>> for a conversation on the biomedical innovation and economic value. starting off things this morning, dana goldman from the university of southern california one of the expected speakers at the schaeffer center for health policy and economics. and mark mcclellan also from brookings.

this morning's keynote address will be delivered by newt gingrich, former speaker of the house. he's in charge of the center for health transformation. there will be a number of different panels here today. the first panel will be on the impact of different reimbursement systems on innovation. we will hear from harvard medical school participant, someone from the american enterprise institute, and also a representative from pfizer. later on in panel two, opportunities to drive innovation with new payment policies. than the third panel of the day here at the brookings institution, issues in measuring innovation and value. things are expected to wrap up at the brookings at about 12:30 p.m. eastern. you are watching live coverage here on c-span2. [inaudible conversations]

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>> good morning. i'm the director of the schaeffer center for health policy and economics at the university of southern california. and i would like to welcome you to this meeting. we are cohosting this meeting with the engelberg center for health care reform at brookings, and we are very pleased that you can join us today to talk about two issues that i believe are right at the forefront of health policy debate. that is, biomedical innovation and economic value. a few housekeeping notes before we get started. you should have received a folder that contains the agenda and speaker bios, discussion guide and materials from our keynote speakers. if you don't have a copy, there are copies at the registration table. there's also one agenda change,

which is a former budget director peter orszag will be talking at 12:05. throughout the program we have built in opportunities for audience participation after each keynote, as well as during the panel discussion. so if you have a question or comment, you can raise your hand, staff and will combined with the microphone. and for the benefit, for the benefit of participants in the overflow room, those who will be doing on either television or the webcast, please introduce yourself, please use the microphone. and as always, please try to avoid soliloquies. for those of you are watching next door in the overflow room, you can step into the main auditorium in the back and raise your hand if you would like to participate in the discussion. this event is being broadcast,

and as well as webcast, but, unfortunately, we can't take questions from the webcast audience. but everything will be archived on the brookings center website as well as our website. and if it isn't obvious, there are immediate here, so everything will be on the record. and finally, and most importantly, for all the speakers i want to draw your attention to michelle. michelle, raise your hand to please. she is going to be holding up timecards. it's important we stay on track. so now, let me introduce market -- actually know. before introduce mark i want to take this opportunity to make some comments. sorry, mark. so let me try to give you some background and then i'll introduce you to mark. the background i think is that kind of the old model and where

we are starting from. the old model is that there is a lot of r&d that goes on in the health care sector, and this involves a trade off. that is to say, in order to encourage innovation we need to reward manufacturers with higher prices. but the high prices limit access to drugs. and so there's attention. we would like to lower prices today, and that would benefit current generation. on the other hand, if you think about future generations, they benefit from the high prices today in the form of new drugs and new treatments and greater innovation. he can kind of see that in the work we've done at the schaeffer center your what this chart shows is the longevity of a person who has reached age 55. and in 2010, the person who is 55 on average can expect to live

24.2 years here and life expectancy is slowly rising. over time. so that in 2060, a 55 year-old can expect to live 25-point for years under the status quo. but suppose we came along and we said, well, one way to deal with this problem of access is to just lower prices across the board, not thinking about this innovation trade off. it turns out that what that would do if the u.s. impose a decent price controls is it would limit, it would result in a decrement in life expectancy. that is to say, people will not let us longer. the reason why is we don't have new drugs. and, in fact, even for the current generation of 55 year-old, they will be harmed in terms of health by about .2 years, whereas for future generations of the cost is about .7 years. so, this is the kind of calculus

we are doing right now. another way to see this is to think about a policy that is similar to medicare part d. that is to say, we subsidize the cost of drugs, that is, we lower co-pays. and in that case you would actually increase life expectancy and you actually benefit. the reason why is this more people buying drugs today, that spurs more innovation and that leads to development of even more drugs going forward. so there are these dynamics that are very important to keep, to take into account. but i think the goal of this discussion, and i think it will come out as we go forward is, is that this older model presents what we believe is a false dichotomy. that is, it's not a trade off of revenue versus innovation necessarily, and the question is how do we design new reimbursement models that both

reported value and innovation. and with that now i will let you come up, mark. thank you. >> thanks, data. thanks are taking us all. i would like to add my good morning to all of you as well on behalf of the engelberg center at the brookings institution. welcome today for today's event. we are sponsoring this, as you know, with the dana goldman and his colleagues at the schaeffer center at usc. we're hoping this is the start of an ongoing collaboration that focuses on some practical implications of research and policy analysis that is going on to better understand this very crucial issue of how do we capitalize the most on the potential for 21st century innovation while keeping health care costs as affordable as possible. and to start the process i'm very pleased that such an outstanding group here with us today. experts, people with a lot of expense in the biomedical industry, researchers, all of you who are becoming part of

this effort. it's vitally important one, very timely. the idea, the goal of biomedical innovation with economic value is explaining important. i want to take just a few minutes to add to the frame that dana began a minute ago as we launched today's meeting. as you all know, promoting biomedical innovation is crucial for many reason. most importantly for the advance is that it provides in our ability to diagnose and treat diseases, to improve quality and length in life, and most importantly and increasingly to prevent health problems from developing in the first place. the contributions that our science industry makes to her nation's economy to are also crucial for america in the 21st century. this is a very exciting time for biomedical innovation your emerging fields of genomics, systems, biology, understanding what works best in terms of

combinations of treatments for individuals, our earlier and earlier in the disease process as well as advances in device technology, all this offers the promise, the potential of safer, more effective and much more personalized care. but there are issues to suggest our biomedical enterprise is not running as smoothly and quickly and effectively as it could. and so it's probably the potential benefits it could offer to us. productivity and biomedical innovation according to a range of standard measures has been declining. the amount of what we're getting out from what we're spending. the impact of recent breakthroughs in areas like genomics and these other new scientist that i just described have been tremendous in the lab but are limited an actual patient care. part of today's discussion is going to focus on the underlying there is, the more effective and efficient innovation. the specific innovation for regulation, reimbursement and evidence development, developing

better evidence on what works fastest what can happen, and more time and effect impact on patient care is what's important. that's what i mean by value. it's not issue of rationing or something like that. how do we get the most as quickly as possible out of the dollars we spend on research, how to make research to the most common on for improving our economy but improving the health of americans today and in future generations. in doing this we also need to do all we can to make sure that health care is affordable. this is a major challenge for many american families today. it's a major cause of cancer with our nation's fiscal outlook and with the fiscal outlook around the country. as all of you know the rate of growth in health care spending is a major contributor to the economic challenges that our nation is facing, into the challenges of americans being able to take advantage of all the modern technology may have to offer. our current trajectory health care costs consume more than a quarter of our gdp i 235. and that will increasingly force

difficult decisions about benefits, about access and challenges like that. so in very real ways rapidly rising costs threaten the potential for innovation. what we want to have is a virtuous cycle, more innovation, more growth in better health on a vicious cycle but more innovation raising more challenges about affordability and then leading to challenges. so our goal today is to identify practical staff based on new ideas, new research company thinking that is going on that can help us both promote biomedical innovation and avoid unnecessary costs. new bottles -- new models on what works, new models of supporting effective innovative and personalized care. if we don't address these kinds of challenges the consequences will be substantial. it could be tighter regulation of prices, could be outdated

benefits and coverage policies that don't keep up with the potential of personalized medicine. it could be great uncertainty for people who are investing in companies that are developing our or contemplating new medical products leading to a slow down in the development process. all of which would contribute to a further slowing of productivity in biomedical innovation. and most importantly to a slow death of potential improvements in health of the american public. the good news is that there are opportunities to promote innovation and avoid unnecessary costs. we will discuss these in greater detail over the course of our event today. these include ideas like investments in infrastructure that enabled the exchange and analysis of clinical data, that enables measurement of performance of all types of health care interventions, and enable us to learn much more from the routine delivery of care. for example, the beacon community program is using health i.t. in 17 communities

around the country to learn more about what technologies work best in actual practice for particular kinds of patient. also, we want to focus on developing better evidence on what works. the economic recovery act, other investments at the federal and state level and and the private sector are improving our capacity to learn more about the effectiveness of different treatments in individual patients. the patient-centered outcomes research institute has the potential to fill in gaps to support better individualized decision-making and better use of the combinations of treatments that are increasingly part of personalized medicine. similarly am agencies like the fda are working with the private sector on a nation is to learn more about how treatments are being used in practice, to build of evidence as well. it's critically important as we do these kinds of steps to focus more on paying for the kinds of

development of evidence and the kinds of improvements in care that can make the biggest difference for patients. paying more for medicare, not just more care. reforms like accountable care organizations and reforms in which medical product developers are being paid more when they take steps to improve health and reduce health care costs elsewhere in the system can be an important part of this effort. we will hear later today about the concept of performance-based payments. how it is being expanded to reimbursement for drugs, diagnostics and other medical technologies that can help reinforce some of these trends towards more effective innovation and better support for innovation that makes a difference in patients allies. and, finally, consumers, patients are an important part of this as well. through opportunities, through incentives when they make responsible decisions, effective decisions about their own health through approaches like

value-based insurance design, they, too, can support better innovation to get to better health as well. and during the course of the day he will hear about ideas that people have that are being developed to address these challenges, too. those ideas will start right now. the format for today discussion includes keynote presentation by speaker newt gingrich and by peter orszag, people have given a great deal of thought to these issues, about innovation and economic developers in our nation's fiscal outlook. between them will have three panel discussions involving a range of experts who also have some important perspectives on where our policies can go for innovation and avoid unnecessary costs in our health care system. the first panel will address how current payment systems and benefit designs impact biomedical innovation. what reforms could help promote innovation and greater economic

value. the second panel will focus on whether linking medical product reimbursement to clinical outcome, the kind of results we want, can promote innovation and avoid unnecessary cost. our third panel is going to talk about how we can improve our capacity to measure innovation and value in health care system, for individuals in health care system for individual and medical products, again supporting these kinds of reforms. so, what i would like to do now is introduced our first speaker, newt gingrich, it's a true pleasure for me to have him here with us today. speaker gingrich as you all know has a very distinguished career in congress which was marred by support for many efforts to improve the nation's health care system and in particular, to support innovation and health care, biomedical innovation and greater knowledge to make our health care system work better. some of his key contribution concluded co-chairing the republican task force on health,

substantially increasing investment in biomedical research including part of the effort to double the budget of the nih, and acting fda reform to provide new pathways for therapy for terminal and degenerative illnesses, to move more quickly through the regular process, a whole range of initiatives related to biomedical innovation and innovative health care. since retiring from congress, speaker gingrich has continued to devote much of his attention towards improving health care, i've had a chance to work with them on a number of this initiative since 2003 when he found the center for health transformation which brings together public and private sector leaders around the agenda of creating a 21st century health system with dual goals of saving lives and saving money. so very consistent with our theme for biomedical innovation today. in addition to his work with the center for health care, the health care transformation, speaker gingrich has served on the advisory board for the agency for health care research and quality, and on the board of regents at the national library

of medicine. he is a member of the national commission for quality long-term care and i had the pleasure of working with them as well on the alzheimer's study group. speaker gingrich has published extensively on a range of health care topics and a range of other topics, has received numerous awards and on. please let me in welcoming speaker gingrich to the podium. [applause] >> thank you, mark. i'm delighted to be here at brookings for this i hope a very useful conference in beginning to set up a new set of ideas and talk about the current state of the art of people who are working on this. i want to say at the center for health transformation would always lead to a chance to work with mark because he's one of the most thoughtful, innovators of the country. i also want to mention that david who is a vice president is here from the center and we are both delighted to be here. i want to particularly in terms of the talk, i want to commend

jim peterkin who i think is that as much writing on the potential for fundamental breakthrough in health as anybody i know and has helped me understand this. but let me put in context because i want to offer something very different. i really believe we want to fundamentally reset how we think about things as opposed to thinking better about how we currently think. and the analogy i want to draw is a match we had in 1904 conference on transportation opportunities. in which we had a significant amount of concern about improved wagon design, some concern about improved stagecoach management, and a fair amount of concern about the railroad as the centerpiece for long distance travel. and imagine i come to the conference and i said this is all very useful and in the short run will be very important. to do things i think you should look at our two bicycle

mechanics who, in december of last year, flew at kitty hawk. and an edison electric supervisor who is in the process of designing mass-produced cars. now, i guarantee you in 1904 the wright brothers and henry ford would have been laughed out of any washington gathering of experts. because it was clearly high in the sky their relevance. by 1918, in planning the campaign for 1919, virtually every aspect of modern air warfare is in the campaign plan. by 1908, the army signed its first contract with the wright brothers which was for one airplane for $25,000. by 19 tonight, the first large group of people see the wright brothers flight when a flight around the island of manhattan, and about a million people see.

in 1916 across the border, john j. pershing rants to cars to drive an american military post because he has no vehicles and when he leaves the expedition into mexico, the aircraft he takes with him are underpowered and can't get through the passes because of wind. now, all that changes literally almost overnight in world war i. and the great innovations, trucks, tanks, airplanes, by 1990 are the beginning of what became 20th century warfare. so i want to share with you a similar model which is easy think about post obamacare solutions, what is clear from the right budget, which is i think a historic and courageous effort to always get the right scale of thinking, is you cannot solve the cost of health care for an aging population within the current paradigm.

