The Peak of Change

Navigating through the ceaseless changes in health care.

By John Sievers, MPH, MHA

This spring, I vacationed with my family in Mesa, Arizona, where we took advantage of the numerous hiking trails winding through Superstition Mountains. Our most story-worthy adventure involved a trail that leads to the top of Flat Iron Mountain and boasts a varied difficulty rating between “moderate” and “intense.” Getting to the top required that we leave behind a clearly marked trail—because it ended halfway up the mountain—and navigate the rest of our journey by trial, error, and instinct. More than once my family and I had to back-track and pursue another path, but the reward was well worth the effort; the view of Phoenix from atop Flat Iron Mountain and the sense of accomplishment that came from making the journey was truly unbeatable.

This experience is not unlike navigating the ceaseless changes in health care, specifically as they relate to the many business models for physical therapy service delivery. There are stretches of time when it seems like we are on a clearly marked trail, headed in a sure direction—then without warning the trail disappears, and we are left to find our own way to the top.

As frustrating as this may seem, we have only just begun the climb. Physical therapy delivery models face a wealth of change in the near future, including payment methodology, physician alignments, development of provider networks, and the consolidation of health care systems.

The general agreement is that the health care industry’s current state is not sustainable, and while most recognize that the next five years will look nothing like the last five, how to position and pursue the best course of action is still not a clearly marked path. With the specific details and timing of change unknown, physical therapy owners are hesitant to craft a clearly defined strategy. They recognize that they are facing huge decisions for the future of their company, but are reluctant to act amidst so many fluctuating variables.

Looking ahead, three industry trends are likely to take root in the coming months, which will affect the future environment for nearly all physical therapy centers.

Changing Trends in Health Care

1. Payment will decline. Medicare and commercial payors face increased rate regulation, tougher medical loss ratio requirements, and the establishment of health insurance exchanges, which increases transparency and forces premiums downward. Given these pressures across the major payor classes, payments to facilities will suffer.
2. Alternatives to fee-for-service payment will become more prevalent. Commercial payors, Medicare, and state agencies will continue to refine alternative payment concepts that transition from fee-for-service towards pay-for-performance, episode-based bundled payments, and population-based reimbursement.
3. Increased availability of provider-specific information on the price for a specific health care service. As health care costs continue to rise, purchasers will focus on strategies that can bring costs under control. These pressures have facilitated a movement by many purchasers to engage consumers more fully in their health care decisions, including taking on a greater share of their health care costs. In their efforts to manage costs, health care purchasers—including large employers—recognize consumers need information on both health care price and quality.

As these trends evolve and begin to affect practice owners, the most critical change may be the degree and pace of transition from volume-based payment schemes to value-based alternatives.

Even facing this change, many facilities will choose to stay the course and hope for the best, especially in markets where net payment is favorable and owners are still enjoying strong profit margins. Regardless, the options you elect to implement or reject will go a long way in determining the future sustainability of your company. As you consider what route to take for yourself and your facility, keep in mind the market variables, which change as frequently as the market itself.

MARKET VARIABLES

• Analysis of net revenue per visit both current and trending
• Evaluate payor mix and individual contractual fee schedules

• Review of year-over-year patterns and future forecasting
• Determine potential to reduce expenses—both fixed and variable

• How will organizational restructuring of referral sources affect your facilities?
• Assess potential impact of Accountable Care Organizations (ACOs) and bundle payment arrangements

• Your ability to maintain and grow same store volume
• Effect of high deductible insurance plans and Health Savings Accounts (HSAs)

Fortunately, despite the changes and the variables within them, you have many options to position yourself and your physical therapy facility to gain a competitive advantage. While every possibility needs to be weighed against your long-term personal and business objectives, I recommend that independent physical therapy facilities consider expansion and growth strategies, mergers and acquisitions, integrated network alignment, or succession planning.

BUSINESS MODEL DELIVERY OPTIONS

• Focus on increased case volume and payment
• Determine cost/benefit of offering new service lines
• Offer carve-outs with self-insured and commercial insurers

• Target local/regional market competitors
• Potential to create greater value for future monetizing transaction
• Leverage economies of scale with respect to billing, software, and human relations.

• Evaluate various options available in your market
• Determine competitive advantages that local networks could offer
• Assess Professional Services Arrangements (PSAs) with health systems

• Determine best course of action to monetize ownership
• Target current employees for potential succession strategy
• Develop 2 to 3 year plan of action to transition

The bottom line is to prepare for everything. You cannot know when your paved trail will end, you cannot determine which obstacles will cross your path or when, and you cannot always know the variables you will have to address when considering how to position (or reposition) your facility. Take time to review market trends and studies and align your practice with a group that has in-depth understanding of what is going to affect health care change and how it will wind its way to you.

The journey ahead will transition facilities to compete and there will be difficult stages along the trail. But it is still possible to reach the top. There is always an alternate route—find one that makes it possible for you to keep pressing forward.