Are Hospital Business Models Built on a Shaky Rock?

Do Hospitals today perceive their current business models on the metaphorical “burning platform”- a phrase coined by Daryl Conner, Organizational change Specialist?  Quoting from a recent press release issued by the Commonwealth Fund, this question was raised by Vince Kuriaitis JD, MBA, a renowned Healthcare Consultant in his article in Such an eventuality, according to him would force them to abandon the existing business models. With a mere 13 percent of hospitals reported participating or planning to participate in an Accountable Care Organization (ACO) within a year, that is a clear possibility, says the Consultant.

Vanishing Revenues

“Across the U.S., hospitals are estimating how much money they are going to forfeit when the new penalty clause for excess readmissions kick in,” reads another blog in the kaiserhealthnews portal. It seems some of the hospitals have already started counting their losses. Ohio State University’s Wexner Medical Center will lose $700,000 towards reimbursement, according to its chief financial officer Michael Rutherford. Other losers are Vanderbilt University Medical Centre in Memphis and Albany Medical Center in New York.

Expert Findings

According to a 2012 survey held by KPMG LLP the U.S. audit, tax and advisory firm among 200 healthcare professionals, many respondents cast doubt on sustainability of the US healthcare in its current form. While a majority of them believed that their business models were somewhat sustainable, several others did not think so. Many respondents did expect major changes in their business models in the next five years.  Also, 50 percent of the respondents considered it important to maintain and potentially increase commercial insurance reimbursement rates vis-a-vis Medicare and Medicaid. Experts like Ed Giniat, National Sector Leader, KPMG Healthcare & Pharmaceuticals wonder “how organizations would remain committed to non-volume-based care economics while at the same time working to sustain a volume-drive reimbursement status quo.”

An American Health Association (AHA) estimate states that about “10% of Medicare revenue will be at risk in 2017.” Possible causes are new initiatives like Value-based purchasing, Penalties for high rates of readmissions etc. This can put hospitals into a tight spot where “they may find it difficult to move up in the relative standings once they are among the poorest performers.” Experts like Nancy Foster, vice president of quality and patient safety at the AHA think that penalty based on new efficiency standards imposed on hospitals by CMS would only add to their woes. It is a dampener, echoes Nancy as “it takes away the very resources that are needed in order for them to improve their performance.”


Need of the Hour – Change

 What really unnerves the healthcare industry is the fact that number of hospitals joining ACOs is getting thinner and growth rate of medical revenues is falling. With 10% of revenues inevitably at risk in the near future as estimated by the AHA, hospitals will not be able to hold out anymore unless there is a change in these new initiatives. The outcome can be a massive revenue loss for them harming patient interests. While the Government has resolved to go ahead with steps for improving quality of healthcare, simultaneous action is also needed to ensure that those steps really contribute towards further development of healthcare technology, health information management etc. Above all, it is quality of care that should matter most.

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