HEALTHCARE'S NEW LANDSCAPE UNDER THE TRUMP ADMINISTRATION: A BDO ANALYSIS AND BUSINESS STRATEGY

Presented by:Angelo Pirozzi, CPAPartnerThe BDO Center for Healthcare Excellence & Innovation

Jim White, CPAPartnerThe BDO Center for Healthcare Excellence & Innovation

HFMA Presentation – February 14, 2019

Overview

Background• Budget Drivers – Federal• Budget Drivers - State

Evidence and Potential Implications of the Policy ShiftsKey takeaways

Key TopicsOf Discussion:

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Background

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“There is no turning back to an unsustainable system that pays for procedures rather than value. In fact, the only option is to charge forward — for HHS to take bolder action, and for providers and payers to join with us. This administration and this President are not interested in incremental steps. We are unafraid of disrupting existing arrangements simply because they’re backed by powerful special interests”.

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Background

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Remarks on Value-Based Transformation to the Federation of American HospitalsDr. Alex M. Azar IISecretary of Health and Human ServicesMarch 5, 2018Washington, D.C.

“There is no turning back to an unsustainable system that pays for procedures rather than value. In fact, the only option is to charge forward — for HHS to take bolder action, and for providers and payers to join with us. This administration and this President are not interested in incremental steps. We are unafraid of disrupting existing arrangements simply because they’re backed by powerful special interests”.

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Budget Drivers - Federal

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Sources of Cash FYE Oct 2018 %Tax Revenue $ 3.300 80.5%Borrowings 0.800 19.5

$ 4.100 100.00%

Uses of CashHealthcare $ 1.106 27.0%Defense 0.813 19.8Social Security 0.981 23.9Interest on Debt 0.240 5.9Safety Net 0.366 8.9

Other0.595 14.5

$ 4.100 100.00%

Budget Drivers - Federal

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Federal Government $ 1.100 33.3%

State Government .600 18.2

Employer 1.100 33.3

Out of Pocket (Individuals) .340 10.3

Investment .160 4.9$ 3.300 100.00%

Budget Drivers – Healthcare Costs (In Billions)

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Budget Drivers – Growth of Healthcare Costs to GDP

Healthcare costs have been growing faster than GDP for 45 years

GDP CAGR = 2.58%

HC Costs CAGR = 5.01%

CAGR – Compounded Annual Growth Rate

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Budget Drivers – Projected Healthcare Costs

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• National health spending is projected to grow at an average rate of 5.5 percent per year for 2017-26 and to reach $5.7 trillion by 2026.

• Health spending is projected to grow 1.0 percentage point fasterthan Gross Domestic Product (GDP) per year over the 2017-26period;

• As a result, the health share of GDP is expected to rise from 17.9percent in 2016 to 19.7 percent by 2026.

Source: Centers for Medicare and Medicaid Services

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Budget Drivers - Where do the $$ flow?

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The impact of the aging populationIn 2015, Adults 65+ accounted for:

15% of the population & 34% of Healthcare spend ($1T) *

In 2030, this projects to for Adults 65+:

19% of the population & 43% of Healthcare spend or ($2.5T)

* Source – Kaiser Family Foundation

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Source Kaiser foundation, 2017

Commercial Payers Are Cost Shifting Too

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Three Foundational Shifts In Policy And Regulation

The Trump administrationhas responded with threemajor foundational shifts inits approach to healthcareto address budgetary issues.

Mandates to choice

Subsidies to

actuarial soundness

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Three Foundational Shifts In Policy And Regulation

Mandates to choice

Regulation to competition

Subsidies to

actuarial soundness

The movement from increasedregulation to deregulation to morecompetition reflects a significantpolicy shift to expand the contextand definition of competition.

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“The FDA will continue to maintain strong incentives for innovation….. I truly believe that we’re in the midst of an epoch of medical innovation…. It will depend on steps we take, working together, to EMPOWER MARKET COMPETITION BASED ON DELIVERING THEBEST CLINICAL OUTCOMES. Doing this with the long run in mind. And patient care at the heart of what we do.”

Dr. Scott Gottlieb, FDA Commissioner and former Senior Fellow of the BDO Center for Healthcare Excellence & Innovationa’s Health Insurance Plans (AHIP) in Washington, D

Regulation to Competition

Three Foundational Shifts In Policy And Regulation

Mandates to choice

Regulation to competition

Subsidies to

actuarial soundness

Individual and employer mandates havebeen repealed through executive order;Policy reflects supportive of more choiceand responsibility to the individual forhealthcare.

