Health Care in America: Shaping the Current Debate
By Raymond V. Gilmartin
Chairman, President and CEO
Merck & Co., Inc.
at the Greater Philadelphia Chamber of Commerce
Wednesday, June 25, 2003

As prepared

Thanks for that terrific introduction, Governor (Mark Schweiker). Good morning. It’s an honor to speak to the Greater Philadelphia Chamber of Commerce, one of the region’s most respected organizations.

Merck is proud to call Pennsylvania home to some of our most important operations. We have major research and manufacturing facilities located throughout this region of the state. As a member of the business community, Merck shares many of your concerns about health care in America.

Merck is recognized for our ability to turn cutting-edge science into novel medicines that are true advances in patient care. In order for us to continue to do this, we have to be on the leading edge.

Pennsylvania and the rest of America are in the midst of a scientific revolution. This revolution is being driven by an explosion of knowledge in the neurosciences; in cancer; diabetes; obesity; and other disease areas. It’s being driven by new knowledge from the human genome project. And it’s being driven by advances and tools that further the work of drug discovery by giant steps.

The question is not whether we are in a new age – some have called it the age of biology – but whether America’s health care system can deliver the products of this new age to all Americans and, increasingly, to people around the world.

This is a pressing issue: Where diseases once took weeks or months to travel worldwide, they now move between continents within hours. Where scientists once tackled diseases that struck close to home, today they are battling a new wave of global challenges: HIV/AIDS, influenza, drug-resistant bacteria, SARS, and man-made diseases designed for terror and death.

Today, I would like to suggest that America’s corporations and their leaders, and all of you in this audience, have the opportunity to play a different and very significant role in shaping our health care system to ensure that the benefits of this age of biology reach everyone.

I’d like to begin, of all places, in South Africa, and take you with me on a journey that I took last September through Africa. What I saw there holds important lessons for ways in which America’s corporations can play a dramatically different role to bring about change in the U.S. health care system.

In South Africa, I visited the University of Cape Town Medical School. I met with Dr. Nicky Padayachee. He told me that he had been able to finish medical school because of a scholarship from Merck. He went on to become internationally known, and is now dean of the medical school. Dr. Padayachee took me on a tour of the new wing of the Cape Town Medical School Library, which Merck helped fund.

This is classic corporate philanthropy – where a company provides funding to support causes that are consistent with its business – in our case, medical education and a medical library.

I also visited the small village of Bombani in Tanzania. In Bombani, people have little in the way of material possessions. What little they do have – including their sight – is threatened by a devastating disease called river blindness.

In the mid-1980s, Merck made the decision to donate Mectizan – a once-a-year treatment for river blindness – for as long as needed to as many people who need it. I visited Bombani to celebrate the 15th anniversary of the Merck Mectizan Donation Program®, and I had the opportunity to deliver the 250 millionth free dose of Mectizan to a Bombani woman.

The Mectizan Donation Program demonstrates a second – and higher – level of corporate engagement. In many respects, the decision to donate the medicine was relatively easy compared to the task of getting it to people. We donated the drugs. But we didn’t stop when the drugs were delivered to the loading dock.

We also assumed the leadership and the responsibility of assembling a coalition to actually deliver this medicine to patients in some of the world’s most remote areas. Many of the people involved in this effort risk their lives to get medicines to people in villages where the roads literally end.

Through this partnership, we were able to create a successful collaboration among partners such as the World Bank, the World Health Organization, and the Carter Center as well as other non-governmental organizations. And in doing so, we went beyond classic philanthropy to help people gain access to our medicine.

The Mectizan Donation Program now reaches 30 million people in 33 countries.

In Botswana, along with the country’s president, I visited the village of Palapye, where we broke ground for a center for AIDS orphans called the House of Hope. We also visited Serowe and opened an AIDS treatment and counseling center.

That country, which is roughly the size of Texas, has a population of 1.7 million people, and more than a third -- 37 percent of the entire population – are infected with HIV.

In Botswana, Merck has taken corporate involvement in global health to an even more ambitious level. Through a partnership with the Government and the Bill and Melinda Gates Foundation, we have created a truly comprehensive program to address HIV/AIDS.

The Gates Foundation and the Merck Company Foundation are each providing $50 million to the partnership. Merck is also providing our antiretroviral medicines at no cost.

We’re focused on preventing the transmission of HIV through public awareness and education efforts.

We’re helping to train physicians and nurses, and we’re building health care centers and orphan day care centers.

And we’re building coalitions among churches, communities, and non-profit organizations to support AIDS victims and their families.

This kind of partnership – among a pharmaceutical company, a foundation and a nation state – is actually quite extraordinary. We are seeking to create a model that other countries and other companies can follow to conquer HIV/AIDS.

After my trip I met a successful entrepreneur from South Africa. This CEO was impressed with what Merck is doing, yet he asked me, “How do you justify this to your shareholders?”

