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Photo by: JUDY SIEGEL-ITZKOVICH
There's a sea change coming
BY JUDY SIEGEL-ITZKOVICH
21/02/2010
Changes in demographics, medical technologies and national economies are certain to transform health care in the coming years.
 
The pace of change in modern society is so fast that if you're not on the lookout, you're liable to find yourself unable to react in time. It seems that the world's health systems and pharmaceutical industry are likely to undergo major alterations in the coming years.

Dr. Tony Gregory, a California-born clinical psychologist by training, spends almost a third of his time observing and predicting changes in the healthcare industry. He has worked as an independent management consultant and analyst in a wide variety of industries here and abroad before and since his aliya 30 years ago to marry his Israeli girlfriend.

The rest of the time, Gregory - founder, owner and CEO of the Coda business management company - has been advising Israel Aircraft Industries, local banks, telecommunications firms, the Defense Ministry, IBM, health funds, medical equipment manufacturers, Teva Pharmaceuticals and other major organizations. About 70 percent of his clients are in Israel and the rest in over a dozen other countries. "I am an organizational consultant, working to define strategy and then training the organization to carry out that strategy."

Many of his clients are not used to dealing with change, especially when they are already making profits and flying high, he said in a recent interview with The Jerusalem Post. He himself coped nicely with change, becoming fluent in Hebrew and intensively involved in the country after having known nothing of the language or much about Israel before moving here in 1980. Now he and his wife (also a clinical psychologist) have four adult children, and he is sought out especially for contemplating change in various fields.

"Imagine that you are the owner of the biggest horse stable in New York in the year 1890. Horses are the city's main form of transportation, and over 200,000 of them work there each day, pulling private buggies, commercial transport and public transportation. There is such a dependence on them that you can charge almost any price you want. You and your partners are rich, and you have just made a bid to take over your nearest rival. You report to a group of analysts that the sky is the limit."

But, Gregory continues, "there's trouble on the horizon. Horses are one of the major causes of pollution in the city; their excrement is rancid in the summer and a nightmare when the rains come. New Yorkers have adopted a style of building to raise the entrances of houses two to three meters above street level, and have adopted the name brownstone for this type of architecture for obvious reasons. Also, new forms of technology have appeared. Thomas Edison says he can electrify the entire city and use this grid to power street cars. Henry Ford and others have developed something called the automobile that he claims will replace the horse in just a few years."

Now suppose you have reached the "breakpoint" of your industry - the point at which you are still celebrating your prosperity, perhaps unaware that the rules of the game are about to change. A major world industry is about to undergo such a radical change that in less than 30 years, the number of horses in the city will fall by more than 90%, Gregory suggested,

"Now imagine you own a pharmaceutical company in the year 2010. You employ over 50,000 people all over the globe. You sell products to a population that may die or suffer greatly without what you provide; they are truly dependent on you. Your profits are enormous, and your stock price has risen steadily for the past five years in spite of the economic crisis."

But there is trouble ahead. "Nations all over the world, led by the US, are staggering under the cost of healthcare. In the reforms that are beginning, they claim you must assume more of the burden, and so they introduce legislation to cut back on reimbursements. Doctors are beginning to close the door in the faces of your salesmen; they claim they can get all the information they need on-line. Patients suffering from chronic diseases like multiple sclerosis or diabetes are beginning to form social networks and exchange information on drug price and effectiveness. As your patented products lose their protection, their profit margins shrink by more than 60% because of intense competition, and you cannot afford - or are not willing - to invest the hundreds of millions required to develop the next product."

THIS IS the breakpoint, with the rules of the game changing all around.

"That is the situation the pharmaceutical industry has reached today," Gregory explains. "The rules are changing - the practices that led to success in the past will not lead to success in the future. You need to reject a lot of what you have learned and do something new. You have come to assume certain things and ignore others, and to top it off, your way of thinking has been rewarded. It's understandable that you dismiss new ideas and cling to old beliefs, but if that is what you do - you will fall."

Change in any field comes in spurts. Decision makers often think they know everything and hold untested assumptions. "But life is not like that: Markets, customers and technologies change. Evidence becomes so strong that finally the old paradigm breaks.

"The trick is to realize when this is about to happen."

GREGORY BELIEVES that the number of new "blockbuster drugs" such as those for heart disease, ulcers, psychiatric disorders, erectile dysfunction and other chronic conditions is declining because there is less willingness to invest fortunes on iffy potential products. Generic drugs - copycat medications based on the same molecule but sold more cheaply than ethical (original) drugs after patent protection expires - take over.

With the US health system helping to put the economy in deep debt, tens of millions of Americans lacking health insurance, and President Barack Obama's would-be reforms likely to get nowhere, Gregory says pharmaceutical companies will have to carry a bigger burden, as the government will demand that they reduce prices. With wages lower in the Third World, companies in India, for example, are already making raw pharmaceuticals.

