Health Care Reform: Riding the Waves of Change

1. Health Care Reform: Riding the Waves of Change DANIEL L. GROSS EXECUTIVE VICE PRESIDENT SHARP HEALTHCARE

2. Reflection “It’s going to be ugly, and most think it will take 10years to settle down.” Nathan Kaufman Union-Tribune, 1/7/12

3. Seminal Changes in Health Care • 1932: Blue Cross and Blue Shield Insurance • 1946: Hill-Burton Act • 1965: Medicare Act • 1973: Health Maintenance Organization Act • 1982: Diagnosis-Related Groupings (DRG) • 1996: Health Insurance Portability and Accountability Act (HIPAA) • 2010: Health Care Reform: Patient Protection and Affordable Care Act (ACA)

4. Health Care Reform: The Vision

5. Health Care Reform: The Vision • All Americans are insured • Health care delivery and finance systems are efficient and accurate • Quality of care is at an all-time high • Medical errors cease to exist • Cost of health care is at an all-time low • Health care providers are accountable at all levels

6. The New Health Care System

7. A Message to Remember It’s a Fine Line Between a Vision and a Hallucination

8. Why Health Care Reform? • U.S. is confronting a “debt” and “deficit” problem • If unchecked, U.S debt will grow to 70% of GDP by 2020 ($16T); 40% in 2008 • 2012 U.S. deficit is $1.1T; fourth largest since WWII • 2011 U.S. health care spending grew 3.9%; $2.7T; 17.9% GDP; 2019-19.6% GDP • U.S. health care costs are 23% of federal budget; 21% of state budget; 16% of family discretionary spending • Average annual health premium: $15,745/year • 2020 health care spending is projected to double

9. Why Health Care Reform? • Medicare lives at 48M and growing 10K/day; $560M • Medicaid lives at 62M and growing; $400M • Average couple will receive $387K in Medicare benefits but only pay $122K in Medicare taxes • 1965 - 4 workers/beneficiary; under 3 w/b -2011; 2 w/b-2040 • Medicare Trust Fund insolvent by 2017 • When compared with 16 “high income” countries, Americans live shorter lives and fare worse in 9 domains, and the health disadvantage not explained to socio-economic, racial, and ethnic influences

10. Why Health Care Reform? • Truven Study: 740 K hospital workers/dependents and 25 M general workers/dependents • More likely to be dx with chronic conditions and 5% more likely to be hospitalized • Hospital worker costs were 9% higher • Preventive screening lower among hospital cohort • Ten strategies identified two of which were initiate screening and treatment programs and modify current health programs and incentives

11. Health Care Reform • More people will be covered, but at lower reimbursement. • Employers, individuals, and the commercial insurance market is in search of low-cost, high-quality options. • Commercial insurance is mandating an end to cost shifting. • There will be a shift in payment from pay-for-procedure to pay-for-outcomes. • “Bending the Cost Curve” is the mantra. Major Themes

12. Health Care Reform: The Big Picture

13. Hospital Payment Cuts Soar

14. Health Care Reform: Coverage and Access Expansion • Medicaid expanded to 16M; 2M California • Eligibility: Up to 133% FPL • State financial support: for newly eligible only, 100% federally funded (2014-2017) • Physician financial support-100% federal funding for PCPs at Medicare rates (2013-2014) • PCP and surgeons in under-served areas eligible for 10% bonus (2011-2016) Insurance Reform • 16M covered through new insurance programs • Individual mandate: requires individuals to maintain minimum coverage beginning 2014 • Individual subsidies: provides tax credits on sliding scale for individuals at 133%-400% FPL • Employer responsibility: No coverage - $2,000/FTE every employee; yes coverage - $3,000/FTE • Medical loss ratio • HIE/Essential Benefit Plans • Basic Health Plans

15. Health Care Reform: Improved Value Reduced Costs • $112.6B reduced hospital payment updates: 10 years/2010 • $132B Medicare Advantage (15% reduction): 4 years/2010 • $36B Medicare and Medicaid DSH payments: 6 years/2014 • New models of care: ACOs (CMS and CMMI); Advanced Primary Care Homes/2011 and 2012 • Bundled payments: national, voluntary program; 10 conditions; 4 different models/2013 Improved Quality • Value-based purchasing: process standards, and HCAHPS; 1% withhold 2013; grows to 2% in 2017 • Readmission penalties: 1% penalty of base DRG 2012; grows to 3% 2014 • Hospital-acquired conditions: 1% penalty to bottom 25% of performers 2015 • Health Care Innovation Challenge Grants • Patient Center Outcomes Research Institute (PCORI)

16. The Real Health Care Problems/Challenges

17. The Real Health Care Problems/Challenges

18. The Real Health Care Problems/Challenges

19. The California Experience: Low Cost

20. The Health Care Reform Reality • Medicare/Medicaid reimbursement declines will exacerbate cost shifting. • Commercial plans/employers cannot absorb nor tolerate increased cost shifting. • HIEs may increase erosion of current commercial plans and reimburse providers less. • One in three Californians will be on Medi-Cal. • Increased Medi-Cal population will crowd ERs. • Job reductions will have detrimental impact on overall economy. • Care delivery models must change.

21. The Health Care Reform Reality • Physician and health systems alignment is an imperative. • Legislators must remove barriers to integration. • Health care needs to shift from an illness model to a wellness model.

22. Nation Still Divided On ACA As you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it? Favorable Unfavorable Don’t know/Refused ACA signed into law on March 23, 2010 Source: Kaiser Family Foundation Health Tracking Polls

23. Four In Ten Say They Are “Confused” About Health Reform Law; Equal Shares “Angry” And “Enthusiastic” Percent who say that each of the following describes their feelings about the health reform law: Confused Enthusiastic Angry ACA signed into law on March 23, 2010 Source: Kaiser Family Foundation Health Tracking Polls

24. Health Care Reform“Chatter/Actions” • Supreme Court: Individual mandate - yes; Medicaid expansion - not constitutional; both continue to be legally challenged • False projections: high-risk pool enrollment not materializing • Employee dumping: employers will move toward exchanges - $450B to $1.4T • Public hostility: 60% of private practice MD’s close/restrict • Access/coverage numbers are expected to fall short – 18M to 20M

25. Health Care Reform“Chatter/Actions” • ACA elements being defined and/or deleted • Commercial market: salivating over ACOs • HIE delay is questioned and potentially the largest “game changer” • Basic Health Program delayed • American Tax Relief Act 2012: SGR - $25B, Coding Offset - $11B, Medicaid DSH reduction extended - $400M • March 1: Sequestration • March 27: Continuing Resolution expires • July: Debt limit will be reached

26. Envisioning the Future: Era of Performance • Economic Constraints • Operation Efficiency • Quality Performance Demands • Patient Satisfaction • Physician/Administration Alignment • Empty Beds • Demands for Increased Market Share • Fraud and Abuse • New partnerships

27. Unprecedented Change “When the winds of change blow, some people build walls and others build windmills.” Chinese Proverb