The Indian Supreme Court has rejected Swiss pharmaceutical company Novartis’ appeal for patent protection for its blood-cancer treatment drug Glivec. In a judgment delivered Monday, the Court held that Glivec was an example of “incremental innovation” under Section 3(d) of the Indian Patents Act and, as such, not liable for protection. This controversial section deals with “over-greening,” a term used to describe creating a new version of a drug with only incremental modification and no innovation in order to extend the life of a patent.

What constitutes an “incremental” change is, of course, a matter of judgment and the ruling brings back into the spotlight the patent wars that have been fought in India over the past few years. By and large, multinationals have been losing out — for example, Hyderabad-based firm Natco Pharma was granted a compulsory license for Bayer’s liver and kidney anti-cancer drug Nexavar. (The Natco version was 97% cheaper than the German brand.) Several other multinational-made products have been replaced by cheaper generics.

On one side of the debate is affordability. Treatment using Glivec costs Rs. 120,000 (around $2,000) a month compared with just $140 for the generic equivalent. “The Novartis patent ruling [is] a victory in battle for affordable medicines,” the Guardian newspaper in the United Kingdom reported.

Opponents, however, argue that the ruling is a blow to intellectual property rights. According to a statement from Novartis, “The primary concern of this case was with India’s growing non-recognition of intellectual property rights that sustain research and development for innovative medicines.” And Ranjit Shahani, vice-chairman and managing director of Novartis India, told Indian newspaper The Hindu that “No global player has invested in R&D here, and it is unlikely to happen given the atmosphere. India is a developing country and needs to encourage innovation. The verdict is not very encouraging and shows that the ecosystem to encourage innovation does not exist here.” But Anand Grover, lawyer for the Cancer Patients Aid Association, which opposed Novartis in the patent case, says the court decision will “go a long way in providing affordable medicine for the poor.”

The battle over Glivec has been going on since 2006, when the patent controller’s office in Chennai declined to give Novartis a patent for the drug. The company went to court. In 2007, the Madras High Court rejected the Novartis plea, and the Intellectual Property Appellate Board decided against the firm in a 2009 appeal. The company went to the Supreme Court in 2009 and the result was Monday’s judgment. Novartis has said, however, that it is going through the fine print of the decision and is likely to once again appeal.

The Novartis case is one of many that are reaching judgment in Indian courts. The cases are likely to set the course for big pharma investment in the country. But observers suggest that the overall impact could be limited. The Indian pharma market is estimated to be worth around $30 billion a year at present, including exports. Patented products make up barely 1% of that. According to a McKinsey report, the market could grow to $70 billion by 2020. This is where the future demand will be, and MNCs and Indian companies alike want a piece of the action.

“I don’t expect the Novartis judgment to have an adverse impact on MNC investments in the country,” says Sarabjit Kour Nangra, vice president for research at Angel Broking. “The case has clearly been fought on the grounds that process patents should not be allowed. In that sense, it truly respects the patent position of the product and I think the MNCs will understand this…. The growth potential in the India market is too big for MNCs to ignore.”

In an earlier story published on India Knowledge@Wharton, Wharton health care management professor Patricia Danzon pointed out that patent protection enables companies that invest significantly in R&D to recoup those costs. Forcing a private sector company to sell at a lower price or to take away their intellectual property in an attempt to make medical care affordable, “is not a viable precedent in a market economy,” she noted.

But for the cheering masses outside the Delhi courtroom on Monday, it was a different story.

Just under a decade ago, senior citizens accounted for only 12% of the American population, according to the U.S. Census Bureau. By 2050, that figure is expected to grow to 21%.

On its face, that may not seem like a bad thing; after all, it basically shows that Americans are living longer lives than ever before. Unfortunately, it’s not necessarily the case that they are living longer, healthier lives. And therein lies the problem for the U.S. health care system.

