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Healthcare reform coupled with changing demographics will cause significant shifts in U.S. health care over the next five to 10 years as the country transitions to value-based care. Hospitals and health systems must prepare for utilization declines as they navigate those changes.
Having a thorough understanding of the organization’s current positioning and the likely impact of healthcare reform and market forces is essential if a provider is to project utilization to support an accurate multiyear financial plan. From there, the provider can project trends in the communities it serves and develop and implement strategies to achieve its objectives.
There is some debate about how the forthcoming changes will affect patient volumes, but we believe that current trends and increasing market pressures will drive overall utilization down over time. Inpatient volumes already are on the decline. In a recent study, encompassing nearly half of the U.S. population, we found that inpatient use rates per 1,000 people fell more than 5 percent between 2006 and 2011 in 71 percent of participating states. Some states—such as Minnesota, South Carolina, and Wisconsin—saw declines as great as 10 percent or more.
By contrast, outpatient utilization increased. That trend is expected to continue in the short term, driven largely by increased physician visits through expansion of health coverage to about 32 million uninsured Americans under the Affordable Care Act. But opposing forces ultimately will counteract that growth. With “more skin in the game,” patients are likely to seek fewer services as they assume greater responsibility for the cost of care with higher deductibles and copayments. Meanwhile, providers will be motivated to decrease utilization by increasing care efficiency as they assume more risk and face new quality incentives from both government and commercial payers.
Hospitals and health systems have many opportunities to lower utilization. Under a value-based model, providers will have incentives to improve care management. They will be paid based on results, rather than volume. Through initiatives to improve patient outcomes, such as providing at-home, follow-up care to patients after they are discharged from the hospital, organizations can lower utilization by reducing unnecessary readmissions. States like California that are ahead of the curve in the move to value-based care demonstrate that effective population health management significantly decreases utilization.
Reducing utilization can help organizations decrease costs and increase their eligibility for narrow or tiered networks. To participate in these highly selective networks, hospitals and health systems need to demonstrate to payers that they can reduce costs significantly by driving utilization out of the system. In exchange, payers agree to direct more patients their way and potentially share a portion of the savings.
Several urban markets already have seen compelling utilization declines as large regional providers position themselves for success in this market. A major health system in Pennsylvania, for example, reported an 18 percent drop in hospital admissions and 7 percent decline in patient costs three years after launching its patient-centered medical home model in 2007 (Gilfillan R., et al., “Value and the Medical Home: Effects of Transformed Patient Care,” The American Journal of Managed Care, August 2010).
Providers that do not proactively participate in new value-based care and payment programs leave themselves vulnerable to utilization declines, without the benefit of shared savings or value-based payments.
In addition to anticipating declines in utilization, hospitals and health systems should expect changes in their payer mix that are likely to decrease revenues. For example, aging baby boomers will migrate from private insurance into Medicare, which reimburses at lower rates than commercial payers (and is expected to have an annual inflation rate of about 1 percent going forward). This shift typically occurs at a rate of 1 to 2 percent over five years, depending on a community’s demographics. Also, more people will become eligible for Medicaid and new federal and state insurance exchanges, which are expected to reimburse close to Medicare levels or below. Estimates of the number of commercially insured who will move into insurance exchanges range from 4 to 40 percent.
Scenario modeling is vital. Organizations should clearly define their credit goals and understand how various volume and payment scenarios could impact their ability to reach those goals. The key is anticipating how forces—such as utilization declines or changes in payer mix—might affect revenues and cash flow. By proactively outlining the levels of performance improvement required to maintain a healthy credit profile under different circumstances, organizations can ensure they are prepared to weather the changes ahead.
Dawn Samaris is a senior vice president in the strategic financial planning practice at Kaufman, Hall & Associates, Inc.
Publication Date: Tuesday, February 19, 2013
Russ Graney, founder and CEO for Aidin, and John Laursen, head of business development for Aidin, share insights on how to improve care transitions between acute and post-acute care settings and incentivize high-quality patient outcomes.
Scott Elston, strategic accounts manager, GE Healthcare Services, describes how substantial cost reduction in health care requires rethinking business strategy and asset use.
Robert Williams, MD, director, Deloitte Consulting LLP, and Arielle Freiberger, product strategist, ConvergeHEALTH by Deloitte, explain how sophisticated retrospective, real-time, and predictive data analytics can inform decision making to reduce costs and improve care.
Stuart Hanson, director of business development (healthcare solutions) at Citi Retail Services, discusses how improving the payment experience can benefit consumers and healthcare providers.
Scott Schmidt, vice president, Cerner RevWorks, LLC, shares insights on best practices for maximizing a revenue cycle management partnership.
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