Health Care Reform in the United States 4 Corners MGMA Conference April 2014 Karl Rebay, MBA, FHFMA Director, Health Care Consulting 1
The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought. 2
HEALTHCARE ECONOMICS AND POLITICS 3
COST OF HEALTH INSURANCE Source: Kaiser Family Foundation 4
WE RE NOT QUITE GETTING WHAT WE PAY FOR Source: OECD Adapted from data provided by the WHO 5
HEALTH CARE IS AN ECONOMIC PROBLEM Total 5.9 6.7 7.8 8.6 10.2 11.7 13.6 13.5 15.6 17.3 17.4 19.3 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% National Health Expenditures as a % of GDP All Other NHE Medicare & Medicaid 7.6% 5.1% 6.2% 6.6% 4.3% 4.2% 3.0% 2.6% 1.6% 2.1% 1.1% 5.9% 5.6% 6.2% 6.5% 7.6% 8.7% 9.3% 9.3% 10.6% 11.1% 10.8% 11.6% 1965 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 Source: Congressional Budget Office (CBO) Revised estimate is 22% by 2038 6
HEALTH CARE COST U.S.A. OECD Practicing physicians per 1,000 population 2.4 3.1 Medical graduates per 100,000 population 6.6 10.3 Physician consults per capita 3.9 6.5 MRIs per 1,000 population 91.2 46.6 CT exams per 1,000 population 227.9 131.8 Hospital discharges per 1,000 population 130.9 158.1 ALOS 4.9 7.2 Obesity % of total population 35.9% 22.2 Source: OECD 7
ARE HEALTH CARE COSTS REASONABLE? 2013 Wheelchair Base Chair Price $10,995 Power seat 10 travel $2,845 Street light $1,028 Joystick $539 (minimum) Controller $1,120 Power seat $5,995 (up to $11,395) Many other options are required/prescribed by fitters at least $4,500 Total of about $26,500 2009 Mini Cooper S 200 hp (optioned) 177 lb-ft torque 2,700 lbs Front wheel drive Navigation About 30mpg average Price of about $26,000 with options 8
ACA UPDATE 12
THE QUICK LIST FOR EMPLOYERS Small business tax credits are available now o < 25 FTE; < 50k avg wages; 50% premium credit o $792 billion between now and 2024 2013 Medicare payroll tax increase o 0.9% increase in employee portion of FICA tax (> $250k) 2013 Medicare tax on unearned income o 3.8% on net investment income (>$250k) 13
WHAT IS FORTHCOMING... January 2015 is the new start for employer requirements which assesses a fee of $2,000 per full-time employee, excluding the first 30 employees, on employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit 2/11/14 Treasury department announces suspension of employer penalty to 2016 for firms with 50 to 99 employees and those with more that offer benefits to 70% of employees 23% increase in federal match for CHIP program Cadillac Tax on high cost insurance programs starting in 2018 ($108 billion 2018 2024) 14
EMPLOYER MANDATE OVERVIEW Effective January 1, 2015 (one year delay) Penalties apply to Applicable Large Employers Two types of penalties: o No Coverage Penalty - $2,000 o Non-Qualified Coverage Penalty - $3,000 Penalties are not deductible 15
PERCENTAGE OF ALL FIRMS OFFERING HEALTH BENEFITS, 1999-2013 100% 90% 80% 70% 60% 66% 68% 68% 66% 66% 63% 60% 61% 59% 63% 59% 69%* 60%* 61% 57% 50% 40% 55% 57% 58% 58% 55% 52% 47% 49% 45% 50% 47% 59%* 48%* 50% 45% 30% 20% 10% 0% All Firms Firms with 3-9 Workers 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *Estimate is statistically different from estimate for the previous year shown (p<.05). NOTE: Estimates presented in this exhibit are based on the sample of both firms that completed the entire survey and those that answered just one question about whether they offer health benefits. The percentage of firms offering health benefits is largely driven by small firms. The large increase in 2010 was primarily driven by a 12 percentage point increase in offering among firms with 3 to 9 workers. In 2011, 48% of firms with 3 to 9 employees offer health benefits, a level more consistent with levels from recent years other than 2010. The overall 2011 offer rate is consistent with the long term trend, indicating that the high 2010 offer rate may be an aberration. SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2013. 16
Millions Trapped in Health-Law Coverage Gap: Earning Too Little for Health-Law Subsidies but Ineligible for Benefits Under Existing Medicaid Programs - Christopher Weaver, Wall Street Journal 17
EXCHANGE PREMIUM EXAMPLE Unsubsidized Premium $8,300 40-year old nonsmoking parents with 2 children; $50,000 sole earner Tax Credit Net Premium Paid -$4,900 $3,400 **Figures are for example purposes only and not directly from Covered California. 18
ACO UPDATE 19
THE PATH TO HEALTH CARE SUSTAINABILITY Incentives must be aligned to promote behavior Clinical integration & care coordination drive quality Quality promotes health & is a means to efficiency Quality and efficiency through coordination and incentive alignment are the means to a better system. 20
ACCOUNTABILITY SPECTRUM Rewards Patient Volume Rewards Patient Health Specialty Care Focus Goal: Maximize Revenue Primary Care Focus Goal: Optimize Revenue - Efficiency Through Quality 21
ACO STATISTICS Over 600 ACOs now exist nationwide (1) 35 advanced payment model ACOs 32 original Pioneer ACOs 23 in 2014 60% of US health systems are NOT adopting an ACO CMS Innovation activity still in full swing o 8 primary care transformation Innovation Models 22
ACO SMALLER GROUP EXAMPLE Primary Partners o 55 physician group in central Florida; o 7,500 lives o Limited technology because of cost o Focusing on better coordination of care o Emphasis on patient education and satisfaction o Entered into cooperation agreements with several local cancer treatment providers 23
