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As the banking sector expands with the entry of new players in different avatars, veteran banker Uday Kotak feels policymakers must think about the ways to deal with a situation when a bank goes belly-up.

The banking sector is currently awaiting entry of many differentiated-licence banks such as payments and small finance banks while the Reserve Bank has just floated a discussion paper for on-tap licensing of full-fledged banks going forward.
“Never in our history have you seen so many banks coming in, in different avatars. Now, you have the draft banking guidelines for new banks on-tap,” Kotak said.
Uday Kotak only Indian on Forbes’ ‘most powerful people in financial world’ list
“Till date, they have not let any bank fail. If you got 50 or 100 banks, I am sure they will have thought through that (a bank going belly up) as well,” said the vice chairman and managing director of Kotak Mahindra Bank.

“I am sure the policymakers will also have to revisit that,” he said.

The comments from Kotak, during an interaction last week, come at a time when 20 new payments banks and small finance banks are on their way to enter the system.

Besides, RBI has also said that wholesale banks apart from custodian banks will be the next ones to be introduced in the differentiated banking licence regime.

RBI Governor Raghuram Rajan himself, however, has played down the concerns over any possible banking crisis in India and said last week in London that there was ‘absolutely no chance’ of any ‘Lehman moment’ in the country — referring to collapse of once-all-powerful banking giant Lehman Brothers in the US that triggered a major financial crisis in 2008.

In times of stress, policymakers in India tend to use the formula of forcing the affected bank to merge with a bigger lender. But with the number of banks increasing, it might become difficult to effect such deals.

It can be noted that for protecting the depositors, there is a deposit insurance with a cap of Rs 1 lakh per customer in the place.

Kotak Mahindra Bank has itself tied up with the Bharti Airtel’s payments bank, but Kotak was not willing to comment on its launch plans.

The payments bank has become among the first to get the final licence, and Kotak said it would be better for the board of the payments bank to speak on the plans.

 

The banking sector is currently awaiting entry of many differentiated-licence banks such as payments and small finance banks while the Reserve Bank has just floated a discussion paper for on-tap licensing of full-fledged banks going forward.
“Never in our history have you seen so many banks coming in, in different avatars. Now, you have the draft banking guidelines for new banks on-tap,” Kotak said.
Uday Kotak only Indian on Forbes’ ‘most powerful people in financial world’ list
“Till date, they have not let any bank fail. If you got 50 or 100 banks, I am sure they will have thought through that (a bank going belly up) as well,” said the vice chairman and managing director of Kotak Mahindra Bank.

 

The banking sector is currently awaiting entry of many differentiated-licence banks such as payments and small finance banks while the Reserve Bank has just floated a discussion paper for on-tap licensing of full-fledged banks going forward.
“Never in our history have you seen so many banks coming in, in different avatars. Now, you have the draft banking guidelines for new banks on-tap,” Kotak said.
Uday Kotak only Indian on Forbes’ ‘most powerful people in financial world’ list
“Till date, they have not let any bank fail. If you got 50 or 100 banks, I am sure they will have thought through that (a bank going belly up) as well,” said the vice chairman and managing director of Kotak Mahindra Bank.

 

RBI Governor Raghuram Rajan himself, however, has played down the concerns over any possible banking crisis in India and said last week in London that there was ‘absolutely no chance’ of any ‘Lehman moment’ in the country — referring to collapse of once-all-powerful banking giant Lehman Brothers in the US that triggered a major financial crisis in 2008.

In times of stress, policymakers in India tend to use the formula of forcing the affected bank to merge with a bigger lender. But with the number of banks increasing, it might become difficult to effect such deals.

It can be noted that for protecting the depositors, there is a deposit insurance with a cap of Rs 1 lakh per customer in the place.

Kotak Mahindra Bank has itself tied up with the Bharti Airtel’s payments bank, but Kotak was not willing to comment on its launch plans.

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One month into 2016, it’s clear that this will be a year of massive change for the managed care industry. Here are seven predictions for some of the key issues that will emerge, intensify, or be resolved by the end of this year.

1. The impact of recent health plan mergers will come into focus.

It is likely that the major payer consolidations will get sorted out this year. The big mergers are already starting to impact contract negotiations between the health plans and providers. As the larger health plan organizations continue to cut operating costs and slow the growth in reimbursement rates, providers will respond by consolidating to form larger and more integrated health systems. Expect the Federal Trade Commission to expand its examination of provider consolidations. Organizations that are consolidating must demonstrate both pre- and post-merger consumer benefit as a result of these affiliations or acquisitions.

2. Value-based arrangements will gain more momentum.

The industry is still waiting to see if the federal government will make a move on the “Cadillac” Tax, which Congress delayed for two years at the end of 2015. The question is, will Congress eliminate it all together? If they do not eliminate it, we can expect to see further benefit reductions and higher deductibles and coinsurances as employers focus on meeting the cost limits prescribed. The government and employers will continue to develop and implement new ways to bend the cost-curve.  Health plans will double their efforts to create “value” or “high performing” networks that will offer narrower networks in exchange for lower premium and out-of-pocket costs to consumers. This will accelerate provider consolidation, either through mergers, affiliations, or clinically integrated networks as they attempt to offer a broader, yet differentiated, “high performing” network to the market. Once formed, these newly established networks will have to demonstrate value to attract employers and effectively move market share. Positioning your organization as the lowest cost leader in your market will not be enough; quality and patient experience and satisfaction must be met simultaneously.

3. Provider-owned health plans will gain more interest from health systems.

Health systems that are continuing their transformation to clinically integrated networks will face more pressure to have more control of their reimbursement streams and incentive systems.  As such, expect more providers to become interested in owning a health plan or collaborating with other providers who already own a health plan.  In addition, there will likely be a shift in strategy from competing directly with large health plans to a “plan-to-plan” strategy, which will allow the integrated delivery networks (IDNs), clinically integrated networks, and health plans to collaborate more easily. Finally, some recently established provider-owned health plans have struggled, so new entrants will be more selective and cautious as they refine their market and product approach to this strategy.

4. It will be an important year for health insurance exchange products.

With the Affordable Care Act (ACA) insurance exchange products continuing to grow as we move into 2016, eclipsing the 8.8 million subscriber mark, a critical success factor of this ACA provision relies on insurers continuing to offer these products, despite incurring losses in the initial years.  For instance, UnitedHealthcare Group’s 2015 annual earnings report showed that the insurer lost $720 million from exchange products, but will continue to offer and closely monitor the performance of those products throughout 2016. As a result, health systems should expect a continued increases in high-deductible plans (more bad debt on exchange accounts and a need for ever increasing focus on revenue management), and increased pressure on reimbursement rates as health plans continue to adjust these products to the newly insured’s needs and their own need for profits.

The industry is still waiting to see if the federal government will make a move on the “Cadillac” Tax, which Congress delayed for two years at the end of 2015. The question is, will Congress eliminate it all together? If they do not eliminate it, we can expect to see further benefit reductions and higher deductibles and coinsurances as employers focus on meeting the cost limits prescribed. The government and employers will continue to develop and implement new ways to bend the cost-curve.  Health plans will double their efforts to create “value” or “high performing” networks that will offer narrower networks in exchange for lower premium and out-of-pocket costs to consumers. This will accelerate provider consolidation, either through mergers, affiliations, or clinically integrated networks as they attempt to offer a broader, yet differentiated, “high performing” network to the market. Once formed, these newly established networks will have to demonstrate value to attract employers and effectively move market share. Positioning your organization as the lowest cost leader in your market will not be enough; quality and patient experience and satisfaction must be met simultaneously.

