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Issue #16-1 | September 5, 2013
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Weak ROI from ACOs, EHRs, physicians predict

Physicians are pessimistic about the financial benefits of accountable care organizations (ACOs) and electronic health record (EHR) systems, reveals the 2013 Physician Sentiment Index (PSI) report from Athenahealth.

Will hurt profits: In a survey of 1,200 physicians (half of which were independent doctors), respondents acknowledge that shifting reimbursement models away from fee-for-service arrangements will positively affect the quality of care. However, the majority of them say that ACOs and other emerging care models will negatively impact profits and create more of a burden to get paid.

Also, the PSI results showed that 55% of independent physicians (compared to 38% of hospital-employed physicians) believe the costs of an EHR outweigh the patient care benefits. Also, 60% of the same group believe the costs of an EHR outweigh its financial benefits, compared to 45% of hospital-employed physicians.

Clearer view? Independent physicians see less value in these systems, presumably because they are investing their own money in them. Does this mean that they have a more realistic view of the risk/reward trade-off of the investment in technology? After all, they are the ones in the trenches working with these systems every day, as opposed to hospital C-suite executives.

Financial ratios on shaky ground at nonprofit hospitals

While financial ratio medians for 2012 remained stable at nonprofit hospitals, they are likely to weaken before this year is out, reveals a new report from Standard & Poor’s Rating Services.

It’s a wash: Ratio performance so far has been steady—even in the face of adverse effects of healthcare reform, including increased costs, lower volumes, rising bad debt and charity care, growing costs from employed physicians, and weaker rate increases from payers. Fortunately, nonprofit hospitals have been able to offset these negative effects by improving operating efficiencies and through system growth, according to the report.

However, 2013 medians are likely to plateau or drop off altogether. "The 2012 medians reflect a continuation of the peak in metrics reached in 2011, but we expect ratios to soften gradually in the next one to two years as incremental pressures persist and even intensify amid industry changes related to healthcare reform," said Kenneth Gacka, an S&P credit analyst, in a news release.

Healthcare CFOs reveal best strategy to cut costs

Managing overall cost reductions and changes to reimbursement models triggered by healthcare reform are the top priorities of senior healthcare financial execs, reports HealthLeaders Media in its coverage of the third annual CFO Exchange.

These financial leaders reported a 10% goal, on average, in reduced operating costs over the next three to five years. That figure has remained consistent over the three years of the CFO Exchange. Their organizations have pursued a range of cost reduction and performance improvement programs, with varying success.

Best way: The most effective plan for cutting costs involves setting overall system goals and metrics. An equal proportion of CFOs polled either reported positive results or were neutral on the effectiveness of Lean and Six Sigma programs to identify areas for savings.

In terms of spending priorities planned for the 2014 budget, medical equipment (such as advanced imaging and robotics) topped the list, at 30% of capital budgets, on average. Next on the list is expansion for outpatient facilities (21%), then IT/EMR expansion (19%) and expansion for inpatient facilities (18%).

10 lessons in healthcare outsourcing to boost profits

In the last Healthcare Value Wire, we continued to report on the trend of outsourcing in healthcare and how one hospital uses outsourcing as a way to cut costs of noncore operations. Hospitals are outsourcing services in building operations, maintenance, facilities management, food, janitorial, and other areas.

A new white paper from outsourcing firm Johnson Controls provides the following 10 lessons healthcare providers have learned from structuring outsourcing arrangements to save money:

  1. Choose a partner carefully. This is done via a rigorous interview process and checking references;
  2. Co-create and collaborate. A two-way dialogue is needed with the outsourcing firm to create a partnership based on collaboration;
  3. Appoint a mentor. A respected and well-connected executive at the healthcare provider should act as a mentor or coach and work exclusively with the outsourcing firm;
  4. Insist on continuity. Typically, outsourcing firms hire back 70% to 80% of the provider’s staff to maintain continuity in the outsourced function;
  5. Think long term. A good outsourcing provider will seek to optimize long-term asset value and will document value at the outset and during the term of the contract;
  6. Set a baseline and metrics. You can’t manage what you don’t measure, so you need to establish the necessary data, analytics, and key performance indicators to see whether the arrangement is working as planned;
  7. Expect to benefit from standardization. An outsourcing provider managing multiple locations should create efficiencies through, for example, centralized purchasing and standardization of maintenance practices;
  8. Anticipate big cost improvements. Outsourcing is a major decision, so substantial cost improvements should be expected through volume purchasing, energy savings, equipment maintenance, and control of hourly labor;
  9. Look beyond cost. The outsourcing firm should be able to help with patient safety and satisfaction, especially in light of healthcare reform; and
  10. Expect more accountability, not less. Use service-level agreements, KPIs, and performance cost guarantees to maintain control over the outsourced function.

Employer plans trigger increase in hospitals’ bad debt

As employer-provided health plans shift to more high-deductible coverage, hospitals are seeing their bad-debt costs increasing.

Shallow pockets: “We have definitely been hearing from members that they are seeing an increase in bad debt and even in charity care for people with high-deductible health plans,” says Caroline Steinberg, vice president for trends analysis at the American Hospital Association, speaking to Kaiser Health News. “A lot of these folks tend to not understand the structure of their benefits until they get to the hospital, and they’re not covered as thoroughly as they thought.”

In 2012, 19% of all employer-covered workers were enrolled in a high-deductible plan—more than double the rate of 2009, according to Kaiser. These plans can have deductibles as high as $5,000.

True, the Affordable Care Act promises to increase coverage and reduce uncompensated care. But with high-deductible plans, hospitals are seeing unpaid bills even for patients who are technically covered. Typically about a quarter of hospitals’ uncollectible accounts have been associated with patients who have some kind of insurance, Steinberg said. She was unable to say whether that has changed in recent years

Countermeasures: As bad debt cuts more into profitability, hospitals will have to counteract the effect on the bottom line. To help with this, a recent book, 46 Healthcare Metrics to Boost Profitability: Charting 2013 Trends, contains an actionable and concise data set on 10 key programs to boost profitability.

Clearinghouse of healthcare business market research

Data on the healthcare business marketplace is scattered over a slew of different sources. Now, in one place, you can find top-line data sourced from over 70 professional organizations, federal health agencies, top market analysts, and news sources. It’s all in the 2013-2014 Healthcare Business Market Research Handbook, 17th edition, the number-one best-selling publication of its kind.

Treasure trove: Published by Richard K. Miller & Associates, the Handbook has over 700 pages and 160 chapters, containing comprehensive data on everything from value-based purchasing to cost savings from coordinated care, from quality and patient safety to electronic health records. Plus, there are 900 website links embedded into the electronic edition that will direct you to even more data from other resources.

We all know information is king, which makes the Handbook a must-have resource for anyone in the healthcare business. Check out the Table of Contents.

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