Will Healthcare Provider Debt Be The Next Financial Crisis?

The other day, I asked the question about hospital and health system debt as being the next financial crisis on several groups on LinkedIn. The response has been a resounding thud. The reason for the question was based on an article in Crain's Chicago Business, Monday, December 5, 2011, "New hospitals building debt", by Kristen Schorsch. It really got me to start considering the broader hospital and healthcare debt question in general, as healthcare continues to change in such dynamic ways.

And I believe that the 800 pound gorilla in the room, locally and nationally, is hospital and other healthcare provider debt.

It is no longer just a question of having an individual AAA rating.

When you view the changes in the healthcare reimbursement from Medicare and Medicaid. Declining admissions. Changes in reimbursement from production-based to quality-based. Payers introducing pricing competition, though user-friendly tools, which allow healthcare consumers to compare price of tests procedures and surgeries, etc., and know their co-pays instantly. Payers and governments not paying for never events. No reimbursement for readmissions. Employers choosing defined contribution models, letting employees choose their plan, incentivizing employees for prescription adherence and wellness and introducing financial penalties for poor health behaviors. The emergence of retail healthcare, retail workplace clinics and insurance. Falling investment income. Declining Medicare and Medicaid reimbursement. It all makes for a very uncertain outlook for healthcare debt repayment.

The biggest change is, that many of these models are designed to keep people out of the hospital.

The hospital is really becoming the last setting for care delivery. Moving from the top of the food chain to the bottom.

And that is just the tip of the iceberg.

When you consider that there are over 600 specialty drugs in the pipeline that treat complex and chronic medical conditions, that will place further volume and revenue pressures on healthcare providers. Adherence to the drugs will keep individuals out of the hospital.

Infused or injected, these drugs can be administer in the home or in an ambulatory infusion center. And specialty pharmacies and infusion centers are popping up like weeds. They will take business from hospitals, health systems and others. They are already doing so.

What do you think would happen, if all the remote medical monitoring capabilities that NASA has developed for the space program and International Space Station, were available to the average person in their home?

Though the truly empowered and involved healthcare consumer is still a few years away, today, a savvy consumer, by spending a little time and effort, can find the lowest cost option for diagnostic testing and treatment. Potentially never setting a foot in a hospital or hospital-based outpatient service for care.

Most healthcare leadership are following the, this is what has worked in the past business development and planning rules. Build a new hospital or replacement hospital; add a new patient bed tower. Develop another clinical service line and so on. Instituting 25-30 key objectives to achieve in a strategic plan. Really?

While healthcare executives and professionals answer the question in a LinkedIn group about what the hospital of the future will look like, lost in the discussion, given the disruptive nature of all these changes, is whether or not the patients will even be available to fill the beds.

In my opinion, the next big financial crisis could be hospital debt.

Has healthcare become "to big to fail"?

Learning from Europe - Universal Healthcare

The debate heats up.......Again......

Much is beginning to be written about healthcare as it continues to consume an ever increasing portion of the GNP; as the medical care component of the CPI continues its rise outpacing the general CPI; as employers find operational costs increasing due to health insurance expenditures; the 2008 campaign...... Well, you get the picture.

Intense focus will be coming over the next year as the presidential campaign for 2008 heats up, with the Democrats and Republicans putting forth their proposals on fixing healthcare. State initiatives will also force the issue, cobbling together a patchwork quilt of suggestions, programs and hidden taxes to pay for the "universal" coverage. There will be some new proposals, but I for one expect much of the same. Looking at past history, nothing will really be solved until both parities engage in a discussion of two very basic questions: Is healthcare a right or a benefit and how/who pays? These are the two unspoken issues and questions which both parities skirt.

One could make the argument, that the Democrats view healthcare as a right by their proposals and the Republicans view healthcare as a benefit by theirs. Still, who pays and how? My bet is that in the end universal healthcare under a one payer system here won't happen. Too many interest groups, too much politics, and with billions of dollars at stake on all sides (forget the quality argument for a while) a universal system just won't fly. I would expect to see some kind of hybrid between universal and private, similar to what is found in Europe. That is...... if we are willing to learn from other parts of the world and not have to reinvent the wheel every time the subject comes up for debate.