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On the brink of a global recession As the world economy is heading towards a major contraction that had its roots in the collapse of the financial system in 2007, fuelled by cheap credit and ruthless speculation, demand for motor vehicles had virtually halved in late 2008 and early 2009. Government bailouts and emergency loans were soon needed across countries and regions for the car manufacturers and suppliers to stay in business, and many asked whether the end of the motor industry was indeed near.   Undoubtedly the present crisis will hurt vehicle manufacturers, suppliers and service providers alike, and some of the weaker firms might well cease to exist in their current form, or even vanish altogether as the market contraction forces the weaker players into bankruptcy. However, one should not forget that global demand for personal transportation is still on a growth trend, and has been growing at a remarkably constant rate since World War II. The right question is therefore not to ask whether we will build motor vehicles, but where. In addition, the growing pressures on reducing carbon emissions and the dependency on fossil fuels will not abate global demand for personal mobility. Thus, the second question that one might rightfully ask is what kind of vehicles we will be driving in the future? These are the questions that this report will comment on. It is not a question of whether we will build cars in the future, but where these vehicles will be built, and what kind of vehicles these will be. Having a domestic automotive industry is attractive to governments primarily because of the large direct employment and job multiplier in the supply chain, as well as the industry’s economic contribution to exports and technology development in general. Thus, developing and developed nations alike will continue to compete for their share of this global industry.    In this report we will focus on the competitive status of the UK’s automotive industry, as well as on the competitiveness of the UK as a location for investment and automotive manufacture in general. We deliberately restrict our analysis to exclude the motor retail and service sectors, as these sectors are not under threat of offshoring. Their prosperity largely depends on the household disposable income, interest (and thus mortgage) rates, and the cost of energy in the UK. It is virtually impossible to make predictions at the point of start of a recession, a point in time where the slope of change is the greatest. Doing so bears the great danger of feeding Page | 2 off a growing lack of consumer confidence and thus amplifying the trend, thereby overall distorting the long‐term trajectories. Figure 1 illustrates the most recent decline of manufacturing and automotive production in 2007 and 2008. Figure 1   In fact, from past recessions it is widely known that the automotive industry tends to react both faster to recession than other sectors, and it tends to experience deeper troughs. The reason is simply that durable goods purchases can be postponed, and thus – as consumer confidence wanes – replacement purchases are simply delayed until confidence is restored.   We hence largely focus on extrapolating the existing trends prior to the recession. We argue that the UK market is as badly affected as any other market, and assume that post‐recession the UK‘s competitive position will be the same in relation to other countries. The recession might accelerate certain trends, but overall – given that it affects all countries globally – there will not be a major shift in the UK’s position in the global context.   Forecasting major industry trends at times of a recession is likely to amplify the trends of ‘doom and gloom’. One hence needs to consider the pre‐existing long‐term trends to assess future scenarios. 50 60 70 80 90 100 110 120 2007 Apr Jul Oct 2008 Apr Jul Oct UK automotive industry output, 2007 and 2008   (Index, moving 3‐month average) Vehicles Parts Manufacturing Page | 3   We nonetheless fully acknowledge that the auto industry in the UK, as in virtually any other country, has immediate needs for short‐term support in terms of credit lines and guarantees to sustain operations, as well as support for credit‐based demand for its products. The debate how to support an industry sector at times of economic hardship however extends beyond the scope of this report. Page | 4 PART I: THE UK AUTOMOTIVE INDUSTRY IN PERSPECTIVE It is common to start reports like this with statements about ‘increasingly competitive markets’ and the ‘impacts of globalisation’. While we cannot ignore the wider global trends that shape all industry sectors in the UK, all too often these terms are being used to suggest that the industrial decline in the Western World is merely an inevitable consequence of a trend at global level. This sentiment is generally amplified at times of economic contraction, when proponents of protectionism find an increasing audience. Yet the above statements are only partially true – while competition in a mature industry, such as automotive, is bound to be dominated by unit cost (putting developed countries at a disadvantage), it is also driven by incremental innovations (putting emerging countries at a disadvantage). Furthermore, the global shift in manufacturing footprint (often called ‘off‐ shoring’ or ‘East‐shoring’) has not had an equal impact on all countries alike. We hence argue that policy decisions taken in support of the automotive and manufacturing industries in the Western World can make that vital difference, and it is in this spirit that we have compiled this study. Our objective is not to promote the industry as a whole, nor to highlight its many achievements, but on the contrary to provide a ‘no‐nonsense’ analysis of where the UK industry stands, where it is headed and what its likely future challenges will be.   The decline of the manufacturing sectors in the Western world is not an inevitable consequence of globalisation. In this study we follow on from the last AIGT in 2001/2002 that argued that the UK might no longer be a viable base for volume manufacture for motor vehicles if the volume sector was lost, as the economies of scale in the supply chain might no longer be given. This scenario has now largely come true: since 2002, the UK motor industry has seen a series of further plant closures, as well as the failure of the last British‐owned volume car manufacturer, MG Roveriii . This decline is not a transient economic misfortune, but forms part of a long‐term trend that has been widely observed and discussediv : ever since the UK lost its prevalent position as the world’s largest vehicle exporting nation in the early 1950’s, the importance of its motor industry has been declining both in national, as well as, global terms. The loss of its national champion, MG Rover, in 2005, aggravates this problem.   This decline is not entirely unexpected in a mature industry, where the dominant design has been set early in the twentieth century, and where countries since have been competing Page | 5   largely on a basis of unit cost and incremental innovation. The industry has further changed considerably over the past decade due to the reduction in trade barriers and growth in developing markets such as China and India, which have led to drastic changes in manufacturing footprint. Existing overcapacity is exacerbating the problem and will continue to do so, as developed countries strive to sustain their national industries, while other countries are encouraging the growth of their national industries, often with generous subsidies. Looming over the entire industry is a general uncertainty over the future supply (and thus cost) of fuel, the ever more pressing need to reduce the environmental impact of the transportation sector in terms of emissions. While the need to replace fossil fuel‐based internal combustions engines (ICEs) as the main powertrain architecture is as widely accepted, so far we lack any clear alternative as to what the dominant design
of such next generation powertrains will be. Conjointly, these factors add greatly to the uncertainty felt in the industry at this point, with a conclusive answer to what the post‐petrol‐ and diesel‐ fuelled internal combustion engine powertrains still amiss. It is against this picture that we are assessing the competitiveness of the UK automotive industry, drawing upon both past quantitative data as well as present qualitative assessments, in order to identify the strengths and weaknesses of the UK motor industry, in relation to its competition. This paper is part of a review of the UK’s automotive industry by the New Automotive Innovation and Growth Team (NAIGT), and this paper was specifically commissioned to:   i. assess the economic contribution of the UK’s automotive industry, ii. determine its competitiveness against its peers groups in Western Europe, CEE and BRIC countries, and iii. identify the key strengths and weaknesses of the automotive industry in the UK.   1.1 Scope   In this report we largely focus on the passenger car industry, which we define as a proxy for the industry as a whole that includes the manufacture of commercial vehicles, truck, busses, and specialist sectors, such as construction equipment, design engineering and motor sports. The main reason for this simplifying assumption is to achieve consistency of data in order to provide for valid and rigorous international comparisons.   Page | 6 We hence use ‘DM34’ as our reference, which in statistical terms includes all economic activities related to the vehicle manufacture, the manufacture of components, engine parts and accessoriesv . We acknowledge that although  the economic activities captured in DM34 will cover most of the direct automotive assembly operations and component suppliers, it is also likely to underestimate the employment in the 2nd and 3rd tiers of the supply chain – economic activities which are often not classified as ‘automotive’, but according to their products (e.g. plastics parts, cables), processes (e.g. forging, pressings) or services (e.g. finance, transport, security). However, we are confident that for the purpose of international comparisons use of DM34 is consistent, and that we capture the large majority of economic activity related to the motor industry. We will return to the issue of employment in more detail in section 2.4.   While we acknowledge that the UK is home to some of the most productive car and truck plants in Europe, we are interested in national trends only and thus will not comment on individual firms and their performance in this report. We focus on manufacturing of components and assembly of motor vehicles only, as the threat of offshoring does not apply to the retail sectorvi . In fact, the UK motor retail and service sector would look exactly the same if not a single car was made in the UK any more. By definition this sector is not in danger of being offshored, and its prospects are largely determined by macroeconomic factors, such as household disposable income, oil price, interest and mortgage costs. Retail and service are however very important, accounting for 25‐30% of the automotive value. 1.2 Method In terms of method, we rely on two main sources of data. We use past data to extrapolate and examine current trends in the macroeconomic data at the national level. Secondly, we use survey data from a selected range of senior decision makers in the UK auto industry to assess their perceptions, as a means of identifying likely patterns in their firms’ future behaviour. The data from both sources was triangulated and then put forward at the NAIGT Steering Group meetings for discussion; in this sense our analysis is conceptually a hybrid between a macro‐economic analysis, a survey and a Delphi study.   More specifically, in the first part, a quantitative analysis of the UK automotive industry over time and in relation to other countries was conducted. The industry’s performance was evaluated and factors assessing growth, productivity, cost and innovation were identified and compared across countries. In the second part, a qualitative analysis of the industry was conducted, using in‐depth interviews and/or on‐line surveys with 17 industry leaders. In this Page | 7   part of the study industry leaders were asked to estimate trends in sourcing from the UK, rank various factors defining competitiveness in four different geographies, with the UK as the main point of reference,   i. the immediate peer group in Western Europe, namely France, Germany, Italy and Spain, henceforth ‘FGIS’; as these are most similar to the UK in several ways – their level and history of industrialisation is fairly similar, all have relatively large and functioning automotive industries, and they are the largest countries and economies in Western Europe. ii. Central and Eastern European countries, or ‘CEE’, such as the Czech Republic, Slovakia, Hungary, Poland, and Romania that have seen a great level of influx of offshored manufacturing operations, which often export back into Western European markets. Here, it was decided to focus on the Czech Republic as a representative.   iii. Brazil, Russia, India, and China or ‘BRIC’, as the main growing markets, which have seen the largest growth levels on a world scale. It was decided to compare these countries to the UK because of the growing importance of these regions in the automotive industry (between 1995 and 2008, 48 new assembly plants were opened in this cluster). The decision to adhere to a common convention of grouping these countries together despite the considerable difference between them was made because of the relatively large size of the labour market in these countries (especially in China and India), the size of their territory and the relatively similar level of industrial development (though Russia is somewhat an outlier in this respect). The findings from the above analyses were discussed at length at the NAIGT Steering Group meetings, which marked a vital ‘sense check’ of our research findings, enabling us to ground these in current practice and perceptions in the industry. 1.3 Three macro trends that affect the automotive industry At the start of its second century, the automotive industry is undergoing a period of drastic change: over the past decade we have seen both record profits and bankruptcy of global suppliers and manufacturers, some of the largest industry mergers and de‐mergers, and – largely thanks to emerging new markets – an ever increasing global demand for passenger cars that saw global production rise by a CAGR of 2.44% since 1970. Figures 2 and 3 show Page | 8 global production and vehicles in use from 1900‐2007, respectively, while Table 1 gives a more detailed overview of the growth rates in both global production and vehicles in use.

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India’s automobile industry is poised at the start of an exciting phase of growth, not all of which may derive from manufacturing conventional fuel-based vehicles. Various possibilities ranging from developing vehicles based on alternate fuels to collaborating with some-time rivals, have the potential to open fresh avenues for growth. In order to capitalize on the emerging scenarios in the future, the following are a few key action points for each of the industry’s key stakeholders: Policy Makers • India has no duty benefits for even hybrid cars, which need to be imported due to low volumes. If India’s automobile industry wants to play a role in the global arena for alternative fuelbased vehicles, such limiting measures need to be reexamined and an appropriate redesign of the framework needs to be enacted immediately • While global companies are pursuing innovations in third and fourth generation biofuels, India is yet to decide on a purchase price for the fuel. Such a delay in key policy decisions, which have the potential to unlock innovation, need to be remedied based on the recommendations of industry associations/participants • Demand for nascent technologies and fuel efficient cars needs to be encouraged by offering consumers incentives to adopt these products, such as an expansion of the policy of little or no duty being payable on electric vehicle parts. This can in turn spur innovation for better products. Likewise, manufacturers could be encouraged to commercialize their green technologies, which are currently expensive and under-utilized by the market, by being offered subsidies where appropriate • Increase dialogue with manufacturers and oil marketing companies to establish a better infrastructure for greener vehicles. The government should consider finalizing a short, mid and long-term blueprint for the development of this infrastructure, encompassing elements such as battery recharge stations or CNG pumps, through public-private partnerships • The government should stimulate debate on how the public and private sectors can collaborate on the establishment of Urban Mass Mobility Schemes. Manufacturers could become key players in terms of developing new technologies, or inter-system mobility. Industry Participants • The market for greener vehicles opens up a whole new world of possibilities for Indian companies, even outside the automobile sector (such as leaders in renewable energy), to make a global foray • A greater focus on export opportunities could tap into a worldwide market hungry for green technology, which India can provide cost-effectively and to global standards. Business models of global green vehicle manufacturers should be examined to see how massmarket penetration can be enhanced • Collaboration is likely to be the theme for the next decade as new markets and products are created by companies forging previously unimagined partnerships. Companies will need to think beyond existing business models. Concentrations of resources and technical ingenuities may be vital to generate workable economies of scale. There may be merit in greater specializations, such as that witnessed in the IT industry, to simplify processes and reduce investment need • Across all vehicle types, under-served demographics such as young people, women and rural customers could be targeted by making greater overtures to these markets and by improving distribution networks • Better links should be forged with support industries such as battery manufacturers to help drive down costs of making and maintaining green vehicles • Manufacturers should form a greater consensus than exists at present on the most appropriate focus for emerging green technologies. The industry is slightly fragmented currently, with numerous options being explored ranging from battery power to hybrid fuels, from biodiesel to LPG. © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 30 KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 146 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG in India, the audit, tax and advisory firm, is the Indian member firm of KPMG International Cooperative (“KPMG International.”) was established in September 1993. As members of a cohesive business unit they respond to a client service environment by leveraging the resources of a global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. We provide services to over 2,000 international and national clients, in India. KPMG has offices in India in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata, Pune and Kochi. The firms in India have access to more than 3000 Indian and expatriate professionals, many of whom are internationally trained. We strive to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.

