The current buzzword in health care is "hot spotting." Essentially the underlying concept has been around for some time. Urban police departments applied it successfully during the past 20 years to substantially reduce crime rates. At its heart it derives from the marketing postulate that in most product areas, 20 percent of consumers account for 80 percent of the sales.
A similar process applies in health care where a relatively small number of people are responsible for a disproportionately large amount of the costs in any community. The idea is that if these people receive upfront attention and resources, the long-term health care costs they create for the community, and thereby the total health bill, will decline.
In Camden Jeffrey Brenner demonstrated that this is precisely what happened. Over the last decade, the Kaiser-Permanente system used a hot spotting approach and reduced by 68 percent the incidence of heart attacks among its members that required hospitalization or surgery.
Although the basic idea remains straightforward, it involves a major transformation of medical practice from a reactive system into a proactive one. People at high risk for expensive, chronic illnesses require vigilant monitoring, early treatment and intensive education to adopt healthy behavior and manage their conditions.
Public and private payers will induce medical practices to transform their approach and alter patient behavior by putting the compensation of those practices and physicians at risk. Instead of paying them on a fee-for-service basis that rewards more tests and procedures, thereby driving up costs, practices will be paid according to the extent they improve outcomes for their patients.
As those payers, practices and physicians are the pharmaceutical industry's customers, pharma must inevitably play a role in this process. In order to sell their therapies, they will have to demonstrate that they are helping patients adopt healthier behaviors and manage their diseases better. This will require pharma to make its business more patient-focused and capable of driving behavioral changes.
A glimmer of that comes from an unlikely quarter, the head of Novartis' pharma business. Joe Jiminez recently told BusinessWeek, "in every part of the world, pharmaceutical companies will not be paid on the number of pills they sell but on the outcomes they produce."
Criticized here last year as a truculent cost cutter who inappropriately takes methods from consumer packaged goods and applies them to pharma, Jiminez now says, "I want innovation, not cost reduction, to be the signature I have. Some decisions don’t pay off for years."
He even goes so far as to say that his new approach results from abandoning the finance-driven, idiot-savant mindset that pharma management adopted the last few years. "I’ve moved from being a highly analytical decision maker," according to Jiminez, "to what I call symphonic reasoning. You think about all different angles of the problem. You have to have patience, and that only comes with age and experience."
So Jack Welch is no longer the homme modèle of pharma executives. Now it is Leonard Bernstein. In any case, it is good that a pharma chief executive talks the talk. It remains to be seen when and how pharmas will walk the walk.
Medical practices are transforming their business model by working with payers to develop revenue-generating systems for the proactive approach. Some practices are doing this by partnering with payers. Others are selling hospitals and practices to the payers and working for them as employees. Some large practices are even trying to operate as payer-providers, similar to Kaiser or Geisinger.
But exactly how does pharma go about changing itself into a service business that makes its money by altering patient behavior? In principle, the concept seems plausible. A pharma can agree with a provider/payer that if its therapies and services improve outcomes that save money, the drug company is entitled to receive a portion of that saving. It will require some convincing, however, to show that pharma can generate its accustomed margins this way. Depending on physicians and insurers to pay big money to their service suppliers seems contrary to the way the world works.
The demand management companies (e.g., the Optum division of United Health) are the ones currently working with payers and providers to supply hot spotting services. It bears watching whether pharmas are both sufficiently astute and nimble to enter that space.
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