Given increasing clarity that the U.S. healthcare economy is unsustainable in its current form, healthcare and pharmaceutical executives are clearly uncertain whether or not existing business models are sustainable over the next five years, even though they do anticipate major change in the short-term, according to the findings from a recent survey by KPMG LLP, the U.S. audit, tax and advisory firm.
In surveying over 200 senior executives at leading U.S. healthcare systems, health plans and pharmaceutical organizations, KPMG found that the largest percentage of respondents – 40 percent, 53 percent, and 43 percent of systems, plans and pharmaceuticals, respectively – said that their current business model was somewhat sustainable over the next five years, while 20 to 27 percent of respondents in each group said current business models were either not very or not at all sustainable over the next five years.
“The findings really underscore the key question of whether or not any organization can be both committed to non-volume-based care economics while at the same time working to sustain a volume-driven reimbursement status quo, said Ed Giniat, National Sector Leader, KPMG Healthcare & Pharmaceuticals. “The dichotomy that is emerging will be challenging to manage at best. Going forward, the winners—whether health plans, healthcare systems, life science companies, or other organizations—will be defined by their leadership in recognizing the necessity of change and then planning and executing effective strategies based on this recognition.”
In fact, despite their majority opinions that current business models are at least somewhat sustainable, many provider (65 percent) and health plan (41 percent) executives do expect major business model changes in the next five years, while a majority of pharmaceutical executives (63 percent) expect only moderate changes. Nearly half of providers and health plans, and a third of pharmaceutical executives would like to see a more rapid progression to some type of value-based payment, but most anticipate that transition will in fact be accomplished more gradually than not, with less than a quarter of all provider reimbursement fashioned as some type of value-based payment, according to the findings.
“Organizations are clearly considering the effectiveness of their fee-for-service business models but migration to more value-based models will take some time, and will include a mix of old and new delivery and payment systems,” said KPMG’s Giniat. “The only way for more rapid integration to occur is for these stakeholders to lead the change and make it happen, but many of these organizations are using techniques more aligned with sustaining existing models.”
Healthcare Systems: maintain or increase commercial reimbursement rates
For example, when asked how important it is to at least maintain and potentially increase commercial insurance reimbursement rates versus Medicare and Medicaid, 50 percent of providers said it was extremely important. Further, 80 percent of these leading healthcare systems said they have the market position to do just that. Nevertheless, in a contradictory finding, they also cited raising prices on commercial payers as not a very important factor in developing a sustainable long-run business model. Other lower priority factors cited included owning health plans and consideration of non-acute-care components.
“The responses by healthcare systems reflect the conflicts in business planning that arise from being paid for volume currently while contemplating a different payment future,” said Brad Benton, National Account and Advisory Leader for KPMG Healthcare. “However, the evidence is compelling that the traditional reimbursement environment is not sustainable and providers should be focusing on the hard work of business model redesign and real clinical integration to be successful under a value-based payment model.”
Health plans see pay for performance incentives curbing costs
Payers were more optimistic about the possibility of partnerships involving providers and suppliers, with 55 percent of respondents saying it was possible. Additionally, they said they expect that healthcare information technology, evidence-based medicine, disease management, and pay for performance incentives will be the most effective approaches to curbing costs.
Additionally, in response to cost shifting, health plans expect employers will demand lower cost offerings and increased use of wellness and health management initiatives. Health plans also see their biggest growth coming from consumer-directed or high deductible plans, while they expect declines in small group employers and large, fully insured groups. In fact, more than half of the plans surveyed said they are concerned about an exit by large employers.
“Small group employers will likely migrate to exchanges with individuals,” said Cynthia Ambres, a principal, physician and U.S. member of the KPMG Global Healthcare Center of Excellence. “But health plans are also concerned about large employers exiting, as some are already assuming risk and using healthcare plans for administrative services only. Health plans must focus on differentiating themselves to attract the individual market.”
Pharmaceutical executives are also struggling with change strategies. On one hand, 47 percent said a shift toward health system accountability would have a positive impact on their industry, and more than half said they are currently or will be using risk and outcome-based contracting in the future. Additionally, more than 70 percent of the executives said that comparative effectiveness research (CER) data would help show the value of their products.
On the other hand, 54 percent of executives said reimbursement reform would have a negative impact, and more than half said CER would be used as a tool to cut prices. Additionally, 40 percent cited changes in reimbursement as a key reason for the industry’s pipeline drought. Fifty-six percent see the current premium pricing strategy for specialty pharmaceuticals as viable in the next one to two years, and another 39 percent said it would be viable in the next five years.
“You get the sense that the change in reimbursement policy has disrupted the traditional way of moving products into the marketplace, and that even five years out, there is a lot of effort being made to sustain the current pricing models for specialty pharmaceuticals,” said David Blumberg, KPMG National Pharmaceutical Advisory Leader.
The KPMG survey was conducted between January-June 2012 and reflects responses from 104 healthcare system executives, 51 health plans executives and 54 pharmaceutical executives at leading organizations in the U.S. A webcast on the findings from the survey is available via the KPMG Healthcare & Pharmaceutical Institute (HPI). The KPMG Healthcare and Pharmaceutical Institute is a forum for healthcare business leaders to gain insight into emerging issues, consider approaches to help balance risk and controls and improve performance, and further explore the accelerating transformation within the healthcare industry, both domestically and globally.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International.”) KPMG International’s member firms have 145,000 people, including more than 8,000 partners, in 152 countries.
Laura Sheridan Powers
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