BETTER WAYS TO PAY RURAL HOSPITALS & PHYSICIANS … · Under Current Payment Systems 87 Rural...

BETTER WAYS TO PAYRURAL HOSPITALS & PHYSICIANS

Creating Value-Based PaymentsThat Work in Rural Communities

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

www.CHQPR.org

2© Center for Healthcare Quality and Payment Reform www.CHQPR.org

Many Rural Hospitals Are Closing

Under Current Payment Systems

87 Rural Hospital Closures: 2010 - 2018


Will Value-Based Payments

Make Things Worse or Better?

• Pay for Performance Programs

– Hospital Value-Based Purchasing

– Merit-Based Incentive Payment System

• Alternative Payment Models

– Shared Savings/Accountable Care Organizations

– Comprehensive Primary Care Plus,

Patient Centered Medical Home

– Bundled Payments for Care Improvement

– Comprehensive Care for Joint Replacement

– Oncology Care Model

– Comprehensive ESRD Care


Value-Based Payment Focus:

Unnecessary/Avoidable Spending

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME


Avoidable Spending Occurs

In All Aspects of Healthcare

NECESSARYSPENDING

AVOIDABLESPENDING

$

CANCER TREATMENT• Use of unnecessarily-expensive drugs• ER visits/hospital stays for dehydration and avoidable complications

• Fruitless treatment at end of life

SURGERY• Unnecessary surgery• Use of unnecessarily-expensive implants• Infections and complications of surgery• Overuse of inpatient rehabilitation

CHRONIC DISEASE• ER visits for exacerbations• Hospital admissions• Hospital readmissions

MATERNITY CARE• Unnecessary C-Sections• Early elective deliveries• Underuse of birth centers• Complications of delivery


Institute of Medicine Estimate:

30% of Spending is Avoidable


The Goal: Less Avoidable $,

NECESSARYSPENDING

AVOIDABLESPENDING

$

TIME

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING


The Goal: Less Avoidable $,

More Necessary $

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING


Win-Win for Patients & Payers

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME

SAVINGSSAVINGS SAVINGS

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING

BetterCarefor

Patients

LowerSpending

forPayers


Current “Value-Based Payments”

Create a Win-Lose for Hospitals

NECESSARYSPENDING

AVOIDABLESPENDING

$

CURRENTVALUE-BASED

PAYMENTSYSTEMS NECESSARY

SPENDING

SAVINGS

AVOIDABLESPENDING


Most of the Avoidable Spending

Represents Hospital Revenues

NECESSARYSPENDING

AVOIDABLESPENDING

$

CANCER TREATMENT• Use of unnecessarily-expensive drugs• ER visits/hospital stays for dehydration and avoidable complications


SURGERY• Unnecessary surgery• Use of unnecessarily-expensive implants• Infections and complications of surgery• Overuse of inpatient rehabilitation

CHRONIC DISEASE• ER visits for exacerbations• Hospital admissions and readmissions• Amputations, blindness

MATERNITY CARE• Unnecessary C-Sections• Early elective deliveries• Underuse of birth centers• Complications of delivery


Revenue from Avoidable Services

Helps Cover Cost of Services

$

COSTOF

SERVICEDELIVERY

MARGINREVENUE

FROMAVOIDABLESERVICES

REVENUEFROM

NECESSARYSERVICES


…Many Costs Are Fixed,

At Least in the Short Run

$

FIXEDCOST

OFSERVICE

DELIVERY

MARGIN

VARIABLECOST OF

SERVICES

REVENUEFROM

AVOIDABLESERVICES

REVENUEFROM

NECESSARYSERVICES


When Avoidable Services Are

Reduced, Revenue Decreases…

$

REVENUEFROM

NECESSARYSERVICES

FIXEDCOST

OFSERVICE

DELIVERY

MARGIN

VARIABLECOST OF

SERVICES

Reductionin

Revenue

REVENUEFROM

NECESSARYSERVICES

REVENUEFROM

AVOIDABLESERVICES


…Costs Decrease,

But Not As Much as Revenue…

$

FIXEDCOST

OFSERVICE

DELIVERY

MARGIN

Fixed Costs of ServicesRemain When Volume Decreases

FIXEDCOST

OFSERVICEDELIVERY

VARIABLECOST OF

SERVICESVARIABLE

COST

AVOIDED COST

REVENUEFROM

NECESSARYSERVICES

REVENUEFROM

AVOIDABLESERVICES

REVENUEFROM

NECESSARYSERVICES


…Leaving Hospitals With Losses

(or Bigger Losses Than Today)

$

REVENUEFROM

NECESSARYSERVICES

FIXEDCOST

OFSERVICE

DELIVERY

MARGIN

LOSS

Fixed Costs of ServicesRemaining When Volume Decreases

Causes Financial Losses

FIXEDCOST

OFSERVICEDELIVERY

VARIABLECOST OF

SERVICESVARIABLE

COST

AVOIDED COST

REVENUEFROM

NECESSARYSERVICES

REVENUEFROM

AVOIDABLESERVICES


Avoidable Chronic Disease Admits

Are a Small % at Large Hospitals

LARGEHOSPITALS


Avoidable Chronic Disease Admits

Are a Large % at Small Hospitals

SMALLHOSPITALS

LARGEHOSPITALS

Most Current

Alternative Payment Models

Are Designed for

Large Health Systems

or Providers in Urban Areas

Not Rural Communities


Rural Counties Aren’t Big Enough

to Create a Medicare ACO

Minimum of 5,000 Medicare FFS Beneficiaries Needed to Form an ACO

58% ofCounties


Will Proposed Solutions for

Rural Hospitals Work?

• Subsidies if Rural Hospitals Eliminate Inpatient Services

• “Global Budget” for Rural Hospitals


Analysis of 13 Financially

Vulnerable CAHs in WA State


Public Hospital Districts Serving

Small, Isolated Rural Communities

HospitalPopulation

ServedED

Visits/Day

AverageAcute

CensusClinic

Visits/Day

Odessa Memorial Hospital 1,498 1 0.2 14

Garfield County Hospital 2,252 2 0.2 13

East Adams Rural Healthcare 4,007 4 0.3 15

Ferry County Memorial Hospital 5,141 5 0.7 37

Dayton Hospital 5,572 4 0.8 41

Morton General Hospital 9,508 14 2.8 37

Forks Community Hospital 9,640 16 3.3 74

Willapa Harbor Hospital 9,652 11 2.7 22

Cascade Medical Center 9,881 9 1.1 57

North Valley Hospital 11,474 14 3.5 6

Columbia Basin Hospital 12,557 13 1.3 55

Three Rivers Hospital 15,531 10 2.7 1

Mid-Valley Hospital 15,496 26 9.4 44


Significant, Persistent

Financial Losses


Losses Covered by Local Taxes,

Highest Rates in Smallest PHDs


Travel Times Would Increase

20-60 Minutes if Hospital Closed





– MedPAC June 2016 Recommendations• Subsidy for 24/7 ED if hospital ends inpatient services & cost-based pmt

– Rural Emergency Medical Center Act of 2018• No acute inpatient services

• Facility fee + OPPS for emergency services

• 105% of ambulance payments for emergency transport

• 110% of SNF payments for extended care



Would Rural Hospitals Be Better

Off Without Inpatient Services?

