Obamacare, boomers are health firms’ new challenge Commentary: Providers face a ‘reimbursement cliff’ no one is talking about By John Bardis marketwatch/story/obamacare-boomers-are-health-firms-new-challenge-2013-10-15 In these early days of state- and federally run health insurance exchanges, the health care industry — from insurers to health providers — faces uncertainty about the best path to long-term financial survival. The most basic threat is clear: Reimbursement per unit, or what is paid for each patient visit, is going to decline. This “reimbursement cliff” will only be exacerbated by the collision of two mega-events: rates being set low on the new insurance exchanges and the baby-boomer migration to Medicare. Taken together, providers are looking at a future where they will make less per patient than ever before. That is the reality both in the fee-for-service market we largely operate in today, and in the outcomes-based model the industry will migrate to over the next decade. The rates of reimbursement set by the insurance exchanges are low. Insurers committed to the exchange marketplaces before reimbursement rates had been negotiated with providers to treat the roughly 25 million anticipated newly insured (7 million expected to join the exchanges this year alone). Reimbursement rates have fallen somewhere between commercial insurance rates and the average Medicare and Medicaid reimbursement of 85% and 60%,respectively, of the cost of care delivery — rates that in recent years have driven physician groups across the country to stop seeing Medicare patients or taking in new ones. These low rates also have led insurers to create narrow networks, which are designed to limit patient choices and access in order to reduce costs. Plus, the 2% reduction in Medicare reimbursements due to Sequestration will further lower reimbursement per unit. At the same time, commercial insurers and health systems are losing their best customers — baby boomers — to Medicare. At their apex, the boomers were a significant contributor to fiscally better times for health providers. Today, boomers are transitioning from the more lucrative commercial plans (lucrative to insurers and health-care providers) to Medicare at a rate of 5,000 to 10,000 per day; the lack of ability to cost-shift to the baby boomers is a major drain on health providers. Watch what businesses do with the option of continuing to fund employee health care or pushing employees into the individual choice of the exchanges. A sluggish economy will be a key driver of how businesses will respond to this newly available management choice. At the same time, watch for how many young, healthy people sign up for exchange insurance — the critical success factor of funding Obamacare. A consumer market will eventually develop for health care, but currently the industry has far fewer levers to combat the trend of declining reimbursement than companies that serve consumers in just about any other industry. The risks of rapid and significant declines in provider reimbursement are clear and arguably highly problematic. Over the past decade, health care has become a tough business. By some estimates, one-third of health systems are currently unprofitable. The more efficient hospitals typically realize 4%-5% margins and have to manage significant fixed costs that allow for less-than- optimal wiggle room. Sliding reimbursement rates that started pre-insurance exchanges will be exacerbated by the exchanges and pushed to the brink by the baby boomer transition — potentially turning modest margins meaningfully negative for many not-for-profit hospitals. Bridging the divide So how can providers manage this shift towards lower payments? Industry consolidation is a popular option. Health systems are buying each other or physician groups, and insurers and health systems are coming together and vertically integrating. On its own, however, these strategies will not outrun declining reimbursement-per-unit rates. In other cases, health systems are experimenting with business models that push care delivery outside of the hospital. For all of the pain and flaws in the health-care reform regulations, there is a clear pathway to success. It is within health-care organizations’ control, but is hardly simple. Running more efficient operations is key to managing the realities of the market. Industry reforms will force health-care providers to eliminate hundreds of billions of dollars in waste and inefficiency found in the current system, while promoting coordinated care and community wellness initiatives. The good news: Health-care organizations recognize that the industry’s underlying cost structure is unsustainable and uncompromising. The industry must manage with greater precision and care. Providers must implement coordinated, sustainable improvement across all business and clinical areas. This will help the industry survive and ultimately thrive. The collision of the insurance exchanges and baby-boomer insurance migration — the formation of the reimbursement cliff — is a seminal moment. This is the period when health care has met the reality of big business, and has the chance to become more businesslike about delivering affordable, high-quality care without breaking the system.
Posted on: Tue, 15 Oct 2013 14:37:33 +0000
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