Is the Healthcare Bank About to Break?

28 February 2007 (Last Updated February 28th, 2007 18:30)

Implementing a centralised electronic patient record system like that of the UK and increasing specialist and elective procedures is the only way to save the US healthcare system from falling profits and fragmentation, says Dick Clarke of the HFMA.

Rising costs and shrinking margins – it’s a tough time if
you’re involved in the financial side of healthcare management.

CEO of the Healthcare Financial Management Association (HFMA) Dr Dick Clarke
says many hospital managers he has spoken to are worried about their ability to
generate fee increases as costs meanwhile continue to increase, especially
construction costs. He cites the prices of steel and cement, both of which have
sky-rocketed as a likely result of a rise in demand from China, as an
example.

Another pressure facing financial managers is the increasing drive towards
automating electronic patient records (EPRs). "Everything in the US is
fragmented, but the objectives are the same as in the UK," says Clarke.
"[However,] each entity is responsible for what they are going to do and how to pay for it."

COMPETITION AND PAYMENT PROBLEMS

Because each facility is solving the issue of EPRs in its own way, the
result is that many facilities are using different methods, meaning they cannot
leverage any benefits from having the same operating systems. Although working
towards the same goal, the fact that the businesses are in competition with
each other means they are understandably reluctant to share data to maintain
competitive advantage. This, says Clarke, can be a disadvantage. In contrast, a
centralised EPR system is being developed in the UK which will allow facilities
to share information for the advantage of everyone.

"On top of that is one of the terrible policy shortfalls in the US, which is
an attempt to develop a comprehensive policy for everyone," he adds. "As the
population continues to grow, it’s not that [patients] don’t get
care, but that they get care from wherever they can be squeezed in and often go
to non-profit-making hospitals. The expectation is that hospitals will provide
the service without being paid. Within a range that can work, but if it
continues to grow at a time when your ability to raise prices for those who can
pay is under constraint, that causes a problem. All of these things are causing
hospital managers to worry about the future.

"And it’s getting worse. If you look at the financial data for
hospitals in 2005, you find they actually had one of the best years ever,
financially. But saying they are doing well is to say they have a 3 or 4%
margin, which is not enough. What people are finding is that this year they are
having more trouble negotiating contracts. Looking to the future, there appear
to be further problems ahead."

"Healthcare is the third or fourth issue on American voters' agenda at the moment. So Congress does not have healthcare at the top of its agenda."

Clarke says it’s not just hospitals that are facing these challenges.
Physician practices are facing similar problems – especially with the
payments from the Medicare scheme. Starting in 2007, Medicare will being equalising rates for
services provided by hospital outpatient departments and ambulatory surgery
centres, significantly changing the competitive landscape for outpatient
services. Hospitals will need to vigorously research and assess their
outpatient business lines to ensure they can compete. Competition between
hospitals and physicians will continue to intensify as physicians seek to
compensate for ongoing pressure on Medicare payments.

Conversely, approval from the Office of the Inspector General (OIG) of eight
gainsharing arrangements will lead more hospitals to explore carefully crafted
gainsharing arrangements that align hospital and physician incentives to
improve care and reduce costs while complying with anti-kickback rules. The
system has a fundamental flaw in the way facilities are reimbursed, but because
the programme is so politicised and highly charged, no one is willing to do
anything to change it.

Equally, there is little pressure from voters. "Healthcare is the third or
fourth issue on [American] voters’ agenda at the moment," says Clarke.
"Iraq, energy and the economy are foremost in people’s minds. So Congress
does not have healthcare at the top of its agenda."

TECHNOLOGICAL IMPACT

But it’s not all bad news. "We think there is an opportunity for
technology to make a big difference in safety and efficacy of care," says
Clarke. "One of the problems is, we are so fragmented that there are no
standards by which different hospitals’ systems will be able to
communicate with each other. A healthcare system may invest lots of dollars in
technology and will want that as a competitive advantage, so they are not willing to cooperate with others."

Another positive for US healthcare facilities is the robust and growing
population and the economy. The population growth is stimulating demand.

"The main areas that seem to be growing are at two ends of the scale,"
explains Clarke. "One is elective procedures such as cosmetic surgery, laser
eye surgery and so on, and the other is outpatient procedures –
we’re getting older and fatter.

"At the high end there are opportunities related to specialist services.
We’re seeing more and more specialist hospitals that carry out focused
activities such as cardiac and orthopaedic procedures."

So there is a mixed bag of news with regards to financial issues in the US
hospital management sector. 2007 looks set to be a challenging year, but one
that offers plenty of opportunities for success.