Reimbursement: These Are the Good Old Days

"Anticipation, anticipation,
Is making me late
It's keeping me waiting . . ."

In case you can't put the tune to the words, or in case you're younger than me, those are the lyrics to the chorus of the old Carly Simon song, Anticipation. As I was reviewing my notes from a recent conversation with MedAssets Chairman, President, and CEO John Bardis, I found myself humming the tune after he told me about the general mood of hospital and health system CEOs at his company's recent Healthcare Business Summit.

Yeah, I'm weird. My wife tells me so all the time. But those lyrics make sense in the context of what's to come from the healthcare reform law.

The reason I was humming the song was not the well-known chorus, but the second verse of the song, almost as well known:

And tomorrow we might not be together
I'm no prophet, and I don't know nature's ways
So I'll try to see into your eyes right now
And stay right here, 'cause these are the good old days
These are the good old days
And stay right here, 'cause these are the good old days
These are the good old days
These are the good old days
These are the good old days
These are the good old days

Though Bardis certainly didn't use those words when we spoke, he said that the most consistently profound point that was raised in his conversations with hospital and health system leaders was the recognition of all the CEOs that current levels of payment might be the highest that they will ever be.

They believe reimbursement is on the way down, as do I. No other answer makes any sense for a sector that is one-sixth of the United States' economy, but for which costs are growing at up to four times the rate of inflation.

That leaves administrators to manage their clinical operating structure to respond to that while continuously focusing on quality clinical care and patient satisfaction. That's a pretty tough challenge, considering hospitals and health systems, if they're lucky, make a 4% margin these days.

MedAssets strives to help hospitals and health systems improve financial strength by implementing spend management and revenue cycle management solutions that help control cost, improve margins and cash flow, increase regulatory compliance, and optimize operational efficiency. Bardis contends that this law will break the "insurance and pharma cartels."

That might sound great if you're a hospital leader, but really, such fractures will bring more challenges to you, not less.

"In the past if you looked at the branded drug cartels and the insurance cartel, indirectly they benefited each other," he says. "As costs went up, those cost increases bounced off the provider and into the private pay pools. That private structure was able to pass those cost increases onto individuals, companies, municipalities and unions."

But that paradigm is passing away, he says. Recent unemployment levels have shown fractures in risk pools in states where elements of economic deterioration have been above the norm, like in California, with a 13.1% unemployment rate, as well as a drastic reduction in municipal and state jobs.

This fracturing of the risk pools explains commercial insurers' attempts to raise rates drastically—up to 30% in a year in some cases—attempted increases for which attorneys general and insurance commissions are not standing.

"This exposes [insurers' and drugmakers'] inflexible commitment to a business model that doesn't answer the questions the market needs today," he says. "The model has been my way or the highway, so it hasn't had the flexibility of the forethought to change meaningfully."

What this tells me is that we're at an inflection point in healthcare payment. The feds hold the line on what they'll pay you, so your only option as a provider has been to raise rates on the commercial sector. As I've mentioned, that's not working anymore. Cross-subsidization, the practice of having the commercially insured pay the freight for government underpayments and the uninsured, is failing miserably, and will continue to do so.

"The capacity to pass costs into the system without resistance is going to be very difficult especially in those states that have high unemployment and lower disposable income," Bardis says.

That means hospitals and health systems are going to have to "lean out" the clinical workflow like never before. Among CEOs who attended MedAssets' conference, Bardis says that "in the longer view, the hospital has to play a much more direct role in the health and wellness of the community beyond the acutely ill."

Leadership will be what sets apart the winners and losers as health reform and other unstoppable business trends take hold. I've heard repeatedly about the "haves and have-nots" in healthcare since I started covering it 10 years ago. I've always tried to figure out why that divide exists. The reasons had been myriad. Bad payer mix. Large uninsured population. Poor insurance negotiation skills. Low market penetration. But sometimes, those good reasons for lack of competitiveness can also become excuses. I've seen that some hospital CEOs, usually not the ones profiled in the pages of HealthLeaders magazine or on this web site, see their role as more of a public service appointment than as leaders who are responsible for making the business actually work. We still have the haves and have nots. Some hospitals are in serious trouble, while others are nowhere near in trouble.

Hospitals have long tried to be all things to all people. It might behoove you to specialize rather than consolidate, for example.

"In a tighter reimbursement environment, CEOs will have to make harder decisions. They'll have to cut service lines that don't make money," says Bardis.

A mantra might be helpful as you try to position your hospital or system for success in the coming years. Just keep humming that fade-out of Anticipation. It's hard to get out of your head.

"These are the good old days . . ."