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©2013TheAdvisoryBoardCompany•27103A
NACCDO 2014
State of the Industry 2013 - 2014
Current Challenges to the Case for Suppo...
©2013TheAdvisoryBoardCompany•27103A
Taking the Donor Perspective
2
Three Lenses for Evaluating the Philanthropic Environme...
©2013TheAdvisoryBoardCompany•27103A
Charities Feeling Bullish About 2013
3
Source: Flandez R, ―70% of Charities Forecast R...
©2013TheAdvisoryBoardCompany•27103A
Giving Tends to Follow the Economy
4
Source: Giving USA Foundation™, ―GIVING USA 2013,...
©2013TheAdvisoryBoardCompany•27103A
Taking the Donor Perspective
5
Three Lenses for Evaluating the Philanthropic Environme...
©2013TheAdvisoryBoardCompany•27103A
Other Headwinds Challenging Our Case for Support
6
Health Care Issues at the Forefront...
©2013TheAdvisoryBoardCompany•27103A
That’s One Way to Sell Magazines
7
―Exposé‖ Shines Spotlight on Hospital Pricing
Issue...
©2013TheAdvisoryBoardCompany•27103A
The PR Bombardment Continues
8
Health Care Costs Making National Headlines
Source: Clu...
©2013TheAdvisoryBoardCompany•27103A
COPD Simple
Pneumonia
Major Joint
Replacement
Minimum Maximum
1
2
CMS Fans the Flames ...
©2013TheAdvisoryBoardCompany•27103A
Charges a Far Cry from Paid Prices
10
Most Pay Less than Fifty Cents on the Dollar
Sou...
©2013TheAdvisoryBoardCompany•27103A
Cross-Subsidy Economics on the Brink of Failure
11
Source: Advisory Board interviews a...
©2013TheAdvisoryBoardCompany•27103A
Responding to “Sticker Shock”
12
Source: Philanthropy Leadership Council interviews an...
©2013TheAdvisoryBoardCompany•27103A
Other Headwinds Challenging Our Case for Support
13
Health Care Issues at the Forefron...
©2013TheAdvisoryBoardCompany•27497A
Not the Smoothest of Starts
Federal Exchange Slow to Answer the Bell
©2013TheAdvisoryBoardCompany•27497A
Some State Exchanges Faring Better
15
Enrollment Slow, But Most Websites Working
Sourc...
©2013TheAdvisoryBoardCompany•27497A
Post-Subsidy Premiums Within Reach for Many
16
But Penalties Still Smaller than Cost o...
©2013TheAdvisoryBoardCompany•27497A
Trading Price for Volume on the Public Exchanges
17
Reimbursement Information Still An...
©2013TheAdvisoryBoardCompany•27497A
Lower Prices through Narrower Networks
18
Source: Covered California, ―Health Plans & ...
©2013TheAdvisoryBoardCompany•27497A
Employer-Sponsored Coverage at a Crossroads
19
Employers Choosing Between Abdication, ...
©2013TheAdvisoryBoardCompany•27497A
Employers Already Scaling Back Coverage
20
Erosion of Employer-Sponsored Coverage Well...
©2013TheAdvisoryBoardCompany•27497A
Some Employers Dodging Their Mandate
21
Despite Delay, Employers Finding Ways to Avoid...
©2013TheAdvisoryBoardCompany•27497A
New Path for Employer Cost Shifting
22
Private Health Insurance Exchanges Open for Bus...
©2013TheAdvisoryBoardCompany•27497A
Igniting a Race to the Bottom
23
Exchange Shoppers Trading Premiums for Deductibles
So...
©2013TheAdvisoryBoardCompany•27497A
The Future of Employer-Sponsored Insurance?
24
Private Exchanges Poised For Rapid Grow...
©2013TheAdvisoryBoardCompany•27497A
Reexamining the ACA “Grand Bargain”
25
Source: CBO, ―Letter to the Honorable John Boeh...
©2013TheAdvisoryBoardCompany•27497A
Divided Public Opinion of Health Care Reform
26
Opponents Taking Stronger Stance
Sourc...
©2013TheAdvisoryBoardCompany•27497A
Common Sentiments from
Million-Dollar Health Care Donors
Many Donors Interested, but U...
©2013TheAdvisoryBoardCompany•27497A
Coverage Expansion Reducing Perception of Need
28
Less Charity Care Provided, Less Cha...
©2013TheAdvisoryBoardCompany•27103A
Key to Emphasize Local Impact
29
Most Large Gifts to Health Care Organizations Stay Lo...
©2013TheAdvisoryBoardCompany•27103A
Other Headwinds Challenging Our Case for Support
30
Health Care Issues at the Forefron...
©2013TheAdvisoryBoardCompany•27103A
What Business Are We In?
31
Businesses Displaced by Focusing on the Means Rather than ...
©2013TheAdvisoryBoardCompany•27103A
Health System Strategy, c. 2003
“Extractive Growth”
Health System Strategy, 2013-2023
...
©2013TheAdvisoryBoardCompany•27103A
Carving a New Growth Path
33
Competing Under Distinct, but Not Mutually Exclusive, Ide...
©2013TheAdvisoryBoardCompany•27103A
Fundraising’s Role in Carving a New Growth Path
34
What Can You Make the Case For?
Sou...
©2013TheAdvisoryBoardCompany•27103A
Taking the Donor Perspective
35
Three Lenses for Evaluating the Philanthropic Environm...
©2013TheAdvisoryBoardCompany•27103A
Focusing on What We Can Control
36
Source: Philanthropy Leadership Council interviews ...
©2013TheAdvisoryBoardCompany•27103A
Revisiting the Conversation About Impact
37
Source: Philanthropy Leadership Council in...
©2013TheAdvisoryBoardCompany•27103A
Elevating Philanthropy’s Strategic Value
38
Translate Our Relevance and Impact to Key ...
