Healthcare Reform

Running the Rapids of Today’s Healthcare Reforms

April 5, 2017 12:33 pm


An MBA student of mine recently shared a great analogy with me about looking at finance strategy during this latest round of national healthcare reform debates. (Thank you, Fred!)  Whitewater rafting (a common spring pastime here in Colorado) requires keeping focus on a long-run target, like the next bend in the river—and not reacting to each rock you see in the river. That seems like a good way for us to approach the next few months in healthcare finance: Watch for rocks, but don’t react to everything; just keep your eye down-river.

The nation recently completed a heated discussion of the outcomes that might have come from the recent unsuccessful “repeal and replace” effort—that is, keeping many of the insurance market reforms enacted by the Affordable Care Act (ACA) while doing away with the coverage mandates and Medicaid expansion funding. The biggest variable in this mix seems to the question of cutting off Medicaid expansion funds, and it’s a question that we cannot expect will go away. Even if the legislation had passed, the question would not have been one that merits an immediate response (like that rock up ahead). But it likely would need attention in a few years (the bend in the river).  Based on the responses to the proposed legislation I heard from my colleagues in the provider community, this perspective is widely shared.

Most projections envision a loss of Medicaid and individual market plan revenues to providers under any new version of health financing. That seems a lot like the same market we had prior to 2014—in effect, a return to the “old days” of delivering care to large numbers of uninsured patients and absorbing losses from bad debt and charity care. We’ve run this type of rapid before, so we should be well prepared to run another one when we encounter it. At the same time, now may be a good time to look at our current tactics to see how they will work down-river if we should revert to the old system or shift to something comparable.

As the next big bend in the river approaches and we find out what the next Republican healthcare reform proposal will be, a couple of things come to mind when considering what life with “Trumpcare” or “Ryancare” might have been like.

First and foremost, the healthcare reform proposal is a wake-up call for us to review our charity care policies. When was the last time we took a good look at them to be sure they are still relevant? Although there has been a continued need for charity care policies under the ACA, the market will change eventually, so now might be a good time for hospitals and health systems to start thinking about how fewer insured patients might affect their collections. This recommendation especially applies to organizations that have been fortunate to transfer bad debt and charity to collections under the ACA. There has been some pick up in the economy that might shift revenue from individual market products to those in the employer group markets, but the evidence supporting that possible change is anecdotal, at best. Plus, the potential of continued instability in ACA markets might cause some of the gains of insured patients to retrench in the coming year.  It would be better for organizations to be prepared to adapt to a return to the old norm if ACA individual markets do contract as projected.

Another possibility out there around the bend is that state legislatures may consider maintaining Medicaid eligibility levels at higher points than before ACA to maximize federal revenue (especially if block grant funding regains traction in Congress). States that keep eligibility at ACA levels under federal block grants would have little option but to offset state matching income with reduced Medicaid provider fees (yes, they could be lower). And insurers may be seeing increased consumer pressure toward growth in premiums and possibly hold a firmer line on provider payments as well.

Certainly, this is not an issue for today—it remains to be seen what will happen. But if insurers soon get an opportunity to compete on varying benefit designs not currently “medaled” under the ACA, it stands to reason that hospital financial counselors will face a new wrinkle in seeing many low-cost, narrow-benefit plans. Some ideas bounced around among health economists on new benefit designs might entirely redefine the value of insurance verification and the challenges for providers in working with patients covered under such plans.

So what might things look like around that bend in the river? Well, it looks like a heightened risk of bad debts or charity care—and potential lower fees from even lower Medicaid and commercial payer fees—will really press us to get even more creative. Again, this issue is not a rock to dodge today, but it is an indication for us to start evaluating now what might need done around that bend. The cost of care remains a chief concern related to the potential new landscape. If our charity or bad-debt costs are defined by the cost of delivering the associated care, then limiting that cost reduces the downside risk of that change in the market.

Increased competition and varied benefit design also will call for greater cost efficiency. But that view should not prompt us to start making hurried changes to cost structure—at least not yet. Instead, let’s take this idea and start critically looking at our operations. Are there steps we take that do not add value to patient care? Do we have processes whose dependence on one person creates bottlenecks and the risk of error? What opportunities do we have to reduce overhead cost without eroding patient care quality? How can we reduce the marginal cost of care to a point where patient care and the balance sheet are both protected?

Those questions will not be answered today, and a rush to answer them would likely result in harm to patient care and the organization—just as a hurried response to a rock in the river might result in rafters having an harrowing swim. Let’s look further ahead, anticipate the landscape around the bend, and start thinking now about what we need to know now to succeed downstream.


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