the bar in lowering and costs. we think there's some key attribute smears got a robust interest. we hope to announce the select entities soon. prospective attributions. know your population. full cappitiation, and you can choose a lower amount. patients, select their aco. voluntary app attribution, the patients says this is my accountable care organization, and then things happen like rebate tooth the beneficiary to stay within network and also enhanced care coordination service it because the provider knows they're part of the network, waivers, think things like telehealth. smoother cash flow and a benchmarking mechanism no longer just historical. actually looks more similar to mid care advantage where you're looking at regional benchmarking approaches. so, on the next slide, this just

shows primary carry initiative. i grew up in a small town in texas but i learned how to talk fast. i don't want too take any of the other people's time. so, this is our -- one of our primary care models. partnering with private payers so in seven states and regions, medicaid, medicare, and private payers. coming to the table. we agreed on 13 quality measures, exactly the same. we all are putting in per member ex-per month population bailed payments and ask the provider another decrease total cost of care. first two year results, one year on the slide. dedecreesed hospitalizations, decreased e.r. visits, high level of quality of care, and i think we are in the evaluation modes for this one but trending in right direction in a positive way and what the future primary care will look like. on the next slide, think an net

domestics brings it home. one of the practices, rural, southeast arkansas, they've got teams, four physicians, nurse practitioners, care managers use, the funding to get pharmacists support, social work support, et cetera, using electronic health records to steer patients, using telehealth to monitor patients remotely, doing home visits for frail elderly. the leader of this practice set a few key things. first our patients love it. they don't know all the detail another the finances behind it but they love it. they get called at home. get their medications managed. a clinician sees them in the nursing home they love it. second, i've been in family practice for over 30 years and finally practicing then way i want to. and third, i never would have done this -- all the payers nut a million dollars in this practice year one, and population payments. they brought down total cost of care 3 million. this investment would have

mortgages his house five times over. so i think there's a key lesson here that we need to scale spread but when you invest smartly, set the outcomes you want for patients, for physician, clinician teams can work with patients and i have to the results we want. on the next slide, state inknow vacation work, we have now got 38 states and territories where we said we want you to achieve better care, smarter pending, healthier people, flexible how to get there. we think there's some key components like population health, payment models, work force and flexibility. we have 17 what we call test states and 21 design states and territories. test states are implementing changes. a few examples, arkansas private payer, redesire primary care. they have baseball insold that is medicaid mothers through one year most natal. a bundle payment with you invest in prenatal care you decrease

preliminary indications and are showing results. minnesota is doing accountable health communities, linking the social and public health -- public sector with the clinical care delivery system, vermont is work only all payer aco type concepts, oregon with coordinated care organization. so, really exciting to see the state and local change driven by these models. on the next slide...

>> >> and like i said we will release the first to result soon but we're very excited about this model. transforming clinical practice we are investing in supporting positions over $650 million investment with 140,000 physicians thank clinician's across all 50 states.

to lower cost and improve population in health management. on the next slide the news like decrease seeing hospitalization or increasing appropriate use of care and similar to demonstrate savings. traditionally to run a a model on a number of years to contemplate to monitor the data monthly and we adjust them. our payment model has been adjusted multiple times.

it was a key fundamental tenet to talk about on a college-age or in france to work under way. with beneficiaries for the first time ever to be at the same time as curative care services to improve quality of care and patient experienced and lead to a more efficient health system. so what can we collectively you do together? focus on better care and healthier spending for the population and that you serve to invest in the quality and data infrastructure to focus on transparency.

those plans are a major driver to positive change we want to have a culture of collaboration, a partnership and improvement. it is a three-year journey. but they pursue rubio, banks for having me here today and for listening. [applause] >> you could see the whole range of things they're doing it duse incredible. well done. now we will hear from andrew one of the most innovative

not-for-profit plans in the country. and now widely adopted quality contracts. a key contributor to the successful launch of the of health reform plan. and of last health care reform optimist. to drive positive change in the state of massachusetts. >> they give florida state this event today. i will share time to speak more slowly. [laughter] you heard about go work with

the delivery and this is a reform. if by doing bad and we have doing that we have rigorously studied a model in the nation and actually around the world that they try to think of payment reform. with those coverage reforms that health insurance levels are a the highest in the nation. in the time it where is hard to ruth talk about.

and the result of a architect just do delay because for decades those in the country the progress was held hostage and said the cannot extend coverage so coverage was never expanded. so after the law was passed massachusetts started to turn their attention with that powerful item that we had was the paper co to say you already are so far ahead

but we are behind it could be the most expensive place to deliver health care in the nation. so bad lacrosse's and what could we do is the largest commercial paper in the state to lower cost and improve quality? this is also a time when a patient safety and quality improvement was eating women time so what we want to do is designed a payments system to approve quality and lower cost. so we hired a consultant. [laughter] tuesday's coordination with the most effective pavement model to come back with the

250 page report to say there is no such model. very disappointing so we had to invent one ourselves. >> we put them in the remand we called it the cave. and here is what they came up with. we decided we had to move away from the system and not pay for the health but as the primary-care practice to successfully manage a chronic illness was kept out of the hospital. if there were not doing a good job we paid them more

isn't that backwards too wanted to change that so we started to establish a budget based on all medical services, medical care prescription drugs, a shared risk model you have to be on the decline being trend for pro 64 daschle a recognize quality measures validated and to also try to disrupt that adversarial relationship where every area you have a negotiation let's go where rework together so we had a few

pioneering plans to table in with groups and over time it is now the standard way to pay for care that now is the standard care. what happened to read 2011 that was such of big jump for word? pyrrole leaders of massachusetts i will talk about results as the quality is that this is the principal way to contract and not require you to do this.

