Transcript Slide 1

Philanthropy
Leadership Council
State of the Industry
Market Trends at the Intersection of
Philanthropy and Health Care
NACCDO
April 25, 2013
Michael Hubble
[email protected]
5
Giving on a Slow Rebound?
Change in Charitable Contributions1
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Overall
2008
2009
2010
To Health Organizations2
2011
1) Adjusted for inflation.
2) Includes clinics, hospitals, health related research facilities , disease-specific organizations for
research or patient/family support, mental health services or research, and health policy centers.
2008
2009
2010
2011
Source: Giving USA 2011: The Numbers; “U.S. charitable giving shows modest uptick in 2010 following two
years of declines,” June 20, 2011, available at: http://www.philanthropy.iupui.edu/news/2011/06/prGUSA.aspx; Philanthropy Leadership Council analysis.
6
The Real Picture
Change in Charitable Contributions
Indexed to 2007
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To Health Organizations
2007
2008
1) Adjusted for inflation.
2) Includes clinics, hospitals, health related research facilities , disease-specific organizations for
research or patient/family support, mental health services or research, and health policy centers.
2009
2010
2011
Source: Giving USA 2011: The Numbers; “U.S. charitable giving shows modest uptick in 2010 following two
years of declines,” June 20, 2011, available at: http://www.philanthropy.iupui.edu/news/2011/06/prGUSA.aspx; Philanthropy Leadership Council analysis.
7
Three Flashpoints in Health Care Policy
Event Timeline
November 2012:
• Economy issues central to elections
• Medicaid budgets influence state elections
• Potential House & Senate majorities shift
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Supreme Court Ruling
June 2012:
• Individual mandate upheld
• Medicaid expansion upheld, but
states may “opt out” without impact
on existing Medicaid funds
2012 Elections
End-of-Year Budget Debate
December 2012:
• “Doc fix” worth $18B set to expire
• Bush tax cuts set to expire
• Federal government hits debt
ceiling limit of $16.39T
• $1.2T Sequester cuts take effect,
including 2% cuts to Medicare
• Debt ceiling deal further cuts
spending
Source: Advisory Board interviews and analysis.
8
Health Care Likely On the Chopping Block
But Little Agreement on How
Distribution of Spending in
2012 Budget (Estimate)
Possible Approaches to
Reducing Health Care Spending
Other
Health Care1
Interest
on Debt
12%
Eligibility changes
Provider rate cuts
Decreased
supplemental payments
Fraud, waste
reduction
Cost shifting to
beneficiaries
Payment model overhaul
(i.e. voucher system)
8%
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29%
27%
24%
Social Security
Defense
1) Includes spending for Medicare, Medicaid, CHIP, substance abuse and mental health services,
National Institutes of Health, and Food and Drug Administration.
Source: www.whitehouse.gov; Health Care Advisory Board interviews and
analysis.
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Hardly a More Critical Time of Need
Hospitals and Health Systems Under Immense Margin Pressure
Hospital Operating Margins
Moody’s Rated Hospitals
> 5%
17%
20%
< 0%
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0% – 5%
63%
Source: Daily Briefing, “Moody's: Hospital revenue growth at 20-year low, in 'critical condition‘, August 10, 2011, http://www.advisory.com/DailyBriefing/2011/08/10/Moodys-Hospital-revenue-growth-at-20-year-low-in-critical-condition; Daily Briefing, “Moody's: Hospital downgrades return to credit
crisis levels,” July 18, 2011, http://www.advisory.com/Daily-Briefing/2011/07/18/Moodys-Hospital-downgrades-return-to-credit-crisis-levels; Moody’s
Investor Service, “Moody's: Not-for-profit hospitals face revenue reductions across the board,” August 9, 2011, available at: http://www.moodys.com/
research/Moodys- Not-for-profit-hospitals-face-revenue-reductions-across-the?lang=en&cy=global&docid=PR_224301#; Advisory Board analysis.
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Four Forces Shaping Future Margins
Financial, Clinical Profiles Shifting Dramatically
Decelerating
Price Growth
• Federal, state budget pressures
constraining public payer price growth
• Payments subject to quality,
cost-based risks
Continuing Cost
Pressure
• No sign of slower cost growth ahead
• Drivers of new cost growth largely
non-accretive
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• Commercial cost shifting
stretched to the limit
Shifting
Payer Mix
• Baby Boomers entering Medicare rolls
• Coverage expansion boosting
Medicaid eligibility
• Most demand growth over the next
decade comes from publicly
insured patients
Deteriorating
Case Mix
• Medical demand from aging
population threatens to crowd out
profitable procedures
• Incidence of chronic disease,
multiple comorbidities rising
Source: Health Care Advisory Board interviews and analysis.
