CEOs and CFOs: 10 things demanding your attention this year

How does one prioritize when everything is important? It's a familiar feeling for most hospital and health system executives. To simplify and focus, we spoke to experts who helped us identify 10 of the most pressing issues for healthcare leadership and financial teams in 2016.   

1. Insurer mega-mergers

The surge of deal-making between some of the nation's largest health insurers is top of mind for many hospital and health system leaders in 2016.

Hartford, Conn.-based Aetna entered a definitive agreement in July to acquire Louisville, Ky.-based Humana in a deal valued at $37 billion. That same month, Indianapolis-based Anthem announced plans to take over Bloomfield, Conn.-based Cigna — a buyout that would create the nation's largest health insurer by enrollment. That cash and stock transaction is valued at $54.2 billion.

Insurers merging and getting larger may empower them to leverage lower prices from providers. Control over reimbursement rates will rest with fewer insurers, constraining hospital profitability. In fact, Moody's said the spate of proposed health insurer mega-mergers is credit negative for U.S. nonprofit hospitals since the consolidation shrinks the pool of insurers and intensifies control on an increasing source of hospital revenue.

Arguing the deals are likely to reduce competition, especially in the Medicare Advantage market, hospital CEOs and CFOs are skeptical of the mergers. Several health system CEOs shared their thoughts on the potential consolidation in the health insurance sector with Becker's Hospital Review, with the vast majority of leaders saying payer consolidation is negative for the industry. They voiced worries about payers monopolizing certain regions, which would make it more difficult to negotiate fair reimbursement rates.

The American Hospital Association submitted letters to the Department of Justice requesting vigorous review of both the Aetna-Humana and Anthem-Cigna deals. "Viewed in tandem the two deals would reduce the number of major health insurers from five to three and adversely impact millions of consumers," Melinda Reid Hatton, senior vice president and general counsel for AHA, wrote to the DOJ's antitrust division and HHS Secretary Sylvia Mathews Burwell in a September letter.

The AHA also teamed up with the American Medical Association and other provider groups as well as consumer and labor groups to form the Coalition to Protect Patient Choice. The coalition is urging the DOJ to block the mergers.

2. 2016 presidential election

The economy, terrorism and the way government operates in Washington, D.C., are three issues trumping healthcare leading up to the 2016 presidential election, according to Gallup. Matters of national security began to dominate the agenda in November, and as of mid-December, no presidential candidate from right or left had yet shared a particularly articulate healthcare policy plan. Nonetheless, the 2016 race is certainly something for hospital and health system CEOs and CFOs to watch in the coming months.

Every healthcare organization has something at stake and political priorities differ. Health systems like Chicago-based Cook County Health and Hospitals System, which saw Medicaid expansion as a huge stabilizing influence for both the system's finances and the health of the community, will certainly need to keep one eye on the political sphere next year. The concerns are two-fold, according to Jay Shannon, MD, president and CEO of CCHHS.

First, the county's public system is concerned with preserving Medicaid expansion and the benefits associated with it — at all costs.

"[Medicaid expansion] is being attacked by various factions on Capitol Hill," Dr. Shannon said. He said he is not supportive of a state block grant approach to Medicaid funding and sees the constructive relationship the system has built with CMS and Illinois' Medicaid agency of critical importance.

Second, Dr. Shannon named protection of the 340B Drug Pricing Program as a critical issue on the political chopping block. The program allows safety-net hospitals to buy discounted outpatient drugs, which critics argue are often abused for monetary gain.

Though the program and its surrounding controversy are not new, growing participation and drug sales are causing its costs to balloon. The Berkeley Research Group found drug sales in the program increased nearly seven-fold between 1997 and 2013. The group forecasts total drug purchases at the 340B price to grow to $16 billion by 2019. Additionally, an audit last July by the Government Accountability Office suggested the program may lead to the prescription of more drugs or more expensive drugs, leading to greater scrutiny.   

