Agenda Health Care Reform The margin challenge Clinical documentation improvement (CDI) Interlude: No more secrets… The surgeons role Some outcomes

Supreme Court (mostly) Upholds Affordable Care Act (ACA) Constitutional DiscussionSupreme Court Decision Individual Mandate: Can the federal government compel individuals to purchase health insurance? Upheld under Congress’s power to impose taxes Medicaid Expansion Medicaid Expansion: Is the ACA’s Medicaid expansion a violation of states rights? Medicaid Expansion upheld; federal government may not withhold all existing Medicaid funds if states forego expansion Severability Severability: Should the remainder of the ACA stand if a portion is struck down? The remainder of the law can stand

What, in a nutshell, was the ACA? insurance It really dealt with insurance — how are we as a society going to insure tens of million of uninsured people?

Coverage Expansion Proceeds—Perhaps Not as Originally Envisioned ACA’s Original Coverage Expansion Plan 32 Million Newly Covered Lives through Medicaid Expansion and Exchanges 133% 400% Percent of Federal Poverty Level Medicaid Expansion Health Insurance Exchanges 17 M newly covered lives 15 M newly covered lives ?? Each state now has the choice of whether or not to expand Medicaid…

How will they pay for it? By a three pronged approach that will change the incentives that have driven the practice of medicine for years…the “shared savings” program.

Changing Incentives ACA “requires” to establish shared savings program by January 1, 2012 “This program is intended to encourage providers of services…to create a new type of health care entity…and ‘Accountable Care Organization (ACO)’ that agrees to be held accountable for improving the health and experience of care for individuals and improving the health of populations while reducing the rate of growth in health care spending. Studies have shown that better care often costs less [Dartmouth, others?] because coordinated care helps to ensure that the patient receives the right care at the right time, with the goal of avoiding unnecessary duplication…” Medicare Fact Sheet, 3/31/11

The “whole bet” in the Accountable Care Act Source: Advisory Board

Bundled Pricing Source: Advisory Board

Redefining the Acute Care Episode Bundled Payments Drive Delivery System Integration Source: Advisory Board Payer Hospital Services Post-Acute Services $ $ $ $ $ $ Physician Services Fee-for-service Environment Individual Payments Reinforce Siloed Care Delivery Payer Hospital Services Post-Acute Services $ $ Physician Services Bundled Payment Environment Lump Sum Payments Drive Integration Through Shared Accountability

Shared Savings Source: Advisory Board

The ultimate purpose of shared savings… Last 200 years… Next 5-10 years?

Avoiding Cost as Well as Revenue Bonuses Need Only Outweigh Contribution Profit, Not Total Revenue Total expenses (to payer) for a given patient population compared to risk-adjusted benchmark; portion of any savings below benchmark returned to provider. Source: Advisory Board

Pay For Performance

Clinical Process of Care Measures Performance ID Measure DescriptionLLUMCNational Acute myocardial infarction AMI-7aFibrinolytic Therapy Received Within 30 Minutes of Hospital ArrivalN/A58% AMI-8aPrimary PCI Received Within 90 Minutes of Hospital Arrival79%91% Heart Failure HF-1Discharge Instructions78%90% Pneumonia PN-3bBlood cultures performed in ED prior to 1st antibiotic received in hospital96% PN-6Initial Antibiotic Selection for CAP in Immunocompetent Patient97%93% Healthcare-associated infections SCIP-Inf-1Prophylactic Antibiotic Received w/i 1 hr Prior to Surgical Incision98%97% SCIP-Inf-2Prophylactic Antibiotic Selection for Surgical Patients96%98% SCIP-Inf-3Prophylactic antibiotics discontinued w/i 24 hrs after Surgery end time94%96% SCIP-Inf-4Cardiac Surgery Patients w/Controlled 6AM Postop Serum Glucose91%94% Surgeries SCIP-Card-2Pts on beta blocker who received beta blocker before surgery88%94% SCIP-VTE-1Surgery Patients with Recommended VTE Prophylaxis Ordered99%95% SCIP-VTE-2Pts who received appropriate VTE prophylaxis 24 hrs before surgery98%93% Final Measures for FY 2013 Hospital VBP program

The Bottom Line… There will be less money – Shared Savings – Bundled payments We will be held ‘accountable’ – Pay-for-performance (P4P) – A move to absolute transparency Convenient comparison to your peers

Agenda Health Care Reform The margin challenge Clinical documentation improvement (CDI) Interlude: No more secrets… The surgeons role Some outcomes

Four Forces Shaping Future Margins Decelerating Price Growth Federal, state budget pressures constraining public payer price growth Payments subject to quality, cost- based risks Commercial cost shifting stretched to the limit Continuing Cost Pressure No sign of slower cost growth ahead Drivers of new cost growth largely non-accretive Shifting Payer Mix Baby Boomers entering Medicare rolls Coverage expansion boosting Medicaid eligibility Most demand growth over the next decade comes from publicly insured patients Deteriorating Case Mix Medical demand from aging population threatens to crowd out profitable procedures Incidence of chronic disease, multiple comorbidities rising

2021 Not So Pleasant Future State Untenable Without Major Change 2.2% Current Margin Projected Operating Margin 4.0% Goal -16.9% Includes effects of: Price growth trends Cost growth trends Payer mix shift Case mix deterioration The 4.0% Margin Imperative Significant long-term capital needs across the board Tax-exempt debt unsuitable for financing IT, physician integration investments Retained earnings required to fund greater portion of capital Financial volatility demands higher margin to compensate for increased risk

Achieving the New Performance Standard Inaction Not an Option Nine Imperatives for Achieving the New Performance Standard 1.Maximize Revenue Capture 2.Excel Under Performance Risk 3.Bend Labor Cost Curves 4.Standardize Clinical Care Pathways 5.Redesign Inpatient Care Models 6.Build Effective Capacity 7.Reassess Supply of Less Profitable Services 8.Deflect Demand of Less Profitable Services 9.Secure Surgical Market Share