Annual outlook predicts winter of healthcare discontent

I have scanned numerous public and private sources and consulted various sages within the healthcare industry to see which way the winds are blowing for 2008. I have then consulted my own biofeedback mechanisms of pains in my aching neck (or other end of my spine), impeded depth perception, throbbing knees and other frayed nerve endings in an attempt to ascertain what these bigger healthcare issues and trends may mean to me and other support services professionals who bear much of the weight to support the whole industry by providing "back of the house" services, such as materials management, transportation, infection control and housekeeping, IT, food service and human resources.

Here are my predictions for the continued winter of our discontent in 2008.

In general I concur with nearly all the "experts" that predict financial burdens on our healthcare provider networks are going to continue to be bleak for 2008 (and perhaps well beyond if the world’s financial markets don’t stabilize soon). Shifting market demands, reductions in traditional payer segments, increased raw material and related costs, more defaults on accounts receivables plus many other factors make up a forecast of a long cool period for healthcare provider organizations (HPOs).

What might this mean more directly for support services within these traditional settings?

Oil costs: For materials management and group purchasing organizations (as well as all intense supply users they serve) there will be far greater pressure to get the most for every dollar spent for supplies, equipment and services despite spiraling double-digit inflation on any petroleum based products (just try to find a product that isn’t impacted by oil inflation!)

• For transportation, anticipate skyrocketing costs for vehicle fuels (now commonly predicted to average over $4 a gallon by mid-year), lubricants, tires and other petroleum based parts.

• For plant engineering, expect still higher utility costs, fleet expenses, fire and safety equipment increases and also transportation inflation.

• For infection control, sterile processing and housekeeping, prepare for substantial increases in the cost of disinfectants, rubber and latex gloves, poly-based containers and protective gear for both staff and equipment.

• For IT, start tracking continuing increases in the cost of inks and cartridges, circuit boards and other oil based plastic components.

Patient and staff safety: The recent rash of Food and Drug Administration faux pas and other studies questioning efficacy and/or cost-benefit ratios of pharmaceuticals, plus the emerging policing of pharmaceutical reps’ relationships with provider organizations and physicians will no doubt bring far-reaching changes and new costs due to the increased duration of clearance timelines and thoroughness of product safety testing, the creation of totally new marketing assessments and strategies and competitive counter strategies. Add these burdens to the already astronomical costs of drug research and development and all of this will probably result in new pricing pressures for pharmaceuticals, implants and other medical technologies that will not be readily absorbed by the manufacturers, distributors or their stock holders.

MRSA: Continued publicity on this menace to society will impact both HPOs and consumers in other arenas, increasing market demand for the full spectrum of chemical agents and mechanical methods to prevent the potential exposure to and spread of these bugs. This will probably result in a surge of re-packaged or new agents and products commanding premium pricing and marketed to exploit the fear factor in the market. Shortages of some of these items like gloves, masks and some chemical agents may also be evidenced in some locations.

Also watch for the attempted renegotiation of contracts and pricing tiers for these types of items in your GPO and distributor contracts.

This phenomena may also exacerbate existing labor shortages in such areas as nursing, housekeeping, laundry, sterile processing and perhaps others as personal safety fears take precedent over income generation. This in turn will impact HR recruiting (increasing costs and total expenditures), outsourcing for additional staffing (at premium pricing as labor pools shrink and competition for the workers tightens), safety training (increasing amounts will mean additional ex-budget expenditures plus the impact to lower productivity to give staff adequate exposure for the training) as well as substantial pressures for adequate changes in internal policies and administration of insurance coverage to mitigate a range of risk management issues (all manifesting themselves in higher premiums and related administrative costs).

Food service: This group is not likely to be spared either. Not only do reports of food safety violations seem to be on the rise, but the weight (pun intended) of the explosive obesity epidemic (some report greater than 60 percent of U.S. children are overweight), coupled with an apparent pending consumer preference shift from artificial chemical laden, flavored and preserved pre-packaged foods and beverages to proposed healthier natural products, is likely to have significant impact on growers, packers and marketers that will go beyond 2008. The net result? No doubt higher prices for scarcer goods, coupled with delays in getting goods to market, increased costs for growers’ conversion to more natural farming methods, marketing, transportation and merchandising activity increases to satiate the emerging demands.

