From Volume to Value

Will 2015 be the year hospital executives begin to experience a significant shift from the traditional fee for service reimbursement to the various forms of risk-based reimbursement that has been talked about and modeled for years? The industry has been conflicted in recent years by the comfort and reality of the volume-driven fee-for-service system and the financial strategies that have evolved from it, and the risk models we all know are coming. Planning and executing strategy that prepares a hospital for the future often come at the expense (and bottom line) of the current period. For hospitals and physicians to aggressively reduce length of stay (patient days), re-admissions and levels of ancillary testing under the current fee-for-service environment not only requires significant behavioral changes, it undermines financial performance during a period where many hospitals can ill afford to do so.

Many executives, while privately acknowledging the need to prepare and create initiatives for the coming risk environment, will privately state they cannot ‘leave money on the table’ and continue to strategize for the three most important factors for financial success: volume, volume and volume.

In preparing for the coming risk environment, it is essential that hospitals and physicians shift their focus from quantity to quality and efficiency. Less admissions, patient days, ancillary tests, and patient encounters will drive financial incentives, while at the same time quality and patient outcomes need to remain the same or improve. The days of the hospital CFO walking through his high census and very busy hospital with a big smile will be replaced by concern and worries as to how to reduce the high activity level. Indeed, that same CFO may have that same smile a few years in the future when he is walking through his near empty hospital.

While still in the early years of formation, it is expected Accountable Care Organizations (ACOs) will be the vehicle by which the objective of less costly and higher quality health care is achieved. The U.S. health care industry continues to spend nearly twice as much (as a % of Gross National Product) as any other country in the world on its health care delivery. Meanwhile, Medicare, the insurance industry, and employers who often foot the bill for their employees’ health care are calling loudly for lower costs and more efficiency in the system. It is this call that is driving the changes from our current system to the ACO model now being developed. Hospitals and physicians know the change is coming--yet realize we’re not ready just yet. The challenge is to prepare for those changes while not harming the current operation.