When the Cleveland Clinic announced job and expense reductions of 6% in 2013, the healthcare sector took notice.
Did the world-renowned hospital and healthcare research center, with 40,000 employees and a $6 billion budget, really believe it did not possess the heft to take on the increasingly turbulent sea changes in American healthcare? Or was this yet another stakeholder using Obamacare as cover to drive draconian change?
Both sides of the political aisle were quick to make hay of the announcement, with conservatives blaming reform for eliminating jobs while liberals questioned the timing of the cuts when the Cleveland Clinic was posting positive growth. The answer from Eileen Sheil, corporate communications director, was apolitically straightforward: “We know we are going to be reimbursed less.” Period.
The question of reimbursement reform and the unintended consequences of the Affordable Care Act are weighing on the minds of hospital executives nationwide as independent, regional and national healthcare systems grapple with a post-reform marketplace. The inevitable conclusion that the unsustainable trend in American healthcare consumption is now at its nadir seems to have finally hit home.
These days, America’s hospitals are scrambling to anticipate and organize around several unanswered questions:
- How adversely will Medicaid and Medicare reimbursement cuts affect us over the next five years?
- Can we continue to maintain our brand and the perception that any employer’s PPO network would be incomplete without our participation?
- Can we become a risk-bearing institution?
- Can we survive if we choose not to become an accountable care organization (ACO)?
- Will the ACO model, by definition, cannibalize our traditional inpatient revenues?
- Can we finance and service a hard turn into integrated healthcare by acquiring physician and specialty practices?
Go It Alone or Join a Convoy?
Mergers and acquisitions remain in high gear in the hospital industry—“the frothiest market we have seen in a decade,” according to one Wall Street analyst. “Doing nothing is tantamount to signing your own death certificate.”
Many insiders believe consolidation and price deflation is inevitable in healthcare. Consolidation, however, means scarcity of competition. If we operate under the assumption that scarcity drives costs higher, we may not necessarily feel good about consolidation leading to lower costs unless mergers are accompanied by expense cuts that seek to improve processes, eliminate redundancies and transform into a sleeker, more profitable version of one’s former self.
Bigger may not always be better, but bigger seems to have benefited a select group for the last decade.