it's literally impossible to what you can do is you can cut costs. you can ration, allow people to die early. you can minimize treatments but let take one example that mark refer to. and when we lost to alzheimer's study group we did so because it's probably the largest single pain and cost in the next 30 years. the current estimates are the federal cost alone, not state, not personal, federal cost alone between now and 2050 is one and have federal deficits. federal debt. that tell you how big the federal debt is a 14 trillion. alzheimer's between now and 2000 it is projected to cost the federal government 20 trillion-dollar. you think jesus country with a serious leaders would look at a 20 trillion-dollar cost and which by the way up lies in amount of human pain, and families are fundamentally dislocated, talking about earlier today the incidence of

depression among caregivers associate with alzheimer's is staggering. and yet there's no serious conversation. there was once a cartoon that had a desk that had an indoor and outdoor and a two of hard. this is a city who is too hard boxes is enormous. it's a huge challenge. i want to suggest to you that bureaucratic cost controls will fail. they will lead to rationing and this is a 50 year cycle. we got into this in the '60s. it hasn't worked at also we keep doing things we know don't work. what happens is we grind down the system. more and more people refuse to go into medicine. it is less and less fun. we are now about to see hospitals decide to go through very ruthless cost approaches. i know of at least two major system that will analyze medicare and drop every procedure that doesn't pay for itself. humans react rationally to the

signals that are sent. so the question is can we invent and alternative. what i want to suggest to you in a paper that will both be placed year, i think with copies for all of you, it will be electronically available both at health transformation.net which is a sin for health solutions, and to be available at brookings. this paper arguing health solutions for longer lives, lower cost and more american jobs. i want to be quite clear. this is a deliberate fundamental argument against the entire current delivery system what it is the right wing version of the left wing version. it is an argument for fundamental resending of how we approach thinking about health and health care. the model i'm passionate some of you may want to be. i'm trying to find an iron lung. because i want you to the ireland the centerpiece of his whole new approach. in 1952 there were 60,000 polio cases. the projected estimate was polio

patient would cost $100 billion a year. salk developed vaccines. he had the courage to give to his own family in 1953. and in 1954, 1.2 million people were vaccinated. i want you to take him of trying to get some of this at brookings because i don't have a staff. but in the great defining intern to say laid over the development and implementation of polio vaccine from the current fda model. and figure coming additional people would've gotten polio during the 15 years that we went to the process of checking it out. let's go back and look at it once upon a time we were a country that had commonsense. we won the entire second world war in three years in eight months. 44 months from pearl harbor to the surrender. if we're determined and be willfully stupid, we can be. but it is very expensive.

so take that model and i want to now outline for you seven major steps to re- centering and rethinking the entire health system, starting with a comment when he was the head of nih in an interview and he said, i think this is what they but this is the kind of debate we need and u.s. congress, this is the kind when the debate in academic centers. he said for $10 billion in research and aids and hiv we saved approximate $1.4 trillion in health costs plus a notice about the pain, lost lives, et cetera. he estimate was 140 to one return on investment. i don't know if that is accurate or not. it may only been 70 to one. it is vastly more than we got out of the stimulus. it is fast and more, got out of cost-cutting we're about to go through. we are in a position of people who decided in the congressional

budget, i strongly applaud paul ryan and i strongly applaud the courage to offer the right size argument, and i felt very sad the president failed so totally to respond with the same level of seriousness, there are details i disagree with. one of them is cutting the investment of science and research. because it's essentially like saying i want to save money, we would not change the oil. and for about a year i can get away with it. been the engine will freeze up and we have to change the engineered if i have sco the scores oil that doesn't score engine i can replace the engine for free. because it will not count in the budget. so here are my seven proposals as a major step towards health solution, remember the health solution-based model for low-cost, longer lives and more american jobs. first, fundamentally rethink the food and drug administration. we will help a lot to be a marginal fix is in the world system. druker had a good rule. know what you were doing when

you start. if the answer is no, why are you still doing it? so if you ask yourself what you want is a very scientifically oriented, very collaborative system that start in the laboratory is nonadversarial, has a free flow of information, and is continuously modify and improving itself. when i go for example, the university of pennsylvania have someone get up and say they have a bioengineering devise which is the term that pennsylvania apparently as opposed to regenerative medicine, they have a bioengineering devise which is both biological breakthrough and a device, currently under fda organization that means it goes to two different departments. when i go to georgia tech and have a computer specialist who is working on brainwave patterns in order to have people who are quadriplegic or have a stroke victims, think and, therefore, move a robot to do certain behaviors and they tell me that three years ago they asked the fda for permission to give away

their initial noninvasive breakthrough device, and they can't find anyplace in fda that can save yes, it's okay. three years. this is just crazy. so fundamentally rethink food and drug administration from the beginning. here's the central point i think about to debate anybody in this country on. we will have the next 25 years four to seven times as much in size. there are more scientists alive today than all previous human history. they are connected by cell phone and internet. have better computers and better instrumentation every year. they are then connected by venture capital licensing and royalty. that's probably a conservative estimate. 65% of it will be outside of the united states. now, that implies, if you were to try to take a historical analog, we are currently in 1880 trying to understand 2011, as cover blessing in 2011 trying to

understand 2036. we have no institutions, not medical schools, not continuing medical education, not the bureaucracies like fda. we have no institutions that are designed for continuous daily adult patient to innovation on that scale. that's a big the breakthrough has to be. we have no payment models that are innovation and charging models. so what we do is become more and more out of touch with reality, more and more wedded to obsolete doctrines, and more and more insisted on paying for things that don't work because we can't forget because we can't bridge the gap. that's a fundamental this is. the first place to start is fundamentally rethinking food and drug administration. and insisting that it both have a cost-benefit analysis of saying no, say no has to have a cost attached to it. because today you have, it's free to say no and it's expensive to say yes because humans make a mistake of you have trial lawyers and congress and all the news media. if you say no, just kill me.

just say die quietly, it's not embarrassing to bureaucracy. so second you have to have a jobs cost benefit analysis. we should measure annually how many new products were introduced outside of the united states. i get to conference calls, all of whom played all major breakthroughs in regenerative medicine will be implemented outside the u.s. that means every new job, every new patent, every new royalty will be non-american. utterly irrational. second, we should dramatically increase the national science foundation, the biggest mistake i made as speaker and budgeting, we double the size of the nih. we should have tripled the size at the same time. nsf is much smaller. the fact is mathematics, physics, chemistry, developments in competition the power are all central to what nih does to nih is driven by the knowledge generated by nsf. we should see them in a combined

state. as we think it working, on the study group that mark referred to, it's clear the volume of knowledge will come out in brain size to properly requires two cycles of the above and computation power. to be able to cope with the dataflow. brains i fully to the same byte of information as astrophysics. about the same number of synapses in your brain as there are stars in the universe. the scale of mathematical capabilities, the scale of storage capacity will be generated by our ability to track a brains. literally beyond our current capacity. we will probably have to of two cycles of evolution in competition of power in order to bring science forward. nih need to both be funded better and we thought. 19 aei help -- i was for a much bigger budget under reagan and i want to see the pentagon get bigger and to tell people i'm a hawk but i'm a cheap hawk. i think we should fundamentally challenged to aspects of nih.

the first is small grant to refute models are inherently conservative and inherently are much more inclined to be very limited in their breakthrough capabilities. the second is that the entire model of using the taxpayers research money to subsidize academic bureaucracy should be fundamentally challenged. there is zero reason to pay overhead. it's terrific for the universities. they were all scream like crazy but i don't think that taxpayers should be told they are funding research when their funding dean's. i may have a bias of academics because i'm an assistant professor but i would suggest the one of the major problems is the degree to which self-serving bureaucracies get bigger, richer, more cumbersome, deeper and pretend that they are, in fact, providing -- well, just look at the overhead you pay for in the private sector then go look at the opry to pay for an academic will explain to me why

we should tell the taxpayers that's their job. you can increase the number of researchers if you paid fewer bureaucrats. and i think that's worth hearings. i think it's a legitimate question and i think, there are no sacred cows at the time of dramatic change. you have to be prepared to look at everything simultaneously. i also think if you look at things like the apollo project, manhattan project, the radiation lab at mit in world war ii. the way in which the evolution of the human genome problem -- project, because nih wouldn't do. ended up being accelerate dramatically by having a private competitor. you have to say to yourself what did we learn from those, what do we learn from the national cancer institute and the way it is organized and centers of excellence and information flow? what does that tells about how we should rethink and restructure nih? fourth, i believe we should take brain size india with a totally separate. the fact is that brain science is the editor of the greatest

breakthrough. will get four to seven times as much science in general. will pocket 50 to 100 times new sites in the brain size. it's the most complex thing we study. we did have good instrumentation into 15 or 20 years ago. we still have the kind of data we will have in 15 or 20 is. to have the largest return on investment of anything in health. a few simply postponed the onset of alzheimer's by five years, you cut the cost and have. because alzheimer's is a disease of older people. they get much older before they get a better have a very long. or they never get it. now, every time i talk to brain scientist they tell me they think the odds of our being able to postpone it by 2025 is very high. if we have the right research strategy and the right investment. that's about a $10 trillion savings we have to go to congress and say, good any private sector group and say, what would $10 trillion b. worth of ink on investments.

there's a way to monetize that the what is a rational investment strategy that can save $10 billion. it is radically more than we're currently spending. but we have tight budgets i've a very, very old proposal. take all of brain science off budget, move it out of nih, create a brand-new authority to go to the brain science community into which the maximum you can spend rashly over the next 10 years, fund it, issue of alzheimer's bonds and have a commitment that once you get the breakthrough if you'll say tenderly and dollars, the first tranche of savings the government pays off the bonds. something that would make perfect sense in the 19th century from abridgment seeking funds on to something that would make perfect sense in a world where capital was invested over time but it makes no sense to cbo and no since in the congressional appropriations. which is more of a comment on them than it is on the other that i think this is an important idea. if we could eliminate alzheimer's, by the way, i say

all of brain science to get breakthrough jackets to the whole brain. when you study the whole brain you also get schizophrenia and parkinson's, bipolar, you name it. so what would the return be on that scale of breakthrough? it would be vastly more for the investment. and return in human happiness, the return of people living full lives, the return of people being productive is just a rational that we don't do. fifth, when you do great and to great nfib for dramatically more entrepreneurial startups. with a substantial decline in the number of small biological companies, for example, to drop by 25% in four years. i am 40 capital gains as a tax rate. i think you get the better model you get more starts and i'm for the repeal of sarbanes-oxley which produce no useful information in 2008 and is is a fundamental inhibitor. but we need to think about the

context where we want lots of aqaba to start a chat have a larger context that generates the resources and makes it profitable. six, the congressional budget office should be challenged to have an intellectual reform kabul to the scale of what i have described it would be impossible today to score the airplane. i mean, you can ride, somebody from cbo or omb, they basically still scored going by stagecoach. so while they're on the 747, you realize the government this trip requires 14 days in phrase stages. they say we are fine. i guess it is a theoretical approach. we are not sure if i'd will be around very long. we don't want to score. socialistic, go ask cbo and omb to score, postponing alzheimer's by five years. they can't do it. i've got a note from david the other day, which last year senator lemole introduced the concept of going after fraud.

we have evidence from ibm, evidence from american express, with evidence from these at the american express is .03 of 1% fraud rate. as a taxpayer in your 330 times, 33000% more likely to be a crook through cms than your as a cardholder of the american express. the proposal was going by cbo is costing money. now, this is maniacally stupid. at cbo and omb defined the debate in the city and a major impediments maintaining the stupidity of current policy. they should be challenged head-on. they should be forced to score breakthroughs. and say okay, this project it works would lead to this. and they can't today. they have no model of dynamic scoring. finally, both cms and private insurance companies should develop new models of

experimental and pilot project funding to be able to go and say and a specific example from scientist who's working on it, if 10% of your kidney cells work, you do not need kidney dialysis. through regenerative medicine which is growing your cells and putting them back into, no problem transportation have no problem of rejection. in that model you could take dialysis had a. kidney dialysis is $27 billion a year, growing pretty rapidly the past the nih budget. you can't today be a commitment from anybody that if you had a regenerative model that don't pay for the extent to actually use it on people. you can't raise the capital because nobody less capital wants to risk it to get to the fda did into a payment system that probably will not pay for it. that's just foolish. two, one money, and two, quality of life. i had an ongoing spent seven years on dialysis three times a

week. we would like it to be full lives, fully productive, fully engage in less than fully earning a living. not having spent all the time as patients. that's the kind of payment reform we need, lots of small projects underway which probably requires litigation reform because after all if you got involved a small pilot project in anything went wrong you would probably be bankrupt by trial lawyers who are major inhibitors to scientific development. so, i'm delighted to the chance to chat with mark and i'm delighted to lay out these ideas. [applause] >> thank you very much, mr. speaker. and again, it's been, it was interesting to hear your ideas and seat in these next few minutes if we can draw you out from your very modest and incremental proposal. i wanted to come back to this discussion around health

solution-based model, this vision for brain science that in your view sounds very transformative. and come back to a couple of obstacles that may present challenges to getting there. you highlighted the importance of substantial increases of funding as well as the redirection of power -- how we are funding the research. that's not really what is on the agenda in washington right now. we've got real concerned about deficits and concerns about whether even the current level of research funding can continue. talk a little more about how we can get from that you do what you think we need to be. >> this is part of what after really challenge the whole congressional budget office, office of management and budget power. and the private sector, if you in a recession, a company that was in a high-tech area would always distinguish between research and investment, which is essential to its survival. and expenses. and yet there's no model in congress, no model in the

executive branch for saying this is an investment, this is a cost. and so it starts there. i mean, look, i realize having served for 20 years in congress and led a fairly significant amount of change as speaker, this is going to be a real fight. first of all people be puzzled by the ideas. the first reaction will be to say no. go back and look at the rise of the wright brothers who got such a big fight with the smithsonian, they wouldn't give them the airplane for 37 years. that's the sony had failed to invent the airplane. they were irritated these two mechanics from dayton had done it. what i am proposing is a fundamental rethinking at the level of the budget committee, the appropriations committee, the authorized committee, at the level of the office of management and budget, the level of the white house that says we are now going to distinguish between investments and expenses

