December 2011 Reform’s Impact: Staff and Service Cuts...

December 2011

Reform’s Impact: Staff and Service Cuts Expected

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DeceMber 2011 | Reform’s Impact: Staff and Service Cuts Expected

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WWW.HEALTHLEADERSMEDIA.COM/INTELLIGENCE | ©2011 HealthLeaders Media, a division of HCPro, Inc.

Foreword

Like it or Not, ACos (ANd iNNovAtioN) Are ComiNg

As an itinerant collector of aphorisms, inspirational quotes, and other catchy sayings, I came across the following

pithy quote recently and have been mulling it over in my mind ever since:

“Optimism is the essential ingredient of innovation.”

The quote comes from the late Robert Noyce. No stranger to innovation, Noyce is credited with being the inventor

of the integrated circuit and the cofounder of not one, but two, IT companies recognized as leaders in their field—

Fairchild Semiconductor and Intel. He is affectionately remembered by many as “the mayor of Silicon Valley.”

Perhaps Noyce’s quote is applicable to healthcare today. According to the findings of a survey on reform readiness

by HealthLeaders Media’s Intelligence Unit, opinions are mixed with regard to much of healthcare reform law

and the disruptive change it portends. In fact, opinions are so mixed that they sometimes present almost a classic

illustration of what in statistics is called a bipolar response. To illustrate, according to the survey of 264 healthcare

leaders, almost half of respondents (47%) don’t support the healthcare reform law, but only 41% want it repealed.

This would seem to suggest that there may be growing, if reluctant, acceptance of the law, likely because of the

passage of time, similar transformative moves in the commercial insurance sector, and work the respondent

organizations have already invested in changes in the delivery model for healthcare services.

While a clear majority of respondents (59%) did not favor a repeal of the law in its entirety, three-fourths felt that

certain elements or portions of the law should be repealed. Most notable among these elements is the individual

mandate, which 42% opposed but 44% supported. The individual mandate is the element of the law that is being

most vigorously challenged in the court system, yet is deemed by most experts to be necessary to make the

underwriting work financially for insurance companies.

I noted a similar disparity of opinion about the impact of various provisions of the law on administrative efficiency,

access, quality/outcomes, and the overall cost direction of the program. A large majority of respondents (72%) felt

provisions of the law would actually increase utilization of health services.

http://www.healthleadersmedia.com/INTELLIGENCE/


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Perhaps the most striking disparity of all came in respondents’ views toward the future of the ACO concept.

Notwithstanding that the survey closed prior to release of the new CMS regulations, this is important because the

ACO concept is, in many ways, the crown jewel of the healthcare reform law, and the element of the law that seems

to enjoy political support from both sides of the aisle. Only 32% of respondents feel the ACO concept, regardless of

model, will fail, but only a small minority thinks the two Medicare ACO models available at the time of the survey,

Shared Savings and Pioneer, will succeed (15% and 9%, respectively). Some 27% believe a new government model

will be developed and succeed.

Whether from the government side or the commercial sector, accountable care is clearly an idea whose time has

come and is an inescapable reality. It is not about “whether,” but about “how.” And here is where, as Robert Noyce

might say, a dose of optimism is in order. How we get there, how soon we get there, and how well we do it will

largely be determined by our spirit of optimism and willingness to innovate. But it all has to start with believing that

change is possible.

