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									       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 Change in Average
20%                            Health Benefit Cost

                                                  13-20%
15%

10%

                       RECORD
 5%                    LOWS


 0%
    88

    90

    92

    94

    96

    98

    00

    02

    05
  19

  19

  19

  19

  19

  19

  20

  20

  20
-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,      Rising    CPI   Mandates      Inc   Litigation/   Other
          Devices,    Provider            and     Consumer Risk Mgmt
          MedTech    Expenses          Regulation Demand

PriceWaterhouseCoopers Study, April 2002
How long can workers afford it?
Growing gap in worker earnings increases to healthcare premium
Increases….more workers strike.

14.00%
                                       12.70%
12.00%
                                   11%      11.20%
10.00%                                                    Overall Inflation
                                                  9.20%
8.00%                         8.30%
                                                          Worker Earnings
6.00%
                        4.80%                             Health Insurance
4.00%               3.80%                       3.4%      Premiums
                3.00%
2.00%                                           1.6%
           0.80%
0.00%
       97

       98

       99

       00

       01

       02

       03

       04

       05
    19

    19

    19

    20

    20

    20

    20

    20

    20



Source: Kaiser Family Foundation & HRET, 2003
     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
                                                                          16.5%
                                                                                       Estimate*
                                   # Uninsured      % Uninsured
  Millions of Individuals




                                                         15.6%    16.1%
                            15.3% 15.2% 15.4%




                                                                                                   Percentage
                                                        At least 16M estimated to be
                                                        underinsured in 2003              61.4



                                                                           44     46
                                                         41.7     43.4
                            39.7     39.7        40.6

                            1993     1994        1995    1996     1997    2004    2005    2009

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.
                  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                         U.S. Households with $50K
     Attended College                              Incomes (in constant 1995 dollars)
                                                45%
 60%            48%            58%*                                   39%       45%
                                                40%
 50%                                            35%
                                                        28%
                                                30%
                                                         28%




 40%
                                                25%
 30% 18%
                                                20%
 20%                                            15%
 10%                                            10%
  0%                                             5%
         1965

                 1995

                        2005




                                                  0%
                                                               1970    1990   2005
Source: Institute for the Future, 1998: U.S. Bureau of the Census,
1996.
     Consumers See Themselves as
       “In Charge” of Health Care
               Decisions
            Influencing Healthcare Decisions
        Who Influences         Who Should
           Today?               Influence?
      Insurer 3.30
                             Self       5.44
      Self       1.88        Doctor     2.44
      Doctor     1.74        Insurer 0.72
      Employer 1.20          Hospital 0.62
      Government             Government
                 1.08                   0.48
      Hospital 0.60          Employer 0.30
Source:VHA, 1997
Baby Boomers Driving Demand
        Approximate Age Distribution of Baby Boomers

                   1990                                      2000

               35 years old                               45 years old




   25                                   45           35                        55



                                Small leading edge               Nearly half now
                                 begin to increase               needing greater
                                    utilization                health care attention


Source: U.S. Census Bureau, HCAB 2002
        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 ?

                        57%          If your hospital or physician received
60%
                                     low ratings…
50%

40%
                                                        30%
30%

20%

10%

0%
           Would Change Hospital             Would Change Doctor


      Source: Solucient, 2003
    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 development-
ARE 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
                     Internet Growth
200                  (millions of adult users)
180                                                             175
160
140
120
100
                                                         78
 80
 60                                               54
                                           44
 40
                                    20
 20                           8
       0     0.12 0.27
  0
      1992    1993    1994   1995   1996   1997   1998   2001   2004




           Source: American Internet User Survey, FIND/SVP
 Consumer Healthcare Information
          Resources
                                                     39%
           Doctor                                                53%
                                             24%
          Internet                    15%

                                   12%
Friends/ Relatives               9%

                            6%                                           2001
           Library         4%
                                                                         1999
        Insurance          4%
                          2%

                        3%
          Hospital    0%

             Work          3%
                          2%


                     0%         10%    20%    30%   40%    50%     60%

Source: Rynne Marketing Group, 2001
               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
         Number of FDA Applications                                 Number of New Drugs
          For New Medical Devices                                  Brought to Market in U.S.
  250
                                                                                                     51
                                       202                                                    47
                                                                                     45
  200


  150
                                                                           29

  100            88                                              21


   50


    0
             1976-1980             1996-2000                   1994      1995      1996       1997   1998

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.
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       1998   2005

Source: Pharmaceutical Research &
Manufacturers of America, Wash. DC, 1998; Price WaterhouseCoopers
    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
                                                         Trauma
                                                   Cardiac Brain
                                           Backs
                                                  Total    Complex Oncology
                                     Hysterectomy Joint
                              Hernia
                                      Shoulder
                             Hand
                  ENT                              ASC with overnight stay
                             Arthroscopy
                  Urology
           Ophthalmology
         Oral                         Later ASC
                 Cosmetic
       Gastroenterology   Early ASC                                   Location of
     Dermatology
                                                                      Surgery
     Doctor’s                      Surgery
     Office                                                Hospital
                                   Center
Provider Disruption

         Sub-specialists
                            More care will be
                            able to be provided
         Specialists        at lower levels in
                            the pyramid
     Primary Care Doctors

           PAs- RNs


           Med Techs


          Consumers
                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
   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                                                    74%
             Employees

        Renegotiate Fees                                                   68%

   Absorb Cost Increases                                           54%

       Reduce Coverage                                  37%

        Switch Providers                            32%

  Partner with Providers                     24%

                  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
         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
                                                         HSA’s:
                                             Getting to the “Tipping Point”
 Percentage of Members in an MSA/ HSA Plan




                                                                                  12 Year Period   •90%
                                             90%




                                             50%                                     •50%



                                                          12 Year Period   •10%
                                             10%
                                                                   •5%
                                                   .1%

                                                   1994           2004     2006      2014           2024


Following the standard “S” curve adoption rate
           Impact of CDHPs
   Definity Health data suggests that
    defined contribution results in a 8-
    10% 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          Means Tested
         401(K) and HSA        Means Tested Medicare




            $200,000   IRA   $100,000 HSA




“FIDELITY
HEALTH”
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…
   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…
RWHC Eye On Health




     "OK. I understand a lot is going to change.
            But how do I stay the same?"
              Top Implications
   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 web-
    based tools
   Get ready for a more retail-like market

								
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