 

 

India’s automobile industry is poised at the start of an exciting phase of growth, not all of which may derive from manufacturing conventional fuel-based vehicles. Various possibilities ranging from developing vehicles based on alternate fuels to collaborating with some-time rivals, have the potential to open fresh avenues for growth. In order to capitalize on the emerging scenarios in the future, the following are a few key action points for each of the industry’s key stakeholders: Policy Makers • India has no duty benefits for even hybrid cars, which need to be imported due to low volumes. If India’s automobile industry wants to play a role in the global arena for alternative fuelbased vehicles, such limiting measures need to be reexamined and an appropriate redesign of the framework needs to be enacted immediately • While global companies are pursuing innovations in third and fourth generation biofuels, India is yet to decide on a purchase price for the fuel. Such a delay in key policy decisions, which have the potential to unlock innovation, need to be remedied based on the recommendations of industry associations/participants • Demand for nascent technologies and fuel efficient cars needs to be encouraged by offering consumers incentives to adopt these products, such as an expansion of the policy of little or no duty being payable on electric vehicle parts. This can in turn spur innovation for better products. Likewise, manufacturers could be encouraged to commercialize their green technologies, which are currently expensive and under-utilized by the market, by being offered subsidies where appropriate • Increase dialogue with manufacturers and oil marketing companies to establish a better infrastructure for greener vehicles. The government should consider finalizing a short, mid and long-term blueprint for the development of this infrastructure, encompassing elements such as battery recharge stations or CNG pumps, through public-private partnerships • The government should stimulate debate on how the public and private sectors can collaborate on the establishment of Urban Mass Mobility Schemes. Manufacturers could become key players in terms of developing new technologies, or inter-system mobility. Industry Participants • The market for greener vehicles opens up a whole new world of possibilities for Indian companies, even outside the automobile sector (such as leaders in renewable energy), to make a global foray • A greater focus on export opportunities could tap into a worldwide market hungry for green technology, which India can provide cost-effectively and to global standards. Business models of global green vehicle manufacturers should be examined to see how massmarket penetration can be enhanced • Collaboration is likely to be the theme for the next decade as new markets and products are created by companies forging previously unimagined partnerships. Companies will need to think beyond existing business models. Concentrations of resources and technical ingenuities may be vital to generate workable economies of scale. There may be merit in greater specializations, such as that witnessed in the IT industry, to simplify processes and reduce investment need • Across all vehicle types, under-served demographics such as young people, women and rural customers could be targeted by making greater overtures to these markets and by improving distribution networks • Better links should be forged with support industries such as battery manufacturers to help drive down costs of making and maintaining green vehicles • Manufacturers should form a greater consensus than exists at present on the most appropriate focus for emerging green technologies. The industry is slightly fragmented currently, with numerous options being explored ranging from battery power to hybrid fuels, from biodiesel to LPG. © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

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Over 7 million private sector jobs supported by auto manufacturers, suppliers and dealers in the United States  $500 billion paid in annual compensation to employees supported by the automotive industry  Every vehicle manufacturer job creates almost 7 other jobs in industries across the economy  All direct auto industry employment creates almost 4 additional jobs in other industries across the economy The automotive industry continues to be one of the most important industries in the U.S. economy, supporting more than seven million private sector jobs and $500 billion in compensation, along with attracting foreign direct investment (FDI) currently valued at $74 billion—approximately 3 percent of all FDI in the United States.1   Additionally, the industry has collectively invested almost $46 billion expanding and retooling U.S.‐based facilities since 2010.    Fourteen automotive companies have numerous facilities in the United States, with some companies supporting fully integrated operations in the country including research, development, design, engineering, headquarters, and manufacturing operations, while others have a much smaller footprint.  Beyond the number of jobs created, the industry contributes substantially to federal, state and local tax revenues, providing more than $200 billion to the federal and state governments.  This study highlights these contributions to the U.S. economy. Only half a dozen years after the worst recession in the U.S. since the 1930s, the American economy demonstrates many signs of strengthening, and the auto industry is helping to drive the recovery. Despite recent economic hardships, auto manufacturers, suppliers and dealers themselves employ over 1.5 million people and directly contribute to the creation of another 5.7 million jobs. In total, the auto industry is now responsible for 7.25 million private sector jobs, according to Center for Automotive Research (CAR) analysis.     CAR researchers also found the millions of employees whose jobs are supported by the auto industry collect almost $500 billion in annual compensation, delivering nearly $65 billion in personal tax revenues to government entities. This figure underscores another recent CAR study, which found that motor vehicle manufacturing and use generated at least $110 billion in state government tax revenue and another $96 billion in federal government tax revenue, amounting to about $206 billion in taxes – or more than the Gross National Product of 142 countries across the globe.2 1 BEA. (2015). “Foreign Direct Investment in the United States: Selected Items by Detailed Industry of U.S. Affiliate, 2008–2013.” Bureau of Economic Analysis, U.S. Department of Commerce. Accessed January 16, 2015. . 2 Hill, Kim, Debra Maranger Menk, and Joshua Cregger. (2015). “Assessment of Tax Revenue Generated by the Automotive Sector for the Year 2013.” Center for Automotive Research. January 2015. . and World Bank. (2014). “GDP Ranking.” The World Bank. Website. Accessed December 16, 2014. . ©Center for Automotive Research 2015    2 The industry as a whole employs about 1,553,000 people directly engaged in designing, engineering, manufacturing, and supplying parts and components to assemble, sell and service new motor vehicles. CAR found vehicle manufacturers—automakers, also known as original equipment manufacturers (OEMs)—directly employed 322,000 people in the U.S. in their respective headquarters and in other operational facilities, such as assembly and manufacturing plants and on research and development campuses. Additionally, there are 521,000 people employed in the automotive parts sector, including workers in the rubber, plastics, battery, aftermarket, and parts export sectors, and another 710,000 people employed in the dealer network selling and servicing new vehicles.   But jobs related to the auto industry go far beyond designing, building and selling vehicles. America’s automakers are also among the largest purchasers of aluminum, copper, iron, lead, plastics, rubber, textiles, vinyl, steel and computer chips. CAR models discerned that every OEM employee had an employment multiplier effect of 7.6 (or 6.6 additional jobs for every direct OEM job), while the employment multiplier for the entire industry is 4.7.3 There are many workers in intermediate and spinoff jobs from the auto industry due to the complex manufacturing supply network with many tiers of suppliers across a wide array of industries. Breakout of the employment and economic contributions by OEM, all automotive manufacturing, and dealer sectors are as follows:   Direct, intermediate, and spin‐off employment from OEM activities estimated at 2.4 million    Total compensation of $168 billion    Estimated personal tax payments of nearly $23 billion   Total employment generated by all automotive manufacturing (including automakers) is estimated to be 5.6 million    Total compensation of $375 billion  Estimated personal tax payments of nearly $45 billion Total employment generated by the dealership network is estimated to be 1.65 million    Total compensation of $116 billion    Estimated personal tax payments of approximately $20 billion   These figures are likely to rise as well. CAR’s U.S. automotive employment forecast projects hiring will increase by approximately 10.8 percent, with a compound average growth rate of 2.1 percent from 2013 to 2018. U.S. production is forecast to continue expanding, growing at a compound average growth rate of 2.4 percent, resulting in a projected rise of 12.6 percent in production from 2013 to 2018. CAR’s econometric analysis also suggests auto sales over the next several years will continue to increase, from 15.6 million units in 2013 to 17.6 million units in 2018. 3 The employment multiplier derived from manufacturing vehicles is lower than the previous study completed in 2010, while the parts manufacturing, sales and total industry multipliers are slightly higher than multipliers seen in previous studies. The authors believe that since the recession, increases in productivity, as well as the tendency for manufacturing operations to run three shifts, have dampened the employment contribution, as day‐time, office and business services jobs provide support for around‐the‐clock production. ©Center for Automotive Research 2015    3 INTRODUCTION The automotive industry is a critical component of economic growth, with extensive connections across the industrial and cultural fabric of the United States. This report outlines many known elements and highlights tremendously important associations beyond the market space of automotive manufacturing. National and regional employment; research, development and innovation; state and local government revenues; foreign direct investment; education; health care; U.S. trade; and quality of life are all tied to the automotive industry. This report reviews many of the factors that support the auto industry’s importance and standing in the national economy, and provides a current estimate of the industry’s employment and economic contribution to the national economy and to each of the 50 states and the District of Columbia. The paper is organized into several sections: Section I provides qualitative context and current market metrics for the automotive industry, both of which are needed to truly appreciate the contributions of the industry to the broader economy and gauge where the industry may be heading. Section II features an in‐depth quantitative analysis of employment and personal income associated with the automotive industry. Section II captures the distinct contributions of assemblers, motor vehicle and parts manufacturing, and dealers to the national economy. Section III describes the state‐level employment associated with the automotive industry. Section IV discusses the methodology of the economic modeling used to produce the results discussed in Section II and Section III. This study updates the economic contribution estimates from a 2010 study published by the Center f
or Automotive Research (CAR) on the national contribution of the automotive industry in the United States.4    The auto industry is one of the most important industries in the United States. It historically has contributed 3.0 – 3.5 percent to the overall Gross Domestic Product (GDP). The industry directly employs more than 1.5 million people engaged in designing, engineering, manufacturing, and supplying parts and components to assemble, sell and service new motor vehicles. In addition, the industry is a huge consumer of goods and services from many other sectors, including raw materials, construction, machinery, legal, computers and semi‐conductors, financial, advertising, and healthcare. Automakers spend an average of $1,200 for research and development (R&D) per vehicle5 – 99 percent of which is funded by the industry itself. Due to the industry’s consumption of products from many other manufacturing sectors, it is a major 4 Hill, Kim, Debra Maranger Menk, and Adam Cooper. (2010). “Contribution of the Automotive Industry to the Economies of all Fifty State and the United States.” Center for Automotive Research. Prepared for the Alliance of Automobile Manufacturers, the Association of International Automobile Manufacturers, the Motor and Equipment Manufacturers Association, the National Automobile Dealers Association, and the American International Automobile Dealers Association. April 2010. . 5 Hill, Kim, Debra Menk, Bernard Swiecki, and Joshua Cregger. (2014). “Just How High‐Tech is the Automotive Industry?” Center for Automotive Research. Page 9. January 8, 2014. . ©Center for Automotive Research 2015    4 driver of the 12 percent manufacturing contribution to GDP. Without the automotive industry, it is difficult to imagine manufacturing surviving in this country.   During the recession, North American vehicle sales and production fell sharply. In 2007, U.S. automotive plants built nearly 11 million vehicles; by 2009, production had fallen to slightly more than half of that, 5.8 million vehicles. To add pressure to the supply chain, prior to the recession, many suppliers were competing for automaker business primarily on price, leading them to operate at very narrow margins. The loss of business coupled with razor‐thin margins led to a reduction in the number of supplier companies. Some companies restructures or consolidated, but many simply went out of business.6    The U.S. turnaround in vehicle sales happened much more quickly than recovery in other sectors of the economy. After a low point of 10.4 million vehicles sold in 2009, sales in the United States have steadily increased and exceeded 16 million units in 2014. Correspondingly, U.S. automotive production is expected to exceed 11 million vehicles. As production has increased, suppliers are operating their facilities at very high capacity utilization levels. With the financial pain of the recession fresh in memory, most suppliers have been reluctant to reopen closed plants or build new facilities.   As a result of transformation of the automotive industry at the highest levels, coupled with a faster than expected resurgence in sales, many auto suppliers now find themselves under intense customer pressure to increase their capacity and capabilities by investing capital, adding new technologies, increasing efficiency, improving quality, upgrading workforce skills, and collaborating with other firms.7    As previously mentioned, more than 1.5 million people are employed by the auto industry. In addition, the industry is a huge consumer of goods and services from many other sectors and contributes to a net employment contribution in the U.S. economy of more than 7 million jobs. Approximately 3.8 percent of all U.S. private sector jobs are supported by the strong presence of the auto industry in the U.S. economy. People in these jobs collectively earn nearly $500 billion annually in compensation and generate $65 billion in tax revenues. Going forward, motor vehicle sales, production and employment in the industry are expected to continue to rise. Coupled with relentless technological advances, the automotive industry will continue to be a significant sector of the U.S. economy. 6 Ibid. Hill, Kim, Debra Maranger Menk, and Adam Cooper. (2010). 7 OESA. (2014). “Automotive Supplier Barometer.” Original Equipment Suppliers Association. November 3‐5, 2014. . ©Center for Automotive Research 2015    5 SECTION I ‐ AUTOMOTIVE INDUSTRY BACKGROUND This section gives a brief overview of the U.S. automotive industry. It discusses the changing market share and geography of the industry, the effects of the recent recession and subsequent recovery, near‐term forecasts, recently announced investments, automotive innovation, and important sectors within the automotive industry, including suppliers, dealers, medium‐ and heavy‐duty vehicle manufacturers, and automotive aftermarket firms. Overview of the Automotive Industry The U.S. automotive landscape is dynamic and constantly shifting. Traditionally, the “Detroit 3” (D3) domestic automotive assembly firms (Chrysler, Ford, and General Motors) were the dominant industry force particularly in the U.S. Midwest, the undisputed home of the industry. However, with the entry of international firms (BMW, Honda, Hyundai‐Kia, Mercedes, Nissan, Toyota, and Volkswagen) and their investments across the country, the industry is now more vibrant and complex. Decades of intense competition from many rival automakers have led to increased quality and choice for consumers. These changes have also led to new job opportunities and expanded production to new locations. U.S. Automotive Geography Within the United States, the top three states for establishments related to automotive production (including companies producing vehicles, bodies, and parts) are Michigan, Indiana, and Ohio. Texas is also high on the list, as are other Midwestern (Illinois and Missouri) and Southern (Tennessee, Kentucky, Alabama, and Mississippi) states. Table 1.1 shows the establishment count for the top 10 states in the United States, and provides total establishment counts for the United States, Canada, and Mexico.

