Spotlight: Raj Garg, former CEO of Cancer Treatment Centers of America

Raj Garg is a former CEO, McKinsey Senior Partner, healthcare attorney and physician. This background gives him a broad and deep perspective on nearly every corner of the health care industry. In particular, we were impressed in our conversation with Raj at his rare ability to integrate across subsectors of health care. His talents for insight and leadership have given him a unique point of view on how to deal with some of the great challenges in healthcare. He’s a strategic, inspirational, values-based leader with a proven P&L track record. He led the Cancer Treatment Centers of America as CEO and president. He served on its board and its executive, finance & risk, science, strategic growth, and talent committees. In a short time, he orchestrated a massive turnaround that sustained the $4.5 billion enterprise by reducing costs, attracting a strong leadership

Raj Garg: A Healthcare Leader Shares His Views on the Industry’s Challenges

team, creating a culture of accountability, and establishing a strategy for growth. He has a reputation for courageous and tireless leadership—often in short supply— among his peers, as well as those that worked with him at CTCA. Prior to CTCA, Raj spent 25 years as a leader in healthcare at McKinsey & Company. There he advised CEOs and C-suite executives of leading companies in the U.S., Europe and Asia. His experiences span the business value spectrum, including strategy, M&A, postmerger integration, sales and marketing, and operations. His clients included top ten companies across biopharma, medical device, ancillary service, and provider/payor subsectors. In short, there’s hardly a corner of this industry where Raj does not have experience or where he has not applied his considerable wisdom. Given our focus on hospital systems in this issue, we asked Raj a few questions that drew from his experience on both sides of the table.

Q: Given your recent turnaround experience with CTCA, what observations would you have for our readers on hospital providers? Hospital systems have been and remain under significant financial pressure as health care costs remain a central policy issue. For many institutional providers, 3 percentage points is a good margin. We are seeing some bifurcation among providers—for example, the regional IDNs (Integrated Delivery Networks) seem to be gaining the upper hand on performance and growth given their greater holistic alignment of incentives and scale. For other providers, it’s a paper thin margin. The accelerated turnaround that I orchestrated at CTCA, an

out-of-network provider of cancer care, is symbolic of these pressures. Managing outsized bad debt, AR and denials, ensuring a disciplined approach to procurement, aligning provider compensation in a compliant fashion, controlling IS spend, and developing a network that can channel patients to the appropriate site of care to manage costs are among the many issues that providers must manage to maintain their bare margins. This does not even start to address the growth-focused topics that they must juggle in parallel. To work with hospital providers as customers, pharma, biotech and med device companies need to understand these and other aspects of what the provider customer is managing daily. Providers are routinely taking fresh cuts to their economics as commercial payors reduce reimbursement and promulgate new rules and policies that result in more denials, requests for documentation, and delays in payment. In parallel, government payors are also shifting reimbursement across services and specialties, and often reducing it. One big area is clearly drug pricing. For hospital systems, drugs used to be one mechanism that helped generate some margin. That is under severe pressure now. The rollback in CMS reimbursement for the 340B drug program last year resulted in a 26.5-28.5% haircut (depending on whether one includes the impact of sequestration). This clearly impacts the 340B eligible entities, which does not include for-profit systems. It will be interesting to watch whether, as a result, drug utilization rises in places like cancer facilities. A further systemic issue for all Medicare providers is the mismatch and delay in reimbursement adjustment for drugs as prices increase. The lag period means that for roughly nine months, provider reimbursement is based on an outdated cost basis. On the commercial payor side of the equation, hospital provider contracts with payors are under pressure, as commercial payors decrease their reimbursements for drugs and drug administration fees. Further, commercial payors may allow an annual increase in the drug cost but this falls far short of the total increase in drug prices that healthcare companies are pushing through each year. All of the above are a wake-up call for healthcare companies to think hard about their approach to drug pricing and consider ways that make sense for their provider customers. Can pharma companies moderate drug price increases to match what providers expect to gain in reimbursement? Would companies be willing to do away with the artificial class of trade distinction that renders pricing to hospitals higher than outpatient providers? Can they be more discriminating in pricing their products based on real differentiation and value-add versus “book end” pricing? And how can healthcare companies work with providers to evolve value-based pricing, where providers are credited for drugs (especially the newer and more expensive ones) that fail to produce results in patients? Clearly, with the emergence of gene therapy, this latter mechanism will have to be considered, given the outsized cost of these new therapies. Q: We are hearing a lot about personalized medicine these days—especially in cancer. What’s your view on how well that is working from a hospital provider perspective? The value of precision medicine—therapies based on a genetic understanding of the patient—especially in cancer, is clear, and hospital systems should be embracing it. New therapies like Keytruda and Opdivo have made a significant impact on cancers that were previously difficult to treat. It’s really quite amazing that these two drugs alone have multiple years of clinical trials (alone and in combination with other drugs) lined up that will continue to yield new patient benefits. These products are certainly not free of side effects but, given the alternative, they hold great value for patients. We are seeing an on-going increase in the discovery of disease-associated genes, suggesting that we will see a further proliferation of targeted therapies. Recent analyses suggest that drugs that are targeted at specific population subsets based on biomarkers have a greater likelihood of approval by the FDA. And now, with the first gene therapy coming to market, we are seeing the beginning of the move to permanent cures. However, despite the virtues of precision medicine, provider systems face real challenges in getting their physicians to adopt precision medicine approaches. The median age of medical oncologists in the US is 54. Their formal medical training pre-dates the age of genomics. To come up to speed on genetic/genomic diagnostics and therapeutic innovations, they have to absorb an enormous amount of

