The rapid transformation of the US Healthcare Delivery industry into s corporate endeavor will, we believe, lead to a period of extreme disruption in all levels of the healthcare market.
There will be a coincidence of increasing consumer health decision making and the formation of large Integrated Delivery Systems (IHS) and ACOs. These large groups will absorb most of the healthcare delivery offices and clinics in their area and will thus “own” the healthcare consumer cradle to grave. The natural consequence of this will be new alliances of suppliers selling directly at the C-suite level and IHSs offering broader services with a radically changed consumer satisfaction culture.
The US Healthcare Consumer
Even before the Affordable Care Act (ACA) was passed, US consumers were being encouraged or even forced to take more accountability for their own health and wellness. Costs were rising, employers were shifting responsibilities and insurance plans became available that offered “less for less”.
At the same time Segmedica’s own research was showing that there was a steady decline in public confidence in all aspects of the health care system. Every six months from 2008 to 2011 we polled a large representatives US general population sample. By 2011 we were seeing hat one third of consumers did not believe that their physician had they best interests at heart and only one sixth believed that of their insurance plan. Providers, Pharma companies and Insurance Plans were also suffering from historically low levels of public confidence.
The ACA, passed in 2010 was the culmination of public debate initiated by the Clinton Administration in the nineties. The main outcome of that debate was that universal health coverage would not be achieved through a socialized single payer system, but by adjusting the essentially capitalist system we already had.
This has resulted in government intervention of an almost unprecedented scale for peacetime and which includes defining customer bases and terms of business for a major industry. We are not passing social or political judgment on this, just noting that the effects of these changes will take a long time to finish rolling through the healthcare system.
Estimates still vary but it seems that around 10,000,000 American adults now have health insurance who were previously uninsured, the largest group being between 18 and 34 years old (in other words “Millennials”). These means 10 million more potential customers for the orthodox medical system.
According to the Bureau of Economic Analysis (2012) Healthcare expenditure is households’ second largest expenditure after housing/utilities. When you offer up choices to people around such a major expenditure choices will be made and with that will come personal research, word of mouth communication and an increase in the amount of information in the average consumer’s hands
Health Provider Industry Trends
The shape of the US Healthcare Provider industry is changing very rapidly. Most hospital institutions are a part of a group of some kind and there are already over 600 Accountable Care Organizations (ACO) in existence.
85% of US physicians are employed by, or affiliated with, at least one Integrated Healthcare System (IHS). Within that total the number of physicians actually employed has risen from 31% in 2011 to 43% in 20141 and we expect this to top 50% in 2016. This statistic reflects the great rates at which physicians are selling up practices, entering medicine without starting their own practice or retiring from practice. They are driven by a number of factors:
• Physician desire to be shielded from market forces
• Reimbursement cuts – in some cases these have been drastic
• Increasing costs – particularly malpractice
• Increased in costly IT requirements (EMR)
• Reaction to Healthcare Reform
• Shifting physician demographics
• Shifting desire for work/life balance
In the meantime IHS’s are buying up of affiliating with every healthcare resource in their area that they can lay their hands on. This trend is driven by a number of factors:
• Secure/expand referral network – defensive strategy
• Win back lucrative procedures from physician centers (e.g. Endoscopies)
• Advantageous reimbursement – particularly for ancillaries (imaging)
• Addressing staffing shortages
• Need for call coverage
• Healthcare Reform – ACOs
• Need to improve and exhibit quality of care
All of these reasons are basically reactive and defensive but they are going to have profound consequences very soon.
Implications of Current Trends on Provider Groups and Insurance Plans
While ACO/IHS groups are forming and enlarging themselves for largely defensive reasons this trend will inevitably lead to a number of market outcomes:
1. The ACO/IHS will “own” the consumers in its geographical area “cradle to grave”. Where more than one IHS occupies a given geography competition to own consumers will become intense.
2. This market ownership will intersect with the growing consumerism in US healthcare to place demands on healthcare groups to provide an ever widening range of health and wellness services. Why not own gyms? Swimming Pools? Provide dietary support or health advice? Weight loss centers (Weight Watchers or Jenny Craig inplants)?
3. Owning a regional market inevitably raises the question “Why not insure the market too?” Why not become an insurer and argue with yourself rather than someone else! Kaiser Permanente, the best known example of this, is not alone. Major ACOs such as The Henry Ford Health System in MI and the Providence Health and Services Group in OR also manage their own healthcare plans.
4. Hospitals are already pharmacies and most chain pharmacies will already ship prescriptions to their customers on request. Why shouldn’t hospitals, especially those with insured members, also dispense routine medications?
5. The consumerization of hospitals will lead to them radically changing physically. Where land is available they will spread out so surgical and inpatient units will become more physically separated and campuses will seek to make themselves more attractive and less forbidding to visit.
6. These enhanced campuses will have units like “The Metabolic Syndrome Pavilion” (although with a more consumer friendly name) where diabetes is not only treated but at risk patients are counselled and supported. A likely outcome is that delivery groups will demand “package purchases” of drugs, devices, home monitors, dietary support, exercise, counselling, alternative medicines and so on. Manufacturers will combine to supply these “package purchases” and we will see pharma, devices along with more unlikely bedfellows efficiently supplying disease based and demographic group based needs.
7. Where will GPO’s fit in this scenario. According to undated data from the Healthcare Supply Chain Association (HSCA) 72% of all hospital purchases take place under a GPO contract. However, it is well known that GPO prices are often only a starting point for individual hospital groups to negotiate. While many GPOs are owned in whole or in part by hospital groups it is unclear how the GPO role will grow or shrink in the coming market upheaval. It is clear that some hospital groups are becoming large enough to obtain as good or better pricing on more sophisticated products and physician preference products
The culture change required in IHSs and their suppliers is going to be radical. Think about the concept changes required:
Now In the Near Future Patients Customers Patients’ families Customers Administration Service Quality Compassion/Satisfaction Billing Advanced estimates or even commitments Diagnosis Explanation
Some IHSs are creating a new C-Suite position – Customer Experience Officer (CXO). While there are less than 100 of them in the USA so far (according to Fierce Pharma) and they will have their work cut out for them to make the cultural changes needed, we can expect to see more attention and metrics applied the customer experience.
For more information, please contact Jamie Jordan at jjordan@segmedica.com or 716.754.8744 x106.
