Well, the election results are in with significant changes proposed with respect to the Affordable Care Act. While what ultimately gets implemented in law will unfold over time, the desire to reign in the cost of healthcare is shared by both major political parties. As big as they may be, these will be changes in means not the goal. It is not as if the new administration is trying to figure out how to increase the cost of care!
Working against the goal of lowering the total cost of care is the fact that the total volume of care is increasing. People are living longer, with more chronic disease, and there are an increasing number and sophistication of treatments available. The demographics of the baby-boom generation is driving a significant increase in Medicare enrollment.
As such, the macro trends in provider healthcare continue. Some will accelerate, some will adjust, but providers are being forced to adapt to an overall decrease in spend (i.e., lower revenues) through changes in how care gets paid for, how much is being paid, where it is delivered, and who pays. This creates big opportunities for some, and a diminished role for others.
Macro Trend: From fee-for-service to value-based care. HHS has set a goal of tying 90 percent of all Medicare fee-for-service to quality or value by 2018 and other payers are rapidly implementing a variety of value-based, shared risk/reward contracts.
Effects: Providers will need to improve their understanding of their costs, the alignment of quality to cost and to use these to drive operational efficiency. That means putting in place better cost accounting systems that capture the true cost of care in near real time. It also means alignment of care processes, information and cost across the entire chain of care from non-acute, acute, post-acute, through long-term care. New and improved systems will be required for improved care management, cost accounting, and data interoperability between clinical and operation systems as well as across multiple medical record systems. Interoperability within a single vendor’s EMR system will be insufficient.
As the workforce typically represents over half of a providers cost, providers will need to implement systems and programs that realize labor efficiencies without sacrificing care. Allowing mid-level practitioners, nurses, LPNs, MAs, and technicians to fully perform at the top of their licensure will enable more personalized care, more efficiently.
The next biggest cost category for providers, of course, is in the supply chain. While many providers have made significant improvements, provider healthcare will need to adapt solutions from other industries where supply chain efficiency is a matter of survival.
Macro Trend: Shifting the cost of care to consumers. If Medicare and Medicaid are turned into voucher programs this trend will accelerate significantly.
Effects: Consumer demand for greater price and quality transparency along with improved consumer experience.
Consumers will be making decisions about what care they will pay for and how much they are willing (able) to pay. This will create price pressure on providers, requiring them to compete more for consumer spend. It also creates the opportunity for new market entrants.
Retailers are successfully capturing the low acuity end of the healthcare value chain using mid-level providers to perform tasks often performed by doctors in settings that many find more accessible and convenient. And, of course, even greater cost reductions and convenience can be had via at-home care. Additional opportunities are growing for companies that provide devices (IoT, etc.) and services that enable at-home care, especially if they can be well integrated with other acute and non-acute providers. Expect these new market entrants to work up the value chain as they gain more experience and technologies continue to improve.
Higher priced providers will need to adjust to the new pricing realities. If, for example, an academic medical center charges $3,500 for the same MRI that an independent provider charges $750 for, the AMC will need to either adjust their price or exit the MRI business.
In competing for consumers, providers will become more active and sophisticated in marketing and outreach. Consumer satisfaction will no longer be just an HCAHPS score, but a deciding factor in where consumers spend money on their care. The Chief Marketing Officer at healthcare providers will become a more strategic role as it is in other consumer focused industries.
Wellness programs and opportunities for those that provide them, will also continue to increase as a way for both consumers and other payers to lower cost by decreasing illness.
Resulting macro trend: Lower provider revenue. With fewer available dollars seeking more care, provider healthcare will increasingly adopt business practices from industries outside of healthcare where customer competitiveness and lean operations continue to evolve in an on-going struggle for survival.
These changes will include lean operations, optimized end-to-end supply chains, full labor optimization, modern consumer engagement, and demand forecasting all supported by decision-focused analytics everywhere.
While these trends have been resulting in numerous affiliations and M&As, such deals will more and more be driven by and result in substantial operational cost improvements; as seen in other industries. Consolidations will continue to increase in what today is still a very large cottage industry.
Provider healthcare continues to transform at a historic pace, but the direction of that transformation is clear. Necessity will continue to be the mother of innovation, with much of that innovation coming from new market entrants along with the adaptation of proven operational models from other industries.