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BusinessWeek: January 10, 2000 |
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Industry Outlook 2000 -- Life Sciences
Health Care
In the sick corner, health-maintenance organization stocks lost an estimated 14% of their value in 1999. With enrollment in employer managed-care plans at almost 90% nationwide, untapped markets are scarce at best. "Earlier in this decade, managed care was a growing industry and everyone could thrive," says H. Gregory Solomon, an analyst at J.P. Morgan Securities Inc. "But the low-hanging fruit is gone." In addition to slowing growth, the industry is plagued by rising medical costs and an uncertain regulatory climate. In December, 1998, most companies confidently estimated medical cost increases of 3% to 5% for the coming year. But as the months waned, companies quietly began reporting upward trends of 5% to 6%--and in August, CIGNA Corp. reported 6.5% to 7%. One reason for the increases: the cost of prescription drugs, which rose 15% to 25% in 1999. Banc of America Securities analyst Todd B. Richter expects health-care costs will continue to increase. "The debate will shift from how to control health-care costs to how to finance them," he says. Those efforts may be stymied by an ever more vocal public that is demanding greater access and flexibility in health-care plans. "The only way to succeed is to assuage the customer," says Solomon. That, he says, is what inspired United Health Group's November decision to give doctors final authority over patient care. Whether it boosts the bottom line for United, the decision has been a public-relations coup, garnering lavish praise from Congress and the American Medical Assn. For now, the health-care industry is pinning its hopes on consolidation and premium hikes. Deals such as the recent Aetna Inc.-Prudential HealthCare Group Inc. merger allow organizations to trim costs, exploit economies of scale, and gain leverage with providers. Insurers have also started raising premiums. The average cost of employer-sponsored health plans jumped 7.3% in 1999--nearly three times the rate of general inflation, according to consultants William M. Mercer Cos. In 2000, price hikes may be still higher, topping 9%. But as Banc of America Securities' Richter points out, when medical costs skyrocket, "premium increases stop being beneficial to insurers and become necessary to prevent profit losses." E-health may be just what the managed-care organizations ordered. According to Credit Suisse First Boston, at least 18 cents of every health-care dollar is eaten up by administration costs. A recent study by Northwest Healthcare Network shows how the Internet can streamline such inefficiencies: It found that electronic referrals cost health-care companies one-tenth as much as paper referrals. Many insurers, including Aetna and Oxford Health Plans, are looking to beef up their Internet programs. Aetna already has two major Web initiatives: EZenroll, which allows consumers to sign up online, and E-pay, where physicians submit claims electronically and are guaranteed payment within 15 days. Such programs make life easy both for consumers and their physicians. Oxford, meanwhile, plans to use the Net to promote its disease management programs. E-health is still new and relatively untested in the minds of many physicians. But as managed-care companies continue to search for new ways to reduce expenses, the Internet may provide some of the medicine so badly needed by the health-care industry. Return to top | |
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  Return to top TABLE Positives and Negatives POSITIVES -- The Internet brings new efficiencies. Electronic health-care schemes such as Aetna's E-pay will let physicians submit claims online. -- Mergers may let companies trim costs and exploit economies of scale. NEGATIVES -- Medical costs are running ahead of premium hikes, so company margins will continue to be under pressure. -- Managed care has been hit hard by new legislation and fears of punitive damage awards. Return to top ONLINE ORIGINAL Can the Net Give Health Care New Vigor? The health-care industry in America today is a $1.2 trillion industry that's a hodgepodge of outdated hardware and software. For all the high-tech gear in hospitals, the industry has been slow to adopt the latest information technology that could speed some decision-making, not to mention painfully slow paperwork processing. But that may soon change. In preparing for the health-care section of Industry Outlook 2000, New York-based Staff Editor Ellen Licking interviewed Michael J. Cardillo, president of Aetna U.S. Healthcare, about the import role the Internet will play in health care's future. Here are edited excerpts of their conversation: Q: How can the Internet transform health care? A: When you look at the health-care industry, one of the single most important changes will be the Internet and the implementation of information technology. The Internet, and e-health programs, can have significant impacts on both quality of care and the cost of care. The December, 1999, Institute of Medicine report on health care highlighted an important fact that is often forgotten -- the enormous importance of communicating medical information accurately. What the doctor writes down is interpreted in terms of prescriptions or type of care. What if those notes are misread? With the Internet, that process can be completely automated so that notes and prescriptions are automatically downloaded into printed words on a computer screen. Medical costs are also on the rise. We can cut those costs if we use the Internet to improve the efficiency of administration. That should have a moderating impact on premiums. Q: How do you envision using the Internet at Aetna U.S. Healthcare? A: We truly believe we can help providers and members better manage their health-care needs using secure Internet-based programs. For instance, in the future when a member visits the doctor, he or she might swipe a card that would automatically show the office staff the member's eligibility, patient information, etc. When the visit is over, the doctor would send the claim through the Internet and receive reimbursement through a program called E-pay the next day. An electronic bill would be sent to the employer, who would also pay via the Internet. Q: How difficult will it be for Aetna U.S. Healthcare to make the transition from offline to online? A: The changes needed are quite dramatic, but they will happen in a short time frame. In the next two years, e-health will be a reality. The technology is there. It simply has to be implemented. I think we are fortunate that Aetna U.S. Healthcare already has a good foundation in some of the things that are necessary to establish an e-health program. For instance, EZenroll allows people to enroll online, and E-pay makes electronic claims possible [for doctors]. We have developed and implemented EZlink, an integrated program that can tie benefits and payroll together for our customers, all of which will be handled electronically. Also, InteliHealth, one of the best medical Web sites for consumers, is our subsidiary. Q: Do you think it will be tough to convince hospitals and physicians to implement the new technology? A: It is true that health care is far, far from being a leader in automation and the use of technology. Even a year ago, trying to automate a doctor's office was difficult. The change in office practice and cash outlay required met with resistance. But now, many of those challenges to connectivity have been eliminated, and the costs to do it have been reduced. Because of the low cost of engaging in the Internet, I have been encouraged by the increase in the number of physicians willing to join in. Q: Will the Internet improve your relationship with your providers and member patients? A: Definitely. E-health is inherently a consumer-centric model, and it's clear that our members want the ability to "self-serve" for information. Treatment discussions are totally different than they were five years ago. Members now log on to one of the many health Web sites for information about an illness and bring that with them when they visit their providers. Patients are much better informed -- they are really active consumers not just patients. With the Internet, we can go a long way to eliminating the "hassle factor" for our clients and our providers. We are currently pilot-testing a password-protected Web site for participating providers, which will allow them to check eligibility, get claims status, among other things in real time. Return to top |
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