Thursday, October 24, 2013

Sticker Shock

TODAY ON THE POND
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.

THE CROAK
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

TODAY ON THE POND
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.

THE CROAK

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?

TODAY ON THE POND
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.

THE CROAK
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.

TODAY ON THE POND
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.

THE CROAK
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.

Wednesday, September 18, 2013

You're in OK shape for the shape you are in.....but now try to manage an entire population.

TODAY ON THE POND
In professional sports, a salary cap is established primarily as a method of keeping overall costs down and to ensure all teams are competitive.  It limits the amount of money that a team can spend on player salaries by determining a maximum amount for the entire roster.  According to a recent study by the consulting firm Oliver Wyman, more than half the U.S. population (52%) lives in primary care service areas served by emerging care delivery models known as “accountable care organizations” or ACOs, which reward doctors and hospitals for working together to improve quality and controlling costs.  The unsustainable growth of health costs have forced the U.S. to reconsider how healthcare is delivered and with the proliferation of ACOs focused managing population health we may be looking at the healthcare industry’s latest version of a salary cap.

THE CROAK
Each of the four major professional sports (MLB, NBA, NFL, & NHL) has a unique way of handling how player salaries are managed and the amount of money its teams can spend.  These strategies span from a no cap system with luxury taxes, to a fully capped system with monetary penalties.


Generally speaking, teams must adhere to a predetermined amount of money to spend on all of its players.  This amount is calculated using a complicated mathematical equation involving how much money the league made in the previous year, ticket sale profits, merchandise sales, and television contracts all of which is divided by how many teams are in each league (subject to variation depending on the sport).  Within this framework, it is the role of each team to acquire quality players that produce success on the field, court or ice and creates an accountability for how well that money is spent.
Enforcing a limit on how much teams can spend on their players' salaries has been around since the Great Depression when in the early days of the NHL, the league was under financial pressure established its salary cap at $62,500 per team, and $7,000 per player.  Last year, the NHL cap limit was at $60M per team.  Ultimately, the salary cap is a mechanism that provides team owners with a safeguard to maintain the league's profitability by ensuring that player salaries don’t spiral out of control.  If salaries, which are “costs” to the owners, grow faster than revenue, the individual teams and eventually entire leagues would quickly lose its financial viability……which brings us to healthcare.

Total health care spending in the U.S. is expected to reach $4.8 trillion in 2021, up from $2.6 trillion in 2010 and a mere $75 billion in 1970. To put it in context, this means that health care spending will account for nearly 20 percent of gross domestic product (GDP), or one-fifth of the U.S. economy by 2021.  With costs escalating at this rate, it’s easy to see the challenge to achieving financial viability that hospitals and health systems face.  In fact, the American Hospital Association (AHA) showed that one in four hospitals operate in the red and nearly 30% percent of hospitals had negative operating margins according to a 2011 report.
While estimates vary, wasteful spending likely accounts for between one-third and one-half of all U.S. health care spending.  PricewaterhouseCoopers calculates that up to $1.2 trillion, or half of all health care spending, is the result of waste.  An Institute of Medicine (IOM) report estimated unnecessary health spending totaled $750 billion in 2009 alone. 

Compounding these inefficiencies going forward, the Affordable Care Act (ACA) or “Obamacare” will extend health insurance to an additional 32 million people at a time when the aging baby boomer population is increasing the need for chronic care management.  As part of the ACA, a number of specific demonstrations are being conducted by the CMS Innovation Center to develop new payment and service delivery models such as ACOs and Shared Saving Programs.  The traditional model of healthcare delivery is not structured financially to incentivize efficiency, or practically to care for this growing and changing population.  In these new models, the ACO assumes some financial risk and responsibility for the care of a defined population with the aggregate results across all patients being the metrics that matter.   
While the financial risk implications will differ based the type of model (i.e. Pioneer ACO Model, Advance Payment ACO Model, or some other Shared Savings program), much like professional sports each has its own unique way of calculating that risk that involves a complicated mathematical equation.  Today, in its most generic form, most follow a “shared savings and losses” model, under which they will share in any savings or losses that are achieved when compared against a benchmark or predetermined amount for a specific set of beneficiaries.  Eventually though, a population-based payment or per-beneficiary per month payment amount is intended to replace a significant portion of an ACO’s fee-for-service (FFS) payments thus creating its own version of a salary cap.

