Where Have All the Inpatients Gone?
A Regional Case Study With National Implications
Columbia, South Carolina | July 23, 2014
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
Introduction and Context Setting
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
1
Healthcare Has Experienced Two Inflection Points in the
Underlying Business Model…
Inflection Point 1.0
•
Began in earnest following the
financial crisis of 2007-2009
•
Driven by escalating federal and
state fiscal problems and
insupportable healthcare cost
•
•
Accelerated by provider
innovation and successful
experiments with a new/
different value-based business
model
Advanced through concepts and
principles rooted in the
Affordable Care Act
Inflection Point 2.0
•
Employer/ insurer market
transformation
•
Healthcare as a retail transaction
•
Population health management
becomes the business problem
and opportunity of the day
•
Declining utilization
•
Accelerated partnership
•
New competitors emerging
2006 2007 2008 2009 2010 2011 2012 2013
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
2
… and the Pace of Change Is Quickening in 2014
• Employer/ insurer market
transformation
Emerging Issues of 2014-2015
• Healthcare as a retail
transaction
• Population health management
becomes the business problem
and opportunity of the day
1.
Price transparency driving
consumer activism
2.
Ambulatory sensitive admissions in
the crosshairs
3.
Hardening networks are affecting
payer mix
4.
Large employers engaging in
bundled pricing
5.
More Disruptive Forces on the
Horizon
• Flat to declining utilization
• Accelerated partnership
• New competitors emerging
2013
 South Carolina Hospital Association
2014
2015
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
3
The Chicago Area Case Study
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
4
The Chicagoland Region
Seven Counties in Illinois
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
5
Utilization Declined by 47K between 2010 and 2012
Declines Were Across All Age Groups
Inpatient Utilization Rates per 1,000
% Change by Age Group, 2010-2012
Total
0-14
15-44
45-64
65-74
75+
(-1%)
(-5%)
(-5%)
(-6%)
(-8%)
Note: Excludes MS-DRG 795 Normal Newborns.
Sources: Proprietary market and client data; U.S. Census Bureau Population.
 South Carolina Hospital Association
(-9%)
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6
Use Rate Change by Service Line: 2010-2012
-2% -2% -2% -2% -2%
-10%-9%
-11%-11%
-8%
-7% -7%
-6%
-5% -5% -5%
3% 3%
-2% -2%
-4% -4%
Gynecology
Int. Cardiology
Cardiology
Urology
Vascular Surgery
OB Other
Endocrine
Gastroenterology
General Medicine
Neurology
General Surgery
CV Surgery
OB Delivery
Psychiatry
Spines/Back
Neonatology
Pulmonary
Otolaryngology
Orthopedics
Oncology
Digestive Surgical
Hematology
Rehabilitation
Neurosurgery
Nephrology
-14%
-16%
-9%
Note: Excludes MS-DRG 795 Normal Newborns; Services with discharges less than 5,500 in the market are not shown. Labels less than 2% not shown.
Sources: Proprietary market and client data; U.S. Census Bureau Population.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
7
Similar Findings in Markets Around the Country
2010-2012 Change in Inpatient Utilization: Three Markets
Eastern MA
Newark
Central Indiana
(pop: 5 million)
(pop: 277,718)
(pop: 1.8 million)
Total inpatient
utilization change
(5.0%)
(4.3%)
(2.5%)
Age groups with
reduced utilization
All
All
All but 65+
Median service
line utilization
change
(5.0%)
(7.0%)
(1%)
Service lines with
reduced utilization
Most
Most
Most
Cardiology (22%)
Interventional
cardiology (26%)
Gynecology (28%)
Greatest service
line decline
Source: Studies of inpatient utilization 2010-2012 conducted by Tufts Medical Center (Eastern MA), Barnabas Health (Newark), and Community Health
Network (Central Indiana).
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
8
Research Questions of Interest
1. Is the economy having an impact on reduced utilization?
2. What is the impact of increased observation stays?
3. Is improved patient management driving the reduction in
inpatient care?
4. What is the preliminary impact on admissions from accountable
care-style care?
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
9
1 Is the Economy Having an Impact?
OB and Psych Discharges, Chicago, 2010-2012
110,000
109,302
108,274
Discharges
108,000
-5%
-4%
106,000
104,545
104,264
104,000
102,000
100,000
2010
2012
Obstetrics
 South Carolina Hospital Association
2010
2012
Psychiatry
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10
1 Is the Economy Having an Impact? (continued)
Inpatient Utilization Rates per 1,000
% Change by Adult Age Group, 2010-2012
CV Surgery
Spines/ Back
-4%
-6%
Orthopedics
-3%
-3%
-5%
-6%
-4%
-7%
-8%
-8%
-10%
-11%
-12%
Urology
-14%
-16%
15-44
45-64
 South Carolina Hospital Association
65-74
75+
-19%
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
11
2
Do “Observation Stays” and Increased Use of Outpatient
Settings for What Used to Be a One-Day Stay Account for a
Large Portion of the Utilization Drop?