$

OutpatientServices

Costs

TotalHospitalRevenue

LossInpatientServices

Costs

OutpatientServices

Costs

InpatientServices

Costs

?


Most Rural Hospitals Will Be

Worse Off Without Inpatient Svcs

$


Loss


Higher

Loss

InpatientServices

Costs

OutpatientServices

CostsOutpatientServices

Costs

InpatientServices

Costs


Payers May Not Save

Very Much, Either

$


Loss


Higher

Loss

TotalPayer

Spending

InpatientServices

CostsPayer Savings

OutpatientServices

CostsOutpatientServices

Costs

InpatientServices

Costs


Are Inpatient Services the Cause

of Rural Hospital Deficits?

$

AncillaryCosts


Loss

ClinicCosts

EDCosts

InpatientCosts


Inpatient Services Aren’t

Profitable at Small Hospitals

$

Inpatient

InpatientCostInpatient

Revenue

Loss


Rural Hospitals Lose More Money

on Their Emergency Departments

$

Inpatient ED


Revenue EDCostED

Revenue

Loss

Loss


Rural Hospitals Lose More Money

on their Clinics (RHC or Other)

$

Inpatient ED Clinic


Revenue EDCostED

Revenue

ClinicCost

ClinicRevenue

Loss

Loss

Loss


The One Thing That Helps Float

the Boat is Ancillaries (Lab/Rad)

$


Revenue EDCostED

Revenue

ClinicCost

ClinicRevenue

AncillaryCost

AncillaryRevenue

Inpatient ED Clinic Ancillary

Loss

Loss

Loss

Profit


All of These Service Lines

Are Interdependent

$


Revenue EDCostED

Revenue

ClinicCost

ClinicRevenue

AncillaryCost

AncillaryRevenue


Loss

Loss

Loss

Profit


Inpatient Services Shares

Nurses With the ED

$

CostInpatientRevenue

Inpatient ED

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

CostED

Revenue

Loss

Clinicians

(May Be

Shared

with

Clinic)

CentralAdmin.Costs

Nurses& NAs

(Shared)


The Smallest EDs Share

Clinicians With the Clinic

$


CostED

Revenue

Inpatient ED

Loss

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

Clinicians

(May Be

Shared

with

Clinic)

CentralAdmin.Costs

Nurses& NAs

(Shared)Cost

ClinicRevenue

Clinic

Loss

CentralAdmin.Costs

Clinicians

(Shared

w/ ED)

ClinicStaff


Ancillary Services Are Used for

Inpatient, ED, & Clinic Patients

$


CostED

RevenueCost

ClinicRevenue

Cost

AncillaryRevenue


Loss

Loss

Loss

Profit

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

CentralAdmin.Costs Central

Admin.Costs

CentralAdmin.Costs

Nurses& NAs

(Shared)ClinicStaff Lab

Techs&

OtherStaff

Equip.&

Supplies

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Hospital Overhead Costs

Are Shared by All Service Lines

$


CostED

RevenueCost

ClinicRevenue

Cost

AncillaryRevenue


Loss

Loss

Loss

Profit

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs


Admin.Costs

CentralAdmin.Costs

Nurses& NAs


Techs&

OtherStaff

Equip.&

Supplies

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Inpatient Services Includes More

Than Just Acute Admissions

$


CostED

Revenue

Cost

ClinicRevenue

Cost

AncillaryRevenue


Loss

Loss

Loss

Profit

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs


Admin.Costs

CentralAdmin.Costs

Nurses& NAs


Techs&

OtherStaff

Equip.&

Supplies

AcuteRevenue

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Inpatient = Acute + SNF + LTC

$

CostRevenue

CostED

RevenueCost

ClinicRevenue

Cost

AncillaryRevenue


Loss

Loss

Loss

Profit

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs


Admin.Costs

CentralAdmin.Costs

Nurses& NAs


Techs&

OtherStaff

Equip.&

Supplies

LTCRevenue

SNFRevenue

AcuteRevenue

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Without Acute Patients,

Inpatient Losses Would Be Higher

$

Cost

Revenue

CostED

RevenueCost

ClinicRevenue


Loss

Loss

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs


Admin.CostsNurses

& NAs(Shared)

ClinicStaff

LTCRevenue

SNFRevenue

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)

Cost

AncillaryRevenue

Ancillary

Profit

CentralAdmin.Costs

LabTechs

&OtherStaff

Equip.&

Supplies


Without Acute Patients,

Ancillary Profits Would Be Lower

$

Cost

Revenue

CostED

RevenueCost

ClinicRevenue

CostAncillaryRevenue


Loss

Loss

Loss

Profit

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs


Admin.Costs

CentralAdmin.Costs

Nurses& NAs


Techs&

OtherStaff

Equip.&

Supplies

LTCRevenue

SNFRevenue

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


AcuteRevenue

What If Inpatient Services

Were Eliminated Entirely?

$

CostED

RevenueCost

ClinicRevenue


ED Clinic Ancillary

Loss

Loss

Profit


Admin.Costs

CentralAdmin.Costs

Nurses& NAs


Techs&

OtherStaff

Equip.&

Supplies

Inpatient

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)

LTCRevenue

SNFRevenue


The ED Could No Longer Share

Nursing Costs with Inpatient

$

Cost

EDRevenue

Cost

ClinicRevenue


Loss

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

Nurses& NAs

ClinicStaff

Nurses& NAs


Profit

CentralAdmin.Costs

LabTechs

&OtherStaff

Equip.&

Supplies

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Other Service Lines Couldn’t

Share Overhead With Inpatient

$

Cost

EDRevenue

Cost

ClinicRevenue

Cost


Loss

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

Nurses& NAs

ClinicStaff Lab

Techs&

OtherStaff

Equip.&

Supplies

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

Nurses& NAs Ancillary

Revenue

Loss

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


Revenue from Ancillary Services

Would Decrease

$

Cost

EDRevenue

Cost

ClinicRevenue

Cost


Loss

Loss

Nurses&

NurseAssts

(SharedwithED)

Other

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

Nurses& NAs

ClinicStaff Lab

Techs&

OtherStaff

Equip.&

Supplies

CentralAdmin.Costs

CentralAdmin.Costs

CentralAdmin.Costs

Nurses& NAs

AncillaryRevenue

Loss

Clinicians

(Shared

w/ ED)

Clinicians

(May Be

Shared

with

Clinic)


In Sum: Every Other Service Line

Would Have Bigger Losses

$

EDCost

EDRevenue

ClinicCost

ClinicRevenue

AncillaryCost


ED

Loss

Clinic

LossAncillaryRevenue

Ancill.

