The changes happening in the healthcare industry are just getting started. Risk-based reimbursements, HIX, high-deductible health plans, and possible pushback against Medicare and Medicaid will transform healthcare delivery and payment.
When Andrew Croshaw, president of Leavitt Partners Consulting, spoke at the Healthcare Financial Management Association’s recent ANI conference in Las Vegas, he compared the changes currently happening in the healthcare industry to tectonic movements in the earth.
Health reform legislation is creating "tremors" that will bring massive changes to the way hospitals and health systems deliver care and receive payment for services, he says.
Healthcare executives "are taking part in and leading what could be described as the most volatile time in healthcare that we have witnessed," he says.
Croshaw, who also served as a senior executive advisor to former HHS Secretary Michael O. Leavitt and as a project leader for HHS’ Value-Driven Healthcare Initiative, identifies four forces that could lead to major changes for hospitals and health systems:
1. Risk-Based Reimbursement
One of the most significant "emerging landscapes" for its potential impact on provider organizations is population health management and the movement toward risk-based reimbursements, Croshaw says, adding that the model will have to be used on a large scale in order to be truly relevant in the long term.
"One of the ways you can measure this is to measure the number of providers entering into risk-bearing arrangements with payers," he says. "We believe until you get a substantial portion of the covered lives in the market into these arrangements, it is difficult for providers to put their heart and soul into this exercise."
Croshaw says that it remains to be seen whether risk-based arrangements such as bundled payments and shared savings have staying power and, if so, how quickly they will develop.
"In the best case, what you have is a scenario where some participants figure this out and can demonstrate cost savings so that the toe dippers will want to jump in because they can see a plausible demonstration that this can work," he says. "In the worst case, CMS doesn’t increase support, some commercial experiments fail, and they pull back and become more cautious. The movement wouldn’t go away, but it would not accelerate."
While it may be too early to get a good sense of the overall impact that risk contracting may have on the nation’s healthcare providers, Joel Perlman, executive vice president and CFO at Bronx, NY-based Montefiore Health System told me recently that he sees the model, which his organization has embraced for years, as the only path forward for the industry.
"We were an accountable care organization before accountable care organizations were defined. We go back to the mid-’90s in terms of accountable care and a risk-based model of alignment and engagement," he says. “We concluded two decades ago that fee-for-service healthcare was not preferred or sustainable. … We believe you have to have every provider fully engaged and committed to providing the best care possible in the most cost-effective way."
2. Health Insurance Exchanges
HIX will also have a major impact on the healthcare industry as more people gain coverage and begin to access the system, Croshaw says.
"The insurance exchanges are another emerging landscape brought on by these tectonic shifts," he says. "There was a lot of criticism about enrollment, but a lot of catch-up happened in the last period of enrollment, and insurers will tell you that most people are paying their premiums."
The concern for providers is around who is signing up for insurance through the exchanges, Croshaw says, noting that having at least 40% of enrollees be between the ages of 18 and 34 would bode well for hospitals.
"Now the question is about who the people on the exchanges are demographically. There are a few states where the demographics aren’t good, but in many states they look reasonable," he says.
Despite all the speculation about how the exchanges will impact providers, David Ertel, CFO at Philadelphia-based Einstein Health Network, told me recently that it will likely be years before his organization feels the real financial effect.
"We believe it is too early to tell what the exchanges are going to bring," Ertel says. "Assuming the ACA is not repealed—which we wouldn’t expect to happen—we would expect that it will take about three or four years for the effects of the exchanges to really kick in for hospitals and for hospitals to see steady results. We’ve seen no impact yet from the exchanges."
3. High-Deductible Health Plans
The ongoing shift toward high-deductible health plans is inevitable, Croshaw says, and will create issues for providers who will have to collect a higher self-pay portion from patients.
"Consumers are choosing more high-deductible plans, and employers are choosing for consumers more high-deductible plans, making crudely informed consumers who are trying to save money but aren’t literate enough to be effective in knowing what they have for coverage," Croshaw says. “The majority of employers will move to [these plans]. … It’s a step back from the social contract employers have had with employees since World War II.”
Stephen Forney, CFO at Lovelace Health in Albuquerque, NM, believes high-deductible health plans will only make it harder for hospitals to collect the patient portion of medical bills—something he says is already difficult for most organizations.
"What continues to be a big challenge for us and the industry in general is uncompensated care and patient liability and how best to deal with that in terms of the revenue cycle," he says. “There has been movement toward collecting some money at the point of service and managing self-pay patients better … but it doesn’t abate. There are a number of items that have tended to exacerbate rather than help, such as high-deductible health plans shifting cost back to the consumer when the consumer, in many respects, may not have the ability or the willingness to pay."
4. Economic Dispassion
As health reform legislation continues to evolve over the next several years, Croshaw says there will be conflict between the country’s desire to provide healthcare coverage to all citizens and its inability to pay for expensive federal programs.
"Entitlement spending is a major driver of overspending. … Both Medicare and Medicaid have far, far surpassed what they were projected to cost. They are a compassionate extension of benefits to populations … and a continuation of the desire of industrialized countries to provide compassion to citizens in the form of health and wellness," he says. "The point is you have the human compassion that is wanting to extend healthcare services and perhaps the more powerful force saying this can’t continue, especially when deficit spending is around consumption and not investment."
And while he notes that deficit spending has decreased in recent years, Croshaw says there will still be tremendous pressure to reduce spending on Medicare, Medicaid, and other government programs.
"What everybody knows is that something has to change, and it’s not a minor change. Will it be a volcanic eruption or a gradual change? The biggest contributor to that is how much economic dispassion pushes on the healthcare system to reduce per capita spending."