ACA and the Healthcare Provider – What’s Next?

As the Affordable Care Act continues it’s path of implementation, healthcare providers are left wondering: “What’s next?”  Facing shrinking revenues due to falling reimbursement rates from payers and increasing costs due to increasingly advanced technology & medicines being brought to bear, what can providers do to stem the squeezing and stay profitable?

For the past few years, healthcare has focused on reducing costs through operational improvements.  Moreover, providers focus on revenue generating activities the most, looking to cut procedures that don’t generate as much reimbursements.  As reimbursement models change from fee for service to value-based reimbursement, this model begins to be flipped on its head.  No longer can providers rely on revenue generating procedures to remain profitable. Instead, providers will need to be able to take into account the total care of a patient, from preventative care to post operation followup.  A revelation that I’ve had is that most provider information technology systems don’t properly account for patient’s care.  In fact, electronic health record payment systems track everything to medicare reimbursement codes.  There’s nothing wrong with doing it that way for the current system; in fact it’s incredibly advantageous to be able to makes sense of Medicare.  However, this means that providers and their information technology systems are woefully unprepared to make the switch to a value-based reimbursement system.

The lack of ability to track treatment on a patient level and cost it appropriately per patient is a major threat to the healthcare industry successfully switching its reimbursement model.  It does seem like there are some folks that are working on this problem though.  In the September issue of Harvard Business Review, Robert Kaplan and Michael Porter’s article “How to Solve the Cost Crisis in Healthcare” (link: is a great step towards the right direction.  While I don’t believe that this is a magic bullet that will solve all of healthcare’s woes, I think that by switching provider systems to a time-driven activity based costing model, we allow for a better view of how much a patient’s care costs, and how to reimburse for the total value of said care.

In the end, unless healthcare providers figure out an effective way to properly track and allocate costs related to a patient’s care instead of relying on procedure codes, we’ll never be able to switch over to a reimbursement model based on total value.  It’s critical that we understand that each person’s care is different, that certain procedures will be more profitable for one person than another, and that we need to focus on the ultimate outcome: patient health.  The introduction of appropriate costing models and supportive IT systems that accurately track patient care is crucial to the success of healthcare providers in the future.

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