Marty Manning

President,

Advocate Physician Partners

Oak Brook, IL

Lead Advisor for this Intelligence Report



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Table of Contents

Foreword 3

Methodology 6

RespondentProfile 7

Analysis 8

SurveyResults 13

Impact of Medicare Reimbursement Rates. . . . . . . . . . . . . . . . . . . . . . . . .13

The Future of the Accountable Care Organization. . . . . . . . . . . . . . . . . . .13

Effects of Medicaid Reductions on Organization . . . . . . . . . . . . . . . . . . . 14

Support of Patient Protection and Affordable Care Act . . . . . . . . . . . . 14

Overall Repeal of PPACA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Repeal of PPACA Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Impact of PPACA’s Provisions After 2017. . . . . . . . . . . . . . . . . . . . . . . . . 16

Challenge of Regulatory Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Effect of Reform on Hospital-Physician Alignment . . . . . . . . . . . . . . . . . .17

Reorganization of Departments/Services in Response to Reform Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Change in Administrative Efficiency Due to Government Reform Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Change in Clinical Efficiency Due to Government Reform Efforts . . . . 18

Impact of Insured Patients on Utilization of Services . . . . . . . . . . . . . . 19

Anticipation of Service Cuts Due to Reform Readiness . . . . . . . . . . . . . 19

Anticipation of Staff Reductions Due to Reform Efforts . . . . . . . . . . . . 20

Level of Support for PPACA Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20



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Methodology

The 2011 Reform Readiness Survey was conducted by the HealthLeaders Media Intelligence Unit, powered by the

HealthLeaders Media Council. It is part of a monthly series of Thought Leadership studies. In September 2011,

an online survey was sent to the HealthLeaders Media Council. Respondents work in hospital, health system,

physician organization, health plan/insurer, long-term care, ancillary, and allied providers settings. A total of 264

completed surveys are included in the analysis. The margin of error for a sample size of 264 is +/- 6% at the 95%

confidence interval.

About The HealthLeaders Media Intelligence UnitThe HealthLeaders Media Intelligence Unit, a division of HealthLeaders Media, is the premier source for executive healthcare business research. It provides analysis and forecasts through digital platforms, printed publications, custom reports, white papers, conferences, roundtables, peer networking opportunities, and presentations for senior management.

Intelligence Report Editor philip betbeze [email protected]

PublisherMAttheW [email protected]

Editorial Director eDWARD pReWitt [email protected]

Managing Editor bOb WeRtz [email protected]

Intelligence Unit Director ANN MACKAY [email protected]

Senior Director of Sales Northeast/Western Regional Sales Manager pAUl MAttiOli [email protected]

Media Sales Operations Manager AleX MUlleN [email protected]

Copyright ©2011 healthleaders Media, 5115 Maryland Way, Brentwood, TN 37027 • Opinions expressed are not necessarily those of healthleaders Media. Mention of products and services does not constitute endorsement. Advice given is general, and readers should consult professional counsel for specific legal, ethical, or clinical questions.

Upcoming Intelligence

Report TopicsMergers & Acquisitions

2012 Industry Survey

Service Line Strategies

Advisors for this iNteLLigeNCe reportThe following healthcare leaders graciously provided guidance and insight in the creation of this report.

Annette WalkerChief Strategy OfficerSt. Joseph Health SystemOrange, CA

Marty ManningPresidentAdvocate Physician PartnersOak Brook, IL

peter brumleveChief Strategy OfficerScott & White HealthcareTemple, TX



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Respondent profile

Respondents represent titles from across the various functional areas including senior leaders, operations leaders, clinical leaders,

finance leaders, marketing leaders, and information leaders. More than 40% of the respondents have senior leader titles. They are

from hospitals, health systems, physician organizations, health plans/insurers, long-term care, ancillary and allied providers.

| title

0

10

20

30

40

50

7%Finance leaders

2% Information leaders

17% Clinical leaders

22% Operations leaders

46%Senior leaders

Senior Leaders | CEO, Administrator, Chief Operations Officer, Chief Medical Officer, Chief Financial Officer, Executive Dir., Partner, Board Member, Principal Owner, President, Chief of Staff, Chief Information Officer

Clinical Leaders | Chief of Orthopedics, Chief of Radiology, Chief Nursing Officer, Dir. of Ambulatory Services, Dir. of Clinical Services, Dir. of Emergency Services, Dir. of Nursing, Dir. of Rehabilitation Services, Service Line Director, Dir. of Surgical/Perioperative Services, Medical Director, VP Clinical Informatics, VP Clinical Quality, VP Clinical Services, VP Medical Affairs (Physician Mgmt/MD)

