For Paid Members                     

Volume 11 Issue 48   

News from the Health Care Recession Front - Impact on Employees, Seniors, State Programs, Hospitals and Wall Street

News and data continue to roll in on the impact of our deepening recession on various aspects of the health care sector. From Watson Wyatt, we get survey results this week on employee steps to reduce health care spending. The challenge, as Watson Wyatt sees it, is that employees are embracing many positive changes regarding preventive care, wellness and cost awareness, but are also at times foregoing needed visits and treatments, and  being non-compliant with prescriptions, because of lack of funds.

Their survey indicated 85% of employees have a primary care physician, 76% receive preventive screenings, and  52% were  enthusiastic about financial incentives for wellness and other health programs targeted to their needs. The survey also indicated 17% skipped a recommended doctor's visit and 17% didn't fill a prescription or skipped doses.

Cathy Tripp, Watson Wyatt's National Leader of Consumerism, tells us “The health–wealth connection is more clear than ever, as pressures from high health costs continue to pose challenges to both companies and employees. Open communication and clear, concise educational tools are effective ways to help employees realize the many steps they can take to manage costs without compromising care.”

A comparison of selected Watson Wyatt responses for 2008 compared to 2007 include:

Last month AARP examined this issue as it relates to seniors, in their "Research Report: Impact of the Economy on Health Behaviors." AARP found that:

• 51% of respondents said they have taken a generic or over-the-counter medication instead of a prescribed brand drug
• 22% have delayed seeing a doctor or other medical professional
• 21% cut back on other expenses to be able to afford medical care
• 21% sought assistance in getting prescription drugs at lower cost
• 20% said financial stress had caused them health problems
• 17% said that cutting back on medical care has had a negative effect on their health

So what about the safety net for the health care of the most vulnerable populations affected by this economic crisis? A report issued by Families USA this week finds that states are rapidly shrinking their programs in response to state fiscal constraints. Ron Pollack, Executive Director of Families USA tells us “During economic downturns, the health care safety net is supposed to provide protection for families so they don’t lose needed health coverage. Unfortunately, for too many people in too many states, the health care safety net is fraying and allowing more and more families to fall through.” Their report, “A Painful Recession: States Cut Health Safety Net Programs,” found that:

• Eight states (AZ, CA, FL, GA, NV, RI, SC, and TN) have enacted or are considering cuts that would reduce eligibility or limit enrollment in Medicaid and CHIP. Of the people who have already lost or are at risk of losing their coverage, more than 590,000 are adults and more than 447,000 are children.
• Twelve states (CA, FL, GA, MA, ME, MN, NV, NY, RI, SC, TN, and UT) and the District of Columbia have enacted or are considering reductions in benefits covered by Medicaid or CHIP, such as dental care, vision care, hearing services, and home and community-based services for people with disabilities.
• Five states (CA, GA, ME, RI, and VT) have enacted or are considering increases in low-income people’s out-of-pocket costs in Medicaid or CHIP.
• Thirteen states (CA, FL, GA, IL, MA, MD, ME, MN, NV, NH, NY, SC, and UT) and the District of Columbia have reduced or are considering reductions in payments to health care providers serving Medicaid and CHIP enrollees.

Hospitals, the linchpin in the health care sector where employee, senior, safety net and other government program health care spending intersects, and the largest component of health care information technology is invested, have an enormous stake in the where the economic downturn train is headed. CSC this week issued a report, "Treatment Plan: Hospitals Respond to the Economic Crisis" based upon their survey of hospital executives. Deward Watts, President of CSC's Global Healthcare Sector tells us "the economic environment, exacerbated by the credit crisis, has put the healthcare industry in uncharted waters. The industry's quick response to this challenge is encouraging, but tough times lie ahead. Hospitals that address changing patient demands and shifting reimbursement cycles will be better positioned to mitigate the downturn." The CSC report found that:

