Healthcare Faces Pivotal Year in 2008, Says PricewaterhouseCoopers' Health Research Institute in its Annual Review of the Top Health Industry Issues

NEW YORK -- The healthcare industry faces a pivotal year ahead as it anticipates the outcome of the 2008 presidential election and adjusts to a new Medicare payment system, additional reporting requirements, pressure on Big Pharma to cut costs and innovate, the rise of retail health services and the ongoing evolution of consumer-directed healthcare. The implications of these issues are addressed in the Top Eight Health Industry Issues in 2008, an annual review of the pressing issues in healthcare, released today by PricewaterhouseCoopers' Health Research Institute.

"The future strategies of hospitals, commercial insurers, pharmaceutical companies and life sciences firms will be influenced by big changes ahead in government policies, market pressures and global trends," said R. Carter Pate, global and U.S. health industries and government services leader for PricewaterhouseCoopers. "With healthcare costs taking a bigger bite out of the assets of individuals, businesses and the U.S. economy, there is a demand for greater accountability from the health industries and a demonstration of the value they create."

PricewaterhouseCoopers' Health Research Institute identifies the following eight issues that will dominate health industry discussions in 2008:

* Retirees Will Play a Greater Role in Funding Their Healthcare Coverage

Three-quarters of executives at multi-national companies surveyed by PricewaterhouseCoopers in 2007 said that, while employers should help provide access to affordable retiree health benefits, they no longer should be expected to pay for it.  Is this the bell tolling for retiree health coverage?   PwC's report suggests that in 2008 employers may reexamine their approach to retiree healthcare by capping and/or eliminating traditional retiree benefits from their balance sheets and shifting toward "defined contribution" or "no contribution" approaches.

* New Medicare Payment System Will Create Hospital Winners and Losers

The Centers for Medicare & Medicaid Services (CMS) has changed the way it pays hospitals, adding 200 diagnosis codes that more precisely recognize the severity of illness among patients.  As a result, hospitals that treat sicker patients will be reimbursed more for doing so, potentially leveling the playing field between general and specialty hospitals and between rural and urban hospitals.   That, combined with CMS's new stance to not pay for certain conditions resulting from medical errors, infections and other maladies acquired in a hospital, mean some hospitals may see a decline in revenue.  In 2008, watch for commercial payers to follow in CMS's footsteps and an increased demand for medical coding staff.

* Retail Health Clinics Will Challenge Primary Care Models

Driven by consumer demand for convenient and lower-cost medical care, the number of retail clinics in discount chain stores, grocery stores and drugstores throughout the U.S. is expected to quadruple, from 700 today to more than 3,000 in five years. In the year ahead, states, payers and policymakers will be crafting legislation and policies applicable to this new breed of healthcare provider, which lacks uniform regulation and quality controls.  The growth of retail healthcare could create opportunities for providers, or it could threaten the primary care delivery model. Pharmaceutical companies may choose to step up marketing directly to nurse practitioners who staff the clinics.

* Individual Health Insurance Could Take Off

Typically more expensive than group health insurance, individual health insurance could see market growth as more states mandate health insurance such as Massachusetts has done, and if an individual mandate or additional tax incentives come to fruition from proposals by Republican and Democratic presidential candidates.  Hospitals and other providers may suffer if these plans offer limited benefits, but in the long run would benefit from fewer uninsured Americans.  Look for insurers to tailor products and distribution strategies to individuals in the year ahead.

* Increased Merger and Acquisition Activity Between Pharmaceutical and Life Sciences Companies

Revenue growth is down for Big Pharma: The pipeline of new drugs coming to market is thinning, big money-making brand drugs are coming off patent, and the cost of bringing new, innovative drugs to market is increasing.  To address these woes, Big Pharma is joining forces with life sciences companies.  In the first quarter of 2007, life sciences firms recorded the most deal activity and the highest dollar amounts for mergers and acquisition deals than any quarter in their history.  With these collaborations, life sciences companies are now driving the industry whereas big pharmaceutical companies once had a significant advantage.  To fill the pipeline and accelerate innovation, look for greater collaboration between pharmaceutical and life sciences companies through mergers, collaborative risk-sharing, joint ventures and other co-development and co-promotion arrangements.  An unknown is whether regulators will clear a path for generic versions of newer biologic drugs, which could cause disruption to pharmaceutical companies' future revenue streams.

* Asia Plays Bigger Role in the Pharmaceutical Industry, but Safety Concerns Loom

Asia is poised to become one of the world's largest pharmaceutical consumers and producers.  The rising cost of drug discovery has led pharmaceutical companies to look outside the U.S. for a less expensive workforce and to outsource both clinical development and manufacturing operations overseas. Yet there are significant concerns regarding Asia's uneven protection of intellectual property rights and Asian drug safety.  If a large portion of fundamental intellectual property creation moves to Asia, the West's dominance and ownership in medical scientific breakthroughs may rapidly decline.

* FDA Tightens Drug and Medical Device Safety Standards

Congress granted the U.S. Food and Drug Administration increased authority to require, not just request, increased safety standards from drug companies, and it gave the FDA increased authority over post-market drug safety.  Under new FDA guidance, the pharmaceutical industry will face even more regulatory burdens, which could be costly.  Physicians and hospitals will need to adhere to new restrictions in prescribing and dispensing certain prescriptions.  Look for payers to track and report to the FDA insurance claims data that identify patterns of adverse reactions to certain medications, such as off-label drugs prescribed for use in ways not approved by the FDA.

* IRS to Seek Full Accounting of Hospital Community Benefit

The Internal Revenue Service wants hospitals to submit a full accounting of the benefits they provide to the community, reported in a uniform manner, as part of their annual tax return to the IRS, submitted on the proposed 2008 Form 990 and available for public inspection. Many hospitals document their community benefit, but have done so inconsistently.  In 2008, tax-exempt hospitals will need to start tracking community benefit efforts so that, when and if required, they can accurately report their activities for the year.

"The government and the public have high expectations that the health industries will deliver safe care and safe drugs and will meet consumer and patient demands for innovative products and services," said Dr. David Chin, partner and leader of PwC's Health Research Institute. "Now there is some real accountability behind many of these expectations."

Source: PricewaterhouseCoopers Health Research Institute

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