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NACCDO State of the Industry - Hubble

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  • 1:25:20
  • 70% of Charities Forecast Rise in Donations in 2013 (http://philanthropy.com/article/Most-Charities-Forecast-Rise/138303/)Chronicle of Philanthropy, 4/8/13More than seven in 10 nonprofits expect their donations to increase this year, even amid a challenging economic and political climate“Overall consumer confidence in the economy rose last year and that created a more positive environment for charities to go out in and build relationships [with donors],” says Andrew Watt, president of the Association of Fundraising Professionals, a co-sponsor of the study.He says giving could slip this year, however, because donors could get turned off by Congressional debates over the deductibility of charitable gifts. But such fears didn’t seem to influence the projections.
  • Research has found a statistically significant correlation between changes in total giving and values on the S&P 500 index. Because stock market values are an indicator of financial and economic security, households and corporations are more likely to give when the stock market is up.High-net worth households are particularly responsive to changes in the stock market in terms of their charitable behavior. These households usually hold at least a portion of their assets in stocks.The S&P 500 generally sees much more dramatic changes from year to year than total giving, and the direction of change of total giving usually lags behind the S&P 500 by 1-2 years.More:AHP White Paper: Economic Cycles and Charitable Giving (PDF saved in SOI folder)Report analyzing how charitable giving has been affected by economic cycles in recent decadesLooks at: economic cycles and individual philanthropic giving, the impact of estate taxes on charitable bequests, and changes in corporate philanthropy based on the economyThe health subsector received the fourth-largest proportion of charitable dollars in 2012, at an estimated 9 percent of the total. This is the same percentage as in 2011, according to Giving USA’s revised estimates.
  • 1:25:20
  • Economic issues maybe less of an excuse – and even if still problematic, they are nothing new to us in fundraising. What we’re seeing as a bigger challenge for today’s major gift fundraisers is the shifting sands of health care and its depiction outside industry circles.Hospitals are having an identity crisis --- how to make more donor sounding?Socialized medicine negates the need for philanthropy --- government is funding it, and I fund government through taxes… so I’m already paying for health care through higher taxesHospitals have too much moneyHospitals are risky investments
  • CEO Script:You probably saw this, the TIME Magazine issue that came out in March and made a huge splash nationally. Your first reaction was probably the same as mine, “TIME Magazine still exists?” [PAUSE]. And my second reaction was, “They dedicated the full issue to a 64-page article on hospital pricing?” [PAUSE].Kidding aside, my main reaction, and I’m sure this was yours as well, was that the article was a little sensational. First of all, we know this is a problem. We remember a few years ago when the Wall Street Journal ran similar stories. We all quickly developed charity care policies and financial assistance guidelines.And Steven Brill’s “Bitter Pill” had exactly the stories you’d expect the national press to devour. Things like the $1.50 Tylenol, the $18 diabetes test strip, and the $77 box of sterile gauze pads. And of course, they immediately went to the CEO’s salary, a clear sign of yellow journalism. But for all the sensationalism, the article sparked new discussion about our pricing, or at least our charges.
  • http://www.stltoday.com/business/local/hospital-ceos-see-double-digit-pay-hikes/article_431263e2-81c9-5367-b0bd-f48885169adb.htmlHere’s why hospitals set high pricesWashington Post, 05/19/13Hospitals set “absurdly high prices” compared to what insures and Medicare would actually pay because of the chargemaster – and even uninsured patients don’t always pay the chargemaster rate (VP of AHA)Hospitals may also pay these high prices because it positively impacts the “amount of charity care” they provide Health differences may explain up to 85% of Medicare cost variationDaily Briefing, 5/29/13A new study finds that health care outcomes and differences in health status tend to influence Medicare spending more than wasteful practices and overtreatment, although one Dartmouth Atlas economist called the new research "fatally flawed." CMS pulls back the curtain on hospital ‘prices’Daily Briefing, 5/8/13CMS's Center for Medicare Director Jonathan Blum noted that the data do not explain why the variation exists. "What drives some hospitals to have significantly higher charges than their geographic peers?," Blum asked, adding, "I don't think anyone here has come up with a good economic argument." Hospital Billing Varies Wildly, Government Data ShowsNew York Times, 5/8/13Government data show that hospitals charge Medicare “wildly different” prices; raises questions as to how hospitals determine prices and why there is such variation“Use of CEO compensation comparisons draws heightened scrutiny”http://www.modernhealthcare.com/article/20130511/MAGAZINE/305119956The unwelcome role of the IRS in ObamacareWashington Post, 5/23/13“Why Health Care Costs Are So High”New York Times, 6/3/13http://www.nytimes.com/2013/06/04/opinion/why-health-care-costs-are-so-high.html?pagewanted=allhttp://www.pbs.org/newshour/rundown/2011/11/why-does-healthcare-cost-so-much.htmlhttp://money.cnn.com/2012/07/12/news/economy/health-care-costs/index.htm
  • CEO Script:And then in May, CMS piled on, publishing charges for the top 100 discharges for every acute care hospital in America. Looking at the Chicago market, for example, we see massive variation in charges for treating the same condition.I’m sure CMS was trying to be helpful, promoting transparency. But the problem is that they published charge data without any real context. These are charges, not prices. We know that charge masters have a very different purpose, setting up commercial payer negotiations. Medicare certainly doesn’t pay these rates.And this is just the beginning. CMS already published outpatient charges, and then they’re planning to publish physician pricing next. How long before somebody starts taking all that charge data and compares it to quality data. We’re now in the deep end of transparency around our pricing.
  • CEO Script:Back to reality, nobody actually pays these charges. We negotiate huge discounts with commercial payers. Medicare and Medicaid are both price setters, so they don’t pay these prices either. They pay much lower than what’s listed on the charge master. And even uninsured patients aren’t generally getting stuck with rack rate charges. We have deep discounts for uninsured patients, and we collect very little of that money.
