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Behind the Big Blue

Behind the Big Blue. An Overview on Hospital Issues Facing the Arizona Legislature December 6, 2010. Overview. Hospitals as Healthcare Providers and Hospitals Bringing Benefit to Their Communities Hospitals as Economic Drivers

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Behind the Big Blue

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  1. Behind the Big Blue An Overview on Hospital Issues Facing the Arizona Legislature December 6, 2010

  2. Overview • Hospitals as Healthcare Providers and Hospitals Bringing Benefit to Their Communities • Hospitals as Economic Drivers • Healthcare Finance, AHCCCS Budget Cuts & Arizona’s Hidden Healthcare Tax • How Hospitals are Weathering the Storm • National Healthcare Reform and Arizona • Legislators’ Top 5 Questions

  3. Hospitals Providing Healthcare and Bringing Benefit to Their Communities • Essential Healthcare Services • Emergency care • Medical/surgical care • Behavioral health & rehabilitative services

  4. Hospitals Providing Healthcare • Arizona has 117 hospitals in 14 counties • 2.0 beds per 1,000 population compared to the national average of 2.7 per 1,000 population • Average length of stay in an Arizona hospital is 4.9 days, compared to a national average of 6.4 days Sources: The Henry J. Kaiser Family Foundation

  5. Hospitals Providing Healthcare • 26,123 trauma patients in 2009 • 2.6M emergency department visits in 2009 • 80% are insured by public and private insurance • 20% (or 1.3M) Arizonans are uninsured, including 273,500 children • $409M in uncompensated care in 2009 Sources: Arizona Hospital and Healthcare Association, Arizona Department of Health Services, and The Henry J. Kaiser Family Foundation

  6. Hospitals Bringing Benefit to Their Communities • Community health improvement programs hospitals provide include: • Unbilled or discounted services offered to poor, medically underserved and/or broader community • Arizona hospitals provided $175M in charity care in 2009 • Education, support groups, family counseling • Clinics, health screening, immunization, medicines • Meals, transportation, in-home services

  7. Hospitals Providing Healthcare and Bringing Benefit to Their Communities • Relevant Policy Considerations • Hospitals provide more than just medical care to their communities • As the economy worsens, hospitals face financial challenges in providing community benefits: • Uncompensated care and bad debt increase • ED takes on greater role as primary care provider • Charitable contributions to hospital foundations decrease • Patients delay or cancel elective surgeries • New capital expansion put on hold or canceled

  8. Hospitals as Economic Drivers • Bolstering the state’s economy • Hospitals as Employers • Hospitals as Educators • Hospitals as Innovators

  9. Hospitals as Employers • Arizona hospitals contribute $22B to the state’s economy • $5.3B in compensation to hospital employees • Arizona hospitals employ 83,840 individuals • Arizona hospitals generate 181,212 jobs across all sectors, supporting 6.93% of all employment in the state Source: American Hospital Association, 2010

  10. Arizona’s Hospitals and Their Positive Impact on Economies Close to Home Source: The Arizona Physician Workforce Study, Part II, Arizona State University Center for Health Information & Research, 2005

  11. Hospitals as Educators • Hospitals educate and train physicians, nurses and other healthcare professionals • Hospitals provide clinical settings for undergraduate training, internships and residencies • Hospitals also provide scholarships, tuition payments, continuing medical education classes and funding to external organizations to provide medical education Source: Arizona Hospital and Healthcare Association Community Benefit Survey, 2008

  12. Hospitals as Educators • Graduate Medical Education (GME) • Arizona’s GME program supports physician residency programs at Arizona teaching hospitals and is critical to addressing our state’s physician shortage • Thirteen Arizona hospitals participate in the GME program, offering training in anesthesiology, emergency medicine, family medicine, internal medicine, neurology, neurosurgery, obstetrics & gynecology, pathology, pediatrics, surgery, etc. • 60% of physicians trained in Arizona remain in Arizona to practice Source: University of Arizona, College of Medicine

  13. Hospitals as Innovators • Bioscience is on the Rise: • Working to understand the basic science behind an array of diseases and conditions and discovering effective preventions, treatments and cures • Creating high-paying jobs--not only in science, but supporting areas such as law, marketing, accounting, etc. • Offering a cutting-edge economy that can flourish in dry economic times Source: University of Arizona, College of Medicine, The Flinn Foundation: BioBasics

  14. Hospitals as Innovators • Arizona's jobs in the bioscience industry increased 31% from 2002 to 2008. This compares to 12% for the nation as a whole • Of the estimated 89,674 jobs in Arizona's bioscience sector, 84% of those jobs are in hospitals • Every $1 that Arizona's private and public sectors spend for bioscience is estimated to attract $6.26 in other investments Source: The Flinn Foundation: BioBasics

  15. Hospitals as Economic Drivers: Growing Challenges • Workforce shortages, exacerbated by Arizona’s growing population, have hampered hospital employment growth overall • 219 physicians/100,000, well below national average of 293 Source: The Arizona Physician Workforce Study, Part II, Arizona State University Center for Health Information & Research, 2005

