Dynamics in the Current Healthcare Environment

What are the leading dynamics in the current healthcare environment?

I. FINANCIAL UNCERTAINTY:

Partly a by-product of the economic recession; partly of the political debate over health reform (i.e. the expectation that reimbursement for future healthcare will change)

The result:

A- Caution Reigns

B- Cash is King

So selling into an already slow decision-making environment is even more difficult than in ordinary times. Companies whose business model is based on capital equipment commitments from provider organizations (with the exception of HIT/EMR where there are federal subsidies) are likely to show revenue shortfalls.

II. INTEGRATION PRESSURES:

Mostly a by-product of the Administration's and Congress's various reform initiatives, driven by the belief that the immense current fragmentation in this sector adds to expense and poor outcomes.

Pressures to package:

1. Disparate info sources into one : EMR's, HIE's PHR's, etc.

2. Physicians and hospitals into integrated delivery systems (where physicians become employed)

3. All physician care: into multi-specialty organizations

4. Fee for service payment mechanisms into bundled payments for single care episodes, or even global payments, "accountable care organizations", "medical homes"

The result:

A-more vertical integration

B-more provider sector consolidation

III. PREMIUM ON QUALITY/OUTCOMES/CLINICAL EFFECTIVENESS/VALUE:

Mostly driven by the political reform environment, but also by purchasers of health services.

1. Increased recognition of immense variation in standard medical care practices , by geography--unrelated to clinical need or patient differences (e.g. Dartmouth Atlas studies)--as well as to poor outcomes ( various NIH studies)

The result:

1. Efforts to change healthcare payment methodologies to better link payment to actual outcomes, frequently called " value based purchasing":

a. P4P (pay for performance)

b. RAC audits

c. Medicare Demonstration projects, CMS " core measures" program (puts 5% of hospital reimbursement at risk based on outcomes)

d. Re-admission rate payment penalties, etc.

The result:

Companies with tools that help providers to measure quality and outcomes will profit. Better yet, technologies (e.g. next generation telemedicine, possibly robotic surgery, etc.) that can help providers to deliver higher care at lower cost will be highly advantaged. Contrarily, expensive technologies with uncertain/dubious value (e.g. certain imaging tools) may suffer.

IV. INVESTMENT IN HEALTH IT:

Primarily driven by federal govt. policies and subsidies.

The biggest winner, and the most certain, given the release of stimulus funds, is the HIT subsector. Especially EMR/ PHR software systems, but also software that helps providers monitor clinical effectiveness, manage disease across organizational silos, possibly data mining to better interpret patterns amidst growing seas of clinical info.

One of the less obvious results of this dynamic could be a "crowd out " factor, in which IT investments absorb most, or all, of increasingly limited provider organizations' capital budgets.

V. RETAIL MEDICINE GROWTH:

Lost among the inside-the-beltway health debates, and within the policy-centric consultancy groups, is continued growth of consumer influence in healthcare purchases; whether for actual clinical services, for non-traditional health services, for insurance, for medical advice or for long-term care.

More extreme than in any other culture I have experienced, Americans have a fetish for things medical, which is unlikely to be abated in the short run by federal reform, or by employers' continued cost shifting to individuals. Results may include increasingly two-tiered delivery services, special concierge offerings, upper-end packaging especially centered around consumer speed and service, etc.