Press > Category: Health Care

CNBC: Mylan CEO's Testimony was a Huge Blow to the Entire Pharma Industry

Tune in to CNBC's "Squawk on the Street" at 10am Tuesday. Bill George will be a guest.

The disregard for children's health that Mylan CEO Heather Bresch demonstrated in her testimony to the House Oversight and Government Reform Committee directly harms consumers.

Less directly, Mylan's exceptionally high price increases erode public confidence in all medical companies, including those investing billions in research to help people suffering from life-threatening diseases. 

When companies like Mylan, Valeant and Turing Pharmaceuticals — which have grown profits through financial engineering, not drug discovery — take advantage of loopholes in our health-care system, they create public outrage against all medical companies. I have a growing concern this outrage will have dire consequences for research-based pharmaceutical companies, and could even lead to price controls.

Rather than acknowledging her mistakes in raising EpiPen prices 500 percent from $100 to more than $600, Bresch has tried to obfuscate her actions by shifting the blame to health plans and pharmacy benefits managers that have instituted co-payment and high deductible plans to keep premiums low for strapped consumers. Mylan's largest price increases came shortly after the FDA pulled its competitors off the market, leaving the firm with a monopoly.

Meanwhile, Bresch claimed Mylan was not making much money on EpiPens while admitting it earned $100 on a net selling price of $274 (after normal discounts). In her testimony she said Mylan earned $100 on a net selling price of $274 (after normal discounts). It turns out that Bresch misstated Mylan's profit on Epipens – it's actually $160, not $100, as the Wall Street Journal reported. That is a profit margin of 60 percent – exceptionally high by any standard. Yet she could not answer basic questions from Congress about revenues from EpiPens and their contribution to Mylan's profits.

Bresch used EpiPen's success to fuel her rapid rise to the CEO's office, yet she proved in that testimony that she is not stepping up to the responsibilities her role demands. Publicly, she led with her chin by saying, "I am running a business to make money" as if she were running a financial fund.

Bresch may feel protected from the wrath of Congress and the public by Mylan's highly unusual governance procedures, established when the company executed a tax inversion to The Netherlands in 2015 after it turned down a purchase offer from rival Teva valued at more than twice today's stock price. Under its procedures shareholders don't get to nominate board members; only the board can do that. 

Authentic health-care companies from Mayo to Merck understand they are in business to restore people's health, and if they did that well, profits would follow. Mylan seems to be ignoring Merck founder George Merck's admonition, "Medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear."

At Medtronic, our founder Earl Bakken charged us with "using biomedical engineering … to restore health." As Medtronic revenues grew from $400 million in 1985 to $30 billion today, every CEO has faithfully followed Bakken's mission through good times and difficult ones. Medtronic's proudest achievement over these 31 years is not its growth in shareholder value from $400 million to $120 billion, but fulfilling its original mission by expanding the number of new patients restored each year from 150,000 to 30 million today. 

In 1990 in response to public concerns over rising health-care costs, Medtronic instituted a "no price increase" policy. This put pressure on us to reduce our costs while spurring investment in more advanced products. It paid off with rapid growth and high profits, which were invested in research and development, expansion into emerging markets, and acquisitions to broaden the company's base.

One of Bresch's only defenders in this experience is disgraced former hedge-fund manager Martin Shkreli, who resigned as CEO of Turing after his outrageous 5,500 percent price increases on an AIDS drug fueled public anger. To Bresch's credit, she tried to answer questions, while just Shkreli smirked in his Congressional appearance while taking the Fifth Amendment. He later arrogantly called the congressmen, "imbeciles." The public furor these bad actors have stirred up will not subside soon, especially in this election year, and are stimulating legislative actions rather than market-based solutions.

