The Top Three Healthcare Financial Trends in 2017: Payment Transitions, Disruption, and New Skills
As 2017 comes to an end, the year’s prominent healthcare financial trends emerge, as do clues to potential new trends. This article examines three of 2017’s significant trends—transitions in payment, disruption from familiar players and newcomers, and emerging data skillsets—and how they might impact healthcare.
While much of the industry focuses on delivering better care at a lower cost, or acknowledges the importance of doing so, healthcare struggles with barriers and uncertainty around this goal. Without a clear roadmap for the Affordable Care Act (ACA), organizations struggle to embrace and implement value-based care. Meanwhile, establishment changes and influential newcomers (e.g., Amazon) stand to disrupt the business of healthcare, and new technologies are altering the healthcare landscape—reframing the industry’s understanding of both clinical and financial outcomes and careers.
Trend #1: Transitions in Payment
While the U.S. waits for final direction from the federal government on overall healthcare policy, no one knows exactly what to expect. What is certain, however, is that the trend for value-based purchasing (VBP) with alternative payments will continue. Markets vary across the U.S., and change isn’t occurring as quickly as expected. While the industry is generally in favor of linking payment with value, it’s unclear whether all healthcare organizations will want to sign up for risk on the upside and downside. Data shows the following payment trends:
According to a June 2017 publication in the Health Affairs Blog, at the end of first quarter 2017, there were 923 ACOs across the U.S., which cover 32 million lives. Compared to the same period in 2016, this is a net growth of 92 ACOs (138 started operations; 46 dropped their contracts). That’s an ACO growth rate of greater than 10 percent.
Continuing toward value-based purchasing
According to a study from business intelligence firm ORC International, payers report they are now 58 percent along the continuum toward full VBP. Payers are also shifting the increased network management: 53 percent are using tiered networks, and 42 percent are using narrow networks. Additionally, 75 percent of payers stated quality as a driver for network selection. Hospitals rated their organizations at 50 percent along the value continuum—up four percent in the past two years.
The study stated that, in five years, 59 percent of the overall payment models will be a mix of capitation, P4P, and episodes, with bundled payment growing fastest. The study concludes that disruptive change in healthcare payment hasn’t slowed. The overall complexity of alternative payments on a large scale remains a challenge for payers and health systems alike.
CMS less actively pushing away from fee-for-service (FFS) payment
CMS was actively pushing to move 50 percent of the FFS payment to alternative payment by 2018. It was on track to meet the 2016 goal of 30 percent. The current administration, however, has not been pushing as aggressively to meet these goals and is taking time to develop its policies.
The shift to shared-risk and population-based models
The Health Care Payment Learning and Action Network continues to advocate for a healthcare system transition to shared-risk and population-based models. The Department of Health and Human Services (HHS) established the network to bring together the many stakeholders (private, public, and non-profit) to transform the nation’s health system to emphasize value over volume.
Population health progress
In a 2017 survey of health systems about population health, 82 percent of respondents reported they continue to move ahead with their population health strategies despite uncertainty in healthcare reform. Thirty-seven percent said their primary concern for their strategy was financial implication, and more than 50 percent said they didn’t expect more than 30 percent of their contracted population to have downside risk within the next three years.
Innovation and transformation in payment
As the push in payment continues, the industry is acknowledging innovation and transformation in this area:
- In a September 2017 Wall Street Journal article, Seema Verma, CMS Administrator, outlined her new direction for the Center for Medicare and Medicaid Innovation, which includes a continued focus on value and movement away from paying for volume. Verma also stated CMS is seeking to reduce complexity and focus on outcomes, and work to increase choice and competition in the healthcare market; the goals are providing price transparency and empowering beneficiaries as consumers.
- CMS had scheduled mandatory bundled payments in specific geographic areas to start in January 2018. In early August, CMS issued proposed rules to cancel and rescind the regulations for these bundles. CMS also revised aspects of the Comprehensive Care for Joint Replacement (CJR) model. This was the second delay for this program, leading the industry to ask if this were a shift or just a pause. Verma asked for more stakeholder input into the design of the various payment models by October 2017.