  • Pull scripting
  • Q: What hospital financials would you recommend philanthropy leaders and frontline fundraisers know?A: At the very least, I think they should be aware of what their operating margin is, and how much charity care and community benefit their hospital provides each year – from our own Revenue Cycle Benchmarking Initiative data, charity care is 3.7% of net patient revenue at the average hospital. And the number can be much higher—we work closely with a health system in the Rockies that incurs about $170 million in costs each year for services that patients are unable to pay for.As philanthropy leaders talk with members of their communities, I think they should be equipped to discuss the “community benefit” they provide—whether that is charity care for low-income patients, free wellness services and diagnostic screenings, or something else.And lastly, I think it’s important to remember that hospitals and health systems are facing more financial pressures than they ever have. We’re seeing drastic cuts to Medicare and Medicaid payments, and private insurers are lowering their rate increases as well—all while the population at large gets older, sicker, and more expensive to care for.Our modeling shows a pretty drastic result of those changes: We project that an average hospital that maintains its current course will see margins around negative 16% in a decade. With such severe financial pressures, I think philanthropy has an essential role to play to make sure hospitals can continue to serve their communities.
  • Economic issues maybe less of an excuse – and even if still problematic, they are nothing new to us in fundraising. What we’re seeing as a bigger challenge for today’s major gift fundraisers is the shifting sands of health care and its depiction outside industry circles.Hospitals are having an identity crisis --- how to make more donor sounding?Socialized medicine negates the need for philanthropy --- government is funding it, and I fund government through taxes… so I’m already paying for health care through higher taxesHospitals have too much moneyHospitals are risky investments
  • http://themorningconsult.com/memo-on-the-poll-findings-public-opinion-on-the-affordable-care-act/This Morning Consult Poll was conducted from May 22-26, 2013, among a national sample of 1,000 likely voters. 700 interviews were conducted via landline, along with 300 interviews of cell-phone only users reached via the Internet. The survey was conducted by Republican Pollster John McLaughlin of McLaughlin & Associates and Democratic Pollster Margie Omero of Momentum Analysis. Results from the full sample have a margin of error of plus or minus three percentage points.Memo on the Poll Findings – Public Opinion on the Affordable Care Acthttp://themorningconsult.com/memo-on-the-poll-findings-public-opinion-on-the-affordable-care-act/43% approve of the law, compared with 49% who disapprove. Yet, American’s opposing “Obamacare” exhibit much stronger views than those favor it. Strong disapproval (41%) nearly doubles strong approval (23%) (Morning Consult , 6/11/13)Forty-four percent of Americans say “Obamacare” will make things a little or a lot worse for their family, compared with 23 percent who say the Affordable Care Act will make things better and one in four who say the legislation will have no effect on their families.Forty-seven percent of Americans say Obamacare will make health insurance costs much more expensive or somewhat more expensive, compared to 24 percent who say costs will remain the same, and only 15 percent who say health insurance costs will be much less expensive or somewhat less expensive.Thirty-four percent of Americans say the Affordable Care Act will make medical benefits such as doctor’s appointments, medical treatments and prescription drugs less available. Eighteen percent say the legislation will make such benefits more available, and 37 percent say medical benefits will remain the same under the legislation.
  • Transition: Everyone thinks coverage expansion means this, but let’s look at what it really means
  • Sebelius has trouble fundraising on the national stage. They key is to keep it localTransition out: you need to figure out who you are in this crazy health care worldReport -- Big Donors Tend To Give LocallyNonProfit Times, 4/17/13The majority of publicly announced gifts of $1 million or more (60 percent) are from donors who live in the same state or geographic region as the nonprofit or foundation that receives the gift, according to the Indiana University Lilly Family School of Philanthropy in Indianapolis, Ind.Particularly, five types of organizations received at least half of their gifts from donors in the same state and approximately two-thirds of their gifts from donors in the same geographic region. These recipient organizations include: Health organizations; Arts, culture, and humanities organizations; Foundations; Higher educational institutions; and Government agencies.Report: http://www.philanthropy.iupui.edu/news/article/the-million-dollar-gift-next-door
  • Economic issues maybe less of an excuse – and even if still problematic, they are nothing new to us in fundraising. What we’re seeing as a bigger challenge for today’s major gift fundraisers is the shifting sands of health care and its depiction outside industry circles.Hospitals are having an identity crisis --- how to make more donor sounding?Socialized medicine negates the need for philanthropy --- government is funding it, and I fund government through taxes… so I’m already paying for health care through higher taxesHospitals have too much moneyHospitals are risky investments
  • HRIC/NEC scripting
  • Script: for fourth identity, it will also depend on having built out some of the other identities.
  • 1:25:20
  • Donors still feel social responsibility to give back, independent of the economy and tax policy. But we’re competing with other nonprofits… how to make case for health care? In particularly, we have a difficult time translating the impact of their gifts, given this changing health care environment.
  • Scripting? Forbes article about how hospitals could redefine charity care and community benefit beyond just providing uncompensated care to uninsured patients… could be offering free preventive health services, funding biomedical research, etc.
