What are the Early Implications of Healthcare Reform, and Challenges and Opportunities thereof, for Key Players in the Healthcare Value Chain?

This blogpost was first published on May 26th, 2010.

Doctor with HIT

It is probably not an exaggeration to state that the recent passage of the healthcare reform bill and the Patient Protection and Affordable Care Act (PPACA) by the current administration will have profound and far reaching changes on the US healthcare system – more than we have seen in the last 30-50 years. Besides ensuring subsidized health insurance coverage for the currently 32 million uninsured Americans, those with pre-existing conditions (banning discrimination in coverage), assuring coverage to young people thru the plans of their parents until the age of 26, and better prescription drug coverage for Medicare seniors, the stated objectives of healthcare reform are to drive unprecedented transparency, higher quality of outcomes at a lower cost, often thru innovative leverage of healthcare IT and relevant technologies (thru the ARRA stimulus bill and HITECH Act passed earlier).

The incremental costs of healthcare reform has been estimated to be $940 billion over 10 years, according to the Congressional Budget Office, but is widely anticipated to exceed $ 1 trillion. While almost everyone agrees that the current increase in annual healthcare costs as a percentage of the US GDP is just not sustainable, there is wide spread disagreement and controversy on how to implement healthcare reform and ensure higher quality healthcare at a lower total cost of delivery.

While the impact of the healthcare reform will be felt over the next 5-10 years for most patients, there are current challenges that will be posed to the US healthcare ecosystem and all of its stakeholders. These challenges also bring in their wake new opportunities for collaboration, business model and IT innovation and patient and physician empowerment that I will discuss on this blog post. This presents a high level business summary of my key takeaways (eschewing the technicalities involved) and forward looking implications and analysis, as well as prognosis for some of the opportunities presented and solutions thereof, from a business and IT perspective, from a number of seminars and webinars on Healthcare reform that I have had the opportunity of attending, in the recent past.

Patients:

Challenges and Implications:


1. Given the advent of 32 million new patients in the current healthcare system, most patients will be challenged to secure appointments with their primary care physicians as easily and promptly as they may have in the past. This is anticipated to significantly burden the current system and demand additional hospital infrastructure as well as a shortage of primary care physicians and nurses in the short to medium term.

2. Given the expected rise in health insurance costs, and higher co-pays, it is anticipated that patients will also be constrained to seek alternatives at a lower cost.

Opportunities and Solutions enabled by Business and IT Innovation:

1. Substitution of less experienced primary care physicians and nurse practitioners as well as immigration of doctors and nurses from other countries to deal with the shortage in the near to medium term, is a distinct possibility.

2. Retail healthcare clinics such as those being opened at Wal-Mart (see my earlier blogpost – Wal-Mart’s retail and healthcare IT play- Implications for Patients, Providers, Physicians and the rest of us) and other retail chains as a lower cost alternative may become viable and real, especially for the lower middle class.

3. The ubiquity of electronic health records (EHRs) and physician-patient interaction via portals, video conferencing, telemedicine, wellness and disease management programs, mobile and wireless devices etc. would also enable physicians to manage interactions with a larger number of patients thru exception and ‘severity of condition” based management, subject to appropriate reimbursements models being put in place.

4. The evolution of mobile/wireless healthcare, business models and reimbursement and monetization thereof, while still ahead of the curve, is a significant opportunity, going forward. Envisioning the ability for patients to access and monitor their personal health records and/or personal health dashboards (like the one below) on their iPhones, Blackberrys and iPads, interacting with their nurse practitioners and physicians thru video conferencing enabled on these devices and accessing health related information, scheduling visits and interacting with their health centric social networks (like Patients Like Me , CareFlash or private groups on Facebook, for instance) are significant and viable market opportunities that organizations like the West Wireless Health Institute and many innovative solution providers are seeking to realize and enable, going forward.

John Doe_Personal Healthcare Dashboard_2009

Healthcare Providers and Physicians:

Challenges and Implications:

1. Medicare reimbursement reductions as currently stipulated (many doubt whether these will actually come to pass) is a significant challenge that will constrain profit margins for providers and potentially incomes for physicians. It is also anticipated the reimbursement models from payers may evolve to “pay for episode of care” (treatment of a fracture from cradle to grave across the primary care physician, specialist, and chiropractor or physiotherapist is treated and reimbursed as a “single episode of care”) vs. pay for interaction/procedure currently prevalent that will demand higher operating efficiencies and productivity. As well, this will demand that hospital providers find and create new and alternative sources of revenue to compensate for the anticipated reduction in reimbursement, going forward.

