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March 2009
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  The Perfect Storm IIIn the November 2008 issue of Topline, I wrote an Orange Pages module talking about the “perfect storm” in which I described financial difficulties facing many health care marketing research firms as a bad economy joined with weak pharmaceutical company performance to significantly tighten belts. Next week, I will have the opportunity to present to the main session at PMRG in Las Vegas what I consider to be a very important message that goes beyond this one. More specifically, I will discuss the fact that while I used to tell young professionals I was trying to recruit into one of my companies that the health care market stood by itself, insulated from the general economy, more recently the recession and several other factors have merged the two. While it is still true that the health care market is relatively inelastic when compared with other marketplaces, data are beginning to accumulate that demonstrate consumers are increasingly shifting their behavior to favor wealth over health. While such behavior is not being demonstrated by everyone, somewhere between a quarter and a third of respondents to a series of surveys have indicated a willingness, or necessity, to avoid various aspects of health care because of economic considerations. This percentage is increasing steadily as the economy worsens. In fact, today we face the perfect storm with a troubled pharmaceutical industry unable to bring any substantially improved products to the marketplace. Thus consumers are increasingly motivated to turn to older and cheaper generic products, or to treat themselves with over-the-counter medications to avoid the cost of physician co-pay. The establishment of such facilities as MinuteClinics in pharmacies like CVS clearly helps to push things in this direction, with the prescriber (often a nurse practitioner rather than a physician) and the prescription (typically a generic) bundled into one, fixed-cost package. Again, the attractiveness of such low-cost approaches to many medical conditions is enhanced by the troubled general economy and rising unemployment, causing people to make trade-offs among necessities including food, housing, gasoline and medical care. The fact that unemployment rates continue to soar, leaving increasing numbers of patients without employer-provided medical care, further exacerbates such problems. Finally, the perfect storm is further stirred up by the new federal administration, which is dedicated to providing universal access to health care, but is significantly underfunded to accomplish this goal. Cost shifting, which will include price pressures on health care manufacturers, providers and patients as well, will constitute an important stepping stone toward this goal. Several major stakeholders must be considered in this equation. One major player, for example, is the employer, who for decades has been somewhat accidentally, but importantly, involved in prescribing health care coverage for the employee. A review of the last decade, for example, shows that in the relatively halcyon days of 2001 a high of 65 percent of workers were covered by their employers’ health benefits. This percentage fell gradually to 59 percent in 2006 and 2007, rose to 60 percent in 2008, but is projected to fall again significantly in 2009 and 2010. Such coverage will become increasingly important if health care costs are allowed to continue to rise. The Milliman Medical Index, which reflects the cost of health care insurance coverage, co-pays, etc., for a family of four, has continued to rise over the last several years. In 2004, the costs totaled $11,192; in 2009, the total will be $17,310. In 2009, about 60 percent of this amount will be paid by the employer, and about 40 percent and growing will be paid by the employee. These pricing increases are not lost on the management of corporations. When asked what pressures they are concerned about the most, for example, 55 percent of chief financial officers cited employee benefits (e.g., health, pensions) as their primary concern. Nor do corporate managers intend to stand quietly and watch these costs eat up their businesses. Interventions planned include promoting greater use of generic products (by 75 percent of respondents) to setting up company-owned clinics and pharmacies near their major facilities (12 percent). A major factor also kicks in when the employees discussed above, i.e., those lucky enough to have a job, become unemployed. Each 1 percent increase in the national unemployment rate, for example, increases the number of patients on Medicaid and the State Children’s Health Insurance Program by 1 million people, while the number uncovered by any medical insurance rises by 1.1 million persons. The total cost of all the increases is $3.4 billion, with $1.4 billion being carried by states and $2 billion being carried by the federal government. Consumers too are responding, and threatening to respond, to changes in coverage. Through the year 2000, the deductible before insurance kicked in was $250. From 2001 to 2007, the deductible was $500, and in 2008 the number jumped to $1,000. This raises the question as to whether patients will avoid early care to avoid the deductible, leaving the PPO sponsors with huge bills as these less serious conditions morph into more chronic/and or more expensive conditions. Based on available data, it would seem that this and other economic barriers are beginning to have an impact upon patient behavior. For example, in a two wave study conducted in April and October 2008, it was discovered that the percentage of respondents who said they had “put off or postponed getting health care you need“ rose from 29 percent to 36 percent. Again, not a mass shift but a clear sign of a trend over a fairly brief period of time. In a different survey, we see that the percentage of patients who looked for “less expensive health care” rose from 4 percent in 2007 to 8 percent in 2008. A survey of seniors, conducted by AARP, revealed that 66 percent of respondents were finding it “difficult to pay for essential items such as food, gas and medicine.” The same organization found that 11 percent of its members had investigated an Rx assistance program, 22 percent had delayed seeing a doctor for financial reasons and 51 percent had taken a generic or OTC drug as a cost-saving move. A separate survey conducted with women found that 28 percent had put off visiting a doctor, though sick, because they did not feel they could afford the visit. Interestingly, only 4 percent of women in the same survey reported that they had exhibited this kind of behavior when one of their children was sick. More broadly, Manhattan Research found that 37.4 million patients did not fill a prescription for a medicine for a chronic condition in 2008 because of cost. In terms of how health care relates to other concerns, GfK Roper Consulting found in multiple waves of research in 2002 that terrorism was, not surprisingly, the “problem Americans most want to deal with.” This concern fell to No. 2 in 2007, and was off the top five list entirely by 2008, with both of these years showing “Rising cost of health care” as the respondents’ major concern. Things will get more interesting, as a recent report from PricewaterhouseCoopers outlining the direction of the Obama administration’s health care plan lays out. Aiming at providing “universal coverage,” with funding insufficient to bring this to fruition, cost shifting and cost reductions will be needed to fund this effort. Health care manufacturers, providers and hospitals will likely be cut back in terms of their levels of compensation, while greater efficiencies in health care, e.g., the use of nurse practitioners and other professionals to perform work previously conducted by physicians, the introduction of universal electronic patient records and the development of more targeted therapies all fall into this category of endeavor. In summary, we see around us an economic environment in which financial pressures are causing two major classes of outcome. First, in the short run, they are causing consumers and patients, employers and other major stakeholders at the interface where health care meets economics to retrench and cut back spending on health care. Second, in the longer run, we see the federal government and others realizing that we must stop asking the question “Where will we get the money for these increases in health care costs?” and begin asking, and substantively answering, the question “How can we make health care more affordable?” To answer this question will not only require major changes in the health care industry, but in health care delivery as well. 
Richard B. Vanderveer, Ph.D. CEO, GfK Healthcare 
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