which is what we do. when i was speaker we decide to balance the federal budget. we consciously said thanks in part to john porter and connie mack, that we're going to double the size of an age because we will set priorities. i think the country will support a smart effort to get to a balanced budget, the country will not support a cheap effort to get to a balanced budget. cheap effort will sell out the future on behalf of current interest groups. >> and then to follow up on that with more support for the basic research, there still are, as you've noted, a number of steps to get from that to insights to product that patients can ask are used to improve their care, to head off the brain diseases. you talk about some of the challenges with the develop process and it seems to me there's just as much of a need for improvements in the department sides, the collaborations you talk about, the ways to shorten that multi-year process of getting some good ideas in the lab to

treatments that can be reliably used in patient but that seems to me as well to be an area that following your model is more investment. and that investment involves the fda, the private sector, that's also participating in that process. there are two parts of this. noticed by the way i suggested you should not only find nih, you should also rethink it. i'd say the same thing you. i don't know that a 21st century effective fda would be more expensive or less expensive. but i want to back all around for a second to make this point. two of the most effective systems approaches in human history were world war ii and the cold war. both were characterized by very large-scale planning. and an ability to lay out a system, looking at all the linkage points and understand how they fit together. the reason i gave you seven

steps is there is no single step that leads to breakthrough. and i would argue that design a large-scale model of the health solution space health solution in the future would be any known as asset, and in chile which are missing. let me give you a couple examples. they have huge fonts of electronic data. which are not particularly used by nih. which has no set of electronic epidemiology. which are not particularly used by the fda. the fact is we have electronic data you can take much higher risk with improving things because you have real-time monitoring of huge classes of people. you could say this is not good for anybody who's on who's on an electronic health record, which by the way would accelerate everyone using health electronic records every night. you never again have to do a special class follow-up study because we were just track all the epidemiology everybody in the country who is on that particular drug. you could have real-time data every night. mcdonald's gets 37,000 stores

worldwide every night. i'm not describing a distant future. i'm describing government systems that are 25 years behind reality. now, i don't know if the fda would be cheaper or more expensive. what i know is what recovery say is in no to pay for the current bureaucracy and add 10% we need a lot more money because we refuse to become more efficient or to use i.t. ibm and dell and others at the takeout produced a report last year that said even the federal government as though it was a multinational high-tech company, you would save $125 billion a year. just by the flow of information in an intelligent way. so i can't say what is more expensive or less expensive because it is so different. it's flying to california more different or less expensive in a stagecoach? welcome in constant dollars and may or may not be. i think it is less expensive but it may or may not be. but in human cost is radically less expensive. >> i think with time for one

question from here. do you want to go ahead? wait for the mic of him, please. >> i run the va medical research programs i want to make three quick comment but one is you mentioned that secondly you know, somebody runs -- from the point of view of researchers we think a lot about top down versus bottom of programs, and while you're suggesting top down programs i think it's important to remember that the manhattan project started after the adam was split big the space program was an engineering development program that basic research was really investigated initiative type research that started it. so when you design a large program and give them a lot of money to an area, you have to consider how you're going to do it and how the guidance is going to be. the third thing i want to say is that while we talk a lot about the problems with fda in improving drugs and all that, bureaucracy related to that, researchers talk a lot about

research bureaucracy and what they have to go through. i do think it enters into the public conversation in a. i think people are afraid to talk about it. i think they'll be very important in the future. look at the bizarre consent forms. look at the consent forms that i don't understand even sometimes, and just take it from there. something has to be done. >> that's a terrific thing to end on because it helps us open up intellectually the world i'm describing. let me do it at two levels. i agree entirely that unless you've had the effect you can't get to the nuclear program come and that the manhattan project is, in fact, engineer. apollo is in getting. i've established between the two. so i agree with that. i think we have to think about -- my point is i believe we have crossed the proof of concept in brain science and it is clear

that if you dramatically accelerated the rate of discovery and the rate of integrating knowledge, he would have enormous payoffs in brain science. i would not have said this -- i was active in 1 19 a. i witnessed it in 1980 let's focus on brain science. we didn't have the technology. we didn't have the estimation. they would not have been a rational investment. second, and you is a different level what i want to suggest as a student of science, it's much more fundamental. and that is, when we figure out these big projects which i think are necessary and good, and when we redo and i think you raise a good point, congressional hearings on playing out the current foolishness of all of the layers of research application, all the layers of filling out forms, a very senior person at nih said to me than about doctors we get that are never read is amazing. and so, we really i do have the courage to look at all the stuff in the eye, and the truth is if you don't need it, don't do it. and to go back to apply for the

manufacturing innocents to research application process, that would be a very useful model and a great series of events. there's one other piece you have raise, i'm not a scientist and a student of history, clark had a great rule. he said the senior scientist tell you something can be done, it almost certainly is true. the senior scientist tell you something can't be done, you have no idea. and the example is einstein and planes. no senior physicist thought playing, quantum mechanics and einstein was right. so partly got to figure out as does the politics and culture of science very parallel to every other human institution. they become very conservative eyes and become very group thing. they become very risk and again coal look at my tectonics which was first developed in 1915, totally ridiculed, actually except by every paleontologist in the world was obvious.

and doesn't become commonsense in geology until after the international geophysical year of 1958-59 what becomes impossible to reject. so you have to say to yourself what are the areas and easy some of this with alzheimer's where there are certain patterns that would this is the future. but you have to get how would you one big projects, how would you continue in criminal progress in that we are not ready for big projects and how would you come and we do it by private foundations, but how to ensure the outlier is allowed to keep playing into the to bicycle mechanics invent flight, even while the congressionally appropriate $50,000 smithsonian project is sinking in the potomac. so i think that pattern, you're exactly right. >> i absolutely agree, and something we worried a lot about is one of these things to our peer review system. and i think that's something, for a millimeter ahead of everybody, you're a genius. if you're a five-mile site

everybody you are crazy. >> someone who is also five miles and i sympathize with them. >> i think there's a great point. thanks to getting the discussion going. >> thank you. [applause] ..

[inaudible conversations] >> while we're completing this process, i think where i want to start this panel is with a statement that former speaker gingrich made which is we have no payment models that are innovation-encouraging models. and the purpose of this panel is to think about how the current payment systems and benefit designs impact biomedical innovation. and we've asked them to talk about what reforms would promote

innovation and economic value. each of you have five minutes of prepared thoughts, and after that i hope we'll discuss it as a group. so let me briefly introduce the presenters. dr. jerry avorn is professor at medicine at harvard medical school and chief of the division of epidemiology in the department of medicine at brigham women's hospital. dr. scott gottlieb is resident fellow at the american enterprise institute and also a practicing physician. dr. freda lewis-hall is chief medical officer at pfizer and member of the board of governors for the patient-centered outcomes research institute, and dr. rob epstein is president of advanced clinical science and research and chief clinical research and development officer at medco health solutions. jerry, you've studied trends in innovation for a long time, maybe you could start. >> sure, happy to. and thanks for having me.

i guess i could begin in the spirit of passover in asking why should the health care sector be different from all the other sectors of the economy? [laughter] that we don't really hear the electronics industry which is another interesting science-driven, innovation-laden part of the economy which has brought us enormous improvements over the last 20, 30 years with quality for all of close with an iphone, and we don't hear steve jobs going public and whining that the market is impairing his ability to innovate. so why are our two fields which have so much in common behaving so differently? is it possible to take the question that has been put before us for the reimbursement system in health care to stifle innovation? and i would answer, yes, it is. look around at what we have today before any reforms have really kicked in. we have a reimbursement system

that already is stifling innovation but maybe not in a way that some might think i mean. we currently have an untamed loosey-goosey system that is doing that right now. for example, one interesting case study is the purple pill that everybody who watches the evening news knows all about. it started out as a breakthrough poe on the- pro on the-pump inhibitor, and as the patent began to expire, it was extended around a variety of not so clinically relevant issue like the coating and other aspects of the pill. and, ultimately, after many years of extension it was expired, and the manufacturer switched the mantle of the purple pill to a new drug which was simply the first drug which was pharmacologically pretty much identical and then marketed the hell out of it and kid very well financially with new york stock exchange yum instead of -- nexium instead of pry lo sec. and that's the way our current

system rewards noninnovation. it was a profitable deal for astrozen ca, but it didn't bring about any improvements for the patient although the cost was impressive. the same issues apply to many other things we do in the health care including what we physicians do. imaging studies, devices, we all have the same problem which is that the current system will pay for pretty much anything without a lot of ability to criminate between really -- discriminate between really breakthrough products and services and those which are kind of ho-hum, maybe not necessary and maybe even hurtful. another example is lexapro by looking at the isomer. same drug, and it now is the most widely-selling and costly antidepressant in the country. this is not about an fda problem. if you look at the fact that the productivity of the pharmaceutical industry has been really pretty lame, and i think even folks on wall street and

within the industry will admit this after a couple of bills, it's not what we've seen in the past. add a couple of biologics, and it's still not what we would expect from the dozens of billions of dollars that go into it. it's not the fda's taking too long and too tough, the inputs are lame as well. so the is the argument that we need our costly, inefficient health care system to be working at its current pace of inefficiency in order to have the excess dollars we need for innovation? i don't think so. i think that's a wasteful way to accomplish innovation. and in a sense, the speaker mentioned that if we give money to universities for research, they go and spend it on deans. well, my worry is that if we give money to pharmaceutical companies or device makers and ask them to spend it on research, they go spending it on marketing. the same kind of issues apply. we're only seeing about 15 or 20% of every dollar of revenue

in pharma in the big companies going back to r&d whereas nih the number is much closer to 90-plus percent. if you ask any investor where would you rather put your money to get innovation, i don't know they would want to put it in the private sector even though the narrative we all live with is that that's where the innovation comes from. much of the alternative transfer of new science really, i think, would argue is coming from new industry. i'm sorry, from academia. funded, often, by taxpayer dollars. and we have a rather funny way that we arrange the patent law so that very little of that flows back to the folks who are really doing the transformative studies. let me end with some positive recommendations. i think all of us in health care need more focused incentives to really innovate and not just do me too products that we can make a bundle of money or, or for us physicians keep doing treatments that patients may or may not need or for the medical centers

keep doing expensive tertiary care when a lot more low-tech care would work just as well. with we need an era of tough love in which the reimbursement system is more responsive to the realities of comparative effectiveness and cost effectiveness. and to get there, we need the following: we need to do the comparative effectiveness studies so that a payor or a patient is going to be able to distinguish between things that are overpriced and not real helpful versus those things that are a good buy. and that is only going to come through systemic research which, in my view, needs to be publicly funded because we're not going to see that research coming from the creators of these products whether it is academic medical centers, device makers, doctors or drug companies. we want to pay more for smart, cost-effective care and pay less for things that are not as good and not as cost effective. and we, therefore, need to, a, know the difference which we cannot do with fda's current approval of is it better than

placebo in achieving a surrogate outcome. if it lives, it will help us get that information. and then we need to push it out to the doctors. the other big gap we have is getting physicians to actually have access to that information. and over the years we've been working on this thing called academic detailing where we send folks out from are a university base to, in a sense, sell evidence-based medicine. and that seems to be a way of getting the effector arm of that last hurdle so you can really transform care. we are already spending the money, and this is the last point i want to make. the idea that we are somehow running out of money in health care does not bear the scrutiny of comparing us to other countries in the world which, as i trust everyone here knows, are spending less per capita on health care, covering everybody and getting better outcomes. so it is not as if somehow there is some magic form ha that no one -- that no one can yet figure out. we just need to understand what those countries are doing. mostly what they're doing is not

having everything in medicine be entrepreneurially-focused so it's all about maximizing revenue. there's some vision of a public health concept for health care. and we can go them one better by being the leaders in the world in comparative effectiveness studies while leaving room for the occasional outlier patient who is not like everybody else, and we absolutely have to leave room for that. or we can go on and kind of be bullied that we are destroying innovation and sending research overseas. i can't help but comment that a lot of the reasons that regenerative medicine is thriving overseas is that one of the parties currently in office shut down stem cell research for a lot of years, and a lot of companies were forced to go overseas. but be that as it may, if we go on in our current pathway, i'm not the right person to ask what would happen. i think the right people to ask about that course of action of continuing without change would probably be standard & poor's or the central bank of china. thank you. [laughter] >> thank you, jerry.

i guess i'll re-ask about reimbursement policy of our next speaker. scott? >> i think the question is how do we come up with a reimbursement system that not just lowers costs, but also improves outcomes not just in the short run, but in the long run as well which is harder to measure. innovation might not improve outcomes, but it could improve the patient experience which is a significant advantage. i think the operative mace to look -- place to look to ask this question is medical devices and not necessarily drugs. i think that for a number of reasons. number one, when you look at med med -- medical devices, you see the impact the reimbursement system has had on innovation much more clearly than in the drug realm. and number two, we just don't spend a lot of money on drugs. i know the bill for biologics is growing quickly, but when you look at what we spend on drugs,

about 10% of our $3 trillion overall. you've got almost 80% generic utilization already, you're not going to drive that much higher. we spend 6% of our money on ancillary services like pt and optometry. i'm not saying we shouldn't be spending money on that. we spend about 5% on dental care, so we could literally adopt the u.k. approach to dental care and cut our drug bill in half. so, you know, there's a lot of places when you look at the total expenditures of drugs, it's just not that big of a bucket. so most of the spending is what physicians do, and that's driven by technology with respect to medical devices, new procedures, new devices. and so when you look at how folks who are thinking of innovating a medical device now think about getting reimbursement, i would categorize it in three big buckets. the first thing is what you're doing when you're developing the medical device is you're trying

to develop a device that fits into a current code as articulated by medicare. and the problem with the coding structure of medicare is it defines most of what happens in the private sector. so there's three big bucket, i would say, that innovators say. one is they try to develop a new device that's going to create incentives for doctors to use the device because doctors can inreese their e -- increase their revenues. doing a procedure earlier or allowing a physician to do a procedure that used to take three or four hours in one hour so they can do more in a day. the second big bucket is trying to improve patient outcomes, and when you're trying to develop a device that improves patient outcomes, morbidity or is a more comfortable approach to a procedure, that's heavy ri dependent on direct consumer advertising. you're often speaking to the president because in many places you're displacing current paradigms in medicine. a classic example is the

uterinefy bodies, rather than doing a invasive hysterectomy. that required referrell away from -- referral away from gynecologists, and the third bucket is a device that tries to lower costs. and in that case you're often making your pitch to a hospital or gpo or other purchasing system to try to say my new innovation is going to lower costs. what you're trying to do is develop a device that fits within a current rebecame usment -- reimbursement code, and it's an extremely inefficient system. if you're talking about a system that sends signals to entrepreneurs to just try to develop devices that prove long-term outcomes, lower costs, reduce morbidity, you could see how the current system forces you into one of these sort of preordained categories or preordained buckets. so what kind of reimbursement system do i think would be optimal? it's a very hard question, obviously, it's going to be a subject of a lot of debate here in washington. i don't think we have an answer.

