The insurance exchanges opened for business this week. Politicians are
using the Affordable Care Act (ACA) as the bargaining chip in the shut
down of the government. Health systems are undergoing major economic challenges.
The 1964 Bob Dylan classic seems like the appropriate anthem for these times.
Recently, The Tennessean reported Vanderbilt University Medical Center
“has a plan to cut up to 1,000 positions by the end of the year
and is part of the Medical Center’s plan to cut $250 million from
its $3.3 billion operating budget over the next two fiscal years.”
The Cleveland Plain Dealer reported at the same time, “…the
health system (Cleveland Clinic) may have to eliminate jobs to meet a
target of cutting $330 million from its 2014 budget.”
Last January 2013, Moody’s Investor Service continued its negative
outlook on the U.S. not-for-profit hospitals sector. The underlying reasons
for this included the challenges facing the industry from cuts due to
the Sequestration legislation, the impact of the Affordable Care Act,
continued weakness in utilization trends and value-base payment implementation.
This is not the first time hospitals have undergone challenges from changes
by the government nor do I suspect it will be the last. Most of today’s
healthcare leaders don’t remember the post DRG implementation era.
Length of stay declines and changes in utilization forced hospital closures
and dramatic downsizing of many 800-1,000 bed hospitals. Having lived
through those turbulent times, the current winds of change seem very familiar.
Here are some observations regarding what I believe will be the same and
what will be different from those past challenges. First, what will be
the same? Ultimately hospitals will adapt. High performing hospitals will
find opportunities in the new legislation and become stronger. Similarily,
underperforming hospitals will either close or be acquired by better performing
organizations. This is just simple capitalism at work. Second, new and
improved productivity processes will be implemented to address the most
likely utilization declines. FTE management will be a critical function.
Layoffs and downsizing will be done. Third, physician relationships will
continue to be stressful and more complicated because of employment arrangements.
Finally, there will be unanticipated toxic side effects that will contribute
added turmoil to leaders’ already full agendas.
What will be different? First, new, non-traditional, non-hospital based
competitors will accelerate their emergence in the industry. These new
players will extract more business from the acute care providers. Second,
corporate-led changes in healthcare coverages and expenditures will surpass
governmental reimbursement changes. Third, technology will have a redefining
impact on providers. Fourth, consumer awareness and education combined
with more financial accountability will necessitate provider responses.
Finally, competition will be less traditional provider vs. provider and
more non-traditional vs. traditional. This will be very open and public
More simply stated the erosion of acute care hospitals’ monopolistic
position is occurring. Revenue replacement may be impossible.
Here are some final thoughts to ponder. In Ori Brafman’s latest book,
The Chaos Imperative, he’s working with the U.S. Army and brings
them to a hospital because as he explains, “…a hospital is
a lot like the army. It’s very hierarchical…” Hierarchy
is a killer in dynamic, rapidly changing environments. How are you developing
agility within your organization?
Fidelity’s mutual fund, “Select Health Care Portfolio,”
return year to date is almost 37%. This fund invests in “companies
engaged in the design, manufacture, or sale of products or services used
for or in connection with healthcare or medicine.” Investors are
finding opportunities in healthcare despite the rating agency negative
outlook. Are you making similar investments in innovation and pilot projects?
Finally, did you attend this year’s Health Datapalooza 2013? Unfortunately,
I didn’t even know there was such an event and it was the fourth
time it was held. As described in the meeting materials, “…
in two days, you experience the latest in technology and health innovation
where data meets the market place and the people behind these advances
share the latest apps and ideas that will propel a new generation of tools
to improve health and our healthcare delivery system.” Check out
their website…then find out who in your organization is keeping
track of this stuff.
“The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
And the first one now
Will later be last
For the times they are a-changin”.