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


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

15%
10%
5%
RECORD
LOWS
0%
19
-5%
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
05
Source: William M. Mercer, 2006
13-20%

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%
5%
7%
5%
0%
Drugs,
Devices,
MedTech
Rising
Provider
Expenses
CPI Mandates and
Regulation
Inc
Consumer
Demand
Litigation/
Risk Mgmt
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%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.80%
4.80%
3.80%
3.00%
11%
8.30%
12.70%
11.20%
9.20%
Overall Inflation
3.4%
1.6%
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Worker Earnings
Health Insurance
Premiums
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



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
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.

2009 Estimate: 48M; 61M if recession
16.5%
Estimate*
15.3%
# Uninsured % Uninsured
15.6%
15.4%
15.2%
16.1%
At least 16M estimated to be underinsured in 2003
61.4
39.7
39.7
40.6
41.7
43.4
44
46
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.

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+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.



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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


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Aging, demanding, increasingly unhealthy consumers
Exploding, expensive medical technologies that the consumer wants
Financial model that shields the consumer from the true costs
SUSTAINABILITY??




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?

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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


Waning consumer confidence in the system

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
60%
Attended College
48%
58%*
U.S. Households with $50K
Incomes
(in constant 1995 dollars)
45%
39%
45%
40%
50% 35%
30%
28%
28%
40%
30%
20%
18%
25%
20%
15%
10% 10%
0%
5%
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
Insurer 3.30
Self 1.88
Doctor 1.74
Employer 1.20
Government
1.08
Hospital 0.60
Source:VHA, 1997
Who Should
Self
Influence?
5.44
Doctor 2.44
Insurer 0.72
Hospital 0.62
Government
0.48
Employer 0.30

Approximate Age Distribution of Baby Boomers
1990
35 years old
2000
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

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

“Consumer reports”
INFORMATION to drive my decision making…
• Qualitycounts
• Healthgrades
• Leapfrog
• U.S. News…
And soon – real pricing information

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.

60%
Ratings Changing Decisions
Do They Influence Behaviors ?
57% If your hospital or physician received 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

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


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?

100
80
60
40
20
0
200
180
160
140
120
Internet Creating New Industries,
Companies and Products
Internet Growth
(millions of adult users)
175
78
54
44
20
8
0 0.12 0.27
1992 1993 1994 1995 1996 1997 1998 2001 2004
Source: American Internet User Survey, FIND/SVP

Consumer Healthcare Information
Resources
Doctor
Internet
Friends/ Relatives
Library
Insurance
Hospital
Work
4%
2%
0%
3%
3%
2%
15%
6%
4%
9%
12%
24%
39%
53%
0% 10% 20% 30% 40% 50% 60%
2001
1999
Source: Rynne Marketing Group, 2001

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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

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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.



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

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

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
202
200
Number of New Drugs
Brought to Market in U.S.
51
45
47
150
29
100
50
88 21
0
1976-1980 1996-2000 1994 1995 1996 1997 1998
Source: BryantFriedland, “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
Source: Pharmaceutical Research &
Manufacturers of America, Wash. DC, 1998; Price WaterhouseCoopers
1998 2005


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
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Human stem cell development

Growth of human tissues and organs
Human genome
Nano-technologies come to medicine

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Nano-delivered drug devices
Nanorobots repairing tissue without surgery

Technology Innovation: Place
Disruption
Case Acuity
Cardiac
Trauma
Brain
Backs
Hernia
Hysterectomy
Total
Joint
Complex Oncology
ENT
Hand
Shoulder
Arthroscopy
Urology
Ophthalmology
Oral
Cosmetic
Gastroenterology
Dermatology
Doctor’s
Office
Source: National Surgical Hospitals, Inc.
Early ASC
Later ASC
Surgery
Center
ASC with overnight stay
Hospital
Location of
Surgery

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


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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
Renegotiate Fees
Absorb Cost Increases
Reduce Coverage
Switch Providers
Partner with Providers
Other
7%
24%
32%
37%
54%
68%
74%
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
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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


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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”
12 Year Period
•90%
90%
50%
•50%
10%
.1%
1994
12 Year Period
•5%
•10%
2004 2006 2014
Following the standard “S” curve adoption rate
2024

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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????

Employer Sponsored
401(K) and HSA
Means Tested
Means Tested Medicare
“FIDELITY
HEALTH”
$200,000 IRA $100,000 HSA


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


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

• 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

• 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.

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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

RWHC Eye On Health
"OK. I understand a lot is going to change.
But how do I stay the same?"

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
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

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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