DHG Healthcare
Revenue Transformation: Risk and
Opportunity
March 18, 2013
Agenda
Transformation & Sustainability
New Payment Models
Preparing for Risk
Q&A
2
The Healthcare Ecosystem
Transformation & Sustainability
We spend more…
Total spending
Total U.S. spending on health care by category of care 2009
USD billions
Outpatient care
245
Drugs and nondurables
Total
47
-275
293
Health administration
and insurance
Investment in health
522
498
Long-term and
home care
Spendingbelow ESAW
Spending above or below ESAW 2009
USD billions
1,019
Inpatient care
Durables
Spendingabove ESAW
120
163
98
35
-11
233
72
$2,486
$572
ESAW = Estimated Spending According to Wealth that adjusts healthcare spending according to per capita GDP
OECD = Organization for Economic Co-operation and Development consisting of Austria, Canada, Czech Republic, Denmark, Finland, France,
Germany, Iceland, Poland, Portugal, South Korea, Spain, and Switzerland
Sources: Centers for Medicare & Medicaid Services; MGI analysis; OECD
Transformation & Sustainability
With opportunity for new focus…
Source: Milliman USA Health Cost Guidelines— Claim Probability
Distributions, Healthcare Will Not Reform Itself, George C. Halvorson, 2009.
Source: Fischbec, Paul. “US-Europe Comparisons of Health Risk for Specific Gender-Age
Groups.” Carnegie Mellon University, September 2009.
Transformation & Sustainability
As premiums escalate...
Average Annual Premiums for Single and Family Coverage, 1999 – 2011
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.
Transformation & Sustainability
An unsustainable healthcare economy emerges.
Cost of Healthcare
Harris Study*:
Almost 30% of Systems and
20% of Payors
believe that the current
business model is either
not very or not at all
sustainable over the
next 5 years.
*Source: Harris Interactive for KPMG LLP, 2012.
*
Source: Centers for Medicare & Medicaid Services “National Health Expenditures Historical and Projections 1960 – 2020”
Suggested Transformation Focus
Execution vs Concept
Defining the New Revenue Model
The mere formulation of a problem is far more
essential than its solution, which may be merely
a matter of mathematical or experimental skills.
To raise new questions, new possibilities, to
regard old problems from a new angle requires
creative imagination and marks real advances
in science.
--Albert Einstein
10
Market Forces Driving Margin Erosion
Case in Point: Nearly All New Volumes Publicly Insured
Case in Point: Nearly All New Volumes Publicly Insured
Annual
Inpatient Demand
Sources of Inpatient Volume
Growth, 2011-2021
56.9 M
Overall Impact of Market Forces1
2011-2021
88%
39.9 M
2011
2021
CURRENT
OPERATING
MARGIN
2.2%
PROJECTED
OPERATING
MARGIN
(16.9%)
17%
7%
Self-pay
Includes
effects of:
• Price growth
trends
• Cost growth
trends
• Payer mix
shift
• Case mix
deterioration
Commercial
Medicaid
Medicare
(12%)
Source: American Hospital Association Chartbook, available at
www.aha.org/aha/research-and-trends/chartbook/index.html
11
Clinical Transformation Initiatives:
The Trickiest Part of Revenue Transformation is Knowing
it is Already Here
Reducing
Unnecessary ED
Utilization
Minimizing
Overutilization
of Ancillaries
Reducing
Readmissions
CFO
CMO
Eliminating
Preventable
Complications
(HAIs, HACs,
etc.)
Reducing
Admissions to
Hospital in Favor
of Lower
Acuity/Cost of
Care Settings
Revenue Transformation Initiatives
PPACA / HCERA
Center for Medicare/Medicaid Innovation (CMI)
CMS Payment Cuts & Penalties
CMS Triple Aim
Pilots and Demonstrations
Legislative Battles and Reform Funding
13
Shifting Risk
FFS
Reimbursement
Cuts
Pay-forPerformance
• Consumers
• Employers
• Health Plans
• Government Payers
Value-Based
Purchasing
Bundled
Payments
Risk Shift
Shared
Savings
Global
Payments /
Capitation
• Physicians
• Medical Groups
• Hospitals
• Other Providers
Source: Pricewaterhouse Coopers | Dixon Hughes
14
Hospital Reimbursement At Risk
Oct
2010
2011
2012 2013
Value-Based
Purchasing
30-Day
Readmissions
2014 2015
1%
1%
SOURCE: Sg2
2019 2020
2%
2%
3%
Hospital
Acquired
Conditions
TOTAL
2016 2017 2018
1%
2%
3%
5%
6%
15
Models
FFS
Reimbursement
Cuts
FFS Reimbursement Cuts
Market Basket Adjustments $156B Savings by 2019
Medicare DSH Revisions
$22B Savings by 2019
Medicaid DSH Reductions
$14B Savings by 2019
Source: PricewaterhouseCoopers |
DHG Healthcare
16
Reform Payment Models
Pay-forPerformance
Pay-for-Performance
A strategy to offer incentives to providers for delivering higher quality care
as measured by selected evidence-based standards and procedures.
