The level of uncertainty around the future of the U.S. healthcare delivery system has made many consumers and providers skeptical of its near-term and future stability.
As providers navigate the years-long journey from fee-for-service to fee-for-value, an assumption of seven premises will help them decide where to place their feet as they take their next steps in a boggy landscape where it's become hard to discern quicksand from solid footing.
The Seven Premises
1. We're in a growth market with unsustainable spending, and the cost per unit of service must decrease.
Demographics and health status indicators suggest that healthcare in the United States will remain a growth industry, with sources predicting that ambulatory service growth will outpace that of inpatient and observation services by two to three times. But overall growth rates are slowing, and in some markets, declining. Further, current spending levels are unsustainable.
Changing payor dynamics will result in decreasing reimbursements, and the emphasis of care delivery and capital investment will shift from inpatient to primary care, ambulatory care and post-acute care: Provider income won't come from where it used to.
As revenue and profit margins inevitably shrink, providers will need to reduce the cost of a unit of service in order to compete effectively, and they may need to focus more attention on their ambulatory and other care continuum components to drive incremental market share in growth areas.
2. Patients, government and insurers will demand better access and results—and more convenience.
Consumers and patients faced with greater healthcare financial responsibilities are demanding better care access, clinical results and convenience. "Provider of choice" will take on real meaning as consumers get more involved.
Governments and insurers are driving this consumer participation with both incentives and disincentives. Ambulatory and wellness areas will be particularly susceptible to "choice" as consumers begin to seek care in the least-costly environments. Winners will deliver excellent means of access, competitive pricing, better experiences and better outcomes. They'll exceed consumer expectations—which also means identifying, acknowledging and planning for those expectations.
3. Providers will increasingly seek financial security and clinical expertise through partnerships and affiliation.
While it is feasible that a few locally controlled organizations will be able to remain financially viable, they will need to have a distinct market, quality, clinical or cost differentiation. Most providers, hospitals and physician groups alike are being forced to seek "system-driven" scale economies through mergers, partnerships or affiliations. Many independent organizations may still seek the security associated with a system affiliation.
4. Multihospital systems will become increasingly focused on clinical integration, consolidation and rationalization.
Multihospital systems will continue to grow in pursuit of scale; the creation of statewide and multistate systems will accelerate. But the benefits will be surface level if they're focused only on back-office and balance sheet efficiencies.
Most hospital systems have already secured 80% to 90% of available administrative efficiencies. The value to be created going forward is in creating clinical service redistribution and facility rationalization. Some facilities will have to close as networks right-size following mergers or affiliations.
5. The evolution of risk-based payment models acts as a hydraulic mechanism that shifts focus from "sick care" to "prevention."
Risk-based payment models minimize the incentive for growth and force more payment risk onto providers. Aimed at controlling overall costs and improving quality, these models will force providers to manage or partner for care coordination across the entire care continuum. Alignment of incentives between hospitals and physicians is essential to managing in this environment.
Ultimately, health systems must shift resources from episodic sick care treatment to prevention and wellness models. Providers that have control of the premium dollar as a "payor" may have the best upside potential to be successful in this environment. Additionally, to battle both external and internal factors such as audit and recovery risks as payments become tied to outcomes, healthcare systems should develop a plan that provides full accountability and transparency in cost and outcomes, activates consumers, and has a patient-centric focus.
6. Population health and value-based care initiatives will accelerate development of new care models.
Hospital-physician integration, combined with the impact of shortages in clinical specialties and ancillary staff, as well as ever-increasing incentives, will be essential to drive innovation in care delivery. And this clinical innovation, in turn, is essential to reducing costs and eliminating waste. Telemedicine and other technologies must come into play to increase access in the face of fewer specialists trying to see more insured patients. Roles must shift—clinicians will start practicing at the highest level of their certification to maximize time and resources as chronic care models substantially change the delivery system.
Providers that create clinically integrated networks will be best positioned for the long haul in terms of managing these shifting roles and these new care delivery systems in ways that support the triple aim.
7. Ultimately, highly integrated regional systems will emerge, resulting in significant consolidation across the industry.
Changing reimbursement models focused on risk-sharing models and population health will force providers to align via narrow networks and integrated delivery systems to secure access to patients and manage patient care more efficiently across the continuum.
The reality is that these near-term efforts will yield only modest near-term value for providers and patients. Information technology, contracting and related affiliation expenses, care model standardization, right-sizing, and back-office infrastructure updates are all associated with new costs. Over the long term, however, the greater the degree of integration among providers, the greater the benefits from less waste, lower costs and the ability to better manage care coordination across the continuum and move up the premium dollar.
Shifting the paradigm is not easy. There is still much inertia to overcome, and many providers are just now realizing how long the road will be. Keeping these seven premises in mind during the planning process can help guide next steps.
Andrew Bachrodt is a managing partner for the Health Care Practice of global management consulting firm Kurt Salmon, which specializes in corporate strategy, population health strategy, mergers and acquisitions, capital asset planning, and IT planning for hospitals, health systems and their affiliates along the care continuum. He can be reached at andrew.bachrodt@kurtsalmon.com.