Reducing Healthcare Costs: What Questions Should We Be Asking with Rich Prest, Principal at Avalere: Audio automatically transcribed by Sonix
Reducing Healthcare Costs: What Questions Should We Be Asking with Rich Prest, Principal at Avalere: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Kyle Wildnauer-Haigney:
Hey everyone, this is your host Kyle Wildnauer-Haigney on the Outcomes Rocket Pharma Podcast. Today, I have the distinct pleasure of welcoming Rich Prest to the show. Rich advises and connects Lifesciences clients with a broad range of services that Avalere offers. He leads a team that supports new and emerging biopharma customers and a second team that brings Avalere’s extensive data and analytics services to more organizations. He has deep expertise in commercialization, market access, and digital health. Prior to joining Avalere and since arriving in the US from Australia in 1999, which has led corporate strategy for AssistRX, been a Senior Principal Consultant for the Blue Fin group led strategy for Edge Dynamics and led Product Management for Abilizer Solutions. He really just has a great breadth of experience across these different key stakeholders in the foreign value chain. Rich has an MBA from Melbourne Business School and graduated from the University of Melbourne with a Bachelor in Architecture. He lives in San Francisco with his two kids, his two dogs and loves trying to predict the future of exponential trends in health care primarily. And he also enjoys running really far, cooking for friends and traveling to new places. Welcome Rich, to the show.
Rich Prest:
Thanks so much, Kyle. I’m excited to have this conversation with you today. And obviously, we’ve known each other for quite a few years and it’s great to see you in this new role, so excited for today.
Kyle Wildnauer-Haigney:
Yes, absolutely. And you’ve been on the Outcomes Rocket podcast before. And so today I really want to focus on just the pharma value chain here and really dive deeper. And many of the conversations that we’ve had in a social setting and kind of outside of this podcast context. But maybe to kick things off, I’d love to just get a high-level overview of what drew you to working in the pharma value chain.
Rich Prest:
Yeah, it’s certainly not something you expect with a background in engineering and architecture. I think for me it was really just a feeling that health is such a precious part of our lives and that I had this background and understanding of supply chain and data and I could really help out in terms of making a contribution to the health of patients. And so that’s really the ultimate driver. How do we how to make people’s lives better every day?
Kyle Wildnauer-Haigney:
Definitely. And I hear that so much with many of our other guests. It’s the intersection of having a positive impact on the world and then a lot of really challenging problems in the US health care system, to say the least. But I’d love to better understand what you do at Avalere and what does Avalere do more generally?
Rich Prest:
Yeah, Avalere is a pretty amazing firm, from been around for twenty-one years and started as a policy think tank in Washington, DC and has really expanded over the years and become not just advisor on policy to pharmaceutical manufacturers, but also very large market access, practice, health economics, outcomes research. And then about six years ago was bought by Novalyne, which is a public company that does most of the rescoring for insurance carriers. And that’s pretty cool because it gives us access to all of this data. So there’s a huge cost claims repository of data and from about one hundred and fifty plans that we’re able to use and really help drive analysis for manufacturer clients. So that’s a big part of what’s exciting is, not just saying, well, we think this is going to happen or directionally this is what’s going on. But actually being able to dive into the data and saying, OK, for this specific set of products or for this specific cohort of patients, this is what’s going on. And it’s been some great research. For example, looking on, say, recently and just looking at for carti therapy, how did that change the burden of illness and cost for patients by having them on the carti therapy versus not. So really cool to be able to do that sort of data-driven analysis.
Kyle Wildnauer-Haigney:
That’s fantastic. And the focus on both the pharma side and health plan side allows you to have a really unique perspective on the market and leverage those data assets to provide unique insights. So that makes a ton of sense. One thing I’d love to hear about from you is what excites you about the work that you do?
Rich Prest:
No, I think it’s this amazing combination of talent that’s at Avalere. There are folks that have played significant roles with most of the stakeholders in the industry. So we’ve got people that have been with manufacturers, people that have worked in the government. Like I’ve been doing some work with a part D calculator. As you know, there are all these new proposals for Part D and try to understand that. And we’ve got somebody on staff that was in the Congressional Budget Office for 12 years modeling party proposals. So it’s incredible to be able to present that expert and say, well, if anyone knows what’s going on with part D it’s..so that’s been really cool. And I think it’s the excitement of being able to reach out to folks that I know in the industry for a long time and where they’re at in their current roles and what some of the challenges of their companies are facing and then being able to connect them with people at Avalere that are really well equipped to be able to help answer some of those questions that they’re trying to get answers to. I really enjoy helping people solve problems that they’re facing and also some of those difficult questions.
