In 2015, trustees will see last year’s cost and quality pressures continue. At the same time, they should develop closer relationships with all the providers along the continuum of care.
As we begin 2015, trustees can expect continued consolidation, an emphasis on providing a better value proposition to the consumer and payer, a renewed focus on cost management, and a growing number of hospitals and systems purchasing acute, ambulatory, medical group and post-acute care components to better coordinate care. Hospital leaders also should anticipate a pickup in branding, use of mobile devices to deliver care (known as mHealth), increased use of e-visits, continued calls for transparency in quality, price and patient satisfaction, more providers partnering with health plans to gain knowledge and spread financial risk, and slow growth in private exchanges.
Boards also should pay attention to a handful of hot areas that could affect hospitals: continuation of sequestration for health care expenditures, changes to the 340B drug pricing program and site-neutral payment reforms, including hospital-based clinics. Finally, lawmakers’ concerns about restrictions on narrow networks will have implications for health systems, hospitals and physician organizations.
These 10 trends are where boards should direct their attention in 2015.
1 Inpatient volume will not bounce back. While it is obvious that the baby boomers will continue to drive demand for services, the percentage of the population that is obese and the incidence of chronic disease both will increase. In response, clinicians are using new care models and economic incentives to reduce resource consumption. The growth of shared savings, the patient-centered medical home, episodes of care management (such as co-management by the hospital and physicians or bundled payment arrangements), accountable care organizations and clinical integration all will continue to grow and expand.
Boards also should expect to see more specialty patient-centered medical homes, such as those for oncology or endocrinology, that make use of telehealth and e-visits to target chronic disease.
Trustees should keep an eye on: volume and activity across the continuum of care — inpatient, ambulatory (especially imaging and surgery), physician and clinic visits, and post-acute care. The volume of physician and clinic visits and post-acute care will grow slightly, more than acute utilization. The metrics to watch include admissions, readmissions, post-acute care use and outpatient/ambulatory procedure volume. Lastly, expect emergency department volume to continue to drift up, even with the growth of urgent care and retail clinics, because newly insured patients may not have or be unable to access a primary care physician.
2 Many organizations will continue to focus on population health. ACOs’ growth in numbers and population reflects this trend. Employers will continue to demand better value for their health care dollar. Medical groups, hospitals and systems will be required to invest in the infrastructure to manage population health. This trend will reflect information technology spending that will focus on an ambulatory electronic health record interface, data warehousing and analytics. Providers that want to embrace population health will need to adopt a payment model that rewards them for delivering better value to the patient and payer. Health insurance plans will evaluate new relationships with providers to determine better value as a means of both controlling cost and increasing enrollees for more premium revenue.
Trustees should keep an eye on: the organization’s development of new care models, new payment methodologies, IT expenditures and physician leaders in their area. Specifically, board members need to understand payment models that align care models, clinicians and payers, and engage patients in order to drive better value. Look for pay-for-performance incentive systems that might target quality, patient satisfaction or reduced costs.
3 Squeezing operating costs out of your organization remains a priority. With the continued growth of public health insurance exchanges, Medicare sequestration, state budget issues and soft volumes, hospitals and systems must focus on salaries, wages and benefits, which typically account for 50–55 percent of operating expenses. Organizations will continue to reduce nonclinical personnel and non-core service expenditures, streamline clinical and nonclinical processes, refine compliance with group purchasing organizations and optimize vendor relationships.
Trustees should keep an eye on: operating metrics, including such indicators as salary, wages and benefits per employee; full-time equivalent per adjusted occupied bed; supply expense as a percentage of operating costs; addition of new programs and services; and low volumes, which drive up per unit cost. Senior leaders should be able to provide cost-comparison information against competitors. Managing cost becomes even more crucial if an organization operates a health plan or an ACO. Each type of organization will have its own trends and metrics specific to its lines of business.
4 Transparency will increase more quickly than consumers’ interest in using the information. There are numerous state and health plan websites that provide quality and price information, and those should increase in 2015. Although the data are not always accurate, your competitors play by the same rules, and the public sees the same data.
As a result of transparency, the push toward site-neutral pricing will continue. However, consumers’ out-of-pocket costs will increase due to greater cost-sharing in employer-based coverage, including plans with lower premiums and high deductibles or higher co-pays. As a result, consumers will become more sensitive to price, driving demand for cost and quality data. Management should review chargemaster and contracting strategies in light of transparency trends.
Trustees should keep an eye on: how their hospital or system compares with national and local benchmarks and competitors’ performances. The Medicare Hospital Compare and Physician Compare websites are good places to start. It also will be important to request comparative competitor information from senior leaders to see how your organization is performing. Further, accessing price information within your service area is as simple as entering a ZIP code on any one of multiple websites.
5 Public and private insurance exchanges will have little new impact. The feds expect public insurance exchange growth to reach approximately 9 million people, up from 7.1 million in 2014. On the other hand, the number of private exchanges offered by employers also will increase this year. The private exchanges function like the public exchanges without public subsidies. Overall, exchanges will slow down the increase of premiums as payers move the higher co-pay and deductible to the patient. This will create downward price pressure on hospitals and physician payment. Additionally, the pace of growth will pick up for consumer-operated and -oriented plans, or CO-OPs, which are private, nonprofit insurers that will compete with public exchanges.
