economic forecast 2014 health care focus: craig cordola, ceo memorial hermann hosp. oct. 17, 2013

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Craig Cordola, CEO of Memorial Hermann Hospital -Texas Medical Center in Houston, joins McCombs Finance Professor Jay Hartzell, Keith W. Maxwell of Spark Energy, and Greg Peters of Zillant to take a look ahead at not just the national economy as a whole, but also at the state of Texas. Under the Affordable Care Act, managed care patients will migrate to the insurance exchanges, and become unprofitable patients, Cordola said.

TRANSCRIPT

Slide 1

Craig Cordola

2014 Economic Forecast

CEO, Memorial HermannTexas Medical Center

October 17, 2013

Federal Reserve Bank-Houston Branch

Economic Forecast 2014Healthcare

Craig Cordola, MBA, MHA

Chief Executive Officer

Memorial Hermann-

Texas Medical Center

3

Economic Forecast Healthcare

A Patients Reality

Memorial Hermann

Economics of Healthcare

Healthcare Reform

Economic Impact of Healthcare Reform

4

A PATIENTS REALITY

5

6

Memorial Hermann

7

Memorial Hermann-Texas Medical Center

8

9

Economics of Healthcare

10

Economics of HealthcareHospital Reimbursement

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

11

Reimbursement per $1 Cost

Column1

Self PayMedicaid*MedicareManaged CareHIE0.150.520.851.620.52Series 2

$0.85

Self PayMedicaid*MedicareManaged CareHIE0.00.00.00.00.33

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

12

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 .

13

Patient Protection and Affordable Care Act aka Healthcare Reform

14

Healthcare ReformFragmented Industry

15

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

Source: Congressional Budget Office

Healthcare ReformPublic Model Sustainability

61% of Federal Budget is for entitlements

21% of that is for CHIP, Medicaid and Medicare

16

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, 19992012.

17

Healthcare ReformWhy Change?

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

Healthcare ReformClinical Outcomes

19

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.

20

Healthcare ReformAffordable Care Act

Fundamentals

Individual Mandate

Employer Mandate

Medicaid Expansion

Funding/Taxes/Penalties

21

Healthcare Reform Individual Mandate

Individual Mandate

YEARPENALTY

2014Greater of $95 or 1% of income

2015Greater of $325 or 2% of income

2016+Greater of $695 or 2.5% of income

22

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 cant exceed 9.5% of employees household income

Penalty

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

Mandated Benefits

Pre-existing conditions eliminated by 2014

Lifetime maximum prohibited by 2010

Children remain eligible until age 26 on parents plan

Waiting period no longer than 90 days

Routine clinical trials must be covered

Automatic enrollment of employees

Excise Tax on High Value Coverage aka Cadillac Tax

Aggregate value exceeding $10,200 (individual) or $27,500 (Family)

MOST will be subject to it

23

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

Fed Pays 100% in years 1 and 2 for statewide expansion, 90% in future years

Medicaid costs 25% of State Revenue..and rising!!

133% of FPL makes another 1.5M eligible for Medicaid

Estimated that nationwide 16-17M will enroll in Medicaid

Estimated that nationwide 16-17M will enroll in Exchange

24

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

25

USA Today, October 13, 2013

26

Economic Impact of Healthcare Reform

27

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

Value

Quality*

Cost

_____________

=

*Quality = Outcomes, Safety, Service

Economic ImpactProvider Impact

28

Economic ImpactProvider Impact

29

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.

30

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 yearsPhysician increase over last 20 yearsPhysician Population per 100,000 1990Physician Population per 100,000 TodayTodays Rank of Physicians per 100,000Med School Graduate Retention RankGME in State Retention RankMed School + GME Retention RankCalifornia+7.5 million+15,00027226220t125Florida+5.9 million+15,00025123119847Illinois+1.4 million+6,00022923620t271433Massachusetts+0.5 million+5,0003644001103137Mississippi+0.4 million+1,500144174505139New York+1.3 million+7,5003393313262135Ohio+0.7 million+6,30021322717232923Pennsylvania+0.8 million+6,0002562559313535Texas+8.1 million+17,00018820042274

Economic ImpactProvider Impact

31

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

11.5M fewer individuals

Contribution to Insurance Premiums

Coverage for Family of Four

2002

2012

Employer

2002

2012

Worker

95% growth

102% growth

Sources: Sonier J, et al., State-Level Trends in Employer-Spons