Transcript How Hospitals are Weathering the Storm Impact of Budget

Behind
the Big
Blue
An Overview on Hospital
Issues Facing the Arizona
Legislature
December 6, 2010
Overview
 Hospitals as Healthcare Providers and Hospitals
Bringing Benefit to Their Communities
 Hospitals as Economic Drivers
 Healthcare Finance, AHCCCS Budget Cuts &
Arizona’s Hidden Healthcare Tax
 How Hospitals are Weathering the Storm
 National Healthcare Reform and Arizona
 Legislators’ Top 5 Questions
Hospitals Providing Healthcare and
Bringing Benefit to Their Communities
 Essential Healthcare Services
 Emergency care
 Medical/surgical care
 Behavioral health &
rehabilitative services
Hospitals Providing Healthcare
 Arizona has 117 hospitals in 14 counties
 2.0 beds per 1,000 population compared to the
national average of 2.7 per 1,000 population
 Average length of stay in an Arizona hospital is
4.9 days, compared to a national average of 6.4
days
Sources: The Henry J. Kaiser Family Foundation
Hospitals Providing Healthcare
 26,123 trauma patients in 2009
 2.6M emergency department visits in 2009
 80% are insured by public and private insurance
 20% (or 1.3M) Arizonans are uninsured, including
273,500 children
 $409M in uncompensated care in 2009
Sources: Arizona Hospital and Healthcare Association, Arizona Department of Health Services,
and The Henry J. Kaiser Family Foundation
Hospitals Bringing Benefit to Their
Communities
 Community health improvement programs
hospitals provide include:
 Unbilled or discounted services offered to
poor, medically underserved and/or broader
community
 Arizona hospitals provided $175M in
charity care in 2009
 Education, support groups, family counseling
 Clinics, health screening, immunization,
medicines
 Meals, transportation, in-home services
Hospitals Providing Healthcare and
Bringing Benefit to Their Communities
 Relevant Policy Considerations
 Hospitals provide more than just medical care to
their communities
 As the economy worsens, hospitals face financial
challenges in providing community benefits:
 Uncompensated care and bad debt increase
 ED takes on greater role as primary care
provider
 Charitable contributions to hospital
foundations decrease
 Patients delay or cancel elective surgeries
 New capital expansion put on hold or canceled
Hospitals as
Economic Drivers
 Bolstering the state’s economy
 Hospitals as Employers
 Hospitals as Educators
 Hospitals as Innovators
Hospitals as Employers
 Arizona hospitals contribute $22B to the
state’s economy
 $5.3B in compensation to hospital employees
 Arizona hospitals employ 83,840 individuals
 Arizona hospitals generate 181,212 jobs
across all sectors, supporting 6.93% of all
employment in the state
Source: American Hospital Association, 2010
Arizona’s
Hospitals and
Their Positive
Impact on
Economies
Close to Home
Source: The Arizona Physician Workforce Study, Part II, Arizona State University Center for
Health Information & Research, 2005
Hospitals as Educators
 Hospitals educate and train physicians, nurses
and other healthcare professionals
 Hospitals provide clinical settings for
undergraduate training, internships and
residencies
 Hospitals also provide scholarships, tuition
payments, continuing medical education classes
and funding to external organizations to provide
medical education
Source: Arizona Hospital and Healthcare Association Community Benefit Survey, 2008
Hospitals as Educators
Graduate Medical Education (GME)
 Arizona’s GME program supports physician
residency programs at Arizona teaching hospitals
and is critical to addressing our state’s physician
shortage
 Thirteen Arizona hospitals participate in the GME
program, offering training in anesthesiology,
emergency medicine, family medicine, internal
medicine, neurology, neurosurgery, obstetrics &
gynecology, pathology, pediatrics, surgery, etc.
 60% of physicians trained in Arizona remain in
Arizona to practice
Source: University of Arizona, College of Medicine
Hospitals as Innovators
 Bioscience is on the Rise:
 Working to understand the basic science
behind an array of diseases and conditions and
discovering effective preventions, treatments
and cures
 Creating high-paying jobs--not only in science,
but supporting areas such as law, marketing,
accounting, etc.
 Offering a cutting-edge economy that can
flourish in dry economic times
Source: University of Arizona, College of Medicine, The Flinn Foundation: BioBasics
Hospitals as Innovators
 Arizona's jobs in the bioscience industry
increased 31% from 2002 to 2008. This compares
to 12% for the nation as a whole
 Of the estimated 89,674 jobs in Arizona's
bioscience sector, 84% of those jobs are in
hospitals
 Every $1 that Arizona's private and public
sectors spend for bioscience is estimated to
attract $6.26 in other investments
Source: The Flinn Foundation: BioBasics
Hospitals as Economic Drivers:
Growing Challenges
 Workforce shortages, exacerbated by Arizona’s
growing population, have hampered hospital
employment growth overall
 219 physicians/100,000,
well below national
average of 293
Source: The Arizona Physician Workforce Study, Part II, Arizona State University Center for
Health Information & Research, 2005
Hospitals as Economic Drivers:
Growing Challenges
The national average is 825
registered nurses (RNs) per
100,000 residents; the Arizona
average is 681 RNs per 100,000
residents. Arizona ranks 45th
among all states for employed
RNs per 100,000
Source: Health Resources & Services Administration, U.S. Department of Labor, Bureau of
Labor Statistics, 2008
Hospitals as Economic Drivers:
Growing Challenges

