Healthcare organizations are contending with myriad changes — including declining government payment, regulatory changes on the state and federal levels, shifting demographics, and changes in payment structure — any one of which could cause dramatic shifts in their revenue models. Taken together, these changes could cause havoc for an organization if not anticipated and navigated correctly. Increasingly, providers are identifying these changes as key factors in a trend toward revenue degradation and significant margin challenges. Beyond creating significant risks, however, the uncertainty around revenue drivers presents providers with an unprecedented opportunity to redefine and shape their revenue models for the years to come.
The forces affecting the healthcare industry across the country are compelling administrative and clinical leaders to make critical strategic, financial, and operational decisions with respect to how and where patient care will be delivered in the future, and how their organizations will achieve the margins required with a shifting (and often deteriorating) revenue mix. Such trends will increasingly require leaders to consider how their organizations will be paid for patient care services by site of care, as well as how they will maintain operating margins.
A provider’s revenue model represents the operating framework that it uses for generating revenues. For providers, the primary source of operating revenue comes from health plans (both public and commercial), and it is more generically referred to as their payer mix by fiscal class.
The complexity of changing rates and shifting volumes and demographics has created increasing uncertainty for provider organizations regarding their current and future revenue models. The revenue model has become even more complex with the introduction of value-based payment and its wide-ranging impact on provider organizations’ overall operating and care delivery models.
Any provider that lacks a well-defined revenue model strategy integrated with clinical operations will almost certainly have difficulty maintaining margins, investing in growth, and sustaining operations. Conversely, a provider that has a well-defined, strategically aligned, and forward-looking revenue model plan in place is in a position to manage future transitions profitably and predictably. Such a plan can empower a health system to maintain or improve margins, invest in strategic growth opportunities, and sustain overall enterprise economics.