Caremark International is moving to plant the flag of American-style managed care in European and Asian markets. In the process, it hopes to soften pressures that U.S. health reforms are inflicting on its bottom line.
With healthcare industry penny-pinching threatening slower growth in Caremark's domestic revenues, markets in Western Europe and Japan beckon as untapped revenue sources.
Northbrook, Ill.-based Caremark aims to expand its fledgling presence in largely socialized foreign healthcare markets by introducing cost-management strategies mostly unknown outside the United States.
"Cost is now their major issue," said Alan F. Dowling, Cleveland-based partner in Ernst & Young's international consulting practice. "As government budgets in these countries get tighter and tighter, more people are interested in alternatives to the way they've financed healthcare in the past."
Caremark-virtually the only American health services company planting seeds abroad-wants to introduce cost-lowering mail-order pharmacy benefit management, or PBM, and eventually physician practice management to Britain, France, Germany, the Netherlands and Japan.
It also wants to expand its nonhospital drug-infusion therapy and AIDS treatment services overseas.
If all goes as planned, analysts predict the company could boost its foreign revenues to about $250 million by 1999 from $66 million last year. That's a five-year compound annual growth rate of 30%, which compares with a projected companywide rate of 18% for the same period.
But transplanting American healthcare overseas will be a major challenge. Caremark must convince large government bureaucracies that managed care can cut rising healthcare costs. It must convince physicians and other healthcare professionals that the company isn't looking to put them out of business. And it must introduce new management techniques to healthcare administrators unfamiliar with cost containment.
Caremark's foreign business is minuscule, about 3% of 1994 revenues of $2.43 billion. Although the company hopes to get the nod from government officials to set up PBM operations in the Netherlands and Germany as early as next year, full benefits likely won't accrue for another decade.
And yet, Caremark officials say now is the best time to move into overseas health services markets.
"They're where the U.S. was in the early 1980s," said Vice President Michele J. Hooper, who heads the company's international business. "(But) healthcare reform is happening outside of the U.S. They're re-examining their cost structures."
Healthcare expenditures in other developed countries don't approach the trillion-dollar level in the United States. But foreign health ministries are concerned about their countries' heavy reliance on expensive specialized medicine and long hospital stays.
In the five individual countries Caremark targets, healthcare expenditures constitute 6% to 9% of gross domestic product, compared with 14% in the United States.
But in France, estimated 1996 healthcare costs of $145 billion are projected to rise about 28% to $185 billion by 2000. In Britain, estimated 1996 expenditures of $77.5 billion will go up 29% to $100 billion in the same period. And in Japan, 1996 healthcare costs of $330 billion also will increase 29% to $425 billion.
"It's not the absolute dollars that are the problem," Hooper said. "It's (foreign nations') perception of healthcare spending relative to their other (national) goals. From their paradigm, healthcare costs are rising much (more) than they want them to be rising."
The main driver of cost: overemphasis on hospital care. In the United States, the average length of hospitalization nationwide is 4.6 days. But in the Netherlands, that figure is 12.5 days; in Germany, it's 14 days, and in Japan, it's about 20 days.
European ministries already are making attempts to restrain the growth of healthcare budgets. In Germany, a system of reimbursement by diagnosis-related group-which the United States initiated in the early 1980s-is being phased in. In Britain, Hooper noted, there is a concerted effort to reduce the number of hospitals in London and to move care to community clinics.
Caremark believes its approach to home healthcare and managing prescription benefits constitutes an effective substitute for high-cost hospital care.
The latter strategy includes substituting generic drugs for brand-name drugs, tracking physician prescription habits, and establishing lists of preferred low-cost pharmaceuticals.
But "there are social, cultural, political and economic nuances that are going to create problems," said J. Warren Salmon, professor of pharmacy management at the University of Illinois at Chicago. "I don't know if you can just pick something up from one system or another and just transplant it."
For example, he said, health professions overseas are virtual labor unions with great political clout "that will comment strongly about cost controls that will affect their pocketbooks." In addition, he said, only the largest teaching hospitals overseas use computers, a key requirement for managing costs.
Caremark's Hooper said the main obstacle in government-run healthcare systems is that healthcare professionals are "risk-averse" and don't want to change the way they deliver care.
For Caremark, the financial rewards of its overseas ventures won't be fully realized for some time.
"They could well grow 25% to 30% a year in the marketplace," said Kenneth J. Abramowitz, healthcare analyst with New York-based brokerage Sanford C. Bernstein & Co. "But they're starting from such a small base that it cannot have a large influence on the company in the next three to five years."
He adds that overseas healthcare providers aren't eager to accept managed care. But "they're beginning to become intrigued because they're seeing it works here."