Four economic forces poised to threaten future hospital margins
April 11, 2012
Christopher Kerns, Health Care Advisory Board
Over the next decade, the biggest challenge to hospital and health system finances is demographics.
Health Care Advisory Board research has shown that at current course and speed, the impact of four economic forces could lead to significant margin erosion for the typical U.S. hospital across the next 10 years. Our modeling indicates that decelerating price growth, continued upward pressure on costs, and shifts in both payer and case mix could result in double-digit margin declines.
And with government and private payers putting health care on a budget, hospital and health system leaders must quantify the margin performance challenge they face, engineer a balanced plan to set their organizations on a sustainable path, and effectively engage physicians as partners in their strategies for running on Medicare margins.
For the last five months, your peers from across the U.S. have attended our Health Care Advisory Board national meetings to frame their own Medicare Breakeven initiatives. To accommodate member requests for an additional "last chance" to engage our research leaders and network with peer executives around these themes, we are hosting a special one-day version of the national meeting on May 15 at our offices in Washington, D.C.
This session will provide in-depth guidance for executives shaping their response to the reimbursement reductions and shifts in demand that are reshaping health system economics, with a special focus on tactics for creating a high-performance medical group.
Secure your seat
Health Care Advisory Board members, register now for the Beyond the ACO makeup meeting on May 15. Not a member? Visit our website to learn more.
What to know about the latest ACOs
CMS names 27 new participants in Shared Savings Program
April 11, 2012
Dan Diamond, Managing Editor
CMS on Tuesday named the 27 health organizations that will become accountable care organizations under the federal health reform law's Medicare Shared Savings Program.
The new ACOs include more than 10,000 physicians, 10 hospitals and 13 smaller, physician-led organizations, which will serve about 375,000 Medicare beneficiaries in 18 states. Five organizations also will participate in CMS's Advance Payment Model.
The uncertainty around the Affordable Care Act's future hasn't dimmed interest in the ACO program, which is "off to a very phenomenal start," according to CMS Deputy Administrator Jonathan Blum. "We are on track to fundamentally transform the [Medicare] fee-for-service program," he added in a conference call.
CMS also is reviewing an additional 150 applications from organizatons seeking to enter its Shared Shavings Program in July, "suggesting that the [program] is moving full-speed ahead," Kaiser Health News reports.
The announcement comes after CMS in January launched the "Pioneer" Accountable Care Organization program that created 32 new ACOs, and the Physician Group Practice Transition Demonstration, which created six new ACOs. According to CMS, more than 1.1 million Medicare beneficiaries are now participating in shared-savings initiatives (Gold/Torres, Kaiser Health News, 4/10; Daly, Modern Healthcare, 4/10 ).
- Learn more at the Health Care Advisory Board's national meeting, Beyond the ACO. Due to popular demand, a makeup session has been added for May 15.
Key takeaways: Broader interest, but ACOs face learning curve
According to Chas Roades, the Advisory Board's chief research officer, as ACOs launch and "people actually start to deliver care in a different way, it’s [going to be] messy and complicated. There will be successes and failures, and it may go slower than policy-makers would like."
Roades suggested that CMS help the initial cohort of ACOs share their data and best practices with one another. "It’s a slow ramp but everyone will be watching very closely to see how these early ACOs succeed," Roades said.
, Director of the Advisory Board's Medicare Payment Innovation Project, notes that only two of the new ACOs opted for the higher-risk, higher-reward Track 2 program, which comes with downside risk. "Even if organizations are willing to be first in line for the Shared Savings Program, they are carefully staging their overall level of risk in the program," Lazerow added.
A new era of integration? DOJ approves Highmark-West Penn affiliation
Deal still must clear state hurdle
April 11, 2012
The Department of Justice (DOJ) has approved a major payer-provider deal, having concluded its antitrust investigation into Pittsburgh-based insurer Highmark's proposed acquisition of West Penn Allegheny Health System.