information. Which genetic or genomic test to use and why? Which immuno-oncology drugs are best suited for the variants found? What combination of drugs might have the most therapeutic effect? What side effects to look for and how to prevent or manage them? In cases where a clear therapy is not established, what potential therapies are worthy of trial based on the known data? And physicians need to do all of this while they are providing care to their patients—not an easy thing to accomplish. Healthcare companies have an important role to play. First, they must give serious consideration to why they are not segmenting populations for new drugs based on genomic variants—to the extent that they continue to position a pipeline drug as suited for “all comers.” If companies want to help providers, they should start by providing drugs that are targeted, where possible, to specific patient populations. And, healthcare manufacturers must provide significant assistance in helping HCPs determine how to do that, a need that is not being fully met today. Healthcare companies can play a critical role in helping support objective physician education on the state and evolution of precision medicine. When patients have a genetic variant with no definitive existing therapy, but where the scientific literature suggests a strong signal for potential efficacy of another drug, companies could supply that drug under a patient assistance program. This would be greatly beneficial to a small cohort of patients. Given that payors uniformly refuse to reimburse for such drug uses, such programs have material impact on patients, offset unreimbursed costs to providers, and may even provide directional evidence for potential new indications.

Q: Health tech is growing rapidly. What area of health tech is of interest to you? Health tech feels like it is starting to come of age. And the valuations of health tech companies are soaring, but whether they will deliver on their promise is yet to be seen. One area that I believe holds great opportunity and should be of interest to providers, payors, employers and manufacturers is virtual care. I see virtual care as being the “last mile” of health care. It fills the gap between the patientat-home and the multiple formal care settings. Its benefits include chronic disease management, wellness enhancement, avoidance of emergency department visits and re-hospitalizations, assurance of compliance, remote monitoring, proactive self-reporting of symptoms, extension of the reach of care providers to remote areas, and more. As such, it holds promise for filling the gap that exists in health care today, and for reducing the overall cost pressure on the system. Healthcare companies historically have been challenged on several fronts where virtual care can be a powerful tool. For example, lots of companies talk about understanding the patient journey. With virtual care, much greater realtime data would be available to help complete the patient journey picture. Nearly every biopharma company that I have worked with has struggled to craft an effective digital strategy. A single-enterprise virtual care platform can provide the opportunity to offer customized programs across products and functions. Thus, drug-specific patient support programs can be delivered via virtual care applications. These same applications can be used to collect de-identified data, including data generated by wearable devices, from patients in a disease category. This would provide significant insight into patient/prescriber behavior as well as disease and drug-related issues. With patients in clinical trials, R&D can benefit by directly collecting patient-reported data, thereby improving data quality, reducing trial costs and saving time associated with monitoring visits. The same platform can be a powerful tool for Phase IV/ post-marketing surveillance. I also believe that there may well be FDA drug approvals that are facilitated because the “product” is both a drug and patient support program delivered via a bundled virtual care tool. These are just some of the benefits.

LOOKING FORWARD I am a staunch optimist with respect to the future of healthcare. Just as we are living in the digital age, I am a strong believer that the next half century or more will be the age of genomics and biology. Inherently healthcare will play a material role in shaping that era. I would urge that healthcare companies broaden their perspective and interests to proactively shape our health ecosystem. That means understanding and partnering to address the needs of the other sub-sectors of health care. Broadening our horizons and fostering collaboration will benefit everyone involved. •