• Multiple pilots and demonstrations in progress for past several years
• CMS has collaborated with many private insurers and other agencies to
launch demonstration projects
• Typically limited in scope
• Promotes reimbursement for quality, access, efficiency and outcomes
Source: PricewaterhouseCoopers |
DHG Healthcare
17
Reform Payment Models
Value-Based
Purchasing
Value-Based Purchasing
A strategy that holds a percentage amount of reimbursement at risk that providers earn back
by performing high in proven quality processes and outcomes across several domains.
• 2013 measures include AMI, CHF, Pneumonia, Certain Surgeries, HAI
• Additional measures may be added in 2014 and beyond
• Hospitals that do not meet standards receive deductions of:
-1.0% in 2013
-1.25% in 2014
-1.5% in 2015
Source: PricewaterhouseCoopers |
DHG Healthcare
-1.5% in 2016
-2.0% in 2017 and after
18
Reform Payment Models
Bundled
Payments
Bundled Payments
A strategy of issuing a single payment for episodes of treatment that would be shared by both
the hospital and physicians involved in delivering treatment for a patient
• ACE Demonstration Project includes cardiac and orthopedic conditions (acute care only). Has
shown significant savings, esp in device and implant costs (gainsharing). Participants keep 25%.
• CMS pilot to launch in 2013. Expected to expand ACE Demonstration by including acute care
episode plus 3 days before and 30 days after. Expected to include 8 ‘conditions’ including chronic
conditions.
• Incentives undefined but expected to include shared savings.
• Requires integration between physicians, hospitals and post-acute providers.
Source: PricewaterhouseCoopers |
DHG Healthcare
19
Reform Payment Models
Shared
Savings
Shared Savings
A strategy whereby providers receive a percentage of reduced
claims expenses as a result of improved efficiencies and
quality of care.
• Must meet quality standards AND achieve cost savings to earn
bonus payments.
• Timing, criteria, and calculation of bonus undefined (in legislation).
• PGP Demonstration Project
Source: PricewaterhouseCoopers
| DHG Healthcare
20
Reform Payment Models
Global
Payments /
Capitation
Global Payments / Capitation
A strategy whereby all services and fees are included in one
payment that manages the patient across the entire healthcare
delivery system.
CMS makes one payment to the accountable organization for
the total cost of each enrollee
Adjusted for region and patient risk category
Basis of payment in PCMH and ACO models
Based on Dartmouth Atlas regional cost studies
Source: PricewaterhouseCoopers |
DHG Healthcare
21
Readmission Penalties
Capped Decreases in Hospital
Medicare Reimbursement for
Excess Readmissions
FY 2011-12
FY 2013
FY 2014
•
Beginning in FY2013 DRG payments
may be reduced for hospitals
experiencing excessive risk-adjusted
readmissions
•
Projected $7.1B in reduced Medicare
payments, 2013-2019
•
Pilot underway in 14 hospitals for
implementation
•
3 ‘conditions’ in 2013 (AMI, CHF,
Pneumonia)
•
4+ more in 2015
FY 2015
22
HAC Penalties
Top Issues That Keep
CEOs Up At Night
• Beginning in FY 2015 hospitals
in the highest 25% of hospital
acquired conditions will receive
a reduction to DRG payments
• Eligible hospitals will receive
99% of normal payment
• Potential for expanding HAC
policy to other facilities
including inpatient rehab and
SNF
Future
Distribution
Strategy
Source: Lucado, J. et
al
Reducing Overcoming Maximizing Maximizing
HACs
Specialist ED Capacity, Hospital
Shortage Throughput Employed
Physician
Value
• 1.7 million HAC’s annually;
approx. 2% of hospital stays
23
The New Revenue Model will Include a Mix
of FFS and Risk-Based Payment
$
Dollars
Risk-based Payment
Operating Costs
FFS
Where are you
Today?
