1. Hospitals Andrew Zullo, PharmD March 12, 2014

2. Who am I? Pharmacist, Rhode Island Hospital 2 nd -Year PhD Student, Health Services Research Hospitals where I trained as a PharmD: – University Medical Center of Princeton – Jersey Shore University Medical Center – Robert Wood Johnson University Hospital – Shore Medical Center

3. Lecture Goals Definitions/classifications History Important trends Cross-Subsidization Health care reform Non-physician hospital careers (longitudinal)

4. Imagine......that a family member is feeling ill enough to require hospital care. Several hospitals are equidistant from your home. You must decide which hospital to take your loved one to. You don’t have enough time to research quality ratings or details about the services each hospital offers. How do you narrow your options to make a decision? Is your loved one eligible for care at all of the choices? Which will provide the most appropriate and cost- effective care for your loved one?

5. Types of Hospitals: Ownership/Control Government (public, funded by tax dollars) – Federal: Veterans Affairs (VA), Indian Health Service (IHS), military, prisons – State/Local: Psychiatric, city, county-run hospitals Non-government (private) – Not-for-profit/Voluntary: Exempt from taxes – For-profit chains: Owned by stock holders

6. Distribution of Hospitals by Type, 2014 Source: American Hospital Association, Fast Facts on US Hospitals, January 2014 http://www.aha.org/research/rc/stat-studies/fast-facts.shtml

7. Types of Hospitals: Public Control Community hospital – Facilities are available to the general public. – Usually provides short stays. – Excludes federal hospitals. Non-community hospital – VA: serves veterans of armed services. – Institutional hospitals: prisons, universities. – Long-stay hospitals.

8. Distribution of Hospitals by Type, 2014 Source: American Hospital Association, Fast Facts on US Hospitals, January 2014 http://www.aha.org/research/rc/stat-studies/fast-facts.shtml

9. Types of Hospitals: Private, Non-profit Non-profit organizations DO make profits Earn tax exempt status by providing public good and not distributing profits to individuals – Regulated by IRS and state designated office – Exempt from most federal, state and local taxes (income, sales and property) Do non-profits deliver community services commensurate with the tax advantages they receive?

10. Types of Hospitals: Private, For-profit Can distribute profits to share holders Must pay all taxes More flexibility to raise revenue and capital from share holders

11. State Variation in Private Ownership Data source: Kaiser State Health Facts, “Hospitals by Ownership Type, 2010” from AHA Annual Survey by HealthForum, Inc. Percent of Community Hospitals that are Non-Profit, 2010

12. Types of Hospitals: Non-ownership Classifications Length of stay – Short stay (≤30 days) – Long stay (>30 days) Long-term rehab, chronic ventilator patients Teaching vs. non-teaching Number of beds General vs. specialty – Psychiatric, tuberculosis, children’s, rehabilitation Safety net, Disproportionate Share Hospitals

13. Take-home Points Understand descriptions for hospitals Hospitals may fall into multiple categories Appreciate that “non-profit” hospitals often behave very similarly to “for-profit” hospitals in markets

14. Types of Hospitals: Careers Allison – Project Manager, Strategic Planning and Innovation – Cancer center in New York – Analyze new markets for outpatient site expansion, develop strategies to reduce inpatient bed demand Louise – Project Manager, Patient Safety – Safety net hospital in Cambridge, MA area – Automating follow-up and referrals for patients with abnormal test results

15. History Hospital Survey and Construction Act or the Hill-Burton Act in 1946 – Prompted by hospital shortage following WWII – Provided federal grants and guaranteed loans to states for hospital construction – Goal of 4.5 beds per 1000 people – Very successful; allowed even small, remote communities to have their own hospitals

16. History By 1980, the US had reached its goal of 4.5 community hospital beds per 1000 population 1970 to 1980: Hospital costs more than tripled – Medicare hospital spending up from about $5B/year to about $25B/year 1983: Prospective Payment System (PPS) introduced

17. History Prospective Payment System (PPS) – Hospitals received a predetermined fixed rate of reimbursement for each hospitalization based in diagnosis-related groups (DRGs). – Efficient hospitals could do well under PPS. – Inefficient hospitals could easily lose money. Many hospitals closed or downsized – Rural hospitals hit hard.

18. Table 8.1: Share of National Expenditures for Hospital Care Source: CMS, Office of the Actuary. From Shi & Singh, Delivering Health Care In America: A Systems Approach, p. 298.