Trustees should keep an eye on: the public insurance exchange plan enrollment in their market. Trustees need to determine whether their organization is contracted with health plans that participate in the public exchange. And if so, with which plans and which products are they associated.
Senior leaders should keep the board informed on strategy regarding the Medicaid and dual-eligible populations. Many states are moving them to a managed care model.
6 IT will continue to consume a growing portion of capital expenditures. As population health management continues to gain currency, hospitals and systems will need to invest more in IT. These purchases will target patient registries, analytics using population data, a data warehouse linking data from across the continuum, and analytics using payer claims and internal data.
Additionally, many of the tools that support increased patient engagement rely on IT investments, including patient portals, wellness outreach, patient access to their medical records and, in some cases, telehealth.
Trustees should keep an eye on: the IT budget and purchases as well as the IT strategic plan with rough time and cost budgets. The board should use the aforementioned specific items as the checklist to answer the question: “In what IT tools are we investing, and how do they relate to our organization’s overall strategy?”
7 The competition among providers will focus on capturing a defined population. The Access Points Pyramid, above, identifies high-priority access points for defined populations. The trend is that organizations are adding hospitals, clinics, health plans and direct contracts with employers, physician practices and ambulatory sites to their delivery network. Of particular note are the four major payer categories. Each segment requires a different access strategy.
Further, many providers are targeting commercially insured patients through HMOs and direct-to-employer contracts, bundled payments (such as those encompassing hospital, physician and sometimes post-acute services into single payments), or through tailored, high-performing networks.
Trustees should keep their eye on: progress in accessing targeted populations. The future of your organization depends on the ability to capture populations. Board members should ask: “Where are we on population market share by market segment?” They also should ask about access points, and the organization’s ability to own, link or partner with the access points is critical.
8 PPO products will continue to grow, while HMO products will not. Commercial HMO enrollment will continue its slow decline, while the movement toward high-deductible PPO products will grow. Employers of all kinds will continue to add value to their health benefits through the addition of wellness programs and disease prevention. Additionally, the push for transparency, which should slow down price increases and enhance quality, will gain momentum. Of note, a small number of employers will exit sponsorship of or payment for health benefits and move employees into a public or private exchange through a defined contribution structure.
In some markets, direct contracting with employers will be an option. Ultimately, direct employer contracting and private insurance exchanges will be a small but growing trend followed by the highest growth in high-deductible health plans.
Trustees should keep an eye on: senior leaders’ reports on payer activity. Most providers will need to move their employees into a tiered benefit structure that provides incentives for them to use their own respective health care delivery networks. Further, boards should be looking for a management-recommended strategy that uses a pluralistic, not exclusive, contracting relationship. The key is for the health system to have the greatest access to as large a population base as possible.
9 Consolidation will continue at a strong pace and spread. Hospitals will continue to struggle as inpatient use stagnates and pressures build to reduce expenses, grow revenue and improve access to capital. There also will be an acceleration in the consolidation of imaging services. Radiology benefit managers, pricing transparency, bigger co-pays, health plan contracts that redirect business, and cutthroat pricing will hinder the profitability of imaging centers. Expect consolidation in the post-acute care world as referral patterns change and ACOs, clinically integrated networks and health plans alter business relationships.
Trustees should keep an eye on: consolidation in their service area and what it might entail. Your organization may be approached about merging or being acquired by a health system or competitor. As part of the strategic planning process, hospital and system leaders should identify their mission, vision and strategic plan to move them forward. Any gaps or shortcomings should be discussed and identified, and issues should be addressed through resource allocation. If the organization lacks adequate resources, then it may be time to consider a partner, a new sponsor or sale.
10 Hospital and physician alignment will continue to be a top priority. In the ongoing quest to capture a greater population, hospitals and systems will continue to acquire medical groups and physician organizations. In some cases, medical groups themselves are acquiring other groups and physician organizations, which is a trend that will accelerate in 2015. Academic medical centers also are entering the market to acquire medical groups and clinics and provide more access points to their systems.
Co-management agreements, bundled payments, ACOs and clinically integrated networks will continue to grow and use more sophisticated economic incentives to produce greater value.
Meanwhile, hospitals and medical groups that need to staff clinics, urgent care centers and physician practices will look toward newly retired baby boom physicians who may be willing to work part-time or for fill-in shifts.
Trustees should keep an eye on: medical staff retirements and newly recruited physicians. Senior leaders should identify potentially retiring physicians and develop a transition and succession plan to ensure an adequate supply of physicians. Further, the board should press senior leaders about budgets, salary subsidies and acquisition costs. Other important human resource-related questions include: What is the plan for integrating acquired medical groups as well as those who are in a clinically integrated network? What performance metrics will be used to evaluate success and assure sustainability? Most organizations cannot afford to employ an entire medical staff and will need multiple strategies for creating physician-hospital alignment.
Politics and Pressure
While trustees should focus on these 10 trends, they also must be prepared for some unexpected political developments as the Republicans gain significant national influence. At the same time, President Obama will veto policies and legislation he does not support and is ready to use his executive order powers to extend his influence.
Ultimately, patients and payers want better health care value, and the pressure is on the hospitals, systems and physicians to deliver.
Steven T. Valentine, M.P.A. (firstname.lastname@example.org) is president, the Camden Group, Los Angeles.