Loss


That’s Why the Hospital As a

Whole Would Be Worse Off

$

AncillaryCost


Loss

ClinicCost

EDCost

InpatientCost

AncillaryCost

LowerTotal

HospitalRevenue

Higher

Loss

ClinicCost

EDCost

InpatientCost


Would Payers Save Money?

$

AncillaryCost


Loss

ClinicCost

EDCost

InpatientCost

AncillaryCost

LowerTotal

HospitalRevenue

Higher

Loss

ClinicCost

EDCost

PayerSpending

onRural

HospitalServices

InpatientCost

PayerSavings?


The Inpatients Still Need Care

Somewhere & That Costs Money

$

Paymentsfor Acute& SNF PtsElsewhere

AncillaryCost


Loss

ClinicCost

EDCost

InpatientCost

AncillaryCost

LowerTotal

HospitalRevenue

Higher

Loss

ClinicCost

EDCost

PayerSpending

onRural

HospitalServices

InpatientCost


So the Savings Will Be Much

Smaller Than They Might Seem

$

Paymentsfor Acute& SNF PtsElsewhere

AncillaryCost


Loss

ClinicCost

EDCost

InpatientCost

AncillaryCost

LowerTotal

HospitalRevenue

Higher

Loss

ClinicCost

EDCost

PayerSpending

onRural

HospitalServices

InpatientCost

Payer Savings


10 CAHs Analyzed, Ranging from

0.3 – 10.0 Acute Patients/Day


Many of the Hospitals Had More

SNF Patients Than Acute Patients


Half Had Large Numbers of

Long-Term Nursing Patients


The “Smallest” Hospitals Actually

Had the Most Total Inpatients


Almost All Hospitals

Were Losing Money Overall


Every Hospital Would Do Worse If

Inpatient Services Were Ended






– Maryland All-Payer Rate Regulation/Total Patient Revenue System• CMMI-Maryland All-Payer APM

• CMMI-Maryland Total Cost of Care Model

– CMMI-Pennsylvania Rural Health Model (not yet in operation)


CostsRevenue

Would Rural Hospitals Be Better

Off With a “Global Budget?”

$

Loss

GlobalBudget

?


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

The Underlying Premise:

Hospitals Deliver Avoidable Svcs

$

Avoid-able

Costs

Profit

Year 0


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoid-able

Costs

Reducing Avoidable Services

Cuts Revenue More Than Cost

$

LossAvoid-able

Costs

Profit

Year 0 Year 1


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoid-able

Costs

CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-able

Avoid-able

Losses Increase When Fewer

Avoidable Services Are Delivered

$

LossLossAvoid-

ableCosts

Profit

Year 0 Year 1 Year 2

CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Loss

Year 3


Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

GlobalBudget

Under a Global Budget…

$

Year 0 Year 1


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

CostsOf

Neces-sary

Services

GlobalBudget

Avoid-able

Costs

Revenue Does Not Decrease

With Fewer Avoidable Services

$

ProfitAvoid-able

Costs

Profit

Year 0 Year 1


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

CostsOf

Neces-sary

Services

GlobalBudget

Avoid-able

Costs

CostsOf

Neces-sary

Services

Avoid-able

CostsOf

Neces-sary

Services


Increases Hospital Profits…

$

Profit

GlobalBudget

Profit

GlobalBudget

ProfitAvoid-able

Costs

Profit

Year 0 Year 1 Year 2 Year 3


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

CostsOf

Neces-sary

Services

GlobalBudget

Avoid-able

Costs

CostsOf

Neces-sary

Services

Avoid-able

CostsOf

Neces-sary

Services

Allowing Global Budget to Be

Reduced to “Share Savings”

$

Profit

GlobalBudget

Profit

GlobalBudget

Profit

SavingsAvoid-able

Costs

Profit



CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

Avoid-able

Costs

Large Hospitals Look Like This…

$

Profit

LargeHospitals

• Hospitals HavePositive OperatingMargins

• Many AvoidableServices

• Not All Costs AreFixed

• Costs Are FairlyStable Year-to-Year


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Pmtsfor

Avoid-ableSvcs

Avoid-able

Costs

…But Small Rural Hospitals Are

Starting From a Different Place

$

Profit

LargeHospitals

CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

AvoidableLoss

RuralHospitals

• Hospitals Are Operating WithLosses, Not Profits

• Fewer AvoidableServices

• A Higher Proportionof Costs Are Fixed

• Costs Are HighlyVariable


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable

Costs at Small Hospitals Can

Change Significantly Year-to-Year

$

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

Loss


RuralHospitals


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable

Costs at Small Hospitals Can

Change Significantly Year-to-Year

$

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

Loss


RuralHospitals

REASONS FOR YEAR-TO-YEARVARIATIONS IN COST INCLUDE:

• Long delays in filling vacant positions

• High costs of locum tenens physicians andtemporary staff

• Maintenance problems with outdated equipment and facilities

• Requirements for upgrading technology


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable

Cost-Based & Visit-Based

Payments Help Cover Costs

$

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Loss

Loss Loss


RuralHospitals


Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

The “Global Budget” is Supposed

to Start With Current Revenue…

$

GlobalBudget

Year 0 Year 1


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable

…But If Current Revenue Doesn’t

Cover Costs, It’s Not a Solution

$

CostsOf

Neces-sary

Services

Loss Loss

GlobalBudget

Year 0 Year 1

Avoidable


CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable

If Costs Increase But Global

Budget Doesn’t, Losses Increase

$

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

CostsOf

Neces-sary

Services

Avoidable

Loss

Loss Loss

GlobalBudget

Loss

GlobalBudget

GlobalBudget



CostsOf

Neces-sary

Services

Pmtsfor

Neces-sary

Services

Avoid-ableSvcs

Avoidable


Doesn’t Reduce Costs Very Much

$

CostsOf

Neces-sary

Services

CostsOf

Neces-sary

Services

CostsOf

Neces-sary

Services

LossLoss Loss

GlobalBudget

Loss

GlobalBudget

GlobalBudget



Example: 13 CAHs Ranging

From $5M - $30M Annual Cost


Losses Range from 4%-26%

(Not the same order

as the previous slide)