Pharmaceutical companies have long argued that they need patent protection and pricing freedom in order to justify returns on large investments in research. Yet that argument falls flat in the cases of Mylan, Valeant and Turing, which historically have not invested in research. As long as these types of companies stay in news, public pressure will mount for government price controls or at least the ability to negotiate prices. The unintended consequence of such actions could be cutbacks in high-risk research aimed at curing and healing the most threatening diseases that require high returns to justify high costs.

In contrast, the major pharmaceutical companies base their success on high-cost, high-risk science with long lead times and no assurance of returns. In recent years some short-term investors have argued for cutting back research and simply buying drugs from others. Yet those who have committed to research without hesitation — Merck, Amgen, Genentech and Novartis, just to name a few – have created breakthrough drugs that saved millions of lives and generated high returns on their investments for their long-term shareholders.

With pharmaceutical prices now under public scrutiny, responsible leaders of medical companies should call for and demonstrate restraint in setting prices for their products, especially when they enjoy protected positions. Thus far, the only CEOs to speak out publicly against these abuses are GSK's Andrew Witty, Merck's Ken Frazier and Allergan's Brent Saunders. They should be voluntarily joined by other CEOs and industry associations like PhRMA and AdvaMed.

The time for health care's leaders to act is now, before Congress acts for them.

Commentary by Bill George, a senior fellow at Harvard Business School and the former Chairman and CEO of Medtronic. He previously served on the board of Novartis. He is also author of the book "Discover Your True North." Follow him on Twitter @Bill_George.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.


 

This article was originally posted on CNBC on 09/27/16.

StarTribune: Mayo plan to remake Rochester slow to gather steam

From Matt McKinney for StarTribune, posted October 27, 2015

The city has little to show for the hoopla that surrounded the Legislature’s $585 million assist in Mayo’s plan to remake Rochester into an international center for medicine, research and health care. 

ROCHESTER – It’s been two years and five months since Mayo Clinic CEO John Noseworthy stood before a cheering crowd here to celebrate a massive $6 billion redo of the clinic and the city.

For some, what’s happened since has been a whole lot of waiting for the magic to start.

“There’s a little bit of, ‘Where’s the beef?’ ” said City Council Member Michael Wojcik.

The city has little to show for the hoopla that surrounded the Legislature’s $585 million assist in Mayo’s plan to remake Rochester into an international center for medicine, research and health care.

The first two Destination Medical Center (DMC) projects could come together soon: The city will likely close next month on a $6 million deal to buy a historic downtown theater, preserving the stately structure for an as-yet undetermined use; and a 23-floor, privately funded Hilton could break ground in January in the heart of downtown.

Still, DMC planners likely won’t reach the $200 million in private investment needed to trigger the state funding until 2017 ­— four years after legislative approval.

The project’s pace recently drew the attention of former Medtronic CEO Bill George, who sits on the Destination Medical Center Corporation board. At its most recent meeting, George said it’s time to “get down to specifics and build momentum.

“We need to see something visible,” he said.

Those words cheered developer Sean Allen, who said he’s been frustrated by DMC’s speed. “This has been an idea and something that’s been floating around for four or five years now, and it’s still just a concept,” he said. “Bill George is right, you have to actually do something.”

Billed as a needed step to keep Mayo competitive with world-class medical centers, DMC blends private investment with public tax dollars to fuel rapid growth. Mayo would extend its campus and medical know-how with $3.5 billion in investments over the DMC’s 20-year life span, while private investors would add another $2.1 billion in residential, retail and commercial investments. The $585 million in tax money would build the infrastructure to make Rochester a destination in its own right.

The plan calls for adding up to 45,000 jobs to Rochester, nearly doubling its population and adding billions in state tax revenue.

Allen’s company, Midwest Landing, plans to break ground in the spring on a luxury apartment building across the river from Rochester’s Mayo Park. A second project, a nine-story office building, might break ground next year, he said.

Despite months of public meetings and strategic planning, Allen said he’s worried that not everyone is on board. The City Council in a recent meeting nearly approved construction of a one-story bank with a surface parking lot on a vital piece of riverfront land, a move at odds with the DMC vision for the space. Meanwhile, a new four-story affordable housing project announced last week will sit in an area the DMC plan had reserved for transit.

