Health systems brace for 2018 disruption
Look for more care in outpatient settings as hospitals consider cost containment and hiring strategies to stay above water.
After a wild ride for healthcare in 2017, the industry is bracing.
The year started with a White House transition that begat a series of regulatory changes and late-night debates in Congress as lawmakers came perilously close to repealing the Affordable Care Act. It ended with repeal of a key element of the law and a burst of M&A activity, showing how the sector is responding to a year of lower patient admissions and reduced reimbursements.
It all sets up a 2018 where these trends will start hitting healthcare bottom lines. Others that have surfaced here and there are likely to come into their own. And Congress will probably still be debating the future of the ACA.
Here’s a look at hot themes to monitor as the year progresses.
More care will move to outpatient and home settings
When Anthem announced in August it would stop paying for MRIs and CT scans performed on an outpatient basis at hospitals, the industry saw concrete evidence of the beginning of a major shift in where patients receive care. Payers prefer the lower costs of outpatient services and patients like the convenience. But the corresponding reduction in inpatient stays are cutting into hospital bottom lines.
“It’s pretty interesting right now when you look at healthcare utilization and admissions being down over the past three years, actually going in a negative direction. That’s a big trend," said David Wildebrandt, a healthcare operations expert at Berkeley Research Group.
Other insurers will be following Anthem’s lead, and efforts that push patients toward outpatient services will become more of a hard shove, he said.
“You’re seeing the payers really bake into their plan designs a lot more of these type of initiatives,” he said.
Another move is away from hospital care. In addition to urgent care and other outpatient settings, more patients are turning to telehealth and home-based services.
“Hospitals will look very, very different,” over the next decade, said Dr. David Tsay, associate CIO at the New York-Presbyterian Innovation Center, speaking at the 2017 U.S. News & World Report Healthcare of Tomorrow Conference.
He added: “Hospitals will primarily be ICUs and ORs, and the rest of care will be done in the convenience of the home.”
This doesn’t mean health systems are out of luck. A flurry of vertical and horizontal integrations announced at the end of last year are one major way the industry is reacting to financial trends. Health systems may look to divest more hospitals while investing more in outpatient or telehealth services.
The pressure is coming heavily from payers, but patient demand is also a factor, Wildebrandt said.
“Consumer demands for access and convenience is strong,” he said. “That’s more than just a talking point now. That’s truly changing how healthcare is delivered.”
Hospital hiring will balance increased need with tighter margins
If it felt like hospitals hired like job candidates may never graduate again in recent years, it’s because hiring surged after the implementation of the Affordable Care Act. And it’s for good reason. Cohorts of newly insured individuals were expected to seek care while baby boomers aged into higher utilization.
The aging population is causing healthcare employment to be a safe bet for those entering the workforce. Healthcare jobs are expected to grow 18% from 2016 to 2026, adding about 2.3 million jobs to the economy.
While the need for clinical skills continues for hospitals, those organizations can’t ignore the economic signs shaping the market, including the push to outpatient care, the proliferation of telehealth visits, and fewer heads in beds, all the while reimbursements and admissions softening.
Amid a shifting industry and cost containment pressures, cuts are happening from medical supplies to employees. In addition, the wave of mergers and acquisitions across the provider sector will lead to job cuts across organizations as they integrate.
Practice groups and health systems can’t ignore the need to grow their clinical skills-base. Hospitals saw hiring growth slow in 2017 while refocusing what labor force their organizations need.
The value-based care movement will work through some roadblocks
This year will likely see a continued transition to value-based care, despite recent CMS action exempting large swaths of physicians from its Quality Payment Program rule under MIPS. The cancelation of the fracture and cardiac bundled payment program and changes to the Comprehensive Care for Joint Replacement Model shows that headwinds remain for value-based care.
HHS Secretary nominee Alex Azar has said Medicare must focus less on paying for procedures, and instead look to health and outcomes. He also has praised former HHS Secretary Sylvia Mathews Burwell’s work on new alternative payment models, suggesting he would like to continue to explore them. But the future of the Center for Medicare and Medicaid Innovation is up in the air after CMS issued a request for information asking for input on a new direction for the center.
States may get more control over the implementation of value-based care if Azar implements Medicaid block-grants to the states. The nominee voiced tentative support for the idea during his Senate HELP Committee hearing, and several GOP lawmakers have pushed for the idea to grant states more control of healthcare.
Family physicians may also be warming to the shift. More than half are now participating in value-based payment models, and a majority recently surveyed by American Academy of Family Physicians and Humana believe such programs increase collaborating between specialists and primary care doctors.
The transition to value-based care may still hit some roadblocks though. Another report found that doctors remain hesitant. Bain & Company’s 2017 Front Line of Healthcare report found that more than 70% of physicians preferred fee-for-service over such payment models, and more than half said capitation hurts care.
But payers are still drumming support to put downward pressure on providers. Large insurers such as Aetna and Cigna are increasingly shifting contracts to value-based arrangements and entering partnerships with health systems to cut down on overlap and align incentives.
“We’re not putting any brakes on,” Lynn Garbee, senior director of strategic reimbursement and collaborative care at Cigna, recently told Healthcare Dive. “We feel strongly that value-based care is the way to bring affordability and better quality to our customers and is the rock bed for how we’re moving forward.”
The insurer has episodes-of-care arrangements with 128 specialty practices, a number Garbee expects to increase this year. In fact, as CMS has wavered on value-based care – at least under former secretary Tom Price – Cigna has seen episodes-of-care value contracts pick up.
