economic forecast 2014 health care focus: craig cordola, ceo memorial hermann hosp. oct. 17, 2013
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Craig Cordola, CEO of Memorial Hermann Hospital -Texas Medical Center in Houston, joins McCombs Finance Professor Jay Hartzell, Keith W. Maxwell of Spark Energy, and Greg Peters of Zillant to take a look ahead at not just the national economy as a whole, but also at the state of Texas. Under the Affordable Care Act, managed care patients will migrate to the insurance exchanges, and become unprofitable patients, Cordola said.TRANSCRIPT
Craig Cordola2014 Economic Forecast
CEO, Memorial HermannTexas Medical Center
October 17, 2013Federal Reserve Bank-Houston Branch
Economic Forecast 2014Healthcare
Craig Cordola, MBA, MHAChief Executive OfficerMemorial Hermann-Texas Medical Center
Economic Forecast Healthcare• A Patient’s Reality• Memorial Hermann • Economics of Healthcare• Healthcare Reform• Economic Impact of Healthcare Reform
A PATIENT’S REALITY
MEMORIAL HERMANN
Memorial Hermann-Texas Medical Center
ECONOMICS OF HEALTHCARE
Economics of HealthcareHospital Reimbursement
Self Pay Medicaid* Medicare Managed Care HIE $-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$0.15
$0.52
$0.85
$1.62
$0.52
$0.85
Reimbursement per $1 Cost
* Does not include incremental cost containment measures; e.g. 40% reduction payment for non-emergent care in the Emergency Department.
Economics of HealthcareWhat is a dollar of revenue really worth?
• Assuming $1.00 of gross revenue
• 66¢ is discounted out due to contractual discounts (DRG payments, pre arranged private insurer payments)
• 28¢ goes to “controllable” costs, led by labor and supply costs
• 5¢ goes to “non controllable” costs
• At the end of the day, hopefully left with 1¢
Economics of HealthcareHealthcare Payment Streams
Source: “Value in Healthcare: Current State and Future Directions”. HFMA Value Project. June 2011. Healthcare Financial Management Association. October 4, 2013 <http://www.hfma.org/Content.aspx?id=1126>.
PATIENT PROTECTION AND AFFORDABLE CARE ACT… aka HEALTHCARE REFORM
Healthcare ReformFragmented Industry
Medicare spending is expected to nearly double over the next decade.
Source: Congressional Budget Office
Healthcare ReformPublic Model Sustainability
Healthcare ReformPrivate Model Sustainability
Cumulative increases in health insurance premiums, workers’ contributions to premiums, inflation and workers’ earnings.
Source: Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 1999–2012.
Healthcare ReformWhy Change?
Source: OECD, “Health at a Glance”, November 23, 2011
Healthcare ReformClinical Outcomes
Source: OECD (2011), Health at a Glance 2011: OECD Indicators, OECD Publishing.
Healthcare ReformLife Expectancy
Many people in other countries live longer at a lower cost per capita.
Healthcare ReformAffordable Care Act• Fundamentals
– Individual Mandate– Employer Mandate– Medicaid Expansion– Funding/Taxes/Penalties
Healthcare Reform Individual Mandate• Individual Mandate
YEAR PENALTY2014 Greater of $95 or 1% of income
2015 Greater of $325 or 2% of income2016+ Greater of $695 or 2.5% of income
Healthcare ReformEmployer Mandate• “Free Rider Surcharge” assessed to employees with 50 or
more full-time employees (30+ hours/week)• Must provide “qualifying” and “affordable” coverage
– Qualifying: plan design is expected to pay at least 60% of allowed charges
– Affordable: required contribution for self-only coverage can’t exceed 9.5% of employee’s household income
Penalty• $2,000 x total number of employer's FTE (first 30 FTEs disregarded)
Healthcare ReformMedicaid Expansion• Expansion of State Medicaid programs
– 20 States have declined
• Creation of Health Insurance Exchanges– 25 States have declined
• Requires states to expand Medicaid to 133% of Federal Poverty Level (FPL)– Approximately $30,000 per year for a family of four
Healthcare ReformFunding/Taxes/Penalties• 50% Funding through Medicare and Medicaid reductions• 50% Funding through Taxes and Penalties
– 0.9% (to 2.35%)Tax rate increase for Medicare Part A on earnings over $250K– 3.8% Tax on Passive/Unearned income for earners above $250K– 27.4% reduction in Medicare Physician Reimbursement (SGR)– 10% tax on Tanning services– 2.3% tax on Medical Devices– 40% tax on High Value Health Plans (Cadillac Tax)– $2.00 per covered life for Health Exchange companies– Reduction in hospital payments (Value Based Purchasing) of $428B
USA Today, October 13, 2013
ECONOMIC IMPACT OF HEALTHCARE REFORM
• Value determines sustainability across all economic sectors
• The sustainability of the current U.S. healthcare system is directly connected to the value it delivers
• The market not only demands value, but rewards value
ValueQuality*
Cost_____________=
*Quality = Outcomes, Safety, Service
Economic ImpactProvider Impact
Economic ImpactProvider Impact
Source: Fixing the Doctor Shortage. American Association of Medical Colleges. Retrieved October 4, 2013, from https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/.
