President Trump and congressional Republicans need to take aggressive steps to maximize innovation in the health system so new treatments can be developed and reach patients faster.
Dramatically Increase Funding for Scientific Research
One of the biggest mistakes people in Washington make is to get trapped in short-term budgetary crises that prevent the type of investments in research and treatments that produce huge long-term savings. This is another reason why a myopic focus on money is counterproductive to fixing our health care system.
Alzheimer’s and other forms of dementia, for example, are projected to cost the United States more than $20 trillion over the next four decades. A great deal of this cost will be absorbed by Medicare and Medicaid. Current spending levels in the two programs are already at $154 billion—almost 15 percent of their total combined budgets—and those costs are projected to increase 420 percent and 330 percent, respectively.
Considering this massive current and future financial tsunami, you would think that developing a cure for these brain diseases would be considered an urgent national priority. Even delaying the onset of Alzheimer’s by just five years would cut costs by one-third.
Yet the National Institutes of Health (NIH) is spending only $1.3 billion per year on research into Alzheimer’s and dementia—less than 1 percent of the federal government’s expenditures on the diseases alone. The National Science Foundation is similarly underfunded when it comes to brain research.
The federal government has an irreplaceable role to play in funding this sort of “upstream” research, which private companies can then take and develop into cures and treatments. It cannot be done entirely by the private sector, because this sort of early-stage research rarely produces profits in an amount of time acceptable to investors. This partnership between the public and private sector has allowed the United States to be the epicenter of biopharmaceutical research and development for decades.
One of the great struggles in the Trump administration will be between those who want an innovative, creative science-and-technology strategy and those who are desperate to cut everything but defense. In his campaign speeches, President Trump was clearly in favor of a dynamic, research-oriented effort to cure diseases. In the initial budget, the green-eyeshade accountants won out with what I believe was a truly mindless and destructive set of cuts to the National Institutes of Health. Since the budget came out, there has been no defense of the cuts, and there is growing evidence that the innovative wing is winning.
In addition to federally funded research, we need creative new ways outside the normal budgeting process to fund research into areas that are urgent national priorities, such as brain science, heart disease, diabetes, and cancer.
Dr. Michael Burgess, a Republican congressman from Texas, introduced a bill in 2011 called the MIND Act that would create “Alzheimer’s Bonds.” The money raised by selling the bonds would go directly to brain research. Breakthroughs that reduce the projected costs associated with the disease would go to paying back the bondholders.
The NIH should also explore the use of cash prizes to incentivize the development of specific cures identified by its researchers. Throughout history, cash prizes have been an alternative means to focus creativity on solving complex challenges, although they are not a substitute for the private research ecosystem that fuels the discovery of most new biopharmaceuticals. A large cash prize would be paid out only once an achievement is realized, so it can be an effective means of a financing cure. The government pays only for the cure, and the projected savings from the cure can justify the payment for the prize. Any such system, however, must maintain incentives for private-sector involvement, or else such cures will never be developed into actual, marketed products.
These are all creative ways to break out of short-term thinking that saves a penny today at the cost of a dollar tomorrow.
New Methods for Paying for Certain Expensive Drugs
Short-term thinking can also prevent Americans from benefitting from breakthrough cures and treatments that are already available.
For example, the Gilead pharmaceutical company recently released two new drugs for the treatment of hepatitis C, a disease that affects three million Americans. The disease carried an estimated economic burden of $6.5 billion in 2011 alone.
The drugs—called Sovaldi and Harvoni—are a quantum leap beyond the previous standard of care. Rather than a 50 percent rate of effectiveness, the two new drugs cure 95 percent of patients. They also work faster and produce fewer side effects. However, the drugs are also expensive. Full-course treatments were listed at $86,000 and $95,000 respectively when they were first released. Even though the list price of a brand-name drug is almost never the price ultimately paid after rebates and discounts negotiated by various actors in the distribution chain, the high list price for these game-changing drugs caused quite a shock.
But criticism over the initial high list price did not acknowledge how much money would be saved by actually curing patients with hepatitis C. The older course of treatment for the disease was far costlier over the long term. It didn’t help that most of those who would benefit from the new hepatitis C treatments were on state Medicaid programs that would be put in short-term financial distress by these new expensive cures. However, even as competition has driven down the price (Dr. Steve Miller, chief medical officer of Express Scripts, recently said the costs of hepatitis C drugs are now lower in the United States than in Europe1) some plans still refuse to cover the drugs until the disease causes late-stage liver deterioration.
President Trump should instruct Tom Price, the secretary of health and human services, to work with insurers to develop new actuarial, reinsurance, and other financial methods that can help finance the high upfront costs of specialty drugs, whose costs are higher than anticipated by today’s insurance company risk models, and cannot be afforded by state and federal public health programs in the near term.