but certainly a system where the purchaser, ideally would be the patient but it's not the patient because we have third-party payers to health care, but where the purchaser has a long-term perspective. you're not just trying to tie reimburstment to short-term measures of outcomes, but whoever's making the decision to finance the technology holds on to the patient or is held accountable for the long-term, durable outcomes of the patient. we have some experimentation that approximates that. i think medicare having to a degree -- advantage to a degree had that. the churn was very expensive to them. they were penalized for a lot of turnover, so they add an incentive to get -- had an incentive to get patients in the door, lower the cost of their care. i think massachusetts with the shared savings models where the payers are entering into long-term contracts with the provider communities. that has elements of the same thing incorporated into it. but the bottom line is the scheme we have right now particularly as it relates to medical devices which i think is

the operate e pee in biomedical -- piece in biomedical innovation where we're going to see a lot of the costs being driven in the future because it's so closely tied to what physicians do, the current schedule we have right now doesn't send signals to innovators to develop products that improve outcomes and lower costs. it signals them to develop products that fit within one of the reimbursement codes preordained by medicare and sort of fixed in time. >> thank you. freda and rob, you're on the front lines of these reimbursement questions from both sides, so, freda, perhaps you could start and talk about this. >> yes. so, first of all, i'd like to make the contact that i think we are all in agreement that the productivity that is coming out from are an innovative standpoint at this point is stalled at best. if you look at approvals over the last, well, since i was born -- [laughter] have remained around the same, and that was not yesterday.

so we know that we're stalled in our advance, and it's such a shame because science is certainly turning corners that we could potentially apply. and the question is, what will we need to do to turbocharge and to harness this cognitive surplus and the technology advancements to the advantage of innovation for everyone? you know, there are lot of ways in which to do that. certainly focus is one, and a new afill yative model, if you would, is another. and by that, briefly, i mean that, you know, previously innovation has been invented here. an invented here model. and i think we are going to have to get to a not invented here model where it's a much more collaborative model for sharing expertise, sharing data and then applying that to best outcomes. to transition into then what would a reimbursement platform

look like that would further stimulate that, it's really the same thing that stimulates innovation in the first place which is knowing, knowing outcomes. and there's a data dearth, if you would, on what innovations applied actually mean in terms of outcomes and how you take all of the variables that occur in the course of providing patient care to get to the right outcome. so is it the device, or is it its application, is it the new treatment, the new biologic, or is it the way in which it is incorporated into the health system and applied to the best outcome? and last but certainly not least is the definitional aspect of what is a good outcome at all? and i'm not sure that we're necessarily agreed on that in the first place. and, therefore, what we would consider value. in preparation for this i laughed and said if treatment of my foot were in a value-based platform, then i pity the fool that was responsible for

evaluating what that value was. i was the worst and least compliant patient ever. and so i'm not sure what the best efforts of the devices, the medications and the other innovations that were brought to bear on this would actually have borne for me at the end of the day because i just couldn't get with the program. so, you know, there are all kinds of environmental variables from a systems standpoint, from a patient standpoint and from a definitional standpoint that could potentially stand in the way of developing a system that, honestly, values value in a correct way. so what will we do about that? evidence, evidence, evidence. at the end of the day, i think, probably three things in big buckets. the first is providing data generation, analysis and communication system that allows us to the agree on a lexicon, on data standards and on outcome standards so that we're all speaking the same language.

and then to have an infrastructure that allows us to quickly -- if not in realtime -- collect data, analyze it against these standards and within the context of these definitions and to be able to draw some important conclusions. so the data standards, the infrastructure. and then last but not least that system to provide some flexibility and some context. there's some things that are easy to put in that paradigm. a disease-modifying treatment for cystic fibrosis would certainly be easier to analyze on the obvious adding value end versus evolved treatments for chronic diseases for which we do not have a good, agreed-upon standards at this point. so, you know, adding together the data itself and some agreed definitions and analytics around those, a platform for sharing those and, very quickly, analyzing them from an infrastructure standpoint. and then last but not least,

some flexibility in the system and a broadness to apply all of the things that we would need to analyze in order to actually communicate at the end of the day to freda that she could get her best outcomes by doing the following things and that that conversation can be had and then reimbursed for. >> thank you. rob? >> thank you. thanks for being on the panel, it's a thrill for me to be here although following freda's always a tough act. glad to be here with you today, freda. also glad to be the token representative of the payer community on today's panel. [laughter] i just want to make a few background statements and then provide a few insights or thoughts. by way of background, i say it's absolutely true, as jerry pointed out, that 5-10 years ago the payer community would look at a drug that's two pills glued together or a once a day going to once a week or adding some inert ingredient to a device would all be considered innovations and, therefore, be reimbursed just willy-nilly.

that was the case. but i don't think that's the case today. today it's more of the show me the comparative money, so i inserted the word comparative because it's not just show me the money, but it's compared to usual care as freda pointed out in comparative outcomes. i was at a meeting with a scientist-based pharma company recently talking about their company and how they viewed a breakthrough innovation. i was pointing out there's three other molecules, and they said, well, that's an inelegant molecules, why would anyone pay for that? the scientists actually thought that the way it was constructed was inelegant and, therefore, nobody would purchase. so we have some room to go to bridge the gap between the science community and the payer community because that one blew my mind. i will say that innovations in contrast to one of the earlier talks, innovations that have the capability of bending the cost curve are very interesting to

the payer community. so the payers actually find regenerative medicine and stem cell research fascinating and really exciting science particularly because they have the opportunity to cure things and not just convert things into chronic maintenance drug therapy conditions. so by contrast to what was said earlier, i can tell you that the payer community's actually very interested in those new sciences. of course, let's wait and see what they actually produce. anyway, to get to a couple of points then that i would make about how to kind of use the payer system to be an accelerator for innovation, firstly i would say it's really important to engage payers earlier, earlier than, like, five minutes before a product launches. my observation has been that the biopharmaceutical community in the past, you know, really until very recently only in some companies' cases would come to the payer community with a cake in the o venn already being --

oven already being baked and say, you know, i've got this product coming maybe six months from now, you're gonna love this cake. back to la placebo-controlled trial, how's it do -- you know, we don't pay for placebo, we pay for this other drug. did you think of this or that? they're like, no, no, no, the cake's in the oven, you're going to love this. so my thought about that is there is this notion around mandatory end of phase ii meetings that the biopharma companies come always, always, automatic at the end of phase ii and say, look, this is the cake we're going to bake. fda, what do you think? if we bake it in this way, will you approve this drug? that's the negotiation that always happens at the end of phase ii, there is no similar conversation with the payer community. i think there should be. i think it would be fantastic because then the cake can hit both the regulatory, but also the reimbursement system. i think it's a real accelerator

for innovation. second thought there is that the payers can actually be collaborators, and you're probably thinking, how is that possible? about six years ago we were interested in genomic science and trying to figure out, gee, how can we adapt or adopt this for the payer community, and what's missing? what was missing was understanding with or without the use of a genetic test would it reduce hospitalizations and actually have a return on investment for paying the test? so we turned to our payer community, and 29 payers raised their hand and said we'd like to collaborate on the design and the conduct of the study, which they did do. it provided the evidence they felt comfortable with, and today we have over 300 payers paying for that technology based on being collaborators both in the design and conduct of the study. something a little different. one last thought that i would like to just throw in there is i didn't hear anywhere in today's discussion funding or research into translational studies, translating something from the bench to the bedside.

we really need that badly. we -- you know, it's great to fund all new, you know, genome studies to find something new or to develop something which shows you can move a surrogate outcome measure, but how because that translate -- how does that translate in the real world where people don't live in academic medical centers and treat themselves according to that standard of care? how will that translate? because that's the world in which the payer is paying. one quick last an ec coat there -- anecdote there. the most important study in the world of cholesterol was conducted conducted and completed in the mid '90s which shows lowering cholesterol increases mortality. prior to that an increased in homicides and suicides, which i know if you take french fries away from me, that's definitely true. [laughter] so interestingly, though, this randomized trial, the first one ever completed, showed a 30% drop in all-cause mortality.

92% of patients at the end of 5.2 years were still on therapy and were still on placebo at 5.2 years. in the real world 50% of people drop off their therapy in the first year. 25% might make it to five years. so that translation of what you might want to believe you see in the rct environment doesn't always translate into the real world. now, you can blame the system, the patient, the doctor, you can blame everybody, but it is what it is. that's what the payers are paying for. so i would like just to put fort that we need -- put forth that we need more funding and research in the world of real world studies including translational studies. thank you for your attention. >> thank you, rob. so, jerry, you spoke about cer and comparative trials. scott, you spoke about demonstrations that promote value. freda, you emphasized measuring and promoting outcomes. and, rob, you emphasized bending the cost curve, reducing hospitalization as ways, criteria for reimbursement.

i think, it's always hazardous for me to try to unify a theme, but what we're really talking about here is moving from a model where we pay for health care to paying for health. and that's a fundamental change. and if you think about it, i think hiv which the former speaker gingrich raised is a very good example. when prior to the introduction of highly-active antiretroviral therapy in the mid '90s, hiv was relatively inexpensive to treat. but if you ask what is the price of health, that is how much would i have to pay to get to improve my mortality chances, the price was actually infinite even though the total expenditures were low. that is, no matter how much money you had, no matter how wealthy you had, you couldn't buy any health. and with the introduction of hart, of course, we lowered that price because we took hiv, and we moved it to a death sentence

to becoming a manageable, chronic illness in many ways. and so the price came down, but, of course, there was a lot of alarm about the price of these drugs because these drugs were in the tens of thousands of dollars. now with the introduction of generics, of course, we've been able to lower the price. so if you think about it as health economists would, we went from a disease where the price was infinite to where the price was about 10-$20,000 in those current dollars. but from a policy perspective people viewed it as going from a price of zero to raising the price substantially. so we need to think better about how we're going to reimburse on the basis of these health improvements and the data now show that the introduction of hart has generated about a trillion dollars in surplus which -- to society, which is the number that i think the former speaker mentioned.

so i think that's a good -- would any of you like to comment on that? >> well, there's sometimes a tendency for people to think that innovation is going to be cost saving. and hardly anything in health care is really cost saving. maybe aspirin for secondary prevention in high-risk patients of heart disease, maybe some kidney vaccines, but everything else is in the realm that you're describing of is it a good buy or a bad buy. but it's always going to add to what we spend. and that's okay. that's a good thing. it's when we begin to expect that it's going to drive costs down that we are in the realm of the probably not. and we just need to accept that and say that's an okay thing for a society to be spending money on. >> i would just, the only comment i'd make and the point's, you know, well taken is that costs get absorbed into the provider community often not very transparent. there was a very heavy cost to the treatment of patients with aids in the absence of hart. it just was distributed across

the provider community in the form of intensive care unit stays and other kinds of very expensive procedures as opposed to the drugs that was easily measurable. so the offsetting costs aren't readily recognized because they diffuse into the health care system, if you will, in the form of more procedures, more morbidity, more doctor visits, etc. >> right. and the evidence shows that there were reduced hospitalizations which, i think, would help meet the criteria that you laid out, rob. >> uh-huh. >> okay. so we have time for -- who's keeping us on track? we have, i think we have time for questions, so we'll open that up to the audience. >> stunned them into silence. >> well, then i get to ask some more questions. so, freda, maybe you could talk about, jerry raised the issue of comparative effectiveness, and

there are some concerns about how will it treat populations, for instance, that are in the minority in terms of how they respond to therapy and such. maybe you could talk a little bit about your, the industry's view on cer. we won't hold you to it for the entire industry, but maybe your personal views on cer. >> well, i actually believe and i think that it's a widely-held or agreed-to belief that good clinical comparative effectiveness is a really important piece of what we do on a day-to-day basis and should be continued, enhanced and grown. we, there are several kind of necessary to dos in this comparative effectiveness. first, a pill on pill, a device on device comparison is not necessarily an effective way to do a comparison. and i think that we've become much more sophisticated in

understanding the complexity of our system, the system into which these new innovations go and how they should be compared in terms of the outcomes that are produced. so if that's what we mean by comparative effectiveness, you know, i think that, again, this is an area ha we've all agreed is important. the question is, how are you then going to apply it? what are you going to focus on as end points? how will they agree? what are the data standards? some of the things i had mentioned before as the important paradigm for shaping the way comparative effectiveness moves forward. and the second thing that i think is really important and maybe rob would like to comment on this as well is the way in which we really throw a broad net not just comparing whether or not everything from weight goal watching to aggressive intervention has an impact on the outcome of a patient, but what new, novel ways we can

apply to gee know typically starting to cull out populations that would be better responders, for example, to a certain therapy over another therapy or group of therapies. and then who might be a nonresponder or who might be more likely to have an adverse event, therefore, reducing a risk benefit for treatment. so the idea that we have some science available to us to apply, to go from all diabetics to this population of diabetics or everyone with nonsmall cell lung cancer to a certain population of patients with nonsmall cell lung cancer becomes something that if we could find a way to clinically apply this in a meaningful way would not just mean something for us in the health care provision field, but would mean something to patients in terms of improving their outcomes. so i think it's a go. >> we have a question here.