to keep the fee-for-service pavement's extremely low. and on the front page of the major daily newspaper but although i did not intend it this way that there are other in their mental factors as well. as the fever system became less attractive the budget system became more attractive. this program we want to change the name because with a big success it would have been called blue innovation or blue skies. but it is too late. but the acrid and had

already stock it was called the 8qc and is now around the country. but it is the most regulus -- rigorous so a team of researchers had been publishing results on a the aqc annually and consistently if now increases quality in all types of provider groups are succeeding. academic community and the practices that serve low in kong vulnerable populations to meet the targets these results published luck -- last october in the early years of the studies we have a classic controlled experiment those in the aqc

and those that were not as so many were in we had to compare them to other groups outside of massachusetts and by number for compared to the control medical claims spending was a full 10% lower. a similar story of dramatic changes. researchers observed over a number of different domains and there are to hear, while national numbers stagnated stagnated, our physician practices improved dramatically. some of the aqc group's nine out of 10 diabetics the proposals under control the national average is 70%. that was the early results

but when it looked at our products about half of the members are with hmo put the rest is pp of the most dominant form of insurance through the country but weaver getting questions from other plants including the government with the hmo population when they enroll have to choose a primary-care physician. so we spent two years back studying the problem now we come up with a solution and we announced earlier they were expanding its now those covering to produce 50,000 -- 250,000 are joining the new model.

so the you receive the call that the doctor laid out 40% of payments nationally in this alternative model. we're already there in massachusetts 40 percent are under the new models. what have we learned? obviously before i get to the use you have heard about physician leadership, a change of culture having meaningful financial impact impact, and a long-term investment but i will focus on learning and support. how are we supporting our position to be successful? and what that does to the changing role of health plans like mine. the issue the doctor talked

about that is a big barrier i will tell you how we did that then finally how we change the model over time. the first test to do with support we provide our physicians with daily, weekly, monthly, quar terly, a newly reports of other patients are bearing your patient was admitting last night and you may not know that to very detailed statistics about care patterns from a chronic illness, hospitalization, th ese reports have been designed in collaboration with physicians and they are using them extensively to change care as a result.

but it turns out there is a great desire of shared learning so regularly convened groups of our position and practices together you may recognize the noted author and colleague of mine talking about and of life care how that could be improved improved, separate groups medical managers that come together to share learning experiences in and can call their own physician and leaders for communication and support. these payment models have grown and flowered so well those of the system were excited about that. this is a strength of the blue network nationally so now we have reforms or others around the country

putting together a national network of paved reforms. what does this do to plans and providers? most of you know, in the '80s and '90s health plans like ours have intensive care in disease management capabilities because of the delivery system of patients were not getting the connections or the care that they needed on a population health basis they now take accountability for that management so should a nurse stationed be calling patients to remind them about appointments or talk about relevance? or should that be more logically placed inside the

practice themselves? we are working that out. this evolution will change the world. on the issue of retribution i know some of you are policy experts but this is the key question that seems tactical but if reform can working physicians feel they're held accountable for the right population progress remove from hmo where patients choose primary care doctor and their ppi product we have to develop the way to attribute numbers to accountable groups to work with physicians and other local health plans to improve accuracy and then we did important things. the agreement to physicians

to say are the use your positions? that is an important way to validate the model. to give them confidence when we start paying on of budgeted way of population health for members have not chosen a primary-care physician to say these are their patients. but to sustain a model over time we had one interesting innovation to use each quality measure to drive their share of risk so better quality scores they meant there would repay a smaller share of the cost overruns or fake to keep a larger share of the savings so often the efficiency incentives and quality incentives are separated but

we could join them together that innovation has been well-received. you also hear reagan of a about the cacophony of measures that are out there for quality. we have been very focused to narrow those measures from 64 down at 50 and also the next generation once that we are very separate -- excited in the next model our patients reported outcome measures their own experience their functional status, power they doing emotional health to be rewarding position and practices of some of those measures that patient's care the most about. we wanted to have a learning culture so now we have six or seven years' experience

to read know what is working but we know we can get better so we created a model that is flexible to continue to innovate we now have a powerful chassis of collaboration of better performance, higher quality, lower cost in a way that works for patients and caregivers. thank you very much. [applause] >> para neck speaker is chairman and c0 of florida blue he leads a family of four were thinking companies including the state's largest health plans are being 7 million and provides medicare payment services to 12 other states.

is leading the transformation from an insurance company to grow this company with a strong focus on health and wellness and prevention for girl improving quality and value and serves as the chairman. [applause] >> thank you cheer everyone for putting this forum together. doing an outstanding job about payments i will spend some time talking how payment reform falls into the broader picture of changing the health and health care system in the country because if you step back, looking at the question in front of us as a

nation. i don't believe it is a political statement but i believe something we're passionate about that all americans i don't think it is a political statement of where we should be as a country purpleheart we get there is the debate but at the beginning of a health care reform discussion we talk to reforming the delivery system, outpatient access care, insurance and the debate got narrower as the discussion moved for were due to political factors but let me take you back to a broader picture. our company is a $12 billion operation handling people in florida also medicare payments that is $108 billion of medicare payments in that business

unit alone so we have a tremendous amount of data to understand what is happening in the system. as restructured our organization the blue cross blue shield in the state of florida is florida blue robo we created three other one is guide roll hall where read to direct delivery of health care and own a variety of health care assets. died well connect is reduce the retail business to focus on the consumer how we have delivered health care in the nation and the delivery system because the convenience was to doctor or hospital or somebody other than the patient we are big power to be transformed them

to be responsive and guidewell source is the medicare payments that is of a company is structured so we look at the old world and fee-for-service medicine designed for volume the more you do the more you get that is the system we have generated therefore we have much overuse and a lot of spending that is a necessary. to date the new world has much more pavement alignment and a system that is focused how to utilize the data that we have, the technology, and we look toward the future growth as your truly innovative with partners as we spend more time on what should one organization do versus another?

