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Overview of Health Care Issues – Challenges and Opportunities

Health, Society and the Physician

February 2, 2010

Paul B GardentSenior Associate, Center for Leadership & Improvement

The Dartmouth Institute for Health Policy and Clinical Practice

Adjunct Professor, Tuck School at Dartmouth

Physician Competency

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“Good Medical Practice”

• Patient Care• Medical Knowledge and Skills• Practice-based Learning and Improvement• Interpersonal and Communication Skills

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• Professional Behavior• Systems-based Practice

Alliance for Physician Comptencehttps://gmpusa.org/Docs/GoodMedicalPractice-USA-V1-0WSide.pdf

ACGME Common Program Requirementshttp://www.acgme.org/outcome/comp/GeneralCompetenciesStandards21307.pdf

“Good Medical Practice”

As doctors, we must:• demonstrate an understanding of how the system of

healthcare in which we work affects our performance;• utilize system resources effectively to provide optimal

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y y p pcare;

• understand how our patient care and other professional activities affect other healthcare professionals, the healthcare system in which we work, and the larger society.

Draft Statement: Alliance for Physician Competence (1/10/2007)

My Thesis

• Knowledge and understanding of the system of health care is important to being a competent physician

• Knowledge and understanding of the system of health care is important to your professional satisfaction and

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care is important to your professional satisfaction and morale

Learning Objectives

• Understand what is health and what determines health• Understand key challenges facing health care today,• Have a basic understanding of the structure and financing

of US health care,• Understand the strategic dilemmas facing hospitals and

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Understand the strategic dilemmas facing hospitals and physicians in today’s environment,

• Examine some real-world situations and the dilemmas they raise

• Appreciate why knowledge and understanding of the system of health care is important to being a competent physician

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Presentation Outline

1: Overview of Health• What is health and what determines health

2: Overview of Health Care• Structure of Health Care Marketplace • Health Policy Challenges

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3: Financing Health Care• Payers, Reimbursement & Cost Shifting

4: A Provider’s Dilemma – A Real Example• Payer Mix• Clinical Program Mix

5: Case Discussion

First A Quiz

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Source: http://www.unnaturalcauses.org/

How does American life expectancy compare to other countries?

(Based on 2005 data reported in the 2007 United Nations Human Development)

A Number 1

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A. Number 1 B. In the top 10C. 29th place

ANSWER: C. 29th place

At 77.9 years, we are tied with South Korea and Denmark for 29th – 31st place, despite

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being the second wealthiest country on the planet (measured by per capita GDP).

Japan has the highest life expectancy at 82.3 years

Where does the U.S. rank in the percentage of the population that

smokes cigarettes?(of the 30 OECD countries)

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A. #1 (highest smoking rates)B. Top 5C. Top 10D. 11-20th placeE. Below 25 (lowest smoking rates)

ANSWER: E. Below 25

Japan has the longest life expectancy AND th hi h t t f k

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AND the highest percentage of smokers. The French smoke more and live longer. The Germans drink more and live longer.

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What is the greatest difference in life expectancy observed between counties

in the U.S.?

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A. 7 yearsB. 15 yearsC. 22 yearsD. 25 years

ANSWER: B. 15 Years

Populations in some wealthy communities li ll i t th i 80 hil

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live on average well into their 80s, while others in some inner city neighborhoods and Native American reservations barely

scratch 60.

Between 1980 and 2000, how did the life expectancy gap between the least well off and most well off counties in

the U.S. change?

A. Narrowed by 12%B. Remained the sameC. Widened by 60%

ANSWER: C. Widened by 60%

As economic inequality grew after 1980, so did the life expectancy gap betweenso did the life expectancy gap between

the rich and the rest of us.In contrast, a recent study (Krieger et al) showed that premature death and infant mortality gaps narrowed between 1966

and 1980.

A 3 ti

Children living in poverty are how many times more likely to have poor health, compared with children living in high-

income households?

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A. 3 timesB. 4 timesC. 5 timesD. 7 times

ANSWER: D. 7 Times

Children are most vulnerable.

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Not only are they susceptible to sub-standard housing, poor food, bad schools, unsafe streets and chronic stress, but the impacts of childhood

poverty are cumulative and last into adulthood and can even affect the next generation.

4

A Whether or not you smoke

On average, which of the following conditions is the strongest predictor of

your health?

