Preview 2001: Bush’s win could be a tonic for HMOs and drug makers

Healthcare was one of the more dynamic and most talked-about segments of business in Orange County in 2000. Expect nothing less in 2001.

The industry is acutely sensitive to goings-on in Washington, D.C., and healthcare executives and analysts were watching to see who would emerge as the next president.

Under what appears will be a George W. Bush administration, observers expect a market-based approach to problems such as broader health insurance coverage and prescription drug coverage for Medicare. Such measures would impact Santa Ana-based insurer PacifiCare Health Systems Inc. and Irvine drug maker Allergan Inc., among others in OC.

A Bush presidency, despite an even split in the Senate and a razor-thin GOP majority in the House, also could mean the emergence of a patients’ bill of rights that de-emphasizes lawsuits as a way to deal with alleged denials or delays of healthcare. That would be welcome news to managed care companies such as PacifiCare.

On the Medicare drug benefit issue, the GOP has shown reluctance to approve legislation that would give precedence to a large, government-run prescription system rather than private drug coverage.

Local healthcare companies might be breathing a little easier now. If Vice President Al Gore would have prevailed in contesting the presidential election, his administration would have been more likely to take an activist role in the HMO controversy and Medicare prescription drug coverage. Gore and other Democrats are more supportive of embedding a sweeping drug benefit within the extant Medicare program, as well as explicit language allowing patients to sue health maintenance organizations.

Rising costs also are expected to affect the healthcare industry in 2001, as employers are set to pay more to provide care for employees. Higher drug prices, improved medical technologies and Wall Street pressure on health insurers to produce better results are among the reasons driving premiums up.

Some employers may see their healthcare premiums go up as much as 25% from their 2000 costs. Benefits consultants, however, say they don’t expect to see businesses drop coverage because labor markets still are too tight.

Hospitals and doctors wanting more money for the services they provide to patients also are impacting healthcare costs. The contractual crackup between PacifiCare and other insurers and Orange-based St. Joseph Health System was an example of how the situation played out in OC. Yet another one is last month’s bankruptcy filing of Anaheim-based KPC Medical Management Inc., which had pressed insurers for higher payments.

Hospitals and other healthcare providers are expected to continue their efforts to restore funding lost after the Balanced Budget Act of 1997 became law. Congress passed a bill that was intended to give back some of that money, but the California Healthcare Association, other trade groups and many hospital executives still believe that more funding is needed.

Earthquake retrofitting is also an issue that hospitals in Orange County and other parts of California will have to contend with in 2001. State legislation, passed after the 1994 Northridge earthquake, requires hospitals built prior to 1973 to conduct a seismic evaluation and submit a compliance schedule to the state by 2008.

The upcoming year could be an eventful one for several large OC healthcare companies.

PacifiCare expects a tough year as it copes with a shift from fixed-payment, or capitated, contracts to ones where it shares the risk with its contracted doctors and hospitals. Additionally, Medicare reimbursement squeezes forced PacifiCare to freeze enrollment in its Secure Horizons Medicare HMO in a good portion of its service area.

Meanwhile, Bergen Brunswig Corp., the Orange-based drug distributor, retooled after absorbing a beating last year on Wall Street. Bergen’s stock price began coming back late this year, and analysts and investors indicated they see better things ahead for the company. Bergen also retained an outside search firm and created an internal committee to find a permanent chief executive.

For Allergan, 2000 finished up strong with prospects for further growth in 2001. Allergan’s stock, which traded around 40 in late 1999, was trading near 90 as of last week. Investors were rewarding the drug maker, among other things, for its strong financial performance under Chief Executive David Pyott and a pipeline of new products.

Allergan’s new product pipeline includes Lumigan, a new drug to treat glaucoma that possibly has fewer side effects than other treatments for the optical condition, and a pending treatment for hyperhydrosis. Hyperhydrosis is a condition that causes its sufferers to sweat excessively.

And Orange County will start the new year with a new publicly traded medical products company. Last week, Orange-based Sybron Dental Specialties Inc. made its public debut in a spinoff from former parent Sybron International Corp., a maker of laboratory products. Sybron Dental makes a range of instruments used by dentists, orthodontists and dental laboratories.

On the medical device side, the U.S. Food and Drug Administration weighed in on the question of whether items intended for single uses like catheters, biopsy forceps and surgical saw blades should be reused. In August, the FDA said it planned to regulate the reuse of such devices just like it does original device makers themselves. That means that hospitals and companies that they contract with to clean, sterilize and repackage devices will have to adhere to the same standards as medical device makers. n