Colegio de Contadores Públicos Autorizados de Puerto Rico Educación Continuada
XVIII HEALTHCARE INDUSTRY
ANNUAL FORUM: "PUERTO
RICO'S HEALTHCARE SYSTEM
BEYOND THE CRISIS"
1718-047 August 11, 2017
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XVIII HEALTHCARE INDUSTRY ANNUAL FORUM: "PUERTO RICO'S HEALTHCARE SYSTEM BEYOND THE
CRISIS"
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XVIII Healthcare Industry Annual Forum:
"Puerto Rico's Healthcare System Beyond the Crisis"
Hotel Caribe Hilton, San Juan
August 11, 2017
COLEGIO DE CONTADORES PÚBLICOS AUTORIZADOS DE PUERTO RICO
EDUCACIÓN CONTINUADA
AGENDA
8:30am – 8:45am Welcome
CPA Francisco Méndez González
CPA Luis A. Zayas García
8:45am – 9:00am Update on Recommendations to the Puerto Rico Healthcare System by Puerto Rico CPA Society
CPA Francisco Méndez González
9:00am – 10:00am What does Puerto Rico’s Healthcare System Needs to Achieve and Opportunities for Puerto Rico at the Federal Level
Ms. Marilyn Tavenner
10:00am – 10:15am Break
10:15am – 11:15pm Challenges Faced in Washington and What the Industry Needs to Achieve in Order to Overcome Them
Mr. Roberto García Rodríguez, Esq.
Mr. Jason Borschow
11:15am – 12:15pm New Healthcare Model based on the Approved Fiscal Plan
Hon. Rafael Rodríguez Mercado
Ms. Ángela Ávila Marrero
12:15pm – 1:30pm Lunch
1:30pm – 2:30pm Federal and Local Legislation: Enacted, Proposed... What Else Needs to be Done?
Mr. Luis E. Pizarro Otero, Esq.
XVIII Healthcare Industry Annual Forum:
"Puerto Rico's Healthcare System Beyond the Crisis"
Hotel Caribe Hilton, San Juan
August 11, 2017
COLEGIO DE CONTADORES PÚBLICOS AUTORIZADOS DE PUERTO RICO
EDUCACIÓN CONTINUADA
AGENDA
2:30pm – 3:30pm Healthcare Changes, Economic Impact and what Pharmacies Need to Thrive
Ms. Yadira Almodóvar-Díaz
Ms. Rosa M. Hernandez
Dr. Felipe Palacios
Mrs. Linda Ayala Bousson
3:30pm – 3:45pm Break
3:45pm – 4:45pm Challenges’ in Healthcare Industry: Financial Perspective
Mr. Michael McDonald
4:45pm – 6:00pm What should be the role of each to the industry players in overcoming the Puerto Rico Healthcare crisis?
Dr. Raúl F. Montalvo Orsini
CPA Iván Tenreyro Lorenzo
Dr. Joaquín Vargas De León
Mr. Pedro L. González Cruz
Invite:
Comité Industria de la Salud
Colegio de Contadores Públicos Autorizados de Puerto Rico Educación Continuada
XVIII Healthcare Industry Annual Forum: "Puerto Rico's Healthcare System Beyond the Crisis" (HE-HIAF) (1718-047)
Puerto Rico's healthcare system's and industry's components must look in all directions and analyze today's
issues looking towards tomorrow... "Beyond the Crisis"!
Update on Reccommendations to the Puerto Rico Healthcare System by Puerto Rico CPA Society
Francisco J. Méndez González, CPA, FHFMA, CFF; Partner - Assurance & Consulting Services, LLM&D, PSC - Member Firm HLB International
What does Puerto Rico Healthcare System Need to Achieve and Opportunities for Puerto Rico at the Federal Level
Ms. Marilyn Tavenner, President & CEO, America's Health Insurance Plans (AHIP)
Challenges Faced in Washington and What the Industry Needs to Achieve in Order to Overcome Them
Mr. Roberto García Rodríguez, Esq., President & CEO, Triple-S Management Corporation & President, Medicaid and Medicare Advantage Products Association of Puerto Rico
Mr. Jason Borschow, President & CEO, Abarca Health, LLC
New Healthcare Model based on the Approved Fiscal Plan
Hon. Rafael Rodríguez Mercado, MD, Secretary of Health, Puerto Rico
Ms. Ángela Ávila Marrero, Executive Director, Puerto Rico Health Insurance Administration (ASES)
Federal and Local Legislation: Enacted, Proposed... What Else Needs to be Done?