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A. Whether or not you smokeB. What you eatC. Whether or not you are wealthyD. Whether or not you have health

insuranceE. How often you exercise

ANSWER: C. Whether or not you are

wealthy

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The wealthier you are, on average, the better your health, from the bottom all the way to the top.

Genes, diet, exercise and other behaviors are important. But a poor smoker still stands a greater

chance of getting ill than a rich smoker.

A New drugs (like penicillin)

The most important factor behind the 30 year increase in U.S. life expectancy

during the 20th century was:

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A. New drugs (like penicillin)B. Social reforms (like wage and labor laws, housing

codes, etc.)C. The development of the modern hospital systemD. Migration from the countryside to the citiesE. More exercise and less smoking

ANSWER: B. Social Reforms

Researchers attribute much of our increase in life

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Researchers attribute much of our increase in life expectancy to social changes--better wages,

housing, job security and working conditions, civil rights laws, sanitation and other protections that

enlarged the middle class.

A. They spend more on medical care

Citizens of other industrialized countries have longer life expectancies and better

health than we do because:

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yB. They are more homogeneousC. They are more egalitarianD. They smoke lessE. They have universal health care

coverage

ANSWER: C. They are more egalitarian

While universal health care coverage is important, its impact on health is less than the social conditions

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that make us sick in the first place.

Social policies like living wage jobs, paid sick and family leave, paid vacations, universal pre-school

and guaranteed health care are mandated by law in many other countries.

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What is health?

World Health Organization“Not merely the absence of disease but a state of physical, mental and social well-being”

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What determines health?

Most attention & focus

Less attention but important

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Little attention may be most important

Public Health vs. Health Care

Public Health Health CareGoals: Health of Population Health of IndividualsLanguage: Promotion/Prevention Care (primary, secondary, tertiary)Financing: Government Government, Patients, InsurersSpending: $60 Billion 1.94 Trillion

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“Mean per capita spending for public health in 2004-2005 was $149, compared to $6,423 for overall health care”

Beitsch, Health Affairs, July/Aug 2006

“Potential Health and Economic Consequences of Misplaced Priorities

Examples of poor choices in allocationof health care dollars.

Effective Services (Overuse/Underuse) - smoking cessation/breast cancer screening

Delivering Care – Investment in biomedical vs delivery

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Delivering Care Investment in biomedical vs delivery improvement

Preventing Disease – reduce chronic disease by reducing risk factors

Fostering Social Change – reduce social disparities

Woolf, S; Potential Health and Economic Consequences of Misplaced Priorities, JAMA (2/7/07)

“Potential Health and Economic Consequences of Misplaced Priorities

Why do we have misplaced priorities and irrational allocation of resources?

Competing priorities and tensions “pit two prevailing ethics against each other American individualism vs

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ethics against each other – American individualism vsthe utilitarian commitment to the common good – and the resulting deadlock has, for years, mired the status quo in place.”

Woolf, S; Potential Health and Economic Consequences of Misplaced Priorities, JAMA (2/7/07)

What are the implications for you?

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5: Case Discussion

Health Care Industry

Consumer$$$

S P

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Payer

Provider

Supplier

$$$$$$

Product

Service

Product

Consumer/P i

SupplierPharmaceuticals,

$$$

Payer 1Sources of Payment

Government, Employers, Individuals

Payer 2Intermediaries

$$$

GovernmentPlanning, Regulation,

Funding (research & ed)

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Patients

ProviderHospitals,

Physicians, Nursing Homes, Surgi‐Centers, Home Health

Care, Pharmacies

Biotech,Medical Devices, Health IT

$$$

ProductsService

Product

Medicare, Medicaid, Insurance Companies

$$$

Hospitals - Organizational Types

• Not-for-profit hospitals & HC organizations– Legally dedicated to the collective good– Community Board of Trustees– Hold assets, including accumulated profits, in trust for

the citizens of the communityD f d l fi

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– Do not pay federal taxes on profits• For-profit hospitals & HC organizations

– Legally responsible to shareholders– Have the right to distribute profits to shareholders– Pay federal taxes on profits

• Governmental hospitals and HC organizations– Veterans Affairs– Uniformed Services

Hospitals

• 5,800 Hospitals – Employ 5.1 million– 61% NFP: 71% beds, 74% admissions, 75% expenses