Rather than reduce regional competition, the new integrated health system could aid Western Pennsylvania's health care markets by "providing [West Penn] with a significant infusion of capital and increase[e] the incentives of market participants to compete vigorously," according to the DOJ 's statement.
The department noted that local anticompetitive effects were "unlikely," given regional hospital market concentration and national insurers' efforts to enter the service area.
Background on the deal
Last year, Highmark and West Penn reached a $475 million agreement:
- The two would merge to form a new not-for-profit, called Highmark;
- The entity would include two subsidiaries—a not-for-profit health plan and a not-for-profit provider organization, which will include West Penn; and
- The deal would include $75 million to fund scholarships for students attending West Penn-affiliated medical schools.
Although some health plans have purchased clinics, and many hospitals have payment models that mimic insurance plans, insurers typically have avoided purchasing hospitals given the size of investment and operating challenges. However, rising health spending is pushing insurers and providers into new cost-cutting strategies, analysts say.
Reaction to DOJ decision
UPMC—the region's other major health system—in a statement agreed with DOJ's decision, saying the deal would "allow consumers to enjoy the benefits of more choice." The health system has not renewed its contracts with Highmark.
According to the Pittsburgh Tribune-Review, the deal still requires approval from the IRS, Pennsylvania's Insurance Department, the state Attorney General's Office, and the Allegheny County Orphan's Court.
The insurance department is expected to hold hearings on the deal's impact on regional competition next week, which may present the biggest challenge to the deal, according to the Pittsburgh Post-Gazette (Carlson, Modern Healthcare, 4/10; Nixon, Pittsburgh Tribune-Review, 4/11; Lord, Pittsburgh Post-Gazette, 4/10).
Berwick: Cut these six forms of waste to rein in costs
Cutting waste provides 'largest, most humane' way to cut health costs
April 10, 2012
In a new JAMA essay, former CMS Administrator Don Berwick and RAND researcher Andrew Hackbarth recommend cutting six major categories of health care waste to address growing health care expenditures.
Berwick's crusade against wasteful spending
Berwick—now a senior fellow at the Center for American Progress—has long spoken out about the need to control health care costs. In a December interview with Kaiser Health News, Berwick said that that the U.S. health care delivery system is to blame for inefficiencies and wasteful spending—not Medicare and Medicaid.
According to Berwick, "health care is broken. We have set up a delivery system that is fragmented, unsafe, not patient-centered, full of waste, and unreliable." He also stressed that the Affordable Care Act would benefit the nation's health system by changing how physicians and hospitals are paid and by encouraging cooperation between health care providers, through initiatives such as ACOs.
Looking at causes of waste
Writing in JAMA, Berwick and Hackbarth contend that the following forms of waste account for at least 21% of U.S. health care spending:
- Failures of care delivery, which the authors say cost $102 billion to $154 billion in 2011;
- Failures of coordinated care, which cost $25 billion to $45 billion in 2011;
- Overtreatment, which cost $158 billion to $226 billion in 2011;
- Administrative complexity, which cost $107 billion to $389 billion in 2011;
- Pricing failures, which cost $84 billion to $178 billion in 2011; and
- Fraud and abuse, which cost $82 billion to $272 billion in 2011.
To address growing health care costs, Berwick and Hackbarth recommend reducing waste across the six categories rather than implementing "draconian proposed shifts of Medicare costs to beneficiaries and reductions in payments to physicians and hospitals."
For example, they write that stakeholders could adopt waste-reduction goals created by the National Quality Forum to reduce unnecessary spending caused by overtreatment.
Altogether, systemwide waste reduction could generate $3 trillion in savings for CMS and $11 trillion in savings for all payers from 2011 to 2019. In comparison, the CMS Office of the Actuary estimates that the federal health reform law—which includes some waste-reduction efforts—will save an estimated $675 billion over the same period.
