So, here is the $64 million dollar question for hospital CEOs.  You learn that in the next 12 months the federal government is planning substantial cuts in Medicare reimbursement. Big cuts to balance the budget.  Moreover, CMS announces that all Medicare payments in 2012 will be tied directly to quality of care, patient safety, and customer satisfaction performance measures. Managed care payors announce that they will follow the government's lead. They, too, will join in the plan to bundle payments to providers, forcing immediate financial collaboration between physicians and hospitals.

This reflects a potentially devastating change for hospitals and physician practices, the perfect storm. This is the REAL sea change that consultants have been harping about for years.

To survive, hospital CEOs must take dramatic action including reducing costs by at least 7 to 10 percent below current Medicare rates. Quality of care — using a variation of pay for performance formulas — will be the key driver for all future payments. If hospitals do not measure up, they will get less, a lot less.

What will you do?   How will you restructure your organization?

This is no hypothetical scenario.  Today it may be just a fear, fodder for blogs, subject matter for futurists, and the inevitable journal articles about the doom and gloom future of healthcare.  But just around the corner, much sooner than later, it will be a reality.  

I have incredible confidence in the quality of U.S. healthcare leadership.  I know that, if challenged in this way, the vast majority of healthcare executives and physicians will respond in a dynamic and productive way. There is, in most executive suites, an untapped reservoir of extraordinary ideas and creativity that will lead to a new vision for the U.S. healthcare system.

However, most CEOs today are reluctant to advance these extraordinary ideas because we are an industry that is not comfortable with sudden change. Consequently we focus on what is safe in terms of strategy and innovation. But we are nearing that economic/reimbursement tipping point.

This is a subject worth thinking about.  What will you do?

© 2011 John Gregory Self

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