The current and future state of hospital economics? In a word, daunting. But hospitals are responding to the challenge vigorously, and they expect their suppliers to do the same. That’s the assessment of Fred Bentley, managing director, strategic research, The Advisory Board Company. The Advisory Board presented “The New Performance Standard: Prospering on Medicare Pricing” at the 2011 Health Industry Distributors Association Conference & Expo in Charlotte, N.C.
Hospitals’ response to economic challenges
Hospital margins have bounced back a bit since 2008, said Bentley, speaking with the Journal of Healthcare Contracting after the meeting. “But clearly, hospitals still have big concerns.” Public and private payers are continuing to hold the line on reimbursement, “and there’s the long-term reality of Medicare and Medicaid comprising a much larger percent of hospitals’ revenue base,” he said. And 18 months after the Patient Protection and Affordable Care Act (healthcare reform law) was signed, the industry is still trying to figure out exactly what it means. But hospital CEOs aren’t sitting idly by. Rather, they are responding in a number of ways:
1. M&A activity. “When you have this much upheaval in an industry – and it’s safe to say that healthcare has experienced upheaval in the past two years – you see increased consolidation,” said Bentley. There has been a “big uptick” in mergers-and-consolidation activity. “Recognizing it’s a tough environment to operate in, many hospital executives are recognizing they need to jump in with bigger players with deeper pockets.”
2. Redesigning operations. In the past, most hospital executives focused primarily on growing volume, particularly surgical volume, and pursuing commercially insured patients, while keeping costs in line. Today, and in the foreseeable future, they will focus on improving the quality of care their facilities provide, while bringing cost-consciousness to a new level, he said.
3. Information technology. Hospital executives are investing heavily in IT to build what The Advisory Board calls “the information-powered health system,” said Bentley. Just as physicians are required to demonstrate “meaningful use” of IT and electronic medical records, so too are hospitals. As a result, there has been a dramatic shift in capital spending priorities, with many administrators postponing purchases of new medical equipment in favor of IT.
4. Partnering with physicians. Even prior to the current recession and signing of the healthcare reform law, hospital executives had been pursuing closer partnerships with physicians, Bentley said.
5. Developing a chronic disease management infrastructure. Having laid the groundwork with information technology, hospitals are developing the ability to track patients across care settings, even helping to develop “medical homes.” It’s new for them. “There are a whole host of things hospitals will have to do to manage chronically ill patients, that they aren’t doing today,” said Bentley.
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