The Economics of Health Care ACC-OC

1. The Economics of Health CareACC-OC May 2013

2. The Health Paradox America’s rampant health spending threatens its economic future. It also supports tens of millions of jobs. – The Economist, May 11, 2013

3. This Presentation Hospital infrastructure today Economics that will shape hospital infrastructure for the future

4. OC Hospitals Today 31 hospital facilities/ 10 hospital systems 3 Trauma centers, 2 Burn centers, 27 ERs, 11 designated psych facilities 33,000 jobs/over 9% of all OC payroll in OC (2010) Nearly 1 million ER visits Over 1 million inpatient days Over 3 million outpatient visits

6. Fiscal Contribution of Hospital Industry(2010) (millions) $ 190.1 177.4 196.5 74.1 18.7 34.9 $ 691.9 Income taxes (including profits taxes) Sales taxes Property taxes Fees and fines Social insurance Other taxes Total

7. Goals • Triple Aim: Improving the experience of care, improving the health of populations, and reducing per capita costs of health care • For hospitals: • Reduce hospital-acquired infections and improve health outcomes • Reduce hospital days • Reduce readmission rates • Improve care transitions

8. The Hospital Tool Box Internal efficiency Care coordination System integration Bundled payments; hospital/physician relationships/affiliations Ruthless Competition

9. How are we doing so far? • Marketplace changes • Hospital share of HC expenditures down 10% 1980-2009 • Utilization: below U.S. averages • Transformational initiatives underway • Quality of care • Payment reform • Billing reform/cost transparency

10. National Health Expenditures By Category $235.6B $2,330.1B Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 6, 2011. (1) Excludes medical research and medical facilities construction. (2) CMS completed a benchmark revision in 2009, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.gov/nationalhealthexpenddata/downloads/benchmark2009.pdf. (3) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care. (4) “Other professional” includes dental and other non-physician professional services. Source: American Hospital Association

11. Consistently Lower Utilization Levels Have Been a Major Contributor to California’s Healthcare Cost Advantage

12. Coverage Goals Enrollment goals for Medi-Cal and Covered California (subsidized/not): • 2014: 2.8 Million • 2015: 3.6 Million • 2016: 4.4 Million

18. Knowns MSI losses today - $200 m Medicare cuts - $1.47 B Impact of cuts under consideration - $337.5 m

19. Profitability Challenges at Medicare Rates While many hospitals report operating profits today, most will likely be unprofitable as reimbursement approaches Medicare rates Percentage of California Hospitals A substantial proportion of the hospitals that are profitable today will not be profitable at Medicare rates Source: OSPHD 2010, Deloitte Analysis Methodology: Percentage of CA hospitals profitable under Medicare calculated using per episode Market Basket cost and revenue

20. Covered CA

21. The Big Unknowns What trumps what: Cost or Choice? Shifting markets (MSI to Medi-Cal, etc.) Coverage attainment/the remaining uninsured Downward pressure of rates in public programs and commercial plans: Who survives? The effect of “efficiency” on jobs and local economies

22. Julie Puentes Regional Vice President Hospital Association of Southern California jpuentes@hasc.org