the latest healthcare financial trends: what you need to know

The Latest Healthcare Financial Trends: What You Need to Know

Bobbi Brown, Senior Vice President, Professional Services

Dorian DiNardo, Senior Vice President, Analytics

© 2017 Health Catalyst

Proprietary and Confidential

Overview Agenda

• Review of 2017 trends.

• Areas for 2018.

• Transitions in payment.

• Disruption from all areas.

• Emerging skillsets.

• Preparation and response.



Bobbi Brown

Finance background and enjoys working with

clinical/operational to make change.

Professional services:

• Long range financial planning.

• Cost management.

• ROI analysis.

Partner in road trip



Dorian DiNardo

Information technology integration background and enjoys a

challenge.

Operations and Performance

Management Product Line:

• Leading Wisely.

• Measures Business Library.

• MACRA Measures and Insights.

• Community Care.



2017 Projections Update from Last Year

Physicians feel pinch

Technological advancement

Financial viability

Tolerate risk

Population health

Outcome improvement

Collaboration

No

Yes

Slower



Four Issues Facing Healthcare Systems

1. Financial pressure.

2. Uncertainty on health reform.

3. Mergers with new challenges.

4. Cut cost and innovate simultaneously.

Becker’s Hospital Review Conference Sept 27, 2017



Poll Question #1

What do you think will be the biggest impact to your organization in

2018? 116 Respondents

1. Payment/Payer influence. – 46%

2. Cost. – 21%

3. Technology. – 13%

4. Mergers and acquisitions. – 7%

5. Resources and staffing. – 14%

Trend #1:Transitions in

Payment Models



Transitions in Payment Models

• Uncertainty.

• Trend - value-based purchasing continues.

• Markets vary.

• Risk – up and down (only 5% of MSSP ACOs in downside).

82.8%

• Commonwealth Fund fact:

Four large insurers account for

83% of total market



More ACOs

At the end of first quarter 2017, there were 923 ACOs across the U.S.,

which cover 32 million lives. Compared to the same period in 2016,

this is a net growth of 92 ACOs (138 started operations; 46 dropped

their contracts).

831

923

780

800

820

840

860

880

900

920

940

2016 2017

Number of ACOs

10% growth

Source: Health Affairs Blog, June 2017



Payment Models ReviewModel Results

ACO

CMS- Pioneer, 32 to 8 org.

Next Generation, 18 org.

MSSP, 432 org (4th year).

CMS Models for 2016.

Pioneer (6 of 8 ) $68 M in savings.

Next Generation (11 of 18) $71M in savings, all

met quality at 100%.

MSSP (134 of 432) $700 M in savings.

Bundle

Voluntary BPCI- model 2 most popular

covering 242,000 episodes in first two years.

Major joint 60%.

Congestive heart failure 27%.

Lewin released 500 page study on third year of

program.

Mandatory- CJR (first year), 800 org in 67

markets.

Beginning to see change.

4.5% lower payment achieved over FFS.

Greatest impact on PAC.

Models in larger, urban, more affluent areas.

Voluntary program.

Few statistically differences in quality.

CJR(382 of 800) earned $37.6 M in reconciliation

payments.

90 Day readmit dropped 2% hip, 4% knee.



Explaining Sluggish Savings Under Accountable Care

Framework Description

Incentives Too weak to change behavior.

Number of enrollees small for

comprehensive change.

Experience Little existing knowledge for needed change

Time needed to create solutions.

Complexity of organization Foundational work.

Complexity of large organizations.

Source: NEJM Article, November 9, 2017



CMS Proposes Cancellation of Cardiac Bundles

• Proposed start January 2018, Second delay.

• Mandatory bundle for heart attack bypass.

• Incentive for cardiac rehab.

• Scale back existing CJR - cut number of

geographic areas in half.

August 2017 proposal with comment period until October 2017.



1 in 4 Medical Payments Linked to APM

62%43%

23%

29%

15%28%

2 0 1 5 2 0 1 6

PAYMENT CATEGORIES

FFS APM P4P

6% increase

Goals for CMS/LAN APM:

• 30% in 2016.

• 50% in 2018.

Representing 245M Americans.

CMS active in payment

transformation.

Alternative Payment Model (APM)

Source: Health Care Payment Learning and Action Network Report



Humana Making Progress, Seeing Results

• Value Based Agreements

• 16.2% of PCP payments covering 51,500 physicians, 1.9 M Medicare

Advantage members.

• Cost 15% lower.

• Outcomes 7% lower ED visits.

• 6% lower hospital admissions.

• Prevention

• 13% higher colorectal screenings.

• 8% higher breast cancer screenings.



