Desire for cost savings driving key trends in healthcare market

The healthcare market has seen significant changes during the pandemic as patients have rethought how they receive care, including opting for more telehealth and delayed elective procedures, but patient care is now returning to normal as patients return to the office. However, payers are working to reduce the cost of care to lower health care costs and keep premiums low to remain competitive, driving key changes.

Ambulatory surgery and home care

Surgeries are increasingly moving out of hospitals and into outpatient settings, where patients are discharged the same day and the cost of care is much less expensive than an acute care hospital stay. Ambulatory surgeries result in less time spent in the expensive acute care setting, reducing costs to the payer. Home care is also growing as patients are being discharged to a less expensive home care facility earlier in the continuum of care rather than being referred to a more expensive skilled nursing facility or rehabilitation facility.

Consolidation of medical practice management

Private equity and larger platforms are looking to consolidate physician practices to achieve scale, lower costs and achieve greater bargaining power with payers. Physicians are motivated to sell to integrate with an organization that has more capabilities in terms of claims processing systems, as well as to achieve more efficient claims processing management, greater business development capability to acquire practices and adding ancillary services and a focus on clinical medicine instead of paperwork.

Because many private practices are smaller (one to four doctors), the area is ripe for consolidation as private equity groups can buy practices at bargain ratios and grow them over the holding period, streamline operations and invest in new locations. Another driver of consolidation was the recent shift to electronic health records as a result of the HITECH Act. The technology investment for small physician practices was significant, and many smaller practices decided they did not want to shoulder the burden and cost of these systems, prompting them to merge, join a larger practice, or seek a buyer.

Doctors are moving to hired models

Physicians in private practice, overwhelmed by the burden of managing a practice, therefore choose to work for a hospital or private equity-backed medical group rather than own their own business. This relieves them of administrative burdens (billing, staff management, lease negotiation, etc.), and the salaried position allows them to spend more time with patients.

Transitioning to value-based care

In a traditional fee-for-service billing model, healthcare providers bill payers based on the specific services provided. There is now a growing shift to value-based care, where health care providers charge based on patient outcomes in order to reduce overall health care costs and improve care, helping to ensure that the cost of services is commensurate with the actual outcome delivered to the patient.

Capital contracting is another alternative to fee-for-service reimbursement models where the provider contracts with the payer (insurance company) for a fixed payment per member/per month for their entire covered life in a specific geography. This approach works to help prevent fraud and abuse by discouraging the excessive usage that can occur in a fee-for-service model.

Increased price transparency

As required by the new legislation, hospitals and other providers are being forced to improve patient billing transparency, allowing consumers greater opportunity and convenience to shop around for lower-cost health care when they discover they will be billed high surcharge, for example.

Telehealth

Telehealth gained popularity during the pandemic; although as the pandemic subsides, there is a growing trend for patients to return to personal care. However, some specialties still lend themselves to telemedicine (such as psychotherapy), where costs can be reduced because care can be provided without facility overhead.

The technology allows for less invasive surgeries

On the medical device side, technology is now allowing traditionally invasive surgeries to be performed in other ways, such as treating problems that previously required open-heart surgery instead of a catheter. This allows surgeries to be performed more cheaply and faster recovery times, which means less time in the hospital and an overall more positive patient experience.

Solutions for the provider, payer and patient

Healthcare payers strive to align reimbursement with patient outcomes. New service models and emerging technologies are being used in the marketplace to achieve these goals and control healthcare costs.

For John Calcanini

John Calcanini is a managing director in the healthcare practice of Stout’s Investment Banking Group. John has extensive experience with mergers, acquisitions, joint ventures, restructurings, leveraged buyouts, recapitalizations, and equity and debt financings. He has completed more than forty transactions in the healthcare industry across a variety of sectors, including medical devices and diagnostics, healthcare services, biotechnology and specialty pharmaceuticals.