Change in Total Cost

2013-2014


Changes in Total Cost

2013-2014, 2014-2015


Changes in Total Cost

2013-14, 2014-15, 2015-16


Cumulative Change in Cost

2013-2016


Changes in Margin with a

Simulated Global Budget: 2014



Global Budget: 2014-15



Global Budget: 2014-16


Most Hospitals Would Be Worse

Off With a Global Budget


Higher, More Volatile Changes in

Costs at Smaller Hospitals

Smaller Hospitals

Bigger

Year-to-Year

Changes

in Costs


Global Budgets Haven’t Reduced

“Rural Hospital” Spending in MD


MD: 3 Counties <30K Residents

NM:19 Counties <30K Residents

Maryland New Mexico


MD: 1 County <50 People/SqMi

NM:13 Counties < 5 People/SqMi

MD New Mexico


Maryland Has Highest Hospital

Readmission Rates in U.S.

Maryland

New Mexico


MD: 4th Highest Spending in U.S.

NM: 3rd Lowest Spending in U.S.

Maryland

New Mexico


What Happens If the Budgets

Aren’t Big Enough?


ED Wait Times in Maryland are

2.5 Times as Long as New Mexico

Maryland

New Mexico


Global Budgets Require

Strong Quality Assurance

Is There a Better Way?


Rural Hospitals Deliver 2 Kinds of

Services, But Only 1 is Paid For

• Services delivered to patients – fees for services

• Readiness in case patients need services – no payment


The Hospital Needs to Cover Its

Fixed Costs Regardless of Volume

$

FIXEDCOST

OFESSENTIALSERVICES


Community Residents Should

Pay to Support Those Costs

PAYMENTPER

COMMUNITYRESIDENT

$

FIXEDCOST

OFESSENTIALSERVICES


Community Residents Should

Pay to Support Those Costs

PAYMENTPER

COMMUNITYRESIDENT

$

It’s How We Pay for Other Community Assets:

• Fire Departments

• LibrariesFIXEDCOST

OFESSENTIALSERVICES


Insurers Should Pay For Their

Members Living in the Community

$

Per ResidentPayments

for MedicareBeneficiaries


for MedicaidRecipients


for PrivatelyInsured

FIXEDCOST

OFESSENTIALSERVICES


Additional Costs Are Incurred

Based on the Volume of Services

PAYMENTSFROM

INSURERSFOR EACHMEMBERLIVINGIN THE

COMMUNITY

$

VARIABLECOST OF

SERVICES

FIXEDCOST

OFESSENTIALSERVICES


FEES FORSERVICES

Charge (Smaller) Fees

to Cover the Additional Costs

PAYMENTSFROM


COMMUNITY

$

VARIABLECOST OF

SERVICES

MARGIN

FIXEDCOST

OFESSENTIALSERVICES


Some of Those Fees Will Be

for Avoidable Services

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

VARIABLECOST OF

SERVICES

FEES FORNECESSARYSERVICES

MARGIN

FIXEDCOST

OFESSENTIALSERVICES


What Happens If Avoidable

Services Are Eliminated?

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


FIXEDCOST

OFESSENTIALSERVICES


Fixed Costs Don’t Change

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


Payments From Residents

Don’t Change Either

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


PAYMENTSFROM


COMMUNITY

FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


Variable Costs Decrease When

Fewer Services Are Delivered

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


VARIABLECOST

PAYMENTSFROM


COMMUNITY

FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


Fees for Services Decrease

Proportionally

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


VARIABLECOST

PAYMENTSFROM


COMMUNITY


FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


Leaving the Hospital With a

Positive Margin

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


VARIABLECOST

PAYMENTSFROM


COMMUNITY


MARGIN

FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


Win-Win for Payer & Hospital

PAYMENTSFROM


COMMUNITY

FEES FORAVOID. SVCS

$

MARGIN

VARIABLECOST OF

SERVICES


SAVINGS

VARIABLECOST

PAYMENTSFROM


COMMUNITY


MARGIN

WIN FORPAYER

WIN FORHOSPITAL

FIXEDCOST

OFESSENTIALSERVICES

FIXEDCOST

OFESSENTIALSERVICES


A Simple Financial Model for

an Emergency Department

Visits

4,000

• 10,000 residents of a community served bya single hospital

• 400/1000 of the residents visit the ED annually (4,000 annual visits)




Visits

Insured Visits 3,800

Uninsured Visits 200

Total Visits 4,000



• 5% of visits are uninsured




Visits



Total Visits 4,000

Costs FTEs $ Total $

Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616




• 1 physician on duty 24/7

• 1 nurse/NA on duty




Visits



Total Visits 4,000


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616

Total Costs $2,434,656






• Total annual cost of EDis $2.4 million




VISIT-BASED PAYMENT

Revenues Visits $/Visit Total $

Per Visit Pmts 3,800 $660 $2,508,000

Uninsured Visits 200 $0 $0

Total Revenues 4,000 $2,508,000


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616








• Hospital charges $660 per visit


Assume the Emergency Dept.

Is Covering Its Costs Today

VISIT-BASED PAYMENT

Revenues Visits $/Visit Total $

Per Visit Pmts 3,800 $660 $2,508,000




Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $73,344+3%







• Hospital charges $660 per visit

• 3% operating margin


What Happens if ED Visits

Are Reduced by 15%?