Kyle Wildnauer-Haigney:
And that’s how I know you, Rich. I mean, the connector, the broker of relationships, and also the problem solver, an expert on the topic. And so you’re one of those problems or perceived problems, depending on your look on it, in the foreign value chain is drug cost and pharma pricing. And we’ve had many discussions about this. But I want to bring you on really focus on pharma pricing. I think it occupies a lot of the news cycle and the prevailing conversations in this space. But we would love to get your thoughts on just truly where it stands today and potentially how we should think about pharma pricing as we move forward.
Rich Prest:
Yeah, it’s what a meaty conversation. I think we’re going to solve the problems today. But I think as we discuss the real issue here is, is that the right question? One of the topics that we’ve discussed before is this notion of Baumol’s cost disease. And I love this idea that way of thinking about the problem in the sense that if you think about industries where we’re able to see productivity improvements and use technology To bring down costs, so we think about electronics, for example, and the flatscreen TVs are getting cheaper and cheaper and at the current rate, you will be able to get a TV that will fill the entire wall that will cost you a hundred bucks. And then on the other side, we’ve got areas like health care and education and housing where we’re not seeing those productivity improvements from technology. We’re seeing labor costs go up. Productivity is not improving and things just keep getting more and more expensive. So through that analogy, we might see a four-year college degree eventually costing a million dollars. And so there’s a real issue in health care about how do we bring technology to bear? How do we actually get productivity improvements to apply? And so I think there are some real challenges with incentives. And fee-for-service is certainly a challenge as well here because the moment you get paid for doing more and more is not always the right thing to be doing. So Baumol’s cost disease, I think, is one huge problem that faces it.
Kyle Wildnauer-Haigney:
And just to define that, Baumol’s almost cost disease is really where labor or salaries increase, but there are no gains and productivity, is that correct?
Rich Prest:
That’s exactly right. And so it’s the reason why health care costs and costs in education, etc. some of those sectors just keep going up, whereas these others, like consumer electronics, we see the prices coming down.
Kyle Wildnauer-Haigney:
Got it. And I imagine that probably impacts the broader health care ecosystem more so than it does pharma. Is that right or how would you think about that?
Rich Prest:
Yeah, I think the challenge is being that health care is not well equipped to at the moment to apply technology and to drive down costs. And I think we see some glimmers of hope. There are really interesting areas like LASIK surgery where that has come down tremendously in cost, but it’s done outside of the existing system. And their real market pressures are being applied there. And we see the effects of technology and supply and demand, and that is an area that continues to get more cost-effective. So there are sort of pockets where you see technology being applied, where you start to see improvements in productivity and reductions in costs. But we’ve also got a system that is based on fee for service at the moment. And there are misaligned incentives in terms of people wanting to continue to do more rather than making sure that we’re doing the right thing for the right patients.
Kyle Wildnauer-Haigney:
And so Baumol’s cost disease is really driving up health care spend overall. And it sounds like technological improvements, at least from my perspective, there are many new drugs that come into the market and have a true impact on patient outcomes and health overall. And so talk to me a little bit more about that. I mean, do you think the solution for solving health care costs overall, I don’t think of scoping a problem like that would be far too broad. But talk to me a little bit more about how we should think about health care costs overall and in the context of pharma specifically.
