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.

Wednesday, September 18, 2013

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

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.

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

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.

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

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.

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.