Transforming for Tomorrow
Session 2: Scan
September 19, 2012 or
September 25, 2012
CHA Web Seminar
Welcome
Liz Mekjavich
California Hospital Association
Continuing Education Offered
for this Program
Health Care Executives — CHA is authorized to
award 2 hours of pre-approved ACHE Qualified
Education Credit (non-ACHE) for this program
toward the advancement, or recertification in the
American College of Healthcare Executives.
Participants in this program wishing to have the
continuing education hours applied toward ACHE
Qualified Education credit should indicate their
attendance when submitting application to the
American College of Healthcare Executives for
advancement or recertification. 3
Continuing Education
Requirements
Full attendance, completion of online survey, and
attestation of attendance is required to receive
continuing education credit for this seminar. Note:
only registrant may receive complimentary CEs.
If additional participants under the same registration
would like to be awarded CEs, a fee of $20 per
person, will apply. Post-event survey will be sent to
registrant and provide information on how to apply
online for additional CEs.
4
Program Overview
Anne McLeod
California Hospital Association
Faculty: Michael Cohen
• Michael Cohen, Principal, Deloitte
Consulting LLP
• Michael Cohen is the leader of Deloitte
Consulting’s Strategy Practice for Health Care
Providers. In this role, Mike focuses on
leading strategic and financial transformation
engagements for hospital and physician group
clients with an emphasis on strategic planning,
growth, accountable care and strategic
partnering.
6
Faculty: James Bush
James “Randy” Bush, Principal,
Deloitte Consulting LLP
Randy has been with Deloitte eight years
and focuses on assisting Health Care
Provider executives with their most
challenging performance improvement
projects including clinical and operations
transformation, administrative
simplification, and strategic cost reduction.
7
Deloitte Consulting LLP
Transforming for Tomorrow — Session 2 — Scan
Environmental Assessment –
California hospitals’ relative exposure to and readiness for tomorrow
September 2012
The California Hospital Association’s (CHA) Board of
Trustees authorized the creation of a special task force to
analyze the state and federal landscapes and prepare
recommendations for policies, services, programs and
strategies to assist hospitals’ transformation for the future
and guide CHA’s public policy development. The
“Transforming for Tomorrow” Task Force served as a
think tank to develop transitional strategies for hospitals.
Deloitte Consulting LLP was engaged to assist CHA and
the Task Force in developing these strategies in the
context of California’s unique fiscal and regulatory
environment.
Preface
- 10 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Transforming for Tomorrow Task Force Approach
Phase 1:
Identify/Prioritize
Strategic Issues
Phase 2:
Formulate Core
Strategies
Phase 3:
Document Proposed
Actions
Isolate and evaluate the “big
issues” facing CHA Members
Identify and “stress-test” potential
strategies against market evolution
scenarios
Flesh out the detail and isolate
actions for consideration by CHA
Stakeholder interviews
Develop a strategic fact-base
‒Demographics and population
health needs
‒Relative financial/operational
health of California hospitals
and providers
‒ Level of integration in key
markets
Establish strategic positioning of
CHA members (current/forward
looking)
Isolate and prioritize strategic
imperatives
Evaluate applicable industry
leading practices and market
trends
Identify a set of “strategic
destinations” for California
hospitals
Frame potential strategies/actions
Member/hospital level
Association level
Test “strategic destinations” and
related strategies against market
evolution scenarios
Core strategies
Situation-specific
strategies
Prepare report of findings and
recommendations
Isolate actions for consideration
by CHA
Identify potential capability gaps
Support review and presentation
of findings to CHA Board and/or
other stakeholder groups Activitie
s
In late February, the Transforming for Tomorrow Task Force adopted a three-phased approach to assess
the environment, identify transformational strategies for California hospitals, and develop consensus on
recommendations to be adopted by CHA’s Board of Directors.
