Joseph Chiarelli, managing director of Chiarelli & Co., a strategic healthcare advisory and research firm, views the coming changes as part of a history of reimbursement shocks that go back to the 1920s, with the advent of the first prepaid hospital plans that later formed the basis for Blue Cross. The 1960s brought Medicare and Medicaid, the 1970s brought price controls and the 1980s brought managed care, he says.
The Medicare program itself has initiated several shocks, such as DRGs, prospective payment systems and the cuts brought on by the Balanced Budget Act of 1997, Chiarelli says.
The point is that there has always been an impact when the payment streams have changed, and people have adjusted to this, Chiarelli says. The increase in Medicare recipients should be no different.
Whos going to survive, thrive and die when these changes occur? In my opinion, the survivors and thrivers are going to be the best management teams. It is regardless of capital structure, but many are investor-owned companies, he says.
Investor-owned companies tend to react more quickly to changes in the business because their investors keep the pressure on them, Chiarelli argues. They have been quicker to embrace information technology and to use it to provide meaningful information to executives about the real-time state of their business, he says. They have done a good job of adjusting their service offerings to clinical changes, he adds.
The bulk of the cost that is spent in Medicare besides prescriptions is for inpatient facilities, Chiarelli says. As we have changed, the need for (what amounts to) hotel space is going to change. Those with quality of management and good information systems are going to make those changes, adjust their facilities to the right delivery systems and to the right services required based on their market, and they will do so quickly.
Villwock argues that tax-exempt providers have closed the gap on management quality with investor-owned companies. Chiarelli agrees that many of them have done so, but contends that this furthers his argument that management quality has been and remains the key driver of success whatever comes in the reimbursement environment.
Chiarelli also contends that the outlook on healthcare costs is not all bad, both in general and specifically to the Medicare program. Research into the chronic diseases that are becoming more prevalent, such as diabetes, will start to pay off, and the human genome project will unleash even greater gains, he says. All of that research will lead to better drugs, devices and therapies that can control some of the costliest diseases, he says.
Go back 20 years from now: Did we have stents, robotic systems or scanning capability like we have now? Chiarelli says. And the pace has accelerated.
Villwock contends that technology tends to drive healthcare costs up, not down, pointing to the expense of robotic surgery units as an example.
Chiarelli also argues that the aging of the baby boomers isnt necessarily going to mark a huge increase in the costs of the Medicare program. Statistics show that much of the cost of treating an adult comes in the period between ages 42 and 64, or before most of those adults enroll in Medicare, he says. There is also good reason to believe that the baby boomers will be healthier at ages 65 and up than previous generations were, he adds.