What is Current & Next for MI Healthcare HFMA Spring Conference May 22, 2014

Marilyn Litka-Klein, vice president, Health Finance

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Michigan Strategic Trends

Pressure on Hospital Margins • A reduced inpatient pie – Long-term trend was downward before health reform efforts with new technologies – Prevention and care coordination to reduce inpatient hospital care – Reduced all cause readmissions – Shift of care to outpatient/non-hospital settings • Uncertain outlook for outpatient revenue and volume – Changing rules with hard-to-forecast impacts: observation versus inpatient status and short-stay reviews – Reference pricing 2

Strategic Trends - Implications

• Increased emphasis on cutting costs, maximizing efficiency, reducing variation, possible elimination of services • Intense competition for market share based on value (Some competition may be played out in the public and private exchanges – e.g., through narrow network products.) • • Physicians and hospitals are improving quality and reducing costs • Different payer pay-for-performance programs

These system level savings should be shared with providers through appropriate programs and contracts with insurers.

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Why Hospital Consolidation?

• Access capital • Reduce administrative expenses • Gain expertise • Retool processes • Increased volume doesn’t equal long-term success without fundamental changes to operations 4

Hospital Landscape Changing

McLaren Health Care

• Cheboygan Memorial – 2012 • Northern Michigan Regional – 2012 • Barbara Ann Karmanos Cancer Center – 2014 • Port Huron – 2014 effective May 1, 14

Spectrum Health

• Memorial Medical Center West Michigan (Ludington) – 2013 • Mecosta County Hospital (Big Rapids) – 2013

Other

• Catholic Health East (CHE) Trinity – 2013 • • Botsford, Oakwood, Beaumont (Pending) UM, Allegiance (Pending) 5

Hospital Landscape Changing – Cont.

• DMC – Vanguard/Tenet – 2011 • Marquette – Duke/LifePoint – 2012 • Bell Hospital & Portage Health – LifePoint – 2013 • Metro Health – Community Health Systems – 2013 • Garden City – Prime Healthcare Services 2014 6

2012 2011 2010 2012 2011 2010

Hospital Average Margins

Patient MI -1.3% -1.1% -1.6% Operating MI 3.4% 3.3% 2.8% US 0.7% -0.3% -0.2% US 6.5% 5.5% 5.5% 7

2000 Michigan US 2011 Michigan US

History of Hospital Volume

Inpatient 57% 65% Outpatient

43%

35% 51% 57% 49%

43%

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Margin – how to find it?

• Median MI outpatient volume is 63 percent • Statewide Medicare OPPS margin is negative 10 percent • Medicaid pays 53 percent of Medicare OPPS 9

Impact of Service Mix

• Hospital operations – split of inpatient and outpatient – vary by hospital • Medicare, Medicaid, Commercial also vary – Reimbursement changes have differing impacts 10

Four Way for Answers to Offset Consolidations

• Provider Price and quality – develop Transparency tool to inform consumers on varying out-of-pocket costs • Narrow provider net works • Reference pricing • Physician organizations – ACO, to move risk from insurer to provider Source: Fierce Health Payer 5/20/14 11

Ambulatory Sensitive/Shoppable Services

• • • • • • Support for review of charge master for media sensitive items – gauze, OTC medications, diabetes supplies, etc.

Software programs, either purchased or internally developed, are utilized by some hospitals to respond timely to requests for information regarding patient liability for services.

Hospitals may have individually chosen to adjust prices on selected ambulatory sensitive services, and see this as a competitive advantage.

Hospitals have designated a central location where phone calls are directed.

Price lists for common items have been provided to staff in the centralized locations.

Ongoing concern by hospitals that actual procedure may differ from the procedure quoted resulting in patient dissatisfaction if their payment amount is higher.

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Ambulatory Sensitive/Shoppable Services – Cont.

• • • • • • One of MHA’s roles is to provide media support for hospitals regarding hospital charges and transparency efforts.

Impact to hospital financial operations of payor contracts tied to gross charges. Challenge for hospitals to renegotiate contracts to minimize negative impact.

Potential impact to hospital executive contracts if measures are tied to gross charges.

A template to estimate financial impact is difficult to develop based on hospital experience.

Charge/payment data on hospital websites is limited but increasing.

Traffic on hospital websites for charges/payment data has been limited, but increasing.

