Posted by admin on September 27, 2017 in
For some four decades, Forecasting International (FI) has conducted an ongoing study of the forces changing our world. About twelve years ago, we condensed our observations into two reports. One dealt with major trends at work in the United States; the other examined trends acting throughout the world. These findings covered key aspects of the economy, technology, business, and societ
Over the last decade, our expectations have proved to be gratifyingly accurate. We believed that the economy of the developed world would be much more vibrant than most commentators imagined possible, and so it has been. We predicted the continuing rise of twoincome families, and the growth of the many service industries that cater to them. We foresaw the staffing problems brought about by the changing population. In all, no fewer than 95 percent of our projections have proved correct.
Those early forecasts have often been updated and extended. Recently, they have undergone a complete revision. We reconsidered all of the trends from our previous work, deleted three that had proved shortlived, condensed others, and added several new phenomena that have appeared over the years. For each assignment we perform, we compare these trends with the specific circumstances of the industry or corporation under study and try to anticipate where they will lead.
We often use data from other countries as a mirror to examine our own trends, and so it is in this case. Japan in particular offers unique insights into our own circumstances. It already has an older population than ours, so we can look to their example to learn about the problems we will face as the Baby Boom generation ages. Japan already has fewer workers to support each retiree, so this too offers an advance look at our own future. On the other hand, they are only discovering such American practices as the use of generic medicines; they will learn from our experience, and we in turn may benefit from seeing the decisions they make.
With this process complete, we have identified ten major trends now changing the healthcare industry. Some will have very direct impact upon healthcare financing. Others will help to form the general environment in which we live and work. They all merit attention from anyone who must prepare for what lies ahead.
PRESENT STATUS
The Economy
Before considering these trends, however, there is one global concern from which no industry is isolated, and that none can ignore. Though medical care is much less pricesensitive than most sectors, cycles of economic growth and retracement affect this market as they do any other. In economic downturns, consumers may delay elective procedures, and Washington is inclined to put off any proposal to expand funding by Medicare and Medicaid. Thus the American economy also requires a few minutes of our time.
The September 11 attacks in New York and the Washington suburbs ended last summer’s debate about the possibility of recession. On September 20, the Dow Jones Industrial Average was 14 percent lower than it had been just 10 trading days earlier; airline shares had lost 30 percent of their value in a single day. In one day alone, five Broadway productions closed their doors for lack of business. Hotels in New York City, usually filled to capacity, had occupancy rates around 40 percent. Similar trends were seen throughout the industrialized world.
That was just the beginning. American financial services had taken a hit of some $77 billion, nearly all of it in record insurance payouts. Media revenues lost an estimated $6 billion, owing mostly to the postponement of movies that seemed inappropriate in the aftermath of September 11 and to cutbacks in advertising by companies suffering from the economic downturn. Property losses in Manhattan and at the Pentagon totaled nearly $11 billion, with another $4 billion or so expected to be lost in foregone office leases during the recession. Tech companies expected to lose as much as $25 billion in sales in the downturn. Airlines, facing losses of $5 billion in September alone and another $11 billion over the rest of the year, cut some 100,000 jobs. And the nation’s retailers were expected to lose some $5 billion in sales in the fourth quarter of 2001.
Yet if consumers were temporarily sitting on their wallets after 9/11 and investors are feeling understandably shellshocked, there has been no sign of panic in the air. Auto sales remained strong in late 2001, buoyed by zeropercent financing, and in the end it seemed that few Americans had cut back significantly on Christmas shopping. Consumer spending accounts for roughly twothirds of the American GDP, and that engine would help to propel America and the world out of recession. Goldman Sachs portfolio strategist Abby Joseph Cohen predicted that economic growth would resume by the second quarter of 2002. Forecasting International agreed. And thus far consumer spending has not slowed significantly.
Late in 2002, it looks like the optimists were right. Despite continuing fears of a possible “doubledip” recession, a year after the terrorist attacks the U.S. economy already was several months into a solid recovery. Personal income, which has been rising all year, was up 0.6 percent in June, its biggest advance since July 2000. Consumer spending rose by 0.5 percent that month, having been stable in May. Retail sales, expected to rise by 0.6 percent in the second quarter of 2002, actually rose by 1.2 percent. The Institute for Supply Management’s manufacturing index rose to 56.2 in June, its highest level since February 2000. Industrial production rose 0.8 percent in June, its highest onemonth increase since 1997; in the hardhit tech sector, production was up fully 6 percent between May and June. This was remarkably good news for an economy that pessimists feared would be on the ropes.
Real estate has proved to be extraordinarily resilient. New housing sales rose to more than 1 million homes in June, the highest level in history, and were more than 50 percent higher for the year to date than in 2001—itself a record year—thanks to the lowest mortgage rates in some 40 years. And those sales are not limited to a wealthy elite; many buyers are middleincome, and large numbers are from minority groups who traditionally have not participated strongly in this market.
Other key indicators also have rebounded. The consumer confidence index, which signals future performance for twothirds of the national economy, has sunk in June and July, but retail sales in June advanced by 1.1 percent, wiping out May’s decline. Throughout the economy, productivity is at an alltime high and rising at between 2.5 and 3 percent annually. Even the balance of trade deficit shrank by 0.4 percent thanks to renewed exports—this despite an increase in oil imports of nearly 16 percent. And despite all this evidence of growth, consumer inflation remains low, save in the healthcare sector, where prices rose by 10 percent in 2001, the largest increase in the medical care price index since 1994. The Fed is now forecasting real GDP growth of up to 3.5 percent for the rest of the year, up from roughly 2.75 percent in its February projection.
Among all the economic indicators we have seen lately, only the unemployment rate is disappointing. It reached 6 percent in April for the first time in seven years and by June was still holding at 5.9 percent. However, total employment was up by 58,000 jobs in March and 50,000 more in April, and by midJuly new claims for state unemployment insurance reached a 17month low. Even Disney World and Universal Studios, in hardhit Orlando, are rehiring laidoff workers and putting parttimers on full work weeks as tourists flock back to vacation centers.
Cardboardbox manufacturers—one of Forecasting International’s favorite leading economic indicators—are running double shifts, signaling that manufacturers expect to ship a lot of products in the next six months or so. Three times as many companies now say they expect to hire workers over the coming months as plan to lay them off, thanks to the economic recovery now in progress. When September’s employment figures come in, Forecasting expects to see unemployment at 5.6 percent, on its way further down.
