BeechTree Partners Blog - Partners for a Change

The April employment numbers just released show that healthcare employers are continuing to hire at a faster pace than the overall economy and even as overall employment growth slowed. The healthcare sector added 19,000 jobs, accounting for 16.5% of April’s total increase, this despite the healthcare sector accounting for just 11% of the employment base. April’s numbers mirror the trend over the past year, during which the U.S. economy has added 1.8 million jobs, 17% in healthcare.

Kaiser Health News notes, “With an aging population and a continued struggle by policymakers to contain medical spending, health care ‘is almost recession proof,’ said Nariman Behravesh, chief economist for IHS, an economic research company.”

KHN further notes, “Health spending represents 18% of the U.S. economy – a higher portion than in any other nation.”

A May 3rd report, “Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality,” authored by David Squires of the Commonwealth Fund puts a focus on the glaring disparity between U.S. healthcare spending and the rest of the industrialized world. The study compared not only healthcare spending but supply, utilization, prices and quality.

In 2009, the United States spent just under $8,000 per capita for healthcare services. A distant 2nd and 3rd were Norway and Switzerland with per-capita spending just over $5,000 in 2009. New Zealand and Japan represented the low end, with spending under $3,000 per person.

[Click on the chart at right to see it reproduced larger.]

Has this greater spending reaped advantages or rewards for Americans compared with others? Is it a result of the U.S. population significantly differing from the rest of the industrialized world? Squires, on both counts, concludes the answer is No. “This high spending cannot be attributed to higher income, an older population, or greater supply or utilization of hospitals and doctors. Instead, the findings suggest the higher spending is more likely due to higher prices and perhaps more readily accessible technology and greater obesity. Health care quality in the U.S. varies and is not notably superior to the far less expensive systems in the other study countries. Of the countries studied, Japan has the lowest health spending, which it achieves primarily through aggressive price regulation.”

Thirteen leading industrialized countries on four continents were compared, using data from the Organization for Economic Cooperation and Development (OECD) and other sources:
• United States and Canada
• Denmark, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom
• Australia and New Zealand
• Japan

The OECD chart reproduced in the Commonwealth Fund report (presented below) starkly highlights that the disparity is NOT a historical one. In 1980, the United States did lead the pack in spending, but it was still part of a tightly group pack. The next year, the U.S. began a steady move away from the other countries.

We wonder whether it’s a coincidence that this trend began with the arrival of the Reagan Administration? Average per-capita health spending has climbed every year through 2009, regardless of administration. Total expenditures on health as a percentage of GDP rose in all but one year of the Reagan-Bush years. They remained almost flat throughout the Clinton presidency. Then they rose every year under George W. Bush, although almost plateauing during the middle years of his tenure. The first year of the Obama Administration, 2009 (the last year for available data), experienced one of the largest percentage annual jumps in total healthcare expenditures; it might be noted, it was the only year when every one of the 11 nations with available data jumped upward.

A broader view by the 34 OECD nations’ spending in 2008-09 reveals the disparity further. Moreover, this chart we link to, show how the United States is only joined by Mexico and Chile as nations in which private expenditures for healthcare are greater than public expenditures.

Sources:
• Overview article by Politico; Overview article by FierceHealthcare
• Commonwealth Fund overview; Commonwealth Fund report
• OECD Health Data 2011
• Related article from New York Times about premature-birth rates

Recently, PriceWaterhouseCoopers published one of its “10 Minutes” presentations, focusing on the direction of medical innovation. PwC’s core thesis is that the traditional leader in the $350-billion business medical device industry, the United States, and its approach to product development, are becoming a thing of the past.

Emerging economies—notably China, India and Brazil—are gaining a growing market share and with it a growing influence over the global industry. Innovators in these emerging markets follow new business models and processes that focus on improving patient outcomes while cutting costs. In broader terms, the future of medical technology will be “faster, smaller, cheaper.”

In this new environment, U.S. companies must radically rethink their “bigger is better” approach to innovation to remain competitive in the world market.

Most candidates prepare for job interviews believing the focus will be on their qualifications and their past executive experience. Career strategist John Lees, writing on the Harvard Business Review Blog, suggests that’s a mistake. The focal question you should be well-prepared to answer is “What do you hope to achieve in your first three months?”

Lees emphasizes you should approach this question as an audition. “Imagine . . . you are sitting working with [your interviewers’] team, presenting to their boss, talking to customers or shareholders,” he says. Next, he advises against extremes. Don’t dive in with proposed improvements to the organization, with a litany of mistakes the organization is making, or with a manifesto that you are going to step in with a big shake-up. Conversely, don’t slip into bland cautiousness.

“Long-term success will often be based on your visibility within that initial three-month window,” Less says. “Your interviewer wants to know what you will look like in the role and what impact you might make.”

He concludes, “Whether it’s explicit or not, most questions are all variations on the 90- day question — do you ‘get’ the needs underlying the role, can you fit in, and can you deliver?”