"Reducing waste is by far the largest, most humane, and smartest opportunity for evolving an affordable health care system," Berwick and Hackbarth write, noting that "the opportunity is so enormous that achieving even a fraction of [the possible] amount in the short run could help health care turn the corner toward sustainability without harming patients" (Berwick/Hackbarth, JAMA, 4/10 [subscription required]; McKinney, Modern Healthcare, 4/10 [subscription required]).
Study builds pressure to insure spiral CTs for smokers
Analysis: Screening could save lives of 130,000 lung cancer patients in 2012
April 11, 2012
Annual spiral CT scans to screen for lung cancer in longtime tobacco users could save thousands of lives each year and cost less than common screening practices for other cancers, according to a study in Health Affairs.
The "first-of-its-kind actuarial study" confirms findings published last year by the National Cancer Institute and builds pressure on insurers to cover the screening procedure for lung cancer, the most lethal cancer in the United States. According to MedPage Today, most insurers have yet to cover lung cancer screening, even for high-risk patients, because of limited data on its cost-effectiveness.
Study determines costs per life saved
For the study, researchers from the New York-based consulting and actuarial firm Milliman used published data on the impact of spiral CT scans for smokers and long-term former smokers between the ages of 50 and 64.
They estimated that 18 million U.S. residents are current or former heavy smokers within the age range and that about half those individuals would receive annual lung cancer screenings if it were covered by their insurance plans.
Based on actuarial analysis, the researchers determined that the screenings would cost $247 per screened patient per year. Milliman also concludes that the total cost, when spread out over the total commercially insured population, would be $0.76 per insured individual per month with no cost sharing, less than the cost of breast, colorectal, and cervical cancer screenings.
Meanwhile, Milliman estimated that the procedure could lead to an additional 130,000 lung cancer survivors in 2012. As such, they determined that the cost per life-year saved would be $19,000. In comparison, breast and cervical cancer screenings cost $31,000 and $50,000 per life-year saved, respectively.
Urging insurers to cover the test
The researchers urge commercial insurance companies to "consider lung cancer screening of high-risk individuals to be high-value coverage and provide it as a benefit to people who are at least 50-years-old and have a smoking history of thirty pack-years or more."
Commenting on the findings, Medical Imaging &Technology Alliance Executive Director Gail Rodriguez said they "reinforce the value of advanced medical imaging technologies to improve patient outcomes and drive down health care spending" (Pecquet, "Healthwatch," The Hill, 4/10; Knox, "Shots," NPR, 4/10; Fiore, MedPage Today, 4/10).
NYT: More hospitals interested in geriatric ED model
Specialized units improve satisfaction, patient care, officials say
April 10, 2012
Can a "geri-ED" serve older patients in a better, less risky way than traditional emergency departments? More hospitals think so, the New York Times reports, and are investing in EDs specifically tailored to older patients.
Why a geriatric ED?
The model offers targeted services and amenities for elderly patients, who represent a growing share of hospital volumes. The Times reports that patients over age 65 now account for 15% to 20% of all ED visits, a percentage that is expected to rise as baby boomers age.
Moreover, elderly patients are among the most vulnerable in a traditional ED, according to the Times. Research indicates that up to 27% of elderly ED patients admitted to the hospital or die within three months of their visit.
A 2007 paper by Mount Sinai Hospital's Ula Hwang suggests that some of the problem may be in ED design. It found that regular EDs focus on speed, which can allow for mistakes with elderly patients who have more than one condition, take several medications, and can struggle to communicate.
How geriatric EDs cater to the elderly
Some of the nation's first geri-EDs were built in 2008, and dozens more have opened or are under construction, replete with specialized features.
For example, New York City's Mount Sinai Hospital's new geriatric ED—which houses eight beds and six exam rooms—features nonskid floors, reclining chairs, and thicker mattresses to prevent bedsores. It also has an artificial skylight to prevent the agitation and confusion that often sets in at the end of the day. According to the hospital's chair of emergency medicine, satisfaction ratings for patients in the two-month-old geriatric ED are "off the scoreboard."
