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VOL. 36 | NO. 20 | Friday, May 18, 2012

Ready to react to ‘Obamacare’ ruling

Middle Tennessee's health care industry, economy brace for Supreme Court decision

By Kathleen Carlson

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No matter what the U.S. Supreme Court decides on health reform, Nashville’s health care industry will continue to grow while tackling many critical issues on its own with the help of technology, many in the local health care community say.

But it won’t be a walk in the park.

“I think that everything you took for granted about the health care industry you cannot take for granted going forward,” says Lawrence Van Horn, associate professor of economics and management at Vanderbilt’s Owen Graduate School of Management.

Greater financial pressure on providers is on the way, he says, regardless of what happens to the Affordable Care Act (ACA), dubbed Obamacare. Between the end of the federal fiscal year on Sept. 30 and the end of 2012, the federal government will have to raise the debt ceiling again, he says, adding that the last time the debt ceiling was raised the government cut payments to Medicare, squeezing providers.

The high court heard arguments on the ACA over three days in March. A decision is expected in late June on the measure, which was passed in 2010 largely along partisan lines. Key sticking points are the individual health care mandate, under which most people who are not in poverty or who don’t have health coverage through their employer must become covered or face penalties, and a separate mandate on the responsibility of state governments for Medicaid, a federal program providing health care to poor people.

Jonathan Morphett, managing director of Avondale Partners’ investment banking group.

“I personally believe that, whether the Supreme Court does or doesn’t uphold the validity” of the ACA, people sense that “something is not quite right” in the American health care system and are already moving toward fixing it, says Jonathan Morphett, managing director in Avondale Partners’ investment banking group. He foresees greater collaboration among providers and payers to cut health care costs and improve outcomes.

“Obviously the discussion around health reform and the direction that health reform is taking is top of mind for the industry here,” says Caroline Young, president of the Nashville Health Care Council.

“Lots of eyes are on the Supreme Court and the decision that that body will make. … I think, regardless of the Supreme Court decision, the health care industry will remain focused on creating efficiencies within the system that drive down costs of care while maintaining a high level of care delivery and utilizing health information technology to achieve those goals.”

As Nashville’s health care sector goes, so goes the local economy, to a large extent.

With 56 major companies – both publicly traded and private – headquartered here, it’s a “diverse, dynamic industry,” Young says. “You’ve got leaders in hospital management, ambulatory care, disease management, life sciences, health care information technology and beyond and you also have a robust professional services industry – lawyers, accountants, financial services.”

Darin Moore, Parental Health’s chief technology officer.

In 2008, more than 90,000 people in Nashville and 12 nearby counties worked in core health organizations, according to a 2010 study from Middle Tennessee State University’s Business and Economic Research Center (BERC). Core health businesses include hospitals, ambulatory services, and nursing and residential care facilities. Supporting health-care businesses added another 43,000-plus jobs. The health care sector spawns additional non-health jobs, the study found, bringing health care’s total employment impact to more than 211,000 area jobs.

Moreover, health care is a growth industry that is relatively immune to economic cycles, the BERC study found. The study’s author, Murat Arik, says he believes the growth will continue.

“The aging population is a fact of life, and health care has been still evolving around this phenomenon,” he says via e-mail. “Unlike other industries, many components of health care are not subject to offshore outsourcing.”

Arik, the BERC’s associate director, also says that health care IT and merger and acquisition activities will add to the sector’s growth.

Both the industry and Congress, in enacting health care reform, recognize the importance of health care IT.

“The very idea of digital medical records is creating a dynamic marketplace for new startups,” Arik says. “Regardless of the nature of the Supreme Court decision, we expect to see movement in health IT gaining momentum in the Nashville area with (a) significant amount of capital infusion.”

Franklin-based Parental Health, one of many health care companies calling the Midstate home, developed MISTY to help adults remain more independent while managing their medical issues.

“What I think has been exciting and what I hope will build is that health care IT is beginning to emerge more in Nashville,” Avondale’s Morphett says. “There have been a number of successful home-grown health care IT businesses such as HealthStream, Emdeon and Passport Health. That will help supplement moves to get more IT companies to move here, as M*Modal did recently.”

There’s potential for growth in other highly specialized, high-value sectors of the health care industry. The presence of Vanderbilt University Medical Center and Meharry Medical College makes Nashville a promising location for life sciences companies looking to relocate, Young adds.

And if the Nashville Medical Trade Center Project, also known as the Medical Mart, takes root downtown, there’s potential for the companies that initially take a small space there to expand. By locating in Nashville, Morphett says, those companies will be closer to their customers, given that so many hospital and other health care companies are here.

“That’s been one of nice things (to take place in the) past five to 10 years. … The past was very hospital-centric, and hospital companies are still very important to Nashville, but we’re also seeing the emergence of a lot of other health care companies,” he says.

Franklin-based Parental Health is one recent health care IT startup. President and CEO Scotte Hudsmith started the company in 2009 to help people like his own father, who lives in Louisiana, manage his health.

The company launched its product, MISTY, in January 2011. MISTY is a patented touch-screen software and service that runs on a Hewlett-Packard Touch Smart personal computing device. The device, placed in the user’s home, can also be used as a television and DVD player. Through nine large icons on the MISTY screen, users can monitor chronic conditions, maintain health records, keep a record of taking prescription drugs, connect with family members over the phone or in text messages, and call for help in an emergency, among other tasks, says Darin Moore, Parental Health’s chief technology officer.

The company is working to make MISTY available on any Windows-based device with a USB port, through which health data such as blood pressure readings are entered into the system. Moore says anyone can with a chronic health condition – not just elderly people – can find MISTY useful.

Health care IT “is just going to grow,” he says. “You’re going to see more companies like ours forming and bringing IT solutions. We can have health care reform but it’s going to take new ideas and starting new companies” to bring about change.

For health care IT to make a difference in health care delivery, however, the health care system and practices need to change, Van Horn says. Otherwise it’s just automating ineffective practices.

The key problem with health care system is that there are no immediate consequences to bad lifestyle choices – such as smoking and overeating – he says. In Van Horn’s opinion, there’s a huge disconnect between a person obtaining medical care and paying for it. “If you tell someone they need to spend more than $20 to see a physician,” the person gets angry, he says. “I don’t know how you put the toothpaste back in the tube.”

As Morphett sees it, health care providers now get paid for performing a specific service, and under a fee-for-service system there’s little incentive for preventative care.

Moreover, in the fee-for-service world, many doctors have little control over what they charge for a procedure. That leads to an emphasis on the volume of procedures done, placing doctors on a treadmill to meet the numbers they’ve set.

“I think a lot of them would welcome a world where they could do preventive care instead of reactive care. … Wouldn’t we rather try to do something (on our own to improve the health care system, rather than be) “forever regulated by government?” Morphett asks rhetorically.

“Nashville has a history of innovation in coming up with new business models for health care,” Van Horn says. “Because we have a national footprint, we can distribute those models” across the health care industry nationally.

“We are going to need that innovation to come up with more efficient, more valuable ways of delivering health care in the future. We are probably one of the better-suited communities in the United States to come up with answers.”

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