The uncertainty and complexity of health care post-Obama and the transformation of the health insurance marketplace are having an undeniable effect on the healthcare industry—one that health administrators need to understand if their organizations are going to stay in business. From a growing number of insured people to changing financial models, the health industry’s business practices are in transition. Ryan Johnson, an operations administrator at Mayo Clinic and an instructor in the Master of Arts in Health and Human Services Administration at Saint Mary’s University of Minnesota, explains that more patients with health insurance who are seeking care are impacting the system, as are changing financial models.
“There are a number of rapidly changing initiatives that are starting to play out,” says Johnson. “It’s such a critical component for organizations to really keep their finger on the pulse because of how impactful it is to operating margins.”
Lower Reimbursement Rates
One major impact has been the way the ACA has affected reimbursement. Many previously uninsured patients signed up for plans through the exchange markets or became newly eligible for Medicaid, which provided them with coverage, but those options don’t reimburse healthcare organizations for services nearly as much as commercial plans do. “This is definitely an area that is probably a top three priority for healthcare executives on how it will shape revenues and margins, and how to respond,” says Johnson.
Declining reimbursement rates also change the way contracts for coverage are being negotiated. Some healthcare organizations aggressively negotiate on the basis of their high value and quality to justify higher rates, while others try to compete by working to drive down costs. Some insurers offer programs that require healthcare providers to meet certain standards, after which they become a preferred provider for various types of treatments and care. Blue Cross Blue Shield’s Blue Distinction and Center of Excellence are examples of programs that qualify providers to offer specialized care for its customers.
Changing Financial Models for Changing Needs
The health industry is moving away from a fee-for-service model, which rewards higher volumes of tests with more reimbursement, toward a value-based model that focuses more on population-based health and preventative care. Johnson gives the example of a community of 100,000 people, where an organization is responsible for 60,000 of them. Each member would pay a fee—perhaps $5,000 a year per patient. The organization would be responsible for managing the care of those 60,000 people within that total budget. “The idea behind it is great—less utilization, lower costs overall, it would drive down the burden on government programs and hopefully incentivize healthier behaviors that would lower the rate for medication and hospitalization.”
While it is widely believed that the new model will eventually bring down costs, “Organizations are really reluctant to move from fee for service, since it’s a known reimbursement model as far as what kind of margins you can drive,” says Johnson. “Today surgeons and specialists drive all of the revenue and margin, and they are really a focal point from a recruitment and retention perspective. Whereas in population health, especially in a community setting, primary care becomes almost like the quarterback of the system.”
The population-based model also poses an extremely complicated shift due to so many moving parts, such as diverse populations, organizations of different sizes with their own systems, different ways of managing and treating disease, changing laws and regulations, and hundreds of other factors.
Accountable Care Organizations and Bundled Care
Healthcare organizations are trying a couple of different models for keeping costs down. Accountable care organizations (ACOs) are groups of healthcare providers who join together to provide coordinated, high-quality care to Medicare patients. Coordinated care helps to avoid the unnecessary duplication of services as well as costly medical errors. When ACOs succeed in doing this as well as managing their spending, they share with Medicare in the savings.
Bundled care is generally reserved for acute care situations involving surgeries such as spinal surgery or hip replacement. A flat overall payment is negotiated. The healthcare organization then is responsible for managing that payment and working to ensure a positive outcome that avoids expensive readmissions or complications. Other organizations are merging with or acquiring other organizations to form networks or partnerships to secure a greater marketing share for their services.
The Growing Value of Data
While it is notoriously difficult to figure out how much healthcare treatments actually cost, that is slowly changing—at least for insurers. Johnson notes that insurers are using healthcare data to show the relationship between costs and outcomes, putting pressure on hospitals and medical networks to leverage their own data more effectively. Johnson notes that in Minnesota, the costs for various procedures and services at area healthcare organizations such as the Mayo Clinic and Allina Health are published, which means the companies with the higher costs are often called on to justify them with insurers. But while costs are one concern of healthcare administrators looking at analytics, there are other reasons to gather and analyze the data, says Johnson: “As an organization, we’re a lot more focused on how we capture the complexity of our patients and the outcomes.” Johnson admits that the current situation is chaotic, as healthcare organizations and insurers grapple with so many changes and try to implement new solutions. But ultimately he thinks the move from fee for service to a model that rewards the combination of quality care with financial management will be successful. “There’s opportunity for all organizations to provide the same level of care at a lower cost.” Johnson says.