• Established for common good– 15% FP: 13% beds, 12% admissions, 9% expenses

• Owned by private corporations, allowed to distribute profits

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profits– 24% Gov: 16% beds, 14% admissions, 16% expenses

• Owned by federal, state or local governments• Most hospitals are small

(46% < 100 beds, 70% < 200 beds)• Most admissions occur in larger hospitals

(10% <100 beds, 30% <200 beds)

Other health care settings

• Provider offices• Skilled Nursing Facilities• Home health care• Hospice• Nursing homes

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• Nursing homes• Ambulatory care centers• Surgi-centers • Mobile Imaging• Telemedicine• Alternative Medicine

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5: Case Discussion

Major Trends Shaping Health Care

1. Continuing pressure over financing of health care

2.The impact of an aging population.3.Rising activism among consumers and

providers of health care

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providers of health care.4.Rapid advances in technology.5.Unequal distribution of health care resources

among communities and citizens.6.Recognition of the impact of non-medical

determinants of health.

Health Care Policy Challenge

Quality

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Cost Access

Trust/Morale

Wednesday, September 16, 2009

Insurance Premiums Continue Upward Rise in 2009, New Study Finds

The average family premium for employer-sponsored health insurance increased by 5% in 2009

l i f f il h lth

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The average annual premium for family health coverage is now $13,375,

Colliver, San Francisco Chronicle, 9/16

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September 15, 2009Washington Post

Many Employers to Raise Cost of Health Benefits, Survey Finds

A major business lobby weighed in Tuesday, saying that if current trends continue, annual health-care costs for

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employers will rise 166 percent over the next decade -- to $28,530 per employee.

"Maintaining the status quo is simply not an option," said Antonio M. Perez, chief executive of Eastman Kodak and a leader of the Business Roundtable. "These costs are unsustainable and would put millions of workers at risk,"

Cost Challenge

ParadoxConflict between overall growth in health care costs and providers perception of poor

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costs and providers perception of poor payments

Cost ChallengeComparison of International Spending on Health Care

1980 -2007

44Source: Commonwealth Fund 2009

Cost Challenge

The escalating costs of health care is not the only financial challenge.

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Variation in costs is a significant issue for US health care

Variations in Spending Across RegionsAverage per capita Medicare spending, health care resource levels, and other key attributes of U.S. hospital referral regions according to quintiles of spending.

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Fisher ES, Wennberg D, Stukel TA, et al. The implications of regional variation in Medicare spending, Ann Intern Med. 2003

McAllen, Texas

Variations in spending for patients with severe chronic disease for US News and World Reports top 15 “Honor Roll” Academic Medical Centers

UCLA Medical Center 72,793New York-Presbyterian 69,962Johns Hopkins 60,653

100,000100,000

120,000120,000

g pe

r g

per d

eced

ent

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Johns Hopkins 60,653UCSF Medical Center 56,859Univ. of Washington 50,716Mass. General 47,880Barnes-Jewish 44,463Duke University Hosp. 37,765Mayo Clinic (St. Mary's) 37,271Cleveland Clinic 35,455

20,00020,000

40,00040,000

60,00060,000

80,00080,000

Inpa

tient

+ P

art B

spe

ndin

gIn

patie

nt +

Par

t B s

pend

ing

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Quality/Safety Challenge

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Consumer Reports – March 2010

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Quality/Safety Challenge

Patient Safety• According to the IOM Report entitled, “To Err is Human”,

up to 98,000 people die in hospitals as a result of medical errors which could have been prevented.

• 6-10 percent of hospitalized patients experience adverse

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6 10 percent of hospitalized patients experience adverse drug events (ADE’s).

• CDC estimates that about one in twenty patients gets an infection in U.S. hospitals each year.

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- Dartmouth Atlas, Center for Evaluative Clinical Sciences, Dartmouth College

Access Challenge

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Access To Health Care in the US

• Over 46 million Americans were without health insurance in 2008 according to census bureau.

• Since 2000 the number of uninsured under the age of 65 has grown by six million.

• Employer-sponsored health insurance has decreased by five full t i t i 66 t f th ld l i 2000

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percentage points, covering 66 percent of the non-elderly in 2000, but just 61 percent in 2004.

• Two-thirds of this growth in uninsured adults occurred among the poor or near-poor.

Controversy over what the real number is.