19. Distribution of National Health Expenditures, by Type of Service (in Billions), 2010 Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc. Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2010; file nhe2010.zip).http://www.cms.hhs.gov/NationalHealthExpendData/ NHE Total Expenditures: $2,593.6 billion Nursing Care Facilities & Continuing Care Retirement Communities, $143.1 (5.5%)

20. Key Trends for Hospitals Shift from inpatient to outpatient setting – Fewer hospitals – Fewer hospital beds – Fewer hospital stays on a population basis – Shorter length of stay Increasing consolidation – Economies of scale – More market share  more bargaining power

21. Figure 8.3: Ratio of Hospital Outpatient Visits to Inpatient Days (all hospitals), 1980-2008. Source: Data from Statistical Abstract of the United States, 2002, p. 110; Statistical Abstract of the United States, 2011, p. 117; US Census Bureau. From Shi & Singh, Delivering Health Care In America: A Systems Approach, p. 298 Shift from inpatient to outpatient

22. Figure 8.1: Trends in the Number of Community Hospital Beds per 1,000 Resident Population. Source: Data from Health United States, 2002, p. 281; Health United States, 2010, p. 356; National Center for Health Statistics. From Shi & Singh, Delivering Health Care In America: A Systems Approach, p. 297. Decline in hospital beds

23. Decline in hospital stays and days

24. Consolidation Mergers picked up in the 1990s – Combine some administration roles – Increased bargaining power with private insurers ACA encourages further consolidation – Slowing of payment increases for inpatient stays – Penalties for readmissions – Emphasis on prevention – Accountable Care Organizations

25. Chart 2.9: Announced Hospital Mergers and Acquisitions, 1998 – 2012 Source: Irving Levin Associates, Inc., The Health Care Acquisition Report, Nineteenth Edition, 2013. (1) In 2006, the privatization of HCA, Inc. affected 176 acute-care hospitals. The acquisition was the largest health care transaction ever announced. (1)

26. Challenges for Hospital Industry Rising demand and constrained capacity – Medicare and Medicaid payment shortfalls – Decreased access to capital – Shortages of workers, including nurses Rapidly rising input costs Regulatory burden

27. Largest Purchaser: Government § §Not per capita. Hospitalizations (but not the hospitalization rate) are increasing over time due to population growth.

28. Chart 4.7: Hospital Payment Shortfall Relative to Costs for Medicare, Medicaid, and Other Government, 1997 – 2009 (1) Medicare Medicaid Other Government Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals. (1) Costs reflect a cap of 1.0 on the cost-to-charge ratio.

29. Key Trends: Careers Marie – Senior Analyst, Research & Insights Dept. Interview health systems to learn about innovative primary care models (medical homes) Profile best practices for client hospitals Tim – Clinical Pharmacist, Transitions of Care Performs discharge education, medication reconciliation, and home visits to provide follow-up care Devises and evaluates new transition-of-care models to effectively transfer services to the outpatient setting

30. Cross-Subsidization The idea that hospitals lose money on Medicare and Medicaid patients and have to make it up on private patients.

31. Chart 4.6: Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare and Medicaid, 1992 – 2012 Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2012, for community hospitals. (1) Includes Medicare Disproportionate Share payments. (2) Includes Medicaid Disproportionate Share payments. Private Payer Medicaid (2) Medicare (1)

32. iClicker-Consultant-for-a-day How would you advise hospitals to stay afloat? A.Lobby Congress for better Medicare/Medicaid reimbursement B.Consolidate with other hospitals C.Cut costs D.Try to attract patients from private insurers that pay well

33. Chart 4.9: Number of Bond Rating Upgrades and Downgrades, Not-for-profit Health Care, 1994 – 2012 Source: Moody’s Investors Services. Moody's: 2012 Not-for-Profit Healthcare Sets New Record in Downgraded Debt. February 12, 2013. Upgrades Downgrades 10 30 50 70 50 30 10

34. Vacancy Rates for Selected Hospital Personnel, March 2010

35. Chart 5.12: National Supply and Demand Projections for FTE RNs, 2000 – 2020 Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration. (2004). What Is Behind HRSA’s Projected Supply, Demand, and Shortage of Registered Nurses? Link: http://dwd.wisconsin.gov/healthcare/pdf/behind_the_shortage.pdf. Shortage of over 1,000,000 nurses in 2020

36. Rising Demand and Constrained Capacity Increasing pressure in Emergency Departments. Increasing visits to Outpatient Departments. Shifting post-acute care to skilled nursing facilities and home health care.