Despite all this, in the middle of the third quarter the stock market has been in an almost uninterrupted meltdown. The S&P 500 and Nasdaq are at fiveyear lows, while on July 22 the beleaguered Dow Industrials closed under 7,000 for the first time since October 1998. Only the sin sector has been consistently making money for investors. Gluttons have put fastfood and brewery stocks over the top. Shares in Church & Dwight, maker of Trojan condoms, are up 16 percent on the year; score one for lust. (In another xrated business development, redlight districts on the Continent have been so profitable of late that the governments of the European Union have just begun to tax the earnings of prostitutes.) Pride has boosted snobbish retailers such as Gucci and Kenneth Cole. Smith & Wesson has benefited from anger, and a corporate reorganization, with stock prices up 155 percent. Despite a bad reputation after the excesses of the ‘90s, greed has helped push Harrah’s casino stock up 43 percent in the last year. So it goes. Public companies specializing in sloth and envy are harder to find, at least as pure plays, but in a down market vices are clearly ascendant.
In recent months, foreign terrorists have been displaced from the headlines by homegrown executives, caught with their hands spectacularly in the till. Enron, WorldCom, Tyco International, Adelphia Cable, ImClone, and AOL TimeWarner just begin the list of companies under investigation for deceptive accounting practices, looting of corporate assets, and other misdeeds with dire implications for stock values. Seeking the root of such problems, a Zogby International poll of college seniors found that 97 percent said that their studies had prepared them to act ethically in the future. However, 73 percent said that professors had taught them that right and wrong are not susceptible to uniform standards, but depend on individual values and cultural norms. It seems that the current wave of costly corporate scandals could be just a taste of things to come unless there is an unpredictable wave of reform in academic thinking. Until then, the lessons of Ivan Boesky and Michael Milkin must be retaught whenever corporate greed runs out of control.
Teaching those lessons will be easier now that Congress has passed, and the President signed, the most sweeping business reform legislation in decades. The new law forbids accounting firms to act as business consultants for their accounting clients, eliminating an obvious conflict of interest. It also establishes an independent board to discipline auditors and another group to watch over the SEC. Other provisions improve corporate disclosure and, as of August 14, require corporate CEOs to sign company financial statements and subject them to jail terms of up to 20 years for false reporting. In the short run, this could be a blow to Wall Street, as many companies are likely to restate their earnings—a move that could cost the market up to 15 percent in corporate valuations.
Economic developments elsewhere also are promising:
The outlook for Europe remains mixed, but relaxation of borders within the European Union has brought new mobility to the labor force. This is making for a more efficient business environment on the Continent.
An even greater boost to the European economy is the adoption of uniform product standards among EU countries. Under the new protocols, manufacturers no longer have to stock, for example, a dozen kinds of electric plug, one for each national market; eventually, one plug will be enough. This change will dramatically reduce overhead and allow smaller participants to enter the broad Continental market, rather than being effectively confined to their native lands.
For the first time since the European Union floated its joint currency, the euro has risen to parity against the U.S. dollar.
Japan’s longsuffering economy appears to be turning the corner at last. According to the most recent figures, it is growing for the first time in years. Thus America’s largest balanceoftrade deficit is now with Japan, for the first time since China captured that “honor” two years ago. Japan’s central bank is working hard to lower the value of the yen on international markets, in hope of promoting exports and ensuring continued growth.
Last November, as the world focused its attention on Afghanistan, China finally was admitted to the World Trade Organization. Among other beneficial mandates, this requires Beijing to cut away the red tape and other obstacles that prevent small exporters from competing effectively in this potentially enormous market. As these reforms take effect, they will provide a welcome stimulus to the American economy.
Even in the former Soviet Union, many nations are bringing order to their economies, proving themselves viable markets for goods from Western Europe. Recently, even Russia appears to be stabilizing its economy, long the weakest link in its region. The discovery of oil in Kazakhstan and new interest in the other “stans” as partners in the war on terrorism should further this process.
Worldwide, improved manufacturing technology will continue to boost productivity and reduce the unit cost of goods. At the same time, workers who remain on the job longer will offset slow growth in the labor force, while the globalization of business will keep pressure on salaries in the developed countries. Thus, both prices and wages should remain under control.
Amid all this promise, there is just one new trouble spot. The Brazilian economy—a mainstay of the Latin American region—had been much more resilient than some onlookers feared two years ago. Recently, that picture has changed. Word that the Worker’s Party candidate is in the lead for the Brazilian presidency has driven the real to record lows on global currency markets, while stock and bond markets also have declined precipitously. Fears that the World Bank and IMF will withdraw their support suggest that the largest economy in South America could soon follow Argentina into default.
Forecasting International has long maintained that the American economy will remain strong, with only occasional setbacks, through at least 2005. We believe the evidence above strongly supports this position. Despite the worst shocks since Pearl Harbor, the American economy has suffered only the shallowest, briefest downturns in memory. This speaks of enormous underlying strength.
In the last year, that fundamental strength has not been reflected in the stock market. The decline in share prices has been hard on investors, and recently some economists have expressed worries that a continued market decline eventually could drag down the entire economy.
Forecasting International believes that the stock market’s problems are only temporary. Most of the factors needed for a rebound are already in place. By bringing overvalued stocks back to more reasonable prices, the recent bear market has prepared the way for a new spurt of growth.
Other factors are helping as well. Inventories have fallen to some of the lowest levels on record, promising a strong market for manufactured goods. Productivity is high and is maintaining solid growth. The new business reforms will help to restore investor confidence. Provisions to improve transparency in the brokerage industry and to cut the link between corporate payments and analyst recommendations will do even more to ease the worries of investors. This is a recipe for new stockmarket growth.
And beyond all the shortterm fears, one truth remains: The American stock market has now provided returns averaging 7 percent per year for the last 72 years. For most investors, the market still is the only place to put their money.
Future Medical Economy
American spending on healthcare grew by 10 percent in 2001, the first doubledigit increase in more than ten years. (This and the figures below are from the Center for Studying Health System Change, in Washington, D.C. The National Center for Health Statistics places growth in healthcare spending last year at only 4.7 percent. FI believes that HIGPA members should be able to evaluate this conflict in light of their own experience.)
Unexpectedly, the cost of prescription drugs seems to be coming under control. It was up 13.8 percent last year, a bit less than in 2000, when spending for prescription drugs increased less than 1999.
The fastest growing component of healthcare spending—up 16.3 percent in 2001—is for outpatient hospital care; it was up again at a rate of 13.6 percent in the first half of 2001. Observers believe that outpatient spending simply had not received as much attention from costcutters as other segments of the industry.
That is likely to change. Washington’s return to the days of deficit spending means that costcutting pressures will not ease, and may well increase, in the foreseeable future. The Bush administration has already proposed to make sharp cuts in Medicare payments, to levels that many experts say would reduce patients’ access to care. For example, payments for implanted infusion pumps used to deliver medication for severe pain would be cut by twothirds.