His question is a legitimate one.

Of course our instinct as a company, given our values and traditions, is to address global health care challenges. The reasons for doing so are in the best interests of our business and, as a result, our shareholders.

First, as a company that discovers medicines, we have a clear interest in seeing that these medicines are used as widely as possible.

Second, by engaging to solve problems – such as improving access to medicines for the millions of people living with HIV/AIDS in Africa – we prevent potentially destructive alternative solutions from taking root.

For example, some believe that taking away our patents or forcing us to sell our medicines at government set prices are good ways to increase access. But these ideas are ultimately counterproductive to pharmaceutical innovation. And unless we act to pre-empt them, we leave our fate in the hands of others.

Third, because Merck works to solve global health problems, we are able to attract and retain the great talent that we need. Merck’s people take pride in what we do and as a result, they are highly motivated and totally committed to our success.

Yet, addressing global health care challenges is not only in the interests of a pharmaceutical company such as Merck. Other companies in other industries are addressing the challenges.

I recently joined with leaders from Coca-Cola, Daimler Chrysler, General Motors and other businesses at a forum in Washington sponsored by Senate Majority leader, Dr. Bill Frist, to highlight corporate initiatives that address HIV/AIDS in Africa.

One company representative described how he must train three employees for every one position – because one or two of those three employees will likely contract AIDS and die. Preventing HIV/AIDS among employees and their communities can change this grim equation.

Coca-Cola, Chrysler, and GM operate in countries where health care systems are inadequate to meet the HIV/AIDS crisis and where, in many cases, governments are failing to act.

These companies understand that their failure to act will devastate their employee base, their customer base, and the national economies that support their businesses.

Without such action, the future of the entire continent of Africa is in doubt. While the health care challenges we face in the U.S. are less dramatic, they are no less important.

The United States has the capability to deliver extraordinary health care because we have extraordinary physicians, hospitals, technologies and, yes, medicines. But our health care system is significantly underperforming its potential.

More than 40 million Americans woke up today without health insurance. While most have access to health care through emergency rooms and public health clinics, the lack of health insurance means less real access to care – especially preventive care including prescription medicines.

None of America’s seniors go without basic health insurance thanks to the federal Medicare program, yet nearly half of all Medicare beneficiaries do not have adequate or reliable prescription drug coverage. They don’t fill their prescriptions or cannot afford the best medicines.

The quality of our health care is also a significant issue. The Institute of Medicine reported that every year about 100,000 people die in hospitals from preventable medical errors.

And quality is as much a concern in the physician’s office and the pharmacy as it is in the hospital setting.

And the cost of health care is a constant concern. As a pharmaceutical company executive, I am acutely aware that – even though medicines are perhaps 10 percent of the total cost of health care in the U.S. – the rate of growth in pharmaceutical expenditures has drawn attention to my industry’s prices and practices.

While it may make perfect sense for Merck, as a company involved in health care, to be a catalyst for change in improving the U.S. health care system, I believe it also makes perfect sense for all of America’s businesses.

In Africa, private companies have become catalysts for change. They have shown that where problems seem overwhelming, solutions can be found. We have that same opportunity in the U.S.

I suggest that the magnitude of the changes needed require a response that’s equal in magnitude. We must broaden our level of engagement, looking beyond the traditional day-to-day health care concerns, and engage fully in fundamental issues, such as giving more people access to health care.

To some extent, we can all claim we’ve been involved in health care. What I am talking about is involvement and engagement that goes far beyond the roles traditionally played. It’s in our best interests to do so.

Companies that provide good health insurance to their employees and families pay for the uninsured in the form of hidden taxes. Put simply, they pay for uncompensated care and for cost-shifts that take place when health providers raise prices for those who do pay… to make up losses from those who don’t pay.

Medicare’s lack of prescription drug coverage affects corporations that fill the gap in Medicare drug coverage and provide medicines for their retirees. For many companies, it’s increasingly difficult to pay these costs, and many are forced to consider whether they must break the promise they made to their retirees.

Finally, from an even broader perspective, the human and economic burden of poor health that comes from a lack of insurance and prescription drug coverage is a drag on our entire nation’s productivity and our economy.

The cost of health care is, of course, a common concern. Everyone in this room is probably concerned about rising health care costs.

There is an answer to that concern. I suggest that the private sector undertake three initiatives to improve our health care system and help it achieve its full potential.

First, we should support the modernization of Medicare and solve the problem of the uninsured.

Second, we must shift our mindset as purchasers of health care from price to value.

And third, we should drive competition to improve quality and control costs.

Let me start with Medicare and the problem of the uninsured. Merck is a leading advocate for adding prescription drug coverage to Medicare and extending coverage to the uninsured. We are as active in the U.S. as we are in the developing world--and for the same reasons.

