PricewaterhouseCoopers' Announces View of Healthcare Issues for the Year Ahead
1. Medicare and the Prescription Drug Benefit
Medicare will account for an estimated 28 percent of prescription drug
spending in 2006, compared to just 2 percent in 2005, as a result of
the Medicare Prescription Drug Benefit, which went into effect January
1, 2006. The benefit introduces a powerful single purchaser of drugs
in the U.S., which may eventually put negative pricing pressure on
pharmaceutical manufacturers. It could ultimately affect the
profitability of health plans, pharmacy benefit managers and drug
manufacturers. Look for premiums to go up if the program does not
attract a sufficient number of subscribers, and for Congress to rein in
spending if Medicare costs continue to increase.
2. Care and Coverage of the Uninsured
As more and more Americans drop health insurance coverage, hospitals
are seeing a corresponding increase in bad debt levels. While a few
payers have begun to collaborate on pilot programs to develop low-cost
health insurance coverage, providers will continue to face the issue of
how to handle uncompensated care and its impact on their bottom line.
In 2006, hospitals will need to develop an approach to charity and
uncompensated care to improve their operational and financial
performance and control regulatory and reputational risk.
3. Major Changes in Health Insurance
The simple days of $10 co-pays will become a distant memory for
hundreds of thousands of Americans with high-deductible health plans
and Health Savings Accounts. Research by PricewaterhouseCoopers shows
that more than three-fourths of large employers believe they can cut
healthcare costs by asking their employees to pay a greater share of
those costs. In 2006, health plans will develop new product lines and
lines of business to meet the changing needs of consumers.
Pharmaceutical and life sciences companies may need to examine their
product portfolios as consumers become increasingly price-sensitive and
comparison shop for generic drugs and other alternatives.
4. Patient Safety
Calls for improved patient safety will intensify in 2006, and the
healthcare industry will turn to technology to help reduce medical
errors and improve tracking and reporting of safety and quality
standards. The Patient Safety and Quality Improvement Act of 2005
removed some of the fear of liability that kept medical errors from
being reported and addressed, and laid the groundwork for a national
database for non-identifiable patient safety data. Annual investments
in healthcare IT are expected to nearly double to approximately 5
percent of revenue from an average of 2 to 3 percent now.
5. Wellness and Obesity
Consumers who pay for more of the direct cost of their healthcare have
an increased incentive to manage their health and lifestyle. Poor diet
and physical inactivity rose by 33 percent over the past decade and may
soon overtake tobacco as the leading preventable causes of death in the
United States. In 2006, expect a significant increase in voluntary
and/or mandatory health promotion and wellness initiatives. In
addition, health industries are likely to see a growing market for
drugs, treatments and services oriented toward wellness and prevention.
6. Pay for Performance
Accountability takes on more importance than ever as reimbursement and
financial incentives are tied to performance. This will place new
demands on health industries executives to develop and agree on quality
measures so that payers can evaluate and compare providers. To win
financial bonuses for quality, hospitals and physicians will need to
work together to change behavior and measure their clinical performance
against these standards. Pharmaceutical and life sciences companies
will adopt greater vigilance in product safety from research through
market adoption. All health organizations will need to rely more
heavily on information technology to capture, store, retrieve and
report quality information.
7. Report Card Fever
Reporting pressure for all sectors of the health industry is coming
from the government seeking to justify hospitals' tax-exempt status and
from consumers who are spending more out of their own pockets for
healthcare. There will be increasing demand for more transparent
information about pricing to make better decisions. In 2006, health
organizations will need to focus on developing proactive, coordinated
reporting of their prices, error rates and safety standards.
8. Technology Backbone
Information technology is crucial to resolving many of the issues
plaguing the healthcare industry. Significant progress will be made in
2006 by government, industry coalitions and banks to build a technology
infrastructure to improve claims processing, create electronic medical
records, reduce medical errors and track performance. Healthcare
organizations have little latitude for error and will to need to
develop a system for making wise decisions about technology investments
to ensure maximum acceptance, flexibility and return on investment.
9. Labor Shortages
PricewaterhouseCoopers' research found that healthcare executives rank
staff shortages and training as the top problem facing healthcare
delivery. Healthcare organizations will need to address this problem,
and many will pursue the increased use of automation for administrative
functions, outsourcing, subsidized training, aggressive recruitment and
retention, as well as redefining staff functions.
10. Diminishing Drug Pipeline
With the cost of drug development in excess of $800 million,
pharmaceutical manufacturers are under pressure from stakeholders to
produce even as their margins erode. The imminent expiration of key
patents could further decrease revenue by up to 60 percent. This is
exacerbated by growing competition from generic drugs, production of
inexpensive counterfeit drugs from markets such as China and India and the
emergence of China as a low-cost manufacturing base. In 2006, the
pharmaceutical industry will be focused on boosting R&D productivity
and cutting costs; many drug companies will consider forming strategic
alliances and joint ventures with biotech firms as a source for new
About the PricewaterhouseCoopers' Health Research Institute
PricewaterhouseCoopers' Health Research Institute provides new intelligence, perspective and analysis on trends affecting all health-related industries, including healthcare providers, pharmaceuticals, health and life sciences and payers. The Institute is part of PricewaterhouseCoopers' larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum.
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