Financial Health of Healthcare Industry

Financial Trends in the Healthcare Industry

1. Value-Based Care Payment Models

Description and Drive

• • The Society for Healthcare Strategy & Market Development (SHSMD) has projected that the US healthcare industry will experience big changes through the next 40 years, mainly driven by financial aspects like the increasingly large share that the nation’s medical system takes from the federal budget.
  • Americans have seen the need to change the healthcare fee-for-service system as it has a more limited view of the patient’s health needs, creates wrong incentives for the providers, and limits them from delivering a care service that is more effective and coordinated.
  • The goal of a value-based care model is to increase care quality while reducing costs.
  • In the next 3-5 years, being able to meet the consumer’s expectations and needs will determine how successful an American healthcare provider is.
  • To do so, providers have started to modify their supply chains and offer cost-efficient choices that are more accessible and with higher service quality, adopting the value-based care payment model.
  • The favorable reception and benefits they’ve seen from this model motivate more providers to offer quality care and take financial risks in adopting the same strategy to stay relevant during the next years.
  • They’ll also take financial risks to meet consumer needs and expand their services to include telehealth services, home services, quality control, site-of-care treatment, transparency, and technology to reach the decreasing consumer population from rural hospitals.
  • A survey conducted by HealthCare Executive Group and Change Healthcare indicated that value-based contracts will increase every year, even with the influence of private payers, government, and politicians.

• The growing trend can be seen when comparing that the managed care portion of Medicare beneficiaries, Medicare Advantage, was 6% in the 1990s and now represents 35%-36% of its beneficiaries. These numbers indicate that the population looking for managed care options in Medicare is growing 8% every year and projects that, by 2025, over 50% of the Medicare population will move to managed care.
• According to the survey conducted by the Centers for Medicare & Medicaid Services, 74% of US hospital executives anticipate that, by 2023, 10% or more of their patients will be covered by population health and risk-based bundled-payment contracts.

Experts’ Opinion on this Trend

•  Dan Mendelson, founder and former CEO of Avalere Health, said that “Payers are increasingly focused on paying for value through outcomes-based payments that are based on data. In an increasingly capitated environment, providers will bear more responsibility for these outcomes and for engaging positively with consumers.”
• Mendelson also considered the transition to a value-based model fundamental to meet the generational change in healthcare and believes that the expansion of Medicaid to capitated managed care will increase the government’s interest in moving the remaining fee-for-services to managed settings.
•  Susan Dentzer, former editor in chief of Health Affairs and visiting fellow of Duke-Margolis Center for Health Policy, believes that in the next decade, “the transition from fee-for-service to value-based payment and alternative payment models will be driven by pressure for greater affordability and improved outcomes.”

2. Consumerism and Transparency

Description and Drive

• The US national health expenditure is expected to grow from $3.65 trillion in 2019 to $4.3 trillion by 2023.
•  Consumerism has been a trend in healthcare finance for the last years and is expected to continue in the following years.
• As the healthcare costs grow, consumers look to match the value with what they spend, a better care experience, and transparency.
• Consumers expect clearer and easier financial experiences such as the ones they experience with retailers but often find their healthcare shopping process confusing and complex.
• Unexpected medical debt, prices, out-of-pocket expenses, affordability, high-deductible plans, lack of price transparency, and user-friendly information has driven consumers to “shop” for healthcare to control the quality and reduce their costs.
•  Purchaser activism increases as healthcare prices do and as consumers obtain more information to compare commercially insured and Medicare prices.
• Insured consumers are spending a larger part of their healthcare bill on OOP costs and premiums, and as the total healthcare costs elevate, they demand more insight into their costs.
• This trend has forced several market changes, like healthcare providers sharing more pricing information, communication expenses, hospitals publishing their standard charges online for Medicare and Medicaid Services, measuring health plans based on patient-report outcomes and consumer experience.
• Since 2017, consumerism and transparency have added reimbursement pressures for hospitals, forcing some to close, especially in rural areas, and the trend is expected to continue for the next years.