Rich Prest:
Yeah, so I think this is another one where so much of the attention is on the cost of drugs. And I think that the list price of drugs is something that draws a lot of attention. And people hear about these million-dollar gene therapies and everyone gets very concerned about that. And it’s really, again, are we asking the right question? Because we all remember the 80 20 rule and 20 percent of things cause 80 percent of the problems. And I think what we’re missing in health care is that drug cost was about 10 percent of the total cost of health care. It’s now going up to about 15 percent, a lot of that has been driven by new specialty drugs and high-cost gene therapies, but we’re still so, especially drugs are now close to now 50 percent of our total spend in the drug area. You know drug cost total is 15 percent of our health care spend. Then even if we take a little bit out of that, we’re not going to reduce health care spending dramatically. And so we need to be, the 80 20 rule teaches us we should go and look for the big buckets of spend and go after those. And a lot of those have to do with where care is delivered and the health care systems and the costs of services that are being performed. And so I think we worry a lot about how much more spending on drugs. But in many ways, it’s sort of the easy thing to point to because the prices, the lowest prices are there. And I think the other thing that you and I know is that the list price is not what is actually right. So, yeah, I think we just need to be careful about whether we’re really focusing on the right problem. I mean, I think we certainly want to there are concerns that we pay more for drugs here than in other countries. But then again, there’s a lot of arguments that say it’s the ability to recover the costs of developing drugs, which we know is tremendously expensive that enables, drives the innovation. And if that ability to recover the cost of drug development wasn’t available in the US market, that it may be those innovative products wouldn’t get developed at such speed. And so, yeah, drug price is a very complicated question, but I also think it’s the wrong thing to focus on. What we really need to be looking at is where the big buckets of spend and trying to reduce those.
Kyle Wildnauer-Haigney:
Right, and that’s focused on cost. But I think there’s this broader conversation still of what about value, quality over cost? How do we address that? And I really think that many of these life-saving treatments that we just focus the conversation on new to market therapies that have differentiated outcomes, you know, there’s a significant value equation there and value driver, if we look at the reduction in health care spend or the improved quality of life over a longitudinal way so over many years. And so tell me more about that. Tell me about kind of focusing on the complete picture of the value side rather than just the cost.
Rich Prest:
Yeah, I think that’s a really great question because when we think about Sovaldi was one of the first that really caused a lot of concern was eighty-four thousand dollars for this 12 weeks of treatment. And so everyone focused on the eighty-four thousand dollars and how crazy that was. But the manufacturer that had spent a lot of time understanding that this was a drug that was going to cure people from Hep C and was probably going to mean that they weren’t going to need a liver transplant later on. And when you looked at the cost to the system of a hep C patient overall and you turn them from a hep C patient and that lifetime cost to making that go away, then you would argue that eighty-four thousand dollars was actually a tremendous value. And then when you also bumble in the fact that nobody actually pays eighty-four thousand dollars, right? The net price is lower than that, then I think in many ways we as a system got great value from that product. And so that’s where I think we really need to understand what is that drug replacing? And that’s again, why these gene therapies also are often so expensive. Not only is a really small patient audience, but more importantly, if they’re taking a patient that has a condition that’s going to affect them for life and we’re able to remove that, then we can use something like the value of those life use and improved to understand like I think the concept is quality that is often used of this, and we can work out what is the value of that improvement in life or the saving of a life. And often the cost of the drug is related to that value that it’s delivering. And if we can make that equation work and we’re willing to have those tough conversations about what is life worth and what is an improved life worth, then I think we can we can more readily get towards a value-based discussion that makes sense for everybody.
Kyle Wildnauer-Haigney:
When we hear this a lot in the industry about this notion of value-based contracting, kind of driving towards that. And you’re just hearing a little bit more about Avalere. You guys are in a unique position having that data right and working with both pharma and the health plans side to truly understand that value equation, which I think so often, you know, is one of the challenges of constructing a value, these contracting as well. What data do we use? How do we measure the improvement? How do we attribute it to the therapy of choice?
Rich Prest:
Yeah, that’s the big challenge with moving to value-based contracts instead of fee-for-service is it’s not the case that in every therapeutic area that there are clear endpoints, there’s clear diagnostics that we can use to show he is he’s a definite improvement in a condition that therefore means that it was worth taking that therapy, and so I think there’s tremendous pressure to move towards value-based approaches. And I think where it’s possible and I think we’re continuing to see new diagnostic tests being developed, new capabilities for doing this. I think we’ll just continue to see a gradual chipping away at a movement towards a value-based approach just because it’s ultimately the right way to do things. I’m also thinking, though, that the other part of the question that we haven’t dug into, too, is just instead of trying to cure people, how do we stop them from getting sick in the first place? Right? That’s the other piece here. We spend all this money preventing our cars from getting sick and doing scheduled maintenance. Maybe we should be doing a little bit more of that with ourselves as humans. We value healthcare so much and being healthy. And yet we seem to only be willing to pay for fixing problems when they arise and not spending any money on actual prevention and helping people to be healthy in the first place. And so I think that’s the other part of this way to solve the health care problem is the growing cost of health care is let’s focus on how do we get people to be healthy and not get sick in the first place.