- 11 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Webinar Series Overview
Introduce (8/23 and 8/30)
Scan (9/19 and 9/25)
Explore (10/3 and 10/10)
Plan (10/24 and 10/31)
Participants will be introduced to
the purpose and
recommendations of the
Transforming for Tomorrow
Task Force. This session will
provide an overview of key
findings from the work, orient
participants to strategies for
long-term success, and
introduce tools for planning and
preparation. Session includes:
• Task Force purpose, focus
• “Fact-Base” conclusions —
scan of the national and state
environment
• Framework for action — core,
differentiating, and contingent
strategies to support success
• Tactics to support California
hospitals during transition
• Transformation Roadmap —
applying Task Force insights
in planning for tomorrow
Hear a detailed review of key
analytics and insights from the
Task Force’s scan of the
national and California
marketplaces. Faculty will focus
on the "Vulnerability Index," a
framework used to assess
California hospitals’ relative
exposure to future trends and
readiness for the future. Session
includes:
• Impact of aging,
demographic, and coverage
shifts
• Value proposition — cost,
quality, and consumer
engagement
• Effects of scale and
integration
• "Transformational Leaders" v.
"Acutely Vulnerable"
organizations
• Key conclusions and core
strategies
Learn about several potential
paths to future differentiation
and sustainability for California
hospitals and health systems.
Participants will explore each of
five potential “Destinations”
which represent prototype
strategies for achieving
differentiated revenue or cost
performance. Session includes:
• Representative strategies —
tactics used to drive success
under each Destination
• Early signals — examples of
national organizations
pursuing these strategies
• Competencies — changes in
capabilities and culture
required to support
Destination success
Participants will review the
“Transformation Roadmap” — a
framework executive teams can
use to plan and stimulate
discussion on strategic direction
and value proposition, identify
key considerations related to
defining a sustainable strategy
for success, and more quickly
translate task force perspectives
into local action. Session
includes:
• Difference between core,
differentiating, and contingent
strategies
• Insights and information
leveraged from the Task
Force
• Key questions to be
answered at each stage of
exploration and desired
outcomes
• Guiding principles and other
critical success factors
Today’s discussion is the continuation of a series of webinars to educate CHA members on the key
findings and recommendations from the Task Force.
- 12 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
The two parts of the environmental assessment focused on measuring providers’ overall exposure to
drivers of change and their readiness for change in an effort to assess positioning for the future
Analysis Framework
Vulnerability Index = Exposure to Drivers of Change x Readiness for Change
Higher
Exposure
Capacity in Question Near-term threats may challenge these
providers, despite readiness for tomorrow
Acutely Vulnerable These organizations are most at risk for
failure and potential acquisition
Challenged Sustainability Repositioning will be required for these
organizations to survive longer-term
Transformational Leaders These organizations are best in a position
to lead and thrive in the new environment
Readiness
Lower
Lower Higher
Exposure
- 14 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Population Growth and Aging
Overall population growth in California is slightly below the national average, with higher observed growth
concentrated in aged populations
Source: US Census American Community Survey 2007, US Census 2010, Deloitte Analysis
Population Distribution
CAGR: 0% 3% 6%
Under 55
55 to 65
Over 65
Population in Millions
Ye
ar
Population Growth
- 15 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Impact of Aging on Utilization
Should recent trends continue, a significant increase in the utilization of inpatient services can be expected
as the population ages
Chronic Illness vs. Current Utilization Rates
Chronic Disease Incidence
Me
dic
are
In
pa
tien
t U
tili
za
tio
n /
10
00
For every 1% change in
the incidence of chronic
disease there is a
corresponding increase
in utilization of 6%
Source: California HealthCare Foundation
Kings Colusa Stanislaus
Tehama
Glenn
Calaveras
Lake
- 16 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Caregiver Supply
However, primary care physician supply could constrain the ability to manage the increase of chronic
disease and other increases in utilization in several parts of the state
Source: AMA Physicians Master File, California Health Care Foundation
Caregiver Supply Health Status
Percentage of adults with one or more chronic illnesses Number of primary care physicians per 1,000
San Francisco
San Jose
Los Angeles
28-35%
35-39%
39-43%
44-49%
No data
San Francisco
San Jose
Los Angeles
1.3-2.5
1.1-1.3
0.8-1.1
0.2-0.7
No data
The combination of
low caregiver supply
and poor health
status is evident
throughout the state
- 17 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
55% of the workers in the state are employed by firms of less than 100 employees, firms most likely to
push employees to the exchange
Exchange Exposure
Potential Movements
to the Exchange by Firm Size
Firm Size
Nu
mb
er
of
Em
plo
ye
es
Source: State of California, Employment Development Department, Labor Market Information Division, Deloitte Analysis
Exchange
Commercial
Up to 50%
Conversion
Up to 25%
Conversion
Up to 10%
Conversion
Up to 5%
Conversion
Up to 38%
Conversion
- 18 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Polling Question:
How do you expect reimbursement to be affected by the Exchange?
