For years now Bureau of Labor Statistics' monthly employment reports have been showing that the healthcare sector is the biggest job creation machine in the U.S. economy.
BLS has estimated that by 2020 the healthcare sector will create 5.6 million new jobs, thanks in large part to the aging Baby Boomer population and the expansion of health insurance under the Patient Protection and Affordable Care Act.
Healthcare is labor-intensive. The American Hospital Association says that labor accounts for nearly 60% of spending for hospital care. With healthcare costs rising at roughly three times the rate of inflation, it's not clear how long the rest of the economy can continue to support this job growth.
It is not completely farcical to say that the nation is on a trajectory that may eventually have everyone working in healthcare and spending all of their money on healthcare, which already gobbles nearly 20% of the gross domestic product.
The talk about "bending the healthcare cost curve" centers around reducing waste and fraud and improving quality. We don't hear much about slowing healthcare job growth even though wages and benefits are the single largest expense in healthcare.
In most sectors of the economy new technology reduces job growth and lowers costs. For better or worse, robots on the assembly line means fewer jobs for humans and labor cost savings. That logic doesn't necessarily apply to healthcare.
The advent of electronic medical records, for example, has led to a huge demand for thousands of technicians who can design, install, and operate these highly complex computer systems. The newest imaging equipment also requires highly skilled operators with clinical and technological expertise.
Technology will probably save money by reducing waste, fraud, misdiagnoses, and abuse. But it will not come cheap, and the savings may not be readily apparent for years.
This steady hiring in healthcare continues even as there is near universal agreement that very soon the healthcare sector will be required to provide more care for less money. Medicare and Medicaid are cutting reimbursements and increasingly linking the value of payments to quality outcomes. Commercial plans are following the government's leads and are taking a hard line against cost shifting.
There are signs that the healthcare job growth may already be slowing.
Relatively speaking, it's been a slow summer. BLS notes that from June through August, job growth in healthcare averaged 15,000 per month, compared with an average monthly gain of 28,000 in the prior 12 months. Every day in the media we see local stories across the nation about hospital layoffs brought on by financial strains or consolidations.
However painful, these are anecdotal and generally isolated events.
Even with the slow summer, on a macro level in the first eight months of 2012 healthcare created 72,000 more jobs than it did for the same period in 2011. So, it's hard to say if this is the start of a slump in healthcare job growth or merely a blip.
Generally speaking it's not a good idea to hold much stock in one, two, or even three months of job data when making longer term predictions. After all, BLS considers its two most recent months of job data to be "preliminary" and subject to considerable revision.
In August, healthcare created 16,700 new jobs, 17.3% of the 96,000 new jobs in the overall economy for the month. So far this year healthcare has created 197,300 jobs, nearly 18% of the 1.1 million jobs created by the overall economy. Since January 2008 healthcare has created 1.2 million jobs in an economy that has otherwise seen a net loss of 4.7 million jobs over the same period.
A further breakdown of BLS data for August shows that ambulatory services, which include physicians' offices, grew 14,200 jobs, while hospitals grew 5,700 jobs. The volatile nursing homes subsector with its larger cohort of semi-skilled workers actually shed 3,200 jobs for the month, which happens occasionally.
More than 14.3 million people worked in the healthcare sector in August, with more than 4.8 million of those jobs at hospitals and more than 6.3 million jobs in ambulatory services, which includes more than 2.4 million jobs in physicians' offices.
In the larger economy, BLS reported that the 96,000 jobs created in August were led by 28,000 new jobs in food services, and 27,000 new jobs in professional and technical services. The unemployment rate dropped slightly in August to 8.1%, but economists said it was mostly because "discouraged workers" have stopped looking.
BLS says 12.5 million people were unemployed in August, which was essentially unchanged throughout 2012. The number of long-term unemployed, defined as those who have been jobless for 27 weeks or longer, remained at 5 million people in July, representing 40% of the unemployed. So far this year job growth has averaged 139,000 per month compared with an average monthly gain of 153,000 in 2011.
If we are seeing the start of a slowing job growth trend in healthcare, it may be mirroring the slowing job growth in the overall economy.
Nonprofit healthcare organizations are gradually shifting traditional investment strategies away from bonds and other fixed income securities toward more highly diverse portfolios that could make them less vulnerable to market swings, multiyear analyses from Commonfund show.
William F. Jarvis, managing director and health of research with the Wilton, CT-based financial advisors, says nonprofit healthcare organizations are taking cues from colleges and universities that have seen generally strong investment returns over the last 20 years using a more diversified "endowment model."
"Healthcare organizations have historically had portfolios that were much more heavily allocated to bonds and fixed income securities than other types of nonprofits, certainly much more allocated to bonds than the typical college or university would have," Jarvis told HealthLeaders Media.
That strategy appears to be changing.
In FY2009, for example, bonds and other fixed income investments averaged 41% of the portfolios of the 86 nonprofit healthcare organizations tracked by the Commonfund Benchmarks Study of Healthcare Organizations. That allocation dropped to 36% in FY2011.
"So we are beginning to see these shifts," Jarvis says. "They don't all occur at once, but it looks as if healthcare organizations are reconsidering whether this endowment model works for them."
