Last week, I sat down with Professor Thomas Campanella, Director of Health Care Economics at Baldwin Wallace University, and we recorded a webinar about the steps hospitals need to take to prepare for life after COVID-19. This blog is a synopsis of that conversation. (Please note, these views are Thomas Campanella’s and are simply excerpts from the recorded webinar. For our entire discussion, please view the free webinar.)
The traditional ‘hospital’ model must be reinvented.
The largest financier of healthcare is the government (through Medicare & Medicaid), followed by employers and consumers. The unique relationship between the consumer of healthcare services and the funding provider (i.e., government, employer) has driven a true lack of competition within the healthcare market and has allowed prices to continue to soar without any emphasis placed on the true value of services. This buyer/consumer relationship is unique to the healthcare industry.
As demand in outpatient centers and homecare services continue to increase, due to escalating healthcare costs, hospitals have the most to lose because of the traditional fee-for-service model and their current reliance on the federal government bailouts as a result of COVID-19. The financial packages that are part of the Financial Recovery effort will dramatically increase the already historic highs in the national deficit.
Hospitals cannot go back to “business as usual.” They need to focus on their high fixed costs which includes infrastructure, technology and employee salaries and determine the optimal combination of these factors to allow them to be successful in the new world of healthcare.
Who’s to blame for the trouble hospitals are in?
Hospitals aren’t at fault for the situation they are facing. The fault lies with the payers who historically were not demanding value in return for their healthcare investments. This doesn’t mean consumers because they have mostly been insulated from the cost implications of their healthcare purchases. The government and employers, as the top financiers, are to blame.
Medicare and Medicaid account for approximately 50% of our healthcare costs. Medicare payment methodologies, policies and regulations influence all of the other payers that service the employer and individual markets. These policies and regulations have helped stifle competition within communities in different ways, including paying hospital-based outpatient services and procedures at least twice as much as their local competitors.
A couple of other issues that have contributed to the challenges facing hospitals are the lack of malpractice reform and the lack of interoperability between electronic medical records (EHRs). Malpractice laws in conjunction with inflationary payment methodologies incent over-utilization in the name of “defensive medicine.” The lack of “real” interoperability between EHRs not only negatively impacts cost and quality, but it is an obstacle to a more competitive environment where patients could potentially seek care from multiple providers in the community.
How can hospitals get back on solid ground?
Ideally, Medicare needs to take the lead in transitioning our healthcare system to be more value-based. The focus has been on value-based care for quite some time, but the reality is that fee-for-service is still the primary engine fueling our healthcare system. Lobbyists present a big challenge because focusing on value and bending the cost curve will negatively impact the revenue of healthcare stakeholders.
However, as a result of COVID-19, tough decisions that need to be made may now be made. Medicare has been hit especially hard by this pandemic. It is likely that we will see more of an increased focus on transitioning to Medicare Advantage Plans so the government can pass along some of the financial risk to a third-party carrier. In turn, those plans will likely have added incentives to pass along to providers to ensure their profitability, which will support the transition to more value-based care.
More employers are starting to move from fully-insured health insurance plans to self-insured as a result of escalating healthcare costs. This trend will result in employers demanding much more value in their investments and will incentivize their employees to transition into a more prudent purchaser of healthcare services.
As Tom has noted in previous webinars and blogs, the trend of declining hospital inpatient admissions and increased acuity of the patient will escalate as a result of the pandemic. Outpatient settings and care in the home will increasingly be the location where healthcare services and procedures are provided. These care settings allow for more completion as payers are increasingly searching for value and enhanced cost/quality transparency.
Mostly because of the lobbying efforts at the state and national levels, hospitals have previously avoided the disruption in healthcare by still embracing the status quo. However, COVID-19 has disrupted healthcare and the effects will be lasting. Enlightened health systems will need to embrace this new reality rather than holding on to past business models and look to collaborative relationships in different forms. It may make sense for physicians to enter into collaborative relations with independent physician groups within the community. The new reality in the healthcare industry will create competitive challenges for integrated health systems that are already burdened with high fixed costs (e.g., personnel, infrastructure, technology).
Empowering physicians to lead the necessary change.
Physicians are the brightest of the bright and they can be change agents. This may be the opportune time for hospitals to provide selective physicians more administrative roles to help lead the design of the new business models needed to be successful in this new world of healthcare.
There is a potential for the utilization of Centers of Excellence (COE) for certain inpatient services. The packaging of these services to regional and national self-insured employers and commercial payers could create both additional revenue for the hospital as well as employment opportunities. In certain communities with regionally or nationally recognized hospitals, they could be more focused on treating the high-risk patients within their communities, as a result of COVID-19.
Finally, hospitals and hospital associations must play a leadership role in working with government at all levels to ensure that we, as a society, are prepared for similar types of catastrophic events as the COVID-19, because they will occur.
Up until now, in many communities we have seen individual organizations trying to solve big health problems, like social determinants of health, in a piecemeal way. The collaboration we’re seeing today has shown that maybe it’s better to work together, and hospitals should take a lead in this arena.
Collaboration will be the key to sustainable, successful and leading healthcare systems as we move into the world of the “new normal.”
Ken Magness is a focused healthcare professional with more than a decade of experience in helping clients understand the true value of automation in the revenue cycle management process. As the Strategic Initiatives Leader at Quadax, Ken and his team are passionate about connecting with healthcare providers to help them create and leverage the appropriate technology solutions to optimize the revenue cycle process and improve the experience of their patients and staff.