From the October 2011 issue of HealthCare Business News magazine
By Trevor Bromley
This report originally appeared in the October 2011 issue of DOTmed Business News
Health systems have become focused on, if not preoccupied with the possible shifts in the payer mix as a result of the Patient Protection and Affordable Care Act. As a result, they’re investing significant amounts into the development of population-based reimbursement and bundled payments, and on the development of medical homes and accountable care organizations.
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Experts suggest that additional economic dynamics such as a shift in health plan enrollment will create pressure to take additional costs out of their system. Providers, however, will be ill-prepared to deal with the magnitude of the changes for lack of expertise and organizational cultural factors.
In “Changing Economics in an Era of Healthcare Reform,” which appeared in a recent edition of the Journal of Healthcare Management, author Nathan Kaufman, managing director of Kaufman Strategic Advisors, LLC, predicted that a significant shift in health plan enrollment will take place over the next five years. This shift will see more people becoming members of government-sponsored plans, and fewer covered by private and highly profitable health plans. The differential is approximately nine million, according to CMS estimates.
Kaufman suggests that these profitable patients will be lost to government-sponsored plans with non-negotiable provider rates such as Medicare, Medicaid, and exchanges. While there will be a financial benefit to providers from government-funded insurance, over time, there will be a net loss since Medicare and Medicaid are not expected to keep up with historical and projected hospital cost inflation. In response, providers will need to become better at revamping their costs structures by a daunting 10 to 15 percent.
Other pressures that will impact providers include an increase in bad debt as patients pay a greater share of their health care costs; lower revenues as a result of lower utilization of health services as higher deductible employer-sponsored health plans discourage patient visits; and a political climate that could reduce or block proposed private insurer premium increases. This could result in the reduction or freezing of reimbursement levels from private insurers to providers much like what was proposed in Massachusetts when, in 2010, the state’s Department of Insurance rejected rate increases.
ACOs and cost control