Thursday, December 3, 2009

Healthcare Reform and Revenue Growth

While there is tremendous concern regarding the negative impact of Healthcare Reform (rightfully so), there are two important aspects of the legislation in the current versions of both the House and Senate legislation that will have a significant favorable impact on industry revenue.

The first is the expansion of coverage to the uninsured. It is widely known in healthcare policy circles that when insurance coverage is provided or increased the use of healthcare services, supplies, etc also increases. This is commonly called the insurance effect. My analysis points to an increase in industry revenue of $9 to $10 billion per year as a large proportion of the uninsured receive coverage.

The second aspect of proposed legislation is the closure of the infamous Medicare Part D "Donut Hole". This also will contribute to an insurance effect. The "Donut Hole" will be closed over time so the full impact won't occur until later in the 2010 decade. But to get a sense of what this might mean if we were to consider the full impact today, my analysis estimates that this would add another $7 or $8 billion in industry revenue.

IMS had US industry revenues of about $290 billion last year so all told these changes would lift industry revenues by about 6% (not accounting yet for the negative revenue items in the legislation. more on these later but scroll down to poll at bottom of web page!).

However the benefit across companies will not be equal. The actions companies take today will dictate whether or not they capture some, all or more than than the 6% lift. Look for a future post on actions I believe companies should consider to take advantage of this windfall.


  1. thought provoking comments Fred. What will be interesting are the "trade-offs" such as the billions the industry has already pledged, plus the potential for greater govt. control over pricing. Pharma expense as a percent of total healthcare spending (hospitals, procedures,etc) is still small by comparison so if diagnostics and medicines are used appropriately you can improve healthcare and this sector could benefit.
    Greg Gallo

  2. Greg.. great comments. Short term there are a number of elements, one which you mention, which do eat away at this "windfall". More on this in a future blog.

    Long-term there is no question that overall buying power will increase and put a good deal more pressure on the industry.

    In terms of healthcare cost reductions possible through better use of diagnostics and pharmaceuticals I fully agree with you. We know from disease management work that these items plus better healthcare service management can reduce disease cost structures in the league of 10% to 30%. Sadly there is little in the legislation which directly addresses the largest stumbling block in achieving this... the dreadful lack of information technology and it's application in the healthcare industry!