The ‘ominous challenges’ in healthcare for manufacturers include, what else? More costs. Deloitte’s Paul H. Keckley urges companies to take an active role in the debate.

The events of the past few months might lead to a conclusion that health reform is dead, but it is not. A comprehensive bill is probably off the table, but a series of bills at the federal and state levels in tandem with budgetary maneuvers and actions by Medicare will likely result in health reform one bill at a time. As a result, health reform will continue to be center stage, though in a new costume. But how should manufacturers interpret Health Reform 2.0?
Health Reform: A Fresh Start?
Several events in the past few weeks have led to Health Reform 2.0. Consider the following:

  • The election of Massachusetts State Senator Scott Brown Jan. 19 as the 41st Republican in the U.S. Senate in January changed the health reform political landscape. Yet he’s on record as a proponent of health reform and co-sponsored Governor Romney’s reform bill as a state senator in 2006.
  • In the Office of Management and Budget’s FY11 budget released Feb. 1, $900 billion of the $3.8 trillion budget is healthcare. President Obama, Budget Chairman Kent Conrad and the Congressional Budget Office have carefully noted spending on “entitlements” must be reduced if the nation’s economic recovery is to be successful.
  • States have taken up where House and Senate bills left off. Measures to provide mandates, universal coverage, employer mandates, individual mandates, liability reform and Medicaid funding are priorities in the current legislative sessions of many states.
  • And finally, members of Congress intent on having something to show for the 2009’s “year of health reform” are introducing bills about bite-size pieces of the comprehensive bill.

Given these efforts, and the potential, legislative efforts toward health reform are likely to continue, though a comprehensive bill appears unlikely.

What does health reform 2.0 mean to a manufacturer?
The likelihood of a la carte health reform over the next two to three years portends ominous challenges to U.S. manufacturers. Given its forecast compound growth rate of 6.2 percent through 2019 and burgeoning numbers of boomers entering Medicare, it is highly unlikely health cost increases will slow. For manufacturers, the realities are that health benefits costs for employees and dependents will increase dramatically. According to the Deloitte Center for Health Solutions, for a self-insured company, health benefits costs will increase at least 8 percent; for a fully insured company, up to 8 to 12 percent depending on its size. The reasons?

  1. Hospitals and physicians will transfer shortfalls in reimbursement from Medicare and Medicaid to commercially insured patrons – a “hidden tax” of more than $1,000 per year per employee.

  2. Given cuts in “entitlements,” the likelihood providers will pass through higher costs is high.

  3. As legislators seek to regulate the commercial insurance industry, premium increases will reflect increased operating costs associated with compliance.

In addition, access to primary care services will be limited. With an average debt of $128,000 per physician (Source: American Association for Graduate Medical Education), as students leave medical school and residencies coupled with declining income in primary care, front line providers are simply stepping out or cutting back. Needed services for occupational medicine, urgent care, chronic care management and preventive health will be stretched resulting in workforce productivity issues for manufacturers.

Manufacturer’s “To-Do” list
Every supplier in the manufacturer’s value chain will face higher health costs and seek to transfer those to the manufacturer. The ripple effect is significant. There are several pressure points where manufacturers might up the ante toward a more responsible, accountable system of care as health reform 2.0 unfolds:

  • Hold local hospitals and physicians accountable for evidence-based care and drive providers toward transparency for costs, outcomes, and adherence to evidence-based practices.
  • Implement disruptive innovations that improve the ROI for health dollars spent, including on-site primary and urgent care, medical tourism, direct contracting with retail clinics and targeted low-cost, high quality providers, labs, imaging facilities, and occupational health providers.
  • Harvest clinical data from health care plans. Most manufacturers are content to examine costs semi-annually or quarterly. With more frequent examinations, the plan will bring insight about provider utilization, at-risk employee populations or actuarial forecasts of next year’s spending.
  • Focus on high-cost employee populations with tools and rules. Ten percent of the workforce usually represents 70 percent of the manufacturer’s total health costs. Manufacturers can reduce costs by improving health with required tools (such as health coaching, case management, personal health records linked to EHRs in provider settings, measurement, bio-monitoring devices, etc.) and enforcing rules and active participation in programs that increase adherence to treatment plans and self-care regimen.
  • Leverage trade association relationships and become an advocate. A willingness to engage as a trade association toward a long-term transformation of the health system requires dialogue among people of good will who bring a willingness to learn and listen.

Health reform will continue, though probably not thru a “jumbo” bill as once expected. In the redesign of health reform, manufacturers cannot afford to be spectators. Companies should continue to study the system and take a long-term active role in shaping transformational changes. These efforts pay dividends to manufacturers in the stability of the workforce and in sustaining communities where employees live and work.

As used in this document, “Deloitte” means Deloitte LLP and Deloitte Services LP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Copyright © 2010 Deloitte Development LLC, All rights reserved.

Paul H. Keckley, Ph.D., is executive director at the Deloitte Center for Health Solutions, Washington, D.C. Visit: www.deloitte.com.


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