Without Changing the Incentives, Healthcare Won’t Change- A Conversation with Peter Neupert.


 Summary (lightly edited)

  • Personalized medicine will usher in an era when physicians begin to realize they can’t memorize everything. To deliver better care a change in the relationship to data and technology is required. A correlate to this-, we need substantive reform the medical education system.
  • Personal health records(PHRs) like HealthVault, are not a technical problem. PHRs are a business problem. Consumers and doctors aren’t going to pay.
  • Until you change the incentives infrastructure for health care, you are only going to have changes at the margins. Indirect payments, government price fixing and medical coding are some of the largest obstacles for better care. Separating the consumer’s responsibility for payment, hiding the value of the service from the consumer for the service, along with a one price fits all reimbursement system, do not provide fluid opportunities for “value” to be added back to medical care.
  • Drugs are sold for large populations, not individual patients. The clinical response to drugs varies dramatically. Some patients benefit, while many do not. In order to bring drug pricing under control, personalized healthcare accounting incorporating the drug value in terms of wellness, are needed.



Today on Healthcare Pittstop I’m welcoming a good friend, Peter Neupert. Peter has a long history in healthcare dating back to his work with the Bush administration where he was part of the group leading to the establishment of the ONC (the Office of the National Coordinator). He was the founder of Drugstore.com. He went on to work at Microsoft where he led their health care team. After talking with Peter I always I come away with something new, wishing I’d been equally insightful. He tends to take really complex issues and cut them to the core. Peter welcome. I look forward to talking.


Let me start out with your strong interest in personalized medicine. You noted in one of your blog pieces that personalized medicine may be actually underpriced. Tell me what you see in this space in the next five to 10 years that would be truly transformative.


PN-I can take a stab at it, but I have to tell you since writing that blog post I’ve stopped using the word transformative and healthcare in the same sentence. One thing I’ve learned in the 20 years I’ve been working in healthcare is things are rarely transformative in the short run but maybe transformative in the long run.


One of the things that is really exciting about precision medicine is it finally changes the balance between physician’s thinking they can memorize everything and that they can provide the best insights and the best care to slowly recognize they have to work with computers, technology and scale in some way in order to provide the best care. And that’s a big shift. If we can get a mindset shift that incorporating augmented capabilities possible with technology supplementing physicians to do better diagnosis, better care, better insight, I think that’s a big change over time. One of the business problems for precision medicine is we can discover a lot of things genomically, or in the immune system where I’m spending a lot of time right now, faster than we can build actionable therapeutic solutions. From a business point of view I think it’s going to be a while before, in the delivery model anyway, before personalized medicine has a big impact.


AP- It’s exciting to be on this path. As you know I’m a second generation physician. My daughter will be the third generation in my family. I’m not sure healthcare is responding to some of the things you’re saying. I think my daughter training is much closer to my father’s 60 years ago. Young doctors are still required to learn so much. Doctors are tested on information rather than what is our role in the doctor-patient relationship.


PN- Yes that’s one of the things that Lee Hood in Seattle, a neighbor these days, talks about. He runs the Institute of Systems Biology. There’s a great book about Lee Hood by Luke Timmerman (Trailblazer in the Genomics Age). His perspective when I first started working with him about ten years ago at the Institute of Systems Biology was precisely that- you couldn’t really make substantive change in the delivery of care until you dealt with the education problem. He wanted to start a new medical school with a new curriculum and a new approach to thinking about what he calls 4P medicine. I think he’s right. Again, the way the regulatory framework works in the United States, & the intertwined dysfunction of how med schools get funded, I think that’s going to be a long, long road to haul.


AP-I got to know you through your Microsoft involvement and common friend, Dr. Khan Siddiqui. The group you led at Microsoft I thought was truly innovative & ahead of its time. One product, HealthVault, is still around. HealthVault allows consumers to collect and manage their own health your data, a personal health care record, as opposed to what we use today where hospitals own the health care records. Although most of us recognize this is a problem, HealthVault has largely failed. Do you have any thoughts as to why this recognized problem- consumer controlled data, even with Microsoft’s resources, has failed to scale?


