Healthcare Overview

Healthcare OverviewHealthcare Overview

Association ofAssociation of

Healthcare Internal AuditorsHealthcare Internal Auditors

John P. McGuireJohn P. McGuire

May 7, 2008May 7, 2008

TOPICSTOPICS

Healthcare Economics Payment Systems Profitability Assessment Business Strategies Performance Measures Future Opportunities

Chart 1.4: National Health Expenditures as a Percentage of Gross Domestic Product, 1980 – 2005(1)

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007.(1) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that

are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf.

9.1% 9.4% 10

.2%

10.3

%

10.2

%

10.4

%

10.6

%

10.8

%

11.2

%

11.6

%

12.3

%

13.0

%

13.4

%

13.7

%

13.6

%

13.7

%

13.7

%

13.6

%

13.6

%

13.7

%

13.8

%

14.5

%

15.3

%

15.8

%

15.9

%

16.0

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Per

cent

age

of G

DP

=37.4%

Chart 1.5: National Expenditures for Health Services and Supplies(1) by Category, 1980 and 2005(2)

Hospital Care, 32.9%Hospital Care, 43.2%

Physician Services, 22.6%

Physician Services, 20.1%Other Professional(4), 7.7%

Other Professional(4), 7.2% Home Health Care, 2.5%Home Health Care, 1.0% Prescription Drugs, 10.8%Prescription Drugs, 5.1%

Other Medical Durables and Non-durables, 3.1%Other Medical Durables and Non-durables, 5.8%

Nursing Home Care, 6.5%Nursing Home Care, 8.1%

Other(3), 13.8%Other(3), 9.4%

1980 2005

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007.(1) Excludes medical research and medical facilities construction.(2) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that are applied to the entire time

series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf.

(3) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care.(4) “Other professional” includes dental and other non-physician professional services.

$234.0B $1,860.9B

Four Myths Four Myths of Health Care Costsof Health Care Costs

1. Healthcare costs are driven by greed.

2. Healthcare costs are driven by waste.

3. We can’t keep spending more on our health.

4. Other countries get the same for less.

Source: Ira Ellman - Arizona State University

Another viewpoint on theAnother viewpoint on thecause of health care costscause of health care costs

The increase in morbidity rates is due to good medicine. The expanding concept of health. The seduction of technology and the deception of marketplace

models. The American Character and appetite.

Source: Willard Gaylin, M.D.

Chart 4.2: Aggregate Total Hospital Margins, (1) Operating Margins, (2) and Patient Margins,(3) 1991 – 2005

Total Margin

Operating Margin

Patient Margin

-6%

-4%

-2%

0%

2%

4%

6%

8%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Total Hospital Margin is calculated as the difference between total net revenue and total expenses divided by total

net revenue.(2) Operating Margin is calculated as the difference between operating revenue and total expenses divided by

operating revenue.(3) Patient Margin is calculated as the difference between net patient revenue and total expenses divided by net

patient revenue.

Chart 4.6: Aggregate Hospital Payment-to-Cost Ratios for Private Payers, Medicare, and Medicaid, 1981 – 2005

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Medicare

Medicaid(1)

Private Payer

70%

80%

90%

100%

110%

120%

130%

140%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Medicaid Payment Remains Under Pressure

Medicaid Affects Every Hospital

Reduced benefits/service level caps

Provider payment cuts

Spillover to neighboring hospitals “If something cannot go on forever, it will stop.”

Herb Stein, economist

Missouri:

90,000 cut

Tennessee:

300,000 cut

Employment Drives the Prevalence and Richness of Health Coverage

3%

4%

5%

6%

7%

8%

1987 1990 1993 1996 1999 2002

58%

60%

62%

64%

66%

68%

70%

Cause and Effect: US Unemployment Rate vs. the Percentage of the Non-Elderly Population with Employment-Based Coverage

Employment-Based

Coverage

Unemployment Rate

Secondary Impact: Less competitive labor markets enable firms to shift more health care costs to employees—in the form of premium-sharing, deductibles, copays and coinsurance.

Source: Bureau of Labor Statistics

Unemployment Rate

Non-Elderly With Employment-Based

Coverage

The Long-Term Trend of Consumers Paying Less Is Reversing

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1930 1940 1950 1960 1970 1980 1990 2000 2010

Consumer Out-of-Pocket Share of Personal Health Care SpendingUS Market, 1930-2010

Medicare and Medicaid

CDHC reverses decline in consumer share of costs

Sources: Milliman & Robertson, Bureau of Labor Statistics, Sg2 forecast

Adoption of Consumer-Driven Plans Continues to Accelerate

500,0001,000,000

3,000,000

6,000,000

trace120,000

Enrollment in Consumer-Driven Health Plans

2001–2006

Sources: Inside Consumer-Directed Health Care; Wall Street Journal; Sg2 Analysis, 2005.

