Dave Ricks, Lilly Chairman and CEO
The Patient Is Waiting ... For a Dose of Disruption
Detroit Economic Club – Detroit, Michigan | June 7, 2018
Thank you, Virinder [Moudgil] and Steve [Grigorian], for that introduction.
It’s a pleasure to be here in Detroit. You know, both my grandparents on my maternal side were Detroit natives. Actually, first-generation immigrants to America, really a demonstration of the American dream. And they’ve passed now, but I’m left wondering whether they would be more proud that one of their offspring would stand at this podium or more surprised that I would be that one. They always thought I was wasting my time, actually. But here I am, and I’m proud to be here presenting to you.
So every U.S. president since the 1970s has spoken to this group. And I know just recently the ambassador from Israel, along with CNN’s Mike Rogers, were here, discussing Middle East peace, global security and other weighty topics. Very important. And probably a little more exciting than health care. But I’m here to talk to you about health care.
Instead of the present, I’d like to talk to you, though, about the future. And the future of health care, to me, is a woman like Marie Schiller.
Marie has Type 1 diabetes. She’s had it for 35 years.
Marie does everything patients with diabetes should. She eats right. She exercises every day. She takes religiously takes her medications.
Yet during only three periods of her life has she been able to keep her Type 1 diabetes under control. Two times were when she was pregnant with her two children. She received extra attention – extra check-ups, ultrasounds, non-stress checks and other tests to make sure her and her unborn children were in good shape. Fortunately, they were and are healthy today and she controlled her diabetes well. But this was enormously expensive care.
The third time has been this past year. Marie started seeing a new endocrinologist. He asked if she would agree to have her continuous glucose monitoring data with his organization’s electronic medical record system. He also asked her to communicate about the results by text. And she agreed to this.
Now if her doctor sees Marie’s blood sugar get out of range, he sends her a text to see what’s wrong or to adjust her insulin. If it’s especially good day, he sends her a text telling her to keep it up.
Marie visits a doctor every six months now – compared with recommended visits every six weeks before.
Marie is healthier. And she spends less time and money on health care.
Digital technology and pharmaceutical technology are now offering solutions like this that can move most chronic care from centralized hospitals, surgery centers and clinics into patients’ homes. Health care could stop being a high-cost destination to which people come – like a shopping mall – and instead become a low-cost delivery system – more like Amazon.
This shift from a destination system to a delivery system can also solve many of the cost problems we’ve struggled with in U.S. health care for so many years.
In my comments today, I’d like to discuss how technology can bring low-cost health care to millions of patients like Marie – but only if we redesign our health care system, both how it functions and how it’s financed.
The U.S. health care system today was designed, actually, 50 years ago, for the issues of that day – to treat mostly acute episodes of illness and to do it inside bricks-and-mortar facilities with lots of people and very little technology.
But I think we can all agree those aren’t our main objectives anymore. Today, our primary challenges is to help people like Marie live independently with illness over a long period of time. Chronic disease. Yet we continue to pursue that task with the same high-cost, high-touch tools that were built in a different era for a different job.
We know the results of this mismatch: an unsustainable rate of cost growth, as you can see in this next chart.
In fact, 30 years from now, one disease – Alzheimer’s alone – will generate more spending in Medicare and Medicaid than the entire U.S. military budget.1 Our current path threatens our economic competitiveness as a nation. It also threatens our economic stability.
It’s true that spending on prescription drugs has also grown and is a significant part of this system. It’s higher in the U.S. than other developed countries. But to remind you, everything in the U.S. health care system is more expensive – labor, facilities, administrative costs, devices and, yes, medicines.
Prescription drugs account for only one out of seven dollars in the U.S. health care system, about 15 percent. That proportion really hasn’t changed since the 1960s. It’s similar to most European countries, and actually lower than in Canada and in France.2
We think prescription drugs should be part of a cost solution. Medicines are one of the only deflationary parts of our health care system. After an invention occurs and a patent life expires, generics to brand-name drugs bring down prices sharply, and innovators like Lilly go on to invent new things.