  16. Hospitals as Economic Drivers: Growing Challenges • The national average is 825 registered nurses (RNs) per 100,000 residents; the Arizona average is 681 RNs per 100,000 residents. Arizona ranks 45th among all states for employed RNs per 100,000 Source: Health Resources & Services Administration, U.S. Department of Labor, Bureau of Labor Statistics, 2008

  17. Hospitals as Economic Drivers: Growing Challenges • Nationally, nursing is the occupation with the largest projected job growth through 2012 • Nearly 49,000 additional Arizona RNs will be needed in Arizona by 2017 to close the gap and meet the U.S. average of 825 RNs per 100,000 population Source: The Arizona Healthcare Workforce Data Center, 2008

  18. Economic Downturn & State Budget Cuts Stall Hospital Growth • As the economic picture continues to worsen, hospitals are experiencing: • A decline in revenue resulting from decreasing volumes of inpatient admissions and elective procedures • An increase in bad debt and charity care as a percentage of total revenue • An increase in community need for subsidized health services and other services to support low-income populations • A decrease in the level of charitable support

  19. Hospitals as Economic Drivers • Relevant Policy Considerations • Jobs generated by hospitals • Effect of hospital cuts on access to healthcare • Impact of downturn in economy on hiring and expansion plans • Effect of hospital cuts on hospital education efforts and workforce shortages • Effect of hospital cuts on investments in bioscience

  20. Healthcare Finance • Who Pays for Healthcare? • AHCCCS Hospital Payments • Budget Cuts and Arizona’s Hidden Healthcare Tax

  21. Who Pays for Healthcare? Medicare Commercial Source: Arizona Hospital and Healthcare Association

  22. Healthcare Cost Drivers • Growth • The workforce shortage • Medical technology & complexity • Uninsured • Inadequate payment by government healthcare programs • Cost shifting—The Hidden Healthcare Tax

  23. Arizona Health Care Cost Containment System (AHCCCS) • Medicaid is a federal/state partnership designed by Congress in 1965 to provide healthcare for low-income women, children, the elderly and disabled • Arizona was the last state to join the Medicaid program in 1982 • Arizona’s Medicaid program, AHCCCS, is a national model for other states

  24. Arizona Health Care Cost Containment System (AHCCCS) • AHCCCS receives state and federal funding to provide healthcare coverage for its enrollees • For every $1 the state invests, AHCCCS receives $2 from the federal government • Enhanced match since 2009 will revert on July 1, 2011 • AHCCCS purchases healthcare coverage through managed care organizations (managed competition model)

  25. AHCCCS Funding Sources County

  26. The AHCCCS Model Produces Results • Overall less costly program • 2nd lowest health spending per capita • Arizona spends $4,103 per capita in comparison to the national average of $5,283

  27. Driving Up Arizona’s Hidden Healthcare Tax • Hospitals must make up for inadequate AHCCCS reimbursement by charging higher rates to hospital patients and commercial health plans • Commercial health plans, in turn, pass these costs on to businesses and individuals in the form of higher health insurance premiums • This cost shift is a “hidden healthcare tax”

  28. Note: Private Payers include commercial, managed care plan, other third party payers, self-pay, and other non-government insurers. Source: Lewin Group analysis American Hospital Association data for Arizona hospitals

  29. FY 2008 – FY 2011 AHCCCS Budget Cuts Deepen the Hidden Healthcare Tax • Hospitals have sustained nearly $500M in cuts since 2008: • Provider rates frozen since 2008, will be cut an additional 5% effective April 1, 2011 • Reductions to outlier payments • Reductions to Disproportionate Share Hospital (DSH) payments

  30. FY 2008 – FY 2011 AHCCCS Budget Cuts Deepen the Hidden Healthcare Tax • Elimination of GME • HB 2116 • Cuts to behavioral health services • After cuts, AHCCCS payments to hospitals currently cover 70-74% of cost

  31. Economic Downturn & State Budget Cuts Stall Hospital Growth • To weather the economic storm and state budget cuts enacted over the last three legislative sessions, hospitals are: • Reducing administrative costs • Postponing building projects and the opening of new facilities • Implementing hiring freezes and/or laying off employees • Consolidating and/or eliminating services

  32. How Hospitals are Weathering the Storm • Impact of AHCCCS Budget Cuts on Hospitals • Phoenix Children’s Hospital • Kingman Regional Medical Center • Banner Health

  33. How Hospitals are Weathering the Storm • Phoenix Children’s Hospital • Overview: • PCH provides more pediatric hospital care than any other hospital or health system in Arizona • As a children’s specialty hospital, PCH serves a disproportionate share of severe, high complexity, high-cost Medicaid patients • 52% of the patients PCH serve are Medicaid enrollees

  34. How Hospitals are Weathering the Storm • Overview, continued: • Steady increase in demand for pediatric specialty services necessitated expanded facilities and specialty physician services • While volume of services delivered by PCH continues to increase, income from operations has significantly decreased

  35. How Hospitals are Weathering the Storm • Relative Cost of Patients by Severity: • Extreme cases have cost 11 times greater than costs for Minor cases and are 3 times greater than costs of Major cases • PCH provides more than 50% of its care to Major and Extreme cases Relative Cost per Case Based on Severity Severity by Cost

