The (Slowly) Shifting Center of Gravity in Healthcare

by John W Rodat on October 2, 2014

A friend sent me an article from Crain’s on New York’s DSRIP program. (Here’s a related DSRIP article, this one from Modern Healthcare.) I think his query was largely, though not entirely, from a hospital perspective.

And in return, I sent him this one from Health Leaders on the expansion of new health care businesses

And then, he asked me what my takeaway was. 

My answer, especially when combining the two stories is that the center of gravity in healthcare is shifting from hospitals to health plans. It’s not that they’ve reached national parity in bargaining power, nor more importantly, parity within many, many markets – where the bargaining actually takes place. It hasn’t. But the balance is shifting. 

DSRIP requires cooperation – even to the point of governance and managerial nightmares – but that’s not the primary goal. The primary goal is to change the business fundamentals so that there are sustainable reductions in the need for hospitalizations. Why should hospitals cooperate in their own potential demise? Because there’s a narrow path that enables some to survive in a diminished and less inflationary system. The choice before hospitals in New York is between almost certain failure and the reduced risk of failure. These alternatives involve different timelines, but also different risk levels.

Add to that new data generating tools – the new apps enabled by the iPhone 6 are just an example – and their ability to leverage data where there is none or damn little today and the balance shifts further and faster. The ability to gather, synthesize, and leverage data is much more up the plans’ alleys than hospitals. 

And DSRIP is about Medicaid and sometimes Medicare. Will hospitals change practices just for one set of patients? No, not successfully. Also from Modern Healthcare, Hospitals are more willing to accept new payment models for privately insured patients as well:

Reform Update: Capitated payments more acceptable to providers, survey finds

A survey of 39 health plans released this week adds to mounting evidence that hospitals and medical groups are getting comfortable with incentive-based payment structures that reward quality and lower costs. This new snapshot includes surprising evidence that a significant percentage are willing to expose themselves to financial losses under a new generation of capitation models, which went out of vogue 20 years ago. 

The survey by Catalyst for Payment Reform, an employer-funded health policy group, found that 15% of what the participating health insurers spend on medical bills is paid under capitation. Experts cautioned the figure may be somewhat skewed because the health plans that responded to the survey included a lopsided number of insurers with capitation contracts, but that would not entirely account for the significant percentage. 

The survey reflects payments for 101 million people—about two-thirds of the nation’s privately insured. The rapid adoption of more robust risk-based payment models could foster more rapid changes to how patients receive medical care.

So the shift being pushed by DSRIP is not the only pressure on hospitals.

The best we might hope for from DSRIP is that goals and objectives of hospitals and health plans, and maybe even their financial incentives, will be better aligned. That will make easier the hospital transition to fundamentally different organizational models and payment arrangements and incentives. However, if they don’t adjust to this inevitability, it will be even more painful, most likely fatal, than if they do.

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