Category: Economics

In the future, will every job be a healthcare job?

published date
June 6th, 2016 by
ID-100404750
I’m here for your job

The US added 38,000 jobs in May, including 46,000 in healthcare. In other words, healthcare added more than 100 percent of the new jobs in the economy. That won’t happen every month, but it’s a pretty striking statistic.

What’s going on here?

I recently read The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, which basically argues that almost all jobs –including highly skilled ones– will be wiped out by automation, robots and artificial intelligence. Case in point: truck drivers and taxi drivers, who will be replaced by self-driving vehicles.

Job destruction is happening today on a large scale. Manual laborers have been vulnerable for a long time, but professionals are now under threat as well. There’s little opportunity in previously safe jobs like bookkeeper and paralegal. I firmly believe that a big driver of Donald Trump’s popularity is the alienation felt by many workers –including skilled ones– whom the economy no longer really needs or won’t need soon. It’s easy to blame free trade pacts, Chinese, Mexicans, and our feckless political leadership, but technology is actually the root cause.

The two big exceptions to job loss are healthcare and education, sectors that have been very slow to match the innovation pace established by the rest of the economy. That’s kept costs high and rising. As a result, Americans are getting killed by healthcare and education expenses at a time that incomes are stagnant.

Healthcare is always 10-20 years behind the rest of the economy (I’ll let someone else speak for education) so we can expect continued robust healthcare hiring for some time.

If the jobless future described in The Second Machine Age really comes to pass, society will be in serious trouble. I really don’t like the author’s idea of addressing joblessness by paying everyone a guaranteed minimum income. Sure people need an income, but they also need purpose in life, which often comes from having something productive to do on the job.

As I’ve been saying for years –for example Welcoming immigrants and robots to fill the nursing shortage and Robots are coming and they plan to treat you like a moron –I do think healthcare will eventually catch up with the rest of the economy and healthcare jobs will go by the wayside. But maybe there will be enough lag time that we will in fact preserve and invent meaningful jobs in healthcare, and that the healthcare field will lead the next wave for the re-humanization of the economy.

Image courtesy of Geerati at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Will Zika help or hurt health plans?

published date
May 31st, 2016 by

ID-100393375

Health insurers are starting to think about the impact of the Zika virus, which may arrive in force in the US over the coming months. Actuaries are looking for analogous examples for their models, such as other mosquito born illnesses including dengue fever.

Some insurers aren’t too concerned, according to Healthcare Finance News. Others are looking at reinsurance opportunities and considering premium increases.

Most Zika infections cause only mild illness, so the costs of treatment will be modest or zero much of the time. The real impact is likely to come from the cost of lifelong care for babies born with microcephaly or other problems, which could be millions of dollars per case.

But does that mean Zika will hurt health plans financially? Not necessarily.

For commercial health plans, maternal and newborn care is one of the largest categories of expenses. If a Zika epidemic looms, I would expect women to stop having babies, at least for a while. After all, in El Salvador the government has suggested women not become pregnant for the next two years.

If that happens, insurers will enjoy a windfall from avoided expenses that will show up right away. Meanwhile, the costs of Zika babies will be spread over many years and no doubt much of the cost will be shifted to Medicaid one way or the other.

Zika is a huge threat and we should be doing much more about it as a society. But health plans may not suffer as much as people assume.

Image courtesy of duntaro at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Biosimilars are "me-too" drugs, not generics

published date
May 11th, 2016 by
ID-100261456
Time to take off the blinders

Generic drugs are the biggest success story in healthcare cost containment. This great success has fooled policymakers, journalists, health plans and others into thinking that the same model will tame spending on biologic drugs the way it has for traditional, chemical based products.

The latest example can be found in the Wall Street Journal (Knockoffs of Biotech Drugs Bring Paltry Savings). The article blames the lack of savings on price increases by makers of the original products in the run-up to the introduction of competing products. That is happening, but it doesn’t get to the root cause of the situation.

The traditional generic market is about as close as the healthcare industry gets to economists’ fantasy world of perfect competition where there is no differentiation among products, there are a large number of producers, and buyers understand that the products are all the same. As a result, prices trend toward marginal cost and it is not uncommon to see price reductions of 90 percent or more. Sometimes it’s 99 percent.

Biotech is very different. The “generic” products are not generic at all, rather they are close but not exact copies that cannot be freely substituted for one another. The number of producers will be small because they must go through the expense of clinical trials. And if the companies are smart (they are) they will do their best to make sure buyers realize there are differences among the products. One clue is that the products are referred to as biosimilars not biogenerics.

