This all points to an interesting year: mid-term elections, insurance exchanges (love them or hate them), provider consolidation, cost management and a slowly growing economy. Here are the top 10 trends for 2014, and the areas that management and trustees should keep an eye on.
1 Exchanges will provide mixed results to providers. The initial bumps, disappointments, insurance cancellations, small networks and confusion will pass, but what can be expected following that? Providers will assess their respective markets and make a business decision on whether they will participate in the network. For those hospitals or physician groups that enjoy high prices or are operating at capacity, they most likely will pass in the first year or two. Many baby boomer-age physicians may choose not to participate, wanting to avoid the challenges and disruption to their practice. Exchange issues will evolve around higher bad debt, lower than expected enrollment, very narrow networks and the geographic concentration of the newly insured (where Medicaid populations are concentrated). Some providers will consider developing their own health plans.
Trustees should keep an eye on: payer mix in the organization and growth in exchange-offered health plans and Medicaid. Watch trends in bad debt closely. Expect that most exchange sign-ups will be in the Bronze and Silver categories, and collecting co-pays and deductibles will be a problem. Further, those who signed up in the exchange may disenroll from the exchange-offered health plan after getting needed procedures and care, but it may take 60 to 90 days for the provider to find out. Exchange health plans will work hard to solve any issues as they arise since they need the premiums. Those with provider-owned health plans will have to consider whether participation in the exchange is a means of capturing or retaining a segment of the market.
2 New care models will continue to develop. Insurance companies and Medicare, along with some Medicaid programs, will continue to push for more contracts with accountable care organizations and different payment models such as bundled payment and patient-centered medical homes, as well as their cousins, medical neighborhoods, which incorporate specialty services.
Expect to see a trend toward shared savings incentives with physicians based on lowering cost and improving quality, safety and patient satisfaction. Some health plans will pay physicians more through the medical home in anticipation of reduced overall spending due to less use of specialists, hospitals and post-acute care. Health systems must adapt their care processes to include coordinated care management; often this means consolidating care management functions to incorporate inpatient, outpatient and high-risk case management.
Trustees should keep an eye on: utilization reduction in terms of admissions and length of stay, which result in fewer patient days, a lower number of procedures and referrals to specialists. Also, listen closely to the physicians younger than 55, because they have a vested interest in the development of new care models that are effective and produce earned economic incentives. Ask what the system is doing to streamline care coordination across the continuum.
3 Consolidation among providers will continue, and the big will get bigger. With the pressure of increasing operating costs, physician alignment initiatives, new care models, information technology investment and limited access to capital, many medical groups, independent practice associations, and hospitals and health systems will merge or be acquired. Health systems may start to merge with other systems to gain increased access points, greater critical mass, and a stronger presence in geographic areas or regions. What many organizations fail to foresee is that the new owner or sponsor will change the acquired organization to improve its performance and earn a return on its investment; therefore, current management of the potentially acquired organizations must execute strategy and use resources wisely. Of course, if the existing organization lacks resources to execute the plan, then finding a partner is needed.
Trustees should keep an eye on: academic medical centers. For those located in a service area or in close proximity to an AMC, expect it to brand itself and become a holding company for a potpourri of providers, some with their own well-recognized local or regional brand. AMC networks likely will grow by adding primary care and specialty care groups, possible employer clinics, and community or specialty hospitals.
Additionally, a likely diversification strategy includes hospital ownership of a health plan, starting with its own employees and dependents and then offering products in its regional markets to employers and eventually Medicare beneficiaries. Trustees will need to work with organizational leaders and, using a scorecard or dashboard, track the following areas for indicators:
- utilization
- net income
- cash flow
- physician retirements and replacements
- quality and satisfaction
- payer mix
- IT investment
- credit rating
- market position
- gaps in resource requirements
Potential partners all will have similar strengths. However, cultures will be significantly different. Spend time assessing culture, management team depth and a track record of solid, consistent operating performance. Also, look for a variety of ways to partner, including regional operating companies that can facilitate clinical integration and the organization's role in population health without having to transfer assets or total operating control.
4 Physician shortage begins to take effect, and alignment becomes a top priority. The recession reduced the net worth of many physicians and delayed their retirement. Now that the stock market has bounced back and real estate values are improving, older physicians will begin to wind down their careers. Anticipate the decrease in physician supply. There are some offsets: patients are seeing physicians less due to benefit changes; there is growth, albeit small, in the use of telehealth and e-visits; and providers are making better use of nurse practitioners. Patients who are newly insured through Medicaid and the insurance exchanges also will drive up demand for all services.
Physician alignment still will be an issue. Organizations will need to explore co-management agreements, incentive pools based on defined metrics, and participation in shared savings programs — ACOs and bundled payments — for both Medicare and commercial beneficiaries.
Lastly, there will be more physician alignment as new physicians, retiring physicians wishing to practice part-time, and physicians wanting the infrastructure and security of employment (in order to access capital, an ambulatory electronic health record, clinical protocols and skilled management to enable success with new payment models) will seek participation or employment in a larger network.
Trustees should keep an eye on: supporting or developing a means to align with physicians. Consider the following:
- co-management agreements with specialists
- ACOs with all physicians
- employment vehicles, such as a medical foundation, medical group, independent practice association or physician-hospital organization, that can accommodate both full- and part-time physicians
Other questions the board should ask: Does the IT plan address an ambulatory EHR? Does the organization have an enterprise data warehouse and a way to process Big Data? Is the organization working with health plans to receive payment for e-visits and telehealth? Is it redesigning care models to facilitate use of technology and advanced practice providers to mitigate the impact of physician shortages?
