Strategy Makeover for Healthcare in 2011: PwC

by Clive Riddle, December 22, 2010

PricewaterhouseCoopers annually issues prognostication regarding key health care trends for the coming year that are worth taking note of. They’ve just issued a 22 page report in this regard: the Top Health Industry Issues of 2011 which you can download from here.

Here’s the six key trends PwC advises we prepare and position for, in anticipation that “health organizations will undergo a strategy makeover in 2011 as they react to new rules and payment models, continuing cost pressures and new customer demands”:

#1: Booming business in health information technology

#2: Gearing up to redefine health insurance: From MLRs to insurance exchanges

#3: ACOs: Is this the next big thing or not?

#4: Nowhere else to cost shift: Consumers could continue to reduce utilization

#5: M&A: Deals will bond the familiar and unfamiliar as organizations look to fill strategic gaps

#6: Follow-me healthcare: Patients look to health organizations that are always on

Rather than comment on their thoughts, I’ve chosen to provide a summary of each of the above trends verbatim from PwC:

1. Booming business in Health Information Technology (HIT)

The HIT spending boom is driven by (1) federal requirements that hospitals and physicians meet at least stage one requirements for the meaningful use of electronic health records to qualify for federal stimulus funds in 2011; (2) an aggressive timetable for massive upgrades in back-office infrastructure to comply with new medical coding requirements that will add five times the number of diagnosis and inpatient codes and require providers and payers to use the new HIPAA 5010 electronic transaction format, which will require more than 1,300 system modifications by January 2012; (3) final FDA rules that will require online reporting of adverse events related to medical devices, resulting in possible new tracking technology throughout the supply chain.

Stage one "meaningful use" requirements mean hospitals and physicians must be able to provide patients with an electronic copy of their health record upon request. But consumers are not asking. Nearly half of consumers (49%) surveyed still call their doctor's office to request paper medical records. While the policy goal of EHRs is to allow consumers to participate in shared medical decision-making, only 13 percent of consumers have ever been asked for input into what they would like to see in their electronic medical records or how they would like to use them.

2. Gearing up to redefine health insurance: From MLRs to insurance exchanges

The health reform law now requires health plans to spend a minimum of 80 to 85 cents of every premium dollar on medical care and health care quality improvements, depending on the size of the plan. If health plans spend less than the minimum threshold, they must give customers a rebate beginning in 2012. According to PwC, this would require an unprecedented level of actuarial precision for rate-setting, and insurers may opt to pay rebates rather than under price their products in the first year. Many insurers already are contemplating new pricing and rebate scenarios for group plans. At the same time, many employers are contemplating the advantages of employer-sponsored health coverage as health insurance exchanges come online. PwC anticipates a high level of state legislative activity as employers, health plans and states begin to work together in 2011 to define and develop health insurance exchanges.

3. ACOs: Is this the next big thing or not?

Accountable care organizations have created buzz in the industry that this is the next big thing for population health management. But 2011 could be a make-it-or-break-it year for ACOs depending on Congressional action. In anticipation of new performance payment incentives, health organizations are positioning themselves to participate in ACOs and share risks and rewards of keeping people healthier. While ACOs hold great promise for reduced costs and improved quality, the challenge will be keeping people in the ACO and engaging them to stay healthy, which could be the difference between profit and losses. PwC's research found significant demographic and geographic differences in consumers' willingness to seek all their care within ACO-like organizations, indicating the need for consumer segmentation strategies.

4. Nowhere else to cost shift: Consumers could continue to reduce utilization

Higher health insurance premiums, steeper deductibles and larger coinsurance mean consumers are spending more out of their own pockets for healthcare, and 60 percent of consumers surveyed by PwC expect to pay even more in the future. Yet cost shifting may have reached the end of the line as increased price sensitivity has caused consumers to cut back on utilization. PwC forecasts a trickle down effect, starting with physicians and pharmaceutical companies as consumers reduce office visits and drug spending, followed by reduced sales of other medical products, fewer lab tests, imaging scans and other diagnostics. The danger lies in whether short-term cost avoidance could lead to more expensive conditions long term.