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New technologies will play a critical role in achieving the objective of the UN Convention on Climate Change. Without radical changes in lifestyles, only a massive deployment of carbon-free (or close to carbon-free) energy technologies can power the world economy and satisfy growing energy needs, especially of the developing world, while stabilising atmospheric CO2 concentrations in the long run. Reduced energy-related CO2 emissions can be created by technical improvements at different levels and involve:  End-use technologies in all sectors: household and commercial, industry, transport, which could reduce the amount of energy used  Fuel switching from coal to oil to gas;  Increased efficiency of energy conversion (such as power plants and refineries);  Phasing in non-carbon energy sources, such as nuclear power and renewable energy sources; and  CO2 capture and storage. It is not possible to define what exact mix of these various technologies would best be able to stabilise atmospheric CO2 concentrations, at what level and for what price. However, excluding any option is likely to make achieving the objective of the Convention more expensive and/or to raise the level of concentration ultimately reached. Over the next several decades, non- or low carbon-emitting energy technologies are not likely to be competitive with current high emitting technologies beyond some “niche markets”, particularly given the relative abundance of carbon-rich fossil fuel resources. However, delaying action until prices are competitive may lead to unacceptably high CO2 atmospheric concentration levels. Pricing carbon emissions (directly or indirectly – e.g., through quantified objectives) would expand markets for existing and forthcoming carbon free technologies and accelerate their deployment. Creating markets for new energy technologies is likely to require, on top of carbon pricing, a broad range of measures. Support for research and development is of primary importance – and current levels in most developed countries are likely insufficient. In most cases, however, “learning investments” will have to be spent before full competitiveness can be reached by new technologies. Governments can and do use a wide number of instruments to promote development and dissemination of new technologies, from subsidising R&D to voluntary agreements, standards, taxes and cap-and-trade systems. Policy mixes may be more efficient than isolated measures. While quantitative objectives or price instruments may be necessary to achieve short-term emission reductions with the current set of energy technologies, they might not be sufficient to promote the development of new technologies required to achieve the large, long term reductions needed to stabilise atmospheric CO2 concentrations at any level. Policies focussing on technology innovation and COM/ENV/EPOC/IEA/SLT(2003)4 6 development are thus needed. Conversely, such policies alone are not likely to provide for cost-effective short-term reductions. International collaboration, which encourages both information and cost-sharing could greatly enhance the effectiveness of policies for technology innovation, development and dissemination. Technology transfer to the developing world is likely to play a critical role in controlling global emissions. International technology agreements could help support additional efforts to promote technology innovation, development and diffusion. They could complement agreements to achieve shorter-term emission limitation or reduction objectives. COM/ENV/EPOC/IEA/SLT(2003)4 7 1. INTRODUCTION New technologies will certainly play a critical role in achieving the ultimate objective of the UN Convention on Climate Change: “stabilising atmospheric concentrations of greenhouse gases.” Such an achievement is likely to eventually require near elimination of CO2 emissions. Without radical changes in lifestyles, only a massive deployment of carbon-free (or close to be carbon-free) energy technologies can power the world economy and satisfy growing energy needs, especially of the developing world, while making stabilisation sustainable over the long term. While carbon free energy technologies already exist (e.g., nuclear power and renewable energy technologies), they represent only a small share of current and projected future energy needs; fossil fuels continue to dominate the energy mix. Without new policies, the IEA’s most recent World Energy Outlook (IEA, 2002c) projects this trend will continue in the coming decades. The AIXG decided in its September 2002 meeting to focus attention on the numerous challenges faced in promoting new and alternative, low and carbon-free technologies. Key issues addressed in this paper include:  Identifying some key technologies, assessing their maturity and the potential for CO2 reduction they offer;  Considering how technological change occurs, illustrating in particular the role of learningby-doing processes, the role of behaviour and that of policymakers;  Considering what policy tools governments might use to accelerate maturation and foster deployment;  Considering what role increased international co-operation and technology transfers could play in fostering innovation and technical changes. Following a review of these issues, the paper provides a brief discussion of the possible effects of different policy mixes, in particular with respect to the timing of achieving stabilisation. This timing is likely to be critical in determining the level at which CO2 concentrations might eventually be stabilised (cf. IPCC 2001; IEA, 2002a). Three different strategies are considered: one mainly based on “comprehensive” instrument such as taxes or cap-and-trade systems; one mainly based on increased technology cooperation, and one “mixed” strategy that would incorporate both elements. The conclusion takes stock of these preliminary results and considers future work. It should be noted that this paper exclusively focuses on energy technologies. It does not consider sinks, non-energy CO2 emissions or emissions of other greenhouse gases (even if they are energy-related), or technologies for adaptation. COM/ENV/EPOC/IEA/SLT(2003)4 8 2. TECHNOLOGY POTENTIAL Energy-related CO2 emissions can be reduced through technical improvements throughout the energy sector, and involve:  End-use technologies in all sectors: household and commercial, industry, transport, which could reduce the amount of energy used;  Fuel switching from coal to oil to gas;  Increased efficiency of energy conversion (such as power plants and refineries);  Phasing in non-carbon energy sources, such as nuclear power and renewable energy sources;  CO2 capture and storage. These possibilities are explored in some detail in the Appendix “Key Technologies”. The analysis here discusses three policy-relevant issues arising from this information:  Are existing technologies sufficient to achieve the objective of the Convention?  Will non-carbon or low-carbon technologies (including fossil fuel use with CO2 capture and storage) become fully competitive with CO2 emitting energy technologies soon enough if market conditions are not modified by directly or indirectly pricing the climate change externality?  Can we already shape a long term, non-carbon energy future? 2.1 Existing and future technologies There is a range of opinion as to the readiness of existing technologies to reduce emissions. While presenting a range of views, one of the more optimistic conclusions is that of the IPCC, which in the Third Assessment Report, completed in 2001, concluded: “… Known technological options could achieve a broad range of atmospheric stabilisation levels, such as 550 ppm, 450 ppm or below over the next 100 years or more… Known technological options refer to technologies that exist in operation or pilot plant stage today. It does not include any new technologies that will require drastic technological breakthroughs…” Other recent publications, while having less standing than the IPCC, emphasize the difficulties. For example Hoffert et al. (2002) cri
ticised the IPCC’s conclusion as representing a “misperception of technological readiness.” They instead conclude that there is a need to intensify research on such technologies – a need they suggest is by no means universally appreciated. Notwithstanding these differences, there is widespread agreement that known technological options exist in energy production, conversion and end-use that could reduce emissions significantly from their businessas-usual trends in the short term and thus be compatible with relatively low levels of concentrations. For this set of technologies, the problem is not development, but how to efficiently disseminate these technologies in all countries. A successful solution to this challenge will likely only emerge with significant reductions in the cost and penetration of existing technologies, as well as the development of new technologies. COM/ENV/EPOC/IEA/SLT(2003)4 9 Numerous carbon-free technologies already exist. Light water nuclear reactors, wind turbines, concentrating solar and biomass-fuelled power plants, biofuels, photovoltaics are industrial realities1 . Important technical improvements will still be required, however, to deal with physical and, ultimately, cost constraints. And in many cases, these improvements may be more than incremental: for example, the future of nuclear power may rest entirely with new reactors that could be safer, save resources, produce less hazardous waste and prevent proliferation2 . The intermittent character of many renewable energy technologies – and costs (for PV at least) – will limit wind or PV expansion (PV today costs more than ten times electricity generated from coal). Concentrating solar plants producing around the clock (using heat storage instead of fossil fuel back-up) might be built in the coming years – but do not exist today. Carbon-free hydrogen production exists on paper, as do hydrogen-fuelled cars and planes – but there is a long road and significant technological challenges between today’s dreams and future realities (Appert, 2003). While in the future, hydrogen from renewable or nuclear power might become an option (Barreto et al., 2003), in the near to middle term (possibly up to 2050) renewables would more efficiently replace fossil fuels in the power sector than in the transport sector (Eyre et al., 2002; Azar et al., 2003). It would be a mistake, however, to believe that technical progress, by itself, always tends to reduce CO2 and other greenhouse gas emissions. There are numerous examples where technical progress may not necessarily do so; in fact it may even increase or prolong emissions. In the last decades, technical progress has significantly reduced costs in exploration and exploitation of oil and gas. Inasmuch as this has displaced some coal use, it has helped mitigate climate change. However, where it has displaced nuclear power, energy efficiency efforts or renewable energy sources, it has contributed to increasing greenhouse gas emissions. The current technological portfolio is unlikely to allow reaching the ultimate objective of the Convention, unless the willingness-to-pay is extremely high3 . Moreover, short-term decisions in this arena might have large long-term implications – and different cost implications for achieving similar concentration levels. Finally, technology change tends to be cumulative rather than resulting from single major shifts. All these factors combine to make the technology dimension of climate change mitigating policies critical in any future effort to meet the Convention’s stabilisation objective. 2.2 Competitiveness of non-carbon technologies It is often believed that climate policies should mainly aim to accelerate the introduction of carbon-free or carbon-lean energy technologies in competitive markets. Implicitly, this view supposes that sooner or later these technologies will become fully competitive on their own merits, and will be able to compete with increasingly scarce carbon emitting fossil fuels. Inherent in this view is that if we support pre-competitive technologies, they can ultimately take over in the market. 1 It may be argued that the full life cycle of these so-called “carbon free” technologies still involve some carbon emissions. Building a nuclear power plant or manufacturing PV cells requires fair amounts of energy – and currently this implies CO2 emissions. This however, reflects the current energy mix. If the proportion of these technologies increases in the energy mix, the production of power generating capacity will progressively involve less indirect carbon emissions. 2 While various concepts for such reactors have been suggested, industrial developments remain hypothetical only; see IEA et al., 2002 for a more complete discussion. 3 For example, most macro-economic models project a substantial continued growth in global CO2 emissions from the energy sector under a business as usual scenario. (see, for example, IEA, 2002c) COM/ENV/EPOC/IEA/SLT(2003)4 10 This perception tends to fuel the vision that technological change alone is the key to solving the climate change problem. But this vision may well rest on an incorrect perception of market and technology dynamics. The fossil fuel resource base contains much more carbon than the atmosphere can likely accommodate in a way that would respond to the ultimate objective of the climate change UN Convention. While all conventional oil and gas resources could be burned without driving CO2 concentrations above a 450 ppm level, unconventional resources and, first and foremost, coal are plentiful and their full use would drive concentrations to very high levels (see, e.g., IEA 2002a, p.44). Moreover, the fossil fuel industry has demonstrated a great capacity to react to changing energy prices by reducing costs through technological changes. In the early 1980s cost of oil from new deep-water platforms was estimated to be around US $25/bbl. Today such fields are still being developed with production costs of about US $ 10/bbl – thanks to many technical improvements. Other technology refinements have effectively alleviated– at least to some extent –concerns for the local environment arising from the production and use of fossil fuels. Air pollution has been significantly reduced in all Member countries (either from fuel switching, from fuel cleaning or from end-of-pipe technologies). Environmental regulations have and will continue to add costs to using fossil fuels – although seldom enough to make them costlier than alternatives. “Ancillary benefits” of CO2 emission reduction strategies must be factored in, but there should be no presumption that fossil fuels will become uncompetitive if local environmental issues are given more weight in the future. While conventional oil and gas resources inexorably move toward eventual exhaustion, the magnitude of the coal resource suggests that almost any near-term energy future will likely rest (at least in part) on coal, and may well include massive conversion of coal into synthetic fuels. Such technologies already exist and their deployment will likely drive costs down. There is no guarantee that non-carbon sources or capture and storage will ever be fully competitive with coal-based synthetic fuels for transport or home use – and even less with coal-fuelled electric power. As a consequence, there is no guarantee that strategies focussing on research and development (including dissemination efforts) of carbon-free technologies will necessarily be successful. This is particularly true if technologies are developed under current market conditions rather than with changes in the pricing of climate change externalities. In fact, the level of stabilised atmospheric CO2 concentrations possibly achieved following strategies focussing exclusively on technological change “push” is unknown.