"That program has been under assault — perhaps for good reason," Dr. Shannon said. "There is no question there has been some abuse of the 340B program, but for urban safety-net organizations like mine, 340B is a lifeline that allows us to get medications to the people who need, but cannot afford them."

In the background, Dr. Shannon notes, immigration reform has the potential to reach healthcare. As states accept Medicaid expansion, large proportions of individuals are still uninsured, including undocumented residents. These people still need access to care. "We think the solution for that has to come at a federal level," Dr. Shannon said.

3. Acceleration of provider-sponsored health plans

Upwards of 120 providers operate their own health plans today, according to Valence Health, and experts forecast that figure to increase for a few reasons.

The insurer mega-mergers between Anthem and Cigna and Aetna and Humana are posing a threat and creating concern of diminished competition in the insurance marketplace. With even greater command of the insurance market, the combined payer giants could negatively impact reimbursement rates paid to hospitals.  

Second, Medicare and commercial insurers alike are shifting greater financial risk to the providers through bundled payments, shared risk arrangements and accountable care organizations. These trends are causing many executives to ask themselves, "If [our system] has to manage clinical and financial risk, as well as coordinate care and manage costs and outcomes, what value does the insurance company bring?" says Paul Keckley, PhD, managing director of Navigant's Healthcare Practice.

By creating their own health plans, health systems can leverage the myriad of patient clinical and cost data traditionally kept under wraps by insurers. This information can be a huge asset for supporting population health management and better coordinating care across disparate providers. Also, since a health system has a long-standing relationship with its physician community, provider-sponsored plans are often more successful in changing provider behavior.

However, launching a provider-sponsored health plan comes with risks and questions.. One major threat could be retaliation from competing health plans. Aiming to maintain contracts with those plans while simultaneously competing with them could increase tension, and insurers may direct patients elsewhere or leave a competing system out of certain networks, according to Dr. Keckley. Whether an organization can function without those contracts is question No. 1 for many healthcare providers mulling creation of their own plan. There is also the question of whether to build or buy and the risk of scale. Unless a health system acquires a plan that already has a substantial membership, it will have to invest capital in such things as claims management and infrastructure.

4. High prescription drug prices

Prescription drug spending and prices garnered attention in 2015. U.S. spending on drugs grew by 12.2 percent in 2014 to $297.7 billion compared the 2.4 percent growth rate recorded in 2013. Certain medications and drugs also attracted scrutiny from members of Congress and policymakers. The country's high drug spending was driven by greater spending on new medications, particularly for specialty drugs such as hepatitis C, and brand-name drug price increases, according to CMS. In November, the Senate Special Committee on Aging requested information about pricing practices from several drugmakers.

High prescription drug prices and spending pose significant challenges to healthcare providers and consumers alike. For example, the director of the Drug Information Service at the University of Utah Health Care told U.S. News & World Report about the price for isoproterenol hydrochloride, which went up to $2,700 a vial from $50 two years prior. The academic medical center had to remove the drug from its emergency medicine crash cart, as the price increase would add up to a $1.6 million total network cost for the drug. University of Utah Health Care couldn't recoup that amount from the managed care plans that cover most of its patients, according to the report.

Chris Van Gorder, president and CEO of San Diego-based Scripps Health, said his biggest worry is if prescription drug costs are too high, patients won't take them, increasing the likelihood of returning to the hospital. This is especially pertinent for patients with high-deductible health plans who shoulder much of prescription costs before their insurance plans kick in.

Historically, Scripps had different formularies across its hospitals for prescription ordering practices. Today, as prescription drug costs are of growing concern, Mr. Van Gorder says physicians are beginning to work across the system to monitor utilization and standardize formularies.

"We have to work with our physicians on prescribing the drugs that are most appropriate," says Mr. Van Gorder. "If there is a lower cost drug that is equally effective as a higher cost drug, we guide our physicians through formulary controls to choose the less expensive option."