“It needs to be something we’re trying to accomplish as a community,” said Allen.

The DMC project was pushed as a 20-year plan, a fact that Jeff Bolton, Mayo Clinic vice president and chief administrative officer, stressed in a recent interview.

“We continually have to remind folks that this is a 20-year project,” Bolton said. Mayo has made $46 million of certified DMC investments so far, and is on pace to invest $3.5 billion over 20 years, he said.

The project hasn’t certified any private investment so far, but Bolton said that, as far as private companies looking to commit to Rochester, “we probably have four or five in discussion right now.”

Pushing ahead

Still unpacking in their new downtown office, the five-member staff of the DMC Economic Development Authority (EDA) has been charged with marketing and launching the project. Most of the staffers were hired in the past three months. Executive director Lisa Clarke said she took Bill George’s comments to mean she should “stay focused.”

“So, no dawdling,” she said last week. “It’s go time.”

Her staff will build something they’re calling a dashboard to chart progress, including such metrics as building permits, jobs and changes to median income.

The EDA will adjust the plan every five years, Clarke said, asking things like, “What’s the right pace?

“Now we’re in the private phase; we have to get private developers in,” she said.

The city has contributed $19.9 million of its required $128 million commitment, including $14.4 million for a city parking ramp on the Broadway at Center project and $5.5 million for the purchase of the Chateau Theater.

Clarke’s office has been tracking 14 privately funded projects worth at least $420 million that are likely to take place within the DMC district. It’s likely that the projects will push private investment in DMC beyond $200 million by 2017, unlocking the pledged taxpayer dollars, said Patrick Seeb, the EDA’s economic development director.

DMC board member R.T. Rybak said progress has been made, but it’s in the behind-the-scenes negotiations. He said it’s unlike the Vikings stadium, which was approved a year before DMC and whose exterior is largely finished.

DMC is “in a quiet phase right now,” the former Minneapolis mayor said. “That’s the way that field has to work.”

The DMCC board chair, Lt. Gov. Tina Smith, said, “My sense is that you’re going to see incremental progress during the course of the entire 20 years.”

StarTribune: Mayo plan to remake Rochester slow to gather steam

From Matt McKinney for StarTribune, posted October 27, 2015

The city has little to show for the hoopla that surrounded the Legislature’s $585 million assist in Mayo’s plan to remake Rochester into an international center for medicine, research and health care. 

ROCHESTER – It’s been two years and five months since Mayo Clinic CEO John Noseworthy stood before a cheering crowd here to celebrate a massive $6 billion redo of the clinic and the city.

For some, what’s happened since has been a whole lot of waiting for the magic to start.

“There’s a little bit of, ‘Where’s the beef?’ ” said City Council Member Michael Wojcik.

The city has little to show for the hoopla that surrounded the Legislature’s $585 million assist in Mayo’s plan to remake Rochester into an international center for medicine, research and health care.

The first two Destination Medical Center (DMC) projects could come together soon: The city will likely close next month on a $6 million deal to buy a historic downtown theater, preserving the stately structure for an as-yet undetermined use; and a 23-floor, privately funded Hilton could break ground in January in the heart of downtown.

Still, DMC planners likely won’t reach the $200 million in private investment needed to trigger the state funding until 2017 ­— four years after legislative approval.

The project’s pace recently drew the attention of former Medtronic CEO Bill George, who sits on the Destination Medical Center Corporation board. At its most recent meeting, George said it’s time to “get down to specifics and build momentum.

“We need to see something visible,” he said.

Those words cheered developer Sean Allen, who said he’s been frustrated by DMC’s speed. “This has been an idea and something that’s been floating around for four or five years now, and it’s still just a concept,” he said. “Bill George is right, you have to actually do something.”

