Healthcare consolidation: challenge and opportunity
Adresa
Strada Barbu Văcărescu, Nr. 301-311
Cladirea Clădirea Lakeview
020276 Bucureşti, Sector 2
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+40-21-225 3000
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+40-21-225 3600
Website
www.pwc.com/ro
The private healthcare market in Romania is still booming, despite the prolonged impact of the global recession and cuts in government healthcare spending.
This growth is partly in response to the constant underperformance of the public healthcare system over the last 20 years. Several major problems have constantly plagued the public healthcare system, including long waiting lists, clinical errors, unaccountability of medical practitioners and a lack of coordination between generalist and specialist physicians. As problems with the public system worsened, the new generation of the workforce underwent a behavioural shift and started to gain trust in private healthcare services, which were initially supported by employer subscriptions. Although initial expectations for success in private healthcare services were relatively low, this gradual change in consumer preference continued as more patients had access to high quality primary care. This shift took place against the backdrop of a public sector in continued decline. Meantime, the public healthcare system had little incentive to change.
Key drivers for change
It is a fact that the public healthcare system needs more than money. What it needs, as well, is structural changes in relation to the very substance of the services offered and the coordination of delivering such services. If a patient suffers from several diseases (as it is often the case), multidisciplinary investigations and coordination among specialists are needed. The patient needs guidance and communication links between the general practitioner and the hospital’s clinicians. In other words, somebody has to manage the treatment process. The role should be taken over by the medical providers. There are only several emergency public hospitals which have strong professional teams in intensive care units (ICU) able to deliver integrated care. The system should run effectively as a whole. In this context, some steps, as listed below, may trigger significant improvements for the healthcare system:
SIX STEPS FOR IMPROVING THE HEALTHCARE SYSTEM
1. Firstly, people should be educated about the need for the system to change. They should become sensitive to medical performance and to the metrics that are required to measure such performance. For the time being there is a huge knowledge gap between service consumers and medical professionals. This generally leads to a poor understanding and misappraisal of the medical services. The proposed solution is the introduction of a co-payment system, under which paying patients may behave as consumers and request service improvements. One alternative might be the creation, popularisation and implementation of a performance metrics tool and appraisal process.
2. A necessary second step relates to economies of scale. There are city hospitals across the country which experience chronic underuse, resulting in poor and uneconomic utilisation of resources (practitioners and equipment). From a medical perspective, the professionals employed by such units have insufficient exposure to a wide enough range of situations to gain relevant experience, develop their skills, increase their credibility and authority, and by doing so, strengthen their hospital’s position on the market. That is why a rationalization of the number of city hospitals, based on utilization and reputation related metrics, is required.
3. Third, access to private healthcare services should be increased. This might be primarily driven by the increased involvement of private companies, first employers, then life insurance companies, in funding the system. Such involvement should trigger an increase in the number of individuals who have private life and health insurance and benefit from private healthcare services. Access to private services could be subsequently driven by improved living standards and increased disposable income.
4. Fourth, the mix of medical services, both private and public should be preserved. While private services are voluntary and tend to be low-intensive care, critical and complex care is regularly addressed by public hospitals. The current mix allows the best professionals to work both in the private and public sectors and keeps them motivated to provide high quality medical services. The mix supports an increase of the overall effectiveness and system performance, with doctors mainly driven by financial incentives when delivering private services and by professional recognition when delivering public services.
5. The fifth step should be about sharing knowledge, managing resources, avoiding isolated work and facilitating the basic delivery of services out of the hospitals and closer to people’s homes. This may contribute to an improvement in service quality and better resource allocation and management. Once single structure management is achieved, the setting of budgets and resources, care services and performance appraisal should be managed in an integrated manner, nearer to the community.
6. Last but not least, the system should benefit from an early performance measurement both in the patient area (even for outpatients) and in medical area. Good professionals are still reactive to the measurement of their activity or comparisons with benchmarks. Once they will understand the metrics and the process, they may reach higher professional standards. The key to increasing performance seems to be the creation of a competitive environment, but does increased competition apply to the healthcare system as well? Greater competition might ensure wider access to the healthcare services, while improving quality and cutting costs.
In healthcare, the optimal level of competition depends on the nature of services delivered. For highly specialist care, the competitive landscape should be narrowed down in order to preserve appropriate quality and efficiency, and to avoid excess supply. Strong competition could be an effective mechanism for mass and less specialist services (outside the hospital).
The competitive landscape in healthcare services
Generally speaking, competition creates an environment designated to deliver faster, better and cheaper. The question is whether this is desirable for the healthcare sector. To a certain extent it is, but with careful consideration of some specific aspects, most importantly:
- Cultural fear that, for providers, competition may give private operators access to public funding, which may sooner or later result in the increase of the general pricing of the medical services;
- Patients’ limited understanding and access to medical information, as mentioned before; therefore, they cannot easily select suitable providers and, consequently, freedom of choice may not result in service quality improvements.