Economic ImpactProvider Impact
• Projected shortfall of 90,000 physicians within the next 10 years– 45,000 primary care physicians– 46,000 surgeons and specialists
• Medical schools are increasing enrollment, but…
• There is a cap on the number of federally supported residency training positions
Number of physicians will increase 7% by 2020. The number of Americans older than 65 will increase by 36% in the same period of time.
• Texas ranks 4th among states in keeping its physicians but still ranks 42nd in physician to population ratio
• Not enough primary care doctors in 50% of Texas counties to care for an aging population
StatePopulation
increase over last 20
years
Physician increase
over last 20 years
Physician Population per 100,000
1990
Physician Population per 100,000
Today
Today’s Rank of
Physicians per 100,000
Med School Graduate Retention
Rank
GME in State
Retention Rank
Med School + GME
Retention Rank
California +7.5 million +15,000 272 262 20t 1 2 5
Florida +5.9 million +15,000 251 231 19 8 4 7
Illinois +1.4 million +6,000 229 236 20t 27 14 33
Massachusetts +0.5 million +5,000 364 400 1 10 31 37
Mississippi +0.4 million +1,500 144 174 50 5 13 9
New York +1.3 million +7,500 339 331 3 26 21 35
Ohio +0.7 million +6,300 213 227 17 23 29 23
Pennsylvania +0.8 million +6,000 256 255 9 31 35 35
Texas +8.1 million +17,000 188 200 42 2 7 4
Economic ImpactProvider Impact
Economic ImpactEmployer Impact
• Full-time equivalents.• n=72 franchisees, all industries.• n=1,203 employers.
31% Franchisees that plan to cut jobs to stay under 50-employee threshold2
32% Retail and hospitality companies that plan to “change workforce strategy” to avoid penalties3
Strategies to Avoid ACA Penalties
Cut jobs to remain under 50 FTEs1
Convert full-time employees to part-time status
Hire all new employees at part-time status
Split into smaller companies with fewer than 50 FTEs
Source: Reynolds J and Merin J, “Business Leaders Give 2013 Outlook Mixed Reviews,” International Franchise Association, January 2013, available at: www.franchise.org; Mercer, “Health Reform Poses Biggest Challenges to Companies with the Most Part-Time and Low-Paid Employees,” August 8, 2012, available at: www.mercer.com; “Regal Entertainment Group Cuts Employee Hours, Explicitly Blames Obamacare in Memo: Report,” The Huffington Post, April 17, 2013, available at: www.huffingtonpost.com; Health Care Advisory Board interviews and analysis.
Economic ImpactEmployer Impact
• Employer-sponsored insurance.
• Consumer-directed health plan.
Individuals Covered by ESI1
23%Employers planning
to offer CDHP2 as only plan option, 2014
25%Insured non-elderly adults with deductibles
$1,000 or higher, 2012
Non-elderly Population
2000 2011
69.7%
59.5%
11.5M fewer individuals
Contribution to Insurance PremiumsCoverage for Family of Four
$5,866
$2,137
$11,429
$4,316
2002 2012
Employer
2002 2012
Worker
95% growth
102% growth
Sources: Sonier J, et al., “State-Level Trends in Employer-Sponsored Health Insurance,” Robert Wood Johnson Foundation, April 2013, available at: www.rwjf.org; Collins R, et al., “Insuring the Future,” The Commonwealth Fund, April 2013, available at: www.commonwealthfund.org; Towers Watson, “Reshaping Health Care,” 2013, available at: www.towerswatson.com; Health Care Advisory Board interviews and analysis.
BUT, AT THE END OF THE DAY….