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RAISING THE BAR: The Realities of Decreased Payments and Increased Risks

Hospitals and physicians are facing an ever-increasing trend in today’s healthcare industry: a decrease in healthcare payments and an increase in organizational risks. What does this mean? Payers want to cut costs, which results in reducing the revenue of providers. Another significant cause of this situation is payers are insisting that, in order to continue to be part of an insurer’s network, providers must assume a certain level of financial risk for the care provided.

Notably, the culprit of this healthcare trend isn’t a major factor resulting exclusively from the Affordable Care Act; the ACA simply acted as a catalyst for events in the name of reform. A key impetus began in 2011; the first year the members of the Baby Boomer generation began turning 65. At that time, a large number of recipients began moving out of the private insurance market and into the Medicare insurance market, drawing upon the trend illustrated today.

To begin addressing this shift, the focus should be on neither one nor the other, but rather, on how to deal with declining reimbursements and recognizing that an increase in risk leads to an increase in opportunity. Simply put, there is a need to embrace risk and determine how to manage it efficiently and effectively in order to create opportunities.

With a decrease in payments, a volume to value transition has begun. As a result, providers will begin to receive less pay per increment of service, which leads to the potential to force some out of the market. On the upside, payment deduction compels mindfulness of value proposition, quality to move to the forefront, and the initiation of performance improvement initiatives. However, quality-focused healthcare produces some major challenges for a value-based system.

ChallengesWith this shift from volume to value, a traditional acute care fee-per-service system will be the primary model.

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This will lead to certain challenges:• More performance-based fee-per-service contracts• Pressure to keep costs down• Hurdles to get performance bonuses • Difficult transition time

OpportunitiesThe key to undertaking these challenges is chronic disease management. In fact, 75-80% of healthcare costs are related to one of six chronic diseases—diabetes, congestive heart failure, coronary heart disease, asthma, depression and obesity. Acute care providers, such as hospitals and physicians, weren’t trained to address wellness and prevention health management issues that chronic disease patients need. Thus, public policy shifts must follow in order to address the needs of chronic patients and payment support.

An additional opportunity is technology. In order to successfully manage the health of the population, a good information system is vital to tracking patients over time.

Some examples include:• Information technology: provides electronic health records for providers and consumers; helps consumers to become better educated• Clinical technology: inventing new tools to enhance patient care• Telemedicine: changes venue from bricks and mortar to digital• Big data: has the capability to improve diagnostics and treatment

Two things are driving an increase in risks: a reduction in payments and the transition to a value-driven system. It is evident that when an organization continues to leave expenses where they are and payments begin to decline, bankruptcy becomes a conceivable consequence. Healthcare’s transition to a value-driven system has not fully manifested, but if an organization continues to do tomorrow what they did today, without adapting to and addressing shifts in healthcare, the risk level is intensified. The real challenge today is how to best move forward and have the appropriate conversations around the board table between management and the governing body.

ChallengesAccountable Care Organizations (ACOs), provider organizations that assume some financial responsibility for maintaining the health of a population, present an important challenge. The most widely used ACO is Medicare, which has a financial arrangement for sharing risks and rewards.

Recent medical school graduates with large amounts of debt also present a challenge associated with an increase in risk. Many are not willing to accept risk themselves, but are willing to work for an organization that will assume and help mitigate risk.

“Chronic disease management is key to undertaking challenges related to decreased payments. In fact, 75-80% of healthcare costs are related to one of six chronic diseases.”

OpportunitiesUndoubtedly, each organization and market poses different opportunities and challenges associated with managing the declining reimbursement increasing risk paradigm. It’s important, however, to take a step back and envision the desired state of the organization or market in five to ten years, realistically think about the external world’s impact, and confront the facts internally.

Some recommended internal steps include: • Performance improvement• Lead with quality• Physician extenders

In the end, it’s necessary to ensure that strategic discussions are held at both the management and board level in order to discover the right solution for your organization and market. Healthcare providers need to recognize the current trends and the opportunity that exists to thrive versus to simply survive in this new healthcare environment. And, to help you do so, Don Seymour and Doctor William Jessee have come together to share their conversation in a three-part video series, “Raising the Bar.” Watch at http://www.integratedhealthcarestrategies.com/payrisk.

For more than 30 years, INTEGRATED Healthcare Strategies has provided consultative human-capital services to clients across the healthcare spectrum, including community and children’s hospitals, academic medical centers, health networks, clinics, and other healthcare-related organizations. Our expert consultants and nationally recognized thought-leaders help organizations achieve their business goals by ensuring top talent is attracted, retained, and engaged while measuring and maximizing human and organizational performance. With tailored solutions that extend well beyond single services, INTEGRATED offers the knowledge, guidance, insights, and alignment that organizations need to not only survive the rapidly changing healthcare environment, but to succeed in it. Exclusive to Healthcare, Dedicated to People.

Visit INTEGRATED Healthcare Strategies online at www.INTEGRATEDHealthcareStrategies.com, or view our blog at http://www.INTEGRATEDHealthcareStrategies.com/blog.

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