Journal of Healthcare Management - May/June 2014 - (Page 170)

J o u r n al of H ealt H care M anage Ment 59:3 M ay /J une 2014 indirect financial implications, particularly as commercial insurers follow the lead of the federal government in payment reform. In all likelihood, future reimbursement rate increases will lag health cost inflation by at least a few percentage points. This factor alone forces providers to significantly reduce costs while upping their competitiveness to try to maintain or increase revenues-a twofold challenge. While historically strategic planning in healthcare has focused nearly exclusively on growth through increasing share and enlarging the market, strategic planning today includes five new imperatives (see Figure 4): 1. Sufficient scale and scope or niche play: Organizations will need to scale up or focus in order to survive in the future. For most, scaling up will involve inorganic growth through mergers, acquisitions, and new partnerships. In major metropolitan areas, a limited number of consolidated organizations will emerge, probably with annual revenues in excess of $2 billion. These organizations will be the ones that can meet the integration, alignment, and value challenges that result from healthcare reform. 2. Cost competitive: Being cost competitive has never mattered before, but with new underlying financial pressures, all organizations will need to continually reduce costs for the foreseeable future by about 3-5% annually. Competition for patients will also increasingly be based on ability to provide value (quality + service ÷ cost). FIGURE 3 Future Industrywide Development Assumptions: Main Drivers of Industry Change, 2014-2018 Driver 1 2 3 Economic decline and slow recovery Healthcare reform * Payment for value * Transparency and technology requirements * Coverage expansion * Medical loss ratios and tax increases for payors * Declining reimbursement Increasing competition Direct Impact Major Implications for the Future, 2014-2018 * Federal and state budget deficits, funding cuts and cost-containment efforts * Reduced capital access * Competing on value * Substantial new overhead * Increasing proportion of provider volume from low-margin patients * Cost-shifting from insurers to providers and patients * Real integration * Limited population growth expected * Increasingly large, well-heeled competitors * Increased marketing and ambulatory network developments Horizontal integration: Hospital/system consolidation Vertical integration: Continuum of care including insurance products Physician alignment: Employment; large physician groups Payer consolidation: Commerical payer consolidation Value competition: Relative cost and quality performance The ultimate implication is the widespread proliferation of tightly integrated (and eventually closed or near-closed) systems. 170

Table of Contents for the Digital Edition of Journal of Healthcare Management - May/June 2014

Journal of Healthcare Management - May/June 2014
Contents
Interview With Christopher D. Van Gorder, FACHE, President and CEO of Scripps Health
Successful Strategic Planning for a Reformed Delivery System
You, Inc.
Assessing the Feasibility of a Virtual Tumor Board Program: A Case Study
Physician Clinical Alignment and Integration: A Community–Academic Hospital Approach
Employer-Based Coverage and Medical Travel Options: Lessons for Healthcare Managers
Composite Model for Profiling Physicians Across Domains of Care

Journal of Healthcare Management - May/June 2014