Nationally, nursing is the occupation with the
largest projected job growth through 2012

Nearly 49,000 additional Arizona RNs will be
needed in Arizona by 2017 to close the gap and
meet the U.S. average of 825 RNs per 100,000
population
Source: The Arizona Healthcare Workforce Data Center, 2008
Economic Downturn & State Budget
Cuts Stall Hospital Growth
 As the economic picture continues to worsen,
hospitals are experiencing:
 A decline in revenue resulting from
decreasing volumes of inpatient admissions
and elective procedures
 An increase in bad debt and charity care as a
percentage of total revenue
 An increase in community need for subsidized
health services and other services to support
low-income populations
 A decrease in the level of charitable support
Hospitals as Economic Drivers
 Relevant Policy Considerations
 Jobs generated by hospitals
 Effect of hospital cuts on access to healthcare
 Impact of downturn in economy on hiring and
expansion plans
 Effect of hospital cuts on hospital education
efforts and workforce shortages
 Effect of hospital cuts on investments in
bioscience
Healthcare Finance
 Who Pays for Healthcare?
 AHCCCS Hospital Payments
 Budget Cuts and Arizona’s
Hidden Healthcare Tax
Who Pays for Healthcare?
2009 Payer Mix in Arizona Hospitals
3%
8%
Self Pay
Medicare
Other
34%
Medicare
Commercial
AHCCCS/Medicaid
AHCCCS/Medicaid
Other
27%
Self Pay
Commercial
28%
Source: Arizona Hospital and Healthcare Association
Healthcare Cost Drivers
 Growth
 The workforce shortage
 Medical technology & complexity
 Uninsured
 Inadequate payment by government healthcare
programs
 Cost shifting—The Hidden Healthcare Tax
Arizona Health Care Cost
Containment System (AHCCCS)
 Medicaid is a federal/state partnership designed by
Congress in 1965 to provide healthcare for lowincome women, children, the elderly and disabled
 Arizona was the last state to join the Medicaid
program in 1982
 Arizona’s Medicaid program, AHCCCS, is a
national model for other states
Arizona Health Care Cost
Containment System (AHCCCS)

AHCCCS receives state and federal funding to
provide healthcare coverage for its enrollees

