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.
11. Economics of Healthcare
Hospital Reimbursement
Reimbursement per $1 Cost
$1.80
$1.60
$1.62
$1.40
$1.20
$1.00
$0.80
$0.85
$0.85
$0.60
$0.52
$0.40
$0.20
$-
$0.52
$0.15
Self Pay
Medicaid*
Medicare
Managed Care
HIE
* Does not include incremental cost containment measures; e.g. 40% reduction payment for non-emergent care in the Emergency Department.
12. Economics of Healthcare
What is a dollar of revenue really worth?
Gross Revenues
Deductions from Revenues
Total Deductions
Provision for Bad Debt
Net Patient Revs, Less Bad Debt
Controllable Expenses
Salaries and Outside Labor
Employee Benefits
Supplies and Medicines
Fees
Other
Non Controllable Expenses
Depreciation and Amortization
Interest
Administrative Overhead
Income from Operations
$1.00
0.65
0.01
0.66
0.34
0.13
0.03
0.06
0.04
0.02
0.28
0.02
0.01
0.02
0.05
$0.01
• 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¢
13. Economics of Healthcare
Healthcare 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>.
16. Healthcare Reform
Public Model Sustainability
Medicare spending is expected to nearly double over the next decade.
Source: Congressional Budget Office
17. Healthcare Reform
Private 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.
20. Healthcare Reform
Life Expectancy
Many people in other countries live longer at a lower cost per capita.
Source: OECD (2011), Health at a Glance 2011: OECD Indicators, OECD Publishing.
22. Healthcare Reform
Individual Mandate
• Individual Mandate
YEAR
PENALTY
2014
2015
2016+
Greater of $95 or 1% of income
Greater of $325 or 2% of income
Greater of $695 or 2.5% of income
23. Healthcare Reform
Employer 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)
24. Healthcare Reform
Medicaid 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
25. Healthcare Reform
Funding/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
28. Economic Impact
Provider Impact
• Value determines sustainability
across all economic sectors
• The sustainability of the current
U.S. healthcare system is directly
connected to the value it delivers
Quality*
Value = _____________
Cost
*Quality = Outcomes, Safety, Service
• The market not only demands
value, but rewards value
30. Economic Impact
Provider Impact
• Projected shortfall of 90,000
physicians within the next 10
years
– 45,000 primary care physicians
– 46,000 surgeons and specialists
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.
• Medical schools are increasing
enrollment, but…
• There is a cap on the number
of federally supported
residency training positions
Source: Fixing the Doctor Shortage. American Association of Medical Colleges. Retrieved October 4, 2013, from
https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/.
31. Economic Impact
Provider Impact
Population
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
State
• 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
32. Economic Impact
Employer Impact
Strategies to Avoid ACA Penalties
Cut jobs to remain
under 50 FTEs1
Hire all new employees at
part-time status
Convert full-time employees
to part-time status
Split into smaller companies with
fewer than 50 FTEs
•
•
•
31%
Franchisees that plan to cut jobs to stay under 50employee threshold2
32%
Full-time equivalents.
n=72 franchisees, all industries.
n=1,203 employers.
Retail and hospitality companies that plan
to “change workforce strategy” to avoid penalties3
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.
33. Economic Impact
Employer Impact
Individuals Covered by ESI1
Contribution to Insurance Premiums
Non-elderly Population
Coverage for Family of Four
Employer
Worker
69.7%
$11,429
11.5M fewer
individuals
95%
growth
$5,866
59.5%
$4,316
$2,137
•
2000
2011
•
Employer-sponsored
insurance.
Consumer-directed
health plan.
2002
2012
2002
102%
growth
2012
25%
23%
Insured non-elderly adults with deductibles
$1,000
or higher, 2012
Employers planning
to offer CDHP2 as only plan option, 2014
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.
61% of Federal Budget is for entitlements21% of that is for CHIP, Medicaid and Medicare
Mandated BenefitsPre-existing conditions eliminated by 2014Lifetime maximum prohibited by 2010Children remain eligible until age 26 on parents planWaiting period no longer than 90 daysRoutine clinical trials must be coveredAutomatic enrollment of employeesExcise Tax on “High Value Coverage” aka… Cadillac TaxAggregate value exceeding $10,200 (individual) or $27,500 (Family)MOST will be subject to it
Fed Pays 100% in years 1 and 2 for statewide expansion, 90% in future yearsMedicaid costs 25% of State Revenue..and rising!!133% of FPL makes another 1.5M eligible for MedicaidEstimated that nationwide 16-17M will enroll in MedicaidEstimated that nationwide 16-17M will enroll in Exchange