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Hospital Pricing Examples

• TIME article – $7 alcohol prep pad – $18 diabetes test strips – $24 niacin pills – $77 gauze pads • Other over-the-counter items that have charges

unrelated to cost, due to nature of charge master pricing development

– These draw ire of the general public and are difficult to defend 14

Media Sensitive – Partial List

• Over-the-counter drugs – Aspirin, Tylenol, Benadryl, etc.

• Retail supplies – Gauze, ace bandage, etc.

• Some medical equipment – Crutches, oxygen, patient supplies upon admission, etc • Others? 15

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Shoppable Services

• Increase in patients with high deductible health

plans

– Exchange – Employer sponsored • Patients responsible for first $2,000 - $5,000 will

begin searching for lowest cost option for ambulatory items (lab, radiology, physical therapy, outpatient surgery)

– High quality, patient safety scores, and distance may diminish as considerations in lieu of financial savings – Providers with highest price may lose volume 17

Shoppable Services – Partial List

• Radiology – X-Rays, CT, MRI, PET, Ultrasound, Echocardiogram, Mammogram, Bone Density • Surgical Procedures – ACL Repair, Arthroscopy, Breast Biopsy, Colonoscopy, Hernia, Gall Bladder, Endoscopy, Hysterectomy, Knee Replacement, Deliveries Vaginal & C-Section • Others?

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Potential Financial Impact

Inpatient • PPS – patients that are DRG-based payment may not impact margin. May impact Medicare, Medicaid, Blue Cross and other payors that are charge-based – Charge-based patients will have negative impact • Critical access hospitals may have some impact, depending on their payor mix Outpatient • PPS – Reduction to charges may not impact fee-screen payor – Charge-based patients will have negative impact • CAH – depending on payor mix, may impact reimbursement. Also, hospital may need to review contracts to modify reimbursement, if charge-based 19

Price Transparency

• 2013 – CMS publishes prices for 100 common hospital procedures • 2014 – CMS publishes physician payments • 5/14 – Obama administration OK’s use of reference pricing – Requesting comments through FAQ • Center for Studying Health System Change study that price transparency would save Americans $10 billion annually 20

Public Relations Impact

• Potential patient calls asking for pricing information – Where are calls directed?

– Do other employees know where to redirect?

– Or, take information and call per back to avoid multiple transfers • Template for items to be included in media statement 21

Hospital Initiatives to Implement

• Switchboard operators – Know where to direct calls • Admitting/registration – Price list for shoppable services – Price for patients that are insured with high deductible – may be insurance payment vs. hospital charges • Insurance payment data not readily available – Uninsured < 250% of FPL – know that Medicare plus 15% is maximum 22

Hospital Initiatives to Implement – Cont.

• Patient Financial Services – Price list for shoppable services – Price for patients that are insured with high deductible – may be insurance payment vs. hospital charges • Insurance payment data not readily available – Uninsured < 250% of FPL – know that Medicare plus 15% is maximum • Reimbursement – Calculate potential financial impact • Public Relations – Media inquiries – Website update • Others?

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National Median Income

• $52,100, down 6% from 2007 high of $55,200 • $3,100 less to spend on routine expenses, cars, healthcare expenses • Impact of higher deductible health plans 24

High Deductible Health Plans (HDHP)

• Michigan ranks 5 th in enrollment with 578,000 • Illinois & Texas at 900,000 • Ohio 4 th , Minnesota 6 th , Indiana 10 th – IN 92% HDHP for state employees • Nationally 58% of small firms with > $1,000 – 28% of large firms Source: Kaufman Hall 25

Patients with Higher Deductible are Increasing

• Public insurance exchange (272,000 as of May 1) • Private exchanges (70,000 enrolled with Michigan employers as of March 1) • Private exchanges with national employers (Applebee’s, Petco, Walgreens, Sears Holdings,) • Other Michigan-based companies (Meijer, law firms, etc.) • Individual coverage through BCBSM and other insurers ($10,000 or $14,000) 26

Castlight Health

• Transparency tools to large self-insured employers • Encourages cheaper sites of care • 2014 – 56% of employer groups provide price and/or quality transparency tools • Clients include Wal-Mart, Kraft, Safeway, Honeywell, Esterline • Esterline employees saved 33% in medical spending vs. non-Castlight shoppers Source: Kaufman Hall 27

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Healthy Michigan

• • • Enrollment as of May 19 th was 259,000 All counties have achieved enrollment Top Counties by % of Population Enrolled: • Genesee, Ogemaw, Muskegon, Lake, Otsego • Top Counties by # People Enrolled: • Wayne, Macomb, Oakland, Genesee, Kent 31

DSH Payments and Audits

• Beginning with FY 2011 DSH payments: • payments will be recalculated and redistributed using actual hospital data during Step 2.