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Six years after the Affordable Care Act altered health care forever, and two years after the roll out of the exchanges, the way that Americans consume health care continues to evolve. The changes reflect new regulations, changing demographics and rapid technological advancement.

 

Here’s how your health care is going to change this year:

 

Related: 10 Worst Places to Live for Obamacare

 

  1. You’ll be paying more. Even as the pace of increases in the cost of health care has eased, prices continue to rise. Consumers who get health care through work will pay 5 percent this year for premiums, an average of $6,251 ($17,545 for a family), with workers contributing an average $1,071 ($4,955 for a family). Health care costs are also increasing, along with deductibles.

 

The high cost of health care is having an impact on whether consumers access treatment at all. One in three Americans say they have put off medical treatment for themselves or a family member because of the cost.

 

  1. It’s becoming easier to shop around. In addition to higher-priced plans, more consumers are enrolling in high-deductible health plans, hoping that they won’t need medical care. Cost concerns are prompting consumers to compare pricing and outcomes at various providers.

 

Related: 7 Obamacare Predictions That Haven’t Come True

 

Insurers are increasingly offering tools that allow consumers to do so through their sites, and there are also several third-party apps and web sites offering similar services. “Consumers obviously want more transparency around pricing, now that they’re dealing with these huge deductibles,” says Trine Tsouderos, a director of PwC’s Health Research Institute.

 

  1. Care goes retail. Time-crunched, cost-conscious consumers are skipping scheduled appointments with their family doctor in favor of a stop at a walk-in clinic located in a pharmacy, retail chain or supermarket. “Those models are actually letting consumers access care more quickly and at a lower cost,” says Joel White, president of the Council for Affordable Health Coverage.

 

The retail health industry is surging to accommodate the growing demand, with the number of clinics expected to grow 12 percent next year from around 2,150 clinics this year to about 2,400 by the end of 2016.

 

  1. Telemedicine continues to rise. More insurers are covering telemedicine services in 2016, which also allow consumers to access health care 24/7 from home, without the inconvenience of visiting a doctor and at a fraction of the price. The cost of a telemedicine call is usually around $25 to $30 and can be covered with FSA or HSA dollars if it’s not covered by insurance.

 

Related: Employees Are Paying More – Much More – for Health Care

 

Telemedicine is expected to grow around 40 percent per year over the next five years, from its current $645 million to more than $3.5 billion in 2020, according to a report from IBISWorld.

 

  1. Medical-grade wearables come to market. FitBit and Apple Watch are great for the casual health enthusiast to keep track of his vitals, but the potential for so-called “medical-grade wearables,” devices designed to aid in the prevention or treatment of a specific disease is just starting to be realized. “We’re starting to see more and more devices going through the FDA approval process,” says Robin Farmanfarmaian, author of The Patient as CEO: How Technology Empowers the Healthcare Consumer.

 

Some products in this space include the Modus Health Watch, which the VA is using to help monitor patients with prosthetics, and the Empatica Embrace Watch, which can detect seizures in patients with epilepsy. A Soreon Research report expects the market for wearables, which is still in its infancy, to reach $41 billion by 2020, driven by growth in devices aimed at combating diabetes, sleep disorders, and cardiovascular disease.

 

  1. Drug prices come under pressure. Lawmakers and regulators (and presidential hopefuls) have been ramping up their scrutiny of drug pricing practices amid several flagrant instances of alleged price gouging (see Turing Pharmaceuticalsand Valeant), and consumer advocates are becoming more vocal about the price of even generic pharmaceuticals. Both companies have since rolled back their price increases, and experts say that while drug prices will continue to rise the practice of hiking prices purely for profit may be on the wane.

 

Related: 8 Ways Your Health Care and Retirement Benefits May Change in 2016

 

  1. Medical ID theft is an even bigger problem. While technology is creating amazing gains for medical care, it’s also creating serious weak spots. A recentAccenture report projects that 1 in 13 patients (about 25 million people) will be a victim of medical ID theft due to provider data breaches. Victims of medical ID theft, in which thieves steal your Social Security number and health insurance info in order to fraudulently obtain medical services or treatment, spend thousands to restore their credit and correct inaccuracies in their medical records. Unlike banks and credit card issuers, most healthcare organizations offer no protection services for victims.

 

  1. Your doctor may no longer be in network. As companies and insurers look for additional ways to reduce healthcare costs, they’re increasingly narrowing the networks of doctors and medical providers with whom they offer preferred rates. That means that even if you haven’t changed your insurance plan, your doctor may no longer be “in-network.”

 

 

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  1. Private exchanges will continue to grow. A growing number of businesses are opting out of providing traditional insurance for workers in favor of private exchanges, which allow consumers to search for health insurance in much the same way they’d search for a vacation package on Travelocity.com. The companies are providing workers with a set dollar amount they can spend on the exchanges-;and employees who want a more robust plan can make up the difference out of pocket. The number of workers who buy health care on private exchanges doubled from 3 million to 6 million in 2015, and is expected to double again in 2016 to 12 million.

 

  1. House calls make a comeback. Several start-ups around the country are now promising to deliver a doctor to your door within an hour or two. Apps like Heal in California, Curbside Care in Philadelphia, and Mend in Dallas are all aiming to bring back the old-fashioned house call. Silicon Valley isn’t the only one who sees value in bringing care to the patient. Since 2012, Medicare has been testing a home-based primary care program to see whether it can improve quality of care and stave off the need for a patient to move to a nursing home.

