Issue 5 - September 2011
Prescription For Integration
Many U.S. hospitals and physicians are waiting on the sidelines to see if healthcare reform legislation will become a reality. But such hesitancy will put their economic health at risk — regardless of what shape the legislation finally takes.
Understandably upset about the specter of declining revenue, many U.S. hospitals and physicians continue to hold out on healthcare reform, more than a year after the historic legislation was passed. Yet even if the law were to be repealed, America’s burgeoning medical bill is not goingaway. Whatever payment models government and private health insurers establish, such requirements will force healthcare providers to dramatically raise their game: providing better care at more affordable prices. If hospitals and doctors don’t play along, they will be at a major competitive disadvantage that will threaten their economic survival.
Premature prognosis? Hardly. The U.S. healthcare system has reached a precarious tipping point, the culmination of decades of spiraling healthcare costs. Despite many attempts during the past 30 years to enact reform and control costs, the financial ecosystem that links up clinicians, hospitals and health systems, and insurers is clearly unsustainable. Past cost-control initiatives have not kept pace with the continued cost increases because of changing demographics, expensive new medical technologies and ever-longer life expectancies.
U.S. healthcare costs now account for more than 17% of GDP, up from 12% in 1990. Annual spending today averages about $7,000 per person. And now baby boomers have officially begun their slow march onto the rolls of Medicare, the government health insurance program covering everyone age 65 and older. These 78 million Americans born between 1946 and 1964 are expected to boost Medicare enrollment from 45 million in 2010 to 64 million by 2020.
That so-called tipping point seems more and more like a breaking point for the U.S. healthcare system.
The Accountability Cure
With the nation’s healthcare system facing economic crisis, legislators passed a historic healthcare reform act in March 2010 to address the spiraling costs. To bend the cost curve, one measure encourages the creation of accountable care organizations (ACOs). The ACO model ties reimbursements for medical providers to two key components: strict adherence to quality metrics, and reduction in the total cost of care for a defined population of patients.
While ACO may be a new term for many, in truth the healthcare industry has been moving away from traditional “fee for service” relationships toward quality-based reimbursements for some time. Pure fee-for-service reimbursement is going away. In some markets the rate of change is faster than in others. But most payers are seeking to base a significant percentage of payments on performance.
The ACO model is understandably attractive to organizations that pay for healthcare. This is especially true for health insurers, which are squeezed between the demands of large employers to reduce premiums and those of providers concerned about diminishing revenues. But while payers are embracing ACOs’ transfer of risk to providers (especially in California, where assumption of clinical risk by providers is still prevalent), most providers are not nearly as enthusiastic, and few have adopted the model.
Many healthcare providers argue that the uncertainty around ACOs makes it difficult to buy into the model, which in most cases requires a significant financial investment to ensure success. The cost of implementing technology, reorganizing physician practices and instituting performance measurement systems can be substantial.
In particular, providers make the following arguments:
- There is far too much uncertainty in the guidelines on ACOs issued by the Centers for Medicare & Medicaid Services (CMS). Hospitals are being asked to reorganize and invest in a system that is not clearly defined.
- Providers are not proficient with the new regulations because the legislation is new and they haven’t fully digested its actual and implied changes.
- The current legislation applies only to Medicare and Medicaid (a joint federalstate health insurance program for the poor) patient reimbursements, a sizable but still limited portion of the entire population.
- It may not make sense to invest in updated systems with the real chance that healthcare legislation may be repealed under a new administration.
- The ACO model may not actually save hospitals money. In part, ACOs reduce costs by lowering demand for unnecessary procedures. Providers worry that lower demand will cut into their bottom lines.
All of these arguments have merit. But they miss the point that the ACO model includes approaches that providers should adopt regardless of the specifics of future payment models. Providers that don’t start making these changes soon will find themselves at a competitive disadvantage.
Because of changing demographics, the payer mix is shifting, with a higher proportion of patients qualifying for Medicare and Medicaid. Whether or not ACOs become a model for the health system at large, it seems inevitable that the future reimbursement model for CMS-qualified patients will be based on pay for performance. As a result, providers need to begin standardizing best clinical practices, support disease prevention, reduce overutilization and take responsibility for medical outcomes. Those that do not will likely see declining reimbursements.
Achieving these things requires much closer alignment of physicians and providers than is found in most healthcare systems today. Physicians need to work toward the same objectives that hospitals do: reducing the length of hospital stays, minimizing resource consumption and improving outcomes. What’s more, physicians from different specialty areas must work more closely with one another to improve the outcomes for patients who need to be treated by several specialties. These strategies are not incremental changes for physicianprovider relations in many healthcare systems but transformative ones in an already embattled industry.