Living in North Carolina, like many other places that deal with the threat of hurricanes, we have gotten used to what others may consider an odd occurrence. Every year, when a hurricane is bearing down on one of our beaches, we are flooded with scenes of homeowners boarding up their windows and getting ready for the storm. Inevitably, these pictures show a calm ocean and bright blue skies. The point is that people who own beach houses know that when a storm is coming, the time for boarding up the windows and getting ready is before the storm, while the weather is still calm. Once the storm arrives, it’s too late to protect your house. We can apply that same analogy to health care reform. We are currently in that “calm before the storm,” and now is the time to shore up your practice and do the things that need to be done so that you will survive the future of health care.
Like a hurricane, no one can predict just how bad things will get for health care in the coming years or even when all of this will take place. What we can do is look at the factors and the likely glide path for some indications of what we will be facing. All the signs of a very large storm are present; you just have to put the pieces together. Consider this: we have a struggling economy with high unemployment and little to no growth. This places a significant burden on businesses that currently finance a huge amount of health care. We have a health care reform law that will significantly change the marketplace in 2014, when most of its provisions kick in. Through coverage expansion and Medicaid expansion, this law will add a projected 20 to 30 million people to the roles of the insured. These newly insured individuals will put stress on the delivery system, which in many areas does not have the capacity to absorb this new demand. We also have state budgets in trouble, placing pressure on Medicaid funding and programs; and we have Medicare expenses rising at a rate that is not sustainable, putting significant pressure on the federal budgets.
Consider this: in this current fiscal year the federal government will take in $2.4 trillion in tax revenue. Medicare and Social Security will consume $1.5 trillion in expenses. This means that more than 50% of the revenue we take in is used to pay for healthcare and retirement benefits. After you pay for Defense and the interest payment on the debt that we have already incurred, there is only $26 billion left in the coffers. That means we can pay for something like the Department of Agriculture whose budget is $26 billion, but all other government functions, such as foreign aid, the Department of Education, the Department of Homeland Security, unemployment, etc., have to be paid for through borrowing and accumulating more debt. The point of this illustration is to explain the obvious—that we will not get our federal deficit under control until we control the largest line item, health care.
Taking all of this into account, it appears that we have the makings for a very big storm. The demand for health care will go up, as it always has, while the ability to pay for it will be under serious pressure. At this point in the discussion, many of my physician clients start considering their retirement date if they are close enough to do that, and, if not, they start considering self-medication with anti-depressants. Once they get over this urge, we can move forward with a strategy for how to get ready for the brewing storm, and we start “boarding up the windows,” so to speak.
I believe there are five things that every practice should be doing to get ready. These five things, if done now, will help to ensure that you are prepared when health care gets rough in the future.
1. Operational efficiency: There is no doubt about it; the future of health care will put significant pressure on provider revenue. Practices will no longer be able to cover up inefficient business models with fee schedule increases. Medical groups and other health care providers are going to have to learn how to make do with less, and that means becoming more efficient in their business functions. Practices need to take a serious look at their overhead and look for ways to reduce the percentage of revenue that is required to run their practice. This doesn’t necessarily mean reducing staffing, although it may; in some cases it can mean learning how to add volume without adding expense. It can also mean looking at things like purchasing contracts, lease arrangements, or even consolidating debt to reduce expenses. It could mean taking full advantage of an EMR environment to reduce overhead and inefficiency. Whatever this looks like for an individual practice, it almost always boils down to one thing: professional management. The groups that are going to survive and thrive in the future are the ones that have solid professional management. I’m not talking about a practice administrator that has been with the group for 20 years, and started as the receptionist or billing clerk. While some of those individuals do grow into solid professional managers, most don’t. I’m talking about experienced professional executives with solid educations and backgrounds, who understand business efficiencies, strategic planning and how to run an efficient business in difficult times. In the same way that quality physicians produce the best health care outcomes; professional business managers produce the best business outcomes.
2. Battlefield intelligence: Ask any military commander what they need most in a difficult battle, and they will say intelligence. Knowing what the enemy is doing and what their strengths are can be the difference in winning or losing a battle. Health care is no different. Groups need to keep their ear to the ground and constantly seek new information. Try to keep an eye on what your competitors are doing, what the payers are doing, and what other groups or your hospital partners are doing. The last thing you want is to wake up and find out that your two largest competitors have merged, leaving you in the dust, or that your hospital has just hired four doctors in your specialty and now you are not needed for the ACO they are forming. Keeping up with the ever-changing marketplace will help you with your strategic planning more than almost anything else.
