Thursday, October 24, 2013

Sticker Shock

The song "Take Me Out to the Ball Game" is the unofficial anthem of Major League Baseball (MLB) baseball with the chorus being sung during the middle of seventh inning as part of tradition for numerous teams.  However, the amount that it costs to actually take the family out to a ball game is quickly becoming cost prohibitive in each of the four major sports (NFL, MLB, NHL, & NBA).   A similar trend with an impact on household budgets is occurring in healthcare, where the “new normal” of health insurance is shifting towards high deductible plans that trade lower premiums for higher out-of-pocket spending in order to provide coverage for a family.

Team Marketing Report (TMR) is a company that has developed the Fan Cost Index (FCI) which calculates the average cost for a family of four to attend a major sporting event per team in each sport.  For the purposes of this metric, the FCI defines cost as four tickets at average price, two small beers, four small sodas, four hot dogs, parking, two programs and two adult caps.  As one might imagine, the FCI will vary significantly based on sport, team and market however for many it's still the kind of amount most usually need to plan ahead and factor into the family budget in order to spend.  To put these numbers into context one only needs to look at the FCI averages by sport for a family of four: NFL ($427), NHL ($355), NBA ($315), and MLB ($210).  

To illustrate highlight the variation from average and the potential price tag for a family to attend a Chicago team game consider that the FCI for this year were as follows: Chicago Bears, $577.42; Chicago Blackhawks, $396.03; Chicago Bulls, $426.60; Chicago Cubs, $298.20; Chicago White Sox, $231.18.  While Chicago has been fortunate that its teams have been relatively successful in recent years (with the exception of baseball), the challenge is that cost typically does not fluctuate with poor performance.  In fact, and this is true with almost all teams from all cities, history has shown most increase the cost of tickets prices following successful seasons and at best remain flat after disappointing ones. 

As employees that are fortunate to work for companies that provide health benefits begin to make their plan selections for the upcoming year, if they haven’t already, many will encounter a new option when they open their benefits’ packets that includes high-deductible plans.  High-deductible plans are the increasingly common kind of health insurance that has cheaper premiums than traditional plans.  However, the disadvantage to these plans, particularly for family coverage, is that the employee is usually responsible for thousands of dollars in out-of-pocket costs via copays and deductibles in addition to the contribution towards the cost of the premium that is subtracted each pay period before the insurance kicks in.

According to a Kaiser Family Foundation survey, back in 2006, just 10 percent of Americans who get health insurance through their employers had a high-deductible plan. Today, more than a third have them, and that percentage is growing exponentially each year.  It also found that premiums for the average family plan topped $16,000 for the first time, with workers paying on average $4,565 toward that cost, not counting copays and deductibles.

The benefits consultant Aon Hewitt forecasts that this trend not only to continue but that it will speed up with more workers at big U.S. companies likely to start paying a greater share of their doctor's bill because of the shift in health insurance.   They predict that high-deductible plans, or “consumer-directed health plans” as they’re also called, could become the most common form of coverage offered by companies with 500 or more workers in the next three to five years as companies continue trying to cut health-care costs.

The cost take the family “out to the ball game” will continue to rise just as the cost for healthcare coverage will increase for the conceivable future.  But for a moment, consider you have Chicago Bears season tickets and want to bring your family of four to each of the eight home games at the cost of $577 per game as identified by the Fan Cost Index (FCI).  As noted above, the Kaiser Family Foundation found workers paying on average $4,565 toward that cost of health care premiums for a family which when divided by eight; ironically comes out to $570……choice is yours.

Thursday, October 17, 2013

The Impact of Free Agency on Healthcare

If you google the term “destination provider” you’ll find links to vacations and moving companies among the top results.  In healthcare, the phrase refers to specific physicians that patients will travel to seek for care, sometimes great distances.  Often specialists or surgeons, these physicians are frequently the centerpiece around which different programs or service lines are developed and tend to have a strong influence on many of the strategic decisions an organization will make.  Over the last few years, the National Basketball Association (NBA) has evolved in a similar manner with the pursuit of superstars for to immediately impact a team’s fortune around which the remainder of the roster is built and personnel decisions are made.


In July 2010, “The Decision” was a television special in which NBA star LeBron James announced that he would play for the Miami Heat prior to which he was actively courted by no less than five other teams.  Just days before, Chris Bosh joined the team to form part of a dynamic trio including James, Bosh, and Dwayne Wade that would lead the team to the last two NBA championships. 