5. M&A: Deals will bond the familiar and unfamiliar as organizations look to fill strategic gaps

Mergers and acquisition activity among all the healthcare sectors are expected to continue to trend upward in 2011. Within the pharmaceutical and life sciences sectors, PwC expects deals to focus on strategic mid-market transactions valued between $100 million to $500 million; international growth could yield larger transactions. Increased consolidation is expected among payers, physicians are aligning with hospitals, hospitals are merging with other hospitals and health systems, and recent deals reflect blurring of the lines between the payers and providers sectors. Competition for acquisitions is likely to come from private equity funds investing in healthcare. Though consumers are wary of the benefits of M&A, many seem open to new provider alliances. Seventy-eight percent of consumers said they would prefer to use a retail clinic partnered with a local hospital for primary care services versus only 22 percent who would prefer an independent company owned by a retail pharmacy.

6. Follow-me healthcare: Patients look to health organizations that are always on

The mobile health market is growing exponentially as health organizations use wireless and remote technology to interact with patients anytime, anywhere. To influence patient outcomes, organizations have to engage patients and understand how to connect with them. Healthcare organizations are spending tons of resources to produce online content, yet PwC found that consumers are three and a half times more likely to go to the media and third-party information service companies for information about treatments and conditions than to any other site, especially pharmaceutical company web sites. Only 11 percent of the people PwC surveyed said they would go to a pharmaceutical company for health information. Pharmaceutical companies have typically been removed from the end user of their product, but by understanding online preferences and adopting multi-channel strategies to meet consumers on their terms, pharmaceutical companies see an opportunity to significantly increase their visibility. 

Ten Key Health Care Business Trends for 2011

by Clive Riddle, December 16, 2010

The time has come to start making a list, and checking it twice. What’s on your list of the trends that will shape how your organization proceeds through the new year? Here’s my take on some key trends that will affect the business of health care in 2011:

1. Impact of Health Reform Backlash:
A Republican House, negative public opinions and a Federal judge’s ruling on mandatingcoverage combine to have an influence on health care reform implementation in 2011.No- there isn’t a feasible way to repeal the Affordable Care Act in 2011, as a number ofRepublicans have called for. However, that doesn’t mean that various aspects of healthreform backlash won’t loom large in further development of implementing regulations,ongoing funding provisions, and how stakeholders react.

2. Medicaid Clout
As employment based health coverage shrank during the past decade, Medicaid grew,particularly once the recession kicked in. The Affordable Care Act turbo chargedprojected Medicaid enrollment for the coming years. Given that health care policy can beoften most effectively be dictated through the role as purchaser, Medicaid has increasingclout to impact policy in 2011 and beyond. Furthermore, the increased enrollment hasmade Medicaid the awakening giant for health plans and provider systems to deal with.Major health plans will increasingly look for Medicaid contracting, market expansionsand plan acquisition opportunities. Major providers will dedicate increased resourcestowards Medicaid delivery systems.

3. ACO Initiatives
No one is waiting to see how Medicare ACO pilots set forth under the Affordable CareAct will turn out. 2011 will witness continued rapid deployment of ACO developmentand operational initiatives in the commercial and Medicaid sectors.

4. ACO Naysayers
There will be a growing groundswell of warnings about getting involved with ACOs.Never has there been swooning in the marketplace over a hot new trend without theaccompanying follow-up of naysayers shortly thereafter attributing all the attention tohype, smoke and mirrors. Quite often, it can be for good reason. But by the end of 2011,we won’t know if that’s the case or not for ACOs.