According to David Friend, MD, chief transformation officer and managing director of BDO's Center for Healthcare Excellence & Innovation, the rising cost of pharmaceutical drugs will have a direct impact on hospitals' ability to succeed under valued-based care and bundled payments.

"Hospitals have to worry about how they can get drug costs aligned with reimbursement," says Dr. Friend. "[Hospitals] have to link up with pharmaceutical companies, skilled nursing facilities and other providers to put together a coherent offering."

5. Community partnerships and health beyond hospital walls

Many of last year's buzzwords like "population health", "value-based care" and "improved outcomes" will echo into the new year as hospitals and health systems work toward goals set in 2015 to transition significant portions of their business to alternative payment models.

To be successful in this transition, hospitals need to address health more broadly and seek partnerships with retail care entities, churches, nutrition support, community organizations, transportation services and others.

"When you are on the hook for the outcome, there are things you can't influence directly and you need to depend on partners in the community to help get you there," said Igor Belokrinitsky, healthcare strategist and principal with PwC Strategy&.

Community organizations have been a critical force for Cook County Health & Hospitals System, according to Dr. Shannon. The system relied on grassroot efforts to early-enroll people in Medicaid under an 1115 waiver after Illinois approved expansion and was able to reach out to almost half of the individuals newly-eligible for Medicaid under the ACA in Cook County, Dr. Shannon said.

CCHHS faces concerns about Medicaid redetermination next year. The patients least motivated to redetermine are the healthiest, Dr. Shannon said.

"We look at [the community] as being a critical venue for us to get the word out about the whole process of redetermination and of annual re-upping of Medicaid," Dr. Shannon said. "It's also the place we think we have the opportunity to start to educate people, and if you will start to change the culture of what it means to have insurance, or what it means to have a medical home, you build up a sense of attainment and maintenance of a better health status in the communities we serve."

Even more directly, CCHHS is working with community-based services like the Greater Chicago Food Depository to connect families with healthier food, and the Community Counseling Centers of Chicago to expand access to behavioral health care for CountyCare members.

CCHHS is also piloting a 24/7/365 crisis stabilization center on the South Side of Chicago. The behavioral health center will help intervene and stabilize individuals exhibiting public, nonviolent manifestations of behavioral health or substance use issues. "Being in the community is a much more useful place to do that than in the jail or at the mothership hospital," he said.

Each of these partnerships creates a greater link between the health system and existing community resources, Dr. Shannon said. Ultimately, the partnerships will help both sides become more aware of each other.

6. Cadillac tax

The Affordable Care Act's looming "Cadillac tax" — a 40 percent excise tax on high-cost employer-based health plans — will take effect in 2020 after a two-year delay granted in the FY 2016 spending bill. Despite the implementation delay, the tax remains a hot-button issue to watch in this year.

Named for the luxury automobile, the Cadillac tax is designed to reign in unusually expensive employer health plans and make them more cost-effective. "What it's doing is making it more and more expensive for employers to provide insurance," said Mr. Belokrinitsky of PwC's Strategy&. The tax may lead to increased deductibles as employers shift the cost burden of health benefits onto payers and employees.

The tax has been anything less than agreed-upon, as the two-year delay indicates. As of last October, roughly 7 in 10 Americans wanted the tax repealed or delayed, and the issue made the speaking agenda of some presidential hopefuls. Fierce opponents and supporters of the Cadillac tax emerged this past fall as a tax debate ensued in Congress, and some lawmakers attempted to repeal or postpone the levy. President Barack Obama indicated he would veto legislation that would weaken his signature health law, but by November, even other Democrats' support of the tax began to erode as The Hill reported Sen. Harry Reid (Nev.) and Rep. Nancy Pelosi (Calif.) were lobbying against it with their eyes on the 2016 elections.