Mount Sinai's geri-ED is modeled after the one at New Jersey's St. Joseph's Regional Medical Center. Unscheduled return ED visits have dropped from 20% to 1% among elderly patients since St. Joseph's geri-ED opened, according to the hospital's chair of emergency medicine.
Some take issue with specialized EDs
However, the specialized approach to ED care has drawn skeptics, the Times reports. Alfred Sacchetti, chief of emergency medicine at New Jersey-based Our Lady of Lourdes Medical Center, says hospitals should not aim to improve care for certain patients and should instead implement improvements for all patients (Hartocollis, Times, 4/9).
Can science explain why Republicans, Dems don't empathize with each other?
April 10, 2012
Political beliefs could affect Democrats’ ability to empathize with Republicans and vice versa, according to a study published last month in Psychological Science.
For the study, researchers from the University of Michigan interviewed 261 students to test the hypothesis that political affiliations would influence the level of empathy participants expressed for another person.
The students—who were told they were participating in research on reading comprehension—were given a story about a hiker lost in a cold climate without adequate food, water, or clothing. The hiker was described as either a Democrat or Republican.
When researchers asked students standing outside in sub-zero temperatures whether they thought the hiker suffered most from hunger, thirst, or cold, 94% of those who self-identified as “similar” to the hiker in terms of political views chose cold, compared to only 57% of students asked the same question inside a heated building. Students who disagreed with the hiker’s political affiliation, though, chose cold in equal numbers regardless of their own physical state.
According to the study’s authors, “These consequences suggest a surprising limitation in our capacity to empathize with people we disagree with or differ from…Firsthand painful experiences apparently do not translate into appreciating similar pain felt by dissimilar others.” Research does suggest, however, that simple exercises such as spending time together in a neutral setting could help increase empathy between groups (Szalavitz, “Healthland,” Time, 4/4).
This week’s industry transitions
April 11, 2012
Each week, the Daily Briefing highlights executive transitions among the nation's hospitals and health systems. Are you moving to a new institution? Please e-mail firstname.lastname@example.org to let us know.
- Donald Guadagnoli named CMO at Cape Cod Healthcare, Inc. (Hyannis, Mass.)
- William J. Kearney named President at Community Memorial Healthcare Foundation (Ventura, Calif.)
- Barbara Baldwin named CIO at Anne Arundel Medical Center (Annapolis, Md.)
- Joe B. Riley named President and CEO at Jackson Hospital (Montgomery, Ala.)
- Joann Ringer named COO at Miami Valley Hospital South (Dayton, Ohio)
- Michael Hammer named CEO at Sanford Worthington Medical Center (Worthington, Minn.)
- Mark A. Bogen named CFO at South Nassau Communities Hospital (Oceanside, N.Y.)
- Trisha Khaleghi named SVP and CEO at Sharp Mary Birch Hospital for Women (San Diego, Calif.)
- Stephen L. Ondra, MD named CMO at Northwestern Memorial Hospital (Chicago)
- Lisa Brandenburg named President at Seattle Children's Hospital (Seattle, Wash.)
- Joseph Felkner named CFO at Health First (Rockledge, Fla.)
- Steven Scott named COO at Georgia Health Sciences (Augusta, Ga.)
HHS proposes ICD-10 delay
What the delay will mean for hospitals and health systems
April 10, 2012
CMS on Monday released a proposed rule that would delay the ICD-10 compliance date by one year, until October 1, 2014.
The agency considers a one-year delay a "reasonable compromise" between the incremental costs that a delay imposes on hospitals already on track for compliance in 2013 and the additional time that many small hospitals and provider groups need to become compliant.
