong economy. We have to have an educated population. And that's maybe the second webinar we can do with somebody else. But, you know, you have to educate people not just on arithmetic and history and all those things, but you have to educate them on how to navigate the healthcare system and that's not happening anywhere as far as I can tell. If you said something to throw out there, I don't know if it would help too. I know you all think about these distinctions, but maybe also like in the public discussion like separating different kinds of care, like care for like trauma, care, like care for chronic conditions, then also preventive care. Like with that also help. I mean, it seems like you have different things that play different motivations for all those different types of care? No. I I mean, my my opinion is, you know, it's the old Ben Franklin. An ounce of prevention is worth a pound of cure, right? That hopefully is getting better. I mean, even small steps like deregulating tele-medicine, mean preventative care doesn't necessarily have to be in-person. So trauma trauma is one of those things where you have trauma because something bad happened out of your control. The other things you mentioned, I think are a little bit more in your control or something you can influence, right. But I'll let the physician physicians on the panel here plank. No overall, but to your point, if it will, I think it would be really helpful to be able to use to segment out each type of care provided and how much these things cost. But to Kevin's point, there are some kinds of care like trauma. We just have to do it at cost a lot of money and it's almost like a finite number. But preventative care and primary care, right? Like that stuff that we can control and that stuff that we can really improve upon to prevent downstream complications and cost. So so yeah, that would be a great, a great approach to tackling this issue. Yeah. I think you guys bring up some excellent points. It's definitely, like you guys said, a bunch of times, a very complex system. And I think we got a little bit closer to solving the US healthcare issues here tonight. So I'm very grateful for that. And the addition, I'm thankful for you guys for being here and giving this discussion and presentation to us. So with that, I'll pass it back to Professor salt and for any kind of parting comments. Thank you, David. Thank you very much. And first of all, I just wanted to show we're very, very happy with tonight's fireside. You know, the, the thoughts, the great insights from coming from the first of all the presenters, but also the questions from the audience or really insightful and very appreciative of the event and the and the insights that everyone brought out. And thank you David, for the grade job as a moderator. Thank you for your help. Thank you, audience and for full disclosure. Or in thank you or him is my daughter case. Statistics that and I see some of my students a year. And but most of all, Kevin, Thank you so much. It's always good to see you. I remember in 92 when you were my students. In class yesterday? Yeah, Just yesterday and NO. And Orin and Kevin, great tag team. I really liked it in our fantastic and whatever. And thank you all and dialogue. Hello. And good night and thank you very much and hope to see you again on another Far Side session. Thank you. Everyone.
Pricing Healthcare Innovation in the US
From Jay Sultan March 19th, 2021
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