The transition to VBP will increase organization’s focus on cost. Healthcare previously relied on payment increases, particularly from commercial payers. Now, with more risk associated with payment, health systems must cover the cost of a population. Organizations see the expense trend growing faster than the payment trend.
Entities have converted to new enterprise resource planning (ERP) systems, often replacing older reporting and control systems, but not truly integrated them into the workflow. For example, managers now review labor performance on a dashboard, where they previously received it in a biweekly report. Organizations need to restate accountability for operations, and make sure all levels of management have the tools to understand and leverage new systems.
Healthcare has spent many dollars deploying EMR systems. As of 2016, over 95 percent of hospitals eligible for the Medicare and Medicaid EHR Incentive Program have achieved meaningful use of certified health IT. The industry has installed software; now it needs to enjoy its potential benefits.
Trend #2: Disruption from Established Players and Newcomers
2017 has seen disruption from the universal healthcare movement, “Medicare for All,” the Medicare Access and CHIP Reauthorization Act (MACRA), Amazon, Anthem, and CMS.
“Medicare for All”: Universal healthcare
“Medicare for All” has become a slogan and movement for universal healthcare (i.e., a single-payer system). A bill, H.R. 1, the Medicare Prescription Drug, Improvement, and Modernization Act, was originally presented in 2003, and H.R. 676, Expanded and Improved Medicare for All, was introduced in January of 2017. The Medicare for All movement website claims tentative support from 27 percent of the members of the House of Representatives. This shows a willingness to discuss options for healthcare in the U.S. and disruption that starts debates, which can lead to new policies and collaboration.
The Medicare Access and CHIP Reauthorization Act (MACRA) passed in 2015 with bipartisan support to reform payment. The bill creates a new framework for rewarding clinicians for providing higher quality care by establishing two tracks for payment: merit-based incentive payment system (MIPS) and advanced alternative payment models (AAPMs).
As a disruption, MACRA had support and has correct incentives, but the adoption process has not been easy. Despite this major change for physician payment, surveys clinicians aren’t ready for MACRA. They struggle to comply, and many are not sufficiently familiar with the law and how it will impact them. 2017 is MACRA’s base year, so health systems need to submit data to avoid a negative four-percent payment adjustment in 2019.
“We have a better framework to go forward,” said David Barbe, MD, president of the American Medical Association. “It’s increasingly looking at the value that care brings. That can be in terms of economic savings. It can be in terms of improved quality. It can be in terms of better interaction between physicians and patients.” Barbe also acknowledged that getting participation from doctors and healthcare organizations will be difficult.
Amazon’s healthcare technology team, called 1492, is working on developing new capabilities that involve electronic medical records systems and telemedicine. Their work has the industry asking a couple key questions:
- Will this Amazon team help make information available to consumers?
- Will this be the final push that is needed to open our medical records?
Apple, Microsoft, and Google continue to investigate entering the healthcare market. As innovators (and potential disruptors), these companies could impact healthcare in many ways.
In August of 2017, insurance plan provider Anthem announced it would no longer pay for MRIs and CT scans performed at hospitals on an outpatient basis; this policy will be implemented by March of 2018. As this large payer forces consumers to seek services at less expensive imaging centers, hospitals will feel the impact on their bottom line. Anthem’s motive is to control costs, lower premiums, and help the consumers with high-deductible plans. How physicians, hospitals, and consumers, however, plan to adjust to the implications of this announcement remains to be seen.
CMS proposed regulations for 2018 for outpatient services that aim to make costs more site neutral. Services at off-campus hospital outpatient departments will be paid at 25 percent of regular outpatient rates. Are both announcements the beginning of a trend? How will other payers respond?
Needs more disruption: The claims process
There is one area that needs more disruption—the claims process. There are new payment models, but, in most cases, claims are still paid under FFS. Then, at the end of a specific time period, health systems see the results of a reconciliation. Did the bundle payment incentivize lower costs for hospital, physician, and post-acute care? The party holding the risk may not know the answer for 18 months.