Operations Leaders | Chief Compliance Officer, Asst. Administrator, Dir. of Patient Safety, Dir. of Quality, Dir. of Safety, VP/Dir. Compliance, VP/Dir. Human Resources, VP/Dir. Operations/Administration, Other VP

Finance Leaders | VP/Dir. Finance, HIM Director, Director of Case Management, Director of Revenue Cycle

Marketing Leaders | VP/Dir. Marketing/Sales, VP/Dir. Media Relations

Information Leaders | Chief Medical Information Officer, Chief Technology Officer, VP/Dir. Technology/MIS/IT

base = 264

6% Marketing leaders

base = 101 (hospitals)

| Number of beds

1–50 23%

51–199 35%

200–499 32%

500–999 8%

1,000+ 3%

| place of employment

base = 264

| Number of Sites

1–5 22%

6–20 39%

21–49 24%

50+ 16%

base = 62 (health systems)

Hospital 38%

Health system 23%

Physician organization 16%

Health plan/insurer 7%

Long-term care/SNF 7%

Ancillary, allied provider 6%

Government, education/academic 2%



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As a topic, healthcare reform is almost too big a concept to fully evaluate. There’s a reason the legislation runs 900 pages. Further, most of the provisions in the Patient Protection and Affordable Care Act won’t take effect until 2017. And it’s not even certain that the law will survive that long, what with many Republican candidates vowing to repeal it if they are elected.

But healthcare leaders have to worry about what is, not what might be; and right now, PPACA is the law of the land. And whether or not it is ultimately repealed, many of the drastic changes taking place in healthcare today regarding strategy, composition of assets, and even the business model are already under way. Going back to the way things used to be simply is not an option, says Peter Brumleve, chief strategy officer at Scott & White Healthcare, based in Temple, TX, and an advisor for this report.

“Regardless of whether it gets repealed or funded, private market forces will still act in trying to fix the fundamental issues in healthcare,” he says. “So we look at the act as a stalking horse for what we eventually have to do as a system.”

The pace of change is increasing, according survey data in this Intelligence Report. As the title

On Balance, Leaders Say Reform Will Improve Quality By Philip Betbeze

What Healthcare Leaders Are Saying

“ACOs will drive physicians and hospitals apart.”

—President, physician organization

“Physicians are now interested in working more closely with the hospitals,

both clinically and financially.”

—CEO, health system

“Departments that we have considered ‘mission’ may need to go. We cannot

continue to afford to keep money losers.”

—Chief nursing officer, large hospital

“When we are paid less than our real costs to deliver, we can’t make it up

on volume.”

—CEO, midsize hospital

“It is inevitable that consolidation will occur. As the pool of money shrinks,

unlikely partners will come out of the jungle to feed on what is left.”

—CEO, physician organization

“More professionals will have to be doing paperwork. We will have fewer

professionals to take care of patients. We may have to cut off departments

or services.”

—CEO, health system

“Case management utilization review will take on a more prominent role.

Reorganization of the nursing care delivery model will take place to ensure

it becomes more cost-effective while maintaining the core requirements of

what is needed to provide safe, quality patient care.”

—Administrator, small hospital

“As it becomes increasingly difficult to attain our target operating margin,

in order to preserve our bond rating, we might have to take a hard look at

administrative reorganization to reduce staff.”

—VP, director of finance, health system

AnAlySiS



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suggests, healthcare senior executives who completed the survey expect to have to cut staff and services under the legislation. That is certainly not the outcome lawmakers who backed the plan say they expected, but the reality is that the law will increase complexity and overhead, so such responses make sense.

“Those big game changers are going to be seismic alterations to the landscape,” says Annette Walker, chief strategy officer at St. Joseph Health System in Orange, CA, and an advisor for this report. “We’ve been through Medicare cuts before, but not accompanied by such significant decreases in the commercial market.”