Mr. Luis E. Pizarro Otero, Esq., Vice President, Corporate & Government Affairs Executive, Medical Card System
Healthcare Changes, Economic Impact and What Pharmacies Need to Thrive
Ms. Yadira Almodóvar-Díaz, DrPH, MPH, CHES; Senior Advisor, Health Systems and Public Policy, Puerto Rico Health Insurance Administration (ASES)
Ms. Rosa M. Hernández, R.Ph., Esq.; President, MC-21 Corporation
Dr. Felipe Palacios, Ph.D.; General Manager, AbbVie Puerto Rico & President, Pharmaceutical Industry Association (PIA) of Puerto Rico
Mrs. Linda Ayala Bousson, Executive Director, Asociación de Farmacias de la Comunidad de Puerto Rico
Challenges' in Healthcare Industry: Financial Perspective
Mr. Michael McDonald, Executive Vice President and Director, Business Group, First Bank
What should be the role of each to the industry players in overcoming the Puerto Rico Healthcare crisis?
Dr. Raúl F. Montalvo Orsini, President, MSO of Puerto Rico, LLC
CPA Iván Tenreyro Lorenzo, Vice President of Finance, Laboratorio Clínico Borinquen
Dr. Joaquín Vargas De León, President, IPA Association of Puerto Rico & Chief Medical Officer, VARMED
Mr. Pedro L. González Cruz, MHSA, FACHE, Esq.; Excutive Director, Ashford Presbyterian Community Hospital
Instructional Delivery Method: Group Live
CPE Credits: 9.50
P. R. Field of Study: General
Pre-requisite: Experience in the healthcare industry.
Advance Preparation: None
Level: Update
Date: August 11, 2017
Registration: 7:30am - 8:30am Forum: 8:30am - 6:15pm
El Colegio de Contadores Públicos Autorizados de Puerto Rico (CCPAPR) desea
ofrecerle un servicio personalizado y acorde a sus necesidades e intereses
profesionales. Por esta razón, lo exhortamos a actualizar y/o completar todos los
encasillados de cada sección de “Mi Perfil”.
Esta información será muy útil y valiosa en el desarrollo de eventos educativos y
profesionales dirigidos a usted. Además, este proceso le permite definir sus
preferencias personales sobre su información de contacto para nuestras
comunicaciones y la que desea esté visible en el Directorio de Colegiados y en el
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Para su conveniencia, le incluimos el enlace directo a “Mi Perfil” por el cual también
se accede a los materiales de este evento educativo hasta la medianoche de HOY.
El procedimiento de actualización es muy sencillo y rápido, por lo que puede hacerlo
cuando vaya a descargar los materiales.
En el Colegio de CPA estamos para servirle.
Una vez haya registrado su entrada a esta actividad educativa, puede acceder y
completar su evaluación de manera rápida y sencilla a través de “Mi Perfil”. En nuestra
página web de “Inicio” encontrará las instrucciones detalladas para completarla.
Oprima AQUÍ para acceder a “Mi Perfil”
ACTUALICE “MI PERFIL”
COMPLETE LA EVALUACIÓN ELECTRÓNICA
Aiming for a Sustainable Healthcare Model in Puerto Rico
The Pharmaceutical Industry Association (PIA) View
FELIPE PALACIOS, Ph.D.
President & Chairman of the Board
1.PATIENT CENTRICITY
2.PROTECT INNOVATION
3.PROMOTE VALUE-BASED HEALTHCARE
OUR Principles
Generating Healthcare Savings
TIME
CO
ST
-SA
VIN
G
EFF
EC
TIV
EN
ES
S
HEALTHCARE SAVINGS
PREVENTION
DISEASE CONTROL
COST CONTAIN
MENT
PATIENT PREVALENCE
ON-CARE
Controlled/Remission
Managing symptoms
Uncontrolled/Active disease
Healthcare Costs: $$$$$
HEALTHCARE CRISIS (COST-BASED HEALTHCARE)
[CRISIS ! ]
Healthcare Costs: $$
HEALTHCARE SUSTAINABILITY (VALUE-BASED HEALTHCARE)
PATIENT PREVALENCE
ON-CARE
More patients On-Care Better Patient Outcomes
Improved Quality of Care Cost-efficiencies
Focusing on VALUE-Based Healthcare
4
Controlling Patients has Potential for Significant Cost Savings
5
~40% reduction in Direct Medical
Costs (vs MDA/HDA)
~58% reduction in Total Medical Costs (vs Presistent DA)
Project SuSI: “Sustainability Strategic Initiative”
What to Expect
2017-2018 Government Healthcare Budget
ASES/MiSalud Drug Cost Analysis Annual CostContribution to
Total BudgetSource
Total MiSalud Budget $3,002,280,000 100% 2017 Fiscal Plan
Total Drug Cost $731,520,000 24% 2017 Fiscal Plan
Rx Exceptions (Non-PDL drug utilization) $68,000,000 ASES & PBM Insights
Generic Drug Cost $198,241,920 2017 Fiscal Plan
GROSS TOTAL Branded PDL Drug Cost $465,278,080 15%
ASES Rebates $184,000,000 6% 2017 Fiscal Plan
NET TOTAL Branded PDL Drug Cost $281,278,080 9%
Branded (Specialized and Non-Specialized) Drugs on MiSalud's
Formulary Represent Only 9% of the Total Healthacre Program Cost
| 1
Navigating the Challenges in the Healthcare Industry: A Financial Perspective
Michael McDonald EVP Business Group August 11, 2017 FirstBank Puerto Rico
CONFIDENTIAL
| 2
FirstBank Overview
Corporate Overview
● Founded in 1948.
