Congress is hard at work on healthcare reform. Committees are meeting and advancing legislation. There's no doubt reform will continue to be hotly debated for many months, but hospitals can't afford to put their preparations on hold until a bill is passed.
It's too soon to tell exactly how the "new" healthcare system will work, but now's the time to prepare for drastic changes in the current system. Hospitals must begin formulating a strategy for providing comprehensive services to large groups of consumers on a fixed budget.
Many hospitals view their managed-care strategies as strictly a financial issue. However, the development of agreements with managed-care firms shouldn't be driven only by dollars and cents. Entering an agreement isn't only a question of negotiating a contractually fair arrangement. It needs to be strategically desirable as well.
Drawing up a plan. Hospitals should develop a managed-care strategy that follows long-range objectives. It's important to devise a plan for establishing relationships with payers and other providers to deliver the seamless web of services required for managed care. The plan must be specific enough to provide direction yet flexible enough to respond to changes that can't be anticipated. Reform is sure to bring many surprises.
Not developing a plan for forming relationships with managed-care organizations puts hospitals at risk of losing market share and suffering financial setbacks. It's equally risky to enter managed care haphazardly. When that happens, hospitals may provide a high volume of services and lose money on every case if they're not capable of accurately projecting the costs involved in providing the services.
Hospitals must determine how they will carry out their mission to improve the health of the community in a healthcare environment dominated by managed care. It's essential to consider managed care's impact on the medical staff, the organization's institutional strengths and weaknesses, as well as the community. Administrators should consider the following questions: Will the services required by managed care be consistent with the needs of the community? Is it financially feasible for the hospital to provide the required services? Will any new services required by managed care enhance existing services? Will those services assist in increasing market share? Will the services enhance physician recruitment efforts?
Before entering a contract, executives also should make sure their responsibilities under the contract are consistent with the hospital's mission. If not, the hospital shouldn't agree to provide the services.
Financial impact.Examining the depth of managed-care penetration in the hospital's service area is another necessary next step. Executives need to determine the importance of managed care to the financial stability of the hospital. For example, they should consider the following questions: What percentage of residents in the hospital's service area belong to a managed-care organization? What is the hospital's overall inpatient and outpatient payer mix? What is the profitability by hospital department/clinical service for all patients and managed-care patients? What is the marginal cost impact of the managed-care contract?
The hospital should clearly define its motives for pursuing managed-care contracts and set priorities for these motives based on its mission. For example, the hospital may seek contracts in order to increase its market share of health plan enrollees or to diversify referral sources.
It's important for the hospital to identify the components of service required by managed care and then determine how to best provide those services. To create a continuum of care-including outpatient services, long-term care and home care-it may be necessary to establish relationships with other providers, which could require creating physician-hospital organizations, entering alliances or joint ventures, or acquiring physician group practices.
Since managed care encourages outpatient care, the hospital needs to have such services in place or arrange to provide them. The facility has to determine the best way to meet the community's outpatient requirements, including identifying the types of services to provide as well as their preferred locations. For example, will the new services be offered in a freestanding setting or within the hospital? If the hospital chooses to offer outpatient services in a freestanding facility, executives must determine if the project will be a joint venture or one that's independent.
Leader or partner? The hospital then needs to determine its role in the provider network and decide if it wants to assume responsibility for the full continuum of care or to contract with others to fill any gaps in the array of services. There are many options for joining with other providers in alliances and affiliations. Many hospitals already are taking the collaborative route to create seamless delivery systems.
Before entering any relationship, however, hospital executives must determine their short- and long-term objectives, answering some key questions: Do primary-care physicians and specialists on the medical staff already participate in the managed-care plan under consideration? Does the hospital have the appropriate complement of primary-care physicians to accommodate managed-care patients? How does the hospital's average length of stay by DRG/clinical service compare with managed-care standards? How will managed-care contracts affect the hospital? What effect will reducing lengths of stay have on staffing?
While executives should remember that profit isn't the only consideration in developing a managed-care strategy, they certainly need to recognize arrangements that could interfere with their financial well-being and, therefore, their ability to meet the needs of the community.
There's no question reform is coming. In many aspects, it's already here. A hospital needs to be proactive in developing a managed-care strategy that meshes with its strategic mission-or suffer the consequences.