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Marketing in the healthcare arena has grown primarily because of three factors: changing healthcare policy, changing consumer expectations, and changing attitudes regarding the stigma of marketing by the healthcare profession. Accompanying these changes was the evolution of journals that focused on healthcare marketing. This case describes the history of academic and professional publications as they pertain to healthcare marketing and illustrates how the study of healthcare marketing evolved. Academic studies, reports from marketing events in healthcare organizations, and theories about marketing as it applied to healthcare were published to help professionals learn about and practice marketing in healthcare. It took time for marketing to earn its place as an accepted part of the healthcare arena. Simply put, prior to the 1970s hospitals did not have a marketing department, nor did they employ a person titled “director of marketing,” “director of public relations,” “vice president of public relations,” or “chief marketing officer.” Marketing did not have a place at the table in strategic planning, decision making, and budget allocation when the American Marketing Association published the first issue of the Journal of Health Care Marketing (JHCM) in 1980. In JHCM’s first “From the Editors” column, B. J. Dunlap and Don Dodson (1980–1981, 4), founding editors of the journal, wrote that the purpose of the journal was to “serve as a bridge between the academicians and the practitioners who have an interest in marketing for nonprofit organizations, specifically focusing on that which is of a health care nature.” In 1983, Haworth Press, publisher of scholarly articles on healthcare and social, information, and library sciences, issued Health Marketing Quarterly, a journal focused on the marketing of group practices. Its founding editor, William J. Winston, emphasized that its articles were practical and written for practitioners. Four years later, Haworth published the Journal of Hospital Marketing, which was designed as an applied journal—that is, a journal “for practitioners, and by practitioners” (Winston 1986, 1). Both of Haworth’s journals were founded by Winston, who had an unwavering commitment to marketing’s legitimate place in healthcare. Changes were made to all three journals throughout their publication history. JHCM’s name was changed to Marketing Health Services in 1997, and the Journal of Hospital Marketing became the Journal of Hospital Marketing and Public Relations in 2002. In 2007, Haworth Press was bought out by the Taylor and Francis Group, and the Journal of Hospital Marketing and Public Relations was placed under the auspices of Routledge. Finally, in 2010, Health Marketing Quarterly incorporated the Journal of Hospital Marketing and Public Relations. Today, the American Marketing Association publishes Marketing Health Services and Routledge publishes Health Marketing Quarterly. Both journals remain Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com Chapter 2: The Growth of Marketing Efforts in Healthcare 1 9 focused on marketing issues in healthcare, featuring articles, commentaries, case studies, and tools for healthcare marketing professionals. With the success of these journals, the practice of marketing in healthcare also earned acceptance as part of the healthcare arena. Simply put, hospitals now usually employ a director of marketing, director of public relations, vice president of public relations, or chief marketing officer, and marketing has a place at the table in strategic planning, decision making, and budget allocation. Changes in healthcare policy, healthcare consumers’ expectations, and attitudes about marketing by the healthcare profession all helped to bring about this acceptance. Today it is common practice for people to receive a text reminding them that their prescription is ready; make an appointment through physician practices’, clinics’, and hospitals’ websites; receive pamphlets about proper nutrition for persons with diabetes; and be surveyed about their outpatient surgery experience. All of these marketing efforts have been discussed, criticized, and refined via various avenues, including the journals featured in this case study. The History of Marketing in Healthcare Defining Healthcare Marketing The focus of healthcare marketing is meeting the needs of patients, physicians, the public, and payers. The American Marketing Association (2007) defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” The definition of healthcare marketing was built on this definition. As stated in Chapter 1, healthcare marketing is a fine-tuned art and science that creates, communicates, and delivers offerings that have value for healthcare consumers. It is important to note that healthcare marketing does not exist in a vacuum. Professionals who work in healthcare marketing departments are part of the strategic team, whether a large team assembled for hospital-based initiatives or a small team formed for clinic-based projects. For example, a physician clinic may employ the best-trained, smartest physicians, but if the environment is off-putting, patients may choose to go elsewhere for care. Even though meeting patients’ clinical needs is the most important outcome of a physician– patient encounter, research indicates that the environment of a physician’s office also has an impact on the patients’ total care experience (Altringer 2010; Bitner 1992; Fottler et al. 2000). Dr. Mary Jo Bitner (1992), a professor and researcher recognized as one of the founders and pioneers in the field of service marketing and management, presented the health clinic as a service organization that performs actions within an environment of elaborate physical complexity. As such, the service scape of the clinic should focus on eliciting a desired response from patients. Bitner asked healthcare marketing a fine-tuned art and science that creates, communicates, and delivers offerings that have value for healthcare customers, including patients, physicians, the public, and payers value relative worth; quality received in exchange for an investment of time, money, or effort Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com 2 0 Healthcare Marketing: A Case Study Approach [I]n the case of the hospital, what beliefs, emotions, and physiological responses will encourage patients to get up and walk around the facility if that is the desired behavior for their recovery? (1992, 64) Architecture is one way to communicate value to patients. The floor plan, placement of furniture, and room decor all contribute to the image of the clinic (e.g., professional, clean) and the quality of its service (e.g., the ease of navigating the designed space, providers’ diplomas on the walls). Dr. Myron Fottler, professor of health services administration and executive director of health services administration programs at the University of Central Florida, and colleagues (2000, 101) used the term healthscape to define service areas that meet or exceed patients’ needs and reinforce the quality of care. For instance, Mayo Clinic has an atrium featuring a grand piano that anyone is welcome to play. The daughter of one Mayo patient described the atrium as a place where people come “to heal together and share what brings [them] hope and joy” (Hume 2009). The value delivered by the healthscape of Mayo Clinic is part of what marketing is all about. However, healthcare administrators and providers in hospitals, clinics, and other settings did not always use or condone marketing in healthcare. In fact, marketing’s history in healthcare can be traced back to discussions in the field of marketing during the late 1960s.
Philip Kotler, known as the “father of social marketing,” and Sidney J. Levy (1969), recognized as one of the main contributors to the field of marketing and consumer behavior in the twentieth century, proposed that the concept of marketing be broadened to arenas outside of the sale of products, such as toothpaste, soap, and steel (10). They emphasized that the marketing concept of serving and satisfying human needs fits well with the purpose of hospitals—serving the sick and satisfying the health needs of consumers. Dodson (1985) asserted that marketing was introduced into the healthcare field when Kotler (1975) extended this line of thought, proposing that the basics of general marketing (e.g., distributing information to educate, motivate, and service target markets) applied to healthcare. The case study at the beginning of this chapter mentioned that today, customers receive texts notifying them that their prescriptions are ready, indicating that pharmacies have clearly adopted Kotler’s stance and engage in marketing activities such as texting to serve its market and satisfy its customers’ health needs. The Evolution of Marketing in Healthcare As stated at the beginning of this chapter’s case study, marketing in healthcare has grown primarily because of changes in healthcare policy, consumers’ expectations, and attitudes about marketing by the healthcare profession. Let’s examine these three factors. healthscape the service area, waiting rooms, and architecture of a healthcare organization (e.g., physician’s office, hospital atrium) that reinforce to patients the high quality of care they will experience Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com Chapter 2: The Growth of Marketing Efforts in Healthcare 2 1 Changes in Healthcare Policy As discussed in Chapter 1, healthcare policy began to change in the 1970s. Payment shifted from primarily UCR reimbursement to include cost containment mechanisms, such as DRGs and HMOs. This shift brought hospitals and clinics to consider the importance of knowing what services they provided, how they provided them, and who received them. After the introduction of predetermined fee schedules for reimbursement, healthcare providers were reimbursed more for some services than they were for other services and, over time, turned to marketing as a tool to help them create communications to educate and promote their services to prospective patients. In 1986, Winston stated that changing payment mechanisms had the greatest impact on healthcare marketing (26). The term easy money was used in publications to refer to payment structures prior to the introduction of cost containment policies (Clarke 1978; Gavin 1980–1981). Roberta Clarke (1978), associate professor at Boston University’s School of Management and former president of the Society for Healthcare Planning and Marketing, proposed that the availability of easy money in the 1960s allowed for unregulated, unmonitored growth of health centers, which did not consider that this easy money could disappear. Marshall P. Gavin, president of Primecare Corporation, a company that provided marketing services for medical centers, asserted in a guest editorial for the Journal of Health Care Marketing that the period from post–World War II to the 1970s was a time of easy money, and healthcare costs continued to increase unchecked. Nonetheless, by the 1980s, Gavin (1980–1981, 5) noted succinctly, “Times have changed.” His voice was prophetic. Times have changed. Even with cost containment measures, healthcare costs continue to rise. As shown in Exhibit 2.1, the share of gross domestic product—the monetary value of all goods and services produced annually in the United States—attributable to expenditures on healthcare has steadily increased. Healthcare providers have come to recognize marketing as a means of survival and growth. Consider the changing trend regarding length of stay in a hospital. In 1970, the median length of stay for childbirth was four days. By 1992, the median had dropped to two days (CDC 1995). As Clarke (1978) suggested, the general decline in patient days (length of stay in a hospital) affected hospitals’ income. Consequently, hospital administrators thought about further diversifying their services and became more open to marketing efforts in healthcare. For example, with shorter inpatient hospital stays, attention turned 1970 1980 1990 2000 2008 7.1% 9.0% 12.2% 13.4% 16.0% Source: OECD (2010). Exhibit 2.1 Total Expenditures on Health as a Share of Gross Domestic Product in the United States Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com 2 2 Healthcare Marketing: A Case Study Approach to outpatient services. Organizations began to offer outpatient surgery, emphasizing the amenities they provided for family members waiting for a patient undergoing a procedure. One prominent example was the “Blue Blazer” campaign started by a regional medical center in the 1970s. The hospital hired college students who were interested in working in medicine (pre-pharmacy, premed, pre–allied health, and pre-nursing). They wore blue blazers and helped make patients’ family members comfortable at the surgery center. They parked cars so that family members could enter the center immediately rather than navigate the parking garage; accompanied them to waiting areas; and brought coffee, tea, and pastries for them to enjoy while the patient was in surgery. Family members knew that those wearing a blue blazer were at their service. While the Blue Blazers could not answer medical questions, they were willing and eager to listen to family members, fetch needed items, and attend to them in general. A pamphlet describing this service was displayed in the waiting rooms of local physicians’ offices; billboards featuring the young, healthy-looking Blue Blazers were posted at key traffic points in the surrounding area; and the students were interviewed on a local television midday talk show to promote the service. The result was positive. The regional medical center was operating at capacity within four months of launching the Blue Blazer campaign and increased its outpatient operations shortly thereafter. Drawn in by the service, customers (in this instance, patients and their family members) began to request that surgeries be performed at the regional medical center instead of elsewhere. Let’s consider the campaign in detail via a healthcare marketing lens. The regional medical center’s administrators became aware that changing healthcare policy was negatively affecting the way they usually earned their money. With the decline in the length of inpatient hospital stays, they turned their attention to outpatient services. First, the administrators needed to determine their target market—the segment of the population they wanted to attract and engage. In this case, the target market was patients’ family members. Second, they needed to determine what services and actions would attract this target market to the regional medical center for outpatient surgery. The regional medical center was in an urban environment, with parking mainly at a garage two blocks away from the outpatient center. Family members had been driving to the center to drop off patients at the entrance and then leaving to find a parking space. Providing a parking service—at no additional charge—was meeting a need. It was a service that had value. Third, the administrators needed to spread awareness of the Blue Blazer service. They did so in three ways—written communication in pamphlets, placed in physicians’ waiting rooms; visual communication via billboard placement; and oral and visual communication via the talk show interview. Finally, the medical center had to deliver the services it was promoting. target market the segment of a population a provider wants to attract and engage Copying and distribution of this PDF is prohibited
without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com Chapter 2: The Growth of Marketing Efforts in Healthcare 2 3 Changing Consumer Expectations The US Public Health System has published Healthy People objectives since 1991. Healthy People 2000, Healthy People 2010, and Healthy People 2020 all focus on ten-year goals directed toward its vision: a society in which all people live long, healthy lives (HHS 2012). By educating consumers about their health and focusing on wellness and prevention, the initiative aims to bring about a healthier, more informed population. Not only do people learn how to be healthier and prevent illnesses; their efforts reduce their healthcare costs and that of their payer, if they have access to insurance (e.g., employer-provided health insurance via organizations such as Blue Cross/Blue Shield; or the government— Medicare for Americans aged 65 or older, Medicaid for low-income Americans, and Tricare for veterans). The return has been impressive. For instance, Johnson & Johnson’s wellness programs, designed to educate Johnson & Johnson’s employees about their health and focused on wellness and prevention, have achieved what Healthy People initiatives strive to do. Johnson & Johnson’s programs have saved the company about $250 million in healthcare expenditures—roughly $2.71 for every dollar spent by the company (Berry, Mirabito, and Baun 2010). Clearly, education of healthcare consumers translates into positive outcomes cost-wise (reduction of costs) as well as health-wise (healthier consumers). The initiative has also spurred an interest among consumers to be more involved in their healthcare rather than merely a patient. Past research found that healthcare consumers in Europe shared this interest (Tritter et al. 2010). Patients also have established expectations about their care experience. For instance, patients want healthcare providers to communicate with them and treat them with courtesy and respect (Liu et al. 2008; Otani, Herrmann, and Kurz 2011) and encourage them to participate in decision making about their care (Squires 2012). Patients also expect to be seen promptly, within 30 minutes of their scheduled appointment time (Hill and Joonas 2005).

