ASK ENLACEDual Financial Pressures on Payers and Health Systems: The Growing Challenge of Specialty Care
Healthcare organizations are feeling the squeeze from both sides. Payers, particularly large ones like Anthem and CVS, are struggling with increasing financial challenges as medical loss ratios (MLR) rise, affecting their profitability. Each financial reporting quarter – Q1, Q2, Q3 – has revealed escalating costs, pushing some of these companies to take drastic actions, such as closing retail locations, in an effort to reduce financial strain.
At the same time, health systems are also facing financial challenges. Historically, systems have received positive information from Centers for Medicare & Medicaid Services (CMS) providing consistently dependable shared savings funds. However, as 2023 results are currently being reported, the CMS shared savings programs have taken a downward turn, resulting in lower shared savings payments. Increased costs, staff shortages, lower CMS payments, and overall inflation are creating a perfect economic storm for already financially strained health systems.
Specialty Care: The Financial Culprit
Specialty care, which accounts for roughly 70% of healthcare spending, is widely recognized as a major driver of financial burden. The challenge lies in controlling and managing this care more effectively. Unlike primary care, which operates within a defined, capitated framework that payers and systems can manage, specialty care remains episodic, variable, and lacks a consistent approach to delivery and oversight, making it difficult to control costs.
Key areas within specialty care – such as orthopedics, cardiology, oncology, and gastroenterology – are significant drivers of both utilization and cost that all parts of the ecosystem are working to manage. These high-cost services are particularly challenging for payers and health systems to control. Unlike primary care, which typically follows a defined and manageable path, specialty care can involve unpredictable treatments that lead to skyrocketing expenses.
The Urgent Need for Action
Payers and health systems are now at a critical crossroads, facing a perfect storm as an aging population drives utilization of specialty. This surge in specialty utilization is significantly impacting medical loss ratios (MLRs), creating ripple effects throughout the entire healthcare system. Without swift action, the financial strain and operational challenges will continue to worsen, leaving both payers and health systems vulnerable to further instability.
Insights and Data: The Missing Piece
One of the essential keys to developing, launching, and scaling successful specialty care programs is achieving in-depth visibility across all specialty categories, down to the provider-level analytics. While healthcare has vast amounts of data, the challenge lies in aggregating and translating that data into meaningful, quantitatively sound insights. These insights are key to empowering all stakeholders – payers, systems, providers, and patients – to participate in healthcare’s finance, risk, and quality in a more proactive and aligned manner.
To build effective specialty care programs, the data must be transformed into actionable, insightful information that supports utilization, cost, and risk management. Unlocking insights related to provider performance, patient outcomes, and utilization patterns is critical for creating programs that drive better outcomes at the most effective cost. With these insights, healthcare organizations can now build programs ranging from simple retrospective programs to episodic care models and even total cost-of-care programs. Programs with alternative payment models (APMs) align incentives for all stakeholders, ensuring a more balanced and efficient healthcare system.
The Path Forward
To combat the financial tsunami hitting healthcare, driven largely by the rising costs of specialty care, it’s clear that continuing down the same path is not sustainable. The key to creating real change lies in achieving full visibility and understanding of the entire specialty care ecosystem. Healthcare organizations must unlock the value of their data to benefit the broader system. By first understanding how specialty care operates, payers and health systems can then begin building the transformative programs necessary to control costs, improve outcomes, and create a sustainable future.
References:
Hospitals Face Financial Pressures as Costs of Caring Continue to Surge
Community Health Systems logs $391M loss in Q3, dragged down by payer denials, higher expenses
CHS reports losses due to hurricanes, payer denials, increased workforce expenses