50 percent were losing money from
operations in 2015, specifically from
delivering patient care services.
Often these hospitals have made up
shortfalls in net operating income
with investment income or by
shifting their focus to sub-acute
services. These strategies do not
appear to be viable.
Moreover, the implications and
growing importance of “site
neutrality” to demonstrate same
or better outcomes at lower costs
will loom larger going forward
across the continuum of care,
creating more profound pressure
on the tax-exempt hospital sector.
• The current mispricing of healthcare
assets and increasingly inefficient
capital allocation will only be
cured by a wave and interchange
of repricing and restructuring.
To quote Mark Twain, “History doesn't
repeat itself, but it does rhyme.” The
United States is witnessing something
similar to what was last seen in the
late 1990s, when the nursing home
industry was virtually wiped out by
regulatory changes, nontraditional
competition, and changing economic
models that altered investor and
stakeholder expectations. This time,
rather than being limited to nursing
homes, these forces of change are
being unleashed across the entire
$3 trillion U.S. healthcare system.
Concurrent with the dramatic changes in
healthcare delivery reimbursement, there
are also revolutionary forces at play in:
• Molecular biology and computer
science, allowing the development
of new therapies to repair DNA
“software defects” that cause many
cancers. These innovations will
create the ability to reprogram
immune systems to fight off a
broader variety of diseases and
enable the harnessing of stem cells
to repair and regrow body parts.
• Mobile technology, enabling the
monitoring of patients’ health from
their homes in ways that once
required them to be placed in an ICU.
• Finance and risk management,
where the return on capital
may become negative.
• The development of integrated
supply chains, providing care on
an industrial scale, replacing the
mom-and-pop and single-shingle
approach to healthcare delivery.
• The advancement of treatment
modalities through science and new
care protocols that will move much
of the care currently provided in
hospitals to non-hospital settings.
The radical changes in the way
healthcare and treatment are
measured and reimbursed will truly
disrupt operating models across the
healthcare continuum. The interplay
of regulation, reinvention, redesign,
restructuring, and reimbursement
will determine winners and losers.
Market forces are indeed at work. In
fact, the impact of all these changes will
create several trillion dollars in value
over the next 10 years for companies,
innovators, and organizations that
successfully navigate the turbulence.
Real innovation is certainly underway,
and many organizations are
redesigning and disrupting existing
operating models, raising capital
through divestitures or sales of
nonstrategic operations and assets,
and investing in change management
to reposition themselves for the new
models of care and payment.
At the same time, trillions of dollars will
be lost by companies and organizations
that cannot adapt, reinvent, innovate
or, in certain situations, restructure.
A number of incumbents as well as
some “new” and highly touted unicorn
investments in healthcare that promise
“innovation” will also fail to deliver.
The press is already beginning to tell
more stories of price gouging, treatment
rationalization, and clinical outcomes
malfeasance. More reports are likely
on the emergence of narrow provider
networks, increasingly limited pharmacy
formularies, and other schemes to
ratchet down access to costly treatments.
Further, as CMS begins to drive value-based payment and explicitly links
payment reimbursement to clinical
outcomes, additional stories on clinical
outcome misreporting, inadvertent
errors, or outright falsification of
clinical results are likely to appear.
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