How hospitals feel about AHCA's death, future with ACA
No matter your political affiliation, most can say the American Health Care Act (AHCA), the GOP plan to repeal and replace the ACA, failed spectacularly. The legislation was panned from both sides of the aisle to the point where no vote was taken in the House on it. President Donald Trump said he would move on to tax reform and Speaker of the House Paul Ryan called the ACA the "law of the land" last Friday. The bill, which was around for under 20 days, barely met this astral plane before it left us.
This week, there has been a "will-they, won't-they" quality to healthcare reform for the Republican party. Some reports say healthcare reform is back on the table while Senate Majority Leader Mitch McConnell (R-KY), a fierce ACA critic, called the ACA "the status quo." There have also been rumblings that Ryan may address healthcare reform on Thursday or Friday in a speech.
Still, for sanity's sake, let's go with the narrative that the AHCA is gone and the ACA is the law of the land for now. One of the main political sticking areas under healthcare reform has been the notion of healthcare access and coverage. Now, a spotlight has been given to insurers to see what their next moves are to shore up the individual market. But that doesn't mean providers don't have their own thoughts on the future of healthcare reform. Healthcare Dive on Wednesday spoke with Igor Belokrinitsky, healthcare strategist at Strategy&, a member of the PwC network of firms, to discuss how providers are feeling in a post-AHCA world. Belokrinitsky's comments below have been edited for length and clarity.
They are relieved but uncertainty remains
There was a real threat from AHCA that coverage would be reduced, particularly for health organizations that were already operating on pretty thin margins such as safety nets, academic medical centers in urban settings, rural hospitals and community hospitals. They're all concerned over the reduction of coverage that would result from repeal and replace.
For the other organizations, its was the uncertainty causing them to be concerned and you saw some reports of hospital hiring being frozen this year. The uncertainty has been lifted and it's kind of in our rearview mirror now but the road ahead for providers is still pretty dark and bumpy. There are other aspects of uncertainty down the road.
First, ACA repeal and replace may not be completely gone so we can't completely write it off. There's also uncertainty around smaller pieces of regulatory changes in the legislation whether it's around new reimbursement models or health technology as well as certificates of need and Stark laws. There's going to be lingering uncertainty continuing.
AHCA showed providers what they wanted
The other thing the debate over ACA did was raise many legitimate issues where even though the coverage has been expanded, the access to healthcare still remains constrained and the affordability of healthcare is still a major problem. Leaving ACA in place doesn't necessarily solve those problems. A lot of health systems still have to grapple with these questions of access and affordability even though coverage may have been secured for the time being.
For a lot of hospitals and health systems, that again were operating on pretty thin margins, what they're seeing is their costs are going up and their reimbursements are going to stay pretty flat. What we're hearing from more and more hospitals is they are looking at an environment of flat reimbursements and rising costs and trying to make margins work. So there are still some fundamental issues both from the consumer side in terms of access and affordability and from the provider side in terms of general sustainability of the business model for a large subset of hospital systems.
AHCA showed the providers what they didn't want and clarified for them what their policy agenda ought to be.
Providers are looking to tighten their belts
Hospitals are a fixed cost business by and large. If you want to cut costs in the near term, it's pretty hard to do because you got giant facility costs and giant staff costs which are often linked to staffing ratios and you want to be very careful before you decide to touch those areas. Materials costs are somewhat influenceable but a lot of those are driven by physician preferences. So in the near term, what can you do? You may try to cut some overtime, postpone some marketing spend or try and squeeze other variable staffing costs. There's not a ton you can do with the cost in the near term.
What will likely happen is many administrators in the budgeting process will tell their department, "No cost increases next year. Budget for zero cost increases or potentially even a little bit of a hit." There are not going to be automatic budget increases for departments and service lines. Therefore, the fight between service lines for equipment and new physicians and wings is going to intensify.
In the longer run, we are seeing and are working with health systems to take out pretty significant amounts of cost out of their operations, both clinical and nonclinical, and setting targets like 15-20%, which is a transformative change. You can't do that with automation, improving processes and shaving a percentage here and there. When talking about a 20% cost improvement, you're questioning "Do we need this facility? Do we need to provide this service at this location? Does this service need to be provided by a physician?" These decisions were sort of politically infeasible in the past within these health organizations.
The changes are becoming more dramatic. Fortunately, there's a bit of a cushion there because what's been happening over the years is a lot of these hospital systems have consolidated. Unlike other industries where you buy a business and integrate it, this hasn't happened in hospital systems. There, a hospital is bought and they get to keep their identity, board, services, marketing and everything else. That's the reserve that's out there. That's the value that could be squeezed out of the system if you went ahead and really integrated these hospital systems so they function much more as a system as opposed to as a random collection of hospitals.
Providers are walking a fine value-based care line
Providers are certainly pushing for the value-based arrangements. The large hospitals and physician groups are adopting MACRA, they're building bundles. They've started down that path. They're continuing to teeter on this edge of taking risk and moving toward capitation versus waiting it out a few more years and squeeze a bit more out of the fee-for-service model.
There is opportunity to be had
When there is uncertainty, there's room for a subset of organizations to take risks and to make bets. There may be interesting acquisitions that are possible in this environment. There may be some disruption providers can do technologically. I've seen an unprecedented coming together of health systems, insurance companies and the public sector trying to figure out how to address the holes in coverage and this has not stopped. You have a unique opportunity where everyone is talking about the cost and access to healthcare and so there's room for some smart organizations to strike the iron while it's hot and take advantage of this moment to do something innovative and disruptive and profit from it.
- Healthcare Dive ACA repeal bill dies in House, GOP says it will move on
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