Professional sports are “copycat” leagues and once one team has been able to demonstrate sustainable success others will follow.  Healthcare is no different however we often refer that as “following best practice”. Providers and payors alike are watching closely to see if these new models can evolve into best practice and help to curb the rising costs of care delivery.  The industry is approaching a tipping point in which greater risk and responsibility will be shifted onto the providers.  In order to achieve success in the future state, it will be critical for organizations to have the right delivery model to effectively manage their “salary cap”.

Wednesday, September 11, 2013

Don't worry....its just a little infection

TODAY ON THE POND
As if the actual game of football itself wasn’t dangerous enough, two Tampa Bay Buccaneers’ players (Carl Nicks and Lawrence Tynes) were recently sidelined due to MRSA infections (Methicillin-resistant Staphylococcus Aureus) they believe they contracted at one of the organization’s facilities.  According to the CDC, approximately one out of every 20 hospitalized patients will contract a hospital acquired infection (HAI) such as MRSA.  In both settings, these infections often occur because of a failure to comply with common prevention measures and the end result can be devastating, costly, and sometimes even deadly.


THE CROAK
MRSA is the term used to describe strains of bacteria that can live on the skin or in the nose without causing symptoms but can be life-threatening when it reaches the bloodstream or vital organs.  What makes MRSA different from other staph bacteria is that it has built up a resistance to the antibiotics doctors typically use to treat staph infections.   It spreads easily in crowded areas or areas where skin-to-skin contact happens regularly such as a locker room, weight room or training room and has been a serious problem to the NFL in the past.
An NFL physicians’ survey determined that from 2006 to 2008, four of the 32 teams including St. Louis Rams, Cleveland Browns, Washington Redskins and San Francisco 49ers had documented cases of MRSA.  A New England Journal of Medicine (NEJM) study followed the St. Louis Rams through one season and found that five of the 58 Rams players (9 %) developed MRSA infections.  In all cases, the infections developed at turf-abrasion sites and were significantly associated with the lineman or linebacker position.  During the time of the survey, no less than six Cleveland Browns players had documented cases of MRSA and three of them owe the end of their careers to the infection they contracted while with the team. 

The lasting effects of MRSA are not limited to football as high-profile names in every sport have been put on the shelf for extended periods including former MLB slugger Sammy Sosa, White Sox outfielder Álex Riós, Grizzlies forward Rudy Gay, Rockets forward Shane Battier, Nuggets forward Kenyon Martin. Ex-middleweight champ Kelly Pavlik nearly died from an infected cut on a knuckle.
Consider the impact MRSA can have on someone that does not have the resources or knowledge to deal with the infection when it strikes.  DaVonte King was 13 when he came home from football practice in Green Bay, WI complaining about his head and ankle. He had no visible cuts or bruises and the diagnosis was a sprain so he was sent home and cleared to go to school the next day.  Three days later he was rushed to the hospital after he started to spit up blood where it was discovered that he had a septic blood clot. He was airlifted to a Milwaukee children's hospital, where he spent the next 50 days, a month of that on life support. His left leg was amputated just below the knee.

About a decade ago, hospital-related MRSA infections sickened more than 90,000 people nationwide each year, leading to roughly 20,000 deaths.  As hospitals improved prevention measures, those numbers dropped by about a third, with fewer than 10,000 deaths in 2011, according to the CDC.  However, as in-hospital infections are on the decline, more people are checking into hospitals with MRSA than those with either HIV or influenza, combined.

