As healthcare reform descends upon all of us it’s important to look at the implications for suppliers so that a strategy can be developed to successfully navigate through this new dynamic. In Part 1 of this blog we will look at changing physician relationships, fewer buyers, payments and payers and price transparency. Part 2 (next week) will focus on buying power, cost containment, along with new disruptive care models and evidence based analysis.
Physician Relationships Changing
There are several factors influencing physician relationships. The first is that many primary care physicians and specialists are now selling their practice to hospitals and electing to be employees. This movement presents an opportunity for physicians to off-load costs rather than spend the monies necessary that are required to conform to all of the new mandated regulatory requirements.
Hospitals are aggressively acquiring physician practices as they prepare to move away from the current fee-for-service reimbursement system to a new model that focuses on costs and outcomes. Some doctors have elected to work for firms like Sheridan Healthcare as physician contract service providers to hospitals.
Out of the physician workforce, the portion of independent physicians has dropped precipitously from 57 percent in 2000 to a projected 36 percent in 2013, according to a recent report from American Medical News.
Once physicians become hospital employees they have less influence in purchasing decisions.
Another factor that affects physician relationships is their ability to influence product selection is waning. This means that the percentage of physician preference items can be expected to decline in the years ahead.
Additionally, some local physician groups are consolidating their practices and growing larger. Many of these groups have formed their own Accountable Care Organization (ACO).
Lastly, the Sunshine Act is having a profound effect on the relationships between physicians and suppliers. The Sunshine Act requires companies that manufacturer drugs, medical devices and biological medicines, to report all payments and items of value that are given to physicians and teaching hospitals.
Fewer Buyers
In the current market hospitals are consolidating at a rapid pace. The number of mergers and acquisitions has increased dramatically and is expected to continue its frenetic pace. This consolidation means that there will be fewer hospitals competing with each other in most areas of the country. The new source of competition will be alternate means of care organizations whose focus is to keep patients healthy and out of the hospital. The result of these changes will be new call points for product and service suppliers to the industry. This will require each supplier to demonstrate their value while simultaneously cultivating new relationships quickly.
Payers & Payments
Trying to keep up with the changes in payments and reimbursement are like trying to hold jello steady. The rules and regulations keep changing with new payment models evolving constantly. Under the Affordable Care Act, hospital payments for Medicare and Medicaid patients are being cut dramatically. Since this is often a significant portion of every hospital’s revenue their costs must be re-calibrated, measured continually and measured proactively.
The hospital C-Suite looks at payments in several ways:
- A DRG model, where payments are fixed and patient volume drives optimization.
- The ACO model, where incentives are provided to keep patients out of the hospital through preventative medicine.
- The uninsured are still an issue since the rates that hospitals will be paid will be reduced.
- Payment enhancers or payment reducers. The term that is most commonly used by payers is Value Based Purchasing (VBP). VBP is a “best” practice that improves the value of health care services, where value is a function of both quality and cost. The standard formula is:
Value = Quality ÷ Cost
The fundamental tenet of VBP states that healthcare buyers should hold healthcare providers accountable for 1) the quality of care provided 2) improved patient outcomes and 3) complete health status and its cost. The focus of VBP is to eliminate waste and improve care by rewarding the best performers.
VBP supports the efforts of hospitals for improving the quality of care by redistributing Medicare payments to hospitals that achieve high quality scores such as improved patient outcomes and patient satisfaction (through core measures) and a first class experience (through HCAHPS-The Hospital Consumer Assessment of Healthcare Providers and Systems survey). As an example, VBP penalizes hospitals that have hospital acquired infections and high re-admission rates.
Price Transparency
Price transparency takes three (3) distinct forms. First, let’s discuss its affect at the consumer level. Currently, every hospital has discretion to determine the prices listed on its charge-master, the undiscounted price list for all the services provided by the hospital.
The hospital price list or charge master is no longer a well kept secret with price transparency consumers can now price shop their healthcare requirements. This new paradigm has been picking up steam through a series of articles in The New York Times and Huffington Post in which they identified the wide disparity of prices between hospitals in the same market for the same condition.
Second, price transparency is affecting how vendors price their products and services. As hospitals seek ways to lower costs they are increasingly turning to GPOs/IDN’s and informatics sources to sort and mine the “big data” that compares pricing from one manufacturer to another and then analyzes the pricing matrix that a manufacturer provides to different hospitals. No hospital wants to pay a higher price than another if it isn’t warranted.
Third, price transparency is causing many hospitals to refuse to sign confidentiality agreements. Hospitals know that if they sign a confidentiality agreement and agree not to divulge their pricing they will never know if what they are paying: is above average, average or below average. Their hands will be tied without clean pricing data.