Kaiser Family Foundation

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Uninsured - HigherThe study, commissioned by the consumer health advocacy group Families USA, found 86.7 million Americans were uninsured at one point during the past two years.Among the report's key findings:• Nearly three out of four uninsured Americans were without health insurance for at least six months.• Almost two-thirds were uninsured for nine months or more.• Four out of five of the uninsured were in working families.

Source: Families USA Report , March 2009

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Uninsured - Lower

55 http://keithhennessey.com

How do we fix these problem of cost, quality and access?

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A Philosophical Divide

M k h l h R l i

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Make health care more of a free market

to control costs

Regulate services and prices more to

control costs

Need for RegulationHealth Care Not A Traditional Market System

• Providers have substantial market power.

• Employer’s inability to push efficiency and quality

• The seller determines what the consumer will get; supply drives demand.

• Important health care services are often obtained at a time of personal crisis.

• Consumers have limited, if any, access to information on price or quality.

• Government regulation and programs alter provider behavior.

See: Nichols, et al, “Are Market Forces Strong Enough To Deliver Efficient health Care Systems”

Health Care Needs Market System

• Government regulation and programs alter market incentives

• Need a consumer driven system

• Consumers clout can impact cost and quality

• Put money in the hands of patients

• Remove the middleman in the doctor-patient relationship

• Consumers and physicians will be empowered to make the system work the way it should.

See: R Hertzlinger, Who Killed Health Care

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Rapid City Hospital vs Black Hills Surgery Center

Did Dr Teuber have the right idea?

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5: Case Discussion

Distribution of U.S. Health Care Expenditures by Payer Source 2003

Consumer Out of Pocket13.7%

Medicaid

Other Government12.7%

Total = $1.7 Trillion

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Private Insurance35.8%

Other Private4.8%

Medicare17.0%

Medicaid16.0%

Source: Centers for Medicare and Medicaid

Role of Insurance Plan

• Package benefits• Underwrite Insurance Risk• Administer Claims

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• Negotiate Contracts

Majority of Employer-sponsored health care is self-insured.

What is Insurance

• A mechanism to protect against unpredictable loss

• Basic function is to spread the risk of infrequent large losses over a wide base

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infrequent, large losses over a wide base

Is all of health care unpredictable, infrequent & large?

Insurance Issues• Moral Hazard

– The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.

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• Adverse Selection– The tendency of people with poor health or

expectations of health problems to apply for or continue health coverage to a greater degree than people in better health or with expectations of better health.

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Why do we have employer based health insurance in US?

• Health insurance was started to distribute risk.• Initially, started by providers• Expansion in the 1920s and 30s

(development of BC in 1929 Baylor Hospital

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(development of BC in 1929 Baylor HospitalBS started by Cal Med Society).

• During WWII, wage freezes were in effect. Employers used health insurance to persuade employees to work for them. This is why employers pick up most health care insurance costs.

• Health insurance benefits not taxable

Employers Pay The Greatest Percentage Of Insurance Costs

• Most who work for large firms are covered– It costs more for small firms

• Higher risk businesses• Small risk pool

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Small risk pool• Part-time or contingent work force• Less potential to self-fund

• Health insurance is a huge cost to business– Businesses are putting on pressure to cut costs

Employer-sponsored Insurance

“Employers face a fundamental problem: they lack the clout in most markets to affect providers behavior through the devices they are currently using.”

“It is likely that employer-sponsored insurance…will

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y p y ppersist for some time in the US but its role will steadily diminish…accompanied by incremental increases in the role of government.”

Blumenthal, Employer-Sponsored Insurance-Riding the Health Care Tiger, NEJM, 7/13/06

Government PayorsMedicare & Medicaid

Medicare• A federal health insurance program for people aged 65 and

over, for people eligible for social security disability payments, and for individuals who need kidney transplantation or dialysis.

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Medicaid• A federally aided, state-operated and administered program

which provides medical benefits for certain indigent or low-income persons in need of health and medical care.