The tax drew great support from economists and other health policy experts on the other hand, 101 of whom signed a letter arguing that the tax is an essential, albeit blunt, tool to control healthcare costs. In an op-ed in The New York Times, Ezekiel Emanuel, MD, PhD, and Bob Kocher, MD, wrote the tax could help raise an estimated $91 billion in its first eight years and repealing it would be a "big mistake."  

Many employers have not yet acted on the possibility of the tax, according to information from the Kaiser Family Foundation. They are waiting on more information from the Internal Revenue Service, which is expected in 2016. But if employers start to proactively reduce employee benefits to avoid the tax, deductibles and out-of-pocket costs will increase, increasing pressure on hospitals to collect payment from patients.

"That's a direct hit," Mr. Belokrinitsky added. "If deductibles go up, the hospital bad debt expense jumps."

7. New philanthropists

Philanthropy is being hacked.

At least Sean Parker sure thinks so.

Mr. Parker, cofounder of Napster, founding president of Facebook, board member of Spotify and chairman of the Parker Foundation, wrote in The Wall Street Journal last summer that today's philanthropists are born from hacker culture: They are relatively young, idealistic individuals from the tech community.

This emerging class of geek-elite is shaking up traditional notions and expectations of giving. They are more interested in ideas than wealth, according to Mr. Parker, who considers himself one of these giving hackers.

Mr. Parker's words were echoed in part by Epic founder and CEO Judy Faulkner, who pledged 99 percent of her wealth last June to the Giving Pledge, a platform for donors who want to dedicate at least half of their wealth to charity. "The work of my life has been to develop software that would help keep people well and help sick people get better," Ms. Faulkner wrote in her pledge letter. She said Epic needs to remain financially secure, "But I never had any personal desire to be a wealthy billionaire living lavishly."

Tech leaders like Ms. Faulkner are funneling their wealth into healthcare-related causes. For example, founder Marc Benioff donated a second $100 million gift in 2014 to UCSF Benioff Children's Hospital and Facebook founder and CEO Mark Zuckerberg and his wife, Priscilla Chan, MD, donated $75 million to San Francisco General Hospital last February. Mr. Zuckerberg also joined The Giving Pledge in December, committing 99 percent of his Facebook shares to charity.

Why should hospital and health system leaders care? This new class of givers wants to measure and track the impact of their dollars. Like any other metric, the challenge for hospitals and health systems will be to produce digestible information for philanthropists from the mountains of data they collect.

"Philanthropists are expecting not just to see their name on the hospital, but the outcomes of care... the return on the investment of the money they are giving," Mr. Belokrinitsky of PwC's Strategy& said. "When they give money, it's less about the name on a hospital wing, and it's more 'I want a dashboard that shows how my contributions are helping outcomes,' and that's pretty hard to do," Mr. Belokrinitsky added.

8. Productization of healthcare through bundled payments

Bundled payments are effectively the "productization" of healthcare. This payment methodology approaches care from a more holistic perspective, in which the entire episode is considered the product versus each individual service and treatment.

CMS' Comprehensive Care for Joint Replacement Model takes effect April 1, 2016. The five-year model requires approximately 800 hospitals in 67 designated geographic areas to participate. These hospitals will continue to be paid under existing Medicare fee-for-service rules. However, the hospital where the hip or knee replacement surgery takes place is held accountable for the quality and costs of care from the time of the surgery through 90 days after the patient is discharged. The CCJR is a retrospective payment model, meaning once the episode of care is complete, hospitals are eligible to receive an additional payment or required to repay Medicare for a portion of the episode costs, depending on the quality of care and cost performance.

"I think [the CCJR] will work because [bundled payments] work in every other part of the economy," says Dr. Friend of BDO's Center for Healthcare Excellence & Innovation. Dr. Friend gave the example of buying a ticket for a flight. "You don't pay the pilot one price, the co-pilot another price and the flight attendants another. You're not charged for the gas. All of those costs are included in the price of your ticket."