Time
Local Market Conditions will Impact Timing of Revenue Shift
24
Developing a Best Practice Approach to
Revenue Transformation
Assess Existing
Value-Based
Compensation
Efforts
•
•
•
Create communication
channels between
clinical and financial
leadership
Measure impact of new
payment models on
finances of clinical
improvement efforts
Implement tracking
mechanisms to
evaluate economics of
clinical improvement
efforts
Create Strategic
Approach to
Prioritize Future
Investments
•
•
•
Develop education
programs for clinical
/financial leaders
Assess gaps in current
infrastructure that
prevent successful risk
contract execution
Determine trends in
local market that
suggest near-term
movement towards risk
by employers and
payors
Align Internal
Capabilities
•
•
•
•
Benchmark riskcontract economics
against known
examples
Proactively assess
finance impact of risk
on top 10 current
service lines
Buy/build tools to allow
for ongoing
measurement of
financial impacts
Utilize this new
financial information in
contract negotiations
Align Internal Capabilities for Risk- Based
Revenue Transformation
PHASE I - EXPERIENCE
PHASE II - TRANSITION
Bundled Payments
and
Targeted Shared Savings
(BP & Select Services)
Partial Shared Risk
(PMPM with limited risk
corridors )
REQUIRED CAPABILITIES
• FFS to Bundled Payment
Conversion for Selected
Services
• Case Specific Mgt Protocols &
Processes within Current
Systems
• Robust Case Margin Tracking,
Reporting & Benchmarking
• Assertive (Prospective)
Revenue Cycle Optimization
• High Value Network
Leveraging Analytics for VBP
& Performance
• Pervasive Quality, Outcomes,
and Reporting Systems
• Proactive Physician
Leadership & Active Medical
Mgt Program
•
•
•
•
•
•
•
REQUIRED CAPABILITIES
PMPM Decision Support to
Procedure Level
Patient Risk ID &
Segmentation (Episodic)
Processes & Workflows for
Prospective/Concurrent Mgt
Enhanced Care
Coordination across
Continuum (Systems)
Enhanced Referral Mgt
Systems with Real Time
Capabilities
Risk Based Revenue
Modeling & Contract Mgt
Systems
Care Management Audit &
Performance Monitoring
PHASE III - GROWTH/EXPANSION
Shared Risk to
Global Risk
(PMPM with broader risk
corridors to global risk)
REQUIRED CAPABILITIES
• Integration with ACO
Systems (EHR, PCMH, POC
Registries, etc.)
• Automation to Concurrently
Manage “At Risk” Population
• Physician/Patient Portals &
Patient Experience Tracking
• Data Aggregation and
Episodic Reporting at the
Cost Level Across ALL
Services (Medical, Rx,
Ancillary, Other Post-Acute,
etc.)
• Systems to Support Global
Risk Revenue Modeling &
Mgt
26
The Change Paradigm
Bottom line, if you attempt to
use the same care delivery
model moving forward, faced
with the magnitude of reductions
in forecasted revenue, you will
go out of business.
— Michael Sachs
Chairman, Sg2
27
Wisdom of the Dakota Indians
ARE WE BEATING A DEAD HORSE?
The tribal wisdom of the Dakota Indians, passed on
from one generation to the next says that when you
discover that you are riding a dead horse, the best
strategy is to dismount. However, in modern business,
often other strategies are tried with dead horses
including the following:
• Purchasing a stronger whip.
• Changing riders.
• Appointing a committee to
study the horse.
• Arranging to visit other sites
to see how they ride dead
horses.
• Lowering the standards so
that dead horses can be
included.
• Reclassifying the dead horse
as “living impaired”.
• Harnessing several dead
horses together to increase
the speed.
SOURCE: Public Domain
• Providing additional funding
to increase the dead horse’s
performance.
• Doing a productivity study to
see if lighter riders would
improve the dead horse’s
performance.
• Declaring that the dead horse
carries low overhead, and
therefore should remain in
use.
• Hoping that the dead horse
will come back to life.
• Wishing for the “GOOD OLD
DAYS”.
28
Questions and Discussion
SOURCE:
29