Endowment models have been around since at least the early 1990s and Jarvis says they generally have a "higher tolerance for less-liquid assets like real estate, hedge funds, private equity, and venture capital." Higher education institutions, for example allocate about 10% of their investments to bonds.
"Colleges and universities were the leaders in diversifying portfolios into different asset classes that would provide uncorrelated sources of return that don't go up and down together at the same time," Jarvis says.
The endowment model eventually caught on with charitable foundations, then operating charities such as museums and symphonies, and now it is piquing interest with nonprofit healthcare organizations.
Jarvis says that nonprofit healthcare organizations' historical attachment to fixed income investments stems from a reliance on bonds to fund capital projects. "So the rating organizations like to see a large chunk of bonds and cash to maintain the bond rating," he says. "It has been something of a drag on returns and hasn't really protected them in the downturn."
In FY2008, for example, Commonfund reported investment losses averaging 21.2% for the nonprofit healthcare organizations that it tracks. . So that the big shift that we saw this year was healthcare organizations beginning to maybe take a closer look at adopting more closely this endowment model," he says.
With the shift away from fixed-income securities, investments in private capital and real estate have grown from 15% of the average healthcare portfolio in FY2009 to 21% in FY2011, Commonfund analyses show.
"Normally you don't see moves that big," Jarvis says. "That was funded by taking domestic equities down from 24% to 20% of the overall pool. So that is part of the big news here. Historically we have not seen these kinds of big moves in healthcare organization portfolios. Now we are beginning to see more strategic moves. They don't all occur at once but it looks as if healthcare organizations are reconsidering whether this endowment model works for them."
A Commonfund review of FY2011 also found that:
After two years of double-digit gains, the 86 nonprofit healthcare organizations it tracks reported investment returns of zero in FY2011. The flat returns followed net gains of 10.9% in FY2010 and 18.8% in FY2009.
From FY2009-2011 the average annual net return on investable assets was 9.6%, while for the trailing five years annual net returns averaged 1.8 percent – thanks to the -21.2% loss recorded in FY2008 in the midst of the recession.
A further breakdown for FY2011 shows that net returns on nonprofit healthcare organizations' defined benefit plan assets averaged 1.3% compared with FY2010 net averaged return of 12.3%. Three-year defined benefits plan returns averaged 11% and five-year returns averaged 2.2%.
By asset class fixed income provided the highest return in FY2011 with an average of 5.4%, followed by a 3.9% return for alternative strategies, 0.2% for short-term securities/cash, -0.2% for domestic equities and -10.9% for international equities.
Within alternative strategies the highest returns came from private equity real estate at 14.1%; venture capital at 11.1%; and private equity at 10.7%. Marketable alternatives, which include hedge funds, were the largest single alternative allocation for many healthcare organizations and lost -1.8%.
For FY2011, investment returns were correlated to size; the larger the organization, the better the return. Organizations with investable assets over $1 billion realized an average return of 0.6% while the smaller organizations at the opposite end of the size spectrum lagged with a return of -1.9%.
It's getting to the point where hospital mergers and acquisitions aren't really news anymore beyond the healthcare trade publications and the local service areas that are affected by the deals.
According to Irving Levin Associates Inc. there has been a fairly steady increase in the number of hospital mergers and acquisitions over the past several years: up from 38 M&A deals involving 56 hospitals in 2003 to 90 involving 156 hospitals in 2011. That's almost two deals a week.
We've seen this cycle before. Hospital M&A accelerated in the late 1990s along with the advent of managed care. Levin notes that M&A fever peaked in 1998 with 139 deals involving 287 hospitals and steadily declined until 2003.
While it is entirely possibly that we could be at the top of an M&A cycle once more, this time it feels different. We are seeing the broad consolidation of the hospital industry in all parts of the nation and it's difficult to see any market forces out there that will reverse this trend.
Lower payment rates from all payers will invite consolidation as hospitals look to reduce costs and improve economies of scale and market leverage with payers and vendors.
Physician-employees, technology, and regulatory compliance are driving up the cost of doing business.
Accountable care organizations reward integrated healthcare delivery that improves quality at reduced cost.
In the face of these headwinds, scores of otherwise stable and well-managed not-for-profit hospitals have joined with larger health systems in any number of partnership models. The strategy for many of them is to negotiate now from a position of strength rather than waiting for market pressures to force a move.
Last week, for example, Marquette General Health System in Michigan's Upper Peninsula finalized a $483 million deal that will make it the fourth hospital, and the first in Michigan, for investor-owned Duke LifePoint Healthcare, which itself was created two years ago in anticipation of the consolidation trend.
Marquette General CEO/President Gary Muller told me that the Duke LifePoint was one of 16 entities that showed an interest in acquiring the 315-bed specialty care hospital.
"The 16 proposals are pretty unusual because we were in a strong position," Muller said.
"Financially bottom line operating income was building up. All of our quality marks were good," he explained. "We didn't need to do anything but our board was looking ahead and saw that storm clouds are coming in healthcare and they acted preemptively. The analogy is selling your house when the roof is fine and the foundation is good and everything is painted and that is the way Marquette is."