3. Gain market position: The other night I was watching a movie on HBO called “Too Big to Fail.” There is some real power in a title like that! In many cases, especially in difficult times, it’s often the larger businesses that will survive; in our case, it’s the larger physician groups. There are significant advantages to size, if well-managed. That is why my third recommendation for how to get ready for the coming storm is to gain market position. This can be accomplished through organic growth (adding new doctors right out of school), merging with other groups, expanding your geographic coverage, or cornering the market for a specific service or subspecialty. This market clout can be the difference between surviving the future, and not. Let me give you an example: I work with a client who has, over the years, gained significant market position. They are the dominate player in their specialty and have some sub-specialization that can’t be found anywhere else in the local market. Recently a payer approached them and forcibly told them they would need to take a 40% cut in reimbursement for one of the ancillary services they provide. My client calmly and confidently told the payer that yes, they did need to renegotiate the rates for this service because it had been several years since they had done so, but rather than take a 40% cut, they needed a 5% increase. My client then explained that without this increase, they would have to consider leaving the network completely. We ended the meeting by reminding the payer that without my client, there would be a huge hole in their network that could not be filled. A couple of weeks later, the payer made a new proposal of only a 20% decrease, we countered with our 5% increase. A couple of weeks after that, they proposed only a 10% decrease, again we countered with a 5% increase. Just last week we settled on a 3% increase. While experiences like this are not guaranteed, it is safe to say that had this client not established its market position, the outcome would have been dramatically different.
4. Marketing and customer service: A major part of the future of health care may revolve around attracting the kind of patients that you want, not just attracting patients. With the expansion of Medicaid, it is going to be crucial to avoid getting overloaded with low paying patients, and to attract your fair share of commercial insurance patients. These commercial insurance patients will be able to vote with their feet, and in many situations will do so. Given this, it’s important to have a well thought out marketing plan that includes a clear message and a logical delivery strategy. Simply putting an ad in the yellow pages isn’t going to cut it in the future. Marketing by itself isn’t going to be enough either. You have to back it up with solid customer service, so that word of mouth referrals are your friend and not your enemy. Giving careful consideration to how you treat patients as customers, as well as to the services and clinical care you provide, is a necessity in tomorrow’s health care environment.
5. Fill the silo with grain for the upcoming winter: I grew up in a farming community. Every farmer knows that you work all year to harvest enough crops to sustain the winter. Medical practices need to consider doing the same. If this has been a good year for you, consider what you can do to store some of that good fortune for the future. Pay off any debts that you have. Make sure you are not using the line of credit. Do whatever you can to prepare your group for what could be a “hard winter” in a couple of years. This is easier said than done because it means forgoing current salary and compensation for your doctors, but it will prove to be beneficial in the future.
While doing each of these five things won’t guarantee your success in an uncertain health care future, it does stand to reason that not doing them will increase your chances of having a very difficult time surviving when the storm arrives. Remember, boarding up the windows when the storm is already here is much harder than doing it while it’s still calm and sunny out.
Like a hurricane, no one can predict just how bad things will get for health care in the coming years or even when all of this will take place. What we can do is look at the factors and the likely glide path for some indications of what we will be facing. All the signs of a very large storm are present; you just have to put the pieces together. Consider this: we have a struggling economy with high unemployment and little to no growth. This places a significant burden on businesses that currently finance a huge amount of health care. We have a health care reform law that will significantly change the marketplace in 2014, when most of its provisions kick in. Through coverage expansion and Medicaid expansion, this law will add a projected 20 to 30 million people to the roles of the insured. These newly insured individuals will put stress on the delivery system, which in many areas does not have the capacity to absorb this new demand. We also have state budgets in trouble, placing pressure on Medicaid funding and programs; and we have Medicare expenses rising at a rate that is not sustainable, putting significant pressure on the federal budgets.
Consider this: in this current fiscal year the federal government will take in $2.4 trillion in tax revenue. Medicare and Social Security will consume $1.5 trillion in expenses. This means that more than 50% of the revenue we take in is used to pay for healthcare and retirement benefits. After you pay for Defense and the interest payment on the debt that we have already incurred, there is only $26 billion left in the coffers. That means we can pay for something like the Department of Agriculture whose budget is $26 billion, but all other government functions, such as foreign aid, the Department of Education, the Department of Homeland Security, unemployment, etc., have to be paid for through borrowing and accumulating more debt. The point of this illustration is to explain the obvious—that we will not get our federal deficit under control until we control the largest line item, health care.
Taking all of this into account, it appears that we have the makings for a very big storm. The demand for health care will go up, as it always has, while the ability to pay for it will be under serious pressure. At this point in the discussion, many of my physician clients start considering their retirement date if they are close enough to do that, and, if not, they start considering self-medication with anti-depressants. Once they get over this urge, we can move forward with a strategy for how to get ready for the brewing storm, and we start “boarding up the windows,” so to speak.
I believe there are five things that every practice should be doing to get ready. These five things, if done now, will help to ensure that you are prepared when health care gets rough in the future.
