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Value-Based Care Slashes Health System Profits

Progress costs money, industry finds

Large health systems and hospital operators are reporting sliding profits, revenue, and income because of value-based care, according to an article posted on the HealthLeaders Media website. A turnaround is expected, however, once the industry more fully adopts the value-based model.

Kaiser Foundation Hospitals and its subsidiaries, for example, have shown a $1.2 billion drop in profit year over year. Kaiser’s net income was $1.9 billion in 2015 compared with $3.1 billion in 2014.

Community Health Systems, the country’s second-largest chain of for-profit hospitals, has also reported falling revenue. On February 15, the company’s stock dropped 22% to $14.53, marking the lowest intraday price since December 2008.

The falling profits are a side effect of the health care industry’s move to value-based care, according to Jeff Hoffman, senior partner and health care strategist at Kurt Salmon’s Health Care Group, a global management consulting firm.

Reimbursement shifts are taking longer than most providers expected, Hoffman said. Most are focusing attention on the expense side, removing unnecessary procedures and imaging, and developing protocols for better and more-efficient care. Some of this has a negative effect on revenue, he noted.

Providers are investing in value-based care delivery models, but large payoffs haven't come yet, Hoffman said. Meanwhile, new technologies to improve care and patient access, such as telemedicine, cost money.

But once those base investments have been made, health networks can start driving new sources of revenue, use data analytics to target care to individuals who use an outsized amount of the network's resources, and even create their own insurance plans or partner with insurers to target their narrow-network populations, Hoffman predicted.

The impact of value-based care may be greatest on independent or community-based facilities that have not aligned with larger health care systems, on urban facilities that have a large Medicaid population, and on children's hospitals that traditionally have been supported largely by foundations, according to Chad Sandefur, a director and health care analyst at the management consulting firm AArete. For-profit health systems usually have the advantage of greater size, which gives them the ability to negotiate favorable terms in the market and to more easily absorb financial setbacks, he said.

The health care players that come out ahead will be the ones that effectively manage both the top line and the bottom line, Sandefur noted. In his view, managing the expense side of the equation will be just as important as working to bring in more revenue.

“It will be critical to know the costs to treat your patients, knowing the cost of service lines, the cost to compete in the market,” he said.

Source: HealthLeaders Media; March 10, 2016.

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