Exclusive to Healthcare. Dedicated to People. SM How To Remain a Not-For-Profit Health Care Organization Presented To: Georgia Alliance of Community Hospitals 25th Anniversary Thursday, October 9, 2008 Presented By: Donald C. Wegmiller Chairman Emeritus www.IHStrategies.com www.IHStrategies.com Outline I. II. Introduction New Administration in Washington Health care is #1 domestic issue Access to care for 40+ million is key political point But, Medicare insolvency will be major financing factor What the new administration will see III. IV. V. VI. VII. Tax-Exempt Sector in America Basis for Not-For-Profit Tax Exemption Current Activities Relating to Tax-Exempt Status Actions of Not-For-Profit Causing Attention/Concern What Can/Should Not-For-Profits Do To Maintain/Retain Their TaxExempt Status? VIII. Current and Future Challenges to Community Hospitals Commodization and Globalization of Health Care - Wholesale to Retail - Retail Clinics - Quality & Price Information - Medical Tourism - Physician Shortage 1 1 www.IHStrategies.com New Administration in Washington 2 www.IHStrategies.com National Health Expenditures and Their Share of Gross Domestic Product (GDP), 1980-2015 National Health Spending is Projected to Continue to Increase as a Share of GDP Over The Next Decade 25 % 4500 4000 NHE Projected NHE GDP Share Projected GDP Share 20 % 3500 Actual Projected Billions 15 % 2500 2000 10 % GDP Share 3000 1500 1000 5% 500 0% 0 1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2880 2009 2010 2011 2012 2013 2014 2015 Source: CMS, Office of the Actuary, National Health Statistics Group 3 2 www.IHStrategies.com Projected Increase in Health Care Spending as a Percent of GDP 50% 49% 40% 30% 25% 20% 16% 10% 0% 2007 2025 2082 Source: CBO, November 14, 2007 4 www.IHStrategies.com Number of Medicare Beneficiaries, 1970-2040 Enrollment in the Medicare Program is Projected to Nearly Double in the Next 30 Years 100 Actual Enrollment (Millions) 90 Projected 86.4 80 78.6 70 60 61.6 50 46.5 40 39.7 30 28.4 20 10 42.5 34.2 20.4 0 1970 1980 1990 2000 2005 2010 2020 2030 2040 Source: Medicare Trustees’ Report, 2008 5 3 www.IHStrategies.com Growth in Medicare Expenditures, 1970-2015 900 817.2 800 Dollars in Billions 700 572.9 600 500 400 336.4 300 184.2 200 100 7.5 16.3 36.8 1970 1975 1980 72.3 221.8 111 0 1985 1990 1995 2000 2005 2010 2015 Note: Figures for 2010 and 2015 are projected. Source: The Commonwealth Fund; Data from 2006 Medicare Trustees’ Report 6 www.IHStrategies.com Health Insurance Coverage Other Private – 5% Uninsured – 16% Employer – 54% Medicaid, Other Public – 13% Medicare – 12% Note: Data does not total to 100% due to rounding. Source: A. Gauthier, S.C. Schoenbaum, and I. Weinbaum, Toward a High Performance Health System for the United States (New York: The Commonwealth Fund, Mar. 2006). Data source: Urban Institute and Kaiser Commission estimates based on pooled March 2003 and 2004 Current Population Survey. 7 4 www.IHStrategies.com Tax-Exempt Sector in America 8 www.IHStrategies.com Tax-Exempt Sector in America 3.0 million tax-exempt entities 1.0 million 501(c)(3) entities 1.0 million employee benefit plans 1.0 million state and local government entities; Indian tribal governments; others (labor unions, business leagues) 25% of all U.S. workers 20% of total U.S. securities held in employee benefit plans Estimated “loss” of $200 billion in federal tax receipts annually 9 5 www.IHStrategies.com Basis for Not-For-Profit Tax Exemption 10 www.IHStrategies.com Basis for Not-For-Profit Tax Exemption IRS For hospitals, original basis was “charity care.” In 1969, promotion of health was explicitly recognized as a purpose meriting tax exemption. Health care organizations qualify by promoting health in a manner that benefits the community as a whole, i.e., the community benefit standard “Charity care” has become one of many ways to demonstrate community benefit 11 6 www.IHStrategies.com Basis for Not-For-Profit Tax Exemption State Standards All have some form of a Charitable Not-For-Profit Act describing in broad terms (e.g., “activities that serve broad community purposes”) In 1990, New York became the first state to enact community benefit requirements for not-for-profit hospitals Now, 15 states have passed community benefit statutes (see chart next slide) 12 www.IHStrategies.com State Mission Statemt Need Assessmt CB Planning Requiremt CB Reporting Requiremt California 3 3 3 3 Connecticut 3 3 3 3 Georgia Min. CB Expenditure Requiremt Systemwide Reporting Option Uniform Reporting Deadline Program Evaluation/ Public Comment 3 3 3 3 3 3 Idaho 3 3 Illinois 3 3 3 3 3 Indiana 3 3 3 3 3 New York 3 3 3 3 Texas 3 3 3 3 Maryland 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Mass. 3 3 3 3 Minnesota 3 3 3 3 3 3 New Hamp. 3 3 3 3 3 3 Oregon 3 3 Rhode Island Utah 3 3 3 3 3 3 Penn. Specific Penalty for Noncompliance 3 3 3 3 3 3 3 3 3 3 Source: AHA, November 2004 13 7 www.IHStrategies.com Current Activities Relating to Tax-Exempt Status 14 www.IHStrategies.com Current Activities Relating to Tax-Exempt Status IRS review (“soft audits”) of executive compensation at 2,000 