● Headquartered in San Juan, Puerto Rico with operations in Puerto Rico, Eastern Caribbean (Virgin Islands), and Florida.
● 2nd largest financial holding Company in Puerto Rico with attractive business mix and substantial market share in commercial, retail, and consumer business lines.
● Florida presence with focus on serving southeast Florida region.
● The largest depository institution in the US Virgin Islands with approximately 40% deposit market share.
● 180 ATM machines and the largest ATM network in the Eastern Caribbean Region.
● A well diversified operation with over 650,000 retail and commercial customers.
● Well capitalized. Most recent DFAST stress test results showed FirstBank exceeding capital ratios even under a severely adverse scenario.
● Net income of $93 million for FY2016.
Commercial Unit Overview
● Focus on small to middle market commercial and corporate borrowers across FirstBank’s footprint. Complimented by full suite of deposit and business products.
● Total portfolio of over $2 billion with a 20% market share.
● Healthcare exposure of approximately $400-500 million.
● Full suite of cash management and POS services.
● Average loan origination volume over past 4 quarters of over $400 million.
| 3
FirstBank Healthcare Experience
● Relationships with many of the Island’s leading acute care hospitals
● One of the principal lenders to the hospital industry
● Lending group with significant experience in the industry and continuously monitoring events
● Credit and/or depository relationships with the Island’s principal health insurers
● Experience with over 25 hospitals and several outpatient facilities and radiology centers
● Leading lender to drug and hospital supply distribution companies
| 4
Local Hospital Industry Overview
● The Healthcare sector is a large component of the Puerto Rico economy.
● Puerto Rico has nearly 65 hospital facilities and 9,200 of the ~12,100 approved beds.
● 2.4 million patients, representing 68% of the population are enrolled in Medicare, Medicare Advantage (MA) or Medicaid (“Mi Salud”).
● Historically, the healthcare industry was considered to be recession-proof and financially solid.
● Beginning in 2015, due to changing demographics, deterioration in Puerto Rico’s fiscal situation and changes to the healthcare model, many of the hospitals started to reflect a downward trend in revenues and EBITDA.
● Some consolidation has occurred in the past years but that is expected to increase.
● Various hospitals have seen a decline in census levels and several hospitals have had to close floors.
● Many hospitals have responded by reducing expenses and delaying capital expenditures.
○ Signs of deterioration in some facilities, principally smaller, less capitalized hospitals.
● Proactive hospitals have already identified alternative revenue sources and/or are specializing in certain areas.
| 5
Current Challenges Facing Hospital Operators in Puerto Rico
● Federal funding reductions
○ Reduced coverage
○ Higher copays
○ Lower provider compensation
○ Reduced provider network
● Macroeconomic conditions
○ Economic instability
○ Small private sector economy
○ Limited liquidity (lack of access to capital markets)
○ PROMESA & Fiscal Plan for Puerto Rico
● Demographic trends
○ Aging population
○ High poverty rate
○ Chronic health conditions
○ Migration pattern (including physicians)
○ Low birth rates
● High cost of living
○ Typical professional’s cost of living in PR is ~12% higher than the average for the US mainland
| 6
The Healthcare Environment in Puerto Rico Legislative Update: Federal
● Trump Administration has postponed replacing Obamacare until 2019.
● Puerto Rico’s Medicaid Program is projected to deplete the last of the $6.4 billion Affordable Care Act (“ACA”) block grant before the end of CY2017.
● Puerto Rico faces a short-term funding issue on its Medicaid program, which must be remediated.
● Federal budget is still pending approval.
● Strong lobbying for Puerto Rico continues on behalf of the public and private sector.
○ Obtain a multi-year solution for Puerto Rico’s Medicaid program funding.
○ Minimum MA Benchmark closer to the national average (no less than 15% lower than the lowest state or USVI).
○ Healthcare Insurance Tax (HIT) Repeal nationally or for Puerto Rico (don’t participate in the Exchange).
| 7
The Healthcare Environment in Puerto Rico Legislative Update: Puerto Rico
● In 2017, the local government created an incentive law to retain physicians by establishing a tax rate of 4% on income and dividends accrued in the medical practice to medical residents of Puerto Rico.
● Per the Fiscal Plan for Puerto Rico, the government will focus on implementing reform measures to achieve savings of $900MM in healthcare spending by 2020.
○ 2018 Impact: $100MM; 2019 Impact: $300MM; 2020 Impact: $500MM.
○ Reform measures include:
● Paying for Value
● Improving payment integrity (reduce fraud)
● Reducing drug costs
● Modifying benefits
● Developing a new healthcare model
● Puerto Rico Budget for FY2017-18 includes a $100MM decrease in funding from the general fund for the Medicaid Program (ASES); however total budget for the agency decreased only $22MM due to other special appropriations.