2. The quality and performance reporting stipulations of the hi-tech act, pay for performance models, comparative effectiveness and evidence based medicine will further demand delivery of the best possible, sustainable patient outcomes at a lower cost, while ensuring a move from the current paper based processes to automated Electronic Health records (EHRs), Health Information Exchanges (HIEs) and interoperable IT systems to assure transparency and higher levels of accuracy and efficiency.

Opportunities and Solutions enabled by Business and IT Innovation:

1. Hospital providers and small physicians’ offices will need to implement and adopt Electronic Health records (EHRs) and Health Information Exchanges (HIEs) with demonstrable “meaningful usage” by 2013 or face penalties by way of reduced Medicare reimbursements. While many providers will perceive this as a significant and onerous burden, the visionaries will actually leverage their early adoption and performance reporting as a competitive differentiator to secure patient mindshare and loyalty.

2. Visionary CIOs in industry leading providers are currently testing pay-for-performance models enabled by analytics and performance management software that enables CXOs to monitor, measure, analyze and improve performance based on outcomes rather than procedures, for the very first time. Analysis of variances in outcomes across physicians for the same therapeutic area and treatment and causal analysis there of, can be anticipated to drive us towards a true comparative effectiveness and evidence based model, going forward. This initially will meet significant resistance and will demand appropriate change management to institutionalize these. As well, leveraging similar sophisticated analytics and process improvement paradigms like Lean and Six-Sigma can enable CXOs and hospital administrators to improve performance per function and department while potentially driving up productivity and margins while ensuring superior therapeutic outcomes at a lower total cost of delivery (TCD). As well, the advent of “pay-for-performance” and evidence based outcomes may actually accelerate the drive towards targeted treatment and personalized medicine (see my earlier blogpost – ‘Personalized Medicine: The Time is Now – Are we there yet?’) vs. the one size fits all paradigm currently prevalent.

3. The advent of wellness and disease management programs and IT enablement will also enable providers to extend the “continuum of care” from the context of the four walls of the hospital to the patient’s home, and potentially provide additional and highly lucrative revenue streams and also assure reinforcement of the relationship with patients. This also holds significant promise in terms of assuring higher quality of care and diagnosis delivered within the context of “the medical home”, especially for seniors and multi-morbid patients thru leverage of video conferencing, remote monitoring,telemedicine, medical devices etc.

Employers:

Challenges and Implications:

1. Employers (who currently pay for almost 40% of all insurance coverage in the US) will potentially face higher increases in insurance coverage for employees for the next 2-3 years given the additional insurance coverage of the currently uninsured. Passing on some of the costs to employees has been the norm for many employers, and is anticipated to continue.

2. Businesses are not required to offer coverage. Instead, employers are hit with a fee if the government subsidizes their workers’ coverage. The $2,000-per-employee fee would be assessed on the company’s entire work force, minus an allowance. Companies with 50 or fewer workers are exempt from the requirement. Part-time workers are included in the calculations, counting two part-timers as one full-time worker. it is anticipated that smaller employers especially in low margin industries may explore the tradeoffs of paying penalties for non-coverage of their employees against the higher costs of insuring them especially if this is perceived to be economically unviable and unsustainable.

Opportunities and Solutions enabled by Business and IT Innovation:

1. It is anticipated that larger employers especially in high margin industries may start to leverage “health and wellness” as a tangible reward, thru the award of screening (like the Copper Clinic) wellness and disease management programs in collaboration with their health plans, to drive down their total cost of health insurance. Many companies have already instituted similar plans leveraging personal health records (PHRs) like Microsoft’s, Google’s and Dossia’s platforms coupled with wellness and care management programs leveraging tools like Keas, for education and improved employee health and maintenance thereof.

Health Insurance Payers:

Challenges and Implications:

1. Almost everyone will need to have health insurance or pay a fine, per the stipulation of the Patient Protection and Affordable Care Act (PPACA) of 2010. Expands the federal-state Medicaid insurance program for the poor to cover people with incomes up to 133 percent of the federal poverty level, $29,327 a year for a family of four. Childless adults would be covered for the first time, starting in 2014. The federal government would pay 100 percent of the tab for covering newly eligible individuals through 2016.

