In its annual predictions for the year ahead, our colleagues at The Camden Group, one of the nation’s largest healthcare business advisory firms, released their outlook for 2015. The firm’s experts forecast continued provider consolidation and a drive to providing a better “value proposition” to the consumer and payer. Additionally, there will be a renewed focus on cost management and a steady stream of transactions that consolidate the acute, ambulatory, medical group and post-acute care components of the delivery system. And, keep an eye on the nation’s capital for further developments. The Camden Group takes a look at pain points, the bottom line, politics, opportunities, consolidation and acquisition, as well as insurance trends:
Pain Points: Show Me Where It Hurts
- A few hot areas to watch that could impact hospitals: continuation of sequestration for healthcare expenditures, changes to the 340B drug purchase program and site-neutral payment reforms (e.g., imaging), including hospital-based clinics.
- Inpatient volume will remain soft. Hospitals will continue to struggle as inpatient use stagnates and pressures build to find new ways to reduce expenses, grow revenue and improve access to capital.
The Bottom Line: A Need for Surgical Precision
- Revenue reductions will continue to put a squeeze on the bottom line. Growth of public and private health insurance exchanges, sequestration (Medicare), state budget issues (Medicaid) and soft volumes will create challenges for the healthcare system.
- The human factor: With salaries, wages, and benefits typically accounting for 50 to 55 percent of a hospital’s operating expenses, organizations will continue to reduce non-clinical personnel.
- Also on the chopping block: non-core service expenditures, streamlining clinical and nonclinical processes, and refining compliance with group purchasing organizations and vendor relationships.
- Information technology (“IT”) will gobble up a greater portion of capital expenditures. As population health management continues to grow and take hold of the “new approach” to healthcare in the U.S., IT will remain a major investment. The new spend will target: patient registries, analytics using population data, a data warehouse linking data from across the continuum and analytics using payer claims as well as internal data. Lastly, the drive to engage the patient will start with patient portals, wellness outreach, providing patient access to their medical record and, in some cases, telehealth as an element in this space.
Politics: What Happens in D.C. Doesn’t Stay in D.C.
- The Republicans will hold significant influence on a national level with their control of Congress.
- “With Republicans taking control of Congress – yet lacking 60 Senate seats or 67 seats to override a veto – parts of ‘Obamacare’ are going to change,” says Steven T. Valentine, president of The Camden Group. “A full repeal of the Affordable Care Act is highly unlikely; however some parts will be eliminated and others likely watered down. At the end of the day, most health systems and medical groups should continue to move ahead with developing population health management capabilities in response to the need to demonstrate value.”
- President Obama stands ready to veto policies and legislation he does not support and is ready to use his executive order powers to extend his influence.
- The public insurance exchanges may find strong headwinds due to the Republicans carving out some pieces, thereby reducing the population accessing the exchange. The wildcard to watch: the Supreme Court has agreed to hear the debate on issues with the subsidies; expect a decision in June.
- Clinicians have developed and are using new care models and economic incentives to reduce resource consumption. The growth of the Patient-Centered Medical Home, episodes of care management (e.g., co-management and bundled payment arrangements), accountable care organizations (“ACOs”) and clinical integration will all continue to grow and expand.
- Population health will continue to be the focus for many organizations. The growth of ACOs in both numbers and population reflects this trend. Employers will continue to demand better value for their healthcare dollars. Medical groups, hospitals and health systems will be required to invest more resources and money into the infrastructure build-out to manage the populations’ health. As a result, expect to see IT spend that will focus on: EMR interfaces, data warehousing (collection) and analytics. Providers that want to embrace population health will need to adopt a payment model that rewards them for delivering a better “value” to the patient and payer.
- Competition between healthcare providers will focus on capturing a defined population. Figure 1, below, identifies highest priority access points. The trend is that health systems and hospitals are adding hospitals, clinics, health plans, direct contracts with employers, physician practices and ambulatory sites to their continuum of care delivery system/network.Pyramids of success resized 600
- Transparency will grow, albeit ahead of the consumer’s interest in using the information. Numerous websites, states and health plans offer quality and price information. All competitors play by the same rules, and the public sees the same data, because that is all they have. Medicare, Medicaid, health plans and proprietary databases all provide information on quality, satisfaction and cost. Providers will have to dedicate resources to provide a more standardized and reliable data set to offer more accurate and useful information.
- Physician resources: As physicians in the Baby Boomer generation start their long-delayed retirements (their investments have returned, and their practice is at peak value), hospitals and medical groups will identify opportunities to staff clinics, urgent care centers and physician practices with these newly retired physicians willing to work part-time for someone else or on “fill-in” shifts.
Consolidation and Acquisition: Shaking Things Up
- Consolidation will continue at a strong pace and spread. Consolidation of imaging services will accelerate this year. Radiology benefit managers, pricing transparency, higher out-of-pocket co-pays, health plan contracts that redirect business and cut-throat pricing will pressure the profitability of these centers. Additionally, expect consolidation in the postacute care world as referral patterns change and ACOs, clinically integrated networks and health plans alter business and clinical relationships.
- Hospital and physician alignment will continue to be a top priority for hospitals. In the never-ending quest to capture a greater population, health systems and hospitals will continue to acquire medical groups and physician organizations.
- Medical group consolidation: Of note is the acquisition of medical groups and physician organizations by other medical groups; this trend should accelerate in 2015.
- Academic medical centers will enter more markets to acquire medical groups and clinics and provide more access points to their system.
- Other opportunities: Additionally, we have seen a steady increase in co-management agreements, bundled payments, ACOs and clinically integrated organizations focused on aligning the economic interest of all parties. Expect all of these alignment vehicles to continue to increase and become more sophisticated in their economic incentives, trying to produce greater value.
Insurance Trends: More Marketplace Disruption
- Direct employer contracting and private insurance exchanges will be a small but growing trend, led by the continued growth in high deductible health plans.
- Public insurance exchanges will have little new impact this year compared to last year.
- High deductible PPO products will continue to grow.
- Commercial HMO enrollment will continue its slow decline.
- Medicare Advantage enrollment will continue to grow as the population ages in.
- Employers also will increasingly add value to their healthcare benefits through the addition of wellness programs, healthy lifestyle, education and prevention.
In conclusion, management should focus on these trends and be prepared for some unexpected twists through 2015. Everyone will be looking for better value, and the pressure is on health systems, hospitals and doctors to deliver.