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18 November, 2013 Posted by John G. Self Posted in Healthcare
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ACA + Deficit Reduction – Cuts to Healthcare = Opportunity

Posted November 18th, 2013 | Author: John G. Self

It’s over.

That period of time, and accompanying belief system, where regardless of how messy attempts to reform healthcare become, that everything will somehow work out, that the business model we know will survive relatively unchanged, is just not realistic.

iStock_000006201495XSmallYet, you would be surprised how much wishful thinking is detracting some healthcare CEOs and physicians. 

There are two big issues that will dramatically change healthcare delivery over the next five to seven years:  ACA and deficit reduction.  I have written about these several times in the past, but given the angst (Democrats) and glee (Republicans) surrounding the troubled roll out of the Patient Protection and Affordable Care Act (ACA), I thought I would revisit this subject again.

ACA, the structural flaws and significant implementation missteps notwithstanding, is still the law of the land and probably will remain substantially intact for years to come.  

“Does anyone think this is going away?” asked Chris D. Van Gorder, FACHE, the respected Chief Executive Officer of Scripps Health in San Diego, at the annual meeting of the North Texas Chapter of the American College of Healthcare Executives on Thursday in Dallas.  There was little, if any dissent in a room of more than 250 healthcare leaders. It may be tweaked, but it is not going away, Van Gorder believes. 

I agree.  Besides, the loyal opposition has yet to propose anything resembling a replacement plan that will address the perverse financial incentives and serious quality issues that plague the existing business model.  Reverting to the past is a recipe for an even bigger mess.

There is another nasty reality that is even a bigger force for transforming healthcare delivery: the Medicare program.   That most of the emphasis is on ACA when Medicare-fueled deficit reduction efforts will be far more consequential is, from my vantage point, remarkable.

Once thought to be the most successful of all big government programs, Medicare is on the verge of becoming a financial nightmare.  As Baby Boomers become new beneficiaries at the rate of one every eight seconds of every day, of every month, the costs to the taxpayers will explode to more than $1 trillion a year within the next five to seven years.  Office of Management and Budget forecasts for the next 10 years reveal that outlays for Medicare, and to a lesser degree Social Security, will consume almost 80 percent of the projected $1 trillion increase in government spending. 

The sheer numbers of new beneficiaries aside, the fact that most Americans pay only a  portion of the costs of the Medicare benefits they will receive in a lifetime — about $109,000 per couple while they will consume about $300,000 — illustrates  how upside down the program is financially.  Medicare’s viability will depend on continuing tax contributions to pay claims.  That, and borrowed money. These two realities are exacerbated by the fact that there will be two retirees for every worker who continues to pay taxes to keep the Medicare “Trust” Fund going.

These troubling numbers are just the tip of the iceberg, says David Walker, former Comptroller General of the United States who served under Presidents Bill Clinton and George W. Bush.   What sank the Titanic were not the problems in easy view, he says.  As it was for Titanic and the hidden iceberg, for the Medicare imbalance and continuing deficits it will be the $50-plus trillion in off-balance sheet obligations — $37 trillion for Medicare, $9 trillion for Social Security.

Given that the climate in Washington today is more about politics — the next election cycle— than policy and solving problems, there is little confidence among healthcare CEOs that the catastrophic challenges posed by the Medicare program will be addressed in a comprehensive, orderly way. That would make too much sense. 

What is even more maddening is that virtually everyone in Washington knows about this problem but no one wants to be the first out of the gate to take this on, Walker believes, because the problem cannot be solved without realigning entitlement programs (read: cutting costs) and reducing spending on defense – two very big and nasty political sacred cows 

Most hospital CEOs I talk with believe that the inevitable major deficit crisis will spur emergency action — a radical meat ax approach that will push much of the pain on to healthcare providers, not the Medicare beneficiaries, also known as voters.

While some CEOs are timing their retirement to avoid what will be a painful market upheaval, there are others who are energized by these challenges.  They are the leaders who see the next seven years as an opportunity to lower costs, improve quality and move the focus from sick care to population health management. 

With C-suite turnover and retirement projected to hit record levels, there will be plenty of opportunities for leaders who can walk away from our old failed model and design a new approach — on the fly.

The federal government certainly cannot or will not do it.

© 2017 John Gregory Self

2 comments

  1. Jennifer Clark says:

    This is the greatest opportunity and challenge of my generation and the next. All healthcare providers will struggle to survive in this new era. My fear for community health centers is that only those with the most innovative leadership teams that have already built strong businesses will survive beyond the fiscal cliff.

    • John G. Self says:

      Jennifer, I admire your spirit and outlook. Executives are so busy focusing on the near term –ACA — that they are missing the far bigger and more business threatening deficit reduction scenarios which will drive massive transformation, not mere change. To survive that event, CEOs must begin TODAY to prepare their organizations. Denial is not remotely related to strategic preparation.

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