The tipping point has come. In August, Moody’s reported that in 2016, not-for-profit providers saw margin declines overall with expenses outpacing revenue. According to Beth Wexler, a Moody's Vice President, "Tighter margins will weigh on the sector going forward." 1
And while the population is getting older and sicker with more sophisticated therapies becoming available every day, Sean Keehan at the CMS predicts that “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services” 2.
Welcome to the age of affordability in healthcare.
As other industries have experienced, from manufacturing to retail to financial services, when margin pressures mount, consolidation follows. More efficient organizations supplant the less efficient. This is already happening in healthcare. “Since 2010, 82 rural hospitals have closed nationwide; 700 more are at risk of closing within the next 10 years, according to Alan Morgan, the CEO of the National Rural Health Association” 3. Bloomberg just reported a three-fold increase in healthcare bankruptcy filings this year. 4 At the same time, Mayo Clinic stated operating income of $182 million in the third quarter of 2017, over twice its operating income of $86 million in the same period last year 5 as they continue to expand.
To survive, healthcare providers will increasingly be turning to strategies that seek to maximize revenue and lower cost.
From a revenue perspective, only a few high-end providers will be able to match Mayo Clinic’s emphasis on premium service revenue. Others will seek to capture more revenue within their markets through capabilities to improve consumer outreach and increase physician referrals.
M&A activity will remain high as providers seek to expand markets – but there will be more emphasis on achieving concomitant cost reductions than has been seen in the past.
This will include investments in models such as telehealth and retail partnerships that enable lower cost revenue capture. Providers will also seek to better maintain consumer spend within their systems by improving the consumer’s experience and creating capabilities that better manage patients throughout their transitions of care.
There will then be increasing alignments with and acquisitions of post-acute organizations by acute care providers. Revenue cycle and contract management systems will trend towards increasing levels of sophistication to adapt to new payment models and insure providers capture every allowable dollar.
From a cost perspective, the first step, of course, is to know your costs. Providers are behind other low margin industries in their ability to fully understand and align their costs to the scope and quality of their services.
With that information in hand, providers will be better able to identify opportunities to improve efficiencies and strike more sophisticated win-win contracts with payers. Service consolidation, elimination of unnecessary variation in care and other sources of waste, along with more efficient workforce models will be how winning organizations survive and thrive. Healthcare has yet to see the improved labor efficiencies resulting from technology that other industries have, such as manufacturing, but that, too, will come in time.
The above will continue to drive the need for improved information interoperability, data sharing, security, and analytics. Even today, healthcare does not well align its clinical and operational data. And the sources, amount, and complexity of healthcare information continues to expand exponentially. The need to leverage this data to improve quality and timeliness of decisions while driving greater operational efficiencies will require more sophisticated analytics including machine learning and AI technologies.
Providers then are also increasingly looking for seamless HIT solutions for their operational systems (like they have for their clinical systems) to drive these operational efficiencies. Once in place, the sum of these interoperable systems will become greater than their parts. For example, the ability to analyze quality and costs per patient by combining clinical, supply, and workforce data on demand requires not only perfect alignment of operational systems but also interoperability with EMR and claims data.
Next will be to align clinical and operational data across the entire continuum of care to then fully realize the goals of value-based care. Publishing such information will also be good for patients, allowing them to make more informed decisions about quality and cost of care. Information which, to-date, has been incredibly opaque to most consumers.
This demand for affordable care, is not only driving the transformation of existing providers, but new market entrants are sprouting up as well. Organizations with their roots in retail, online services, and hospitality are all rushing to fill the need. And new alignments between payers and providers; acute and non-acute; consumer and clinical are also developing. The inefficiencies of the cottage industries that exist today in healthcare are being replaced by larger, more integrated, more efficient delivery systems.
The era of affordable care is here. Healthcare costs can no longer be fully absorbed, the margin pressures will only increase. Therefore, the demand for HIT systems to support affordable care that enable information sharing, operational efficiencies, decision support, and great consumer experiences are critical to enabling the next generation of care delivery.
Citations:
Mark Weber is the Senior Vice President, Healthcare R&D for Infor.
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