It has been a fascinating first half of the year in the healthcare industry. The industry continues to evolve, due in part to several key issues impacting healthcare delivery today. Below we present what we believe are the five biggest issues facing hospitals and healthcare systems, surgery centers and physician practices this year.
1. High-deductible health plans. The shifting focus to high-deductible insurance plans by private employers is likely to seriously impact healthcare provider margins. As implementation of the Patient Protection and Accountable Care Act begins, it is becoming clear that many employers will begin to move toward HDHPs to keep their insurance costs reasonable. HDHPs are likely to impact the healthcare industry by slowing consumer use of healthcare resources. While consumers may not yet have the tools or transparency to really fully begin price shopping for health services, HDHPs will likely lead to more caution in consumer spending immediately. That is, providers often see a slowdown in the first couple months of the year as patients are paying for their own services out of pocket. This period of spending caution may extend for several more months.
For a great synopsis of the impact of high-deductible plans on spending, see "High Deductible Health Plan Study: Five Takeaways" from the California Healthcare Foundation.
2. Healthcare insurance exchanges. The development of healthcare insurance exchanges, recently rebranded as "marketplaces" by the Obama administration, is moving more slowly than expected. However, this slower pace in becoming operational may be good news for providers, as the healthcare exchanges will likely pay providers at lower rates for their services. The predicted migration of business from commercial payers to healthcare exchanges is an issue of great concern to providers.
For additional information on healthcare insurance exchanges, please see the Fitch Ratings' report “Health Insurance – Exchanges Clarity Needed to Gauge Impact," in which Fitch Ratings notes that hospitals are likely to be paid lower amounts under healthcare exchanges than they receive from commercial insurance.
3. Healthcare consolidation. While a number of independent hospitals remain steadfast in retaining their independence, we continue to see independent hospitals entering into discussions regarding mergers and affiliations with larger partners. Many hospitals remain very concerned about their ability to stay independent long-term in a changing environment where future reimbursement is uncertain. However, independent hospitals that can 1) be dominant in their independent market, 2) be operated in a very lean way, and/or 3) excel in a specific area, may be able to stay independent for a long time.
For a different view of healthcare consolidation, please see "Healthcare Consolidation May Bend the Cost Curve the Wrong Way," by Mitchell Brooks (March 16, 2012) at KevinMD.com.
4. Surgery centers remain a good business. There continues to be erosion of two key factors that comprise and drive revenue for surgery centers. Specifically, there continues to be a decline in physician cases and reimbursement rates. Essentially, there are a limited number of independent physicians available to invest in ASCs and reimbursement for surgery centers is not improving. In contrast, one positive development for surgery centers is that independent physicians in key specialties such as orthopedics, gastroenterology and ophthalmology are not becoming employed by hospitals as quickly as originally expected or as quickly as other specialists. However, there are not as many new specialists today establishing large independent practices as there had been over the last twenty years. Furthermore, in many areas the surgery center market is relatively saturated and there are a limited number of independent physicians available to be owners in third-party ventures or buy into surgery centers because a large number of independent physicians already have ownership interests in other centers or are employed by a health system which prevents them from becoming owners in third-party ventures. Surgery centers are also facing the same reimbursement challenges that hospitals and health systems are facing, including the movement toward high-deductible health plans and healthcare exchanges.
5. Independent practices and physician trends. Many independent physician practices, like independent hospitals, seem intent on remaining independent. However, practices seem to gravitate quickly toward hospital employment when their professional income decreases by even relatively small amounts. That stated, if an independent practice wishes to remain independent, it needs to: 1) have such a dominant position in its marketplace that is hard for payors to build a network without it, 2) be run very lean as to be able to survive with the unknown changes and reductions in reimbursement, and/or 3) be so extraordinary in a specific area, ie so great at its core specialty or by reputation, that it stands out in terms of patient need or payer need. Physician practices are also facing challenges with respect to specialist recruitment, as there remain shortages and surpluses of specialists depending on the market — some markets still have far more specialists than needed. In addition, it will be fascinating to see whether hospital-employed specialists' compensation continues to remain at the lofty levels it is now in the future, or whether hospitals will reduce employed specialists' compensation as reimbursement for hospital services declines over time due to changes in Medicare and the development of healthcare exchanges and high-deductible health plans.