The financial picture for many hospitals is getting bleaker. Currently more than 50 percent of California’s hospitals lose money on operations and that number is expected to increase without systemic intervention. Medicare and Medi-Cal underpayments remain the biggest part of the overall problem.

A variety of “stop-gap” measures exist, including the hospital fee program to generate non-federal matching funds; expansion of Medi-Cal and exchange-based subsidized coverage; temporary preservation of DSH payments; and some “Angel” acquisitions of distressed hospitals that have kept many from closing. Trending indicates that expense growth will continue to outpace revenue growth; hospitals continue to lack access to much-needed capital; and that the demand for services will decrease.

Now, a glimpse into the future… More and more hospitals become part of health systems; physicians and hospitals affiliate or create coordinated networks; integrated provider systems develop; payments are based on value and outcomes; and payments are fixed, bundled, global or capitated. Sound good? The dilemma is that most hospitals exist in the fee-for-service, volume-based model and said evolution, while necessary, will take prisoners.

What if it were possible to construct a pathway to the future via Medicare and Medi-Cal payment reforms – integrating the delivery system and payment system in a logical and rational manner for the benefit of patients and care providers alike? Impossible, you say…perhaps not. We’re talking about payment reform as the key stimulus for the desired delivery reform. How else will hospitals fare in a redesigned health care system that spends less on acute hospital care, coping with fewer admissions, fewer procedures and fewer tests, and not go bankrupt?

Reforming Health and Health Care suggests the way to a better and more sustainable future for hospitals is to become –or join – an integrated delivery network (IDN). An IDN where the acute care episode is only part of a comprehensive care infrastructure is the vision. Payment reform is the catalyst. No longer a siloed and an isolated cog in the care continuum, hospitals can avoid becoming a low-on-the-totem-pole commodity. Rather, hospitals with partners could emerge as the risk-bearing entity. In a nutshell, Reforming Health and Health Care addresses the main points of the AHA’s Principles for Payment Reform (draft) by:

• Accelerating payment models that reward better, more efficient care for patients
• Spurring efforts to better manage the health of defined populations and communities
• Reducing the per-capita cost of health care
• Ensuring predictability and stability in payments while providers build the infrastructure and capability to redesign care delivery

Intrigued? Stay tuned as we dive deeper into the possibilities of making this a reality in a series of upcoming posts in the New Year.

Happy Holidays to you and yours from the Hospital Association of Southern California!