NYC Health & Hospitals- 4 Years of Savings

• MSSP Results

• Reduced costs between 4-12%, Savings of $3.6M in 2016.

• 90% score for quality.

• Perfect score for “at-risk” measures.

• Needed

• Data.

• Framework.

• Engaged front-line.

Source: Healthcare Finance, Nov 9, 2017



Post ACA

Trends in provision of preventive cardiovascular services.

Diabetes screening: 3.9%

Source: American Journal of Managed Care, November 2017

7.6%

2006-2010 2011-2013VS

Tobacco use screening: 64.4% 74.5%

Aspirin therapy: 11.1% 13.5%

Hypertension screening: 73.2% 76.4%



Innovation and Transformation in Payment

Seema Verma, CMS Administrator

Verma outlined her new direction for the Center for Medicare and

Medicaid Innovation, which includes a continued focus on value and

movement away from paying for volume. Also seeking to reduce

complexity and focus on outcomes, and working to increase choice

and competition in the healthcare market; the goals are providing price

transparency and empowering beneficiaries as consumers.

Source: September 2017 Wall Street Journal article

https://innovation.cms.gov/

https://www.wsj.com/articles/medicare-and-medicaid-need-innovation-1505862017



Verma’s Vision for Medicaid

• Return to federal-state partnership.

• Freedom in the waivers to design innovative programs.

• Favor proposals with community

involvement/work activities.

• Create scorecards to monitor

and increase accountability.

• Streamline process and reporting.

Source: CMS, November 7, 2017.

• Currently there are 33 states with waivers and 18 states have pending waivers.



Final Quote

I think APMs are here to stay, but they’ll continue to morph. With that,

organizational competence in care coordination, informatics,

consumer behavior modification, medical management, and cost

controls will be put to the test.

- Paul Keckley, Keckley Report November 20, 2017



Cost - Needs Increased Focus

The transition to VBP will increase organization’s focus on cost.

Healthcare previously relied on payment increases to meet bottom line

needs, particularly from commercial payers. Organizations see the

expense trend growing faster than the payment trend.

All hospitals 2014-15 2015-16

Revenue 7.4% 6.6%

Expense 6.2% 7.5%

Source: Moody's Investor Services, May update

CA Comparable Hospitals 2014-15 2015-16

Revenue 13.0% 5.5%

Expense 10.0% 7.0%

Source: OSHPD data



Split of Health Dollars Public named prescription

drugs as top health care

priority for President and

Congress.

PwC Health Research

InstituteMedical cost trend projections:

• 2017 ⎯ 6%

• 2018 ⎯ 6.5%



Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) Historical (1960-2014) data from Centers forMedicare and Medicaid Services, Office of the Actuary, National Health Statistics Group (Accessed on December 7, 2015)

After Several Years of Modest Growth, Prescription Drug Spending Rose Sharply in 2014.

Average annual growth rate of prescription drug spending per capita for 1970’s – 1990’s;

Annual change in actual prescription drug spending per capita 2000 – 2014

7.1%

11.8%

10.4%

14.7%

13.7%

12.6%

10.9%

8.1%

5.4%

8.2%

4.2%

1.5%

3.8%

-0.7%

1.5%

-0.6%

1.6%

11.4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

19

70s

19

80s

19

90s

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Prescription Drug Spending

Total Health Spending



Top DRGs by Payment

$0 $1 $2 $3 $4 $5 $6 $7 $8

Renal failure w mcomplications

Sepsis w ventilation

Heart failure with comorid complications

Pneumonia

Life support

Spinal fusion

Heart failure and shock w mcomplications

Infectious/parasitic disease w mcomplications

Major joint replace

Sepsis wo ventilation

2015 Top DRG's by paymentsDollars in billions

Source: CMS data



Components of Medicare Spend Increases

10%

6%7%

3%4%

2%

1%

2%

1%

3%

0%

2%

4%

6%

8%

10%

12%

14%

1980 1990 2000 2010-15 Projected

Medicare Spend

Spend/ben Enrollment

Source: MedPac report March 2017



Spending – Annualized Increase 4% or $933.5 B

Factors associated with increases:

• Population growth.

• Population aging.

• Disease prevalence.

• Service utilization.

• Service price.

Highest conditions with increase:

• Diabetes.

• Low back and neck pain.

• Hypertension.

During same period (1996-2013) overall economy grew 2.4%.

Source: JAMA, November 2017

Conclusion: Largest increase service

price component.