2. Health Insurance Payers will experience the higher cost of insuring the currently un-insured population though a large percentage of that population is anticipated to be covered thru the state run American Health Benefit Exchanges for individuals and small group of upto 100 employees (thought groups over 100 can join these exchanges starting in 2017). As well, the additional cost of insuring children and youth up to 26 within their parents’ health plans, inability to exclude children or adults based on pre-existing conditions, lowered MLRs (medical loss ratio – the ratio of premiums paid in to what is paid out for medical care and wellness) et al. It is logically anticipated that they will respond by raising premiums on their health plans for employers who may pass on a part of that additional burden to their employees. It is also anticipated that providers may respond by crafting reimbursement models for “episodes of care” versus pay-for-procedures that will add complexity and demand business rules based automation and decision support.

3. As well, health insurance payers have to simplify and standardize their plans and transactions, enable standard electronic enrollment forms, and report on their plans, enrollment and MLRs, going forward.

Opportunities and Solutions enabled by Business and IT Innovation:

1. Given the current preponderance of paper based process for claims submission, rejection and adjudication, there are significant efficiencies and productivity gains to be had (to the tune of $ BNs), by automating these thru the use of IT.

2. The evolution of “pay-for-performance” and evidence based medicine models may also see a significant support for targeted treatment and “personalized medicine” (see my earlier blogpost – ‘Personalized Medicine: The Time is Now – Are we there yet?’) to drive superior therapeutic outcomes on a per patient basis while lowering the cost for the “episode of care”.

Life Sciences Companies – Pharma, Medical Devices and Bio-Tech manufacturers:

Challenges and Implications:

1. The move to a “pay-for-performance” model will further challenge Life Sciences companies especially pharma and diagnostic manufacturers to further accelerate the development of companion diagnostics and bio-markers for ‘Personalized Medicine’ to ensure superior therapeutic outcomes for patients vs. the approximately 60% efficacy for most of the drugs in the market place today. Pharma manufacturers are also anticipated to experience cost pressures that will demand a significant reduction in the $ 800 MM to $ 2 Bn spend in bringing a new molecule to market, including the huge spend in sales and marketing.

2. The potential imposition of additional sales taxes on medical devices will also impose cost and margin pressures on medical device manufacturers and will demand innovation at a lower cost of product development, sales and marketing.

3. The need to constrain overall costs of healthcare delivery thru pay-for-performance models may potentially constrain the number of defensive CAT and MRI scans currently being prescribed by physicians today, that can potentially impact business and pricing models of medical equipment manufacturers.

Opportunities and Solutions enabled by Business and IT Innovation:

1. Pharma manufacturers can be anticipated to leverage IT extensively for managing their clinical operations, as well as enable their pharmacovigilance, product and patient safety and exception reporting business processes. The use of more sophisticated drug discovery and development tools, data mining and search capabilities to uncover new indications of existing or previously unsuccessful molecules, or for the development of companion diagnostics and bio-markers can be anticipated. As well, leveraging IT for manufacturing, supply chain planning and execution for higher efficiencies, compliance as well as serialization, tracking and tracing and authentication from the plant to the patient bedside to assure higher patient safety and medication compliance is anticipated to scale significantly, going forward.

2. Medical devices manufacturers have significant opportunities to further improve the efficiencies of their supply chain, inventory management and manufacturing processes, thru lean and six-sigma for instance, enabled by sophisticated analytics and performance management tools. Proactively monitoring patients following the implant of their devices (like pacemakers, implantable defibrillators etc.) for exceptions and events before they happen (with often life impacting implications) to monetize additional and highly profitable service revenue streams is a distinct possibility, going forward.

Unprecedented opportunity for IT, Technology and Services Vendors:

All of the challenges, their business implications and their mapping business and IT opportunities, enumerated above (and many more) present significant opportunities for innovation, for IT and technology vendors, going forward.

It would perhaps not be inappropriate to postulate that Healthcare, especially in the US, is undergoing a “renaissance” and presents unprecedented opportunities for technology and IT innovation to enable each and every node in the Healthcare Value Chain. The measurable impact, if executed and realized, would improve transparency and quality of care delivery, while reducing redundancies, waste and cut costs – this is my ‘raison d’etre’ and my purpose in life that fuels my passion and my aspirations!

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