- 19 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Coverage Shifts
En
roll
me
nt Uninsured
Commercial
(Group and
Individual)
Government –
Medicare &
Medicaid
Source: Deloitte Analysis
Government –
HIX
Under any potential scenario, government-level reimbursement will become a larger proportion of the
overall mix
ACA implemented; 5% of
large and 10% of small
employers drop coverage
ACA delayed to 2016
including penalties,
HIX, SHOP, etc.
ACA implemented; add’l 25%
of large and 50% of small
employers drop coverage.
California Enrollment Projections
- 20 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Hospital Impact – An Illustrative Example
Illustrative Margin Assumptions
Source: Deloitte Analysis, Illustrative 2012 Margins derived from 2008 Milliman Report
Despite an increase in the total insured, the net effect of these shifts will be a significant dilution of margin
2012 Margin
(Pre-ACA)
2020 Margin
(Post-ACA)
Commercial +20% +25%
Government -10% -30%
Uninsured -25% -45%
1
Initial
Margin
2.0%
Δ Margin
= +1.2%
Key Shifts
New
Margin
-8.3%
Δ Margin
= -1.5%
3
Δ Margin
= -10.0%
We
igh
ted
Ave
rag
e O
pe
rati
ng
Ma
rgin
2
Reduction in the uninsured from 20%
to 12% improves margin profile
(Δ = +1.2%, now 3.2%)
1
With a higher mix of ‘Government’
business, ACA reimbursement reform
significantly degrades margin
(Δ = -10.0%, now -8.3%)
3
Aging into Medicare and the
Exchanges (SHOP / HBEX) reduce
proportion of Commercially insured
from 50% to 44% and dilutes margin
(Δ = -1.5%, now 1.7%)
2
Margin Impact
- 21 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Polling Question:
How would you describe the competitive dynamic in your region?
- 22 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Competitive Dynamics
In anticipation of continued pressure, most California counties are trending toward market consolidation
California Competitive Dynamics by County
% Change HHI 2007-2010
2010 HHI
Concentration
Index
= 75,000 discharges
More
Competitive
Markets
Highly
Concentrated
Markets
Markets Becoming More Competitive Markets Becoming More Concentrated
Highly Concentrated
Becoming More Concentrated
Competitive
Becoming More Competitive
Highly Concentrated
Becoming More Competitive
Competitive
Becoming More Concentrated Los Angeles
San Bernardino
San Diego
Sacramento
Orange
Alameda Contra Costa
San Joaquin
Lake Madera
Merced
Inyo
Kings
Stanislaus
Source: OSPHD 2010 and Deloitte Analysis
- 23 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Payor Leverage
Given their relative consolidation in most markets, plans currently have more negotiation leverage
Relative Concentration
Plans to Hospitals
Source: Health Leaders 2011, OSHPD 2010
Counties
12.1
Plans have higher concentrations in 55% of counties,
potentially creating reimbursement pressure for hospitals
Providers Relatively
More Consolidated
Plans Relatively
More Consolidated
Los Angeles
Orange
Alameda
San Diego
San Benito
El Dorado
Placer
- 24 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Physician Group Consolidation
In addition, physician groups are consolidating to create scale economies in purchasing and payer
negotiations, and are more concentrated than acute providers in a number of counties
Source: RAND Corporation 2010 – Physicians and Surgeons in California; Cattaneo & Stroud - Physician Count for Active California Medical Groups 2012; OSHPD 2010
Relative Concentration
Physicians to Hospitals
Counties
Physicians have reached critical mass in a
number of counties, and could become more
aggressive in managing care, accepting risk,
and negotiating with hospitals
Providers Relatively
More Consolidated
Physicians Relatively
More Consolidated
Contra Costa
Los Angeles
Riverside
Kern
Napa
Sutter
Monterey
- 25 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Polling Question:
Which actions are you taking to address these shifts?