there's a lot of redundant activity and how to refocus on population hall? and more about how do we work together to drive for better results for the people we serve? >> we think about this and much more holistic way how we use data and of the technology to drive through accountable organizations and we have a variety of those across the state of florida. i understand now refocus around the'' -- the twin cities of florida is a whole other story. you know, miami and jacksonville or to defer universe. [laughter] tampa and orlando are very

different places so we have at least five regions that don't act like each other with a different ethnic makeup different history and delivery system on the ground which means we have to be very sensitive to the geographic, cultural, a background needs so our delivery model varies all over the state depending are rarely deliver the service. fisker issue the generation of things we think about like how to use virtual care. they talk about televisit with the fee-for-service that could mean someone could spend a lot of visits because they have access through the telephone now so you have to be in the world

of payment reform for that to make sense so to create efficiency it needs to replace the visit in the office but only because historic feat that is rather provider was paid so you wanted the service you came to the office. we say think about where our kids will be we have the privilege to go to the doctor's office to wait them the exam room to wait to. may be having that comfortable sealock to sit on the cold table and to see the physician to get a written prescription they have to go to the pharmacy to wait. our kids will not accept that.

because everything happens on your smart phones so why should medicine me any different? we talk about most medical happenings will be on the phone with the doctor that transmits your bridles you have the visit they go to the pharmaceutical prescription that you pick up your convenience because the system is built around you and not the delivery system more will happen that way and. paper co talking wrote the different regions of the state's, we literally have what is going on the same geography with differences because the system is so large and fragmented it will not consolidate overnight but insteps.

primary-care alignment replacing with hospitals intermediate bubbles of care and to looking at a variety of ways to deliver care. we have the first model that is the firm of south america we believe the first time u.s. company contract with the non u.s. firm to deliver health care in the united states. think about south florida. increasingly people from south america have landed on our shores living in south florida. this is what they know very well precontracted with them to deliver medical clinics. they're building seven more over the next 18 months.

culturally significant and sensitive in the community the first is 80% hispanic population everyone speaks spanish. a clinic belt with the understanding the family matters greatly in that culture and often they come to the clinic together. rebuilt waiting areas that facilitate that and one-stop shopping thinking of primary care, emergency care mammograms, mri or specialty services solemn place because in south america there used to getting all care in one place a lot of people from other cultures will like the idea of one-stop shopping everything

in a single place? and you see the doctor in 60 minutes from when you enter the state -- the site. if you need follow-up care retry to do that immediately it is dramatically different care. remember the patient a different way to think about care. we are excited about the clinics and they have been warmly received. the next one is guidewell emergency medical. why would reduce that? is the emergency place - - room the place you really want to get your care? honestly? [laughter] they are not built around a patient, do not deliver for the patient, of so we built across the street from the

hospital because it is admitting multiple of the number of the people that should have been following very rich in zero visits many consider it a front door to the hospital and as a way to fill the beds. many people should not be filling those beds but get the care they need, but quickly, high quality and going home. we created this facility to do just that and it is resonating parts of the patients a quality care, well delivered, a creek and i am satisfied. we're disrupting what the hospitals are doing by putting the facilities in place. to allied health care eight organization if you follow there is an organization that did a very, very good out reach model and sold

their organization and now is the alignment health care we have created contracts with them to take care of the chronically ill patients in concert with primary-care physicians. if you're running back practice with chronically ill all seniors you work in concert because of the intensity and obeys folks are very oriented to a that ended is a partnership model so we will do a better job for our seniors. when you look at the size of the state of florida towards being a 20 million population we're already the third largest date in the

nation we have to do more to reduce debt to patients centered homes 700,000 patients today are taken care of in the alternative care model so we're on the path to the targets laid out a short while ago. retail centers. think of the insurance plan or insurance company, for a minute suspend her you think of the insurance company. we said we will make it a health solutions company and one calling card is the retail center look at this facility we have 18 of these

across the state of florida. so what happens? think of the affordable care act you can buy individual insurance but you could also walk in with your claim that has not been resolved and we will resolve that. people say insurance companies are hard to get a hold of the we put ourselves on the front line to walk again to resolve this face-to-face. we will teach you how to use the online tools people assume and then they think the customer will know how to use it even sophisticated people say can you teach me? we will walk you through so know before you go you can go online to see what the

service cost, and know what is service cost, and know what is covered and how much your piece will be purple one of the great questions is daiwa to know in advance my responsibility. we teach you how to do that. the next is care consultants. held the role this programs that are tailored to the individual through consultation through the things you should be emphasizing 71 of those entities could be used. last year 350,000 unique number of visits. before an insurance company building on the skyline but now we in gauge our members each and every day.

customer satisfaction is 92% that is the number to think about what your insurance company? go to care consultants, 97% satisfaction. last year the blue cross blue shield association award for the highest number retention level in the nation because they either have encountered the space are has contacted us face to face or they know that they can. we also talk to the mayor and the civic leaders in each community to say what would you like this to be to serve your community? read your reading program in orlando literally a of letters -- literacy program the kids come and to leave with a backpack flooded love

books and but that is another issue. have a need it to engage to see the hero's read to them. >> you get yourself with the help solutions company. >> yes there are financial model. >> yes there is the head minister did focus that is all captured on this slide but help is much bigger than health care or being engaged with people proactively to talk about staying healthy in the first place and what

drives that is literacy, the ability to go to a school that has a gm program we advocate for those because our mission of help as much broader than the payment on the back and. so we have been a partner outside of orlando. funding partners were johnson & johnson, a ge medical, florida a blue guidewell as the founding partners. this is to now has the innovation center. >> newt to defend the