Yet the overall picture augurs well for healthcare. The Bush administration’s 2003 budget proposal included:
An increase of $3.7 billion in the NIH budget, to $27.3 billion, more than half of which would go to core research programs (though $1.5 billion is earmarked for bioterrorism research);
$1.5 billion for communitybased health centers, an increase of $114 million over 2001;
$350 million in Medicaid funding for families being displaced from welfare programs;
Eased restrictions on medical savings accounts;
And $89 billion in new tax credits to help individuals buy health insurance.
Add to this proposals such as federal drug benefits, which—though both Republican and Democratic plans, and several compromise packages, all were defeated in the Senate this July.
The Democrats’ proposal would charge Medicare patients $25 per month premium for prescription drug coverage, with no deductible before benefits began. Patients would pay set fees: $10 for generic drugs, $40 for many brandname drugs, and $60 for the rest. The system would be administered by pharmacy benefit managers under contract to Medicare. It would not be cheap. Even the plan’s authors admitted that it would cost at least $500 billion in its first six years, starting in 2004.
The Republican alternative, costing an estimated $320 billion, would use Federal funds to subsidize the purchase of prescriptiondrug benefits from insurance companies, which have yet to offer them. A version passed by the House in June limited full drug coverage to individual seniors with incomes of $17,720 or less and couples with a maximum income of $23,880 per year. Recipients would pay $2 for generic drugs and $5 for brandname prescriptions. Other seniors would receive at least 5 percent of the cost of prescriptions until they had spent $3,300 on pharmaceuticals for the year; after that, they would pay $10 per prescription, with Medicare covering the rest.
The campaign to move a drugbenefit bill through the Senate produced three more variations of these plans, with Democrats trying to reduce the cost of their proposal and Republicans attempting to broaden coverage while retaining their reliance on private insurance drug coverage. None showed any sign of being able to win the 60 votes needed for passage.
Forecasting International believes that Congress eventually will pass a prescription drug benefit that combines aspects of both Democratic and Republican plans, and that President Bush will sign it into law. However, it is not clear when this will occur. Even if the Senate passes a plan during the autumn session, there will be little time to resolve the inevitable differences between it and the measure passed by the House. Furthermore, it begins to seem that both parties will find their battle over drug benefits useful as a campaign topic in this November’s Congressional elections. It could well be the next session before this issue is resolved.
One more change for the American medical economy is a new kind of workerdirected health benefit package being offered by a growing number of employers. Though there are many variations on the scheme, the basic idea is simple. Employers give their workers an “allowance” to spend on health care. Employees can draw on that fund to pay for medical services—and not just the usual office visits, tests, and prescriptions, but elective procedures not usually covered under company health plans. When that allowance runs out, workers must pay for care out of their own pockets until a substantial deductible has been met. Then a traditional health plan takes effect. But if there is money left at the end of the year, it is carried over to build up the worker’s allowance for the following year.
In some ways, this appears to be a “winwin” plan. Workers get to choose their healthcare providers and decide what to buy with their allowance. Employers hope that having a fixed budget to draw on will make beneficiaries think twice about the care they buy and thereby cut medical costs, which have been growing at a steady 15 percent per year. However, some critics fear that the scheme will be hard on those with chronic ills, who may have to spend their allowance immediately and will have nothing left to build up a healthcare fund at the end of the year.
Though still new, consumerdirected health plans are spreading rapidly. Companies such as Budget RentaCar, CVS, and Novartis have adopted them already. Levi Strauss, Toys R Us, and dozens of other large employers will be bringing them out in 2003.
What emerges from all this is something short of a blank check for the healthcare industry. Yet it is a long way from the kind of austerity measures that might have been expected during an Administration that once claimed to despise all large government programs.
Current projections suggest that this is just the beginning. According to the Centers for Medicare and Medicaid Services, by 2011 the U.S. healthcare budget will skyrocket to $2.8 trillion, up from “only” $1.3 trillion in 2000. If the American economy remains slow, healthcare could represent fully 17 percent of the GDP in 2011, nearly 4 percent more than in 2000. Given our own expectations for a continued recovery, FI would expect it to be little more than 14 percent of GDP.
In any case, the message is clear: In a prosperous and aging United States, Americans will provide themselves with whatever medical care they deem necessary or desirable. That is the background against which the following trends will be played out.
10 TRENDS FOR HEALTHCARE
THE POPULATION OF THE DEVELOPED WORLD IS LIVING LONGER.
In the prosperous lands, healthier diets, more exercise, the decline of smoking in the United States, and the trend toward preventive medicine are extending life spans. Life expectancies in Japan are entering the 90s, and those in parts of Europe are not far behind.
Throughout the developed world, population growth is fastest among the elderly. In Europe, the United States, and Japan, the aged also form the wealthiest segment of society.
These twentyfirstcentury old folks are much healthier and more active than their peers were in previous generations. At the same time, nostalgia also is a strong influence on them. Many older people still want to indulge in the same activities and entertainment they enjoyed in their youth, and they now have more disposable income to spend on them.
Medical advances that slow the fundamental process of aging now seem to be within reach. They could well help today’s middleaged baby boomers to live far longer than can be predicted even today.
Research to date suggests that any practical extension of the human lifespan will prolong health as well and will reduce the incidence of latelife diseases such as cancer. Whether Alzheimer’s disease will also be delayed, or will arrive “on schedule” is a critical question for the future.
Implications
Global demand for products and services aimed at the elderly can only grow quickly in the coming decades.
Frauds that target elderly victims will be one of the criminal “growth industries” for at least the next 25 years, as the giant Baby Boom generation reaches its period of greatest vulnerability.
With aboveaverage wealth and relatively few demands on their time, the elderly will make up an everlarger part of the tourist and hospitality market. This industry will prosper by catering to their needs for special facilities and services. Hotels will offer easytoread shop signs and brighter public areas suited to the needs of older visitors. Club Med will become “Club Medic,” with doctors on call and a nursing staff for sickly oldage vacationers.
Implications for Healthcare
For those who are not wealthy, the cost of retirement and medical benefits will rise sharply, even as the number of workingage people to pay for them declines. This will bring still greater pressure to reduce the cost of care.
Still more patients will be moved from hospital care to outpatient status and to home care. Some will even be moved to assisted living facilities established in former hotels, where they will be attended by nurses, rather than checked in by a desk clerk.
If preventive medicine receives appropriate government funding, demand for other forms of health care will plummet as the generation receiving preventive care slowly replaces its less healthy elders.
If research does provide a means of extending healthy human life beyond the limits now considered natural, health care, retirement, and social security plans all will have to be revised or scrapped.
THE ELDERLY POPULATION IS GROWING DRAMATICALLY THROUGHOUT THE WORLD.
The world’s elderly population, age 60 and older, will reach 1 billion by 2020, 13.3 percent of the projected world total.
Threefourths will be in developing countries: China with 231 million, followed by India, Brazil, Indonesia, and Pakistan.
India’s over60 population is rising from 56 million in 1991 to 137 million in 2021 and 340 million in 2051.
