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Transformation Strategies for the Era of Healthcare Reform

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1 Transformation Strategies for the Era of Healthcare Reform
HFMA Region 2 Annual Fall Institute Debora Kuchka-Craig, FHFMA HFMA National Chair and Corporate Vice President, Managed Care, MedStar Health, Columbia, MD October 14, 2010

2 Presentation Overview
Reform Stepping up to meet the challenges and opportunities of a new era Transformation Strategies for the reform era Resources How HFMA helps you step up 2 2

3 REFORM: The New Era 3

4 Driven by Long-Term Issues. . .
Reform Driven by Long-Term Issues. . . Exponential Growth in Healthcare Expenditures Need for Better Access to Insurance Coverage REFORM DRIVERS Substantial Opportunities to Improve Quality of Care and Patient Outcomes No Correlation Between Spending and Quality 4

5 . . . That Culminated in Complex Legislation
REFORM . . . That Culminated in Complex Legislation Public Law No : Patient Protection and Affordable Care Act: March 23, 2010 Public Law No : Health Care and Education Reconciliation Act of 2010: March 30, 2010 5

6 Step Up: Healthcare Finance Professionals Must Take the Lead
REFORM Step Up: Healthcare Finance Professionals Must Take the Lead “Somebody has to do something, and it’s going to be— and it has to be—you.” Former Senator and Senate Majority Leader Bill Frist, MD Speaking at HFMA’s ANI: The Healthcare Finance Conference, June 2010 Source: hfm magazine. August 2010. 6 6 6 6

7 How Reform Will Change Health Care
Coverage and insurance reform Payment cuts and payment shifts Shift toward primary care, away from specialty care Delivery and payment reforms ACOs Bundling 7

8 Reform Will Increase Insurance Coverage. . .
Americans (Millions) Source: CBO 8 8

9 . . . and Change Payer Mix REFORM Americans (Millions)
Source: CBO letter to House Speaker Nancy Pelosi – March 20, 2010 9

10 Designed to Increase Healthcare Value. . .
REFORM Designed to Increase Healthcare Value. . . Goals Improve quality Reduce costs Tactics Value-based purchasing Reduce preventable readmissions Reduce hospital-acquired conditions Bundled payments Accountable care organizations Prerequisite Electronic health records

11 But All Hospitals Are Not Affected Equally. . .
REFORM But All Hospitals Are Not Affected Equally. . . “While the most efficiently operated health systems will take advantage of healthcare reform to leverage economies of scale, many not-for-profit hospitals, especially single site and small hospital systems, may struggle. Industry consolidation resulting in bigger health systems with greater access to credit—already encouraged by current market forces—likely will increase further under healthcare reform. . .” Moody’s points out that the new “wealth” will not be spread around evenly It is likely that larger systems that have significant economies of scale will likely fair better in this brave new world Additionally, there are many unintended consequences that have yet to play out that could put all bets off Moody’s Investors Service, Long-Term Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals, April 2010. 11

12 . . .as Reflected in Financial Impact on Hospitals
REFORM . . .as Reflected in Financial Impact on Hospitals Payment Area Payment Reduction Over a 10 Year Period (in billions) New payments for uncompensated care 177.3 Payment reductions: Market basket update (MBU) Disproportionate Share Hospital payment cuts (Medicare & Medicaid DSH) Reduced readmissions Hospital-acquired conditions Accountable care organizations -112.6 -36.1 -7.1 So what happens to hospitals financially? Well, Bank of America/Merrill Lynch estimates that revenue increases by approx $177B over ten years which is their estimate of payments for the cost of previously uncompensated care However, once you back out all of the reductions to payments over the same period scored by the CBO, the increase in revenue is approximately $17B And in reality, that amount is more likely spread over five years instead of 10 since coverage doesn’t expand until 2014 So we’re looking at approximately $3.4B a year which is about the size of a largish health system -1.5 -2.9 Net aggregate financial impact on U.S. hospitals 17.06 Sources: Health Care Facilities Managed Care Analysis; Bank of America Merrill Lynch; March 4, 2010; p. 9 CBO letter to Speaker Nancy Pelosi; March 20, 2010; HFMA estimate 12 12

