Market Threats in the EmergingHealth Care Environment:

Background Slides

Eric D. Kupferberg, PhD

October 2010

Image: FOC market drivers update: 8/10/06 Copyright update

Market Threats

• Market threats are endogenous• They arise from the operation or inner workings

of an organism, system or organization• Can be due to the interaction of that system

with its larger environment (i.e., exogenous variables) or outside entities

• They can also emerge with no apparent external cause

• In either case, we have some control over them

Recognizing the Threats

• Planning for future is difficult in a rapidly changing and instable environment

• Some of the changes are predictable (e.g., aging population, chronic diseases)

• Other changes are anticipated but their full implications are not completely understood (e.g., new technologies)

Recognizing the Threats

• A few changes arrive with little advance warning (e.g., DTC advertising, evidence of Coxx-2 side effects)

• A highly integrated health care market among purchasers, providers and payers creates ripple effects across the entire field

• Small profit margins render certain market sectors more susceptible than others (e.g., not-for-profit hospitals)

Some of the Issues We Face

staff shortages

declining reimbursement

rising prescription costs

medical errors

bioterrorism

HIPAAHIPAAJCAHO

technology

aging population uninsured patients

crowded emergency departments

patient diversity

workforce diversity

informed consumers

medical cost inflation

OSHA

market competitionmarket competition

needed capital improvements

physician relationships

community health

hospital “report cards”

health disparitieshealth disparities

workplace workplace hazardshazards

CMS

patient safetybed shortages

genomics

medical research

undocumented aliens

physician “loyalty”

alternative medicine

shift to outpatient services

underinsured population

access to capitalaccess to capital

hospital mergershospital mergers

union issues

medical educationpatient satisfaction surveys

nursing shortages

health departmentstock market devaluation

Leapfrog Group

internetinternet

telemedicineroboticsrobotics

clinical trialsclinical trials

chemical warfare

consumer confidence

workplace violence

malpractice rate increases

ethics

mass casualties

staff satisfaction

employee benefits

staff education

recruitment/retention Board of Trustees

parkingparking

universal precautions

corporate compliance sexual harassment operational efficienciesrisk management

workers compensation

security

system disintegration

Last update: 5/8/06

“Toxic Environment for Pharma”

ReimportationReimportation

Shrinking patent life

Affordable access to the uninsured

Incessant generic Incessant generic entrantsentrants

Maintaining the flow innovation (pipeline)Regulatory Issues (OIG Guidance, HIPAA)Regulatory Issues (OIG Guidance, HIPAA)

Bioterrorism

DTC

Medicare Modernization ActPublic access to innovative medicines (aka Public access to innovative medicines (aka

mandatory generics)mandatory generics)Shifting public perceptions of the industry

Customer consolidationCustomer consolidationGrowth of mail order & therapeutic switching

Continued cost shifting to patients

MediaMediaGrowing number of uninsured

Healthcare as a right/entitlementHealthcare as a right/entitlementCDHC – shift in powerAccess & decision

makersBreakdown of blockbuster model

E-prescribingE-prescribing

Payer influencePayer influence

Interest in low price comparisons

Uncompensated Care

Recognizing the Threats

• We provide a broad survey using six examples: personnel shortagesmalpractice crisisreimbursement levelsgovernment regulationsstrained organizational relations

• Many threats are regional:nursing and physician shortagesmalpractice litigation

Recognizing the Threats

• Some will certainly worsen:Medicare & Medicaid reimbursement levels

• Some may find remediation:federal legislation limiting non-economic malpractice awards

• Some affect certain sectors but not others:strained physician-hospital relations

Specific Professional Shortages

Shortage of Physicians

• Acute in primary care, where decreasing salaries have lead and medical school cultures have led to lower recruitments

• Shortage in some specialties (e.g., thoracic surgery reporting near crises)

• Shortages augmented by aging population which requires procedures not dominant in current population

Physician Shortage Causes

• Aging population requiring more medical care

• MDs opting to work part-time or on a temp basis

• New restrictions on internationals

• Difficulty recruiting MDs in underserved areas

• Liability crisis worse in some regions and specialties

Physician Population Outstripped by Population Growth

Med Schools Not Keeping Pace

Aging Population Increases Demand

Aging Population of Physicians

Aging Population of Nurses

But age ain’t nothing but a number… right?