The good news is that most healthcare leaders, despite barely more than half supporting the act, believe it will lead to healthcare quality levels that are better (41%) or at least the same (23%) as they are today, for a total of 64%. What’s surprising is that only 40% believe the act will result in better access to healthcare services, despite the fact that many pundits insist that access will be the only element of healthcare that PPACA will improve, simply because it ensures some level of healthcare coverage for many of the currently uninsured. Also disconnected from the access question are leaders’ responses to the question of utilization. Fully 72% believe the law will lead to increased utilization of health services. How does that happen when access is tighter?

Marty Manning, president of Advocate Physician Partners, the captive physician practice within Chicago’s Advocate Health Care, says it might reflect the survey respondents’ heavy dependence on inpatient care at their hospitals or health systems. Indeed, while inpatient care and reimbursement are expected to decrease, outpatient care will grow as more of the previously uninsured are steered toward accessing care in locations other than the emergency room, which was the only place they could previously be guaranteed access to healthcare services.

Advocate, for one, is hedging its bets on reductions in utilization and cuts in reimbursement by developing an accountable care organization business model.

AnAlySiS (continued)

“Regardless of whether it gets repealed or funded, private market forces will still act in trying to fix the fundamental issues in healthcare.”

—Peter Brumleve, Chief Strategy Officer,

Scott & White Healthcare, Temple, TX



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“The real fear is that you have reductions in utilization and unit price at the same time,” says Manning, the lead advisor for this report. “That’s the double whammy that could really make it unsustainable for us as provider organizations. So we are very much looking at ACO models as the way to get back some of the savings that would be otherwise taken out of utilization.”

On the negative side of the equation, an interesting data point revealed in the survey concerns the 43% of healthcare leaders who say their facility will likely cut services as a result of PPACA and the 55% who say they will cut staff as a result of the law.

Advocate, says Manning, is attempting to avoid that fate by embracing the new theme of accountability for outcomes via its ACO structure. Through a partnership with its biggest commercial payer, Advocate has taken on 215,000 attributed lives and also has 150,000 full-risk, commercially insured HMO patients.

“It’s about a fourth of our total business, maybe a little more,” says Manning, adding that he expects it to grow rapidly. “Over the next two or three years, 75% of our business will come through ACO-like structures that will all be a little different. But foundationally, we will have one approach to the care delivery model, so it doesn’t really matter what specific contract plugs into it.”

Though Advocate is on the leading edge of ACO adoption, it’s far from alone in seeking ways to take advantage of the new model by being an early adopter. More than a third of respondents (36%) believe a commercial model, either current or to be developed in the future, will succeed, though 32% of respondents feel the ACO concept, regardless of model, will fail.


“Those big game changers are

going to be seismic alterations to

the landscape. We’ve been through

Medicare cuts before, but not

accompanied by such significant

decreases in the commercial market.”

—Annette Walker, Chief Strategy Officer,

St. Joseph Health System, Orange, CA



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Physician alignment has been a driving business

imperative for a while now with many hospitals

and health systems, but despite CMS’ enactment

of ACO and value-based purchasing rules aimed at

connecting the gaps in coordinated care, only 57% of

our respondents think that the law will more closely

align them to their physicians.

Brumleve says Scott & White is focusing on the

positives surrounding alignment and is taking its

case directly to the physicians. “This is simply the

next chapter that we need to embrace rather than

react to, and lead rather than be led,” he says. “We

tell our physicians that we have to continue this

relentless pursuit of quality and patient satisfaction,

and that will lead us to more operational

effectiveness because we’ll find waste in the system. It’s the fundamental way we get to cost

reduction.”

