William M. Dwyer
William M. Dwyer, Senior Director, Strategic Marketing, Abbott HealthSystems Division, Dept. 49U, AP6B2, Abbott Laboratories, Abbott Park, IL 60064-3500 (708)937-4576.
The U.S. health care system is in one of the most turbulent periods of its history. No aspect of the medical industry will be left untouched by the forces of reform that emanate from our local communities, state capitols and the federal government. Amidst this activity, our nation's health care system continues to grow in complexity and size, as it attempts to meet the expanding needs of an aging society.
There are many diverse forces at work in the modern world that will continue to impact health care around the globe. These issues are relevant to us on several levels; personal-for our own health status, professionally-if we are involved in the health care industry and, fiscally-if we are an employer or government payer of the bill. This presentation analyzes current and future trends from the perspective of a major multi-national corporation, whose employees are involved in discovering and marketing cost-effective technologies to improve health care for mankind.
NATIONAL POLICY DEBATE.
Our country has come out of the single most intensive year of national debate about health policy reform. President Clinton chose to use the domestic issue of health care reform to galvanize his leadership and attempted to achieve a higher level of health care security for Americans than ever before. For a variety of reasons, related to the size of the governmental bureaucracy and who would actually pay for the expansion of access, the American political system remained "gridlocked" on this issue and no significant legislation passed.
In conventional terms, health care policy has been best understood through analyzing parameters of Access, Quality and Cost. With approximately 15% of Americans (40 million) uninsured, we are the last major industrialized nation to deal with this issue. In international circles, our inability to finance coverage for all citizens is at the very least a point of great bewilderment, and at most a point of disgrace to non-Americans. Meanwhile the rate of growth of cost is second to none in the world, as is our quality of care, particularly with regard to advanced specialty care. Unfortunately, many international statistics can measure the cost problems better than quality outcomes.
National health expenditures have been growing significantly faster than the rest of the U.S. economy for most of the past thirty years. As a result, the proportion of our economy consumed by the health care sector has zoomed from just under 6% in 1965, the year of Medicare and Medicaid's birth, to 12% by 1990. It now stands around 16% of the Gross National Product (GNP), and is on its way to 18% by the year 2000. This rate of growth over other sectors of the economy can not be sustained in the long run. The curve will eventually break for the following reasons;
The U.S. leads all economically developed countries with its percent of Gross Domestic Product (GDP). In nearly every major country of the world, health care expenditures have been growing faster than the rest of their economies over the past 10 years. Health economists know, however, that a country's health costs are directly related to the wealth of that nation. The more wealth in a country, the more is spent on health care. The United States has the highest standard of living in the world, and also has the highest expenditures per person. Canada is second in both its wealth and health costs per citizen, with every other major country behind these two neighbors.
LOCAL AND REGIONAL NATURE OF HEALTH CARE.
Health care is a consumer service which is by and large, produced and consumed on a local or regional basis. The U.S. system is built on pluralistic payment structure largely made up by the employer community and government. Within recent years, businesses of all sizes have become more aware of the burden that financing health care coverage for their employees has added to maintaining a profitable business mission. In markets such as Rochester (NY), Memphis, and Minneapolis, among others, the businesses are joining together to gain leverage over their perception of an uncontrolled system with unnecessary costs.
These business coalitions combine thousands of workers into a single contract which is then bidded upon by local providers. While it is still early, it appears that Integrated Delivery Systems have a key advantage when they come to the negotiating table. A single person is empowered to deliver the goods from an integrated system. Otherwise, the business groups end up signing multiple contracts with fragmented provider groups and insurance companies. There has been no single point of accountability for the costs or the quality of care at a local level before. Businesses that are paying this bill would like to see the system change so that they can be assured about the value they receive for their health dollar investment.
In every major metropolitan market, three to six major Integrated Delivery Systems are forming. In some cases they involve horizontally integrated hospitals under contract with physician groups and health plans. In others, the integrated system controls all three parts: physicians, hospital care and the insurance function. The number of these systems is expected to more than triple by the year 2000 from the current level of 70.
The market forces at work here include the growth of managed care and the shift of physicians into large, multispecialty clinics. In addition, new mega corporations such as Columbia/HCA, Caremark, Phy Corp and national insurance companies are buying up provider organizations around the country. Finally, state and federal government programs are being encouraged to experiment with risk-sharing capitated models. As Medicaid and Medicare patients enroll into managed care plans, those systems that can serve all their health care needs regardless of site of care, may have a distinct and sustainable advantage.