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Decelerating Price Growth
New Baseline Already Challenging
Affordable Care Act Significantly Reduces Public Payments
Impact of Affordable Care Act on Provider Rates
Cumulative Federal Revenue from Decreased
Medicare and Medicaid DSH Payments
$22.0 B
$110 B
$17.0 B
$14.0 B
Cuts to Medicare
Fee-For-Service rates
$12.6 B
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$36 B
Cuts to Disproportionate Share
Hospital (DSH) payments
$8.4 B
$7.6 B
$3.6 B
$0 B $500 M
2014
$1.1 B
2015
$3.5 B
$1.7 B
2016
Medicare
2017
2018
2019
Medicaid
Source: US House of Representatives, “Amendment in the Nature of a Substitute to H.R. 4872, as Reported,”
accessed March 18, 2010; US Senate, The Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act,” accessed December 24, 2009; Health Care Advisory Board interviews and analysis.
12
Decelerating Price Growth
Cost-Shifting Possible, But For How Long?
Commercial Subsidy Under Ever-Greater Pressure
Payment-to-Cost Ratios, by Payer1
134.1%
”
2009 Ratio
Private Payer
Running on Empty
“If we could squeeze more
out of our payers, we would.
But I don’t think there’s much
left to squeeze.”
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CEO
2000
1) Includes Medicaid Disproportionate Share Hospital payments.
Medicare
90.1%
Medicaid
89.0%
2009
Source: American Hospital Association Chartbook, available at:
http://www.aha.org/aha/research-and-trends/chartbook/index.html, accessed
April 26, 2011; Health Care Advisory Board interviews and analysis.
13
Decelerating Price Growth
Deceleration in Private Payer Pricing Likely
Pressures on Commercial Pricing
1
2
Regulatory scrutiny of
premium increases
intensifying
Exchange-based
coverage diluting average
commercial price
4
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3
Quality performance
risk increasingly
prevalent
Employers
increasingly willing to
restrict choice
5
New payment models
demanding utilization
management
Source: Health Care Advisory Board interviews and analysis.
14
Continuing Cost Pressure
Long-Term Cost Growth Continuing
Market, Regulatory, Demographic Pressures Mounting
Expenses per Adjusted Admission
Drivers of Continued Cost Growth:
$10,045
Market pressures pushing up
unit costs of labor, other inputs
$6,509
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$4,588
Overhead expenses swelling
as new IT mandates take hold
Cost Growth,
1989-1999:
3.6%
1989
Cost Growth,
1999-2009:
4.4%
1999
2009
Aging, sicker population
requiring increasingly complex,
costly care pathways
Source: American Hospital Association Chartbook, available at:
http://www.aha.org/aha/research-and-trends/chartbook/index.html, accessed
April 29, 2011; Health Care Advisory Board interviews and analysis.
15
Shifting Payer Mix
Baby Boomer Surge Beginning
Medicare Rolls in Line to Increase Dramatically
2011 US Population Distribution By Age
75 M Baby Boomers
~7,000/day
Newly eligible Medicare
beneficiaries
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23%
Percentage of
population covered
by Medicare in 2030
Source: U.S. Census Bureau, available at: http://www.census.gov,
accessed on September 13, 2011; Kaiser Family Foundation, available at:
http://www.kff.org/medicare/h08_7821.cfm, accessed on September 13,
2011; Health Care Advisory Board interviews and analysis.
16
Shifting Payer Mix
Moving Ever Closer to Single Payer
Medicare to Constitute Majority of Discharges by 2021
Inpatient Volume by Payer Class
2011
2021
0.3% Self Pay
Self Pay
5%
Commercial
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Commercial
37%
35%
27%
Medicare
52%
Medicaid
Medicare
20%
22%
Medicaid
Source: Health Care Advisory Board interviews and analysis.
17
Shifting Payer Mix
Future Demand Will Not Fund Capacity Expansion
Even at Current Prices, Public Payments Fail to Cover Total Costs
Average Payment Relative To Cost1
By Payer
Medicare, Medicaid volume
growth unable to finance
capacity expansion
134%
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100%
Commercial
1) Fully-allocated costs.