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“Consumers are a critical part of the health-care equation. We need to empower patients with information to SEEK VALUE ANDQUALITY AS THEY SHOP FOR SERVICES. THEYALSO NEED INCENTIVES TO BE COST-CONSCIOUS.

Patients can define value better than the federal government can.”

Seema Verma, CMS Administrator “Medicare and Medicaid Need Innovation -Trump’s HHS seeks to encourage health-care competition”

Source: Wall Street Journal, September 19, 2017

Mandates to Choice

Three Foundational Shifts In Policy And Regulation

Mandates to choice

Regulation to competition

Subsidies to

actuarial soundness

Value based care and payment is alignedwith choice and competition; if patientoutcomes

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…(key to) “accelerating value-based transformation, and creating a true market for healthcare” through means of some sort of federal intervention that puts patients in control of their own health records…. The CHANGES WILL ALLOW PATIENTS TO DETERMINE VALUE, AND THAT THE CHANGES “WILL REQUIRE SOME DEGREE OFFEDERAL INTERVENTION—PERHAPS EVEN ANUNCOMFORTABLE DEGREE.”

Dr. Alex Azar, Health and Human Services Secretary, Keynote - 2018 National Health Policy Conference of America’s Health Insurance Plans (AHIP) in Washington, DC, March 8, 2018

Subsidies to Actuarial Soundness

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Examples of Competition and Choice• Expand scope of practice for PAs and ARNPs

• Better reimbursement for Telehealth

• Repeal Certificate of Need statutes

• Reduce restrictions on Physician Owned Hospitals

• Expand Health Savings Accounts

• Promote Medicare Advantage

• Increasing Price Transparency

• Making it easier for patients to Access Medical Records

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Trump Tax Law Impacts on Exempts / For-Profits

UBI – 2018 forward • Transportation Fringes- Parking and Transit Passes• Silo’s• NOL’s limited to 80% of tax income• Interest expense deduction limited• Quarterly Estimated Taxes

Excise Tax – 2018 forward • 21% - Comp > $1 mill

Charitable Giving – 2018 forward • Estate Taxes• Ordinary Rates• SALT Limited

• Value Based Payment is not gaining ground – It is gaining ground and willbe the norm very soon (notwithstanding any change in administration)

• Life Sciences/ Biotech / Med Devices are immune to value – basedpayment - to quote a senior Amgen Executive – “Any executives whodoubt that value-based payment is here to stay will lose their jobs.”

• Providers cannot make money with Medicaid members – expansions willcontinue and the client opportunity is around realignment along the supplychain of care.

Myths Dispelled

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Key Takeaways

1. Value is expressed around outcomes – changes legacy models (this is profound)

2. Policy shift is shifting risk and determinants of value

3. Expand Models considered to be working (Medicaid Waivers, Medicare Advantage)

4. Fund where Payment Reform is critically needed (Bundled Payment and Value Based Payment For Pharma/ Life Science and Biotech)

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Key Takeaways (Continued)

5. Costs are rising. Costs associated with fee for service payment modelsare unsustainable. The result is the urgent need to implement valuebased care and support disease prevention.

6. Performance based care is being measured. Providers and plans mustcollect and report data that proves their clinical care needs acceptedstandards.

7. Payment models are changing. Value Based Payment (VBP) comprisesfinancial risk initiatives that reduce costs and improve quality andoutcomes.

8. The Federal Government is going to seek to shift financial risk to the states and the population.

9. Employers are increasingly becoming self-insured and contract directly.

10. Providers and provider systems will increase their financial risk.

11.Insurers will be decreasing their risk. They will position themselves asservice providers to those entities where someone else is backstoppingthe risk (including delivery systems).

Key Takeaways (Continued)

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12.Determine where your organization sits on the supply chain of payment and care/ service/ product

13.Patient Engagement/ Retention – Know your customer

14.Change is coming: Will you be ready?

15.CVS / Walgreens

16.Amazon

17.Walmart

Key Takeaways (Continued)

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Contact Information

Angelo Pirozzi, CPACell (516) 398-2389Email apirozzi@bdo.com

Jim White, CPADirect (904) 224-9775Email jrwhite@bdo.com

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