Billed as a needed step to keep Mayo competitive with world-class medical centers, DMC blends private investment with public tax dollars to fuel rapid growth. Mayo would extend its campus and medical know-how with $3.5 billion in investments over the DMC’s 20-year life span, while private investors would add another $2.1 billion in residential, retail and commercial investments. The $585 million in tax money would build the infrastructure to make Rochester a destination in its own right.

The plan calls for adding up to 45,000 jobs to Rochester, nearly doubling its population and adding billions in state tax revenue.

Allen’s company, Midwest Landing, plans to break ground in the spring on a luxury apartment building across the river from Rochester’s Mayo Park. A second project, a nine-story office building, might break ground next year, he said.

Despite months of public meetings and strategic planning, Allen said he’s worried that not everyone is on board. The City Council in a recent meeting nearly approved construction of a one-story bank with a surface parking lot on a vital piece of riverfront land, a move at odds with the DMC vision for the space. Meanwhile, a new four-story affordable housing project announced last week will sit in an area the DMC plan had reserved for transit.

“It needs to be something we’re trying to accomplish as a community,” said Allen.

The DMC project was pushed as a 20-year plan, a fact that Jeff Bolton, Mayo Clinic vice president and chief administrative officer, stressed in a recent interview.

“We continually have to remind folks that this is a 20-year project,” Bolton said. Mayo has made $46 million of certified DMC investments so far, and is on pace to invest $3.5 billion over 20 years, he said.

The project hasn’t certified any private investment so far, but Bolton said that, as far as private companies looking to commit to Rochester, “we probably have four or five in discussion right now.”

Pushing ahead

Still unpacking in their new downtown office, the five-member staff of the DMC Economic Development Authority (EDA) has been charged with marketing and launching the project. Most of the staffers were hired in the past three months. Executive director Lisa Clarke said she took Bill George’s comments to mean she should “stay focused.”

“So, no dawdling,” she said last week. “It’s go time.”

Her staff will build something they’re calling a dashboard to chart progress, including such metrics as building permits, jobs and changes to median income.

The EDA will adjust the plan every five years, Clarke said, asking things like, “What’s the right pace?

“Now we’re in the private phase; we have to get private developers in,” she said.

The city has contributed $19.9 million of its required $128 million commitment, including $14.4 million for a city parking ramp on the Broadway at Center project and $5.5 million for the purchase of the Chateau Theater.

Clarke’s office has been tracking 14 privately funded projects worth at least $420 million that are likely to take place within the DMC district. It’s likely that the projects will push private investment in DMC beyond $200 million by 2017, unlocking the pledged taxpayer dollars, said Patrick Seeb, the EDA’s economic development director.

DMC board member R.T. Rybak said progress has been made, but it’s in the behind-the-scenes negotiations. He said it’s unlike the Vikings stadium, which was approved a year before DMC and whose exterior is largely finished.

DMC is “in a quiet phase right now,” the former Minneapolis mayor said. “That’s the way that field has to work.”

The DMCC board chair, Lt. Gov. Tina Smith, said, “My sense is that you’re going to see incremental progress during the course of the entire 20 years.”

StarTribune: Bill George: Tax inversion deals should make sense beyond just taxes

From StarTribune, June 28, 2014

With Medtronic’s $43 billion acquisition of Covidien, Pfizer’s failed $119 billion bid for AstraZeneca, and AbbVie’s pending $46 billion proposal for Shire, conflicting opinions abound about the merits and drawbacks of tax inversions. Some consider them unpatriotic. Others believe companies are bound by fiduciary responsibility to consider them.

My conclusion: Companies that do deals primarily driven by tax considerations are headed for trouble. This lets the tail wag the dog. The only justification for a merger or acquisition is to strengthen your company’s strategic position. That’s what motivated Medtronic CEO Omar Ishrak to pursue the Covidien acquisition: The companies fit together perfectly.

