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Premier: Population Health Shift Causing Healthcare Orgs to Increase Spending

October 29, 2015
by Rajiv Leventhal
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Healthcare organizations’ capital budgets are on the rise as C-suite leaders look to effectively manage population health, according to the Charlotte, N.C.-based Premier Inc.’s Fall 2015 Economic Outlook survey.

Premier conducts the biannual survey to highlight economic and industry trends affecting health systems. Specifically, when asked about capital budgets compared to last year, nearly 60 percent of health system C-suite survey respondents—primarily CEOs, chief financial officers and chief operating officers—said they plan to increase their capital spend this year. Of those increasing capital expenditures, 39 percent reported increases of 10 percent or more—more than quadruple the number of health systems citing these increases a year ago.

The majority (72 percent) of C-suite respondents agree that they are successfully managing the transition from fee-for-service reimbursement to alternative payment models. However, the move to alternative payment models also requires heavy investments, with start-up fees estimated at $1.7 million, as well as maintenance and administrative costs between $6 and $14 million, according to Washington, D.C.-based research firm Urban Institute, referenced by Premier.

For the past five years, Premier members reported the most significant capital investments in health IT, which remains the largest area of added investment, cited by 72.2 percent of C-suite respondents. Other top areas of capital investment include facility renovation, cited by 51.9 percent of respondents, and imaging equipment, cited by 44.4 percent.

When asked about population health investments over the next three years, C-suite respondents reported a strong focus on expanding capabilities to provide patient engagement in health and personal care (54.7 percent), followed by care management for chronic diseases (53.8) percent), wellness programs (51.9), creation of physician and multi-specialty groups (49.1 percent), patient outreach and reminders (47.2), and advanced population health data analytics (46.3 percent).

What’s more, other trends cited in the survey included the development of post-acute care networks. Ninety percent of respondents indicated that they will expand their post-acute care network over the next three years.  

“The enactment of the Affordable Care Act brought reimbursement cuts and increased pressure on health systems to tightly manage budgets,” Michael J. Alkire, chief operating officer, Premier, said in a press release statement. “Six years later, that pressure continues as well as the pressure on providers to transition from the historical fee-for-service environment toward alternative payments, such as shared savings and bundled payment. The shift requires that health systems make new investments in infrastructure and high-value care networks to deliver better outcomes, as well as manage risk-based contracts and less reimbursement.”

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Population Health or what we used to call Continuum of Care is going to cause an increase in spend in preventative care (out patient/non-acute). Industry and GPOs are going to have to prepare for more spend in these area. A CT Scan/MRI, etc. may be purchased through a GPO, but the main use may end up being for outpatient diagnostics. The CEO of Geisinger had a nice quote a few weeks ago about developing health care delivery model focused on closing hospitals and hospital beds. Patients will still need certain surgeries, etc., but the goal is to manage the patients better in out patient settings. Care needs to/will be better coordinated through sites of care. Kaiser has developed this model and 80% of their drug budget is outpatient, for example and they have been develloping a hospital at home model.


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