The Big Cost; Cancer is the Answer; and SDOH Evolves

The Big Cost: You’re okay today, and then tomorrow you’re not. Life has changed and there’s a new reality. Whether it’s an acute event – an accident, a heart attack, a bad diagnosis (I’m sorry, you’ve got….) – or the beginning of what will be a life changing chronic condition, we each day are living our lives, making unconscious calculations about our risks and our choices that can lead to these risks. The easier ones are things like “do I want to wear that seatbelt,” “what will eating that (fill in your favorite comfort food) do to me,” or “I know I need to exercise, but…”

The more interesting risk choices – and that’s what we’re talking about, the fact that every day each and every one of us, and every business that provides healthcare insurance to its employees, is making choices as to what risks are tolerable, foreseeable or not acceptable – are those that are not clearly foreseeable but definitely will have consequences in the foreseeable future. For example, if you’re an employer or an insurer, you know that a significant portion of your employees or members have either genetic disposition to certain diseases or are more likely to suffer from certain diseases due to social determinants of health. We also wonder at the development of new drugs that can cure or successfully treat conditions that never before could be addressed successfully, like childhood leukemia, sickle cell anemia, hemophilia, spinal muscular atrophy or inherited retinal dystrophy – many of which wonder drugs also carry eye-watering prices in the millions per treatment. Families can’t afford those costs, nor can individual employers.

There’s an economic freight train coming at you, so how do you deal with it before it’s too late. Do we hope and pray that it becomes someone else’s responsibility instead as the employee/member moves on to another insurance coverage, or put our faith in the development of new treatments? By 2024, the cost of gene therapies is expected to reach more than $16 billion in the United States, according to EvaluatePharma, which is both good news and bad news simultaneously. That’s only four years away, and while $16 billion is a big number, perhaps our system can bear that somehow. But, knowing that these therapies in significant part will be effective and that there is more of the same in the development pipeline, with the possibility of the trend accelerating, can portions of our healthcare system individually bear $30, $40, $50 billion of costs (riffing off of Mayor Pete Buttigieg’s healthcare comments last night in the debate on the costs of a public option) in the next ten years, which certainly is possible. And keep in mind that these costs may not be covered by stop-loss insurance.

Put in economic terms, do we regard this as a problem of the commons – something that is too big or not “owned” by any one individual or entity – and therefore only susceptible to joint action, such as the federal government does by funding end stage renal disease treatment (ESRD) dialysis? Or is there a private option?

With that in mind, it was an interesting discussion yesterday in Day 2 of the J.P. Morgan Healthcare Conference at the Cigna break-out discussion. Tim Wentworth, the Chief Executive Officer of Express Scripts (ESI), in response to a question described the Embarc program ESI is backing, which effectively mutualizes the risk of multi-million dollar gene therapies in a private solution (without actually taking a mutual insurance format). To put it another way, Cigna and ESI are addressing the Nassim Nicholas Taleb Black Swan of gene therapy incidence and cost.

The Embarc program charges employers a per member per month (PMPM) fee and sets rates based upon an employers’ experience for specific listed gene therapies. The program then has a quick process to treatment without a lengthy prior authorization process. If enough employers participate, then the program will be financially successful, with a viable insurance of the gene therapy costs and the ability to make these innovative and often life-saving treatments available to employees. So, fixed payment up front for coverage of a “black swan” event that is foreseeable but not certain – how many employees’ or their dependents will develop these diseases or conditions while employed and need these gene therapy treatments – sounds like an economic win and frankly a core case for insurance shifting of risk.

But, it raises the cost of healthcare NOW for EVERYONE (a known certain cost versus a future uncertain event), and it requires employers to consider the odds – what are the chances of their employees being impacted by the disease versus the current cost to the employer (and indirectly to the employee) of that certain payment of a PMPM fee? That information is not well known and is an exercise in the calculation of probabilities, something that behavioral economists tell us that humans are not good at. For example, if there’s only a 30% probability of rain, do you know what that actually means and should you bring an umbrella? Will this calculation of risk also be cushioned, with more cost being assessed up front than needed – to provide a profit margin, or to cushion the possibility of drug price increases or other future market issues? Remember when you go to a Las Vegas casino that the house holds the advantage. And even if you, the employer, choose to pay this year, what’s to say that enough other employers will sign up to keep the insurance market viable, that they will assess and cost out the risks similarly and that the gene therapies your employees ultimately will need will actually be on that list of covered items in the year when that particular employee of yours needs it.