2008 HHS Poverty GuidelinesPersonsin Family or Household

48 ContiguousStates and D.C. Alaska Hawaii

1 $10,400 $13,000 $11,9602 14,000 17,500 16,1003 17,600 22,000 20,2404 21 200 26 500 24 380

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4 21,200 26,500 24,3805 24,800 31,000 28,5206 28,400 35,500 32,6607 32,000 40,000 36,8008 35,600 44,500 40,940

For each additionalperson, add 3,600 4,500 4,140

SOURCE: Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971–3972

Dartmouth-Hitchcock

PRIMARY DRIVERS OF INPATIENT NET REVENUE

Fee For Service Gross Charges ($) Discount Rate (%) $

V O L U M E R A T E NET REVENUE

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Per Diem Day Payment / Day $

Per DRG Discharge X Payment / Discharge X = $

Case Weight (CMI)

Capitation Covered Lives Per Member Per Month $(PMPM)

10/01/01

13

Reimbursement IncentivesOver-treatment Vs Under-treatment

Tests Days AdmissionsFee for Service

Per Diem

Per Episode (DRG)

Capitation

Reimbursement IncentivesOver-treatment Vs Under-treatment

Tests Days Admissions

Fee for Service + + +

Per Diem - + +

Per Episode - - +(DRG)

Capitation - - -

Finances: Difference Between Charges & Payments Cost Shifting

The allocation of unpaid costs of care delivered to one patient population through above-cost revenue collected from other patient populations.For hospitals, nursing facilities and physicians, the historical cause of cost shifting has been below-cost reimbursement rates paid by public programs and uncompensated care losses due to charity care and bad debt.

Figure 1: Revenue Structure of a Health Care Provider

100%110%120%130%140%150%160%170%

aid

Medicaid7%

If all payers pay 100% of COST, then the provider will break even.(If all pay 104% of cost, the provider will have a 4% operating margin)

Hospital Cost Shifting

0%10%20%30%40%50%60%70%80%90%

100%

% of Gross Charges by Payer

% o

f Cos

t Pa

Insurance45%

Self-Pay7%

Medicare41%

0% 100%

Revenue Structure of a Health Care Provider

100%110%120%130%140%150%160%170%

Paid

Revenue above 100%

Shortfalls

0%10%20%30%40%50%60%70%80%90%

% of Gross Charges by Payer

% o

f Cos

t P

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

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Governor Lynch details 'painful' cuts to budgetPlan quickly okayed; more on the way

“Gov. John Lynch yesterday unveiled $50.2 million in "painful" cuts to this year's budget, aimed at making up for expected revenue shortfalls. Legislators quickly approved the plan.

The widespread cuts mean that for the next four months, the state will p ,pay hospitals roughly one-third less for caring for low-income Medicaid patients, saving $7 million. An anti-cancer program will get $250,000, a fraction of its original $2 million budget, providing for hundreds fewer disease screenings. The Medicaid rate cuts were particularly difficult, because the $7 million cut in state funding means a loss of $7 million in federal matching funds, creating a $14 million hole in the Medicaid budget.”

Concord Monitor, February 23, 2008

Hospital Care30.7%

Other19.7%

Distribution of U.S. Health Care Expenditures by Category

Total = $1.7 Trillion

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Physician Services22.0%

Other Professional10.3%

PrescriptionDrugs10.7%

Nursing Home6.6%

Source: Centers for Medicare and Medicaid

DARTMOUTH-HITCHCOCKTOTAL BUDGETED EXPENSE BY CATEGORY

OTHER9%BAD DEBT

EXPENSE4%

OCCUPANCY 4%

PROFESSIONAL

SALARIES + BENEFITS

62%

PROFESSIONAL LIABILITY

2%

DEPRECIATION & INTEREST

5%

MEDICAL SUPPLIES &

MEDICATIONS14%




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5: Case Discussion

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Financial Situation

• Demand for services growing rapidly.• Growth in patient volume did not translate into

operating margin improvement. An adequate operating margin is critical to funding new program and capital investment.

• While managing costs has been challenging, expense growth is not the major driver of DHMC’s difficulty in producing an adequate margin.

• The primary challenge is on the revenue side related to Payer Mix and Clinical Program Mix

Strategic & Financial Issues• In addition to volumes the most significant trends

affecting a health care organization’s financial performance are– Minimal payment rate increase – Payer mix– Clinical program mixClinical program mix

• The underlying financial performance of different clinical programs has the most significant impact on financial performance.

• Strategic decisions regarding clinical program mix is be critical to financial health

• We will review impact of payer mix and program mix on provider finances.

