Confusion muddles the health-care market

Ask a health-care executive for his current outlook on the sector and you’ll likely hear how its extraordinary growth prospects are threatened by confusion about reform.

The controversial Patient Protection and Affordable Care Act of 2010 was passed to address soaring health-care costs that have crippled employers for decades. But its implementation is challenged by 26 states, including Colorado.

On Aug. 12, a U.S. Court of Appeals struck down one of the law’s key provisions – that 38 million uninsured Americans will be required to purchase health insurance by 2014. Earlier this summer, another federal appeals court ruled that the so-called “individual mandate” was indeed constitutional, setting up what most see as an inevitable resolution by the U.S. Supreme Court next year.

“The big obstacle to growth out there is confusion,” said Larry Gray, chief executive of The Assist Group, a Lakewood firm that helps companies control their health insurance claims costs.

“You’ve got a huge federal law being challenged, a 2,200-page bill requiring 60,000 pages of regulations that are not written yet,” Gray said. “Things won’t be sorted out until next spring or summer when the Supreme Court rules. Until then, hospital groups, insurers, physicians are confused about getting it sorted out. Do I move down this road or that?”

Gray is one of three panelists who’ll take part in an Oct. 6 panel discussion titled “Navigating the Opportunities and Pitfalls in Healthcare’s Transformation.” The panel will be one of four featured during the Association of Corporate Growth’s afternoon program, Hidden Gems & Fool’s Gold: The Future of Dealmaking in Colorado.

“Any time things become unpredictable for people in the health-care sector, it’s a bad thing for the market,” said fellow panelist Clay Anselmo, chief executive at Reglera, a Wheat Ridge firm that assists medical device manufacturers in navigating the regulatory process.

“If you don’t know what the regulatory process will do, you can’t make realistic budget projections, and that slows growth,” he added.

Anselmo said he sees “tremendous potential” in the combination of an aging U.S. population of baby boomers combined with significant advances in medical technology.

“But there’s been an enhancement in the level of regulation throughout health care, which deters potential investors and makes it more difficult to bring new products to market,” he said. “I see huge potential in an environment that is not that friendly.”

Using the medical device sector as a microcosm for the health care industry, one can see an industry that is still growing faster than many segments of a depressed economy. After all, while the U.S. economy shed 7.5 million jobs during the most recent recession, the health-care sector added about 430,000 jobs. In the most recent BLS July jobs report, which cited a small gain of 117,000 jobs, health care added 31,000 of them.
But that growth is slowing. A June report on U.S. medical device manufacturing by IBISWorld market research shows growth at an average annual rate of 16.3 percent since 2006, with sales expected to grow by 8.7 percent in 2011.

“The aging U.S. population is a major factor driving demand, as the occurrence of health issues that require medical devices is higher in the elderly population,” the report states.

But the annual growth through 2015 is expected to decline to 6.4 percent. Why?

“The changing regulatory environment will be the main hindrance,” the report states.

The antidote to the health-care sector’s gloom – as well as a sure solution to its rising costs – lies in a combination of technology and education, says third panelist Charles Fred, chief executive of The Breakaway Group.

Fred’s Denver firm helps doctors, nurses and support staff become more familiar with electronic health records.

“It’s a technology that will be transformational for our country,” he said. “The way the health-care system takes care of consumers will change more in the next five years than it has in the previous 100.”

We need to rethink the whole model on cost containment, Fred said, and we need to look no further than the Veterans’ Administration, “the lowest cost provider that no one wants to talk about.”

The VA has used electronic health records for 15 years, he added.
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