5. Provider Payment Reform
The provider contracting environment will be subject to much greater change andupheaval in 2011. Whether driven by new delivery system initiatives such as ACOs,medical homes, and integration initiatives; general payment restructuring such as byepisode of care; or network restructuring initiatives such as narrow networks, 2011 willwitness significantly heightened activity.

6. Physician Integration
It isn’t just all about potential ACO development. Whether due to EHR/Meaningful Usepressures, economic pressures, perceptions of the future outlook for health care, and ahost of other factors, physicians in private practice will continue to integrate into largermedical groups, and or with health care systems at an increasing rate in 2011.

7. Wellness Incentives
Find some major employers in 2011 that aren’t deploying health risk assessments andfinancial incentives for employees to engage wellness and lifestyle health care issues,and they most likely are developing plans to do so. Those that are already involved willcontinue to roll out additional programs, particularly seeking how to reach into dependentengagement.

8. EHR Critical Mass
Broadband internet connectivity existed for sometime before it reached enough criticalmass for consumers nationwide to routinely start watching You Tube videos of twoyear olds biting their older brothers’ fingers. In 2011, there will be enough medicalgroups, hospitals, health plans and consumer portals to engage and transact a materialsegment of the consumer population with their health care, and the impact of this ongoingtransformation over time will be immense.

9. Survival of Consumer Driven Plans
HSAs and Consumer Driven Plans were written off by pundits as health care reformcoalesced during the past two years. But the plans are survivors, and reports keep comingout documenting moderate, steady growth, that over time, makes them an importantfactor in the health benefits equation.

10. Era of Uncertainty
There’s so much unknown country to drive through: how much will health carereform backlash affect reform implementation? What will be the specifics of variousimplementing regulations? Will the economy pick up steam or not? How are otherstakeholders going to behave in this environment? Often, with major uncertainties afoot,organizations can tend to hunker down for the time being. But with so much at stake,2011 will require driving forward without an up-to-date road-map.

The Insurance Mandate Conundrum

by Clive Riddle, December 9, 2010

Harris Interactive has just released results from a poll, in conjunction with Health Day, taken post-election that measures current public opinion of health care reform  (the survey involved 2,019 adult respondents online between November 19-23.)

In Harris Interactive’s words, “Americans remain deeply divided over the nation's new health-care reform package.” Certainly a plurality (40%) want to repeal all or much of the legislation. But just as polls consistently show that while American’s hate Congress in general, they typically support their own congressman; this poll indicates much of the specifics of health care reform are rated much higher than the package in general.

Humphrey Taylor, chairman of The Harris Poll, tells us "many Americans want to repeal the bill not because they dislike the specifics, but because they feel it is an expensive expansion of an already big government…. Pluralities want to repeal all or most of the law, but want to keep much of what's in it…. it's easy to believe all the bad things about the law if you don't know what's in it."

Expanding on that last point, Sara Collins, vice president for Affordable Health Insurance at The Commonwealth Fund, tells us "I think this suggests that as the public becomes more familiar with the law and how it will benefit them and their families, support will probably climb. There's just a lag while immediate provisions are rolling out like young adult coverage."

But here’s the rub: the public really, really doesn’t like the insurance mandate provision, and time probably won’t improve opinion in that area. So if the a Republican House feels pressure to take some action regarding health reform, given the unlikelihood of pushing through an outright repeal through a Democratic Senate or overcoming the President’s veto, their point of attack would be the insurance mandate.

Yet the mandate is the one provision that helps the more publicly popular provisions, such as guaranteed issue and adult dependent coverage, pencil out a little better (by decreasing adverse selection) for the health plan industry that in many cases lobbied for the Republican party in November. So the party that health plans wished for may cause them to remember the phrase, be careful what you wish for.