The article suggests two books published by Harvard Business Press Books for further reading on the subject: The First 90 Days: Critical Success Strategies for New Leaders at All Levels by Michael Watkins; and The Set-Uo-To-Fail Syndrome: Overcoming the Undertow of Expectations by Jean-François Manzoni and Jean-Louis Barsoux.

April has been a big month in the prescription drug plan (PDP) arena. We’ve reported previously on several occasions since the beginning of 2011 (January 26, October 31, November 30, December 8) on the increasing mergers & acquisitions trend in the healthcare industry in general. M&As, along with a rapidly changing competitive environment, are altering the landscape for stand-alone PDPs.

On April 25th, a judge ruled that Express Scripts’ acquisition of Medco Health Solutions could move forward. (Reuters story.) This will put Express Scripts among the top 5 PDP organizations based on membership, along with UnitedHealth, CVS Caremark, Humana and Coventry — all with memberships exceeding 1 million.

In particular, the leading players are consolidating their positions at the head of the field. Industry leader UnitedHealth remains on top with nearly 4.25 million members and a 21.5% share of the market. However, this represents a diminishing of their dominance — down from a 28% share a year ago, and down half a million in membership. CVS Caremark leapt to 2nd position in April 2011 by acquiring Universal American’s PDP business, and by end-of-year 2011 had an 18.4% market share. It solidified that position by completing acquisition of Health Net Inc. on April 2, 2012, adding over 425,000 policyholders, which raises its market share almost to leader UnitedHealth.

CIGNA, with recent M&A moves, now approaches these top players in the PDP market. At the end of January completed the acquisition of 7th ranked HealthSpring, which itself acquired Bravo Health’s PDP business in 2010. That said, CIGNA is reported to be seriously weighing the sale of its pharmacy benefits unit. The likely bidders, according to Bloomberg: some or all of the top 5 PDP players, as well as companies such as SXC Health Solutions Corp., which manages HealthSpring’s prescription plans.

Primary sources for this article were an article by PharmaLive.com, and the main source piece for their reporting, research entitled “M&A Activity Shakes Up PDP Leader Board” by Mark Farrah Associates.

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On Twitter and Facebook we include additional posts beyond what we present on the BeechTree Blog — links to interesting articles we’ve come across keeping you informed about news in the healthcare and life-science industries, as well as insights into executive search designed to inform both employers and candidates.

Eric Langer, president of BioPlan Associates, in a recent PharmaExec.com article, “Biomanufacturing Outlook 2012,” presented an encouraging look at the climate for biomanufacturing in 2012. It’s based first on a BioPlan Associates study finding that 37.3% of suppliers indicated doing either “better” or “much better” than expected in 2011.

Among the macro trends seen are:
• Internationalization — The biopharmaceutical industry continues a global expansion.
• Single-use manufacturing — A trend toward more global standardized manufacturing is leading toward adoption of single-use/disposable bioprocessing equipment. This allows the same manufacturing systems to be shipped and installed at multiple facilities internationally.
• Single-use bioprocessing technologies — Single-use systems currently only have about 10% of the overall bioreactor market, by in as soon as 10 years, a majority of new commercial biopharmaceutical manufacturing systems are expected to be largely or fully single-use based.
• Microbial manufacturing — In recombinant protein manufacturing, an increased use of microbial host cells (i.e., bacteria, yeasts, and other fungi), as opposed to the currently favored mammalian cell cultures, is forecast.
• Outsourcing — Whereas, in the past, biopharmaceutical companies handled most R&D and manufacturing in-house, companies of all sizes are turning to outsourcing; 70% of surveyed companies now outsource at least some product-characterization testing, 69% outsource validation services, 65% go outside for toxicity testing, 61% use outside firms for analytical testing and bioassays, and 60% outsource fill-finish operations. Few companies outsource all manufacturing, but almost 50% expect to raise their budgets in this area.

Langer notes that, the economic downturn in the last few years does continue to affect biopharmaceuticals. However, it states, “With continuing growth in its underlying sales revenue, the industry has managed to remain largely insulated from severe economic problems.”

“The bio/pharmaceutical industry is emerging from the current global economic situation into 2012 with a positive outlook,” Langer concludes optimistically, “The industry is spending more, becoming more efficient, and, perhaps most importantly, expressing great optimism. With sales growth of between 14% and 18% this year, we will likely continue to see additional spending in new technology, capital equipment, and hiring.”

To learn more, you can read the full PharmaExec.com article.

Four weeks ago, we reported on the monumental challenge being undertaken by Brian Grossman in an effort to raise awareness, and $50,000, for KIDS in the GAME, a charitable organization he co-founded. KIDS in the GAME’s mission is to provide support for underprivileged youth in America to participate in sports and other physical activities.

(BeechTree Partners is involved because Managing Director Brad Newpoff recently joined KIDS in the GAME on its Midwest Advisory Board.)

Whereas some people might put “see the Sahara desert” on their bucket list, Brian chose to enter the 27th annual running of the Marathon des Sables, a 7-day, 153-mile race across the Sahara in Morocco, enduring temperatures as high as 135°F, rough terrain, sandstorms, and blistering sands. And here we present the photo of Brian, on Saturday, April 14th, moments after completing what is often called “The Toughest Footrace on Earth.”