  36. How Hospitals are Weathering the Storm • Impact of Budget Cuts: • Estimated $45M in payment reductions • since 2007 • Approximately $20M in payment reductions • in 2010 • Reductions have occurred in all payment areas, including: • Routine I/P and O/P hospital rates • Outlier • Physicians • Graduate Medical Education • Disproportionate Share Payments

  37. How Hospitals are Weathering the Storm • What PCH has Done to Survive the Cuts: • Institutional Expense Reductions • Reduced staffing ($10M) • Eliminated reliance on temporary (high cost) nursing staff ($7.5M) • Mandatory furloughs & salary freezes (since January 2008) • Reduced scope of hospital expansion ($100M) • Performs in top quartile (lowest cost) of children’s hospitals nationally • Alternative Funding Initiatives • Local governments providing state match for DSH/GME • Strategic Alliances • U of A College of Medicine • CHW/St. Joseph’s Hospital and Medical • Center

  38. How Hospitals are Weathering the Storm • Impact of Loss of Medicaid to PCH: • Over half of Arizona’s pediatric population is enrolled in KidsCare/AHCCCS • 50% of all Arizona children would be without any healthcare coverage or access to non-emergency healthcare services • Extraordinary uncompensated burden on all hospital emergency departments • Physician shortage would increase • Jeopardize the viability of all safety net hospitals and pediatric practices

  39. How Hospitals are Weathering the Storm • Kingman Regional Medical Center • Mohave County • 220,000 population • HCA Enrolled Membership 38,000 • Kingman • Service area 60,000 population • HCA Enrolled Membership 12,000 • Broad spectrum of services including open heart surgery, hospice, home health, cancer center, wellness center, physician group practice

  40. How Hospitals are Weathering the Storm • Historical Perspective • 01-07 AHCCCS Increases 3.7% • 08-10 AHCCCS Freeze 0.0%/$2.1M • 08-10 KRMC Labor Inflation 3.3% Average • Cost Cutting/Avoidance • Avoided hiring 33 employees in FY 2010 • Renegotiated supplier contracts - $2M • Decreased employee wage increases to 2.5% • Increases in Rates to Non-Government Payers • Net operating loss 2011 YTD

  41. How Hospitals are Weathering the Storm • Looking Forward • 2010-2011 Pressures • 5% decrease overall – April 2011 • $1.5M per year decrease (24 employees) • Outpatient surgery rate decreases – 75% • $1M considering reduction in force (16 employees) • Reviewing procedures with negative contribution margins for consideration whether to continue

  42. How Hospitals are Weathering the Storm AHCCCS Economy • KRMC AHCCCS $31M/18% • Kingman Enrollment 12,000 • KRMC AHCCCS Volume 32,000 member visits • AHCCCS-related labor 200 employees

  43. How Hospitals are Weathering the Storm Banner Health Cumulative Impact of AHCCCS Budget Cuts (in Millions) During 2010, AHCCCS reimbursement was 70% of our cost, resulting in a loss of $140M

  44. How Hospitals are Weathering the Storm • Actions Taken to Date • Eliminated 618 positions • Decreased/eliminated salary increases • Reduced benefits (PTO, STD, DSO) • Reduced hiring of new graduate nurses • Eliminated travel and most continuing education • Delayed opening of Banner Ironwood Medical Center • Consolidated service lines • Hundreds of small austerity measures

  45. How Hospitals are Weathering the Storm • Impact of Loss of Medicaid • Loss of program translates into $500M+ impact • Capital markets require performance • $2.3B in municipal bonds outstanding • Bond covenants require minimum metrics • Reactions would be dire, including: • Mass workforce reductions • Service elimination in AZ market • Capital freeze • Target absolutely everything

  46. National Healthcare Reform and Arizona • Patient Protection and Affordable Care Act – Impact on Hospitals • Medicare Payment Cuts • Deliver System Reforms

  47. What the Legislation Does • Medicare Payment Cuts: • Expansion in coverage “pay-for” • Graduated across-the-board cuts and cuts in DSH • $155B hospital impact • Arizona impact $700M if coverage expanded; if not, $1.7B • Cuts broaden Medicare payment gap and exacerbate cost-shifting to commercial payers

  48. What the Legislation Does • Delivery System Reforms: • Value-based purchasing reforms • Non payment for healthcare- associated conditions • Readmissions penalties • Clinical integration payment reforms • Demonstration programs to bundle payments • Demonstration programs for medical homes • Demonstration programs for accountable care organizations (ACOs)

  49. National Healthcare Reform and Arizona • Relevant Policy Considerations • Multiple moving pieces with multiple timelines • Insurance exchange compliance by 2014 • Medicaid eligibility reductions could threaten federal matching dollars • State budget deficit • State lawsuit

  50. Legislators’ Top 5 Questions • Emergency Medical Treatment And Labor Act (EMTALA) • Prop. 204 • Hospital Provider Tax • AHCCCS Improper Payments and Fraud • Questions?

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