If we look carefully at the impact of competition in private healthcare, the effects might be both on price and quality. While pricing is volatile due to the wide range of medical services provided, an impact on pricing should be expected when the competition becomes sharp and intense. In the meantime it appears that demand for private healthcare isconsiderably higher than supply, therefore, the pricing level is strongly influenced by suppliers. In long run, the quality of service may experience a decline rather than an appreciation as competition increases. For the time being, the suppliers are the market rulers, as the demand for quality services is higher than the overall capabilities of the medical system.
To judge the impact of competition we should consider the business model and size, entry and exit requirements, as well as the ease for patients in switching between medical providers.
Where the business model requires high investment, competition should be lower given the higher risks undertaken in order to implement the business model and to achieve the desired results. The higher the investment, the greater the need to reach critical mass both in economic and clinical terms.
For example, in mass medical services (e.g. general practitioners business) the level of investment and overall costs are low and the professionals’ training does not require high specialisation. Good practice can be maintained with a large number of patients in order to secure the quality of medical services. The patients can switch relatively easily between providers. That may result in high competition given the relatively low entry barriers in the system, relative ease in recovering the costs and initial investments while medical staff can preserve satisfactorily clinical expertise and delivery standards, considering the wide number of patientswho require such services. The higher the competition, the more improvements in services might be achievable.
For highly specialized services, the investment commitment is considerably higher in order to build up from scratch the required medical infrastructure. The number of medical cases is lower, requiring greater medical expertise. As a result, specialist services require higher patient concentration in order to ensure sufficient medical staff exposure to the limited number of cases, as well as to preserve the appropriate quality of medical intervention. The entry barriers are higher and they require economic scale in order to support the return on investment. A highly competitive landscape in specialist medical services might not be suitable as it results in the dilution and dispersion of medical capabilities. Due to the economic subscale, it leads in the long-run to failure to recover the initial investment, resulting in the impossibility to fund the replacement cost.
The main competitors in the healthcare system have to aim for the appropriate competition level, in line with the business model prevalent in their relevant market and the medical services to be delivered. That may enable them to take advantage of the current market status and to build up a more effective structure. As the private sector providers are paid at a higher rate than the public operators, they should basically deliver better quality. The access to the public funding should be open both to the private and public healthcare providers, driven by delivery class. The performance scale and metrics should allow patients who do not receive the desired or expected quality in public services to switch to the private sector, even if this is genuinely more expensive, but presumably more able to deliver in a shorter time-frame or at a better quality.
This way, the system will most likely increase the capacity both in public healthcare (even if undermined by poor performance, it might be motivated to secure patients), while private healthcare may have greater access to public funding (if public medical services do not comply with the metrics), which may strengthen their medical capabilities. That may result in a change of the system’s dynamics towards a competitive landscape based on tailored access to public funding, both in public and private areas.
MEDICAL SYSTEM CATALYSTS
To create a sustainable competitive landscape, the medical system needs catalysts and support in several areas:
1. Payment system: access to public funding needs to be aligned, with the clear aim of supporting the provision of quality services. The current changes in regulations will facilitate a stronger and direct link between each patient and the corresponding service received. It will avoid random allocation of costs to virtual patients or treatments. The medical units will really have to deliver in order to access the funds. Unnecessary procedures should not be repaid and the implementation of operational audits may limit the excess in reporting and requesting funds for pointless medical care. This kind of measures will introduce selectivity and facilitate objectivity in assigning acute medical cases to the primary sector, both for inpatients and outpatients. The reimbursement should reward excellence in medical practice, from prevention and diagnosis to recovery and monitoring. The quality-adjusted fee will reshape the desired outcomes.
2. The investment in primary capability and capacity will contribute to the efficiency and effectiveness of the medical system through the creation of a pool of competitive non-acute providers. The new competition area will push the existing providers to improve their capability in medical care and delivery quality, in operational performance and resource management.
3. Facilitate an easy selection of the service provider and ensure quality of such providers. The patients’ capability to easily switch between providers is a critical trigger for the improvement of services. The regulations and procedures should not limit the possibility for choosing the supplier and should motivate patients to request and get value for their money. In the providers’ area, the system should reduce the restrictions for new joiners and ease the exit or the change management of poor performers.
4. Feedback system: implementation of an accurate monitoring system may provide the healthcare sector with the required mechanism to actively take improvement decisions. That’s critical in order to recognise issues and optimise resources allocation, as well as in identifying and sharing the relevant knowledge and practice. The key is to manage the collection from reliable sources, to professionally process and use the outcomes, to guide and motivate performance.