Brian didn’t just accomplish this feat by barely making it through. He finished 317th among 795 finishers, in a field that started with 877 competitors on Day 1. Among the 25 Americans racing (all of whom completed the challenge), Brian came in 7th.

Now, here’s the life lesson. Perhaps you’re saying, “Sure he can do it. He’s probably a life-long athlete.” In fact, 15-months ago he was a 46-year-old guy sporting 30 extra pounds that he wanted to lose. And there on his bucket list was an item that seemed at least worth dreaming about at age 30, when it went on the list, but now seemed crazy and out of reach.

This is when Brian realized he could transform a personal fitness goal into a mission larger than himself: He would train for 15 months and then run for 7 of the most grueling days imaginable for the cause of KIDS in the GAME. By the time he finished the Sahara race, hundreds of people, perhaps thousands, had heard about his mission and his cause, and the $50,000 fund-raising goal was in sight as well — less than $7,500 to go. In the 24 hours following, it whittled down to $6,000.

You can donate to the KIDS in the GAME Sahara Challenge to help attain that goal.

This dedication brought BeechTree Partners Managing Director Brad Newpoff into working with KIDS in the GAME, and with Brian, a childhood friend. “Here in Chicago, people like to quote Daniel Burnham, a city planner from a century ago. He said, ‘Make no little plans; they have no magic to stir men’s blood…. Make big plans, aim high in hope and work.’

“Brian captured that spirit and aspiration with his amazing accomplishment in the last week,” Brad adds. “KIDS in the GAME holds that same hope and aspiration to improve the lives of thousands, and even millions, of underprivileged children. Not only can these kids get ‘in the game’ with physical activity. They can learn teamwork and camaraderie and sportsmanship. They can learn life lessons. Through KIDS in the GAME, they may hear the inspiring story of Brian Grossman pounding step by step across the Sahara, and see that you aim high with hard work and hope.”

Restructuring Medicare is a huge healthcare challenge sitting on the horizon. Lawmakers have attempted to address the matter of rising Medicare costs in the last couple of years; the Affordable Care Act did so in 2010, and in 2011 the issue was part of the budget deal. However, Congress in all likelihood won’t consider actual legislation in 2012, an election year. But it does make for a battleground in an election year.

That battleground was established on March 20th, when Paul Ryan released The Path to Prosperity: A Blueprint for American Renewal, his proposed Fiscal Year 2013 Budget Resolution. Presumptive Republican presidential candidate Mitt Romney promptly endorsed the plan. And the House of Representatives, on a purely party-line vote, approved on March 29th. The plan is seen by many as a “doubling down” on Ryan’s 2012 budget proposal, The Path to Prosperity: A Blueprint for American Renewal.

Democrats immediately assailed the Ryan plan. Given a Democratic majority in the Senate, no legislative action on Ryan’s budget plan is expected in the 2012 session. President Obama, in his April 3rd speech at the Associated Press luncheon, call the plan “a bad idea [that] will ultimately end Medicare as we know it.” Kaiser Health News says, “The GOP document will serve mostly as an election-year rallying point. Republicans will cite it as proof they are serious about reducing the nation’s deficit, while Democrats will portray it as an attack on senior citizens and others.”

KHN has presented an analysis of this developing debate, “Revamping Medicare: A Guide to the Proposals, Politics and Timeline,” which will no doubt heat up in months to come, by posing and answering a half dozen of the most asked questions on the matter:

1. The House passed a budget that included a Medicare overhaul last week. Will it become law?
2. Will Medicare remain untouched at least until next year?
3. What about more structural changes, like the ones that Ryan has been pushing?
4. Does the support of a Ryan proposal in December by Sen. Ron Wyden (D-Ore.) mean that other Democrats will get behind it?
5. Is there anything that Democrats and Republicans actually agree on?
6. Where do the presidential candidates stand on Medicare?

Perhaps you have watched the TEDx video “How Great Leaders Inspire Action” by author and motivational speaker Simon Sinek; it is the 7th most-viewed video on TED. If you haven’t, it’s worth viewing. If you have, it might be worth another view. Anyone in a position of leadership can benefit from considering his insights.

“All the great and inspiring leaders and organizations in the world — whether it’s Apple or Martin Luther King or the Wright brothers — all think, act and communicate the exact same way,” Sinek explains early in his talk. “And it’s the complete opposite to everyone else. All I did was codify it, and it’s probably the world’s simplest idea. I call it the golden circle: Why? How? What? This little idea explains why some organizations and some leaders are able to inspire where others aren’t.”

Using his bull’s-eye schematic, Sinek’s presentation centers around his concept that an inspiring leader starts with why consumers would want your product or services or employees would want to work for you, then move to how, then finally to what. It’s a simple concept, but one that works exactly opposite to how leaders typically operate.

As he concludes, Sinek states, “There are leaders and there are those who lead. Leaders hold a position of power or authority, but those who lead inspire us.”

Beyond the video, Sinek elaborates on his approach in his 2009 book “Start With Why.”