ability to work, are prayerfully and a dash of the expense to the marketplace and to convene discussions around the issues like how to resolve the primary care shortage? integrated teams can make that happen but what are the best models? one of the things we know when rigo to tallahassee they have a huge agenda and how can they possibly know enough and route we will be doing as we convene we will bring legislators to the forum to learn about the issues in greater detail. >> so we see our mission as

broad, a huge stakeholder to drive the system to change the quality and innovation. [applause] >> that was very inspiring to think about. and try to find the solutions to get us there. now we will turn chiru who who has just returned from his honeymoon of weapon interesting background includes medicine and finance. a leading conservative change agent and is sought after presidential campaign an adviser in praising marco rubio as previously a vice mitt romney and rick perry a

principal author of the apothecary, a frequent commentator on numerous television shows. [applause] >> i really enjoyed what they had to say it is inspiring to see with people focused on improving quality and delivery of care. has ben difficult to prove but the a great work that both of your doing. but i will talk about a different issue of the high price prescription drugs. this has spent a concern for decades and what i want to

to argue today one of the challenges it is seen as ideological or partisan issue and i say it shouldn't be it is important for both parties to put their heads together to think about ways to tackle this problem it has been difficult to prove expanding coverage improves health but innovation and prescription drugs does. just book of the cholesterol lowering drugs to reduce evidence of a heart attack at a fraction of what we spend on conventional health coverage. the more we can do to expand at an affordable price makes

a huge difference to the access to quality health care and i should make the disclosure i am revising senator rubio but please do not associate these views with the senator he would get very mad at me. [laughter] there are too over simplifications that have dominated the debate about prescription in drug pricing in the united states. the first is it is all about greed because of for-profit companies are greedy and they are exploiting the fact

we don't have price controls were other government measures to prevent profiteering and the poster child for this right now the ceo as recently profiled for increasing the price of an old drug used to treat toxoplasmosis. but here is what is important to think about if he is the reason why they're so expensive than car companies are it theoretically a greedy. so what makes them lessor board banned drug companies? why don't we need price controls? widow seemed to be a battle there just as motivated as any other drug company. why have price is gone up so

much? or are there other economic factors that play? >> it is important to understand we talk about the last full months but the new treatment for hepatitis c you can see the dark blue band is the increase the prescription in drug spending last year due to new drugs mostly multiple sclerosis and the price increases for the drug is already on the market often five-to-10 years. and that is a bigger driver in the new innovative drugs. it is the older ones where they choose to air charge

more but the example is egregious and exceptional but a very common practice for drug companies to raise the prices that have been on the market for many years. the other theory is that innovation is expensive and why we have to charge will be charged. mark sector berg is laughing at that theory because his product doesn't cost anything to use it as a user. google search engine cost nothing to use it on say i have to charge to $1,000 otherwise i cannot find innovation. you'll never hear a google or facebook to say that so why isn't that pharmaceutical companies

argue that high prices are necessary for innovation? in fact, in most sectors it is low prices that drive innovation. the whole point is that hot most innovation happens at the bottom of the japanese car companies came here they did not compete for the luxury market but the most affordable car like the honda. as they would gain market share they would move up now they make acura and did the idea of the lexus but first they found out to deliver the high quality car at the low price then moved up after that. so that isn't happening as much in pharmaceuticals. take another case.

you could say it is software, internet companies were if that is different. what about apple? they cost more and evolved over time. so volved over time. so is hard to believe that the first was only eight to years ago then added 320 by 480 screen and it cost $599. the most recent premiere was launched with 128 gigs of memory so 16 times the

amount of 13 and a half times the resolution and cost 27% less than the original. what was the last time you heard of a new drug that costs 27% less than of the standard of care? by that standard is has failed to deliver value and innovation at a scale we receive from their retail technology industry. hearing is an example. and peter is discussing the evolution a truly innovative drug that was the harbinger

that we now experience party in a that targets the molecular defect and cares leukemia. at the end of the of life it more than doubled when it was charging when it was launched despite the fact to other similar drugs launched over that timeframe including a drug that was manufactured. historically there will say i will raise their price of my older drug to meet the new drug less-expensive so

the insurers have the incentive to move the people of the older drug then if that goes off everybody is on the new drug and companies have been using that technique to extend the life of their franchises. it is perfectly legal and insurance companies are going along with that but that is the reason why you see the older drugs go up over time if apple said the i pawed from 2,001 they will charge to a half times for that today and 2001? we would think they were crazy but this is what happens in the pharmaceutical industry. this isn't because of greed

or innovation actually because federal policy has distorted the way we pay for it used prescription drugs in such a way that those don't apply to prescription and drugs. the most important thing 2.0 is this isn't a matter of affordability for people who need them. misspent $2 trillion a year in government spending and the big part is we subsidize the cost of health coverage through medicaid a andretti care program but also to the tax exclusion the value of which is just as large on

medicaid or medicare so if you include the lost revenue from the employer tax exclusion and add that to medicare and medicaid we're talking about $2 trillion of subsidies every year. is it any surprise that providers charge a lot no ring the consumer comes from those consumers? i have simplified their data health care and everything else. the blue bar is defense, or bridges to know where, unemployment benefits , their bread is health care.

and their rubio a significant crisis their prescription and drugs are a part of that and it can be avoided. so the point i want to make is better is the assumption is that you shouldn't mess with the way we pay for prescription and drugs in america today it is buying is a free-market capitalist system but it is not it is not a free-market system with a 10 year old drug costs to and a half more than it did 15 years ago when it doesn't increase the value to the patient. free markets work by delivering better product and a lower price with more quality overtime and and we

should be holding the pharmaceutical companies to that standard one of the biggest reasons don't have a free market today is retold pay for this stuff directly is the biggest driver because consumers want affordable product and they demand it it is not they don't buy it companies have a huge economic incentive to deliver those products at a lower price point with more quality. what we don't talk about is a regulatory mandate that is the president for the health care system the aca requires that insurance companies cover branded drugs regardless of they are more

effective than generic alternatives products are required to cover and there may be cases where that is separate it is better for a fraction of the cost to lower premiums to rationalize their formularies where they should. . .

