Hospital Pricing & Payment A Discussion with the CHASE Board - - PowerPoint PPT Presentation

A Consideration of

Hospital Pricing & Payment

A Discussion with the CHASE Board

Robert Smith, Executive Director Colorado Business Group on Health August 28th, 2018

About CBGH

An employer-led, multi-purchaser 501c3 committed to value-based health care through collaboration on:

• Quality and price transparency.
• Reference-based pricing/contracting.
• Alternative payment methods (e.g., pay

for value vs pay for volume).

• Common provider performance

measures.

• Value-based benefit designs that

incentivize consumer engagement. CBGH works with national and regional health leaders and employer coalitions.

2

PK-12 Education Health Care

Due to the negative factor, St. Vrain has seen cuts in per pupil revenue totaling nearly $200,000,000. Health care costs for SVVS went from $13m to almost $23m in 10 years – 77%. Colorado is 50th in country in average teacher salaries. (Colorado School Finance Project) From 2010-2015 Aetna’s earnings rose 628%; United’s went up 814%; Cigna’s up 1112% (Insurance Week) CO recently slipped to 41st in early childhood spending One non-profit system’s Q1 ‘17 profits doubled since 2014 alone; Some hospital margins as high as 40+% >50% of Colorado schools operate on a four-day week. Despite occupancy rates below 65%, CO has built 10 large new hospitals (Baumgarten) Colorado is 40th in overall per pupil spending (less than every contiguous state (49th adjusted for income) CO hospitals realized 10th yr of record high net incomes on record low occupancy rates.

A Tale of Two Industries

3

4

Colorado health spending…

Up more than four times the level of two decades ago. Just since 2000, that spending is up 122.7 percent — 3.7 times the rate of inflation in the state.

4

CCAHC Report to the Colorado General Assembly

But it’s not just public education…

5

“Twenty years of wage stagnation

• n the middle

class has been 95% caused by exploding healthcare costs.”

• WSJ

6

Procedure Low Price High Price Variance Abdominal Ultrasound $115 $1,029 895% Carpal Tunnel Surgery $1,634 $5,806 355% Chest CT (no contrast) $248 $2,492 1005% Cholecystectomy (laparoscopic) $6,368 $19,530 307% Colonoscopy (screening) $1,296 $4,052 313% Ear Tube Placement (Tympanostomy) $1,737 $12,765 735% Hysteroscopy (with biopsy) $3,705 $9,316 251% Knee Arthroscopy $2,796 $23,462 839% Shoulder MRI (no contrast) $450 $4,999 1111% Sleep Study $899 $4,341 483% Average Variance 837% EQUIVALENT VARIANCE IN A GALLON OF GAS $2.20 $18.41 837%

What gas would cost per gallon with the same price variance

Healthcare BlueBook’s

PRICE VARIANCE REPORT MARKET | DENVER 2017

* All healthcare procedure costs are derived from claims amounts after network discounts were applied

7

It’s not the physician, it’s the facility…

PRICE VARIABILITY FOR COLONOSCOPY (NO BIOPSY)

MedPAC’s 2018 Report to Congress

regarding the adequacy of Medicare payments.

8

About MedPAC Adequacy Indicators Include:

Beneficiary access to care, changes in the quality of care, hospitals’ access to capital, and the relationship of Medicare’s payments to hospitals’ costs for both average and relatively efficient hospitals (for Medicare patients).

Adequacy Conclusions:

• Payments 8% higher than variable costs of Medicare patients.
• In 2016, hospital’s aggregate Medicare margin was -9.6 percent.
• 11.0% for non-profit hospitals
• 2.4 for profit hospitals
• Overall margins were approximately zero for efficient providers.

Statewide Results: Commercial Market

Percent of Medicare Fee Schedule Comparison/Trend

9

Service Type 2012 Avg % Medicare* 2016 Avg % Medicare* Increase 2012-2016

Inpatient Services

(Top 12 By Volume/Price)

250%

290%

(Range 242%-386%**)

16% Outpatient Services

(Top 10 By Volume/Price)

440%

520%

(Range 324%-694%**)

19%

* Average % Medicare reflects an average of the individual service category averages analyzed for IP and OP . ** Range reflects lowest average % Medicare rate and highest average % Medicare rate across the individual services analyzed.

Other Relevant Conclusions

from the 2018 MedPAC Report

• Hospitals’ all-payer operating margins reached a record high in

2015; slightly lower in 2016 but still near 30 year high.

• All-payer margins remain strong because “the growth of

private-payer rates continues to rise faster than costs.”

• “When providers receive high payment rates from insurers, they

face no particular need to keep their costs low, and so, all other things being equal, Medicare margins are low because [hospital] costs are high.”

10

Then why are hospitals…

Losing Money on Medicare???

11

“Strong market power leads hospitals to reap higher revenues from private payers. This in turn leads these hospitals to have weaker cost

• controls. The weaker cost

controls lead to higher costs per unit of service. As a result, hospitals have a narrower margin on their Medicare business.”

Jeffrey Stensland, PhD Principal Policy Analyst MedPAC

Negative Margins…Cont’d

12

“When nonprofit hospitals have more resources, they tend to spend those resources because nonprofit hospitals do not have shareholders to distribute profits to. The nonprofit hospital’s expenditures could be on…

• Service-line expansions such as a new cardiac surgery wing;
• Acquiring physician practices;
• Patient amenities, such as larger rooms;
• Other capital expenditures that help the hospital maintain and

expand its market share of private-payer patients.”

Questions the Data Seem to Raise

• 1. Given Medicare’s payment adjustments, if you’re a hospital losing

money are Medicare – particularly if the losses exceed 9% - why?

• 2. Now that Colorado Medicaid pays at Medicare levels, is cost

shifting to community employers – e.g., school districts, small business, and others who are not “cost based reimbursed”… Reasonable? fair? Responsible?

• 3. Even if your margin is at the average of -9%, why wouldn’t 100%
• f Medicare plus 9% for your loss plus a 10% margin – e.g.,

119% or even 128? - be adequate? Why is it 290% and 520%?

• 4. Does fee-for-service payment re-engineering some services and

discontinuing others? In other words, is quality waste currently a source of revenue?

13

Questions for Discussion

• 1. How might employers promote payment reform in a manner that

supported hospitals seeking to improve quality and reduce costs? Or, put another way...

• 2. How might payments work to provide hospitals with a margin

based on their performance/efficiency versus just their pricing?

• Episodes of care/bundles?
• Pay for performance contracts?
• Other?
• 3. Now that hospitals have consolidated into systems, would it make

sense for both the employer and the hospital to collaborate in designating centers of excellence that could have higher volumes, better outcomes, lower costs, and better margins?

• 4. Would direct contracting/group purchasing make sense?

14

Thank You

Robert J. Smith, MBA

Excecutive Director, CBGH Robert.Smith@CBGHealth.org