3,434 Cases
9 % of Total Decline
Drops in one-day LOS patients
between 2010 and 2012
accounted for only 9 percent of
the total drop in medical/
surgical volume
33,256 Cases
91% of Total Decline
1-Day LOS Cases
 South Carolina Hospital Association
All Other Cases
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
12
3
Are We Starting to See Improvements in Patient Care
Management?
• Look at “Ambulatory Care Sensitive Admissions” (ACSAs)
• These are patient admissions which should have been prevented with
good outpatient care related to underlying chronic conditions, such as:
– Adult asthma
– Diabetes
– Congestive heart failure
• Sixteen Ambulatory Care Sensitive Conditions (ACSCs) have been
defined by the Agency for Healthcare Research and Quality (AHRQ)
Sources: AHRQ Quality Indicators: Guide to Prevention Quality Indicators. AHRQ, 2001; Milliman: Ambulatory-Care-Sensitive Admission Rates:
A Key Metric in Evaluating Health Plan Medical-Management Effectiveness. Milliman, 2009.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
13
The Illinois Example:
ACSAs Are Dropping Faster than Non-ACSA Cases in Many Service
Lines, Often Twice as Fast
2010-2012 Change ACSA Utilization Drops vs. All Other Cases
-1%
-6%
-13%
-24%
-14%
-3% -2%
-6%
-13%
-12%
-9%
-11%
ACSAs
-4%
-6%
-7%
-8%
-6%
-10%
-12%
-9%
-12%
All Other Cases
Note: ACSA categories from AHRQ applied using primary diagnosis code.
Sources: Proprietary market and client data.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
14
4
ACO-Style Care Outperformed the Market in Reducing
Ambulatory Sensitive Admissions and Lengths of Stay
2010-2012 Change: ACSA Utilization Drops
Adult Discharges with ACSCs
Length of Stay
-2%
-4%
-4%
-6%
Using Traditional Care Model
Using ACO Care Model
Note: Diabetes includes Long Term, Short Term, and uncontrollable. Kidney Failure includes Kidney Failure, Renal Failure, and Dehydration. All Other
includes Angina, Cystic Fibrosis, and Sickle Cell. ACSA categories from AHRQ applied using primary diagnosis code. ACO data based on Mapping of
Medicare national provider ID to attending/ admitting physicians.
Sources: Proprietary market and client data.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
15
The Accelerated Inpatient Use-Rate Drops Continued in 2013;
Since 2007 Cook County and the Chicagoland Area Have
Decreased by 14% and 13% Respectively
Inpatient Use Rate Trends (per 1K population)
Cook County
140
140
135
127
2008
% Change
133
128
127
122
2007
Chicagoland
2009
120
2010
117
2011
(2007-2013)
124
114
2012
120
111
-14%
-13%
2013*
Note: Excludes MS-DRG 795 Normal Newborns.
*2013 annualized based on 1st Quarter 2013 data.
Source: Proprietary market and client data; U.S. Census Bureau Population.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
16
The Pace Has Accelerated Over the Past Years
Period
Cook County
Chicagoland
Change 07-08
0.2%
-0.3%
Change 08-09
-4.0%
-3.3%
Change 09-10
-1.8%
-1.6%
Change 10-11
-3.5%
-2.9%
Change 11-12
-3.0%
-2.4%
Change 12-13
-3.2%
-3.0%
Note: Excludes MS-DRG 795 Normal Newborns.
*2013 annualized based on 1st Quarter 2013 data.
Sources: Proprietary market and client data; U.S. Census Bureau Population.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
17
On the Horizon: Outpatient Volume
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
18
Healthcare as an (More) Efficient Market
Implications
“Over the next decade, we
are likely to see a shift
in health insurance in the
U.S.: So-called definedcontribution plans will
gradually take over the
market, shifting the
residual risk of incurring
high health care costs from
employers to workers.”
• Market where all pertinent information
is available to all participants at the same
time, and where prices respond
immediately to available information
-Peter Orszag
Former Director of Office of
Management and Budget
• Consumer choice remains, but with
limited provider access and/or economic
consequences for going out of network
• Empowered consumers with “skin in the
game”
 Fixed dollar benefit from
employers/ government
 High-deductible health plans with
health savings accounts
• Healthcare becomes price elastic
Source: Orszag, P.: “Defined Contributions Define Health-Care Future.” Bloomberg News, Dec. 9, 2011.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
19
Healthcare as an (More) Efficient Market (continued)
• Consumer Driven Health Plans (CDHPs) cost approximately 20% less
than PPO and HMO coverage per employee
• According to PwC, 44% of large employers are considering offering
high-deductible health plans as the only option to their employees in
2014
Source: Mercer, “Mercer’s National Survey of Employer-Sponsored Health Plans, MTEBC,” February 2013.
