During a symposium at TCT 2011 titled “Health Care Reform: A Climate Overview,” presenter James M. Palazzo, president of Paragon Health, spoke broadly to an audience primarily consisting of cardiologists. But he also touched on a number of trends that would affect the entire healthcare supply chain and referenced changes to the medical device industry.  

Palazzo explained that the particulars of healthcare reform are still uncertain. The Supreme Court is likely to hear cases related to the Patient Protection and Affordable Care Act, and it is unknown as to how it will rule; the upcoming presidential election is another variable.

But those involved in the healthcare industry would do well to prepare for the change now rather than wait and see what happens later. "I propose that the victim approach isn’t going to be a winning strategy in the long term,” Palazzo explained. Physicians and the industry can almost certainly expect more competition and lower reimbursement rates, so taking on a victim mentality is counterproductive. Entities that will be the most successful should embrace the philosophy that the "best way to predict the future is to create it," Palazzo said.  The most successful entities will be able to leverage scale, he added. “Whatever their market position is now, they should maximize and develop that.”

He advocated aiming to make money on Medicare reimbursement, even though that can be difficult. “Try to develop technologies that improve affordability,” he said. “Start with the end in mind. Pinpoint solutions that immediately target cost reduction."

Prepare to Cut Costs to Maintain Margins

Healthcare providers must reduce the rate of costs to maintain their margins, Palazzo said. “Revenue is going to decline, but [by] how much?” Because industry can safely assume some degree of increased pricing pressure over the long term, he said, “if we don’t deal with costs, our margins could shrink. They could even go into the red if we don’t control costs,” he added. “Generally speaking, every 1% reduction in rate requires a 5% reduction in variable costs.” Small changes in reimbursement will require a multiple reduction in costs to maintain margins. There should be a focus to steer away from any avoidable costs.