What Does the Future Hold for Hospitals and Healthcare Providers? 6 Observations & Concerns
From Becker’s Hospital Review, written by Scott Becker, JD, CPA, and Lindsey Dunn | April 08, 2013
Hospitals and health systems today are confronted by a number of challenges that could ultimately impact how they deliver care. From reduced reimbursement to increased government scrutiny and anticipated provider shortages, we anticipate the future forecast for these providers will be a cloudy one. Here are six observations on the current climate surrounding hospitals and health systems.
1. Government debt and the need to reduce spending. No matter how you slice it — and the sequester seems to be the most simple and obvious example of it — there is an increased recognition that the federal government must rein in its spending. Even those on the tax and spend side seem to view it as such. Through Medicare and Medicaid, the government is responsible for around 30-50 percent of the payments healthcare providers receive, and as a result, even small reductions in federal spending could amount to a lot of money coming out of healthcare.
As of April 1 when sequester cuts kicked in, healthcare providers began experiencing an across-the-board 2 percent reduction in Medicare payments, including graduate medical education funding. For this fiscal year, these cuts are estimated to total $9.9 billion.
President Obama and lawmakers are expected to work on a budget when Congress resumes to replace the $1.2 trillion in automatic spending cuts. However, providers should not expect the replacement legislation to be much more favorable to their bottom lines.
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Value-Based Reimbursement, Still 5 Years Away
A new survey of healthcare providers, plans and pharmaceutical companies reveals that these institutions have internally contradictory approaches in managing the changes wrought by healthcare reform, especially as it relates to the shift from fee-for-service to a more value-based system.
For instance, when healthcare providers were asked by KPMG how important it is to at least maintain and potentially increase commercial insurance reimbursement rates compared to Medicare and Medicaid, 50 percent of providers said it was extremely important. Additionally, 80 percent of these large health systems believe they have the market position to do just that. However, they contradicted themselves by saying in an answer to a different question that raising prices on commercial payers is “not a very important factor in developing a sustainable long-run business model,” the survey found.
“The findings really underscore the key question of whether or not any organization can be both committed to nonvolume-based care economics while at the same time working to sustain a volume-driven reimbursement status quo,” said Ed Giniat, national sector leader, KPMG Healthcare & Pharmaceuticals, in a news release. “The institutional schizophrenia that emerges will be challenging to manage at best.”
The survey conducted between January and June polled104 healthcare system executives, 51 health plans executives and 54 pharmaceutical executives. It also found that a large group of respondents — 40 percent, 53 percent and 43 percent of systems, plans and pharmaceuticals, respectively — said that their current business model was somewhat sustainable over the next five years. Between 20 percent and 27 percent of respondents in each group, however, believe that present business models were either not very or not at all sustainable over the next five years.
While many responded that current business models are somewhat sustainable, in an apparent conflict, many providers (65 percent) and plans (41 percent) do expect to see changes in the business models in the next five years. A majority of pharma executives (63 percent) expect only moderate changes. Again, while nearly 50 percent of healthcare providers and plans showed that they wanted a quicker transition into a value-based format, most believe that the change will happen gradually over time, “with less than a quarter of all provider reimbursement fashioned as some type of value-based payment” according to the survey. “Organizations are clearly considering the effectiveness of their fee-for-service business models, but migration to more value-based models will take some time and will include a mix of old and new delivery and payment systems,” said KPMG’s Giniat. “The only way for more rapid integration to occur is for these stakeholders to lead the change and make it happen, but many of these organizations are using techniques more aligned with sustaining existing models.”
Other findings include:
- 55 percent of payers said it was possible to have partnerships with providers and suppliers;
- 47 percent of pharma executives said a move toward accountability is a net plus for the healthcare industry and 70 percent said comparative effectiveness research would help describe the value of products;
- yet, more than 50 percent of pharma execs said CER would be used as a tool to cut prices and 40 percent said reimbursement reform is to blame for a relatively sparse product pipeline.
