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DHG Healthcare Revenue Transformation: Risk and Opportunity

DHG Healthcare Revenue Transformation: Risk and Opportunity. March 18, 2013. Agenda. Transformation & Sustainability. New Payment Models. Preparing for Risk. Q & A. The Healthcare Ecosystem. Transformation & Sustainability. We spend more….

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DHG Healthcare Revenue Transformation: Risk and Opportunity

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  1. DHG HealthcareRevenue Transformation: Risk and Opportunity March 18, 2013

  2. Agenda Transformation & Sustainability New Payment Models Preparing for Risk Q & A

  3. The Healthcare Ecosystem

  4. Transformation & Sustainability We spend more… 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

  5. Transformation & Sustainability 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.

  6. 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.

  7. Transformation & Sustainability An unsustainable healthcare economy emerges. Cost of Healthcare 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. * Source: Centers for Medicare & Medicaid Services “National Health Expenditures Historical and Projections 1960 – 2020”

  8. Suggested Transformation Focus

  9. Execution vs Concept

  10. 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

  11. Market Forces Driving Margin Erosion Case in Point: Nearly All New Volumes Publicly Insured Case in Point: Nearly All New Volumes Publicly Insured Sources of Inpatient Volume Growth, 2011-2021 AnnualInpatient Demand 2011 88% Overall Impact of Market Forces12011-2021 2021 56.9 M Projected Operating Margin (16.9%) Current Operating Margin 2.2% 39.9 M 17% 7% Self-pay • Includes effects of: • Price growth trends • Cost growth trends • Payer mix shift • Case mix deterioration Medicare Medicaid Commercial (12%) Source: American Hospital Association Chartbook, available at www.aha.org/aha/research-and-trends/chartbook/index.html

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

  13. 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

  14. Shifting Risk FFS Reimbursement Cuts Global Payments / Capitation Shared Savings Pay-for-Performance Value-Based Purchasing Bundled Payments • Consumers • Employers • Health Plans • Government Payers • Physicians • Medical Groups • Hospitals • Other Providers Risk Shift Source: Pricewaterhouse Coopers | Dixon Hughes

  15. Hospital Reimbursement At Risk Oct 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Value-Based Purchasing 1% 2% 30-Day Readmissions 1% 2% 3% Hospital Acquired Conditions 1% 2% 3% 5% 6% TOTAL SOURCE: Sg2

  16. 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

  17. Reform Payment Models Pay-for-Performance • 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

  18. 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 -1.5% in 2016 • -1.25% in 2014 -2.0% in 2017 and after • -1.5% in 2015 Source: PricewaterhouseCoopers | DHG Healthcare

  19. 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

  20. 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

  21. 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

  22. Readmission Penalties • 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 Capped Decreases in Hospital Medicare Reimbursement for Excess Readmissions FY 2011-12 FY 2013 FY 2014 FY 2015

  23. HAC Penalties • 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 Top Issues That KeepCEOs Up At Night Future Distribution Strategy Reducing HACs Overcoming Specialist Shortage Maximizing ED Capacity, Throughput Maximizing Hospital Employed Physician Value Source: Lucado, J. et al

  24. The New Revenue Model will Include a Mix of FFS and Risk-Based Payment Risk-based Payment Operating Costs FFS $ Dollars Where are you Today? Time Local Market Conditions will Impact Timing of Revenue Shift

  25. Developing a Best Practice Approach to Revenue Transformation • 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

  26. Align Internal Capabilities for Risk- Based Revenue Transformation PHASE I - EXPERIENCE PHASE II - TRANSITION PHASE III - GROWTH/EXPANSION Bundled Payments and Targeted Shared Savings (BP & Select Services) Shared Risk to Global Risk (PMPM with broader risk corridors to global risk) Partial Shared Risk (PMPM with limited risk corridors ) REQUIRED CAPABILITIES REQUIRED CAPABILITIES 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 • 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

  27. 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 “

  28. 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 ridedead 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. • 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”. SOURCE: Public Domain

  29. Questions and Discussion SOURCE:

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