Jeff Schneider is a partner in the health regulatory practice group at Hogan Lovells, focusing on transactions and regulatory counseling involving health care providers, such as hospitals, academic medical centers, skilled nursing facilities and home health agencies.. We asked him to identify some of the hot topics facing hospitals and academic medical centers today. Here are his top five:
Health care is likely the most regulated industry in America. Every single thing health care providers do, from the way they treat the patient to the way they document that treatment to the way they bill for it—even the way they purchase supplies—is subject to fairly extensive regulation. We help clients set up the infrastructure they need to be compliant, and also advise them when there is a problem.
As reimbursements go down and costs go up, the industry is getting squeezed. Part of the issue is that the way hospitals and academic medical centers get reimbursed is changing from fee for service to value-based pricing. That means that instead of just being paid for procedures, facilities and physicians are being paid based on outcomes and on their ability to control costs.
Increasingly, hospitals are looking to employ physicians directly so that they are part of the hospital infrastructure. That way, all parties are all aligned on controlling costs and improving quality. Since hospitals and physicians are increasingly being paid on the basis of outcomes for which they are both responsible, it makes great sense to have them be part of the same organization. Additionally, physicians want to get out of operating their own practices because it’s becoming too costly and too administratively burdensome. So these forces have aligned to make hospitals seek to employ physicians—and physicians to seek to be employed by hospitals—to a greater extent than ever before.
Closures and Consolidations
To be successful in the current climate – where managing population health is key and it is becoming increasingly important to spread increasingly large administrative costs — you need to serve a patient population of a certain size; if you don’t have that you need to explore a merger with another institution.
The other option is to close, which is also happening more often than in the past. Some areas are extremely hard hit with closures. For example, in Brooklyn – which would be one of the 5 or 6 largest cities in American if it were a stand-alone city — there are about 12 or so hospitals and about 10 of them are either failed or failing. That is a function of several things. For one, a healthy hospital has about 50 percent of its costs devoted to labor; but in some areas of New York, like Brooklyn, it’s more like 70 percent. That doesn’t leave much room for capital expenditures on equipment upgrades and other improvements, or even routine maintenance. Also the proportion of revenue coming from Medicaid as opposed to Medicare and private insurance is high, which affects the bottom line. Malpractice judgments also tend to be higher in certain areas, which adds greatly to costs.
Academic Medical Centers – To Own or Not to Own a Hospital
Whether a university medical school should own its own hospital is a big issue. When universities do own their own hospitals often they find that they are not that adept at running them, and/or the hospitals begin to become such a large part of the University’s operation that they threaten to overwhelm the University’s overall mission and other functions. On the other hand, if a university does not own its own hospital it loses control over the training site for its students, which is also problematic. So trying to figure out what’s optimal in each case is a big challenge. The current trend is for universities to move away from owning their own hospitals, but each circumstance is unique.
Watch the above video to learn about these hot topics and how they’re affecting the industry.
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