13 . . . And Pressures on Payment and Cost Abound
REFORM . . . And Pressures on Payment and Cost Abound Cost Pressures Increases in labor expenses Investments in quality improvement Implementation of electronic medical records Investment in physician integration Effects of unsustainable cost increases on employers Impending changes in private insurers’ business practices “Meaningful use” penalties Market basket update upcoding adjustments Fraud enforcement But that $17B isn’t the end of the story… There are significant payment and cost pressures facing hospitals over the next 10 years that either weren’t scored by the CBO or aren’t directly related to reform The private sector will be interesting to watch We already know from comments made by folks like Leapfrog’s CEO Leah Binder that larger employers can’t continue to sustain they types of cost increases they have in the past and that private plans are also experimenting with payment reforms to control cost and improve quality I think it’s also safe to assume that we’ll see additional rate pressure as cuts to MA plans take effect and insurers lose the ability to aggressively manage their costs as can no longer deny coverage to those with preexisting conditions. The real wildcard here is will employers continue providing coverage or will they do the analysis and determine that it’s cheaper to put their employees into the exchange? EMR – Given the aggressive timelines and goals outlined in the interim final meaningful use rule, many facilities will either be hit with penalties or not receive bonus payments for adoption Bundling – While the bundling pilot isn’t specifically scored for savings – at this point there are far too many unknowns to try and project – most policy experts and early reports from the ACE demonstration believe there will be significant savings for the government Market Basket Updates - CMS is bound by law to recover these overpayments and unless congress wants to add to the deficit these reductions will continue for the foreseeable future Fraud – The savings available from fraud enforcement are probably the only thing that both parties can agree upon. We’ll likely see continued aggressive use of RACs and other retrospective recoupment measures until CMS develops the analytic capability to use prospective measures similar to those deployed by private payers On the other side, we’re also facing significant cost pressures Labor – due to the shortage of doctors and nurses, as the supply goes down and the price goes up, we’ll likely have to pay more for staffing Quality – While quality improvement over the long run will lower the cost of healthcare (and it’s likely that significant portions of the savings will be captured by payers) hospitals will have to make significant investments in staffing, technology and process re-engineering to improve quality EMR – Not only do they cost a lot to install, but the annual maintenance is also a significant expense] NFP – The short term challenge for NFP status is state budgets. The longer the economy and state revenues remain anemic, the more likely it is that states will start to tax hospitals that they feel aren’t living up to their tax break (i.e. Provena Adventist vs. Champagin, IL) Long term however, its likely that both states and the federal government will either challenge NFP status or make it harder to qualify if the number of uninsured decrease as planned Physician Integration – Finally, in order to improve quality and efficiency hospitals will have to become more integrated with physicians Practice acquisition and ongoing subsidies will increase provider costs for the foreseeable future Payment Pressures 13 13

14 TRANSFORMATION: Strategies for the Reform Era

15 Paradigms Must Shift as Economic Incentives Change
TRANSFORMATION Paradigms Must Shift as Economic Incentives Change CURRENT STATE FUTURE STATE System Approach to Continuous Process Improvement Drives Payment Drive Value All Stakeholders Must Work Together Revolves Around Utilization of Services Across Continuum Reduction Viewed as Discrete Projects Cost/ Efficiency Limited Links to Payment Quality Drive Volume Physicians Efficiency: May need to be solved at the system level—not the unit level Quality: In the current system, reducing readmissions will reduce revenue—but eventually, that revenue will disappear Physicians: In the 1990s, hospitals that bought physician practices found that low productivity was an issue. But increasing the number of patient visits per hour is not a goal now. Collaboration: Limited Amount Required for Financial Success Collaboration Revolves Around Cost Position Financial Risk Source: Healthcare Financial Management Association 15

16 Value Proposition is Shifting Too
TRANSFORMATION Value Proposition is Shifting Too PREVIOUS & CURRENT Value Proposition SHIFTING NEW Value Proposition FOCUS Published quality and cost metrics General reputation CUSTOMERS Physicians Purchasers 16 16 16