While the industry needs to build history to create the models, both providers and payers need to push for change and simplification. Only half of payers and 40 percent of providers say they’re ready to implement bundles for the technical side. How much waste is there? Healthcare tends to solve the problem by adding a human resource to rework, redo, and reconcile. To focus on providing quality healthcare, the industry needs a serious cost–benefit analysis of the entire process to get a claim paid.
Needs continued disruption—Moving away from the inpatient hospital business
Healthcare continues to move away from the inpatient hospital business. Data from the American Hospital Association shows inpatient hospital admissions are down six percent for 2010 to 2014. Overall, fewer people are being admitted. The admission rate per 1,000 is down nine percent, and the outpatient trend shows a 6.5 percent growth in visits during the same period.
A September 2017 article in the Wall Street Journal summarized the capital spend planned outside the traditional hospital, as both for-profit and not-for-profit systems invest in emergency rooms, surgery center, and urgent care clinics. Tenet Health stated its strategy is to increase patient access points for convenience and to enhance integrated care—as part of its strategy to succeed as volume shifts from hospital to ambulatory. Since 2012, the ambulatory footprint has increased from 117 sites to greater than 480. As patients shift from the hospital setting, new strategies need to provide continuous care to the patients.
Trend #3: Emerging Data Skillsets
The job title “data scientist” is increasingly common. Data is becoming more complex, generating the need for more predictive work, and new roles and skillsets. A recent survey on the role of artificial intelligence (AI) in accounting aske financial experts about their current and planned use of AI, as well as AI’s impact. This is significant: when accounting is part of a new trend, it’s a sign of a tipping point in favor of that trend.
Community resources that support data science skills are emerging, including open source tools for machine learning. There are several current examples of machine learning in healthcare:
- Opioid addiction risk prediction.
- Readmission prediction for patients with heart failure.
- Sepsis prediction within 24 hours of admission.
- Propensity to pay prediction (allows organization to dedicate resources to outstanding bills most likely to be paid).
Areas of Focus for 2018—Where Hospitals Are Investing in Innovation Today
Based on existing trends and future predictions, healthcare organizations are currently investing in several key areas:
- Patient-generated data and customized services (e.g., integrating smartwatches with data).
- Network utilization and management (e.g., tracking patients).
- Referral management and in-network retention (i.e., keeping patients within the health system).
- Social community support (i.e., partnerships with community to coordinate care).
- Convenient patient access, including telemedicine (i.e., patient experience).
It’s a good time for healthcare leaders to consider how the above activities compare to their plans and investments. Moving into 2018, they’ll also want to consider how they measure growth, ensure their organization is growing, and how to they add value to the organization.
In addition to measuring how their organization’s plans match up with forecasted trends, healthcare leaders can address the following areas as they prepare for 2018, and consider how machine learning can help:
- Does the thought process revolve around the patient throughout the continuum of care? (Readmission rate is a useful metric here.)
- How can the organization work with outside partners?
- Can the health system pilot small innovations and then scale them to larger populations?
- Have the organization created too many silos? (If it takes many people to answer a simple question, then yes.)
- Does the organization have the right talent to keep up with change (e.g., machine learning and predictive analytics specialists)?
- Is the business model sensitive to the new trends? How does the model position the organization in five years?
Healthcare Trends in 2017 Reveal Industrywide March Toward Patient-Centered Care
Healthcare’s financial trends in 2017 (transitions in payment, disruption from both established players and newcomers, and emerging data skillsets) show a combination of tentative transition (the slow and steady move to VBP with alternative payments), meaningful disruption (significant policy changes and Amazon’s arrival to healthcare), and changing roles (novel data expertise and responsibilities).
Agile organizations will use their 2017 experiences to prepare for the new year and determine how well they’re positioned for the continued growth, change, and consistencies forecast for 2018, especially when it comes to patient-centered care.
Would you like to learn more about this topic? Here are some articles we suggest:
- Top 7 Financial Healthcare Trends and Challenges for 2016
- Hospital Revenue Cycle Management: 5 Ways to Improve
- Top 7 Healthcare Trends and Challenges from Our Financial Expert
- The 7 Best Ways to Prepare for MACRA Today
- 8 in 10 Hospitals Stand Pat on Population Health Strategy, Despite Uncertainty Over the Affordable Care Act’s Future