Healthcare's New Era and Implications for the Design Profession
Accelerated by the global economic crisis, U.S. deficit concerns, changes in the employer-based private insurance market, and reform legislation, the new model reflects a fundamental shift away from volume-based reimbursement to payment systems that reward providers for high quality and cost effectiveness (“value”) over a period of time, rather than for a single service event. For design professionals, this shift brings a unique set of opportunities and challenges. As this new era evolves, healthcare providers may be changing many aspects of their business-access, service distribution, operational efficiency, physician integration, and scale will become increasingly important factors for future success. Due to the high level of resources required to achieve scale and success, continued industry-wide consolidation activity is expected.
The good news for design professionals is that the evolving landscape may necessitate reconfiguration of facilities on existing campuses and across geographic market regions. Counteracting such opportunities are constrained payments, increased requirements for “soft” capital, and tighter access to capital, all of which translate to significantly fewer dollars avail-able for traditional “brick-and-mortar” investments.
In this highly uncertain environment, design professionals must provide value-added solutions that support providers' evolving strategic needs. As a first step, design professionals should fully understand the current issues facing healthcare provider organizations that are rapidly reshaping strategic direction, capital priorities, and delivery system/infrastructure design.
Healthcare reform and the new era
Healthcare reform legislation was enacted in 2010 in large part because of significant macro-economic realities:
An aging population. As the population ages, its demand for healthcare services increases. The first wave of baby boomers is just now becoming eligible for the Medicare program. Projected Medicare utilization and costs are anticipated to reach unsustainable levels, absent major change in the care delivery model.
Healthcare spending growth. Over the past three decades, U.S. healthcare spending as a percentage of total gross domestic product (GDP) has approximately doubled and is anticipated to reach 20% or more of U.S. GDP by 2017. This creates a significant burden not only on the public sector, but on the private employers that are paying the health insurance premiums.
A large uninsured population. At this time, there are approximately 51 million uninsured Americans.
A disconnect between quality, cost, and outcomes. Many studies have shown that there is little correlation between the cost of a patient's care and the quality of care furnished or the outcomes achieved. This is true across disparate geographic regions with entirely different utilization patterns, across local/regional markets, and even within a single institution.
Healthcare reform legislation, as currently enacted, is designed around four core goals that tie to the points outlined above:
To provide insurance to as many of the uninsured as possible by enrolling 16 million in Medicaid and covering an additional 16 million with commercial insurance through state exchanges;
To pay for the expanded coverage by reducing total healthcare costs by somewhere between $830 billion and $1.2 trillion over the next 10 years;
To improve value, defined as the best possible long-term patient health outcomes per dollar spent; and
To increase provider accountability for quality and cost.
This article is based on a strategic planning forum, “Healthcare Reform and Implications for Facility Planning,” presented at the HEALTHCARE DESIGN.10 Conference, November 13-16, 2010, in Las Vegas
HEALTHCARE DESIGN 2010
While many of the mandates included in reform legislation have not yet been crafted into regulations and the timing and breadth of implementation could be affected by the recent change in the composition of the House and Senate, their basic principles-bending the cost curve while ensuring more effective care with better outcomes and improved access-are already being widely embraced by forward-thinking provider organizations.
Implications for provider organizations
The Centers for Medicare and Medicaid Services (CMS) has begun exploring new payment and incentive models designed to further the principles detailed earlier. Key mechanisms proposed for achieving CMS objectives include reductions in payment rates, bundled payments, valued-based and incentive payments, and reduced payments for avoidable readmissions.
Reductions in basic payment rates. Medicare reimbursements, which have historically trended upward at 2-3% annually, are scheduled to decline in the coming years and are likely to stay flat or continue to decline (on an inflation-adjusted basis) for the foreseeable future. Medicaid programs, which already put tremendous stress on state budgets, are not likely to receive additional funding even as millions more Americans become eligible for those programs. Commercial insurance plans, now the source of nearly all profit for most healthcare provider organizations, are shifting costs to consumers through high-deductible and high-copayment programs to help employers manage expenses. Such programs often increase providers' bad debt or deter utilization of services.
Bundled payments. Bundled payments are the object of intense focus and testing as a means to reduce healthcare costs. A bundled payment would cover all care provided to a patient across the healthcare delivery system from pre-admission examination and testing through acute and post-acute, thus encompassing services provided by hospitals, physicians, nursing homes, rehab facilities, and other care providers. Targeted global payments presumably would be established based on cost benchmarks set by efficient providers. In 2012, CMS will start testing an acute care bundled payment system across specialty care, outpatient care, and inpatient hospital care through the Medicare ACO Shared Savings Program.
Value-based and incentive payments. CMS will be testing value-based purchasing, defined as payment based on best practice levels of value (quality/cost). The plan is to pay providers that deliver desired outcomes-determined by comparing provider-specific cost and outcomes data with national benchmarks-a benchmark-established price and to penalize providers that don't meet the outcomes parameters. CMS would also offer hospitals and other providers incentive/ bonus payments for meeting or exceeding standards.
