Healthcare: Heavyweight in the Global Economy

Experts and academics gather to discuss industry changes


Healthcare costs will play a pivotal role in both advanced and fast-growing economies over the next few years, said IESE Prof. Nuria Mas in her opening remarks at the 19th Meeting of the Healthcare Industry, held on the school’s campus Tuesday and Wednesday.

Sponsored by BCG and with the support from Adeslas and La Vanguardia, the event drew healthcare experts, executives and academics to discuss how both public and private sector agents can contribute to value creation in the sector.

Mas said that the expansion of the global middle class, particularly in Asia and Latin America, is ushering in longer life spans around the world and a better quality of life. The huge challenge faced now by many countries, especially in view of the debt crisis, is how to facilitate quality health care at affordable costs.

"We are facing a structural change and the sooner we react to it, the better," said Mas, a member of IESE’s Economics Department and co-chairperson of the meeting with IESE Prof. Pedro Nueno. A report issued this month by the Institute of Medicine found that 30 percent of health care expenditure, or $730 billion, was wasted each year in the United States, she said. The figure shows that better management of healthcare systems can have a significant impact on economies.

In the opening session, Dr. Gregg Meyer, Chief Clinical Officer and Executive Vice President for Population Health at Dartmouth-Hitchcock Health System, said that healthcare in the United States is undergoing fundamental changes.

Meyer, who worked on healthcare reform as part of the Clinton Administration in the 1990s, said that regional systems in the U.S. are in a state of "punctuated equilibrium," that is, they are undergoing dramatic changes over a short period of time. Change is being triggered by the huge amounts of data which are now available to consumers and companies, cultural shifts in society and the global financial crisis, Meyer said.

In the private sector, growing costs of employee insurance are putting the importance of healthcare in the economy, as well as the need for a healthier general population, into sharper relief. Starbucks spends more on healthcare for its employees than coffee beans, he said, which means that "if you are the CEO of Starbucks, you need to be as focused on healthcare as the cost of coffee beans."

Meyer went on to discuss several alternative payment models currently being considered by some states in the U.S. such as Pay for Performance, Fee for Service and Accountable Care. Overall, people in the U.S. want to lower their out-of-pocket costs, while employers want to keep valuable employees by offering health insurance. The challenge is formulating a new value equation, he said.

In the afternoon session, William Looney, editor in chief of Pharmaceutical Executive Magazine talked about the challenges and vulnerabilities facing the biopharmaceutical industry in improving industry reputation.

"The pharmaceutical industry produces a public good but is also a business," Looney said. "Few sectors are subject to such intense government regulation. CEOs are becoming personally liable for malfeasance."

He said that people are saying a pharmaceutical company should be a solutions company instead of a drug company but that there is a disconnect between the health solutions approach and the way drug companies market their products. He added that there was a lot public misconception about the percentage of health expenditure that goes on drugs, which is far lower than people believe. "People need to understand that there is difference between discovery and development," Looney said. "No government is good at bringing a drug to market."

On Wednesday, Victor Yuan Yue, President of Horizon Research Consultancy Group, provided a picture of the healthcare system in China. In 1997, he said, the country implemented a major government-backed health program that targeted mainly urban residents. Since then, efforts to provide services to the general population and investments have expanded, with the goal of covering all citizens over the next six years.

Currently, the portion of China's GDP and personal expenditures on healthcare are lower than average global levels, but they are growing In 2011, the Chinese government spent 5.1 percent of its GDP on healthcare, a slightly higher percentage than on education. Moreover, polls show that healthcare ranks among the public's top concerns, he said.

While China has made "remarkable progress" in many areas, it also faces challenges. Many people in rural areas are still reluctant to use medical clinics because they view treatments as complicated and expensive. And because many people wait to until their health problem is at an advanced stage, treatment becomes more costly. The country also faces the challenge of training more highly qualified doctors and nurses, although there has been an upswing in the number of young people pursuing careers in the field in recent years, he said.