October 15, 2011 (Vol. 31, No. 18)

Future Technological Advances Will Result in Lower Expenditures

Two basic premises behind the Affordable Care Act, which was signed into law last year by President Obama, were the high costs of healthcare and the sizable number of Americans lacking health insurance. A seemingly even more basic premise is that advances in biomedical research and development will only drive healthcare costs up, for example, biotechnology-derived drug regimens costing over $100,000 per year.

With notable exceptions, that has been true in the past, will tend to be true over the next ten years, will not be so true 20 years from now, and will likely be false 30 to 40 years down the road.

Here are just a very few notable exceptions. First, a number of effective vaccines have been responsible for significant reductions in healthcare costs. A dramatic example was the introduction of the polio vaccine in the 1950s, which essentially eradicated the disease. Previously, there was no cure and paralyzed patients who would otherwise have been unable to breathe were consigned to an iron lung. When introduced in the 1930s, an iron lung cost $1,500, as much as the average price of a home then.

Next, research conducted independently by Harvey Weiss and Marjorie Zucker in the late 1960s resulted in the discovery of the antiplatelet activity of aspirin. As a result of this work, aspirin is now widely used to prevent and improve survival from heart attacks.

Then there was the discovery 30 years ago of the bacterial cause of peptic ulcers by two subsequent Nobel Laureates, Barry Marshall and Robin Warren, which eventually led to the use of antibiotics to cure peptic ulcers, thereby obviating the need for surgery.

In general, studies undertaken several years ago by Frank Lichtenberg at Columbia University demonstrated that every dollar spent on newer pharmaceuticals saved over $6 in total healthcare spending, including over $4 in hospital spending alone. The downside, with regard to advances in healthcare delivery, is that people are living longer, resulting in a greater percentage of senior citizens, who are disproportionately responsible for healthcare expenditures.

Thus, according to the U.S. Department of Health and Human Services, in 1980 U.S. healthcare spending amounted to 9% of the gross domestic product (GDP). Today it is approximately twice that. So, why two to three decades from now will healthcare costs overall begin to decline?

Clayton Christensen, Jerome Grossman, and Jason Hwang, in their book, The Innovator’s Prescription, argue that the healthcare system will be transformed by means of disruptive innovations impacting on medical technology, business models, and the reimbursement system, and that these innovations will collectively drive costs down. Examples include the evolution of personalized medicine, self-care technologies, electronic medical records, online tools for physicians, and increasing value-added roles for nurse practitioners.

All technology-driven products and services tend to evolve with more and better features yet cost less and less. My first electronic calculator, purchased 40 years ago, cost $500, was about the size of a laptop computer, and had no memory capability. It could just add, subtract, multiply, and divide, but it was faster, smaller, and quieter than the mechanical calculator I had purchased several years earlier for just under $900. Today a pocket-size calculator with multiple functions is close to 99% cheaper in constant dollars than my purchase 40 years ago.

J. Leslie Glick, Ph.D.

Data Analysis

The ever-increasing offering of biopharmaceuticals has depended heavily on major advances in biotech methodologies and data analysis, such as radical innovations in synthesis, sequencing, and high-throughput technologies. Process improvements in the chemical synthesis of DNA segments enabled commercial laboratories to lower their fees from $1,000 per base in the mid-1970s to $1.00 per base 20 years later.

Likewise, prior to the mid-1970s it was impractical to sequence DNA. In 1990, the U.S. Human Genome Project was initiated, and 13 years later its mission of sequencing all 3 billion base pairs of human DNA was completed at a cost of around $3 billion. Today the human genome can be sequenced at a cost of a few thousand dollars.

In the past two decades, significant advancements have been made in analyzing the chemical makeup and pathways of cells, involving genomics (mapping and characterizing coding, regulatory, and noncoding sequences of DNA), transcriptomics (genetic expression resulting in RNA), proteomics (protein expression), and metabolomics (metabolites and their networks). Such advancements are a prerequisite for enabling radical innovation with respect to healthcare.

However, what must be kept in mind is that biotechnology today is where information technology was around 35 years ago, where a mainframe computer costing several million dollars then had less capability than a PC today.

Personalized Medicine

We are now at the dawn of personalized medicine, where many of today’s therapeutics will be replaced with far more effective ones, and new therapeutics will be developed for conditions that are untreatable today. To make this happen, new diagnostic procedures will identify specific biomarkers that indicate which molecular receptors should be targeted to optimize therapeutic effectiveness. Algorithms, such as those embedded in software currently marketed to pharmaceutical and biotech companies, will help to create personalized medicines that are likely to be effective therapeutics by targeting biomarker-designated receptors.

Moreover, clinical trial expenses will be reduced because the targeted population will be more homogeneous, resulting in smaller clinical trials and a higher likelihood of success, and because prior to clinical testing, potential drugs will be screened for toxicity more effectively. Francis Collins, director of the NIH, anticipates development of a chip composed of a mix of human cells from various organs that will predict which drugs passing animal tests would fail in clinical trials.

Thus, the cost of personalized medicines will be lower than nonpersonalized medicines due to less costly clinical trials and lower rates of failure of drug candidates. Over time, when patent protection expires, the resulting generics and biosimilars will further lower the costs of more powerful therapeutics than currently exist.

Gene Therapy

Finally, a host of future healthcare applications resulting from advances in biotech R&D will lead to huge reductions in healthcare costs. This will result primarily because many disorders will no longer be considered as chronic diseases but as acute conditions, since the treatment will be a cure, for example, correcting or replacing a faulty gene responsible for a hereditary disorder rather than administering an expensive enzyme over the patient’s lifetime. Likewise, stem cell therapy will eventually transform chronic diseases to acute conditions, and laboratory-grown organs will replace diseased or damaged organs without the need for immunosuppressors to prevent rejection.

When we accomplish much of what is described here, biotechnology will truly be where information technology is today. Medicine will be more about cure than maintenance, and healthcare spending as a percentage of the GDP will be driven down.

J. Leslie Glick, Ph.D. ([email protected]), is an independent corporate management advisor.

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