Here are five tests that boards of directors should satisfy before approving any deal:

Does the acquisition further your company’s mission? Your mission should provide purpose beyond financial returns that creates value for customers, employees, shareholders and other stakeholders. Most important, it should motivate employees to create innovations and deliver great service far more than financial incentives.

Does it advance your global strategy? If companies want to expand into higher growth markets, acquisitions can accelerate their growth. If its strategy is emerging market growth, acquisitions can provide greater presence. Sound acquisitions can also strengthen new-product pipelines.

Does it motivate your employees and the acquired company’s? Sustained value creation only occurs through dedicated employees working together to advance the company’s mission. The key is to engage employees of the newly acquired company to commit to their new owner. That’s what Medtronic did a decade ago with its acquisitions of Sofamor-Danek, AVE, and Mini-Med, as employment tripled. Acquisitions also create personal growth opportunities for current employees.

Will the acquisition lead to sustainable earnings growth? The acquisition should be accretive to earnings within two years, including realistic cost-saving synergies, without cutting back investments in future growth. Acquisitions like Valeant’s proposed hostile takeover of Allergan, which is based on cutting R&D spending from 17 percent of revenue to 3 percent, fail to produce sustainable earnings growth.

Pfizer erred in betting entirely on cost cuts to justify $240 billion it spent to acquire Warner-Lambert, Pharmacia-Upjohn and Wyeth. As a result, its shareholder value declined 32 percent in 14 years. In its failed bid to acquire AstraZeneca, the latter’s shareholders were extremely wary of Pfizer’s tactics.

Can the acquisition be funded without putting your balance sheet at risk? Successful acquisitions must generate future cash flow to repay the investment. These days borrowing money is cheap due to low interest rates, but companies shouldn’t get overleveraged in case of economic downturns, as they did in 2008-09.

What about taxes?

Taxes are the No. 1 question on everyone’s mind with Medtronic’s acquisition. After the company answered the first five questions affirmatively, it sought ways to finance it utilizing $14 billion in trapped cash. The tax inversion gave Medtronic access to these funds and also $7 billion in annual cash flow after the acquisition closes.

Do companies have an obligation to repatriate overseas earnings and pay the additional 35 percent in U.S. taxes? Not in the opinion of CEOs and CFOs. That’s why U.S.-based corporations are keeping foreign earnings abroad, leaving over $2 trillion in cash trapped overseas.

The U.S. already has the highest corporate tax rate in the world, which is a significant competitive disadvantage to U.S.-based global companies. To access overseas cash, even for domestic investments, there is a significant incentive for tax headquarters to migrate abroad. The ideal solution is for Congress to rewrite the corporate tax code. But given the stalemate that currently exists in Washington, a tax bill is highly unlikely before 2017.

In the near term, President Obama should declare a six- to 12-month “repatriation holiday,” enabling companies to bring cash home tax-free provided they present plans to reinvest the funds in capital expenditures, R&D, job creation and new ventures. I have recommended this approach since 2010. So far, nothing has happened. As a consequence, U.S. companies are finding alternative approaches such as tax inversions. Otherwise, they are in the unenviable position of being worth more to a foreign buyer than to their own shareholders.

Bottom line: Tax inversions should only be considered after the first five tests are answered satisfactorily.

Andrew Sorkin for NY Times: Do Drug Companies Make Drugs, or Money?

Andrew Sorkin for NY Times, June 2, 2014

“I just want to emphasize that this is an industry where it is composed of really great people, working to do good things for patients, for doctors and actually for society, and when I look at our employees, there is sort of a noble purpose to working in the pharmaceutical industry.”

That was Mike Pearson, the chief executive of Valeant Pharmaceuticals International, waxing poetic last week about the virtues of his company. He was doing so as he was trying to sell shareholders of Allergan, the maker of Botox, on his company’s $53 billion takeover bid.