Each generation lives longer and remains healthier than the last. Since the beginning of the twentieth century, every generation in the United States has lived three years longer than the previous one. According to the UN, the average American child born between 1995 and 2000 will live to be 76.5 years old. (Note that this figure is not universally accepted. Where possible, we have relied on data published in the study, “The Global Retirement Crisis,” by the Center for Strategic and International Studies, which we consider to be the best work now available in this area. Otherwise, we have accepted UN data.) In 1950, Americans at age 65 could expect to reach age 79; by 1995, they could look forward to their 82nd birthday. At age 80, in 1950 they could expect 6.5 more years of life; today they are likely to survive 8.5 more years.
Those over age 65 made up 12.4 percent of the American population in 2000. By 2010, they will be 13 percent, by 2020, more than 16 percent. By 2030, the number of Americans 65 and older will double, to 70 million.
According to the UN Population Division, 15 percent of the population of the developed world now qualifies as elderly. By 2030, that number will be nearly 25 percent; 20 years later, it will be approaching 30 percent. In Japan and parts of Europe, it will be 35 percent. And these are median estimates; with improved medical care, the true numbers could be higher.
In Germany, the retirementage population will climb from under 16 percent of the population in 2000 to nearly 19 percent in 2010 and 20 percent a decade later.
Japan’s over65 population makes up 17 percent of the total in 2000, rising to 22 percent in 2010 and nearly 27 percent in 2020.
The number of centenarians in the world will grow from 135,000 in 2000 to 2.2 million by 2050.
Even these dramatic estimates may be understated. According to the Center for Strategic and International Studies, most official estimates of future gains in longevity are far too low.
Implications
According to the Center for Strategic and International Studies, the average developed country now spends about 11 percent of its GDP on retirement benefits. That will grow to 23 percent by 2050. In most countries, the increase alone will amount to five times the defense budget, or 30 percent of workers’ wages, which are already being taxed at rates of 30 percent or more.
Not counting immigration, between 2000 and 2050, the ratio of workingage people to retirees needing their support will drop from 5.21 to 2.57 in the United States, 4.11 to 1.75 in Germany, 3.72 to 1.52 in Italy, 5.51 to 2.41 in Russia, and 3.99 to 1.71 in Japan. Over all, the “support ratio” in the European Union will decline from 4.06 to 1.89. This represents a burden on national economies that will be difficult to sustain under current medical and social security systems.
Workers in the traditional retirement years represent the fastest growing employment pool, which has yet to be fully or efficiently tapped.
Implications for Healthcare
Barring dramatic advances in geriatric medicine, the cost of health care is destined to skyrocket throughout the developed lands. This could create the longexpected crisis in healthcare financing and delivery.
However, dramatic advances in geriatric medicine are all but inevitable. Paying the high cost of new drugs and technologies will reduce the cost of caring for patients who would have suffered from disorders eliminated or ameliorated by new therapies. In the end, cost increases and reductions should just about balance out, leaving the average American healthcare bill just about unchanged.
There will be fewer caregivers to help each elderly person who need them. Though the absolute number of caregivers will double, the number per recipient will drop from 11 per person now to 4 in 2050.
We will need more doctors specializing in diseases of the elderly—at least double the 9,000 now available. Yet by 2030, the number of certified American geriatric specialists is expected to decline dramatically. This deficit will be made up in part by recruiting trained geriatricians from abroad. Other programs will offer special rewards, such as subsidized training, for physicians willing to specialize in the care of the elderly. Many forms of routine patient care will be turned over to nurse practitioners and physician’s assistants with training in geriatric services. However, none of these measures will adequately compensate for the lack of enough certified physicians in this field. Late in life, the Baby Boom generation is likely to find that proper medical care is disappointingly hard to find.
The nursing shortage is another problem that is severe today and will grow much worse as the senior population expands. Hospital costcutting has overloaded nurses with mandatory overtime and workloads that average ten to 20 patients per nurse. As a result, fewer young people are entering the field; the number of nursingschool graduates has fallen by 23 percent since 1995. The state of Florida alone reports that it has 9,000 fewer nurses than it needs and expects the deficit to grow to at least 34,000 before the problem begins to ease. In all, the U.S. will be short 515,000 nurses by 2020, just as senior Baby Boomers begin to flood the healthcare system. In response, hospitals have reported offering signon bonuses of up to $15,000 for nurses and finder’s fees of $5,000 for anyone who brings a new nurse on staff. Florida has just adopted the Nurse Shortage Act, which offers scholarships and other incentives for nursing students. Next year, California will require hospitals to provide at least one nurse for every six patients, a measure expected to cost an extra $200 per patient. All these costs will add to the nation’s future healthcare bill.
THE “WELLNESS,” PHYSICALCULTURE, AND PERSONALHEALTH MOVEMENTS WILL REMAIN STRONG, BUT FAR FROM UNIVERSAL.
Emphasis on preventive medicine is growing. By 2003, some 90 percent of insurance carriers in the U.S. will expand coverage or reduce premiums for policyholders with healthy lifestyles.
Personal wellness, prevention, and selfhelp will be the watchwords for a more healthconscious population. Interest in participant sports, exercise equipment, home gyms, and employee fitness programs will create miniboom industries.
Sixtysix percent of those answering a recent Harris poll claimed to have changed their eating habits in the past five years. Americans today eat lighter fare than in 1970, consuming nearly twice as much chicken, over 25 percent more fish, and four times as much lowfat and skim milk per capita.
Consumer purchases show a per capita decline in annual liquor sales. Consumption of distilled liquors has declined, on average, for some two decades, while that of beer and wine accounts for more of the market. Younger drinkers have revived the once passé taste for mixed drinks, but have proved to be uncommonly responsible drinkers. Most limit themselves to one or two drinks with a meal, and “designated drivers” are standard practice.
Smoking also is in decline. Only 29 percent of American men smoke, down from a peak of 50 percent; 23 percent of women smoke, down from 32 percent. With state and federal cigarettetax increases, further declines of 10 percent are expected.
There are many more magazines on health care and fitness than in the past.
People will be more inclined to take steps to control stress as they realize that 80 percent to 90 percent of all diseases are stressrelated.
Better health in later life will make us still more conscious of our appearance and physical condition. Thus, health clubs will continue to boom. Diet, fitness, stress control, and wellness programs will prosper. American tobacco companies could eventually look back on the litigationfilled 1990s as the good old days, at least in their U.S. market.
Again, this promises a greater supply of postretirement workers to compensate (but only partially) for the shortage of entrylevel hires from the new generations.
This trend will add to the growing strain on retirement programs and medical care for the elderly, as such illnesses of old age as arthritis and heart disease are pushed back later in life, but probably are not eliminated.
However, the cost of health care for American baby boomers and their children could be lower in later life than is now believed, as the “sickly” period at the end of life is compressed into a shorter period.
