Advisory Board National Meeting: Key Financial TakeawaysBy Larry Siebs, CEO
I was recently afforded the privilege of attending the Advisory Board National Meeting in Chicago on December 18th and 19th. It was a wonderful couple of days filled with ideas, leadership and innovation. I’m happy to share my three key takeaways from the meeting so that you might also benefit from the knowledge I received!
The price curve will continue to bend.
Reimbursement cuts are not new, particularly in the world of imaging. We all remember when CMS slashed reimbursement for upper and lower joint MRI procedures by 30% in 2013. Reimbursement cuts will continue and will further impact provider margins if gains in productivity are not made. The Congressional Budget Office estimates that by 2025, 60% of the roughly 3,000 acute care hospitals subject to ACA’s Medicare reimbursement cuts will have negative operating margins. In short, providing healthcare will be financially unsustainable for many hospitals if they are unable to increase productivity.
The safety net is in trouble.
With cuts to Medicaid Disproportionate Share Hospital (DSH) payments and increasing utilization of expensive care environments (i.e. Emergency Department), safety net hospitals are confronting significant financial challenges. In July of 2017, CMS announced that it will cut DSH payments by $43B over the next eight years while the cost for Medicaid services are on the rise due to shifting demographics and needs. On top of that, providers are siphoning away Medicare and Commercial patients from safety net hospitals, decreasing cross-subsidy opportunities. All these factors taken together have resulted in a number of safety net hospital closings. Of the 195 hospital closures from 2003 to 2011, 70%[i] of them occurred in urban areas. Networks need to expand access to Medicaid populations, so they can receive care outside of expensive ED and IP care settings, and partner with their safety net providers to preserve the safety net and ensure market stability.
Cost reductions must come from external spend not labor.
The U.S. healthcare market is in a labor-driven cycle and as such wages are fairly inflexible due to fair market value limitations. Additionally, there is a labor shortage in healthcare right now, not a surplus, so layoffs would have harmful implications for any health system pursuing this as a cost-cutting strategy. Rather than labor, healthcare must focus on cutting external spend. Providers must employ system-level price negotiation strategies to contain supply and purchased services cost, and in doing so must select vendors as strategic partners to achieve economies of scale. Consolidation of duplicative services to a single vendor allows the vendor to spread their margin across more assets/services, enabling for lower costs per unit. Providers must also rationalize their utilization. Providers do not need to be all things to all people, and should not try to be. All things to all people is extremely inefficient. Healthcare providers need to look at the services they provide, and ask the hard question of what services can be provided just as efficiently if not more efficiently by someone other than themselves.
In summation, it’s all about cutting cost and expanding access. The same mantra we have heard for the past decade. Yet, collectively WE have failed to do so as CMS forecasts healthcare spending to grow at an alarming rate of 5.6 percent per year until 2025. And yes, I say WE; vendors play just as much a role in this as providers, payors and the government. We as vendors have a responsibility to be innovative in our thinking and develop solutions that directly target our customers’ costs. We need to share risk with our customers and measure our performance based on our ability to cut costs for healthcare providers. Therefore, my New Year’s Resolution for 2018 is to develop new methods for providing diagnostic imaging services that are more efficient and directly impact providers’ cost curves. I’d love to share some ideas I have with you. Email me at email@example.com or call me at 630-855-9106 and help me achieve my New Year’s Resolution.
[i] Rau, Jordan. “When Hospitals Close, Frequent Fears About Care Aren’t Realized.” NPR, NPR, 4 May 2015, www.npr.org/sections/health-shots/2015/05/04/404226975/patients-not-hurt-when-their-hospitals-close-study-finds.