Along the Road to the Future of Health, Hospitals and Health Plans Must Navigate Twists and Speed Bumps | Deloitte US has been saved
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By Steve Burrill, vice chairman, US Health Care Leader, Deloitte LLP
While hospital, health system, and health plan leaders understand where the health sector is headed, many of them anticipate a long road ahead that will be full of hairpin turns and unexpected speed bumps or potholes. The Deloitte Center for Health Solutions and the Monitor Deloitte Health Care Strategy practice recently interviewed CEOs from 25 health systems and six health plans to find out how they expect to navigate this journey.
Most of them agree that consumers will likely play a bigger role in defining their care and will help drive more of it to be delivered in outpatient settings, at home, or virtually. They also acknowledged that large technology and retail companies are entering the health care space (some executives see this as a positive trend).
Why hasn’t value-based care grown faster?
In 2015, I would have predicted that value-based contracts between health plans and providers would be the norm by 2020. Many CEOs also thought they’d be further along by now. We were wrong. In 2020, some health systems have between 20 percent and 40 percent of their business in full-risk or shared-risk arrangements, but many CEOs told us their value-based business is still in the single digits. While these percentages are growing, they are growing slowly. Only a few hospitals and health systems interviewed have more than 50 percent of their contracts in risk-based arrangements.
Health plans might have a role in the slow adoption of value-based care. Risk can be profitable for health plans and some companies don’t want to give that up. However, many health plans need hospitals and health systems to engage in more of a value-based, wellness-focused philosophy of care. Health plans generate revenue by accepting risk, and their risk—and profits—decrease when they share risk with providers.
Value-based care is often top of mind when I meet with health system CEOs. While they acknowledge they need to grow their value-based business, they also understand they could lose money as a result. Therein lies the challenge. A lot of hospitals lost money in the early days of value-based care. While they are getting better at managing risk, the payments sometimes aren’t enough to cover the resources used by a population. That said, it is rare to come across a hospital or health system that doesn’t have some level of value-based business.
Many of the CEOs we interviewed said they had pivoted away from value-based care because it is a difficult change and they were unconvinced the broader market would completely move away from the fee-for-service (FFS) model. Instead, they told us they are focusing on improving care coordination and consumer engagement. They understand that making improvements in these two areas can help enhance consumer loyalty, improve costs and quality, and smooth the transition to value-based care in the future.
Some health systems are determined to remain in the FFS world as long as possible. Even hospitals and health systems that still rely primarily on FFS payments have recognized a need to transition low-acuity patients from hospitals to outpatient facilities.
Consumers are playing a role, too. They want health services to be more streamlined and they don’t want to navigate a hospital for services that could be provided in a less complex and less expensive setting, or even at home through virtual visits.
US Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma has said value-based payment is the future.1 And that is absolutely true.
The transition from outpatient to inpatient will likely mean fewer beds
As health plans and health systems perform more services in outpatient settings, CEOs recognize they probably won’t need as many beds in the future. As I mentioned in my 2020 outlook, hospital outpatient revenue has been increasing over the past several years and is now nearly on par with inpatient revenue. The Deloitte Center for Health Solutions recently took a close look at hospital admission trends. We found that between 2011 and 2018, hospital outpatient revenue grew at a higher compounded annual rate (9 percent) compared to inpatient revenue (6 percent). Moreover, the aggregate outpatient share of total hospital revenue grew from 28 percent in 1994 to 48 percent in 2018.
I expect this trend will continue for at least the next couple of years. While moving more care to outpatient settings could reduce care costs, it also could have a negative impact on the balance sheet for hospitals. Moreover, providers are bracing for a major shift in payer mix as the population ages and a significant portion of the population transitions from employer-sponsored commercial insurance to Medicare.
Some CEOs told us they are rethinking what it means to be successful as more of their business moves to outpatient services. Many hospitals have a significant amount of capital tied up in their inpatient facilities and will need to determine how much inpatient space will be needed in the future.
Outside companies might bring threats, opportunities
CEOs agree the health sector is undergoing a monumental change, but many of them strongly feel that their core businesses will remain intact. While retailers and technology companies are moving into the primary care space, many CEOs told us those companies lack deep knowledge about the industry and don’t pose a competitive threat. Some CEOs actually see these new entrants as a potential benefit. Here’s why: Primary care is a low-margin business under a FFS model. If outside groups take over some of the low-margin primary care, patients will still need hospitals for more complex health care needs, which have higher margins. Some health systems might forge partnerships with companies that offer primary care services.
Hospital and health system CEOs understand that they can’t continue to operate under an outdated business model. They know they should improve price transparency and make access to care less complex and more user friendly. Most importantly, they recognize the road to the future might not be a smooth one…but they are buckled in.
1. Modern Healthcare, Americans 'fed up' with high healthcare costs, surprise billing, Verma says, September 10, 2019