Stephen Parente

The Next Big Thing

Thursday, April 1, 2010

Of all the industries beset by change in recent years, you can make a good case that no field has undergone more turmoil and transformation than the medical world. What’s more, as costs continue to rise and political leaders continue to explore solutions, the industry will continue to evolve—and quickly.

What changes lie ahead for it? We asked Carlson School Associate Professor Stephen Parente for his insights. Parente, who is also Director of the Carlson School’s Medical Industry Leadership Institute, is a long-time industry observer and has a uniquely informed perspective on the medical industry.

Two changes immediately come to mind. The first is the commitment of $1.1 billion for health care comparative effectiveness research in the 2009 American Recovery and Reinvestment Act (a.k.a., “the stimulus bill”). That will motivate a new drive for comprehensive evidence on the potential cost savings of new technologies as well as their impact on improved patient health. It will also amount to a full employment act of sorts for health care economists and medical technology and innovation experts within academia and industry.

The challenge of any analyses will be to meet the short time-to-decision requirements of public and private insurers. For example, if it takes four years for a new technology to have cleared a comparative effectiveness review, and if the ultimate impact of the technology is found to be cost saving and health improving, the public may question the opportunity cost of unnecessary illness or death caused by a thorough, but time-consuming process beyond FDA approval.

The second change will be the redesign of health insurance in the United States. For example, new high-deductible health plan contracts have recently exceeded the number of new HMO contracts. Given that the high-deductible plans have only been around for six of the nearly 40 years that HMOs have been around, trends in health insurance are moving back to the future, where a heath plan’s purpose may be primarily to cover a major risk such as cancer or a heart attack, and more discretionary low-cost procedures such as physical therapy for a sports injury would be reimbursed by the patient outside of the insurance contract.

A twist for this generation’s major risk insurance designs is that they may also cover preventive care such as well-child visits and medications for chronic disease management, since most chronic conditions are treatable using lower-cost generic medications.

In fact, these changes are likely to occur by new federal legislation once consumers have a new mandate to purchase health insurance coverage in 2014 and start shopping by plan price to avoid noncompliance insurance mandate fees. Why? A recent Kaiser Family Foundation survey found premium prices for high-deductible plans are more than 30 percent cheaper than the average health plan premium. Furthermore, recent research by me and my colleagues at the University of Minnesota found that people who were forced by an employer to join a high-deductible health plan had cost increases no higher than general price inflation. Normally, medical care inflation is twice that of general price inflation. Given that more than 70 percent of all money in the medical industry moves through public and private insurance contracts, this is a trend to watch.