Blueprint For Future Should Be Found In Efforts Of Past

It is rather easy to focus on the negatives of The Patient Protection & Affordable Care Act and The Health Care & Education Reconciliation Act of 2010. It is human nature (especially of business leaders) to quickly scout the downsides of any situation and focus all the attention on fixing them. And, quite frankly, not everything in what our leaders in Washington have passed onto us under the guise of “health care reform” is positive.

Taking a journey back in time for the moment, for just about every one of the last seven decades, the health care industry (insurers, hospitals, and physicians) has experienced a radical change, shift, and/or transformation in the way work and business needs to be conducted.

The Hill-Burton Act — passed in 1946 — dramatically expanded hospitals throughout the United States and, more importantly, sought to eliminate discrimination and required certain levels of free care by hospitals. The Social Security Act of 1965 started the Medicare Program, which provides coverage to people who are aged 65 and older and also funding for physician residency training programs throughout the country.

The Health Maintenance Organization (HMO) Act of 1973 gave rise — through grants and loans — to the start of managed care. After a pilot in New Jersey in 1980, Medicare implemented the diagnosis related group (DRG) system of payment — homogeneous units of hospital activity to which fixed, binding prices could be attached — for all hospitals in 1983. Although there was a failed attempt at health care reform in the early 1990s by President Clinton, the mere discussion of reform led to reductions in costs undertaken by the industry (not to it) and large-scale attempts at integration of insurers, hospitals, and physicians into an “integrated delivery system” (most of which failed).

Undoubtedly, some providers will once again make some wrong assumptions about the future, guess the wrong path for navigating the changes, or just fail miserably at execution. Hopefully, lessons have been learned from the past seven decades of transformation (especially those in the 1990s) and folks aren’t doomed to make some of the very same mistakes over again.

The reforms enacted in 2010 and rolling forward over the next four to five years will spell significant changes for insurers, hospitals, and physicians in Arkansas in three distinct areas. Most of the commentary to date has focused on the impact on business and individuals (especially the uninsured). However, insurers, hospitals and physicians are a major part of the economic engine in Arkansas. It’s important to understand the impact on this powerful force because that impact will ripple into other sectors of our state’s economy.

First, partnerships within the industry that have previously seemed impossible will now emerge and change the playing field. Partnerships between insurers and hospitals will take place to better manage utilization of care. Some insurers may choose to also become providers by acquiring hospitals and/or physicians. Some hospitals may attempt to become insurers to control the flow of dollars further upstream. Alignment between hospitals and physicians will take place to mitigate further declines in reimbursement and attempt to better manage the shift from fee-for-service (or eat what you treat) and bundled payment (one payment for all components of an episode of care). “Alignment” is simply a code word for “employment.” There will be a tsunami of physicians (particularly those delivering specialty care) seeking employment by hospitals (and maybe even insurers) for a whole host of reasons (truly improve delivery of care, preserve incomes, peer pressure, and/or bright ideas from intentioned consultants at national meetings).

Second, massive consolidation of the health care industry will happen over the next 24 to 36 months. The consolidation isn’t as simple as the strong getting stronger and the weak being absorbed (or going away). Back to the first premise of partnerships, previously impossible partnerships that now happen will change who is on the first team and who is watching from the bleachers. The insurer market will definitely become less diffuse through consolidation (and market exit). Regional systems of hospitals will emerge and we can almost certainly expect the for-profit sector of hospital companies to play a larger role in consolidation in Arkansas than in the past (that sector of the hospital industry is bullish on reform). Unfortunately, the days of the small insurer, stand alone hospital and the one or two member physician group are numbered (and that date probably sits somewhere in 2014 and 2015).

Third, the “Walmartization” of health care is imminent. Walmartization — in this context — does not have the same meaning that it does in political and media circles. For these purposes, Walmartization is defined as scale and quality that will eventually equalize at a standard with cost becoming the sole differentiator for consumers. Partnerships and consolidation will create significant scale and market presence for the “winners” eliminating competitive advantage based on size. We really haven’t been good (far less than good) as an industry in the quality and transparency arena. The grand opportunity in reform is for all providers to raise the bar on quality, service, and safety of care, but, eventually, those left standing will reach a common standard. So, in the end, competition will be based almost exclusively on cost (managing both the price and utilization components of cost).

In all the rhetoric of Fox News, CNN and the election trail, there is some good and there is some bad in the health care reforms of 2010 for insurers, hospitals and physicians. At the end of the day, it is what it is. Some will call it a day and retire early or find another vocation. Others will be energized by it and seize all the opportunities that lay out there for the taking. To those left standing, here’s to learning from the mistakes of seven decades, guessing right, picking the right paths, executing flawlessly and being one of the those left standing.