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October 17, 2013
Federal Reserve BankHouston Branch

2014 Economic Forecast
Craig Cordola
CEO, Memorial Hermann
Texas Medi...
Economic Forecast 2014
Healthcare

Craig Cordola, MBA, MHA
Chief Executive Officer
Memorial HermannTexas Medical Center
Economic Forecast
Healthcare
•
•
•
•
•

A Patient’s Reality
Memorial Hermann
Economics of Healthcare
Healthcare Reform
Eco...
A PATIENT’S REALITY
MEMORIAL HERMANN
Memorial Hermann-Texas Medical Center
ECONOMICS OF HEALTHCARE
Economics of Healthcare
Hospital Reimbursement
Reimbursement per $1 Cost
$1.80
$1.60

$1.62

$1.40
$1.20
$1.00

$0.80

$0....
Economics of Healthcare
What is a dollar of revenue really worth?
Gross Revenues
Deductions from Revenues
Total Deductions...
Economics of Healthcare
Healthcare Payment Streams

Source: “Value in Healthcare: Current State and Future Directions”. HF...
PATIENT PROTECTION AND
AFFORDABLE CARE ACT
… aka HEALTHCARE REFORM
Healthcare Reform
Fragmented Industry
Healthcare Reform
Public Model Sustainability
Medicare spending is expected to nearly double over the next decade.

Source...
Healthcare Reform
Private Model Sustainability
Cumulative increases in health insurance premiums, workers’ contributions t...
Healthcare Reform
Why Change?
Healthcare Reform
Clinical Outcomes

Source: OECD, “Health at a Glance”, November 23, 2011
Healthcare Reform
Life Expectancy
Many people in other countries live longer at a lower cost per capita.

Source: OECD (20...
Healthcare Reform
Affordable Care Act
• Fundamentals
–
–
–
–

Individual Mandate
Employer Mandate
Medicaid Expansion
Fundi...
Healthcare Reform
Individual Mandate
• Individual Mandate
YEAR

PENALTY

2014
2015
2016+

Greater of $95 or 1% of income
G...
Healthcare Reform
Employer Mandate
• “Free Rider Surcharge” assessed to employees with 50 or
more full-time employees (30+...
Healthcare Reform
Medicaid Expansion
• Expansion of State Medicaid programs
– 20 States have declined

• Creation of Healt...
Healthcare Reform
Funding/Taxes/Penalties
• 50% Funding through Medicare and Medicaid reductions
• 50% Funding through Tax...
ECONOMIC IMPACT OF
HEALTHCARE REFORM
Economic Impact
Provider Impact
• Value determines sustainability
across all economic sectors
• The sustainability of the ...
Economic Impact
Provider Impact
Economic Impact
Provider Impact
• Projected shortfall of 90,000
physicians within the next 10
years
– 45,000 primary care ...
Economic Impact
Provider Impact
Population
increase
over last 20
years

Physician
increase
over last 20
years

Physician
P...
Economic Impact
Employer Impact
Strategies to Avoid ACA Penalties
Cut jobs to remain
under 50 FTEs1

Hire all new employee...
Economic Impact
Employer Impact
Individuals Covered by ESI1

Contribution to Insurance Premiums

Non-elderly Population

C...
BUT, AT THE END OF THE DAY….
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013
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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.

Published in: Health & Medicine, Business
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  • 61% of Federal Budget is for entitlements21% of that is for CHIP, Medicaid and Medicare
  • Mandated BenefitsPre-existing conditions eliminated by 2014Lifetime maximum prohibited by 2010Children remain eligible until age 26 on parents planWaiting period no longer than 90 daysRoutine clinical trials must be coveredAutomatic enrollment of employeesExcise Tax on “High Value Coverage” aka… Cadillac TaxAggregate value exceeding $10,200 (individual) or $27,500 (Family)MOST will be subject to it
  • Fed Pays 100% in years 1 and 2 for statewide expansion, 90% in future yearsMedicaid costs 25% of State Revenue..and rising!!133% of FPL makes another 1.5M eligible for MedicaidEstimated that nationwide 16-17M will enroll in MedicaidEstimated that nationwide 16-17M will enroll in Exchange
  • Transcript of "Economic Forecast 2014 Health Care Focus: Craig Cordola, CEO Memorial Hermann Hosp. Oct. 17, 2013"

