The spiraling costs of healthcare have pushed the entire system to the brink. To make matters worse, quality in the US lags other developed economies. This has precipitated a backlash demanding both better care and lower cost. Although the main focus of reform legislation was on improving access through regulation of healthcare insurance, it has implications for the healthcare delivery industry that require truly innovative change. Fee-for-service payment is being openly challenged. The Patient Protection and Affordable Care Act (PPACA, 2010) authorized ongoing experimentation on alternative payment mechanisms that could profoundly alter market dynamics for healthcare delivery. Delivery organizations must now choose to dramatically challenge key assumptions about the care they deliver, or risk their financial viability.

Most hospitals have learned to manage financially with the discounted fee-for-service model that’s been in place, but that’s history. At this point hospitals are facing a payer mix in which government’s share is increasing, while its reimbursement rate continues to shrink. To make matters worse, private payers — no longer free to ride the cost curve up — will more than ever be following government’s lead. With nowhere to turn to recover its losses on government reimbursement, the sector needs to develop new ways to manage costs, and to make good on demands for increased quality.

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