Despite all of the advances of modern medicine, old age continues to bring with it chronic disease — and so with the projected increase in elderly Americans comes a projected growth in the portion of the U.S. population that will suffer from chronic diseases. Some estimates say that by 2030, more than 170 million Americans will be afflicted by such conditions — and most of them, it can be presumed, will be demanding treatment.   

The question facing the health care industry, then, is: How are we going to pay for all of this?

“Everybody knows that the demographic circumstances in the United States are creating powerful trends that are changing so many things, including the health care industry,” said Mitchell Blutt, managing partner and co-founder of Consonance Capital, a health care-focused investment firm. “We’re seeing people living longer and fewer people being born, and there are all sorts of ramifications for that.… So, how are we going to manage this? Is this a great opportunity for the health care industry, or will it be the greatest albatross that’s ever been placed on our economy? I’m guessing we would probably agree that it’s a little bit of both.”

Blutt explored the myriad challenges presented by America’s aging population, along with other health care industry insiders, during a panel discussion at the recent 2013 Wharton Health Care Conference. The discussion hit on a variety of topics, but the consensus among the panelists was clear: The challenge ahead is an enormous one, and only with greatly increased efficiency will the nation be able to tackle it. 

David Pyott, CEO and president of the global ophthalmic firm Allergan, pointed out that, for all of the strengths of the U.S. health care system, it could not be said that “efficiency” is one of them. Evidence shows that, despite the massive spend in the U.S. on health care — 18% of GDP, according to Pyott — there has not been a noticeable return in terms of life expectancy, at least not compared to other nations. “In fact, life expectancy is fractionally higher in the U.K., and they only spend 8% of GDP,” he said.

This suggests that in the U.S., billions of dollars are wasted annually — a situation that will prove untenable as the number of elderly Americans increases and the demands on the system multiply. Going forward, the charge for the U.S. system is clear, Pyott said. “This is going to require dramatic increases in productivity in the delivery of health care. It really comes down to society’s ability to afford this.”

Gary L. Gottlieb, president and CEO of Partners Healthcare, agreed that widespread change — perhaps even difficult change — will be needed to confront this lingering crisis. But despite the great challenge ahead and the current inefficiencies plaguing the marketplace, the U.S. has a strong base to build on, he added. The American health care system does a lot of things very well; now, it just needs to seize this challenge as an opportunity to fix what isn’t working. If that happens, a better, more nimble health care system will be within reach, Gottlieb noted.

“There’s a great opportunity here for innovation — for re-thinking and getting right what it is that we do worst,” he said. “It will require substantial transformation, but the critical element is making sure we … create a thoughtful glide-path and not a cliff, so we don’t throw the baby out with the bathwater. We can move in the direction of greater efficiency and accountability.”

India’s health care sector is a study in contrasts. Even as doctors like Devi Prasad Shetty, cardiac surgeon and founder of the Narayana Hrudayalaya chain of hospitals, are cutting out the bells and whistles and using innovative models to deliver quality health care at the lowest possible rates, some others are busy adding upscale offerings to their range of services.

Take the Fortis Memorial Research Institute (FMRI) in Gurgaon near Delhi. The flagship hospital of Fortis Healthcare, FMRI describes itself as the “next generation” hospital and the “Mecca of health care.” In the lobby, a mammoth art installation of a child with a stethoscope basks under natural light filtering through the trapezium ceiling. The hospital — spread over 12 acres and estimated to have cost around US$84 million — boasts a dancing fountain, a play area for children, retail outlets, art works, a lounge to relax in, a café and food court where one can dig into a Subway sandwich or enjoy a gelato, and a state-of-the-art wellness center. Moving to a new level in service offerings, FMRI recently introduced a 36-seat cinema theatre where it screens movies. On the clinical side, there’s ambient mood lighting to reduce the stress caused by diagnostic procedures such as MRI.

“Keeping health care as our backbone, we wanted to create a congenial and more caring atmosphere to help alleviate the stress that patients and their attendants usually go through. The idea of introducing these value services is to assist them with speedy recovery. Right now, we are not charging anything for the cinema screenings – [they are] complementary. Even in the future, the charges would be minimal,” says Dilpreet Brar, regional director at FMRI.

