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Radical Transformation in the Wake of the Affordable Care Act
Hospitals used to enjoy substantial profit margins as generous private sector and public sector Medicare and Medicaid healthcare insurance plans provided reimbursement based on fees for services provided. Care delivery systems were often inefficient due, in part, to fragmentation. The lack of coordination across providers, even within a hospital setting, often led to siloed departments, each with its own administrator and policies and procedures, that had limited access to complete patient records. This sometimes contributed to redundant diagnostic testing and conflicting care plans, services that had only a modest negative impact on profit margins because the volume-based fee for service (FFS) model favored quantity of care over cost and quality of care. Both government and private insurers have applied pressure to change this practice through reimbursement methods that take more of a valuebased rather than a volume-based approach to payments. This movement culminated in the passage of the Patient Protection and Affordable Care Act of 2010 (ACA).
Razor-thin hospital profit margins are becoming the rule rather than the exception. The authors believe that modest profits will turn to losses in the near future as the healthcare industry struggles to provide high-quality Medicare plan services to the 80 million retiring baby boomers and the tens of millions of previously uninsured individuals with preexisting conditions who can now obtain coverage under the ACA. With annual demand for healthcare services expected to grow at nearly twice the rate of the overall U.S. economy and anticipated massive federal budget deficits, further reductions in Medicare and ACA reimbursement rates are inevitable in the near future. (See J. C. Goodman, "ObamaCare's Fourth Anniversary: A Costly Failed Experiment," Wall Street Journal, Mar. 22-23, 2014, and CMS, "National Health Expenditure Projections 2012-2022," http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/ downloads/proj2012.pdf). As hospitals struggle to cover losses and to transition from volumebased to value-based reimbursements, physician compensation will decline, likely contributing to accelerated early retirements and shortages at a time when demand for services will reach record levels.
Clinical Integration
The ACA's emphasis on an incentivebased inpatient and outpatient reimbursement model that rewards higher-quality care delivered at lower cost will require a radical transformation in how services are delivered, documented, and monitored for compliance. Industry consolidation alone will not...