The 2012 healthcare industry has a lot going for it. A great demand for services and a host of new products contribute to its growth. In fact, a 3.8 percent growth in revenue for the industry is expected this year, according to Fitch Ratings. The ratings firm predicts a year of stability for most healthcare companies.
But all is not rosy for the healthcare industry, which faces serious challenges this year, despite the launch of new medical devices and drugs.
A widespread uncertainty exists amid clamoring for the industry to become more inclusive and affordable. Healthcare legislation and industry-driven initiatives are needed. As the U.S. population ages, the industry faces shortages in key areas, particularly primary-care physicians.
Doctors, analysts and healthcare CEOs gathered at a recent healthcare forum hosted by Huron Consulting Group to discuss the challenges. A report, “Leading Through Transformation: Top Healthcare CEOs' Perspectives on the Future of Healthcare,” was produced after the forum.
“The immense operational and financial challenges healthcare leaders are facing would be daunting for executives in any industry,” said Gordon Mountford, an executive vice president at Huron.
Here are some of the issues that are troubling doctors and healthcare executives, as well as others looking at the field.
Changing the industry’s business model from volume to value
How to deliver affordable, value-based care is a problem without a good solution right now.
“The government is out of money and will no longer be able to go further into debt funding healthcare, said Christopher Olivia, senior vice president for strategic planning and new-venture development at Highmark, at the forum. "We’re in a rate/volume business model today that will not survive.
"We’re not going to get to the ‘new normal’ by marginal changes. We need some big ideas.”
Changing the model for delivering care
The industry is being pushed to change the way it thinks about delivering care. The CEOs said that the vast majority of hospitals are not set up to do things differently. To figure this out takes time and money.
Partnering with doctors
Healthcare executives need to develop relationships with doctors, who obviously play a key role in the industry. Partnering with doctors often doesn’t happen effectively. If hospitals and other medical facilities are to change, better relationships are needed.
If the industry is to shift from a volume model to a value model, it has to cut at least 20 percent of costs from the system.
“We are definitely moving toward fixed or bundled payment and away from making margin on volume,” said Dan Wolterman, president and CEO of Memorial Hermann Healthcare System.
“Long-term cost reduction in the range of 20 to 25 percent will be necessary to make a return on what will be a sharply increasing Medicare patient mix and ongoing recessionary and consumer-driven cost pressures," according to a December 2011 analysis by the management consultancy Booz & Company. "As scary as this number may be, leading players will get there and will be rewarded.”
Coping with a shortage of doctors
The average starting salaries for doctors in family medicine is $138,000. Compare that to $225,000 for general surgeons and $315,000 for orthopedic surgeons, according to a 2011 survey. Because doctors leave medical school with $150,000 to $200,000 in student loans to repay, many pursue specialties that pay better. The result is a shortage of family doctors and pediatricians.
Planning for growth
The healthcare industry has to serve more people. The U.S. population is aging. A population with disabilities, many of whom are unemployed or under-employed, is growing rapidly. This is particularly worrisome because people who are aging or disabled require more care.
Pushing healthcare reform
Few people expect resolution to the issues this year. But the consensus is that healthcare reform will change the industry, its very structure as well as its business models, according to the Booz & Company analysis.
“The same forces that shaped our industry for the last 30 years will continue to drive fundamental change,” the analysis stated. “A de facto consensus is emerging that the traditional structure of the industry’s sectors and its business models must change.”
Mark Di Vincenzo is a journalist with 24 years of experience and a New York Times best-selling author. Mark blogs for Contently.
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