Most of these patients are likely picking up the bacteria even before they reach the hospital grounds so it’s probably safe to conclude that the increases being seen can be blamed on community-associated MRSA, a different strain of the germ.  At least some of the increase reported may simply be due to the fact that hospitals are more alert with better screening but nonetheless, that doesn't change the fact that more people in general are becoming carriers for MRSA.  
In addition to the impact on patient outcomes, there are also significant cost implications associated with these infections.  According to research published last week in JAMA Internal Medicine, HAIs account for a large proportion of the harms caused by health care and are associated with nearly $9.8 billion per year in added costs.  Specific to MRSA, a Duke University Medical Center study found that patients with surgical site infections due to MRSA were 35 times more likely to be readmitted and seven times more likely to die within 90 days compared to uninfected surgical patients.  Furthermore, these patients also required more than three weeks of additional hospitalization and accrued more than $60,000 in additional charges.

These stunning stories and staggering statistics drive home the importance of why prevention of MRSA is so crucial.  Simple steps like washing hands and equipment regularly, the use antiseptic bandages to cover wounds and adherence common prevention measures can have a significant impact.  The NFL is a physical sport and the related injuries generally consist of strains, tears, abrasions, breaks and bruises but not infections.  The long-term effect MRSA will have on the careers of the Tampa Bay players impacted is yet to be seen but what is clear is that they sought treatment and ended up with something much worse.  Likewise in healthcare, where patients who don't come into the hospital with MRSA.....should never leave with it.

Wednesday, September 4, 2013

Addition by Contraction: Hockey and Hospitals

TODAY ON THE POND
In the 1990’s, the growth strategy of the NHL was to move teams into Florida, Arizona, North Carolina and California and expand into non-traditional markets like Nashville and Columbus.  Two decades later, it appears that the NHL has pushed more hockey out across the country than people wanted to see.  Throughout the healthcare industry, hospitals have reported little or no inpatient admission growth in recent years and are facing a trend to curb spending by treating patients anywhere but in the costly hospital setting.  Both are faced with a similar challenge of trying to manage their excess capacity in order to achieve financial success.


THE CROAK 
At first glance, attendance appears strong in most NHL cities with two-thirds of all teams filling their arenas to 95% or more of capacity in 2011.  However, this is misleading as revenue varies significantly as teams in strong hockey markets enjoy more pricing power.   For example, teams like Tampa Bay and the NY Rangers draw comparable attendance per game however gate receipts are $23M vs. $95M.   In healthcare, just because inpatient volume is up (and generally speaking it’s not) doesn’t necessary translate to financial prosperity.  This is particularly true if a significant portion of that volume is Medicaid and your hospital is located in Illinois where the state is already over $8 billion behind in Medicaid payments and reimbursements are delayed six months or more.


The NHL has experienced four major work stoppages since initiating the “Sunbelt” (FL, AZ, NC, & CA) and non-traditional market growth strategies of the early 1990’s which certainly contributed to their lack of success.  Surprisingly, in the 12 years between the most recent and the 2004-05 lockout that cancelled the entire season, NHL league-wide revenue is up about 50% to over $3 billion.  However, that percentage is misleading as more than 80% of the profits go to three teams and almost half the 30 clubs lost money in 2011.  

 According to David Houle and Jonathan Fleece, authors of “The New Health Age: The Future of Health Care in America”, the hospital institution as we know it is in the midst of massive and disruptive change.  This change is likely to worsen and already difficult situation as almost 29% of hospitals had negative operating margins in 2011 (AHA Annual Survey, 2012).  With an emphasis toward managing population health, there are new incentives to treat patients and promote wellness in order to prevent expensive hospital visits.  The outcome of these incentives will mean a lot fewer hospitals and hospital beds because providers will do more to keep patients healthy enough not to need them.  As a result, hospitals are looking closely at capacity and spending has shifted toward outpatient services.

 
A 2012 article in Forbes magazine referred to contraction as “The NHL's Best Hope” for financial stability as the league has 30 teams when it should have 20.  Houle and Fleece foreshadow that the change in healthcare will be so transformational that by 2020 one in three hospitals will close or reorganize into an entirely different type of health care service provider.  In the end, it appears that both NHL teams and hospitals will ultimately face a similar fate because the fundamental problem is that there are too many of each.