Transparency: Such demands (reporting of accurate costs and clinical outcomes) from patients, employers, other consumers of healthcare, the IRS and other governmental bodies bring a whole new perspective on issues that will impact healthcare providers’ operations, staffing and other costs for many departments, including support services. As we begin 2008 there are only a few states that are actually reporting clinical performance in relation to costs, but the predictions seem to indicate strong pressures within many other states to adopt some form of reporting mechanism. Additional exposure to HPO data that will bring these elements of high costs or poor clinical outcomes to the light of day will no doubt result in significant changes to healthcare provider organizations and their support services departments.

Community pressures on Board members, performance scrutiny from insurance carriers, government reimbursement agencies, employers and consumer groups will probably force some leadership changes at some HPOs and perhaps even mandate some facilities to discontinue poorly performing clinical services or even require shutting the entire organization that can not successfully compete. This will have a cascading impact on support services through the following:

• Probable increased quality performance measurements for all staff,

• Reduction in revenues as clients shift to other providers, or as payers refuse to pay for poor performance and errors in diagnosis and treatment,

• Increased risks means increased insurance costs and/or potential reductions in poorly performing physicians and other related labor.

The net result is very likely to be fewer staff required to perform at higher levels for essentially stable earnings. It’s the proverbial "do more with less" strategy, but this time it must be done more efficiently and more effectively.

Retail clinics: This emerging trend, where common diagnostic and minor treatment is available at your local shopping center drug store or "big box" retailer, is a genuine boon to the dilemma of access to basic healthcare, but it has far reaching potential negative impacts on the traditional provider networks. While only a few dozen of these clinics are actually operational now in early 2008, the predictions from various industry analysts is that that number will grow exponentially throughout the rest of this year and for at least the next few foreseeable years.

Why will this impact the traditional provider networks of physician offices and hospitals? In essence, it gets down to convenience, speed and efficiency for all parties involved with such clinics, which is predicted to continue to attract patient flows to these settings. That will conversely diminish the routine flow of patients to their family doctors or hospital settings for common blood work, sprains, stains, coughs and colds.

These kinds of services are the proverbial basic bread-and-butter revenue sources for physician office practices, hospital clinics and diagnostic centers. These revenues are what keeps the lights on in these traditional settings and even more importantly serve as the gateway for the flow of patients needing more sophisticated diagnostic or treatment modalities. If these patient flows diminish sufficiently it could force the further consolidations in the traditional provider settings, thereby forcing the reduction of the need for support services and the staff that provide them. It may not hit too many HPOs this year, but the developing scenario is certainly worth monitoring.

Other market factors: Economic and computer-enhanced globalization can also have an impact on how the winds blow for HPOs here in the U.S. this year. While the fair winds bring outsourcing assistance and better global access to medical knowledge and care from primarily the Pacific Rim and mainland Asiatic nations, these gigantic emerging industrialized nations, with seemingly countless billions of people also represent a very significant competitive and economic threat to the U.S. economy.

China, India, Pakistan, Japan and their neighbors are already the largest producers for many products (including some healthcare consumables and various technologies), and some of these countries are also on the brink of becoming the largest consumers. Their combined elements of high quality and far less expensive labor, along with the sheer magnitude of their populations, can converge to become economic powers that will rival, if not overwhelm, traditionally very strong segments of the U.S. economy (in terms of both production and market leadership potential).

China alone is a huge and very rapidly rising consumer of gasoline and other petrochemicals oil derivatives. As this demand impacts the already strained supply lines for "black gold," what is likely to happen to supplies of petrochemical-based raw materials for healthcare products, transportation and patient safety products?

GPO relationships may also come under even greater scrutiny as value propositions, contract portfolio pricing and other shared services offered are intently tested to assure a maximum return on investment for the efforts both for the groups, their investors and owners and the HPOs they serve. This may bring about further consolidations in this already troubled and unstable segment of the healthcare market. Such scrutiny will most certainly have more of the "sizzle" fizzle within all GPO operations.

So bundle up and buckle down! Unfortunately, it appears the long shadow of a continued winter of chilling winds looks likely to prevail in 2008 and probably even beyond. The answer is obviously not to duck back down in our maze of burrows of support service functions that wind beneath our HPOs, but rather to use our time and efforts wisely to better assess the elements that are likely to impact us, and emerge in the near future with successful strategies to help our organizations find fairer winds.