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 Era14

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 Up24

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