Healthcare Reform: Winners and Losers May 20, 2010 John Boettiger, Principal Deloitte Financial...

Healthcare Reform:Winners and LosersMay 20, 2010

John Boettiger, PrincipalDeloitte Financial Advisory Services LLP [email protected]

Chuck Dowling, Senior Vice President of Regional Operations US [email protected]

Jim Shannon, EVP DevelopmentLHP Hospital [email protected]

Richard Rawson, [email protected]

John R. Boettiger, Jr., CFA, ASA

Principal, Deloitte Financial Advisory Services LLP

ACG Dallas, TX

May 20, 2010

Health Reform 2010:The Patient Protection and Affordable Care Act

Copyright © 2010 Deloitte Development LLC. All rights reserved.3 Deloitte Center for Health Solutions, Health Reform, 04-02-2010

The U.S. health system today: fragmented, sectarianexpensive, complicated, disconnected ($7,681 per capita

BIOTECH

Innovators

Administrators/Watchdogs

Service Providers

Physicians

HCIT

Pharma

Device

Hospitals Outpatien

tFacilities

Insurers

Regulators

Long TermCare

BioTech

Professional Societies/

Special Interests

Accrediting Agencies

DiseaseManagemen

t

Employers

CAM

Media

Academic

Medicine

Consumers

Allied HealthProfessional

s

Disruptors


UninsuredPercent uninsured by age group

Health care since the Clinton eraThe economy was beginning its downturn

* The Children’s Health Insurance Program, created in 1997, has significantly reduced the number of low-income children who are uninsured.

Sources: Employee Benefit Research Institute estimates of data from the Current Population Survey. Centers for Medicare & Medicaid Services, Office of the Actuary: Data from the National Health Statistics Group. Kaiser Family Foundation/HRET Survey of Employer-Sponsored Health Benefits, 1999–2008, and Kaiser analysis of data from bureau of Labor Statistics.

Health care spendingAs percentage of gross domestic product

Insurance premiumsCumulative growth

Cost of workersAverage monthly worker premium contributions

The New York Times


Health reform circa 2010 is the convergence of four forces that produced a “new normal”

Health

Reform:Federal

State

Economic downturn• Transformational themes• Burning platforms• Innovations• Trends

Health costs• Medicaid& Medicare

• Employers• Out of pocket

• Indirect

Consumerism & politics

• System value proposition• Costs & satisfaction

• Political mood

Disruptive technologies• Retail medicine• Nanotechnology• Informatics• Personalized Medicine


I’m OK, you’re not OK!

(excerpt from publicly available document)

http://en.wikipedia.org/wiki/File:I'm_OK-_You're_OK.jpg


Increased Access

Medicaid expansion

SCHIP expansion

Subsidies for low income households

Long term care expansion (new)

Insurance reforms: pre-existing conditions, lifetime limits, premium reviews, health exchanges

Expansion of community health services & primary care

Three Major Goals

Improved Quality

Comparative effectiveness

Essential benefits: HHS

Electronic health records

Workforce re-design

Delivery system integration

LTC expansion

Connect health & human services

Focus: under-served populations

Overhaul: FDA

Overhaul: CMS

Reduced Costs

Comparative effectiveness

Medical home

Preventive health

Bundled payments

Accountable care organizations

Centers for Innovation

Value-based purchasing

Administrative simplification

Fraud and waste surveillance

Leverage government purchasing power

Independent Medicare Payment Commission

Patient Protection and Affordable Care Act and companion legislation address three big issues…


“New normal” cross sector implications: sustainability, trust, value keys

Transparency

Cost reduction

Results• Value-based purchasing• Outcomes• Regulatory compliance

• Social responsibility• Parity & fairness• Workforce diversity, training• Supply chain• Health & human services

• Profits & compensation• Business practices• Relationships• Results

• Consumers• Supply chain• Fraud and waste• Variation

Profit with purpose


The impact of major reforms in PPACA …

MajorReforms

Providers Health Plans

Biotech &Drugs

Medical Devices

Employers States Federal agencies

Comparative Effectiveness

-2 +1 -3 -1 +2 +1 +1

Delivery system reforms(ACOs, EPGs, MH, PN)

-2 +1 -2 -2 +2 -1 +2

Employer Mandates +1 +2 +1 +1 +1 to -2 0 +1

Individual Mandates +1 +1 +1 +1 +1 to -2 + +1

Insurance Regulatory Reforms(Exchanges, MLR, limits, etc)

-1 -3 -1 -1 -1 +1 +1

Medicare payroll taxes -1 -1 -1 -1 -3 -1 +2

Medicare cuts -2 -1 -2 -1 -1 -2 +2

Industry taxes -1 -2 -2 -2 -1 0 0


Successful organizations will respond proactively to these realitiesSector implications: the new normal (big questions)

HEALTH PLANS

• Margin pressure

• Sector volatility, consolidation

• Tension with providers

• Trust and reputation

• Innovation: financing, delivery

• Informediation

• Buy/sell or innovate?