Mr. Pearson may have wrapped himself in the promise of the pharmaceutical industry’s ability to deliver lifesaving breakthroughs, but there’s a not-so-small problem with his self-righteous declaration: Of virtually every big drug company, Mr. Pearson’s may very well be among the least innovative.

To the extent Mr. Pearson has succeeded over the years, he has done so largely by sharply cutting research and development budgets, arbitraging tax domiciles — Valeant left the United States for Canada’s lower tax rates in 2010 by merging with Biovail — and buying rivals so he can cut their costs, too, while they take advantage of his lower tax rate.

Bill George, a professor of management practice at Harvard Business School and the former chairman and chief executive of Medtronic, recently asked a provocative question: “Is the role of leading large pharmaceutical companies to discover lifesaving drugs or to make money for shareholders through financial engineering?”

Mr. George asked the question in the context of Pfizer’s recent failed bid for AstraZeneca, but he could have been talking about Valeant.

Mr. Pearson’s Valeant famously teamed up with Bill Ackman, the activist investor who runs Pershing Square Capital Management, to buy nearly 10 percent of Allergan’s shares through a complicated transaction that some suggested was tantamount to front-running. It hoped to use that leverage to persuade Allergan’s shareholders to accept Valeant’s bid, which it has now raised several times.

Over the last several weeks, Mr. Pearson and Mr. Ackman have engaged in all sorts of criticism and name-calling of Allergan and its chairman and chief executive, David E. I. Pyott.

Mr. Ackman called Mr. Pyott conflicted and said he “appears to be motivated more by personal animus than by what is in the best interest of Allergan shareholders.”

That kind of language may just be part of the game, but it is particularly curious because Allergan isn’t one of those horribly managed businesses that are often the targets of such vitriol. Here’s what the investment firm Sterne Agee said in its recent research report: “The Allergan executive team is one of the best and most shareholder-focused in the pharmaceutical industry.” The numbers tell the story: Allergan’s stock is up 290 percent over the last five years.

And so what we’re left with isn’t a tale about a brilliantly innovative drug company trying to buy a mismanaged fixer-upper; it’s quite the opposite. Valeant, desperate for ways to increase its revenue, needs a cash cow to milk until it can find the next one.

“Allergan spends 17 percent of its revenue on research and development, compared to Valeant’s 3 percent, and Valeant has said it plans to cut around 20 percent of the combined companies’ 28,000 jobs in the merger. We do not believe that this is the sort of economic activity that policy makers should be actively encouraging in their rule-making (or foot-dragging),” Martin Lipton, the co-founder of Wachtell, Lipton, Rosen & Katz, which has long railed against the short-term nature of activist investing, wrote in a note to clients. Given his views, it shouldn’t come as a surprise that Mr. Pyott hired Mr. Lipton’s firm to help defend against Valeant.

In case there is any question about Valeant’s slash-and-burn strategy, here is Mr. Pearson in his own words from last week on the value of research and development: “There has been lots and lots of reports, independent reports, talking about how R.&D. on average is no longer productive. I think most people accept that. So it is begging for a new model, and that is hopefully what we have come up with.”

Mr. Pearson isn’t completely wrong: Research and development has proved to be less efficient at producing blockbusters than it was decades ago. But that doesn’t mean the goal should be to try to purge research and development budgets simply to pay out bigger short-term dividends.

And here is Mr. Pearson on his tax-dodging strategy: “As I think maybe you are aware, we were able to get a corporate tax structure which took our effective tax rate from 36 percent over all to what was actually 3.1 percent, which we hope to continue to work on and move lower.” How much lower can it go?

Mr. Ackman, who has a terrific investment performance record and a mixed activist record — he practically destroyed J. C. Penney while doing miraculous work to resuscitate General Growth Properties — has been encouraging Mr. Pearson to increase his offer to induce Allergan to the negotiating table. On Friday, he announced a new twist that he implied should make it clear this is no short-term play for him.