According to the survey, there’s not a lot of faith that the act or the changes it has loosed on

the healthcare market will help increase administrative efficiency. In fact, executives predict the

opposite. Only 37% believe it will increase efficiency, while 50% believe efficiency will decrease

under the law. However, contrast that opinion with clinical efficiency and the attitude undergoes

a 180-degree turn. Some 52% believe clinical efficiency will increase, while 37% believe it will

decrease.

Count Walker among the dominant group regarding both questions. “It will not improve

administrative efficiency, in my opinion,” she says. Regarding clinical efficiency, however, she

says, “I think it will improve significantly.”

ICD-10, a new coding system that more precisely identifies diseases and conditions, presents


“The real fear is that you have

reductions in utilization and unit

price at the same time. That’s the

double whammy that could really

make it unsustainable for us as

provider organizations.”

Marty Manning, President,Advocate Physician Partners,

Oak Brook, IL



pagE 12


the most serious problem associated with the act, according to the survey. Some 67% believe ICD-10 implementation will be difficult or very difficult to implement, while only 23% feel the same way about IRS Form 990, for example, and only 44% say the same thing about value-based purchasing standards. The challenge of dealing with the overall effects of PPACA will be difficult or very difficult for 66% of the leaders who answered the survey.

Manning says integration isn’t the problem, but that hospitals and health systems need to look at ways to continue to subsidize money-losing but essential services that improve and maintain patient experience and management.

“The bill is really about integration. The problem in it—and I can speak from working in several large integrated systems—isn’t so much barriers to entry in terms of integration, it’s barriers to exit,” Manning says. “There are some parts in fully integrated systems that are perennial money osers if you look at them in isolation. The possibility of getting out of those services completely is a little tough if you’re really about value of care because you need robust mental health services, for example, even at the primary care sites, to have a good patient experience and manage the patient correctly. I could see outsourcing, but not eliminating.”

Philip Betbeze is senior leadership editor for HealthLeaders Media.




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Survey Results

0

10

20

30

40

50

60

39%

56%

6%

FiGURE1| impact of Medicare Reimbursement Rates

Q | Setting aside the ultimate decision by the Congressional debt-ceiling super committee, describe the effect on your organization of the uncertainty regarding Medicare reimbursement rates.

base = 264

Severe disruption; requires complex contingency

planning

Mild disruption; it’s just one more thing to

deal with

No disruption; it’s just political posturing

FiGURE2 | the Future of the Accountable Care Organization

Q | What is the future of the accountable care organization for the industry?

0 5 10 15 20 25 30 35 40

36%

36%

32%

27%

15%

9%

A new commercial model will be developed and succeed

One or more of the current commercial payer models will succeed

The ACO concept, regardless of model, will fail

A new government model will be developed and succeed

The Medicare Shared Savings Program will succeed

The CMS Pioneer program will succeed

base = 264Multi Response



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Survey Results (continued)

FiGURE4 | Support of patient protection and Affordable Care Act

Q | Do you support the Patient Protection and Affordable Care Act (PPACA)?

base = 264

FiGURE3 | effects of Medicaid Reductions on Organization

Q | In the wake of state Medicaid reductions, which of these scenarios has affected your organization?

0 10 20 30 40 50 60 70 80

63%

52%

30%

19%

Fewer providers taking Medicaid, increasing volumes on those that do

Increasing numbers of former Medicaid patients now uninsured/bad debt

Reduction in our services due to Medicaid cuts

State-supported health clinics closing

base = 264Multi Response

53%Yes

47%No



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FiGURE6 | Repeal of ppACA elements

Q | Should some elements of PPACA be repealed?

base = 264

75%Yes

25%No

FiGURE5 | Overall Repeal of ppACA

Q | Should PPACA be repealed?

base = 264

41%Yes

59%No



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FiGURE7| impact of ppACA’s provisions After 2017

Q | After 2017, when most of PPACA’s provisions are scheduled to have been implemented, rate whether the following will improve, stay relatively unchanged, or deteriorate.