17 Strategies for Transformation in the Reform Era
Transform care to increase quality and reduce cost Understand, manage, and mitigate risk Become more customer-centric 17 17

18 Transform Care by Re-engineering Processes for Greater Efficiency
TRANSFORMATION Transform Care by Re-engineering Processes for Greater Efficiency Systematically identify and eliminate inefficiencies Reduce cost significantly while maintaining or improving clinical quality EXAMPLES Reducing readmissions by 3.5% saved a large, capitated, not-for-profit system $295K in one year After improving its patient flow, a health system reduced its ED diversion rate and generated $1.04M in increased net revenue annually A 500-bed academic medical center found that by aligning its accounts receivable department with industry benchmarks, it could save $10.5M Driving down cost must be a key strategy For example, “drive cost per case to 95% of Medicare payment” Use process improvement and clinical re-engineering to achieve sustainable efficiencies Financial reporting Costing Metrics and comparisons Audit and assurance of data quality 18 18

19 Administrative Process Re-engineering
TRANSFORMATION Administrative Process Re-engineering Pursue revenue cycle excellence Improved cash position frees up more resources for improving patient care and community health Growing pressures on cost and payment make revenue cycle improvement imperative Improve charity care reporting and processes Necessary to meet new reform-related requirements for tax-exempt hospitals Develop costing and pricing capabilities Under reform, ability to cost and price across the continuum of care is essential Cost to charge ratios are no longer a sufficient costing mechanism Move toward flexible pricing capabilities Gain an understanding of service costs Learn to reassemble costs in flexible packages that represent payment bundles or episodes Be prepared to price services based on outcomes Work toward tracking costs and utilization patterns across care settings and through longer periods 19 19

20 Where to Start What to Do How to Do It
TRANSFORMATION Where to Start What to Do How to Do It Focus on measures or metrics that impact: Reputation Comparisons on quality and outcomes Payment Hospital-acquired conditions Readmissions Collaborate Private payers Employers Physician groups Vendors Local governments Community organizations Collaborate: Share successful practices across the organization 20 20 20

21 Develop Risk Management Abilities
TRANSFORMATION Develop Risk Management Abilities Assess Exposure to Reform Risks Understand Strengths and Weaknesses Develop Strategies to Mitigate Risk Payment risk Execution risk Market risk Cost position Service offering Physician relationships Technology Clinical staff Management infrastructure Negotiating position Public perception/ quality Demographics Process re-engineering Service divestiture/ development Integrate with physicians and postacute care Invest in clinical and administrative decision support Collaborate with payers Align with high quality providers Source: Healthcare Financial Management Association 21 21

22 Become More Customer-Centric
TRANSFORMATION Become More Customer-Centric Improve customer service Build on your understanding of your patients Design services tailored to their needs Prepare for greater transparency Employers and plans are looking to cost and quality metrics as a way to control costs This could increase domestic medical tourism Tailor the delivery of community benefit to meet community needs Articulate community benefit clearly Look for opportunities to increase community benefit Improve customer service (key aspect of quality) Use your understanding of patient segments within your area to design services catered to these groups Prepare for transparency Proliferation of  cost/quality metrics will likely lead to an increase in domestic medical tourism as employers and plans look to control costs Focus on understanding overall community needs and tailoring the delivery of community benefit Look to be able to crisply articulate the benefits your organization provides to the community Look for opportunities to increase community benefit (especially as they align with opportunities to address socio-economic problems that contribute to poor quality health outcomes in your community) 22 22 22 22

23 TRANSFORMATION Reason for Optimism: Responses to Recession Helped Us Prepare for Reform Improved results from process improvement Increased attention to business performance Increased collaboration between finance & operations Increased consideration of clinical business performance Increased awareness of business performance among nonfinancial staff Improved perception of finance as a resource Increased consideration by physicians of business performance Increased consideration by nurses of business performance 84% 83% 82% 81% 77% 67% 58% Highly Agree Somewhat Agree 55% Source: Healthcare Financial Management Association 23

