Expecting the end of any industry as we have known it is always a chancy call. People still occasionally mock high tech’s 1990s insistence that the nature of business would be altogether different. Instead, the companies that crowed the loudest were typically the ones that went out of business.
But if you’ve been working for an MBA in health care, be prepared for some big changes in the near future. The combination of the Affordable Care Act, economic realities, competition, technology, and emerging alternatives to traditional care delivery models has the possibility of drastically changing the way the entire industry works.
For example, Ezekiel Emanuel, author of Reinventing American Health Care: How the Affordable Care Act will Improve our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System, argues that insurance companies as we know them could disappear.
It would be a shock for everyone from politicians and employers to consumers and health care deliverers. Insurance companies have become everyone’s favorite whipping post. But, that won’t last long, according to Emanuel. They will still be here over the next few years, he argues, but creation of the insurance exchanges has changed the viability of their business model.
The accountable care organizations (ACOs) (which I discuss in Chapter 8 of my new book) and hospital systems will begin competing directly in the exchanges and for exclusive contracts with employers. These new organizations are delivery systems with networks of physicians and hospitals that provide comprehensive care.
With continued consolidation not only among hospitals, but among doctors as they affiliate with extended practices, the advantages insurance companies have had in building networks is rapidly vanishing. The care givers themselves will create their own networks. At that point, even if they continue to do business with insurance companies that have to take their operational costs and profits out of fees, they will also become competitors.
Not only will the new networks be able to register with health care exchanges, but they could then direct approach employers and offer a more cost effective alternative. They will have cut out the middleman and won’t need to add in an effective 15 percent or 20 percent surcharge to offset insurance overhead. The trend is already obvious, as institutions like the Cleveland Clinic work to obtain direct business and bypass insurance companies.
However, as Emanuel points out, there is an obvious skill these new organizations lack: the practice of risk management. Using actuarial data to predict needs, expenses, and, ultimately, what they must charge to remain in business.
Care provider networks will need to become their own fiscal watchdogs, recognizing the limits of what they can charge. That will drive a premium for responsible management up and down the line, including in areas like capital planning. Hospitals, clinics, and affiliated practices may find that they can’t afford the new wing or the latest gadgets, no matter how much money they can raise. Customers, including big businesses, will become irate if they perceive waste.
It will be a challenging world. Experienced and skilled management will be necessary to develop the new strategies and practices necessary to keep competitive.