Friday, August 30, 2013

For-Profit Hospital Town USA

TODAY ON THE POND
Green Bay is “TitleTown”, just as Detroit is “Hockeytown” and St. Louis is the “Best Baseball Town in America”.  The descriptions are nicknames of cities and towns that are familiar to many and used with regularity throughout the sports industry.  In the healthcare industry, what if you heard the phrase “The Nation’s Health Care Capital” or “For-Profit Hospital Town USA”?   To some the answer might not be as obvious and the response might surprise….it’s Nashville, Tennessee.



THE CROAK
Green Bay, Wisconsin is the NFL’s smallest market by far and the smallest city to boast a major professional sports franchise (pop. 100,353) however every game at Lambeau Field has been sold out since 1960. The Green Bay Packers have had 13 championships seasons including nine NFL championships prior to the Super Bowl era and four Super Bowl victories, more than any other team in the NFL.  The team has earned and embraced its nickname so much that the name "Titletown" appears on the city seal and the Green Bay Chamber of Commerce web address is www.titletown.org.


In Detroit, Michigan the term "Hockeytown" was part of a 1996 marketing campaign by the Detroit Red Wings, an Original Six team, to celebrate the team’s success after more than four decades of struggle.  It was also the same year the Red Wings won its first Stanley Cup since 1955 and the phrase is now a registered trademark owned by the franchise.  Detroit has won 11 Stanley Cups (four in recent past) are second only to the Toronto Maple Leafs and the Montreal Canadians, neither of which have won a championship in nearly two decades.

The national media and TV broadcasters commonly refer to St. Louis as the “Best baseball town in America”.  Drawing from a regional fan base that includes Missouri, Illinois, Arkansas, Oklahoma, Iowa, Indiana, Tennessee and Kentucky, the St. Louis Cardinals are one of only two MLB franchises to draw at least 3 million fans at home in 14 of the last 15 seasons.  They are also one of the most decorated and successful franchises in MLB history, having won eleven World Series championships, 18 National League pennants, and ten division titles. Their eleven World Series titles are second overall only to the New York Yankees.
Within the healthcare industry, the NFL, NHL, and MLB equivalent city is Nashville, Tennessee.  While it’s more commonly known as the center of the music industry, nicknamed "Music City", there are more than 300 healthcare companies that operate from Nashville on a multi-state, national or international basis.  In fact, globally, healthcare companies located there generate more than $70 billion of revenue and employ more than 400,000 people.  With a 50 percent increase from 1995 to 2008, clinical provider job growth in Nashville has outpaced the nation (35 percent) and Tennessee (40 percent).

The Nashville area is also pretty much the headquarters for the for-profit hospital industry, and is home to 16 public healthcare companies.  According to a July 2013 report by Becker’s Hospital Review, seven of the 13 largest for-profit hospital operators in the country (and three of the top four) are based in Nashville.  Hospital management companies from the area manage over 60 percent of all the for-profit hospital beds in the country.  Nashville also has a significant presence in ambulatory and outpatient surgery, dialysis, disease management, clinical research, hospital management support services and healthcare information technology.
While nicknames like “The Nation’s Health Care Capital” or “For-Profit Hospital Town USA” will never challenge the charm “TitleTown” or “Hockeytown”, in terms of importance Nashville, is well on its way to becoming the center of the healthcare universe.  Many healthcare leaders such as Dr. Thomas F. Frist, Jr. already refer to it as “The Silicon Valley of healthcare” and with the staggering amount the venture capital community has invested in healthcare services it hard to not recognize Nashville’s significance to the industry.

Thursday, August 22, 2013

Transitioning from Fee-For-Service to Fee-For-Value....a lot can happen in five years

TODAY ON THE POND
Some believe that the transition from fee-for-service (FFS) to fee-for value (FFV) payment is still at least five years away….but a lot can happen in five years.  Consider how 2013 Philadelphia Phillies disappointing season came to be or Albert Pujols who'll be collecting game checks from the disabled list for the remain of the season.

THE CROAK
Five years ago, the Philadelphia Phillies were one of the most dominant teams in MLB and on their way to winning the World Series….a little over a week ago they fired Charlie Manual, the manager that lead the team to that dominance.  In the midst of their success, they traded prospects for established veterans and signed their core players to long-term expensive deals in an effort to keep the group intact and win now by mortgaging the future.   Fast forward to today…..who could have predicted they’d become a team of oft-injured aging veterans with a depleted farm system and a culture of apathy possessing still just that one World Series ring from 2008 to mark this group’s era of success….a lot can happen in five years. 