CONSUMERISM IS STILL GROWING RAPIDLY.
A networked society is by definition a consumerist society. Shoppers increasingly have access to information about pricing, services, delivery time, and customer satisfaction from the reports of their peers “published” on the Internet. Marketers, of course, can also check the competitions’ offerings. This may gradually halt the decline of prices and shift competition increasingly to improvements in service and salesmanship.
Consumer agencies and organizations will continue to proliferate.
Better information—unit pricing, better content labels, warning labels, nutrition data, and the like—will spread through packaging, TV, and special studies and reports.
Discount stores such as Home Depot and WalMart, factory outlets, and food clubs will continue to grow in the United States, a trend that has just begun to spread to Europe and Japan.
Implications
In the next 20 years, Europe and Japan can expect to undergo the same revolution in marketing that has replaced America’s neighborhood stores with costcutting warehouse operations and “category killers.”
This rationalization of Japan’s distribution networks will make it more difficult for Tokyo to inhibit encroachment on its home markets by Western suppliers. Over time, this added competition will force Japan to adopt ever more Americanstyle business practices, weakening its tight network of traditional corporate relationships and making it easier for foreign investors and competitors to enter the Japanese marketplace. Ultimately, it could enable the lending reforms needed to stabilize the country’s banking system.
Ultimately, fixed prices will be history, with many goods and services sold through online auctions to the highest bidders.
As prices fall to commodity levels and online “stores” can list virtually every product and brand in their industry without significant overhead, service is the only field left in which marketers on and off the Net can compete effectively.
Branded items with good reputations are even more important for developing repeat business.
Implications for Healthcare
Patients equipped with medical information culled from the Internet, not all of it reliable, will expect much greater control over their treatment. They may also be at greater risk of lawsuits from disgruntled patients who have come to the conclusion that some therapy found on the Internet, or in support groups, would have been more appropriate or effective than that chosen by the physician. As a result, physicians will find it increasingly difficult to limit the time they spend with each patient, explaining treatment options and risks and trying to build a personal relationship with the “customer.”
Hospitals, clinics, and even physicians may find themselves competing with each other on the basis of price, rather than facilities and services.
They may also find it increasingly difficult to provide highrisk services that invite secondguessing by informed, and possibly misinformed, patients.
Patients will spend still more of their time with nurses and physician’s assistants, rather than physicians. This will mean higher pay levels for nurses and PAs, but will reduce the total cost of care.
THOUGH SPECIES EXTINCTION MAY NOT BE SO RAPID AS ONCE BELIEVED, LOSS OF BIODIVERSITY WILL BE A GROWING WORRY FOR DECADES TO COME.
An estimated 50,000 species disappear each year, up to 1,000 times the natural rate of extinction, according to the United Nations Environmental Program.
Eleven percent of birds, 25 percent of mammals and 20 percent30 percent of all plants are estimated to be nearing extinction.
Throughout the world, amphibian populations are in decline, for reasons that, after a decade of intensive research, remain poorly understood.
Coral reefs throughout the world are dying rapidly, again for reasons that are not entirely clear.
Chief cause of species loss, according to University of Colorado scientists, is the destruction of natural habitats by logging, agriculture, and urbanization.
Amazon rain forests are disappearing at a rate of roughly 25,000 square kilometers per year, twice as fast as formerly believed.
Worldwide, some 100,000 square kilometers of rain forest is burnt each year to create farmland. Another 50,000 square kilometers is destroyed by logging. Less than 0.1 percent of the world’s rain forest is under sustainable management.
In Indonesia, home to oneeighth of the world’s coral reefs, more than 70 percent of reefs are dead or dying. Net losses to the Indonesian economy are estimated at between $500,000 and $800,000 per square mile of dead or damaged reef annually.
Researchers from the United Kingdom’s National Environment Research Council Centre for Population Biology report that diverse ecosystems absorb more carbon dioxide than those with fewer species. Loss of biodiversity thus is a potential cause of global warming.
Species loss has a powerful negative impact on human wellbeing. Half of all drugs used in medicine are derived from natural sources, including 55 of the top 100 drugs prescribed in the United States. So far, less than onehalf of one percent of flowering plants have been assayed for potential pharmaceuticals.
However, the rise of “rational drug design”—using computeraided physical chemistry to tailor pharmaceuticals for specific cell receptors implicated in disease—is quickly reducing the role of natural products in the development of new drugs. In the next decade, it may all but displace the traditional “green medicine” search for pharmacologically active substances in plants and animals. Species loss thus is likely to appear less significant to medicine that in once would have been.
However, in the long run, we are likely to see a countertrend that again emphasizes the products of nature. In the past, researchers have often learned how diseases operate, and recognized drugdevelopment possibilities, when they sought to understand the modes of action of compounds discovered in the field. That opportunity is lost in the new, precisely targeted development process, which can only build on what we already understand about pathogenesis. Scientists thus may eventually come to view natural products as a valuable source, not of drugs, but of information and insights—a stilluseful supplement to genomics and other more fashionable resources. By which time, unless we suddenly become much more successful in preserving ecosystems, it may be too late.
RESEARCH AND DEVELOPMENT PLAYS A GROWING ROLE IN THE ECONOMY.
R&D outlays as percent of GDP rose steadily in the decade after 1978, then stabilized in 1988. Future increases will pace the growth of the GNP.
R&D outlays are growing most rapidly in the information technology, electronics, biotechnology, aerospace, pharmaceuticals, and chemical industries. One result of this can be seen in the prosperity of the NASDAQ stock market, which emphasizes researchoriented, longterm payoff industries.
Jobs created by hightech exports are more than replacing those lost to foreign competition under the North American Free Trade Association and similar agreements, providing a net gain in employment.
Implications
New technology will continue to transform the way we live and work. The demand for scientists, engineers, and technicians will continue to grow, particularly in fields where research promises an immediate business payoff.
Lowwage countries such as China will take lowwage jobs from advanced industrialized countries such as the United States, but those jobs will be replaced by highwage jobs in telecommunications and other fields
Countries like India, China, and Russia will continue to suffer a substantial brain drain as those with hightech skills emigrate to the United States and other highdemand, highwage destinations. This will adversely affect the economies of the “donor” countries and reduce the markets open to their trade partners.
Implications for Healthcare
With government steadily reducing its involvement in basic research, preferring instead to fund work that promises a more immediate payoff or that addresses politically fashionable issues, such as bioterrorism, medical research increasingly must pay its own way. This inevitably will increase the cost of healthcare as R&D costs are passed on to patients and thirdparty payers.
It is likely also to narrow the range of research being undertaken, as companies are forced to aim at “disease markets” that offer the highest return on investment.
In the long run, this trend also could reduce the flow of new drug development, as companies with an eye to the bottom line focus on shortterm profits, and neglect basic research that could spin off practical therapies only after years of exploration and development.
