Industry trends

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Making over healthcare

While there’s still a great deal of uncertainty around the specifics of healthcare reform, one thing’s clear: The healthcare industry in the US will never be the same. And 2011 is shaping up to be a makeover year for healthcare providers, health insurers, pharmaceutical and life sciences companies, and employers.

But what are the most significant issues in play? A recent report identifies six.¹

1. Health information technology

Thanks to a massive government infusion of stimulus dollars, 2011 will be a peak year for doctors and hospitals to buy electronic health records. But they can’t just install them to get the stimulus money. They’ll need to demonstrate so-called meaningful use, which means connecting to other providers and patients. At the same time, providers as well as insurers must make changes to their administrative systems to support both ICD-10, a new coding system that will add five times the number of current diagnosis and inpatient codes, and HIPAA 5010, a new electronic transaction system that requires more than 1,300 modifications that must be made by January 2012.

2. Health insurance reform

Insurance companies will spend a lot of time worrying about medical loss ratios, which measure the portion of insurance premium dollars spent on medical care. To conform to the new health reform law, insurers must either spend a certain percentage on care or pay rebates to members. The minimum percentages that must be spent on medical services are 80 percent for small employers (those with fewer than 100 employees) and 85 percent for large employers (those with 100 or more employees). In addition, beginning this year, the federal government will issue grants to states so the states can plan and establish American Health Benefit Exchanges and Small Business Health Options Program Exchanges, which are online insurance marketplaces. State legislative activity around those exchanges is expected to be high in 2011 as states seek to meet the certification deadlines set for 2013.

3. Accountable care organizations

Under the health reform law, Medicare is offering a new payment model in which physicians and hospitals can share in any savings generated, but only if they adhere to a complex set of quality, legal, and operational rules that leave little margin for error. Accountable care organizations (ACOs) must achieve both cost efficiency and high quality to stay in the three-year program, the first round of which starts in January 2012. More than half of physicians surveyed by PwC’s Health Research Institute (HRI) said hospitals and physicians will become more closely aligned through ACOs in the next five years. However, because the model is so new and the draft regulations seem so complex, providers are carefully analyzing whether the program is worth the performance and financial risks.

4. Consumer healthcare spending

In 2011, for the first time, most employers are expected to require that a deductible of $400 or more be built into their health insurance plans. At the same time, employers are increasing the levels of coinsurance. Research has shown that higher deductibles and coinsurance levels push consumers to make hard decisions about how often to go to the doctor or what prescriptions to fill. That’s likely to be especially true in a slowly recovering economy. The danger lies in whether short-term cost avoidance could lead to more-expensive conditions in the long term.

5. Unlikely M&A deals

With healthcare undergoing considerable changes, companies in all sectors of the industry will continue to pursue strategic mergers and acquisitions. Some of those ventures—for example, healthcare suppliers’ acquisitions of providers or pharmaceutical and life sciences companies moving into patient care—would have been unlikely just a short time ago. Also, private equity investment is likely to increase. Such activity is blurring the lines between providers and payers as they formulate post-reform strategies.

6. Follow-me healthcare

In the digital age, patients want easy and widely available access to more and more health-related information. But not just any information source will do. Although healthcare organizations are investing resources to produce online content, individuals seek healthcare information from third-party media and information service companies three and a half times more than from any other online health-information source.² Physicians, too, are demanding full access to health data. While 88 percent of physicians said they would like their patients to track their health information, 40 percent of individuals said they would buy a personal health-monitoring device or pay for a monthly subscription to send health information to their providers.

Sources consumers are most likely to use for online healthcare information

1 PwC’s Health Research Institute, Top health industry issues of 2011, December 2010.

2 PwC’s Health Research Institute, Consumer Survey, 2010.