obvious that the clinical value is there. where it is, great, but it is not always. the 2nd very, very important area is that it is extremely difficult to develop innovative new drugs. the fda has gradually layered on more and more requirements to the point where it now costs an average of $2.6 billion to watch in a drug if you incorporate all the times drugs failed and development for every one that succeeds. there is also is also the fact that of course, there are patents. the patent extends typically on average about ten years.

it does mean there is a monopoly and that can be a barrier to competition because it is otherwise so difficult to develop. when the free market is allowed to work it actually works very well. one thing we don't spend enough time thinking about and talking about is the fact that for all of the complaints about the high price of branded prescription drugs, the united states leads the world and the percentage of prescriptions that are actually generic because of a visionary law passed in 1984 right representative waxman senator hatch drug companies in the united states have much broader access to the patient pool once a drug goes off. cholesterol drugs went off patent.patent. generic drugs came in and

took over that market at a fraction of the cost. it cost less to manufacture most generic drugs and it does a bottle of water or can of coke. that is a major driver of value our system compared to our european countries. the idea of substituting their products for older branding drugs is much more restricted by regulation. today 90 percent of all prescriptions in the us upper inexpensive generic drugs. it is importantit is important to understand in context, while we are concerned about the high price of branded drugs the price of generic drugs is very low and there is a lot more success in the united states for that issue. and insurance companies are getting smaller about -- getting smarter about delivering generic drugs to patients by steering them -- steering them to cost effective drugs.

so what can we do to improve where we are? as you know, hillary clinton has performed -- proposed drug pricing to tackle this problem. her proposal would make the problem worse in a lot of ways. it was further subsidize the insurance coverage of pharmaceuticals in a way that would leave drug companies this accountable for the economic value of their drug. it was shortened the patent life of pharmaceuticals in a way that will make it harder to develop innovative new drugs, and some of the things like importing drugs in canada won't have much of an effect because it's 110th the size of the us plan drug companies are much more sophisticated now and restricting a majority of those countries that you can't import drugs. so even if you could, it would not have that much impact on the us market. and importantly, she did

nothing on fda reform, which is one of the principal problems that drives up the cost of healthcare come and nothing on regulatory reform which outside of fda reform is extremely important problem. so what can we do to actually solve this problem? it is simple. let's do more to reduce the barriers to entry for knew computers, competitors, reform the fda we have as you know in the house. that is a modest but good step to actually removing some of the barriers, the competitive entrance and disease areas. we can level the playing field between branded drugs with patents and insurance companies. today insurance companies are barred by regulation from mending together to negotiate with drug companies. private insurers. if you don't have my drugs, but this guy does, you will lose your patients so they feel pressure to cover drug when the economic value is not there. that companies band together and you would get a much more economically rational result and can do more to allow people to shop for

their own health coverage because that gives health plans more of an incentive to rationalize there drug form not just with drugs but with doctors and hospitals, two to deliver that insurance product at a cock to come in a cost-effective way which will lead to all sorts of downstream effects of plan design innovation and better value for patients. if you want to hear more about my thoughts on this you can download these various documents and with that i thank you for your time and look forward to your questions. [applause] >> well, that was thought-provoking. just to be clear, we take no positions on the election or any of these items. we like to have different perspectives in the room, and that was excellent and thought-provoking and now we

are going to hear from hoover reinhardt who may have some different ideas. again,ideas. again, we like to have all of the ideas out there. so now it is my pleasure to introduce the james madison professor of political economy at princeton university. he is recognized as one of the nation's leading authorities on health care economics. he has served on numerous prestigious commissions, advisory boards, and editorial boards, and you can see more about his background in the packet if you look at his biography. he is a prolific author and original thinker with prolific author and original thinker with a gift of making rigorous, complex, economic analysis accessible to students and all of us here. he informs public policy and public speaker and blogger for the new york times, forbes, andtimes, forbes, and gemma. talk about a wide range of outlets there. he is the longest-serving advisory board member, and i have had had the pleasure of working with them for over 22 years. it is a warm welcome that i offer. [applause]

>> thank you for this warm introduction. sheila says she likes to have stuck in the garden party. i said, that is why god created me. my slides up? i can see them. this. okay. so if you think about innovation and health care, there are two areas. one is biomedical research, the one that was just being discussed, and the other i would call operations research. every industry have -- has not. health services research which is aimed at improving the efficiency and patient safety with which healthcare is delivered, including drugs, and these are quite different areas. on the biomedical side the

advances have been breathtaking. even more breathtaking. we could have more. the viagra pill last 50 years, for example, or something like that, but the reason we are the leaders, and the us is the leader in this field, as we have great scientists, and if we do not grow them we import them. we have a flourishing venture capitol market such as no other country has, and every year we spend tons and tons of money on supporting this particular kind of research, both public money and private even more so. when it comes to operations research, that is the

stepchild, which is amazing to me, very few industries would spend close to 3 trillion a year and spend as little an operation research as we do in healthcare. as i said, the total federal spending on research and healthcare is about 50 billion. these numbers come from academy health switch. 2 billion is on health services research. .07 percent of total spending more for every $10,000 seven bucks on operations, not a lot. so in general we have paid for this.