Sources: Government of Puerto Rico/AFAF. (March 16, 2017) Fiscal Plan for Puerto Rico. Government of Puerto Rico and ASES Budget. (May 31, 2017).
| 8
The Healthcare Environment in Puerto Rico 2016 Puerto Rico Healthcare Resources Distribution
Sources: Puerto Rico Insurance Commissioner and Puerto Rico Health and Insurance Conference (March 9, 2017)
23%
26%
[VALUE]
[VALUE]
Medicare Advantage & Part D
Private Commercial
Medicaid Program/GHIP
Traditional Medicare
Estimated Distribution of Healthcare Resources in 2016
$2.8BN
$2.2BN
$4.9BN
$0.43BN
Revenue Per Member Per Year/ Per Month: Medicare Advantage: $8,400/ $700 Medicaid/ Mi Salud: $2,000/ $167 Commercial (Private): $1,900/ $158
Total Healthcare Resources amounted to ~$10 billion in 2016
| 9
The Healthcare Environment in Puerto Rico Demographic Challenges
● Puerto Rico Population—3,448,905
○ 52.4% female / 47.6% male
○ 18% 65 years or more
○ $20,800 median income
○ 46.0% under Federal poverty level
● Migration—2011-2015
○ 384,594 from Puerto Rico to the United States
○ Population declined by 6.8% (2010-2015), which included a substantial drop in the educated and working-age population (ages 20 to 65)
● Medicaid Program
○ Puerto Rico has the lowest Medicaid rate in the Nation, including the territories.
○ Puerto Rico ranks 1st in percent of population enrolled in Medicaid (48%).
○ Puerto Rico’s Medicaid program ranks 16th in enrollment among all jurisdictions.
○ The Affordable Care Act (ACA) provided some temporary funding but it is running out.
Source: Puerto Rico Community Survey (IPUMS) – US Census Bureau (2015)
| 10
U.S. Hospital Industry Industry Composition
● Hospitals and health systems in the U.S. are undergoing a dramatic shift in their business models due to a number of forces — from providers concerned with the volume of services they provide, to providers who focus on offering high-value services that emphasize keeping populations healthy.
● There are 5,686 hospitals in the U.S. Of these, 2,904 hospitals are nonprofit and 1,060 are for-profit. Additionally, 1,010 are owned by state or local (county, hospital district) government entities.
● Of all hospitals in the U.S., 1,971 serve rural communities and are considered rural hospitals. Despite the high number of rural hospitals, many of them are at risk of closing. According to September 2015 data, 57 rural hospitals had closed since 2010.
● U.S. health spending increased by 5.3 percent in 2014 to a total of $3 trillion, according to CMS' Office of the Actuary.
● For 2009, the latest year for which data is available. The average payor mix of a U.S. hospital is as follows:
○ Medicare: 40.9%
○ Medicaid: 17.2%
○ Blue Cross Blue Shield, other private insurance: 16.5%
○ HMO or PPO: 14%
○ Self-pay: 4.9%
○ Worker's compensation and other government programs: 2%
Source: www.beckershospitalreview.com
| 11
U.S. Hospital Industry Industry Composition (Cont’d)
● For the 11th year in a row, hospital CEOs ranked financial challenges as the No. 1 issue facing their organizations in 2014. The issue topped healthcare reform implementation (No. 2), governmental mandates (No. 3) and patient safety and quality (No. 4). Within the bucket of financial challenges, the 338 CEOs polled by the American College of Healthcare Executives indicated concern among the following subcategories:
○ Medicaid reimbursement (69 percent)
○ Bad debt (67 percent)
○ Decreasing inpatient volume (63 percent)
○ Medicare reimbursement (57 percent)
○ Competition from other providers (of any type) — 55 percent
A variety of factors have pressured hospital finances over the last several years, and these forces are unlikely to let up. In addition to the volume shift from inpatient to outpatient visits, the growth in high-deductible heath plans and other health insurance benefit design elements that increase costs for consumers has resulted in some patients delaying or withholding medical care.
| 12
U.S. Hospital Industry Industry Highlights
● Move towards larger systems
○ Community Hospitals at greatest risk due to margins, liquidity and recruiting ability; likely to become referral source to specialized providers
● From volume based to value based care
○ Good quality and customer experience at low cost
● Slowing capital projects (“wait and see”)
● Many systems with excessive leverage
● Inpatient to outpatient; move away from hospital based care
● ACA replacement plan is primary concern (Exchange exposure)
● Other concerns are:
○ Rising interest rates
○ Corporate tax reform
○ Labor cost pressure
| 13
Financial Performance of Selected Hospitals Key Financial Ratios
● Operating EBIDTA Margin
o This metric indicates the organization’s profitability from daily operating activities excluding capital-related decisions and interest and depreciation expense.
● Days Cash on Hand
o Is a liquidity measure. It represents the number of days an organization could support its operating expenses without collecting any additional cash.