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“First, do no harm” It would be a surprise to many that the familiar words, “First, do no harm,” do not appear as part of the Hippocratic Oath. The father of modern medicine did, however, put forward a similar idea in one of his writings, which translates as: “Declare the past, diagnose the present, foretell the future; practice these acts. As to diseases, make a habit of two things — to help, or at least to do no harm.” Hippocrates And by any translation, this is a concept that we’ve found to be popular with many professional practitioners when they seek our advice and guidance in Healthcare Marketing. If nothing else, they want to do no marketing harm…they are actively looking at ways to avoid mistakes. And that’s a good first step. Whether you’re marketing a hospital, a private practice, a pharmaceutical company or any other healthcareoriented organization, it can be challenging – even painful – if you don’t approach it with the right knowledge, tools and guidance. “Avoid mistakes… then diagnose, take action” By taking a lesson from the pitfalls and errors of others who have learned the hard way, you can boost your effectiveness and take the first of two leaps toward greater success. In our collective decades of marketing experience there are 7 deadly sins that must be avoided in an effort to do no harm. First, recognize and avoid these “Seven Deadly Sins.” Deadly Sin # 1: Confusing Marketing with Advertising Don’t use these terms interchangeably; they’re cousins, not twins. Marketing is a systematic plan of many business activities that collectively work to attract and retain individuals who are in need of your services or products. Advertising is just one of many communications tools; typically a persuasive message that targets a specific audience. Although healthcare marketing and advertising can appear daunting, the success steps for any organization are six, and only six, fundamental building blocks. These are: Professional Referral Marketing, Internet Marketing, Branding, Internal Marketing, External Marketing and Public Relations. Understanding this simple outline allows everything else to fall into its proper place. Deadly Sin # 2: Spaghetti Marketing Effective marketing is planned communication, so create and follow a well-considered and specific plan. When you market without a plan, it’s like throwing strategies against the wall to see what sticks. We call that “spaghetti marketing,” and it can be truly brutal on your budget and your organization. Plan your marketing carefully, preferably with the guidance of experienced professionals who know the ins and outs. They can steer you toward the tactics that are proven to work in any given situation – and help you steer clear of the things that will fall flat. Continue to adjust your plan as you learn, but don’t start throwing spaghetti at the wall. Plan first, then execute. Deadly Sin # 3: Analysis Paralysis People who work in and around healthcare tend to be scientifically minded, analytical thinkers. That’s great when it comes to practicing medicine or supporting it, but not so great when it’s time to launch a marketing campaign. Sometimes analytically-minded individuals think so long and hard about what to do that they confuse thinking with action. Thinking and planning alone don’t attract patients. Actions do. So you must set a short deadline for making decisions, and then once you have that decision, you must take charge and do something! If this is difficult for your decision makers, remind them that no marketing strategy is forever. You can make improvements next time. Analysis paralysis is dangerously similar to… Deadly Sin # 4: Marketing Decisions by Committee We aren’t sure why, but when it comes to marketing everyone seems to have an opinion. Partners, staff associates, spouses, patients, friends and the guy who cleans up all want to give their two cents. Many a heathcare organization has put valuable marketing plans aside because key players couldn’t agree on the minute details involved in executing a plan. When you wait for complete agreement, you may find yourself waiting idly by as competitors beat you to the punch. Ev en when you finally reach a group decision, the result is often a watered-down version of an effective vehicle that will wind up doing little or nothing to accomplish your growth goals. The solution is for your key decision makers within your healthcare organization to come to agreement on objectives and budget, and then engage a qualified third party to write a marketing plan. Once the plan is approved, if you don’t already have one, you’ll need to appoint ONE person within the organization to take on the role as “Marketing Director.” Empower him or her to make all decisions and approve the elements of your campaign, and evaluate his or her performance periodically based upon results. In this manner, you’ll avoid massive hassle and lost opportunity. Deadly Sin # 5: Inadequate Training If external advertising is a part of your marketing campaign, it’s vital that you make every member of your organization, across all departments aware of the plan and ensure they receive excellent training in the handling of these new patients. Advertising generated patients will naturally be more skeptical and hesitant than referred patients. They will come to your organization or practice with different questions, mind-sets and concerns than the patients your staff is accustomed to. That’s not to say that advertising can’t attract “quality” patients, or that advertising makes you look “needy.” Patients who call you from advertising are in fact the same people you are used to attracting. The only difference is that because there was no referral, there is no implied trust, so you’ll have to work harder at the outset to build relationships quickly. This is a vitally important topic, and we’ve seen hundreds of otherwise good marketing plans dashed upon the rocks due to inadequate staff training and preparation. Deadly Sin # 6: Treating Marketing as a Cost Center Marketing is a revenue center, not a cost center. You must treat it as such. That means you need to be willing to give marketing sufficient budget and time to succeed. More importantly, rather than focus solely on how much a given marketing vehicle costs, you’ll need to consider what it returns compared to its cost. Is $25,000 for a given tactic or strategy expensive? Not if it brings your hospital or practice $125,000 or more in revenue! From today forward, always calculate projected and actual Return On Investment (ROI) figures (simply dollars in divided by dollars out). Marketing that works is actually not a cost at all, it is an investment. Your goal should be to find strategies with a 3:1 to 5:1 (or better) ROI. When you do, you should generally invest more in order to make more. In the end, you’ll multiply your winnings by creating successful, ongoing marketing systems. (Try to get returns like these with your mutual funds.) Deadly Sin # 7: Insufficient Delegation A well-designed marketing plan includes countless moving parts. Don’t try to oversee everything yourself. Delegate tasks and use the resources at your disposal to make your marketing efforts blend seamlessly with the operations of your business. Call a staff meeting. Make sure everyone understands your vision and strategy. Pick the right people to lead appropriate tasks. Hint: if everyone is responsible for a given task or outcome, no one is responsible. You need to assign specific tasks to specific people with specific deadlines. If you are working with an outside marketing agency (generally you should), you’ll want to delegate as much as you possibly can to them, but at the same time help them to help you. You’ll also need to agree exactly who is going to do what. More Deadly Sins… We wish we could stop at 7 Deadly Sins, but the truth is, there are several additional egregious marketing sins that you would do well to avoid. Deadly Sin # 8: Inconsistency Decide why your hospital, company or practice is better, and
then make sure the messages you convey are consistent with that end. Patients will lose trust in your organization if they find you offer less than they were led to expect. Also, be consistent with your marketing plan. Don’t stop running a newspaper ad just because the first insertion didn’t ring your phone off the hook. Give your campaign time to work, but you also need to know when a change in direction is a good idea. Generally, you’ll want to get expert help in this area because there is nothing like the voice of experience to guide you. Deadly Sin # 9: Failure to track the source of new patients In Sin #6 above, we discussed the urgent need for you to consider Return on Investment (ROI) for all of your marketing decisions. However, if you don’t track the source of every new patient, you’ll never be able to determine the effectiveness of each of your various marketing tactics, specifically. As a result you could easily stop something that unbeknownst to you is actually a home run, or worse, keep throwing hard-earned money at a losing proposition. In spite of their protests, you MUST convince and then train staff to track the actual source of every new patient, from the very first call into the office. Once you have patient data, you can easily go back and calculate approximate ROI by strategy. Only then will you be able to make smart decisions about marketing going forward. Deadly Sin # 10: Hiring the wrong marketing talent It is always difficult to evaluate someone from outside of your own area of expertise, and marketing is an area that is particularly problematic. The trouble is, a lot of marketing people “show well,” but quality varies wildly. Heck, even VPs of Marketing often fail in their assessments of marketing talent. Here are some of the most important things to look for: Healthcare Marketing Experience: Healthcare marketing is a small, specialized niche, and few people are truly experts. Look for experience with at least 100 healthcare clients, and thousands are a lot better. Marketing Strategist: You don’t need a graphic artist, writer, salesperson, marketing administrator, web person, media person, etc. These people (assuming they are good) have very specialized expertise and are best suited to be part of the larger team, led by a marketing strategist. Continuing Education: You need someone who is committed to continuing education in order to master his or her craft (books, coursework, seminars, newsletters, etc.). You do NOT want someone who hasn’t opened a book since college, or worse, never went to college. Results Orientation: One of marketing’s dirty little secrets is that few marketers have any real experience selling anything. Worse, being creative people, they think they are successful when they win awards for being clever (silly us – we thought you were paying for results.) Deadly Sin # 11: Trying to be a “do-it-yourselfer” At the risk of seeming self-serving, we strongly recommend you avoid the temptation of trying to do all of your marketing in-house. There are several reasons why… First of all, this is your reputation we are talking about. Nothing should be more important to you. Remember, people make judgments about what they can’t see based upon what they can see. Similar to how you make judgments about restaurant quality based upon the décor and cleanliness, people make judgments about you based upon your marketing. Amateurish efforts will make you look, well, amateurish. Secondly, while “feel good” marketing seems relatively easy, getting patients off their lazy chairs to pick up the phone and call you is hard. Really, really hard. In fact, few marketers can do that, so your chances of success are slim indeed. Finally, it really won’t save you money, which generally is the sole reason for keeping everything in-house. Bad marketing costs exactly the same to print or run in ads as good marketing. Worse, chances are you won’t redo bad marketing, you’ll simply quit. Which leads us to the worst sin of all… Deadly Sin # 12: Doing nothing From time to time, we’ll speak with a doctor or a hospital executive who proudly tells us, “we’ve never had to do much in the way of marketing.” Actually, as Erik Spiekermann once said, “You cannot not communicate.” If you are still in business, you are marketing. You may or may not be advertising, but we assure you that you are marketing. The only question is, “How effective are you?” After all, in today’s world, consumers are exposed to over 3,000 commercial messages a day. A day! That means you are competing for mind share with marketing and advertising agencies which control multi-million dollar budgets. Worse, and this is new, you are now competing with colleagues who employ sophisticated marketing companies to get their messages out. (Call (800) 656-0907 for a free white paper on this topic.) The business of healthcare gets harder every year, and competition has become a huge factor for thousands of organizations and practices. Doing nothing is equivalent to denying a battle is raging, and then choosing to stay unarmed. The worst part? It’s the opportunity cost. Unless you take action, you’ll never know what “could have been.” Word to the Wise Now that you know what pitfalls to avoid, waste no time in designing and implementing an effective marketing plan. Simply beginning the process can seem daunting. Don’t settle for avoiding mistakes; begin now – right now – with a self-audit. Your Marketing Audit: The first seven questions… There are several hundred probing questions to ask yourself and others, but here are the first seven to begin an honest self-examination: 1. Are you using an Evidence-Based Marketing approach? Does your marketing system include Proven Strategies, a well-designed Marketing Plan, Effective Implementation and a means to Evaluate Results? All four of these components drive the process. If you’re missing one or more you are not operating at maximum strength or capturing full potential. 2. What’s the date on your marketing plan? Even carefully-considered plans become dated if they are not challenged routinely – at least quarterly. If it’s been six months or more since you took a fresh look at your marketing plan, carve out some quiet time to evaluate. Do you need “refreshment” or a completely new course of action? 3. Do you have clear and specific goals? Not everyone is clear about the marching order of these terms – goals are quantified and at the top; strategies support goals; and tactics implement the strategies. How have your goals changed? What are the new goals and how did you set the goals? What strategies and tactics are needed to achieve the goals, new or otherwise? Did you realign your budget for what’s changed? 4. Is your marketing budget right for the job? There are no less than six different methods for setting a marketing budget. How did you set your budget and does it achieve the goals? Do you have enough resources – time, dollars, people – in the right places to make this a winning plan? Above all, marketing is a revenue center – not a cost center. Expect performance of 3 to 4:1 overall. (See item #7.) 5. Does your branding message clearly differentiate your organization or practice? If you are the “only game in town,” branding and positioning for your institution might go unchallenged in the marketplace. But increased competition means there’s no sliding by – patients and community need to clearly hear and understand exactly how you are different and better. Do you have a branding message? 6. Are your Internal, External and Professional Referral programs working together or independently? Some components of a well-tuned plan run all the time, while other segments may be seasonal, and still others are keyed to a target audience segment or needs. Does your plan coordinate all these elements, providing desired overlap or avoiding conflict? 7. How do you measure response and Return-on-Investment? Sadly, many hospitals, practices and other organizations don’t have a reliable tracking system to identify the source of new patients an
d to measure the effectiveness of their marketing, advertising, promotion or referral efforts. Regardless of the size of the business, the program or any of the strategic or tactical parts – if you don’t track you just don’t know what’s working. Do you have a tracking system? Is it working? Is it reliable and accurate? It’s impossible to manage the plan or calculate your ROI without this part of the equation. …plus, a timely tip… Don’t let the Treatment Plan get ahead of the Diagnosis In our consulting work with hospitals and other healthcare organizations around the nation, someone often calls to say they “need a flyer” or “have to have a newspaper ad” or whatever else they think is right and/or an immediate marketing tool for their business. Imagine if a patient presented himself with a request for a specific medication before your medical staff had any history, exam, tests or a dozen other medical considerations. The same principle applies in successful marketing programs regardless of the profession, marketplace, audience, etc. Don’t jump ahead. Invest the time to ask these questions of yourself, and get a clear and unbiased perspective on where you are and what you need to do to achieve your business development goals.

