Are you ready for what happens next?

We may have a reform act signed into law, but this is not over, and won’t be over any time soon. The next few years will be tortuous foa all of us. The reform, and its sequelae, and other significant shifts happening at the very same time, will affect you and your organization for years to come and in more surprising ways than you might think.

So what do you do now to prepare? It’s time to start thinking big and deep about what comes next.

Exactly how it affects you will depend on your sector, your market stance, and your organization, but there is a lot we can say already about the economics, the organizational and market challenges you’ll face.

Some of the affects may be subtle, some may be surprising, but most will be big.

Let’s look at organizations both inside and outside the health care industry:

Reform in the Health Care Industry:

Here are some of many change vectors we can expect for the different sectors.

Reform for Healthcare Providers:

• Lack of capacity: The coming expansion of health care
  insurance coverage runs directly into the fact that the industry does not have the capacity to serve 30
  million or more newly insured, especially at the primary care level.
• Integration: Reform will reward the efficiencies of more
  integrated systems, and accelerate the desire of many physicians to
  work within a larger organization.
• Digitization: The impact of health care reform (along with
  the previous ARRA “stimulus” bill) will be to accelerate digitization – but not necessarily in ways that will truly make health care more
  efficient or effective.
• Process reform: Under extreme pressure to cut costs, expand
  capacity, and increase quality all at the same time, integrated
  providers will increasingly turn to sophisticated management regimens
  based on the “theory of constraints,” “lean management,” “six-sigma
  quality,” and other disciplines that have proven successful in other
  industries.
• Business model innovation: We will see an acceleration of a
  tendency to separate different types of health care into different
  business models, whether under the same roof or brand or not, with
  different methods of “bundling” processes into “products,” different
  ways of accepting payment, and different relationships with clinicians

Reform for Health Care Vendors:

• Comparative effectiveness research: New research will anoint
  or doom particular therapies, drug protocols, procedures, tests, and
  devices. The effect of CER is supposed to be advisory, but under
  extreme pressure to cut costs, integrated health care systems will tend
  to take the results of CER as mandatory – and over time we may see the results of CER become effectively mandatory, first for Medicare and Medicaid, and eventually for private insurers as well.
• Unit Costs: As reimbursements to health care providers drop, price pressures on vendors will become far more intense.
• System costs: New or more expensive devices should find
  increasing ability to compete, but only if they can conclusively show
  that they produce significant systemic cost reductions by, for
  instance, eliminating the need for an even more costly procedure or by
  allowing a patient to leave the hospital earlier.
• Disruptive innovations: Extreme cost pressures and the
  industry embrace of process reform will tend to soften and break up
  current industry practices (such as vendor certification, restrictive
  contracts with group purchasing organizations, and the normal practices
  of purchasing departments) which impede disruptive innovations by
  vendors in health care. We may anticipate consumer-electronics-style
  disruptive competition, and whole new value chains supporting it.

Reform for Pharmaceutical Companies:

• Expanded markets: The expansion of health care coverage will, of course,
  mean growth in the market for pharmaceuticals. The size of this growth
  will depend upon the details of the expanded coverage, including to
  what extent the new policies cover drugs and with what co-pays and
  deductibles – and how existing policies respond to cost pressures.
• Unit Costs: As with other vendors, as reimbursements to
  providers drop, price pressures on pharmaceutical vendors will become
  far more intense. Though the government itself is not allowed to
  negotiate drug prices, integrated health systems, private insurers, and
  major retailers decidedly do have that power, and will use it more
  strongly than ever.

Reform for Health Plans:

• Mandates: The new mandates with any real strength at the employer
  and individual level will tend to bring private health plans a wave of
  new clients – including millions of healthy people who had opted out of
  the system because they will not make much use of it, and will find the mandates an unnecessary burden; millions who were too poor (or underemployed) to have insurance, and now have years of stored-up untended health problems; and millions who had been left without insurance (or priced out of the system) because they have a serious chronic illness, and now will use health care a lot.
• End of medical underwriting: The flip side of mandates
  (everybody has to have insurance) is the end of medical underwriting
  (everybody can have insurance). This is not a competitive disadvantage, since everyone has to do it – but this and other provisions leave the plans searching for a risk management model, in fact an entire business model, to replace the one they have been using.
• Chronic disease management: Being forced to accept millions
  of health-compromised newly insured who may have chronic disease, or be
  disposed to it, and who may have little previous history with the
  health care system (especially primary care and preventive care), will
  push health plans to develop much more aggressive chronic management
  and prevention programs.
• New regulations, new enforcement: A number of industry
  practices (such as aggressive rescission) viewed by the industry as
  normal risk management, are now illegal – which will force the
  industry to strongly develop other methods of lowering risk and cost.
• Process renewal: In the face of these new restrictions and
  challenges, the industry is likely to turn to intense internal process
  reform to cut costs.
• Public option: No, the “public option” is not dead. The new legislation includes a hidden “public option” possibility: If any state opts not to set up a health care insurance exchange, the federal government will set one up for the citizens fo that state. Each state or regional exchange must have at least two health care insurers (in order to provide
  competition), of which at least one must be not-for-profit. If in any given exchange two plans (or one not-for-profit) don’t volunteer to take part – and submit themselves to the exchanges stringent requirements- then the federal government will set up a government-sponsored health plan for that exchange. Given the difficulty health plans will be finding in staying profitable in the coming years anyway, it may not be that uncommon that exchanges will fail to find two competitors volunteering. A surprisingly large fraction of the population may, in fact, end up being covered by government-sponsored “public option” health plans.

Reform Beyond the Health care Industry

The expanded and reformed coverage will sharply affect every
industry in the United States, whether it currently provides health
care insurance to its employees or not. The vectors include:

• Workforce issues: The work force in general will become more
  fluid, as it loses the rigidifying influence of employer-provided
  health insurance. “Job lock,” the tendency of employees to desperately hold onto their jobs because they cannot afford to lose their health coverage, will disappear. People will be more ready to move on to other jobs, other life stages, and even to start their own businesses.
• Choices about retirement: People in their 50s and early 60s feel more willing to retire before Medicare coverage kicks in.
• Increased entrepreneurship: People will no longer hesitate
  to strike out on their own for fear of losing health coverage. New and
  young companies will not face the difficult and expensive choice of
  providing full health care coverage to their employees or doing
  without and being unable to attract the best talent.
• Union influence: Though unions have campaigned hard for
  health care reform, they may find that reform removes one element that
  differentiates a good union job from a non-union job. Reform may
  actually tend to reduce their influence.

How reform will affect your organization, your members, or your
sector is a far more subtle and surprising question than you might
suppose. We can tease the answers out of the shape of the reform
itself, and the forces arrayed to influence the regulatory atmosphere,
and we can pace out how the changes unleashed by reform will unfold
over the coming three, five, and ten years.

For a talk customized to your sector, your industry, your organization, call me, or joe@imaginewhatif.com – or go to our healthcare talks topics page.