• Portfolio focus: Retail/employer/ government?

• Build trust or manage resistance?

PROVIDERS• Integration: LTC,

physicians• Clinical redesign with

HIT, teams • Capital scarcity• New competition• Sustainability,

workforce • Risk: outcomes,

compliance• Costs, margin erosion• Contracting: value-

based, outcomes• Survival? Growth?

Enterprise efficiency and effectiveness?

• Capital sourcing and priorities?

LIFE SCIENCES

• Price pressures

• Clinical integration

• Comparative effectiveness

• Consolidation/ collaboration

• Risk management

• Alternative health

• Regulatory compliance

• Better to buy/sell, or expand globally, diversify or lay low?

• What’s the quickest path to commercialization?


Visit our website to subscribe to our content:www.deloitte.com/CenterforHealthSolutions/subscribe

March 29, 2010 Monday memoHealth reform updateThis week’s headlines (click to jump to article):•Health reform bills pass: What’s ahead?

•Deloitte Tax analysis

•Berwick named CMS head

•Physician fix in limbo

•Food and Drug Administration (FDA) looking at device approval process

•Quotable

•Fact file

•My take

•Subscribe to the Health Care Reform Memo

•Deloitte Center for Health Solutions research

•Deloitte contacts


Contact informationFor more information, please contact:

John R. Boettiger, Jr., PrincipalDeloitte Financial Advisory Services, [email protected] 713-982-2374

Paul H. Keckley, Ph.D., Executive DirectorDeloitte Center for Health [email protected] 202-220-2150

Isabel Ortiz, Marketing Manager Deloitte Services [email protected] 713-982-2623

For more information on the Center's view of health care in the new administration, please visit: www.deloitte.com/us/healthreform

And visit our website to subscribe to our content:www.deloitte.com/CenterforHealthSolutions/subscribe

mailto:[email protected]



Copyright © 2010 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu

LHP Hospital Group, Inc. May 20, 2010 Presentation to

http://www.warrenhospital.org/index.php

http://www.acg.org/dallas

Challenges Facing America’s Hospitals

Declining reimbursementsUncertainty surrounding healthcare reformIncreasing regulationAccelerating uncompensated careConstraints on capital accessAging plant and equipmentIncreased competition from niche or specialty providers

These challenges are causing a widening divide between “haves” and “have nots”

Number of Community Hospitals,(1) 1988 – 2008

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals.

(1) All nonfederal, short-term general, and specialty hospitals whose facilities and services are availableto the public.

(2) Data on the number of urban and rural hospitals in 2004 and beyond were collected using coding different from previous years to reflect new Centers for Medicare & Medicaid Services wage area designations.

(2)

All Hospitals

Urban Hospitals

Rural Hospitals


We’ve lost nearly 500

hospitals since 1988.

Percentage of Hospitals with Negative Total and Operating Margins, 1995 – 2008


Negative Operating Margin

Negative Total Margin


Approximately one third of

hospitals lose money

Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1988 – 2008


(1) Includes Medicaid Disproportionate Share payments.


Commercial insurers

subsidize govt. payers

Number of Bond Rating Upgrades and Downgrades, Not-for-Profit Health Care(1), 1993 – 2008

Source: Moody’s U.S. Public Finance. Moody’s Not-for-Profit Healthcare 2008 Year End Ratings Monitor. Data released January 2009. (1) Includes stand-alone hospitals, health systems, and human service providers.

Upgrades

Downgrades

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

60

40

20

0

20

40

60

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

60

40

20

0

20

40

60


Downgrades have consistently

exceeded upgrades


protect their credit ratings;

stretch their capital spend;

preserve their liquidity.

And at the same time

grow, or at least protect, market share;

remain competitive in plant and equipment;

improve quality;

be opportunistic with regard to development.

These challenges are profoundly impacting hospitals across the board.

Hospitals in all categories are attempting to:

For many, if not most, this means at least considering some form of a joint venture or affiliation option.

LHP Response

LHP was formed as a direct response to these challenges.

Our purpose is to form joint ventures with not-for-profit partners to help community hospitals meet their strategic objectives.

Who is LHP Hospital Group?