PN-It’s a complicated problem. I just spent an hour on the phone with people tackling the same problem all over again. One of the people said “yeah I watched your video of ten years ago when you launched HealthVault.'” And I said yep, “same problem, same conversation.” Nothing has really changed. Their argument was Meaningful Use 3 (a form of federal regulations requiring healthcare systems to get deliver outcomes if they want to get paid) has made a difference. The government has finally said it’s not good enough just to put up a portal (a way to interact with your hospital on-line). There has to be a third party application. It has to connect across different (electronic medical records) vendors. But I still think that the challenge is there’s no business model. There are limited business incentives in the workflow of a traditional physician practice or in the workflow of the health system to really make this work. It’s never been a technical problem. We’ve demonstrated that a long time ago. It’s really a who pays. Providers aren’t going to pay for consumers to do this. And I don’t think consumers are going to pay to aggregate their data. They don’t really want to. They want it aggregated on their behalf. They want to have access to it. You have this whole class of consumers that create a whole wealth of their own data. I’m one of these data quantifiers with all my exercise stuff. I use it to track things that are important to me. I think someday it will be important in my health record. But no physician thinks it’s important today.


Until there’s a different incentive structure I don’t think things will really change. Maybe somebody like an Apple with enough critical mass with the watch and the phone can make it simple enough for end users to connect and aggregate their data. But until data’s used in my care delivery to make my life better, or make my care better, or make my diagnostics better, because somebody’s using it in the analysis of what they’re doing, I don’t think things will change.


AP- I agree. I know you’re a strong believer in free market principles, as am I. However, unlike most markets where price and value have some level of transparency, American health care has neither. We’ve talked a bit about how America can get from where we are to something different. American’s are paying double the cost. We’re finishing in the middle of the pack compared most developed countries. You’re hinting at wholesale change in the business models for American healthcare. Do you have any thoughts around that?


PN- I have lots of thoughts around it. While I’m still am still very engaged in the healthcare delivery marketplace and the intersection of healthcare and technology, until the incentive infrastructure changes, you’re only going to get improvement at the margins. I think people fundamentally misunderstand how our healthcare system works and why it works the way it does. There’s a basic misunderstanding both in the legislative world but also in the journalistic world and in the consumer world. This is about what works, what doesn’t work, why it doesn’t work, what the consequences are. As one of my fellow IOM (Institute of Medicine) members told me at a point in time, as long as consumers think their health care is their copay for their insurance, and at that time it might be five or ten bucks, they’re not going to think critically about how we have a different infrastructure for our health care system. Denny Cortes (former CEO of Mayo Clinic), who lead an IOM roundtable on the value based health care delivery system, has long described that we really have two major systems for financing health care in America. Under 65 you have largely a commercial or private market which is largely evolved to self insured employer market. When you’re over 65 you have a government funded market. That is just craziness because most of the spend, now that we are living longer, gets postponed to the 65 plus age group. There’s no incentive for all of that infrastructure at 65 under on a financing or an incentive perspective to try to deal with avoiding costs. They (insurers) just want to push the costs to another time when they’re not part of the system.


Our biggest issue is indirect payments. The next biggest issue is the fact that government sets price. CMS (Centers for Medicare and Medicaid Services) sets over a million prices a year. Anybody that’s got any economic training that thinks that’s the best way to get value and innovation out of the system is just crazy. When you look at cash based markets like cosmetic surgery or laser eye surgery or dental, you see dramatic improvements in value due to the bundle of services. Both quality and cost have improved because they have a feedback mechanism that allows for innovation on the supply side. Whereas when you have a system of CPT codes, or of lobbying whether it’s from the AMA to Congress or CMS trying to allocate resources, you have a zero sum game. This leaves no way to unlock the supply side. If you deliver a better service and get paid the same price, what’s the point? And so, people don’t innovate on the supply side. When you look at all of the things that have driven better value to customers in technology, in cars, in travel and, ..you name it, it’s through innovation of the supply side.