• hospitals subject to DSH payment recoveries if audits indicate DSH payments exceeded their actual DSH limits. • May 28 recoveries begin • Tax-funded DSH - 60 hospitals additional $11.6 million, 57 hospitals have recovery • GF $45M – 42 hospitals $19.7, 26 hospitals recovery 32

Integrated Care Demonstration Project

• Phased-in implementation of pilot project expected to begin Jan. 1, 2015, although a delay may occur.

• Hospitals responsible to negotiate payment parameters in their contracts. • Regional implementation – 4 regions comprised: – 8 SW counties – UP Macomb County Wayne County 33

Integrated Care Project – Cont.

• In December, the MSA announced the names of plans selected to serve as ICOs with plans currently conducting readiness reviews.

• Simultaneously, CMS approve a MOU to specify the conditions of Michigan’s wavier.

• Two separate capitation rates – Medicare, developed by CMS – Medicaid, developed by MSA • Hospitals required to negotiate contractual terms with individual plans.

– Default payment rates for non-contracted hospitals not yet defined.

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Integration of Individuals Dually Eligible for Medicare and Medicaid

• Michigan one of 15 states • Pilot in Macomb, Wayne, UP, 8 SW MI Counties • Statewide potential enrollment Male Female

Under 65

43,000 50,000

65 +

30,000 77,000 35

Medicare/Medicaid Dually Eligible Statewide Current Funding (in millions)

Inpatient hospital Outpatient hospital Physicians Long-term-care Behavioral health RX Other

Medicaid

$ 40 20 20 2,170 860 20 230

Medicare

$1,700 530 840 370 530 470 36

Medicare Then

• Inpatient and outpatient, mainly inpatient • Annual market basket updates • Additional payments for graduate medical education, indirect medical education, DSH, capital, bad debts 37

Medicare Now

• Inpatient and outpatient, mainly outpatient for many hospitals • Managed care – contracting, administrative burden • Annual market basket updates, offset by negative coding adjustments • Threats of same site payment adjustments, IME and GME reductions, special payment status (SCH & CAH) • RAC audits • Quality reporting • Penalties for readmissions, healthcare acquired conditions, electronic health record usage, value based purchasing • Short stays 38

Existing Legislative Medicare Cuts – Michigan Impact (in millions) Existing Legislative Medicare Cuts

ACA Cuts (all provider settings) Sequestration Cuts (all provider settings) Bad Debt Payment Cuts (all provider settings) Coding adjustment Cuts (inpatient hospital ) and Radiosurgery Payment Cut (outpatient hospital)

Existing Regulatory Medicare Cuts

Coding Adjustment Cuts (Inpatient/home health) Total Impact of Existing Cuts ($6,265) ($1,342) ($118) ($442) ($840)

($9,007) Existing Cuts as a Percent of Total Medicare FFS Revenue

(10 year summary Value)

-10.8%

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Additional Medicare Cuts Under Consideration – Michigan Impact (in millions)

OPD/Physician Payment Equalization-E/M Services OPD/Physician Payment Equalization-Targeted Services OPD/ASC Payment Equalization-Targeted Services Indirect Medical Education Cuts (inpatient hospital) Direct Medical Education Cuts (inpatient hospital) Bad Debt Payment Cuts (All provider settings) SCH Program Elimination (inpatient hospital) CAH Payment Cuts (inpatient/outpatient hospital)

Total Impact of Cuts Under Consideration

($609) (465) (351) (3,276) (802) (948) (809) (670)

($7,930)

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Insurance Exchange Premium Payments

• CMS “guidance” that hospitals shouldn’t pay premiums on behalf of patients • AHA advocacy opposing • BC of NJ won’t accept third party payments. BC of TN close to finalizing policy • BCBSM no position yet 41

Health Care Top Earners

• Health Insurer • Hospital CEO • Hospital Administrator • General Physician • Family Practice Physician • Physical Therapist • Staff Nurse • Emergency Medical Technician Source: NYT 5-18-14 $584,000 $386,000 $237,000 $185,000 $165,000 $ 78,000 $ 62,000 $ 27,000 42

Physician Employment

• 60% of Family practice • 60% of pediatrician • 25% of surgical subspecialties Source: NYT 2/13/14 43

