Healthcare Reform Won't Necessarily Mean a Bigger Pie
As momentum for healthcare reform builds on Capitol Hill, every segment of the $2.3 trillion industry is looking at how it might potentially be affected. Insurance companies hope that an expansion of private coverage will prop up their sagging customer base; on the other hand, they know that Congress is likely to reduce payments to private Medicare plans. The pharmaceutical companies are warning against government price controls on drugs; health IT firms are betting that an all-out federal push on electronic medical records will help them; and hospitals and physicians would like to see the number of uninsured patients reduced.
Moody's Investors Service recently predicted that President-elect Obama's plan to extend healthcare to uninsured Americans would benefit hospitals and hospital equipment manufacturers. Moody's estimated that the proposal, if adopted, could pump an extra $100 billion to $200 billion a year into the healthcare sector. The reform agenda could also increase research spending, and Obama has proposed devoting $10 billion a year for five years to health IT. Moreover, coverage expansion would cut hospital losses from charity care and bad debt.
However, Moody's also pointed out that Obama might require hospitals to invest in health IT, driving up costs. Hospitals could also feel a negative financial impact if Medicare ends up tying a portion of reimbursement to performance.
Meanwhile, Obama and congressional Democrats are positioning their health-care proposals as "job creation measures" in response to the current economic downturn. The idea is that universal coverage will make companies more willing to hire by lowering their health care costs. In addition, the Dems predict that reform will create a lot of new health-care jobs.
Of course, the real effect on the industry will depend on the fine print, and there are a lot of different reform plans jostling for attention. But Obama has proposed a host of provider-oriented initiatives, including a "medical home" program to improve coordination of care, an expansion of disease management, stepped up pay-for-performance, and a comparative-effectiveness institute.
A recent Lewin Group report said that savings from these efforts could cover a third of the cost of Obama's reform plan over the next 10 years. In addition, a recent report from a group of policy experts led by John Podesta, the co-head of Obama's transition team, calls for restructuring the entire care delivery system. Tom Daschle, the nominee for Secretary of Health and Human Services, also proposes a major overhaul in his book, Critical: What We Do About the Healthcare Crisis. If that's the direction that reform takes, all bets are off for the industry.
What seems indisputable is that every healthcare dollar saved somewhere is also a dollar less earned by a healthcare provider, insurance company, drug company, or device maker. So if the new administration comes up with a plan that limits cost growth, a lot of jobs will be lost. Of course, some will also be added -- for example, we need more primary care physicians and hospital nurses, and that will probably be part of the plan. But at this point, it would be unwise for any healthcare stakeholder to assume that reform will benefit his or her organization financially.