  • Transcript of "NACCDO State of the Industry - Hubble"

    1. 1. ©2013TheAdvisoryBoardCompany•27103A NACCDO 2014 State of the Industry 2013 - 2014 Current Challenges to the Case for Support of Hospitals and Health Systems Michael Hubble hubblem@advisory.com Philanthropy Leadership Council 1
    2. 2. ©2013TheAdvisoryBoardCompany•27103A Taking the Donor Perspective 2 Three Lenses for Evaluating the Philanthropic Environment in Health Care Source: Philanthropy Leadership Council interviews and analysis. Donor-Centric Lenses The Economy and Perception of Personal Economic Security Personal Motives and Perception of Value and Impact Hospital Performance and Perception of Need in Health Care Am I in the financial position to donate? Is the organization a worthy cause? Will my gift make a difference? “MY CHECKBOOK” “THEIR STORY” “OUR IMPACT”
    3. 3. ©2013TheAdvisoryBoardCompany•27103A Charities Feeling Bullish About 2013 3 Source: Flandez R, ―70% of Charities Forecast Rise in Donations in 2013,‖ Chronicle of Philanthropy, April 8, 2013, available at: www.philanthropy.com, accessed June 6, 2013; Philanthropy Leadership Council interviews and analysis. Lens #1: ―My Checkbook‖ Anticipated Direction of Change in Charitable Receipts 2013 compared with 2012 Rising Consumer Confidence ―Overall consumer confidence in the economy rose last year and that created a more positive environment for charities to go out in and build relationships [with donors].‖ Andrew Watt, President Association of Fundraising Professionals ” 2% 7% 20% 12% 59% Increase by 1% to 15% Increase by more than 15% Stay the same Decrease by 1% to 15% Decrease by more than 15% n=1,167
    4. 4. ©2013TheAdvisoryBoardCompany•27103A Giving Tends to Follow the Economy 4 Source: Giving USA Foundation™, ―GIVING USA 2013,‖ Lilly Family School of Philanthropy, Indiana University, 2013; Philanthropy Leadership Council interviews and analysis. 2011–2012 Giving Trends 1) Health organizations include: Health care institutions and services; mental health and crisis intervention; diseases, disorders, and medical disciplines; and medical research. Total Charitable Giving and S&P 500 Index 1972-2012 (in billions of inflation-adjusted dollars) 8.9% Giving to health care organizations as a percent of total 1.5% Total increase in charitable giving Increase in giving to health organizations12.8%
    5. 5. ©2013TheAdvisoryBoardCompany•27103A Taking the Donor Perspective 5 Three Lenses for Evaluating the Philanthropic Environment in Health Care Source: Philanthropy Leadership Council interviews and analysis. The Economy and Perception of Personal Economic Security Personal Motives and Perception of Value and Impact Hospital Performance and Perception of Need in Health Care Am I in the financial position to donate? Is the organization a worthy cause? Will my gift make a difference? “MY CHECKBOOK” “THEIR STORY” “OUR IMPACT” Donor-Centric Lenses
    6. 6. ©2013TheAdvisoryBoardCompany•27103A Other Headwinds Challenging Our Case for Support 6 Health Care Issues at the Forefront Source: Philanthropy Leadership Council interviews and analysis. Lens #2: ―Their Story‖ Increasing Transparency into Hospital Finances1 2 3 Politics of the Affordable Care Act The Health System ―Identity Crisis‖ Top Three Case Vulnerabilities
    7. 7. ©2013TheAdvisoryBoardCompany•27103A That’s One Way to Sell Magazines 7 ―Exposé‖ Shines Spotlight on Hospital Pricing Issue #1: Increasing Transparency into Hospital Finances ―When you look behind the bills that Sean Recchi and other patients receive, you see nothing rational—no rhyme or reason—about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.‖ Steven Brill Time Magazine March 2013 ” Cited Examples of Hospital Pricing BITTER PILL WHY MEDICAL BILLS ARE KILLING US BY STEVEN BRILL $77 Box of sterile gauze pads $1.50 Single pill of acetaminophen $18 One diabetes test strip Source: Brill S, ―Bitter Pill: Why Medical Bills Are Killing Us,‖ Time, March 4, 2013; Advisory Board interviews and analysis. The TIME logo is the registered trademark of Time, Inc.
    8. 8. ©2013TheAdvisoryBoardCompany•27103A The PR Bombardment Continues 8 Health Care Costs Making National Headlines Source: Clune S and Kane J, ―Why Does Health Care Cost So Much in the United States?‖ PBS Newshour, November 25, 2011; Doyle J, ―Hospital CEOs See Double-Digit Pay Hikes,‖ St. Louis Post-Dispatch, June 2, 2013; Evans M, ―Use of CEO Compensation Comparisons Draws Heightened Scrutiny,‖ Modern Healthcare, May 11, 2013; Kavilanz P, ―6 Reasons Health Care Costs Keep Going Up,‖ CNN Money, July 12, 2012; Kliff S, ―Here‘s Why Hospitals Set High Prices,‖ Washington Post, May 19, 2013; ―Why Health Care Costs Are So High,‖ New York Times, June 3, 2013; Philanthropy Leadership Council interviews and analysis. ―Here‘s Why Hospitals Set High Prices‖ Washington Post, 05/19/13 ―Use of CEO Compensation Comparisons Draws Heightened Scrutiny‖ Modern Healthcare, 05/11/13 ―Why Health Care Costs Are So High‖ New York Times, 06/03/13 ―Why Does Health Care Cost So Much in the United States?‖ PBS Newshour, 11/25/11 ―6 Reasons Health Care Costs Keep Going Up‖ CNN Money, 07/12/12 ―Hospital CEOs See Double-Digit Pay Hikes‖ St. Louis Post-Dispatch, 06/02/13
    9. 9. ©2013TheAdvisoryBoardCompany•27103A COPD Simple Pneumonia Major Joint Replacement Minimum Maximum 1 2 CMS Fans the Flames on Hospital Pricing 9 New Database Profiles Charges for Most Frequent Discharges Source: CMS, Medicare Provider Charge Data, May 2013, available at: www.cms.gov; Young J and Kirkham C, ―Hospital Prices No Longer Secret As New Data Reveals Bewildering System, Staggering Cost Differences,‖ Huffington Post, May 8, 2013; Advisory Board interviews and analysis. 1) Chronic obstructive pulmonary disease. 2) Simple Pneumonia and Pleurisy with complications and comorbidities. ―Our purpose for posting this information is to shine a much stronger light on these practices. What drives some hospitals to have significantly higher charges than their geographic peers? I don't think anyone here has come up with a good economic argument.‖ Jonathan Blum Deputy Administrator, CMS ” Key Database Features 100 Most frequent discharges 163K Individual charges 3,337 Hospitals Hospital Charge Variation Chicago Hospital Referral Region n=27 $5.8K $28.3K $12.7K $39.4K $36.1K $74.4K
