Transcript Trends 2006: Top Trends Every Healthcare Executive Should Know Maureen M. Swan The MedTrend Group Minneapolis, MN.

Trends 2006:
Top Trends Every Healthcare
Executive
Should Know
Maureen M. Swan
The MedTrend Group
Minneapolis, MN
What Will The Future Bring?

Even the experts have a hard time predicting the
future
• “Who the hell wants to hear actors talk?”
• Harry Warner of Warner Brothers
• “That little black box will never amount to anything.”
• Louie B Meyer, MGM
• “Everything that can be invented has been invented.”
• US Patent Worker, early 1900’s
• “The only reason someone would buy a PC is to hook it
up to a mainframe.”
• IBM Executive, 1985
#1: Return to Rising
Premiums/ Rising Healthcare
Costs
Return to Rising Premiums
Annual
20%
Change in Average Health Benefit Cost
13-20%
15%
10%
5%
RECORD
LOWS
0%
88 990 992 994 996 998 000 002 005
9
1
1
1
1
1
1
2
2
2
-5%
Source: William M. Mercer, 2006
Why the Rise in Healthcare Costs?
What made up the 13.7% increase in premiums between 2001 -2002?
25%
22%
20%
18%
18%
15%
15%
15%
10%
7%
5%
5%
0%
Drugs,
Devices,
MedTech
Rising
Provider
Expenses
CPI
Mandates
Inc
Litigation/
and
Consumer Risk Mgmt
Regulation Demand
PriceWaterhouseCoopers Study, April 2002
Other
How long can workers afford it?
Growing gap in worker earnings increases to healthcare premium
Increases….more workers strike.
14.00%
12.70%
11.20%
11%
12.00%
10.00%
9.20%
8.30%
8.00%
Overall Inflation
Worker Earnings
6.00%
4.00%
4.80%
3.80%
3.00%
2.00%
1.6%
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0.00%
0.80%
3.4%
Source: Kaiser Family Foundation & HRET, 2003
Health Insurance
Premiums
What Healthcare Costs in America 2005

Annual family premiums $10,880
• More than the gross earnings for a full
time minimum wage earner

Average worker paid $2715, or 26%
of the premium costs
Source: The 2005 Employer Health Benefits Survey,
September 2005
Brutal Facts



46.2% of all personal bankruptcies are due to
medical costs of an illness
Current cost increases would cause healthcare
costs to double every five years
We have the most expensive system in the world
• US residents paid $5267 per person for health care,
53% more than any other industrialized country


With average results
And Americans are getting fatter and less healthy
by the week…
• 72% of Americans are overweight
• Growing number of obese/ overweight kids
Sources: Health Affairs, July/August 2005.
How long can companies afford it?

“Healthcare costs are killing us.”
• General Motors Chair, May 2005
• $1525/ car in healthcare costs- more than the cost for
the steel

#1 concern of benefit managers:
• Controlling health care costs (Deloitte, 1/05)


Primary reason for labor strikes = healthcare
benefits
79% of business owners say they are concerned
about their employees’ ability to shoulder the
projected increases in health costs.
Source: Robert Wood Johnson Foundation, September,
2005; Wall Street Journal, May 2005.
Rising Number of Uninsured
2009 Estimate: 48M; 61M if recession
# Uninsured
Estimate*
% Uninsured
15.6%
15.3% 15.2% 15.4%
16.1%
At least 16M estimated to be
underinsured in 2003
39.7
39.7
40.6
41.7
43.4
1993
1994
1995
1996
1997
44
46
2004
2005
Source: US Department of Commerce, Economics and Statistics Administration,
Bureau of the Census, 1998; National Coalition on Healthcare, 2002,
Commonwealth Fund, 2005; The Commonwealth Fund, 2005.
61.4
2009
Percentage
Millions of Individuals
16.5%
Lack of Coverage




+6 Million additional uninsured adults
2000 - 2004
35% of U.S. adults ages 19-64 had either
no insurance, sporadic coverage or
insurance that exposed them to
catastrophic costs during 2003
19% of working adults ages 18-64 had no
insurance in 2004
The percentage with employer based
insurance fell from 69% in 2000 to now
59.8% in 2005.
Source: The Commonwealth Fund, 2005; The Center on Budget
And Policy Priorities, September 2005.
Implications for Hospitals