A privately-held hospital company based in Plano, Texas

An experienced management teamFormer management team at Triad Hospitals, Inc. 54 hospitals (10 JVs)

Owners with financial and healthcare expertiseCCMP Capital Partners (former private equity arm of JP Morgan Chase)Canada Pension Plan Investment Board

A board with leading not-for-profit healthcare thought leaders

Our View on Health Reform

Likely accretive on average for hospitalsWinners and losersPricing pressureIncentives for coordinating careManaging the unintended consequences

Feels like another round of provider consolidation

Contact Information

If you would like to learn more about LHP Hospital Group please visit our website at www.lhphospitalgroup.com

If you would like to discuss specific points of this presentation or ask further detailed questions, please contact Jim Shannon, Executive Vice President of Development, at 972-943-1705 or by e-mail at [email protected].

Chuck Dowling,US Oncology SVP

Copyright © 2010 US Oncology, Inc. All rights reserved.

26

US Oncology: THE largest national oncology network

5

Source: Sloan-Kettering, MD Anderson, and Mayo Clinic


27

Reimbursement pressures will intensify Payers are looking to providers to drive quality and value through cost-effective care management

Demand will increase as providers decrease in number

Low utilization of available technology Disciplined capital spend

Our Challenges


28

Size and scale Strong brand Clinical depth Care management Productive resources

Technology Employees

Staying ahead of external pressures in the marketplace will require:


29

Medical Oncologist – 245 Radiation Oncologist – 58 Gynecologic Oncologist – 16 Urologist – 13 Bone Marrow Transplant – 6 Breast Surgeon – 5 Hospital JV’s – 5 Pediatric Oncologist – 4 Breast Radiologist – 1 Surgical Oncologist - 1

Integration – Consolidation – AccessTexas Oncology’s Answer to Size and Scale


30

Built Strong Through Innovation, Quality and Customer Service

31

32

The HR Department for Small Business

33

Company

EmploymentRelationship

Human Resource Management

Policies and Practices

Payroll Taxes

Workers' Compensation

Government Compliance

Employee Benefits

Employee

Grow BusinessManage Change

Align PeopleManage Business

Employment Relationship Without Administaff

Employer Liability Management

Training and Development

Employment Administration

Recruiting & Selection

34

ServiceAgreement


Administaff

• Human Resource Management

• Recruiting and Selection

• Policies and Practices

• Payroll Administration

• Payroll Taxes

• Employee Benefits

• Workers’ Compensation

• Employer Liability Management

• Government Compliance

• Training and Development

• Manage Business

• Grow Business

• Manage Change

• Align People

Client Company

Employee


Employment Relationship With Administaff

35

New Regulations Since 1900

By 1940

FUTAFLSAFICANLRACommon LawCase LawLocal LawsState Laws

By 1980

PDAERISAOSHAADEACRAFUTAFLSAFICANLRACommon LawCase LawLocal LawsState Laws

TodayBy 1900

Common Law Case LawLocal LawsState Laws

The Growing Burden of Employment Regulation

PPACAHCEARAARRAHIREGINAHEARTMHPAEAWRERAPPAAJCAMMAEGTRRAWHCRATRA ’97SBJPAHIPAAMHPANMHPAUSERRAURAFMLAUCA

ADA DFWAIRCATRA ’86 COBRADEFRAREATEFRAPDAERISAOSHAADEACRAFUTAFLSAFICANLRACommon LawCase LawLocal LawsState Laws

Employer Impact of Patient Protection & Affordable Care Act (PPACA)• Signed into law on March 23, 2010• Staggered effective dates through 2018• 2010-2011 Provisions

– Small business tax credit for employers that purchase health insurance for employees

– Increase dependent coverage to age 26– Elimination of lifetime medical plan limits– Elimination of Pre Ex for dependents under age 19– W-2 reporting of aggregate value of health coverage– Recognize elimination of employer tax deduction for retiree drug

subsidy– Section 105 (h) discrimination testing for all fully insured plans

36

Employer Impact of PPACA cont’d.• 2013 Provisions

– Increase in Medicare tax rate on high wage employees– FSAs capped at $2,500

• 2014 Provisions– “Pay or Play” provisions for employers

• Must offer qualifying health coverage to full-time employees (30+ hours week)• Qualifying coverage must be affordable• Employer penalties for failure to comply

– States to establish Health Benefit Exchanges for individual and small markets– Elimination of annual limits on benefits– No waiting period over 90 days; employer penalty of $400-$600 per employee if

entry requirement exceeds 30 days

• 2018 Provisions– 40% excise tax on high cost medical plans

37

What is the Goal?

Business Goal:

1 + 1 = 3

Employee Goal:

1 + 1 = 1

“Administaff takes care of your people,

so you can take care of your business!”

What are the issues?

• Fast on-boarding of new employees• Risk management (compliance/liability)• Employee morale• Strategic alignment (culture/goals)

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