Contributed by Carter Pate
FOR THE FIRST TIME since President Bill Clinton was elected in 1992, the topic of healthcare is the most important domestic issue. That means health industry executives will spend much of 2008 discussing, being questioned about and analyzing how the federal government could affect access, cost and quality.
The industry also must adjust to some substantive changes that occurred in 2007. For all of the industry, 2008 will be a pivotal year to both react and anticipate.
This will be happening on a worldwide basis. It’s projected that global healthcare spending will triple to $10 trillion in 2020 from $3.2 trillion. Domestic healthcare spending will grow from 16 percent of the gross domestic product now to 21 percent of GDP in 2020. As a result, there will be a growing demand for greater accountability and quality, representing a paradigm shift for healthcare organizations.
By polling consultants, surveying consumers and conducting other research, PricewaterhouseCoopers’ Health Research Institute has identified eight areas of concern for health executives and policy makers in the coming year.
Significant changes in the way hospitals bill Medicare will create some winners and losers. Changes implemented in 2007 represent some of the most significant changes since the inception of the prospective payment system almost 25 years ago. The government wants to pay more accurately for hospital care, which is the largest part of the Medicare budget. The new payment system, using Medicare Severity Diagnosis Related Groups, has more than 200 more codes than the previous coding system. To force hospitals to improve quality, hospitals will no longer receive reimbursement for certain “never” events, which are complications that arise from substandard medical treatment or care. Winners under these changes will be academic medical centers, while specialty hospitals and community hospitals that treat less acutely ill patients will be losers. Payers are likely to mirror Medicare’s new system and also drop reimbursement for “never” events. And hospitals will probably need to hire more coding staff, an area in which shortages already exist.
The surge in the number of retail clinics will force states, payers and policy makers to think about the right model for the delivery of primary care. There are now about 700 retail clinics in discount chain stores, grocery stores and drugstores throughout the U.S., and their numbers are expected to grow to as many as 3,000 in five years. They’re usually staffed by nurse practitioners, and treatment costs about $45 per visit, compared with $85 to $90 for an office visit. Consumers place a premium on speed and convenience, and are willing to see a nurse practitioner in lieu of a doctor. As these clinics multiply, so will attention from state regulators. Professional associations are recommending certain operating requirements, including limitations on the scope of clinical services, the creation of referral systems and the use of electronic medical records. However, many insurers cover visits to retail clinics, and physician practices and hospitals need to figure out how to work with clinics to help patients – if they aren’t starting up their own retail clinics.
The market for individual health insurance could take off. While typically more expensive than group health insurance, individual health insurance is the only option for consumers who don’t have access to group coverage. About one in 10 Americans is covered by individual health insurance, but that could change because of employers backing away from providing health insurance and the increasing trend toward early retirement. However, affordability of health insurance, and payers will need to tailor their products and distribution strategies for individuals looking for health insurance. Providers could suffer financial consequences if these plans have limited benefits; however, they may benefit if more patients have coverage.
Retirees are playing a greater role in funding their healthcare coverage – whether they like it or not. Baby Boomers are beginning to confront how they will pay for healthcare. As the population ages, employers are shifting more responsibility for retiree healthcare to their employees, in some cases even after promises have been made. Expect to see more arrangement that provide retirees with a set stipend rather than the traditional promise of open-ended healthcare coverage. Depending on the outcome of the 2008 presidential election, there also may be new options available to the public to pre-purchase retiree health coverage.
The renewed focus is on the FDA’s drug safety initiatives. In response to the withdrawal of several popular approved drugs, the public’s confidence has been shaken in the agency’s focus on drug safety. The FDA announced 41 initiatives in early 2007 to enhance drug and medical device safety, and Congress has given it increased regulatory authority. As a result, the pharmaceutical industry could have more regulatory burdens place upon it, and physicians and hospitals will need to keep abreast of new restrictions in prescribing and dispensing certain prescriptions.
Pharmaceutical companies will keep buying and collaborating with life sciences companies to stock their pipelines. It costs an estimated $802 million to develop a drug, but only one-third of the drugs that reach market earn enough to match or exceed that cost. As a result, pharmaceutical companies are investing in biological drugs. Mergers, collaborative risk sharing, joint ventures and other co-promotion arrangements between pharmas and life science companies are increasingly popular.
Hospitals begin reporting their corporate responsibility this year. There is a drive for greater accountability for not-for-profit healthcare providers to demonstrate their community benefit. Hospitals need to establish tracking mechanisms, if they’re not already in place, to accurately report community benefit statistics to the IRS on Form 990; while it won’t be filed until 2009 for the 2008 tax year, hospitals that poorly document community benefits risk losing their tax exemptions.
Asia is poised to be the largest pharmaceutical consumer and pharmaceutical producer in the world. American pharmaceutical companies have increased their presence in Asia for clinical trials and marketing because of Asia’s market size, increasing wealth and heightened awareness of health-related issues. On the other hand, Asian pharmaceutical companies may present stiff competition in the world marketplace in the future.
Carter Pate is a partner and the global and U.S. health industries and government services leader at PricewaterhouseCoopers.