In 2007, the convergence of market pressures, public policy developments and cost recovery concerns in the US health care provider sector will drive momentum for wider adoption of electronic records, improved efficiencies, greater transparency and new metrics for quality care, according to professional services company Ernst & Young's health care provider practice.
'Health care is operating under a growing strain to serve more patients, cut costs and maintain - and demonstrate - quality of care,' said Dee Balle, America's provider care sector leader at Ernst & Young. 'We are likely to see more focus on a transformation in business processes and operations in the coming year as hospitals and hospital networks confront these challenges. And the leaders - those who get out front - will raise the bar and create a more competitive environment among health care providers,' she added.
According to Ernst & Young' study, among the key issues that will shape 2007 for the USA's health care provider industry are:
Cost recovery
Since 2000, the percentage of individuals without health insurance has increased from 14.2% to 15.9% of the US population. To compound the problem, states facing budget challenges are pushing back on their contributions to Medicaid and there is explicit concern regarding underfunding for Medicare and Medicaid.
The US Government Accountability Office (GAO) recently issued a report advising the incoming Congress to reform Medicare and Medicaid. 'Absent reform, Medicare's and Medicaid's long-term fiscal sustainability for supporting health care for elderly, disabled, and low-income Americans is in jeopardy,' reports the GAO. While resolution may be unlikely due to political posturing, the dialog around the problems and possible remedies will escalate.
Technology 'catch up'
The health care sector lags behind other industries in its use of technology for business processes; especially notable is that only a small percentage of medical records are computerized. To spur progress in this area, there is growing support for the federal government to play a leadership role in establishing standards and funding.
Before the 2006 US mid-term elections, two competing health information technology (health IT) bills were passed, one in the House and one in the Senate, but no further action was taken in the 109th Congress, which ended with 2006. There is a good possibility that health IT proposals will once again emerge during the 110th Congress. Incoming Senate Health Committee Chairman Edward Kennedy (Democrat, Massachusetts) has stated that one of his top priorities will be to pass health IT legislation.
Transparency
Congressional interest in health IT stems, in part, from patients (voters) who are demanding more information and services from their health care providers - on their terms. In August last year, President George W Bush signed an executive order requiring more transparency in pricing and quality reporting. Communities increasingly want to understand all hospitals' pricing and quality of treatment and outcomes.
There is an argument that greater transparency and communication will change attitudes about health care, give consumers the ability to make more intelligent choices about hospitals and physicians and enable hospitals to better track quality and efficiency and use that information to incentivize physicians.
Professional staffing challenges
Labor costs are rising at a faster rate than inflation at hospitals and skilled nursing facilities. With the aging baby boomer population expected to place unprecedented demands on the health care system, the US Department of Labor predicts an additional 5.3 million health care workers will be needed by 2010 (2.2 million replacements, 3.1 million new positions). Issues of cost and how to efficiently increase staff according to demand will receive much attention from health care administrators in 2007.
Pay for performance & gainsharing
In the interest of improving quality and reducing costs, health care payors, including Medicare, are looking to incentivize doctors and hospitals based on quality and safety performance. The US Centers for Medicare and Medicaid Systems (CMS) will implement a 'pay for performance' program in 2007, under which doctors serving Medicare patients can qualify for a 1.5% bonus if they report data on the quality of care, using measures specified by the government.
Gainsharing, says Ernst & Young, is another incentive program that is being discussed at many levels. Gainsharing occurs when hospitals provide physicians with a percentage of any reduction in hospital costs resulting from the physician re-engineering of patient care without sacrificing quality. The ultimate goal of gainsharing is to reduce overall costs.
Community benefit and tax exempt status
Not-for-profit hospitals are facing a growing burden to demonstrate their value to the community. As pressure increases on the federal deficit, discussion in Washington DC questions the benefits that tax-exempt hospitals provide that taxable hospitals do not, which gets to the very heart of whether they should, in fact, be granted tax-exempt status.
Private equity investment in health care
Private equity funds typically target companies with lagging performance, potential for profit growth and strong cash flow that can be leveraged to pay off incurred debt from the deal, all of which are characteristic of many health care organizations.
Despite the current array of challenges facing health care today, PE funds have observed the combination of growth potential (note previously mentioned demographic trend) and opportunity for business operations improvement to increase efficiency and turn a healthier profit, says Ernst & Young. On the heels of the 2006 private equity deal for a large multi-hospital system, we can expect to see additional PE activity in the sector and will be watching how PE infusions of talent and cash may raise the bar for the competition.
'Business process transformation will be a major focus in 2007, but looking ahead, the health care industry as a whole must continue its shift toward preventative medicine, especially related to chronic conditions such as obesity, depression, diabetes, and cancer,' said Ms Balle, adding: 'this will be one of the keys to unlocking the efficiencies critical to treating the growing aging population on one hand, while managing potential staffing shortages and controlling health care costs on the other.'
