Innovation by employers will reshape healthcare markets – February 2016
Dixon Hughes Goodman
Description
Change is coming to the healthcare industry
Innovation by employers will reshape healthcare markets.
PAUL HOPKINS
The U.S. healthcare industry is in the midst of its most volatile and provocative period of transformation since the creation of Medicare in the
1960s. Key drivers of change include state budgetary concerns, a variety of effects from the Affordable Care Act (“ACA”), employers looking to
control ever-increasing healthcare costs, and the general lack of sustainability in the overall U.S. healthcare economy.
These pressures impact the financial sustainability of everyone involved in the healthcare delivery system as it exists today, from the large hospital systems to the family practitioner. Memphis is certainly not immune from these pressures, and healthcare providers (hospitals, physicians, and others that deliver care) in the Memphis area remain challenged to provide high-quality healthcare services to Memphis-area residents, at lower cost, while dealing with unprecedented industry disruption. Healthcare providers are working to deal with these challenges in many ways. In particular, healthcare payment reform is developing with accelerated urgency and pace, resulting in the transformation of traditional fee-for-service, volume-based payment models to models that are focused on delivery of value in many different contexts.
These new and oftentimes quite complex payment models generally give incentives for the provider to provide services in a cost-effective manner while upholding high quality standards. Such models include bundled payments that pay providers a set fee for all of the services required to treat certain conditions. Until recently, most providers could elect to participate or not participate in these new models.
More recently, healthcare purchasers (and, in particular, the federal and state governments) are pushing in mandatory fashion for these new models. For example, Memphis was recently selected to participate in a mandatory episodic Medicare payment initiative. This model pilots bundled payment and quality measurement for episodes related to hip and knee replacements.
The future promises more of these types of payment models. In facing these challenges, some healthcare providers are responding in new and innovative ways. Providers are forming alliances and affiliations across the delivery spectrum in ways that would have been surprising in the past. Traditional mergers, acquisitions, and alignment strategies typically involved larger dominant systems acquiring financially weaker organizations.
While these more traditional alignment forms still exist, more innovative relationships are emerging focused on scale, population health management capabilities, and other new competencies and characteristics. For example, a new generation of physician alignment activity in Memphis over the last several years is evidence of the effects of healthcare transformation in the Mid-South. These newly forming relationships are increasingly crucial for providers as they work to successfully manage both organizational and market-facing transformational change. Following the enactment of the ACA, many pundits predicted an exodus by employers from their sponsored health plans, but that dynamic has not, in fact, emerged.
Rather, employers are themselves actively searching for new and innovative ways to drive higher healthcare quality at lower cost for their employees. Large and influential employers like Boeing, Lowes, and Mohawk have modified benefit design, narrowed their provider networks, and otherwise driven innovation through their health plans as a reflection of these efforts. Accelerating innovation by employers is a trend that could reshape the commercial healthcare markets. In the coming few years, most health systems and other providers will seek risk capability as reformed payment models become more prevalent than traditional fee-for-service medicine.
Purchasers of healthcare will push the industry to do better with less. The highly disruptive nature of these challenges will require dynamic responses by all industry stakeholders, which will inevitably accelerate transformative change through the healthcare ecosystem. Paul Hopkins is an audit partner at DHG, and has had a primary concentration in the healthcare industry in which he has served for over 20 years. .
These pressures impact the financial sustainability of everyone involved in the healthcare delivery system as it exists today, from the large hospital systems to the family practitioner. Memphis is certainly not immune from these pressures, and healthcare providers (hospitals, physicians, and others that deliver care) in the Memphis area remain challenged to provide high-quality healthcare services to Memphis-area residents, at lower cost, while dealing with unprecedented industry disruption. Healthcare providers are working to deal with these challenges in many ways. In particular, healthcare payment reform is developing with accelerated urgency and pace, resulting in the transformation of traditional fee-for-service, volume-based payment models to models that are focused on delivery of value in many different contexts.
These new and oftentimes quite complex payment models generally give incentives for the provider to provide services in a cost-effective manner while upholding high quality standards. Such models include bundled payments that pay providers a set fee for all of the services required to treat certain conditions. Until recently, most providers could elect to participate or not participate in these new models.
More recently, healthcare purchasers (and, in particular, the federal and state governments) are pushing in mandatory fashion for these new models. For example, Memphis was recently selected to participate in a mandatory episodic Medicare payment initiative. This model pilots bundled payment and quality measurement for episodes related to hip and knee replacements.
The future promises more of these types of payment models. In facing these challenges, some healthcare providers are responding in new and innovative ways. Providers are forming alliances and affiliations across the delivery spectrum in ways that would have been surprising in the past. Traditional mergers, acquisitions, and alignment strategies typically involved larger dominant systems acquiring financially weaker organizations.
While these more traditional alignment forms still exist, more innovative relationships are emerging focused on scale, population health management capabilities, and other new competencies and characteristics. For example, a new generation of physician alignment activity in Memphis over the last several years is evidence of the effects of healthcare transformation in the Mid-South. These newly forming relationships are increasingly crucial for providers as they work to successfully manage both organizational and market-facing transformational change. Following the enactment of the ACA, many pundits predicted an exodus by employers from their sponsored health plans, but that dynamic has not, in fact, emerged.
Rather, employers are themselves actively searching for new and innovative ways to drive higher healthcare quality at lower cost for their employees. Large and influential employers like Boeing, Lowes, and Mohawk have modified benefit design, narrowed their provider networks, and otherwise driven innovation through their health plans as a reflection of these efforts. Accelerating innovation by employers is a trend that could reshape the commercial healthcare markets. In the coming few years, most health systems and other providers will seek risk capability as reformed payment models become more prevalent than traditional fee-for-service medicine.
Purchasers of healthcare will push the industry to do better with less. The highly disruptive nature of these challenges will require dynamic responses by all industry stakeholders, which will inevitably accelerate transformative change through the healthcare ecosystem. Paul Hopkins is an audit partner at DHG, and has had a primary concentration in the healthcare industry in which he has served for over 20 years. .
