Craig Cordola2014 Economic Forecast

CEO, Memorial HermannTexas Medical Center

October 17, 2013Federal Reserve Bank-Houston Branch

Economic Forecast 2014Healthcare

Craig Cordola, MBA, MHAChief Executive OfficerMemorial Hermann-Texas Medical Center

Economic Forecast Healthcare• A Patient’s Reality• Memorial Hermann • Economics of Healthcare• Healthcare Reform• Economic Impact of Healthcare Reform

A PATIENT’S REALITY

MEMORIAL HERMANN

Memorial Hermann-Texas Medical Center

ECONOMICS OF HEALTHCARE

Economics of HealthcareHospital Reimbursement

Self Pay Medicaid* Medicare Managed Care HIE $-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$0.15

$0.52

$0.85

$1.62

$0.52

$0.85

Reimbursement per $1 Cost

* Does not include incremental cost containment measures; e.g. 40% reduction payment for non-emergent care in the Emergency Department.

Economics of HealthcareWhat is a dollar of revenue really worth?

• Assuming $1.00 of gross revenue

• 66¢ is discounted out due to contractual discounts (DRG payments, pre arranged private insurer payments)

• 28¢ goes to “controllable” costs, led by labor and supply costs

• 5¢ goes to “non controllable” costs

• At the end of the day, hopefully left with 1¢

Economics of HealthcareHealthcare Payment Streams

Source: “Value in Healthcare: Current State and Future Directions”. HFMA Value Project. June 2011. Healthcare Financial Management Association. October 4, 2013 <http://www.hfma.org/Content.aspx?id=1126>.

PATIENT PROTECTION AND AFFORDABLE CARE ACT… aka HEALTHCARE REFORM

Healthcare ReformFragmented Industry

Medicare spending is expected to nearly double over the next decade.

Source: Congressional Budget Office

Healthcare ReformPublic Model Sustainability

Healthcare ReformPrivate Model Sustainability

Cumulative increases in health insurance premiums, workers’ contributions to premiums, inflation and workers’ earnings.

Source: Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 1999–2012.

Healthcare ReformWhy Change?

Source: OECD, “Health at a Glance”, November 23, 2011

Healthcare ReformClinical Outcomes

Source: OECD (2011), Health at a Glance 2011: OECD Indicators, OECD Publishing.

Healthcare ReformLife Expectancy

Many people in other countries live longer at a lower cost per capita.

Healthcare ReformAffordable Care Act• Fundamentals

– Individual Mandate– Employer Mandate– Medicaid Expansion– Funding/Taxes/Penalties

Healthcare Reform Individual Mandate• Individual Mandate

YEAR PENALTY2014 Greater of $95 or 1% of income

2015 Greater of $325 or 2% of income2016+ Greater of $695 or 2.5% of income

Healthcare ReformEmployer Mandate• “Free Rider Surcharge” assessed to employees with 50 or

more full-time employees (30+ hours/week)• Must provide “qualifying” and “affordable” coverage

– Qualifying: plan design is expected to pay at least 60% of allowed charges

– Affordable: required contribution for self-only coverage can’t exceed 9.5% of employee’s household income

Penalty• $2,000 x total number of employer's FTE (first 30 FTEs disregarded)

Healthcare ReformMedicaid Expansion• Expansion of State Medicaid programs

– 20 States have declined

• Creation of Health Insurance Exchanges– 25 States have declined

• Requires states to expand Medicaid to 133% of Federal Poverty Level (FPL)– Approximately $30,000 per year for a family of four

Healthcare ReformFunding/Taxes/Penalties• 50% Funding through Medicare and Medicaid reductions• 50% Funding through Taxes and Penalties

– 0.9% (to 2.35%)Tax rate increase for Medicare Part A on earnings over $250K– 3.8% Tax on Passive/Unearned income for earners above $250K– 27.4% reduction in Medicare Physician Reimbursement (SGR)– 10% tax on Tanning services– 2.3% tax on Medical Devices– 40% tax on High Value Health Plans (Cadillac Tax)– $2.00 per covered life for Health Exchange companies– Reduction in hospital payments (Value Based Purchasing) of $428B

USA Today, October 13, 2013

ECONOMIC IMPACT OF HEALTHCARE REFORM

• Value determines sustainability across all economic sectors

• The sustainability of the current U.S. healthcare system is directly connected to the value it delivers

• The market not only demands value, but rewards value

ValueQuality*

Cost_____________=

*Quality = Outcomes, Safety, Service

Economic ImpactProvider Impact

Economic ImpactProvider Impact

Source: Fixing the Doctor Shortage. American Association of Medical Colleges. Retrieved October 4, 2013, from https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/.

