Tuesday, December 13, 2011

Will Healthcare Provider Debt Be The Next Financial Crisis?

The other day, I asked the question about hospital and health system debt as being the next financial crisis on several groups on LinkedIn. The response has been a resounding thud. The reason for the question was based on an article in Crain's Chicago Business, Monday, December 5, 2011, "New hospitals building debt", by Kristen Schorsch. It really got me to start considering the broader hospital and healthcare debt question in general, as healthcare continues to change in such dynamic ways.

And I believe that the 800 pound gorilla in the room, locally and nationally, is hospital and other healthcare provider debt.

It is no longer just a question of having an individual AAA rating.

When you view the changes in the healthcare reimbursement from Medicare and Medicaid. Declining admissions. Changes in reimbursement from production-based to quality-based. Payers introducing pricing competition, though user-friendly tools, which allow healthcare consumers to compare price of tests procedures and surgeries, etc., and know their co-pays instantly. Payers and governments not paying for never events. No reimbursement for readmissions. Employers choosing defined contribution models, letting employees choose their plan, incentivizing employees for prescription adherence and wellness and introducing financial penalties for poor health behaviors. The emergence of retail healthcare, retail workplace clinics and insurance. Falling investment income. Declining Medicare and Medicaid reimbursement. It all makes for a very uncertain outlook for healthcare debt repayment.

The biggest change is, that many of these models are designed to keep people out of the hospital.

The hospital is really becoming the last setting for care delivery. Moving from the top of the food chain to the bottom.

And that is just the tip of the iceberg.

When you consider that there are over 600 specialty drugs in the pipeline that treat complex and chronic medical conditions, that will place further volume and revenue pressures on healthcare providers. Adherence to the drugs will keep individuals out of the hospital.

Infused or injected, these drugs can be administer in the home or in an ambulatory infusion center. And specialty pharmacies and infusion centers are popping up like weeds. They will take business from hospitals, health systems and others. They are already doing so.

What do you think would happen, if all the remote medical monitoring capabilities that NASA has developed for the space program and International Space Station, were available to the average person in their home?

Though the truly empowered and involved healthcare consumer is still a few years away, today, a savvy consumer, by spending a little time and effort, can find the lowest cost option for diagnostic testing and treatment. Potentially never setting a foot in a hospital or hospital-based outpatient service for care.

Most healthcare leadership are following the, this is what has worked in the past business development and planning rules. Build a new hospital or replacement hospital; add a new patient bed tower. Develop another clinical service line and so on. Instituting 25-30 key objectives to achieve in a strategic plan. Really?

While healthcare executives and professionals answer the question in a LinkedIn group about what the hospital of the future will look like, lost in the discussion, given the disruptive nature of all these changes, is whether or not the patients will even be available to fill the beds.

In my opinion, the next big financial crisis could be hospital debt.

Has healthcare become "to big to fail"?

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