● Debt to Capitalization
o Is a measure of financial leverage and reflects the organization’s level of debt compared to its cumulative earnings or funds balance.
● Capital Spending
o Measures the organization’s level of capital expenditures as a percentage of annual depreciation expense.
| 14
Financial Performance of Selected Hospitals Selected Puerto Rico Hospitals
Financial Metrics (000's)
2014 2015 2016
Revenue $963,525 $924,450 $930,526
EBITDA $138,435 14% $122,897 13% $113,329 12%
Net Income $63,422 $42,811 $28,713
Total Debt $502,778 $508,031 $504,878
Total Net Worth $299,714 $360,331 $345,016
Debt/EBITDA 3.6x 4.1x 4.5x
Debt/Net Worth 1.7x 1.4x 1.5x
Total Cash $130,787
Operating Expenses $792,562
Cash DOH 60 days
Cash to Debt 26%
| 15
Financial Performance of Selected Hospitals Selected Publicly Traded U.S. Hospitals
HCA Holdings,
Inc.
LifePoint
Hospitals, Inc.
Community
Health
Systems, Inc.
Universal
Health
Services, Inc.
Revenue $41,490 $6,364 $18,438 $9,766
EBITDA $8,483 20% $720 11% $2,159 12% $1,698 17%
Net Income $3,432 $131 ($1,626) $747
Total Debt $31,376 $2,914 $15,244 $4,136
Total Net Worth ($5,633) $2,228 $1,728 $4,597
Debt/EBITDA 3.7x 4.0x 7.1x 2.4x
Debt/Net Worth N/A 1.3x 8.8x 0.9x
Total Cash $1,113
Operating Expenses $62,998
Cash DOH 6 days
Cash to Debt 2%
2016 (millions)
● In 2014, the average nonprofit hospital had 205.8 days cash on hand and a cash-to-debt percentage of 141.8. However, cash-to-debt ratios vary widely in the industry:
○ Median cash-to-debt percentage for “AA”-rated hospitals: 201.7%
○ Median cash-to-debt percentage for “A”-rated hospitals: 143.7%
○ Median cash-to-debt percentage for “BBB”-rated hospitals: 89.5%
○ Median cash-to-debt percentage for hospitals rated below “BBB”: 52.2%
| 16
Projected Financial Performance of Local Hospitals Assumptions
● FirstBank has analyzed the inherent risks to Medicaid, Medicare, and ASES to the industry:
○ Developed stress scenarios to quantify the “Medicaid Cliff’s” potential impact.
Base Case
● Revenue growth projected on actual trends in volume and contractual adjustments based on changes in the payment models (i.e. capitation).
● Operating Expenses: Historical trend as percentage of revenues.
● A/R DOH: Based on historical trend (no increase).
Stress Case
● Revenue projection based on significant reductions in net patient revenues assuming 30% reduction in funding obtained from Plan de Salud del Gobierno (Medicaid).
● Operating Expenses: assumes two-year reduction plan for FY2018-2019 period in order to stabilize hospital operations to a level consistent with lower revenue levels. Reducing 80% of expense reduction related to Medicaid in year 2018 and remaining 20% in year 2019. [Confirmed by individual hospitals.]
● A/R DOH: Slowdown of 30 days relative to historical trend.
General
● Capital Expenditures: Maintenance CAPEX based on maximum threshold established in covenants.
● A/P DOH: Based on historical trend (no increase).
● Interest Rate: Based on LIBOR Forward Curve.
| 17
Projected Financial Performance of Local Hospitals Base Case: Actual trends in volume and expenses
FY2017 FY2018 FY2019 FY2020 FY2021
Revenue $938,852 $947,518 $941,245 $946,267 $947,227
OpEx $825,269 $834,438 $829,167 $832,836 $831,460
EBITDA $113,583 $113,080 $112,078 $113,431 $115,767
DSCR 1.9x 2.0x 1.9x 2.0x 2.0x
Leverage 4.2x 4.1x 3.9x 3.7x 3.3x
Best DSCR 2.8x 2.7x 2.6x 2.6x 2.7x
Best Leverage 3.2x 3.0x 2.9x 2.8x 2.7x
Worst DSCR 1.3x 1.2x 1.1x 1.5x 1.2x
Worst Leverage 6.2x 6.4x 6.0x 5.1x 4.4x
| 18
Projected Financial Performance of Local Hospitals Stress Case: 25% reduction in Medicaid revenues
FY2017 FY2018 FY2019 FY2020 FY2021
Revenue $930,643 $851,156 $830,729 $810,792 $806,738
OpEx $819,791 $763,653 $748,948 $721,553 $710,514
EBITDA $110,852 $87,503 $81,781 $89,239 $96,224
DSCR 1.9x 1.5x 1.4x 1.5x 1.6x
Leverage 4.3x 5.3x 5.4x 4.6x 4.0x
Best DSCR 2.8x 2.3x 2.0x 2.0x 2.4x
Best Leverage 3.2x 3.6x 3.8x 3.7x 2.9x
Worst DSCR 1.4x 0.9x 0.9x 1.1x 1.2x
Worst Leverage 5.9x 8.0x 7.8x 5.8x 5.5x
| 19
What Actions Should Local Hospitals be Considering Operational Initiatives
● Expanding medical faculty to improve and increase hospital services
● Acquiring new technology to strengthen accounting, billing and collections
● Working with primary physician groups to increase referrals
● Considering medical tourism
● Specializing in areas such as Cardiology, Neonatal Intensive Care Unit (NICU)
● Increasing ancillary services such as imaging centers
● Leasing hospital beds to third parties for investigation purposes
● Maximizing Electronic Health Record incentive program reimbursements
● Negotiating with insurance companies to increase reimbursement rates
| 20
What Actions Should Local Hospitals be Considering Financial Initiatives
● Evaluating personnel efficiencies to decrease operating expenses
● Cost containment initiatives to maintain profitability
● Debt reduction
● Sale of non-core assets
● Tightening capex investment criteria
● Interest rate protection
● Liquidity retention and accumulation
| 21
Consolidations and Alliances Rationale
● Provider to focus on what it does best (referral source)
● Buying (negotiating) power
● Access to capital
● Expense efficiencies
● Geographic diversification
● Recent sale of San Lucas-Guayama to Sistema de Salud Menonita
| 22
Consolidations and Alliances Historical Acquisition Volume in U.S.