For every $1 the state invests, AHCCCS receives
$2 from the federal government

Enhanced match since 2009 will revert on
July 1, 2011
 AHCCCS purchases healthcare coverage
through managed care organizations (managed
competition model)
AHCCCS Funding Sources
2%
Other
3%
County
5%
Tobacco
Federal Funds
18%
General Fund
General Fund
Tobacco Funds
County Funds
Other
72%
Federal Funds
The AHCCCS Model Produces Results

Overall less costly program

2nd lowest health spending per capita

Arizona spends $4,103 per capita in
comparison to the national average of $5,283
Driving Up Arizona’s
Hidden Healthcare Tax

Hospitals must make up for inadequate AHCCCS
reimbursement by charging higher rates to hospital
patients and commercial health plans

Commercial health plans, in turn, pass these costs
on to businesses and individuals in the form of
higher health insurance premiums

This cost shift is a “hidden healthcare tax”
Note: Private Payers include commercial, managed care plan, other third party
payers, self-pay, and other non-government insurers.
Source: Lewin Group analysis American Hospital Association data for Arizona hospitals
FY 2008 – FY 2011 AHCCCS Budget Cuts
Deepen the Hidden Healthcare Tax

Hospitals have sustained nearly $500M in cuts since
2008:

Provider rates frozen since 2008, will be cut an
additional 5% effective April 1, 2011

Reductions to outlier payments

Reductions to Disproportionate Share Hospital
(DSH) payments
FY 2008 – FY 2011 AHCCCS Budget Cuts
Deepen the Hidden Healthcare Tax

Elimination of GME

HB 2116

Cuts to behavioral health services

After cuts, AHCCCS payments to hospitals
currently cover 70-74% of cost
Economic Downturn & State Budget
Cuts Stall Hospital Growth
 To weather the economic storm and state budget
cuts enacted over the last three legislative
sessions, hospitals are:
 Reducing administrative costs
 Postponing building projects and the opening of
new facilities
 Implementing hiring freezes and/or laying off
employees
 Consolidating and/or eliminating services
How Hospitals are Weathering the Storm
 Impact of AHCCCS Budget Cuts on
Hospitals
 Phoenix Children’s Hospital
 Kingman Regional Medical
Center
 Banner Health
How Hospitals are Weathering the Storm
Phoenix Children’s Hospital
Overview:
 PCH provides more pediatric hospital care than any
other hospital or health system in Arizona
 As a children’s specialty hospital, PCH serves a
disproportionate share of severe, high complexity,
high-cost Medicaid patients
 52% of the patients PCH serve are Medicaid
enrollees
How Hospitals are Weathering the Storm
Overview, continued:
 Steady increase in demand for pediatric specialty
services necessitated expanded facilities and
specialty physician services
Vital Statistics
2007
2008
2009
Inpatient Admissions
11,996
12,248
12,358
Physician Visits
193,781
230,569
267,398
Emergency Visits
59,750
60,174
64,486
Inpatient Surgeries
4,405
4,598
4,355
Outpatient Surgeries
6,693
7,479
8,195
Employees
2,455
2,784
2,914
 While volume of services delivered by PCH
continues to increase, income from
operations has significantly decreased
How Hospitals are Weathering the Storm
Relative Cost of Patients by Severity:
 Extreme cases have cost 11 times greater than
costs for Minor cases and are 3 times greater than
costs of Major cases
 PCH provides more than 50% of its care to Major
and Extreme cases
Relative Cost per Case Based on Severity
Moderate
24%
Extreme
26%
Minor
21%
Major
29%
Severity by Cost
How Hospitals are Weathering the Storm
Impact of Budget Cuts:
 Estimated $45M in payment reductions
since 2007
 Approximately $20M in payment reductions
in 2010
 Reductions have occurred in all payment areas,
including:





Routine I/P and O/P hospital rates
Outlier
Physicians
Graduate Medical Education
Disproportionate Share Payments
How Hospitals are Weathering the Storm
What PCH has Done to Survive the Cuts:
 Institutional Expense Reductions