Despite these facts, though, we are concerned about the affordability of medicines today and the affordability challenges that many patients face. Many people in high-deductible health plans, they pay too much out of pocket – sometimes several times more than what their insurance company pays.
We at Lilly – and our peers in the pharmaceutical industry – are trying to address these challenges in the short term through innovative programs that reduce patients’ out-of-pocket costs.
But in the long term, we are eager to get rid of a system of massive price discrimination where the biggest actors, mostly middlemen in our health care system, get the best deals and individuals pay the most.
This current administration recently released a blueprint to reduce drug costs. The blueprint is a mix of good and bad ideas, from an innovator’s perspective. But it is driving a needed conversation about wholesale reform of one important part of the health care system, the drug delivery system, so that access can improve and affordability can be there for everyone.
That’s our goal. I think that’s everyone’s goal.
So how do we reach this goal?
The answer to rising health care costs is the same as it’s been in every other industry, from my perspective: to unleash technology to bring down costs and expand access.
In health care, we think it’s time for something like the PC revolution.
Many of you may remember Apple’s famous ad, in 1984, which aired during the Super Bowl, which correctly predicted that personal computers would free people from expensive and inaccessible computing technology, built around mainframes.
I personally saw that prediction coming true firsthand, as my first job was at IBM. A computer chip that contained 2,000 transistors cost $1,000 in 1970. But when I arrived at IBM, in 1990, it had fallen to 97 cents. And today, that same chip costs about 2 cents.
Because computing has become so cheap, because volume has been driven so high, it’s become ubiquitous. PC makers put a new computer on every desk, in every home and every school essentially.
In health care technology – especially pharmaceutical technology – we’ve been able to demonstrate cost reductions when we improve access and drive use.
One example from the early 1990s was the HIV/AIDS epidemic. This was a looming cost and humanitarian crisis. But the introduction of anti-retroviral drug therapy led to a 70-percent reduction in death in just a few years, saving millions of lives and millions in hospital costs.3
In fact, a recent analysis by the Columbia Business School found that the introduction of all new drugs in developed countries saved $2.50 for every $1 of spending on new medications.4
Today, we have the opportunity to ramp up cost savings even more with rapid advances in digital technology, such as telehealth, remote monitoring and artificial intelligence.
One example I became aware of was when an Australian health system offered remote care coordination services to people with Type 2 diabetes. They collected home monitoring information. Those patients then saw a drop in their blood glucose drop by a full percentage point, when managed remotely versus [only] seeing a traditional doctor. That’s a large enough effect size large to get a new diabetes drug approved at the FDA.
The cost of care also dropped, by $900 per patient per year.5
This is what the power of technology can do in health care.
Yet technology by itself isn’t enough. In other industries, technology has only been transformative when it has operated in an efficient, networked way.
And here in Detroit, I can think of no better example than the story of the automobile to prove this point.
Henry Ford used technology – the moving assembly line – to reduce the time needed to produce a single Model T from about 12 hours ... to 90 minutes, which allowed a two-thirds reduction in the costs.6
But the automobile didn’t transform American life overnight – or dramatically reduce transportation costs – until the building of a national highway system several decades later.
Only after that, as you can see in this chart, did the U.S. see large-scale, society-wide cost savings. Technology needs organization, not just technology for technology’s sake.
In health care, some people think the best route to savings is simply to cut the cost of this technology. Or, perhaps, to ask the doctors and hospitals to charge less for their services.
But rationing the benefits of technology, and reducing the incentives to create more of it, are steps in the wrong direction. Most people I know want better health outcomes. They don’t want to settle for less.
The real problem is that we have a health care system that resembles the road network of the 1920s. We haven’t created a highway system for health care technology to drive on – so we don’t get the transformative improvement and cost reductions that we could.
It’s like we’re driving a Corvette on a dirt road.
So here’s how our health care system slows the impact of this technology.
First, it’s deeply fragmented.