We want our medicines to be widely available. We want to avoid destructive solutions such as price controls, and we want to attract and retain great talent to our company. One of my primary purposes in joining you today is to enlist your support in dealing with Medicare and the uninsured.

Merck has been a leading advocate for adding prescription drug coverage to Medicare. And we have worked with others who also want to make this goal a reality – Republicans, Democrats, consumer advocates and labor leaders. Together, we have tried to find solutions that expand coverage without destroying the incentives for innovation.

The Senate Finance Committee, with strong bipartisan support, passed a bill that provides new prescription drug coverage for all beneficiaries using private-sector choice and competition. And last week, the House Ways and Means Committee acted on its own Medicare bill, as did the Energy and Commerce Committee. Both the House and Senate will vote on legislation this week.

The debate underway in Congress holds great promise. The leading proposals seek to add drug coverage and strengthen the entire Medicare program to provide seniors a choice of health plans more like what they had when they were active employees.

We support modernizing the Medicare program to give beneficiaries the same kind of choices and the same coverage, including prescription drug coverage, that members of Congress and other federal employees have through the Federal Employees Health Benefits Program.

This program gives its members wide choice among qualified, private health plans that rely on market competition to improve quality, integrate care, and manage costs.

Yet modernizing and improving Medicare is only part of the solution to ensuring that everyone in the country gets the best health care. While Medicare has received a lot of attention – in fact the lion’s share – we must remember those who don’t have health insurance and call attention to their pressing need.

No American should go without basic health insurance.

You might be surprised to hear that more than 80 percent of the uninsured – about 35 million people – are actively employed or are members of families in which at least one member is employed.

About half of those people are offered insurance through their employers but refuse it, often because they cannot afford it. The other half are associated with companies that don’t offer health care benefits.

Clearly, the first step is to build on the existing but underutilized infrastructure of employer-based insurance coverage, and expand it. We can address the issue of the uninsured with a new system of federal tax credits to help employers provide coverage, and to help employees afford coverage.

And this idea has growing support. Last year, members of Congress reached across party lines to enact a version of this idea for workers whose jobs are lost to foreign competition.

We also need to make sure that those who are not connected to the workforce – approximately 20 percent of the uninsured – are enrolled in existing safety net programs such as Medicaid…and ensure that these programs are adequately funded.

Moving to the second initiative – shifting our mindset from price to value – the problems of our U.S. health care system will not be solved when everyone has health insurance. Our health care system must deliver greater quality and value.

How can we drive quality in health care? We can begin by looking at purchasing practices. We must look beyond the price of the health care to the quality of the care that employers purchase for their employees.

Health care should not be viewed as a commodity bought simply on the basis of price. There are important differences in the quality of health care. By shifting the focus from price to value, we reward and encourage quality providers and quality health care plans.

Let’s turn to the third initiative, which is driving competition in health care.

In most economic sectors, competition is a powerful force to align the price of a purchase with its benefit. Competition also works in health care.

We have first-hand experience with our subsidiary Medco Health Solutions, which manages prescription benefits. Medco Health has large and sophisticated clients that are very effective at driving competition with other prescription benefit managers. And this competition is improving the quality of pharmacy care and delivering it at a competitive price.

In turn, Medco Health is driving competition within the pharmaceutical industry. They, along with others, increasingly demand value.

They ask: Do our medicines provide true advances in patient care? Are they priced competitively? We encourage this kind of competition through our health policy initiatives.

We do this because we believe it is the right approach for our health care system, and because it creates an environment in which we can succeed with scientific excellence.

Purchasers of health care can maximize the benefits of health care competition. They can seek more and better information about health care providers and products, such as experience, outcomes, price, and patient satisfaction. They can help their employees make informed decisions that will reward high-quality providers and drive substandard providers to improve – or get out of the business. Clearly, this information is vital for both individual providers and health plans.

Health care competition also can shift the focus to the value of new health care innovations.

The innovative medicines and vaccines we’re developing today at Merck have the potential to improve the health of millions of people around the world. We’re working on promising treatments for diabetes, obesity and depression. And we’re developing vaccines for human papillomavirus, rotavirus and shingles.

As an aside, companies tend to think of health coverage for employees simply as a cost. It’s time to change that paradigm, because – as Coca-Cola, GM, Chrysler, Merck, and many of you have seen for yourselves, providing good health care is an investment.

We must think in human terms…think of investing in employee and family health and their quality of life. We must protect that investment by making sure we are getting the best quality for our health care dollars.

If American businesses help shape a health care system that works for all patients, they will create a healthier work force, a healthier nation, a stronger economy and more profitable companies.

Business leaders have an opportunity to play a significant role, and a different role, than the traditional one. We can become catalysts for change.

Thank you for inviting me to Philadelphia. And now, I’ll be happy to answer any questions you might have.

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