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Conference Highlights Critical Role of Consumer Choice in Health-Related Businesses

January 25, 2003

STANFORD GRADUATE SCHOOL OF BUSINESS—Advances in health care are giving people longer and healthier lives, but the 40 million Americans not covered by any type of insurance are making it increasingly difficult to pay the bills and support the research, agreed speakers at the Stanford Graduate School of Business' fourth annual health care and biotech conference.

Providing biotech and pharmaceutical companies with an eager market is "not the most important reason" Americans should have coverage, said keynote speaker Ron Dollens, president and CEO of the Indianapolis-based medical devices company Guidant. But his company is working with the federal government to find a solution to the "untenable" insurance problem partially because "it's tough to sell to a bankrupt customer." The solution, he said, lies in reforming Medicare and malpractice law.

Health insurance and consumer choice are critical to the future of the pharmaceutical, biotech, and patient care services industries, leaders in those sectors told a packed audience during a Jan. 25 conference, organized by the MBA student Healthcare and Biotech Club.

"Access to care and choice are hugely important if the business is going to continue to be interesting," said Dollens.

"Wonderful new technologies are contributing a lot to the quality of our lives," agreed Business School professor Alain Enthoven, one of the nation's leading strategists in the area of universal health coverage. "There is a tremendous benefit, but we're having a terrible time paying for it."

The nation's uninsured and underinsured are creating a situation that can prevent companies from developing and marketing new technologies. If hospitals are struggling to cover the costs of patients without insurance, they can't afford new products.

The panelists said that giving customers free choice in insurance products and medical treatments can be quite cost-effective, but Enthoven cautioned: "Managed care has to be voluntary." He pointed out that employees often revolt when employers switch to managed care plans and force them to change doctors.

Dollens agreed customer choice in insurance plans encourages developments in medicine. "If people have choice, they will pick the plan where they are sure they will get access to innovative therapies," he said.

Mike Kaplan, MBA '92, partner with the Portola Valley venture capital firm Three Arch Partners, added that once data on medical outcomes are made more available to patients, "you'll see patients start to make better choices" about treatments and providers. He noted, however, that it can be difficult to define outcomes.

At the same time, panelists cautioned, customers often make the wrong choices about both treatments and lifestyle. Many patients request medications they see advertised, for example, and doctors often prescribe them.

"You're selling a drug to a group of people, 80 percent of whom won't benefit from it," said Raymond Withy, president of Abgenix, a biopharmaceutical company in Fremont. The result is that insurance providers pay for ineffective treatments.

But Thane Kreiner, MBA '94, senior vice president for corporate affairs of the Santa Clara-based biotech company Affymetrix, countered that the placebo effect may outweigh some of the perceived waste.

"Take anti-depressants," Kreiner said. "If the patient is feeling better, do you tell them the drug is not working?"

Americans increasingly are turning to alternative therapies. While they appear to be less expensive, Kaplan cautioned that "it's far from clear that they will bring a net cost savings."

Asked about offering economic incentives for customers to stay in good health, Bruce Bodaken, chairman, president, and CEO of San Francisco-based Blue Shield of California, said it wasn't likely.

"This is America and we have a God-given right to smoke and be overweight," he said. "I think to penalize people is going to be very difficult. Incentives—yes; but penalize—no."

—by Mandy Erickson