As I’ve been writing for ten years, this doesn’t sound like the market for generic drugs. Rather it’s much more like the “me-too” phenomenon we saw in the 90s with blockbuster categories such as statins. When Lipitor came in as the fifth statin on the market it didn’t advertise itself as cheaper and undifferentiated. Rather it used clever trial design and sales and marketing tactics to climb to the top of the pile.

Why wouldn’t a biosimilar try the same approach if possible? So far new entrants are pricing themselves a bit lower than the original product but if they can come up with better data from a trial why not make the price higher instead?

If we take off our generics blinders we can come up with ways to control costs while encouraging innovation. Since 2006 (A better idea than biogenerics) I’ve suggested regulating the price of biotech drugs once their patents expire. I still think it’s a good idea.

Image courtesy of iosphere at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

Due diligence in middle market healthcare investing

published date
May 10th, 2016 by
ID-10088144
Due diligence

Private equity firms investing in middle market healthcare deals face serious challenges in commercial due diligence. There are many companies that appear attractive, with $5M+ EBITDA, increasing revenues and enticing stories of how industry dynamics, customer relationships, technology differentiation and management excellence will take them to the next level. In the $3 trillion US healthcare industry, there are numerous billion dollar niches offering strong returns to companies that ride the wave of transformation.

Generalist investors and even healthcare specialists need support when performing due diligence in the middle market. The companies are large enough that their businesses are often complex, but small enough that there is little public information about them. Often the management team and prior investors may not have a good sense of customer demand and competitors. In addition, investors face information asymmetry, making it difficult to discern whether the management team is as confident as they seem or whether they have sensed a peak and are trying to bail out at the top.

The Affordable Care Act has set off a tremendous era of change in the industry, and diligence needs to reflect the latest understanding of how the ecosystem is changing. For example, the shift from fee-for-service to value based payments upends many business models but enables new ones. Provider consolidation can dramatically change buying dynamics as sales move to the enterprise level. The growth of public health insurance exchanges increases health plans’ appetites for cost-saving approaches.

Middle market investors have to be savvy about how they invest resources in diligence, so they often turn to boutique consulting firms that provide high value at a moderate price. In our consulting practice at Health Business Group, some of my favorite work is helping middle market private equity firms and strategic buyers test investment hypotheses and improve clarity about a company’s prospects through commercial due diligence. We interview the company’s customers and competitors, consult with industry analysts, and leverage our internal knowledge base and expert network.

Over the years we’ve worked with private equity firms and strategic acquirers, performing diligence on everything from wound care to medical benefits management to teleradiology to medical cost containment to pharma sales and marketing to healthcare information technology.  Many of these deals have been completed and have resulted in long-term success. But we are unafraid to speak up and advise when a deal does not make sense, even when that’s not what our client wants to hear. Our closest relationships are with clients that we’ve steered away from bad deals.

Want to learn more? Please contact us.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Urgent care billing: Eyebrows raised

published date
April 19th, 2016 by
ID-10099372
An unhealthy discount

My wife was sick a few weekends ago so I took her to the Beth Israel urgent care clinic in Chestnut Hill where they diagnosed her with the flu. Nice modern facility. In network. Convenient parking. You get the idea. Care was good, but slow.

Then a few days ago, I received an Explanation of Benefits (EoB) from my health plan.

One reason to go to urgent care is that it’s more cost effective than the emergency room. In this case BI sent Blue Cross a bill for $1328. Blue Cross marked it down to $365.81, subtracted our co-pay ($35) and deductible ($231.68) and sent BI payment for a whopping $99.13.

In looking at the bill I was most struck by a couple line items. Microbiology/lab was billed at $202.00 and reimbursed at $26.48, or 13%. And Technical Component (maybe for an ultrasound?) was billed at $427.00 and paid at $22.33, or 5%.

Although medical charges (i.e., what’s billed) are known to be detached from reality, I found this EoB particularly galling. How can I explain my visceral reaction, especially to the $427 charge being reimbursed at $22.33?

  • If something is billed for $427 but reimbursed at just $22, it seems that BI is overcharging or Blue Cross is underpaying. Or is it both?
  • What happens to the poor schlub who’s out of network, or worse, lacks insurance? Is the $427 from rare patients like that –who pay 20x what Blue Cross pays– accounting for more than 100% of the center’s profits?
  • Is what I see on the EoB actually the economic reality behind the transaction? Or is BI or my wife’s BI practice being paid a capitated amount for her care and is this bill only meaningful for calculating our cost?
  • What is a patient who’s interested in “transparency” and “cost effectiveness” supposed to think? Did we do the right thing by going to urgent care or not? I think it would have been a lot more useful to see a comparison between the actual urgent care visit cost and a hypothetical visit to the ER or physician office

Ok, I’m feeling a little better now.

Image courtesy of Vlado at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.