“I think, honestly, that it is the only way for us to get to a sustainable place in healthcare,” Garbee said.
The effort isn’t just an arms race of value-based contracts. With analytics provided by Change Healthcare’s HealthQx platform, Cigna will be working in 2018 to guide customers to higher performing providers. A big focus in 2018 will be working on specialty costs, Garbee said.
MACRA will also see continued implementation in 2018, but challenges remain. A recent report by the HHS Office of Inspector General found that many physicians are not ready to implement the Quality Payment Program, and HHS still must still carry out a program integrity plan to ensure MIPS data is accurate.
Hospitals will spend a lot of time evaluating their own health
Given big operating pressures, Moody’s Investors Service changed its outlook on the nonprofit hospital sector — which accounts for the majority of U.S. hospitals — to negative in December.
In response, expect hospitals to be bullish on cost containment next year. Expect providers to keep the supply chain in check by reducing clinical supply variation as well as focusing on revenue cycle management initiatives by minimizing denials. Healthcare providers will also look to manage their largest costs: their employees.
Providers have several moves in their playbook besides cost containment. For one, they can slim down or consolidate services. In extreme cases, hospitals or practices can close their doors or merge into or with another organization to stay afloat. 2017 was no stranger to any of these practices, and given the fiscal headwinds providers are facing going into the new year, 2018 shapes up to be no different.
The major for-profit operators have been enacting a strategy around building out more outpatient care services. Some nonprofit providers are constructing specialty hospitals, wellness centers or expansion projects. Not every provider will have that luxury of capital.
In hopes to improve their capital situation and reduce debt load, major health systems are selling off assets in their less-loved markets. Regional facilities have a lot to gain with a fire sale as they can spin out into a readymade local health system.
The year will see continued vertical and horizontal consolidation as organizations try to keep their heads above water and their doors open.
Washington politics will rattle
With Republicans still holding onto control of both chambers of Congress (at least until mid-term elections) and the White House, efforts to dismantle the Affordable Care Act (ACA) will likely continue this year.
With the individual mandate recently struck down with by passage of the GOP tax overhaul, attention will likely swing to House Ways and Means Committee Chairmen Kevin Brady’s (R-Texas) plan to delay several ACA taxes: a five-year delay of the medical device tax, two-year delay of the health insurance tax, one-year delay of the Cadillac tax and two-year delay of a tax on over-the-counter medications.
But Senator-elect Doug Jones (D-Ala.) makes any path to accomplish further rollbacks of the ACA more challenging, having narrowed the Republican Senate majority to 51-49.
House Speaker Paul Ryan (R-Wis.) has said that the House will try to target entitlement reform in 2018, with an eye on Medicare in particular. At the same time, President Donald Trump said during the 2016 campaign that he would not cut spending on Social Security, Medicare or Medicaid and Senate Majority Leader Mitch McConnell (R-Ky.) is not enthused of the idea.
CMS Administrator Seema Verma has already taken steps to give individual states more flexibility in some of their healthcare regulations. CMS issued a proposed rule that could allow states to effectively sidestep the ACA’s essential health benefits (EHBs) in October.
But the American Medical Association has warned that changing EHBs could cause patients to face “substantial increases in out-of-pocket costs,” adding that they are needed to ensure there is quality health insurance coverage.
EHRs are another item to keep an eye on. Senate HELP Committee Chairman Lamar Alexander (R-Tenn.) proposed a bipartisan roundtable to discuss EHRs at the hearing for HHS Secretary nominee Azar. The candidate slammed the implementation of EHRs, noting that improved interoperability is needed for them to be effective and not a burden on physicians.
The Trump administration’s response to the opioid crisis will also be a key item to track. Democrats say more federal money is needed to effectively stem the tide.
In October, Trump declared the crisis a public health emergency, but essentially added no new funding and critics say a national emergency designation is needed to free up money.
The House Energy & Commerce Committee and the Senate HELP Committee have held multiple hearings on the issue, and there is bipartisan agreement that more needs to be done.
Medicare Advantage will be even hotter
Payers have been flocking to Medicare Advantage (MA) plans recently, eyeing a stable marketplace with a steady stream of new beneficiaries. MA enrollment grew 8% from 2016 to 2017 and the CMS expects membership to grow 9% this year to more than 20 million members.
Steve Wiggins, founder and chairman of Remedy Partners, recently told Healthcare Dive he doesn’t expect the growth to slow any time soon. “With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth,” he said.
Patrick Riley, transformational health principal analyst at Frost & Sullivan, said the movement toward value-based care and payment models has driven the recent interest in MA plans. Medicare Advantage has been around since the early 1990s and market penetration has generally capped at about 40%. But since the implementation of the Affordable Care Act spurred more value-based experimentation, MA participation has climbed. It now stands to reach a market penetration as high as 70% by 2040.
Riley said the Medicare Shared Savings Plan is also pushing growth in the MA market. ACOs structured with an MA plan “will see a steady growth in market penetration, almost like a blue chip stock, achieving an unprecedented 60% to 70% market penetration by 2030 and 2040,” he said.
The potential for "receiving shared savings for keeping Medicare Advantage members healthier and out of the hospital is generating additional revenue beyond the PMPM capitation model, which is providing impetus for greater concentration on Medicare Advantage plans,” Riley said. “Consumers, payers and the government are all in agreement that this delivery system is a win-win for all parties.