A new year brings new challenges and opportunities - Viewpoint - year 2002 healthcare industry forecast - Brief Article - Editorial

Healthcare Financial Management, Jan, 2002

Remember the beginning of 2001? As of January 1 of that year, we did not know who was going to be President of the United States. After a roller-coaster ride of recounts and legal challenges, the U.S. Supreme Court essentially decided the election in favor of the Republican candidate, George W Bush. And, although it was by only a razor-thin margin, the Republicans also controlled the Congress. As a result, many thought the Republican agenda would dominate congressional action. Tax relief, education reform, Medicare reform (including some type of outpatient drug benefit), and overall streamlining of the government were part of that agenda.

Although tax relief was achieved, little else of consequence was finalized. This inactivity was due in part to the actions of Republican Sen. Jim Jeffords of Vermont, who left his political party to become an independent. His decision gave control of the Senate to the Democrats and marked the first time in history that control of one of the houses of Congress switched during an active session.

The tragic events of September 11 also had an impact on national priorities. Most organizations implemented or refined security and disaster-recovery plans, and many people lost their jobs as the economy sank into recession. The Federal budget surplus shrank and potentially could become a budget deficit because of lower tax revenues and increased expenditures for the war effort, unemployment benefits, and enhanced security.

Given these new realities, what should healthcare financial executives expect in 2002?

Traditionally, healthcare provider organizations see an increase in patient volume when the economy becomes soft because many workers who lose their jobs will seek services before their employer-sponsored health insurance runs out. Also, higher unemployment increases the number of individuals available to take healthcare jobs, thus reducing some salary and benefits packages. Nurses and other highly skilled healthcare workers can be expected to continue to be in short supply however.

On the other hand, a weaker economy forces employers to manage their health insurance costs more closely, and may cause a resurgence of more restrictive managed care contracts and/or increased employee cost sharing. In addition, it is likely that the number of uninsured persons will increase, which will put added pressure on the financial capabilities of healthcare organizations to care for these individuals.

Finally, a weak economy reduces tax receipts for state and Federal governments, and generally forces them to reduce expenditures. Since the Medicare and state Medicaid programs are major payers for most providers, the potential for cutbacks in payments increases as the economy weakens.

Increased attention to disaster preparedness is another important issue. According to the American Hospital Association, without additional resources, a major nuclear, biological, or chemical attack would severely challenge the healthcare system's response. As of the end of 2001, it was doubtful that substantial, additional disaster-response resources will be forthcoming from the Federal government. It is clear, however, that the public expects an effective response in the event of such an attack.

All of these challenges appear overwhelming. But as is true with all challenges, opportunities also abound.

A real opportunity for healthcare organizations to demonstrate their value to their communities would be to help craft a community disaster-recovery plan and be a visible participant in its enactment. As shown by the public donations after the September 11 attacks, the public is willing to fund appropriately community resources that demonstrate their value, especially in cases of emergency.

Another opportunity for healthcare organizations to demonstrate their value is for them to adopt a market-based approach to patients and consumers. Most experts agree that consumers increasingly are directing their own healthcare coverage and service decisions. Given the potential for increased employee participation in selecting health plans and/or cost sharing, it is critical that healthcare organizations develop a patient/consumer-focused philosophy to medical and administrative activities. The Patient Friendly Billing Project (see the December 2001 HFM, pp. 56-60) shows how this type of philosophy for patient financial communications can be fostered.

Hopefully, 2002 will not be as tumultuous as 2001. Nonetheless, the environment healthcare organizations must work in is changing rapidly. And for each challenge, we need to find opportunities that will help us make a difference.