Jose Jimenez, CEO of Novartis, Gives You Some Insight Into The Cost Structure Of The Health Care Industry.

Remember, this guy is running one of the world's largest pharmaceutical companies.  This interview in Business Week gives you a glimpse inside. (I added the bold face type in the story.)

 

Novartis's Joe Jimenez on Layoffs in Good Times

Posted on April 05, 2012

Related

• Novartis at 'Tail End' of Cost-Cutting Program, CEO Says

• 

When I was named CEO of Novartis (NVS) in 2010, it raised some eyebrows. I wasn’t a scientist or a physician. I was an American. Most of my career had been in consumer packaged goods. Before I joined in 2007, I ran Heinz (HNZ) in Europe; you have to be fast in positioning your business ahead of the competition. The pharmaceutical business is much longer term. It can take 10 years to develop a drug. As soon as I became CEO, there was more distance just the very next day, even with friends. My first move was to invest in the pipeline by keeping our research and development at about 20 percent of sales. 

It was clear we needed reductions. The business was performing well, but governments around the world were being significantly affected by the debt crisis and were cutting prices in health care. I felt we had to reduce our cost base, and I wanted to do it from a position of strength. If we waited, we would have had to lay off more. I struggled with the decision. It’s part of the job, even if it’s a painful part. There was some reference in the media to unannounced layoffs, but we had communicated this internally as something that was necessary. We looked at sales and marketing, and elsewhere. Instead of one big layoff, we had pockets of reduction in 2010. Earlier this year we announced we’d have to cut about 2,000 jobs as (the blood-pressure-lowering drug) Diovan goes off patent. We’re getting costs down to invest for the long term.
Increasingly, in every part of the world, pharmaceutical companies will not be paid on the number of pills they sell but on the outcomes they produce. In the U.S., we spend about 17 percent of GDP on health care. Singapore spends 1.3 percent and gets better health outcomes. Something is very wrong. Look at obesity rates. You’re never going to lower health-care costs until you encourage healthy behavior. The second issue is a fee-based system that gives an incentive to test and test.

I’ve moved from being a highly analytical decision maker to what I call symphonic reasoning. You think about all different angles of the problem. You have to have patience, and that only comes with age and experience. I want innovation, not cost reduction, to be the signature I have. Some decisions don’t pay off for years. — As told to Diane Brady