The passing of the Obama Healthcare Reform Act, and the subsequent vote by the Supreme Court that the requirement that forces individuals to pay a tax if they do not comply, is perhaps not as surprising as the press would have you believe. As I’ve noted in prior blogs, “Obamacare is simply a symptom of the much deeper problems that underlie the healthcare industry.” In fact, the much more concerning “drop-dead” date that people need to be aware of is October 1, 2012, when Medicare institues the national hospital value-based purchasing (VBP) program mandated by the Patient Protection and Affordable Care Act (PPACA). A VBP score is calculated based on the quality of outcomes. Recently, a national analysis of hospital performance by VHA Inc. calculated a national median VBP score of 53, when hospitals likely will need scores higher than 70 to maximize their Medicare reimbursements. The median risk for VPB loss is $250K for 2012 for hospitals, and $1.88M over five years. To avoid these losses, the biggest cost savings in future reimbursement models comes from keeping patients out of hospitals, which in turn reduces hospital revenues…this is an incredible paradox! Today we are stuck with a silo’d and fragmented system, and uncoordinated care. A recent study found that 13% of patients 60 or older had to have tests redone, 36% received conflicting information, and 76% left a physycian’s office or hospital confused about what to do next in their care.
By 2017 $857B of healthcare spend will be under the new healthcare reform act provisions. To complicate matters, 96% of spending in 2017 will be on patients with 4 or more chronic conditions, who may be seeing as many as 5-11 different physicians! So anAccountable Care Organizations (ACO) are designed to try to reduce the amount of duplication of services, mitigate the high cost of out of network providers, better transition strategies, and provide better information sharing. From a financial perspective, the mix of private to government healthcare spending is approximately at a 50%/50% split, but by 2030 we will move to 75% of a hospital’s payer mix will be Medicare or Medicaid – which is a recipe for bankruptcy of the economy!
The environment facing providers entering into 2012 are so massive, so complex, and so forbidding, that executives in this industry are pretty much inert. That is the best description for the state of the industry as I have been able to discern based on my interactions with industry executives over the past four years. This challenge to take on what is now recognized as a sea change in the industry was referred to by Atul Gawande, who delivered the commencement address at Harvard Medical School in 2011. He notes that “We are at a cusp point in medical generations.” Not only are doctors of former generations lamenting what the practice has become, but these complaints are symptoms of a deeper condition – “which is the reality that medicine’s complexity has exceeded our individual capabilities as doctors.”
These changes will surely require a new set of thinkers who can tackle supply chains with new and innovative solutions that focus on patient value, yet continue to drive down costs through strategies such as demand management. These are the real implications of the Obama Heath Care Reform Act.
 “Cowboys and Pit Crews”, March 26, 2011, The New Yorker.