can we get a microphone? and if you could introduce yourself before you ask? >> ann bonham, association of american medical colleges. i think rob made a very good point about the opportunity lost from not sending translation into widespread communities whether it's subgroups identified by freda or not. but right now there's no actual funding. federal funding agencies or as far as we can tell from payers. to think about dissemination science or the implementation in getting out to the broad swath of communities, and i was wondering if you could comment on that or, you know, give money for that. [laughter] thank you. >> well, you know, that's a great point, though, you're right. we we need to have some sort of, i believe, government subsidy of this kind of research. but the private community is self-funding these studies. so, for example, years ago we were looking at this issue about co-pays and just going too far with co-pay having unintended consequences.

and can we actually published our paper in the new england journal where we found if you went too far with co-pay increases, people would drop off their therapy. and we used that information to inform the payer community, be careful, you know, there are these unintended consequences of doing something like that. so i would agree with you, we absolutely have to have a federal funding mechanism to translational studies. it's not enough for, you know, individual payers to try to scrimp together a little bit of money to look at a question that, you know, somebody's asking them. we need to have the whole agenda and priority setting. and it's a shame we don't have it because those are the questions that are really, i think, decelerating innovation, not accelerating it. we can accelerate innovation if we just learn more about how to translate things or what the barriers are for adoption. one quick point on that which i think is interesting, at least to me. it's all about me at the moment. [laughter] but in the area of personalized medicine, we collaborated with the american medical association to do a physician survey just to

see attitudes and awareness. and what we found was 98% of physicians responded that they get the point that genes relate to drugs. but two-thirds of physicians don't remember ever having a course in genetics. only 12% have ordered a test in the last six months. so talk about translation. we can spend billions of dollars deciphering all sorts of ahas from the genomic world through the nih and other mechanisms, but if we can't get to the next hurdle which is translating that to an audience who doesn't know how to receive that, we're not going to get this out of the bedside. we're open to collaboration. not funding all of it, but perhaps being a way to get it distributed. [laughter] >> okay. we have time for one question, it's reserved for sean, but i'm going to ask a question while you're giving him the microphone which is what responsibility do payers have?

rob, you mentioned the example of an elegant molecule. speaker gingrich was talking about alzheimer's which is a social epidemic of, the magnitude of which we haven't seen in this country. treatments are limited. but what responsibilities do medicare and payers have to reward marginal innovation, but yet they may lead to something further down the road that's going to solve this? scott, maybe you could talk about this in the context of medicare. >> you know, there's been constructs created in the past to try to create technology pass-through payments, and sean knows far more about this than i do. of i don't think any of them have worked very well. i think medicare does have a responsibility as a government payer and also as a payer that what we say is no ordinary payer, drives the rest of the market. so i think the agency needs to be, needs to think about these issues, needs to be generous in how it reimburses things with the idea in mind that it could choke off innovation because

it's such a big weight in the marketplace. but i don't think they have any capacity to contemplate these kinds of issues right now. they just don't have in-house, the mechanisms, the expertise to think about these kinds of of issues. and then you get all kinds of gaming in the innovative sector that i don't think is necessarily sending the the right signals to entrepreneurs. >> if i could just add briefly after that, payers where it's medicare -- whether it's medicare or the private sector need to get better at this gray zone of new technologies that may pan out and may not. certainly, when mark was running cms developed a very good one of coverage with evidence development, this kind of passageway of this doesn't work, we're not going to pay for it to everybody has to have this. and it's a powerful way to learn things about how well things worked. and that's needs to be built

into the payment mechanism. >> let me just jump in, too, in the context of rare diseases, so there are 4500 rare diseases that 20 million americans suffer from. and i will tell you, you asked the question marginal innovation, any marginal innovation in the any of those diseases would be met with enthusiasm by the payer community because those are diseases where there's just nothing. talk about unmet needs, like nothing. >> right. >> so there's no one going to begrudge, there's no payer that will begrudge even a marginal innovation to help those folks. we need more unmet needs to be addressed, shot the met needs. >> i know. [laughter] i just really want to say a word about incremental innovation, and i know things like fixed dose combinations don't seem -- you know, seem like low-level innovation, but, you know, as a practicing psychiatrist, i can tell you that, you know, fixed-dose combinations that advance adherence for patients, for example, were important in

the context of patient outcomes. so despite the fact that they're inelegant in many ways, they're elegant for patient outcomes, and i just want to make sure that we don't minimize the impact of what appear to be marginal or incremental advancements in terms of their potential impact on patient outcomes. >> and not always easy to develop at a scientific level. >> i was with you until you said potential. >> no, no, demonstrated. >> demonstrated, thank you. >> the best example of that, of course, is hiv where you went from 23-pill-a-day regimens to one a day which allowed you to treat hiv in africa. sean, you had a question. >> yeah. it's actually on the same point of, you know, incremental or marginal innovation, whatever you want to call it. i guess it's mainly for freda, also for scott just because i like to hear scott talk usually because i disagree with him, but

he makes so much sense. i'm still trying to puzzle my way through that. [laughter] >> i agree we half of that. [laughter] >> so, jerry raised the example of the, you know, the purple pill, the l or s, and, you know, i think, you know, kind of the implication or maybe you actually said it was, you know, in that kind of context where there's, essentially, you know, one could argue whether there's any incremental benefit. you know, the reimbursement system should not differentially reward that in terms of pricing compared to, in this case it would be the generic. and i guess, you know, my question, you know, what i've also heard, though, is that incremental pricing is required in order to sort of, you know, fund or create the potential rewards that actually then promote investment and sort of innovation. and so you can't have a sort of a, you know, a value-based price that is linked to, you know, incremental improvement. and i guess so i'm interested in

the how both of you think about this whole notion of, you know, essentially a referenced pricing approach versus a value-based pricing approach and how that would actually impact on innovation. >> and i'll just say, we're interested in your answer but briefly. >> well -- [laughter] we know the formula for your response to him, and then i'll -- >> because we're out of time. >> well, i agree with you on the notion of a payer being able to type trait reimbursement and moving away from the sort of binary reimbursement, being able to do things that were developed when you were there or other kinds of schemes like that. i think what we have at least with medicare is a binary approach to reimbursement where in some context everything gets paid for. in another context like diagnostic tests, almost nothing gets paid for. so, you know, that agency, i don't think, is incorporating any kind of evaluation of innovation or where there's, you know, incremental rewards to

patients and to how it's paying for things. it's sort of a fixed process where there's different buckets and sometimes you pay for everything, and sometimes you pay for nothing. if there's other constructs where you can provide pathways for things to get onto the market, get guaranteed reimbursement, i think those make senses. i don't think right now medicare has the capacity to do that measurement, and that's the difficulty. i think it's going to be very hard to build that into the system. >> last word. >> oh, the last word, my favorite. no, i think that everybody is focused on bringing innovation to the market that improves patients' outcomes. and i think we've struggled with the ability to demonstrate that and to have that demonstration accepted by the payers at the other end. so i want to underscore some of the things in terms of reimbursement that rob suggested which is earlier understanding of what would constitute value to patients' outcomes, how big that value has to be, what the

appropriate end points are, how it would be measure inside a meaningful way during a randomized written call trial versus how we would evolve that database or evidence base for that when it got out into the marketplace and where patients were exposed. so earlier and better understanding of what the value add would be, how it would be measured. and then a collaborative real-world platform for us would, at the end of the day, how these things were going to be applied and to design that early enough in the course of drug development so that we were ready to hit the road running and that we didn't have years and years where it wasn't necessary to see a longer term outcome before we ever got any meaningful data on how we had made an impact on patients at the end of the day. >> great. i think we'll hear more about measurement in the third panel today. so i want to thank all our panelists. [applause] and why don't we, i guess the second panel come right up. [applause]

[inaudible conversations]

[inaudible conversations] >> okay. we're going to get started right away. josh, you want to get started now? rob, you're going to have to take your seat. [laughter] your moment is over. [laughter] >> [inaudible] >> okay. so with that introduction from the first panel, what we want to do now is talk about opportunities, specific opportunities to drive innovation with new payment policies.

and talk about pilots. and i think, reed, if you could start, united has really been a pioneer in efforts to measure and pay for value with physicians and hospitals. and more recently with medical products. can you give us some perspectives? >> well, let me just sort of start out by saying how energized i am and we are by this opportunity to talk about rewarding value and aligning it with new innovations and care delivery. this is how we spend our own money. and so we are very clear on how much important it is to invest heavily in what you do to deliver the kinds of outcomes that are necessary. so i don't really see it being a dichotomy at all. i sort of challenge the premise of this question of whether or not there is an alignment between value and innovation. they work together. as a company that spends $100 billion plus in health care expenses every year acting on behalf of our customers, we really want and demand that the

innovations and the interventions in health care do deliver value, that they are better outcomes and that they lower health care costs. i challenge some of the conversation, i hope we can get into it later, some of the perceptions on the first panel because we absolutely have no chance to help the average american, the average small business owner, the average state government, the average large employer. they cannot make it another day. we've spent almost a trillion dollars trying to get access to care for 34 million americans. there is no way that we will be able to sustain that access to care if we don't get control over these costs on the use of technologies and pharmaceuticals. so there is an urgency. this innovation has got to deliver simpler and less complex care. it has got to make care more convenient. it's got to move care from the most expensive places called the hospital to the outpatient, to the community, to the home. it has to disruptively replace

more traditional innovation -- interventions. eliminating redundant things that are expensive and then making sure that the things that it does companion with, that those things become more precise. and so innovation for it own sake has no value. so what we now have to do and what we are seeing is as health care costs are going up because of the way that new innovations are introduced into the system. so i think what with the changes in this reimbursement system is to now be rev hughes their in -- revolutionary in realigning the riff for how new innovations are used and introduced, shifting that risk not only from the people who pay for care, the employers, the average americans, the small business owner, those people who are the ones that are at risk for the cost and moving that risk downstream into the delivery system. so this is the transformative opportunity where now everybody is in the game. and we are aligning the interest

for those who have to pay for care with those who make products with those who have to deliver care. we are early in that revolution. but that revolution of fee-for-service transition away from that more towards, now, episodic, care-based, bundled care, cap tated care. as we are moving along this continuum what that now is saying that we are beginning to get the attention of the delivery system. because now how they behave becomes so very important. and so i would say to you that this is probably the key opportunity. now,s has that movement been successful? do we really see a dramatic lowering of health care costs and a dramatic improvement of outcomes and quality? not yet. still early in the game. but we have examples of aggressive first-adopter organizations in health care delivery that are actually decreasing emergency room visits, decreasing preventable

hospitalizations, decreasing lengths of stay, increasing the use of generics and decreasing the use of inappropriate high-technology imaging studies. so those are key. so what do we have to do to get to where we're going? the next panel is going to talk about comparative effectiveness research, so i'll leave that there. but let me just emphasize, we have to have the economic data. we have to know, first, of course, whether the thing works. then does it work better than the existing ways of treating the disease? and then we've got to know is, what are the economics associated with it? real data, not mathematical modeling data. number two, we need specific data on specific products and devices. we've got to get the labeling now of those products that get used so we can track it. is this particular implant better than that one? which one has more complications? which one has more readmissions? we need to have that coding that allows us to track with great specificity what really is going

on with individual products. we need to greater specificity on overall coding as discussed in the last panel. we need to know with greater precision what did the doctor actually do, and what things did they use when they did it? and that means that the icd-10 codes will be important in that, more electronic medical records and, please, let's accelerate meaningful use criteria so that we will be able to have the data that allows us to do this. registries are going to be key. we have to have registries that will give us pooled information so that we can make these assessments not only for the comparative effectiveness research, but also so that we can guide and counsel patients. if you are going to be a rational person to have this intervention, we suggest strong hi you use this product because that is important to your health. we are very interested and engaged in the things that freda and others talked about a moment ago around the health plan

working with the device manufacturer or the pharmaceutical company to develop science and evidence early on. you're absolutely right, my colleague from medco, absolutely right that we have to do that. now, we're doing it. here's the challenge: it takes a lot of internal resources. it costs a lot of money and time to do that company by company, device manufacturer by device manufacturer. so there has to be a prioritization. what's most important, and how do you figure that out? we don't have time in the one minute left to sort of figure that out here, but that's a conversation that has to occur between companies and at a higher level of national discourse among our research, our health service research and our physician community. regarding the physician community, clinical guidance on appropriateness of use. who should get it, what subpopulations, how do you use the thing? that clinical guidance is key.