Rana Mehta, leader of the health care practice at PricewaterhouseCoopers (PwC), notes that there is a growing trend towards enhancing the hospitality side of health care and providing a non-clinical environment. “These [services] matter a lot for high-value patients. It’s a trend we have already seen in Southeast Asia. Bumrungrad International in Bangkok or Gleneagles in Singapore are a few examples,” he says.

Charu Sehgal, senior director, consulting – strategy and operations and head of the health care vertical at Deloitte, suggests that these are means by which service providers are seeking to stand out in a cluttered market. They help to attract high-profile and elite clients. Says Sehgal: “In the big cities, hospitals have best of equipment, technology, doctors…. With everything else almost the same, players look for differentiators, for fancy frills that make them stand apart. Though a small percentage, there are still a large number of people who can afford these services, and the market is catering to them.” According to Sehgal, these services are targeted as much at the patients as the attendants.

Some health care services are also going the boutique way, including maternity services. Apollo Health and Life Style, a wholly owned subsidiary of Apollo Hospitals, runs a chain of boutique birthing centers called The Cradle. By its own definition, it is a “world-class birthing facility that offers 5-star hotel amenities” targeted at high-net-worth individuals, senior corporate professionals and business families. A suite for normal delivery at The Cradle can cost around US$1,700. In Bangalore, the Cloudnine chain offers a four-night, three-day “Signature” package for around US$2,400. Lamaze professionals, doulas, lactation counselors — you’ll find them all here. In contrast, a delivery at LifeSpring, a chain of low-cost maternity hospitals, costs US$180. And at a government hospital, such as All India Institute of Medical Sciences (AIIMS) in New Delhi, it is about US$50.

Aesthetic treatments are also becoming part of the gamut of boutique health care services. The UniHealth Center for Cosmetic Surgery has luxury four-seater helicopters to ferry its patients from Mumbai to its facility at Aamby Valley City – a distance of around 100 km. Patients also have the option to drive down in one of the luxury cars the facility offers. The Madras Institute of Orthopedics and Traumatology (MIOT) has a multi-cuisine restaurant, a beauty parlor and a salon as well.

Will this trend boost India’s status as a medical tourism destination? According to estimates released in August 2011 by the Associated Chambers of Commerce and Industry (ASSOCHAM), the inflow of medical tourists in India would increase at a compound annual growth rate (CAGR) of 40% to reach 3.2 million by 2015. The study, which pegged the Indian medical tourism industry at around US$845 million then, estimates it to be worth US$2,028 million by 2015. Deloitte’s Sehgal is not sure: “The factor that will really matter is the cost differential and the quality of service.”

Small businesses and individuals without employer-provided health insurance will be the most hurt as some insurers move to sharply increase health care premiums in reaction to the implementation of the Affordable Care Act. But the hikes may not have as broad an impact on those groups as they seem to on paper, Wharton experts say.

Insurers such as Aetna and Anthem Blue Cross have sought increases of between 20% and 26% in California, Florida and Ohio, and have secured approval for some of those, The New York Times reported last week.

The 2010 Affordable Care Act (ACA), which survived a legal challenge last summer when the U.S. Supreme Court upheld most of its provisions, requires health plans to cover more services. “But it does very little to control costs and adds taxes in some sectors that will likely be passed through as higher prices and premiums for health care services,” says Wharton health care management professor Patricia Danzon. “Higher health care premiums cannot simply be passed through as higher prices for goods and services that are sold in global markets. So, these costs will likely be borne by employees [through] lower cash wages, cuts in other benefits, fewer jobs or longer work hours per employee.”

For small firms, the above-average premium increases will be harder to pass on to workers if and when the labor market recovers, notes Wharton health care management professor Mark V. Pauly. “If this minority of small employers has been singled out for large increases, it will increase their labor costs relative to those for other employers.”