Muller told me that Duke LifePoint was not the highest bidder, but that the Marquette General board picked it because of its mix of business and clinical expertise. Duke LifePoint will invest $300 million in capital improvement projects that will include an outpatient surgery center, cancer center, private patient rooms, new technology and new IT infrastructure. Duke LifePoint will also invest $50 million for physician recruiting over the next 10 years.
In addition, the deal allows Marquette General to retire about $100 million in long-term debts and unfunded pension liabilities, and provides another $23 million for the hospital foundation.
For Duke LifePoint the toehold in northern Michigan provides an opportunity to compete with blue chip providers that include Cleveland Clinic, Mayo Clinic, University of Michigan Health System, and Henry Ford Health System. Muller says Duke LifePoint also sees an opportunity to expand its orthopedic sports medicine program in Marquette, which is the home of a U.S. Olympic Education Center.
The biggest knock on hospital M&As is the loss of local autonomy. Hospitals are often the biggest employers and economic engines in the regions they serve and a source of local pride. No matter what guarantees are put in place the boards at most acquired hospitals are usually reduced to advisory status and their control is greatly diminished.
Muller says the Marquette board will still have a role in strategic planning and credentialing. It is satisfied that any concerns it has will be heard by the new owners. "The board is an advisory board now but it is 12 members and they are all local except for one from Duke and we wanted that," he says. "They don't feel like the community governing role is something they need to hold on to the detriment of the hospital."
And that's just it.
Marquette General and scores of other hospitals across the nation have seen which way the winds are blowing. Increasingly they are willing to forfeit a certain amount of autonomy in exchange for access to the capital and clinical and business expertise that will improve their position in a highly competitive market.
This all makes perfect sense in the nearly $3 trillion healthcare economy that is otherwise huge, bafflingly complex, and in the midst of historic change. There is no reason to think that this trend toward consolidation will reverse itself anytime soon.
Many not-for-profit hospitals have done a good job stabilizing margins after the Great Recession but still face continued challenges with flat inpatient volumes, healthcare reform mandates, and lower reimbursements linked to government budget pressures, a new report from Moody's Investors Service says.
The bond rating agency's report, U.S. Not-for-Profit Hospital Medians Show Operating Stability Despite Flat Inpatient Volumes and Shift to Government Payers, shows that balance sheet measures improved and cash and investments portfolios remained highly liquid. However, weak investment returns over the past year have stagnated balance sheets for most hospitals.
Overall, the financial outlook appears to be improving for not-for-profit hospitals, as executives look for new ways to cut expenses in the face of weaker revenue growth and further changes to federal healthcare policy and regulations over the next few years.
"There will be pressures going forward, but management teams have done a good job so far of responding to the recession and the changes in the healthcare market," Moody's analyst and report author Sarah Vennekotter tells HealthLeaders Media.
Even with flat inpatient admissions in FY2011, not-for-profit hospitals recorded a median expense growth rate of 5% against a median revenue growth rate of 5.3%. That represents a slight uptick from FY2010, which saw revenue and expense growth rates of 4.2% and 4.1%, respectively.
Vennekotter anticipates continuing challenges in FY2013, including lower payments for inpatient procedures from all payers as incentives and mandates for efficiency and quality move more patients to outpatient settings. For example, the median growth rate in observation stays has continued to improve incrementally each year, from 7.4% in FY2008 to 8.2% in FY2011.
"Growth in observation stays has been strong in the last couple of years," Vennekotter says. "That's because Medicare [Recovery Audit Contractor] audits have come in and hospitals have been forced to reevaluate how they document and code patient care when, for example, they come to the ER. We will continue to see that as Medicare continues to monitor hospitals to ensure that they are properly coding inpatient admissions and observation stays."
Other financial pressures in FY 2013 will include the ongoing federal budget woes, which will probably mean more Medicare and Medicaid reductions for hospitals on a per-patient basis. In addition, margins are likely to weaken as hospitals contend with losses on employed physician strategies.
While managers initially looked to salary and benefits cuts to reduce expenses, Vennekotter says they may soon have to go elsewhere. "You can't keep cutting expenses year over year when it comes to employee salaries and benefits," she says. "In terms of expense reductions beyond the low-hanging fruit of salaries and benefits, hospitals will look to transition to providing healthcare in lower-cost settings and being more efficient, which will be much more difficult to implement than reducing salaries and benefits. It's going to be more difficult for management teams to find places to cut expenses, but not impossible."
Lisa Martin, Moody's senior vice president for the Public Finance Group, says finding new ways to reduce costs will become increasingly difficult for hospital managers.
"That is because what we are talking about is reducing expenses by redesigning entire processes," Martin says. "So it is not just a question of reducing headcount. It's a question of reducing things like length of stay and improving back office support functions to reduce the amount of time between admission and discharge, which involves changing an entire process. That is a much more difficult strategy than just cutting the low-hanging fruit."
The Moody's report also found that:
Median growth rate of inpatient admissions remained flat in FY2011 at 0.1% growth, following a 0.4% decline in FY2010 and zero growth in FY2009.
