The Changing Healthcare System

Few industries are changing faster than the U.S. healthcare industry. It is difficult to identify a greater disruption in any sector of the US economy at any time that could equal the size and scope of the changes now underway in healthcare.

With change comes opportunity!

The traditional healthcare model is based on commercial insurance that leads to above cost pricing, fee-for-service pricing and volume growth. It relies on public payers, such as Medicare and Medicaid. None of this will work as the ACA progresses. And then there is the cross-subsidy issue…

The Cross-Subsidy Will Collapse!

There is now commercial payer competition that is opening up new channels in the group market and new active individual markets. Payer/provider consolidation is taking place. There is now a large focus on aggressive payer cost reduction and payers are unable to just pass on increasing costs to employers.

The cross-subsidy is Medicaid-market-based with commercialization through “private options” and care is managed through Medicaid.

Medicare payment “innovation” is leading to a growth of Medicare Advantage and a risk-based payment model.

Subsidies are going down and are perhaps going away altogether. People are buying cheap with high deductibles and cost sharing. The variance in and out of networks is high as a result. With $5000 deductibles, patients are basically self-insured and self-rationing will likely follow, meaning consumers will ask, “How much will it cost?” But are consumers ready to make decisions that were previously left to others? And what will happen to uncollected receivables?

Current Healthcare system Statistics:

  • 149% Hospital Payment-to-Cost Ratio for Private Payers
  • 86% Hospital Payment-to-Cost Ration (Medicare 2012)

The Patient Protection and Affordable Care Act is transforming healthcare and will create new categories of winners and losers. Given the radical change taking place—and the increasing pressure to be more efficient—new retail and integrated health models present great potential to deliver both better patient outcomes and customer satisfaction, while at the same time driving down costs and creating new lines of revenue and profitability. With the shift in health system economics and changes in payment methods, so will come shifting customer loyalties.

With the passage of the Affordable Care Act, new programs are being implemented to limit the amount of reimbursements a healthcare provider can get for certain types of patients or for certain types of care. These limits will become an increasingly larger part of the healthcare system over the next few years as Obamacare rolls out.

New healthcare models are providing incentives to keep people out of the hospital and to prevent those people who are most likely to experience a health crisis from showing up in an emergency room when it’s too late.

Healthcare providers and their patients all have new incentives to get and stay healthy and to improve their health status. More importantly, it is critical that health and wellness providers work together to keep a patient or customer on track along a plan of care.

How the Current System is Responding to the Healthcare System Changes?

The current health care provider focus is now on consolidating, cutting costs, scaling and gaining purchasing power.

Accountable care organizations (ACOs) are springing up, acting as pilots for future models of care and payment, but 75% don’t earn shared savings.

Physicians’ practices are transforming in several ways. They are either retiring, consolidating, becoming hospital employed or changing to a concierge/direct pay model.

Electronic medical records are happening one provider at a time and integration is a long way off.

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