by Scott Belsky and Lauren Hunter, 2Y 2019
Name any major industry within the healthcare sector — it probably has some connection to Chicago. Doctors? The American Medical Association is headquartered in Chicago. Insurance? So is the Blue Cross Blue Shield Association. Innovation? MATTER, located in Chicago’s historic Merchandise Mart, is one of the country’s top incubators for healthcare startups. How about healthcare strategy, economics, and policy debates? Just a few miles north along the lakefront sits Northwestern’s Kellogg School of Management.
As students at Kellogg, we’ve benefitted from an impressive array of opportunities to immerse ourselves in the healthcare sector, starting with a stellar curriculum—from robust courses in Healthcare Strategy and Economics to a new course taught by a former CEO of Chicago and Houston hospitals to a med-tech innovation experiential course offered in collaboration with Northwestern’s Law School and Medical School. Academic offerings are enhanced by a Healthcare 101 series that introduces students to each industry within the sector, and dozens of presentations on industry trends from pharma and biotech firms, providers and payers, and health tech startups provide an inside view of what we learn in the classroom.
But, as often is the case with business school, much of the learning happens outside of the classroom. The Twitter-famous Director of the Program on Healthcare at Kellogg, Craig Garthwaite, runs a speaker series entitled “Perspectives on the Business of Healthcare.” Recent speakers included Chris Erlich, Managing Director of Locust Walk, and Marc Harrison, the CEO of Intermountain Healthcare, each engaging in intimate conversations with small groups of Kellogg students. The student run (and sold-out) Business of Healthcare Conference attracted speakers including Andrew Hayek, CEO of OptumHealth, and Iyah Romm, CEO of CityBlock, to reflect on the blurring lines between traditional healthcare segments.
But each year, it’s the MacEachern Symposium that often leads to the most thought-provoking discussions among the academic, professional, and student attendees. The annual Symposium focuses on a single topic, offering a diverse set of reflections and viewpoints from business leaders, economists, and policy makers. This year, the speakers and attendees tackled the quagmire of drug prices. Professor Garthwaite launched the event over a breakfast where he differentiated “valuable drugs” — that is, new therapies that can cure a disease or otherwise prevent costly alternative courses — from “expensive drugs,” or those whose prices are hiked artificially high by those seeking a quick buck (think: Martin Shkreli).
Over the course of the day, John Milligan, the former CEO of Gilead; Andrew Lo, a researcher on innovative approaches to healthcare financing; John Prince ’91, the CEO of OptumRx; Amitabh Chandra, a Harvard researcher on biopharmaceutical innovation and pricing; and Arti Rai, a Duke researcher on innovation law and policy in biotechnology and pharmaceuticals, shared perspectives on the causes of high drug prices and opportunities to manage and finance these high prices. Key messages included:
- High drug prices have multiple causes, only some of which are concerning. Many new pharmaceuticals are highly valuable — reducing suffering and even curing diseases like blindness and some cancers. Their high prices reflect their high benefit, and the appropriate question may be how to finance their payment so that the greatest number of people can access them, rather than how to reduce prices.
- Firms are increasingly investing in orphan drugs and precision medicine. Since these drugs treat relatively small populations, the optimal method for pricing them may differ from the past, when prices were primarily determined by negotiations between pharmaceutical firms and a few powerful PBMs.
- Consumers have more and more “skin in the game” in paying for pharmaceuticals, and this may curtail access to needed drugs rather than just reducing the utilization of low-value drugs.
- Value-based payment for pharmaceuticals is difficult to implement. Key questions include: Who measures outcomes? What if the desired outcome won’t be apparent for years? Keep in mind that just two percent of all prescriptions will be responsible for fifty percent of pharmacy spending by 2022.
- Even so, innovative payment methods should be explored. Professor Lo envisions a world in which debt instruments could be used to pay for valuable drugs — particularly curative ones which extend life or otherwise dramatically improve life for the patient. For example, if a cure for blindness suddenly creates an ability for a patient to work, it also creates new cash flows which could be considered a receivable to the debtholder. Such an instrument could further be securitized using private markets, creating robust pools of capital to help keep patients alive and healthy.
As second-year MBA students, about to relaunch our careers in the healthcare industry, our academic, experiential, and professional experiences at Kellogg have fundamentally reshaped the way we understand the American healthcare system. April’s MacEachern Symposium highlighted just how unique and valuable Kellogg’s healthcare offerings have become — at the nexus of economics research, corporate innovation, and healthcare policy. Much like one day at MacEachern, two years at Kellogg have provided an invaluable foundation for understanding current challenges in healthcare, and will undoubtedly contribute to our pursuits beyond Kellogg.