As heavy snowstorms have moved across the country over the past couple of weeks, it's been hard to believe that spring is just around the corner. And if you're like me, on your first strep infection after your fourth cold of the new year, spring certainly sounds nice.
But for healthcare organizations, their winter, in the form of years of expected reimbursement cuts may be just beginning. In the same way, the sequester that is supposed to take effect later today, could be considered a first snowfall in what seems to be shaping up as a long financial winter for healthcare. It calls for a chilling 2% across-the-board cut in Medicare spending.
Many organizations are preparing, however. The industry seems to be laying in supplies to last through the cold climate in the form of a dynamism of deals the sector hasn't seen in years, even decades.
My head spins with the wave of partnerships, mergers, and other affiliations we're seeing in the hospital and health system space—lately there's been a big one about every other day. These used to be huge news, but they're happening so frequently lately that we're have to do a "roundup" of them on our news desk just to keep up.
As 2014 approaches, when most of the major provisions of health reform start to take effect, it seems hospitals are preparing for the coming revenue winter by huddling together. Is that too dramatic a metaphor?
Not for some of the CEOs with whom I've recently spoken.
They forecast a bleak period of low revenue growth, retrenchment, and adjustment as new reimbursement rules are implemented and tweaked. In such a context, consolidation is a defensive measure, not a growth grab, at least at first.
So they huddle against the revenue chill, which is upon us. Several publicly held hospital companies have recently reported earnings that have disappointed Wall Street. Insurers recently sold off as much as 10% citing costs incurred in preparation for new rules. Those rules will govern how much of their earnings they may retain in profit and how much they must pay out in benefits. Other rule changes have to do with Medicare Advantage funding cuts, the prohibition of lifetime maximum benefits and the inability of insurers to reject applicants for pre-existing conditions.
Regardless of what you think about healthcare reform, one of the big results from it will be that without a major redesign, profits won't be as easy to earn in the near future.
If that's the prelude, the forecast for the actual implementation of such widespread change is frosty indeed. And this is all before we begin to determine the full impact of the forced budget cuts (otherwise known as the sequester) from Congress, as well as austerity under another name that is likely in the near future.
So, extending the metaphor, what does spring look like, and when is it likely to come?
We may have to wait a few years to find out, and there won't be a major announcement or a date on the calendar to mark it.
Some of the mergers most certainly won't work. Some will work brilliantly. Undoubtedly we'll see even more interest in data sharing as hospitals, health systems, and health plans must work more closely together to cut waste in healthcare.
This is the type of waste that comes from defensive medicine and suboptimal treatment protocols masquerading as no protocols at all—not from bad laundry contracts or even from obtaining sales concessions from drug and device manufacturers.
Spring will likely come in the form of changing the practice of medicine—a much more difficult leap.
Some health systems and health plans will likely even take the step of combining operations. There's already the attempt by Highmark in Pennsylvania to acquire the troubled West Penn Allegheny health system in order to better compete with UPMC.
And did anyone notice that the nation's largest health plan, WellPoint, with health plans in 14 states, has named a hospital guy, Joe Swedish, from Trinity Health, to lead it as CEO? He starts work there March 25. How long before discussions begin with major health systems about big data partnerships and shared risk/reward agreements, if not acquisition? I have no special inside information, but I'll bet my antibiotics they start before his first cup of coffee gets cold.
Financial pressure to do these types of deals will not relent. The hospitals and systems active in mergers and acquisitions, from the smallest primary care physician practice to multi-hospital systems think they have a solution. There is high risk involved, of course, but at least they have a plan.
What's your strategy?
Philip Betbeze is the senior leadership editor at HealthLeaders.