In this third of a series of four blogs about WTN’s 2014 Digital Healthcare Conference (DHC), I’ll focus on three disruptive innovation waves reshaping healthcare. These innovations could lead to better care for less cost. But will they happen fast enough to allow us to channel wasteful healthcare spending into efforts that would make our economy more competitive globally?
New reimbursement models and incentives
Slowly but surely, payers are adopting new approaches for reimbursing providers. One is pay-for-performance (e.g., Medicare won’t reimburse hospitals for avoidable re-admissions). Another is making providers financially accountable for a population’s healthcare (e.g., Accountable Care Models, introduced in Obama’s far reaching reform). These new models create financial incentives to keep people healthy, surface health issues earlier, move care to less-expensive settings, and avoid unnecessary tests and procedures. In addition, Obama reforms preclude insurers from kicking out the chronically ill, closing the door to individuals with preexisting conditions and capping payments; these limits increase insurers’ focus on health versus merely picking risks wisely.
Another incentive change comes from businesses shifting costs onto employees. Is this wise or have we gone to far? Wall Street DHC speakers noted high deductibles and out-of-pocket limits, coupled with software that helps hospitals ID patients posing payment risks, lead even insured patients to delay procedures.
I think employers would be far wiser to push insurers away from fee-for-service and give employees positive incentives to to be smarter shoppers, as Serigraph in Milwaukee models. The big buyers in any market have more market power: so why make the individual consumer the only force of market change?
New business models
With all the inefficiency built into our healthcare system, Wall Street sees big bucks according the its representatives on the panels. John Byrnes, CEO of Mason Wells, a private equity firm in Milwaukee, offered the most astute insights into why Wall Street is interested.
First, he anticipates that real estate investment trusts (REITS) will take over the real estate capital requirements of providers. This would change the financial driver of most hospitals from building cash to securing a large enough population to achieve economies of scale with IT, big data, care coordination solutions, and advanced analytics.
In Byrnes’s outlook, changes in payment incentives will force providers to give up the idea of being all things to all people. Narrow-breadth and low-cost procedures (camp physicals, vaccines) will be done by the retail clinics of the economy, such as Walgreen’s. Niche specialists (e.g., cancer, heart, and dialysis centers) will claim more market share by offering efficient, high-quality specialized care. Lower-cost broad-offering systems, like Aurora Health Care in SE Wisconsin, will gain market share from smaller systems, while broad systems that include medical schools will offer higher-end (more costly) comprehensive care.
Byrne’s own view is that the best model will combine clinical, public health and life science research within one entity and be regional in scope. “These elements cannot be separated as has been done in the past,” he said. “The action is in the overlap. Healthcare IT will drive change and the organizations that invest in it will be the winners, much as happened in banking.” In his view it’s time to “get the bean-counters out of managing providers as they do not understand that the key to success is leveraging the scarce resource – the healthcare professionals – through superior information systems.”
From my perspective it will be interesting to see if Walgreen’s and Walmart will broaden their services. Who knew Walmart would emerge as a leading grocer? Walgreen’s has a new alliance with a hugely disruptive lab testing company. And Mayo Clinic exists far beyond Rochester, Minnesota. Might today’s local and regional markets become national?
Jeff Sahrbeck, managing director of Ponder & Company, argues that in most markets the top 5 players have 50-70% of the market but in healthcare it’s only 7%. “The issue is hospitals are viewed as community assets and not a business,” he said, “so a lot of them will have to fail for consolidation to occur.”
The Internet of Things is nowhere more evident than in the healthcare system, where financial payback may be high. An enormous investment has been made in electronic health records, and now it’s time to put the data to use in real time by extracting usable clinical insight, the subject of my last blog in this series.
The innovations look promising for sure but will they squeeze waste from the system? Jeffrey Grossman, CEO of the UW Medical Foundation thinks not. “There is a huge gap between rhetoric and reality. We just keep making more and more money. Where are the levers for significant change? Insurers are still interested in paying us as fee-for-service.” In his view, if providers are paid for health they will re-conceptualize what they are about to advance health versus procedures.
Unfortunately we’re stuck in a quicksand of our own making as long as government fails to fully wield its power as the largest payer, employers merely shift costs to employees, and insurers make their margin on the total volume of medical spending versus improving a population’s health.
Aurora Health Care reported that of its 2 million patients, it is financially at risk for the health care spending of less than 5% (95,000 lives). That’s a measure of how far we have to travel.
More articles by Kay Plantes
- The opportunity cost of our healthcare system failures
- Healthcare Industry Disruption
- Why does the US have so much waste in its healthcare system?
- Would Checker Cab becoming UBER have been a good thing?
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of WTN Media, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.