If you look at many of the NBA rosters most would consider successful, a common trait nearly all possess is the presence of at least one “franchise” player.  Unlike some other sports where the draft serves as the foundation of the organization, the NBA has evolved into a sport where teams are built around these “franchise” free-agent players.  This is not to diminish the importance of the NBA draft because it still produces these great players but it’s the true superstars of NBA can turn a lottery team into a potential championship contender.  While these superstar players are few and far between, there are NBA rosters full of first round picks that have failed to meet expectations yet have respectable careers as role players. 

NBA owners realize this and when these superstars become available, teams will pull out all the stops in their efforts to make an offer more appealing.  In addition to the significant contract they’ll sign, this range from having a say in a team’s overall free-agent recruitment efforts to deciding on who will be the next head coach.  Teams understand that in the NBA, the quickest route to becoming a contender is to recruit one of these superstars and to build a team around them.

Take a look at almost any health care organizations’ strategic plan and chances are that it includes an approach or tactic aimed at developing various service lines for future growth.  Moreover, due to the potential for strong positive margins with consideration given to the current needs and demographics of a region, there are probably specific surgical specialties that are targeted within those service lines.  In addition, while the push towards population health may have some leaders feeling the need to take advantage of multidisciplinary approaches, subspecialties, or technological advances regardless of the approach it will require a strong physician to be successful.

The strategy behind recruiting a high-profile surgeon or “destination provider” is based on creating a service offering compelling enough to increase the geographical range on which the hospital draws for referrals.  It provides a unique opportunity for the hospital to distinguish itself in the market and patients will travel farther for care at a center that offers advanced programs featuring specialized staff with a greater degree of expertise in treating their disease.

A recent study by the Advisory Board Company identified targeting specialists for recruitment as a best practice for increasing market share and noted that there is “no substitute for star physicians”.  In addition to financial incentives these physicians are given, recruitment efforts often include commitments to a new capital, dedicated staff, and an infrastructure that positions them to have a strong influence on the strategic direction of the organization.  Furthermore, if it’s possible to recruit these specialists from the medical staff of a competitor facility, the potential gains in market share could be significant as the volumes for the specialty procedures they perform will follow the physician.

The NBA has largely become a league of have's and have-nots.  The teams with superstars are the teams that are consistently more competitive and able to distinguish themselves from the rest of league.  In the hospital world, the ability to grow or develop a service line is no small task and it involves a number of moving parts.  However, successful efforts to recruit a superstar or “franchise” free-agent surgeon/specialist can quickly change things in a market and for a hospital.

Thursday, October 10, 2013

"Cost".....what's it mean to you?

It’s interesting how perspective can change the way we define things and how the same word can be used almost interchangeably, yet have very distinct meanings.  With an estimated three billion fans worldwide, “football” is the most popular sport on the planet. However in the U.S., while “football” is still hands down the most popular sports league, to the majority of the population it’s played and means something altogether different.  The healthcare industry is primarily divided up into four major groups including patients, providers, payors, and everything else.  Due to factors such as stage of life and employment we have the potential to be in different or multiple groups at any given time and as a result depending on perspective, our definition of the word “cost” will change significantly.

In the early days of the sport primarily know globally today as “football”, among the upper echelons of British society the proper term for the sport was “soccer”.  It was not until it became more popular with the middle and lower class that the term “football” slowly began dominating over “soccer”.  While there were many types of “football” sports in existence being played
eventually a standard set of rules were created and the game gradually spread throughout the world under the lower class name of “football”, rather than “soccer” as the “gentlemen” called it.

If you think about it, the term “football” makes perfect sense because with the exception of the goalie, a majority of the play involves feet.  However in the U.S., the game played almost exclusively with hands is called “football” and the game played almost exclusively with feet is called “soccer”.  While both sports are played by two teams of eleven players on a rectangular field, likely do to its derivation (American football comes from a combination of rugby and soccer), that’s largely where the similarities end. 

In healthcare, the definition of the word “cost” can have varied meaning depending on who the cost is being attributed to.  From a patient perspective, it’s the amount an individual has to pay for the care that was provided to them or what’s commonly referred to as “out-of-pocket”.  From a provider perspective, it’s the amount the organization or health care provider has to pay for the resources needed such as personnel, supplies, drugs and equipment that are required to care for a patient.  Lastly, from a payor perspective, it’s the amount reimbursed or paid to the health care provider for the care given to the patient by the government (individual states & CMS) and health insurance companies depending on the individual patients’ coverage.