VISIT-BASED PAYMENT DECREASE IN VISITS Chg

Revenues Visits $/Visit Total $ Visits $/Visit Total $

Per Visit Pmts 3,800 $660 $2,508,000 3,230 -15%

Uninsured Visits 200 $0 $0 170

Total Revenues 4,000 $2,508,000 3,400 -15%

Costs FTEs $ Total $ FTEs $ Total $

Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $73,344+3%


Revenues Will Decrease in

Proportion to Reduction in Visits



Per Visit Pmts 3,800 $660 $2,508,000 3,230 $660 $2,131,800 -15%

Uninsured Visits 200 $0 $0 170 $0 $0

Total Revenues 4,000 $2,508,000 3,400 $2,131,800 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $73,344+3%


Fixed Costs (Staffing)

Will Not Change



Per Visit Pmts 3,800 $660 $2,508,000 3,230 $660 $2,131,800 -15%


Total Revenues 4,000 $2,508,000 3,400 $2,131,800 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $73,344+3%


Variable Costs Will Decrease in

Proportion to Visits



Per Visit Pmts 3,800 $660 $2,508,000 3,230 $660 $2,131,800 -15%


Total Revenues 4,000 $2,508,000 3,400 $2,131,800 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616


Margin $73,344+3%


Total Costs Will Decrease, But

Less Than Revenues Decrease



Per Visit Pmts 3,800 $660 $2,508,000 3,230 $660 $2,131,800 -15%


Total Revenues 4,000 $2,508,000 3,400 $2,131,800 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $73,344+3%


The Emergency Department Now

Has Significant Losses



Per Visit Pmts 3,800 $660 $2,508,000 3,230 $660 $2,131,800 -15%


Total Revenues 4,000 $2,508,000 3,400 $2,131,800 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $73,344+3%

($281,856)-12%

-484%


What Happens If

ED Visits Increase by 10%?

VISIT-BASED PAYMENT INCREASE IN VISITS Chg


Per Visit Pmts 3,800 $660 $2,508,000 4,180 +10%


Total Revenues 4,000 $2,508,000 4,400 +10%


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $73,344+3%


Profits for the ED Soar



Per Visit Pmts 3,800 $660 $2,508,000 4,180 $660 $2,758,800 +10%


Total Revenues 4,000 $2,508,000 4,400 $2,758,800 +10%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $110,000 +10%

Indirect (% Dir.) 40% $695,616 40% $699,616

Total Costs $2,434,656 $2,448,656 +0.6%

Margin $73,344+3%

$310,144+13%

+323%


Is It Any Wonder Many Hospitals

Encourage Use of the ER?



Per Visit Pmts 3,800 $660 $2,508,000 4,180 $660 $2,758,800 +10%


Total Revenues 4,000 $2,508,000 4,400 $2,758,800 +10%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $110,000 +10%

Indirect (% Dir.) 40% $695,616 40% $699,616

Total Costs $2,434,656 $2,448,656 +0.6%

Margin $73,344+3%

$310,144+13%

+323%


Is Cost-Based Payment

Better or Worse?

COST-BASED PAYMENT

Revenues

Cost – Hospital


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin


Not All Costs Are Covered

COST-BASED PAYMENT

Revenues Visits $/% Total $

Cost – Hospital1,250

99% $631,347

Clinician Fees $137 $171,810

Total 4,000


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin

• Only the share of costattributable to Medicarepatients (assume 30%)

• Only 99% of costs

• Not all costs are covered

• Clinician time seeing patient isn’t cost-based


Hospital Is Still Paid by the Visit

for Non-Medicare Patients

COST-BASED PAYMENT

Revenues Visits $/% Total $


99% $631,347


Per Visit Pmts 2,550 $670 $1,708,500




Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $77,001+3%

• $670/visit from insured patients needed to coverremaining costs

• Only the share of costattributable to Medicarepatients (assume 30%)

• Only 99% of costs

• Not all costs are covered

• Clinician time seeing patient isn’t cost-based


What Happens When

ED Visits Decrease?

COST-BASED PAYMENT DECREASE IN VISITS Chg

Revenues Visits $/% Total $ Visits $/% Total $


99% $631,3471,063


Per Visit Pmts 2,550 $670 $1,708,500 2,168


Total Revenues 4,000 $2,511,657 3,400 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $77,001+3%


Most Costs are Fixed

and Don’t Change…




99% $631,3471,063


Per Visit Pmts 2,550 $670 $1,708,500 2,168


Total Revenues 4,000 $2,511,657 3,400 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $77,001+3%


…Cost-Based Payment Decreases

Slightly to Match Lower Costs




99% $631,3471,063

99% $643,131 +2%

Clinician Fees $137 $171,810 $137 $146,039 -15%

Per Visit Pmts 2,550 $670 $1,708,500 2,168


Total Revenues 4,000 $2,511,657 3,400


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $77,001+3%


…Visit-Based Payment

Decreases in Proportion to Visits…




99% $631,3471,063

99% $643,131 +2%

Clinician Fees $137 $171,810 $137 $146,039 -15%

Per Visit Pmts 2,550 $670 $1,708,500 2,168 $670 $1,452,225 -15%


Total Revenues 4,000 $2,511,657 3,400


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $77,001+3%


…Total Revenues Decrease

More Than Costs Decrease…




99% $631,3471,063

99% $643,131 +2%

Clinician Fees $137 $171,810 $137 $146,039 -15%

Per Visit Pmts 2,550 $670 $1,708,500 2,168 $670 $1,452,225 -15%


Total Revenues 4,000 $2,511,657 3,400 $2,244,956 -11%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $77,001+3%


…So the Hospital Still Loses Money

With Fewer Visits




99% $631,3471,063

99% $643,131 +2%

Clinician Fees $137 $171,810 $137 $146,039 -15%

Per Visit Pmts 2,550 $670 $1,708,500 2,168 $670 $1,452,225 -15%


Total Revenues 4,000 $2,511,657 3,400 $2,244,956 -11%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $77,001+3%

($172,261)-7%

-324%


…and the Hospital Is Still Better Off

With More ED Visits

COST-BASED PAYMENT INCREASE IN VISITS Chg



99% $631,3471,375

99% $623,490 -1%

Clinician Fees $137 $171,810 $137 $188,991 +10%

Per Visit Pmts 2,550 $670 $1,708,500 2,805 $670 $1,879,350 +10%


Total Revenues 4,000 $2,511,657 4,400 $2,691,831 +7%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $110,000 +10%

Indirect (% Dir.) 40% $695,616 40% $699,616

Total Costs $2,434,656 $2,448,656 0.6%

Margin $77,001+3%

$243,175+10%

+216%


Is There A Better Way?

NEW PAYMENT MODEL

Revenues

? ? ?

? ? ?

? ? ?

? ? ?


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin >0%


The ED Needs to Be Available

Whether Anybody Needs It or Not

NEW PAYMENT MODEL

Revenues Total $

Total Revenues $2,517,500


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $82,844+3%



Per Resident Contribution Needed

Is Less Than Cost of One ED Visit

NEW PAYMENT MODEL

Revenues # $/% Total $

Per Resident 9,500 $265 $2,517,500

Total Revenues $2,517,500


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $82,844+3%


• 95% with insurance

It’s How We Pay for Other Community Assets:

• Fire Departments

• Libraries


Residents Who Use the ED Should

Pay More Than Those Who Don’t

NEW PAYMENT MODEL

Revenues # $/% Total $

Per Resident 9,500 $205 $1,947,500

Per Visit Pmts 3,800 $150 $570,000




Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $82,844+3%


• 95% with insurance

• 400/1000 of the residents visit the ED annually (4,000 visits, 3,800 insured)


What Happens if the Number

of ED Visits is Reduced?