5 Marketing and creating a strong brand for organizations becomes increasingly important. The stronger the market position, the more important it is to create a strong brand. Expect to see an increased allocation of resources to brand an organization, especially at AMCs. Branding will use the power of name recognition, preference and expertise, and grow critical mass such that the public experiences the organization's presence everywhere. Anticipate greater use of social media, Internet links and marketing to the public. This strategy will be tailored to specific market segments.
Trustees should keep an eye on: the marketing plan and brand management. Hospitals and medical groups may wish to co-brand and partner with well-known organizations (for example, Cleveland Clinic, MD Anderson Cancer Center, Johns Hopkins Medicine) for specific programs. Physicians may wish to tie into or brand with an organization through participation with specific programs, links to hospital or system websites where they are a provider, and co-branding programs offered by their medical group or health plan. Also consider private label health plans in partnership with payers as a way to promote the health system "brand" to specific employers, including self-insured ones.
6 The demand for transparency will increase sharply. This trend will grow, although it will become more prominent in 2015 and 2016. This year will begin the awareness of quality and costs building as public and private insurance exchanges use this information and make it available to the public. This effort will help to drive value in the public's eye. The public can access Internet sites to see value, quality and satisfaction ratings.
Trustees should keep an eye on: reports from senior leaders that identify various high-quality sites and how the facility compares with competitors. Also, boards should engage with management to monitor the processes and to improve quality, safety and patient satisfaction scores. Reimbursement slowly will be impacted by quality and patient satisfaction results (adjusted up or down).
7 Large employers will look to form partnerships with providers. This trend will depend on the market. On-site clinics have been successful with BMW. Private insurance exchanges have been put in place at IBM, Kmart and Walgreens. Further, large employers, such as Lowe's and Walmart, are increasing their direct contracting with centers of excellence such as the Cleveland Clinic, Geisinger Health System, Virginia Mason Health System and Baylor Scott & White Health.
Additionally, Safeway and other employers post price information for selected procedures on employee websites, demonstrating that the public is interested in value that links outcomes and, most importantly, price.
Trustees should keep an eye on: reports from management about employer activity in the market and participation in large employers' cost-reduction and value-improvement strategies. Looking at this from the other side, the health system or AMC may want to approach employers regarding direct contracting, centers of excellence, and private insurance exchanges in conjunction with a third-party administrator or health plan. Know how the organization might stack up if a local health plan implements reference pricing as a way to direct members to lower-cost providers.
8 The deployment of new technology will continue. The emphasis for most health systems and physician organizations is on population health analytics. There is less emphasis on diagnostic and therapeutic equipment and facilities. Provider use of telehealth, e-visits, mobile apps and electronic prescriptions will continue to grow in order to manage care. The big question for many health systems and physician organizations that are growing through mergers or acquisitions of other providers is how to move all of the owned providers — ambulatory sites, physician practices, hospitals and post-acute facilities — to a common information technology platform. This may be more costly than the parent health system can afford.
One popular strategy is to slowly migrate providers to a common platform over a longer period of time. Use of health information exchanges and data repositories as a means of integrating data will be critical. Care management support, medical informatics and predictive modeling all require significant IT investment.
Trustees should keep an eye on: IT plans. Require senior leaders to have an IT plan that looks out three to five years and that covers the breadth of IT components listed previously. The chief financial officer should contribute to this effort.
9 Hospitals and systems will continue to expand their continuum of care within their market. As has been the trend over the past decade, hospitals will continue to diversify their delivery systems vertically and horizontally through ambulatory expansion. Expect to see providers vertically integrate into the post-acute care delivery continuum. The providers will put in place the softer, less expensive post-acute services, such as home health, hospice and palliative care, and then assess the need to convert or repurpose facilities for post-acute use in the areas of skilled nursing, rehabilitation, step-down units and transitional care units. There likely will be little interest in providers moving into congregate care, assisted living or senior housing, but building relationships with these entities to facilitate care transitions could be helpful for those in ACO or Medicare Advantage plans.
Trustees should keep an eye on: physicians, hospitalists and case managers. As organizations embrace bundled payments, ACO-type relationships and medical homes, it becomes very important to listen to physicians, hospitalists and case managers regarding the appropriate use of post-acute care services. The hospital needs to assess the volume, cost savings and investment required to move into post-acute care. The board may want to have senior leaders address the possibility of partnering with a post-acute care company.
10 Labor relations will continue to be a challenge. While many providers believe more volume is on the way with more insured patients and Medicaid expansion, the reality is the potential for an increase in bad debt, revenue per unit increasing at a rate below operating expense, and growing capital needs that drive up operating costs. Further, there may be low inflation and price increases below 2 to 3 percent, and most likely the health benefits offered by hospitals will trigger the Cadillac tax in 2018. Leaders have to shift more costs to employees or decrease their benefits. Labor strife and layoffs will continue with most staff reductions among nonclinical positions. Union activities should increase and get more aggressive.
Trustees should keep an eye on: monthly reporting on labor costs, staffing and benefits that are benchmarked to industry standards and historical performance. Offering competitive wages and benefits is a significant factor in attracting a skilled workforce. Priorities will need to be set regarding where layoffs occur (nonclinical vs. clinical) and compensation structure.
The Days Ahead
The transformation of health care is truly upon us in 2014. Demand for services will increase and consolidation will continue, with systems assessing mergers into other systems. The rhetoric this year will be loud regarding Obamacare with those who sing its praises and those who feel it is a disaster. Stay tuned; 2014 will be an interesting year.
Steven T. Valentine, M.P.A. (svalentine@thecamdengroup.com) is president, the Camden Group, Los Angeles.