Overall Financial Data for Hospitals

5.6%6.6% 7.3% 6.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2013 2014 2015 2016

Hospital Operating Margin

20

40

60

80

100

120

140

160

180

2013 2014 2015 2016

Days Cash on Hand

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Total Medicare Medicaid Commerical ManagedCare

Contractual Allowance % of GPSR

2013 2016$7,950

$8,000

$8,050

$8,100

$8,150

$8,200

$8,250

$8,300

$8,350

2013 2014 2015 2016

Net Revenue/Case CMI Adjusted

Source: Truven Health Analytics: Health Leaders Oct 2017



Why are Hospitals Losing Money by the Millions?

Hospital contribution to cost hikes:

• Purchasing expensive medical equipment and generating demand.

• Hiring specialists.

• Tolerating massive inefficiencies.

Source: Robert Pearl, M.D., Forbes

Are we stuck with old investments?

Can we change from within or do we need outside forces?



How U.S. Hospitals and Health Systems Can Reverse their Sliding Financial Performance.

Lack of discipline in managing the size of their workforces.

Managing revenue cycle.

Reducing needless variation.

Standardization.

“If health systems are to improve their financial performance, they must

achieve both strategic and operational discipline. If they don’t, their current

travails almost certainly will deepen.”

- Jeff Goldsmith, Harvard Business Review, October 5, 2017



Consumers at Risk

25.3%

39.4%42.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2010 2016 2017QTR1

% Privately Insured in HDHP

0% 10% 20% 30% 40% 50% 60%

Compared costs

Considered another provider

Searched for out-of-pocket estimate

Aware of price before care

Percentage of Patients Shopping

Jumps to 18.4% with higher

deductible

Source: CDC November 2017

Source: Health Affairs, Aug 2017



50 States Graded on Transparency and 43 Fail

C

A

C

Source: Price Transparency & Physician Quality Report Care 2017

“A” Score Transparency:

New Hampshire

Maine

“A” Score Quality:

Minnesota

California

A C

A

C

B

B



Maryland Public Website



Final Quote on Costs

Nobody is going to pay more for healthcare. So we’ve got to bring our

costs down and we have to focus on our patients and our quality. Just

focus on your basics and you’ll be okay.

- Tom Jackiewicz, CEO, Keck Medicine, USC

Trend #2:Disruption From

Established Players and Newcomers

Disruption is a business buzzword that is over-used.



Disruption signs:

• New future.

• New language.

• New economics.

Source: Healthcare Disrupted, Jeff Elton and Anne O’Riordan

Are We at a Tipping Point?

36



“Medicare for All”: Universal Healthcare

“Medicare for All” has become a slogan and movement for universal

healthcare (i.e., a single-payer system). The website claims tentative

support from 27 percent of the members of the House of

Representatives.

http://www.medicareforall.org/pages/Monitor



Maryland – Global Hospital Budget

All payer global budget since 2014.

• Margins are up.

• Readmissions and spend under national trends.

• 48% reduction in potentially preventable complications.

• $429M less spending in Medicare.

• Collaborations with community expanding.



Moving Away From the Inpatient Hospital Business

200,000

300,000

400,000

500,000

600,000

700,000

800,00019

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Outpatient Hospital Visitsin millions

95

100

105

110

115

120

125

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Trend of Admits per Thousand

Source; AHA Chartbook



Break Association of Hospital With Beds

“The more we know about healing, the more it appears that health

care spaces will need a different approach—one that sometimes

looks more like a park than a long fluorescent hallway full of beds"

Source: Neel Shah, M.D., Politico, Nov 8, 2017).

https://www.politico.com/agenda/story/2017/11/08/the-case-against-hospital-beds-000575



New Ideas in all Areas

Designing buildings for an uncertain future.

• Design trends-accommodate evidence-based care, new approaches, ever-

changing models of care.

Source: Modern Healthcare, September 11, 2017

September 2017 article in the Wall Street Journal summarized the

capital spend planned outside the traditional hospital, as both for-profit

and not-for-profit systems invest in emergency rooms, surgery center,

and urgent care clinics.

https://www.wsj.com/articles/warding-off-decline-hospitals-invest-in-outpatient-clinics-1506331804



Tenet Investor Presentation42



2018 HOPD Payment Cut

Site-Neutral Policy

Off-campus provider-based departments that began operating after November 2015 will receive only 40 percent of the payment rates of older departments.

Reason:

Medicare was paying more in hospital outpatient setting than for the same procedure in a doctor's office.

Source: Physicians

Advocacy Institute and Avalere

Hospital Physician Office

Colonoscopy $ 1,066 $ 413

Cardiac Imaging $ 5,148 $ 2,862



2018 OPPS Rule

CMS removed total knee arthroplasties (TKA) for inpatient only list.

Impact per Advisory Board:

• Shift more surgeries to OP: Move 45% Medicare 275,000 cases.