But Pauly notes that the examples of double-digit premium increases are anecdotal and not based on aggregate data. Even if such increases are truly representative of how the ACA will impact a certain segment of small businesses, they wouldn’t impact overall health care spending growth, he adds, because they apply only to individual and small group insurance, a minority of the private insurance market.

But the increases could mean that small employers and people buying insurance as individuals will not find many bargains on the ACA-mandated health insurance exchanges, says Pauly. The exchanges must begin enrolling people next October for coverage to begin on January 1, 2014. “My guess is that insurers are starting to increase premiums for these markets in expectation that they will be selling to higher-risk [customers] after the reforms kick in, and are trying to get ahead of the pricing curve,” he adds.

In any event, the increases will likely be offset by “huge subsidies” that most people in the small group market are expected to receive, Pauly says. Overall, health care spending trends are still moderate for Medicare, Medicaid and large group private insurance, he notes.

And federal officials say that overall health care spending remains steady, at least according to the most recent figures. “A number of provisions in the health care law that will help control costs and spending are still being implemented, but the statistics show how the Affordable Care Act is already making a difference,” U.S. Secretary of Health and Human Services Kathleen Sebelius said Monday in a blog post on her agency’s website. She pointed to the latest government data released that day, which showed that in 2011, overall health care spending as a percentage of GDP was 17.9%, the same as the past two years. In all three years, Sebelius added, spending grew more slowly than in any other year in the report’s 51-year history.

Mark Blatt, who is both a medical doctor and a business school graduate, had a revelation in the mid-1990s. This was before there was Skype, or Apple’s Face Time or smartphones with video. He was then a managing partner for a family medical practice when he went “on call” for the first time, covering the bases over a holiday weekend for 12 primary care doctors.

Blatt received about 200 phone calls between 7 a.m. and noon that he had to triage. “By noon I had taken care of more people than I did in a whole week in the office. I had probably done something substantive for about 80% and around 20% of them needed some sort of follow-up test or care. I sat back and realized this was not a bad idea. It wasn’t just improving cost savings by 3% or 4% — it was actually changing the care into an affordable product.”

The lesson stuck. Now Blatt is the worldwide medical director for Intel at a time when everyone is desperate for ways to cut health care costs without sacrificing – and possibly improving – patient outcomes.

Health care in the United States, in all its forms, including Medicare, is probably the nation’s most formidable economic challenge. Today’s U.S. health care industry is unsustainable, with the world’s most unaffordable fixed-cost infrastructure, said Blatt, who was a panelist on the “Physician Restructuring” session at the recent 2012 Wharton Alumni Health Care Conference. It’s “in a bubble. What the U.S. needs is a Moore’s law for health care. Let’s double the number of people we see and cut the cost in half.”

Some would suggest the clearest path to that goal would be to adopt health care systems closer to those of other major industrialized countries, which typically spend about half the amount per capita that the U.S. spends, often with better health outcomes.

But Blatt’s ideas cut another path to savings, with the tools already in place for execution. “Most of you have a smartphone, which is capable of video communications with anyone anywhere on the planet,” Blatt said. Then he asked: “How many times have you been to the doctor in the last year when he didn’t touch you?” The implication was clear. We don’t need time- and money-consuming, face-to-face doctor visits nearly as much as we make them.

For the last decade, Intel has been pioneering telemedicine systems that substitute virtual connections for face-to-face doctor visits for large patient populations. The experience holds lessons for the health care system in the U.S., Blatt suggested. To achieve major gains in health care in the U.S. would take a new workflow approach that merges nearly all of the trends in digital technology to create coordinated communications and control matrices that would connect patients, clinicians and care facilities.

In addition to slashing the number of doctor’s visits to save money, Blatt sees another “fundamental” problem – coordination. “Did you ever show up to a specialist and he doesn’t know why you’re there because the primary care doctor didn’t tell him? Did your doctor’s office ever call you and say ‘Come in and we’ll tell you your test results,’ but when you get there no one can find the test results? We practice health care the same way we did — not in the twentieth century but the nineteenth century.”