    10. 10. ©2013TheAdvisoryBoardCompany•27103A Charges a Far Cry from Paid Prices 10 Most Pay Less than Fifty Cents on the Dollar Source: 2012 Almanac of Hospital Financial and Operating Indicators, Optuminsight Inc, 2011; CDC, ―National Hospital Discharge Survey,‖ 2010, available at: www.cdc.gov/nchs; Melnick GA and Fonkych K, ―Hospital Pricing and the Uninsured: Do the Uninsured Pay Higher Prices?‖ Health Affairs, 2008, 27: w116-22; AHA, ―Uncompensated Care Cost Fact Sheet,‖ January 2013, available at: http://www.aha.org; Advisory Board interviews and analysis. The Rest of the Story Hospital Revenue Received as Percentage of Charges All Payers, 2010 Discounts for Uninsured Patients 35.2% 43.6% 51.8% 25th Percentile 50th Percentile 75th Percentile 5% Self-pay percent of U.S. discharges, 2010 (28%) Median difference in collected price between uninsured, commercially- insured patients $39.3B Uncompensated care provided by U.S. hospitals, 2010
    11. 11. ©2013TheAdvisoryBoardCompany•27103A Cross-Subsidy Economics on the Brink of Failure 11 Source: Advisory Board interviews and analysis. 1) Projected results for health care industry if hospitals do nothing to alter current course, based on the Health Care Advisory Board‘s Margin Improvement Intensive that projects margin performance based on key financial and operational metrics from 158 hospitals. Margin Improvement Analysis Results1 Five-Year Margin Projections Ten-Year Margin Projections Greater than 10% Decline 5-10% Decline Improvement 0% 3% 13% 84% Improvement 0-5% Decline 5-10% Decline Greater than 10% Decline 15% 36% 36% 13% Four Forces Eroding Future Margins 0-5% Decline • Shifting payer mix: most demand growth over the next decade comes from publicly insured patients • Continuing cost pressure: projected annualized commercial price growth half of historical norms • Decelerating growth in reimbursement rates: commercial cost shifting stretched to the limit • Deteriorating case mix: medical demand from aging population threatens to crowd out profitable procedures !
    12. 12. ©2013TheAdvisoryBoardCompany•27103A Responding to “Sticker Shock” 12 Source: Philanthropy Leadership Council interviews and insights. Talking Points for Donor Conversations Emphasize that philanthropy has essential role to play in ensuring that hospitals can continue to serve their communities, especially as pressure increases on operating margins; know your institution‘s operating margin Be equipped to discuss the ―community benefit‖ the institution provides, whether that is charity care for low-income patients, free wellness services and diagnostic screenings, or something else; know how much charity care and community benefit your institution provides each year Explain that hospitals and health systems are facing more financial pressures than they ever have; be prepared to talk about cuts to Medicare, Medicaid payments and that the population is becoming more expensive to care for If your operating margin is particularly healthy, reinforce the concept that, as not-for-profit institutions, hospitals reinvest profits into providing services rather than pay them out to shareholders; position philanthropic opportunities as sound financial investments
    13. 13. ©2013TheAdvisoryBoardCompany•27103A Other Headwinds Challenging Our Case for Support 13 Health Care Issues at the Forefront Source: Philanthropy Leadership Council interviews and analysis. Lens #2: ―Their Story‖ Increasing Transparency into Hospital Finances1 2 3 Politics of the Affordable Care Act The Health System ―Identity Crisis‖ Top Three Case Vulnerabilities
    14. 14. ©2013TheAdvisoryBoardCompany•27497A Not the Smoothest of Starts Federal Exchange Slow to Answer the Bell
    15. 15. ©2013TheAdvisoryBoardCompany•27497A Some State Exchanges Faring Better 15 Enrollment Slow, But Most Websites Working Source: Kaiser Family Foundation, ―State Decisions for Creating Health Insurance Exchanges, as of May 28, 2013,‖ available at: www.kff.org; CNBC, ―One Washington gets Obamacare Right,‖ available at: http://www.cnbc.com/id/101096445, Kentucky Governor‘s Office, ―2.6 Million Page Views on Kynect for Affordable Health Insurance,‖ available at: http://migration.kentucky.gov/newsroom/governor/20131005kynect.htm; Health Care Advisory Board interviews and analysis. State Decisions on Exchange Participation 16 States, District of Columbia Running Own Exchanges 27 17 7 State-Based ExchangeFederal Exchange Partnership Exchange State Exchange Enrollment Within First Week of Launch >40,000 Completed applications in New York 16,311 Completed applications in California 326 Completed applications in Maryland 12,955 Completed applications in Kentucky
    16. 16. ©2013TheAdvisoryBoardCompany•27497A Post-Subsidy Premiums Within Reach for Many 16 But Penalties Still Smaller than Cost of Coverage Observation #1: Affordable Premiums Year Annual Penalty 2014 $95 or 1% of income 2015 $325 or 2% of income 2016 $695 or 2.5% of income Penalties for Non-compliance Annual Penalty Income: $30,000 $300 $600 $750 2014 2015 2016 Source: Kaiser Family Foundation, ―Kaiser Health Tracking Poll,‖ March 2013, available at: kff.org; PwC, ―Health Insurance Exchanges: Long on Options, Short on Time,‖ October 2012, available at: www.pwc.com; Health Care Advisory Board interviews and analysis. Weighted Average Monthly Premiums for Adult Individual Aged 27 For Second Cheapest Silver Plan, by State, 2014, Pre and Post subsidy1 for Income of $30,000 $154 $255 $286 $344 $154 $214 $214 $214 Tennessee Florida Mississippi Alaska Before Subsidy After Subsidy
    17. 17. ©2013TheAdvisoryBoardCompany•27497A Trading Price for Volume on the Public Exchanges 17 Reimbursement Information Still Anecdotal , but Rates Not Generous Source: Mathews AW and Kamp J, ―Another Big Step in Reshaping HealthCare,‖ Wall Street Journal, February 28, 2013, available at: www.online.wsj.com;; Health Care Advisory Board interviews and analysis. Observation #2: Low Reimbursement 1) Pseudonym. Anticipated Provider Reimbursement Rates for Exchange Plans Catholic Health Initiatives Modest discounts from commercial rates Tenet Healthcare Up to 10% below commercial rates Meriwether Hospital1 5% below commercial rates WellPoint Inc. Between Medicare and Medicaid rates Meyers Health1 10% above Medicare rates Millern Medical Center1 20% below commercial rates