NEW PAYMENT MODEL DECREASE IN VISITS Chg

Revenues # $/% Total $ # $/% Total $

Per Resident 9,500 $205 $1,947,500

Per Visit Pmts 3,800 $150 $570,000 3,230 -15%

Uninsured Visits 200 $0 $0 170 -15%

Total Revenues 4,000 $2,517,500 3,400 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680

Nurses/Staff 4.4 $55 $503,360

Other ($/Visit) $25 $100,000

Indirect (% Dir.) 40% $695,616


Margin $82,844+3%


Costs Don’t Change Much

Because Most Costs Are Fixed…



Per Resident 9,500 $205 $1,947,500

Per Visit Pmts 3,800 $150 $570,000 3,230 -15%

Uninsured Visits 200 $0 $0 170 -15%

Total Revenues 4,000 $2,517,500 3,400 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $82,844+3%


…Visit-Based Revenues Decrease

in Proportion to Visits…



Per Resident 9,500 $205 $1,947,500

Per Visit Pmts 3,800 $150 $570,000 3,230 $150 $484,500 -15%

Uninsured Visits 200 $0 $0 170 $0 $0 -15%

Total Revenues 4,000 $2,517,500 3,400 -15%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $82,844+3%


…Per-Resident Payment Revenue

Doesn’t Change…



Per Resident 9,500 $205 $1,947,500 9,500 $205 $1,947,500 0%

Per Visit Pmts 3,800 $150 $570,000 3,230 $150 $484,500 -15%


Total Revenues 4,000 $2,517,500 3,400


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $82,844+3%


…Total Revenues Decrease

by Only a Small Amount…



Per Resident 9,500 $205 $1,947,500 9,500 $205 $1,947,500 0%

Per Visit Pmts 3,800 $150 $570,000 3,230 $150 $484,500 -15%


Total Revenues 4,000 $2,517,500 3,400 $2,432,000 -3.4%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $82,844+3%


…So Hospital Margin is Preserved



Per Resident 9,500 $205 $1,947,500 9,500 $205 $1,947,500 0%

Per Visit Pmts 3,800 $150 $570,000 3,230 $150 $484,500 -15%


Total Revenues 4,000 $2,517,500 3,400 $2,432,000 -3.4%


Clinicians ($/Hr) 4.2 $130 $1,135,680 4.2 $130 $1,135,680 0%

Nurses/Staff 4.4 $55 $503,360 4.4 $55 $503,360 0%

Other ($/Visit) $25 $100,000 $25 $85,000 -15%

Indirect (% Dir.) 40% $695,616 40% $689,616

Total Costs $2,434,656 $2,413,656 -0.9%

Margin $82,844+3%

$18,344+1%

-78%


Detailed Description of

Payment Model is Available

• Emergency Department Payment– Emergency Department Capacity Payment

– Charges for Individual ED Visits

– Resident Discount on ED Visit Payments

– Performance-Based Payment Adjustments

• Primary Care Clinic Payment– Monthly Comprehensive Primary Care

Services Payment for Enrolled Patients

– Visit-Based Payments for Non-Enrolled Patients

– Performance-Based Payment

• Performance-Based Payment forControl of Total Cost of Care


3 Options for the Future

of Rural Hospitals

RURAL

HOSPITALS



of Rural Hospitals

RURAL

HOSPITALS

PAYER-DEFINED“VALUE-BASED PAYMENT”

SCHEMES#1



of Rural Hospitals

RURAL

HOSPITALS

LOSS OF SOME OR ALL

RURAL SERVICES


SCHEMES#1

#2



of Rural Hospitals

RURAL

HOSPITALS

LOSS OF SOME OR ALL

RURAL SERVICES

PAYMENT MODELSTHAT SUSTAIN

ESSENTIAL SERVICES


SCHEMES#1

#2

#3



of Rural Hospitals

RURAL

HOSPITALS

LOSS OF SOME OR ALL

RURAL SERVICES

PAYMENT MODELSTHAT SUSTAIN

ESSENTIAL SERVICES


SCHEMES#1

#2

#3

What Should

You Do

If You

Don’t Like

Options 1&2

??


Four Things

Rural Hospitals Need to Do


Four Things

Rural Hospitals Need to Do1. Educate policy-makers, payers, and patients about what rural

hospitals do and the need to preserve essential services– What is an essential service– What happens when a community doesn’t have it– What hospitals shouldn’t be forced to do to cover the costs of essential svcs


Most Acute Admits Are For

Common Acute/Chronic Diseases


Most Acute Admits Are For

Common Acute/Chronic Diseases

79%

of

Total


>40% of Admits for Acute/Chronic

Conditions Are to Local Hospital


Some Hospitals

Also Deliver Babies


Most Admits Are Deliveries &

Common Acute/Chronic Cond.

74%

of

Total


>60% of Deliveries & Other Svcs

at Larger Rural Hospitals


Four Things


hospitals do and the need to preserve essential services– What is an essential service

• Primary care• ED visits• Observation stays• Multi-day stays for chronic disease exacerbations and uncomplicated acute

illnesses for patients who can’t safely go home right away• Labor and delivery

– What happens when a community doesn’t have it• Higher costs due to delayed prevention, diagnosis, and treatment• Disability and death due to delays in accessing immediate care

– What hospitals shouldn’t be forced to do to cover the costs of essential svcs• Unnecessary testing and imaging• Hip and knee replacement surgery


Four Things



2. Show that essential services are being delivered as efficiently as possible, and that costs are high because of low volume and difficulties in recruiting clinicians and staff– Small hospitals are delivering services at minimum levels of staffing, so fewer

services doesn’t mean lower cost– Costs can vary dramatically from year to year for uncontrollable reasons


Costs of Clinician Services

in CAH Emergency Departments


Difference is Whether 24/7

Physicians Are Needed

1 24/7 ED Physician

On-Call Provider


Higher Volumes Require

More Nursing Time


Non-Personnel Costs Are Small

(Ancillaries Are Separate)


Share of Hospital Overhead for

Billing, Cleaning, HR, Utilities, Etc.