i am terrified that america's medical specialty societies have zero infrastructure to do this at the pace and scale that we need. therefore, i urge and beg anybody from the accountable care act that can survive the political process needs to be poured into these specialty societies who then need to have an accountability with the nation that they will be turning around this kind of information in a hurry. and lastly, i will say that in this transition period, unfortunately, because of the extraordinary cost escalation which threatens the average american and puts all of them at peril for being able to afford access to anything tomorrow, we're going to have to have very strong medical management protocols by those who have the responsibility of paying the bills. and those conversations will need to be very clear and intense, and the manufacturers of innovation need to be right at the table thinking about that. but how they do academic

detailing with their customers is key. because if manufacturer is not close to the customer, the physicians in the hospitals and affecting their behavior, those companies are going to be in peril. they have to find a way to stop advertising and do better at appropriate use. >> thank you. our next speaker is hervé hoppenot who's president of novartis encology. and maybe you could talk about some specific demonstrations. >> yeah, i can do that. i wanted to make a point on, you know, the subject of the conference which is innovation and reimbursement system. and i think there is one aspect that was not touched. i mean, i agree with some of them, but there is one aspect that was not touched is realizing that the progress we make in medicine on the hiv is a very good example, in fact. the one you were speaking about earlier where there is sort of

an asymmetric situation between where you informs and where you save. -- invest and where you save. most of the investment is viable costs, and most of the saving is fixed costs. i will take the example of cancer. my company, what i'm in charge of at novartis is the encology group, and today in the u.s. the american cancer society numbers show that 17% of the cost of cancer is coming from drugs. and 83% is coming from are hospitalization, everything you can think of. now, every time a new drug is introduced for treating cancer patients in the u.s., many of the comparison in terms of how is it going to impact the drug, but of whoever institution is impacted by aids. and i think it's a similar symmc view that is driving to a very large number of very ineffective

behaviors from the communities of providers and payers and everybody else. so i think it's important to look at it also this way. the second point i wanted to make about trying to find solutions that will be working for every disease and every illness. and we spoke about rare disease where there is a specific need that needs to be addressed. i would compare it to the car his and the truck business, and we tried to put all of that under one roof and say we need a policy for everything that has four wheels. but, in fact, it's not the case. some of the diseases we are dealing with have a very different cycle of development. for example, we spoke about effectiveness and being able to prove prospective, combative cost impacts, etc. we are dealing with products that sometimes, dealing with illnesses where phase ii study is going to drive regulatory

improvements. so we don't have compartment studies. we have patients who are no options. we are either to develop drugs with the academic community that we'd be moving and creating new options for this patient. in that case we don't have data. i have seen payers in some countries around the world who are refusing to pay for clinic. [inaudible] obviously, proof that it was useful, but we didn't have the paperwork that was following what the bureaucrats were asking us to do. it was very odd and very strange. now, the third point is really about the willingness to do risk-sharing programming type of reimbursement. and here i can broaden maybe to other countries outside of the u.s. where it is easier to do this type of deals when the people we are speaking to are payers and providers at the same time. and that's really one of the issue, the complexity of the

system we have here in the u.s. where it's really difficult to know exactly who will be the person who will be interested in a program like, for example, in can kenya and the chronic leukemia where we had a new product that was launched where we were able to in some countries have risk-sharing programs where we would be providing the product and based on academically-defined definition of success, major molecular response, then we would be sharing the risk. if drug doesn't work for that very specific patient,, -- patient, we don't think it should be covering that cost. it is feasible, but it requires a very different set of people around the table to discuss it when the drug is different. >> great, thank you. norma. norma holtz, interim director of

pharmacy at health alliance medical plants. please, your thoughts. >> thank you. currently, we are in a, we have a very unique opportunity as payers to have innovative contracting. risk share. one product that we have collaborated with a pharmaceutical company allowed us to decide if outcome doesn't work, then we're paid a certain amount of money for the outcome. and, basically, we share that with our member. if you fracture and the medication possession ratio has been met and the member has not had any previous diagnosis of a certain disease, then why not provide repayment to the health plan and to the member for the

product not working? t just very -- it's just very closely to what jerry states about electronics. you buy electronic product. if it doesn't work, you take it back. you get your money back. there's something wrong with it. now, medicaid -- medical health, it is a very complex issue so, of course, we have to create very specific parameters for specific drugs or disease states. but you can also look at a very with novartis and the encology and other countries why not have if your product doesn't work, then pay us? but if your product works, then the payer is doing what they're supposed to do, repaying for good outcomes. our member is sick, we have a

good outcome. so the barriers for risk-based sharing products or risk-based contracts, there are a few pairiers. a lot of time there is a delay in claim submission, so you have to pull claims, continue to look and further back into your claims. if you have certain pieces of information you're looking for. a risk-based contract can actually work for diagnostic products, it can work for new technology products, and it can work for pharmaceutical products. you just have to have a collaborative effort between the health plan, the payer and the provider, the maker, the manufacturer. and in doing that you're going to, you know, you need to identify a product. the therapeutic category. identify the member that you are

going to be helping. why are we going to spend money on products where, you know, it is approved, it showed some effectiveness? you have three different products out this competing against each other. you pick the best one, and if it doesn't work, then they pay us back. so there is a huge future out there for risk-based contracting. we have -- i do believe that, you know, we want to have the value of your drug. so with the value of the drug back it up with money. if it doesn't work, reimburse us. so, basically, it's a system that completely works around with each other. there are many -- in biologics

there are going to be, there's a lot of potential for this, for this type of contracting in new biologic medical products. >> thank you. our last panel cyst is dr -- panelist is dr. steve shak at medical health. >> thank you, dana. ..

>> chemotherapy, the best available evidence was offered to all women even though it was shown in those clinical trials that established the standard of care. that only 4 women out of 100 women treated with chemotherapy actually benefited from chemotherapy. thus, we punish the many to benefit the few. as biomedical innovators, we found in gegnomic health in 2000 to establish molecular tests so the patients and the physicians can select the right tests on the underlying biology of their disease and of reliable convincing evidence. we were able to do this now in this century because of the incredible breakthroughs in technology such as the human

genome project led by francis collins that at least told us who are the molecular players that we needed to study and new diagnostic technologies such as pcr which were developed in the last century in company research labs. our breast cancer test is frequently highlighted now as being a poster child as an innovation that is both improving patient outcomes as well as being cost-savings. so it has been available now since 2004. it has been used by more than 200,000 patients, 60,000 in the past year. and it's now offered and provided to women in more than 60 countries around the world. actually, that's good news. we created jobs in california that are now actively busy since every tissue that is analyzed comes to redwood city in california is analyzed there

with the results sent back to physicians and patients all around the world. so what are some of the key lessons or principles here? what are some of the examples where there was actually innovation, not only technically in the lab but also in terms of clinical research, in terms of payment policy and practice and in terms of communication to patients and physicians? well, i think the one thing i want to highlight is certainly that those innovations actually didn't work -- were envisioned from the very beginning so number one, innovators, scientists, patients, payers and regulators worked together from the very beginning to find the evidence that was needed and that allowed us to do the right studies and have a chance of getting the right evidence. we did some focus groups around 2000. and we asked physicians about this idea, would it be a good idea to have a test to select

which patients with breast cancer, new chemotherapy and, of course, the physicians said yes, but when asked the question, well, when do you expect such breakthroughs to occur, their answer was, perhaps in 10 or 15 years. we also asked patients in 2000 about their view on this advance on whether it was necessary or needed and not surprisingly, the patient said you mean you can't do that already? there's an urgency to bring innovation into clinical practice. so what we're -- again, three or four examples of innovations with regard to payment. first, with regard to the reimbursement of test, i think it's covered more than 95% of lives in the united states are covered. but it required value-based pricing. we are reimbursed at $4,000.75,

$4,075 which is the list price and then that list price. up to $2,000 per patient is saved by using the dx test with regard to the costs -- of direct costs of tests. second of all, there were some specifically payers that were inoratetive and working on their oncologists. highmark and care first went to they're oncologists first if you establish pathways in best practices in breast cancer care, we will reimburse you at a higher rate and, thus, they encouraged best practices in the way that they approached the reimbursement oncatype ds in breast cancer care. third, this is an ovation outside of the united states. the largest health insurer in israel was the first country

actually to provide reimbursement outside of the united states. and they did something very simple. and it was commonsense but it was very, very important and effective, which is that they actually asked all the physicians when they ordered onchtype dx put on a form what were the other standard measures because we had shown in our studies that our test was performed better than standard measures. that you couldn't predict the recurrent score by just looking at the standard measures and they also asked write down, please, what treatment you would give. and then since they were a payer, they could go back and look, what was the actual patient -- the treatment that was given and received. and they could document that treatment decisions were changed more than a third of the time. and they could quickly document from a cost point of view that this made sense within the israeli health care system. by the way, they did this to compete with other payers in israel, not because the central

government had already included o oncotype dx in the payroll. and this was done by united health care and other payers, we will share from the point of view that there was a concern that the test would be ordered and then not used appropriately. that low recurrent scored patients would be given chemotherapy anyway. and so we actually had a arrangements if that wasn't the case, that they would take some of the risk in terms of the cost -- actually, there are now 11 studies that show that test is used appropriately now here in the united states. and in five other countries as well as the united health care population. so we do pay for performance today. too often, though, for us as patients, it is for performance that is not patient oriented. it is for performance that is not best practice. and sometimes it's for

performance which is not yet available and so i think it is really the light bulb that we are and important that we're having this session today to focus on innovation not just in terms of innovative new devices, drugs or technologies but innovations in the system. to conclude, biomedical innovations in the 21st century can improve patient health and be cost-effective. gegnomics, biomarkers and next generation sequencing and we haven't even talked about that -- boy, is that moving much more quickly than i or anyone else had predicted. that promises really to continue to drive personalized care for all patients. however, in addition to next generation consequencing, we clearly also need to have continued innovation in next generation clinical research, next generation reimbursement,

policy and practice. next generation dissemination of information and communication. and it's only with that that we can deliver the care that we as -- that we all urgently need, spending our health care dollars wisely. thank you. >> thank you. >> so in thinking about these performance-based contracts, i think a few points -- norm, if you would take your extreme which is essentially a money-back guarantee if your product or drug doesn't work, then the manufacturer doesn't get reimbursed. there are a few features that make some of these contracts more valuable than others. the first, obviously, is that it should probably be an expensive service if it's cheap, we usually cover it. it's not worth monitoring. but it also needs to be easy to monitor the outcome. so if you need to do a pet scan to figure out whether someone is responding to treatment, it may

defeat the purpose of having such a contract just because it's costly to do it. but i didn't hear anyone mention one other feature of these contracts that i'd like to ask but, which is as rob pointed out in the last panel, we have a problem with adherence. when you move outside the clinical trials, patients often drop off their therapy. and if these contracts are structured so that it says to payers as well as patients you can get your money back but only if you comply with the regiment, is there any hope actually that these performance-based contracts could actually stimulate an improvement in adherence? >> well, i think it's important that you raise this because there is in addition to the -- we have the simultaneous development of at-risk contracting for the delivery system. we also have now the development

of new benefit program and design for consumers that also gives them incentives for aligning their choices and behavior. so i think there's no question that that is going to occur. you are going to inevitably a rapid escalation in the use of narrow physician and hospital networks. narrow networks are going to be based upon the ability of the delivery system to prove that it has a distinguishing abilities and to have care that is at a lower cost. financial benefit plans offered by the purchasers of health care will increasingly drive patients to align through those narrower networks and give them incentives and in some cases disincentives not to do that. combining that then with their own behavior and their choices. well, all of these things.

so you really are starting to see a landscape that has a transparency around performance and behavior by the manufacturer, the delivery system, and the individual -- all of that being much more transparent and having the financial incentives across-the-board starting to line up. this is the new frontier that we are on. >> we'll take questions in a second but one more point. reed, you also noted in your introductory remarks that you've had modest success with these performance-based contracts. if you look at the experience of medicare, it's been very modest incentives. and the question is, if we had much -- these risk-based contracts that we see in the pharmaceutical side are rather extreme. you don't get paid if you don't -- if you don't see a response. what if we did the same thing on the physician side? would you see larger effects? >> the only reason why i'm being

cautious in the use of my words is because we are talking about science. we're talking about innovation. and so the studies that are analyzing the actual real cost demonstration savings was, of course, always starting with the quality improvement first. those studies are still a little bit away. the data is being collected and analyzed. we're probably a year out from having the kind of scalable level of data to prove the point more definitively. so the only reason why i'm being cautious in my terminology is because the studies are underway. if you look at the california experience, where so much of this capitated design -- we have much more history of that, we're seeing certainly some slight effects but are we seeing dramatic decreases in the overall cost curve? not really. so what that says is that this new extra tool that we're putting in the toolbox called performance-based contracting, where we're actually now really much more specifically aligning

the contract with the outcomes is really, i think, starting to be the catalyst that will move us forward. i'm being cautious only because we're at the beginning of the revolution. >> not 'cause of the television? [laughter] >> steve? >> i would add another example where there are drivers other than money that influence physicians and can make -- and change practice. where i've been the inventor after it had been approved we started a registerry that allowed to us collect data. we opened it all to centers and cf patients in the united states and it ultimately enrolled, i think, 70 to 80% of all patients in the united states. we collected data actually on every outcome and i give the cf foundation a lot of credit really spearheading this effort. but the interesting thing that we did from a medical policy and

delivery point of view is since we had information on every encounter, in cystic fibrosis, there's a metric that tells you quality of care. one key metric which is how normal or healthy are kids' lungs as a function of age. and we took 150 centers and could evaluate them in terms of the quality of care. that indeed, some of the centers were in the top 10. some were in the bottom 10. of course, every center thought they were in the top 10. initially, we fed this information back to each center privately. it greatly increased their attention to what are the practice patterns that deliver the best health outcomes to our cystic fibrosis patients. the registry also allowed to us correlate which practice patterns were associated with better outcomes at the best

centers. we can drive that kind of analysis across the health care system if we invest in it and if we continue to develop the people and the expertise to do that right. so i think that's another example of a practice that indeed allows physicians to do what they want to do, which is why they went into medicine, which is to give patients the best available care. >> the other reason why it's important in terms of the registries, in addition -- 'cause we've talked a lot in terms of -- this question you asked about consumers as being sort of a financial hammer and stick or carrot or incentive. that's important but, you know, that's not really what's fun. what's really fun are the tools that are now available to help consumers make better choices and decisions. the new information systems, coaching, and counseling -- the registry data and information is going to be key because now what you'll be able to sort of say to the person is, hey, look, we actually have some real information about this particular intervention that can help make a rational, prudent