- 26 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Key Takeaways
• A lack of primary care supply will require organizations to innovate the care model, and
in particular, the role of non-physician providers to successfully address the incoming
wave of utilization due to aging and the newly insured
• California’s high proportion of small business and active legislature will likely result in a
more active health insurance exchange, which will be another key driver of financial
risk between now and 2020
• Competition is fierce in most counties, and a focus on value proposition will be
essential to long-term relevance/viability
Readiness
- 28 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
California leads the nation in many areas of hospital, system, and physician care integration
Integration
Integrated Delivery System
Pioneer or SSP ACO
Source: including Becker’s Hospital Review (“50 Integrated Delivery Systems to Know”), SDI’s Integrated Healthcare Networks (IHN) Benchmark Report, HealthLeaders
InterStudy Health Plan Review, CMS, and Deloitte Analysis
State ACOs
California 8
New York 7
Massachusetts 7
Texas 4
Florida 4
New Jersey 3
Minnesota 3
North Carolina 3
Michigan 3
Arizona 2
Hospital Led
Physician Led
California Integration Top 10 ACO States Physician vs. Hospital
Led ACOs
- 29 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
California hospitals already operate in an environment with high penetration of “managed” care
Managed Care Penetration
US Average
California
*as a percentage of commercial membership
Source: HealthLeaders January 2011
Commercial HMO Penetration*
16%
49%
- 30 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Technology
California hospitals appear to have a lead in developing technology infrastructure to support greater
clinical collaboration across organizations and are on par with the nation for planned “Meaningful Use”
Health Information
Exchange (HIE) Participation
Source: AHA Hospital EHR Adoption Database 2011 release of 2009 survey results, Deloitte Analysis
Planned “Meaningful
Use” Adoption
California
US Average
(Excluding CA) 60%
California is ahead of the nation in building the infrastructure to
support health information exchange
52%
No HIE
technology
HIE technology
exists, but no
participation
Active HIE
participation
% o
f H
osp
ita
ls
% o
f H
osp
ita
ls
California is on par with the national average for planned
“Meaningful Use” adoption
(Excluding CA)
- 31 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
17
_0
14
5 (
3).
