By Jane Sarasohn-Kahn, THINK-Health and Health Populi blog
The appointment by John McCain of Alaska Gov. Sarah Palin as his vice presidential pick was what we forecasters call a wild card – a low-probability event that can be a game changer. In this year of presidential and congressional elections, gasoline at more than $4 a gallon and growing cases of food scares, forecasting the future of health care isn’t for the faint hearted. It is, however, something that needs to be done by stakeholders in the industry.
But straight-line forecasts, clearly, are no-go in an era of double-digit cost increases, terrorism, and, yes, health politics. What to do? The only rational response is scenario planning. In this article, I’ll present a useful toolkit for health scenario planning and apply it to the American health care scene for 2012. In conclusion, I’ll draw out some disruptions, opportunities and threats for pharmaceutical manufacturers and others who sell products and services to health providers.
I cut my teeth on scenario planning when I learned the technique from Royal Dutch Shell, the oil company. In the early 1970s, Shell engaged in something Herman Kahn of RAND Corp. called “thinking the unthinkable.” Some brave corporate planners at Shell imagined a future world where an oil cartel might decrease supplies and increase revenues. In so doing, they worked out an alternative future that would dramatically shake up their industry and their bottom line. They prepared for that possibility and were the best-managed company during those turbulent times. In that game-changing period of OPEC flexing its collective muscle, Shell moved from being the eighth-largest oil company to the second largest.
By thinking the unthinkable – a world where oil, the lifeblood of the industry, would be curtailed – Shell imagined an opportunity to meet the future, or as Gretzky used to say on the hockey rink, “to meet the puck where it was going to be.”
What’s your unthinkable future? Government-negotiated drug pricing by Medicare? A single-payer health system á la Canada or the United Kingdom?
Think about the driving forces that shape your business and the key business question you want to plan for. In health care, the most important mega-forces fall into these categories:
- Technology, from the impact of the Internet on business to consumers generating content online through social networks and media, and the adoption of wireless in health (e.g., ePrescribing).
- Economics, like reimbursement for new technologies.
- Regulation, including but not limited to FDA approval trends and DTC directives.
- Politics, such as who wins the White House in November.
- Consumers and demographics, e.g., the public’s lack of trust in the pharmaceutical industry and the growth of frail elderly living at home.
- Social trends, such as the proliferation of single-parent households and postponing retirement.
- Global issues, including emerging intellectual property and patent law.
After working with health stakeholders in the United States and Europe for more than two decades, I can share one absolute truth about change in the U.S. health care system: Historically, it has happened slowly, at the margin. This has been the case since the employer-based financing system was instituted in the 1940s. It is now six decades later. Will employers continue to be the basis of how health is financed in America? Or, will health care change into a new system quickly from 2008 and beyond?
There are real and sobering questions about whether employers can continue to play the role they have. “Old economy” companies – especially the autos, steel and “old telecoms” – can spend more per employee on health care than they earn in profits per worker. This is a recipe for industrial bankruptcy. It is not inconceivable that we could see a Big Three automaker filing for Chapter 11 protection in four years’ time. That’s unthinkable, but must be considered as it would have a huge impact on how health would be financed and delivered in the United States.
My second key driving force for imagining health care in 2012 would be how and when the U.S. economy will turn around. Several underlying factors will retard a swift turnaround:
- The subprime mortgage crisis, which according to what my contacts in risk management and the credit communities tell me, might not be worked out of the U.S. macroeconomy until very late in 2010;
- The loss of “good” jobs that provide health insurance and other important benefits to workers and their families;
- The war in Iraq and the growing federal deficit; and,
- The increasing cost of gas, food and other basic goods that dramatically impact consumer spending.
It’s consumer spending, after all, that’s pulled us out of previous economic hard times over the past several decades. In 2008 and beyond – in a world of high-priced petroleum and food – we cannot assume that consumer spending will come to the American macroeconomic rescue.