many others, we spend a lot of money roughly with the exception of switzerland, twice as much as most other industrialized nations per capita, but everyone now agrees while american health care can be splendid, overall we don't get our money's worth. that is not generally agreed. so congress, i think, has allocated a pittance to operation research command i don't quite understand why that is. so theprivate sector has underinvested, too, but there is a theory of public goods. everyone in econ 101 knows it. if i spend money on something in the benefits are a crew to others who did not spend money on it, i will underinvested in that activity. that does not mean private industry is evil.

they just own up to the theories we teach in econ 101. [laughter] and it gets worse. it took us years to establish the agency for healthcare quality research. i was one of the actors trying to get that established to get operations research to get patient safety and quality and healthcare, and yet of recent there have been talks at some point to zero out the budget of that agency or at least to cut its budget drastically. i think it is penny wise and pound foolish to do that, and that agency gets about 400 million per year which is .016 or $8.60 for every $10,000 national health spending. if you think that will solve the deficit problem that was

being discussed,discussed, i have news for you, but that is really a shame. sometimes you get the impression as if congress is actually encouraging and efficiency or at least don't care about it, and they should care about it because healthcare is breaking the nations back. congress might pay some attention to the efficiency but also to patient safety. this morning at breakfast in the financial times i saw kilian ted said a revolution is underway in us medical service. when you have gray hair like me you have heard of these revolutions many, many times i have a slide that i decided not to use. it is a thing that you put on at these conferences because i have heard this now for 30 years.

i think that there will be progress, obviously, obviously,progress, obviously, and the use of it and all of the little startups, some of them will pay off, but the progress in this field will be much slower for a number of reasons. this i already said, i have heard microsoft and google and others nibble at the fringes of this per call but i have heard them for at least ten years command i have yet to see the major fruit of that coming. so the word is not revolution but evolution does not mean we should discourage it. what hurts wonderful presentations from massachusetts and for a

reason i said that, well, 70 years ago we invented a wonderful thing in america call kaiser. i still believe that is a way healthcare should be delivered. since we already mentioned it, why reinvent something less good? i don't get it, but i'm just an immigrant. but there are other reasons also. very often the innovations in operations races on healthcare delivery change,

they are disrupted. disruptive innovation as if it were a good thing. i'm the guy whose life gets disrupted. so therefore there is going to be resistance to a lot of these things command we should always remember one person's efficiency is another person's income loss that happens. and so i should wonder if k st. isk street is populated with people who devote there lives to perpetuating in efficiency and american health care because they are paid to do so. so for all those reasons. now let me say a few words. i obviously disagree. first of all, i will agree with him, getting, getting a

pharmaceutical product to market is more difficult than most people realize. you really have to run the gauntlet. i have a design. you start thinking of a theory of the compound which is preclinical and that it is phase i with a trying on humans to see if it is safe. phase ii they like and efficacy. in the 3rd phase is effectiveness meaning, if it were applied in practice one that actually be effective? and then make an application for approval which takes many months and sometimes years and finally a drug succeeds. but at every stage the bulk of them die.

it has been estimated at a 10,000 tries they get started, one or two make it to the end. so that must be understood. the dragon makes it all the cost of the failures, the dry holes in the auto industry that we had along the way we had to add to it the opportunity cost of the money, the finances that you sunk into it. to an economist that is is really cost. if i can earn x percent by putting my money into a high button this method in the drug development i must at least get compensated for the money i didn't make putting my finances and some other things. so therefore the billion-dollar price tag,

one can argue about it. many drugs has between one to 2 billion to develop. i believe that. that's easily demonstrated. so that much is true. the interesting thing is all one reason that drives healthcare cost is, we are extremely finicky when it comes to drugs drug and devices are help to a verya very excruciating standard, more in the us than other countries. remarkably when it comes to other areas of healthcare we see much more relaxed. this is 1999 when the institute of medicine came out with a study that said anywhere between 50 to 100,000 patients die

prematurely in american hospitals from avoidable error. imagine if a drug killed that many people? all hell would break loose. the latest study, 400,000 patients died every year from avoidable error. that's what it says. so i wish it weren't there. then for the drug industry the kills five people who thing i don't understand i

talked a little bit about the pricing. the pricing, because we're producing drawings of investor-owned companies with venture capitalists we tend to think of the pharmaceutical company as the quintessential examples of private enterprise. here is my view. that is the drug industry that sits in the protective hands of government way very few other industries can. what are the protections? not only the nih money or is spent, but patents, market exclusivity, they can give

you more years of market exclusivity, data exclusivity which means a generic company cannot use your data to do research. prohibition of resale of drugs among customers like we can go to canada with the drug, and there are other subsidies. it's a highly protective industry. and when you have that bird in the hand sometimes they want you to chirp a certain way. you better do that. price control will be very difficult. they really know that would be complicated, but you could call for coming to

that i want to say that the industry now talks about why you pricing. you know, our prices incidentally no one's prices, no industry price is ever set on cost. if it happens to be equal, that accidental, you don't price on cost. you price on what the market will bear. cars are that way, diet coke is that way, everything is that way. drugs are that way, too. they call it value pricing. the problem is, what is the value of a quality adjusted life that we could buy with drugs? we don't know. is it a hundred thousand, 212 million?

we are too shy to even discuss it. and the drug industry, they can then say let's just see how high it is. we never say no because the minute i say no and i know that is the maximum price i put on human life and i look like a fascist. so it's a very difficult thing to do. what could be done is when the price looks unreasonable on its face, not price control, but when it seems unreasonable to say, all right,say, all right, you can do this, but we will market exclusivity. we nibble away at this or data exclusivity or one of theirother benefit and protection we give you build take away. that is not price control it simply says if you are to

unreasonable with your price , then we have these other methods. and i want to give credit to lyn mikel zeroed in the paper before i thought of it, so he should get the credit. there is, ofis, of course, the question, we want to reward risk-taking in america. drug company investors take risks, thererisks, there is no question about it. the right amount of risk premium we want to pay investors and pharmaceutical enterprises, the amount that would give us the right flow, the desired flow renovation. that is what we would like to do. in real life that is hard to do. i was sort of thinking loosely, as i sometimes do. other people who take risks, firefighters, police, the military. they take enormous risk.