1. Operational efficiency: There is no doubt about it; the future of health care will put significant pressure on provider revenue. Practices will no longer be able to cover up inefficient business models with fee schedule increases. Medical groups and other health care providers are going to have to learn how to make do with less, and that means becoming more efficient in their business functions. Practices need to take a serious look at their overhead and look for ways to reduce the percentage of revenue that is required to run their practice. This doesn’t necessarily mean reducing staffing, although it may; in some cases it can mean learning how to add volume without adding expense. It can also mean looking at things like purchasing contracts, lease arrangements, or even consolidating debt to reduce expenses. It could mean taking full advantage of an EMR environment to reduce overhead and inefficiency. Whatever this looks like for an individual practice, it almost always boils down to one thing: professional management. The groups that are going to survive and thrive in the future are the ones that have solid professional management. I’m not talking about a practice administrator that has been with the group for 20 years, and started as the receptionist or billing clerk. While some of those individuals do grow into solid professional managers, most don’t. I’m talking about experienced professional executives with solid educations and backgrounds, who understand business efficiencies, strategic planning and how to run an efficient business in difficult times. In the same way that quality physicians produce the best health care outcomes; professional business managers produce the best business outcomes.
2. Battlefield intelligence: Ask any military commander what they need most in a difficult battle, and they will say intelligence. Knowing what the enemy is doing and what their strengths are can be the difference in winning or losing a battle. Health care is no different. Groups need to keep their ear to the ground and constantly seek new information. Try to keep an eye on what your competitors are doing, what the payers are doing, and what other groups or your hospital partners are doing. The last thing you want is to wake up and find out that your two largest competitors have merged, leaving you in the dust, or that your hospital has just hired four doctors in your specialty and now you are not needed for the ACO they are forming. Keeping up with the ever-changing marketplace will help you with your strategic planning more than almost anything else.
3. Gain market position: The other night I was watching a movie on HBO called “Too Big to Fail.” There is some real power in a title like that! In many cases, especially in difficult times, it’s often the larger businesses that will survive; in our case, it’s the larger physician groups. There are significant advantages to size, if well-managed. That is why my third recommendation for how to get ready for the coming storm is to gain market position. This can be accomplished through organic growth (adding new doctors right out of school), merging with other groups, expanding your geographic coverage, or cornering the market for a specific service or subspecialty. This market clout can be the difference between surviving the future, and not. Let me give you an example: I work with a client who has, over the years, gained significant market position. They are the dominate player in their specialty and have some sub-specialization that can’t be found anywhere else in the local market. Recently a payer approached them and forcibly told them they would need to take a 40% cut in reimbursement for one of the ancillary services they provide. My client calmly and confidently told the payer that yes, they did need to renegotiate the rates for this service because it had been several years since they had done so, but rather than take a 40% cut, they needed a 5% increase. My client then explained that without this increase, they would have to consider leaving the network completely. We ended the meeting by reminding the payer that without my client, there would be a huge hole in their network that could not be filled. A couple of weeks later, the payer made a new proposal of only a 20% decrease, we countered with our 5% increase. A couple of weeks after that, they proposed only a 10% decrease, again we countered with a 5% increase. Just last week we settled on a 3% increase. While experiences like this are not guaranteed, it is safe to say that had this client not established its market position, the outcome would have been dramatically different.
4. Marketing and customer service: A major part of the future of health care may revolve around attracting the kind of patients that you want, not just attracting patients. With the expansion of Medicaid, it is going to be crucial to avoid getting overloaded with low paying patients, and to attract your fair share of commercial insurance patients. These commercial insurance patients will be able to vote with their feet, and in many situations will do so. Given this, it’s important to have a well thought out marketing plan that includes a clear message and a logical delivery strategy. Simply putting an ad in the yellow pages isn’t going to cut it in the future. Marketing by itself isn’t going to be enough either. You have to back it up with solid customer service, so that word of mouth referrals are your friend and not your enemy. Giving careful consideration to how you treat patients as customers, as well as to the services and clinical care you provide, is a necessity in tomorrow’s health care environment.
5. Fill the silo with grain for the upcoming winter: I grew up in a farming community. Every farmer knows that you work all year to harvest enough crops to sustain the winter. Medical practices need to consider doing the same. If this has been a good year for you, consider what you can do to store some of that good fortune for the future. Pay off any debts that you have. Make sure you are not using the line of credit. Do whatever you can to prepare your group for what could be a “hard winter” in a couple of years. This is easier said than done because it means forgoing current salary and compensation for your doctors, but it will prove to be beneficial in the future.
While doing each of these five things won’t guarantee your success in an uncertain health care future, it does stand to reason that not doing them will increase your chances of having a very difficult time surviving when the storm arrives. Remember, boarding up the windows when the storm is already here is much harder than doing it while it’s still calm and sunny out.
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