The move to population health and away from fee-for-service medicine is working to the detriment of U.S. hospitals, a new report from Fitch Ratings indicates.
Many would argue that the move to value-based care is a good thing because it’s designed in part to eliminate unnecessary tests, procedures and inpatient hospital admissions long considered a waste when pay is based on volume of care delivered. The Fitch special 2018 report on nonprofit hospitals and health systems shows an industry slow to adapt to these changing reimbursement models.
Health insurers and the government are increasingly moving away from fee-for-service medicine to value-based payment models that measure outcomes and stress population health strategies designed to make sure patients are getting care in the right place, in the right amount and at the right time. This trend is designed to keep people out of the hospital, shifting reimbursement to outpatient models and putting hospitals at greater financial risk.
“We believe the ongoing transition to population health and at-risk contracting will continue to challenge providers’ operating margins,” the report by Fitch senior director Kevin Holloran and colleagues said.
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Insurers like Aetna, Cigna, Humana, UnitedHealth Group and Blue Cross and Blue Shield plans are increasingly paying a larger share of their reimbursements to value-based care models. As one example, UnitedHealth Group, which is the nation’s largest health insurance company, earlier this year said it’s paying nearly 60% of its reimbursements – or $64 billion – via value-based care models that are rapidly replacing fee-for-service medicine in the U.S.
Fitch ratings said hospital operating margins “remain under siege” with median profitability levels dropping for the second straight year. “Median profitability levels dropped, with median operating and operating EBITDA margins of 1.9% and 8.5%, respectively, compared with 2.8% and 9.5%, respectively, the prior year, “ Fitch said in its report.
Hospitals are also suffering from labor and wage pressures given the ongoing need for clinicians amid a tight market for healthcare workers. The labor needs are also driven by the move to value-based care as hospitals hire specialized clinicians to manage the care of patients.
“The movement toward population health management and a growing focus on chronic disease management have increased the competition for, and cost of, clinicians in most markets,” the Fitch report says. “Increased use of agency, overtime and pay differential is still a common pressure on expenses.”