Care is delivered mostly locally in hospitals and clinics. The doctors and nurses are not the employees of those systems. And often they serve a small geography.
Patient information still resides predominantly in these local providers’ record systems. Even though they are now mostly digitized, information still can’t be shared easily. It’s siloed.
No wonder it takes an average of 17 years for a new practice or new medicine to become standard of care in this system. Seventeen years.7
Second, the constant growth in demand for labor-heavy, facility-based services leaves little money for new medical technology – even if that technology has a long-term payoff.
Finally – and most importantly – our system really has no ability to discern value. can’t discern the value of health care products or services, including new ones, because it is built on cost-recovery and cost shifting.
Cost-shifting means the exact same service or product is priced at vastly different levels, depending on who is paying and on where the care is delivered. The end result is that our system is focused on recouping costs, rather than delivering value.
This variation exists all over health care, much of it driven by government rules. Every health care organization is charging some prices that are profitable and some that are not.
That includes my company. Insulin, Lilly’s largest product, is a great example of this. Medicaid, including here in Michigan, pays the lowest price in the world – about 10 cents per vial. I can assure that’s far below our cost to produce it. But patients in high-deductible health plans or those paying cash actually pay the highest prices in the world – around $300 per vial – a 3,000-percent difference. Because they are blocked from receiving rebates that Lilly pays to middlemen and people in the health care system to reduce costs. And their payments are actually subsidizing the Medicaid system.
At health care’s high end, cash-paying patients and commercial health plans are charged inflated prices. Since these households and businesses, both large and small, have tight budgets, these inflated prices force them to ration the very technology that can reduce their own long-term costs. On the other hand, prices at the low end of the market are artificially depressed by government rules. So these payers and providers aren’t very interested in adopting cost-saving measures like new medicines and consumer-powered technology.
For example, telehealth may be cheaper than a physician’s office visit, but it’s not meaningfully cheaper than what Medicare and Medicaid8 pay for a physician’s office visits. So these systems, Medicaid in particular, mostly stick to the old service network they know, rather than adopt new technology that could actually bring down system costs.9
More than a decade after we have iPhones and Skype, which made video chatting an everyday experience, there is still spotty reimbursement10 and scant use of something like telehealth.11 12
Instead of innovations aimed at large populations and our big system problems, we end up with something else. We see innovations aimed at specialty conditions, specialist physicians and niche health conditions. In each of the past five years, the FDA has approved more new specialized drugs than it has primary care drugs, as one point of evidence.13
In this world, drug and device companies, in order to recoup R&D costs, are charging higher and higher prices to fewer and fewer patients, in order to recoup the cost of going to market.
And in prescription drugs, cost-shifting is especially visible.
Insured patients pay nearly 20 percent of their prescription drug bills, in their out-of-pocket expense. Compare that to just 5 percent of hospital costs.14 Many hospitals even use medicines to generate profit. One study found the average cost of markup in a hospital for medication is 250 percent.15
Pharmaceutical companies like ours negotiate with payers to reduce patients’ out-of-pocket costs, offering billions in rebates each year. But even before these rebates reach health plans, the pharmaceutical supply chain has skimmed off about 20 to 30 percent.
Two out of three employers share not one penny of those rebates with the workers, or the ill patients who need the medications, as you can see here.16
And many Medicaid programs – including the one here in Michigan – use none of their rebates to fund Medicaid or even any health initiative. Rather, these funds go back into general state priorities.
So long as our system uses technology as a revenue generator – at patients’ expense – we will never realize the cost savings technology has brought to other industries.
If we want to unleash the power of technology – in a way that both improves health and brings down costs – we need a better system. Of course, any reforms must appropriately balance innovation and cost. And we shouldn’t try to change our system overnight.
But I would argue we can move quite a bit faster than we are today.
Just last week, our company received approval for a new medication. It’s called Olumiant, for rheumatoid arthritis, a serious condition. We’re trying something a bit different. We launched this drug at a 60-percent discount to the competitors in its field – and those competitors, most of which were launched 20 years ago.