● In 2014, 100 mergers or acquisitions took place in the hospital industry, worth a dollar value of $62 billion, according to Irving Levin Associates. The number of healthcare sector mergers and acquisitions reached "record-breaking proportions," according to a report from the company.
| 23
Consolidations and Alliances Publicly-Traded Hospital Valuation
Company 2017E EBITDA Cash Debt Net Debt EV/EBITDA 2017 P/E
AMSG $1,487 $198 $5,700 $5,502 8.6x 11.3x
SGRY $228 $52 $1,355 $1,303 8.8x 15.4x
HCA $7,905 $677 $31,441 $30,764 7.4x 10.2x
LPNT $796 $241 $2,911 $2,670 6.2x 12.5x
THC $2,222 $649 $14,507 $13,858 6.8x 7.5x
UHS $1,773 $62 $3,634 $3,572 8.6x 14.8x
CYH $2,041 $133 $14,135 $14,002 7.1x 10.1x
● U.S. Hospital valuations at 6.5-9x EBITDA and 10-15x net income
● Valuations in Puerto Rico are typically at a discount to their U.S. counterparts
● Discounts can range from 20-40%
● A reasonable proxy for a larger local hospital valuation can be from 4.5-6.5x EBITDA
| 24
Conclusion
● Funding cuts mean – less coverage, higher copays and premiums, lower provider compensation and reduced network providers.
● Government will have to redefine its programs to serve the healthcare needs of the population.
● Healthcare model has moved towards capitated platforms that bundles payments and forces operational efficiencies.
● Trend of physicians moving to mainland has limited the supply of healthcare services, particularly those provided by specialized physicians.
● Hospitals forced to increase salaries and benefits to physicians.
● Reduction of healthcare institutions and beds may force consolidation of services.
● There are developments that could impact 2018 that we continue to monitor.
○ Expectation that Puerto Rico will receive additional federal funds to cover Medicaid program expenses through September 2018 (subject to Congressional approval).
○ Final resolution of the healthcare reform.
○ Current Puerto Rico Administration has passed a budget with only a $22MM reduction in healthcare for FY2017-18.
○ Conclusion on Puerto Rico’s bankruptcy and potential impact on healthcare funding.
● FirstBank perceives that the hospitals in our portfolio are being proactive.
○ New services and business models including medical tourism
○ Opportunities in specialized services and niches within the industry
○ Conversion of hospitals and clinics to provide other health ancillary services
Financial performance will depend on how each hospital group responds and adapts to regulatory changes, demographic trends,
and patient demands.
What should the role of each of the industry players
be in overcoming the Puerto Rico healthcare crisis?
Iván Tenreyro Lorenzo, CPA, CVA, MBA
Vice President & CFO
Laboratorios Borinquen
According to the latest statistics of SARAFS, Laboratory Division, in Puerto Rico there are 943 active licenses of clinical laboratories comprising of :
Private Independent Hospital & CDTs Family Health Centers Blood Banks
From these licenses, 745 correspond to Private Independent Laboratories. Among them, five (5) Reference Labs and a reduced number of organizations with multiple facilities.
XVIII Healthcare Industry Forum
Most Private Independent Clinical Laboratories lack enough test
volume and infrastructure to remain competitive with :
Population Reduction
PPO and EPO network models
Reduction of PSG fee schedule
Overcoming Puerto Rico’s healthcare crisis and remaining competitive
under these circumstances is a big challenge.
XVIII Healthcare Industry Forum
Laboratorios Borinquen - is a private independent clinical laboratory established in Puerto Rico since 1971, consisting of 37 licensed branches located in the Metropolitan Area, North-Central and East of the Island. Our main lab is located in Caguas, P.R.
