Cost cutting double-edged sword for health care organizations, UMass Medical School expert says

July 13, 2017

As efforts mount to rein in relentlessly rising medical costs, there are “going to be winners and losers” among health care organizations as they grapple with an inevitable decline in revenue, says UMass Medical School’s Robert W. Seifert, MPA.

Health care spending now accounts for nearly a fifth of the nation’s economy after years of steadily rising costs, prompting a number of public and private initiatives aimed at lowering the price curve.

There is growing experimentation around the idea of shifting the health care system away from a fee-for-service approach, where more procedures equal more revenue, according to Seifert.

Instead, there is a move towards “accountable care health communities” where payments are more closely aligned with results in terms of the patient’s overall health, Seifert says.

But the efforts to cut costs and retire the old fee-for-service model will also have serious implications for health care organizations around the country, some of which may wind up struggling in the new environment, says Seifert, principal of the Center for Health Law and Economics at UMass Medical School.

“It is always important to remember that one person’s costs are another person’s revenue,” Seifert says. “If you are trying to squeeze costs out of the health care system, there are going to be winners and losers. There are going to be people whose revenue will suffer as a result of this.”

In fact, “smart organizations” are already anticipating this change “and planning for how they will make do with less,” Seifert says.

Overall, health care spending has risen to between 16 and 18 percent of the nation’s economy, he notes.

Still, there remains a major wild care in this equation – politics.

The fact that so much of the nation’s economy is tied to health care spending means there are significant dollars at stake.

And that could fuel political opposition to efforts to cut costs and make the health care system more efficient.

“It raises the issue of politics and how difficult it will be in some cases to squeeze costs out of the system if the political opposition to that is sufficiently strong to prevent it from happening,” Seifert says.

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