What Merck Is Talkin’ About
Health care is slow to change. But the word “slow” is relative and means something different to each person depending on where he or she sits within the health care system. From the investors’ perspective, health information technology moves at a fast pace, at least relative to biotechnology.
“The limited partners, who are the ones who put their money into the venture funds, have lost the taste for biotech investing. Why? Because it locks their capital up for long periods of time — 10 years at least — with very uncertain outcomes,” Merv Turner, PhD, former chief strategy officer for pharmaceutical company Merck, said at a recent seminar in San Francisco.
The event was hosted by QB3, a partnership between University of California schools UC Berkeley, UC Santa Cruz, and UCSF, which promotes the quantitative biosciences. For his talk, Turner was asked to frame the state of this domain within the context of the entire health care system, a task that was very similar to what he did in his last role at Merck.
While he was in the strategy office there, Turner created Global Health Innovation, a fund that allowed Merck to invest in emerging companies. For the purpose of investing smartly, Turner was charged with identifying the up-and-coming business opportunities in health care and assessing their possible impact, for better or for worse, on the pharmaceutical industry.
It was interesting to hear which topics and developing health care themes Turner chose to highlight for an audience of biotech entrepreneurs. Overall they were incredibly similar to the ones commonly discussed by the health tech community. For example, there is the difficulty of convincing firms to invest in health care when they have their choice of technologies in a range of other less cumbersome fields.
The QB3 audience also demonstrated what those initially trying to wrap their minds around the workings of the health care system usually demonstrate: an inability to comprehend what is going on. It’s not that the UCSF-affiliated attendees were unintelligent or unintuitive. It’s just the opposite. Some parts of health care function so outlandishly that many can’t believe, let alone guess, that they work the way they do.
For example, Turner, borrowing from a New York Times interactive quiz, asked “Which of these problems ends up wasting the most money in American health care?”
B. Lack of prevention.
C. Unnecessary services like repeated tests.
D. Inefficiently delivered care (like getting scanned at a hospital rather than at an outpatient center).
E. Unnecessary paperwork and administrative costs.
Out of a packed room, almost no one guessed C., which is the correct answer. Most either bet on lack of prevention or inefficiently delivered care, two other large problems. But The Times said that services like repeat testing or unnecessary scans or lab work waste the most money, at a cost of $210 billion a year.
Given the out of control costs, a theme increasingly emphasized today in health care is value generated per dollar spent on a product. “Eighty percent of U.S. insurers told PricewaterhouseCoopers that they won’t add new therapies to their formularies without evidence of cost savings and clinical benefits,” Turner said. “We’re really now starting to move into an era where drug manufacturers or device manufacturers are really going to be pushed to demonstrate the economic value of their product.”
And lastly, it wouldn’t be a complete discussion of health care without mentioning social media. That’s right. This is one thing that the former Merck chief strategy officer kept returning to. He believes its impact will be huge. Turner said that according to at least one estimate, by 2020 the U.S. will be spending $1 trillion annually to treat diseases directly related to obesity. It’s a problem that won’t be solved by a blockbuster drug.
Others routinely tell Turner that he is overestimating the impact of social media. When he hears that, he asks if five years ago anyone could have predicted that microblogging would help to oust a dictator in the Middle East?
“So why would you think I’m crazy if I said in five years there will be social media approaches to bring down the weight of America?”