In LB we process 98% of our tests in our facilities, even though we are not a
Reference Lab. We are processing a daily average volume of 9,000 tests.
Our professional clinical team is composed of eighty-four (84) licensed medical technologists and four (4) clinical and medical pathologists.
Daily average of 2,300 patients
Our diagnostic test menu is carefully selected in response to healthcare providers’ needs and public health issues.
We are constantly trying to improve patient service and their overall experience in our facilities, differentiating us from other clinical lab providers. We never consider any expense reduction that would affect quality or patient service.
XVIII Healthcare Industry Forum
Key elements in our overall strategy to remain competitive :
Provide the best available service to patients and referring physicians Analysis of healthcare industry trends and impact on the organization Strategic acquisitions and opening of new labs increasing efficiency by volume, maximizing economies of scale Keep investing in the organization - technological advanced instruments, facilities, human resources, information systems. Constant implementation of new diagnostic tests.
Fair negotiations with Health Insurance Companies Review and analysis of financial performance Be open to offer non traditional services, Ex: Occupational, Clinical trials, etc.
XVIII Healthcare Industry Forum
Rol del Sector Hospitalario
ante los retos del Sistema de Salud de Puerto Rico
Lic. Pedro J. González, MHSA, FACHE
CEO | ASHFORD PRESBYTERIAN COMMUNITY HOSPITAL
Presentado al Colegio de Contadores Públicos Autorizados de Puerto Rico | 11 agosto 2017
XVIII FORO ANUAL DE LA INDUSTRIA DE LA SALUD / “Puerto Rico’s Healthcare System: Beyond the Crisis”
TEMAS
Comentarios/reacciones sobre ponencias previas
El sistema hospitalario en Puerto Rico
Tendencias y retos en el sector hospitalario
Rol del Hospital en el Sistema de Salud y
Recomendaciones
2
EL SISTEMA HOSPITALARIO EN PUERTO RICO
Total: 70 hospitales
45% de los hospitales (32) están en Área Metro
52% de los hospitales privados pertenecen a
sistemas de hospitales
3
EL SISTEMA HOSPITALARIO EN PUERTO RICO
Con fines pecuniarios 38 (54%)
Sin fines pecuniarios 18 (26%)
Gubernamentales 14 (20%)
Especializados 19 (27%)
Generales agudo 51 (73%)
4
EL SISTEMA HOSPITALARIO EN PUERTO RICO
Total de camas autorizadas: 12,938
Total de camas en uso: 8,956
82% de las camas están en sector privado
Fuente: Asociación de Hospitales de Puerto Rico
5
EL SISTEMA HOSPITALARIO EN PUERTO RICO
Dos terceras partes de los ingresos provienen
de programas Gubernamentales
El sector de salud generó 45,000 empleos
directos en el 2013
6
TENDENCIAS Y RETOS
Reducción de camas en uso / censos
Reducción en empleados – 4,000 aproximados
en los pasados cuatro años
No incremento o incrementos mínimos en los
reembolsos de las aseguradoras
7
TENDENCIAS Y RETOS
Acceso limitado o inexistente a capital para
financiar mejoras físicas y desarrollo de nuevas
tecnologías
Mayores exigencias y restricciones de las
agencias acreditadoras/certificadoras
8
ROL DEL HOSPITAL EN EL SISTEMA DE SALUD
I. Ajustes al modelo tradicional
II. Recomendaciones
9
RECOMENDACIONES
A. Plan de Salud del Gobierno:
1. Apoyamos la Región Única - decisión del
asegurado dónde recibe sus servicios
2. Sistema de reembolso a base de pagos fijos con
ajustes por morbilidad (similar al sistema de
DRG’s)
3. Incentivar la calidad
10
RECOMENDACIONES
B. Relación Aseguradoras / Proveedores
1. Cumplir cabalmente tanto con la Ley 5 como
con la Ley 47 de reciente creación
2. Diferenciar los conceptos de calidad vs. utilización
3. Creación de alianzas - ???
11
RECOMENDACIONES
C. Crecimiento de la Industria:
1. Reactivar / fortalecer las iniciativas de Turismo
Médico
12
RECOMENDACIONES
D. Interconectividad:
1. El Estado – cumplir su responsabilidad en la
implantación del Expediente de Salud Electrónico
2. Los Hospitales – cumplir con los requisitos para
participar de los incentivos de Récord Médico
Electrónico del programa Medicare
13
Gracias...
¿Preguntas?
