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Remarks by Fred Hassan
Chairman and Chief Executive Officer
Schering-Plough Corporation
“A Healthcare Agenda for the Next Administration”
Duke University, The Fuqua School of Business Distinguished Lecture
Series
September 9, 2004
Good morning.
Thank you, Dr. Schulman for that very generous introduction!
Thank you for joining us today.
It is a great honor to be here, with all of you.
I see many distinguished faculty members of the University here
today - from both the business school, and the medical faculty,
and from other areas.
And I also recognize that we have an important cross section of
students here today - from the business school, but also from the
medical school, and elsewhere.
When I was invited to speak to you today, it was a very gracious
invitation.
Essentially, I was invited to speak about whatever I felt was important!
A lot of subjects came to mind.
However, I felt it was wise to focus on areas where I have some
real knowledge.
This narrowed down the field a bit.
So, this morning, I would like to talk about two things.
First, I would like to outline an agenda for healthcare reform in
this country.
An agenda for healthcare reform, which I would propose to EITHER
candidate for president, as the agenda that can achieve meaningful,
positive change.
And second, I would like to speak on a more personal note.
I would like to tell you about some of the things I have learned
in my career, that have helped me to make my job rewarding.
These are not the things I believe you will find in business school
textbooks - or in medical school textbooks.
And then after my brief remarks, I would like to turn to the most
important part of this morning's session.
A Q&A dialogue with all of you.
So: let me begin by talking about a healthcare policy agenda.
As I look at the challenges facing our nation over the next decade,
there are a lot of big ones.
Foreign policy, job growth, how we combat terrorism, economic policy
- all these and more loom very large.
But surely, one of the most important is the health - physical and
mental - of our citizens -- and managing the cost of securing and
improving that health.
Over the next decade, we will witness a revolution in healthcare
- A revolution that will be on a scale similar to that of the industrial
revolution in the 18th and 19th centuries.
The first signal of this coming revolution is showing up in the
massive demographic shift we are beginning to see.
Over the next 15 years, the population age 65 and older will increase
by nearly 20 million.
This enormous cohort will be entering their retirement years with
unprecedented knowledge about many health issues.
They will be entering their retirement years with unprecedented
expectations about the level and quality of care they should receive.
They will have the unprecedented expectation that even as they grow
older, they have a right to live life to its fullest.
And all this would be fine - except that they will ALSO have a very
old-fashioned expectation, that they should have all these benefits,
at little or no incremental cost!
But during this decade, we will also be seeing a health care revolution.
Many people have been disappointed in the apparent absence of dramatic
health care improvements, coming from all the major new technologies
and new frontiers of healthcare research in recent years.
Genomics, high throughput screening, and many other tools have seemed
not to deliver on their promise.
I believe that this is a premature judgment.
Over the course of the next decade or two, I am convinced that we
WILL see extraordinary breakthroughs coming from these new technologies
- and from the enormous investments made in healthcare research.
I believe we can look forward to breakthroughs in treatment of some
of the toughest disease areas. Areas such as cancer, Alzheimer's
disease, AIDS and other viral infections.
However, these breakthroughs will come only through enormous investments,
and thus potentially enormous new healthcare costs.
So in this context - of demographic revolution and healthcare revolution
- let me lay out the agenda I see as essential for whoever wins
the election this November.
These are not proposals for policy - although they will have implications
for policy.
In my experience, developing policy is not the end game.
What is really critical - and really hard to accomplish - is to
change behaviors in order to turn good policy, into action.
So my agenda is really an agenda for behavioral change.
It has four pillars.
First: Change individuals' investment behavior, so that we as a
society can afford the health innovations that will make our lives
better and longer.
Second: Change the behavior of the healthcare system itself, to
deliver health care more efficiently and more effectively.
Third: Change personal health behavior to give a priority to preventative
care, and to achieve health literacy.
And Fourth: Change the environment of our society from one that
is beginning to erode healthcare innovation and undermine scientific
advancement, to an environment that sustains and builds our strength
in healthcare research and innovation.
