Status Quo in Healthcare Is Not an Option: Health Reform May Make Health Organizations' Current Business Practices and Markets Irrelevant, says PricewaterhouseCoopers

NEW YORK, May 12 /PRNewswire/ -- Health organizations face more than 60 major regulatory deadlines over the next ten years to meet the timetable and goals of health reform, and the changes will create a profoundly different healthcare environment in which current business practices and markets may no longer be relevant, according to a new report published today by PricewaterhouseCoopers' Health Research Institute.  Opportunities are embedded in new changes, but to prosper in a post-reform environment, health executives will need to think out of the box, break down silos and make friends of former adversaries.

PwC's report Health Reform:  Prospering in a post-reform world is the first, most comprehensive analysis of health reform changes and how they will affect health organizations in the context of megatrends reshaping healthcare delivery.  Implications are outlined in detail for each of the health sectors, including insurance companies, hospitals, physicians and other providers, pharmaceutical companies and life sciences companies.  More importantly, PricewaterhouseCoopers outlines a vision for what the healthcare landscape might look like after a decade of reform, and offers recommendations on what organizations can do now to turn challenges into opportunities tomorrow.

"To look at the implications of health reform only in the context of current business practices is not only futile but misses the point of the reform agenda," said Kelly Barnes, U.S. health industries leader, PricewaterhouseCoopers.  "If health organizations make no other changes and sectors continue to operate in silos, the direct financial impact of healthcare reform could be devastating and even threaten their survivability.  To prosper, it is incumbent on health executives to reassess their businesses, find new market opportunities and sit on the same side of the table with unlikely new allies who now share common goals."

PricewaterhouseCoopers outlines the three primary mechanisms for achieving health reform:  New coverage, new fund flows and new regulators.  Combined, these three mechanisms will create an entirely new health system that does not look like or act as it does today and will require sectors to work together on long-overdue changes to the cost, quality and outcomes of care, says PricewaterhouseCoopers.  Much of the patchwork quilt that paid for the uninsured will largely be replaced by public or private insurance coverage.  A stronger focus will be placed on paying hospitals and physicians for quality.  Insurers will be highly regulated but have access to new customers through health exchanges.  Pharmaceutical companies will see increased pricing pressures through discounts and fees even as they see new customers.  Individuals and businesses will face the choice of providing and paying for health coverage or paying penalties.

In its report, PricewaterhouseCoopers details implications for each sector, some of which include the following:

Providers

• New reimbursement models favor hospital and physician alignment, including physician employment, over the traditional private practice model.  Bundled payments, accountable care organizations, medical homes, reduced readmissions, and quality-based reimbursement will require hospitals and physicians to become partners in payment.
• Beginning in 2015, a 300-bed hospital with poor quality metrics could be penalized by more than $1.3 million per year.  Even more important, these hospitals could suffer reputational damage as these metrics are published online, which is now the most popular place for consumers to seek health information.  In addition, some quality metrics will be measured on a relative basis resulting in increased pressure for hospitals to improve quality.
• The number of Medicaid recipients will increase by more than 40 percent, from 2010 to 2019, so hospitals must learn to operate on Medicaid rates.  Traditionally, Medicaid rates haven't covered all costs, so hospitals will need to quickly address fixed costs.

Payers

• Many health insurers will have to lower administrative expenses to meet the new medical loss ratio (MLR) of 85 percent for the large group market and 80 percent for the small group and individual market.  Currently, many individual and small market plans are not meeting the new required MLR, which governs the amount of premiums allocated to paying medical expenses.
• Successful insurers will have to shift their attention from group to individual plans, which are expected to triple between 2010 and 2019.  Over the next 10 years, growth in the Medicaid coverage will also increase substantially.
• Health insurers will have to differentiate themselves on price, service, quality, and provider network in the insurance exchanges.  With regulations requiring four standard benefit packages, essential health benefits, and limits on cost sharing, insurers will have to compete on factors other than benefit design.

Pharmaceutical and Life Sciences

• Health reform changes will cut into expected spending on brand-name drugs by 4.3 percent.  The increased number of insured will be offset by heavier discounts required by Medicare and Medicaid and other new fees on government sales, making it less attractive to sell to government programs.
• The creation of a new regulatory pathway for biologic products dramatically alters the portfolio design process.  Mature biologic manufacturers will see a roughly 20 percent hit on their revenues, while large generic manufacturers may see an increase in sales of roughly 2 percent.
• The new law greatly accelerates the movement toward outcomes- and quality-based reimbursement in the U.S. market, resulting in a more intense focus on drug efficacy and results.  The mission of the Patient-Centered Outcomes Research Institute, the CMS Innovation Center, the Independent Payment Advisory Board, and other new regulators will be to "bend the cost curve" and reward quality.

Ultimately, the best opportunity to prosper in a post-health reform environment will be at the cross-sector level, says PricewaterhouseCoopers.  Reform has opened the door for industries to work together to achieve change by thinking like a consumer, driving innovation, creating value and better understanding the needs of the new marketplace.

PricewaterhouseCoopers report "Health Reform: Prospering in a post-reform world" is available at  www.pwc.com/healthreform.

About PricewaterhouseCoopers' Health Research Institute (HRI)

PricewaterhouseCoopers' Health Research Institute (www.pwc.com/hri) is an unparalleled resource for health industry expertise.  By providing cutting-edge intelligence, perspective and analysis on issues impacting the health industry, HRI assists executive decision-makers and stakeholders worldwide in navigating their most pressing business challenges.  PricewaterhouseCoopers is one of the only firms with a dedicated global healthcare research unit, capitalizing on fact-based research and collaborative exchange among our network of professionals with day-to-day experience in the health industries.

About PricewaterhouseCoopers' Health Industries Group

PricewaterhouseCoopers' Health Industries Group (www.pwc.com/healthindustries) is a leading advisor to public and private organizations across the health industry, including payers, providers, academic institutions, health sciences, biotech/medical devices, pharmaceutical companies, employers and new non-traditional market participants in the dynamic healthcare space.  PricewaterhouseCoopers has a network of more than 4,000 professionals worldwide and 1,200 professionals in the U.S. dedicated to the health industries.

PricewaterhouseCoopers' Health Industries' clients include 40 of the top 100 hospitals in the U.S. and 16 of the 18 best hospitals as ranked by US News & World Report; all 20 of the world's major pharmaceutical companies; all of the top 20 commercial payers in the U.S.; municipal, state and federal government agencies and many of the world's preeminent medical foundations and associations.  Follow PwC Health Industries at http://twitter.com/PwCHealth.

About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders.  More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

© 2010 PricewaterhouseCoopers LLP. All rights reserved

SOURCE PricewaterhouseCoopers

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