Payor’s Perspective
Raul F. Montalvo, MD, MBA President
MSO of Puerto Rico, LLC
THE MARCH TO VALUE-BASED PAYMENT
2006
2015
2016
2017
2018
2019
2020
2021
MA Star Ratings program created
MA Quality bonuses paid only to high Star-rated MA plans
QHP QRS pilot in 5 states
MMC QRS regulations issued
Medicare FFS QPP created
THE PAST & PRESENT THE FUTURE
QHP QRS implementation to be completed Inaugural Medicare FFS MIPS/QPP measurement period begins
CMS to release guidance on the MMC QRS the measures and methodologies for public comment
Medicare FFS merit-based incentive payments (MIPS) begin
MMC QRS must be implemented
NCQA Expectations
Notification of Inpt. Admission
Receipt of Summary of Care Record
Engagement w/ Patient within 30 Days
of Inpt. Discharge
Medication Reconciliation
Care Coordination for Members with 3+ chronic conditions
Comprehensive Assessment of Needs
& Goals (Testing 2017)
Specialist Provides Visit Summary to PCP
(Testing 2017)
Follow-up after ED Visit within 7 days (Current Average:
34%)
The member experience: now half of stars
2017 AVERAGE RATINGS Reducing the Risk of Falling 2.4
MTM Completion Rate for CMR 2.4
SNP Care Management 2.5
Plan All-Cause Readmissions 2.5
Improving/Maintaining Physical Health
2.6
Osteo. Mgmt in Women With Fx 2.7
Monitoring Physical Activity 2.9
Part C: Foreign Lang./TTY 4.2
Ben. Access & Performance
Problems 4.2
Members Choosing to Leave the Plan 4.3
Adult BMI Assessment 4.4
COA – Medication Review 4.4
COA-Pain Assessment 4.5
Complaints about the Health Plan 4.6
MPF Price Accuracy 4.7
CHALLENGES FACING PLANS: CHILDLESS ADULTS, DUALS, AND LTC
Enabling
Social
Clinical
• Meals
• Transportation
• Personal care
• Habilitation
• Assistive devices
• Home modification
• Communication services
• Light cleaning, personal care
• Caregiver respite
• Care coordination
• Skilled nursing
• Caregiver training
• Palliative/End of life care
• Effective medical management is supportive and drives member experience: – Person-centered, nurse and social worker driven – Data-driven, stratified – High-touch, labor-intensive, mobile, community-based – Culturally competent, addresses social determinants
Part B Part
D --
Part A
Evolve from Restrictive to Supportive MedMan
“MAKE IT WORK” VS. MAKE-WORK MEDICAL MANAGEMENT
Dr. Felipe Palacios, PhD.
General Manager of AbbVie Puerto Rico and President of PIA (Pharmaceutical Industry
Association) of Puerto Rico. Dr. Palacios has over 15 years of experience in the pharmaceutical
industry in roles of increasing responsibility including Commercial Operations, Business
Development and Research & Development. Prior to his current role in Puerto Rico, Dr. Palacios
lead the Commercial Operation for AbbVie Japan and prior to that served as Regional
Commercial Director for Abbott Latin America. Dr. Palacios holds a PhD. in Molecular Biology
from the University of Notre Dame and an MBA from Tulane University.
Michael McDonald Executive Vice President and Business Group Director
With over 30 years of experience in various senior executive roles within the financial services
industry, Michael McDonald, has extensive expertise in asset management, investment banking
and commercial banking. As Business Group Director of Firstbank Puerto Rico, Michael oversees
Corporate Banking, Business Banking, Commercial Transaction Banking, Platinum Banking, and
FirstBank Securities. He leads a team of more than 20 seasoned relationship officers
responsible for a loan portfolio of more than $2 billion. His team also provides support in
underwriting, structuring and relationship management to other departments and affiliates of
the Bank including the USVI and FirstBank Florida.
Prior to Firstbank, Michael was President of a leading bank-owned securities and retail
brokerage firm where he developed strategies to gather and manage retail and institutional
financial assets while managing complex control and regulatory issues. Throughout his career, he
has advised large and small, private and public companies in the areas of financial strategy and
capital raising.
Michael has a B.A. from Boston College and M.B.A from the Harvard Business School.
CPA Iván Tenreyro Lorenzo Se desempeña actualmente como Vicepresidente y CFO de Laboratorios Borinquen, empresa
en la que ha laborado en diferentes facetas por los pasados 25 años. Sobre él ha recaído
principalmente la responsabilidad de desarrollar y ejecutar el plan estratégico y expansión de la
empresa así como la administración de la misma.
Posee un Bachillerato en Administración Comercial con concentración en Contabilidad de la
Universidad del Sagrado Corazón, una Maestría en Administración Comercial con concentración
Finanzas de la Universidad Interamericana y una especialización a nivel Graduado en
Contribuciones de la Universidad del Sagrado Corazón.
También posee la credencial de Analista de Valoración Certificado otorgada por el NACVA.
Ha desarrollado una vasta experiencia como Consultor para un Fondo de Capital de Riesgo en
P.R. y como practicante independiente asesorando a clientes en las áreas de valoración y
compraventa de negocios.
Es Contador Público Autorizado, orgulloso miembro del Colegio de CPA, institución a la que ha
servido entre otras funciones como Presidente del Capítulo de Caguas, Presidente del Comité
de Educación Continuada y miembro del Comité de Industria de la Salud.
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