GM auto worker

I fully expect to pay some share of my health care somewhere down the road. Would I like it? No. Would I understand it? Yes.

The Access Projecthttp://www.accessproject.org/downloads/Hospital_Finance.pdf

Contrary to Popular Belief, Health Care Is Not Recession-Proof

“We feel we are aiding society in this regard, while availing ourselves of the financial opportunities afforded by the one industry, health care, that has historically been recession-proof.”

—CEO’s Annual Report Letter

The government will always be there.

People will always get sick.

People don’t pay for health care.

Health care always grows.

Yes, But

They can, and do, defer care.

Employers do, and increasingly their employees do as well.

Remember the 1990s?

Not always, and Medicare and Medicaid usually pay less.

Consolidation and Retrenchment

The Health Care Industry Moves in Cycles . . . Like Everything Else

Sources: U.S. Department of Health and Human Services

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Phase IBack to the Future

Phase IIThe Party Doesn't Last

Phase IIIGrowth Returns

Projected Average

Growth in Total Health Care Expenditures

Yearly Growth Rate

The Next 10 Years: A Mostly Flat Inpatient Market

US Market % Growth

Discharges 10%

Patient Days 3%

ALOS –7%

Med/Surg Inpatient Discharges*US Market, 2005–2015

*Excludes neonate, normal newborns, obstetrics and psychiatry.

25,000,000

30,000,000

35,000,000

2005 2007 2009 2011 2013 2015

Sg2 Forecast

10%

Population-Based Forecast 16%

Sources: Impact of Change v4.0; NHDS; Sg2 Analysis, 2005.

Key Strategic Challenge: Finding Profitable Growth in a Flat Market

?

Technology Leadership

Service Portfolio Expansion

Service/Quality Breakthroughs

Efficiency Breakthroughs

Geographic Expansion

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Oncology

Cardiology–Medical

NeurosurgeryGeneral Medicine

Neurology Gastro-enterology

Cardiology–Interventional

Cardiac SurgeryOrthopedics

Vascular Services

Pulmonary

General Surgery

*Bubble size represents DRG volumes in 2005. †Excludes neonates, normal newborns, obstetrics and psychiatry.

% Change in Discharge Volumes

Service Line Landscape*†

Relationship Between Percent Change in Days and Discharges US Market, 2005–2015

% Change in Days

IP Growth Areas Include Interventional Cardiology, GI and General Surgery

Source: Impact of Change v4.0; NHDS; Sg2 Analysis, 2005.

Ambulatory Services Are the Growth Market in Health Care

9.8%

13.9%

27.5%

19.2%

Cancer Orthopedics

Factors Driving Growth inOutpatient Services

Technology

Patient preference

Physician preference Higher case volume

Control over care process

Revenue opportunity

Proliferation of outpatient care

options/players

Cost reduction imperative

Inpatient and Outpatient Volume Growth for Cancer and Orthopedic Service LinesUS Market, 2004–2014

Inpatient

Outpatient

Chart 4.3: Distribution of Outpatient vs. Inpatient Revenues, 1981 – 2005

Gross Outpatient Revenue

Gross Inpatient Revenue

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Per

cent

age

of R

even

ue

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals.

Who Is Making Money in Health Care?

0%

5%

10%

15%

20%

2002 2003 2004

Hospitals

Health Plans

Pharmaceutical & Biotechnology

Medical Device

Profitability Across Health Industry Subsectors, 2002-2004

Notes: Profitability measured as operating income of a select group of publicly-traded companies in each sector. Decline for hospitals in 2004 is almost entirely driven by the negative performance of Tenet.

A Big Construction Pipeline Is Still Working Its Way Through the System

0

10,000

20,000

30,000

40,000

50,000

60,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Completed

Broke Ground

Designed1998: Turning point for new projects initiated

2004: Turning point for new projects completed

Acute Care Bed Construction at Different StagesU.S. Market, 1993 - 2004

There Is More Good Technology than Any Institution Can Buy

BrainLab = $8 million

DaVinci robot = $1.5 million

64-Slice CT = $1.5 – 2 million

ICDs = $30,000 each

““There is no more delicate matter to take in hand, There is no more delicate matter to take in hand, nor more dangerous to conduct, nor more dangerous to conduct, nor more doubtful of success, nor more doubtful of success, than to step up as a leader in than to step up as a leader in the introduction of changes. the introduction of changes.

