HOW AND HOW MUCH
The view from inside the healthcare delivery space could not be murkier.
On the one hand, our fee revenues are declining in real dollars and for many reasons: - Many groups and systems are losing volume – cardiac and some other service lines are declining due to improved outcomes
Services are being forced from higher reimbursement settings to lower reimbursement settings
Extremely high deductibles have led many Americans to reduce their use of medical services, at least until there is an emergency.
Last, in the span from 2002 to 2019, CMS has increased physician fees by a compounded rate of 6.95% in total while our overheads have inflated at least 70% and probably more like 85% (consider that we added the cost of an EHR in that span of time).
This is a huge erosion of real revenues and it will continue into the future.
One of the ways to address these problems is to aggregate providers into larger and larger organizations. The hope is that the larger size will generate more power to raise commercial rates and/or that there will be economies of scale.
However, this strategy does not seem to work very well for most organizations. Overhead is very difficult to consolidate or manage and commercial rates in many markets are constrained by the ability of employers and employees to bear more costs.
Expansion strategies also fails to address the underlying dynamics of the market. The problem with US healthcare is that it is way too expensive. Fewer and fewer employers and employees can afford health insurance premiums or services.
For over ten years we have had endless conversations about moving to value. While many health systems and medical groups have dabbled, few are committed. The results are that groups don’t see any real income from value and then hate to spend any money to prepare for value.
One variable is the lack of good value contracts. “Good” in this instance means that real progress in cost and quality can earn a group or system meaningful increases in revenues.
The flip side is that most medical groups and health systems don’t yet have a handle on how they could improve quality and reduce costs. The most popular formula endlessly touted in conferences – which is to add a lot of case or care management to work the registries – doesn’t work well, if at all.
Before spending a lot of money on value, we strongly suggest that organizations do a thorough, deep dive into truly understand the crucial concepts in value like payment options, contract terms, improvement methods, etc.. You need a lot of expertise about all these aspects before you are likely to spend your money wisely. Value is a case where wisdom is far less expensive than not knowing.
You also need a general consensus across the major leadership stakeholders about Why? What? How? When? to make investments in quality and cost – even modest investments – palatable.
In the medical groups we manage we’ve always emphasized planning prior to action. In our groups the earnings in value have been positive from the beginning. This past year our physician incomes – which are higher than the national average despite our not having any health system support – are supplemented by value earnings at about 22% of total comp.
Value can be a winner, if done wisely.