    18. 18. ©2013TheAdvisoryBoardCompany•27497A Lower Prices through Narrower Networks 18 Source: Covered California, ―Health Plans & Rates for 2014: Making the Individual Market in California Affordable, May 23, 2013, available at: www.coveredca.com; Kliff S, ―California Obamacare premiums: No ‗rate shock‘ here,‖ Washington Post, May 23, 2013, available at: www.washingtonpost.com; Terhune C, ―Insurers limit doctors, hospitals in state-run exchange plans,‖ LA Times, May 24, 2013, available at: www.articles.latimes.com; Health Care Advisory Board interviews and analysis. Observation #3: Narrow Networks 1) Silver plan premiums for 40-year old individual, before subsidy; actual rates represent HMO plans in Northern Los Angeles. Monthly Health Insurance Premiums Cedars-Sinai Medical Center not participating in any exchange plan networks UCLA Health System participating in only one exchange plan network Prominent Health Systems Largely on the Sidelines 36% 80%13 Blue Shield of California network physicians in payer‘s exchange plans California physicians, hospitals participating in at least one exchange plan Insurers offering plans on Covered California exchange 5M Individuals expected to be eligible for Covered California exchange, 2014 $450 $222 $254 $294 Milliman ProjectionHealth Net AnthemKaiser Permanente Actual Premiums Select California Exchange Plans, 20141
    19. 19. ©2013TheAdvisoryBoardCompany•27497A Employer-Sponsored Coverage at a Crossroads 19 Employers Choosing Between Abdication, Activation “Activation”“Abdication” Self-Funded Benefits No Health Benefits Pros: • Full control over networks • Exemption from minimum benefits requirements Cons: • Greater exposure to unexpected expenditures • Complex network negotiations Defined Contribution/ Private Exchange Pros: • Health benefits still part of compensation package • Predictable, controllable cost growth Cons: • Fundamental disruption in benefit design • Employees may under- insure Pros: • Total escape from cycle of rising premium costs Cons: • Fine for violating employer mandate • Loss of important labor market differentiator Spectrum of Options for Controlling Health Benefits Expense Source: Health Care Advisory Board interviews and analysis.
    20. 20. ©2013TheAdvisoryBoardCompany•27497A Employers Already Scaling Back Coverage 20 Erosion of Employer-Sponsored Coverage Well Underway 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. 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 69.7% 59.5% 2000 2011 11.5M fewer individuals Contribution to Insurance Premiums 1) Employer-sponsored insurance. 2) Consumer-directed health plan. Coverage for Family of Four $5,866 $2,137 $11,429 $4,316 2002 2012 Employer 2002 2012 Worker 95% growth 102% growth
    21. 21. ©2013TheAdvisoryBoardCompany•27497A Some Employers Dodging Their Mandate 21 Despite Delay, Employers Finding Ways to Avoid Insurance Requirement 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. 1) Full-time equivalents. 2) n=72 franchisees, all industries. 3) n=1,203 employers. Case in Brief: Regal Entertainment Group • In March 2013, reduced number of work shifts for non-salaried employees to ensure part-time status • First public company to institute policy 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 Memo to Managers To comply with the Affordable Care Act, Regal had to increase our health care budget to cover those newly deemed eligible based on the law's definition of a full time employee. To manage this budget, all other employees will be scheduled in accord with business needs and in a manner that will not negatively impact our health care budget…
    22. 22. ©2013TheAdvisoryBoardCompany•27497A New Path for Employer Cost Shifting 22 Private Health Insurance Exchanges Open for Business Source: Towers Watson, ―18th Annual Towers Watson Employer Survey on Purchasing Value in Health Care,‖ 2013, available at: www.towerswatson.com; Wall JK, ―Mercer Courts Employers with Private Exchange,‖ Indianapolis Business Journal, April 22, 2013, available at: www.ibj.com; Health Care Advisory Board interviews and analysis. Responding to Market Demands ―The high-caliber carrier participation in Mercer‘s private benefits exchange matches the increasing interest displayed by our clients and prospects.‖ Julio A. Portalatin President and CEO, Mercer ” 15% Employers considering private exchange model for 2014 Private Health Insurance Exchanges • Over 100,000 employees enrolled in Aon Hewitt‘s private health insurance exchange in fall 2012 • Benefits offered by nine national, regional carriers • Launching private health insurance exchange in nine states • Expect to serve employers covering approximately 30,000 individuals • Offering suite of exchange offerings to employers • Will include coverage from 10 major insurers
    23. 23. ©2013TheAdvisoryBoardCompany•27497A Igniting a Race to the Bottom 23 Exchange Shoppers Trading Premiums for Deductibles Source: Mathews AW, ―To Save, Workers Take On Health-Cost Risk,‖ Wall Street Journal, March 17th, 2013, available at: www.wsj.com; Health Care Advisory Board interviews and analysis. 1) Preferred provider organization. 2) Health maintenance organization. Case in Brief: Sears, Darden Restaurants • For 2013 open enrollment, self-insured large employers redesigned benefits to reduce health spend through defined contribution model • Employers offered employees lump sum credit to choose coverage in Aon Hewitt‘s online marketplace 47% 70% 14% 18% 39% 12% 2013 2012 PPO HMO High-Deductible Plan1 2 42% Employees on Aon Hewitt health insurance exchanges selecting plans less rich than the previous year Results of Open Enrollment Process
    24. 24. ©2013TheAdvisoryBoardCompany•27497A The Future of Employer-Sponsored Insurance? 24 Private Exchanges Poised For Rapid Growth 1M 9M 19M 30M 40M 2014 2015 2016 2017 2018 Projected Private Exchange Enrollment 27% Percentage of consumers receiving employer-sponsored coverage today projected to receive benefits through private exchanges in 2018 Factors Influencing Move to Private Exchange Models Logistical difficulty of benefit renegotiations Internal politics of benefit changes Attractiveness of other options Source: Accenture, ―One-in-Four Consumers Will Receive Employer Health Benefits Through Insurance Exchanges in Five Years, Accenture Research Shows,‖ available at: http://newsroom.accenture.com/news/one-in-four-consumers-will-receive-employer-health-benefits-through- insurance-exchanges-in-five-years-accenture-research-shows.htm, Health Care Advisory Board interviews and analysis.
