Palazzo explained that the particulars of healthcare reform are still uncertain. The Supreme Court is likely to hear cases related to the Patient Protection and Affordable Care Act, and it is unknown as to how it will rule; the upcoming presidential election is another variable.
But those involved in the healthcare industry would do well to prepare for the change now rather than wait and see what happens later. "I propose that the victim approach isn’t going to be a winning strategy in the long term,” Palazzo explained. Physicians and the industry can almost certainly expect more competition and lower reimbursement rates, so taking on a victim mentality is counterproductive. Entities that will be the most successful should embrace the philosophy that the "best way to predict the future is to create it," Palazzo said. The most successful entities will be able to leverage scale, he added. “Whatever their market position is now, they should maximize and develop that.”
He advocated aiming to make money on Medicare reimbursement, even though that can be difficult. “Try to develop technologies that improve affordability,” he said. “Start with the end in mind. Pinpoint solutions that immediately target cost reduction."
Healthcare providers must reduce the rate of costs to maintain their margins, Palazzo said. “Revenue is going to decline, but [by] how much?” Because industry can safely assume some degree of increased pricing pressure over the long term, he said, “if we don’t deal with costs, our margins could shrink. They could even go into the red if we don’t control costs,” he added. “Generally speaking, every 1% reduction in rate requires a 5% reduction in variable costs.” Small changes in reimbursement will require a multiple reduction in costs to maintain margins. There should be a focus to steer away from any avoidable costs.
"You've certainly heard of Charles Darwin and 'survival of the fittest,' " Palazzo said. "It certainly will be one of those times where it is survival of the fittest." He said entities that survive and thrive in the long term will need to have the following:
Palazzo later mentioned that he doesn't think the pressure to contain costs on the device side will let up soon.
Image from iStockphoto