A Sea Change in Health Care Delivery in the U.S.
Even if the U.S. Supreme Court unwinds part of health care reform law, the changes occurring now aren't likely to recede because all of the dominant players in the health care industry are staking out new ground. The driving forces are: cost cuts, care improvement and federal health-care overhaul preparation. In many cases, this has blurred the lines between businesses that have historically been separated.
Hospitals and insurers are both rushing to hire and/or set up strategic alliances with a shrinking pool of primary-care doctors in all of their new schemes. But doctors, the health care deliver system gatekeepers, generally resist efforts to control their practice styles. AMN Healthcare recently found that doctor and staff cooperation was the most frequently named "serious obstacle" to creating accountable-care organizations. That’s because a portion of doctor compensation is now tied to patient-satisfaction, quality and efficiency goals. Typically, these goals are a mix of individual physician results and those of the entire physician group affiliated with the hospital. The quality portion involves metrics like patients' blood-pressure control and preventive care like mammograms. The efficiency part includes statistics such as how often doctors refer patients to specialists outside the system and how often their patients go to the emergency room.
Meanwhile, the combination of pressure to ramp up EHR in the face of a steady decline in government reimbursements has led to over 80 hospital acquisitions already this year alone. According to Moody's Investors Service, last year, nonprofit hospitals had their slowest revenue growth in the last 20 years. The financial challenge is leading many to merge in hopes of cutting expenses and gaining leverage in negotiations with insurers. However, these are anything but cut and dry business deals. Hospital deals generally touch many nerves, because of the institutions' critical economic and emotional positions in their communities. New, larger health care systems are able to integrate patients' care and spread financial risk around. For example, many hospitals are now looking at “warranty"-style payments, under which a pre-agreed set sum is paid for an episode of care, including any complications. Such arrangements, under which hospitals can sometimes lose money if costs run too high, move hospitals into a space heretofore filled solely by insurance companies.
Forging New Relationships with Insurance Companies
Beyond mergers and acquisitions, hospitals throughout the U.S. are diligently working together to trim costs and track the quality of care. In the most extreme situations, they are creating jointly marketed health plans that remove the hard line between insurer and provider. In these cases, instead of the insurance company simply paying the hospital for services, the hospital system and the insurance company exchange patient data and may share the risk of coverage, acting more like an integrated company. This approach effectively leverages both the hospital brand and the insurer's back-office know-how.
Beyond the potential symbiosis, this may be the insurer's best shot at competing in many of the new state-based health-insurance marketplaces where some 24 million people are eventually expected to purchase their coverage.
The difficulty in these arrangements lies in the history of the insurer/hospital relationship. In the past, 99% of the discussions concerned money – rates, retentions, claims experience – all different ways of dissecting how the money is being spent. In order to develop strategic working relationships, strategic conversations have to take place, and this often has nothing to do with dollars and cents. This means the tactics used in the past – withholding cost information from the other party in order to get a better deal – is the very measure now obstructing strategic, viable partnerships.
But the conversations are taking place, and they are intensifying, since under the new Federal law, all health plans must spend a set share of premium dollars on health-care expenses, which can crimp insurance profits. Insurance companies have no choice but to aggressively pursue partnerships using transparent negotiating tactics that they never would have dreamed of using in the past.
Employers Still in the Game Are Playing It Differently
Having run out of options (other than eliminating health insurance altogether), employers are taking notice of the fact that 75% of health costs are linked to lifestyle-related conditions. As a result, those employers still offering group health insurance are starting to connect insurance-premium contributions to employee health-risk factors. Those who get lousy grades on their cholesterol, blood pressure, body-mass index and tobacco use pay more into their health plan. Again, something considered unthinkable in the past, but clearly an indication of the degree to which the stakes have changed.
A study conducted by Towers Watson indicated that 13% of U.S. employers are connecting financial incentives to health outcomes like cholesterol-test results, and another 33% plan to do so. Forty-three percent of the biggest employers are taking an even more direct path into health care by offering onsite clinics, according to a survey by Mercer.
Some of these initiatives are controversial; the American Heart Association, the American Diabetes Association and the American Cancer Society claim these programs are backed by little evidence and promote discrimination against people based on their health. Employees, particularly those singled out as “health risks,” have been removed from their comfort zone. They are not happy either, although there are many success stories supporting the idea, with employees positively addressing critical health problems that would have been left unattended in a more traditional, non-invasive health plan.
Going Forward
Today’s trend is tomorrow’s standard operating procedure; that is, to the extent that the new approaches being put out there work. In their own way, it appears as if they all work to make things a little better – whether it’s a hospital being acquired so they don’t have to run out and buy their own stand-up MRI machines, an insurance company representative explaining to a hospital executive exactly how they set their premiums and what kind of profit margins they are seeking, or a patient being told to payer higher premiums or quit smoking.
The fact is, the health care delivery system we have now is broken.
The U.S. has the highest health care costs relative to the size of its economy in the world, with an estimated 50.2 million citizens (approximately 15.6% of the September 2011 estimated population of 312 million) without insurance coverage. Further, an estimated 77 million baby boomers are reaching retirement age, which combined with significant annual increases in health care costs per person will place enormous budgetary strain on U.S. state and federal governments. The long-term fiscal health of the U.S. federal government is primarily related to whether health care costs can be brought under control.
Slowly but surely, it is being fixed.