He believes once people see this working in the mandated regions, consumers in other areas will demand it.

The productization of healthcare through bundled payments poses a challenge to hospitals because it forces all parties across the care continuum to work together, according to Dr. Friend. For instance, the Association for Healthcare Resource & Materials Management predicts medical supplies will outpace labor as the biggest expense for hospitals and health system by 2020. The high cost of supplies across disparate manufacturers and distributors immediately threatens the success of a bundle.

In 2016, suppliers, hospital administrators, employed physicians, community physicians and post-acute care providers will need to make a concerted effort to control costs and provide the best and most highly coordinated care possible — particularly if they are operating under a bundled payment model.

9. Consumer-driven competition

With the increasing popularity of high-deductible health plans and more readily available information on outcomes and prices, healthcare is becoming an industry in which consumers shop for care. This makes it critical for hospitals and health systems to become more competitive to maintain market share.

Consumerism creates opportunities and challenges for healthcare provider organizations. Survey findings from McKinsey & Company suggests that, for hospitals, just performing better than their current healthcare competitors will not suffice. Customer expectations are being set by non-healthcare businesses, and meeting those expectations is likely to be critical to ensure satisfaction and loyalty.

Consumerism could create a fluid marketplace where hospitals can more easily win or lose market share, says Rob Lazerow, practice manager for The Advisory Board Company. In the context of a more competitive marketplace, hospitals are also vulnerable, as "more disruptive innovators…are building new business models around experience or service and offering products where there are gaps in the market," says Mr. Lazerow.

Success in a consumer-driven market challenges hospital leaders' conventional wisdom. "Competing effectively on consumer experience means being able to think from consumers' perspective and understand what they expect from the delivery system," says Mr. Lazerow.

Hospital and health system CFOs play an integral role in the change, specifically in preparing their organizations' revenue cycle.

"As more and more patients have a financial stake in what they owe for their care, organizations have to reorient the way they operate toward those patients who have questions about, 'How much will I owe, when will I owe it and are you the best balance of cost with value for my care?'" says Jim Lazarus, managing director of strategy and innovation with The Advisory Board Company's revenue cycle division. This is sometimes expressed as the emergence of "the patient revenue cycle," he says.    

10. Sealing the revenue cycle

Research from The Advisory Board Company shows healthcare organizations leave 2 to 5 percent of their net patient revenue on the table because of inefficiencies such as operational silos between their revenue cycle functions and the inability to gather actionable insights from the large quantity of financial data.

Patients experience revenue cycle inefficiency firsthand when they are asked for the same information multiple times from the time they schedule care through the final payment of their bill. On many occasions, patient information is not shared from one arm of the enterprise to the other, or older, inefficient tools don't make the information readily available or actionable for hospital staff, says Mr. Lazarus of The Advisory Board Company's revenue cycle solutions division.   

In addition to frustrating patients, these inefficiencies have a significant financial toll —for the average 300-bed hospital, that's over $10 million a year in lost revenue at minimum, according to Mr. Lazarus. That money could instead go toward clinical operations or population health initiatives.

"Everyone recognizes that they're leaving money on the table due to inefficiency," he says. "But 2016 is the year we have to close this revenue gap. Otherwise organizations will really struggle to find the funds they need to take on their pressing long-term challenges [of population health and value-based care]."
New technology solutions can take data from the back-end, or their business office, about how patients interact with the organization and how much patients are able to afford, and bring it to the front so hospital staff know this information before the patient comes in. This allows organizations to be strategic in how they deploy staff to work with patients on their financial obligations, and ultimately improve financial performance while allowing patients to stay focused on their clinical care rather than administrative tasks.

Ultimately, organizational changes in how health systems handle their revenue cycle will improve patient care, Mr. Lazarus contends. By connecting patient intake services with the back end, hospitals will create seamless flow of data that will improve the patient care experience, such as reducing — and ideally eliminating — the number of times a patient is asked the same question.

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