GHX Predicts Accelerated Healthcare Change to Avert Industry Fiscal Cliff
LOUISVILLE, Colo., Nov. 27, 2012 /PRNewswire/ — The healthcare market remains a precarious place to do business, said GHX CEO Bruce Johnson. However, he predicts the current unsustainable fiscal path and mounting political pressures are also accelerating the change required to transform healthcare into a sustainable system. “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, the federal government recorded the largest budget deficit since 1945, both in dollar terms and as a share of the economy. The report goes on to say that the “aging of the population and the rising cost of healthcare would cause spending on the major healthcare programs and Social Security to grow from more than 10 percent of GDP today to almost 16 percent of GDP 25 years from now. That combined increase of more than 5 percentage points for such spending as a share of the economy is equivalent to about $850 billion today. Absent substantial increases in federal revenues, such growth in outlays, would result in greater debt burdens than the United States has ever experienced.”
“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.”
The outcome from this unprecedented combination of internal and external pressures has GHX predicting one of the most pivotal upcoming years in the healthcare industry:
- Acceleration of industry consolidation to create an economy of scale for hospital providers to remain solvent amidst shrinking reimbursements and increasing government regulation;
- Shift toward centralization for increased operational efficiency;
- Improved dependence on supply chain for meaningful use reporting and fiscal visibility that begins to mirror the successes in other industries with significant margin pressure; and,
- Greater global commonality for worldwide alignment around unique device identification that will result in improved visibility and accountability across the continuum of care.
GHX predicts that continued financial pressure will accelerate industry consolidation in an attempt to create greater economies of scale. According to McGuire Woods, LLP (HFMA, March 2012), healthcare reform impacts this consolidation through anticipated payment rate reduction, “indirectly encouraging consolidation by forcing hospitals to find new ways to reduce costs and increase negotiating clout with suppliers and payers.” An example cited that “the ACO model will encourage hospital network formation by rewarding integrated healthcare systems that can reduce costs and improve quality.”
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.” This consolidation is evidence of the change sweeping the industry both as a result of market economics and the impact of reimbursement changes tied to the Affordable Care Act. 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.
“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.
“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.”
Dependence on Supply Chain
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.
“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, increase 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.”
Global Healthcare Exchange, LLC (GHX), a healthcare technology and services company, helps reduce the cost of doing business in healthcare by enabling better supply chain management. GHX makes it easier for hospitals, other healthcare providers and the suppliers that do business with them to drive cost and inefficiency out of their processes. Working with GHX, the healthcare organizations that make up the GHX Global Network are on track to save $5 billion by 2014–savings that can be invested in such things as hiring more nurses, providing care to uninsured children or developing new medical products. GHX is owned by organizations on both the buy and sell side of the healthcare supply chain, including some of the largest companies in the world. Find GHX on the Web, on Twitter @GHX_LLC and on Facebook @GHX.