Healthcare Predictions for 2016

JohnKelly_Edifecs-200JaySultan-200By John Kelly, Principal Business Advisor &
Jay Sultan, Principal Strategy Advisor
Twitter: @edifecs

Between the payer consolidations, the long-awaited transition to ICD-10 and the shift toward value-based care, healthcare saw major changes begin to take hold in 2015. Coming off the momentum of the previous year, we can expect even more – especially as providers begin to take on more and more risk.

Here are four predictions our industry can expect to see for providers in 2016.

Providers will take on increasing levels of risk
In one of the more important trends in 2016, we believe providers will increasingly take on more and more direct risk. There will be more health systems taking carve-outs directly with employers and payers will increase the number of value-based contracts with providers that have downside risk, especially those that have (actual or virtual) vertical integration and strong management. There will also be more providers re-contracting with each other under risk-based arrangements.

Providers are being seduced by risk. Some of them are still skeptical, some are jumping in to be ahead of the game, some actually think they are going to make money (which they won’t) just by signing the new contract but not making corresponding changes to care delivery, and there are the few providers who know what they are doing. We can expect to see big winners and big losers in a world moving away from “any willing provider.” This may not seem a bold prediction but the interesting sub-plot to watch is the effect we may see with the roll-out of the joint replacement program by CMS (CJR). Providers that “win” under this program will learn the real value of a “line of business” mentality when applied to healthcare. We believe this will spawn a whole new level of horizontal risk assumption by providers who specialize in perfecting a specific line of business and then replicating the process across their delivery network.

2016 will see an assault on post-acute care providers
In 2016, we will see an assault on post-acute care providers, who until this point have been so profitable for so long with little actual value associated with them. Their overall financial model doesn’t make baby boomers better and they can’t afford it. This will affect nursing homes, outpatient rehabs, and even vendors who sell to post-acute care providers. In an area of healthcare that has been largely unregulated for so long, next year the industry will ask, “What actual value is realized under the current delivery paradigm?” The release of Medicare data for public research, particularly in the area of Medicare Fraud, combined with the high profile budget line for post-acute care, will accelerate the move to overhaul the post-acute care industry.

We see the first salvo by CMS in programs like the Comprehensive Care for Joint Replacement (CJR), whose design targets post-acute care excesses. CMS is making hospitals accountable for everything that happens after the patient leaves the acute setting. If a patient is going to a nursing home and racking up huge charges, that expense will be coming out of the hospital’s profit. We are already seeing this change on the commercial side, looking to create stronger and stronger utilization management rules and looking for ways to substitute home health and telehealth as a way to discharge patients directly home.

CMS will continue to push risk to providers
If we’re going to attack the multi-trillion dollar problems confronting healthcare, we need to fundamentally change the way care is delivered. The design of Next Generation ACO, the CJR, and the new Value-Based Insurance Design tell us a lot about where CMS is going, increasing risk but also removing barriers to the effective management of risk.

CMS will innovate aggressively and break down barriers that most people thought would never get broken down. The waiver of long-held rules on patient incentives, telehealth and utilization rules all indicate that CMS is quite serious about change. CMS will continue to lead payment reform, with a Comprehensive Care for CABG or similar programs plus a new primary care program in 2016. Strong evidence of this change in the private sector of healthcare is the recent news by Kaiser that it intends to open a medical school that trains physicians from the outset under a new paradigm for care delivery.

A change in administration won’t affect this important progress. Regardless of the 2016 Presidential election outcome, payment reform will continue, for both macro-economic reasons as well as the political reality that both parties favor fundamental reform.

Despite their appetite, many providers and ACOs are still not ready to take risk
We believe most first-generation ACOs will fail, because they don’t know what it means to truly manage risk. They do not have the ability or will to modify how they treat patients. In too many places, “heads on beds” will continue to rule over population health management in 2016. Perhaps more importantly, assuming general population risk requires a very large actuarial base that only the largest care delivery organizations can provide. CMS, commercial payers and providers have to figure out how to hold providers harmless on what they can’t control while also rewarding them for doing the things that they can do well and are willing to bet on their ability to delivery consistently. CJR may be the program that opens the eyes of all the stakeholders as a view of the future. Unless contracting models and information exchange mechanisms are adopted that support this view of risk assumption, the next Generation ACO programs will be successful only for a targeted subset of providers and we will see more ACOs drop out of MSSP in 2016. They will blame the program design without admitting their inability to change their own operations, but they will also fail to see the need to truly partner with the public and private payers in supporting reform that works.

This next year is going to be huge for providers and first-generation ACOs. CMS isn’t showing any signs it will slow down its aggressive innovation, and all sides of the industry will need to continue to adapt to be successful.