Financial Turmoil In the Healthcare Industry

Presented by: Larry Heydon, President/CEO of Johnson Memorial Health

IOA Meeting-May 2, 2014

Version 2 -2/8/13

Financial Turmoil In the Healthcare Industry

Two Concerning Factors Simultaneously at Play- A “Double Whammy”

1. Partial Healthcare Reform (ObamaCare)2. Volume Erosion (Consumerism/Redirection)

1. Partial Healthcare Reform “SOME” Targeted Objectives of the Patient Protection and Affordable Care Act

and Other Healthcare Reform Measures (Obamacare)

• For US Citizens In General– Reduce Medicare spending (to protect program for future generations)

• For Uninsured or Underinsured– Allow for universal health insurance coverage for all via Medicaid expansion at state level and

sliding scale insurance exchanges (market plans)• For Insured (via private coverage or employer sponsored health plans)

– Allow for transparency in pricing and reduced spending– Expand eligibility/reduce restrictions in coverage– Over time, allow for reduced costs per encounters

• For Healthcare Providers– Allow for decrease in Medicare reimbursement– Reduce levels of “free” care via universal health insurance coverage– Emphasis on quality management

In general, hospitals

supported these

objectives

Reimbursement Scale“Free” “Retail”

MedicaidUninsured/ Underinsured

Costs

Medicare Commercial and Self Pay

Average Rate

Estimated 10%+ cuts over a 10

year period for

hospitals

Medicare

Medicaid Expansion

New Exchanges

Average Rate

No M

edicaid Expansion

Commercial Plans

including employer sponsor plans

adjusts to lower

exchange rates

Average Rate

Impact of Partial Reform-An Overview

Current Reform “Promise” Partial Reform

• Private Insurance Policies

• Employer Sponsored

Plans

“Commercial” Box from

Previous Slide

2. Volume Erosion – “Consumerism”

Insurance Paid

Patient Paid – Co Pays/Deductibles

Historical Commercial Plans

Insurance Paid

Patient Paid-Co Pays/High

Deductibles/Health Savings Plans

Reaction to High Costs

2. Volume Erosion – “Consumerism”

Impact to Healthcare Providers=The Volume

Bubble Has Burst

Decreased volume from high paying insured populations

Covered Insured Reaction to Increase Share=Consumerism

Rethinking and/or foregoing of healthcare services.

Self directed or insurer redirected services to less expensive niche providers (stand along labs, imaging

centers) that hospitals simply can not match

So..what do hospitals do to control the financial hemorrhage from partial healthcare reform and volume erosion?

4 Basic “Business 101” Options (In Order of Ease)

Decrease Margin

Expectations

Eliminate or Relinquish

Unprofitable Service Lines

Generate Additional

Volume (“steal” market

share)

Produce Expense Savings

Specific Comments on What Hospitals are Doing

• Increased competition against each other (to steal market share….friendly neighbors era is over)

• Competitive pricing on key lab and radiology ancillary services to combat niche providers. • Short term participation in Exchange/Market Plans and other key narrow network plans

to protect volume.• Long term creation of regional insurance network plans (ACOs and ACCs) to redirect

volume, better manage care and save the middleman premium charged by insurers.• Short term fierce physician integration steps followed by long term re-evaluation of

physician specialty needs and compensation…simply can not afford to carry too high of a level of subsidization for employed physicians.

• Unavoidable focus on decreasing labor costs while still meeting regulatory requirements. • Potential elimination of non-core services lines that are subsidized…causing a movement

towards specialty centers and a general decrease in access to care• Significant list of other expense control initiatives (supplies, outsourcing, etc)• Paradigm shift from fee for service (FFS) reimbursement to fixed capitated payment

where lower volume equates to higher financial reward (less is better).

Thank You and Q&A

A comment on healthcare professionals, current and future