    25. 25. ©2013TheAdvisoryBoardCompany•27497A Reexamining the ACA “Grand Bargain” 25 Source: CBO, ―Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,‖ July 24, 2012, available at: www.cbo.gov; CBO, ―Effects of the Affordable Care Act on Health Insurance Coverage— February 2013 Baseline,‖ February 5, 2013, available at: www.cbo.gov; Advisory Board interviews and analysis. 1) Non-elderly population. 2) Disproportionate Share Hospital. ACA Hospital Payment Cuts 2013-2023 2M 14M 20M 26M 27M 27M 2013 2014 2015 2016 2017 2018 Projected Cumulative Increase in Newly Insured Population1 Provider “Get”: Higher Revenue • Medicaid expansion • Insurance exchanges • Employer mandate Provider “Give”: Lower Payment • Medicare rate cuts • DSH cuts $260B $316B$56B Hospital Payment Rate Cuts DSH Payment Cuts Total Hospital Cuts 2 DSH2 Payment Cuts
    26. 26. ©2013TheAdvisoryBoardCompany•27497A Divided Public Opinion of Health Care Reform 26 Opponents Taking Stronger Stance Source: Ramlet M and Dropp K, ―Memo on the Poll Findings – Public Opinion on the Affordable Care Act,‖ June 12, 2013, available at: www.themorningconsult.com, accessed June 14, 2013; Philanthropy Leadership Council interviews and insights. Do You Approve or Disapprove of the Affordable Care Act? 8% 20% 23% 41% Strongly approve Somewhat approve Somewhat disapprove Strongly disapprove 5% 15% 23% 11% 33% A lot better A little better Have no effect A little worse A lot worse How Do You Think the Affordable Care Act Will Affect You and Your Family? June 2013 n=1,000 June 2013 n=1,000
    27. 27. ©2013TheAdvisoryBoardCompany•27497A Common Sentiments from Million-Dollar Health Care Donors Many Donors Interested, but Uncertain 27 Source: Philanthropy Leadership Council interviews and insights.1) Pseudonym. ―Health care has become too political, and I‘ll be on the sidelines until things are sorted out.‖ ―I defy anyone to make sense of the current medical care situation.‖ ―It‘s hard to plan when you don‘t know what the future is.‖ ―We don‘t know what‘s going to happen. The hospital president went to a meeting [about health care reform], and he came out more confused than before. Nobody has their finger on the pulse.‖ 50 220 Typical Session Health Care Reform Session Attendance at Biannual Donor Educational Sessions at Odair Health System1 ”
    28. 28. ©2013TheAdvisoryBoardCompany•27497A Coverage Expansion Reducing Perception of Need 28 Less Charity Care Provided, Less Charity Required Source: CBO, ―Effects of the Affordable Care Act on Health Insurance Coverage—February 2013 Baseline,‖ February 5, 2013, available at: www.cbo.gov; Philanthropy Leadership Council interviews and analysis.1) Non-elderly population. A Threat to Giving? ―If everybody would truly be able to receive treatment under ObamaCare, it probably would at that point impact what we may be giving. People will already be covered, and we‘re probably going to be taxed a lot more to get to that point anyway.‖ Million-dollar health care donor ”Projected Cumulative Increase in Newly Insured Individuals1 2M 14M 20M 26M 27M 27M 2013 2014 2015 2016 2017 2018
    29. 29. ©2013TheAdvisoryBoardCompany•27103A Key to Emphasize Local Impact 29 Most Large Gifts to Health Care Organizations Stay Local Source: ―The Million Dollar Gift Next Door,‖ Indiana University Lilly Family School of Philanthropy, April 17, 2013; Philanthropy Leadership Council interviews and analysis.1) Geographic regions include Northeast, Midwest, South, and West. 60% 7% 33% Within the donor’s state or geographic region1 Outside the donor’s geographic region1 Unidentified Geographic Distribution of $1M+ Gifts 2000–2011 n=20,941 gifts
    30. 30. ©2013TheAdvisoryBoardCompany•27103A Other Headwinds Challenging Our Case for Support 30 Health Care Issues at the Forefront Source: Philanthropy Leadership Council interviews and analysis. Lens #2: ―Their Story‖ Increasing Transparency into Hospital Finances1 2 3 Politics of the Affordable Care Act The Health System ―Identity Crisis‖ Top Three Case Vulnerabilities
    31. 31. ©2013TheAdvisoryBoardCompany•27103A What Business Are We In? 31 Businesses Displaced by Focusing on the Means Rather than the Ends Study in Brief: What Business Are We in? • Explores how Eastman Kodak Company‘s camera and film business was displaced by alternate mediums that fulfilled customers‘ desires for images • Draws parallels to the challenges that provider organizations face in shifting activities from delivering health services to a broader spectrum of tactics for health Providing Health, Not Health Care ―…It's always better to define a business by what consumers want than by what a company can produce…whereas doctors and hospitals focus on producing health care, what people really want is health. Health care is just a means to that end— and an increasingly expensive one.‖ Source: Asch D., "What Business Are We In? The Emergence of Health as the Business of Health Care,‖ NEJM, 367,2012: 888-889; Advisory Board interviews and analysis. ” 1976 90% market share of commercial film business 1990s Digital cameras enter mainstream market 2012 Kodak files for bankruptcy Timeline for Eastman Kodak Business Researchers featured in New England Journal of Medicine