You might have more uninsured or
underinsured over the coming years
Your own healthcare benefits costs
will rise
Growing concerns among your
customer patients regarding costs –
and possibly willingness to look for
less expensive alternatives
Healthcare’s “Perfect Storm”



Aging, demanding, increasingly
unhealthy consumers
Exploding, expensive medical
technologies that the consumer
wants
Financial model that shields the
consumer from the true costs
SUSTAINABILITY??
Consumer’s View Today



Cost of a doctor visit:
$10 - $15
Cost of a prescription: $5 - $15
Cost of a hospitalization: $100
Is this sustainable over the next ten years?
Consequences to the Industry






Employers try new benefit models
Reimbursements get squeezed
further – growing concerns for
providers
Not enough beds: mini-construction
boom in urban areas
Not enough staff: workforce shortage
Discontented doctors
Aggressive new competitors
#2: The Consumer Revolution
#2: The Consumer Revolution

Waning consumer confidence in the
system
Waning Consumer Confidence
Percentage of Americans who:
Think there is something seriously wrong with the system
80 %
Have heard some disturbing stories about medical care
and mistakes that hurt or even killed people
80 %
Feel that quality healthcare is almost unaffordable
for the average person
75 %
Feel that quality care is often compromised to save money
80 %
Source: National Coalition on Health Care, 1997 Survey
Today’s Consumers Are Better Educated and
Have More Money
Americans Over 25 Who Have
Attended College
58%*
48%
60%
U.S. Households with $50K
Incomes (in constant 1995 dollars)
45%
40%
50%
35%
40%
30%
25%
20%
15%
10%
5%
30% 18%
20%
2005
1995
0%
1965
10%
39%
45%
28%
28%
0%
1970
Source: Institute for the Future, 1998: U.S. Bureau of the Census,
1996.
1990
2005
Consumers See Themselves as
“In Charge” of Health Care
Decisions
Influencing Healthcare Decisions
Who Influences
Today?
Insurer 3.30
Self
1.88
Doctor
1.74
Employer 1.20
Government
1.08
Hospital 0.60
Source:VHA, 1997
Who Should
Influence?
Self
5.44
Doctor
2.44
Insurer 0.72
Hospital 0.62
Government
0.48
Employer 0.30
Baby Boomers Driving Demand
Approximate Age Distribution of Baby Boomers
1990
2000
35 years old
45 years old
25
45
Small leading edge
begin to increase
utilization
Source: U.S. Census Bureau, HCAB 2002
35
55
Nearly half now
needing greater
health care attention
The Age of Transparency


“Consumer reports”
INFORMATION to drive my decision
making…
•
•
•
•

Qualitycounts
Healthgrades
Leapfrog
U.S. News…
And soon – real pricing information
Insert their healthgrades data
Healthcare Report Cards…Very
Early in Adoption Curve



26% of consumers say they have seen data
on hospital quality. Only 1% acted on that
information
22% say they have seen information on
health plan quality. Less than 1% said they
made a change based on the data.
10% have viewed quality information on
physicians. Less than 1% used that
information to make a change.
Source: Strategic Health Perspectives, Harris Interactive Poll;
2003.
Ratings Changing Decisions
Do They Influence Behaviors ?
60%
57%
If your hospital or physician received
low ratings…
50%
40%
30%
30%
20%
10%
0%
Would Change Hospital
Source: Solucient, 2003
Would Change Doctor
Industry Responds: Opportunities






Open access, same day scheduling
Extended clinic hours
Clinical centers of excellence
Healing environments
Integrated alternative and traditional
care
Boutique practices
Consumers are driving product developmentARE YOU LISTENING TO THE CUSTOMERS IN YOUR MARKET?
COST: $44
Implications for Hospitals




Being there isn’t enough
Customers are increasingly
“shopping” for healthcare
Customers will leave town (or your
market area) for care
You have to market to the consumers
in your market – why should they
use your hospital?
#3: The Age of Digital Health
Internet Creating New Industries,
Companies and Products
200
180
160
140
120
100
80
60
40
20
0
Internet Growth
(millions of adult users)
175
78
44
0
0.12 0.27
1992
1993
1994
8
1995
54
20
1996
1997
1998
2001
Source: American Internet User Survey, FIND/SVP
2004
Consumer Healthcare Information
Resources
39%
Doctor
Internet
15%
53%
24%
12%
9%
Friends/ Relatives
2001
1999
6%
4%
Library
4%
2%
Insurance
Hospital
3%
0%
Work
3%
2%
0%
10%
20%
Source: Rynne Marketing Group, 2001
30%
40%
50%
60%
Internet Use