Reduction/elimination of payments for readmissions. The Office of Management and Budget (OMB) reports that 18% of Medicare patients who are discharged from a hospital are readmitted within 30 days for further care associated with their original hospitalization. Policy observers believe that many of these readmissions could have been prevented, leading the OMB to project that roughly $26 billion could be saved over 10 years by reducing or eliminating payment for such avoidable readmissions.
New core competencies will be required of provider organizations in a future that demands comprehensive care coordination and the ability to deliver high-quality, low cost care (figure 1). Such competencies are very different than t
hose bringing success under an FFS-driven model and are likely to include: hospital-physician integration, care coordination capabilities, information systems sophistication, service distribution balance, rigorous cost management, scale and market essentiality, managed care contracting capabilities, and capital capacity and financial strength.
To achieve these competencies, provider organizations will need to invest in organizational development (e.g., physician integration and intellectual capital), major process redesign to bring sustainable cost efficiencies, and a sophisticated IT infrastructure (figure 2). These “soft” capital requirements are greater now than at any other time in the industry's history.
Given these future requirements, we believe that very few small stand-alone provider organizations are positioned for long-term success in the new era. As the healthcare reform legislation is tested, adjusted, and then implemented on a larger scale, these organizations will likely find it increasingly difficult to access the capital required to keep facilities up-to-date, acquire the technology and build the organizational infrastructure needed to attract and retain physicians, and provide high-quality services that will draw patients.
Implications for design professionals
Design professionals can play a key role in assisting their client healthcare organizations through this business model transition by bringing creative solutions to facility needs. While the pace of new facility construction is not likely to return to 2005 levels, the following key value-added services will be broadly needed in the coming years (figure 3).
Effective Capacity Planning. Capacity needs are based on projected utilization of healthcare services; how utilization will change in the wake of healthcare reform is unknown. Aging of the population, expanded insurance coverage (through government programs and state exchanges), and an improving economy would suggest increasing demand for services. However, higher deductibles and co-pays in the private insurance market, reductions in readmissions, and a general shortage of primary care providers would suggest decreases in utilization. Overall, the financial incentives associated with healthcare reform are designed to constrain the use of healthcare services.
All factors considered, we anticipate:
The demographics of aging will continue to drive more utilization, particularly for the Medicare insured;
Moderate increase in inpatient utilization by the newly insured, potentially offset by reductions in readmissions;
Probable increase in emergency department (ED) and outpatient diagnostic services by the newly insured population; and
Probable significant increase in demand for primary care, but with limited increase in supply, resulting in more use of the ED, urgent care services, and hospital-based clinics.
The future utilization rate by the currently commercially insured population is the big unknown; increasing out-of-pocket requirements could dramatically impact outpatient utilization.
Design professionals can assist providers in addressing the challenges of changing and uncertain utilization by ensuring that the throughput of existing capacity is maximized prior to planning new or expanded facilities. Historic throughput of a hospital's ED stretchers, inpatient beds, and/or imaging equipment may be far below benchmark levels, and processes may need to be changed before facility investments are made. In addition, there will be need to extend the useful life of existing inpatient bed facilities, where needed replacement is simply unaffordable. This will require creative and affordable solutions involving interior upgrades and minor renovations.
Regional Delivery System Design. As healthcare providers work to develop the core competencies outlined previously, access and delivery system design will increasingly become top priorities. For design professionals, we anticipate opportunities related to physician consolidation into new medical office buildings, development of new outpatient sites for improved access to and more cost-effective delivery of outpatient services, and reconfiguration of existing hospital facilities as certain services (particularly high-end services, such as open heart surgery) are more “rationally” distributed across system sites in a region.
Merger and Acquisition Facility Planning/Implementation. The new era of healthcare will likely result in continued consolidation as providers seek larger scale to achieve required competencies. This creates a major opportunity for design professionals in evaluating the facility-related options for consolidation of clinical and support services, the development of regional support service facilities, and the consolidation/ reconfiguration of outpatient delivery sites. These activities will bring significant master planning and facility development projects. Most consolidations will involve a smaller organization joining a larger one; for design professionals, it will be critical to be part of the larger organization's consolidation planning and implementation team. Identifying the consolidators in various markets and focusing marketing resources accordingly should be strategic priorities for designers given the current healthcare environment and climate for change.
The healthcare provider industry is entering a period of rapid transformation. By understanding the opportunities and challenges this presents, design professionals can position themselves to assist their clients in making the most appropriate and best-fit changes. The years ahead will not be characterized as “business as usual” for the healthcare provider industry or for the design firms that serve it. Now is the time to reposition services for success in the new era of healthcare delivery. HCD
David Ennis is Senior Vice President and Zachary Hafner is Vice President at Kaufman, Hall & Associates, Inc., a national consulting firm providing strategic and financial planning services for healthcare provider organizations. David Ennis can be reached at email@example.com. Zachary Hafner can be reached at firstname.lastname@example.org. Healthcare Design 2011 January;11(1):38-43