The “Fiscal Cliff” and Healthcare: GHX CEO Makes Industry Predictions

The healthcare market remains a precarious place to do business, said GHX CEO Bruce Johnson. “What’s at risk,” said Johnson, “is the entire healthcare system, which spans not only traditional care organizations in the U.S., but also the huge U.S. base of global manufacturers.”

According to a June 2012 report from the Congressional Budget Office (CBO), when combining the current rate of healthcare cost increases with similarly substantial increases in healthcare demand (aging population), the debt burdens are unsustainable. “The choice for healthcare is dig in or embrace change,” said Johnson. “With the impending changes to healthcare resulting from the Affordable Care Act, among a host of other market dynamics, 2013 will be about accelerated change in order to avert healthcare’s fiscal cliff.”

So what is Johnson thinking?

  • More industry consolidation –The rate of consolidation that is occurring in healthcare is perhaps the most over-reported, under-noticed story of the past few years. GHX predicts the trend will continue. New forms of reimbursement (e.g. shared savings and bundled payments –all reduced) are fundamentally changing care delivery models. Quality metrics are replacing quantity metrics –across the board. According to Johnson, “survival today means that traditional organizational lines will continue to blur as companies acquire complementary healthcare offerings, such as insurance companies acquiring hospitals or other sub-acute services.” GHX predicts the industry may eventually consolidate down to as few as 50 large integrated delivery networks (IDNs) serving an exponentially expanding patient population and delivering care at the most efficient location.
  • More centralized operations –”This consolidation will likely result in greater centralization, which affords the industry an opportunity to really elevate the supply chain for retail-style efficiency,” said Johnson. “We believe you will see a greater focus on tools and technology in the coming year to get at the accelerated change we at GHX are advocating. Hospitals and suppliers must embrace business process and business model change to achieve the efficiency levels required to move forward in this demanding economic environment,” he said.
  • More focus on supply chain –”It’s easy to say, but much harder to actually do,” said Johnson. “However, I’ve seen healthcare’s C-suite refocusing efforts around supply chain because it’s the second highest and fastest growing expense for most provider organizations. Today, customers tell me they’re building OPEX plans at 10 to 15 percent reductions. For both providers and suppliers, supply chain will actually be a means of not only reaching those levels but differentiating themselves going forward.” A key driver of new business processes will be compliance with Stage 1 of Meaningful Use, which focuses on data capture and sharing. “As provider organizations stride toward new business requirements, they can consider the supply chain as a backbone – a key component of technology infrastructure – that can help capture and share the data they need,” said Johnson. “For example, an organization that’s capturing data about all of the medical devices and products used during a patient procedure can then use this data to populate the same information in other locations, such as the electronic health record. In the future, a one-time data capture for a multitude of uses can drive much greater efficiency and compliance.” One of the challenges will be enabling connections to increase data sharing and automation among the legion of regional hospital and care networks that include sub-acute care centers, such as surgery centers. According to GHX, this market is underserviced by the healthcare technology market, due to even deeper budget constraints. “The use of automation and comprehensive electronic data interchange (EDI) solutions is much less prevalent in these regional environments, and we at GHX see this as a 2013 opportunity. These organizations, which today number more than 2,700, are hungry for scalable solutions that will allow them to enjoy the efficiencies, data visibility and cost savings inherent in supply chain automation,” said Johnson.
  • More alignment around global standards (e.g. UDI) –Healthcare is a global market,” said Johnson, “and that will be even more evident in 2013. Every time I travel to our European customers I’m reminded of the increase in global standardization and more commonality across borders.” Johnson sees the July 10, 2012 U.S. Food and Drug Administration’s (FDA) long-awaited proposed unique device identification (UDI) rule requiring manufacturers to uniquely identify medical devices through distribution and use as one of these global market opportunities. While the rule itself only applies to manufacturers doing business in the U.S., a universal UDI requirement will help healthcare organizations worldwide better understand the role products play in delivering greater value and higher quality outcomes. UDIs make it easier to electronically (and in turn more accurately and easily) capture data on specific products used at the point of care, which in turn helps providers determine total costs per procedure, increased billing accuracy and improve inventory management.

“Ultimately, the healthcare story that dominated 2012, the Affordable Care Act, will continue to play out in the coming year,” said Johnson. “The politics of healthcare has been a divisive issue with the past six months of presidential campaigning. Three weeks ago that national issue was settled, but I don’t believe legislation or a specific president will fix what ails the industry. It’s only a component. We have to work together across the entire supply chain to create something unmatched in global healthcare.”

No huge surprises. But hasn’t the election result, as Bruce suggests, forever changed what has been the previous overriding dynamic? Put another way, hasn’t that result all but eliminated the relatively inactive comfort zone that conservative provider execs had cultivated, based on all the accepted talk of  “uncertainty?” Here’s another way  to interpret Johnson’s predictions:

  • Providers that generally fail to act will be gobbled up at unfavorable valuations;
  • Providers who most fully embrace SCM disciplines will have choices.

Source: GHX, PRNewswire

—Tom Finn

 

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