The new healthcare reform law will make many healthcare organizations' current business practices and markets irrelevant, according to a new report by PricewaterhouseCoopers (PWC). The best method of survival may mean working with "unlikely new allies."
According to PwC's report, "Health Reform: Prospering in a post-reform world," published Wednesday, the primary changes from healthcare reform will involve new types of coverage, new fund flows and new regulators.
The changes are expected to create "an entirely new health system that does not look like or act as it does today and will require sectors to work together," PWC experts said.
Healthcare organizations face more than 60 major regulatory deadlines over the next ten years, creating "a profoundly different healthcare environment."
But there is some good news. Opportunities are embedded in the new changes, the report said, but to make the most of them and prosper in a post-reform environment, health executives will need to think outside the box, break down silos and make friends of former adversaries.
Kelly Barnes, U.S. health industries leader at PWC, said looking at the implications of health reform only in the context of current business practices is not only futile but misses the point of the reform agenda.
"If health organizations make no other changes and sectors continue to operate in silos, the direct financial impact of healthcare reform could be devastating and even threaten their survivability," Barnes said.
How will this all play out? PWC makes its predictions for each sector below:
Providers
New reimbursement models will favor hospital and physician alignment, including physician employment, over the traditional private practice model. Bundled payments, accountable care organizations, medical homes, reduced readmissions, and quality-based reimbursement will require hospitals and physicians to become partners in payment.
Beginning in 2015, a 300-bed hospital with poor quality metrics could be penalized by more than $1.3 million per year. Even more important, these hospitals could suffer reputation damage as these metrics are published online, which is now the most popular place for consumers to seek health information. In addition, some quality metrics will be measured on a relative basis resulting in increased pressure for hospitals to improve quality.
The number of Medicaid recipients will increase by more than 40 percent, from 2010 to 2019, so hospitals must learn to operate on Medicaid rates. Traditionally, Medicaid rates haven't covered all costs, so hospitals will need to quickly address fixed costs.
Payers
Many health insurers will have to lower administrative expenses to meet the new medical loss ratio (MLR) of 85 percent for the large group market and 80 percent for the small group and individual market. Currently, many individual and small market plans are not meeting the new required MLR, which governs the amount of premiums allocated to paying medical expenses.
Successful insurers will have to shift their attention from group to individual plans, which are expected to triple between 2010 and 2019. Over the next 10 years, growth in the Medicaid coverage will also increase substantially.
Health insurers will have to differentiate themselves on price, service, quality, and provider network in the insurance exchanges. With regulations requiring four standard benefit packages, essential health benefits, and limits on cost sharing, insurers will have to compete on factors other than benefit design.
Pharmaceutical and life sciences
Health reform changes will cut into expected spending on brand-name drugs by 4.3 percent. The increased number of insured will be offset by heavier discounts required by Medicare and Medicaid and other new fees on government sales, making it less attractive to sell to government programs.
The creation of a new regulatory pathway for biologic products dramatically alters the portfolio design process. Mature biologic manufacturers will see a roughly 20 percent hit on their revenues, while large generic manufacturers may see an increase in sales of roughly 2 percent.
The new law greatly accelerates the movement toward outcomes- and quality-based reimbursement in the U.S. market, resulting in a more intense focus on drug efficacy and results. The mission of regulators will be to "bend the cost curve" and reward quality.