For he who innovates For he who innovates will have for his enemies will have for his enemies all those who are well off all those who are well off

under the existing order of things, under the existing order of things, and only lukewarm supporters and only lukewarm supporters

in those who might be in those who might be better off under the new.”better off under the new.”

~ ~ Niccolo MachiavelliNiccolo Machiavelli

Measuring Performance in Health Care Is Ambitious, Complex and Divisive

Measures of Performance for Carotid Stent Procedure

Outcomes Successful Deployment of Stent Residual Stenosis Follow-up (Long-Term) Stenosis Procedure Mortality Procedure Stroke Procedure MI Vascular Complications Bleeding at Axis Duration of Recovery Successful Deployment of Stent Protection Device Residual Diameter Stenosis: # with 50% Increase (6 months later) Mortality and Morbidity % of Ipsilateral Strokes TIAs <24 Hours Activities of Daily Living

Satisfaction Patient satisfaction

Return to Work Duration of

Convalescence Quality of Life – Living at

Home Convenience Patient Perception of

Outcome Physician Satisfaction

Scheduling Equipment / Staffing Efficiency

Process Candidate Screening/Selection

Proper AMI Stroke High-risk for Surgery U/S, CT and/or MRI Informed Patient Consent Procedure Time-out

Correct Patient Correct Side

Post-Procedure Care: Dosage of Aspirin and Plavix Neuro Exam Follow-up

Efficiency Length of Stay (LOS) Procedure Time Expendable Supplies Post-Procedure Time Post-Discharge Care (<30-

Day Repeat IP) Episodic Cost

Hospital Patient Payer

Longitudinal Cost

Infrastructure / Credentialing Interventional Lab: Road-mapping (fluoroscopy/digital flat-

panel/high resolution/real-time) Staffing

Nurses trained in dealing with slow heart rate, low BP, stroke, bleeding, etc.

X-ray tech Physicians

Cognitive: Patient Selection; Credentialing Experience: Minimum # of Volumes Complications Management

Performance Improvement Program Tracking M & M Conferences Corrective Actions Improvement

Patients See Performance Differently

39%

35%

34%

32%

7%

Doctor communicationskills

Responsiveness ofhospital staff

Comfortable and cleanroom

Nurse/hospital staffcommunication

Pain management

What Medicare Hospital Patients Care About Most

Source: Centers for Medicare and Medicaid Services, Wall Street Journal

Affordability= Quality

Affordability is the most often cited (14%) measure of how Americans judge

health care quality

Top Ten Issues for the Top Ten Issues for the Healthcare IndustryHealthcare Industry

1. Medicare and the Medicare Drug Plan

2. Care and Coverage of the Uninsured

3. Rise of the Health Care Consumer

4. Focus on Prevention

5. Patient Safety Issues Driving IT Investments

6. Diminishing Drug Pipeline

7. Pay for Performance

8. Report Card Fever

9. Technology Backbone

10. Labor Shortages

Source: PricewaterhouseCoopers

Recommendations of the Committee Recommendations of the Committee on the Costs of Medical Careon the Costs of Medical Care

1. Both preventive and therapeutic services. Organized groups of health professionals. Hospital based but with home and office care. Preserve physician and patient relationship.

2. Extension of all basic public health services to entire

population based upon need. Can be provided by government or non-government

agencies.


3. Costs of medical care be group based through insurance

and/or taxes. Individuals can continue fee basis as addition.

4. Medical services are important functions for every state and

local community. Coordination of rural and urban services requires special

attention.


5. Professional Education Physicians - greater emphasis on health and prevention of disease.

Greater attention to the social aspects of medicine. Dentists - broader education. Pharmacists - more stress on opportunities for public service. Training for nurse midwives and nursing aides and attendants be

provided. Systematic training for hospital and clinic administrators. Nurses - remolded to provide well-educated and well-qualified

registered nurses.

Source: Report of Committee on the Costs of Medical Care - 1933


““Never make predictions, Never make predictions, especially about the future”especially about the future”

Yogi Berra

Reference MaterialReference Material

A Community Leader’s Guide to Hospital Finance The Access Project http://www.accessproject.org/downloads/Hospital_Finance.pdf

TrendWatch Chartbook American Hospital Association http://www.aha.org/aha/research-and-trends/chartbook

Health Care Costs – A Primer Kaiser Family Foundation http://www.kff.org/insurance/upload/7670.pdf

Healthcare Overview

Documents

Transcript of Healthcare Overview