Trends 2006: Top Trends Every Healthcare Executive Should Know

1. Trends 2006:Top Trends Every Healthcare Executive Should Know Maureen M. Swan The MedTrend Group Minneapolis, MN

2. What Will The Future Bring? • Even the experts have a hard time predicting the future • “Who the hell wants to hear actors talk?” • Harry Warner of Warner Brothers • “That little black box will never amount to anything.” • Louie B Meyer, MGM • “Everything that can be invented has been invented.” • US Patent Worker, early 1900’s • “The only reason someone would buy a PC is to hook it up to a mainframe.” • IBM Executive, 1985

3. #1: Return to Rising Premiums/ Rising Healthcare Costs

4. Return to Rising Premiums Annual Change in Average Health Benefit Cost 13-20% RECORD LOWS Source: William M. Mercer, 2006

5. Why the Rise in Healthcare Costs? What made up the 13.7% increase in premiums between 2001 -2002? PriceWaterhouseCoopers Study, April 2002

6. How long can workers afford it? Growing gap in worker earnings increases to healthcare premium Increases….more workers strike. 3.4% 1.6% Source: Kaiser Family Foundation & HRET, 2003

7. What Healthcare Costs in America 2005 • Annual family premiums $10,880 • More than the gross earnings for a full time minimum wage earner • Average worker paid $2715, or 26% of the premium costs Source: The 2005 Employer Health Benefits Survey, September 2005

8. Brutal Facts • 46.2% of all personal bankruptcies are due to medical costs of an illness • Current cost increases would cause healthcare costs to double every five years • We have the most expensive system in the world • US residents paid $5267 per person for health care, 53% more than any other industrialized country • With average results • And Americans are getting fatter and less healthy by the week… • 72% of Americans are overweight • Growing number of obese/ overweight kids Sources: Health Affairs, July/August 2005.

9. How long can companies afford it? • “Healthcare costs are killing us.” • General Motors Chair, May 2005 • $1525/ car in healthcare costs- more than the cost for the steel • #1 concern of benefit managers: • Controlling health care costs (Deloitte, 1/05) • Primary reason for labor strikes = healthcare benefits • 79% of business owners say they are concerned about their employees’ ability to shoulder the projected increases in health costs. Source: Robert Wood Johnson Foundation, September, 2005; Wall Street Journal, May 2005.

10. Rising Number of Uninsured 2009 Estimate: 48M; 61M if recession Estimate* At least 16M estimated to be underinsured in 2003 Percentage Millions of Individuals Source: US Department of Commerce, Economics and Statistics Administration, Bureau of the Census, 1998; National Coalition on Healthcare, 2002, Commonwealth Fund, 2005; The Commonwealth Fund, 2005.

11. Lack of Coverage • +6 Million additional uninsured adults 2000 - 2004 • 35% of U.S. adults ages 19-64 had either no insurance, sporadic coverage or insurance that exposed them to catastrophic costs during 2003 • 19% of working adults ages 18-64 had no insurance in 2004 • The percentage with employer based insurance fell from 69% in 2000 to now 59.8% in 2005. Source: The Commonwealth Fund, 2005; The Center on Budget And Policy Priorities, September 2005.

12. Implications for Hospitals • You might have more uninsured or underinsured over the coming years • Your own healthcare benefits costs will rise • Growing concerns among your customer patients regarding costs – and possibly willingness to look for less expensive alternatives

13. Healthcare’s “Perfect Storm” • Aging, demanding, increasingly unhealthy consumers • Exploding, expensive medical technologies that the consumer wants • Financial model that shields the consumer from the true costs SUSTAINABILITY??

14. Consumer’s View Today • Cost of a doctor visit: $10 - $15 • Cost of a prescription: $5 - $15 • Cost of a hospitalization: $100 Is this sustainable over the next ten years?

15. Consequences to the Industry • Employers try new benefit models • Reimbursements get squeezed further – growing concerns for providers • Not enough beds: mini-construction boom in urban areas • Not enough staff: workforce shortage • Discontented doctors • Aggressive new competitors

16. #2: The Consumer Revolution

17. #2: The Consumer Revolution • Waning consumer confidence in the system

18. Waning Consumer Confidence Percentage of Americans who: Think there is something seriously wrong with the system % Have heard some disturbing stories about medical care and mistakes that hurt or even killed people % Feel that quality healthcare is almost unaffordable for the average person % Feel that quality care is often compromised to save money % Source: National Coalition on Health Care, 1997 Survey

19. Today’s Consumers Are Better Educated and Have More Money Americans Over 25 Who Have Attended College U.S. Households with $50K Incomes (in constant 1995 dollars) 58%* 45% 48% 39% 28% 28% 18% Source: Institute for the Future, 1998: U.S. Bureau of the Census, 1996.

20. Consumers See Themselves as“In Charge” of Health Care Decisions Insurer 3.30 Self 1.88 Doctor 1.74 Employer 1.20 Government 1.08 Hospital 0.60 Influencing Healthcare Decisions Who InfluencesToday? Who ShouldInfluence? Self 5.44 Doctor 2.44 Insurer 0.72 Hospital 0.62 Government 0.48 Employer 0.30 Source:VHA, 1997

21. 2000 35 years old 45 years old 25 45 35 55 Small leading edge begin to increase utilization Nearly half now needing greater health care attention Baby Boomers Driving Demand Approximate Age Distribution of Baby Boomers 1990 Source: U.S. Census Bureau, HCAB 2002

22. The Age of Transparency • “Consumer reports” • INFORMATION to drive my decision making… • Qualitycounts • Healthgrades • Leapfrog • U.S. News… • And soon – real pricing information

23. Insert their healthgrades data

24. Healthcare Report Cards…Very Early in Adoption Curve • 26% of consumers say they have seen data on hospital quality. Only 1% acted on that information • 22% say they have seen information on health plan quality. Less than 1% said they made a change based on the data. • 10% have viewed quality information on physicians. Less than 1% used that information to make a change. Source: Strategic Health Perspectives, Harris Interactive Poll; 2003.