Reduced staffing ($10M)
Eliminated reliance on temporary (high cost) nursing staff
($7.5M)
Mandatory furloughs & salary freezes (since January 2008)
Reduced scope of hospital expansion ($100M)
Performs in top quartile (lowest cost) of children’s
hospitals nationally
 Alternative Funding Initiatives

Local governments providing state match for DSH/GME
 Strategic Alliances


U of A College of Medicine
CHW/St. Joseph’s Hospital and Medical
Center
How Hospitals are Weathering the Storm
Impact of Loss of Medicaid to PCH:
 Over half of Arizona’s pediatric population is
enrolled in KidsCare/AHCCCS
 50% of all Arizona children would be without any
healthcare coverage or access to non-emergency
healthcare services
 Extraordinary uncompensated burden on all
hospital emergency departments
 Physician shortage would increase
 Jeopardize the viability of all safety net hospitals
and pediatric practices
How Hospitals are Weathering the Storm
Kingman Regional Medical Center
 Mohave County
 220,000 population
 HCA Enrolled Membership 38,000
 Kingman
 Service area 60,000 population
 HCA Enrolled Membership 12,000
 Broad spectrum of services including open heart
surgery, hospice, home health, cancer center,
wellness center, physician group practice
How Hospitals are Weathering the Storm
Historical Perspective

01-07 AHCCCS Increases
3.7%

08-10 AHCCCS Freeze
0.0%/$2.1M

08-10 KRMC Labor Inflation
3.3% Average

Cost Cutting/Avoidance
 Avoided hiring 33 employees in FY 2010
 Renegotiated supplier contracts - $2M
 Decreased employee wage increases to 2.5%

Increases in Rates to Non-Government Payers

Net operating loss 2011 YTD
How Hospitals are Weathering the Storm
Looking Forward
 2010-2011 Pressures
 5% decrease overall – April 2011
 $1.5M per year decrease (24 employees)
 Outpatient surgery rate decreases – 75%
 $1M considering reduction in force
(16 employees)
 Reviewing procedures with negative
contribution margins for consideration whether
to continue
How Hospitals are Weathering the Storm
AHCCCS Economy

KRMC AHCCCS
$31M/18%

Kingman Enrollment
12,000

KRMC AHCCCS Volume
32,000 member visits

AHCCCS-related labor
200 employees
How Hospitals are Weathering the Storm
Banner Health
Cumulative Impact of AHCCCS Budget Cuts
(in Millions)
2008
GME
2009
$
DSH
Outliers
$
(7.5)
Rate Freeze
Total
$
(7.5) $
2010
Total
(3.9) $
(3.9) $
(6.3)
(6.3)
(12.6)
(8.5)
(10.4)
(26.4)
(4.5)
(21.7)
(26.4)
(42.3) $
(73.0)
(23.2) $
During 2010, AHCCCS reimbursement
was 70% of our cost, resulting in a loss of
$140M
(7.8)
How Hospitals are Weathering the Storm
Actions Taken to Date