European Healthcare

Having worked for a European medical device manufacturer and traveling Europe seeing healthcare in action in some hospitals, there are some true misconceptions in the American healthcare community about what is considered healthcare delivery and payment in Europe.

Not all but most senior executives don't have a clue about what is going on in Europe regarding care or payment. I doubt that the politicos do either. Not bombastic or self serving are those statements. I come from hospital senior management and am guilty of the "if its not invented here, its not worth anything" syndrome. And that attitude considering the seriousness of the topic is just not acceptable any longer. Take away the signage in different languages in a European hospital and you would never know you were not in an American hospital.

So, lets look at a couple of myths.

OK first myth... healthcare is paid solely by the government

It is not a universal one size fits all healthcare payment system in Europe. They leave that to the Canadians. There are government programs, private insurance programs, employer sponsored health insurance programs. Consumers have much higher deductibles than what we pay and a greater emphasis on personal responsibility in maintaining health and wellness. Payment is a combination of various healthcare mechanisms that we too have here in the US. It is a complicated payment maze. But everyone gets care, everyone gets primary care and everyone gets quality care at the right time, in the right amount, in the right setting.

Now in Europe they have some very real misconceptions about us as well. The most important was understanding the difference between 45 million uninsured and 45 million Americans not getting care. They equate uninsured with no care. After many long sessions, people I worked with began to understand that in America, being uninsured doesn't mean that you don't get care. Yes, the care may be inappropriate utilization of healthcare resources by individuals and families over utilizing emergency rooms, which when treated earlier in a primary care setting would have been the preferred option, but people do get care, they do get surgery, they the do get the drugs they need.

Second myth......The hospitals and health systems in Europe don't face the same operational issues we do

Sorry to disappoint everyone, but they do. Declining reimbursement, IT consuming ever greater portions of capital budgets, the need to reduce medical errors, lack of qualified medical professionals, increasing productivity and efficiency, decreasing costs, improving quality, the shift to outpatient from inpatient care, etc, etc, etc. Matter of fact, it may even be more difficult in Europe as each country has its own language, culture, regulations, payment systems, etc. One size does not fit all. On the HIT side, many countries are farther advanced on the implementation of the Electronic Medical Record that we are. Germany and France are good examples.

Third myth.....What happens in Europe or the rest of the world for that matter doesn't effect me

Yes it does. Nothing is new in healthcare. It has been done already somewhere in the world. Its more of a question of discovering the issue, what they have done, how the solution is working and what parts of their solution will work for us. Sorry to say but we are not best in breed. If we were, then why do so many American companies have difficulty in selling their HIT and other solutions oversees. Lots of issues there besides the inability to customize their solutions for different markets, but that's another Blog for another time. We could learn a bit from how Europeans have approached the healthcare coverage issue, the provision of medical care and how it all works together.

Europeans have answered those two basic questions, is healthcare a right or a benefit and who pays and how.

What this all could mean

Clearly we are at a crossroads. We already have a tiered healthcare system that is neither reasonable from a care perspective or socially acceptable. Its easy to medicalize social problems (which is what has been done) and blame the medical community for the indecisiveness of state and national leadership in addressing this issue. Our medical care system today is based on those that can pay, those can can pay some and those that can't pay anything at all.

Individuals, government, employers and healthcare providers must all come together to reach a common understanding. I for one believe that universal coverage is a possibility, but I do not for one minute believe that it is the sole responsibility of the government. It is a partnership. A solution to a societal crisis that can be based on what has happened successfully in other parts of the world.

For the future

This isn't the last writing on this topic. It's complex. Holds many unknowns,. And as the presidential campaigns become more vibrant with proposals coming forth, much more will be written on this topic.

But life would sure be a lot easier if we could learn from others like the Europeans and not make the same mistakes.