There are plenty of opinions around when the transition from FFS to FFV will actually occur.  Is it two years, is it five?  As you’d imagine, those holding on tightest are the organizations that benefit the most from the current state.  Without forward thinking leadership with long-term vision they’ll hold onto today’s structure and the existing reimbursement models as long as possible and who can fault them.  However change is coming and some of it will be unpredictable.  Will they be ready?
In 2011, while Albert Pujols did not produce MVP seasons like in 2008 and 2009 (he was the unanimous choice) he still batted .300 was at the top of numerous offensive categories and put on a post-season performance that was epic.  He batted .350 and .478 in the first two rounds of the playoffs and joined Babe Ruth and Reggie Jackson as the only players in baseball history to hit three home runs in a World Series game at the time, becoming the first player in series history to have hits in four consecutive innings, and tied records for most hits and most RBIs in a World Series game.  That offseason he left the Cardinals as a free agent signing a huge contract with the Angels.  He struggled mightily to start 2012 and after a sub-par performance this year will now miss the remainder of the 2013 season.  The Anaheim Angels still owe him $212 million from 2014-21….a lot can happen in two years. 

 
 
Two years goes by in the blink of an eye, never mind five, ask those who’ve been around for a while.  It’s important to understand that whether you trying to build your physician network, restructure your organization to manage population health, or simply position yourself for success in a FFV world (whatever that ultimately means) that work needs to happen now. 


What has worked for us in the past is just that…..in the past…..and if we try too hard to hold on to today we risk leveraging our future.  The Phillies went “all in” with their efforts to keep that 2008 window open for as long as possible and they fell short of the ultimate goal.  They tried, which is great, but was it worth the risk because for the foreseeable future the organization will struggle.  Don’t drink the Kool-Aid Phillies’ fans….the window is closed.   

The Angels on the hand maybe didn’t go all in but they sure made a significant investment that after a mere two years would hardly be viewed as successful.  If Albert Pujols fails to perform at level that at least resembles his former self, how much will that investment impact the Angels going forward?

In healthcare, we have annual business development planning sessions, hire consultants to develop elaborate strategic plans, make numerous capital investments (human capital and otherwise) geared towards preparing for the future.  While the timeline may be up for debate, most would agree that this “FFV thing” is coming and significant changes are on the horizon.  The moral of this story is don’t hold onto today for too long and don’t leverage the future too much…… our long-term success will be determined by the decisions we make about where to invest today.

Tuesday, August 20, 2013

Every hospital merger is looking for a really good Tight End

TODAY ON THE POND
Right now, Fantasy Football leagues are getting ready to establish teams and in most, a strange phenomenon will predictably occur that often changes the shape of each team’s draft.  In healthcare, a similar trend has begun that will change the landscape of hospital providers across the country as the industry enters a new era of mergers and acquisitions.

THE CROAK
There are generally a few types of drafts that occur.  There’s an "Autopick Draft" option, in which the system automatically drafts players to each team and a “Keeper” league options where players can be carried over from the previous years.  There is also the most popular, “Live Draft”, which can take place Online with participants logged into the same website or Offline, perhaps at a single location where multiple owners will gather in-person to select their players in an actual draft.

During the “Live” drafting process, there is phenomenon that will inevitability occur at which point a “run” on certain position players happens.  Many drafts start out with the attention on RBs and QBs being selected followed by a wave of WRs (depending on the scoring).  However, maybe around the 4th, 5th, or even 6th round something extraordinary happens…..the first tight end (TE) gets selected. 

The TE is more of a niche position much like selecting a defense or even a kicker (well, maybe not a kicker).  There are only a few of really good ones and once the first gets selected, people usually react quickly or panic to make sure they’re positioned to get one of the good ones.

