MichPHA Fall ForumA Health System PerspectiveRob Casalou, President & CEO, St. Joseph Mercy Hospitals, A Member of Trinity Health

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Approach to Coverage

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Implications for Providers• Coverage Expansion & Insurance Reform

– Expanded demand for primary care and diagnostic services will stretch (or exceed) capacity

o Alternative access points (retail clinics, online and telephonic communication) as well as higher throughput (clinics, urgent care, ED) will be required

o Primary care physician shortage likely to become more acuteo Physician alignment strategies become more importanto Access could still be impaired if physician reluctance to serving Medicaid

population is not overcome

– Reductions in number of uninsured (lower charity care/bad debt) are not likely to be sufficient to offset payment reductions from Medicare and growth in poorly reimbursed Medicaid

– Maximizing enrollment of the uninsured will be important and will require collaboration with state and local organizations

– Administrative simplification provisions will have technical and financial challenges during implementation

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Financing & Revenue – Paying For Reform

Source - The Advisory Board Company

Congressional Budget Office (CBO) estimates coverage

components of new law will cost $938 billion over ten years

financed through a combination of savings from Medicare and

Medicaid and new taxes and fees

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Implications for Providers

• Paying for Reform– Persistent downward price pressure reflects payer indifference to

provider cost inflation

– Cost containment is ongoing imperative

– Focus on productivity, not wages, to control cost as workforce demands exceed supply and shortages loom

– Below cost reimbursement rates of government payers will challenge hospital economics driving need for lower-cost delivery models

– Industry fees for insurers, medical devices and drug manufacturers will put upward pricing pressure on supply chain and contract negotiations.

– Reductions in Medicare Advantage (MA) reimbursement will drive down the number of MA plans but plans that coordinate care are sustainable in the long run

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Delivery Reform and Payment Alignment• Pilots

– Medical Home– Bundled payment– Accountable Care Organizations

• Incentives for value (Quality/efficiency)– Primary care payment enhancements– “Value index” based on IOM study and fast-track passage– Geographic payment disparities– Value-based purchasing

• Penalties for poor outcomes– Avoidable readmissions– Certain Hospital Acquired Conditions

• CMS Innovation Center

• Comparative Effectiveness Research

“Bending the cost curve”

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Implications for Providers

• Delivery Reform and Payment Alignment– States will play key role in getting access to many delivery reform

funding opportunities

– Promotion of new incentives, care innovations will intensify revenue challenges

o New payment methodologies will force traditional business models and organizational designs

o Changes in reimbursement models will require providers to invest in new assets and new relationships

– Value-based physician alignment foundational to future successo Hospitals and physicians will need to accept their growing

interdependence to create organizational structures and incentive models that are strategically aligned and mutually rewarding

– Chronic disease management will emerge as vital competency

– Information-powered care will enable clinical and financial success

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Key Conclusions

• If you are selling acute care (hospital) services you are…..

– selling a product no one wants to buy but that people need (e.g. commodity)

– selling a product that is the most expensive on the health care continuum (e.g. minimization)

– selling a product with high demand for quality (e.g. transparency & regulation)

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Key Conclusions (continued)

• Consumers want the least intense experience with health care as necessary

• Those who pay want the most effective and low cost bill for health care services possible

• Health Care Reform appears to be pointing consumers to the front end of the health care continuum (prevention & wellness) rather than the back end (hospitals, home care)

• Hospital/Physician alignment models are central to all health systems current strategic plans

• We have to sell a product that people want, provide a product that people need and do all of it with perfect quality