The Economics of Health Care ACC-OC May 2013

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

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

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

FISCAL CONTRIBUTION OF HOSPITAL INDUSTRY (2010) Income taxes (including profits taxes) Sales taxes Property taxes Fees and fines Social insurance Other taxes Total (millions) $ $ 691.9

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

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

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

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 6, (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 (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. $235.6B$2,330.1B Source: American Hospital Association National Health Expenditures By Category

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

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

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

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 Source: OSPHD 2010, Deloitte Analysis Methodology: Percentage of CA hospitals profitable under Medicare calculated using per episode Market Basket cost and revenue A substantial proportion of the hospitals that are profitable today will not be profitable at Medicare rates

Covered CA IncomeSubsidyMo. PremiumMax Out of pocket Single mom, 3 kids $35,000$7,416$114$12,800 Married Indiv$40,000$4,836$276$6,400 Single 40-yr old, no kids $50,000--$332$4,000 - $6,400

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

Julie Puentes Regional Vice President Hospital Association of Southern California