This means changing not simply the words but the behaviors of decision
makers, of thought leaders, and of individual citizens, to do what
is right -- not just what is easy.
About pillar number one, changing individual investment behavior.
Today, Americans as a whole have one of the lowest savings rates
in the world. For major segments of the baby boomers, the rate is
actually negative. They spend more than they earn, and borrow to
make up the difference.
It is important to increase the savings rate across the board.
It is absolutely critical, however, that we get this population
to invest in their future health.
It is clear today that no government system alone can finance all
health costs for the future.
It is also clear that no government system alone SHOULD finance
all health costs.
Governments should not entirely finance health costs, for the same
reason that we do not invite them to run the finances of our individual
families.
Because when you put a bureaucracy on a problem, you get bureaucratic
solutions - bureaucratic solutions that strangle individual choice.
Today, most debate about health care spending is how to contain
it to the 13 % of GDP that it was throughout the 1990s.
But given the importance of health to our fellow citizens, the huge
advances in health that now will be possible -- and the aging of
our population -- we should be willing to accept a steadily increasing
share of the economy invested in health care.
We are on track now to be spending 18 percent of GDP 10 years from
now, and that is certainly a realistic level.
A realistic level, and even a necessary level -- given the changing
characteristics and preferences of our citizens, and our increasing
ability to meet their expectations.
But this increase cannot, and should not, come from further taxes
and higher government spending.
It should come from individual health savings accounts, funded by
the millions of Americans who can afford to do so - if they change
their spending and investment behavior.
We need to build on the legislation passed last year that greatly
expands access to health savings accounts.
Employers should be encouraged to adopt HSAs as an option for their
employees.
Higher income earners should be encouraged to direct a portion of
their annual savings to health accounts.
Getting people in the upper half of the income distribution to invest
as much as 5% of their earnings in health savings would improve
our national savings rate and help pre-fund a portion of our growing
health expenses.
More importantly, it would transfer some of the financial obligation
for the cost consequences of individual health behaviors back to
the individuals themselves - and thus, encourage people to take
more responsibility for their own health.
Health saving, by those who can afford to save, will reduce the
burden on public financing, freeing up government resources to fund
quality care for the poorest and least advantaged in our society.
So healthcare saving is not only a way to mitigate the taxpayer
burden of higher health costsı
Healthcare saving is ALSO a way to get individuals to own the consequences
of their own behavior.
Pillar number two: change the behavior of the healthcare system,
to operate more effectively and efficiently.
I said it is right for a wealthy country such as ours to invest
more of its GDP in health, if we do indeed believe this is an important
social good.
But we should make that investment only for healthcare that is effective
and is delivered efficiently. A surprisingly large portion of what
is provided to cure disease and improve health status is wasteful,
and some is even harmful.
The Institutes of Medicine studies, for example, have found that:
Between 44,000 and 98,000 Americans die from medical errors
every year. $2 billion of our annual health spending goes for medication-related
errors for hospitalized patients. 18,000 Americans die each year from heart attacks because they
did not receive preventive medications, although they were eligible
for them. More than 50% of patients with diabetes, hypertension, tobacco
addiction, hyperlipidemia, congestive heart failure, asthma, depression
and chronic atrial fibrillation are currently managed inadequately.
How can we change the behaviors that cause this waste?
Mainly, through competition, choice and the effective use of information technology.
We also need to ensure better coordination of care by clinicians. Over 60 million Americans live with multiple chronic conditions.
Clinicians and institutions should actively collaborate and communicate to ensure an appropriate exchange of information and coordination of care.
This must begin with a courageous initiative to rebuild the Medicare system around competitive, integrated health care plans.
Most Medicare beneficiaries today are in traditional Medicare that treats each area of healthcare as a silo.
Each silo focuses on its own piece of the patient and battles separately with the Medicare bureaucracy over its own minutia of service delivery and payment issues.
There is today NO comprehensive approach that focuses on the whole patient and coordinates patient care to improve health outcomes at a reasonable cost.
We need to turn Medicare on its head, focusing first on the patient rather than the providers.