37. Government regulation of health care is cumbersome and confusing…

38. Abbreviations of Regulatory Entities OIG: Office of the Inspector General PRRB: Provider Reimbursement Review Board DME: Durable medical Equipment PRO: Peer Review Organization FDA: Food and Drug Administration DOT: Department of Transportation OSHA: Occupational Safety and Health Administration DOJ: Department of Justice FBI: Federal Bureau of Investigations DOL: Department of Labor NRC: Nuclear Regulatory Commission JCAHO: Joint Commission on Accreditation of Healthcare Organizations HHS/NIOSH: Health and Human Services/National Institute for Occupational Safety and Health HHS/HRSA: Health and Human Services/Health Resources Services Administration FCC: Federal Communication Commission FTC: Federal Trade Commission EPA: Environmental Protection Agency IRS: Internal Revenue Service SEC: Securities and Exchange Commission OPO: Organ Procurement Organization FAA: Federal Aviation Administration DEA: Drug Enforcement Administration

39. The cost to keep up with advanced technology is staggering. “Traditional”ContemporaryNext Round Technology X-Ray Machine $175,000 Open Surgery Instrument Set $10,000 Cardiac Balloon Catheter $500 Scalpel $20 CAT Scanner $1,000,000 Laparoscopic Surgery Set $15,000 Stent $2,300 Electrocautery $12,000 CT Functional Imaging with PET $2,300,000 Robotic Surgical Device $1,000,000 TreatedStent $5,000 Harmonic Scalpel $30,000 © 2002 UniversityHealth SystemConsortium

40. Take-home Points Be able to describe the many challenges hospitals face. Hospitals account for 30% of healthcare costs: we cannot solve the cost problem without reducing hospital costs. Remember that cost is only part of the value proposition; quality is the other part.

41. Key Challenges: Careers Catherine: Consultant, focus on clinical information systems Electronic health record system implementation. Helping hospitals use technology appropriately to improve quality and efficiency. Laura: Litigation Specialist, legal services Barriers to care for individuals with disabilities. Negotiations to improve hospitals’ compliance with the Americans with Disabilities Act.

42. Specialty Hospitals Diagnoses of two thirds of a facility’s Medicare patients fall into no more than two major classifications (GAO). – Cardiac, orthopedic, or general surgical services Growth began around 1990 due to: – New technology, available capital – Supportive health policies – Desire of physicians for independence from hospitals

43. Legal Issues: “Self-Referral” Physician “self-referral” – MD refers patients to a facility in which the physician has a financial interest of any kind (ownership, investment, or structured compensation arrangement). Stark Laws (1989): Prevented self-referral for Medicare and Medicaid patients. Many states enacted similar laws for privately insured patients also.

44. Legal Issues: “Self-Referral” The whole-hospital exception: – Allows self-referral when the physician has an ownership interest in the entire hospital. – Rationale: An individual physician’s ownership interest in such a large entity is unlikely to significantly influence physician behavior. Ambulatory surgical center exceptions: – Rationale: Delivers care at lower cost.

45. Iglehart JK. NEJM 2005;352:68-84 Hello, Loophole

46. Why the Controversy? Cherry-picking or cream-skimming – MD’s refer low-risk, profitable private patients. – Community hospitals left with Medicaid, Medicare, and free care patients. – Specialty hospitals often do not have ERs. Higher utilization – Ownership = more services/procedures ordered. – Provider-induced demand.

47. Specialty hospitals serve fewer low income patients. Chart 22: Medicaid as a Percent of All Patient Discharges, 2002 Source: Medicare Payment Advisory Commission, Physician-owned Specialty Hospitals, March 2005. Physician-owned

48. Increasing Government Restrictions Medicare Modernization Act (2003) – 18 month moratorium on the development or expansion of specialty hospitals was imposed. Moratorium was lifted (2005) – In 5 years, the number of physician-owned hospitals increased from 100 to 260. Affordable Care Act (2010) – Restricts existing physician-owned hospitals from adding beds, procedure rooms, and operating rooms. – Reduces Medicare payments to specialty hospitals.

49. Take-home Points Regarding Hospitals Hospitals are big, important players in the healthcare game. Many kinds of hospitals facing many different pressures. Tremendous pressure to reduce costs AND improve quality. Specialty hospitals: growth capped by ACA. Physician ownership and self-referral: keep an eye on the battle surrounding this area.

50. In the news and other unique careers... Laura Landro, Wall Street Journal