Cost Pressures Trigger More Consolidation in 2012

In 2012 hospitals will have to simultaneously figure out how to increase patient volumes while combating limited capital and rising costs.

As hospitals and physicians transition to fee-for-value they will have to combat rising costs, limited capital and facilitate new alliances and mergers. According to The Camden Group’s Top Trends in Healthcare in 2012, new care models will take a hold of the industry while health care reform advances and the economy remains sluggish.

The economy and high unemployment will mean physicians will see soft patient volumes. Both the employed and unemployed will continue to defer treatment whenever possible, according to the report.

However, medical groups and hospitals will have to cope with the fact that wage rates will rise at least 3% and utility, supplies and drug costs will increase at least 10%. At the same time Medicaid payments are flat, Medicare is up less than 2% and many health plans are limiting increases to less than 5%.

As a result, one of the top priorities for hospital CEOs will be to cut costs. According to the report hospitals must cut operating expenses by 10% to 20% in the next three to five years in order to survive. Other top concerns for CEOs are driving volume and hospital-physician alignment.

By 2020, the report says that most states will have very few true independent hospitals without some type of alliance. Instead, states will have a few large hospital systems.

During 2012, care model changes toward medical homes and bundled payments will accelerate. Hospitals will focus a lot of attention and capital on new IT, such as meeting meaningful use standards and developing HIEs.

"While these are unsettling times for health care, uncertainty cannot be an excuse for paralysis," says Steven T. Valentine, president of The Camden Group. "The reality is that health care reform is locking into place on schedule, and we expect it to continue as presently configured. Preparing to accept and manage financial risk for a defined population is a core competency that providers must develop in the next three years."