David A. Ricks is the chairman and CEO of Eli Lilly and Co.
Courtesy of Eli Lilly and Co.
By David A. Ricks
August 27, 2018

For all of us who want better value in health care, seeing Apple, Amazon, and other tech companies deploy record profits to transform delivery of medicines and medical services should be good news.

But there’s one big barrier standing in the way: the outdated U.S. health care system. Without significant reforms, these companies’ efforts—and many investors’ hopes—could fail.

America’s health care system was designed 50 years ago for the issues of that day—to treat mostly acute episodes of illness inside brick-and-mortar facilities with lots of people and little technology.

But those aren’t our main objectives anymore. Today, our primary challenge is to help people live independently with mostly chronic illnesses over a long period. Yet we continue to pursue that task with the same high-cost, high-touch tools that were built in a different era for a different job.

The result of that mismatch is unsustainable growth in health care spending. Thirty years from now, Alzheimer’s disease alone will require more Medicare and Medicaid spending than the entire 2019 U.S. military budget. We need a dramatic change.

Digital technology, when combined with pharmaceutical technology, can play a crucial role in reducing the massive cost of health care spending. Yet technology by itself isn’t enough; we need an efficient network that can unleash the power of today’s technology. To achieve that, we must do three things: digitize everything, empower consumers, and pay for value.

Digitize everything

Digital technology can reduce costs because it already has an information superhighway on which to move. An online retailer can reach people worldwide with just a $10,000 web site—compared to a few hundred thousand dollars for a brick-and-mortar store that reaches only one community.

The federal government needs to settle on rules of the road—common standards and patient privacy protections—that allow data to flow through our health care system freely and safely. Medicare can also help by reimbursing at higher rates products that combine digital, medical, and pharmaceutical technologies.

Empower consumers

In nearly every industry, consumers have been the catalysts for reducing costs and improving quality. That hasn’t happened yet in health care—because it’s nearly impossible to get meaningful cost and quality information before receiving treatment.

When you buy a car, you don’t care what the manufacturer paid for each of the 30,000 parts in it. You care what the price of the whole is, and how well it functions, before you drive it off the lot. We need that kind of transparency in health care, to enable consumers to make more informed decisions and to encourage health care companies to meet consumers’ expectations.

Pay for value

The future of health care must be about making people healthier, utilizing whichever product or service best accomplishes that. Our company has signed a dozen value-based agreements with health plans, and we’re looking to do more. In these agreements, if a patient taking our medication does better than patients receiving other therapies do, our price doesn’t change. But if our medication performs worse, we lower the price to compensate. Every health care organization should stand behind its products like this.

Risk-based insurance programs like Medicare Advantage can accelerate this shift to value-based care. These health plans succeed when their quality is high (this attracts more patients), when they serve sicker patients (this generates larger payments from the government), and when their spending is low (if their costs exceed the government payment they receive for each senior they cover, the plans must absorb the balance).

Let’s spread that risk- and value-based approach across the health care system. In pharmaceuticals specifically, we need safe harbors in the Anti-Kickback Statute and government price reporting rules, which interfere with our ability to conduct value-based pricing. Without such assurances, value-based arrangements put pharmaceutical companies at risk, either of being accused of inducing the purchase of a medicine or, if their drug misses its performance target in a value-based contract, of paying the larger rebate promised in that contract to state Medicaid plans across the board.

Employers also can play a key role in implementing these types of changes by adopting value-based benefit designs. These reduce patients’ copays or coinsurance when they choose medicines or medical services that cost less than other therapies do or have outperformed other therapies in value-based arrangements.

The greatest barrier to the system we want is the system we have. To realize the transformative potential of the digital revolution in our health care system, we need to change it.

David A. Ricks is the chairman and CEO of Eli Lilly and Co., a biopharmaceutical company based in Indianapolis.

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