Growth in governmental payers continues as Medicaid now represents 13% of gross revenues, up from 12.4% in FY2010. Medicare grew to 43.7%, up from 43.4%. Median revenue from managed care, Blue Cross / Blue Shield, and other commercial payers declined for the third consecutive year.
Although the median debt load at not-for-profit hospitals increased to $191.9 million in FY2011, up from $189.3 million in FY2010, the median rate of change for debt outstanding was a decline of 1.6%.
Median days cash on hand was 165 days, up from 159.8 days in FY2010, and nearly approaching the FY2007 median of 172.8 days seen prior to the economic downturn and severe market losses.
Martin cautioned that the approximately 800not-for-profit hospitals reviewed by Moody's for bond rating purposes are only a fraction of the estimated 5,000 not-for-profit hospitals in the United States, and thus may not accurately reflect the overall health of the sector. "There are many out there that are struggling, and many of them we do not have readings on," she says. "There is a wide variation in operating performance within the portfolio we do maintain. While the median is up a little on some measures, there is a big disparity between those that tend to be the larger health systems in multiple regions or markets compared with some of the smaller standalone hospitals that are struggling now, and that is even before some of the negative effects of federal budget cuts and other Medicare pressures."
For obvious reasons many of us at HealthLeaders Media avoid writing about the politics of healthcare reform.
For one thing, there exist already hundreds of media outlets dedicated to the highly divisive topic, which often attracts commentary from the tinfoil hat brigades. More importantly, however, the politics of healthcare reform are ultimately beside the point.
People in the healthcare sector and the occasionally candid politician understand that healthcare reform is driven foremost by money and not politics or ideology. That is why the issue will still be with us regardless of which party occupies the White House or runs Congress next year.
There are legitimate disagreements on how to pay for healthcare, how to "bend the cost curve" and the extent to which the government should be involved. However, it is generally accepted that the current pace of healthcare spending, which will soon represent 20% of the nation's gross domestic product, is unsustainable.
With that in mind, it was interesting to read a Washington Post article this week detailing the efforts of some Texas counties to do an end-run around Gov. Rick Perry's adamant opposition to the Medicaid expansion in the Patient Protection and Affordable Care Act. It provides a wonderful example of rhetoric crashing against reality.
The governor's rejection of Medicaid funding imperils billions of dollars for the state's healthcare infrastructure at a time of severe budget constraints for the state and local governments. By some estimates Texas would draw down $164 billion from the federal government over the first 10 years of the expansion, at a cost of $27 billion in state dollars.
Perry, an unsuccessful presidential contender, is one of at least six governors who have vowed to reject Medicaid expansion money. They are playing politics with an economic reality that goes beyond party affiliation and ideology.
In a July 9 letter to Health and Human Services Secretary Kathleen Sebelius, Perry said he stood "proudly with the growing chorus of governors who reject the PPACA power grab. Thank God and our nation's founders that we have the right to do so."
"Through its proposed expansion of Medicaid, the PPACA would simply enlarge a broken system that is already financially unsustainable," Perry told Sebelius. "Medicaid is a system of inflexible mandates, one-size fits-all requirements, and wasteful, bureaucratic inefficiencies. Expanding it as the PPACA provides would only exacerbate the failure of the current system, and would threaten even Texas with financial ruin."
Census Bureau SAHIE Map Tool
The lambasting of the Medicaid expansion comes from the governor of a state that already operates one of the nation's most restrictive Medicaid programs. As a result, the U.S. Census Bureau reports that 26.3% of Texas residents were uninsured in 2009, the highest rate in the nation.
Instead of expanding Medicaid, Perry and other governors have called for block grants of federal money so that states can decide for themselves the best way to provide coverage for the uninsured.
With the state government opposed to expanding the Medicaid rolls, the burden of providing for the uninsured in Texas, as in many states, falls upon counties and municipalities. Those local officials who are already facing tight budgets are understandably not so eager to reject the federal government's offer to pay for 100% of the Medicaid expansion in the first three years and for 90% of the expansion beyond 2020.
In addition, hospital executives, who often carry political clout in the state legislature as the largest employers in their districts, have already started to push back against Perry's pronouncement.
Texas Hospital Association Executive Director Dan Stultz said in prepared remarks that the state's hospitals "recognize there are concerns with expanding the Medicaid population, but given the state's high number of uninsured, all options for gaining insurance coverage must be closely considered. Without the Medicaid expansion, many will remain uninsured, shifting costs to the insured and increasing uncompensated care to health-care providers."
Most tellingly, on the same day that Gov. Perry issued his broadside to Secretary Sebelius, WellPoint Inc. announced that it was spending $4.9 billion to acquire Amerigroup Inc. which describes itself as "dedicated to the Medicaid, SCHIP, SSI and Medicare programs in the State of Texas" and in 12 other states.
"The acquisition of Amerigroup expands our scale and further diversifies our business mix by deepening our investment in the high growth Medicaid marketplace. It also increases our flexibility to serve customers across the economic spectrum," Wayne S. DeVeydt, executive vice president/CFO of WellPoint said at the time. "We believe the acquisition is not only strategically important, significantly enhancing our future revenue and EPS growth opportunities, but will also provide an attractive return for our shareholders."