In this year of health politics and wild cards, I’ve been getting lots of questions around how a “President McCain” versus a “President Obama” would shape American health care. I believe the underlying factors of the economy will determine who wins the election and how health reform will be shaped over the next four years. Talk to me in 2012, and I’ll tell you that that’s the presidential term that will do the heavy lifting in a post-Iraq war (hopefully) world.
When you marry the two driving forces of the employer-based health system and a slow- versus fast-growing economy, you generate four scenarios about health care:
In Trading Up, á la carte, we are in our current state of health financing and delivery. Insured Americans receive a package of benefits, and if they wish to purchase additional services or more expensive products (e.g., off-formulary prescription drugs, mental health services beyond a specific period), they do so “á la carte.”
Moving counterclockwise to United Kingdom Come, some major event – consider first-wave Boomer retirements putting major pressures on the current health system, or General Motors declaring bankruptcy – pushes Congress to legislate a single-payer plan as a safety net for the middle class. This is the point when employers would stop providing health insurance as an employee benefit and tax laws would be changed to accommodate that withdrawal from health insurance provision. This scenario is more likely to result when the macroeconomy is weak.
A Free Market Nirvana occurs when employers withdraw from providing health insurance, but the overall nation’s economy is buoyant. Then consumers have “good” jobs where they can afford to access insurance through many competing channels, each of which provides a menu of health insurance options that consumers find appealing. There may or may not be a health insurance mandate for individuals to purchase health insurance here. This scenario could be a universal access plan with such a mandate, or a more classical free-market milieu.
The wild card scenario is the Turbocharged Economy, which results as employers continue to provide a health insurance benefit to workers and the American economy achieves a dramatic turnaround.
The point of scenario planning isn’t to think the unthinkable, get depressed and fill a prescription for your favorite antidepressant. It’s an opportunity instead to openly and honestly challenge your current strategy and make it as robust as possible in light of the future worlds you imagine in each scenario.
In the case of the four alternative futures imagined in this article, there are several key hedging tactics that could fend off a major disruption to a pharmaceutical company or other vendor to health providers.
- Tailor marketing strategies as if you were a consumer marketer. Think about market segmentation much more deeply than you ever have. It’s time to dig deeper into why people don’t fill prescriptions or stop short of being adherent per the doctor’s instructions.
- Build trust in the public’s collective eye. The latest Harris Interactive and Gallup surveys on Americans’ trust of the pharmaceutical industry and of health plans demonstrate that both lie on the same latitude as Big Oil, Big Tobacco, and newest to join the pack of the lower quartile, Big Food. A lack of trust keeps people from wanting to consume your product.
- Work ever more closely with payers, plans and managed care organizations. They will be Missourian in spirit so you’ll have to show them how good your products are. Data will be king in these communications. Communicate why your product is necessary, even at a higher price. If it isn’t and you can’t prove that it is, you won’t succeed in this new market of transparency and evidence-based medicine and outcomes.
- Go online where people live, work and play. Pharma and medical suppliers have been very late to the social media channels online. But this is where people find trust – where there talk and meet up with “people like me.” The Edelman Trust Barometer has demonstrated over the past few years that the public trusts people like them – their peers, both patient-peers and caregiver-peers – more than Americans trust institutions and certainly more than they have faith in Big Business.
Regardless of a President McCain or President Obama, one thing is certain: the American consumer/taxpayer will bear more decision-making responsibility for both purchasing and paying for health services. Even in a single payer system, there will be those consumers who choose to pay above-and-beyond what the baseline plan will offer. That’s the American way. Better knowing and dealing with consumers on their terms will build trust and more healthy relations between them and the health care companies that seek to serve them.
Jane Sarasohn-Kahn, MA, MHSA, is a health economist and management consultant to health industry stakeholders in the U.S. and Europe. She runs the THINK-Health consultancy (www.think-health.com), writes the Health Populi blog (www.healthpopuli.com), and is a frequent public speaker on health economics, politics and technology.
