For some time now we’ve been briefing our clients on the impacts of the healthcare industry’s transition to value based reimbursement. The conversation quickly moves into the added complexity of this transition occurring concurrently with devolution of the healthcare ecosystem. Payers and providers of all types, and those supplying the industry with products and services are all challenged by these changes. But the same changes also present great opportunities to you when you understand them and develop strategies to survive and thrive in the rapidly evolving environment.

In this post we’ll look at the challenges and opportunities for delivery systems in more depth.

The Impact of Healthcare Devolution

As we’ve discussed before:

  1. Devolution of healthcare providers results in clinical patient care increasingly provided by non-physicians, including home health aides and family caregivers, and in some instances patients themselves.
  2. Devolution of healthcare setting means this care is increasingly provided across a spectrum of facilities outside the hospital.
  3. And devolution of healthcare technology brings clinical and information technology capabilities closer to the patient wherever they are.

The traditional hospital-centric delivery system was always in a position to control those activities on which their revenue was based – services. It didn’t matter much what happened outside the organization. In fact there were perverse incentives in the fee-for-service model. The more services patients required, the greater the revenue. If the patient didn’t fully recover, there were simply more services to perform and even more revenue.

Along comes value based reimbursement and suddenly the world is upside down for a hospital. Revenue now depends on patient health and outcomes – avoiding traditional hospital services unless absolutely necessary.

So faster than you might have thought possible just 24 months ago, the traditional business model is severely threatened and shortly will simply no longer work. Being a full service hospital requires significant ongoing investment in staff, facilities, equipment, information technology, compliance, etc. As a result, most hospitals don’t run on high margins. The rapid shift to value based reimbursement directly threatens these margins, further pushing your organization into a downward spiral of decreasing revenue as your service volume diminishes.

Your Hospital Will Never Be the Same

So why does industry devolution make all this even worse for your traditional hospital business model?

On top of direct threats to the hospital revenue model from value based reimbursement alone, industry devolution as a whole is causing a shift where services that previously could only be provided inside the hospital are now increasingly provided elsewhere by non-hospital providers using non-hospital tools and technology.

The traditional hospital business model will not survive these changes. Some of our clients are wishing the problem would just go away. Many are considering their options. But the most proactive are recognizing that their future depends on taking advantage of the new environment and re-engineering their organizational structures and business models.

In a value based reimbursement world you are advantaged as a business by providing that value. You’re rewarded for keeping people as healthy as possible, managing their chronic conditions, and providing acute and comfort care as effectively and efficiently as possible. There is certainly an important place for certain hospital-provided services in this continuum. But the future belongs to integrated healthcare via Integrated Care Management. ICM works across the spectrum of providers and settings – wellness/prevention services, primary care, hospital, outpatient surgery, surgical nursing/rehab, hospice, long term care, home health, etc.

Your Move: To Integrate is to Evolve

Forward-leaning hospital systems are expanding their organizations to morph into Integrated Care Management Health Systems.

Industry consolidation into such organizations will only accelerate. Your standalone hospital will either own one of these systems or be consolidated into one.

Of course just owning the components of such a health system doesn’t accomplish the integration or care coordination necessary to maximize your revenue under value based reimbursement. You’re rewarded typically on health outcomes, cost avoidance, and patient satisfaction. Significant investments in care coordination, process re-engineering, and supporting information systems are needed.

Now what if you expand your structure into a full-blown ICM health system, and so does your competitive hospital across town? Marketing to attract business – i.e., people to serve across the ICM continuum of service settings – is critical. You have to define and communicate to prospective populations why they should use your system of care.

Take time to examine the challenges and opportunities for payers and for various product and services vendors transitioning to value based reimbursement combined with devolution.

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