Intel, in partnership with GE, today offers hospitals large-scale remote health management systems for regional populations. It also has joined with the Mayo Clinic to launch a telehealth home-monitoring system for chronically ill patients. In addition, the company also co-founded mPowering Frontline Health Workers, a U.S. Agency for International Development project advancing mobile health technologies in developing countries. In related projects in China, India, Brazil and the Middle East, Intel is involved in telemedicine pilots focused on refining “high volume routine care” systems that largely eliminate the need for face-to-face visits between doctors and patients.

Information for this article originally appeared in The LDI Health Economist, an online magazine about health policy published by the Leonard Davis Institute of Health Economics at the University of Pennsylvania. You can view a video of Blatt’s comments along with the original article here.

A day after the Supreme Court’s ruling that the majority of the Affordable Care Act (ACA) is constitutional and should be allowed to move forward, politicians, practitioners and other observers continue to debate what the decision means for the nation’s beleaguered health care industry.

Wharton health care management professor Patricia Danzon offered her thoughts on the outcome of the Supreme Court case and the challenges that lie ahead. For more impressions and analysis from Wharton and Penn experts, read Knowledge@Wharton’s additional coverage of the ruling.

What do you think of the Supreme Court’s decision to uphold the majority of the health care law? Is the law justified in mandating that most people buy health insurance, or face a penalty?

Danzon: I think the Supreme Court reached the right decision. If people choose to remain uninsured, there is a risk that they will impose costs on others when they get sick and use care that they are unable to pay for. Requiring people to get health insurance or pay a penalty if they don’t reduces this incentive to free ride. The mandate also will reduce adverse selection in insurance markets and enable these markets to work more efficiently, which benefits everyone.

How will the ruling impact states’ finances, especially in terms of the proposed expansion of Medicaid?

Danzon: Under the ACA, the federal government will pay for a very significant fraction of the cost of Medicaid expansion. Under the ruling, states may choose to forego these federal funds to expand Medicaid. But it remains to be seen how many will actually decline these federal funds, given that the Medicaid expansion could benefit their citizens, both those who would be enrolled and the providers who would serve them.

It is also unclear whether states could decline to participate in the Medicaid expansion, but then get their potential enrollees covered through the exchanges [which are to be set up by the states so the uninsured can buy health coverage.] So the net effects of making it easier for states to opt out of the Medicaid expansion on the number of people covered and state finances are hard to predict at this point.

Will the ruling hurt investor sentiment in the health care sector or strengthen it?

Danzon: I think that the ruling is positive for most health care providers and firms, most fundamentally because expanding the number of people with health insurance will increase demand for their products. For the biopharmaceutical industry, the ACA also includes the important provisions for a biosimilar pathway — that is, the conditions under which follow-on biologics [non-identical generic versions of advanced prescription drugs] may be approved by the FDA without full-blown new clinical trials.

The particular provisions in the ACA are particularly favorable to the biopharmaceutical industry, compared to the provisions that were discussed in standalone legislation. If the ACA had been struck down in full, including the biosimilar pathway, it is quite likely that a less favorable biosimilar pathway would ultimately have been passed, with provisions less favorable to the innovator firms and more favorable to the generic industry.

Does the ACA combat most of the major ills of the U.S. health care system? What remains to be fixed in health care?

Danzon: The ACA in no way fixes all the major ills of the U.S. health care system. It does address the gaps in insurance coverage, laying out the financing and institutional arrangements to make coverage affordable for everyone and make it possible to get close to universal coverage.

But it does relatively little to control costs. It establishes a number of pilot programs that are intended to encourage more rational reimbursement and reduce wasteful use of resources, but these are mostly voluntary, small-scale trials that are unlikely to have major impact in the short to medium term. Rational cost control will eventually be the next item on the health care agenda, but that will be an even bigger challenge politically.