person make a rationally and personally appropriate choice. >> by the way, the cf foundation got a letter a couple of years ago saying, there is this information on different health care centers. can you make it public? 'cause before it had all been private. i give the foundation credit. they actually several years ago made that public, so every patient and their family could indeed look to see what was -- what was the quality of my center, how is it doing? and that is very powerful. >> i don't think there's any question that one of the themes started with mark's introductory remarks has been registries and data are going to help and, in fact, are necessary in order to have performance-based contracts and to measure value. so i'd like to have questions -- did you have a comment? >> i had a quick comment on the issue of data information and how we bring it together because if we think the technical revolution we are seeing, which is personalized medicine is

really is going to happen then you don't have data to merit because you don't speak of millions and by individuals. i'm worried about looking at the analytics as a solution of everything, what you end up is missing, you know, the individualization of treatments revolution that is just happening as we speak. just a point of caution there. >> so dana, cathy bhutto from johnson & johnson. when you talk about -- i think several of you mentioned that performance-based or risk-sharing agreements are kind of money-back guarantees, and they're not. we've entered into probably a dozen different arrangements around the world. and actually they're more like what herve just described. i don't know if you heard his description. they are based on certain metrics of what would be considered success in the way a

drug is being used in a population. money-back guarantee is not a risk-sharing agreement. it's shifting risk to the manufacturer 100% for 100% efficacy. they really depend on their being a very good diagnostic to see whether therapeutic benefits has actually occurred or not so they're very hard to execute. so i want to be clear that people shouldn't be thinking about themselves too simplistically. and my question is really back, i think, herve's point just now which is, i thought the panel was going to address more directly this issue of how payment policy can actually stimulate innovation. and one area that i know companies are concerned about is personalized medicine because we're investing in companion diagnostics, biomarkers that's going to mean a smaller population, not the end of one, necessarily. how are the economics going to

work? and if they don't work, will that investment slow down or even really just, you know, really dry up? so i'd really ask the panel to address that issue of how the economics are going to work as we drive to what we can do through science to come to a more personalized solution. >> yeah, it's a good question. i'll hope it up to the panelists. but i would just say -- i mean, a good example is schizophrenia where you have differential response to atypical antipsychotics and one of the responses you see in benefit design may be to take the one that is the average that works best in the population, but that means there's a lot of patients potentially who wouldn't respond so let me open it up, norma? >> dana, first, i'd like to say i didn't mean to make it very simplistic because risk-based contracting is not as simplistic as does it work or does it not? we do have to look at metrics

was the patient compliant with their medication? was -- was there any particular, again, diagnosis previously to them being on this medication that does not work well with the medication? so it's not as simplistic as -- as it seems. >> one point about the u.s. standard, i think, is very striking when you compare to 50, 60 countries where we are operating is a complex city of a number of people you have to speak to get anything done. and it's very -- and still, i've lived in this country for 20 years so it's not about the country itself, but it's about really how the system works. and also the fact that there are some rules that are really inherited from the time when the pharma industry was chemistry. so like paper or kilogram of

this and kilogram of that. when a patient has to increase a dose of one of their drugs that they are using, maybe because of metabolism or anything, they will have more and the dose is higher because in terms of value, in terms of what the drug is doing. in fact, it isn't changing. if you take 800 or 400 milligrams of drug, it's doing what it does for two different patients. and the result of that, for example, is that injectable product and our product are treated and you have tradeoffs in terms of using injectables but it's not based on the value but it's based on the way the system works. i mean, speaking of revolution from early this morning, i think there's really something to be thought about of sort of trying to put that on the roof that take the value to patients as a route the way the system is built instead of all of the processes that have been historically built. >> and actually, there's an interesting lesson for

manufacturers. the company that developed evaston and when it came time to use it for eye disease where you needed vastly smaller quantities, the price went from several thousand dollars in the cancer context to about $50 for the eye. and it led to the development of lucentis. >> reed, i'll give you the last word. >> i think cathy asked a very complex and very appropriate question. and by the way, as you knew when you asked it, there's no easy solution. we have to deconstruct this problem in its pieces. first and foremost, i think that what is important is that we are able to have forum for a collegially and informed discourse about these tough challenges across these industries. and i think that institutions like the percori, to compared effective research venue, those places are going to be hugely

important as a place to have the dialog. second, i think that the reaction that people on my side of the fence anyway have to deal with is the absolute need to control what the chaos that exist das. there's just no way people can continue like they are acting. and my comments were directed to how do we get control over what's happening now? it's incompatible with the ability of the average american to afford it. third, once you get at that, then we start getting at least having some ground rules, some fundamentals around how this innovation gets identified as appropriate and how you introduce it into the system? that's why this oncotype dx is such a good example. getting the manufacturer engaged directly as to how their customers use the product and making sure we start to get at

this waste, this inappropriately which is morally unacceptable. that's got to get done. when you finally get those sort of things carved out, now we start getting down to whether or not -- excuse me, and the last piece of that is going to be unit cost pricing. we love comparative effective research. we like coverage with evidence development. we get all excited with coverage evidence development and get in touch with pharmaceuticals to do that. the problem always start when you start to get at that, it becomes a floor for unit price negotiation and the floor is almost always give us what's been given now as a point of departure because the people are worried -- so it doesn't take costs down. it starts out with, okay, this is just -- the basis of my point it really gets ugly in terms of unit cost and negotiating, which you're trying to represent the interests of the american people and affordibility and it's a tough conversation. so then you take that out and you start -- now you get down to, okay, if you have a smaller

epidemiological base that is appropriate for your intervention, what does that do to your pricing? well, that's a conversation we all need to have. and you're not going to solve it in a room like this. but all i'm saying -- and i don't want you -- i'm sad that you're frustrated with us because if you don't clear out the other cobwebs, you can't get there. but if you start where you were and you don't deal with all this other stuff, we'll be bankrupt before we get there. >> that's all the time we have so thank you -- i want to thank our panelists. [applause] [inaudible conversations]

[inaudible conversations] >> and this is a panel focusing on issues in measuring innovation and value. while everyone up here is getting mic'd up, i want to make just a few introductory remarks to connect what we're doing on this panel to what you've been hearing about so far this morning. you've already heard a lot about the importance of measuring performance of medical care and performance of the key technologies involved in delivering better health to patients. i'm going to start out with newt gingrich's remarks this morning about pushing towards a mechanism for learning much more and much more quickly from the actual delivery of care and from a transformed approach to the development of medical technologies.

you heard people on the first panel from scott gottlieb that if we are moving this direction of payments tied more to the results of medical technologies, that good measures of the outcome associated with those technologies and the impact of those technologies. good outcomes are needed especially for long-term outcomes. you've heard on the last panel about how important it is to have this information in a way that is collected both efficiently and includes relevant measures both of outcomes and impacts on costs. that's something that reed was very passionate about. herve on the last panel emphasized the point about making sure that we're paying attention to individualization of these treatments and their use as well. so that creates a lot of challenges for measurement in bringing all of these kinds of reforms to bear as well as developing the evidence that can

guide treatment decisions using a vast array of more personalized technologies more effectively. and that's what we want to focus on in this panel. how are we going about measuring the value of innovative technology, particularly on more individualized application. how is our current infrastructure doing in supporting those efforts, our electronic data systems, their lack thereof, our methods of collecting information on medical technologies, both before and after they're approved and out in use? and how can we make more progress in these areas? we've got another very diverse and distinguished panel this morning to help us discuss these issues. our presenters include uday kumar who's the founder and chief medical officer of irhythm technology, vicki seyfert-margolis who's the senior advisor for science innovation and policy for the food and drug administration. lou garrison who's a professor

in pharmaceutical outcomes research and policy in the department of pharmacy and an adjunct professor in the departments of global health and health services at the university of washington. and sean tunis who's the founder and director for the medical technology policy. so as we've done in the last panel, i'll ask people with me on stage to make a few opening comments and then we're going to turn this into a discussion about these issues related to measuring value in medical innovation. so let me start with uday. when you founded irhythm technology, uday, i know your explicit goal was to develop medical technologies that not just improved health but also saved money and the explicit goal in process to be able to measure how that was occurring. so maybe you can tell us about that experience and the implications for what we're talking about today. >> great, thanks for having me. i think as a representative of startup, as a founder of startup i think the challenges from startup companies are more

challenges than larger companies. so if you're a patient who might feel light headed or palpitation, you have a heart fluttering you'll go about your day it's nothing. you may go to your primary care doctor who say well, you look fine now and let's watch what happens. if you go to this a emergency room, let's say, they may say you look fine and the symptoms may be gone. come back. and you'll go through this process multiple times and potentially finally get to your primary care to a specialist like myself a cardiologist. i would order a test and i get paid for a test but those tests may monitor you a day or two and you have your symptoms a week or two and i don't want anything and you have tests that are longer like the microphone i'm wearing a pager with wires. it's very hard to comply with. you want to wear it for several weeks, you don't. so we don't find what happens. i does physician gets paid for that test so this process continues and continues and finally you'll finally

eventually get a test that may prove or not prove that you have an abnormal heart rhythm from your heart system. you may found it's a crazy system from a physician standpoint. what do patients want? they want to be diagnosed when they're first seen. we realize there's a big gap how you can make the system more efficient by focusing on value as actually a requirement in developing a new technology. so what we developed was really a simple little patch. all it does is stick to your body for up to 14 days while you sleep and shower with it. it's disposable. it can be put on an emergency room or by the primary care doctor. the whole idea it gives you enough time and it's highly compliant and patients can use it and get an answer. so we wanted to figure out can we obviat multiple tests of medical costs as well as reduced costs to get to the same outcome? so that's what we do? in a nutshell we realize the value and innovation could be things that we could use to promote ourselves and was actually a benefit to what we're

doing. what did i learn? two or three things from a small company entrepreneurial standpoint and again, i'm happy to say, you know, small company innovator we have created 330 jobs we're being sold all over the country but we have to underwrite what we do. while we can comply with some existing codes there's no thing for exactly what we do right now. so what's important is that companies and payers expect companies to raise tens of millions, hundreds of millions of dollars to fund the usage of their products. once through the fda. while big companies may have the luxury of doing that, the funding environment is much more challenging these days for funders, venture capitalists even corporate to put in that money. so that is a real stifler of innovation. one of the first things i've learned is little companies have to raise lots of money to actually prove that they're a benefit. second thing i've learned is, payers need to be potentially involved. i mean, we would love to go to payers early and say, look, we can model what we're doing but you have to accept that modeling may be all we can do. we can't wait three years to prove what we do 'cause we'll be

out of business by then so you can say we'll pay for you but you're not paying for anything since we don't exist anymore. that doesn't work. since little companies are the drivers of a lot of innovations that really big companies also buy up, this is creator of u.s. jobs, it is important to think about payers having a stake in the game if we can come to some model of what the reasonable approach so modeling what we do, that, okay, let's all risk share, risk sharing is more like i've gone to the fda i have an approved product and help me pay for it and if i keep proving my outcomes, to get to a regulatory approval why can't there be milestones for achieving certain clinical outcomes that can translate the cost? the third thing is, payers have data. they say they want data from companies. i as a little company say i want your data. you know the historical context and the cost of what it costs you to pay for a disease state. over time. so payers need to understand that cost is not measured on an annual beneficial cycle.

and it may be different for dying nottics and therapeutics. if i could have access to di nothing -- diagnostics and if i hit something and you pay a little more and hit something pay a little more so that we're all going in the same direction. but i don't have the money to pay for, you know, a pharmaceutical, pay lots of money to consultants to look at medicare databases so that's difficult. the final thing would be, how do we put this in a framework so i'm trying to think about and some of the other efforts that i do how do we simplify this process so others can think similarly? there's four things that most things fit into acute dying diagnostics and there's glucose monitoring every day and acute therapeutic an implant of a stint or an ied or taking a drug every day or getting diall list every day.

four different bug buckets that reasonably cover most things and if we can understand what are the outcomes for each over the course of a patient's lifetime for that disease state based on historical data that payers have on the cost of that historical data, maybe there could be some alignment of what i need to do from a pricing perspective. payers will be willing to pay early on to support getting these innovations that ultimately benefit them. and then finally, one of the other hats i wear at stanford is teaching innovation in a global context in other countries, india, singapore. now, what i've seen is those countries cannot only create products just as good as ours but they do and have done so thinking about costs in a different society. so if we want to remain globally competitive it's not creating value for our own citizens but we're -- med tech is one of the biggest exporters outside of the u.s. we will fast become an importer if we don't try to figure out ways to reduce the barriers for innovators, entrepreneurs, small companies to be able to survive

a tough funding environment. it's just not feasible to expect millions and millions of dollars to be raised to prove something that everyone can agree is intuitively potentially obvious but how can we come to some agreement along the way in a simplified way that everybody can work towards. >> thank you. i turn to vicki next, i heard about this issue about how measurement can play an important role in bringing valuable products along more quickly and effectively from an individual company standpoint. it can be very hard to come up with those systems for measurements. at fda i know you're working on a number of approaches that are designed to improve that infrastructure, both before products come to market and when they're in actual use. talk more about that. >> i just wanted to open by saying, i am a scientist. and i still really believe science and technology to be really transformative. i spent the 10 years of my life

before joining the fda on biomarker technology and do personal medicine in an academic medical trials con sosortium an want to talk what is a complex ecosystem that clearly could be transformative there are a few key things that will answer many questions. and most of it relies on sharing information and community-building. if we look at the picture in academia the incentive that exist as an academic scientists is not about team-based research and they're not products focused and if you look at what's going on and you really start to dissect where is the innovation coming from in academia, it's not in large part. there's a lot of science going on. if you look at hot molecules, many of them that are being worked on today and supported are the same ones that have been worked on since the 1990s.