Clearly WellPoint is anticipating an expanded Medicaid population.
Once again, the point here is not to disregard legitimate concerns and arguments about the scope and role of government in healthcare.
It is instead to make the point that responsible leaders can do so without firing election-year broadsides against programs that affect the fiscal health of their cities and counties, and the physical health of millions of their most vulnerable constituents.
How will this play out? I suspect that after the Nov. 6 election, there is a good chance that many of fiercest critics of the Medicaid expansion in Texas and other states will quietly drop their objections. After all, this isn't about politics. It's about money.
Healthcare executives responding to a survey say the nation will see major changes in the way healthcare is delivered and paid for in the next five years as providers and payers struggle to do more with less.
Most of those executives, however, also believe that the fee-for-service-based business models they're using now will be at least "somewhat sustainable" or fare even better in the face of new challenges brought on by healthcare reform.
KPMG LLP consultants surveyed more than 200 senior leaders in healthcare and found that 73% of health systems executives, 81% of health plan executives, and 79% of drug makers said their business models were somewhat sustainable or better over the next five years.
Brad Benton, national account and advisory leader for KPMG Healthcare, says that despite the acknowledgement that huge changes are underway, a significant number of executives may be falling back on old reliable models in the face of uncertainty.
"There are some very contradictory observations in this survey that go to the idea that it is really complex and these executives are at some level uncertain about what this is going to look like," Benton told HealthLeaders Media. "We have a hardwired healthcare system that is for all intents and purposes driven by fee-for-service and the transition to these value-based models is complex, it's threatening and it's really hard work."
For example, the survey shows that 82% of health system executives understand that they will have to reduce costs anywhere from 14% to 32% over the next five years if they hope to break even on reduced Medicare reimbursements.
"The 'do better with less' mantra seems to be coming more into focus. It is that path to effective execution that gets us there," Benton says. "Clearly this is going to be about how we practice medicine and do it in a way that recognizes that there are not unlimited resources."
However, many of those health system executives also say in the survey that can leverage their market position to maintain or increase payments from commercial plans. Benton says health plan executives say that's a non-starter.
"Effectively, what the health systems are saying is 'we know to retain our traditional profitability we have to maintain or increase commercial reimbursement rates.' Four out of five say 'we have the market power to do that,'" he says. "How can you map out that against the results from the health plan perspective and what the employers are saying in the marketplace? You cannot connect the dots."
"Looking in the mirror is very difficult because the real work is around clinical integration, driving value out of technology, and thinking about sites of service," Benton says.
Even with suspect business models in place, KPMG found that 47% of health system executives and 49% health plan executives said they would prefer to see a rapid implementation of value-based payment models over the next five years. In roughly the same percentages, however, those executives believe that the process will be more incremental.
"They desire rapid integration even though they may not be sustained after five years in terms of the dollars," Benton says. "Because of what we think is the lack of sustainability in the U.S. economy in terms of overall spending we still think the drivers are in place to move us more quickly to something that is more economically sustainable and that will be some kind of value based purchasing."
Benton says heath systems executives would be well advised to generate a number of financial and budget models within the traditional planning and budget cycle.
"It's not really sexy, but one thing we strongly believe is that the depth and level of financial modeling and how you use spreadsheets to make sure the planning you are doing contemplates the future we are talking about and this transition to value-based payments," he says.
"I think of it as war-gaming and scenario planning. What we're really talking about is understanding your revenue at a level that a largely fee-for-service world has not had to contemplate. It's not just inpatient, outpatient and payer."
Successful modeling will drill down into operations to speculate on how they might be affected by the shift away from fee-for-service. "It's segmentation," Benton says.
"It's getting into a much more complex level on the demographic and understanding what do the levers and switches look like as you begin to think about owning value-based payment; having the data points and understanding the range of scenarios and understanding your market, where the large employers are, who is coming into the marketplace, what are the innovative projects that could emerge?"
Benton concedes that the modeling could be hobbled by considerable unknowns and guesswork on new markets and new players in the region and hybrid business models that meld payers and providers. However, he says uncertainty shouldn't be used as an excuse to do nothing.
"With modeling at least you have a basis for discussion across all stakeholders, whether it's clinical staff or governance at the board level," he says.
"All of these folks are all deeply invested from a mission perspective in one fashion or another and they have to have the information to be able to think about these issues in an intellectually honest fashion."
We are not yet at the point where factors and prompts that consumers weigh for healthcare purchases are driven by the same incentives as buying furniture or a new set of tires.
At the same time, providers and payers would be unwise to think that basic consumer values that include price, quality, selection, convenience and service don't apply to healthcare.
The rise of the high-deductible health insurance plan and other economic forces are increasingly turning patients into healthcare consumers. Common sense says that more "skin in the game" will reduce utilization as healthcare consumers will rethink elective care or shop around for the best deal.
When they opt for a course of treatment they will be more demanding and less forgiving of bad service when they're paying more of the cost. That's the way it is with all other goods and services and healthcare, after all, is close to consuming 20% of the Gross Domestic Product.