This is a kind of experiment, to test out a low-list-price, low-rebate, less–cost-shifting type of model. And if there are any of my colleagues who are in the insurance world, or pharmacy benefit managers and employers, listening today, I hope you embrace this new way of operating and reward a manufacturer willing to try a lower-list-price strategy.
If we’re going to build the efficient network that can unleash the power of today’s technology, we all need to work together. And I argue today we need to work together on three key goals that can enable this system.
1) First, to digitize our system and really unleash the power of data, so it flows as freely as electricity does through the electrical grid.
2) Second is to empower consumers. Every consumer should be empowered with the information and benefit designs that help them manage both their health and their health care costs.
3) And finally, we need a payment system for health care products and services that is based purely on the value they produce, not the costs they are recouping.
So let me touch on each of these for a minute.
Digital technology is a prerequisite to the other two parts of the ideal health system I’m laying out. It also, by itself, can reduce costs.
We know from the consumer world an online retailer can reach people worldwide with about a $10,000 web site – compared to a few hundred thousand dollars for a bricks-and-mortar store that can only reach one small community.
Digital technology speeds up change and improvement because we can monitor and track data. Think how quickly we can change our offerings online versus in a physical environment.
Digital technology can also unleash transparency, generating new data on what works and what doesn’t. One example of this is the adoption recently in many cities of digital technology to manage traffic flow. This allows transportation departments to schedule green lights to the right lengths each time of the day, improving traffic flow and reducing the need for new or wider roads.
Now some worry about access with digital technology. But a recent FCC report this year showed that 98 percent of Americans have access to either high-speed terrestrial or mobile Internet.17 Digital technology can reduce costs because we already have an information superhighway on which to move.
But to bring this to health care, we need some rules for the road in health care.
First, we need a nationwide standard for sharing medical data. It’s short-sighted for digital health companies to each use their own standards. Every new technology goes through this period of non-standardization. But it’s also true at some point we need to come together, standardize how information is shared. I think this has proven in other sectors to be the means by which we unlock true value. It happened in the railroads. It happened with automobiles on roads. It happened with the Internet more broadly. It needs to happen in digital health, too.
The federal government can play a key role here. Imagine if they tied one standard to all Medicaid and Medicare reimbursement. I bet we’d see conformity pretty quickly.
Second, we need to solve privacy challenges. Patients must control their own data as it enters and exits the health care system. But I think also there’s a benefit to sharing data. When patients agree to use the health care system, we think there should be some agreement to share their data for the good of everyone so we can see what works and what doesn’t.
Again, the federal government can play a key role as the navigator of this system.
Second is empowerment. In nearly every industry I’m aware of, consumers have been the catalyst for reducing costs and improving quality. But that hasn’t happened yet in health care.
Why? One key reason is because it’s nearly impossible to get meaningful cost and quality information before receiving care.
So we need massive transformation in transparency.
When many people talk about transparency in health care, they think about disclosing the money in every transaction. Lilly has in recent years increased our disclosures voluntarily, and we’re considering more.
But few of these after-the-fact disclosures, which describe each link in the chain, are meaningful to patients or allow them to make better choices.
Transformative transparency means giving consumers meaningful price and quality information up front, in a form that they can use to make rational buying decisions.
For example, when you buy a GM car, you don’t care what they paid for each of the 30,000 parts in it. You care what the price is when you drive it off the lot. We don’t have that in health care.
Think about how upfront transparency on cost and quality, delivered digitally, has brought down costs in many other industries, like air travel, car rentals and many others. We can do this in health care. Whatever system we adopt, any price cuts that do happen must be shared with patients.
Starting this year, in our own health plan began – we have 70,000 employees and their family members in our own health plan – we began passing through all rebates for drug discounts to our employees. UnitedHealthcare, the nation’s largest health insurance company, and Aetna, one of the largest, have recently announced they’ll do this for their customers next year. The Trump administration has recently considered a plan to do the same in Medicare Part D. We think those are all steps in the right direction.
