CONTRIBUTOR
Jen Swensen
Essential Insights contributor; Communications Manager, Cardinal Health
Featured expert
Kerry Watson
President and CEO, Watson Healthcare and Management Solutions
The primary challenge for healthcare remains how to increase quality and patient satisfaction while decreasing the cost of care. We turned to industry expert Kerry Watson, president and CEO of Watson Healthcare and Management Solutions, for his insight.
In a career that spans more than 20 years in healthcare executive positions, Watson has learned that while all hospitals are different from each other, the new healthcare landscape impacts all hospitals – from large integrated delivery networks (IDNs) to small community hospitals. For hospitals to survive, they must tackle two particularly difficult challenges: a change in reimbursement models and the advent of patient consumerism.
Ties that bind
Watson has noticed a common theme among struggling hospitals: they are having trouble transitioning away from a traditional hospital-centered, physician-centric care delivery culture. Physicians, administrators and hospital staff have traditionally depended on the volume of patients entering the doors of the hospital - now that's changing.
Over the last couple of years, payers and their method of compensating physicians and hospitals, and the impact of local and regional regulations, has dramatically changed the way hospitals are reimbursed for patients who enter the hospital. Payers have not yet fully changed how they reimburse hospitals, forcing hospitals and health systems to straddle two care delivery worlds.
Hospitals rationalize their lack of change by claiming if they operate in anticipation of what is coming in the future, they will be giving away revenue they can rightfully collect now, since the payers haven’t moved fully to a new system of reimbursement. Differences in local and regional regulations adds another level of complexity due to how much they vary from region to region.
These variations can greatly impact how a hospital system operates. "For example, working in New York, versus in North Carolina or Boston can be deifferent because the state regulations and other constraints change delivery and reimbursements," Watson said.
This lack of consistency between state regulations and payer reimbursement combines to keep health systems from successfully transforming from a physician-centric model to a value-based consumer model. "They know changes are coming, and coming rapidly," Watson added. "Yet the status quo in reimbursements and the current model incentivizes a hospital or IDN to stay in the old model as long as possible to maximize revenue."
Learning to adapt
Traditionally, hospitals relied on inpatient volume generated from surgical services to provide the seed money to keep them operating successfully. Outpatient surgical services and diagnostic testing also helped to drive the revenue engine. Now, a new care delivery model is coming into play and it’s having a direct impact on the revenue of hospitals who are struggling to stay above water in a changing healthcare landscape. Ten years ago, an inpatient stay for a knee or hip replacement would result in an inpatient stay of four to five days.
But due to improvements in surgical technique, implants and technological support, that inpatient stay has decreased to one to two days. Watson explained making the transition efficiently from longer lengths of stay to shorter lengths of stay creates a special challenge for smaller hospitals without the resources and infrastructure of larger health systems.
A concrete example of the financial struggles of hospitals is the advent of new regulations regarding observation patient classification. Hospitals can no longer bill every patient admitted to the hospital from the emergency room at the rate of an inpatient stay. Hospitals who were previously able to bill 80 to 90 percent of their non-presurgical patients’ care at an inpatient rate now have to face a reality in which 18 to 25 percent of those patients’ care is paid at an entirely different rate.
The result? Some hospitals are experiencing steep declines in inpatient volume.
Looking toward the future
As we move away from a hospital and doctor centered culture, we begin to see a new care delivery model taking shape, one that is patient-centric. First, we are seeing a shift in focus from reactive and curative treatment towards prevention, early detection and an increase in outpatient treatment.
Second, we are seeing patients with increased access to technology that helps them make informed decisions about their care. Patients can research effectiveness of hospitals for a particular procedure and compare prices and patient outcomes. According to Watson, "astute potential patients and patients’ families are already, to some degree, going to these sites and doing research."
As the healthcare industry moves from a hospital-centric care delivery model to a one that centers on the patient, physicians and hospitals must be willing to adapt. In order for hospitals and IDNs to survive, they must both maximize revenue in the current delivery model while actively preparing for the new model.
Kerry Watson is a seasoned operations management executive with more than 20 years of experience in the leadership, direction and management of major hospital and healthcare organizations generating up to $900 million in revenue and employing up to 3,000 professionals. He applies an extensive expertise in healthcare systems and business processes to ensure superior healthcare services, strong organizational learning and a positive, forward-thinking organizational culture - while driving operational performance to record levels of success.
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