A report released this summer by the Health Research Institute of PwC US provides some insights into the mind of the healthcare consumer. Based on a survey of 6,000 people, the report found that consumer expectations in healthcare follow other industries. For example:
Provider staff attitude was the main contributor to positive experiences by 70% of consumers, compared to 38% of retail shoppers and 33% of bank, and airline customers.
Price was the top driver of purchasing decisions for consumers in every industry except healthcare. Personal experience is the top reason for choosing a doctor or hospital, and it's more than 2.5 times more important than to consumers in other industries.
When asked about the conveniences and services they value from providers, 69% said they want facilities that offer multiple services in one location; 65% want to exchange information through online and mobile channels; 57% place a high value on patient education during a visit; and 53% value the cafeteria and access to Wi-Fi and other entertainment.
Choice of physicians and quick claims payment topped consumers' demands from insurers.
Only 44% of insurance consumers and 54% of provider consumers tell anyone within a month of having a positive experience compared to 70% of retail and 66% of banking customers.
Six of 10 negative consumer experiences are more likely to be remembered for longer in the provider industry compared to other industries.
PwC principal Paul D'Alessandro says the survey shows that healthcare consumers are becoming more aware of their care options and more willing to exercise their choices. In short, they are acting more like consumers and less like patients.
"We have seen across many different industries a cohort of customers that often vote with their feet given the right experience, let's say it is on the order of 25%-33%. If you don't give them the right thing they will move to the next solution provider. Traditionally we have found the healthcare industry to be much stickier—less than 20%—because ‘I have a doctor who knows me and my history, yada yada yada,'" D'Alessandro tells HealthLeaders Media.
"What we are seeing is an increase of up to 36%-38% of respondents who are willing to switch providers given the right opportunity. The only industry that differs like that is the hotel industry where people switch on the order of 60% given the right hotel opportunities."
Economic forces, the Internet and social media are causing that traditional bond between providers and patients to come unglued. Rather than gnashing teeth about the rise of the healthcare consumer, D'Alessandro says smart providers are preparing for new opportunities.
"There are providers that have taken steps to be more empathetic, to understand my needs, understand that it goes way beyond the interaction with the clinician and understand it goes all the way back to the check in," he says.
Focusing on consumer values can be a time- and money-saving opportunity for providers.
"When I am in the hospital it is things like how many times to they clean my room every day or how many times do they come in and bother me. Oftentimes we show that is more important than the amount of time the doctor spends with me," D'Alessandro says.
"Providers are focusing on the wrong things now and amazingly there are opportunities to focus on things that are less expensive but more meaningful." Consumer interaction with clinical staff, for example, should stress quality over quantity.
"There are specific clinical environments that are pursuing things like more interaction with the clinician – how can we increase the frequency of the floor nurse visit to the room or the doctor coming in the morning and evening? We find that is not what the consumer is looking for," D'Alessandro says.
"They want one interaction that is meaningful with two-way conversations and then for the rest of the day it is more like a hotel room. Have the maids visit once a day and do a nice job. Have the trays taken away at a consistent time. Meet my dietary needs and don't frustrate me with crazy stuff that was meant for another patient."
D'Alessandro concedes that much of this is commonsensical.
"What is the big surprise? The big surprise is people aren't doing anything about it yet," he says. Providers and payers could take a lesson from the travel, leisure, and hotel/hospitality industries which D'Alessandro says went through a similar churn 10 years ago.
"There were some who realized that information transparency and all the things that came along with customer expectations were going to have a commoditizing effect on them. What did they do? They tried to cost-cut their way to that environment," he says. "There were others who made investments in the last 10 years on experience. They realized that every touch point with their product or service was one that defined them and allowed them to get a higher price point and enjoy greater retention."
None of this rise in healthcare consumerism should be a source of trepidation if providers understand the motivation and values behind it. For the most part those motivations are based on common sense which means they can be easily understood and implemented by staff.
"The reality is the providers who move quickly and focus on experiential drivers will not suffer what we expect to be a much greater of churn in the healthcare industry," D'Alessandro says. "Those who don't move quickly will end up facing a consumer who will vote with their feet."
Consumer safety advocate group Public Citizen has a difference of opinion with the Texas Medical Board.
Public Citizen says its review of data from two decades shows that physician oversight in Texas is weak. The spokeswoman for the board disagrees and says comparative data with other states suggest the board is among the strongest in the nation.
TMB letter
to Gov. Rick Perry
In a letter and report sent Wednesday to Texas Gov. Rick Perry, Public Citizen urged him "initiate immediate action to improve the performance of the Texas Medical Board … and thereby protect patients in Texas from physicians who should have been, but were not, disciplined."
Public Citizen said it analyzed 21 years of data from the National Practitioner Data Bank and found that 459 physicians in Texas who were sanctioned by hospitals, HMOs and other healthcare facilities, for posing a serious risk to patient health, and in some cases for multiple infractions, have yet to be disciplined by the state medical board.
