The insurance exchanges opened for business this week. Politicians are using the Affordable Care Act (ACA) as the bargaining chip in the shut down of the government. Health systems are undergoing major economic challenges. The 1964 Bob Dylan classic seems like the appropriate anthem for these times.
Recently, The Tennessean reported Vanderbilt University Medical Center “has a plan to cut up to 1,000 positions by the end of the year and is part of the Medical Center’s plan to cut $250 million from its $3.3 billion operating budget over the next two fiscal years.” The Cleveland Plain Dealer reported at the same time, “…the health system (Cleveland Clinic) may have to eliminate jobs to meet a target of cutting $330 million from its 2014 budget.”
Last January 2013, Moody’s Investor Service continued its negative outlook on the U.S. not-for-profit hospitals sector. The underlying reasons for this included the challenges facing the industry from cuts due to the Sequestration legislation, the impact of the Affordable Care Act, continued weakness in utilization trends and value-base payment implementation.
This is not the first time hospitals have undergone challenges from changes by the government nor do I suspect it will be the last. Most of today’s healthcare leaders don’t remember the post DRG implementation era. Length of stay declines and changes in utilization forced hospital closures and dramatic downsizing of many 800-1,000 bed hospitals. Having lived through those turbulent times, the current winds of change seem very familiar.
Here are some observations regarding what I believe will be the same and what will be different from those past challenges. First, what will be the same? Ultimately hospitals will adapt. High performing hospitals will find opportunities in the new legislation and become stronger. Similarily, underperforming hospitals will either close or be acquired by better performing organizations. This is just simple capitalism at work. Second, new and improved productivity processes will be implemented to address the most likely utilization declines. FTE management will be a critical function. Layoffs and downsizing will be done. Third, physician relationships will continue to be stressful and more complicated because of employment arrangements. Finally, there will be unanticipated toxic side effects that will contribute added turmoil to leaders’ already full agendas.
What will be different? First, new, non-traditional, non-hospital based competitors will accelerate their emergence in the industry. These new players will extract more business from the acute care providers. Second, corporate-led changes in healthcare coverages and expenditures will surpass governmental reimbursement changes. Third, technology will have a redefining impact on providers. Fourth, consumer awareness and education combined with more financial accountability will necessitate provider responses. Finally, competition will be less traditional provider vs. provider and more non-traditional vs. traditional. This will be very open and public type competition.
More simply stated the erosion of acute care hospitals’ monopolistic position is occurring. Revenue replacement may be impossible.
Here are some final thoughts to ponder. In Ori Brafman’s latest book, The Chaos Imperative, he’s working with the U.S. Army and brings them to a hospital because as he explains, “…a hospital is a lot like the army. It’s very hierarchical…” Hierarchy is a killer in dynamic, rapidly changing environments. How are you developing agility within your organization?
Fidelity’s mutual fund, “Select Health Care Portfolio,” return year to date is almost 37%. This fund invests in “companies engaged in the design, manufacture, or sale of products or services used for or in connection with healthcare or medicine.” Investors are finding opportunities in healthcare despite the rating agency negative outlook. Are you making similar investments in innovation and pilot projects?
Finally, did you attend this year’s Health Datapalooza 2013? Unfortunately, I didn’t even know there was such an event and it was the fourth time it was held. As described in the meeting materials, “… in two days, you experience the latest in technology and health innovation where data meets the market place and the people behind these advances share the latest apps and ideas that will propel a new generation of tools to improve health and our healthcare delivery system.” Check out their website…then find out who in your organization is keeping track of this stuff.
“The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin”.
-Bob Dylan