There are two principles that hospitals need to apply during this time period prior to what may eventually become national healthcare payment reform.
▪ Hospitals and community leaders, including local medical community leaders, need to keep the uninsured away from hospitals to the extent possible. It would behoove hospitals, local industries and local public health providers to urgently subsidize more primary care, health education, etc., inasmuch as more than half of all emergency room visits really do not require full hospital ER capability. Put bluntly, hospitals need to aggressively participate in making venues other than their ERs the ‘doctor’s office’ while still responding to appropriate medical emergencies.
▪ Hospitals that have not already done so need to rework pricing and payment plans for the uninsured to attempt to increase the net yield from this population. Although the uninsured will never provide a terrific net yield, pricing services at lower managed care rates and putting uninsured patients on reasonable payment plans will increase the net yield. Keep in mind that an increase in the net yield from 3 percent of adjusted charges to 15 percent or 20 percent represents significant marginal revenue.
Here are five other points relating to the effects of a severe recession that hospitals need to take quite seriously.
1. Insurance is not what it used to be. Many insured patients, with ever-increasing co-pays and deductibles, will postpone or totally avoid anything that they even remotely consider ‘elective’ — meaning, in their minds, not serious or life-threatening.
2. Families will self-triage, meaning that children will receive care and everyone else within the family will wait as long as possible. Many people will just stay away from doctors and dentists.
3. A growing number of patients will shun hospitals simply because of the dramatically increased risks of infections that we have seen in recent years. This will be especially true if a test or procedure can be done in a freestanding imaging center, surgery center, etc.
4. Price disclosure and price competition will increase, and I do not mean disclosure of hospitals’ goofy ‘list prices.’ I mean disclosure of the prices that people will actually be asked to pay given their insurance status. Price disclosure and price competition go hand-in-hand and will take place hospital-to-hospital and hospital-to-physician.
5. With nearly all medical technology continuing to move toward outpatient modalities, physician-owned surgery centers, imaging centers, freestanding offices and other physician venues that are not owned or otherwise co-opted by hospitals will have a unique opportunity to yank market share away from hospitals by advertising price differentials and by aggressively helping consumers compare hospital versus physician pricing impacts for exactly the same services. In addition, it is just a question of time before lower infection rates in independent physician facilities are advertised as compared with local hospitals.
Physicians and other providers will also be greatly impacted by a severe recession. Relative to hospitals, however, physicians have the theoretical potential to be quite competitive and less severely impacted. I say ‘theoretical potential’ because many physicians possess organizational, business and even psychopathological handicaps. Nonetheless, the physician organizations that are sophisticated will stop whining about Medicare’s fee adjustments, adjust their own fees and payment plans, and go after consumers to gain the single most precious asset a provider can have: Market share among paying customers.
The behavior of insurers and other payors needs to be taken into account as well. Many are ratcheting up their watchdogging in respect to imaging tests and other drivers of utilization. These attempts at making utilization more ‘appropriate’ from their points of view will continue to affect both hospitals and all forms of medical practices.
A small percentage of hospitals will aggressively adjust their approaches to both the uninsured and the insured populations. Whether even the ‘smart’ hospitals can tackle the dangerous growth in infections is unknown, and if this is not dealt with, it will have long-term ramifications. This aside, hospitals will need to think about completely re-engineering their outpatient departments, re-pricing all of these services and downsizing some inpatient services.
Prepare for the worst
My bottom line for a serious recession: A one-third to one-half drop in hospital utilization and at least a 20 percent drop in utilization of physicians, with an even larger drop in specialist utilization, tests, procedures, etc.
This may sound crazy, but remember that the stock of General Motors has gone from $93 per share to $3; General Electric has dropped from $60 to $16; Caterpillar from $80 to $37; Citigroup from $58 to $9, etc. Although healthcare is insulated to some degree from recessionary trends, the era of higher deductibles and co-pays is changing consumer behavior. And keep in mind that the full brunt of the recession has not really even hit the vast majority of consumers.
Memo to hospitals: Get ready, and really do start to ‘think outside the box.’
— Mr. Unland is president of Chicago-based The Health Capital Group, a consulting firm specializing in mergers/acquisitions, valuation and strategic planning for health care organizations. Contact Mr. Unland at 800-423-5157. Learn more about The Health Capital Group.