• 55% have seen cuts in revenue from Medicaid payments
• 74% have begun implementing changes to respond to the crisis, while 20% are in the planning stages
• 60% report delaying or deferring future construction
• 55% report delaying or deferring future information technology projects
• 38% have postponed IT expansions already underway
• 15% have accelerated IT projects in hopes that the effective use of information will help deal with new patient demands and changing reimbursement cycles
• 75% claim that they will be cutting costs
• 59% will be taking the downturn as an opportunity to tighten up their revenue cycle management
• 43% plan to lay off staff
• 21% anticipate cutting services
• 4% see the need to close facilities
• 67% expect to see an increase in emergency department visits
• 58% expect to see fewer routine checkups

All this news and more led Fitch Ratings this week to pronounce that from a wall street perspective: "U.S. Healthcare Outlook Negative Due to Economic Pressure." Fitch in their release, states that:

• The Healthcare sector will face a very difficult operating environment in 2009 resulting from weaker demand associated with the global economic recession and a U.S. governmental focus on reducing the consumer burden of health care spending.
• Even though U.S. healthcare demand remains strong due to an aging demographic, Fitch expects that growing economic weakness will cause some consumers to delay or forego spending on prescriptions and procedures due to rising unemployment levels and declining wealth. As a result, volume weakness will likely increase, in part putting pressure on top line growth. It is also likely that a growing uninsured or underinsured population will result in an increase in bad debt and uncompensated care for the industry.
• In the U.S., regulatory and legislative pressure on the healthcare industry will grow as the government increases its focus on controlling healthcare costs. Fitch expects that the government will encourage policy that has it take a more active roll in negotiating pricing and making low cost generic alternatives available to consumers. Key legislative and regulatory policy issues that can impact consumer healthcare costs include: universal coverage, patent reform, generic biologic pathway, revisions to Medicare Part-D and comparative effectiveness. While it is not likely that legislation creating universal healthcare would have a meaningful effect on 2009 results, the other issues such as revisions to Medicare Part-D could be enacted.
• The likely result of some of these reforms would be pricing pressure on healthcare industry participants. Therefore, weakening volume along with expected pricing weakness will result in downward top line revenue pressure for the industry, in general.

The good news for investors is that the health care sector doesn't manufacture automobiles or build houses.

For More Information:

U.S. Workers Taking Steps To Lower Medical Costs, Watson Wyatt Survey Finds
Watson Wyatt Press Release, December 10. 2008
http://www.watsonwyatt.com/news/press.asp?ID=20212

Closing the Gap 2008|2009 Employee Perspectives on Health Care
Watson Wyatt Report, December 2009
http://www.watsonwyatt.com/us/research/resrender.asp?id=2008-US-0265&page=1

Impact of the Economy on Health Behaviors
Research Report, AARP Knowledge Management, November 2008
http://www.aarp.org/research/health/carefinancing/healthcosts_08.html

States Making Huge Cuts in Health Safety Net Programs Due to the Recession
Families USA Press Release, December 11, 2008
http://www.familiesusa.org/resources/newsroom/press-releases/2008-press-releases/
states-making-huge-cuts-in.html

CSC Survey Reveals Hospitals Find Current Recession Far Worse Than Last Downturn
CSC Press Release, December 09, 2008
http://www.csc.com/newsroom/press_releases/17553

Fitch: U.S. Healthcare Outlook Negative Due to Economic Pressure
Fitch Ratings Press Release, December 10, 2008
http://finance.yahoo.com/news/Fitch-US-Healthcare-Outlook-bw-13795031.html

• Medical Tourism - Arranging for Member International Treatments: A Workshop for Health Plans/Employers, December 17th, 2008
• Future Care Web Summit, January 22nd, 2009
• International PPO's – Secrets to the Next Emerging Market, February 12th, 2009
• CD-ROMs of past events
• Upcoming Events

Discounts: 
MCOL Paid Members get 50% off HealthcareWebSummit events; 10% off MCOL products; 5% off all other products through the Managed Care Store and special discounts for selected conferences