Also, more employers should exclude chronic medicines from their high-deductible plans. We do this. In high-deductible plans, your cost resets every January 1. But if you have a chronic disease, your disease doesn’t reset. We need to make sure that patients can stay on their medications for the long term.
But many employers haven’t done this. And one of the reasons is the IRS hasn’t made it clear that this is a deductible tax expense, like a preventative service, the standard required to exclude from their taxes.
This administration or Congress should clarify this immediately. Upfront coverage of chronic medicines is an immediate step we can take to improve adherence and improve outcomes.
Finally, value. Health care can no longer be about delivering certain products or services. The future must be about making people healthier, through whatever product or service does that best.
Our company has signed many value-based agreements for medicines. Most of these contracts compare our medication to other alternative therapies or treatments, based on the actual experience in a population in an insurer’s market. The way they work is if a patient taking our medication does better, the price doesn’t change. If their medication does worse, we lower the price to compensate.
We are standing behind the value of our products. And I think everyone in the health care system should be doing the same.
Some drug companies have taken this actually even farther, offering full money-back guarantees, in the case where you have a non-response in cancer, for instance.
All health care products and services should be held to these same, high standards of evidence.
I was alarmed at a recent study in The Lancet last year, which showed that a very common shoulder surgery, orthopedic surgery, that’s been performed for decades, and is very expensive, actually reduced pain and outcomes less than a placebo or dummy surgery.18
That kind of randomized, placebo-controlled study is rare in the surgical world. Yet it’s the standard for medical products, pharmaceuticals and devices. I think it should be the standard across all of health care. And this will then help us understand what works and what doesn’t and what things are worth.
We also think prices should be more uniform. They should vary primarily based on outcomes for patients – not on convoluted, behind-the-scenes negotiations from big actors.
So how do we make all this happen?
Throughout the health care system, we should embrace risk-sharing contracts – like the value-based agreements I described. Ramped up at critical mass, this can transform patient outcomes and costs in our system.
The greatest progress here has actually occurred in Medicare Advantage. This is a special program the government offers where providers and insurance receive per-person payments up front – or capitated costs – and then allow them to care for high-risk patients and benefit if they do better than the standard system.
Patients are signing up for Medicare Advantage at faster rates than traditional Medicare, and they strongly prefer the high-quality results that are being delivered. Now we need to accelerate that kind of transformation across the entirety of the health care system.
We need changes to the rules the government uses on our highway.
In pharmaceuticals specifically, we need help from the government to reduce the constraints of the Anti-Kickback Statute, which interfere with our ability to conduct value-based pricing.
Medicaid and the private health insurers they hire should also be more encouraged to experiment with innovative funding types, like stretching payments out over time or value-based agreements, as I’ve just described.
Employers also can play a key role in implementing these types of changes. That’s why the partnership announced between Amazon, JP Morgan and Berkshire Hathaway on health care benefits, to me, is exciting. If these three large companies can use their scale and technology to create real change and move to value-based payments, it could help nudge the system forward.
A change I hope is also coming is the integration of spending, that between pharmaceutical benefits and medical services, rather than managing them in siloes. So the recent mergers of Cigna and Express Scripts and CVS and Aetna – or announced mergers, I should say – do present an opportunity to break down that silo and compare the benefits of technology directly to medical service.
If on a large scale employers and payers demand value, I’m sure our industry will find a way to deliver.
So let’s all work to create this future together. I think we can all agree patients are hungry for it.
Patients like Marie Schiller.
Marie is getting value-based care because her doctor is part of risk-based contracts that reward him financially when he keeps her blood sugar under control.
Marie is empowered because her insurance plan offered upfront coverage for a continuous glucose monitor.
Marie is experiencing the power of digital technology because her doctor knows ubiquitous connectivity allows him to care for her every day, not just during infrequent office visits.