AP-That’s interesting to me. I think when you talk about with the supply side is improvement in quality. We give a lot of lip service to quality but there really has not been good innovation in having the consumer understand who is a good physician and who isn’t a good physician. It’s usually the friendliest physician, who is the easiest physician to see. It’s not the person who’s going to help you necessarily get back to wellness.


PN-But Alan, it goes way beyond quality. It’s about how do I bundle a set of things that are good for you, the consumer. If I can’t capture any of the value by providing you with better education, or better convenience, or better anything, the only reason suppliers do that is because they capture some of the value. They have to get more market or they get a better margins. That doesn’t exist in a world where it’s coded (via CPTs).


I’m on the board on the board of LabCorp. We have huge data sets. We can deliver more information about the appropriate next test order or the context of this particular individual relative to a cohort or all these kinds of things that would be value added to the physician who’s making the decision, or the patient, or the combination of those two things. But Labcorp can’t figure out a way to get paid for it because there’s a no CPT code. And LabCorp’s only going to get paid for that CPT code whether they deliver more information or not. And to get a new CPT code because Labcorp’s got a better report- not going to happen.


AP- You don’t think market share is enough to motivate you to build that business?


PN- It doesn’t work because of the way there’s an indirect nature between physician and consumer. If a consumer could see it and demand it, sure then I can go after market share. But that doesn’t work in this market.


AP-Interesting. I know the pharmaceutical industry is another big player for healthcare. You’ve been very involved with pharma for a long time. Most recently I’ve seen pharma try to reinvent themselves, to try to build a relationship with the consumer rather than the more traditional customer, the doctor. Drug prices seems to be difficult an issue. Any idea how to balance getting drug prices under control while still maintaining an opportunity for innovation?


PN-I’ve been involved in life sciences primarily on the drug discovery side through the Fred Hutch Cancer Research Center Adaptive Biotechnologies which is at the front end of therapeutic development. I’m doing some work with life sciences now. They’ve recognize it’s important, as I think most stakeholders in the health delivery system believe, it’s important to have a relationship to the consumer because the consumer is going to have more dollars at risk and therefore brand preferences matter and relationships matter in establishing brand preference. You have to get beyond just the therapeutic if you’re going to get valued based on outcomes. Outcomes require a change in consumer behavior. This requires some path to engage the consumer around the appropriate behavior- whether it’s compliance, changing behavior or other types of things. And that’s I think the driving force for pharma to try to have a consumer engagement strategy, largely around digital.


Price and value in terms of how one prices drugs is super complicated. I don’t claim to be an expert in that area. I know that the U.S. suffers from the fact that we’re subsidizing research and development for the globe. That’s just the reality. We’re the richest part of the globe and so we can in some ways afford it. Now, at the end of the day, there’s going to be some natural limits to that. More importantly, the data that we learned early on in Drugstore.com and certainly as you start to understand precision medicine, the way trials are done, some drugs work really well for some number of people and doesn’t work at all for some other number of people. And yet you, the patient, pay the average price. If we could go figure out who it works for and deliver it, and that’s a big enough market, then maybe, value becomes more evident. Then the actual price isn’t the thing because it’s the avoided cost. A lot of people get a drug that doesn’t avoid any cost, and it is still really expensive. I think this the bigger part of the problem.


AP-I very much agree. We make these drugs for everybody, for the average patient, but a much smaller percentage benefits. Sometimes the marketing message is very confusing for people as to whether they should take them or not. Peter, I’m sure we could talk about many more topics. I hope we’ll continue this conversation. I would particularly like to delve into how what you think the future of the insurer is. I want to thank you for your time today and it’s just been a fascinating conversation for me. Thanks so much.


PN- Always happy to chat with you Alan.


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