Industry-wide changes and a growing emphasis on strategic activity makes this year an exciting time for healthcare, though such changes introduce risks in addition to new opportunities.
The healthcare sector is subject to and must also contend with political, regulatory and judicial challenges, in addition to dealing with natural industry trends, evolving reimbursement models and growing consumerism in a rapidly changing and complex climate. These are key thoughts summarized from the Cain Brothers report, "Strategies for Health Care Leaders." We found the report particularly insightful.
In an era of increasing outsourcing and deep strategic partnerships, the need to be top-of-the-line, as well as focusing on reducing costs and enhancing scale are the most critical components to healthcare organizations' vitality this year, according to the report.
Cain Brothers, an investment banking firm that focuses exclusively on the healthcare industry, outlines the principle industry issues and outlooks in various healthcare sectors in 2015 in their report.
Major issues for healthcare in 2015
According to the report, the healthcare industry will face at least four major issues this year. First, the financial viability of health insurance exchanges will once again be tested. HHS forecasts fewer uninsured than previously thought will purchase health insurance in 2015, so attracting a risk-balanced and profitable enrollee mix will be health insurers' main focus.
Another issue is consumerism, which will "reach the tipping point" in 2015, according to the report. Previously, employer adoption of consumer driven health plans helped keep medical cost pressures under control. Now, in response to the Patient Protection and Affordable Care Act employer mandates, many employers will turn to private exchanges and accelerate the roll out of consumer driven health plans. As a result, the average healthcare consumer will be more enlightened than in the past, imposing new demands on the industry, the report said.
Rising specialty drug co-pays will also pose significant challenges for both patients and health insurers. According to the report, drug spending increased by 12 percent in 2014 after the introduction of expensive new hepatitis C drugs, for example, combined with fewer drug patent expirations. Furthermore, employers and payers have increasingly imposed higher out-of-pocket costs of specialty drugs on plan members by charging them for a percentage of the drug's costs instead of a flat rate, forcing consumers into a position in which costs might prevent them from obtaining medications they need.
Finally, ICD-10 implementation is on track to happen Oct. 1. Unfortunately, even with the last delay and an additional year to prepare, many providers are not ready to implement the new coding system. According to the report, once the Physician Medicare Sustainable Growth Rate fix is enacted in the end of March, there will be a surge in demand for ICD-10 remediation.
Washington, D.C. outlook
According to the report, the Republican Congress will most likely continue its efforts to dismantle the PPACA, while the U.S. Supreme Court verdict in King vs. Burwell could block subsidies in states that didn't establish their own exchanges. Since a complete repeal of the PPACA is implausible, "Republicans will effect incremental reforms by targeting the PPACA's unpopular measures and using the appropriation process to cut funding," the report stated.
Healthcare sector outlooks
Hospitals and physicians: According to the report, the healthcare industry can expect a sustained, dynamic pace of mergers and affiliations as systems place increasing value in attaining local market share as means to control costs and manage risk. Within systems, continuity of care will require healthcare providers to become integrated into large multispecialty groups or consolidated into integrated health systems, while the transition from fee-for-service to value-based reimbursement will remain a top priority.
Post-acute care and clinical outsourcing: Hospitals won't become significant players in providing post-acute care because of cost structure and capital limitations, among other reasons, according to predictions outlined in the report. Furthermore, relations between acute and post-acute providers will become more formalized, and facilities or systems without these relationships will find it harder to maintain financial viability in the long run. Home health and hospice companies are also pursuing formal relationships with hospitals and post-acute companies.
Managed care: According to the report, there will be an acceleration of M&A activity and increased purchases of care management and health IT capabilities. The biggest challenges that managed care companies will face this year are Medicare and commercial reimbursement pressures, uncertain exchange economics, the need to develop better population health programs, medical management and business to consumer capabilities, in addition to establishing partnerships with providers.
Behavioral health: For-profit consolidation will continue to gain market share over independent providers and nonprofits, the report said. The shift toward the for-profit sector will lead to new investments in behavioral health infrastructure, which will have a focus on clinical care, health IT systems and improved compliance by healthcare providers. Additionally, new legislative initiatives and an increased public awareness surrounding behavioral health will influence an expansion of coverage.
Healthcare supply chain: Healthcare supply chain organizations will continue striving toward increased scale, data driven efficiencies and distribution of goods directly to consumers. Large, targeted relationships between distributors, manufacturers and specialty pharmacies will lead to a de-verticalization of the supply chain, according to the report.
Health IT: Providers will seek technology that can improve quality of care by leveraging their EHR investments, which will be accompanied by an increased interest in data analytics, consumer engagement and care coordination capabilities. Data aggregation will play an increasingly important role in population health initiatives and interoperability capabilities, the report said.
Revenue cycle management: Strategic interest in RCM will continue and even gain speed in 2015, depending on ICD-10 adoption, complex reimbursement schemes and increased pressure on provider bottom lines, according to the report.
Consumer and digital health: As a result of the growth of high deductible health plans, larger copayments and insurance exchanges, patients will continue paying more out-of-pocket for their healthcare, contributing to the rise of consumerism. Also, healthcare's digital landscape will continue to develop as insurers and providers adopt best practices from retail and other traditionally consumer-oriented industries.