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Money-- the Root of Change

Money-- the Root of Change

In my city there are no less than five hospitals recently opened or currently under construction. Two of these are rebuilds of existing facilities, but the other three are brand new hospitals owned by investors. These latter ones are designed for those who can pay. With the advent of many more insured patients in this country as a result of the Accountable Care Act (ACA), some investors are betting on more paying patients at facilities such as these. The investors in these hospitals are outliers in a time of change making a bet that the volume of paying patients will bring financial success. The ACA as well as commercial insurance companies now have put in place many provisions to control spending and many new regulations and standards designed to improve health industry performance. All payers are focused on requiring more accountability and lowering the cost of care. These same payers (the various governments as well as insurance companies) also want to improve measurable quality performance, patient safety, quicker access to appropriate care and broad options for consumers. Health Care Delivery Organizations (HCDOs) are assertively seeking new structural formations and alignments through mergers, partnerships, or evolving to more efficient organizational forms. This flurry of activity is designed to capture greater efficiencies, effectiveness, as well as-candidly- to become stronger entities within their geographic markets in order to ensure their long-term survival in this time of rapid change. Physicians too are aligning their practices or allowing the practice to be purchased by a hospital or other HCDOs. Physician acquisition is a clear example of smaller organizations, like a medical group practice, not being in a strong enough financial position to comply with ever increasing regulatory, payer, consumer and technical requirements necessary to maintain financial viability.

So, why do these three new hospitals believe they can be successful? And why are other hospitals and/or HCDOs pursuing new alignments? And why are physicians allowing themselves to be acquired? Money. Some believe they can benefit financially from certain investments; while others simply do not have enough money to stay in the game. The shake-out has begun. Money is a big part of all of this.

In 2010 the Accountable Care Act became law. This is the most significant piece of health care legislation since the passage of Medicare and Medicaid. It increases access for millions of people, adopts various mechanisms to encourage reform of the health care delivery system and increases performance standards (often tied to reimbursement) throughout the provider base of this industry. Even if the law is modified and/or changed (and all laws are eventually), fundamental constructs have been put in place to address major issues in US healthcare and these foundational aspects will not go away. Regardless, we are now in a transition period and, while change is afoot, significant amounts of money still flow within and through HCDOs. This is what the new hospitals are counting on….that the money will continue to flow. They are betting that an alternative financial model can exist in tandem with a new one which is now developing and reforming most of US healthcare delivery. They may be right…as long as this business model is not copied by others. Nothing stops hubris faster than competition.

Earlier I mentioned four requirements that are drivers of change. Regulations, reimbursement, consumer behavior and technological advances are all part of the background changing healthcare. Let’s face it….. hasn’t it always been this way. When I was a very young hospital administrator I watched in amazement as one technical advance (lasers), followed in short order by consumer demand, reimbursement changes and patient safety expectations, contributed to closing an entire wing of my hospital. Our ophthalmology unit occupied one wing of one floor of the hospital. Eye patients stayed a long time, immobilized post surgery by sand bags, – yes, sand bags, to prevent any sudden movements which might dislodge the very sensitive surgical repair to their eyes. It was a financially rewarding unit. But, the laser changed all that. It was the technical advance that drove doctors to courses to learn how to use this new device, which, in turn, enabled precision and outcomes to improve, hospitals stays to shorten and costs to decline. Patients were quick to demand the latest in medical technology and this demand, coupled with lower pay and shortened stays, drove us to close an entire hospital wing in a year. It was an important lesson in the power of major external forces on the business of running a hospital. And now aren’t we all glad it happened! It improved care, it improved lives, and it saved money.

Much of what we do is about money. The economic engine drives us all. Hopefully, like the impact of the laser, changes now underway, which are initially motivated or necessitated by money, will turn out to be a much greater benefit for everyone.