Marie is now actually working for this better future. She joined our company three years ago, and she leads a research group to use digital technology to help patients manage their chronic conditions, to adhere to medications and communicate directly with their doctors.
We call this vision Connected Care.
This is care that comes to consumers rather than making them come to it. This is care that is digitized, that empowers consumers and that is built on value.
This is what will give our health care system what we want it to – a health care system that is affordable and accessible – for everyone.
This is the disruption that patients are waiting for. Let’s work together to make that happen.
1 Alzheimer’s Association, “Changing the Trajectory of Alzheimer's Disease: How a Treatment by 2025 Saves Lives and Dollars.”
2 OECD Data, 2015: https://data.oecd.org/healthres/pharmaceutical-spending.htm.
3 Cascade Collaboration, “Determinants of survival following HIV-1 seroconversion after the introduction of HAART, The Lancet, October 2003: https://www.sciencedirect.com/science/article/pii/S0140673603145709?via%3Dihub.
4 Frank Lichtenberg, “The Impact of New Drug Launches on Hospitalization for 106 Medical Conditions in 15 OECD Countries, 2002-2015: A Triple-Differences Analysis,” Presentation to the American Society of Health Economists, June 2018: https://ashecon.confex.com/ashecon/2018/webprogram/Paper5667.html.
5 Warren et al., “Effects of telemonitoring on glycaemic control and healthcare costs in type 2 diabetes: A randomised controlled trial,” Journal of Telemedicine and Telecare, August 2017, 1-10.
6 Ford Motor Co., “Innovation that Changed the World:” http://corporate.ford.com/innovation/100-years-moving-assembly-line.html.
7 Zoe Slote Morris et al., “The answer is 17 years, what is the question: understanding time lags in translational research,” Journal of the Royal Society of Medicine, December 2011: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3241518/.
8 Nathan Riley et al., “Comparison of Primary Care Physician Reimbursement Rates in the United States,” Hawaii Journal of Public Health, March 2017: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5375010/.
9 Megan Daugherty Douglas et al., “Assessing Telemedicine Utilization by Using Medicaid Claims Data,” Psychiatry Services, October 2016: https://ps.psychiatryonline.org/doi/10.1176/appi.ps.201500518.
10 The Center for Connected Health Policy, “Telehealth Private Payer Laws: Impact and Issues,” August 2017: http://www.cchpca.org/sites/default/files/resources/CCHP_%20Milbank-Telehealth-Report-FINAL.pdf.
11 Nicole Clowers, “Telehealth: Use in Medicare and Medicaid,” U.S. Government Accountability Office, July 2017: https://www.gao.gov/assets/690/685987.pdf.
12 Eric Wicklund, “VA reports big wins through telehealth,” Healthcare IT News, June, 2014. http://www.healthcareitnews.com/news/va-reports-big-wins-through-telehealth.
13 RJ Health Systems, “Trends in FDA approval of Specialty Drugs 1990 through 2017,” December 2017: http://rjhealthsystems.com/2017/12/15/trends-fda-approval-specialty-drugs-1990-q3-2017.
14 PhRMA, “Prescription Medicines: Costs in Context,” 2015: http://phrma-docs.phrma.org/sites/default/files/pdf/prescription-medicines-costs-in-context.pdf.
15 The Moran Company, “Hospital Charges and Reimbursement for Drugs: Analysis of Markups Relative to Acquisition Cost,” October 2017: http://phrma-docs.phrma.org/files/dmfile/Hospital-Charges-Report-2017_FINAL.pdf.
16 Adam Fein, “Employers Are Getting More Rebates Than Ever—But Sharing Little With Their Employees,” Drug Channels, May 4, 2018: http://www.drugchannels.net/2018/05/employers-are-getting-more-rebates-than.html.
18 David Beard et al., “Arthroscopic subacromial decompression for subacromial shoulder pain (CSAW): a multicentre, pragmatic, parallel group, placebo-controlled, three-group, randomised surgical trial,” The Lancet, November 2017: https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(17)32457-1/fulltext.