Consumers trust the internet more
than other media sources
65% of consumers use the internet
to research important health topics
before and after they visit a doctor
Internet shopping –
• Medical tourism
• National market for complex/ life
threatening procedures
Medicineonline.com
Yourdiagnosis.com
The e-provider

E-enabled doctors
• 20% of office visits could be eliminated
• MDs may spend 1/3 of time on the net by 2010



86% of doctors will be using e-prescribing
(Forrester Research, 2005)
Only 17% of doctor offices have electronic
medical records (CDC, 2/05)
90% of online adults want the following
capabilities with their physician:
• Ask questions without a visit
• Fix appointments
• Receive medical test results
Source: Cyber Dialog, Inc. 2001, Market Drivers: Strategy Briefing
On e-Healthcare, 2003; CDC, 2005.
#3: The Age of Digital Health


Increasing “pipes” (broadband and fiber optics) - integrated video, voice, imaging, data
• Radiology, tele-health
• Clinical information databases and artificial/
expert systems applied to medicine
Markets no longer local or regional
Implications

Having a value added web strategy
matters
• Lock in the desktop of your customers

Electronic Medical Records are a
requirement to stay competitive
• Data reporting
• Quality improvements

(Rural) Stay on top of technologies that
you can keep local or that allow you to
connect to tertiary providers
#4: The Medical Technology
Revolution
Technology Trajectory:
Smaller
Easier to Use
Faster
Cheaper
Earlier in the Disease Cycle
Less Invasive
Out of the hospital
#4: The Medical Technology
Revolution

Pharmaceutical and device
development accelerates
• Faster pace
• Replacing surgeries

Drug coated stents versus CABG (30%
declines+)
Coming at Us at a Faster Pace
250
Number of FDA Applications
For New Medical Devices
Number of New Drugs
Brought to Market in U.S.
202
200
45
150
100
47
51
29
88
21
50
0
1976-1980
1996-2000
1994
1995
1996
Source: Bryant-Friedland, “A Costly Prescription,” The Florida Times-Union,
June 1, 1998; NIHCM Foundation/ American Institute of Research, 2002; Abbott Labs, Hospital
Of the Future, 2003; HCAB 2003.
1997
1998
Direct-to-Consumer Advertising
Booms
2004 Ad $ = $4.2 Billion
Pharmaceutical Advertising
$3.5B
$1.3B
$596M
$104M
1995
1996
1998
2001
Source: Media Watch
Multi-Media Service, 1999
Pharmaceutical & Biotech
Development Escalates
Pharmaceutical Research Dollars
$45B
$21B
$15B
$8B
$4B
$2B
1980
1985
1990
1995
Source: Pharmaceutical Research &
Manufacturers of America, Wash. DC, 1998; Price WaterhouseCoopers
1998
2005
Enormous, expensive pipeline

In development:
• 316 drugs for cancer


15.3% growth in costs for cancer/transplant
drug treatments in 2004- related to just 2
new drugs
25.9% growth in costs for cancer overall in
2004
#4: The Medical Technology
Revolution

Human stem cell development

Growth of human tissues and organs
Human genome
 Nano-technologies come to
medicine

Nano-delivered drug devices
 Nanorobots repairing tissue without
surgery

Technology Innovation: Place
Disruption
Case Acuity
Backs
Trauma
Cardiac Brain
Total
Hysterectomy Joint
Hernia
ENT
Hand
Complex Oncology
Shoulder
ASC with overnight stay
Arthroscopy
Urology
Ophthalmology
Later ASC
Oral
Cosmetic
Gastroenterology
Early ASC
Dermatology
Doctor’s
Surgery
Office
Center
Location of
Surgery
Hospital
Provider Disruption
Sub-specialists
Specialists
Primary Care Doctors
PAs- RNs
Med Techs
Consumers
More care will be
able to be provided
at lower levels in
the pyramid
Implications

What is done by the primary doctor/ nurse might
get “disrupted” to lower settings
• Pregnancy testing
• Blood glucose monitoring

But what is done at the high end can move closer
to the physician and mid-level provider over time
• Oncology care
• Radiology
• Etc.


