Recession, reform disrupt hospital strategic planning efforts

The latest projections from the Centers for Medicare and Medicaid Services say U.S. healthcare spending will only increase by 6.1 percent in 2014, as opposed to the original 7.4 percent jump for 2014 that had been anticipated a year ago.
CMS is attributing part of the slowdown to the June 2012 Supreme Court decision to let states sidestep the expansion of Medicaid included in the Affordable Care Act.
No doubt the ACA and all its related reform provisions are having a profound impact on healthcare providers. But then again, so has the Great Recession, the repercussions of which continue to ripple through the industry. How are these tectonic shifts affecting strategic planning? Where exactly is the healthcare sector headed?
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Few C-suite executives and consultants would question the notion that the recession and the mandates outlined in the ACA are changing the way they do business, with a greater emphasis on clinical outcomes, cost efficiency, and quality of care and less emphasis on patient volume.
Yet Bobbi Brown, VP of financial strategies for Health Catalyst, a data warehousing/analytics vendor, believes that healthcare reform is having a far greater impact on strategic planning than the recession. Brown, a former VP of finance for Kaiser, Sutter Health and Intermountain, says reform has mandated value-based reimbursement, which requires healthcare organizations to implement far-reaching quality improvement programs that require not only new IT investments but wholesale shifts in process and culture.
In Brown’s view, this new approach to strategy requires clinicians to become, for the first time, true financial stewards of their organizations. That perspective had been borne out in ACOs across the country, many of which are being spearheaded by physicians who believe they can deliver quality care at reduced cost.
Other thought leaders we spoke with were hard pressed to say whether the Great Recession or healthcare reform had the greater impact on the industry.
Jeff Hoffman, senior partner at the consulting firm Kurt Salmon, believes both have had a significant impact. “The recession changed a lot of the financial dynamics for many hospitals,” bringing about bond restructuring and increased interest rates for borrowing hospitals, he said. “The recession also showed the weakness of healthcare as an investment.”

Those problems were only amplified when ACA entered the picture, requiring hospitals to concentrate on outcomes, quality and value-based payment. In Hoffman’s words, that means “Taking some risks rather than paying people for everything they do.”
[See also: Accountable care organizations: cost-effective solutions or financial sinkholes?.]
The new scenario has also changed strategic planning for healthcare providers. Hoffman points out that such planning is much more focused on holistic finance than it was. Historically, providers would look at incremental ROI—by building a cardiac service line, for instance—but now they are focused on the entire delivery system and the sustainability of that entire system.
Similarly John Dugan, a partner in PwC’s U.S. Healthcare Provider practice, believes the 2008 recession and healthcare reform are both having a dramatic impact on the way medical care is delivered today. For example, many procedures that were routinely done in a hospital are now done at outpatient facilities to cut costs. Dugan also mentioned the growing presence of “disruptors” in this market who have only recently entered the arena because they see significant revenue to be made. Retail clinics and urgent care centers come to mind.
The other trend that Dugan linked to the recession and ACA is the push by employers to pass on more of the cost of health insurance to employees, which in turn has made the average patient much more cost conscious. It’s forcing patients to shop for medical services in much the same way they shop for their next big screen TV, by comparing prices.
With that in mind, “CFOs are clearly focusing on pricing transparency… Every executive I’m dealing with, including board members, really want to know: Is my senior management team able to articulate what our overall pricing strategy is? How does it correlate with our cost of providing care?”