This article appears in the March 2012 issue of HealthLeaders magazine.
Talk to many hospital and health system CEOs these days, and it's clear they see the healthcare glass as half-empty. Drastic changes to the way their business is conducted—from ICD-10 compliance (even with HHS' deadline delay) to meaningful use directives to value-based purchasing rules—mean CEOs have lots to complain about.
A litany of expensive mandates face healthcare organizations, and the bill for them is coming due in the next decade. In many cases, these costs can't be recovered, at least not in a traditional measure of ROI. In fact, there's good reason for pessimism among hospital and health system leaders, says Paul Keckley, executive director of the Deloitte Center for Health Solutions, an industry think tank in Washington, DC.
These regulations are "not about an expanded revenue stream," he says. "It's a matter of how much they'll be impacted by the costs."
Even outside of regulatory costs, he says, the reimbursement environment is weak at best. For example, a 2% Medicare cut mandated after the so-called congressional debt super committee failed at its task of reducing the federal budget deficit will result in $123 billion in cuts to Medicare if Congress cannot agree on an alternative.
Hospitals would shoulder about 40% of those cuts ($49 billion) through reductions in reimbursements for inpatient and outpatient services, according to Avalere Health LLC, a Washington, DC–based consultancy and research firm.
Even if that calamity is averted, hospitals "can look at market basket updates shrinking, and that's before the additional cost of complying with new reporting," Keckley says. "So it's a pretty perilous time. One out of four hospitals will not survive this."
Despite that dire prediction, through a series of interviews with HealthLeaders, it becomes clear that many leaders are less pessimistic than it would be reasonable to expect about their ability to succeed in the new environment.
They see regulatory changes ranging from CMS's value-based purchasing initiative to ICD-10 implementation as severe challenges, of course, but they also see them as ways to transform a calcified and hidebound payment system into something that yields payoffs for necessary investments in quality, revenue capture, and efficiency, not to mention better responsiveness to their customers' needs and desires.
"We're at a very significant time in the history of healthcare, where through healthcare reform, the government, our primary payer, is trying to make a significant shift in the way healthcare organizations operate by changing the incentives to get a better product," says Michael T. Rowan, executive vice president and chief operating officer at Catholic Health Initiatives, which is based in Englewood, CO, and operates 76 hospitals and other facilities in 19 states. "Behind that is the notion of moving us to cost-effective care, with the idea that high-quality care can be delivered at a lower price than we have now."