2) Includes Medicaid Disproportionate Share Hospital payments.
90%
89%
Medicare
Medicaid2
Source: American Hospital Association Chartbook, available at
http://www.aha.org/aha/research-and-trends/chartbook/index.html, accessed
April 26, 2011; Health Care Advisory Board interviews and analysis.
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Deteriorating Case Mix
More Medicine On the Horizon
Public Payer Volumes Composed of Predominantly Medical Cases
Medical and Surgical Shares of Volume, by Payer
Commercial
Surgical
Medicare
Surgical
39%
Surgical
27%
61%
Medical
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Medicaid
24%
73%
Medical
76%
Medical
Source: Health Care Advisory Board interviews and analysis.
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Deteriorating Case Mix
Chronic Disease Growth Outpacing Population Growth
Projected Increase in Chronic Disease Cases
2003-2023
62.0%
53.0%
39.0%
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29.0%
41.0%
54.0%
19%: Projected
population
growth, 20032023
31.0%
Source: Milken Institute, available at: http://www.milkeninstitute.org/
pdf/chronic_disease_report.pdf, accessed April 27, 2011; Health Care
Advisory Board interviews and analysis.
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Deteriorating Case Mix
Shift in Case Mix Posing Powerful Margin Threat
Destabilizing our Second Pillar of Cross-Subsidy
Inpatient Contribution Income
Weighted Per-Case Average
$6,110
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$2,927
Surgery
1) Top quartile by share of inpatient discharges paid by
Medicare or Medicaid.
Medicine
Source: Medicare Cost Reports; Health Care Advisory Board
interviews and analysis.
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Welcome to Pleasantville
Average Care for Average People
Case in Brief:
Pleasantville Hospital
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Key Characteristics
300
2.2%
73%
Number
of beds
Operating
margin
Medical share
of case mix
• Health Care Advisory Board
model hospital
• Revenue, cost, and operational
inputs based on national averages
• Inputs adjusted to forecast impact
on future financial performance
• Offers insight into relative
opportunity of pulling various
margin improvement levers
Source: Health Care Advisory Board interviews and analysis.
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The Unsustainable Acute Care Enterprise
An Untenable Future Without Major Improvements
Overall Impact of Market Forces at Pleasantville
2022
2.2%
Projected
Operating
Margin, 2022
Current
Margin
4.0%
• Health Care Advisory Board
model hospital
• Revenue, cost, and operational
inputs based on national averages
Goal
19.8%:
Total
Gap-to-Goal
Includes effects of:
• Price growth trends
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Case in Brief:
Pleasantville Hospital
• Cost growth trends
• Payer mix shift
• Inputs adjusted to forecast impact
on future financial performance
• Offers insight into relative
opportunity of pulling various
margin improvement levers
Key Characteristics
• Case mix deterioration
300
2.2%
73%
Number
of beds
Operating
margin
Medical share
of case mix
(15.8%)
Source: Health Care Advisory Board interviews and analysis.
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Achieving the New Performance Standard
Inaction Not an Option
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Nine Imperatives for Achieving
the New Performance Standard
1.
Maximize Revenue Capture
2.
Excel Under Performance Risk
3.
Bend Labor Cost Curves
4.
Standardize Clinical Care Pathways
5.
Redesign Inpatient Care Models
6.
Build Effective Capacity
7.
Reassess Supply of Less Profitable Services
8.
Deflect Demand of Less Profitable Services
9.
Secure Surgical Market Share
More relevant
implications for
health care
philanthropy
Source: Health Care Advisory Board interviews and analysis.
24
Imperative #6: Build Effective Capacity
Demand Growth to Outpace Physical Capacity
Long-term Capacity Constraints In Play as Demand Grows
Capacity Crunch at Pleasantville
Projected Occupancy Without Capacity Expansion
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Practical
limit of
average
occupancy
103%
80%
5,118 uncaptured
discharges
73%
2011
2021
Source: Health Care Advisory Board interviews and analysis.
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It Makes Sense To Fill the Bed…
Growth is Good, as Long as You Have a Place for It
Contribution Profit per Case
By Payer
Commercial
55%
Medicare
Effect of Demand Growth
Without Capacity Constraints
Hospital significantly
below maximum
occupancy; able to
absorb all new demand
Volume growth
mitigates negative
impact of worsening
case mix
43%
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Impact of Fully Captured Demand
Medicaid
22%
(3%)
38%
33%
Change in
inpatient revenue
per case
Change in
inpatient
volume
Change in
total inpatient
revenue
Source: Health Care Advisory Board interviews and analysis.