Experts’ Opinion on this Trend

•  François de Brantes, SVP of business development at Remedy, stated that “consumerism has been driven to-date by the increase in patient cost-sharing that has already reshaped the retail end of the healthcare market. During the 2020s, consumerism will be further driven by increased transparency in quality and price and shifts in health plan benefit design that will significantly encourage plan members to seek higher-value providers.”
• Brantes added that “In the 2020s, prompted by increased price transparency, employers will exert pressure on providers to control price increases and will more aggressively steer plan members to higher-value providers as they also amplify the scope and breadth of alternative payment models [APMs]. In combination, these forces will create pressure on providers to reshape the delivery system, focus on the margin per episode and find ways of controlling the costs of producing that episode, or they will fail to grow their revenue.”
• Susan Dentzer, from Health Affairs, added that “The increasing integration of providers and payers into payvider systems operating under new incentives to make care as affordable, efficient, cost-effective and consumer-focused as possible” will be one of the most important finance healthcare trends in the next decade.

3. Financial Restructure and Consolidation

Description and Drive

• The recession caused by COVID-19 caused an economic downturn for US hospitals, which are already vulnerable due to their reduced margins.
• Healthcare organizations that received the federal government’s relief packages survived the pandemic while others suffered, but the healthcare sector will need to find new strategies to stay afloat.
• The consolidation of the healthcare industry has been a trend for a few years. It allows organizations to reach more financial control, distribute costs, be more efficient, access more specialists, and adopt better practices.
• The economic crisis left by the pandemic will accelerate the changes in the role the federal government plays in healthcare, forcing a shift from private care to government-sponsored programs as the number of unemployed Americans increases causing millions to lose their health insurance.
• The healthcare financial restructures trend from the government might include future changes in the work requirements for Medicaid access, modifications to expand the Affordable Care Act, changes on age eligibility for Medicare, and CMS policies to help uninsured Americans, etc.
• Hospitals and health systems can incorporate new patient management methods, adapt to MACRA by using alternative payment models for affiliated providers, partner with community health support groups, and adopt new care models to succeed under the new healthcare reforms.

Experts’ Opinion on this Trend

• Richard Boxer, founder of Boxer Health and clinical professor at UCLA, and Regina Herzlinger, Professor at Harvard Business School, expect the next government administration to adopt a bipartisan policy solution for the issues faced by the healthcare system.
•  Herzlinger said that the US needs a new approach and restructure of healthcare policies that, “unlike Medicare, don’t charge current users about half the cost and pass the rest on for future generations to pay. Rather, its low costs come about because it takes advantage of Medicare’s massive administrative economies”. This would lower the cost of traditional plans and allow more uninsured Americans to have coverage.
• She added that “private insurance plans will be forced to compete with the public option. They can do things that a public plan cannot, such as offer medical travel to high-quality, low-cost providers. So this is really bipartisan: low-cost, fiscally conservative, and competitive for the Republicans, and a public plan that widens coverage for the Democrats. Through management of the plan by financially savvy people, like HFMA’s members, and oversight by healthcare accountants”.

Trends in the Healthcare Industry

1. Expanding Home and Telehealth

Description and Drive

• In the long term, healthcare providers will expand to home and telehealth services, like telepharmacy and telemedicine, to face the reduction of rural hospitals.
• Site-of-care treatment will be an important factor in the strategy used by hospitals and providers to endure reimbursement pressures from rural areas. Telehealth will be necessary to expand healthcare access from community-based clinics and retail pharmacies.
• The use of telehealth services in the US was below 10% in 2019. Based on IMS Health’s survey, this number increased to 50% in April 2020, after the pandemic affected the country.
• CMS’s decision to expand Medicare rules and incorporate telehealth services was an additional driver towards the spike in its use.
• The use of telehealth is expected to be a long-term change in the delivery of healthcare and to continue increasing during the next years, as more hospitals and providers incorporate it for more services than mental health and clinicians.
• The long-term trend shows that telehealth diagnoses will help address conditions like cholesterol, hypertension, or diabetes and lower medical costs for plan sponsors and payors.
• In the last 16 years, telemedicine has helped millions of patients, and experts believe that, in the future, everyone will access part of their healthcare needs through their phones.
•  Digital pharmacies will also be adopted to provide e-commerce opportunities for investors and distributors.