The demand for profits also motivates the practice of patenting genes and their products, which can only inhibit future research. This can both drive up the cost of pharmaceuticals as patents stifle the development of competing drugs and slow the creation of new compounds from sources covered by these patents.
The current state of American stemcell research is likely to cause a small brain drain away from the United States. While Washington conservatives have restricted research to the 19 strains already available in the U.S., and still wish to ban it altogether, Britain has formally legalized stemcell technology and has announced plans to coordinate research programs throughout the world. Under the circumstances, America is likely to find itself a secondclass participant in this overwhelmingly important field.
The same argument applies to cloning. In theory, it is a simple process: Just collect an egg and remove its DNA, supply it with new genes from the cloning subject, trick the egg into dividing, and then either grow it out a new individual or collect the stem cells and get them to specialize into the desired tissue. However, dozens of unresolved questions at every step of this sequence. Which body cells are best for cloning? How can their DNA be transferred into the egg more efficiently? How can the egg best be stimulated to proliferate? As things stand, we are likely to learn the answers from journal articles written in England. The United States is on the verge of unilaterally disarming itself in one of the “hottest” fields of biotechnology. Regardless of how anyone feels about the ethics and morality of cloning, from a practical standpoint banning this practice in the United States will not prevent human cloning elsewhere, even for American citizens. It will not serve us well.
7) IMPORTANT MEDICAL ADVANCES WILL CONTINUE TO APPEAR ALMOST DAILY.
Medical knowledge is doubling every eight years.
The delay between idea and implementation has nearly vanished, largely because 80 percent of the scientists who have ever lived are alive today, and exchanging their ideas and discoveries in real time on the Internet.
The Human Genome Project has already begun to yield promising new treatments for genetic disease. Early results include possible cures for hemophilia, cystic fibrosis, familial hypercholesterolemia, a variety of cancers, and AIDS. Eventually, some 4,000 hereditary disorders may be prevented or cured through genetic intervention. As many as 300 such treatments are expected to enter clinical testing by 2005.
The discovery that human chorionic gonadotropin, or hCG, appears in all cancer cells tested thus far, and (among adults) only in cancer cells, seems to promise the development of a generalized “cure for cancer.” If early tests pan out, by 2010, and possibly sooner, tumors could be treated routinely and successfully with simple injections in the family doctor’s office.
Our growing knowledge of biochemistry, aided by advanced computer modeling, has made it possible to design drugs to fit specific receptors in the cell. Drugs created through this technology often are much more effective than natural derivatives or the products of “synthesize, scan, and hope” methods, and they are much less likely to cause adverse side effects.
By 2005, artificial blood will begin to stretch the supply of blood, which is expected to fall short of demand by 4 million units per year for the next 30 years.
Memoryenhancing drugs should reach clinical use by 2010.
New computerbased diagnostic tools are providing unprecedented images of soft and hard tissues inside the body, eliminating much exploratory surgery.
“Magic bullet” drugdelivery systems will make it possible to direct enormous doses of medication exactly where they are needed, sparing the rest of the body from possible side effects. This will improve therapeutic results in cancers and many other conditions that require the use of powerful drugs.
“Bloodless surgery” using advanced lasers is reducing patient trauma, continues to shorten hospital stays, and help lower medical costs. Laparoscopic and endoscopic surgery are providing similar benefits.
Braincell and nervetissue transplants to aid victims of retardation, head trauma, and other neurological disorders will enter clinical use by 2005. So will heart repairs using muscles from other parts of the body. Transplanted animal organs will find their way into common use. Laboratorygrown bone, muscle, and blood cells also will be used in transplants.
Other transplanted tissues will come from cloning and related technologies used to grow stem cells. Though there is considerable question about the longterm health of cloned animals, which appear to grow old earlier than the individuals from which they where replicated, it is clear that the practical production of stem cells is now well within reach. Radical new treatments for diabetes, Parkinson’s disease, perhaps Alzheimer’s, and many other refractory disorders are can be expected to arrive within the next five to ten years. Whether American physicians will be allowed to use them is still being debated. FI believes that cloning will be banned for the creation of human beings, but related methods will be accepted for the treatment of disease.
Surgeons working via the Internet will routinely operate on patients in remote areas, using robot manipulators.
Genetically engineered vaccines, customtailored DNA, and socalled “antisense” DNA are being used to strengthen the immune system,
“Nutraceuticals” and “foodaceuticals”—nutritional supplements and foods with drugs either added or genetically engineered into them—will be one of the hottest new areas in the healthcare industry for the next 20 years. Many such products eventually will be available in special aisles at the supermarket, in colorcoded boxes for patients needing high, medium, and low doses of drugs for such major disorders as arthritis, diabetes, and heart disease.
By 2025, the first nanotechnologybased medical therapies should reach clinical use. Microscopic machines will monitor our internal processes, remove cholesterol plaques from artery walls, and destroy cancer cells before they have a chance to form a tumor.
Baby Boomers are likely to live much longer, and in better health, than anyone now expects.
Five of the ten fastestgrowing jobs in the next decade will be in the healthcare industry, but this hiring frenzy will play itself out by 2025. Nearly all of these jobs will require at least two years of collegelevel training, and many will require four.
Implications for Healthcare
Many of the medical advances that we expect to see in the next ten years, will reduce or eliminate hospital stays. In doing so, they will help to keep the cost of healthcare under control.
However, high development and production costs for designer pharmaceuticals, computerized monitors, and artificial organs will continue to push up the cost of health care more rapidly than the general inflation rate. Much of these expenses will be passed on to Medicare and other thirdparty payers.
The high cost of some healthcare technologies is likely to bring new government oversight, much as hospitals must seek approval for acquisitions such as CAT scanners and NMR equipment in regions where such hardware already is available at other institutions.
The spread of laparoscopy and other minimally invasive surgical techniques will continue to move patients from the hospital to outpatient settings, hastening recovery and reducing costs.
Bioengineered vaccines and similar technologies will dramatically reduce the incidence of infectious disease, eliminating many hospital stays and reducing the incidence of iatrogenic illness. There also is a strong possibility that they will reduce the incidence of some conditions not yet recognized as the result of infection; these include heart disease and Alzheimer’s dementia. They also may extend “oldold” age by preventing many of the pneumonias and other infections that often end our lives. This could significantly increase the cost of latelife care, but over all these advances in disease prevention should significantly reduce this segment of the nation’s healthcare bill.
Xenotransplantation and artificial organs should significantly reduce transplant delays, saving lives that now are lost while the patients wait for an appropriate donor organ to become available.
Many of these developments will create new specialties and business opportunities. Obvious possibilities include specialization in genetic therapy, “factories” for xenobiotic organ production, largescale synthesis of custom DNA, and mass production and marketing of neutraceuticals and foodaceuticals.