On June 24th, it was announced that Tenet Healthcare had agreed to acquire Vanguard Health Systems.  When the merger is finalized, Tenet will operate 77 hospitals in 30 markets, which includes Tenet's 49 hospitals in 24 markets and Vanguard's 28 hospitals in six markets.

Just a week later in a move of even greater magnitude, Community Health Systems (CHS) announced it will be acquiring Health Management Associates (HMA).  Now that the hospital operators in the on-again, off-again merger have decided to consummate their relationship, the two would create the largest U.S. hospital company by number of hospitals.  CHS will own and operate approximately 206 hospitals in 29 states with a total bed count of over 31,000 and be the No. 2 operator by revenue, with about $18.9 billion.



I’d like to suggest that in the healthcare industry, the “run” on TEs has begun!
Now that’s a bit of an exaggeration as a colleague pointed out, because these deals don’t take place over night and require significant due diligence to develop and come together. 

However, while hospitals are hoping for an influx of newly insured patients with health reform, they are also seeing cutbacks in government reimbursement such as Medicaid and Medicare.  Those cuts follow a trend of decreased patient volume, which has been seen as the aftermath to the recession but also representing efforts by insurers to reduce inpatient use.
Regardless of opinion, what is undisputable is that the hospital world is shrinking.  Healthcare futurists predict even more consolidation and a fewer number of hospitals as the way care delivery is provided continues to change.  In order to be successful in the future state, organizations are going to need to find the “right” partnerships and don't be surprised if there is a ripple effect as they’re going to want to make sure that they too.....have a really good tight end (TE).



Sunday, August 11, 2013

Fantasy Football and Health Insurance?

TODAY ON THE POND
The NFL Preseason is in full swing and “arm-chair” quarterbacks all over are preparing for their own season, the 2013 Fantasy Football season.  Here's to hoping the amount of injuries that occur this year are minimal because without health insurance, the out-of-pocket costs could be significant.
THE CROAK
According to a recent story published by NPR, Fantasy Football is the fourth most popular sport in the United States and more than 30 million people play it in the U.S. and Canada combined.  In fact, 13 percent of Americans played it in 2012 with the strongest demographic residing in the 25-34 age group.  Also, contrary to popular belief it’s not as gender dominated as many might assume.  In 2009, 12% of Fantasy owners were women according to Yahoo Sports research while in 2012, that number climbed to over 20% of the participants.

To give these numbers some perspective, consider that a 2012 report by the Census Bureau indicated that nearly 45 million people or 15.7% Americans were without health insurance during the previous year.  Of those, the biggest demographic was Americans between 25-34 years old with 28.4% of that age group without insurance according to CNN.


Long story short, it’s good thing that a relatively few number of injuries result from this "sport" because the United States has an awful lot of 25-34 year olds without health insurance playing fantasy football.

 

 

Lab Testing: August 31st

TODAY ON THE POND
For my initial entry into the blogosphere, I share with you that my August 31st has arrived.  August 31st is the day of the 2013 NFL calendar on which all clubs must reduce their rosters to a maximum of 53 players on the active/inactive list. 


THE CROAK
In other words, the NFL teams (the employers) inform their players (the employees) that the organization has to do some restructuring and as a result certain individuals will be cut or impacted.  This is usually accompanied by a speech from the head coach or GM stating something to the effect of “we’ve had to make some difficult decisions but feel that it’s in the best interest of the organization to be successful going forward”.


According to the latest monthly job cut report by Challenger, Gray & Christmas, Inc., the healthcare sector led July workforce reductions with 6,843 planned job cuts, the highest number of cuts in the industry since November 2009 when it slashed 9,558 jobs.

“Cuts in Medicare reimbursements brought about by sequestration and health care reform are hurting hospitals’ bottom line. Some states are also cutting Medicaid funding, which adds to the financial challenges. Hospitals are also reporting fewer patients as high-deductible insurance policies discourage would-be patients from seeking health services. As a result of these factors, health care providers, which had been one of the country’s best job generators in recent years, are being forced to reduce their headcounts,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
 As hospital admissions keep declining and reimbursement continues to deteriorate, chances are, if you work on the provider side of healthcare long enough, you’ll know someone that will experience their August 31st too.