For too long hospitals have been run as a free clinic, not a business. But if the current situation is going to improve, something is going to have to change, and change quickly.
Many hospitals are struggling financially. In 2014 only 85% of hospitals were profitable, and the numbers indicate that that many of the remaining were only marginally profitable. While revenue is growing at an average rate of 4% , costs are rising at 6.5%. This is causing many hospitals to close and others to suddenly remove under performing services like Maternity and Emergency Medicine.
Focus on Profitability
Hospitals currently leak a huge amount of their current patients through network leakage. Network, or referral leakage is when a physician who is in network to the hospital makes a referral to a physician who is out of the hospitals network, ultimately losing a patient that they had already acquired to a competitor. This can be a major issue for hospitals as it is estimated that hospitals leak upwards of 24 to 40% of annual referral volume to leakage.
Leakage has many potential causes. Often a physician and their team, continue with the referral patterns that they have used for years, even after being acquired or hired by a new health system. And since in-network is often loosely defined, many physicians aren’t always aware what physicians are in-network or not. It is often just due to a lack of information and training. Hospitals due a poor job of educating physicians to new avenues and options for referral partners when physicians are onboarded when it is the easiest to influence, and end up playing catch-up trying to influence behavior after the fact.
Network leakage, while important for driving volumes and overall profitability, will be even more vital in an accountable or risk based environment. Under an ACO model, the Primary Care Physician is responsible for the complete health of the patient over a period of time, even if seen by an out of network provider. It is in a physicians best interest to keep the patient in-network, as their pay will be based on the patients overall health and clinical outcomes.
This should be a major focus for hospitals, and it’s our job one.
In order to offset financial shortfalls, hospitals will need to drive volumes of profitable referrals. While the market is shifting to value from volume, 90% of payments are still made under the fee for service model. Hospitals should focus on acquiring a higher volume of referrals for their most profitable procedures along with reducing volumes of profitable network leakage. Hospitals can then use the funds to better grow and fund their business, allowing them to take on more medicare and medicaid patients and offering more charitable care.
Business development will be just as important to a hospitals success under a value-based model, just in a different manner.
Risk & Network Management
But these are only the first steps. New Accountable Care Models not only ask providers to put their payments at risk, but also take a portion of risk of the downside. The Next Generation ACO’s put hospitals at risk for 15% of both the gains and losses. No longer will the risk of over billing just be that CMS will only pay a portion of the bill, now hospitals who consistently deliver care at a hiring cost than agreed will have to PAY CMS a portion of the difference.
The best way to mitigate risk while ensuring that you deliver the highest level of care at the lowest cost is to ensure that you have the best physicians and you properly group them with other physicians in networks to care for the right patients.
Guided referrals and physician profiling will be the future of healthcare delivery!
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