pptx
Methodology: Quality Index is calculated by averaging the standard variation for morality and readmission rates for heart attack, heart failure, and pneumonia, as reported in CMS’ Hospital Compare Database. Market Basket Cost per episode
is calculated using the Medicate costs of the 79 most common DRGs in CA in 2010. DRGs were weighted using state-wide average case load per DRG to arrive at an equally weighted market basket of DRGs by provider
Value Proposition
The desired correlation between cost and quality does not yet exist across California hospitals
Cost
Hig
h
Source: CMS Hospital Compare 2010, Data Advantage 2010, Deloitte Analysis
32% of
Discharges
24% of
Discharges
21% of
Discharges
23% of
Discharges
Market Basket Cost per episode
Qu
ali
ty I
nd
ex
2010
2009
Lo
w
Qu
ali
ty
Low High
Many California hospitals are achieving high quality
but most are still high cost
At the lower end of the cost curve, California hospitals
appear to have improved quality in the past year
Value Distribution 2010 Value Curve 2009-2010
- 32 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Future Profitability
While many hospitals report operating profits today, most will likely be unprofitable as reimbursement
approaches Medicare rates
Pe
rce
nta
ge o
f C
ali
forn
ia H
osp
ita
ls
Source: OSPHD 2010, DataAdvantage 2010, Deloitte Analysis
Methodology: Percentage of CA hospitals profitable under Medicare calculated using per episode Market Basket cost and revenue. Market Basket s calculated using the Medicate costs of the 79 most common
DRGs in CA in 2010. DRGs were weighted using state-wide average case load per DRG to arrive at an equally weighted market basket of DRGs by provider
- 33 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Scale Effects
In California, smaller health system members appear better able to exercise cost efficiencies and
reimbursement increases relative to similar size independent hospitals
Source: Data Advantage 2010, OSPHD 2010, Deloitte Analysis
Methodology Revenue per adjusted patient day is calculated by dividing total net revenue by adjusted patient days. Market Basket s calculated using the Medicate costs of the 79 most common
DRGs in CA in 2010. DRGs were weighted using state-wide average case load per DRG to arrive at an equally weighted market basket of DRGs by provider
Total Discharges
Ma
rke
t B
as
ke
t C
ost
pe
r E
pis
od
e
Health Systems
Independent Hospitals
Total Discharges
Reve
nu
e p
er
Ad
juste
d P
ati
en
t D
ay
Health Systems
Independent Hospitals
- 34 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Polling Question:
Which is the most important factor governing CA hospitals’ readiness for the future?
- 35 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Key Takeaways
• California is ahead of many states in their strides toward accepting risk, sharing data
and information, and innovating the care model
• However, a limited number of organizations are prepared to succeed in an environment
where value matters more than volume and reimbursement rates are significantly
depressed
• As such, alignment with larger health systems will continue to be a key support
strategy, particularly for smaller independent hospitals to achieve a new level of
reimbursement and cost efficiency
Vulnerability
- 37 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Exposure Scoring Methodology
A standard set of metrics was used to evaluate current environmental challenges and assess future shifts
(1) Competition level is measured by the Herfindahl-Hirschman Index (HHI), calculated by adding the squared market shares of each competitor in a region (2) Diversity index is calculated by adding the squared
percentage of the total population for a given racial/ethnic group
Category Key Indicator Desired
Position Rationale
Current
Competitive level (HHI) (1) Lower Lower = less current competitive threats
Commercial payor percentage Higher Higher = higher average reimbursement rates
Diversity index (2) Lower Lower = less complex populations to serve
Chronic disease incidence Lower Lower = less cost and utilization
PCPs per 1,000 population Higher Higher = more access to care
Future
Growth in average income Higher Higher = more people will be able to afford care
Growth in 55+ aged population Lower Lower = less chronic illness
Percentage of small employers Lower Lower = less risk they will be moved to the exchange
Population growth Higher Higher = more opportunities to serve target patient segments
- 38 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Readiness Scoring Methodology
Category Metric Key Indicator Desired
Position Rationale
Financial
Durability
Scale Total net revenue Higher More revenue resulting in greater scale
Cost
Effectiveness Market basket cost Lower Cost effectiveness
Profitability
Operating margin Higher More profit from operations
Return on assets Higher Ability to generate incremental profit with
scale
Capital
Structure Access to capital score Higher Greater ability to borrow money
Capabilities
Brand /
Reputation Net promoter score Higher Higher favorable brand awareness
Value Quality/cost Higher Higher quality, lower cost yields more value
Technological
Integration HIE usage rate Higher Higher electronic coordination of care
Payor
Alignment
HMO as a percentage of
commercial plans Higher
More integration between consumers,