“Early this morning, I called Mike and offered to give up $600 million of value to the other Allergan shareholders and exchange our shares for Valeant stock if Valeant were prepared to increase its offer to the other Allergan shareholders,” Mr. Ackman said in a statement. “We believe that our gesture to the other Allergan owners makes an extraordinarily strong statement about our belief in the long-term value of this highly strategic business combination.”

Of course, the saddest part of this battle between Valeant and Allergan is you never really know if the target is trying to defend itself against a deal it knows to be destructive or if it is just playing its well-rehearsed part in a negotiating dance to obtain a higher price. But if Allergan sells, you know the outcome.

Opening of Penny George Institute at New Ulm Medical Center

Very proud of my wife Penny who continues to champion integrative medicine. Yesterday she opened the new Penny George Institute at New Ulm (MN) Medical Center, part of Allina Health. Full article

Mayo Medical School Commencement Address - Challenges For The New Generation

On Saturday I was deeply honored to receive an honorary doctorate from Mayo Medical School and to give the commencement address. My subject was “Challenges for the New Generation of Physician and Scientific Leaders” in which I challenged the graduating class of MD/PHDs, MDs and PHDs to step up to leadership roles to transform the nation’s health care system. The text of my remarks can be found here.

NY Times DealBook - A Case for Rejecting Pfizer’s Bid for AstraZeneca

Is the role of leading large pharmaceutical companies to discover life-saving drugs or to make money for shareholders through financial engineering? Pfizer claims “both,” I don't believe pharmaceutical companies can create long-term shareholder value by focusing solely on chasing lower tax venues and cutting research and development spending.  Read more in my New York Times Dealbook article

CNBC - Obamacare site tip of the iceberg: Ex-Medtronic CEO

"This is the Titanic." That's how former Medtronic Chairman and CEO Bill George described Obamacare.

"It's just at the iceberg and everyone is looking at the tip: HealthCare.gov," George told CNBC's "Squawk Box" on Wednesday. "It's not going to be solved by the end of the month," when the Obama administration has promised to have the troubled website working smoothly. Government officials and outside contractors have been rolling out improvements overnight for weeks.

At an Obamacare event in Florida, Health and Human Services Secretary Kathleen Sebelius said Tuesday she's confident that the government-run HealthCare.gov website is on the right track. She encouraged users who previously had problems to return—promising them a better experience already.

(Read moreSenior officialdrops Obamacare bombshell)

"You cannot solve a management problem with politics," said George, a professor of management at Harvard Business School. "Sebelius has done her time. ... Let's bring in the pros," people with private sector experience, he said.

Beyond the website, George said, "Look at this fiasco we have right now, we're trying to take people's insurance plans away; now we're giving them back." President Barack Obama acted "too late on the insurance plans."

Obamacare has to be fixed, he continued. "You're not going to repeal it. It's not going to be repealed because by 2017 this thing is going to be locked."

(Read moreObamacare may need bailout: Ex-HHS head)

One of the ways George said to fix the law is to give people an incentive for living healthier lives. Until then, he said, "We're going to have a huge snowplow effect of costs. It will not happen in this president's term. It will happen in the next president's term."

As for the tax on medical device makers, like Medtronic, to help pay for Obamacare, George called it a punishment for the industry's lack of support for the health-care law.

Six Ways to Save Obamacare

Only President Obama can save Obamacare.

Obamacare is not going to be repealed – not now and not in the future. However, there is real risk it could collapse under its own weight. If that happens, the President's credibility will collapse as well. Whether or not you support this President, this could seriously harm the health of our citizens and America’s fiscal stability.

The President will not succeed until he faces this reality: the challenge of Obamacare is not a political issue, it is a management issue. Playing politics--no matter how successfully--cannot solve management problems.