    1. 1. October 17, 2013 Federal Reserve BankHouston Branch 2014 Economic Forecast Craig Cordola CEO, Memorial Hermann Texas Medical Center
    2. 2. Economic Forecast 2014 Healthcare Craig Cordola, MBA, MHA Chief Executive Officer Memorial HermannTexas Medical Center
    3. 3. Economic Forecast Healthcare • • • • • A Patient’s Reality Memorial Hermann Economics of Healthcare Healthcare Reform Economic Impact of Healthcare Reform
    4. 4. A PATIENT’S REALITY
    5. 5. MEMORIAL HERMANN
    6. 6. Memorial Hermann-Texas Medical Center
    7. 7. ECONOMICS OF HEALTHCARE
    8. 8. Economics of Healthcare Hospital Reimbursement Reimbursement per $1 Cost $1.80 $1.60 $1.62 $1.40 $1.20 $1.00 $0.80 $0.85 $0.85 $0.60 $0.52 $0.40 $0.20 $- $0.52 $0.15 Self Pay Medicaid* Medicare Managed Care HIE * Does not include incremental cost containment measures; e.g. 40% reduction payment for non-emergent care in the Emergency Department.
    9. 9. Economics of Healthcare What is a dollar of revenue really worth? Gross Revenues Deductions from Revenues Total Deductions Provision for Bad Debt Net Patient Revs, Less Bad Debt Controllable Expenses Salaries and Outside Labor Employee Benefits Supplies and Medicines Fees Other Non Controllable Expenses Depreciation and Amortization Interest Administrative Overhead Income from Operations $1.00 0.65 0.01 0.66 0.34 0.13 0.03 0.06 0.04 0.02 0.28 0.02 0.01 0.02 0.05 $0.01 • 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¢
    10. 10. Economics of Healthcare Healthcare 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>.
    11. 11. PATIENT PROTECTION AND AFFORDABLE CARE ACT … aka HEALTHCARE REFORM
    12. 12. Healthcare Reform Fragmented Industry
    13. 13. Healthcare Reform Public Model Sustainability Medicare spending is expected to nearly double over the next decade. Source: Congressional Budget Office
    14. 14. Healthcare Reform Private 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.
    15. 15. Healthcare Reform Why Change?
    16. 16. Healthcare Reform Clinical Outcomes Source: OECD, “Health at a Glance”, November 23, 2011
    17. 17. Healthcare Reform Life Expectancy Many people in other countries live longer at a lower cost per capita. Source: OECD (2011), Health at a Glance 2011: OECD Indicators, OECD Publishing.
    18. 18. Healthcare Reform Affordable Care Act • Fundamentals – – – – Individual Mandate Employer Mandate Medicaid Expansion Funding/Taxes/Penalties
    19. 19. Healthcare Reform Individual Mandate • Individual Mandate YEAR PENALTY 2014 2015 2016+ Greater of $95 or 1% of income Greater of $325 or 2% of income Greater of $695 or 2.5% of income
    20. 20. Healthcare Reform Employer 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)
    21. 21. Healthcare Reform Medicaid 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
    22. 22. Healthcare Reform Funding/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
    23. 23. ECONOMIC IMPACT OF HEALTHCARE REFORM
    24. 24. Economic Impact Provider Impact • Value determines sustainability across all economic sectors • The sustainability of the current U.S. healthcare system is directly connected to the value it delivers Quality* Value = _____________ Cost *Quality = Outcomes, Safety, Service • The market not only demands value, but rewards value
    25. 25. Economic Impact Provider Impact
    26. 26. Economic Impact Provider Impact • Projected shortfall of 90,000 physicians within the next 10 years – 45,000 primary care physicians – 46,000 surgeons and specialists 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. • Medical schools are increasing enrollment, but… • There is a cap on the number of federally supported residency training positions Source: Fixing the Doctor Shortage. American Association of Medical Colleges. Retrieved October 4, 2013, from https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/.
    27. 27. Economic Impact Provider Impact Population 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 State • 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
    28. 28. Economic Impact Employer Impact Strategies to Avoid ACA Penalties Cut jobs to remain under 50 FTEs1 Hire all new employees at part-time status Convert full-time employees to part-time status Split into smaller companies with fewer than 50 FTEs • • • 31% Franchisees that plan to cut jobs to stay under 50employee threshold2 32% Full-time equivalents. n=72 franchisees, all industries. n=1,203 employers. Retail and hospitality companies that plan to “change workforce strategy” to avoid penalties3 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.
    29. 29. Economic Impact Employer Impact Individuals Covered by ESI1 Contribution to Insurance Premiums Non-elderly Population Coverage for Family of Four Employer Worker 69.7% $11,429 11.5M fewer individuals 95% growth $5,866 59.5% $4,316 $2,137 • 2000 2011 • Employer-sponsored insurance. Consumer-directed health plan. 2002 2012 2002 102% growth 2012 25% 23% Insured non-elderly adults with deductibles $1,000 or higher, 2012 Employers planning to offer CDHP2 as only plan option, 2014 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.
    30. 30. BUT, AT THE END OF THE DAY….
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