New Health Care Law May Be the Best Medicine
As individuals from every corner of the political spectrum mete out both praise and condemnation following the Supreme Court’s landmark ruling upholding the Affordable Health Care Act, medical providers stand to realize gains as a result of its implementation. If the marketplace experiences the anticipated increases in efficiency and revenue, health care providers are poised to be the “not-so-unintended” beneficiaries of the new law.
At its core, the new law aims to increase the number of insured individuals. Political arguments aside, for purposes of discussion we presume that this aim is a given and that the number of individuals covered by health insurance will, in fact, increase. Based on such reasoning, those entities servicing this newly-increased consumer base (i.e., insurance carriers and medical providers) will need to adapt to the new demands that will be made upon their supply of services.
Similarities abound between the operational dynamics of insurance companies and medical providers. Just as with smaller insurance carriers, some smaller hospitals/providers will need to transform their business models simply to withstand the coming changes, whereas modifying business practices will allow others to flourish. For example, as the new law sets out to increase an individual’s access to preventative medical care, it appears intuitive that this will result in decreased catastrophic inpatient populations.
This fact is not lost on those smaller market hospitals that derive a significant portion of revenue from such inpatient services. In order to counter the anticipated reduction in demand for these services, those hospitals will need to find innovative means of providing a wider array of services. One way this may be accomplished is through mergers and acquisitions, whether joining with larger groups or by banding smaller groups together. Similar to the steps taken by insurance carriers, by pooling their resources hospitals can effectively spread costs associated with the new regulation and maintain profitability while also being able to provide services to an expanding customer base.
Another aspect of adapting to this new model that may lead to increased profits in the hospital market is the reduction in certain administrative costs and savings due to efficiencies of scale. Recent mergers between larger and regional insurance carriers signals greater standardization and uniformity, particularly in customer/patient billing. Hospitals will be poised to improve their efficiencies and reduce staff hours spent on billing (as well as collection from uninsured customers), and reallocate those resources to deal with the increased demand on patient services. Taking their cue from the insurance companies, hospitals can hope to improve their profitability by identifying areas where savings due to increased efficiencies of scale may result in improved margins.
Without speculating on the Act’s effect on uninsured numbers nationally, or whether the law will be modified in the future, the palpable changes in the marketplace suggest increased profitability for organizations that can identify and incorporate changes to their business models which result in efficiencies of scale. If hospitals and medical providers can tap into this concept and adapt it into their operations, (like insurance carriers) they will ostensibly be in a position to not only provide an arguably better product to new consumers, but also prosper through increased revenues and decreased costs.