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”.

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.

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.

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.