Because of these and other advances, the need for hospital and hospice care could plummet. Except where surgery is required, most patients will be treated at home by nurse practitioners, physician’s assistants, technicians, and other nonphysician providers. When we eventually come to the end of our days, any final illness is likely to require brief hospice care, not the protracted hospital stay that many have come to fear.
For the last two years, hospital outpatient charges have remained relatively stable, at 38 to 39 percent of total charges. That cannot last. Over the next decade, new technologies will shift many more disorders to outpatient care. With Medicare reimbursement running at 16.3 percent under cost for outpatient services and 33 percent under cost for skilled nursing facilities, that will bring a crisis for the nation’s hospitals. An estimated 58 percent of hospitals already lose money on Medicare patients, according to the American Hospital Association. By 2005, that will rise to 65 percent; Medicare payments then will total some $18 billion less than cost for hospital and hospitalbased services. The development of outpatient therapies for ills now treated in the hospital can only raise those figures dramatically. By 2015, it seems unlikely that more than 5 or 10 percent of hospitals will be able to survive on the current level of Medicare reimbursement.
By 2006, 10 percent of prescriptions will be filled over the Internet, just as prescription drugs have been bought by mail order since the 1970s.
Public debate over ethical issues raised by technologies such as organ transplants, artificial organs, genetic engineering, cloning, and DNA mapping can only continue to grow in the years ahead. Among the key problems: surrogate motherhood, how to distribute limited medical resources equitably, when to terminate extraordinary lifesupport efforts, and whether fetal tissues should be transplanted to adults in order to combat disease. In the end, these debates will be resolved on the side of disease prevention. Therapies designed to correct or prevent genetic defects will be accepted. Elective procedures intended to change eye or skin color, or even for generally desirable goals, such as to improve intelligence or physical stamina, will be banned.
Research discoveries are not cheap, and this adds significantly to the cost of care. Largely for this reason, spending on pharmaceuticals is rising from just 5 percent of healthcare costs in 1980 to an estimated 14 percent in 2010.
8) WORKERS ARE RETIRING LATER AS LIFE EXPECTANCY STRETCHES.
This trend has barely begun. By 2010, we expect the retirement age to be delayed well into the 70s. Benefits may also continue their decline, and they will be given based on need, rather than as an entitlement.
The Social Security retirement age will recede from 65 to 67, and probably to 70.
The military retirement age will be extended, and benefits will be converted to Social Security.
The civil service retirement plan will also be converted to Social Security.
People increasingly will work at one career, “retire” for a while (perhaps to travel) when they can afford it, return to school, begin another career, and so on in endless variations. True retirement, a permanent end to work, will be delayed until very late in an extended life.
In the long run, it may prove impossible to maintain the tradition of retirement, except through personal savings and investment.
People are now starting to phase into retirement, cutting back from fulltime work to part time, and reducing their hours in stages.
Now that the penalty on earnings of Social Security recipients has been rescinded, more American retirees will return to work, and those not yet retired will be more likely to remain on the job.
Older workers will partially make up for the shortage of entrylevel employees. The chance to remain in the workplace will reduce the risk of poverty for many elderly people who otherwise would have had to depend on Social Security to get by.Retirees will act as technical aides to teachers, especially in the sciences.
Implications for Healthcare
Retirees also could make up at least some of the current shortage of nurses and other care providers. However, this would require significant adjustments in compensation, healthcare benefits, and scheduling on the part of hospitals and other facilities. It may also be necessary to provide retraining tailored to the needs of older healthcare workers.
Fifteen years from now, significant parts of the healthcare costs of some seniors may be covered under their employers’ insurance plans. However, companies may instead further reduce benefit packages, leaving the care of senior workers to private insurance and Medicare. The issue of uninsured, or underinsured, senior workers is likely to place new strains on the national healthcarefunding system.
9) GENERATIONS X AND DOTCOM WILL HAVE MAJOR EFFECTS IN THE FUTURE.
Members of generation X—roughly, the 30something cohort—and especially of generation Dotcom, now entering their 20s, have more in common with their peers throughout the world than with their parents’ generation.
There are approximately 50 million people in Europe between the ages of 15 and 24; 30 million more are between 25 and 29. The under30 cohort represents about 22 percent of the European population.
The under20 cohort is remaining in school longer and taking longer to enter the work force than before. The age at which at least half of young Europeans either have a job or are seeking one has risen from 18 in 1987 to 20 in 1995. EUwide, 59 percent of all 18yearolds in 1995 were exclusively in education or training. The number varied from 27 percent in the United Kingdom to 88 percent in Belgium.
Generation X should be renamed “Generation E,” for entrepreneurial. Throughout the world, they are starting new businesses at an unprecedented rate.
The younger dotcom generation is proving to be even more businessoriented, caring for little but the bottom line. Twice as many say they would prefer to own a business rather than being a top executive. Five times more would prefer to own a business rather than hold a key position in politics or government.
Many in Generation X are economically conservative. On average, those who can do so begin saving much earlier in life than their parents did in order to protect themselves against unexpected adversity.
They get information very quickly, from CNN and USA Today. Time is everything to them. They are not concerned with indepth reporting.
Employers will have to adjust virtually all of their policies and practices to the values of these new and different generations. Corporate cultures built by boomers for boomers are a poor fit for tomorrow’s workers.
Managers will have to find new ways to motivate and reward newgeneration employees, and to earn their respect. Generations X and Dotcom thrive on challenge, opportunity, trainingwhatever will best prepare them for their next career move. Cash is just the beginning of what they expect.
For these generations, lifelong learning is nothing new; it’s just the way life is. Companies that can provide diverse, cuttingedge training will have a strong recruiting advantage over competitors that offer fewer opportunities to improve their skills and knowledge base.
Generations X and Dotcom are well equipped for work in an increasingly hightech world, but have little interest in their employers’ needs. They also have a powerful urge to do things their way.
As both customers and employees, they will demand even more advanced telecommunications and ‘Netbased transactions.
The ruthless bottomline orientation of the new generations could drive both corporations and government to new efficiency.
Those extra years of schooling have equipped Generations X and Dotcom to work effectively in the increasingly hightech world of healthcare. They can cope with computers and other arcane hardware with an ease and comfort level their Boomer parents can only envy.
Their personal attitudes are another matter. Modern healthcare is as structured and bureaucratic as any segment of society outside the government; it also involves long hours, dedication, emotional strength, and a lower pay scale than many less demanding fields. This is not the ideal environment for generations that expect plenty of money and time off to enjoy it. Ten years from now, hospitals may be eager to hire retirementage Boomers, rather than cope with the demands and mobility of their children and grandchildren.
How to motivate and retain these workers are mysteries that have yet to be solved. The Dotcoms especially are likely to demand major changes in healthcare employment practices, but it is not clear exactly what those changes will be.