24 RESOURCES: How HFMA Helps You Step Up

25 How HFMA Helps Driving value in an era of reform
RESOURCES How HFMA Helps Driving value in an era of reform Achieving revenue cycle excellence Building relationships and community at the chapter level 25 25 25

26 Driving Value in an Era of Reform
RESOURCES Driving Value in an Era of Reform INTEGRATION Successful integration models Methods to align incentives Techniques for improving finance- clinician engagement Cases in lowering costs and improving quality of clinical care HFMA Payment Reform White Papers Leadership publication hfm magazine Healthcare Financial Pulse Report: “The Evolution of Physician-Hospital Relationships” WHERE to LOOK Check printout 26 26 26

27 Driving Value in an Era of Reform
RESOURCES Driving Value in an Era of Reform COLLABORATION Achieving high operating margins while improving clinical quality Demystifying managed care for clinicians Working with payers on care coordination strategies “Accountable Care: The Journey Begins,” hfm magazine CASE STUDIES Leadership publication hfm magazine HFMA’s online Knowledge Center WHERE to LOOK 27 27 27

28 Driving Value in an Era of Reform
RESOURCES Driving Value in an Era of Reform STRATEGIC & CAPITAL DECISION-MAKING Improving strategic and financial planning Accessing and allocating capital “Squeezing the Funding You Need from Today’s Capital Sources,” hfm magazine Identifying and responding to risk Taking advantage of growth opportunities Strategic Financial Planning newsletter hfm magazine CFO Forum HFMA’s online Knowledge Center WHERE to LOOK 28 28 28

29 Achieving Revenue Cycle Excellence: A Comprehensive Strategy
RESOURCES Achieving Revenue Cycle Excellence: A Comprehensive Strategy Measure performance Apply evidence-based strategies for improvement Measure. Apply. Perform. Perform to the highest standards across the board Helps healthcare finance professionals ensure the health of their institutions and generate more resources to support the mission of care 29

30 Indicators of Revenue Cycle Excellence
RESOURCES Indicators of Revenue Cycle Excellence Improve business intelligence Strengthen revenue cycle management Decide where to focus—based on industry-created metrics— for improvement Measure. Apply. Perform. 30

31 The Tool for Revenue Cycle Excellence
RESOURCES The Tool for Revenue Cycle Excellence Track your organization’s performance throughout the revenue cycle Compare results against industry-wide trends and against peer groups facing similar challenges Measure. Apply. Perform. 31

32 Recognizing Revenue Cycle Excellence
RESOURCES Recognizing Revenue Cycle Excellence Winners are announced at ANI and recognized as distinguished industry leaders Measure. Apply. Perform. All HFMA members can benefit as winners share their proven strategies for revenue cycle excellence at the annual MAP Event Sponsored by: 32

33 Leading for Revenue Cycle Excellence
RESOURCES Leading for Revenue Cycle Excellence Learn from MAP Award Winners Instill best practices and lead for success Push performance on the indicators Motivate and reward employees Become a healthcare leader recognized for excellence Join the industry’s commitment to higher standards, greater accountability, and improved performance throughout the revenue cycle. November 7-9, 2010 Coronado Island Marriott Resort & Spa San Diego, California  Measure. Apply. Perform. 33

34 Building Relationships and Community at the Chapter Level
RESOURCES Building Relationships and Community at the Chapter Level “The heart of HFMA's benefits is the opportunity to build relationships with other members. From those relationships flow the opportunities to learn, to grow in your career, and to feel part of a community.” David Canfield Chair, HFMA 34

35 Step Up and Make It Happen
CLOSING THOUGHTS Step Up and Make It Happen The 40/70 “Powell” Rule Collect More Information Window of Opportunity Too Late for Meaningful Action You Are Here 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Degree of Certainty “Once the information is in the 40% to 70% range, go with your gut. Don't wait until you have enough facts to be 100% sure, because by then it is almost always too late.” Colin Powell 35 35


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