"These violations are not minor," Sidney Wolfe, MD, director of Public Citizen's Health Research Group, said in a media release accompanying the report. "In our investigation we've identified physicians who have committed gross breaches of medical and ethical standards, yet they have not been sanctioned by the state medical board, the institution whose primary duty is to make sure practitioners taking care of Texas patients are qualified to do so."
In his letter to Perry, Wolfe blamed the board's problems mostly on underfunding and understaffing.
"Currently, the Medical Board brings in about $60 million from licensing and renewal fees over a two-year budget period. Because of a state legislature policy decision, the Medical Board gets to keep only one-third, $20 million, of the licensing and renewal fees over the two-year period, while two thirds, or $40 million, is turned over to the state general revenue fund," Wolfe said in the letter.
From 2006 to 2011, Wolfe said that there has been a 57% increase in the number of complaints to the board. "But during this interval, the board's budget, adjusted for inflation, increased only 12%, and the number of staff increased by only 16%," the letter said.
Texas Medical Board spokeswoman Leigh Hopper disputed Public Citizen's findings.
"Public Citizen's findings do not track with any of our current concerns. We are not understaffed. We are not underfunded," Hopper told HealthLeaders Media. "The talk about funds being diverted into the General Fund is how it always works. I don't know how other state agencies operate but at least in Texas this is how it is done with the Medical Board. Our funds and fees that we bring in through licensing go into the General Fund and we write an appropriation request to get back what we need to run the agency."
"Like anybody, of course we would always like more money. But we haven't been dealing with a budget crisis so the agency is healthy and it's effective," she says. "Does that mean there is room for improvement? There is always room for improvement. There are always public hearings that we would welcome Public Citizen to participate in."
Hopper says the 459 physicians cited by Public Citizen "is not a figure that we are tracking."
"We get roughly 7,000 complaints a year and we are complaint-driven, which mean we don't launch investigations in the absence of a complaint to our agency," she says. "When hospitals take an action against one of their own physicians they are supposed to report that to us and we will decide whether or not we are going to pursue it. The same is somewhat true with medical malpractice cases. We get that information as well but it doesn't automatically translate into a Texas Medical Board case."
Rather than being a laggard, Hopper says that Texas Medical Board is "considered a leader" among state medical boards with "processes (that) are emulated by others." She says the Federation of State Medical Boards data puts Texas at the top of the list when it comes to doling out discipline.
"I hate to say we are No. 1 because it makes it sound like we are competing which we are not," she says. "But when you look at the number of disciplinary actions in the physician population we've taken the last couple of years Texas has taken more action per physician than other states."
Public Citizen urged Perry to:
Allow the medical board to keep all—not just one-third—of the revenue it generates so it can hire more staff and complete more investigations in a timely manner.
Appoint an independent medical board enforcement monitor to evaluate the disciplinary system and the board's enforcement procedures, as well as play an active role in maintaining integrity of these processes into the future.
Institute random practice audits of physicians, as recommended by the Health and Human Services' Office of the Inspector General, to identify practice deficiencies.
HealthLeaders Media's calls to Perry's office seeking a response were not returned on Wednesday.
Can transparency improve a hospital's quality of care?
Johnson City, TN-based Mountain States Health Alliance has been awarded the 2012 National Quality Healthcare Award by the National Quality Forum. A critical component of that success is transparency contends a quality leader.
Tamera Parsons, MSHA's vice president of quality and patient safety, says the award is an acknowledgement of the years of hard work that the not-for-profit health system has invested to improve quality and enhance patient-centered care for the patients it serves at 13 hospitals in 29 counties in the mountains of Northeast Tennessee and Southwest Virginia.
"When we first designed our patient-centered care culture we identified 10 guiding principles and we use those principals to guide behavior and form the foundation for all the processes we put in place," Parsons tells HealthLeaders Media. "Number 8 on the list, and not in order of importance, is 'Transparency is the rule in the care of the patient.'"
It starts at the bedside.
"We solidify that transparency by being open and honest with all the information patients need to make the right choices for their healthcare," Parsons says.
"That includes involving them in the discussion, having report out and exchange among caregivers at the bedside so the patient is involved and can participate in that exchange of information. Whoever they designate as their very important person in their care is involved as well in the information exchange."
From the bedside, MSHA's transparency efforts expand to engage employees and improve outcomes.
"We take the transparency to a different level within the organization by giving everyone at Mountain States access to our results at the system and facilities and service line levels," Parsons says.
"Results are posted on our Intranet and anyone can see those results for any facilities in the system. We also post them on walls and bulletin boards and they are very visible."
MSHA also shares outcomes data "outside the walls of the organizations so we can compare results and practices so we can all improve together and we take it to an Internet level by placing our results on our Web site," Parsons says. "We were one of the first organizations in the country to do that in 2007."
Rather than throwing out reams of data that might otherwise confuse and frustrate healthcare consumers and their families, Parsons says MSHA uses simple graphics to illuminate findings, puts data in comparative context nationally, by state, and by region, and explains what the data means in plain English.
"Our goal is to be transparent, but there is so [much] conflicting information on Web sites on healthcare, and scores and results and some of it is competitively driven, [that] it can't help but make it difficult for people in our region to understand where they need to go for information," she says.