- Want to learn more about how the Advisory Board is supporting members in the wake of CMS’ announcement? Join Ed Hock, senior director of our Revenue Cycle Solutions team, for a complimentary webconference discussing what the new ICD-10 deadline means as well as how you can take advantage of the new timeline.
Officials pointed to several factors for the delay, such as a recent readiness survey that showed more than 70% of providers and payers did not think they could meet the original October 2013 deadline.
In a release, the agency stated "We believe the change in the compliance date for ICD-10, as proposed in this rule, would give providers and other covered entities more time to prepare and fully test their systems to ensure a smooth and coordinated transition by all industry segments."
Five implications of the delay
Writing on the Financial Leadership Council's blog, "At the Margins," Josh Gray offers five takeaways for hospitals and health systems seeking to make sense of the delay. Read more.
Daily roundup: April 11, 2012
Bite-sized hospital and health industry news
April 11, 2012
Colorado: The Colorado Board of Pharmacy has denied prescription drug registry access to Medicaid and Rocky Mountain Health Plans officials, who are seeking access in an effort to combat prescription medication misuse. According to the board, the law allows access only to those providing direct care or dispensing prescriptions (Booth, Denver Post, 4/5).
Connecticut: Hartford city council is considering a proposal from St. Francis Hospital and Medical Center to open an urgent care facility inside city hall. Under the proposal, St. Francis would lease a 935 square-foot space in the government building for five years at no cost, provide services to city and state employees and their families, and make $230,000 in improvements to the space (Carlesso, Hartford Courant, 4/9).
Florida: The Miami Herald over the weekend examined a dispute over a 2007 "handshake" deal between the University of Miami (UM) and Jackson Memorial Hospital over pediatric cardiac anesthesiologists. UM and Jackson currently are working to formalize physician agreements. According to the Herald, the disagreement illustrates issues with the "complicated relationship" between the institutions (Dorschner, Miami Herald, 4/8).
Texas: The University of Texas (UT)-San Antonio, the UT Health Science Center, Texas Biomedical Institute, and Southwest Research Institute this week unveiled the San Antonio Vaccine Development Center, which aims to develop new vaccines for infectious diseases and new approaches to vaccine development. Each of the participating organizations will contribute infrastructure and resources to the new center (Aldridge, San Antonio Business Journal, 4/9).
Crack the code on effective practice management
April 11, 2012
Raghu Bukkapatnam, practice manager of our Research and Insights division, speaks about the value of combining Crimson technology with best practice research to unlock the full value of physician practices. Learn more.
U.S. teen birth rate hits record low
The teen birth rate declined in nearly every state from 2007 through 2010, driving the nationwide rate to its lowest point since record-keeping began in 1940, according to a report by CDC's National Center for Health Statistics (NCHS).
The findings expand on data released in November 2011 that showed the nationwide teen birth rate decreased by 9% between 2009 and 2010, reaching 34.3 births per 1,000 teens.
According to the report, teen birth rates fell by at least 8% in 47 states and the District of Columbia during the three years. Arizona had the largest decline in its teen birth rate—29% between 2007 and 2010—while rates in Montana, North Dakota, and West Virginia were steady during that time period.
The highest rate in 2010 was in Mississippi, with 55 births per 1,000 teens, despite a 21% decrease in teen births in the state since 2007. New Hampshire had the lowest rate at 15.7 births per 1,000 teens. Altogether, the report found that teen birth rates were higher in the South and Southwest regions, and lower in the Northeast and Upper Midwest.
Overall, the teen birth rate has fallen by 44% since 1991. Without the decline, there would have been 3.4 million more infants born to teens by 2010, according to the report.
Authors of the NCHS report attributed the decline to pregnancy prevention efforts and highlighted a recent government survey that found increased use of contraceptives among teens (AP/San Francisco Chronicle, 4/10; Wetzstein, Washington Times, 4/10; Beasley, Reuters, 4/10; Jayson, USA Today, 4/10).