IBJ: Well, we’ve been talking a lot on the provider side of things, but let me ask a question of Seema Verma because maybe perhaps an even bigger piece of health care reform legislation is the creation of health insurance exchanges, which she’s deeply involved in at least as that effort’s proceeding here in Indiana. Seema, can you talk about how you think the health insurance exchanges maybe along with some of the other regulations and the subsidies prescribed by the health reform law would affect the cost of health insurance for individuals and small businesses over and above the current cost trend anyway?
VERMA: Well, I think that exchanges in and of themselves are not going to address some of the growing cost increases, and if we look at the Affordable Care Act, it did a number of things to expand access but along with that there is a number of things in that bill that will increase costs and the cost of health insurance. Our actuaries have projected at least in the individual market that these increases could be 75 to 95 percent in the individual market, in the small group market it could be 5 to 10 percent, and so before we talk about exchanges maybe going through and then talking about why that’s going to occur, so the first reason is the essential benefits and so we don’t have all the details, Washington has yet to release the details of that, but we know enough to see that there are going to be new requirements about what kinds of benefits are going to be required and so that’s going to increase costs. There are lots of new taxes for the insurers, in Indiana I know in particular it’s hard on them, the device manufacturers, and so all of those costs in terms of those new taxes are going to be passed on to the consumer. There’s new rating rules in the insurance market, whereas a lot of different rating rules before, now they can only rate on age, geography and smoking, and so for a lot of people with chronic illnesses it will bring new people to the market and for those more sicker individuals maybe their costs will be less but it will also increase costs generally to the whole population. And then there’s also changes within the risk pool. In Indiana we have our high risk pool, our ICHIA group, and what that has done for our marketplace is it’s actually helped to lower costs in our individual market. That is partially funded by insurance companies and it’s also funded by the state, but now all of those high cost individuals are coming into the general population, so individuals with HIV/AIDS, people with hemophilia, I mean all of those very, very high cost conditions are now coming into the general marketplace which is going to increase costs for everybody. You also have some changes in the Medicaid population, whereas it may not be covered by Medicaid anymore, our HIT program is changing and a lot of those people are going to be coming into the marketplace. We also have employers dropping health insurance, especially the small employers may not continue to offer health insurance, and the ones that are more likely to drop are the ones that have low wage-earners that can get tax credits through an exchange, and then I think that there’s no requirements anymore or no penalties for employers that are offering health insurance to their early retirees, so you can see a change where you’ve got early retirees in that 50 to 64 age bracket which are coming into the insurance market will also increase costs. So there’s a lot of things that are going on in the marketplace outside of exchanges that are going to increase the costs, and what exchanges I think in essence are is a place to go shopping for your health insurance, it brings insurers and it brings consumers together, but in terms of its ability to impact the cost trajectory I think it has to do with how that exchange is set up. There are some models that states are looking at which are more active purchasers where an exchange would be putting out an RFP, maybe selecting two or three health plans and negotiating prices. I think that type of model, you know, even in some of the surveys that the state has done doesn’t seem to be a whole lot of support for that, I think that type of model could actually drive up costs because it’s going to reduce competition in the marketplace, and so I think the exchange in terms of its ability to impact has a lot to do with its ability to promote competition in the marketplace. I think an exchange that has a lot of requirements for insurers and I think even some of the new regulations around quality, around some of the IT concerns, and every time you make it harder for an insurer to come to an exchange a lot of them may not decide to participate and so if we don’t have broadbased competition, you know, prices are going to go up. And I think also making it attractive to the consumer, if you look at the Massachusetts experience, the only people that are really using the exchange are the ones that are getting some sort of a tax credit, and so if we want to be able to bring more people you’re going to have to do something besides just have a basic product there, you’re going to have to have some incentive for employers and for individuals to come to an exchange.
IBJ: Sheri Alexander, you’re working with employers again, they are certainly thinking about the exchanges. How are they looking at them, what sort of impact do you think the exchanges might have on the type of benefits that employers offer in the future?
ALEXANDER: Well, I think it depends on the size of the employer, first of all. I think initially the under-50s are going to look very closely, as Seema said. I do think the announcement yesterday of Anthem and Bloom Health may have an impact on this market, very anxious to hear how that shakes out. Over-50 employees I think they’re going to evaluate. If too many of them move their employees or drop their health insurance coverage altogether, then obviously that $2000 fine or penalty is not going to be enough to support the increased costs, but I think what we really have to get to is when we look at the cost line and then we look at the commercial market, what all the employers are paying compared to Medicare reimbursement and Medicaid, we’ve just got to get that squished closer together or it’s just simply not going to work. And then back to what Jack said about education within the provider community, I think it’s very challenging for most of the employees of all of our clients anyway to figure out how to navigate the system. We need to educate the people.