THE FEDERAL GOVERNMENT.
When President Bill Clinton presented his first fiscal budget for the United States, a remarkable shift occurred from the last budget of George Bush. The two fastest growing items in the budget became the slowest growing items; Defense and the Deficit. The President has since gone on to make huge cuts in future federal contributions to Medicare and Medicaid to balance his budget. Nearly 40% of that money was earmarked for hospital care and 20% for physician services. This year's budget calls for no cuts by the President, as he has turned over the tough choices to the Republican controlled Senate and House of Representatives. The federal government is going to stay involved in health care in this country. We will continue to elect governors, senators, representatives and even presidents based on their involvement with the health care issue.
ROLE OF TECHNOLOGY.
Although new technology has been shown to increase the frequency and costs of medical practice, it is a necessary part of breakthrough medicine. The number one cost driver in the United States is not the use of technology but "expectations of Americans". If you say "No" to a patient they will either go down the street to another provider, or across the street to visit an attorney. We want our health care!
A recent book profiled the kinds of medical breakthroughs projected across the next forty years for our nation. Predictions of interspecies' organ transplants and cures for cancer, coronary disease and schizophrenia are expected. These innovations will not be inexpensive. American companies currently lead the world in medicine and device innovation compared with other world nations. If our payment system no longer rewards the discovery and development of breakthrough technologies, then there is a good chance that these products will be developed overseas by foreign multi-national companies.
PHYSICIAN HOSPITAL INTEGRATION.
The number one issue at Hospital Board meetings seems to be discussions relative to possible integration models with their practicing physicians. This is driven by a variety of factors discussed above, such as new competitors coming into the market and the need to respond to large contracts from employers. Upon a historical review of the industry, it becomes apparent that physicians and hospital organizations have been growing closer and closer to one another over the past 100 years.
Much of this closeness has to do with the "knowledge workers" that hospitals attracted to their central campuses. In general, physicians did not build parallel organizations, nor did they invest in large capital-intensive projects. In a subtle way, hospitals have stopped being the workshop of the physician and are now viewed as an equal partner in the art of the practice of medicine.
When physicians and hospitals form a seamless delivery system in a local market they position themselves to become accountable for the health status of enrollees to their health plan. No longer are they just interested in that brief encounter with an acute illness, but develop interventions along the lines of prevention and maintaining healthy lifestyles. Shortly after the turn of the century, a large proportion of health care will be delivered in collaborated models of integrated physician and hospital organizations.
HEALTH CARE FUTURES.
The changing market place demands that we face shifting realities; the old way to achieve success will be changed by new challenges and opportunities. The market is shifting toward capitated agreements and away from fee for service medicine. This suggests that seeking large numbers of hospital admissions will be replaced by offering services to a defined population of covered lives. The stand alone hospital and independent physician will find it increasingly difficult to compete against well funded Integrated Delivery Systems. It is quite likely that they will fall behind in needed investments in information systems and acquisition of breakthrough medical technologies. Eventually, independent providers will find themselves at a market disadvantage in measuring and reporting the quality and value of their services to the people of their community.
Price pressures will increase in the market place as competition grows in an industry which has overcapacity in the number of hospitals and a disproportionate balance of specialty practitioners over primary care. The highest quality providers will also emerge as the low-cost, high volume competitors. There will be increased consolidations, closures and competition leading some organizations into more collaborative models. These changes will demand superb executive and governance leadership, with strengthened relationships with their payers and suppliers.
As health care expenditures rise for the ultimate payer, there will be a need for a single point of accountability for the value of care that is given. Fragmented hospital and physician structures will begin to give way to mega firms, as the nation moves closer to an era of the "corporatization of medicine". Americans will continue to demand affordable access to quality care, creating growing economic tension as our society attempts to pay the bill.
Both in our nation and the rest of the world, market trends support the expansion of health care expenditures, but at a lower rate of growth than we have become accustomed to. Regional clusters of "brand name" medicine will form integrated health care systems to provide care for defined populations of covered lives.
Purchasers of medical services and products have a responsibility, along with providers themselves, to optimize the value of health care expenditures. Then America will continue to stand tall as the single largest producer of medical breakthroughs, advanced knowledge and leading edge patient care in the world.
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