providers, and plans
Financing and delivery
integration score Higher More integrated, efficient delivery of care
Physician
Alignment
Note: A measurement of the degree of physician alignment
to a given hospital would be highly desirable but is not widely available
Similarly, another set of metrics was used to evaluate relative readiness to address the challenges ahead
- 39 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Exposure
Vulnerability Index: Exposure vs. Readiness
Note: Care in the above boxes refers to discharges Source: Deloitte Analysis
Higher
Capacity in Question Near-term threats may challenge these
providers, despite readiness for tomorrow
Acutely Vulnerable These organizations are most at risk for
failure and potential acquisition
Challenged Sustainability Repositioning will be required for these
organizations to survive longer-term
Transformational Leaders These organizations are best in a position
to lead and thrive in the new environment
Readiness
Lower
Higher Lower
43% of
Discharges
11% of
Discharges
24% of
Discharges
23% of
Discharges
Illustrative Case:
“An independent hospital in
Coastal California serving a
high commercial population,
with median quality
performance, but bottom
quartile cost performance”
Illustrative Case:
“AA rated, integrated system
facility that is also participating
with a medical group in a
Pioneer ACO”
Illustrative Case:
“A progressive urban facility
that has made recent
improvements in quality, but
faces a significant risk once the
exchange goes live”
Illustrative Case:
“A safety net hospital in rural
Southern California serving a
population that is highly
dependent on Medicaid”
- 40 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Rural, critical access, and public hospitals comprise the base of California’s “Acutely Vulnerable” hospitals
California Hospital Segments
Exposure
13%
15%
17%
16%
17%
21%
23%
27%
43%
49%
50%
53%
26%
15%
10%
4%
Teaching
System
Independent
Investor-owned
Favorable Unfavorable
24%
38%
27%
31%
36%
20%
13%
11%
Public
Rural
Readiness
Source: Deloitte Analysis, OSHPD 2010 Self-reported Segments
23%
13%
38%
22%
18%
20%
29%
19%
9%
33%
19%
34%
50%
34%
13%
25%
Favorable Unfavorable
58%
51%
32%
29%
8%
14%
2%
7%
- 41 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Vulnerability Implications: Shift “Epicenters”
Markets with higher concentrations of “Acutely Vulnerable” organizations or “Transformational Leaders”
may experience significant change
Acutely Vulnerable %
of Discharges
Transformational Leaders
% of Discharges
76-100% of discharges
0-25% of discharges 26-50% of discharges
51-75% of discharges
San Francisco
San Jose
Los Angeles
San Francisco
San Jose
Los Angeles
Markets that are most
likely to be impacted
by the solvency of the
“Acutely Vulnerable”
Markets that are most
prepared to make
innovative changes to
care delivery and
payment models
- 42 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
h
Under an extreme situation in which the “Acutely Vulnerable” hospitals begin to close, a potentially large
number of patients would be displaced
Vulnerability Implications:
Impact of “Acutely Vulnerable” Hospital Closings on Access
Cumulative Capacity
Shortage of 1M Patient
Days
Hospitals Closed
Mil
lio
ns o
f p
ati
en
t d
ays
Up to half of acutely
vulnerable hospitals could
close without creating access
issues
1
Closing more could result in a
shortage of capacity to serve this
population
2
A third or more of the inpatient care provided by acutely vulnerable hospitals is at risk
Note: This analysis assumes the best case, orderly closures with least impact
Source: OSHPD 2010, Deloitte Analysis
3M Patient Days
2M Patient Days
- 43 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Vulnerability Implications:
Impact of “Acutely Vulnerable” Hospital Closings on Remaining Hospital Margins
Closure of acutely vulnerable hospitals would displace a disproportionate number of Medicaid patients,
which would dilute the margins of remaining facilities
Pe
rce
nta
ge o
f C
ali
forn
ia H
osp
ita
ls
Source: OSPHD 2010, Deloitte Analysis
Methodology: Percentage of CA hospitals profitable under Medicare calculated using per episode Market Basket cost and revenue. Market Basket s calculated using the Medicate costs of the 79 most common
DRGs in CA in 2010. DRGs were weighted using state-wide average case load per DRG to arrive at an equally weighted market basket of DRGs by provider
Public aid is more prevalent in acutely vulnerable hospitals
Medicaid
Medicare
Commercial
+ 9%
- 4%
- 8%
- 44 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Key Takeaways
• California hospitals show early signs of readiness for the future, but some face
significant near-term challenges to sustainability
• The state’s rural, critical access, and several public hospitals are acutely vulnerable,
and without additional support could potentially create access issues for patients and
dilute the margins of surrounding facilities
Key Conclusions
- 46 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Environmental Assessment Key Conclusions
California has long built a reputation for being on the leading edge of care and
innovation. However, demographic and coverage shifts as well as forecasted
challenges in the reimbursement and labor markets will challenge several hospitals as
they prepare to transform for tomorrow.
