Three systemic changes

US healthcare delivery is undergoing tumultuous change. Matthew Hanis of Lockton forecasts that the systemic changes driven by employee benefits, telemedicine, and home health integration will transform care delivery and the way healthcare providers think about risk exposures.

2014 is a 'Level 5 rapids' sort of year in healthcare. Employers, including healthcare providers, face rising employee benefits costs driven by ACA employer-mandate compliance. This can be seen in current annual benefits enrollment trends and the increasing number of insured lives. At the same time, acute care reimbursement change is shifting care delivery from the hospital and into the home.

"Reform-driven pressure is changing provider risk exposures and the insurance strategies they use," says Hal Kinsey, director of Healthcare & Analytics for Lockton Companies. "For example, better individual protected health information (PHI) data to manage population health has also led to growing cyber liability. Another exposure is caused by the 'Obamacare Employer Mandate' which adds substantial labor expense to home health and other providers."

While an expansion of coverage helps providers, the concurrent increase in labor costs and changing governmental reimbursement models makes for tricky waters to navigate.

"Providers need to figure out how to get paid for keeping patients out of the hospital,” says Doug Shaw, vice president & general manager of McKesson's healthcare analytics group. "Making that shift is very difficult especially because profitable commercial reimbursement remains encounter-driven and governmental programs offer only partial performance-driven incentives."

Providers are already feeling the bite of higher expenses with changing reimbursement. 2013 profit margins declined to 2.2 percent for non-profit hospitals, according to Moody's April 25, 2014 Daily Briefing. 

All three ratings agencies have been downgrading provider debt. "Ratings are reacting to the margin pressure," said Martin Arrick, managing director at Standard & Poor's. "There is a lot of operating pressure on hospitals and our expectation is that it's going to continue." 

As we enter the high volume season, hospitals and other providers face a triple whammy:

• Expense growth, driven by technology and supply costs, is outpacing revenue growth from insurance coverage expansion. 
• More part-time healthcare employees will qualify for medical benefits leading to expense pressure as a result of healthcare providers complying with the PPACA employer mandate. 
• With one foot in the old world of fee-for-service and DRG-based reimbursement and one foot in the new world of capitated and incentive-based reimbursement in population health models, the growing pains of new delivery models can be felt throughout the delivery system. 

Mercy, a large health system based in St. Louis is betting big on this transformation. Randy Moore, MD, newly named president for Mercy's Virtual Care Center, sees immense opportunity. "An increasing majority of hospitalizations and subsequent care is consumed by people with complex chronic disease," he says. "Among other improvements, telemedicine enables expert teams to intervene earlier, avoiding further deterioration, and reducing the requirement for further hospitalization and more intensive services."

Telemedicine is likely to be one of three major systemic changes transforming our delivery system as a result of healthcare reform and technology change.

Three forecasts

• Population health. Health systems are deploying population health management strategies to secure Medicare and commercial revenue. Managing an at-risk population creates all sorts of new risks and distorts existing exposures. Patient-centered care delivery broadly changes: professional medical malpractice, regulatory compliance, directors & officers liability, cyber, and brand are all areas to consider. In addition, most programs require collaboration with independent organizations across the continuum of care. This adds the complexity of multiple parties. This significant innovation opportunity creates the largest change to risk exposures. While operational leaders may be focused on analytics and workflow changes required to deliver population health, the risk exposures are equally hazardous.

• Home health integration. Home health is perhaps the most important component of the care continuum for large health systems because it offers a method to reduce patient length of stay and readmissions. With over 12,000 Medicare-certified agencies and $80 billion in annual revenue, home health is a highly fragmented industry undergoing rapid consolidation. Health systems are expanding home health capabilities through partnerships, acquisition, and organic growth. Home health delivery has significantly different risk exposures especially in the areas of workers' compensation, auto liability, and medical malpractice. 

• Telemedicine delivery. Telemedicine, the delivery of medical consultation and monitoring via remote electronic means, is forecast to grow from $240 million today to $1.9 billion by 2018 (56 percent compound annual growth rate). "Telemedicine and virtual care changes exposures traditionally addressed by insurance policies such as cyber liability, medical malpractice, billing errors & omissions, as well as business interruption," says Kevin Hewgley of Lockton's Financial Services practice. "Because of the newness of these services, little actuarial data exists to predict frequency and severity of losses. As a result, planning for these exposures is a new science."

Each of these changes introduces new forms of insurable and uninsurable risk. For example, telemedicine services will likely lead to modifications in hospital general liability and to property insurance policies. 

Like any other systemic shift, these changes will show up in fits-and-starts. The flurry of cyber liability exposures both in and out of healthcare in the last few weeks are a harbinger of this change. 

About Matthew Hanis

Matthew Hanis is Vice President at Lockton. He is a published expert on managing clinical and business risk for healthcare organizations. He has served health systems, home health agencies, physician practices, technology vendors, and many other healthcare-related organizations. He can be contacted at: mhanis@lockton.com