Financial executives at most U.S. hospitals were happy to see 2009 come to a close.
While the healthcare industry fared better than the economy at large, hospital costs increased at rates higher than revenues, straining operating and total margins.
There are hopeful signs of economic improvement in 2010, but industry players expect that many of the same challenges hospitals faced last year will remain relevant in 2009.
“As access to care is increased in 2010, all of our hospitals are focused on managing with a much tighter revenue stream and providing care to a larger number of patients,” said Susan DeVore, president of the Premier healthcare alliance.
Healthcare reform legislation will almost certainly boost patient totals at hospitals via the expansion of Medicaid and Medicare eligibility, DeVore said, although hospitals may see the biggest increases in the years following 2010.
John Bardis, CEO of MedAssets, thinks that 2010 is the year when the “haves” and “have nots” in the hospital industry will be determined. He says “adverse payer mix” will be the determining factor in the fall of a hospital into the “have not” category.
“Where cost infrastructures are dependent upon a rising population of Medicare and Medicaid patients, we’ll see substantial financial challenges,” Bardis said. “When you look at the rapidly aging populations in areas along the east coast, you can predict that those hospitals will be under increasing pressure.”
Hospital leaders recognize that they must get increasingly aggressive in the cost management realm, exercising discipline in supply chain purchasing and pricing, for instance.
Warner Thomas, chief operating officer at Ochsner Health System in New Orleans, says that cost pressures in 2010 could prompt more hospitals to deliver care more efficiently than they have in the past.
“There are a lot of opportunities for work redesign using Lean and process engineering strategies,” Thomas said. “There is a lot more we can do upfront, such as in pre-registration, to engage patients and improve cost structure. We can learn a lot from the airline industry and even from retail in regard to customer service.”
DeVore agreed that limiting cost of care and improving patient satisfaction will be critical to a hospital’s financial success in 2010. She also says hospitals must prepare for an industry-wide move toward value-based purchasing.
“Value-based purchasing is the model of the future,” she said. “Hospitals need to recognize that 3 to 4 percent of their revenues may be tied to quality. They need to prepare for that transition in 2010 or their revenue streams will be at risk.”
Forward-thinking hospitals and health systems are assuming financial “worst case scenarios” in 2010, says Garrett Ogden, practice leader at GE Healthcare Performance Solutions. Preparing for the worst means controlling your own financial destiny, he said.
“Hospitals need to build their business plan around the uncertainty that exists,” Ogden said. “We know that reimbursement rates are not going to rise, and that reimbursements will be tied to quality measures. Prepare for that by investing in patient safety and use performance tools as a means to reduce waste. Hospitals need to be ready to handle more capacity and to get more out of their existing capacity. More than anything else, you need to figure it out before the mandates come.”