what risk to be give them for that as a benchmark? and then say, well, what do you need to do something for america, something good? these guys fight for us. you fight little bugs called bacteria or viruses. and if you look at it that way, you know, the risk premium we have is really quite good. that is what it looks like when it hits a roadmap. yes then people to go drive this thing and take this chance. you don't always need a boat or a jet or something to develop. let's reason this out. this guy should not be limited.

healthcare has an opportunity cost, among them educating our kids. finally, it is not uncommon to be with people,people, and i have been with these people, will tell you that if within the high prices of the drug industry they argue for more protection, cuts in social spending and lowering taxes. and they do that in one breath. you want everyone to have harmony. that will increase social spending. you'll need a phd to understand that. that brings to mind a theory that was developed, and astronomical theory of the

strongest proof that there is intelligent life elsewhere in the universe is that it has never tried to contact us. thank you very much. [applause] >> well, thank you for that wonderful presentation. i promised you an exceptional panel of speakers with a very diverse perspectives at the beginning of this command i hopei hope you feel that is what you got here today. not always a lot of agreement, but a lot of fun. anyhow, now is the time for questions. if you have aa question. you to fill out that blue card in your packet and passive forward. i will go ahead and throw out the 1st question. he has will it scale up?

andrew, youandrew, you had more time to start the scaling up process. why don't you least take a stab at that. >> it is a great question, and it is important. we don't do enough. there is a growing science of scale. i think the scale answer was provided in the opening talk by cms. our payment model alternative quality contract was written into the regulations that established the affordable organizations,organizations, and the goals and philosophy that has been established on accountable care and payment reform which is then causing

the kind of delivery reform that we have seen in massachusetts and is being generated in florida as an example. i was just going back to kaiser, there is an aspect of the kind of care we are promoting which is integrated and fragmented and involves physicians practicing more as a team, but i would like to think that also it will have some of the innovations that may not have been possible. >> two comments. first of all, thank you for going last. following him is not a fun thing. thank you for that. i believe what we are trying to do will scale because we try to have flexibility in our model. we asked for guidelines, not micromanagement.

all of my markets are different. i cannot do it exactly the same way. one of the problems is thinking that because it worked in california it will work the same in dc or somewhere else. customers of the reason that kaiser did not scale. customers were not willing to go to the model. now, i think we have different market conditions because if you think about consumer choice in the world most of us lived in your employer made the decision by selecting a health plan. there was a lot of angst among the employees. the market is becoming much more in it to have much more of an individual market command i think when individuals have the choice

and see the cost scale between the different options, they are willing to make decisions about taking a narrowera narrower set of choices or this particular set of providers because i understand the value trade-off equation is my expense. that is different than when your employer makes the choice for you. so there are different market conditions today which allows more of the kaiser type model to flourish again. >> one more question. thank you. i will ask another question. the question is, already talked about patient outcomes.

the diabetics improving the cancer patients living longer? >> we have outcomes, the things that we measure. diabetics are getting better in terms of the standard measures. we don't yet have mortality data on that. the ecology area is near where the measurement development is earlier. but i have no doubt that patients are healthier. >> we are seeing results headed in the right direction, but it is early.

when i will say is, on the oncology side we created to cancer oncology aclu's for the 1st of the type that were disease pacific. one of those was moffitt cancer center. we arecenter. we are trying to try patients to the very best facilities. if you think about how cancer is handled every hospital is trying to manage it, and get there are clear centers of excellence. we are trying to make sure we have an opportunity to drive to the center of excellence that handles the volume and has the expertise we are giving patients and members a chance to get care at the best facilities. >> here is a question. what is the role of provider competition or consolidation in the transition to value -based alternative payment models?

many argue that they must march together to have a scale and resources and clinical immigration necessary to keep the transition. is this accurate? >> i would say that integration we believe is necessary to provide the kind of care that a lot of us have talked about. thank you. but integration does not imply that it has to be ownership, shared ownership. you can have virtual integration. some are highest performing groups, smaller practices that are affiliated with one or two hospitals that are not owned practices. integration, we think, is a condition, but ownership is not. >> the one comment i would make is that we bought a multi- specialty practice just outside of tampa, florida for the highest quality practice in that area command the interesting

part was there to main suitors were hospital systems. philly doctors came and said comeau we would like you to begin this process because if we are bought by either hospital system we know we will have to compromise our approach to medicine and admit more patience than we think is right. we got in that makes because we want to learn, thought this was the right partner command they made a compelling case but how they would be compromised to permit the patient. are you getting that doctors best and most objective opinion? >> let's switch over. with all of the buzz in

california how do you think this will affect the industry? will it ever pass? >> transparency will help, but i'm not sure how much. drug company should be able to list why they think this is right. why is not how things work on a normal market. consumers decide whether it is appropriate. so transparency can help, but they already publish pharmacokinetic and make studies that are supposed to demonstrate if any drug comes along how much it reduces the length of stay

and how much money the system saves from doing so, and typically show that the drug will cost more in terms of the total cost of care. transparency alone is the issue. we need to have more competition. competition is what leads to pricing signals that matter. >> you want to comment? >> this issue of front -- price transparency, one should not oversell it. martin who work as an economist work at the ftc and was clear and pointing that out commanded is, if you have a noncompetitive market you still have very

high prices, so you do need some form of competition, and very often it does actually come in the form of made the product. there are a lot of people down. i have never been so down on it because they can in fact exert the competition which we have seen. the other problem is in the us there is no one price for anything. it varies by insurance company, products. what do you pay for colonoscopy? probably 50 prices.

if you look at the cost of making that drive, that's only part of it. and to make people understand what costs are. so i'm not sure what you actually get masking for costs information. all kinds of information.