"I won't call pharmaceutical companies bad guys because they are making money. They save lives and make life more liveable. But they prefer to make medications for the wealthy, not the sick who can't afford them. They prefer Western customers - especially in countries like Scandinavia - that have generous baskets of health services, are over 50, and will need drugs continuously until they die." With fewer ethical drugs, he predicts, there will be more medications without patent protection.

IT USED to be that when an Israeli doctor prescribed an ethical drug, his patient got exactly that from the pharmacist. But today, the pharmacist - especially when working for one of the four health funds - has the authority to substitute a cheaper generic version, as they are based on the same molecule. The non-profit health funds are financial institutions that reward managers for attracting new members while cutting costs. There is nothing wrong with saving money on drugs if the patient's health is not compromised, as saved money can be used to provide members with more services, Gregory suggests. It could be, within another decade, that health funds will be paid for keeping members healthy rather than for services to treat those that are ill, he continues. "Members will insist on paying for positive outputs."

In the US, ageing Baby Boomers are not retiring at 67 or earlier as in Israel. "They are very powerful because of their numbers and their influence on the government. They want to be healthy and work until they drop; the government is happy to have them employed so as not to be a burden on the Social Security system."

He also predicts that "orphan drugs," which are treatments for relatively rare conditions, will not evoke much interest among pharmaceutical companies because there isn't much money to be made from them unless they can develop them at much lower cost. "There will also be shortcuts in research, using computer models instead of so many lab animals and people in clinical trials."

Managed care, in which the health insurers take vital decisions about what they provide their members in order to cut costs, will be firmly in place, concludes Gregory, and the Health Ministry will react to their decisions. While the health insurers will be powerful, patients will get together and have influence as well. People will have to take more responsibility for their own health and increasingly undergo medical tests and monitoring at home, he states.

He is very optimistic about Israel when it comes to scientific and medical achievements. Israel has a better future than the US. It is smaller, more alert and full of initiative. The people are heterogeneous but have much in common. America is like the Roman and British empires. Those countries didn't disappear; they still have wealth and make noise, but like them, America won't be the leading nation forever.

TWO ISRAELI healthcare system, economics and medical technologies experts comment on Gregory's predictions. Prof. Yehoshua Shemer - board chairman of Assuta Medical Centers, a former Health Ministry director-general and longtime academic expert on medical technologies - predicts that "medicine will become more personalized with the development of biological drugs.

"Patients with cancer or asthma, for example, will not all get the same drug, but different ones depending on their genetic makeup. Thus on the one hand, health insurers will save because instead of giving a drug to 100 people to save 20, they will give customized drugs to those more likely to improve. But on the other hand, a greater variety of drugs will be needed. We are not there yet, but we are clearly on the way. Pharmaceutical companies will have to be more focused. They will invest - even in orphan drugs - if they feel they will get a return on their investment from the government and the insurers." Shemer believes the big changes in the pharmaceutical industry and healthcare systems could take about a decade.

Dr. Yoel Lipschitz, a Health Ministry deputy director-general who is a trained lawyer and economist and, in charge of its health management organizations, regulates supplementary insurance programs, predicts that public committees that set annual additions to the basket of health services will have to get used to personalized medicine and set down more specific indications for eligibility for a certain drug.

"Regulators must be on the lookout to ensure that the health funds do not use this change to prevent patients from getting medications just to save money rather than because their personal makeup means a drug is unsuited to them."

He agrees there will be fewer ethical drugs. "The drug companies will increasingly make slight changes, such as in how often a drug is administered, and call it a 'new drug' for which they want patent protection." Patents are protective for only 11-14 years, Lipschitz adds. "But even though Pfizer put a lot of money into the development of Viagra, for example, you don't have to feel sorry for the company as it made up its investment in a year or so."

Generic drugs will become more common, and in 95% of the cases the switch from ethical drugs will not be noticed; in instances where the patient needs the original drug, the regulators will ensure that he gets it, Lipschitz says. "Managed care has been happening for quite a long time here, and sometimes we think cutting costs has been overdone already. There is a fine line between efficiency and not meeting members' needs. We must be careful to protect the level of service."

Finally, he believes drug companies - while forced to suit the new paradigm - will not shut down. There will be generic companies starting to make ethical drugs and vice versa by buying other companies. And they won't stop investing in basic science; they will just try to target their money better in more attractive markets.

Israel has an advantage over Europe (whose population is aging and not even replacing itself) and the US, which is also aging. With longer life expectancies and big chunks of elderly in 20 years, we will have to plan so we can cope with even higher health expenditures.
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