To save Obamacare, the President should:

#1: Replace the politicians with professionals. President Obama is a superb politician, but he needs to surround himself with experienced leaders who possess the capabilities he lacks. That means replacing HHS Secretary Katherine Sebelius (also a fine politician) with an experienced health care leader who has successfully created large-scale systems serving millions of people. My first recommendation is George Halvorson, who built Kaiser Permanente as its Chair and CEO. Other candidates include Dr. William Brody, MD, PhD, who currently heads the Salk Institute, and Lois Quam, who built Optum Health for UnitedHealth Group and was Hillary Clinton's head of global health at the U.S. State Department.

#2: Fulfill the promises that "No one would lose their current health plan" and "You can keep your doctor." The promises Obama made to build public support for the law are simply not true today. Already, two million people have had their health insurance cancelled, and the number could rise as high as 16 million. The law set uniform standards for all Americans at a very high level, knocking out high deductible plans and forcing levels of coverage that many people don't want or need. The President needs a quick fix by asking for Congressional approval to exempt all existing health plans for the next three years rather than forcing people into more expensive plans on the exchanges. Then HHS should notify participants in these plans they can keep their plans until January 1, 2017, providing adequate time to adapt to Obamacare.

#3: Turn healthcare.gov into a consumer-friendly website. The problem with the government exchange site is not a technical problem, but a management problem. Until this week, no one has been in charge of the overall system, leaving the techies working at cross purposes with each other and the federal bureaucrats trying to control them. Is anyone surprised this led to mass chaos? Worse yet, no one thought through what consumers wanted and how to make the system easy for them to navigate. Secretary Sebelius has acknowledged that HHS never did "end-to-end" testing of the system. Nor did HHS run pilot tests in any states. Can you imagine Apple not bothering to test the complete system before launching the iPad?

#4: Slow down Obamacare's implementation. After this false start, trying to force all Americans to choose a plan by January 1, 2014 is a formula for disaster. The President needs to take the pressure off by delaying the effective date of the individual mandate to July 1, 2014 or January 1, 2015. The latter is the new effective date of the employer mandate, which has already been delayed a year. Even the most skilled professionals can't fix this system overnight, so don't force an unrealistic timetable that causes frustration and chaos.

#5: Fix the problem of adverse selection before it spirals out of control. The underlying premise of Obamacare is to force high premiums on healthy young people to pay for the high cost of unhealthy older people. Early indications are that this isn't working, as high cost patients are signing up but young people are not. Many will simply opt out by paying a modest penalty for not carrying insurance – less than $100 in year one. To correct this problem, Obamacare should be modified to permit healthy and young people to enroll in high-deductible plans. This could lead to upward rate adjustments for the older population which better reflects their share of the costs. The President won't like this adjustment but it is inevitable, so he is better off being proactive than waiting for another crisis that could further derail Obamacare.

#6: Change the subject from insurance access for disease care to healthy living. For the past five years all the energy has gone into providing insurance access for all Americans – a worthy goal. Little has been done to address the real driver of health care costs: the declining health of the American people. More than 50% of health care costs are lifestyle-related, yet 95% of our efforts and the reimbursement that goes with it is for downstream care. By giving everyone full access to downstream care, there is no incentive to keep yourself healthy. In fact, the Affordable Care Act specifically prohibits charging less to healthy individuals, as most employer-based plans do. The only sustainable way of controlling costs is to incentivize people to take responsibility to keep themselves healthy with the support of their health care team, which should include health and wellness practitioners. For its part, HHS needs to move forward with the reimbursement shift for providers from "fee for service" plans to "paying for value" delivered to its patients, an essential step in shifting the focus.

Conclusion

Our health care system urgently needs to be fixed, but in its current form Obamacare is not what the doctor ordered. Republican efforts to repeal it altogether are a distraction that only serves to divide the country. In the three and one-half years since the Affordable Care Act was passed, the President has been unable to build support among the general population, nor is HHS ready to implement it in its original form. Instead, the President should take a pragmatic approach to give a new management team time develop a viable implementation plan that gives consumers time to adapt and incentives for staying healthy.