One concrete idea is for health insurance companies to study the reinsurance models of the property and casualty insurance industry. Property and casualty insurance companies know how to price their premiums to cover payouts for catastrophic hurricanes, terrorist attacks, and other low-frequency but potentially costly risks. Similarly, health insurance companies should be able to develop reinsurance models to cover the payments for the low-frequency but expensive cures that come along from time to time that can dramatically improve the health of certain subsets of their covered populations.
State and federal health programs could employ similar models, or even use the type of bond program described earlier in this chapter to finance research applied to maximizing the use of certain game-changing cures among the patient population. The eventual savings from curing diseases like hepatitis C would pay off the bondholders over time.
As a builder, entrepreneur, and businessman, Donald Trump understands that costs must often be borne upfront in order to achieve profits and savings later. He and his administration should recognize that breakthrough medicines offer the same opportunity.
Getting Breakthrough Drugs to Patients Faster
A recent study estimated that it currently costs an average of $2.6 billion to bring an FDA-approved medication to market.2 Lowering the cost of bringing a new drug to market is one of the best ways to accelerate the development of new cures and lower overall health care costs.
The 21st Century Cures Act was a major step forward in allowing the FDA to use more modern tools to validate the effectiveness of treatments, which should speed the development of new cures and lower research and development costs. Congress should build on this success with further reforms.
For example, the FDA needs enhanced hiring flexibility to ensure that the agency’s talent and expertise can keep up with the innovations occurring in the biomedical research and scientific communities and in our private biopharmaceutical industry.
Advances in genetics-based medicine and the use of adult stem cells to regrow body part
s such as cartilage, bladders, retinas, optic nerves, and kidneys have the potential to revolutionize the way we treat disease and injury. However, these tailored therapies do not fit the standard FDA clinical trial models that are based on the idea of testing the effectiveness of the same pill or device being given to every patient. As a result, much of the cutting-edge development of these new procedures is occurring overseas. New rules must be written to speed these breakthrough therapies to patients.
In addition, adults with fatal diseases should be allowed to exercise informed consent to access experimental new drugs and off-label drugs whose effectiveness have not yet been evaluated by the FDA.
Accelerating the FDA’s Approval Process for Generic Drugs
In testimony before Congress in February 2016, Dr. Janet Wood-cock, the director of the FDA’s Center for Drug Evaluation and Research, explained the stakes in the rapid approval of generic drugs.
She observed that 88 percent of all drugs dispensed in the United States are generic, up from 30 percent in 1990. From 2005 to 2014, the use of generic drugs has saved the US health system $1.68 trillion.
This two-decade-long growth in the generic drug industry brought its own challenges. As more and more generic drug manufacturers entered the market, the FDA could not keep up with its approval pipeline. Hundreds and hundreds of generic drug applications were backlogged.
Finally, Congress acted in 2012 to impose user fees on generic manufacturers, which allowed the FDA to restructure its approval process and hire hundreds of new examiners to speed up the pipeline of new generics.
The stakes are high for the FDA to follow through and achieve real breakthroughs in the approval of new generic drugs. This is especially true for the class of generics known as “first generics.” These drugs are the first to come on to the market as a generic in competition with the brand-name drug whose patent has expired. The Manhattan Institute reported a finding that a one-year acceleration in bringing FDA-approved drugs to market could deliver to patients an estimated $4 trillion worth of value annually as measured by living longer lives with better health.3 This is an extraordinary estimate of individual and social savings that should focus everyone’s minds on the importance of reforming FDA practices.
Make Foreign Countries Pay Their Fair Share for US-Developed Drugs
As a candidate and as president, Trump has promised to negotiate better trade deals with other countries. He can start with pharmaceuticals. The “free ride” that foreign countries enjoy by benefiting from US pharmaceutical innovation while refusing to pay a fair price must come to an end.
As President Trump explained after a recent meeting with pharmaceutical companies, “We’re going to be ending global freeloading. Foreign price controls reduce the resources of American drug companies to finance drug and [research and development] innovation. I think you people know well, it’s unfair to this country.…
“Our trade policy will prioritize that foreign countries pay their fair share for U.S.-manufactured drug[s], so our drug companies have greater financial resources to accelerate development of new cures, and I think that’s so important,” Trump said. “Right now, it’s unfair what other countries are doing to us.”
American companies shouldn’t be coerced into selling their products at unfair prices in foreign countries. Our trade policy should prioritize that foreign countries pay their fair share for US-manufactured drugs. In addition, it is shortsighted for foreign countries to free ride on US drug research and development, because these countries could help add to the societal benefits from faster development of new cures through their own research. The end of foreign price controls on US-manufactured drugs would serve as a significant accelerant of new drug development.
