An ever-increasing reliance on public payers…
The health care industry stands on the cusp of two transformational shifts. The first Baby Boomers entered the Medicare program this year, and over the coming years a steady influx of new Medicare beneficiaries—around 7,000 each day—will dramatically reshape hospital payer mix. In addition, a payer mix shift of a different sort will begin in 2014 as millions of Americans find themselves newly eligible for Medicaid or exchange-based private insurance due to the coverage expansion provisions of the Patient Protection and Affordable Care Act.
…compounded by slow price growth and growing cost pressures
As economic pressures place budgetary pressure on federal and state governments, employers, and individual citizens, the outlook for provider pricing growth is weakening. At the same time, a constellation of forces continue to drive hospital expenses upward, further straining margins. And through it all, the rising prevalence of chronic disease threatens to crowd out high-margin procedural volumes with less profitable medical cases, thereby undermining the surgical-to-medical cross-subsidy almost all hospitals depend upon for margin stability.
Reform operations to prevent a sharp drop in operating margins
The potential impact of these forces is daunting. Health Care Advisory Board financial modeling indicates that, without intervention, the typical hospital could face as much as a 19 percentage point drop in operating margins over 10 years.
The path back to prosperity must be built on a foundation broader than cost cutting alone. Because of the complexity of the challenge ahead, effective strategies will combine long-term reductions in cost growth with enhanced revenue capture; improved throughput and efficiency; and, perhaps most important, robust case mix management that sustains profitable procedural growth while managing low-margin medical cases in low-cost settings.
Access the full study to learn more
Running on Medicare Margins, the first in a series of publications from the Medicare Breakeven Project, explores the nature and magnitude of the threat to margins and offers guidance on sustaining healthy performance throughout the coming decade.