base = 264

FiGURE8| Challenge of Regulatory programs

Q | How challenging is it for your organization to deal with the following regulatory programs?

base = 264

Very easy1

Easy2

Neutral3

Difficult4

Very difficult5

Overall effects of PPACA 0% 3% 30% 48% 18%

ICD-10 0% 6% 27% 48% 19%

Medicaid 1% 10% 33% 42% 14%

HITECH Act, meaningful use 2% 11% 34% 42% 10%

Medicare 1% 14% 37% 40% 8%

Value-based purchasing performance standards

1% 17% 38% 37% 7%

HCAHPS 3% 16% 48% 27% 6%

Antitrust, Stark, FTC 4% 22% 49% 20% 5%

IRS Form 990 2% 16% 59% 20% 3%

HIPAA, 5010 4% 20% 45% 28% 2%

HIPAA, privacy 7% 30% 41% 19% 2%

Improve1 2

Stay relatively

unchanged3 4

Deteriorate5

My organization's delivery of quality healthcare services

16% 29% 36% 13% 6%

My organization's delivery of efficient healthcare services

13% 28% 31% 20% 7%

The nation's healthcare quality 13% 28% 23% 22% 15%

The nation's healthcare efficiency 13% 22% 28% 16% 21%

The nation's access to healthcare services 12% 28% 19% 21% 20%

My community's access to healthcare services

11% 23% 27% 25% 15%



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FiGURE10 | Reorganization of Departments/Services in Response to Reform efforts

Q | Will your organization reorganize departments or services in anticipation of government reform efforts?

base = 264

69%Yes

31%No

FiGURE9 | effect of Reform on hospital-physician Alignment

Q | Do you believe changes your organization makes in response to reform efforts will better align the hospital/system with physicians?

base = 264

57%Yes

43%No



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FiGURE11| Change in Administrative efficiency Due to Government Reform efforts

Q | By what percentage will your organization’s administrative efficiency be affected by government reform efforts?

0

5

10

15

20

25

1%–5% 1%–5%6%–10% 6%–10%11%–20% 11%–20%21%+ 21%+ No change

9%

15%

7%6%

13%

21%

11%

5%

14%

base = 264

Net increase = 37% Net decrease = 50%

FiGURE12| Change in Clinical efficiency Due to Government Reform efforts

Q | By what percentage will your organization’s clinical efficiency be affected by government reform efforts?

0

5

10

15

20

1%–5% 1%–5%6%–10% 6%–10%11%–20% 11%–20%21%+ 21%+ No change

17% 17%

12%

6%

16%

10%

6%5%

12%

base = 264

Net increase = 52% Net decrease = 37%



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FiGURE14 | Anticipation of Service Cuts Due to Reform Readiness

Q | Has or will your organization cut services because of government reform efforts?

base = 264

43%Yes

57%No

FiGURE13 | impact of insured patients on Utilization of Services

Q | Will an increase of insured patients under PPACA also increase the utilization of health services at your organization?

base = 264

72%Yes

28%No



pagE 20



FiGURE15 | Anticipation of Staff Reductions Due to Reform efforts

Q | Has or will your organization reduce staff because of government reform efforts?

base = 264

55%Yes

45%No

FiGURE16| level of Support for ppACA elements

Q | Rate your level of support for the following elements of PPACA.

base = 264

Strongly support

1Support

2Neutral

3Oppose

4

Strongly oppose

5

Medicare ban on physician-owned hospitals

21% 23% 26% 16% 14%

Mandates that require individuals to purchase health insurance

19% 25% 15% 19% 23%

Patient-Centered Outcomes Research Institute 16% 40% 31% 9% 5%

Health Insurance Exchanges 15% 34% 34% 11% 6%

Accountable Care Organizations Pilot Program

11% 30% 38% 15% 8%

Expansion of Medicaid 10% 34% 23% 21% 12%

Independent Payment Advisory Board 6% 20% 34% 21% 17%


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