- Hospitals are slowly bulking up into huge systems, merging with one another and building extensive new physician work forces. This reflects a continuing trend that dates back to the 1990s. Hospital capacity in the United States has steadily shifted away from independent hospitals and towards multi-hospital systems. Hospitals are getting into insurance-like setups (e.g., ACOs), including direct approaches to employers that cut out the health insurer.
- Insurers certainly aren’t dormant. They are buying health-care providers, or seeking to work with them on new cooperative deals and payment models that share the risks of health coverage.
- Left with few choices after years of cost sharing and then outright cost shifting, employers are starting to take a far more active role in their employee’s care.
Hospitals and insurers are both rushing to hire and/or set up strategic alliances with a shrinking pool of primary-care doctors in all of their new schemes. But doctors, the health care deliver system gatekeepers, generally resist efforts to control their practice styles. AMN Healthcare recently found that doctor and staff cooperation was the most frequently named "serious obstacle" to creating accountable-care organizations. That’s because a portion of doctor compensation is now tied to patient-satisfaction, quality and efficiency goals. Typically, these goals are a mix of individual physician results and those of the entire physician group affiliated with the hospital. The quality portion involves metrics like patients' blood-pressure control and preventive care like mammograms. The efficiency part includes statistics such as how often doctors refer patients to specialists outside the system and how often their patients go to the emergency room.
This has prompted physicians to fight the revolving door phenomena and more closely track the care of patients with chronic conditions. This means more case management and less ER. That’s the good news. The bad news is that physicians will be less likely to refer outside of the hospital’s network since there is no incentive to do so. This can limit the range of choices for patients, particularly those outside of urban settings.
Meanwhile, the combination of pressure to ramp up EHR in the face of a steady decline in government reimbursements has led to over 80 hospital acquisitions already this year alone. According to Moody's Investors Service, last year, nonprofit hospitals had their slowest revenue growth in the last 20 years. The financial challenge is leading many to merge in hopes of cutting expenses and gaining leverage in negotiations with insurers. However, these are anything but cut and dry business deals. Hospital deals generally touch many nerves, because of the institutions' critical economic and emotional positions in their communities. New, larger health care systems are able to integrate patients' care and spread financial risk around. For example, many hospitals are now looking at “warranty"-style payments, under which a pre-agreed set sum is paid for an episode of care, including any complications. Such arrangements, under which hospitals can sometimes lose money if costs run too high, move hospitals into a space heretofore filled solely by insurance companies.
Forging New Relationships with Insurance Companies
Beyond mergers and acquisitions, hospitals throughout the U.S. are diligently working together to trim costs and track the quality of care. In the most extreme situations, they are creating jointly marketed health plans that remove the hard line between insurer and provider. In these cases, instead of the insurance company simply paying the hospital for services, the hospital system and the insurance company exchange patient data and may share the risk of coverage, acting more like an integrated company. This approach effectively leverages both the hospital brand and the insurer's back-office know-how.
Beyond the potential symbiosis, this may be the insurer's best shot at competing in many of the new state-based health-insurance marketplaces where some 24 million people are eventually expected to purchase their coverage.
The difficulty in these arrangements lies in the history of the insurer/hospital relationship. In the past, 99% of the discussions concerned money – rates, retentions, claims experience – all different ways of dissecting how the money is being spent. In order to develop strategic working relationships, strategic conversations have to take place, and this often has nothing to do with dollars and cents. This means the tactics used in the past – withholding cost information from the other party in order to get a better deal – is the very measure now obstructing strategic, viable partnerships.
But the conversations are taking place, and they are intensifying, since under the new Federal law, all health plans must spend a set share of premium dollars on health-care expenses, which can crimp insurance profits. Insurance companies have no choice but to aggressively pursue partnerships using transparent negotiating tactics that they never would have dreamed of using in the past.
Employers Still in the Game Are Playing It Differently
Having run out of options (other than eliminating health insurance altogether), employers are taking notice of the fact that 75% of health costs are linked to lifestyle-related conditions. As a result, those employers still offering group health insurance are starting to connect insurance-premium contributions to employee health-risk factors. Those who get lousy grades on their cholesterol, blood pressure, body-mass index and tobacco use pay more into their health plan. Again, something considered unthinkable in the past, but clearly an indication of the degree to which the stakes have changed.
Some of these initiatives are controversial; the American Heart Association, the American Diabetes Association and the American Cancer Society claim these programs are backed by little evidence and promote discrimination against people based on their health. Employees, particularly those singled out as “health risks,” have been removed from their comfort zone. They are not happy either, although there are many success stories supporting the idea, with employees positively addressing critical health problems that would have been left unattended in a more traditional, non-invasive health plan.
Going Forward
Today’s trend is tomorrow’s standard operating procedure; that is, to the extent that the new approaches being put out there work. In their own way, it appears as if they all work to make things a little better – whether it’s a hospital being acquired so they don’t have to run out and buy their own stand-up MRI machines, an insurance company representative explaining to a hospital executive exactly how they set their premiums and what kind of profit margins they are seeking, or a patient being told to payer higher premiums or quit smoking.
The fact is, the health care delivery system we have now is broken.
The U.S. has the highest health care costs relative to the size of its economy in the world, with an estimated 50.2 million citizens (approximately 15.6% of the September 2011 estimated population of 312 million) without insurance coverage. Further, an estimated 77 million baby boomers are reaching retirement age, which combined with significant annual increases in health care costs per person will place enormous budgetary strain on U.S. state and federal governments. The long-term fiscal health of the U.S. federal government is primarily related to whether health care costs can be brought under control.
Slowly but surely, it is being fixed.
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