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The National Health Care Survey People use health care services for many reasons: to cure illnesses and health conditions, to mend breaks and tears, to prevent or delay future health care problems, to reduce pain and increase quality of life, and sometimes merely to obtain information about their health status and prognosis. Health care utilization can be appropriate or inappropriate, of high or low quality, expensive or inexpensive. The study of trends in health care utilization provides important information on these phenomena and may spotlight areas that may warrant future indepth studies because of potential disparities in access to, or quality of, care. Trends in utilization may also be used as the basis for projecting future health care needs, to forecast future health care expenditures, or as the basis for projecting increased personnel training or supply initiatives. The health care delivery system of today has undergone tremendous change, even over the relatively short period of the past decade. New and emerging technologies, including drugs, devices, procedures, tests, and imaging machinery, have changed patterns of care and sites where care is provided (1,2). The growth in ambulatory surgery has been influenced by improvements in anesthesia and analgesia and by the development of noninvasive or minimally invasive techniques. Procedures that formerly required a few weeks of convalescence now require only a few days. New drugs can cure or lengthen the course of disease, although often at increased cost or increased utilization of medical practitioners needed to prescribe and monitor the effects of the medications. Over the past decade, both public and private organizations have made great strides in identifying causes of disease and disability, discovering treatments and cures, and working with practitioners to educate the public about how to reduce the incidence and prevalence of major diseases and the functional limitations and discomfort they may cause. Clinical practice guidelines have been created and disseminated to influence providers to follow recommended practices. Public education campaigns urge consumers to comply with behavioral recommendations (e.g., exercise and lose weight) and treatment regimens (e.g., take your medications) that may help to prevent or control diseases and their consequences. Health care utilization also has evolved as the population’s need for care has changed over time. Some factors that influence need include aging, sociodemographic population shifts, and changes in the prevalence and incidence of different diseases. As the prevalence of chronic conditions increases, for example, residential and community-based health-related services have emerged that are designed to minimize loss of function and to keep people out of institutional settings. The growth of managed care and payment mechanisms employed by insurers and other payers in an attempt to control the rate of health care spending has also had a major impact on health care utilization. Efforts by employers to increase managed care enrollment, as well as major Medicare and Medicaid cost containment efforts such as the Prospective Payment System for hospitals and the Resource Based Relative Value Scale for physician payment, created incentives to shift sites where services are provided (3,4). They also created incentives to provide services differently; for example, the increase in capitated payment and use of gatekeepers has been associated with a changing mix of primary care and specialty care (see “Visits to Primary Care and Specialty Physicians”) (5). Numerous other factors also influence the type and amount of health care utilization that is provided in the United States (see “Forces that Affect Overall Health Care Utilization”) (6,7). The Centers for Disease Control and Prevention, National Center for Health Statistics (NCHS), Division of Health Care Statistics is charged with conducting surveys of health care providers and facilities. These surveys track the number of encounters these entities provide and describe characteristics of Introduction 1 Health Care in America: Trends in Utilization those who seek care, the content of the encounters, and characteristics of providers. It accomplishes this mission in part by fielding a family of surveys that are collectively called the National Health Care Survey (NHCS). The NHCS produces important information on hospitalizations and surgeries, ambulatory physician visits, and long-term care use in the United States. It can be used to compare services received across different settings, to relate provider characteristics to patient utilization, to compare utilization rates among subpopulations, and, in general, to assess how the health care delivery system is being used and by whom. Each NHCS component survey obtains information about the facilities that supply health care, the services rendered, and the characteristics of the patients served. Each survey is based on a multistage sampling design that includes health care facilities or providers and patient records. Data collected directly from the establishments and/or their records rather than from the patients, identify health care events—such as hospitalizations, surgeries, and long-term stays—and offer the most accurate and detailed data on diagnosis and treatment and institution characteristics. These data are used by policymakers, planners, researchers, and others in the health community for a variety of purposes, including monitoring changes in the use of health care resources, monitoring specific diseases, and examining the impact of new medical technologies (8). The NHCS includes the following surveys: • National Ambulatory Medical Care Survey (NAMCS) • National Hospital Ambulatory Medical Care Survey (NHAMCS) • National Hospital Discharge Survey (NHDS) • National Survey of Ambulatory Surgery (NSAS) • National Home and Hospice Care Survey (NHHCS) • National Nursing Home Survey (NNHS) These surveys are the major source of information in the United States on national trends in hospital length of stay and diagnoses associated with hospitalizations, ambulatory physician visits, nursing home stays, and home health and hospice care visits. Chart 1 shows component surveys of the NHCS, including typical sample sizes and years conducted. More detail on the component surveys and limitations of the data can be found in “Appendix I.” “Appendix II” presents definitions of terms used throughout this report. Only statistically significant differences between population groups or time trends are noted in the text, as well as on each chart. Computation of rates for hospital discharges and nursing homes, home health agencies, and hospices encounters use estimates of the civilian population of the United States based on the 1990 census and adjusted for underenumeration using the 1990 National Population Adjustment Matrix. Rates of physician, hospital outpatient, and hospital emergency department visits use the civilian noninstitutionalized population of the United States, also based on the 1990 census and adjusted for underenumeration. Although intercensal rates for the 1990s that incorporate data from the 2000 census are now available, they were not available at the time this report was compiled. The first section of this book uses selected trend data to illustrate how—and to suggest some insights into why—health care utilization has changed over the past decade. The second section presents overall trends in health care, including use of inpatient hospital services; use of physician services in private offices, hospital outpatient departments, and emergency departments; and use of nursing Introduction 2 Health Care in America: Trends in Utilization Chart 1: Characteristics of National Health Care Survey component surveys Survey Type of data Years fielded Approximate responding sample size National Ambulatory Medical Care Survey (NAMCS) Visits to office-based physicians 1973–1981, 1985, 1989–present 1,000–1,140 physicians 21,000–36,000 encounters National Hospital Ambulatory Me
dical Care Survey (NHAMCS) Visits to hospital emergency and outpatient departments 1992–present 440 hospitals 21,000–36,000 ED1 encounters 29,000–35,000 outpatient visits National Hospital Discharge Survey (NHDS) Hospital discharges 1965–present About 500 hospitals 300,000 discharges National Survey of Ambulatory Surgery (NSAS) Ambulatory surgery discharges 1994–1996 500 facilities 120,000 discharges National Home and Hospice Care Survey (NHHCS) Agency characteristics, current patients, and discharges 1992–1994, 1996, 1998, 2000 1,100–1,800 agencies 3,400–5,400 current patients 3,000–4,900 discharges National Nursing Home Survey (NNHS) Characteristics of nursing homes with 3 or more beds, current residents, and discharges 1973–74, 1977, 1985, 1995, 1997, 1999 1,100–1,900 nursing homes 5,200–8,200 current residents 6,000–6,900 discharges 1 ED is emergency department. home, home health care, and hospice care services. Trends for the entire U.S. population are presented first, followed by trends for specific age and race groups (black versus white populations); trends in utilization for specific conditions, drugs, and procedures; and trends in utilization associated with place of death. In an attempt to show trends in utilization across the spectrum of care measured in our surveys, this book is not organized around specific surveys or specific populations (e.g., racial or age groups). Therefore, those interested in a particular type of care, such as home health care, will find charts illustrating trends in home health care by different population groups throughout the book. Similarly, overall trends in utilization by race appear throughout the book. When analyzing any of the trends in health care utilization presented in this book, it is critical to remember that all of the health care utilization data (doctor visits, emergency department or outpatient department visits, or discharges from hospitals, nursing homes, and home health agencies) from Introduction 3 Health Care in America: Trends in Utilization the NHCS are derived from establishment- or provider-based surveys rather than population-based surveys. Thus, with the exception of daily census data from nursing homes and home health agencies, data from the surveys represent events, not persons. For example, persons who visited a physician more than once or were discharged from the hospital more than once during the period of data collection would be included multiple times in the list from which the sample was drawn. Utilization rates per capita (or per population) represent the magnitude of health care use by a particular population and can be compared across various population groups, but they cannot be used to examine the amount or type of care provided to individuals. In addition, examination of utilization trends for the entire U.S. population masks many underlying differences in utilization by subpopulation (e.g., race, age, or gender) and/or condition. Many of these underlying trends are presented in charts presented throughout this book. This book is the first attempt to integrate data from all of the NHCS components into one publication that examines how health care utilization is changing across multiple settings. This book is neither exhaustive nor comprehensive in the utilization trend data it presents. Although it provides examples of overall trends in health care utilization, many other trends in diagnoses, conditions, and discharge disposition across population groups defined by different characteristics are not presented here. Many of these data are available from published reports, and a bibliography of publications using data from the NHCS is included in “Appendix III.” Hopefully, this book will serve as a starting point for examining how health care utilization is changing and what data gaps exist in our understanding of the evolving health care delivery system. Introduction 4 Health Care in America: Trends in Utilization Determinants of Health Care Utilization Forces That Affect Health Care Utilization Multiple forces determine how much health care people use, the types of health care they use, and the timing of that care. Chart 2 identifies some, but certainly not all, major forces that affect trends in overall health care utilization over time. Some forces encourage more utilization; others deter it. For example, antibiotics and public health initiatives have dramatically reduced the need for people to receive health care for many infectious diseases, even though overuse can also increase antibioticresistant strains (9). However, other factors, such as increases in the prevalence of chronic disease, may have contributed to increases in overall utilization. Consumer preferences may have altered the amount of treatment obtained outside hospital and nursing home settings. New therapeutic technologies provided in new types of settings, such as corrective eye surgeries, may increase demand. Aging is also associated with increased health care utilization (10–13). Provider practice patterns may shift from emphasizing one type of treatment (e.g., psychotherapy) compared to another (e.g., drug treatment for mental illness). Some factors affect utilization per person (e.g., guidelines that recommend preventive anticholesterol or antidiabetes medications on an ongoing basis or that recommend more preventive services per person). Other factors may have more effect on the total number of people, or percentage of the population, who can receive the service. For example, less invasive cardiac procedures now are performed on very frail or old people or people with many comorbid conditions, when in the past it was considered too risky to perform the previously more invasive procedures on these populations. It has been documented that people who cannot pay for health care services, either out-of-pocket, through private or social health insurance (such as Medicare), through public programs such as Medicaid, or through some other means, may not receive needed services in the United States, and there is a large body of literature on the topic (14–16). Still, factors other than ability to pay also affect access to health care services. One paradigm of health care utilization identifies predisposing, enabling, and need determinants of care (17,18). Predisposing factors include the propensity to seek care, such as whether an individual’s culture accepts the sick role or encourages stoicism, and what types of care are preferred for specific symptoms. Enabling factors include depth and breadth of health insurance coverage, whether one can afford copayments or deductibles, whether services are located so that they can be conveniently reached, and other factors that allow one to receive care. Need for care also affects utilization, but need is not always easily determined without expert input. Many people do not know when they need care and what the optimal time to seek care is, and many conditions are not easily diagnosed or treated. If all people could obtain unlimited health care, perceived need—by both patient and provider—might be the only determinant of health care utilization, but unfortunately barriers to needed care, such as availability or supply of services, ability to pay, or discrimination, have an impact on utilization overall. 6 Health Care in America: Trends in Utilization Determinants of Health Care Utilization Chart 2: Forces that affect overall health care utilization Factors that may decrease health services utilization Decreased supply (e.g., hospital closures, large numbers of physicians retiring) Public health/sanitation advances (e.g., quality standards for food and water distribution) Better understanding of the risk factors of diseases and prevention initiatives (e.g., smoking prevention programs, cholesterollowering drugs) Discovery/implementation of treatments that cure or eliminate diseases Consensus documents or guidelines that recommend decreases in utilization Shifts to other sites of care may cause declines in utilization in the original sites: • as technology allows shifts (e.g., ambulatory surgery) • as alternat
ive sites of care become available (e.g., assisted living) Payer pressures to reduce costs Changes in practice patterns (e.g., encouraging self-care and healthy lifestyles; reduced length of hospital stay) Changes in consumer preferences (e.g., home birthing, more self-care, alternative medicine) Factors that may increase health services utilization Increased supply (e.g., ambulatory surgery centers, assisted living residences) Growing population Growing elderly population • more functional limitations associated with aging • more illness associated with aging • more deaths among the increased number of elderly (which is correlated with high utilization) New procedures and technologies (e.g., hip replacement, stent insertion, MRI) Consensus documents or guidelines that recommend increases in utilization New disease entities (e.g., HIV/AIDS, bioterrorism) New drugs, expanded use of existing drugs Increased health insurance coverage Consumer/employee pressures for more comprehensive insurance coverage Changes in practice patterns (e.g., more aggressive treatment of the elderly) Changes in consumer preferences and demand (e.g., cosmetic surgery, hip and knee replacements, direct marketing of drugs) 7 Health Care in America: Trends in Utilization Determinants of Health Care Utilization Aging of the Population The number of persons 65 years of age and over increased from about 31 million to about 34 million between 1990 and 2000. The percentage of the population aged 65 and over remained fairly constant during this period—about 12.4 percent (chart 3). The number of the oldest old, aged 85 and over, increased from about 3 million to over 4 million in 2000, or from 1.2 percent to 1.5 percent. In short, although the number of elderly increased during this decade, it did not increase at a very rapid rate (19). Baby boomers are still under age 65, but as they age, both the number and percentage of elderly in the United States will begin to accelerate rapidly. However, baby boomers are currently in their forties and fifties and are beginning to experience the onset of chronic conditions such as diabetes and heart disease. Aging is associated with an increase in functional limitation and in the prevalence of chronic conditions. As people age, they tend to use more hospital services and prescription medicines. In 1999, people over the age of 65 years experienced nearly three times as many hospital days per thousand than the general population. This ratio goes up to nearly four times for people over the age of 75 (20). However, the relationship between aging (or any correlate of utilization) and overall health care utilization is not a direct one. Increased longevity can be a result of the postponement of disease onset or a steady rate of functional loss (10–13). The elderly do have a higher rate of many procedures and are prescribed more drugs, but the increase in the use of some drugs may reduce the prevalence of some other conditions and their associated utilization. For example, increased use of glucose-lowering and antihypertensive drugs may reduce complications of diabetes and associated care for some elderly, but it also may be associated with increased utilization of physicians’ services. There is also some evidence that the rate of acute care, in general, decreases with advanced age because of co-morbid conditions or unwillingness to perform invasive or traumatic therapies on the very old (21). The independent effect of aging of the population on health services utilization, therefore, is not immediately apparent.