    32. 32. ©2013TheAdvisoryBoardCompany•27103A Health System Strategy, c. 2003 “Extractive Growth” Health System Strategy, 2013-2023 “Value-Based Growth” Grow by being bigger: Leverage market dominance to secure prime pricing, network status Grow by being better: Leverage cost, quality, service advantage to attract key decision makers • Expand market share • Strengthen service lines • Exert pricing leverage • Solidify referrals • Secure physicians • Increase utilization • Expand covered lives • Compete on outcomes • Minimize total cost • Assemble network • Offer convenience • Expand access • Discharges • Service line share • Fee-for-service revenue • Pricing growth • Occupancy rate • Process quality • Share of lives • Geographic reach • Risk-based revenue • Share of wallet • Outcomes quality • Total cost of care • Inpatient capacity • Outpatient imaging centers • Clinical technology • Ambulatory surgery centers • Primary care capacity • Care management staff and systems • IT analytics • Post-acute care network Toward an Economics of Value 32 Adapting to New Rules of Competition Source: Advisory Board interviews and analysis. Description Key Success Factors Performance Metrics Critical Infrastructure
    33. 33. ©2013TheAdvisoryBoardCompany•27103A Carving a New Growth Path 33 Competing Under Distinct, but Not Mutually Exclusive, Identities Source: Advisory Board interviews and analysis. Best-in-Class Acute Care Destination Consumer-Oriented Ambulatory Network Full Service Population Health Manager Integrated Finance and Delivery System • Assumes full risk by offering health plan to subscribers • Unifies care financing and delivery into single coordinated care enterprise • Maintains extensive network of outpatient care sites • Offers convenient primary care, diagnostic, procedural services at competitive prices • Assumes delegated risk from payers and/or employers • Prioritizes care management, coordination to limit avoidable demand • Consistently delivers efficient, effective acute care episodes • Ensures reliable coordination, communication, data sharing across the care continuum Four Emerging Provider Identities
    34. 34. ©2013TheAdvisoryBoardCompany•27103A Fundraising’s Role in Carving a New Growth Path 34 What Can You Make the Case For? Source: Philanthropy Leadership Council interviews and analysis. • Outpatient clinics • Primary care offices • Post-acute care facilities • Outpatient lab, imaging centers • EMR, meaningful use • Employee utilization liaisons • Inpatient care coordinators Investment Priorities • Outpatient clinics • Outpatient care managers • Clinical patient guides • Disease management • Palliative care • Non-urgent care navigators • Transition partners • EMR, meaningful use • Telemonitoring services • Home health initiatives • Primary care offices • Outpatient lab, imaging centers • Wellness centers • EMR, meaningful use Best-in-Class Acute Care Destination Consumer-Oriented Ambulatory Network Full Service Population Health Manager Integrated Finance and Delivery System • IT systems • Cash/unrestricted funds
    35. 35. ©2013TheAdvisoryBoardCompany•27103A Taking the Donor Perspective 35 Three Lenses for Evaluating the Philanthropic Environment in Health Care Source: Philanthropy Leadership Council interviews and analysis. The Economy and Perception of Personal Economic Security Personal Motives and Perception of Value and Impact Hospital Performance and Perception of Need in Health Care Am I in the financial position to donate? Is the organization a worthy cause? Will my gift make a difference? “MY CHECKBOOK” “THEIR STORY” “OUR IMPACT” Donor-Centric Lenses
    36. 36. ©2013TheAdvisoryBoardCompany•27103A Focusing on What We Can Control 36 Source: Philanthropy Leadership Council interviews and analysis. Lens #3: ―Our Impact‖ ―You feel like it‘s just not fundraising as it is solving a problem.‖ Underlying Values Desire for Impact ―I do believe that we need to give; those of us that have, we need to help.‖ ―Charitable giving for us is really from following what the Lord has taught us… where much is given, much is expected.‖ ―Blaming the government and taxes is just an excuse for not acting.‖ ―We can afford it, and I‘m a great believer in giving while I‘m living.‖ ―We want to give all our money away while we‘re still young enough to appreciate the impact … it‘s such a joy to see how lives are changed.‖
    37. 37. ©2013TheAdvisoryBoardCompany•27103A Revisiting the Conversation About Impact 37 Source: Philanthropy Leadership Council interviews and analysis. Donor Comprehension Barriers Reframed Donor Perspective A Bridge Too Far Priorities focused outside hospital sphere Institutional Priority Non-traditional but current priorities of broader health system Intangible Concept lacks physical manifestation Concrete Initiative Easily articulated explanation Far Removed Impact several steps away from meaningful donor experience Direct Impact Affecting lives of people throughout community
    38. 38. ©2013TheAdvisoryBoardCompany•27103A Elevating Philanthropy’s Strategic Value 38 Translate Our Relevance and Impact to Key Stakeholders Source: Philanthropy Leadership Council interviews and analysis. Providing 360° Value Clinicians Donors Executives Foundation
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