HCI3 Update from the Field: Lower Costs Isn’t Lower Revenues

Submitted by francois.debrantes@hci3.org on Friday, October 14, 2011 - 12:14

Newtown, CT – October 14, 2011

There's nothing more infuriating than hearing hospitals complain that lower costs for those who pay for health care means lower revenues to them and potentially fewer jobs – it's infuriating because while their bank accounts have gotten fatter, and their buildings have gotten shinier and bigger, the average income of an American family has decreased by 7% in the last decade. And as we reported recently, much of that decrease was caused by higher healthcare premiums. The hospital industry's worry about lost jobs means new job creation for everyone else. So while it might be bad news for them, it's fantastic news for the renewal of America. Boardroom discussions in some hospitals have centered on "socking it to the insurers one last time", at least acknowledging that the party is over, and that revenue compression is coming. But let's get real folks. It's not the insurers that are getting socked, it's every business, every municipality and school system, and every household. What has happened in the American health care system is a transfer of wealth from every household to a few organizations. No real value has been created, because the average quality of care hasn't improved much in the past decade. It just costs more out of our pockets every single year. And what hospitals and other providers have to get through their heads is that revenue compression doesn't have to equate to margin compression. In fact, a recent presentation by the folks from Ardent who participate in the CMS ACE demo shows how much additional margin can be created when hospitals focus on internal cost controls rather than simply jacking up prices. Fortunately, this is all in process of changing, led by the provider and payer organizations in this country that are truly chasing value rather than volume. And the first inkling of that change came last week when the Letters of Intent for Model 1 of the CMMI's Bundled Payment Pilot came pouring in.

What this means to you – we all have to double down on efforts to accelerate the momentum for this transformation. And it is building. The Governor of Arkansas recently announced that payment for health care in that state will migrate to bundled payments. There are other statewide pilots in California (led by the IHA), Colorado (led by us and the Colorado Business Group on Health), New Jersey and North Carolina (led by the Blues), and Wisconsin (led by the Aligning Forces effort). In addition to these statewide efforts, there are local pilots in other parts of the country led by a variety of plans and providers. In a few weeks the Letters of Intent for the other three models of the CMMI Bundled Payment Pilot are due, and we do expect a very strong nationwide response. This week we've released a special version of our freeware that will help Applicants analyze their Part A and B Medicare data. In the weeks to come we will continue to share best practices on contracting and gain sharing. We have to pull out all the stops and take risks, because more of the same only means more misery….at least for most of us.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org