• Lower reimbursement (approximate per case).

• Inpatient $12,400.

• Outpatient $10,100.



Anthem

In August of 2017, insurance plan provider Anthem announced it

would no longer pay for MRIs and CT scans performed at hospitals on

an outpatient basis; this policy will be implemented by March of 2018.

Motive:

• Control cost.

• Lower premiums.

• Help consumer with high-deductible plans.

http://www.modernhealthcare.com/article/20170826/NEWS/170829906



MACRA-Medicare Access and CHIP Reauthorization Act

“We have a better framework to go forward,” said David Barbe, MD,

president of the American Medical Association. “It’s increasingly

looking at the value that care brings. That can be in terms of economic

savings. It can be in terms of improved quality. It can be in terms of

better interaction between physicians and patients.” Barbe also

acknowledged that getting participation from doctors and healthcare

organizations will be difficult.

http://www.healthcareitnews.com/news/ama-president-weighs-pros-and-cons-macra-mips?mkt_tok=eyJpIjoiTUdabFlqazJPREZoTXpFMiIsInQiOiJCRFwvazY5ZDdaeGpKUGtnSlJSOXg5bkRuM0hqNnpOMVY5T3NIdWV2SFFpaEt3Q1hoa2VvenUyQTE0UFgweGlkV0szSkpzaTd1Wk9qYUorTHFKQXdjV3dX



MACRA and our Political Landscape

MACRA is legislation that passed with bipartisan support, making it difficult to fully dismantle.

• For example, the 2018 proposal had been to keep the cost category at 0%, but because the statute requires the cost component to account for 30% by 2019, it was concluded it is best to ease the transition and stay with 10% for 2018.

Trump administration has enhanced flexibilities in 2018 rules.

• Increased number of physicians can opt out.

– Higher threshold for number of Medicare patients treated to be required to participate.

• “Extreme and uncontrollable circumstances” policy added, in response to this year’s natural disasters.

• MIPS bonus for clinicians who treat:

– Complex patients.

– Rural practices.

Patients Over Paperwork initiative informed low-volume threshold and natural disaster policy.

• Could influence quality measures in future, as streamlining a single set of measures is part of initiative.

Significantly fewer clinicians than anticipated will be participating in MIPS-only 39% of 1.5 million Medicare clinicians will be complying with MIPS in 2018, according to CMS due to the low volume threshold; APM track changes.



Amazon

Amazon’s healthcare technology team, called 1492, is working on developing new capabilities that involve electronic medical records systems and telemedicine. Their work has the industry asking a couple key questions:

1. Will this Amazon team help make information available to consumers?

2. Will this be the final push that is needed to open our medical records?

Apple, Microsoft, and Google continue to investigate entering the healthcare market. As innovators (and potential disruptors), these companies could impact healthcare in many ways.

https://www.cnbc.com/2017/07/26/amazon-1492-secret-health-tech-project.html



High Tech

Apple: Could Apple be taking a bite out of EHR’s?

• Consumers demanding more control, interoperability, more access

to health data.

Source: Modern Healthcare, September 11,2017

Apple, Microsoft, and Google continue to investigate entering the

healthcare market. As innovators (and potential disruptors), these

companies could impact healthcare in many ways.



Mergers

51

72

90

107

88

100 102

0

20

40

60

80

100

120

2005 2010 2011 2012 2013 2014 2015

Hospital Mergers

• Health care.

• Margin pressure.

• Pruning of portfolios.

• All industry in general.

• Fend off high tech.

$-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

2005 2010 2014 2015 2016 2017Nov

Dollar Value of US MergersIn Trillions

Source: AHA, Irving Levin and WSJ Dealogic



Closure of Hospitals

Closures:

• Low occupancy.

• Poor reimbursement.

Rural hospitals:

• From 2010 - 53 closed.

• 273 at risk of closure.

• New models needed.

29

14

17

14

9

1311

16

22

30

24 24

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015

Hospital Status

Open Closed



Models for Change

American healthcare is inefficient, ineffective and expensive. In other

words, it’s ripe for disruption, which could happen a number of ways.

- Robert Pearl, M.D., Forbes

Three models:

• High touch.

• High tech.

• Off shore – high efficiency, hyper specialization, technology.



Needs More Disruption: The Claims Process

There are new payment models, but, in most cases, claims are still

paid under FFS. Then, at the end of a specific time period, health

systems see the results of a reconciliation. Did the bundle payment

incentivize lower costs for hospital, physician, and post-acute care?