Diabetic Patients

• Rates of heart attack & death from high blood sugar dropped by 60% from 1990 to 2010 – Medications to control blood sugar, cholesterol & blood pressure – Patient education to monitor themselves – Provider tracking & follow-up • Number of diabetes cases have more than tripled to 26 million over the same time period – 79 million Americans have pre-diabetes • Annual cost $176 billion Source: NYT 4/16/14 44

Diabetes & Diet

• Low income diabetic hospitalizations were 27% higher at end of month than the beginning • Could hospitals track their diabetic admissions & determine if proactive efforts could assist • Financial impact of reduced admissions Source NYT 1/6/14 45

Health Toll of Immigration

• Hispanic immigrant health status declines the longer they live in US • Adoption of US behaviors – smoking, drinking, high calorie diets, sedentary lifestyles • Fast food sign of success vs. cooking at home • Economics of supersize 46

Medicaid Surgery Patients

• Medicaid patients arrived in worse health, more complications, longer LOS, higher cost than privately insured • MI Surgical Quality Collaborative, 14,000 pts at 52 hospitals 7/12 – 6/13 • More emergency surgeries – despite having Medicaid Source: NYT 5/17/14 47

Cost of Treatment May Influence Doctors

• American Society of Clinical Oncology – guidelines for decisions based on drug cost or treatments at end of life • Study scheduled for fall 2014 release • Cardiology & Heart Association both recently announced they would use cost data to rate value of treatment • 2013 study found 17 of 30 clinical guidelines for physician societies explicitly integrated cost • New drug for Hepatitis C - $84,000 Source: NYT 4/17/14 48

Health Insurance Benefit Changes

• UPS to end spousal benefits for white collar workers that have other insurance option • Xerox and Teva Pharmaceuticals have surcharges for spousal coverage • City of Terre Haute, Ind. adopted a “spousal carve-out” so that working spouses would not be covered under its health plans • 6 percent of companies with 500 or more employees excluded coverage for spouses in 2012 if their spouses could obtain coverage through their own employer, double the percentage in 2008 49

Hospitals as both Provider & Employer

• Potential increase to volume is opportunity – Medicaid outpatient fee screens 53 percent of Medicare OPPS, MI hospitals have 10 percent negative margin on Medicare OPPS – Cost control ever increasing focus • Employee benefit & relationships – $3,000 penalty cost vs. $15,000 family coverage cost – Who cares for the employee’s best interest?

• Most value health insurance at time of accident or serious illness 50

Area Employer Benefit Changes

• Proactive efforts with employers on healthcare coverage considerations – Deductible – Network • One locality had large employer select insurer that did not have contracts with many/most local physicians • Employee dissatisfaction 51

When There is No Local Family

• Advanced directives • Post-discharge care • Rx • Physician appointments • Activities of daily living 52

Water vs. Soda

• Bottled water sales grew more than 20% every quarter from 1993 to 2005 • By 2019, sales of bottled water will exceed carbonated soft drinks • Considering tap water, water consumption exceeded soda in mid – 2000s • Challenge for Coke & Pepsi profitability – Both sell bottled water • Filtered water fountains at airports & bottle stations Source: NYT 12/25/13 53

MHA Keystone - Results

Quality and Best Information

Intervention

Central Line-Associated Bloodstream Infection Ventilator Associated Pneumonia Readmission Pressure Ulcers Early Elective Deliveries Avoidable NICU admissions Catheter-Associated Urinary tract Infection

Percent Improvement 12% 15% 6% 12% 60% 7% 8%

MHA Resources

• • • • • • • • Monday Report is available FREE to anyone and is distributed via email each Monday morning.

– Go to website and select “Newsroom”, then Monday Report MHA Monday Report – electronic publication issued weekly Request password if you don’t have one.

– Email Donna Conklin at [email protected] to obtain MHA member ID number Advisory Bulletins – Extensive communications available only to MHA members, as needed. (Require password to obtain from website).

Hospital specific mailings as needed for various impact analyses, etc.

Periodic member forums See mha.org for other resources.

Monthly Financial Survey provides free benchmarking of financial and utilization statistics. 55

???Questions???

Marilyn Litka-Klein Vice President, Health Finance, Policy & Health Delivery Michigan Health & Hospital Association 110 West Michigan Avenue, Suite 1200 Lansing, MI 48933 Phone: (517) 703-8601 Fax: (517) 703-8637 email: [email protected]

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