Hospital CFOs have a tough fight ahead of them in the wake of the presidential election. The massive and complex changes to the U.S. healthcare system will definitely continue and wreak havoc on each and every point in the healthcare value chain. So now’s the time to take a fresh look at the key trends hospital CFOs will have to deal with in this new world of the Affordable Care Act (ACA).
Payments will be cut: The planned cuts to Medicare are substantial. But with the population of uninsured becoming covered, some of the revenue loss should be made up and write-offs should be less. That’s the theory, anyway.
Administrative costs will rise: Because the ACA will trigger coverage to more people, hospitals will get more patients and will have to cope with more administrative costs due to increased paperwork, care management, and dealing with insurers.
Reimbursements will change: Traditional fee-for-service will continue to give way to payments based on the quality of care and patient outcomes. Payments will be lumped together, and providers will have to divvy them up. The current system of billing separately for each service and test will vanish. Under an ACA pilot program slated to start January 1, all providers participating in a given patient’s entire episode of treatment will have to share a single payment. Employer-sponsored health plans will most likely follow suit.
ACOs will grow: Because hospitals will be held accountable for their patients, the upward trend in accountable care organizations (ACOs) will continue. Already, the ACO model is driving improvements in care coordination and a decline in hospital readmissions.
Consolidation will continue: Healthcare reform and reimbursement changes will continue to drive the trend in consolidations. Physician affiliations will increase through employment, joint ventures, co-management agreements, and the like. More stand-alone hospitals and small healthcare systems will be gobbled up by the big systems because they can’t afford the infrastructure to set up coordinated care networks or ACOs.
Physicians migrate to hospitals: More physicians will look to abandon private practice and seek jobs in hospitals. This means more opportunity for hospitals to purchase private practices. The long-term effect of this is that the cost of hiring a physician will increase because the supply will decrease in the face of increasing demand.
Pay-for-performance will rule: Under this setup, which has become popular among policy makers and insurers, financial incentives are given to healthcare providers to induce them to improve the quality of care. The ACA expands the use of this approach for Medicare in particular. The trouble is, studies show that these programs have yielded mixed results, so care must be taken in their design and implementation.
Better technology needed: More advanced business intelligence systems will be needed to help get a “single view” of the entire process of a patient’s care process. These systems must pull from legacy systems—as well as third-party systems, such as clinical and insurance systems—and combine them with revenue and cost systems to figure out patient profitability in the new scheme of things.
Cost reduction now crucial: Health reform combined with shifts in population demographics will produce a double-whammy on revenue to the tune of a reduction of up to 25% by some accounts. What that means is that for hospitals to maintain margins and survive, they will have to slash costs by at least 10%. In addition to clinical operations, look to back-office operations, such as accounting, accounts receivable, and accounts payable, to streamline processes and cut costs. Start now before margin pressure hits.
With all of these mind-boggling changes, we offer this one piece of advice: Get nimble. Put in place mechanisms and procedures that will cut red tape and allow your organization to act fast to adapt to the rapidly changing landscape. There’s not a lot of time before things really start to heat up.
Learn more: The Financial Professional's Guide to Healthcare Reform, by Mark Dietrich and Gregory Anderson, is a comprehensive reference guide to help you understand healthcare reform law and plan action steps to deal with its widespread impact.