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Healthcare executives are primarily focusing on the Patient Protection and Affordable Care Act (ACA) as the next big game changer for healthcare delivery.  They are probably right to focus on ACA today, but this event is only the set up for the biggest healthcare game changer in modern history.

Change Word on Slot Machine WheelsThat will be deficit reduction.  Medicare, as I have said here in the past, happens to be the number one driver of the deficit and debt. Now, it is true that FY 2013 was a good year for the federal government if you base that on the fact that the colossal annual deficit shrunk by 35 percent, thanks to increased tax revenues and something called sequestration.  While we can all agree  that is good news, it unfortunately does not altar the trajectory that will lead us to a major crisis in healthcare within the next seven years.

Every 8 seconds of every day of every week of every month, someone new qualifies for Medicare and Social Security.  That is because at 12:01 AM on Jan 1, 2011, the first of the Baby Boomers – that demographic tsunami of humanity – began to qualify for their share of the entitlement pie.  Those numbers get stunningly worse over the next 20 years.  Inside eight years, unless something miraculous happens, federal government payments for Medicare will double. Consider this, as the sheer number of Medicare and Social Security beneficiaries soar, the problems will grow exponentially.   We are upside down on tax income to claims paid.  The average couple pays in $109,000 in a lifetime but they consume more than $300,000 in Medicare services, based on current day prices.  There is no way to make up for that healthcare spending shortfall on volume.  As we say in Texas, that dog won’t hunt.

But wait, there is a slew of more bad news – big numbers that are staggering.  Inside of 10 years, the present value of unfunded liabilities for Medicare and Social Security will be about $20 trillion, an amount greater than our current national debt.

So, we find ourselves between a hard place and deep poo. We are running out of options.  Does anyone in their right mind believe Congress will tell 50 million voters that they are not going to receive their hard-earned benefits, the $191,000 deficit per American couple notwithstanding?  Certainly not.  No, they will find a small, less well connected group, say hospital CEOs, physicians and other providers, upon whom to place the blame and receive the pain.  And that is when both the poo and the pain will hit us in the face.  They will continue to make reductions in reimbursement until they force hospitals to change or fail.  When they fail, Congress will certainly take no responsibility.  They of the accept-no-blame class, will point to “incompetent” healthcare executives as the reason for the loss of important community resources.

Do not make the mistake of believing that everything will work out. It won’t.  The numbers are simply too big and the math will simply not add up. 

Here are five global ideas to prepare for transformational thinking.

  1. Keep an eye on the ACA implementation.  That is certainly a potential “first threat” but it is by no means the massive game changer that some politicos and ideologues would have you believe. You cannot take it for granted, but do not get so obsessed with ACA that you fail to prepare for the real challenge that is quietly beginning now and will accelerate at a furious pace over the net seven years.
  2. Create transformation teams to work on scenarios for various levels of reduction in reimbursement, the redesign of care strategies, and to identify community resources that can be part of the new care team.  
  3. Resolve to take on an “outside the box” mode of thinking.  You cannot depend on your 1980s, 1990s or even early 2000 graduate education to guide you through this minefield.  All bets are off. If you are uncomfortable with change, or you do not have the passion, or energy, for leading through a difficult transformation, then this is the time to prepare for your own transition, as in retirement or a career change. I am predicting that the C-suite transition rate will jump from 17 to 25 percent over the next eight years.  Some of that will come from legitimate retirements and some from “performance retirements”.
  4. Evaluate external strategic partners.  Now is the time.  Shotgun weddings are never any fun and they rarely work out.  Understand your needs and your strengths.  On the flip side, drill deep to understand a potential partner’s true financial strength.  Suitors, like references, frequently lie in hopes of ending up in control.  
  5. Educate and develop – your Board, leadership team, medical staff and the rest of your workforce.  Explain what transformation is and how it will change their lives. Get them involved in creating ideas that can be funneled to the appropriate task forces working on this issue. Then go public.  Engage business and industry executives including your various bankers, the unions,  community leaders and other stakeholders.  When this tsunami approaches, events will move so fast.  You will need your ideas locked down and your community on your side.