we need to move out of this. the genome have given us 500 promises kines we're working on 20. that's the first thing. how do we get there? i think sharing information. biotech and pharma, clearly have issues with globalized markets. horizontal integration models that need to be moved to more inlicensing and more interesting and diverse structures. an issue with patenting right now where they are on a patenting cliff with a significant loss of revenue. duplication of failure. so the same thing i'm talking about in academia. everybody is working on the same kinesi in academia and everybody is working on the same 10 there. we can't tell pfizer we've seen it ten times before and why it's not a good pathway. sharing information can help drive down costs by reducing duplication in the future. i have a dollar figure about a

current target trip v1 which is a pain receptor where you found a $460 million investment right now in pharma we're only in phase one and 12 companies doing essentially the same things. okay. medical device companies. i think they present unique challenges because of some of the things that are articulated. small business has a very different set of concerns. very different set of needs and again, i think one of their challenges is navigating the regulatory and reimbursement environment and i also think sharing information could help promote better outcomes in that sector. i'll try to be quick. payers, of course, we've heard a lot about that. insurance this is a huge issue and particularly for the diagnostic companies because they rely on adoption of physicians to actually get their product out there. physicians, clearly a huge issue when we think about personalized information. they don't know what's on the label. they don't know how to practice with drug diagnostic combinations. we have to get the information out to them in ways that they

could really use it. patients, i think, are key. key considerations. there's a lot of discussion now about the regulatory uncertainty. i happen to think a large part of that is scientific uncertainty. we're calling it regulatory science you can call it whatever you want. it's the valley of death between discovery and product. we need investment there. it's not something an individual sponsor is going to do. it's got to be done collectively. we at the fda think we have an important role to play in bringing together companies, academia and ourselves in a new kind of public/private partnership model where we can begin to address some of these big questions. like predictive tucks, predictive tucks is going to be essential to shift that r.o.i. curve and allowing competency to move in a niche market for personalized medicine. let's get back to the patients. they're getting lost in this equation. they don't know what they're supposed to do and i think in an information-rich society and what we're seeing are sites like patients like me bubble up we

need to get accurate information out there so they are an informed consumer and part of their health care equation. and then finally i just want to talk a little bit about some of the things that we're doing that we think are very innovative for a regulatory agency along the lines of sharing information. so we're involved in a project to establish public/private partnerships around our premarket data. we view this as an enormous, an enormous asset that's an untapped really gold mine of information about all the drugs and medical products that have ever come into the agency, whether they failed or whether they succeeded. we understand that's confidential information. we understand that there's a lot of very tightly guarded company secrets. we also understand there's a lot of really important information in there that we could look at. that's not about product favors. but really is about asking fundamental questions. like end points. how do we get better end points in the neuroscience area? former speaker gingrich talked about the neurosciences to me we need some really practical research on getting better end points. and we can start to look at that even in our control group data.

we could look at disease progression. we could look at placebo effects. we could look at aggregation of data across type 1 diabetes and type ii diabetes and have some fundamental questions like glycemic control and hemoglobin c. and change the conversation even at the individual sponsor review which is clearly something that we hear about a lot goes to this whole issue of creating mutual respect and collaboration around sharing complex scientific information and differing perspectives. well, it's also not clear what the science is telling us. so i guess in sum i would say we're out there actively engaging the companies. right now we're doing a number of ceo listening sessions. we're really trying to get out there with the patient community and with the academic community to to have the fda a neutral broker and which is not part of the scientific conversation and

to start to create some new conversations. >> lou, you started a lot of these other reforms and their impact on innovation, how they're being used, some thoughts on the government issues and the challenges? >> yeah, mark, thanks very much for the invitation to be here. i should say i'm coming from an academic perspective so probably -- though i did work in industry for 12 years before that so it was a mix of that but i've been trying to measure value for many years. and just like other economists in the room and no one really has actually said well, how do we measure value? and what does that have to do with innovation? so i want to try to just offer some thoughts about that. i'll talk about -- review some basic economics that i think we need to keep in mind. talk about their attempt to measure value-based pricing in the united kingdom and say a bit about the risk-sharing schemes and cover risk development. the speaker hit upon this but i think we need to remember that information and knowledge is a public good. and it's a global public good. we talked the hiv drugs

benefiting peoplely. that's very important to keep in mind in public goods by economic theory are undersupplied by an unregulated private market so, hence, we create incentives around, you know, pool incentives like the patent systems incentivize systems and nih and nif and we subsidize basic research. as an aside, we talk about comparative effectiveness research as a public good and it is and we also have public good aspects around the basic science and we've been talking about both of those things and both of those are in need of these incentives to really improve innovation. now, how do we measure value? well, it's difficult to do. you know, in the field of pharmalogical economics that i've worked in, we developed a methodology with a lot of limitations. and i think you'll see that that -- that's currently the main tool that we have at the moment. it's important to recognize the limitations, but if we're going to start thinking about how we

can improve that to stimulate innovation, we're going to have to think how we're going to modify that methodology. so the methodology is called cost utility analysis. as people said we're concerned about improving health outcomes and we're concerned about reducing costs at least in the short run. and in the long-term eventually but the outcomes measure you've probably heard about is the quality adjusted life here. it measures length of life and improvements in patient morbidity. combines that into a single index and allows us to compare outcomes across different technologies, okay? now, this is used extensively in pharmacoeconomics. it's probably easiest to apply it there. it's much more to think about applying it in reimbursing physician care or in hospital care. and there we have the resource-based relative value scale for physicians and drg's for inpatient care which are essentially cost-based administrative cost systems and not well aligned with value so

maybe we do a better job of capturing value in the pharmaceutical sector at least in terms of measuring it. so we also need to think about sort of short-term static efficiency and long-term dynamic efficiency. and i think economists have increasingly brought out this idea. our current system basically says let's look at the current price and someone talked about kind of the si-lobudget mthe mm mentality. and we look in the current situation, would this product be cost-effective? but we're not looking down the long road thinking about when it goes off patent and the price falls to long-term costs -- when we look at it over decades, would the product be considered cost-effective? and i think when we start -- we have that point of view, actually a lot of the things we're looking at eventually become cost reducing when we look at it in that time scale. so the point about dynamic efficiency is that it's the idea

we need to ask not just is it cost-effective today but are we eliciting the optimal amount of innovation in comparative effectiveness research and in basic science research. and as i've said before, we really need to have push and pull incentives to do that. now, in our system, you know, currently we have free pricing for drugs and other countries there's negotiated pricing with governments. now, in the u.k. they currently have free pricing but they're talking about moving to a system of negotiated pricing. and they're calling it value-based pricing and how are they going to do that, you know? and i think the -- that's to be defined but they're certainly starting with the idea of building on the current system that they use there, that's run by the national institute for clinical excellence called nice and that institute uses a threshold of 20 to 30,000 pounds of quality and that becomes a value-based price and people said we essentially have value-based price in the u.k. but what's happened over time they realized some of the

limitations of the quality measurements. some of their limitations of that system and they made adjustments for organ diseases and end of life treatments and other -- and improving patient rapid access. but they're still looking to try to get at how do we measure the innovation premium? i think it's important to recognize -- in the global public good sense that we're talking about paying for the innovations, what they deliver today, but the important thing about science is it's cumulative and there are spillovers to other -- to other areas. and one of the things about the patent system is we had this quid pro quo that you have to reveal the information about your technology. well, that puts -- that makes it cumulative. that essentially allows for spillovers and externalities to other fields. so somehow we need to -- in rewarding value think about is there a premium that we should pay for scientific novelty for those potential spillover effects and we shouldn't just say take this very short-term view what is it getting us

today? and i just have a few seconds left at the university of washington we have a database around these -- these risk-sharing agreements and ced. we basically tracked about 97 agreements over the last 12 years. the majority of them are in the last three or four years. and a lot of them -- they're increasing moving to elementary developments and when people have the belcade scheme in the u.k. there's a lot of barriers in implementing them. it's not that easy to pull these off and there will be a limited number of circumstances where we can use them but they will provide valuable information. so i think -- so i think we need to recognize the barriers and see the potential there, but it's too early to tell if that's going to really just be -- you know, have a major impact on the way we deliver care. so i'll stop there. thanks. >> a good set of points to come back to. sean, let me turn to you, both in your work in medicare and now the center for medicine and

technology policy. you have a lot of opportunities to work on data and measurement around the impact of medical innovations on both outcomes and costs. so looking forward on hearing your perspective. >> thanks. also for the invitation. when i walked in this morning i heard speaker gingrich, you know, talking about, you know, massive innovation and not thinking incrementally and he talked about, you know, henry ford and the wright brothers. and my heart kind of sank because i'm definitely thinking, you know, steam locomotive and shoveling coal. [laughter] >> some day i'll think about how to reinvent the fda, but i'll talk to vicki about that first. so just to really in a sense a simple piece of this puzzle which i think in some sense actually has a solution. it's not too e-therial when i think of innovation and value. a common feature in sort of defining value is, you know, what health benefits are achieved at what cost?

that's a simple, you know, noneconomist version of value. but, you know, part of that equation is around health benefits, our improvement in health outcomes and i think you can't really think about innovation outside of the context of what leads to important health benefits in the future? and so what i want to talk about is the fact is we're pretty dysfunctional when it comes to just a common understanding of what are important health outcomes and without being able to sort of define that clearly and consistently across the health system, it's very hard to then talk about how do you reward value and incentivize innovation? and so what i was going to, you know, kind of use as an illustration of this is kind of a simple example of the case of

cirriosis. clears a clinician judgment of the severity of the disease, thickness, plaque, et cetera. the fda, the division that reviews these won't consider any patient-reported outcomes at all so as a meaning outcome that could potentially even be included on the level. from the fda's point of view, whatever a patient might report as a meaningful benefit innovation it's not going to be studi studied. the emi have different patient outcomes that they reported on psoriasis and they will look at patient development outcomes and what's included on the label is all over the map but they are not consistently reported with any of the products. there was an interesting discussion at the national clinical on excellence when they were looking at n.i.c.e.

approval of these drugs they actually talked to patient groups and it turns out what's important to patients when it comes to psoriasis when it comes to the face and joints. there's no facial involvement or joint involvement in any of the trials. there's actually no validated outcome measure of what actually is most important to patients. why do you think that is? well, nobody ever bothered to ask the patients before they started to develop the outcome measures. the outcome measures as i understand it were developed by a bunch of, you know, psoriasis doc and got around the table and what they thought was important to patients and that became the validated outcome and so that's what we know about psoriasis drugs. if you go to any of a number of different payers and ask them, you know, what are the important outcomes, the usual response to the payers is, well, bring us what you got and we'll tell you if it's good enough. and usually in that circumstance, whatever you've

got is just about good enough but not quite good enough. that's, you know, when you're looking at things backward, it's, you know, always oh, you were so close. [laughter] >> so, you know -- and, you know, it was mentioned here, you know, i think -- rob, i think you mentioned it that you're inviting companies to come in and talk about well, what might be important outcomes to measure in trials. and i heard a report from one of your employees, actually, who said basically ran himself ragged running around the world talking to payers to find out what was important outcomes for patients in rheumatoid arthritis. it actually seems to me it's not an insurmountable problem but it requires a kind of dialog at a very, you know, in the weeds level starting with what actually matters to patients? figuring out do we or don't we have validated measures that could be reported on those

things. and come to some agreement, you know, between across payers but also, you know, with the regulators about what are important outcomes and perhaps even some wiggle room about what can be reported, you know -- you know, by the -- you know, if they're going to do these trials, that they can actually -- with meaningful health outcomes, they can actually report those things as opposed to being prohibited by marketing rules are from being able to report those rules outcomes. but it seems to me when we develop a process for identifying what are important health outcomes, being able to measure them consistently across, you know, trials and then have the key decision-makers both regulators and payers harmonized and aligned around those things, we're just going to have a cacalfney and that value actually depends on measure meaningful outcomes to patients. so i think that dialog and that

process can really be done. it's not rocket science. but it does require folks who don't usually talk together about this sort of thing to actually work together to come up with that. >> well, let me pick up on that, sean, and open this up to the rest of you on the panel. look, it seemed like there were some common things in what you said about the importance of having better information on outcomes. and the potential for developing that through public/private partnership, through better common understanding of the most important information to collect and then working together to collect it through using some of the newer infrastructures like data systems and it seems like a big set of challenges especially around the longer term outcomes, spillover effects from truly innovative technologies that may have many more benefits outside of their own disease and application initially. those are hard challenges but it sounds like there's some steps you can take to address them.

i would like to get some comments from some of you about this. >> well, i would just say, you know, the issue can -- i think it's going to be very difficult to measure spillovers to other things. i mean, and so maybe there's some -- we may just say there's an average premium for scientific innovation that we want to award, you know. and i don't know how we would implement that. but if we do use the kind of value methodology that we used in our field at the moment, it may underestimate the ultimate value is what i'm saying. but we also know there are other problems -- i worked in the case where, you know, the lesson there was the mechanism was identified in 1984. we didn't have an occasion till 1998. that was metastatic. it was considered to be a border line cost-effectiveness and the u.k. didn't approve it initially. and then, you know, eight years later, 2006, there's an indication in breast cancer very effective in the price. the company had set the price too low.

the innovation reward for the subsequent indication was too low. we faced the problem even in the simple case of one drug and two indications and how do we pay for the value and do we have a system that's flexible and we have to think about that if we want to reward innovation. >> i guess i would come back to some of sean's points. i think patient-reported outcomes are critical and we definitely need to find better ways to understand the patient experience. and i think it's not just cro's i think it's also going to be better, accurate objective measures also of disease and disease progression in the post-market setting. so part of the challenge, you know, i think, also from the consumer perspective is a drug is under an nda. it gets approved one day. nothing is fundamentally changed about that drug between one day preapproval and one day post-approval and yet the perception is dramatically changed into what the safety profile of that drug is and what the potential benefit is. so i think, you know, a large part of thiss