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Chip TookeFounder & former CEO LumenosExecutive Chairman, Graphic Surgery

Strategic Outlook On Health Care From An Insurance Perspective

2008 Health Care Forecast Conference

February 22, 2008

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A Three Act Play

Act I: Myth, Reality and The Money

Act II: The Triple Threat

Act III: What’s a Insurance Carrier to Do?

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Act I Myth, Reality and the Money

The best health care on the planet, right?

Most expensive health care delivery system in the world

$2.1 trillion (16% GDP) ramping to $4 trillion (20% of GDP) in 6 years

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Act I Myth, Reality and the Money

The best health care on the planet, right?

Most expensive health care delivery system in the world

$2.1 trillion (16% GDP) ramping to $4 trillion (20% of GDP) in 6 years

Waste 20% to 30% of resource on care that does nothing to improve our health ($500 to $700 billion)

According to Rand, 55% of care meets adopted guidelines That means 45% does not – flip of the coin?

Wide variation in health care services (Wennberg, Dartmouth Atlas)

Poor performance on comparative health indicators

Aging population; 50% of Americans have one or more chronic diseases; personalized medicine on the horizon

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A Simple Test

Answer “yes” or “no” to the following questions

1. I am within 5 pounds of my ideal body weight

2. I exercise 30 minutes or more on most days of the week

3. I eat a healthy diet – 5 fruits/vegetables most days of the week

4. I don’t use tobacco products

5. I consumer 2 or fewer alcoholic beverages a day

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A Simple Test

Answer “yes” or “no” to the following questions

1. I am within 5 pounds of my ideal body weight

2. I exercise 30 minutes or more on most days of the week

3. I eat a healthy diet – 5 fruits/vegetables most days of the week

4. I don’t use tobacco products

5. I consumer 2 or fewer alcoholic beverages a day

YES: 4%

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Behavior drives disease - Costs of “the big three”

• Average 10% of total claims costs attributable to obesity

• 60% of Americans exceed ideal BMI

• Soon to become the leading cause of death

• Average 10% of total claims costs attributable to tobacco

• 25% of Americans smoke

• Leading cause of death. . . still

• 60% perform no substantial activity or exercise

62% of the rise in insurance costs from 1987-2002 due to population risk factors and their treatment

Source: Thorpe, et al, Health Affairs, June 2005

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Disease Reduction Compared to US

Comment

Heart Disease 64%* - 83%** 80% due to modifiable risk factors

Cancer 60%* Approximates NCI estimates

Diabetes 91% ** No Type II Epidemic

All-cause Mortality 50%* 25 year Okinawa Program Similar

Findings

What if? Mediterranean Diet, Nonsmoker, Daily Activity & Moderate Alcohol Use

* Knoops et al and **Rimm, Stampfer, JAMA 2004;292:1433-1439

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Behaviors Drive 50% of Costs

Assumes Average Total Compensation = $55,250

Source: U.S. Bureau of Labor Statistics, Employer Costs For Employee Compensation Summary Dec. 9, 2005.

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Prevalence of Chronic Illnesses

More than 130 million Americans suffer from chronic conditions;

that number will continue to rise.

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Chronic Conditions % of Population

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1995 2000 2005 2010

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Annual Cost

Diabetes 20.8M $132B

11M lost work days

Heart Disease 60M $277B

5.9M lost work days

Asthma 30M $14B

6.3M lost work days

14M lost school days

Depression 21M $43B

13.2M lost work days

$30B in lost productivity

Source: NCQA State of Healthcare Quality Report, 2007

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P4P: What Providers Fear (one of many)

Copyright Cartoon Bank

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Act II: The Triple Threat

1. Little evidence that what we do works

<15% of medicine based on evidence (David Eddy)

4% of treatments backed up by firm science (IOM)

50% have no or weak evidence (IOM)

2. The odds are barely in the patients’ favor (Rand)

The odds of getting the right treatment ≈ the odds of getting the wrong treatment

Heads you win… tails you lose

3. Wide variations in care based on geography (Wennberg, Dartmouth Atlas)

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The Dartmouth Atlas

Pick any elective surgical procedure

Hemorrhoids in Vermont 5 fold variation in a distance of less than 3 hours

Back surgery 3 times more likely in Idaho than Manhattan

Tonsillectomy 10 x variation from one region to another

Hysterectomy 5 fold variation

In health care, the ordinary laws of nature don’t apply Roemer’s Law: Supply drives Demand

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Act IIISo, What’s a Smart Health Plan To Do?

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Acknowledge: We Live In A Rough Neighborhood

“Which of these industries do you think are generally honest and trustworthy – so that you normally believe a statement by a company in that industry?”

Source: Harris Poll, National Survey of 1,833 Adults, 10/05

% of Adults

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The Consumer Experience

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If you are over age 45, you may remember(and yearn for) this experience

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Winners’ Strategic To-Do List

Accept where we are The lucrative arbitrage called insurance is over We are “middle men” and add little value from the consumers pov Stop digging

Recognize the power base is shifting to the consumer Vast majority of employers want to exit, immediately if not sooner

Start acting like problem solvers, not cost cutters Preoccupation with unit cost and utilization game is over

Focus on what matters… to consumers Give people a reason to believe

Recognize the power of “brand”

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Winners’ Strategic To-Do List

Provide real-time access to financial and medical data Google + Cleveland Clinic

Launch aggressive programs focused on lowering risk factors (remember, this is where the illness/money lives)

Increasing compliance with evidence-based medicine

Give consumers an economic stake in the outcome

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Winners’ Strategic To-Do List

Give people the clinical data translated into behavioral action

Most people make the right decision most of the time Informed consent is powerful: 24% reduction in surgery Spine surgery – new SPORT findings yesterday Get the data out there immediately

Drugs are particularly vexing Vioxx vs. naproxen, Lipitor vs. lovastatin Why did prices on the top 50 drugs go up 7% last year? How can I lower my cost? Provide “point-of-prescription” data

Help the sickest-of-the-sick navigate the chaos Reality: there is no “health care system”

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Timeline

Sign

al Cou

nt

Threshold for Action

Serious Adverse Events

Heart Attacks

&Strokes

Hints of cardiovascular issues in clinical trials

May 1999May 1999

Sept 2004Sept 2004

April 2001April 2001

FDA Approved

Vioxx

removed from Market

Jan1998Jan1998

Vioxx® History

What if the WellPoint Safety Sentinel System was in place in 2000?

Vioxx Case Study

Analysis of our membership would have detected a signal of increased cardiovascular events within 3-6 months

after FDA approval

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Why is this so hard?

Health care: largest industry in our economy

The business is mushy (sophisticated business term)

Huge dollars at stake Eliminate $700 billion waste = eliminate the entire US high tech industry

US expenditures on health care approaching world wide market for oil

We spend more per capita on health care than China spends per capita… on everything

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Why is this so hard?

Health care executives “I know, it’s a mess, but we are all doing quite well, thank you”

“Trend is our friend”

“I know our service sucks, but its slightly less sucky than the competition”

“Innovators Dilemma” by Clayton Christensen The fundamental reason dominant companies don’t innovate?

They don’t want to – it’s that simple (but read the book!)

Creates a breeding ground for innovators… and a cemetery for BDCs

“Overtreated - Why Too Much Medicine Is Making Us Sicker and Poorer” by Shannon Brownlee NYT No. 1 Economics Book of 2007