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Navigant execs identify trends to watch for in 2018

These pros are looking at the year ahead, spotting several trends they think will shape the healthcare landscape.

Jeff Lagasse, Associate Editor

The past year has seen a lot of trends emerge in healthcare. Value-based payment models have taken root and are growing. So, unfortunately, is corporate overhead.

There were fewer unpaid medical bills in 2017 -- but that could change.

Richard Bajner, managing director at Navigant Consulting, and Christ Stanley, MD, Navigant's director, are looking back at the year that was while eyeing the year to come, spotting several trends they think will shape the healthcare landscape in 2018.

Here are some of those they've identified, and how they think things will play out over the next 12 months.

Re-evaluating value-based investments

Value-based payment models have the full support of the Centers for Medicare and Medicaid Services, but under President Trump's administration, changes have been made to ease the burden on physicians. Earlier this year CMS nixed mandatory bundles in favor of voluntary models and decided to exempt a greater swath of physicians from MACRA requirements. This opened the door to speculation that the government was not 100 percent behind value-based models. CMS has asked for stakeholder feedback on designing future models out of its Center for Medicare and Medicaid Innovation.

Hospitals are in the awkward position of moving forward with investments in value-based care or sticking to the better paying fee-for-service operations. Health systems have already made substantial investments in value-based care, in areas such as staff and technology.

[Also: Transforming bundled payments into episodes of care can give hospitals, payers an edge]

Yet even in the face of mixed signals from the current regime, these investments still matter. Accountable care organizations cover about 32 million patients, private payers are paying  about half of their reimbursements through value-based models, and Medicare anticipates it will soon announce new voluntary payment bundles, according to the trend report.

In 2018, a lot of health systems will be evaluating what's working and what isn't, said Stanley. Among the things that have been working, he said, "are how organizations are aligning their clinical strategy around a particular service line -- let's say orthopedics. It's about getting physicians to sit down with aligned incentives, and figuring out what's the ideal pathway for a patient to go through, before and after hospitalization.

"A lot of hospitals enter bundled payment episodes … with the thought that it was going to be hard for them to manage cost of care," said Stanley, "but they've been able to drive down expense and supply costs and work with community partners in the acute-care space."

Among the challenges, he said, are getting management staff to work together and align their incentives. Electronic medical records can also be tricky. It's important to unify them across an ACO, extract the data and improve the day-to-day care being delivered to patients.

Bajner said there's still a desire in the market for delegating performance risk from the commercial market.

"So the fact that organizations haven't created net ROI on their investments in order to succeed under these delegated risk programs doesn't mean the appetite isn't there," said Bejner. "We know that whether it's national carriers, large regional carriers, Medicare Advantage-specific carriers, payers are continuing to evaluate how to best work with market-leading providers … and knowing what the right delegated risk model is, whether that's a pay-for-performance program, capitation, etc.

"So we still think the market is demanding these," he said. "However, we don't think the market has structured these in a way that has truly aligned incentives, or that has created an infrastructure to achieve results."

Reigning in corporate overhead

Hospitals have been facing rising costs and slower revenue growth, and that in turn has resulted in lower margins. Which means reigning in corporate overhead will be as important as ever.

Navigant's own statistics are a testament to this. Looking at 2,000 hospitals from 2015-2017, it found that hospitals' average operating margins dipped from 5.6 to 3.6 percent, or 35 percent, and operating expense growth outpaced net patient revenue during that time, 14.6 percent to 11.6 percent. And that's during a strong economic cycle.

[Also: Proposed changes to 340B program would hurt nonprofit hospital margins, Moody's says]

"The industry is making a bet that scale matters and that scale is going to drive results," said Bajner. "So as we step back and ask ourselves why so many are betting on scale, it's clear these organizations believe having a national perspective puts them on the map. Yes, we understand the notion that scale helps maintain price points, but we also know that scale is intended to drive efficiencies, and the biggest bucket, at least for a starting point, is around corporate overhead.

"The argument is that by bringing together large systems from scale, you can reduce the size of your corporate infrastructure on a weighted basis," he said, "whether that's IT, legal, HR, whatever it may be. Our concern is that we haven't seen that come to fruition yet, but that's the bet organizations are placing."

The challenge then becomes combining more efficient corporate service while maintaining a local presence. One thing that hasn't worked in the past is an acquisition strategy that doesn't take integration into account, something Stanley saw firsthand when he was working in population health initiatives at a major health system.

"An acquisition strategy by itself will bloat corporate overhead, and increase inefficiencies within the larger system without any real value benefit from supply chain, revenue cycle enhancements, what have you. There needs to be a move to true integration, and right-sizing of the organization as well."

Other strategies that work include benchmarking performance to see where you stand against your peers; get leadership and staff to buy into enhancement strategies, which fosters a sense of ownership; and identifying and reducing duplicative management.

The fall, and likely rise, of unpaid medical bills

So first, the good news: Hospitals have seen their uncompensated care revenue improve. A recent Navigant/HFMA analysis found that the percentage of unpaid medical bills dipped 39 percent from January 2014 to December 2016, and uncompensated care was cut in half in states that expanded Medicaid under the Affordable Care Act.

The bad news is that three factors threaten this momentum: reform, economic uncertainty and the rise of high-deductible health plans.

[Also: Hospital says web-bots helped boost point-of-sale collections by nearly $4 million]

The recent tax bill ends the individual mandate to buy health coverage, which is expected to increase the numbers of uninsured by about 13 million, leading to uncompensated care.

High-deductible health plans are a significant trend, said Bajner.

"Organizations are struggling with upfront collections around these populations," he said, "recognizing that patients are essentially uninsured under high deductible health plans until they hit some dollar threshold. Systems need to be much more forward-compatible to manage this on the front end, but also be a catch-all on the backend. (It's about) recognizing trends that aren't net positive for health systems related to the bad debt picture."

HDHPs can also hut healthcare utilization, since many consumers respond to high deductibles by reducing the amount of care they receive. That drives down hospital admissions and could result in serious future health issues. As bad debt is shouldered more and more by families rather than insurers, providers will have to tighten their revenue cycle functions.

Managing physician acquisitions

In 2016, for the first time, the majority of U.S. physicians didn't own their own practices. Acquiring physician practices has been an ongoing strategy for years, but historically it's been a struggle for systems to integrate these practices. In 2018, it will be paramount for health systems to manage up the return on these acquisitions rather than managing down the losses.

"The trend has been to acquire physician practices as a referral strategy to fill hospital beds," said Stanley. "They're focused on procedural specialists that will keep beds full and campuses busy. The downside of that is we've seen high salaries, guaranteed salaries, and not much operational efficiencies, so it's been relatively high cost without the real return. Even on the specialist side … we're going to see a trend were more primary care physician practices are aligned with systems rather than just specialists."

A big chunk of direct practice losses is the result of "hosting" practices, as opposed to managing them effectively. All too often, health systems acquire a practice and then fail to streamline staffing and support functions, standardize supply chain purchasing. Those are things a hospital will have to consider in the future if it hopes to wrest the most value out of those practices.

"If you look at the history of physician organizations, and how we got to where we are, it's not surprising the results we're getting," said Bajner. "Health systems are unlikely to outperform aligned physician organizations. Acquiring physician practices has been a much sought-after strategy, but it has resulted in higher expenses -- labor, IT, new allocations costs that increase expenses for organizations when overhead is accounted for. It's been difficult to define ROI on these things."

Twitter: @JELagasse
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