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…But Not to Build the Bed
Improved Throughput Most Feasible Way to Capture Excess Demand
Pleasantville Capacity Crunch
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Staffed Beds: 300
Average LOS: 4.8 days
Average Occupancy Limit: 80%
Excess Demand: 5,118 discharges
Option 1: Constructing
New Facilities
Option 2: Overloading
Current Resources
Option 3: Expediting
Patient Throughput
Action: Build 85 New Beds
Action: Operate at 104%
Average Occupancy
Action: Lower Average
LOS to 3.7 Days
• Incurs significant
capital expense
• Future prices less able to
pay fixed costs
• Extra beds must be
staffed, supplied
• No space for aboveaverage census days
• Raises serious patient
safety concerns
• Generates unsustainable
workload
• Creates capacity for more
discharges without raising
number of patient days
• Requires investment in
better care pathways, but
does not explicitly raise
fixed, variable costs
Source: Health Care Advisory Board interviews and analysis.
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The End of the Cornerstone Capital Project?
Jeopardizing Our Primary Campaign Priorities
Percent of Council Members Currently
Conducting Campaigns, by Type
Impact on Representative
Comprehensive Campaign
n=76
Comprehensive
Priorities:
42%
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46%
Capital
1.
New Patient Tower
2.
3.
4.
5.
Cancer Center Pavilion
Nursing Scholarships
Endowed Chairs
Research
Goal: $100 M
5% 7%
Timeline: 6 years
Other
Mini-Campaign
Source: Philanthropy Leadership Council Member Topic Poll 2011, interviews and analysis.
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Imperative #7: Reassess Supply of Less Profitable Services
Optimal Service Portfolio Not Just About the Money
Many Factors to Consider When Assessing Service Offerings
Service Line Evaluation Process at Bassoon Health System1
Scorecard:
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Financial Criteria
(10 points each):
• EBITDA
• Net Income
• Overall Financial
Strength
Non-Financial Criteria
(5 points each):
• Strategic Necessity
• Mission/Community Benefit
• Brand
• Internal Politics
• Risk Factors
• Management Resource
Requirements
• <20 Points:
Seriously consider
divestiture
• 20-30 Points:
Borderline case,
attempt to
reposition
• >30 Points: Keep
and maintain
Case in Brief: Bassoon Health System
• Four-hospital health system located in the South
• Employs standard template to evaluate viability of “non-core” service line offerings
• Identifies services that must be kept, can be divested, or should be repositioned for growth
• Financial performance, strategic considerations, practical factors all considered
1) Pseudonym.
Source: Health Care Advisory Board interviews and analysis.
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Service Offerings Not on a Lightswitch
Community Pressures, Core Business Restrict Supply-Side Options
Community Obligation
Diffuse Responsibility
”
Q: If you wanted to avoid treating diabetic
complications, what service line would you cut?
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If Not Us, Then Whom?
“We have to have some
unprofitable services because
we’re a public hospital and
there is no one else who
wants to offer them. You can
divest from services if you’re
in a market where there is
someone else to offer them,
but we don’t have that luxury.”
CFO
CFO
Inpatient
Medicine?
Emergency
Department?
General
Surgery?
Hospitalist
Program?
• Non-negotiable services
• Not specific to diabetes
Source: Health Care Advisory Board interviews and analysis.
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Establishing the Medical Perimeter
Extensive Ambulatory Care Network Addresses Medical Demand
Medical Management Investments
Patient
Activation
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Medical Home
Infrastructure
Primary Care
Access
Electronic
Medical Records
Post-Acute
Alignment
Disease
Management
Programs
Population
Health
Analytics
Health Information
Exchanges
Source: Health Care Advisory Board interviews and analysis.
31
A New Breed of Funding Priorities
Can We Make the Case for Reducing Demand?
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VISION 2020
Information
Technology
Primary Care
Infrastructure
Programmatic
Support
• Electronic medical records
• Medical homes
• Disease management programs
• Health information exchanges
• Outpatient offices
• Prevention initiatives
• Patient online portals
• Off-campus clinics
• Community partnerships
Source: Philanthropy Leadership Council interviews and analysis.