MD Shortages Vary by Region

Shortage of Nurses• Nationwide shortage of nurses will increase from its

current 6% level to 29% by 2020

• Demand for nurses will increase by 40% from 2000 to 2020, compared to the 6% expected growth in numbers of nurses

• Increasing demand due to aging population and improved health education

• Nursing shortage increases pressures on physicians and increases health care costs

Shortage of Nurses

Shortage of Nurses

Shortage of Nurses

Little Relief to Nursing Shortage

Shortage of Nurses

Shrinking Salaries Fuel Shortage

Shortages Snowball

Nursing Shortage Poses Increasing Threat

• Cost of outside nursing temp agencies and internal HR efforts

• Lower quality of service from temp nurses

• Limits on patient capacities due to nursing shortages

• Multiplier effect from unfilled beds

Creation of Physician, Nursing, and General Hospital Staff

Unions

Shortages Increase Patient Dissatisfaction

Burdens of EMTALA

Burdens of EMTALA

Burdens of EMTALA

The Demands of HIPAA

Medical Malpractice Tort Cost: Growth Continues, Though Modestly

$ Billions

$1.2$1.4$1.8$2.2

$4.8$5.8

$6.8$6.7$6.9$7.3$7.6$8.5$9.2$10.1$10.6

$11.5$12.5$13.3$14.1

$15.5$16.4

$17.9$19.6

$21.7

$24.2

$26.5$28.2

$29.4$30.3

$2.7$3.4$4.1

$0$2$4$6$8

$10$12$14$16$18$20$22$24$26$28$30$32

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

•Over the period from 1990 through 2006, medical malpractice tort costs rose 229%, more than double the 90% increase in tort costs generally over the same period.

•Over the period from 1975 through 2006, medical malpractice tort costs have increased at an annual rate of 11.1 percent, versus 8.2 percent for all other tort costs.

Medical Malpractice Hurts

Video: Defensive Medicine

Medical Malpractice Hurts

Medical Malpractice Hurts

The Doctor Won’t See You Now: Is it the Lawsuits or the Insurers?

Source: Time Magazine, 6/09/03

2007 Top Ten Verdicts

Value Issue State

$109 Million Medical Malpractice New York

$102.7 Million Premises Liability, Death Florida

$55.2 Million Product Liability, Death California

$54 Million Private Air Crash Florida

$54 Million Nursing Home, Death New Mexico

$50 Million DUI Crash Florida

$50 Million Product Liability, Death Alabama

$47.6 Million Prempro Nevada

$47.5 Million Vioxx New Jersey

$45 Million Auto Crash, Death Florida

1 of the top 10 awards in 2007 was related to medical liability

Medicare & Medicaid Threatened

Medicare & Medicaid Threatened

Medicare & Medicaid Threatened

Medical Costs & Personal Bankruptcy

Medical Costs & Personal Bankruptcy

Medical Costs & Personal Bankruptcy

Pharmaceutical Firms and the Threat of Generics

The Amygdala and Flight or Fight Response

Every Market Has its Storms

Calm Waters After the Storm

Market Disruptions as Strategy

• Most everyone behaves in a defensive & reactive way

• High risk environment provide a chance to separate yourself from your competitors

• Mistaken belief that threats are imposed entirely from the outside

• In the words of Adrian Slywotzky, “Strategic Risk is one of the best avenues for growth . . . You find a big risk and you turn it around.”

The Progress of Disruptive Innovation

Disruptive Innovations

Between You and Your Market Environment

• Not all markets are the same• A single market is constantly changing• Market strategy derives from

understanding an environment’s turbulence and the companies goals and capabilities

• Look to change the rules of competition and influence the environment

Four Patters of Market Turbulence

Strategies for Market Equilibrium

Strategies for Fluctuating Equilibrium

Strategies for a Punctuated Equilibrium

Strategies for Disequilibrium