Lower Costs for Smaller Hospitals

Still Results in Higher Cost/Visit


Insurance Payments Are Lower

Than ED Costs at Small Hospitals

Avg Comm. Ins. Pmt

Avg Medicaid Pmt


Data Collection Required

to Enable Detailed Analysis

• Challenges– Net revenue by service line is not available in standard financial reports

• Total charges by service line are available, but deductions from revenue are only shown in aggregate

– Service line margins by payer are not available in standard reports• Different payers pay different amounts that may or may not cover costs

– Multiple payment systems with complex rules for each one

– Cost and utilization in one service line affects staffing and costs allocated to other service lines

• Solutions

– Washington Rural Health Access Preservation project helped CAHs provide more detailed information and analyze/compare it

– Simulation models based on data enable estimation of impacts of changes in costs, utilization, and alternative payment models


Four Things





3. Identify opportunities to reduce avoidable problems and services for community residents and work with physicians and other providers to take accountability for achieving the savings if payment is adequate– Ways to reduce unnecessary visits, testing, and procedures at larger hospitals– Enhancements needed to local primary care and preventive services


Payers & Patients Need to Find

Ways to Save Money

Sp

en

din

g P

er

Pati

en

t

NOTE:Graph Is notdrawnto scale

TODAY

PayerSpending

FUTURE

TotalSpending

onResidents

of aRural

Community

Payer Savings

TotalSpending

onResidents

of aRural

Community


Most Services Aren’t Delivered

By the Rural Hospital

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

TotalSpending

onResidents

of aRural

Community

Servicesat RuralHospital (25%)

ServicesDeliveredby OtherHospitals

andProviders

(75%)


Most Services Aren’t Delivered

By the Rural Hospital

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

TotalSpending

onResidents

of aRural

Community

Servicesat RuralHospital (25%)

ServicesDeliveredby OtherHospitals

andProviders

(75%)

Does the fact that most services

aren’t delivered locally

mean the rural hospital

can’t reduce total spending?


What Matters is the Health

Conditions Affecting Residents…

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

Pregnancy

Injuries

Cancer

Other

TotalSpending

onResidents

of aRural

Community

ChronicDiseases(Diabetes,

Heart Disease,COPD)


…And What Spending is Avoidable

Within Each Condition

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

ChronicDiseases

Avoidable $

Avoidable $

Pregnancy

Avoidable $

Injuries

CancerAvoidable $

OtherAvoidable $

TotalSpending

onResidents

of aRural

Community

• ER visits/hospital stays for dehydration and avoidable complications


• Overuse of C-Sections• Early elective deliveries• Use of hospitals instead of birth centers

• Unnecessary testing and imaging• Infections and complications of treatment

• ER visits for exacerbations• Hospital admissions and readmissions

• Unnecessary/avoidable services


Rural Hospital Can Reduce Some

of the Avoidable Spending

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

FUTURE

ChronicDiseases

Avoidable $

Avoidable $

Pregnancy

Avoidable $

Injuries

CancerAvoidable $

OtherAvoidable $

TotalSpending

onResidents

of aRural

Community

RuralHospital

ChronicDiseases

MinorInjuries

Low-RiskPregnancy

Other• Overuse of C-Sections• Early elective deliveries• Use of hospitals instead of birth centers

• Unnecessary testing and imaging

• ER visits for exacerbations• Hospital admissions and readmissions

• Unnecessary/avoidable services


Other Providers Need to Address

Opportunities for Complex Patients

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

FUTURE

ChronicDiseases

Avoidable $

Avoidable $

Pregnancy

Avoidable $

Injuries

CancerAvoidable $

OtherAvoidable $

TotalSpending

onResidents

of aRural

Community

ChronicDiseases

MinorInjuries

Low-RiskPregnancy

Other

TertiaryHospitals

High-RiskPregnancy

CancerOther

Trauma

RuralHospital


Each System Takes Accountability

for the Spending It Controls

Sp

en

din

g P

er

Pati

en

t


TODAY

PayerSpending

FUTURE

ChronicDiseases

Avoidable $

Avoidable $

Pregnancy

Avoidable $

Injuries

CancerAvoidable $

OtherAvoidable $

TotalSpending

onResidents

of aRural

Community

ChronicDiseases

MinorInjuries

Low-RiskPregnancy

Other

Payer Savings

High-RiskPregnancy

CancerOther

Trauma

Avoidable $

Avoidable $

TotalSpending

onResidents

of aRural

Community

TertiaryHospitals

RuralHospital


Four Things






4. Join with the essential small rural hospitals in other states to push for better payment solutions that address both hospital & payer needs– Show why simplistic, top-down approaches and current VBP won’t work– Propose a new payment model that sustains efficient essential services


Nearly Half of Hospitals Are Rural,

Better Pay = Small % of Spending


Four Things






4. Join with the essential small rural hospitals in other states to push for better payment solutions that address both hospital & payer needs– Show why simplistic, top-down approaches and current VBP won’t work– Propose a new payment model that sustains efficient essential services


Learn More About Win-Win-Win

Payment and Delivery Reform

www.PaymentReform.org

http://www.paymentreform.org/

For More Information:

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

[email protected]

(412) 803-3650

@HaroldDMiller

www.CHQPR.org

www.PaymentReform.org

@PaymentReform

APPENDIX

Population-Based Payment

for Hospitals


A Population-Based Payment

System for Hospitals???

COMMUNITYRESIDENT

HOSPITALSERVICES

Per-Service Payment

Per-ResidentPayment

POPULATION-BASED PAYMENT


Change Would Only Be Made

for Essential Services

COMMUNITYRESIDENT

HOSPITALESSENTIALSERVICES•ED•Maternity•AMI/StrokePer-Service Payment

Per-ResidentPayment


OTHERHOSPITALSERVICES•ElectiveProcedures

Per-Service Payment


It’s Not Really That Different

From The Current System…

COMMUNITYRESIDENT

CURRENT SYSTEM

HOSPITALESSENTIALSERVICES•ED•Maternity•AMI/Stroke


Residents Pay an Annual

Premium to an Health Plan…

COMMUNITYRESIDENT

Per-ResidentPremium

CURRENT SYSTEM

INSURANCECOMPANY



…The Health Plan Converts the

Premium Into Visit Payments…

COMMUNITYRESIDENT

Per-ResidentPremium

Per-ServicePayment

CURRENT SYSTEM

INSURANCECOMPANY



…And the Resident Pays for

Cost-Sharing on the Visit

COMMUNITYRESIDENT

Per-ResidentPremium

Per-Service Payment (Cost-Sharing)

Per-ServicePayment

CURRENT SYSTEM

INSURANCECOMPANY



Insured Residents Already Use a

Per-Resident + Per-Visit System

COMMUNITYRESIDENT

Per-ResidentPremium

Per-Service Payment (Cost-Sharing)