>> we have a reasonable amount of information. >> do you see tools such as peer boss drug advocates. >> not really. if there is a perception, puerto rico perception, that is something larger companies pay attention to. you will not be super aggressive because i know

that has policy and political qualifications. these metrics can help but don't necessarily give you a real expression. they can compete and deliver prices. the uk has this agency called nice. they use these things so much that economists like to assess, does this truck cost more than 20,000 pounds sterling?

if it doesn't we won't recommend reimbursement. a lot of people in washington agencies and academics think that's beautiful. the problem is, it leads you to funny situations. about ten years ago nice was trying to figure out whether to reimburse. and because the drug was expensive they decided to reimburse for the drug if you are already blind in one eye but not if you could see from both of your eyes, the idea being that was not a biga big deal because you still have another i could see whereas if you only had one you would be totally blind and that would be bad. we won't pay for it to treat

people who could see in both eyes. he can understand why the average person thought that was completely ridiculous. it is critically important to have site in both your eyes. and so when a bunch of people are sitting around room making these decisions they are not always thinking about what the patient wants in that case the patient might have said it does not look like it, but, but i do want to see in them willing to pay for it. but consumers don't have the opportunity to deliver this person. >> here he comes. >> the public debate about

spending on pharmaceuticals has been mostly this debate you have heard replicated on regulation versus competition mobile what i say about the work being done is that it is bringing the voice of the commission to the debate which has been largely absent. by raising questions about the relationship between the price and efficacy of drugs is making an important contribution i think it will add a lot to the debate. >> i noticed the english you are using. how do you value this?

he put a different price on this than a ratea rate 22,000 and a which is making 25,000 could command many economists would say, well,, well, which are says no value it as much. which is a mission to cover misuse of english. so ultimately you asked if you want to distributed on the basis of price and ability to pay? we could do this mode you like everyone to have access? and if he sent a letter to become the collective decision because then you are asking me much i'm willing to pay for someone

whom i don't know i may not like if i did it this treatment. to argue that the market can solve this doesn't make sense to me. the birds made that decision and i am sure that they relented. they repent when they see popular pressure, but that is a difficulty that was alluding to. we do not know what value to put on a quality adjusted life. the britts sort of do, but they relented under pressure

we don't want to discuss it. this congress won't even allow costs to be entered in cost effective analysis. congress hates cost-effectiveness analysis because it might implicitly put a value on human life. that is how shall we are. this is a larger issue than to say what i would be willing to pay for drug. it always turns out clearly in the case when you see the people who actually get this drug often on public programs are in jail and it becomes a collective decision. at some point our students will have to come to terms. i think that we can, forcan, for a couple of years, still sweep it under the rug. what you would not catch me doing is to say, yes, we

should cover it command yes we should pay a high price commander should cut social spending and lower taxes. that would not happen to me. i can guarantee it. >> i did want to comment on this as well, but i did not want you to explode waiting to get an answer out. let me make a couple of comments about pharmaceutical pricing. the margin on pharmaceuticals around the world is a fraction of what is the us. we should be asking a question about that. while we pay so much more endo we willing to fund the world innovation and research and development. i went on a delegation trip in minnesota the germany and the gentleman in charge of pharmaceutical purchasing germany asked us why you allow for pharmaceuticals to be advertised on television.

has anyone seen the chart that shows us from the spending from before we haven't has ent veta afterwards? and so you have to ask about efficacy. when we went direct to the consumer it exploded. we are one of the most nations in the world spending on pharma and get our outcomes and health levels are nowhere near other places. there are baseline questions that we need to ask about whether or not we are willing to fund the world on this and the fact that we restrict ourselves for negotiating is something that continues to amaze me, does not give more attention in the press,press, debate

in washington dc. the largest purchaser does not get to negotiate the price. it is absurd. >> am tempted to end on that. thank you. question is from the congressional office. only about 2 percent of people use them. will make is the last question. in massachusetts we are required to make that information available to our members command the key barrier has been you can tell someone the price of procedure. we talked about the price for colonoscopy, but could you tell them what they are price would be given their policy copayment.

the website. the question is right. the ticket still low, but it is starting to grow. >> i was completely agree with andrew command i cited that example in my comments. they are encouraging them. it is certainly available through our website. the take-up has not been a strong as we would like to be, but it is better than the national numbers. >> the base reason why computers don't use these tools is because they don't actually save any money if they use a less expensive hospital. by and large the economic incentive is not there is a part of what draws hospital economics.

it does restrict competition and the ability of it directs the highest quality lows caused care. so this is a huge problem that we must do more to address which involves two different lanes, antitrust and competition reducing barriers to entry and i ever side we have to give more opportunities to patients. in that way the insurance company has the incentive to make sure they are holding hospitals accountable. >> there is also a fallacy that if it costs more and is higher quality. we believe that the data does not bear that out of all.

>> massachusetts publishes a cost report every year, and it turns out that the drift has been toward more expensive facilities, and other words, they have these prices, but in fact rather than what you would expect people not know the prices in gravitate toward the cheaper, less costly facilities, it was the opposite. everything is going to ask both of you, are these binding prices, what was in the past? in other words, if i go to a dr. dr. that i thought was low-cost, my guaranteed to get low cost? in some senses it binding, or what am i looking at?

>> today they are estimates within a range and based upon history. it is not an absolute contract, but gets you within pretty close proximity. >> maybe the popularity will grow over time. >> let's make not the last word. i would like to thank our panelists. [applause] you guys have been a studying -- stunning audience. fill out your evaluation form and we would appreciate that. we would like to thank congressman crenshaw's office. i would like to thank allison myers.