Unfortunately, these perspectives are rarely aligned in such a way that promotes efficiency or creates common incentives.  As pointed out in a recent book titled The Incentive Cure, “what ails the health care in the U.S. are the incentives. They're screwed up from top to bottom and until we change them, we can't cure health care.”  The result of this disconnect is a major component contributing to the reason that health care consumes nearly 18.0 percent of the GDP or almost one every five dollars that the government spends.  Also, it’s one of the main reasons “we spend twice as much per capita than most other countries on health care and don’t get better outcomes as a result” according to the Brooking's Institute.

The terms “soccer” and “football” will likely always be interchangeable among various populations, particularly in the U.S. where the popularity of football is dominated by the juggernaut that is the National Football League (NFL) and that’s just fine because there’s enough fans for both.  If the healthcare industry is to avoid continued skyrocketing costs and sending the federal health care program into the “death spiral” predicted by National Center for Public Policy Research it’s critical for incentives to be aligned between patients, providers, and payors.  However, at this rate, the differing “costs” of healthcare is an issue that will likely have a significant impact all Americans regardless of perspective.

Wednesday, September 25, 2013

Health Reform is finally here.....hope you draft well.

Every major professional sport uses a draft process to maintain a competitive balance and add young, quality less-expensive players to its roster of older high-priced veteran players.  Starting October 1, a major portion of the president's health care reform law (the Affordable Care Act) will go into effect changing the way millions of Americans get their coverage with open enrollment to buy insurance on the new state health exchanges scheduled to begin.  Much like the draft process where an infusion of youth is critical to the overall stability of the team, the ultimate success of these exchanges will be largely dependent on insuring young, healthy people to help balance out the risk of covering older, sicker, more expensive adults.

While drafting formats vary slightly depending on the sport, the significance of building a roster through the draft with young talent cannot be understated particularly in the salary cap era.  The thing about draft picks is that their salary is rigidly controlled, initially through their first contract; later by virtue of being a restricted free agent and until the time they become an unrestricted free agent. 

These players don't make as much money as they will in the future, yet they are key contributors and provide significant value for the teams that are paying them.  Therefore, what makes them so valuable in addition to their performance is that in most cases they are underpaid relative to older veterans and unrestricted free agents.   

Draft picks are calculated risks that have minimal or limited financial significance to the team’s total salary expenditures.  The goal is to acquire as many important young contributors as possible before they hit their big pay day in order to help alleviate the salary cap pressures of paying for the core group of more experienced players.  Ultimately, the ability to succeed depends on finding the right balance of youth to augment and complement the more expensive veteran presence already in place.

On Tuesday, October 1st, people will be able to start enrolling in the new health insurance exchanges for coverage next year.  The administration is counting on at least 3 million of the 19 million young, uninsured Americans (a demographic of the population referred to as the “young invincibles”) to purchase insurance in order to offset the higher costs of insuring older and sicker Americans.  However, a Commonwealth Fund report found that only one in four young people (27 percent) is even aware of the exchanges and among those who were uninsured for a period of time in the prior year, less than one in five (19 percent) know about the exchanges

More recently, a study funded by the Robert Wood Johnson Foundation (RWJF) found that, contrary to popular belief, most uninsured young adults actually think they need health insurance.  This perceived need would seem promising however nearly 80 percent of those surveyed indicated that although they wanted health insurance, most do not believe that it will be affordable enough for them to buy.  This has the potential for significant impact because without young adults, who pay for insurance yet rarely use it, the cost of insurance premiums will increase for everyone.

According to a report released by the Agency for Healthcare Research and Quality (AHRQ), one percent of patients accounted for roughly a fifth of all health care spending and five percent of patients accounted for half of overall health care costs. By contrast, the same report found that 50 percent of patients accounted for only 3 percent of health care spending.  With statistics like these, it’s easy to see the importance of having a pool of participants to offset these 'super-utilizers' who place such a huge burden on health-care system.

The ability for teams to draft good young players has never been more important than it is now in the salary cap era.  By failing to draft well and find inexpensive talent, a team is severely limited in its options.  In order to remain competitive, it will need to spend more money on free agents, and as a result of that, have less money to spend on its core group of more experienced players.  The same is true for the health exchanges where having a balanced insurance pool that includes enough young, healthy people to help offset the costs of those that are older and sicker is critical to the success.  If they are unable to do so the fear is that premiums could spiral out of control which might not bring the whole system down, but it could certainly cripple it.