"So our main motivation was to be transparent to our patients in a way that is easily understood. We gave it the 'mom test.' We figured if our moms could understand it and they aren't healthcare executives, it's at the right level for folks to get the information they need without having to work too hard."
MSHA's success is more evidence of the good things that happen to healthcare providers who share their data—both warts and wonders—with patients, staff, and the outside world.
It's all common sense. When you provide people with healthcare data you provide them with the opportunity to make choices on critically important decisions. It's a buy-in. If patients and their families understand and have a voice in their care regimens they will more likely follow those regimens when they leave the hospital.
If you want engaged and accountable staff, share your data. Brag on the successes but don't shade the problem areas. When staff see data that clearly demonstrates you have a problem they will rally to fix it. Data provides accountability and empowerment for everyone from the CEO to the environmental staff.
"An environment of transparency not only makes information available for people but also creates an environment where folks can ask for information and challenge and ask questions. It is that challenging of our status quo that takes us on the steps to improvement," Parsons says.
"We want people who are engaged with the mission and vision of Mountain States—where they are not only intellectually tied to delivering healthcare but they are also emotionally invested in the work we do.
Transparency allows us to further the engagement as well and the sharing of information allows us to break down silos so we can work together and integrate what we do and truly put the patient at the center of everything we do."
Do you have what it takes to be the CEO of a major metropolitan safety net hospital?
Probably not but don't feel too bad. Most people – most CEOs – don't either.
After reading the 12 pages of "position specifications" for the potential CEO candidates at Parkland Health & Hospital System in Dallas, it may be that there are only a few dozen resumes in the United States that would contain the experiences, credentials, and personal charisma needed to turn around a venerable healthcare system that serves the Big D's poor and vulnerable citizens.
With remarkable understatement, the specs sheet created for Parkland by executive recruiters Korn/Ferry International notes that the safety net faces "several significant challenges."
Those "challenges" include keeping the doors open and the lights on. The federal government has very publicly suggested that it will no longer pay the 835-bed system for Medicare and Medicaid services if hundreds of quality and safety measures are not improved upon.
Korn/Ferry says that federal mandate and the threat of lost federal funding combined with the construction of a New Parkland Hospital, and the demands of the Affordable Care Act "make the next few years perhaps the most critical in Parkland's storied 117-year history."
On the other hand, adversity builds character. The Korn/Ferry specs note that "these challenges have galvanized Parkland's employees, medical staff, board and community, as the leadership team seeks to guide the institution through this difficult period. The new CEO will lead motivated constituencies, both internal and external, to help Parkland return to preeminent status..."
There are reports that the job comes with an annual compensation package in the high six-figure range, but Parkland officials did not return calls on that topic.
The personal qualifications listed by Korn/Ferry are what we'd expect and hinge largely upon a C-suite record of success at a complex academic medical center or integrated delivery system that includes a history of strong financial and operational management.
Along with those tangibles, Parkland also wants a CEO who can "emanate a contagious sense of mission, purpose and focus." And what does the job demand?
A lot!
Korn/Ferry's list of "specific responsibilities" and "professional experience/qualifications" for Parkland CEO candidates includes:
Gain an understanding of the system's organization, challenges, and opportunities among key constituencies which include the board; senior management; academics; physicians, local, state and federal politicians; community leaders and patients; donors and potential donors.
Develop a strategic plan that leads to a high performing, best-of-class healthcare system which successfully grows clinical volume and captures market share.
Attract and retain a "best-in-class" senior leadership team.
Develop system infrastructures, including financial and information systems.
Partner with academic constituencies to build upon educational and research programs.
Achieve financial results through planning, improved operating and financial performance, fundraising and external involvement with legislative and payer relationships.
Inspire people to engage, set, and execute performance goals.
Experience working with a medical school to develop clinical, academic and research programs is preferred.
Experience with multiple aspects of the spectrum of clinical care delivery, from prevention to outpatient and inpatient acute care to rehabilitation and home care ideally including experience with an integrated healthcare delivery system.
Able to create and communicate a compelling picture of how the organization and healthcare overall will evolve, tying current initiatives to longer term strategies and the organization's value.
Experience building cultures of accountability that reward initiative while sharing credit for successes and responsibility for failures.
Can solve the most complex of problems; great at gleaning meaning from whatever data is available; is a quick study of the new and different; adds personal wisdom and experience to come to the best conclusion and solution, given the situation; uses multiple problem-solving tools.
Can separate the mission-critical from the trivial; focuses on the few tasks that add value and puts aside or delays the rest.
Is a person of high character; is consistent and acts in line with a clear set of values and beliefs; deals and talks straight; walks his/her talk.
Ordinarily I'd say that a list of job demands such as this is drawn up for public consumption. In this case, however, a case could be made to justify each of the skills and qualifications that Korn/Ferry has identified.
The fact is that this is a tough and demanding job. Whoever is eventually hired to lead Parkland will immediately find himself or herself pulled in any number of directions by people and issues and limited resources that in many cases will be beyond their control.
We often hear complaints about overpaid executives. If the person picked to lead Parkland can turn around the fortunes of this critically important health system, however, it will be a bargain.
