Healthcare CEOs Expect Flat to Negative Financials in 2014

Here's the dilemma for hospital and health system leaders: Many feel their reimbursements will ratchet down regardless of whether or not they make the big investments needed to transform their business models.

More than half of hospital and health system CEOs who participated in the 2014 HealthLeaders Industry Survey (61%) expect their organizations to record flat to negative financial results in 2014. Though many expressed a better degree of understanding of how healthcare reform efforts from both public and private actors will affect their margins, the reasons why are myriad.

If you've spent heavily investing in labor, capital and IT to help coordinate care and improve quality, you may see similar negative results to those who have largely ignored the call for reform. The picture isn't pretty for the majority of healthcare organizations regardless of their commitment to value-based care. But expect the margin stories to diverge from here.

Our annual industry survey is a massive effort that produces massive insight. We break out a CEO-only report as well, and I'm annually in charge of writing the analysis.

But I wish I'd gone for a stronger lead this time.

The fact that the majority of hospital leaders think that they will have either flat or negative results for the year is compelling. It suggests that they not only will feel the effects of a ratcheting down of reimbursement and a ratcheting up of risk-based payment, but that they increasingly won't have additional dollars to be able to invest in the labor, data analytics, data capture and coordination of care that will be necessary to perform at a level consistent with a positive margin.

Or have they already invested? That's not clear from responses to the question above.

For that reason, let's not read too much into this one data point. Maybe some who will stay flat or report negative results expect to do so because of the investments they have to make to compete under value-based reimbursement, not because of the reimbursement regime itself.

But regardless of the reasons, my take-away from that question, and from recent conversations with CEOs, is that a big portion of them feel that their organizations are under siege. That's reflected in their margin expectations for this year.

Here's the dilemma for leaders: Many feel there's no way around making big investments that may or may not pay off. That is, reimbursement will ratchet down regardless, and whether they make the investments necessary to transform their business model now or later, they'll only be rewarded by losing less money than they otherwise would—maybe.

Uncertainty can be a great reason for standing pat, but make no mistake: The organization will fall further and further behind.

Perhaps some of the angst reflected in the responses to this question is temporary. Many CEOs, after all, have not paid the proper level of attention to making these investments prospectively, as their systems have continued to operate largely under fee-for service payment schemes. In a sense, and paradoxically, a deferment of investments in critical labor and infrastructure needed to compete under a largely value-based reimbursement methodology helped keep from infringing on results to this point. But that bill is now coming due.

The writing has been on the wall for several years now that hospitals and health systems would have to change the way they do business. Deferring might have been nice or even necessary, but others are now way ahead.

Catching up may not be as painful as you think, though you may have a few more years of those expected negative financial returns, and the pain level goes up the longer you put it off. The investment in the future is necessary, if painful.

In any transformation, pioneers get the worst of it though, and there are many sources of help now that didn't exist four years ago. There's a track record from early adopters. Companies are springing up to help hospitals and health systems compete and gather data, lowering the table stakes of playing the volume reimbursement game.

By now, others have made mistakes that you can learn from. The research, from us and from others, is out there. You just have to mobilize your team to get it, and give them permission to devise a way through the transition that puts the least amount of pressure on your bottom line for now, but also into the future.

It's a tough balancing act, but only you, as the leader of the organization, can attempt it. So how do you get going if you've hitherto employed a strategy of delay, delay, delay?

I'll be back next week with some suggestions from someone who's been building ACOs and helping transform volume-based healthcare organization for the past three years. He says there's light at the end of the tunnel, and it's not an oncoming train.