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Centers of CareNassau University Medical Center

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South Ocean Care, LLCLong Island FQHC

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THE PERSPECTIVE FROM THE FRONT LINESThe Health of Safety-Net Hospitals: How are They Faring? What’s the Outlook?

Briefing by the Alliance for Health Reform & the Commonwealth FundJune 4, 2012 – Washington, DC

Arthur A. Gianelli, MA, MBA, MPHPresident and CEO of the NuHealth System

The Train Has Left the Station

• Regardless of the Supreme Court’s determination regarding the Affordable Care Act, certain dramatic changes are irreversible….

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Reform is Here….

• Governments at all levels are resource-starved.

• Pressure is on the entire health care delivery system to reduce cost and improve quality.

• Payers at all levels are:– Pushing hospitals to “bend the cost curve”

through improvement and by driving care to ambulatory settings.

– Incentivizing improvement efforts through Accountable Care Organizations, bundled payments, health homes, and other risk-based strategies.

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….Regardless of What the Supreme Court Says

• In response, hospitals are:– Reducing admissions (“demand

destruction”)– Expanding primary care and care

management– Developing alignment strategies

with physicians– Integrating with other hospitals and

insurance plans– Seeking capital from for-profit or

private equity firms– Entering into quality-driven risk /

shared savings contracts with payers

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“The odds of a hospital surviving on its own – without being part of [a] healthcare ecosystem – are low, leaving many partnering, forming clinical affiliations, merging, or selling.”

--Molly Gamble“The Future of the American Hospital:

Role and Relevancy in the Next Decade”Becker’s Hospital Review

May 7, 2012

What is a Safety Net Provider?

• Safety net providers have two distinguishing characteristics:– By legal mandate or explicitly

adopted mission, they maintain an “open door”, offering patients access to services regardless of their ability to pay.

– A substantial share of their patient mix is uninsured, Medicaid, and other vulnerable patients.

– Examples include hospitals and FQHCs

5Source: Marion Lewin and Stuart Altman, eds. Institute of Medicine, America’s Health Care Safety Net: Intact but Endangered (Washington, DC: National Academy Press, March 2000).

Public Hospitals: A Snapshot

Members of the National Association of Public Hospitals:

Uncompensated Care: NAPH members provided 31% of ambulatory care visits and 18% of inpatient services for uninsured patients. Uncompensated care represents 16% of NAPH member total costs (6% for all other hospitals); NAPH members provide 20% of the total uncompensated acute care in the US, but they represent just 2% of all acute care hospitals.

Outpatient Visits: NAPH members provide 45 million non-emergency outpatient visits, and the average NAPH member provides more than 5 times the volume of non-emergency visits as other US acute-care hospitals.

Payer Mix: Medicaid (27%); Medicare; (26%); Commercial (24%); Uninsured (19%); Other (4%).

Source of Financing for Uncompensated Care: Medicaid DSH (22%); Supplemental Medicaid Payments (15%); Medicare DSH (5%) Medicare IME (4%); Commercial (1%); State/Local (32%); Other (21%).

6Source: NAPH, America’s Public Hospitals and Health Systems, 2009: Results of the Annual NAPH Hospital Characteristics Survey.

Commercial Insurers Cross-Subsidize Government Payers

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Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1990 – 2010

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Commercial cross-

subsidization is directly

responsible for hospital margins

Proposed Insurance Expansion Carries Risks for Public Hospitals

• Most of the increase in coverage will come through expansion of the Medicaid program.– Medicaid under-reimburses

hospital costs, which will necessitate sustained supplemental payments, commercial cross-subsidization, or large risk contracts.

– In some states (like NY), Medicaid expansion due to ACA will be marginal.

• In either case, public hospitals without strong commercial contracts will suffer. 88

46%

54%

Covered bycommercialexpansion

Covered byexpandedMedicaideligibility

Source: The Advisory Board Company

Projected Impact of Affordable Care Act on Coverage Expansion

Public Hospitals: SWOT Analysis

Strengths Weaknesses• Employed physician base• Extensive primary care networks• Integrated care delivery systems• Experience operating on limited

resources

• Thin or negative operating margins• Dependence on governmental

payers; often limited ability to negotiate with MCOs

• Governmentally appointed boards• Lack of organizational flexibility • Cost structure• Difficulty accessing capital

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Public Hospitals: SWOT Analysis

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Opportunities Threats• Expand current outpatient and

primary care capacity• Leverage physician alignment to

drive quality/utilization management• Use integrated systems to

participate in accountable payment opportunities

• Partner with states to manage dual eligible population

• Obtain Section 1115 waivers geared towards delivery system redesign

• Obtain State Action Anti-Trust protection from states to permit unique provider collaboration

• Supreme Court decision (either way): exchanges, DSH, adverse selection

• Incongruence between integration imperative and Stark/anti-trust/anti-kickback laws

• Inflexible organizational structures may limit integration opportunities

• Accountable care or population management business model has not been established with confidence

• Ongoing downward pressure on payers (governments strapped, MCO Medicaid penetration, commercial premium review)

How Can Policymakers Help?

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• Focus Medicaid Dollars– Exchange network limits for safety-net

provider commitments to take accountability for quality, cost containment, and population management. Partner with safety-net hospitals to manage dual eligibles.

• Focus DSH Dollars– Focus DSH dollars on hospitals with highest

Medicaid and uninsured; Connect to performance; Reverse ill-advised cost exemptions from DSH calculation (DSH Audit Rule).

• Grant Section 1115 Waivers– Many safety-net providers need significant

capital investment and operating support to make the transition to the new payment paradigm. Section 1115 waivers are an exceptional vehicle to accomplish system transformation (California “Bridges to Reform” waiver).

How Can Policymakers Help?• Organizational Flexibility

– Policymakers at state and local levels can update public hospital statutes to permit greater organizational flexibility (exemptions from Civil Service, less costly pension system, ability to convert to NFP or more readily integrate).

• Clear Up Anti-Trust Concerns– The ACA encourages collaboration,

integration, and consolidation. Federal law and regulations must track this policy objective. State Action Anti-Trust protection, in particular, is a very powerful tool through which states can permit what would otherwise be anti-competitive activities among providers (11th Circuit Case).

• Don’t Continuously Change Rules!!

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Questions / Comments

Please feel free to contact me at:

Arthur A. GianelliAddress:

2201 Hempstead TurnpikeEast Meadow, NY 11554

Phone: 516.572.6011E-Mail: [email protected]: www.nuhealth.net @Artgianelli, @NuHealthSystem

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