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Economic changes add new challenges to health care

By : Katie Ellis

Healthcare continues to be a leading industry and the United States remains its world leader de- spite changes in the national economy and political landscape during the past 10 years, a biotechnology entrepreneur told the Harpur Forum last week.

L. John Wilkerson, co-founder of the health care company investment firm of Galen Partners, said the nation spends about one third of its health care dollar on pharmacological needs but generates 57 percent of the worldwide profit.

“We have the nearly perfect customer,” Wilkerson said. “Our approach to life is that we should feel good all of the time.”

However, Wilkerson said economic changes and the political landscape have created a “dreadful silence in health care policy.”

Wilkerson said that as the debate gains momentum between those who want to control drug prices and importation and those who opt for free market pricing, consumers are becoming more price sensitive and hospital admissions are flat.

Even prescriptions, which had been growing at an 8 to 9 percent rate for years, are now decelerating, Wilkerson said. Health care costs are also growing for most employers, who are now offering more options. “Patients are finally absorbing some of the costs and shouldering some of the burden,” he said.

Wilkerson said hospitals, which are operating on percent margins, are in the toughest position of all. “Doctors are fleeing hospitals to set up their own operations, and hospitals are experiencing profitless growth,” he said. “Tell me that is not a crisis.

“And physicians — a fabulously gifted group — could not be unhappier. Managed care operations have really been well managed recently and offer more choice, but can they continue to raise rates?”

Wilkerson said pharmacological companies are facing major challenges and a precipitous drop in research and development activities.

In order to grow 10 percent a year, drug companies must introduce $2 billion in new products yearly—but it is unlikely, Wilkerson said. “They’re in the midst of a crisis.”

Instead of putting money into research and development, these companies are spending exorbitant amounts to market old or existing products to make them more productive, Wilkerson said. The next three years are key for the drug companies. “If their experiment to market old and existing drugs works, then we’ll see restoration of their power,” he said.

Small, biotech firms have become a major player, he said. With 1,450 biotechnology companies in the nation, Wilkerson said they’re doing better than the large companies.

“They’ve had 17 new drugs approved in the last 12 months,” he said. “And they already have 350 in the FDA pipeline, compared to 76 from the major drug companies.”

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Last Updated: 10/14/08