Here are some of the poll results by the numbers:

• 40 percent of adults wanting to repeal all or most of the legislation;  31 percent favor keeping all or most of the reforms; 29 percent aren't sure what should be done.
• 57% oppose the insurance mandate and only 19 percent support it
• Two-thirds of respondents like guaranteed issue provision (prohibiting denial of coverage to people with pre-existing medical conditions.)
• 60% want to keep the provision for tax credits so small businesses can afford coverage for employees. 
• 55% like provision allowing children to stay on their parents' insurance plans until they are 26. 
• Just over half of respondents support the idea of new insurance exchanges where people can shop for insurance.
• 81% believe reform will it result in higher taxes, could lead to rationing of health care (74%), and reduce the quality of care they will receive (77%).

Let’s Move to the Atlantic Seaboard or North Dakota: State Specific Premium and Deductible Data

by Clive Riddle, December 3, 2010

The Commonwealth Fund has just released a report with state specific premium and deductible trends for the past seven years: State Trends in Premiums and Deductibles, 2003–2009: How Building on the Affordable Care Act Will Help Stem the Tide of Rising Costs and Eroding Benefits.

The talking points the Commonwealth Fund promotes in conjunction with the report: (Premiums increase 41%! Deductibles increase 80%) are a little disingenuous as those percentages cover a seven year period (which they dutifully note) but the average ready typically relates such percentages into annual terms, and headlining the equivalent average annual increase could have been more meaningful.

The Commonwealth Fund’s theme from their report is, as Commonwealth Fund Senior Vice President Cathy Schoen tells us, “private insurance costs have been increasing faster than working family incomes. For more than a decade, families with job-based insurance have been sacrificing wages to hold on to health insurance. The good news is that the Affordable Care Act reforms provide a foundation to improve coverage and slow health care cost growth in the future."

Regardless of what conclusions you draw from the 32 page report, it contains great state specific data on average health plan single and family premiums and deductibles, further broken down by employer size. They also examine premium as a percent of median household income. The report goes on to project future increases, with and without the impact of the Affordable Care Act, thus indicating projected savings from the Act.

The report notes “by 2009, the average employer-sponsored family premium across all states was $13,027, ranging from $14,000 to $14,700 in the six highest states….to $11,000 to $12,000 in the 11 states with the lowest average private-employer family premium costs…. Average family premiums in the highest-premium-cost states were about 23 percent above those of the lowest-cost states….. By 2009, there were 15 states in which the average annual premium for family coverage equaled 20 percent or more of median household income for the under-65 population, compared with just three states in 2003 ….  In 28 states, family premiums relative to incomes averaged 18 percent or more for middle-income, under-65 households.”

The report found that U.S. average deductibles by firm size were:

Small Firm Single Deductible: $    703 in 2003 / $ 1,283 in 2009
Large Firm Single Deductible: $    452 in 2003 / $    822 in 2009
Small Firm Family Deducible: $ 1,575 in 2003 / $ 2,662 in 2009
Large Firm Family Deductible: $   969 in 2003 / $ 1,610 in 2009

Here’s some interesting state-specific data from the report. From an affordability standpoint (premiums as a percent of income) the Atlantic seaboard or North Dakota may be your best bet.

Five Highest Family Premium States

(2009 Data: US Annual Average $13,027)
Massachusetts: $14,723
Wisconsin: $14,656
Vermont: $14,558
Wyoming: $14,319
District of Columbia: $14,222

Five Lowest Family Premium States

(2009 Data: US Annual Average $13,027)
Arkansas: $10,969
Montana: $11,365
Oklahoma: $11,417
North Dakota: $11,590
South Dakota: $11,596

Five Highest States: Avg Premiums as % of Median Household Incomes

(2009 Data: US Annual Average 18.7%)
Mississippi: 24.6%
Texas: 21.9%
Louisiana: 21.6%
New Mexico: 21.5%
North Carolina: 21.2%

Five Lowest States: Avg Premiums as % of Median Household Incomes

(2009 Data: US Annual Average 18.7%)
Connecticut: 14.6%
New Jersey: 14.7%
Maryland: 15.0%
Virginia: 15.0%
North Dakota: 15.5%