DHG Healthcare Revenue Transformation: Risk and Opportunity

DHG Healthcare

Revenue Transformation: Risk and Opportunity

March 18, 2013

Agenda

2

New Payment Models

Preparing for Risk

Q & A

Transformation & Sustainability

The Healthcare Ecosystem

We spend more…

Investment in health

Durables

Healthadministrationand insurance

Drugs and nondurables

Long-term andhome care

Inpatient care

910,1eractneitaptuO

Total U.S. spending on health care by category of care 2009USD billions

Total

Spendingaboveor below ESAW2009USD billions

$2,486 $572

SpendingaboveESAW Spendingbelow ESAWTotal spending

233

35

163

293

245

498

72

-11

98

120

-275

47

522

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


With opportunity for new focus…

Source: Fischbec, Paul. “US-Europe Comparisons of Health Risk for Specific Gender-Age Groups.” Carnegie Mellon University, September 2009.

Source: Milliman USA Health Cost Guidelines— Claim Probability Distributions, Healthcare Will Not Reform Itself, George C. Halvorson, 2009.


Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.

Average Annual Premiums for Single and Family Coverage, 1999 – 2011

As premiums escalate...


*

Source: Centers for Medicare & Medicaid Services “National Health Expenditures Historical and Projections 1960 – 2020”

Cost of Healthcare

An unsustainable healthcare economy emerges.

Harris Study*: Almost 30% of Systems and 20% of Payorsbelieve 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.


Suggested Transformation Focus

Execution vs Concept

Defining the New Revenue Model

10

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

11

Market Forces Driving Margin Erosion

Overall Impact of Market Forces1

2011-2021

2011

CURRENT OPERATING

MARGIN2.2%

PROJECTED OPERATING

MARGIN(16.9%)

2021

Includes effects of:•Price growth trends•Cost growth trends•Payer mix shift•Case mix deterioration

Case in Point: Nearly All New Volumes Publicly InsuredCase in Point: Nearly All New Volumes Publicly Insured

AnnualInpatient Demand

39.9 M

56.9 M

Sources of Inpatient Volume Growth, 2011-2021

7%17%

88%

(12%)Commercial Medicaid Medicare

Self-pay

Source: American Hospital Association Chartbook, available at www.aha.org/aha/research-and-trends/chartbook/index.html

Clinical Transformation Initiatives: The Trickiest Part of Revenue Transformation is Knowing it is Already Here

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

14

Shifting Risk

• Consumers• Employers• Health Plans• Government Payers

• Physicians• Medical Groups• Hospitals• Other Providers

Risk ShiftRisk Shift

Source: Pricewaterhouse Coopers | Dixon Hughes

Bundled Payments

Value-Based Purchasing

Global Payments / Capitation

Pay-for-Performance

SharedSavings

FFSReimbursementCuts

Oct 2010 2020

Value-Based Purchasing

30-Day Readmissions

Hospital Acquired Conditions

1%1% 2%2% 3%3%

2011 2012 2013 2014 2015 2016 2017 2018 2019

1%1%

1%1% 2%2%

TOTAL 2%2% 3%3% 6%6%5%5%

Hospital Reimbursement At Risk

15SOURCE: Sg2

16

Models

Source: PricewaterhouseCoopers | DHG Healthcare

FFS Reimbursement Cuts

Market Basket Adjustments $156B Savings by 2019

Medicare DSH Revisions $22B Savings by 2019

Medicaid DSH Reductions $14B Savings by 2019

FFSReimbursement

Cuts

17

Reform Payment Models

Pay-for-PerformanceA 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

Pay-for-Performance


18


Value-Based PurchasingA 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 -1.5% in 2016-1.25% in 2014 -2.0% in 2017 and after-1.5% in 2015

Value-BasedPurchasing


19


Bundled PaymentsA 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.

Bundled Payments


20


Shared SavingsA 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

Shared Savings


21



Global Payments / CapitationA 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

Global Payments / Capitation

• 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

22

Readmission Penalties

Capped Decreases in Hospital Medicare Reimbursement for

Excess Readmissions

FY 2011-12 FY 2013 FY 2014 FY 2015

• 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

• 1.7 million HAC’s annually; approx. 2% of hospital stays

HAC Penalties

23Source: Lucado, J. et al

Top Issues That KeepCEOs Up At Night

Future Distribution

Strategy

Reducing HACs

Overcoming Specialist Shortage

Maximizing ED Capacity, Throughput

Maximizing Hospital

Employed Physician

Value

The New Revenue Model will Include a Mix of FFS and Risk-Based Payment

24

$

D

oll

ars

Time

Local Market Conditions will Impact Timing of Revenue ShiftLocal Market Conditions will Impact Timing of Revenue Shift

FFS

Risk-based Payment

Operating Costs

Where are you Today?

• 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

• 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

• Benchmark risk-contract 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

Developing a Best Practice Approach to Revenue Transformation

REQUIRED CAPABILITIES REQUIRED CAPABILITIES REQUIRED CAPABILITIES

Align Internal Capabilities for Risk- Based Revenue Transformation

26

PHASE I - EXPERIENCE PHASE II - TRANSITION PHASE III - GROWTH/EXPANSION

Bundled Paymentsand

Targeted Shared Savings(BP & Select Services)

Partial Shared Risk(PMPM with limited risk

corridors )

Shared Risk toGlobal Risk

(PMPM with broader risk corridors to global risk)

• 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

• 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

• 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

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

The Change Paradigm

27

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:

Wisdom of the Dakota Indians

28SOURCE: Public Domain

Questions and Discussion

SOURCE: 29

Documents

DHG Healthcare Revenue Transformation: Risk and Opportunity