Protect Innovation from the Old Order
You may be wondering, Who could oppose innovative new therapies that save lives and save money? Who could oppose eliminating the $1 trillion in waste and fraud from the health care system?
The answer is obvious: all those who profit from the current system.
When innovation and costs collapses occur in any industry, there are real institutions and real interests on the other side of the equation that are decimated. I often joke that if the stagecoach industry had had a powerful lobby in Washington during the 1850s, we would never have had the intercontinental railroad, or later the automobile.
I recently got into a public fight with the optometrist lobby over an app called Opternative that uses the camera on your phone and laptop to deliver a refractive eye exam to get glasses or contact lens prescriptions. The service costs less than a traditional eye exam and is much more convenient.
This service does not replace an eye health exam, but those are recommended by the American Optometric Association only every two years. Meanwhile, contact lens prescriptions need to be refilled every year, and while the patient is there, optometrists usually conduct a full eye health exam anyway. So optometrists have been benefiting from this steady stream of medically unnecessary exams.
Faced with the potential loss of half their members’ eye exam business, the optometry lobby mounted campaigns to convince lawmakers that the new technology was unsafe. Unfortunately, they succeeded in banning the use of the service in several states, including my home state of Georgia. The fight is ongoing in several other states.
This nakedly self-interested protection at the cost of patients’ convenience, well-being, and resources is a small taste of what is to come.
Kidney dialysis, for instance, is an over $40 billion industry ($34 billion is spent per year by Medicare, which absorbs most dialysis costs due to the average age of the patients who receive treatment). Imagine replacing years of painful and expensive kidney dialysis with new kidneys grown from a patient’s own cells. The kidney dialysis industry would evaporate.
Efforts to eliminate the upward of $1 trillion of waste and fraud in the health care system will also be met with bitter opposition. All those who profit from this waste—the blood analysis and imaging centers that profit from unnecessary tests, the claims processing centers that handle all the paperwork that could better be done with digital systems, and the hospitals that bill huge amounts for emergency room visits that could better be done at urgent care clinics—will seek to protect their incomes. The first place they will turn will be to lawmakers to help.
As an entrepreneur, President Trump understands how new competition and innovation can disrupt old systems, and the result is better services and better results for customers. He must resist attempts by the old order to rig the game against the forces of innovation to the detriment of patients.
STRATEGY 2: REWARD HEALTH AND WELLNESS
The United States spent more than $3.2 trillion on health care in 2015. This is a shocking amount of money—almost 18 percent of our economy. What is most shocking, however, is how much of that money is spent on the treatment of largely preventable diseases.
According to the US Centers for Disease Control and Prevention (CDC), nearly one out of every six of those health care dollars was spent treating just three chronic conditions—cardiovascular disease, diabetes, and cancer. That’s around $500 billion.
The CDC also estimates that through changes in diet, exercise, and smoking habits, nearly 80 percent of heart disease and stroke cases, 80 percent of type 2 diabetes, and 40 percent of cancer cases could be prevented. This likely means that more than $300 billion per year could be saved in treating just these three diseases if Americans adopted healthier lifestyles. More important, tens of millions of Americans would be healthier, happier, and more productive.
These data illustrate why it is paramount to put the individual back at the center of the health system and start paying attention to the cultural and societal patterns that lead to poor health decisions.
Regulatory changes should be pursued to allow—and incentives established to encourage—health plans, employers, and Medicare and Medicaid to make encouraging healthy behaviors a priority. Patients should be encouraged
and expected to engage in self-monitoring and self-care. The minor additional costs associated with these incentives are dwarfed by the potential savings.
These programs and initiatives can be partially funded by the federal government but must be designed and implemented at the local level. Studies have shown that a person’s zip code is as strong a predictor of health outcomes as any other factor. Community-based programs can do a better job targeting high-need individuals, who represent about 5 percent of patients but 50 percent of health expenditures. Working with these patients by making sure they are complying with their medicine and other therapy regimes will improve health outcomes and reduce expenditures. The federal government’s role should be to incentivize the adoption of these programs and be a source of data collection and analysis to identify the best-performing programs for other communities to implement.
Increase Transparency
Patients can’t be actively engaged with their health and be informed consumers if the real cost of their health care is hidden from them. Patients will be empowered purchasers when they can compare their actual costs in real time. Reforms designed to create more market competition must include greater cost transparency at the patient level as a fundamental value.
In addition, current regulations should be changed to allow far more robust communication among drug manufacturers and drug payers and providers about the performance of drugs, both prior to and after FDA approval. This also should cover truthful information about FDA-approved uses of drugs, as well as non-FDA-approved but medically accepted uses of drugs. Removing the threat of legal action from these conversations ultimately will allow patients to have greater access to the drugs most appropriate for their condition, allow payers and providers to plan better for handling the introduction and financing of new drugs, and lower overall health costs.
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