IBJ: You mentioned the announcement between Anthem and Bloom Health in which Anthem is acquiring them, they are operating an exchange for employers.
ALEXANDER: It will be a private exchange.
IBJ: A private exchange where employers could have their workers buy health insurance, still get the tax advantages of doing so. The way Bloom Health operates, as I understand it, is that most employers give their workers a defined benefit and they have a defined amount of money and then they can spend that however they want, but that’s a very different approach than what we’re used to where there’s certainly cost sharing in health benefits for workers, but it’s not a strictly defined benefit. It’s amazing to me that we’re talking about concepts like that, defined benefits for health insurance, as well as other things like employers being a little more willing it seems to maybe have a narrow provider network which was anathema to them for quite some time. Maybe there are other examples that you can add, but why we got to a point where these sorts of things are being seriously considered, whereas even just three or four years ago they really were not.
ALEXANDER: Well, I think the reason why is people want to stay in business and it’s becoming unsustainable, I think most of you would agree, but I wouldn’t say these are really new. If you’ve been around as long as some of us have we’re kind of coming back full circle, narrow networks were very common with HMOs, we still have some around here today and I think we’re going to have more. Defined contribution, you know, you go back 20 years a lot of big employers were doing defined contribution cafeteria plans, so we’re just coming back around again to see if it works. I think the real game-changer is going to be health promotion, population health management, value based benefit design, streamlining access to care, on-site clinics, near-site clinics, really those types of things. People have to be engaged and participate in their health, and again we have to understand how to use the system better. I’ve been in this business 31 years and I still have trouble sometimes figuring it out, so that would go a long way.
IBJ: I want to ask a question of Jack Phillips. Clearly in Indianapolis there’s a big industry around selling drugs and devices. Roche is right in the middle of both of those industries. Some of the things we’ve been talking about already this morning, other things that are happening out of the health reform law or just other trends, how do you see those impacting Roche and its business going forward the next few years?
PHILLIPS: So I guess first for the audience just to clarify, Roche, we are solely focused in health care and we have two divisions, one is pharmaceutical, which is focused on delivering treatments, effective medicines to patients to treat disease, and the other very important division is diagnostics and diagnostics is about providing diagnostic tests of all kind through clinicians and laboratories to provide answers to questions about what kind of disease you have and how to best treat that disease, right? In Indiana here up in Fishers for Roche that’s the North American headquarters for diagnostics, just so everybody’s clear on that. So, J.K., back to your question about health care reform and cost pressures and so forth, we see it first of all a couple ways. One is lots of challenges, the challenges we’ve talked about this morning a lot and they’re common challenges that we all have. Frankly, in our industry, for the past decade we’ve been faced with significant cost pressures because laboratory budgets within hospital networks are being cut and so, really, our consumers are really faced with budget constraints across the board that’s really putting pressure on the industry that we’re in diagnostics. The other area that’s impacting our business is reimbursement, so reimbursement is continuing to slide downward and that’s impacting again the health of the overall business. And then, obviously, Seema mentioned device taxes. We’re faced coming up here in pharmaceuticals with taxes but also on the device side we’re going to be faced with a 2.3 percent tax really on all the goods that we sell, and you may have seen that in the IBJ recently, that is a hot topic for device manufacturers because it’s absolutely going to cost us innovation, it’s going to cost jobs, and it’s going to really be an inhibitor to growth. So that’s the gloom and doom, that’s the downside. We see opportunities. I mean, the opportunities here, again we’ve talked about some of these already this morning, over 30 million uninsured coming into the system. Seema talked about some of the challenges around that, but we see also some opportunities. If people begin getting screened early, they go to the doctor early, clearly for Roche and for diagnostic companies like Roche it’s going to provide an opportunity for increased testing and screening. The other thread that we talked a lot about today is the emphasis on quality of care. Quality of care is right in the heart of what we do. If we can help our customers understand how diagnostics impacts quality of care with the right answers at the right time, that’s a big opportunity. And I think finally it’s just really the value of diagnostics, so today greater than 70 percent of medical decisions are made with the use of diagnostics of some kind, but yet it’s less than 3 percent of the healthcare spent. So we talked about education, we talked about really making sure that the entire system understands where the value really is for patient care and we see that as the biggest opportunity. If we can really understand and help the system understand where we can best treat the patient, where we can best have the largest impact on the patient, that’s where the dollars we believe are going to go, that’s where the spend is going to go is where the patients are best impacted and so that’s what we’re driving to is, again, more innovative diagnostics, more innovative targeted therapy medicines but also educating the entire system on really the benefit to the patient.