1. Payor Mix2. Clinical Program Mix

Dartmouth-HitchcockSHARE OF GROSS REVENUE and OPERATING LOSS

Combined MEDICARE & MEDICAID (NH + VT)

SHARE OF GROSS REVENUE

40.9% 40.3% 41.6% 41.3% 43.1% 43.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

OPERATING GAIN (LOSS) (in Millions)

0.0%01 02 03 04 05 06

($33.6)($42.0)

($53.5)

($67.1)

($77.9)

($89.1)($100.0)

($80.0)

($60.0)

($40.0)

($20.0)

$0.001 02 03 04 05 06

OPERATING GAIN (LOSS) (in Millions)

$40.0

$60.0

$80.0

$100.001 02 03 04 05 06

($60.0)

($40.0)

($20.0)

$0.0

$20.0

Combined Medicaid Medicare All Other Total Operating Margin

DARTMOUTH-HITCHCOCK MEDICAL CENTERBasic Model for Revenue Impact of 6% Expense Increase

(on a per unit basis)

Net Revenue Charge50% Government 0%50% All Other 6%

Overall Average 3%Expenses(Excluding new space, tails, etc.) 6%(Excluding new space, tails, etc.) 6%Shortfall (3%)

3% on $800 million = ($24 million)

Under this scenario how much do you have to increase charges to private payorsto cover a 6% expense increase?

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Payor Mix Summary

• There is great disparity in how DHMC is paid for the care it provides. Payments range from:– A high of a 74% of charges average for private pay

indemnity contracts– A low of a 27% of charges average for Medicaid

• To demonstrate the sensitivity of revenue stream to payor mix, if all of DHMC’s services were paid:– At the indemnity average of 74% DHMC would have net

revenue of $888 million– At the Medicaid average of 27% DHMC would have net

revenue of $324 million

Payer Mix Summary

• Payer mix trend was negative. Over the four years:– The payer mix for best payer category (indemnity

contracts) decreased 23%– The payer mix for worst payer category (Medicaid) has

increased 24%

• The impact of this trend was a net revenue reduction of approximately $14 million or an amount equivalent to a 2.0% operating margin.

DHMC: Overall Impact of Payor Mix on Net Revenue FY01 to FY05 ($ in 000s)

Est. FY05 Margin UsingPayor Mix FY01 FY05

FY 2001 FY 2005 Change Payor Mix Payor Mix Change

Medicare 38.9% 36.9% -2.0% ($51,116) ($48,428) $2,688Medicaid 8.7% 10.7% 2.1% ($23,602) ($29,166) ($5,564)Managed 20.0% 24.4% 4.4% $7,865 $9,608 $1,744Indemnity 32.4% 28.0% -4.4% $79,761 $66,189 ($13,572)

100% 100% 0% $12,908 ($1,796) (14,704)$

1. Payor Mix2. Clinical Program Mix

Qualifications:Several years old but concepts still validRepresents financial analysis not organizational valueDoes not take into consideration inter-dependencies

Clinical Program Mix

Qualifications:Several years old but concepts still validRepresents financial analysis not organizational valueDoes not take into consideration inter-dependencies

DH-Academic Medical CenterClinical Program Margin

FY2005 (000's Omitted)

($1,000)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

($6,000)

($5,000)

($4,000)

($3,000)

($2,000)

Cardiol

ogy

Orthopa

edics

Radiat

ion O

ncolo

gy

Genera

l Surg

ery

Hemato

logy/O

ncolog

y

Neuros

urgery

Plastic

Surg

ery

Urolog

y

Gastro

enterol

ogy

Vascu

lar Surg

ery

Neurol

ogy

Otolary

ngolo

gy

Ophtha

lmolo

gy

Dermato

logy

Neona

tolog

y

Psych

iatry

GIM (in

cl. Ly

me Rd)

Ob/Gyn

Pediat

rics,

excl. N

eona

tolog

y

17

DH-Academic Medical CenterClinical Program Margin as a Percent of Net Revenue

FY2005

(10%)

0%

10%

20%

30%

40%

(50%)

(40%)

(30%)

(20%)

Radiat

ion O

ncolo

gy

Plastic

Surg

ery

Cardiol

ogy

Neuros

urgery

Urolog

y

Orthopa

edics

Genera

l Surg

ery

Gastro

enterol

ogy

Hemato

logy/O

ncolog

y

Otolary

ngolo

gy

Vascu

lar Surg

ery

Neurol

ogy

Ophtha

lmolo

gy

Dermato

logy

Neona

tolog

y

GIM (in

cl. Ly

me Rd)

