Value-based Contracts Expected to Hurt Profits

The introduction of value-based contracts is expected to hurt profits, according to a survey of healthcare industry managers and executives.

The KPMG survey of 240 representatives from hospitals, physician practices, health plans, and pharmaceutical companies, found 33% of managers said value-based contracts would likely negatively impact profits. More than 12% of respondents expect operating income will fall at least 10%.

"Ultimately, all stakeholders who drive their organizations to achieve efficiency in operations, quality outcomes, adoption of supportive technology, and a patient-centric culture, will not only survive but see their margins grow in the future,” Cynthia Ambres, MD, partner and member of the KPMG Global Healthcare Center of Excellence, said in a statement. “Building the bridge to that future is the key now."

Nearly half (49%) of respondents from hospitals, health systems, and large physician groups expect lower operating profits.

Just more than a quarter (28%) of respondents said greater use of disease management, placing a larger emphasis on helping patients manage chronic illnesses such as diabetes and cardiovascular disease, is the most significant change resulting from value-based contracts. Another 19% said the biggest change is a greater reliance on nurse practitioners and physician assistants.

“The Affordable Care Act, as well as general market conditions, are forcing providers and managed care companies to respond to the need for greater efficiency, access to appropriate sites of services and quality of services provided in healthcare,” Joseph Kuehn, a partner at KPMG’s healthcare advisory practice, said in a statement. “Some of these changes will come from rethinking patient care delivery, but technology and advanced clinical information systems are a large part of making this overhaul sustainable, as well.

Kuehn added that the changes will reduce today’s fragmented delivery of care system through a greater coordination of care between physicians, hospitals, pharmacies, and other providers.

Clinical information technology is expected to have the biggest impact on quality of care and patient outcomes, according to 31% of executives and managers, followed by financial performance (15%), clinical operations (13%), and patient engagement (7%).

“Implementation of electronic medical records is one of the initial steps in healthcare information technology, catching errors and duplicate treatments, and providing a vehicle to share information amongst providers,” Kuehn said. “Caregivers can now gain insights into the best course of treatment for patients, who may have very complex medical conditions.”