Revenue fairy gone for health care industry

Kenneth-Kaufman2Hospital corporations have five years – or less – to transform their business models.

That was the recent consensus at a confab sponsored by the UW-Milwaukee College of Health Sciences of three of the four heads of major health care organizations in the Milwaukee region, along with the perspective of Ken Kaufman, a leading strategy consultant to the industry.

Here is the case for an industrial attitude adjustment made by Kaufman:

• “We are having a ‘railroad’ moment in healthcare right now.”
• “Don’t be a railroad – railroads went out of business because they thought they were in the railroad business instead of recognizing they were in the transportation business.”
• “You are not in the hospital business anymore – you are in the healthcare business.”
• “Think of your hospital as a ‘healthcare’ organization, not a ‘sickcare’ organization.”
• “Give up on the inpatient model – inpatient care will soon be a cost center as part of a much larger healthcare enterprise.”
The three leaders, Mark Taylor, President & CEO of Columbia St. Mary’s, Inc.; Catherine Jacobson, President of Froedtert Health; and John Oliverio, President & CEO of Wheaton Franciscan Healthcare, agreed there’s a train coming down the tracks and shortened Kaufman’s five-year timetable.

“If you are not moving like your pants are on fire, you are not moving fast enough,” said Taylor.

The crux of the challenge is that the long-standing pattern of large revenue increases is over.

“We are past the point where anyone cares about a revenue solution,” said Kaufman, who cited as an example the 2% cuts to Medicare reimbursements in the federal sequestration proposals.

At the same time, payers in the private sector are taking on the management of health and health costs as a strategic priority. They are driving down utilization, such as hospital admissions.
Long and short, the hyper-inflation that inflicted patients and payers, but lifted the top lines of providers for decades, is ending.

Oliverio and Jacobson commented that they have only a couple years to adjust their delivery models to the new world where supply and demand principles are at work.

Kaufman maintained that providers must move from a production-based payment system to one that is value-based. Private payers like Serigraph are already paying for full episodes of care in all-in bundled payments. And they are paying their own primary doctors on a capitated basis – a set amount between $1500 and $2000 per year.

He urged the CEOs to reject the “sickcare model” and accept the “healthcare model” and to get rid of fee-for-service contacts and move to fee-for-value contracts that base payments on quality of outcomes.

He urged a reduction in numerous unnecessary tests, for hospital leadership on the obesity epidemic and for more intelligent care at end of life.

“Regardless of what happens at any regulatory level,” said Kaufman, “improving quality and efficiency is the right thing to do.”

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