Healthcare predictions in a time of uncertainty

January 18th, 2017 / By Kristine Daynes

We all know the Trump administration’s commitment to repeal and replace key components of the Affordable Care Act. What we don’t know is what that will look like or how it will affect the continuation of value-based programs such as Medicare ACOs. But we can be fairly certain that state-level investments in healthcare coverage are unlikely to be driven by federal funding and mandates at the rate we’ve seen in the past decade. That doesn’t mean the end of delivery system reform. It means that changes will be driven more by economic survival, often entirely outside of regulatory mandates.

Faced with surging uncompensated care and competition, most hospitals already know they need to revolutionize their business models to survive. Perhaps in the absence of federal mandates and funding, they will fill the void with something entirely new—a reconfiguration of healthcare delivery, if not healthcare policy. Economic pressures have already pushed our hospital-centric industry into the era of integrated delivery networks. There are several ways the transformation could continue.

Partnerships to achieve scale. Patient health outcomes depend more on what happens outside the hospital than inside. Whether through M&A or strategic partnerships, many hospitals are not just hospitals anymore. They are healthcare delivery organizations, part of integrated systems with ambulatory care centers and medical groups. They may include skilled nursing facilities, home health agencies and health and wellness programs. Not only is the expanded scope better for population health management, it can help the health system increase market share.

Retail and digital health. Entrepreneurial newcomers introduced the health industry to retail care centers and telehealth. More progressive hospital systems have joined the trend. By accepting these changes in where and how care is delivered, they meet consumer demand for more convenient if not more affordable care. It also leverages their established regional brands to compete against new entrants.

Provider-sponsored insurance products. Value-based programs may not offer enough upside gainsharing or achieve enough efficiency for health systems to see any real financial benefit. If they are de-funded and no longer mandated, health systems may not bother to participate voluntarily. They could jump ahead of value-based payment to capitation. Already nearly 300 health systems have opted to diversify into health insurance, capturing more of the healthcare premium for some of the patients they serve. Another option is to offer bundled payment for episodes of care directly to employers or commercial payers, similar to Medicare bundle but with carefully designed narrow networks that allow hospitals to better control primary, specialist and post-acute care.

With or without government mandates, health systems know they must reduce the cost of delivering care. Just to maintain their own thin margins, most hospitals must keep internals costs to about 10 percent below Medicare rates (by my estimates based on an article in Health Affairs). If Medicaid losses and uncompensated care increase, hospitals will have to become even more efficient. They need to avoid payment penalties for readmissions and complications. They need to measure performance to identify outliers by physician and service line, then help the low performers improve. They need to accurately document and code patient records to represent case mix index and patient health risk, which determine payment rates for Medicare and other payers.

Many hospitals and health systems are already pursuing these objectives as part of the value-based programs that could stall under new political circumstances. For better or worse, competitive pressure may push them to go beyond what was ever mandated to innovate more sustainable models of healthcare delivery.

Kristine Daynes is senior marketing manager for payer and regulatory markets at 3M Health Information Systems.