Experts’ Opinion on this Trend

•  Richard Boxer, the founder of Boxer Health and clinical professor at UCLA, suggested that telemedicine change the delivery of healthcare as “it has removed the necessity of bricks and mortar, and that change is a move from bringing patients to healthcare to instead bringing healthcare to patients.”
• He added that telehealth has demonstrated that “at least 25% of all healthcare can be delivered via the telephone or video conferencing” and can “be a lifesaver for the 100 million people in rural America who are not near a healthcare facility”.
•  Susan Dentzer, former chief editor of Health Affairs, believes that one of the biggest healthcare trends of the next decade is “the movement of healthcare from traditional institutional settings toward more distributed settings, including consumers’ homes and workplaces — driven by technologies such as telehealth”.
•  Tashfeen Ekram, co-founder of Luma Health, said that “we will be able to accomplish a lot through telehealth because [those tools] should be able to drive access to care and it gives a lot of patients access to care that they wouldn’t otherwise have had. I think we can do it in a scalable way that’ll be cheaper because eventually these [virtual] visits will not pay as much as they do now for an in-person visit, but I think this will also help to drive down costs and help healthcare systems figure out which of the service lines they can offer over video feed versus in-person.”

2. Innovative Technology

Description and Drive

• Healthcare leaders need to be aware of the upcoming trends, possible innovations, and disruptions that might take the industry in new directions.
• Internet of Things (IoT) is a trend in the healthcare industry that includes connected inhalers, ingestible sensors, connected contact lenses, closed-loop insulin delivery, CGM, insulin pens, surgical 3D systems, 3D printers, Artificial Intelligence, blockchain systems, etc.
•  66% of US doctors believe that IoT will help reduce costs and burden from the healthcare system and personnel. 74% of patients believe that connected healthcare and IoT will help them receive a better diagnosis.
• IoT is expected to reduce healthcare operational and clinical costs by 25% or $100 billion per year in the next years.
• Additionally, it’s estimated that 47% of the US healthcare companies and providers will adopt connected health strategies in the upcoming years.
• The value of artificial intelligence in medical equipment and treatments is expected to grow to $1.7 billion by 2026.
• Another technological trend in healthcare is that provider organizations are shifting to digital solutions to create more efficient processes to reschedule patients, manage staff, reduce costs, etc.
• The increasing need for technological solutions and innovations will allow new players to enter the healthcare sector, particularly those from the technology sector, and allow providers to invest in new delivery models. 

Experts’ Opinion on this Trend

•  Susan Dentzer, former chief editor of Health Affairs, said that the increasing use of data and analytics, interoperability, health data collection, and adoption of newer technologies, like artificial intelligence, are part of the top healthcare trends that will impact the US in the next decade.
•  Gail Wilensky, former administrator of the Health Care Financing Administration, said that, during the next decade, most of the healthcare trends we are seeing will continue, and the “healthcare leaders will have to adapt and respond to these trends to the degree that they can be proactive, they must find ways to transition their systems to meet these new realities rather than pretending that they won’t happen. If they reinvent their systems to accommodate these trends, they’ll be survivors.”
•  Richard Boxer said that healthcare providers are being presented with “three major innovation opportunities: Cutting costs by developing new sites for care and new types of workforces, Empowering consumers with information and self-help capabilities through apps and wearable/implantable sensors, Commercializing technology through personalization and telemedicine”.
•  Marcus Whitney, owner and co-founder of Health:Further, stated that “For providers generally, financial health and scale are the priorities. Next is ability to innovate.

3. Cybersecurity

Description and Drive

• The healthcare industry faces an increasing need to adopt cybersecurity resulting from the growing use of applications, technology, and private data storage.
• As healthcare providers and systems move to digital platforms, they need to protect the personal information and comply with the HIPAA and Health Information Technology for Economic and Clinical Health.
• In the next years, the healthcare industry will see a development in the storage and access to patients’ data along with technological innovations that will use cybersecurity to guarantee the transfer of information is simple and not susceptible to hacking.
• Healthcare providers and hospitals need to move fast in protecting the patient’s information since the consequences of cyberattacks can result in a financial impact for the patient and the organization, or life consequences for critical patients with medical data that needs to be secure and accessible at any time.

Experts’ Opinion on this Trend

•  Jeff Goldsmith, president, Health Futures, said that “the confluence of two forces — the migration of clinical and financial IT for health systems to the cloud, and the Internet of Things [IOT] for connected devices inside hospitals — conspire to create great vulnerability to cyberattacks, not only for ransom, but for malicious wounding of patients and institutions,” making cybersecurity one of the greatest concerns in the healthcare industry.
• Goldsmith added that “the IoT movement alone, if not carefully managed, opens the door to great potential harm to the patients, in the name of ‘convenience”.