Eliminated 618 positions
Decreased/eliminated salary increases
Reduced benefits (PTO, STD, DSO)
Reduced hiring of new graduate nurses
Eliminated travel and most continuing education
Delayed opening of Banner Ironwood Medical Center
Consolidated service lines
Hundreds of small austerity measures
How Hospitals are Weathering the Storm
Impact of Loss of Medicaid
 Loss of program translates into $500M+ impact
 Capital markets require performance
 $2.3B in municipal bonds outstanding
 Bond covenants require minimum metrics
 Reactions would be dire, including:
 Mass workforce reductions
 Service elimination in AZ market
 Capital freeze
 Target absolutely everything
National Healthcare Reform and Arizona
 Patient Protection and Affordable
Care Act – Impact on Hospitals
 Medicare Payment Cuts
 Deliver System Reforms
What the Legislation Does
Medicare Payment Cuts:
 Expansion in coverage “pay-for”
 Graduated across-the-board cuts and cuts in DSH
 $155B hospital impact
 Arizona impact $700M if coverage expanded;
if not, $1.7B
 Cuts broaden Medicare payment gap and
exacerbate cost-shifting to commercial payers
What the Legislation Does
Delivery System Reforms:
 Value-based purchasing reforms
 Non payment for healthcare- associated conditions
 Readmissions penalties
 Clinical integration payment reforms
 Demonstration programs to bundle payments
 Demonstration programs for medical homes
 Demonstration programs for accountable care
organizations (ACOs)
National Healthcare Reform and Arizona
 Relevant Policy Considerations
 Multiple moving pieces with multiple timelines
 Insurance exchange compliance by 2014
 Medicaid eligibility reductions could threaten
federal matching dollars
 State budget deficit
 State lawsuit
Legislators’ Top 5 Questions

Emergency Medical Treatment And Labor Act
(EMTALA)

Prop. 204

Hospital Provider Tax

AHCCCS Improper Payments and Fraud

Questions?
Legislators’ Top 5 Questions
Emergency Medical Treatment and Active Labor Act
(EMTALA)

Federal law passed in 1986

Requires Medicare participating hospitals to provide
a screening for an emergency medical condition

Provide treatment and stabilization when an
emergency medical condition is diagnosed

Cannot consider insurance coverage or ability to
pay

Section 1011 payments offer some reimbursement

Heavy penalties for non-compliance
Legislators’ Top 5 Questions
Proposition 204
 Prop. 204, passed by the voters in 2000, expanded
AHCCCS eligibility from 33% to 100% of the federal
poverty level and secured federal funds to pay a
significant share of the costs of care
 Approximately 310,500 Arizonans receive healthcare
coverage as a result of Prop. 204
 Children represent 9% of the Prop. 204 population
or 11,000 individuals
•
1,931 are families with children who, before Prop 204, had income under the AFDC limit in effect on July 1, 1996, which is 36% of the 1992
FPL. Children make up approximately 9% of Prop 204 and 67% of base eligibility members.
•
AHCCCS Care are individuals who do not qualify for any other coverage and have income at or below 100% of the FPL. These individuals
were not covered under Medicaid prior to Prop 204.
•
MED are individuals who don't qualify for other coverage and have income at or below 40%FPL after deducting allowable medical
expenses and not covered under Medicaid prior to Prop 204.
• SSI-MAO are aged, blind, or disabled individuals who, prior to Prop 204, had income at or below 100% of the Federal Benefit Rate (FBR).
• There is no expected impact to SOBRA pregnant women or the TMA population.
Source: AHCCCS Administration
Legislators’ Top 5 Questions
Hospital Provider Tax
What is a Provider Tax?
 A tax assessed on healthcare providers, including
health plans, hospitals, nursing homes, etc.
 Can be used to enhance provider payments or
increase eligibility
 Can draw down federal dollars; in Arizona for every
$1 paid to a provider, $2 can be drawn down from the
federal government
Legislators’ Top 5 Questions
Hospital Provider Tax
Hospitals:
 AHCCCS hospital payments cover only 70-74% of costs
due to rate freezes and cuts
 Provider taxes collected and paid to hospitals can be used
to draw down additional federal dollars and, as a result,
these payments could increase payments to hospitals
 This has been the traditional provider tax model used
in other states
State:
 Some policymakers have discussed assessing a provider
tax as a new revenue source to address $1.4B budget
deficit
Legislators’ Top 5 Questions
AHCCCS Improper Payments and Fraud

Improper Payments and Managed Care

CMS Medicaid Integrity Program


Recovery Audit Contractors (RACs)

Medicaid Integrity Contractors (MICs)

New initiatives
AHCCCS Office of Program Integrity
Questions?