So, Cigna and ESI have an interesting new entrant into the future of healthcare with the Embarc program, and, frankly, a whole new line of business for pharmacy benefit management companies to manage the risk of the next decade’s blockbuster gene therapy treatments. But, as a country, I wonder whether, in the midst of our Medicare for all debate and the ACA court battle, we are missing a bit of the bigger picture – the fact that we are winning through the development of these amazing new treatments for what will over time become a very broad range of immunotherapy, genetic and genomically driven treatments, but that we as a country will need to figure out what is the most cost-effective way to pay for them and who will bear that responsibility. Pretty soon, with advancements in science, these conditions and costs no longer will be a true Black Swan, but instead will become a rare but expected occurrence and cost. Will it be private programs like the Embarc initiative that will be used or will it be government payments like with the ESRD dialysis approach? Is there a mixed model to be adopted? An interesting and major question for our society, healthcare industry and healthcare policy makers to consider.

Cancer is the New Answer: In multiple hospital presentations over the first two days of the conference, it appears that many hospitals and health systems are recognizing that they will, with the increasing growth of value-based and risk-based reimbursement and the trend toward outpatient treatment, see reductions in bed days, revenue and profitability at some point in the foreseeable future. What’s the answer to keep hospitals viable? For many health systems, cancer appears to be the answer. Yesterday, speakers from University of California at Davis and Oregon Health & Science University pointed to a pathway to continuing relevance and profitability for academic medical centers by combining clinical and basic research with cancer treatment focused programs to provide significant business drivers.

Put another way, this is a continuation of the Centers of Excellence approach and a bet that as the population ages and lives longer that cancer will become not only more significant, but also part of the chronic disease treatment portfolio that a hospital can offer. For example, Providence yesterday noted that they see approximately 42,000 cancer patients a day in their facilities and offices. With advancing treatment modalities and new drug therapies, cancer may be moving in many instances from a death sentence to a long-term chronic disease status, requiring both chronic and acute episodic treatment that health systems can well provide and/or manage.

As reported last week broadly, the cancer death rate in the U.S. continues to decline, in large part due to the decline in lung cancer mortality from decreased smoking and improved treatments. But, cancer remains the second largest cause of death in the United States after heart disease, and the American Cancer Society expects 1,806,590 new cancer cases in 2020. Put that together with the fact that obesity related cancers are increasing and are expected to continue doing so due to the higher incidence of obesity in the U.S. These include malignancies of the liver, kidneys, pancreas and uterus, cancers of the breast in postmenopausal women, and colon and rectal cancers in adults younger than 55. So, obesity is the new smoking as a potential trigger for many cancers and, as with smoking where we continue to see today the effects on people who started smoking in the 1970s and 1980s, obesity also is a long tail trigger for cancer.

We certainly are seeing increasing interest among both strategic investors, private equity investors and third party payors in rationalizing and reconceptualizing oncology, so it will be interesting to see how the drug/treatment driven approach, the hospital based approach and the private equity sponsored physician approach intersect and complement or clash. More to come on this in the next few years.

SDOH Evolves: Just a quick note on social determinants of health (SDOH), which was a big buzz at the 2019 J.P. Morgan healthcare conference. Unlike climate change, SDOH seems to have been generally accepted into the orthodoxy, and we heard multiple presentations by health systems highlight programs they are leading or participating in to address SDOH in their communities. The most common initiatives were affordable housing focused, but we also noted food security and food as medicine programs as well. It would be great to see more of this and to also see at next year’s conference indications of the performance and success of these programs.

Click for notes on Day 1 and Day 3 of the 2020 J.P. Morgan Healthcare Conference.