• Demographic trends and coverage shifts will require organizations to innovate their
care model to, among other considerations, address primary care supply, cost
management, the evolving health needs of an aging population and the imperative
to transition from “providing care” to “managing health”
• Scale is important, but integration will be critical in driving revenue and cost
leadership to support sustainable margins at significantly reduced levels of
reimbursement
• California’s high proportion of small business and active legislature will
likely increase the impact of the health insurance exchange, which will be a key
future driver of financial risk
• California hospitals show early signs of readiness for the future, but some face
significant near-term challenges to sustainability
- 47 - CH
A_D
RA
FT
Scan W
ebin
ar
Mate
rials
_2
012
09
11
_0
70
0.p
ptx
Key Fact Base Conclusions
Core Strategies to Support Transformation Journey
Core Strategies from the Task Force
* Strategies which may require CHA to be a driver
Demographic and coverage shifts will require
organizations to innovate their care model to,
among other considerations, address caregiver
supply, cost levels, the needs of an aging
population and the transition from “providing
care” to “managing health”
Scale is important, but integration will be critical
in driving revenue and cost leadership to
support sustainable margins at significantly
reduced levels of reimbursement
California’s high proportion of small business
and active legislature will likely increase the
impact of the health insurance exchange, which
will be a key future driver of financial risk
• Begin testing methods for reducing cost and improving quality
beginning with hospitals’ self-insured populations
• Acquire care management technology that incorporates
performance management and predictive analytics capabilities
• Develop new models to drive greater clinical integration by
aligning incentives with community physicians
• Develop strategic partnerships that augment actual and virtual
scale, leveraging shared networks and technology as enablers
• Evaluate and prioritize current health plan relationships in
preparation for Exchange-based competition
• Increase outreach to employers and other institutional
purchasers to drive stickiness and explore pay for performance
The key conclusions from the Fact Base led the Task Force to develop a set of Core Strategies applicable
to all California hospitals
California hospitals show early signs of
readiness for the future, but some face
significant near-term challenges to sustainability
• Develop initiatives to boost cost performance in preparation for
additional payer and purchaser pressure on reimbursement
• Access financing to support needed infrastructure and
capability investments
Thank you
Michael Cohen
[email protected] (773) 251-5247 James R. Bush [email protected] (310) 739-9302
48
Questions
Online questions:
Type your question in the
Q & A box, hit enter
Phone questions:
To ask a question hit 14
To remove a question hit 13
Transforming for Tomorrow
is a four-part program
Remaining Sessions
All sessions run 9:00 – 11:00 a.m., Pacific Time.
Choose one date for each session.
Session 3: Explore Oct 3 or Oct 10
Session 4: Plan Oct 24 or Oct 31
50
California Hospital
Compliance Manual
Consent Law
Principles of Consent
and Advance Directives
Minors and Health Care Law
Mental Health Law
California Health Information Privacy Manual
(Available Late 2012)
2012 Publications
Learn more at www.calhospital.org/publications 51
Upcoming Programs
Disaster Planning for California Hospitals October 15 – 17, 2012, Sacramento
Behavioral Health Care Symposium December 3 – 4, 2012, Huntington Beach
Post-Acute Care Conference January 31 – February 1, 2013, Huntington Beach
Rural Health Care Symposium March 13 – 15 , 2013, Sacramento
52
Thank You and Evaluation
Thank you for participating in today’s program.
An online evaluation will be sent to you shortly.
Reminder: evaluation completion is required to
receive continuing education credits.
For education questions, contact Liz Mekjavich at
(916) 552-7500 or [email protected].
53