Ob/Gyn

Pediat

rics,

excl. N

eona

tolog

y

Psych

iatry

Conceptual Illustration of Program Mix Base Scenario

Base ScenarioContribution

Volume Margin % Discharges Margin per Discharge

High Margin Sections:

Cardiology 29% 2,987 $13,784,545 $4,615

Ortho 17% 1,749 $11,680,441 $6,678

46% 4,736 $25,464,986 $5,377, , , ,Low/Negative Margin Sections:

OB/GYN 21% 2,130 $1,486,663 $698

Pediatrics 25% 2,565 ($1,389,955) ($542)

Psych 9% 917 ($2,138,391) ($2,332)

54% 5,612 ($2,041,683) ($364)

Overhead ($21,697,718)

Operating Margin 100% 10,348 $1,725,586

Conceptual Illustration of Program Mix Improved Program Mix

Base Scenario Improved Program MixContribution

Volume Margin Volume% Discharges Margin per Discharge % Discharges Margin

High Margin Sections:

Cardiology 29% 2,987 $13,784,545 $4,615 34% 4,092 $18,884,827

Ortho 17% 1,749 $11,680,441 $6,678 20% 2,396 $16,002,204

46% 4,736 $25,464,986 $5,377 54% 6,488 $34,887,031Low/Negative Margin Sections:

OB/GYN 21% 2,130 $1,486,663 $698 18% 2,130 $1,486,663

Pediatrics 25% 2,565 ($1,389,955) ($542) 21% 2,565 ($1,389,955)

Psych 9% 917 ($2,138,391) ($2,332) 8% 917 ($2,138,391)

54% 5,612 ($2,041,683) ($364) 46% 5,612 ($2,041,683)

Overhead ($21,697,718) ($21,697,718)

Operating Margin 100% 10,348 $1,725,586 100% 12,100 $11,147,631

Impact of change in program mix is a $9.5 million improvement in Op Margin

Conceptual Illustration of Program Mix Statement of Operations

Base ImprovedScenario Program Mix

Net Revenue $145,983,323 $173,609,323

Expenses, excluding overhead ($122,560,019) ($140,763,974)

Contribution Margin $23,423,304 $32,845,349

Overhead ($21,697,718) ($21,697,718)

Operating Margin - $ $1,725,586 $11,147,631

Operating Margin - % 1% 6%

Impact of change in program mix is a $9.5 million improvement in Op Margin

Conceptual Illustration of Program Mix Payor Mix

DHMCAverage Cardiology Orthopaedics OB-GYN Pediatrics Psychiatry

Medicare 37% 55% 34% 12% 0% 39%Medicaid 11% 5% 9% 14% 40% 15%Anthem 18% 12% 17% 29% 28% 12%VT Blue Cross 6% 6% 9% 9% 3% 6%CIGNA 7% 7% 6% 10% 10% 5%Other 16% 11% 20% 21% 18% 14%Self Pay/Charity 5% 4% 5% 5% 1% 9%

Total 100% 100% 100% 100% 100% 100%

A Provider’s Dilema

• Program mix and payer mix are both important components of long term financial success

• Program mix and payer mix are integrally linked and can not be viewed independently

• Decisions regarding clinical programs raise important question about organization mission, academic programs, meeting patient needs, and public policy challenges

• The dilemma is that a number of clinical programs meet important patient needs, are valued by the community and support the organization’s mission but have very poor financial performance.

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5: Case Discussion

Pediatric Endocrinology Case Discussion

1. What important strategic questions or issues does this case raise?

2. What financial and operational considerations should be exploredbe explored

3. Do you approve this request for an additional Pediatric Endocrinologist? What are the factors that led to your decision?

A SuggestionContract with Society 2010

I would ask each HSP group to develop by the end of the course a "Contract with Society." Each group should discuss and identify as group what each member will specifically do as residents to improve access, cost and quality.

HSP Group Contract• As residents next year we will act to improve access by:• As residents next year we will act to improve cost by:• As residents next year we will act to improve quality by:

HSP Presentation 2 2-2-10 Gardent - Dartmouth …cfm404/Gardent HSP Presentation 2-2-10...2...

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