Medical Device Daily

It's that time of year again — when experts prognosticate about what's going to happen in the year to come.

True to that tradition PricewaterhouseCoopers (PWC, New York) has issued a survey of consumers and finds that healthcare, for the first time since the Clinton administration, is at the forefront of concerns for most Americans - a "hot button' issue, according to one PWC staffer. And the upcoming presidential election will spotlight the thorniest of all concerns: access to care and cost of care.

These are among the key healthcare trends identified in the report that its authors discussed in a conference call yesterday.

"Healthcare costs continue to gobble up the assets baby boomers spent a lifetime saving," said Carter Pate, global and U.S. health industries and government managing partner. "Healthcare spending in the U.S. is 16% of the GDP and will rise to 21% by 2020. Despite that, the U.S. stands out consistently for high error rates, inefficient care, and high out-of-pocket costs that lead to barriers in care. So there's a demand for greater accountability."

The fact that retirees are playing a greater role in funding their healthcare coverage is among the top concerns for Americans, said Mike Thompson, principal, human resource services at PWC. "As the population ages, and healthcare costs increase, employers are shifting costs to employees. The concern in corporate America is widespread."

Three-quarters of executives at multinational companies say employers aren't expected to pay for retiree healthcare, he said. Is the bell tolling the demise of retiree health benefits?

In response, some large companies are offering innovative solutions. For example, General Motors recently addressed its retiree healthcare obligations by transitioning coverage to a union-managed trust, removing itself as the intermediary between retirees and their future healthcare coverage, according to the PWC report. And in 2008, we can expect to see more arrangements that provide retirees with a set stipend rather than the traditional promise of open-ended healthcare coverage.

"In 2008, we think employers will rethink their approach by capping and limiting liability on their balance sheets," Thompson said. "Pharmaceutical companies may see a shift to generics and possibly a drop in usage as retirees can't afford the cost of drugs. Increasingly, retirees will continue to work, given the cost of healthcare. Expect this to be a hot button issue in the 2008 election."

For the pharma, biotech and life sciences industries, the blockbuster model of drug development is coming to a screeching halt as patents are about to expire and more generic drugs are released to the market. The resultant trend will be an increasing number of collaborations between biotech and pharmaceutical companies.

"The pipeline is under great stress. R&D spending has increased and is expected to increase but the number of approved medications has gone down," said Tony Farino, partner, PWC U.S. pharmaceutical and life sciences advisory leader.

While companies are being pushed to deliver more effective and cost effective therapies, public confidence in the FDA's ability to handle drug safety has been shaken.

"Congress has put pressure on FDA, and FDA has responded with 41 initiatives," Farino said. "The rewards for innovation will pay off. In the long term, they must focus less on me-too products and more on innovation."

Another of the top trends for 2008 identified by the survey includes significant changes in the way hospitals bill Medicare. A new coding system, Medicare Severity Diagnosis Related Group (MS-DRG), is designed to pay more accurately for hospital care, the largest part of Medicare's budget.

"CMS anticipates an overall higher level of reimbursement to hospitals because patient diagnoses will be documented with more specificity," according to the report. "To offset this increase, CMS has adopted a negative 0.6% rate adjustment for fiscal year 2008, with more cuts anticipated in future years."

David Chin, MD, partner, health research institute leader, said, "This new MS DRG system includes 200 more procedure codes and is designed to deal with criticism with the old system that hospitals didn't get reimbursed for older/sicker patients. Change in reimbursing for things like falls in hospital, leaving foreign objects in bodies, and hospital-acquired infections — in the past, Medicare would pay more for this... . Under the new system, they won't do it. As a result, hospitals will have to pay close attention to coding."

Urban hospitals that care for older, sicker patients will be the winners in relation to this new billing system, and specialty and rural hospitals are the likely losers, Chin said.

While America is fighting a constant battle to drive down the cost of healthcare, it really doesn't want to be too inconvenienced in the process. PWC found is another key trend here: the number of retail health clinics expected to double from 700 to 1,400.

"The AMA and state medical societies are concerned about the quality of service and are asking for increased regulation of retail health clinics," Chin said. "Hospitals and physicians are concerned about the potential diversion of patients but they could benefit in several ways. Because of the clinics' limited services, they could get a lot of referrals. And emergency rooms in hospitals are currently very crowded so it may ease that situation. More uninsured people will visit these clinics and ease the burdens to hospitals and pharmaceutical companies will market more closely to the folks at these clinics."

Another trend identified by the report is an expanding market for individual health insurance.

"Currently one in 10 Americans are covered by an individual policy," said Paul Verroneau, principal, PWC U.S. payer industry leader. "The market could grow dramatically if others adopt the policies like those from Massachusetts where people are required to have insurance. National coverage mandates and incentives would be an even bigger factor."

Struggling Americans who don't have employer-funded insurance and can't afford their own policies may see some changes at their local charity-based hospitals. While costs are a touchy issue for non-profit hospitals, they too will feel a major paradigm shift in 2008. Hospitals will have to publicly report their corporate responsibility and will need to establish tracking mechanisms to report community benefit statistics or risk losing their tax exempt status.

Nearly two-thirds of consumers that PWC surveyed said tax-exempt hospitals have an unwavering responsibility to provide medical care for individuals who cannot pay for it. How this new policy will trickle down to the poor who show up in the ER, however, is not addressed by the PWC report.

"There's an IRS drive for greater accountability and transparency in non-profit hospitals to justify tax exempt status," Chin said. "These hospitals are typically the largest employers in communities. It's an opportunity for hospitals to track the contributions they make to their communities. Hospitals will be subject to greater scrutiny and it will have a pervasive effect over the entire healthcare community."

While the majority of the report is focused on healthcare issues in the U.S., Farino said that life sciences companies would be remiss if they didn't realize that Asia is poised to become the largest pharmaceutical producer and consumer in the world.

"Pharma and biotech companies globally are looking to in-source from Asia," Farino said. "Talent is moving east. Last year, India graduated more chemists than the entire world. Our research suggests that by 2020 China will become the largest market."