To be patient-centered, Medicare's government funding needs to be put in the hands of beneficiaries who can use the power of choice.
The power of choice - fueled by new information technology - to encourage competition, efficiency, and better health outcomes.
This should not be a partisan matter.
This is a matter that requires political courage.
We should demand this courage of either candidate who wins the White House this year.
Next, pillar number three: Change the personal behavior of individual citizens and their doctors to give priority to preventative care and health literacy.
Today, the biggest health care costs, by many measures, are those caused by preventable, chronic diseases. They are the diseases caused by smoking, by poor diet and by lack of exercise.
Obesity has become a major health problem in the U.S., contributing to a variety of chronic health conditions.
A study in Science last year showed that two-thirds of Americans are now either overweight or obese - a startling increase from fewer than half as recently as 1980.
As a result, we are seeing SIGNIFICANT increases in Type 2 diabetes, coronary artery disease, musculoskeletal disorders, and even related cancers like breast and prostate - leading to 300,000 deaths a year that are attributed to obesity.
When it comes to attacking preventable chronic disease, I believe one of the most important places we can begin is within the schools.
Just in the past few years, some school districts have had the courage to remove junk food vending machines in their hallways, and to replace them with healthier alternatives.
Some school districts today serve healthier meals. But many school meal programs are a dietary disgrace.
And while we are beginning to demand basic standards of reading, writing and arithmetic skills before students can graduate to a higher grade, we do not make any similar demands for health literacy.
So one place we can begin to achieve behavior change on preventive health care, and health literacy, is in school programs.
We should call on our next president to give the same priority to school-based programs to change health behaviors, as we give to other educational initiatives.
I am confident that if we do so, we will see positive benefits in health - -- and we may see these benefits come far faster, than we see the benefits of other kinds of educational reform.
And finally, pillar number four of health care reform: change the societal environment from one that is beginning to erode support for science-based health innovation, to an environment that fosters and supports health innovation.
A visitor from another planet listening to this year's political debate would surely report -- as one of the strangest phenomena -- the fierce attacks by politicians of many stripes on the research-based pharmaceutical companiesı
The very organizations that drive health care innovationı
The very organizations, that are at the center of U.S. superiority in high technology.
These attacks are great fodder for constituents angry about drug prices -- but they add nothing of substance to the health care debate.
They simply pander to the emotions of voters.
And they prey on the fact that many citizens have difficulty seeing the connection between the health care innovations they want, and expect -- and the private enterprise and investment that are necessary to deliver these innovations.
Many national and local politicians have chosen to inflame public sentiment rather than do the hard and responsible work of educating constituents on the realities.
To hear some of our politicians talk, you would believe that the government creates health innovations, and pharmaceutical companies simply profit from them.
If that were true, then the former Soviet Union would have been a hotbed of health innovation.
Yet, the reality is that in more than seventy years of communism, not one major health innovation emerged from the former Soviet Union.
And, in our own country, the reality is that the National Institutes of Health -- one of the finest government health institutes in the world - has never in its history created a new medical therapy.
Because, in fact, that is not its mission.
The mission of the NIH is to conduct state-of-the-art basic research.
The NIH does NOT have the financial resources, or the expertise, to transform early research compounds - through development and massive clinical trials - into the new medicines that society needs.
NIH has a current budget of only $27.1 billion to fund all of its activities.
Compare that to the $33.2 billion spent annually by the pharmaceutical industry in developing new treatments.
And despite this tremendous research commitment by both the government and private industry, it is the private sector that is playing the key role in discovering and developing new therapies.
NIH found in its own study that only 4 of the 47 top selling treatments it studied relied on government in some part.
And NONE of those treatments were discovered, developed and brought to market exclusively with government resources.
It is the crush of government in Europe, with misguided policies discouraging innovation that has caused Europe to lose its lead to the U.S.
European companies, that were in the heartland of the pharmaceutical industry just decades ago, are shifting more and more of their research overseas, primarily to the United States.
In 1990, European pharmaceutical companies invested 73 percent of their R&D in Europe. By 1999 that figure had dropped to 59 percent, and it continues to decline.
