Reflections on the Disquiet of Healthcare Delivery Executives
I recently attended two conferences, each targeted to senior leaders of different types of healthcare delivery organizations. In both I observed considerable disquiet among the attending health execs.
The first meeting was for the senior leaders of large, independent medical groups and the second was for senior leaders dealing with market strategy and revenue issues for health systems.
What they have in common is that the leaders in both the independent groups and the health systems feel beleaguered and confused.
Some of their confusion stems from the same reality: No one knows what the revenue model for healthcare delivery will be in the short, mid- and longer term future. Further, no one knows how that revenue model will actually work. The inability to see future revenue is a very disorienting phenomenon especially in sectors where large capital requirements are a constant.
While execs have spent endless hours over the past five years listening to speakers touting the coming of value based reimbursement, it is now unclear whether or when the federal government or the commercial carriers want to switch to value.
And, if they do switch, no one knows how value will actually work. There are significant fears that the commercial insurers will try to impose a kind of value where the doctors and hospitals are forced to bear the costs to improve quality and reduce costs but the insurers will get the financial rewards for doing so.
Being in an environment where you cannot see how your organization will be paid in the future is unnerving, to say the least. In other regards the leaders are discomforted for different reasons.
Health system leaders feel beleaguered because they feel that everyone is gunning after them. Those who fund US healthcare are unhappy with the very high cost of care. Swarms of potential disruptors are attracted to find a way into America’s $3.4 trillion health economy.
Further, admissions are falling. It is predicted that, within three or so years, virtually all joint replacements will go outpatient as will many other previous inpatient services. New entrants are experimenting with “hospital at home” services. The government and insurers are threatening their outpatient fee schedules. CMS wants to eliminate provider based billing for employed physicians. To the health systems, there is no end in sight.
Now Optum is buying medical groups as ASCs with the goal of being in 45 to 75 markets. They plan to shift inpatient services to lower cost outpatient services. CVS Health has announced that it wants to buy Aetna and who knows what that will do? Literally hundreds of technology vendors are trying to disrupt the health economy by removing local care providers from their central role in one way or another.
Conference speakers shared two observations with the system leaders, neither encouraging. (1) That they aren’t very good at managing medical groups. The resulting average losses of $250,000 per doc per year are a growing threat to the balance sheets of the parent health systems. (2) Further, systems aren’t very good at risk or value. While some systems can resist risk, others find that risk is not a choice so their lack of ability again threatens the system balance sheet.
Independent group leaders are concerned because local healthcare systems – even those that are demonstrably unsuccessful in managing their existing medical groups -- are directly challenging independent groups by expanding their outpatient facilities and hiring more physicians. While some health systems are leery of employing more docs, others are doubling down on their medical group expansion strategies.
Those who are expanding use their balance sheets, their ability to go to the bond markets for more capital and their hospital revenue streams and margins to directly compete – like “across the street” compete - with independent medical groups. Apparently they believe that groups won’t have the capital to resist.
To make things worse for the independents, Optum Health and other for profit parties with large capital resources have expansion plans for entire groups and/or some of the doctors within groups.
All of this is happening in an environment where most organizations are seeing erosion in fees, are making less money and face a generally uncertain future.
It would seem that health systems and independent groups might all consider investing in Gastroenterology – this market environment seems to be nauseating.