Economic ImpactProvider Impact

• Projected shortfall of 90,000 physicians within the next 10 years– 45,000 primary care physicians– 46,000 surgeons and specialists

• Medical schools are increasing enrollment, but…

• There is a cap on the number of federally supported residency training positions

Number of physicians will increase 7% by 2020. The number of Americans older than 65 will increase by 36% in the same period of time.

• Texas ranks 4th among states in keeping its physicians but still ranks 42nd in physician to population ratio

• Not enough primary care doctors in 50% of Texas counties to care for an aging population

StatePopulation

increase over last 20

years

Physician increase

over last 20 years

Physician Population per 100,000

1990

Physician Population per 100,000

Today

Today’s Rank of

Physicians per 100,000

Med School Graduate Retention

Rank

GME in State

Retention Rank

Med School + GME

Retention Rank

California +7.5 million +15,000 272 262 20t 1 2 5

Florida +5.9 million +15,000 251 231 19 8 4 7

Illinois +1.4 million +6,000 229 236 20t 27 14 33

Massachusetts +0.5 million +5,000 364 400 1 10 31 37

Mississippi +0.4 million +1,500 144 174 50 5 13 9

New York +1.3 million +7,500 339 331 3 26 21 35

Ohio +0.7 million +6,300 213 227 17 23 29 23

Pennsylvania +0.8 million +6,000 256 255 9 31 35 35

Texas +8.1 million +17,000 188 200 42 2 7 4

Economic ImpactProvider Impact

Economic ImpactEmployer Impact

• Full-time equivalents.• n=72 franchisees, all industries.• n=1,203 employers.

31% Franchisees that plan to cut jobs to stay under 50-employee threshold2

32% Retail and hospitality companies that plan to “change workforce strategy” to avoid penalties3

Strategies to Avoid ACA Penalties

Cut jobs to remain under 50 FTEs1

Convert full-time employees to part-time status

Hire all new employees at part-time status

Split into smaller companies with fewer than 50 FTEs

Source: Reynolds J and Merin J, “Business Leaders Give 2013 Outlook Mixed Reviews,” International Franchise Association, January 2013, available at: www.franchise.org; Mercer, “Health Reform Poses Biggest Challenges to Companies with the Most Part-Time and Low-Paid Employees,” August 8, 2012, available at: www.mercer.com; “Regal Entertainment Group Cuts Employee Hours, Explicitly Blames Obamacare in Memo: Report,” The Huffington Post, April 17, 2013, available at: www.huffingtonpost.com; Health Care Advisory Board interviews and analysis.

Economic ImpactEmployer Impact

• Employer-sponsored insurance.

• Consumer-directed health plan.

Individuals Covered by ESI1

23%Employers planning

to offer CDHP2 as only plan option, 2014

25%Insured non-elderly adults with deductibles

$1,000 or higher, 2012

Non-elderly Population

2000 2011

69.7%

59.5%

11.5M fewer individuals

Contribution to Insurance PremiumsCoverage for Family of Four

$5,866

$2,137

$11,429

$4,316

2002 2012

Employer

2002 2012

Worker

95% growth

102% growth

Sources: Sonier J, et al., “State-Level Trends in Employer-Sponsored Health Insurance,” Robert Wood Johnson Foundation, April 2013, available at: www.rwjf.org; Collins R, et al., “Insuring the Future,” The Commonwealth Fund, April 2013, available at: www.commonwealthfund.org; Towers Watson, “Reshaping Health Care,” 2013, available at: www.towerswatson.com; Health Care Advisory Board interviews and analysis.

BUT, AT THE END OF THE DAY….