Kyle Wildnauer-Haigney:
Well articulated from you, but, you know, it’s so challenging, right? When is it going to happen, Rich? When is it I mean, how long is this going to take? Because we’ve been waiting for a long time. And what’s your sense of that? Do you see movement on both the pharma and the health side or what’s going on right now?
Rich Prest:
So I think it’s been really interesting to watch the wellness space evolve. Right. So we’ve got this small percentage of the population that’s motivated to go to the gym and eat right and sleep and do all those things. We all know what we should be doing and the challenge is that we don’t have that don’t have access to the right food or we don’t have the ability to get access to good sleep. And so there are some environmental challenges that certainly need to be developed. And I think if nothing else, last year told us a lot about how inequitable the situation is across the country and across the world. And so many folks just don’t have access to good food or to good living conditions that would enable them to achieve these asics. And so I think we’re seeing some really interesting movements with some systems, recognizing some plans, recognizing the value of these. And so we’re seeing both with Medicare Advantage supplemental benefits, we’re seeing with folks like Geisinger and their food pharmacy prescriptions, that there is a recognition that and even some systems and counties realizing that replacing a building with mold in it is actually much more effective than treating asthma. So I think there are some little promising glimmers of hope that we see how important the social determinants of health are. And then the other piece to this, I think, is starting to see how some of these wellness products and programs are starting to show tangible benefits. The first round of wellness was all just everybody understood it was good, but there was no metrics. And now we’re seeing these wellness companies really get into running studies and showing tangible improvements in health outcomes. And so I think that’s going to help. And then I think the other piece is that cack to the sort of the Baumol’s and the use of technology, if we think about these wearables and how they’re improving, how Apple watches, et cetera, starting to be able to measure more and more how things technology such as continuous glucose meters, are becoming more affordable. If we couple that 24 seven monitoring, we are able to do more remote diagnosis. We’ve got all the telehealth that’s helping with that. And then if we start to put in place incentives such as deductibles and insurance plans, where we start to create a financial incentive, if you are shown to be doing the right things, you’re going to get a financial benefit from your insurer, sort of the Progressive Insurance Good Driver program. And I think as we’ve shifted more of the cost of health care onto patients in commercial plans, we now are creating sort of enough of an economic driver that if we can help provide people with access to the tools and the technology and the lifestyle that will enable them to lead a better lifestyle and get rewarded for doing that financially by having lower deductibles and lower out of pockets, I think that that’s another potential path towards technology, enabling and helping us to achieve better health outcomes that could ultimately reduce that avoid getting the disease in the first place.
Kyle Wildnauer-Haigney:
Absolutely. I mean, it’s going to be a multipronged solution covering the entire health care ecosystem. Yeah, I’m optimistic, but it’s certainly going to play out in an unexpected or unpredictable way in the next five, 10 years.
Rich Prest:
I think that’s exactly right. And it’s one of those areas where it is not going to be one thing that solves it. But what’s tremendously encouraging is just seeing the number of smart people in the amount of money that’s going into funding new ventures that are tackling these really big problems and trying to advance that. And so I think we’ll continue to see more and more examples of sort of steps forward. And this will eventually start to add up into delivering real benefits for us. But it’s certainly not going to happen overnight and it’s not going to be just one thing.
Kyle Wildnauer-Haigney:
Awesome. Well, Rich, thank you so much for coming on the show and chatting with me. I mean, I’d love to get a closing thought from you and potentially just somewhere where listeners can connect with you or collaborate with you.
Rich Prest:
Oh, yeah. Absolutely. So I’d say we’re in an amazing place right now. And I feel like COVID is so much about ourselves and the value of health care and also the value of science. So the fact that we got these vaccines so quickly is just a remarkable testament to the power of science and technology. And we’re incredibly lucky as a result of that. I can’t wait to see what comes out of the amazing world of science and technology over the next decade. And I hope we’re able to really improve things and maybe change the curve here on this disease. And then in terms of folks get in touch with me, that probably the best place is LinkedIn. Just look me up there and always happy to chat with like-minded individuals about how we take on these problems and make a difference. Awesome.
Kyle Wildnauer-Haigney:
Well, thank you, Richard, for coming in. And we will chat soon, I’m sure.
Rich Prest:
Thanks, Kyle.
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