CURRENT SYSTEM

INSURANCECOMPANY



The Payer Just Needs to Give Part

of the Premium to the Hospital

COMMUNITYRESIDENT

Per-ResidentPremium

Per-Service Payment


Per-ResidentPayment

INSURANCECOMPANY



No Need for the Middle-Man in

High-Deductible Health Plans

COMMUNITYRESIDENT

Per-ResidentPremium

Per-Service Payment


Per-ResidentPayment

INSURANCECOMPANY

COMMUNITYRESIDENT

WITHHIGH-

DEDUCTIBLEPLAN Per-Service Payment

Per-ResidentPayment



APPENDIX

Bottom-Up,

Rural-Friendly

Payment Reform


Patients May Be Denied

Care andSmall

ProvidersMay Close

Shifting Risk to Providers Can

Harm Patients and Reduce Access

Payers Create

Payment Systems That Shift

Financial Risk to Providers

Many Physicians

and HospitalsTreat Small #s

of Patients with Limited

Capital

RISK-BASEDPAYMENT MODELS



Care andSmall

ProvidersMay Close

We Need APMs That Are Feasible

for Providers in Rural Areas

Payers Create



Many Physicians



Capital


RURAL-FRIENDLYPAYMENT MODELS



Care andSmall

ProvidersMay Close

Step 1: Rural Providers Need to

Determine What is Feasible

Payers Create



Many Physicians



Capital

SmallHospitals &Practices

Design CareThat is

Feasible in Rural Areas





Care andSmall

ProvidersMay Close

Step 2: Payers Need to Pay

Differently in Rural Areas

Payers Create



Many Physicians



Capital


Design CareThat is


Payers Pay Adequately to Support Cost of Delivering

Essential Services

in Rural Areas





Care andSmall

ProvidersMay Close

RuralResidents

Have Access to

QualityHealthCare

Result: Higher-Value Care

for Residents of Rural Areas

Payers Create



Many Physicians



Capital


Design CareThat is


Payers Pay Adequately to Support Cost of Delivering

Essential Services

in Rural Areas



APPENDIX

Improving Payments

for Rural Health Clinics


Current Visit-Based Payments

for Clinic Services

$

Visit-Based Payment

CostsAttributed

toMedicarePatients

MedicareCost-Based

Paymentfor Visits

CostPayment

Weaknesses of Current Payment System

• Medicare only pays 99% of costs, and not all costs are covered

• Only the portion of costs attributed to Medicare patients based on # of visits is covered



for Clinic Services

$

Visit-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment

MedicaidEncounterPayments




• Medicaid MCO encounter payments are far below cost of visits



for Clinic Services

$

Visit-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment

CostsAttributedto OtherInsuredPatients


InsurancePaymentsfor PCP

Visits





• Fee for service payments for insured patients are below cost per visit



Do Not Cover Costs of Clinic

$

Visit-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits





• Fee for service payments for insured patients are below cost per visit


Is There a Better Way?

$

Visit-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits ?


Most Clinic Costs Are Fixed

Regardless of # of Visits

$

Cost

Visit-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits

FixedCosts

OfOperating

Clinic

VariableCosts

OfOperating

Clinic


Pay a Predictable Amount to

Manage Care for Regular Patients

$

Risk-AdjustedMonthlyPayment

PerEnrolledPatient

CostPayment

Visit-Based Payment Population-Based Payment

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits

FixedCosts

OfOperating

Clinic

VariableCosts

OfOperating

Clinic


Pay Per Visit for

Occasional Visitors

$


PerEnrolledPatient

CostPayment


CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits

FixedCosts

OfOperating

Clinic

VariableCosts

OfOperating

Clinic

PaymentPer Visit for Non-EnrolledPatients


Base a Portion of Payment on

Quality and Access

$


PerEnrolledPatient

CostPayment


CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits


P4PMargin

FixedCosts

OfOperating

Clinic

VariableCosts

OfOperating

Clinic


Population-Based Payment for

Primary Care Clinic Services

$



PerEnrolledPatient

Margin

CostPayment


P4P

CostsAttributed

toMedicarePatients

CostsAttributed

to MedicaidPatients

MedicareCost-Based

Paymentfor Visits

CostPayment



Loss


Visits

FixedCosts

OfOperating

Clinic

VariableCosts

OfOperating

Clinic


Payment Model for

Rural Health Clinics1. Comprehensive Primary Care Services Payment (CPCSP)

– For patients formally enrolled with the practice, the clinic would receive a monthly, acuity-stratified payment for each patient that could be used to deliver a wide range of services, including services not currently billable or reimbursable under existing payment systems, such as care management and non-face-to-face visits

2. Encounter-Based Payment (EBP)– For patients who are not formally enrolled for ongoing care but come to the

clinic for specific services, the clinic would receive a per-visit payment

3. Performance-Based Payment– The amounts of the CPCSP and EBP payments would be increased or

decreased based on the clinic’s performance in delivering quality care and on controlling total healthcare spending.

4. Optional Additional Monthly Payments– Care Coordination/Management

– Behavioral Health Services

– Home Care Services


Clinic Payment Model is Similar

to Medicare Medical Home PmtsCMS Comprehensive Primary Care Plus WRHAP CAH Primary Care Clinic APM

Comprehensive Primary Care Payment:• Per-beneficiary per month payment for

attributed patients • Payment amounts based on current average

FFS payments per beneficiary to the practice, so practices with higher revenues under FFS continue to receive higher revenues

Care Management Fee:• Five tiers of additional monthly payments per

attributed beneficiary based on HCC risk scores and presence of dementia

Comprehensive Primary Care Services Payment:• Three tiers of monthly payment per enrolled

member based on physical or behavioral health conditions and presence of serious risk factors

Performance Based Incentive Payment• Two components based on quality/utilization• Single per patient payment regardless of

patient needs; reduced for poor performance

Performance-Based Payment• Two components based on quality/utilization• Payments increased or decreased based on

good/poor performance• Payments based on patient need as well as

performance level

Continued FFS Payments• Payments for all services to all patients but at

35%-60% of current rates

Encounter-Based Payment• Payment per visit only for patients who are

not enrolled for monthly payment

BETTER WAYS TO PAY RURAL HOSPITALS & PHYSICIANS … · Under Current Payment Systems 87 Rural...

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Transcript of BETTER WAYS TO PAY RURAL HOSPITALS & PHYSICIANS … · Under Current Payment Systems 87 Rural...