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
20
Price Transparency Driving Consumer Activism
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
21
Price Transparency Driving Consumer Activism (continued)
Reported Savings for Esterline
Percentage Savings for Castlight Shoppers
33%
Esterline in Brief
•
Esterline is an aerospace
manufacturer in Bellevue, WA
•
Launched Castlight in Jan 2012
•
51% of beneficiaries enrolled
•
Castlight shoppers saved 33% in
overall medical spending compared
to a 1% increase in medical spending
for non-Castlight shoppers
21%
16%
MRI
Lab
Medical
Source: United States Securities and Exchange Commission Washington, DC 20549 “Amendment No.1 to Form S-1 Registration Statement Under the Securities
Act of 1933”, Castlight, Inc.
 South Carolina Hospital Association
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22
Purchasers Increasingly Focused on Reducing Costs Through Retail
Medicine
Diagnostic
$2.0
$1.7
CT
$2.0
$1.6
$1.5
$1.5
$1.0
$1.0
$0.6
$0.5
$0.5
$0.0
$0.0
FA
Hospital Free Std.
Client
X-Ray
$1.9
$0.25
$1.5
$0.18
$0.20
$0.2
$0.15
$0.6
$0.10
$0.4
$0.03
$0.05
Hospital Free Std.
$0.05
$0.02
$0.02
$0.00
FA
Client
Hospital Free Std.
Reimbursement Per Case (000s)
$0.07
$0.04
$0.5
$0.4
$0.1
$0.2
$0.0
FA
Client
FA
Hospital Free Std.
Client
Hospital Free Std.
Procedural
$0.10
$0.06
$0.8
$0.00
FA
Client
Lab
$0.08
Ultrasound
$1.0
$0.21
Diagnostic
Reimbursement Per Case (000s)
Reimbursement Per Case (000s)
MRI
OP Surgery
$6.0
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
 South Carolina Hospital Association
Colonoscopy
$5.6
$4.0
$3.1
$3.0
$2.9
$2.0
$2.0
$1.4
$0.7
$1.0
$0.0
FA
Client
Hospital
Free Std.
FA
Client
Hospital
Free Std.
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
23
Next Steps to Take
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
24
What Does This Mean for Hospitals and Health Systems?
• Business as usual is out the window – a new problem must be solved –
learning to manage population health and justify your prices
• The basis of competition has changed – who you compare yourself to
matters and comparing your organization to other hospitals may be the
wrong benchmark
• More and bigger consolidation will be necessary to remain relevant,
assemble the intellectual and financial capital required to succeed, and
absorb and manage risk
• Many organizations will attempt to position themselves closer to the
premium dollar
• Big investments in IT and care management will be essential
• The Hospital/ Healthcare delivery system will need to fundamentally
restructure away from a hospital/ site centric world to an ambulatory/
electronic/ in-home delivery orientation
• Core competencies will need to evolve along with the market
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
25
Next Steps: Understand Your Market’s Evolution and Your Position
and Opportunities within that Context
Market Evolution
Value
Based
Traditional
The Market Has Outrun Us
• Can we remain relevant in this
market and how?
• Do we need to look to
partners to advance our
position?
What Is All the Fuss About?
• What do we prioritize to
build readiness for the
future?
• When will the market start
to turn and how quickly?
The New Era Is Here
• Are we appropriately
capitalizing on value based
care?
We Are Ready, Now What?
• Are there opportunities to
shape the market to our
benefit?
• Do we look to add scale and
build on our foundation?
Organization Capability
 South Carolina Hospital Association
Value Based
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26
Next Steps: Shift Your Mindset to Think Beyond the Inpatient
Centric Planning Context and Revenue Model
Managed Care/ Purchaser Relationships
Tertiary/Quaternary Care
Primary/Secondary Acute Care
Ambulatory Network
Gap to fill
Specialists
PCPs
The legacy
inpatient model
falls apart without
development of the
bottom pyramid
and hardwired
relationships to
purchasers
Gap to fill
Gap to fill (employment, contracted,
clinically integrated, Medicare ACO, etc. all
means for alignment to close the gap)
 South Carolina Hospital Association
© 2014 Kaufman, Hall & Associates, Inc. All rights reserved.
27
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 South Carolina Hospital Association
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