Amid the uncertainty, one adviser says provider organizations are taking a more measured approach to M&A activity.

Dec. 23—The healthcare industry is accustomed to uncertainty. So, in that sense, 2017 will be no different for providers, who will need to make quality a top priority while increasing their price and quality data transparency, notes an industry adviser.

“Quality needs to be job one in this healthcare climate,” Ed Giniat, national healthcare and life sciences sector leader for the consultant firm KPMG, said in an e-mail.

Such advice came on the eve of the launch of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), under which quality reporting in 2017 will affect what physicians are paid in 2019.

“Quality has far reaching implications upon overall reimbursement and opens the doors to potential penalties, such as those for readmissions within 30 days after discharge,” Giniat said.

Beyond that, scoring well on publicly reported quality measures boosts providers’ reputations within their community, which helps maintain hospital admissions and market share by reducing the “outmigration” of patients, Giniat said. 

He recommended developing a sound data and analytics program to measure quality and workforce training and help spot gaps in care.

The focus on quality will be necessary regardless of the payer mix of individual providers, Giniat said. But other factors also will come into play.

“The focus on the transfer of risk through Medicare Advantage, Medicaid managed care/state-based waivers, and the trend around developing co-branded health plans with private insurers (versus build or buy) will be critical,” he said. “We will have to see what happens with the mega mergers of the health insurers.”

The current environment will require providers to “have a better handle on their costs,” Giniat said, in order to fully understand how risk-based contracts will affect their finances.

“Both payers and providers are also taking a much harder look at value-based care and seeing where it can be applied outside some of the programs that [the Centers for Medicare & Medicaid Services]  started,” he said. “This ties into quality, but it also goes a bit deeper because it shifts financial risk to providers.”

Security Concerns

Other trends both payers and providers must address include cyber security and the growth of consumer power.

Giniat warned that cyber threats have grown more sophisticated with spread of ransomware attacks able to tie up hospital operations and threaten patient care. Both hospitals and plans need to assess their potential security gaps “before someone else finds them,” he said.

Consumers are taking a more active role in how healthcare is provided and procured, Giniat said. The healthcare industry is reacting by adopting a retail-like approach to fit around patients’ and members’ lifestyles, behaviors, and expectations.

“Healthcare consumers are expecting control, flexibility, and personalization in the services they buy, especially as more of the costs get shifted to them,” Giniat said.

With Republicans controlling Congress and the White House, lawmakers will be under pressure to fulfill their campaign promise to repeal and replace the Affordable Care Act (ACA). What remains to be seen is when and how much of the ACA will be repealed and what it will be replaced with.

Under this cloud of uncertainty, Giniat recommended providers closely monitor legislative and regulatory developments, and assess their readiness for various scenarios that may emerge.

Repeal & Replace Process

President-elect Donald Trump “is not like the other guys – in case you haven’t noticed,” said S. Lawrence Kocot, leader of KPMG’s Center for Healthcare Regulatory Insight in Washington, D.C.

Kocot, who was an advisor to the CMS administrator in the George W. Bush administration, predicted likely policies based on positions Trump has taken, the process an ACA repeal and replace effort must follow, and political realities.

“Cutting off benefits to 20 million people is politically dangerous,” Kocot said at recent policy presentation. Additionally, “hospitals have billions in revenues at stake,” as well as states, which would suffer “a tremendous budget hit” if the Medicaid expansion was rolled back.

Other indicators of possible policy directions include the “A Better Way to Fix Health Care” strategy outlined by U.S. Speaker of the House Paul Ryan (R-Wis.) and the Restoring Americans’ Healthcare Freedom Reconciliation Act, which was introduced as H.R. 3762 by Trump’s nominee for secretary of Health and Humans Services, Rep. Tom Price, MD (R-Ga.), and vetoed by President Barack Obama.

A full repeal would fail in the Senate, Kocot said, but a more-likely-to-succeed partial repeal would likely include elimination of the individual and employer insurance mandates; ending the Cadillac tax, medical device, and insurer taxes; cutting Medicaid expansion funding; and ending premium tax credits.

Kocot predicted that other ACA repeal provisions will be attached to “must do” legislation, such as measures to increase the debt ceiling and to reauthorize the Children’s Health Insurance Program (CHIP) and the Prescription Drug User Fee Act ( PDUFA).

Trump’s choice for CMS administrator is health policy consultant Seema Verma, who is credited with designing Indiana’s Medicaid program expansion.

“She, obviously, will be focused on what she knows best,” Kocot said. CMS “will probably be more welcoming of amendments to waivers” under her watch.

Creating Value Ecosystem

Carole Streicher, a partner in KPMG’s deal advisory practice with a focus on the healthcare industry, predicted robust merger and acquisition activity will continue as providers seek to better afford information technology investments and to increase bargaining power against health plans.

Meanwhile, she said “payers are also looking to gain bargaining power through consolidation,” in part, to address new competition from providers creating their own health plans.

Regardless of how repeal and replace efforts progress, Streicher said during the policy presentation that the movement from volume- to value-based payments will continue and providers will need to continue their efforts to “create an ecosystem” that helps them on that path.

Provider organizations, however, are taking a more measured approach to M&A activity, she said. They are looking at whether to retain key employees (especially physicians), if IT systems are compatible and don’t carry hidden security risks, and if any value is created through synergies and integration.

If not, Streicher asked, why do the deal?

KPMG Advisory Leader Liam Walsh predicted more focus will be put on using IT for preventive health measures that can “inform and change behavior” and to alert physicians to changes in patient health that require attention.

Sounding a more worrisome note on IT was Michael Ebert, who leads KPMG’s Cyber practice for security, privacy and continuity. He cited a KPMG survey from January 2016, in which 80 percent of respondents reported a data breach. But 53 percent of providers and 66 percent of payers said they were prepared for another cyberattack.

“I think that was optimistic,” Ebert said during the policy briefing. For instance, one company he talked to identified 1,400 different entities that had access to their data, but they didn’t know what particular data this included.

Ebert added that IT breaches were no longer just a legal or financial threat. With more devices, such as respirators and infusion pumps, hooked up to hospital data systems, breaches are now also threats to patient safety.

On the positive side, Ebert said medical device makers are working together to better identify potential cyber threats.

Andis Robeznieks is a freelance writer based in Chicago. Follow Andis on Twitter at @AndisRobeznieks.

Publication Date: Friday, December 23, 2016