25. Ratings Changing Decisions Do They Influence Behaviors ? If your hospital or physician received low ratings… Source: Solucient, 2003

26. Industry Responds: Opportunities • Open access, same day scheduling • Extended clinic hours • Clinical centers of excellence • Healing environments • Integrated alternative and traditional care • Boutique practices Consumers are driving product development- ARE YOU LISTENING TO THE CUSTOMERS IN YOUR MARKET?

27. COST: $44

28. Implications for Hospitals • Being there isn’t enough • Customers are increasingly “shopping” for healthcare • Customers will leave town (or your market area) for care • You have to market to the consumers in your market – why should they use your hospital?

29. #3: The Age of Digital Health

30. Internet Creating New Industries, Companies and Products Internet Growth (millions of adult users) Source: American Internet User Survey, FIND/SVP

31. Consumer Healthcare Information Resources Source: Rynne Marketing Group, 2001

32. Internet Use • Consumers trust the internet more than other media sources • 65% of consumers use the internet to research important health topics before and after they visit a doctor • Internet shopping – • Medical tourism • National market for complex/ life threatening procedures

33. Medicineonline.com

34. Yourdiagnosis.com

35. The e-provider • E-enabled doctors • 20% of office visits could be eliminated • MDs may spend 1/3 of time on the net by 2010 • 86% of doctors will be using e-prescribing (Forrester Research, 2005) • Only 17% of doctor offices have electronic medical records (CDC, 2/05) • 90% of online adults want the following capabilities with their physician: • Ask questions without a visit • Fix appointments • Receive medical test results Source: Cyber Dialog, Inc. 2001, Market Drivers: Strategy Briefing On e-Healthcare, 2003; CDC, 2005.

36. #3: The Age of Digital Health • Increasing “pipes” (broadband and fiber optics) -- integrated video, voice, imaging, data • Radiology, tele-health • Clinical information databases and artificial/ expert systems applied to medicine • Markets no longer local or regional

37. Implications • Having a value added web strategy matters • Lock in the desktop of your customers • Electronic Medical Records are a requirement to stay competitive • Data reporting • Quality improvements • (Rural) Stay on top of technologies that you can keep local or that allow you to connect to tertiary providers

38. #4: The Medical Technology Revolution

39. Technology Trajectory:SmallerEasier to UseFasterCheaperEarlier in the Disease CycleLess InvasiveOut of the hospital

40. #4: The Medical Technology Revolution • Pharmaceutical and device development accelerates • Faster pace • Replacing surgeries • Drug coated stents versus CABG (30% declines+)

41. Coming at Us at a Faster Pace Number of FDA Applications For New Medical Devices Number of New DrugsBrought to Market in U.S. Source: Bryant-Friedland, “A Costly Prescription,” The Florida Times-Union, June 1, 1998; NIHCM Foundation/ American Institute of Research, 2002; Abbott Labs, Hospital Of the Future, 2003; HCAB 2003.

42. Direct-to-Consumer Advertising Booms 2004 Ad $ = $4.2 Billion Pharmaceutical Advertising $3.5B $1.3B Source: Media WatchMulti-Media Service, 1999

43. Pharmaceutical & Biotech Development Escalates Pharmaceutical Research Dollars $45B Source: Pharmaceutical Research & Manufacturers of America, Wash. DC, 1998; Price WaterhouseCoopers

44. Enormous, expensive pipeline • In development: • 316 drugs for cancer • 15.3% growth in costs for cancer/transplant drug treatments in 2004- related to just 2 new drugs • 25.9% growth in costs for cancer overall in 2004

45. #4: The Medical Technology Revolution • Human stem cell development • Growth of human tissues and organs • Human genome • Nano-technologies come to medicine • Nano-delivered drug devices • Nanorobots repairing tissue without surgery

46. Technology Innovation: Place Disruption Case Acuity Trauma Brain Complex Oncology Cardiac Total Joint Backs Hysterectomy Shoulder Hernia Hand Arthroscopy ENT ASC with overnight stay Urology Ophthalmology Later ASC Oral Cosmetic Gastroenterology Early ASC Location of Surgery Dermatology Doctor’s Office Surgery Center Hospital Source: National Surgical Hospitals, Inc.

47. Provider Disruption Sub-specialists More care will be able to be provided at lower levels in the pyramid Specialists Primary Care Doctors PAs- RNs Med Techs Consumers

48. Implications • What is done by the primary doctor/ nurse might get “disrupted” to lower settings • Pregnancy testing • Blood glucose monitoring • But what is done at the high end can move closer to the physician and mid-level provider over time • Oncology care • Radiology • Etc. • What new care can you do locally? • Where do you want to compete in the pyramid?

49. “Perfect Storm”: Consequences to the Industry • Employers try new benefit models • Reimbursements get squeezed further – growing concerns for providers • Not enough doctors • Discontented doctors • Not enough staff- growing workforce shortage • The rural/ urban difference

50. Employers Experiment with Benefit Models(The million dollar question)