Of the top ten selling pharmaceutical drugs in the world, 8 were discovered in the United States -- compared to just 2 in Europe.
This investment is also attracting, and fostering, exceptional scientific and technological talent in the U.S.
It is making the U.S. pharmaceutical industry one of the two pillars of U.S. strength in high technology, along with Silicon Valley.
And it is delivering exceptional benefits to our citizens in the form of better, longer, more satisfying lives.
Yet today, our policy makers, and the political debate, run rough-shod over these realities.
To hear some legislators talk, you would believe that we do not need to invest nearly a billion dollars for every new treatment that makes it to patients.
You would believe that it is fine to import cheap drugs from third world countries - and yet expect legitimate, research-driven pharmaceutical companies to somehow continue to invest and risk billions of dollars every year on new therapies for the future.
Or you would believe that all this can be handled by the National Institutes of Health.
I believe there is a very simple way to begin to restore an environment in this country that supports health innovation.
There is no question: health care companies, like all organizations, can fall victim to bad management and greed.
But to attack pharmaceutical companies as the cause of a health crisis in this country is irresponsible and deeply dangerous.
Political leaders of both parties, should honestly and openly address the emotional issues of health, and healthcare -- and help their constituents understand how to look with a clear and rational eye at these issues.
For example, policy makers should play a leading role in educating their constituents on the economic realities behind better health.
And law makers should be challenging each other on how to best support one of the leading industries of our country, and one that does good things for millions of people - not arguing over policies to undermine or even to destroy it.
So, those are the four pillars of better health care that I would urge both candidates for the presidency to adopt as priorities - and as behaviors - for the administration they seek to run.
I believe the result will be significant improvement in the health of Americans.
And the result would also be a stronger, more vibrant society.
Finally, let me share with you just a few personal lessons from my experience in business, and in the pharmaceutical industry in particular.
As you study for your future career - I hope these lessons will stimulate your own thinking of what you want to do, and how you want to do it.
And for those of you here today who are achieving great things in the careers you have chosen - I will be interested in whether what I have to say, resonates with your own experience!
So here are five lessons about career success, that have made a difference to me.
Number one: Get your hands dirty, early on.
J.B. Fuqua certainly did -- and so did I.
It is easy to go on to a corporate staff job, or a consulting job, out of business school.
But what is more challenging, and even more rewarding, is to go to the front lines and the working level.
Get your hands dirty, doing the real work that drives any business enterprise.
I myself spent time carrying a bag as a pharmaceutical sales representative. I also worked on the ground as a chemical engineer.
I learned more from those experiences that has been of value to me throughout my career, than from reading many, many business textbooks!
And those experiences help me keep the information gained from my readings in perspective.
In particular -- these experiences helped me understand the working level - and to empathize with the people there.
This leads to lesson number two: maintain a sense of empathy and compassion.
It is easy for smart people to be smart. What makes the difference in leadership is empathy, and compassion.
Be quick to listen and slow to speak.
When you demonstrate that you understand the reality of the frontline managers and the frontline people who do the work, and that you emphasize with them, they will follow you!
Lesson number three: Don't be looking constantly for your next job.
Work hard at the one you have.
Doing well in your existing job will pave the way to the next one.
Lesson number four: OVER-communicate with your boss. Treat him or her as a customer. This will be appreciated -- and it will be seen as a sign of maturity that will lead to bigger things.
Finally, lesson number five: Ask yourself each day, is the way I operate, earning the trust of those around me?
There are many things by which you will be measured, but the key to all successful relationships is trust.
By exhibiting behaviors that earn the trust of those around you, you will achieve the greatest good.
Note, by the way, that I emphasize BEHAVIORS.
Many people in leadership positions talk a good game.
But the people whom we must lead do not judge us by our talk.
They judge us by how we behave.
By our actions.
And it is our actions, not our words, that ultimately build the trust of our stakeholders - in ANY business, any enterprise.
So with those observations -- Ladies and gentlemen, let me thank you for your attention.
And now, let's turn to a Q&A Session.
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