As healthcare consumers, the Dotcoms especially are likely to be a nightmare—well educated, accustomed to finding information on the Net, expecting to have their own way, and no more willing to trust medical authority than any other. They will expect the best of care and may well assume that anything less than a successful outcome must reflect the provider’s negligence or incompetence.
10) INSTITUTIONS ARE UNDERGOING A BIMODAL DISTRIBUTION: THE BIG GET BIGGER, THE SMALL SURVIVE, AND THE MIDSIZED ARE SQUEEZED OUT.
By 2005, twenty major automakers around the world will hold market shares ranging from 18.1 percent (GM) to 1.0 percent (BMW). By 2010, there will be only five giant automobile firms. Production and assembly will be centered in Korea, Italy, and Latin America.
By 2005, just three major corporations will make up the computer hardware industry: IBM, Compaq, and Dell.
Seven domestic airlines in the United States today control 80 percent of the market, leaving the smaller domestic carriers with only 20 percent. The most recent consolidation is the “alliance” between Continental and Northwest. By 2005 there will be only three major domestic carriers.
Between 1992 and 1997, there were nearly 3,300 mergers and acquisitions in the food industry alone, including foreign takeovers. These are U.S. data, but EU figures reflect the same trend.
Where local regulations allow, mergers and acquisitions are an international game. Witness the takeovers of the United States MCI by WorldCom in the United Kingdom and of Chrysler by DaimlerBenz. The continuing removal of trade barriers among EU nations will keep this trend active for at least the next decade.
Manufacturers often sell directly to the dealer, skipping the wholesaler or distributor.
The 2000s will be our second decade of microsegmentation as more and more highly specialized businesses and entrepreneurs search for narrower niches. These small firms will prosper, even as midsized, “plain vanilla” competitors die out. This trend extends to:
Retail. Big chain department stores and giant discounters succeed. So do small boutiques.
Hotels. Both large, luxurious hotel chains and economy hotels are thriving. Midpriced family operations are being squeezed out.
Restaurants. Both elegant dining and cheap, fastfood restaurants are making it at the expense of sitdown family restaurants. (However, lowerend restaurants are beginning to come under pressure from competition by the elaborate takeout departments of the larger supermarkets.)
Agriculture. The farmer making over $500,000 is flourishing; the farmer who makes under $100,000 is surviving on nonfarm income; the middleincome farmer is going bankrupt.
Banks. Interstate and international banks are growing rapidly; at the other end of the spectrum, local banks that emphasize service are succeeding.
Financial institutions. Small, local brokers are prospering, while independents merge to survive.
Healthcare. Every sector of the industry is being affected by this trend. No fewer than 392 mergers and acquisitions were announced in the second half of 2001, and another 201 (a preliminary figure) in the first quarter of 2002. Over all, there have been 272 mergers and acquisitions in health services since July 2001, and 321 in the health technology segment. Health technology deals accounted for about 70 percent of the $7.9 billion dollar value of M&As in the first quarter of 2002.
Large hospital corporations and small walkin medical centers are flourishing. Independent hospitals and small chains are still being absorbed by the large corporations. Though mergers and acquisitions in this segment of the industry appear to have peaked in 1997, there were still 83 M&As involving 118 hospitals in 2001. Another 17 deals were announced in the first quarter of 2001.
In contrast, activity in other health services has been relatively modest. Only 30 deals have been announced among longterm care facilities over the last nine months, 28 among laboratories, and 17 among managedcare facilities.
Health technology companies are consolidating fast. In the last three quarters, there have been 102 mergers or acquisitions among medical device manufacturers, 80 among biotechnology firms, and 78 in the pharmaceuticals segment. Activity in all three groups was up markedly since the first quarter of 2001.
In contrast, there were only 14 deals among “ehealth” companies in the first quarter of 2002, down from 21 in the previous quarter and 19 in the third quarter of 2001, as the dotcom shakeout continues to run its course.
Industry analysts Irving Levin Associates estimate that there will be between 800 and 850 mergers and acquisitions in the healthcare industry in 2002, with most of that volume coming in the hospital and technology segments.
Implications
This trend leads us to believe that AT&T may be reconsolidated by 2010.
“Boutique” businesses that provide entertainment, financial planning, and preventive medical care for pasttheirprime baby boomers will be among the fastestgrowing segments of the U.S. economy.
Thus far, industries dominated by small, regional, often familyowned businesses have been relatively exempt from the consolidation now transforming many other businesses. Takeovers are likely even in these industries in the next decade.
No company or institution is too large to be a takeover target if it dominates a profitable market or has other features attractive to profithungry investors.
Consolidation of hospitals will accelerate yet again as it becomes more difficult to squeeze new savings from the delivery of care and providers must invest in costly new data systems for administration, finance, and patient service.
This will be equally true for any other profitmaking segment of the healthcare industry. Under severe pressure to cut costs and improve efficiency, the only segments immune to consolidation will be those not profitable enough for larger competitors to find them desirable.
By far the fastest consolidation will be in biotechnology and medical devices, where promising startups may have good ideas or technologies, but too little money to bring products to market. This trend already is well under way.
Industry associations traditionally do a fine job in the “three Cs”—contacts, contracts, and certification. This kind of networking and training make up the core of their traditional role in facilitating communications within their field.
However, in an industry that is changing so rapidly as healthcare, and that experiences such pervasive influence from government and other external forces, another function may be even more important. This is to direct, insofar as is possible, the course of change. This involves making a continuing effort to anticipate important issues on, or just over, the horizon, formulate an appropriate response, and present the industry’s views to regulators, legislators, and other influential parties who often seem in need of guidance.
The health financing community recently made five recommendations:
Before any regulations are adopted, the health financing community needs to make a thorough analysis of their benefits, costs, effect on patient relationships, and possible methods of funding.
The Medicare Cost Report should be eliminated or simplified.
Providers should be allowed to write off tiny balances without having to worry about issues of fraud and abu
References to the “itemized or detailed bill” within regulations should be eliminated, so that providers can simplify the billin
Data processing procedures should be simplified to promote efficiency and full industry compliance.
Forecasting International believes these recommendations, and the process that developed them, should be a model for future activities. The HIGPA can best serve its members, and the industry, by anticipating this kind of issue, rather than merely reacting to them. It appears well equipped to expand its role in the critical areas of issue analysis, policy development, and activities that shape the industry.
In conclusion, I have presented an optimistic picture of this industry’s future. Yet I am not an optimist or a pessimist, but a realist. I go where the data leads. And in this case, the data is clear. The economy is likely to remain strong. Medical science and technology are bringing new tools that will enable far better healthcare in the future than is possible today. The many challenges that now confront the industry will be met effectively. And the HIGPA is a strong and effective advocate for its members and its industry. In this case, the data require us to be optimistic.