Final Quote on Disruption

You have to go to your boards and tell them that you’re going to have

less revenue because you’re going to stop doing things that people

don’t really need. - Marc Harrison, M.D., CEO Intermountain

Healthcare

Trend #3:Emerging Data

Skillsets



Emerging Data Skillsets

The job title “data scientist” is

increasingly common. Data is

becoming more complex as more and

more data becomes available,

generating the need for more

predictive work, new roles and

skillsets.

A recent survey on the role of artificial intelligence (AI) in accounting asks

financial experts about their current and planned use of AI.

https://www.axios.com/how-executives-think-ai-will-change-business-2481977981.html



821 Job Hits on Indeed.com Requiring Individuals to Identify, Invest and or Strategize on Emerging Technologies in Healthcare.



Machine Learning in Healthcare

Areas where machine learning helped accelerate improvement:

• Opioid addiction risk prediction.

• Readmission prediction for patients with heart failure.

• Sepsis prediction within 24 hours of admission.

• Propensity to pay prediction (allows organizations to dedicate

resources to outstanding bills most likely to be paid).

• The benefits of procedures to patients based on artificial

intelligence.

https://www.healthcatalyst.com/healthcare-data-warehouse-hospital-readmissions-reduction



Digital Technology such as Blockchain

In 2007, the government of Estonia began a nationwide implementation of a version of Blockchain to secure all Electronic Health Records (EHRs) in the country. Estonia has virtually eliminated the need to have a Health Information Exchange (HIE), all-payer claims database, or Electronic Medical Records (EMRs).

In 2016, there was a declaration to allow patient data exchange, cross-border e-services and e-prescriptions.

In 2017, Estonia’s main objective is to compile all of the patient’s data into a unified data health-record, over which each individual has full access. In addition to the data collected by doctors, an individual can add extra information to his or her personal account.

In Estonia, Blockchain (distributed ledger) gives citizens and residents more control over their own data, empowering people to become more aware of those factors influencing their health and people will progressively become more responsible for managing their own health.

https://e-estonia.com/healthcare-is-changing-and-technology-is-changing-with-it/



Where Hospitals Are Investing in Innovation Today

Based on existing trends and future predictions, healthcare organizations are currently investing in several key areas:

• Patient-generated data and customized services (e.g., integrating smart watches with data).

• Network utilization and management (e.g., tracking patients).

• Referral management and in-network retention (i.e., keeping patients within the health system).

• Social community support (i.e., partnerships with community to coordinate care).

• Convenient patient access, including telemedicine (i.e., patient experience).



Global Lessons In Frugal Innovation

Common features in all programs:

• Changed setting and providers.

• Improved communication.

• Changed behavior.

• Improved efficiency.

Source: Global lessons in frugal innovation to improve health care delivery in U.S. Health Affairs, November 2017



Final Quote

“There’s never been a better time in healthcare. You’re going to see

enormous innovation. I’m excited that we are going to try and give the

power to the people.”

- Marc Harrison, M.D., CEO Intermountain Healthcare



Trip Coming to an End…



Questions to Ask:

In addition to measuring how their organization’s plans match up with forecasted trends, healthcare leaders can address the following areas as they prepare for 2018:

1. Does my thought process revolve around the patient throughout the continuum of care? (Readmission rate is a useful metric here.)

2. How can my organization work with outside partners?

3. Can my health system pilot small innovations and then scale them to larger populations?

4. Has my organization created too many silos? (If it takes many people to answer a simple question, then yes.)

5. Does my organization have the right talent to keep up with change (e.g., machine learning and predictive analytics specialists)?

6. Is my business model sensitive to the new trends? How does the model position the organization in five years?

https://www.healthcatalyst.com/predictive-analytics



How Do We Prepare?

• Do something fun with machine learning.

• Interview a student in the field of data science.

• Revisit your strategic plan and look at the volume trends.

• Visit a community resource that is new to you. (Can be on-line)

• Ask managers to describe their accountability for cost and the tools they use.

• Are managers enabled with information and enriched by the information or starving for it?

• Is the consumer at the center of our plans? How do we demonstrate that?

• What would happen if…..



Poll Question #2

What topics touched on today would you like to see covered in more

depth? (select all that apply) 120 Respondents

1. Population health. – 59%

2. Regulatory issues. – 28%

3. Cost improvement. – 55%

4. Future AI in healthcare. – 64%

5. More road trips. – 7%



Thanks so much for your time.

Contacts: Bobbi Brown [email protected]

Dorian DiNardo [email protected]

More research:

healthcare.ai™

https://www.healthcatalyst.com/catalyst-ai/

https://www.politico.com/agenda/issue/agenda-2020-health

mailto:[email protected]

mailto:[email protected]

https://healthcare.ai/