Healthcare providers - beware

Making health care more affordable is the key to making the US system sustainable.

Life, as we know it, in Healthcare provider industry, is going to change soon. And we are NOT talking about the healthcare reform act passed recently by the Congress.
Most Hospitals/Healtcare providers today lose money on standard Medicare and Medicaid services with all profits coming from private insurance payers.

The model has served quite well over the past seven decades – private profits subsidizing public healthcare cost, with support from tax payers to cover the rest. However, this model is increasingly becoming untenable and has started to fray, with full unraveling only couple of decades away, if that.

The basic challenge is changing demographics. As Baby boomers retire in large numbers and high structural employment over the short term, the tax-payer funded healthcare cost payment system will simply implode.

For Healthcare providers, the trends are ominous – they will face an increasing percentage of the client from Medicare/Medicaid pool (rising from current 45% to 65% over next 20 years) while the average reimbursements from tax-payers declining. The resulting situation will blow a hole in their balance sheets.

While there are 3 key strategic challenges facing the US healthcare industry:
1. Economic distortion due to employer funded insurance market that directly reduces individual incentives to self-ration healcare i.e. moral hazard;
2. Lack of Transparent data on cost and effectiveness of various healthcare providers, treatment options and medications
3. High administrative cost due to lack of uniform data exchange standards
the one challenge that Health care providers can tackle/solve on their own for their own financial well-being is reducing the administration cost.

The days of simply passing on the cost to private insurance payers ($100 for Kleenex tissues, anyone?) are rapidly coming to an end.