ACO ALTERNATIVES Intermountain Health pilot - 25% of physician compensation based on quality measures Charleston Area Medical Center Plug and play model o Too small to afford full ACO o Focusing on coordination efforts o Investing in IT o Exploring payment models with payors Sanford Health Shared savings agreements with private payers 24
ACO ALTERNATIVES Esse Health 70 primary care physician group decided to start its own health plan o Has 40,000 MA members o Analyzed the opportunity o Implemented a care-management and data IT system that allows it to control costs and coordinate care CIGNA Collaborative Care o Builds on ACO experience o Allows smaller providers to take part Small group and unorganized physician practice pilots 150 small hospitals signed up o Likely part of narrow-network strategy but does provide incentives to members providers to share in savings generated. 25
ACOS - CRITICAL SUCCESS FACTORS IN PLAIN ENGLISH Understand your patients, their needs and conditions. This is what physician organizations do every day and is the most important piece of the puzzle. Communicate with other providers to maximize information sharing which in turn can enhance the entire patient experience (beyond faxing a face sheet). Implement systems to support connectivity with patients - mid-level practitioners, MAs, nurse case managers, consider taking emails! Be thorough about contracting. Payors want to do this and are willing to share savings. Consider starting with an upside-only agreement focusing on hospital stays, pharmaceutical spending and quality measures. Contract based on hard data. Be prepared to do detailed H&Ps on all new patients assigned to you. If you re a specialist organization be sure to get all information you can from primary care and the health plan. 26
ACOS - HOW TO GET STARTED Think innovation start the conversation with other groups. Specialist organizations can drive this process. Consider an IPA or other risk-based model where there is proven success. Be thoughtful about organizational SWOT perform gap analysis. Then prepare the organizational systems needed (not just IT) to build on strengths and focus on the gaps. Make sure you have the analytical capabilities either internally or via a third party. Don t assume you need the most expensive EMR system to be successful. Consider working with a MA plan to get started. Seniors often have the most upside because they are more compliant patients and because of cost history. 27
PHYSICIAN EMPLOYMENT 28
PHYSICIAN EMPLOYMENT DRIVERS Established Physicians o Declining reimbursement vs. largely guaranteed income o Challenging administrative considerations o Safety and marketplace uncertainty o Access to capital New Graduates o Work-Life Balance o Desire to just practice medicine o Understanding of administrative challenges 29
PHYSICIAN PRACTICE OWNERSHIP TREND Solo Practice Physician Ownership 76% 58% 61% 56% 53% 41% 29% 23% 25% 18% 1983 1994 2001 2008 2012 Source: American Medical Association, Policy Research Perspectives: New Data On Physician Practice Arrangements: Private Practice Remains Strong Despite Shifts Toward Hospital Employment; Kane, Emmons 2013 30
DEMAND FOR PHYSICIAN SERVICES Revised physician labor supply shortage estimate o 91,500 by 2020 o > 60,000 PCPs Source: AAMC 31
PHYSICIAN COMPENSATION Source: Medscape Physician Compensation Report: 2012 32
HOSPITAL PERSPECTIVE ON PHYSICIAN EMPLOYMENT Can indeed effectively align incentives Ability to optimize care coordination o Clinical information sharing o Technology/communication o Supply chain Physician preference (e.g. implants, etc.) becomes less of an issue o Supplies o Fixed assets o Overall resource allocation Physicians more focused on care; not so focused on administrative issues (can be good and bad actually) 33
THOUGHTFUL STRATEGY DESIGN Physician businesses should be run like they are meant to be run...which isn t anything like the way you run hospitals. o Be sure to explore motivations on both sides Does the hospital just want market-share and to integrate because it is simple? - Because it isn t! Do the physicians want out of all administrative duties? Because that s not logical! Don t implement material changes until you ve calculated impact and risks o Small balances matter o Keep physicians interested in the administrative side of the business o Changes in tax IDs wreak havoc on collections 34
WHAT SHOULD PHYSICIANS AND HOSPITALS REALLY BE CONCERNED WITH? Logical compensation structure o Productivity Good but not if it s the only component o Accountability for cost This is key and can be accomplished in many ways o Administrative support Timely charting (wouldn t get paid if you didn t do this as a solo) Assistance with protocols Ex: Standardized charge sheets 35
DRIVERS OF AFFILIATION Defensive position - reactionary o Weak market position o Financial problems o Market trends what everyone else is doing o Fear of the future Offensive position - strategic o Position of strength o No burning platform (maybe smoking a bit) o More forward thinking Sustainability Clinical enhancements Enhanced market presence 36
HEALTH CARE M&A ENVIRONMENT 37