What new care can you do locally?
Where do you want to compete in the pyramid?
“Perfect Storm”: Consequences to
the Industry

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



Employers try new benefit models
Reimbursements get squeezed further –
growing concerns for providers
Not enough doctors
Discontented doctors
Not enough staff- growing workforce
shortage
The rural/ urban difference
Employers Experiment with
Benefit Models
(The million dollar question)
Rising Costs: Shift to Employees
2005: 78% will shift cost to employees
Shift Cost to
Employees
74%
68%
Renegotiate Fees
54%
Absorb Cost Increases
37%
Reduce Coverage
32%
Switch Providers
24%
Partner with Providers
Other
7%
Source: Fourth Annual Survey on Purchasing Value in Health Care.
Washington business Group & Watson Wyatt, March 1999
What are Consumer Directed Health
Plans?
OUR DEFINITION...

A health plan designed to get the
consumer to care about costs at
more than just the point of picking
their health plan



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
Some fixed $ from employer
Employee picks from multiple plan options
Employee pays or pockets the difference
Plan design and tools create incentive for employee to care
about cost of provision of care
Based on the notion that consumers are RATIONAL
Is this REAL?





McKinsey Consulting
• This is the most significant change in
healthcare since the introduction of the
HMO
Tipping point = Jan 2006
HSA’s: adding 50,000+ per month
As of April 2005, 22% of employers now
offer a CDP; but only 2.6% offer it with a
HSA
50% of those not offering a CDP/HSA plan
to in the future
Percentage of Members in an MSA/ HSA Plan
HSA’s:
Getting to the “Tipping Point”
12 Year Period
90%
•90%
•50%
50%
12 Year Period
10%
.1%
1994
•10%
•5%
2004
2006
2014
Following the standard “S” curve adoption rate
2024
Impact of CDHPs


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Definity Health data suggests that
defined contribution results in a 810% reduction in utilization rates
under the deductible ($1500-2000)
Members appear to use more generics
Premium cost increases at 3.4%
versus 9.6% for other plans in 2005.
REDUCED PHYSICIAN AND INPATIENT
DEMAND…Net result to future
demand????
Future Model?
Employer Sponsored
401(K) and HSA
$200,000
“FIDELITY
HEALTH”
IRA
Means Tested
Means Tested Medicare
$100,000 HSA
The rural/ urban difference
The rural/urban difference

Urban
•
•
•
•
Economies of scale
Service specialization
Broad array of services
Potential for continuity of care when tertiary
care needed
• Greater capital pools
• Easy ability to recruit providers/ staff
• More likely to be in a system- less control over
their destiny at the hospital level
The rural/ urban difference

Rural:
• Community challenges



Troubled local economies
More elderly – more chronic health issues
Smaller tax base
• Exacerbated workforce shortage issues


More difficulty recruiting physicians
More difficulty retaining local students for
staff, nursing positions- wanting to leave
town
The rural/ urban difference
• Financial challenges



Greater proportion of uninsured
Higher dependence on Medicare/
government: 50%+
Lower margins, lower capital pools:
investing in new technologies more difficult
• Size challenges


Economies of scale – smaller patient base to
spread costs
More sensitive to policy changes
Urban versus Rural
• Strength of the local communities:
hospital strength depends on
community strength


Every $2 of revenue generated by the
health care industry will generate an
additional $.80 of revenue in other
industries in rural counties
Every 2 jobs created in rural counties by
health care will cause the number of jobs in
other sectors to increase (or decrease by
one job.
Source: Rural Wisconsin Health Cooperative, 2005.
But Rural Opportunities…


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

More services can stay local
Tele-medicine and other technologies can
provide real time linkages to secondary
and tertiary care sites
In general patients don’t want to leave
town and go to the “big city”–
convenience still carries strong weight as
a value proposition
“Caring” small town care matters
Critical access designation provides a
financial life line: from $500K - $1M+ per
year for a typical hospital
How You Might Feel…
RW HC Eye O n He al th
"OK . I un d ers tan d a lo t is go in g to ch an ge.
Bu t h o w do I stay t he same? "
Top Implications


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Demonstrate measurable quality and outcomes
Leverage IT – namely EMR- in order to track and
report measurable results
Become efficient to compete on value – work flow
and IT critical
Develop abilities to report transparent pricing
data
Days of the small physician practice are
numbered
Develop consumer friendly service and webbased tools
Get ready for a more retail-like market