Pessimism pervades the national dialogue surrounding healthcare reform. Despite fixes to the federal exchange website and marked improvements in enrollment, politicians and pundits continue to assail the Affordable Care Act (ACA), offering grim predictions about the future of healthcare after its implementation. The law, they claim, is an unworkable train-wreck. It will produce a healthcare system with significantly higher costs, lower quality, and bureaucratic confusion.

The public has seemed equally pessimistic. Fifty-four percent of Americans, according to a recent poll, believe the ACA will have a negative impact on the healthcare system, compared to only 24 percent who anticipate a positive impact. Nearly three-quarters expect the quality of healthcare to decline or stay the same, while only 11 percent expect it to improve. More than half expect costs to rise while only 9 percent expect them to fall.

Such pessimism, however, is hardly a credible predictor of the success or failure of the ACA. Politicians, pundits, and the public are largely removed from the inner workings of the healthcare system, so it is difficult for them to form an accurate, 360-degree view of reform. Moreover, most Americans (70 percent) readily admit they know little about the ACA or its potential impact.

A more meaningful source for an appraisal of healthcare reform, and for predictions about how it will fair, would be individuals who are especially informed—people who have spent their entire careers on the front lines of the healthcare system deciding how budgets are managed and how care is delivered—people like the leaders of America’s hospitals and health systems. Healthcare reform is catalyzing major changes for these executives and their institutions. Wouldn’t it be helpful to know if they share the public’s apprehension and pessimism?

Recently, we surveyed 74 C-Suite executives from large hospitals and health systems across the United States. The executives were either part of the University Health System Consortium or the National Association of Children’s Hospitals, and they received emails asking them to participate. Our respondents included 46 CEOs, 17 Presidents, 4 CFOs, 3 COOs, and 4 individuals with other leadership titles. Nearly all of them were managers of large academic medical centers. Their institutions, on average, employed 8,520 workers and had annual revenues of $1.5 billion.

The differences in attitudes were stark. Unlike politicians, pundits, and the public, the leaders of America’s leading hospitals and health systems are optimistic about reform (Figure 1). Fully 65 percent indicated that by 2020, they believe the healthcare system as a whole will be somewhat or significantly better than it is today. And when they were asked about their own institutions, the optimism was even more dramatic. Fully 93 percent predicted that the quality of care provided by their own health system would improve. This is probably related to efforts to diminish hospital acquired conditions, medication errors, and unnecessary re-admissions, as encouraged by financial penalties in the ACA.

On cost control there was similar optimism: 91 percent forecasted improvements on metrics of cost within their own health system by 2020. The vast majority, 85 percent, expected their organization to have reduced its per patient operating costs by the end of the decade. Overall, the average operating cost reduction expected was 11.7 percent, with a range from 0 percent to 30 percent (Figure 2). Most executives believed they could save an even higher percentage if Congress enacted legislation to accelerate the shift away from fee-for-service payment toward models like bundled payments. In such a case, the executives projected average annual savings of 16.0 percent, which, if applied across the healthcare system, would amount to savings of nearly $100 billion per year (Figure 2).

How can such savings be achieved? Hospital executives foresee three strategies rising to the top: reducing the number of hospitalizations (54 percent), reducing the number of readmissions (49 percent), and reducing the number of emergency room visits (39 percent). Other likely sources included reducing costs for medical devices (36 percent) and drugs (27 percent), along with improving back office efficiency (23 percent) (Figure 3). These leaders believe that savings can be found through a combination of greater administrative efficiency, price reductions, and reduced reliance on hospital services.

They also identified a variety of ways the federal government could further facilitate cost reduction in hospitals. Roughly a third of respondents (31 percent) identified setting a specified timeline for transitioning Medicare reimbursement off of the fee-for-service payment system as a policy change that would facilitate cost control. Another 30 percent supported aligning payment policies between Medicare and private insurers, and 28 percent supported separating funds for training and research from Medicare payment and maintaining current funding levels.

Even without further changes in federal policy, hospitals are initiating significant changes aimed at controlling cost growth. Every respondent indicated that his or her institution has undertaken new initiatives to improve care delivery for chronically ill patients within the last two years. They are utilizing electronic health records and predictive analytics to intervene before patients are admitted to the hospital. They are reorganizing their support staffs to enable more effective remote care management, allowing healthcare to move out of the hospital and into the home. They are constructing team-based, integrated systems that enable physicians to focus on value, not simply volume. And many are already seeing positive results in quality and/or cost. As Medicare recently reported, there have already been measureable reductions in the hospital re-admission rate, likely due to initiatives like these.

Among respondents who were pessimistic about the ACA’s impact on the healthcare system, the primary problem identified was administrative complexity. Half of executives who believed reform will not improve the system cited “persistent administrative complexities beyond the institution’s control” as the greatest barrier to their organization reducing operating costs. They were also wary of misaligned reimbursement incentives. One executive cited the “short sightedness of payers who lack [an] incentive to focus on long term patient quality of life and cost because of [the] need to satisfy quarterly returns to shareholders.” Others bemoaned the “lack of payment for coordination services” and the “lack of continuum-of-care reimbursement.”

It is easy to be pessimistic about reforming the healthcare system. Change causes unpredictability and therefore anxiety—and anxiety makes people pessimistic. Indeed, for the leaders of America’s flagship hospitals, it would be particularly easy to adopt a pessimistic outlook. Funding for their research missions has been declining. Support for their teaching mission is under threat. Payments for patient care are facing downward pressure, forcing them to transform their business models. Yet hospital leaders appear to be optimistic about the future of the system.  Even those who were pessimistic were mostly worried about problems that have plagued the healthcare system since long before the ACA—like administrative complexity and misaligned incentives.

Leaders on the front lines of American healthcare appear to believe that the gravest challenges facing the system today—high cost and uneven quality—are surmountable. They expect that by 2020, their own institutions, and the system at large, will be better, both in terms of cost and quality. If we work together to implement sensible reforms, in the near future the healthcare system will be better than it is today.

FIGURES (Click to enlarge):

Figure 1. Hospital Executives’ Views of the Future of the Health Care System

Questions

As a result of the passage of the Affordable Care Act and the Supreme Court’s ruling on its constitutionality, by 2020, do you believe the US health care system will be…?

As a result of the passage of the Affordable Care Act and the Supreme Court’s ruling on its constitutionality, by 2020, on metrics of quality, do you believe your health system will be…?

As a result of the passage of the Affordable Care Act and the Supreme Court’s ruling on its constitutionality, by 2020, on metrics of cost, do you believe your health system will be…?

Figure-1

Figure 2. Hospital Executives’ Outlook on Possible Savings in Operating Costs

Questions

What percentage of per patient operating costs do you think your organization will have saved by January 2020 compared to its 2012 performance?

Now assume Congress enacts legislation to accelerate the shift away from fee for service medicine towards models like bundled or episode-based payments… By the end of the decade, January 2020, what is the maximum percentage of per patient operating costs that you believe your organization could save compared to its 2012 performance?

Figure-2

Figure 3. Most Likely Sources for Operating Cost Reductions

Questions

If your organization’s payers incentivized you through some type of risk-based contract to reduce expenses, what do you believe are the three most likely ways your institution could reduce operating costs?

Figure-3

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