charities and other not-for-profits Two congressional committees investigating not-for-profit hospitals: House Senate Ways and Means Finance Testimony by IRS Commissioner; Finance Committee Staff “White Paper” Proposals include: ■ 5-year review of tax-exempt status by IRS ■ Insider and disqualified person reforms, e.g., use government payment rates as basis for determining “excess compensation” ■ Expand scope and “quality” of Form 990 ■ Public disclosure of financial statements ■ Board duties, composition, Board/Officer removal, best practices, etc. 15 8 www.IHStrategies.com Current Activities Relating to Tax-Exempt Status State actions Illinois--revocation of local property tax exemption Minnesota--Dismissal of Board and management plus “break-up” of system Class action suits 40 lawsuits against 400 not-for-profit hospitals regarding the way hospitals bill uninsured patients ■ TIME magazine article 16 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern 17 9 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern Size of Health Care Systems vs. Little Old Community Hospitals 279 not-for-profit systems with 1,840 hospitals; 390,000 beds 55 investor-owned systems with 1,129 hospitals; 141,000 beds 334 systems with 2,969 hospitals (61%) and 531,000 beds (64%) 85 systems have annual net revenues in excess of $1.0 billion (2007 figures) 145 systems have annual net revenues in excess of $500 million (2007 figures) 18 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern Costs of Hospital Services Increasing % of Annual Cost Increases 60 1999 2000 2001 2002 50 40 30 20 10 0 Hospital Prescription Drugs Physician Services 19 10 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern Executive Compensation Median hospital CEO salary = $370,000 with average total cash compensation of $392,100 Median system CEO salary $550,000 with average total cash compensation of $670,700 At least 50 not-for-profit hospital/system executives earn total cash compensation of $1.0 million annually Charges to Uninsured Focus of class action lawsuits Weakens claim of “charity care” by hospitals Linked to billing practices Billing Practices Liens, lawsuits, aggressive debt collection techniques with attendant publicity 20 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern Community Costs of Providing Services to Not-for-profit Hospitals With no offsetting property tax revenue Fire, police, public works represent significant and increasing community costs “Fraud” Claims Hospitals setting claims with Medicare over alleged “fraudulent billing” practices Settlements in millions of dollars 21 11 www.IHStrategies.com Actions of Not-For-Profits Causing Attention/Concern “Community” Physicians Providing “Same” Services As Hospitals Ambulatory surgery center; heart hospitals; orthopedic centers, etc. Usually Lower in new facilities charges Claims of quicker, better service Lack of Community Benefit Reporting Replaced by Annual Reports Lack of counterbalance of benefits to community 22 www.IHStrategies.com What Can/Should Not-For-Profits Do to Maintain/Retain Their Tax-Exempt Status? 23 12 www.IHStrategies.com What Can/Should Not-For-Profits Do? The key is Community Benefit reporting First, deal head-on with any of the eight actions causing concerns Report as directly as possible to your constituents your actions on these issues Make sure prices are reasonable ■ Compared to costs ■ Sliding scale discounts for both uninsured and underinsured populations Develop a clear policy for billing, collections, and financial screening processes ■ ■ ■ ■ ■ ■ Needs-based discounting Charity care Unnecessary care Subsidizing less costly care Governance Communication 24 www.IHStrategies.com What Can/Should Not-For-Profits Do? First, deal head-on with any of the eight actions causing concerns (cont’d) Promote ■ ■ ■ ■ patient advocacy Proactive enrollment in medical aid programs Promote financial counseling Identify medically indigent Form Patient Advocacy Advisory Group Set up clear standards of conduct with outsourced collection agencies Initiate Sarbanes-Oxley accounting standards Report proactively on executive compensation; Board to do the reporting Work with local governments on costs of providing their services ■ ■ ■ ■ “Recognition and thanks” programs Creation of a local park Donations of fire equipment, paramedic equipment Free training programs of public safety personnel Joint ventures with physicians on ambulatory care programs/facilities 25 13 www.IHStrategies.com What Can/Should Not-For-Profits Do? Develop an annual Community Benefit Plan Required in 11 states Components should include: ■ Needs assessment ■ Identify continuing Community Benefit programs ■ Identify new Community Benefit programs ■ Identify staffing and budget ■ Develop accountability for Community Benefit plan and outcomes ■ Develop Community Benefit plan reporting: ● Governing body ● Key constituencies ● Public ● Form 990 26 www.IHStrategies.com Current & Future Challenges to Community Hospitals 27 14 www.IHStrategies.com Current & Future Challenges to Community Hospitals Concentration of Health Spending in the U.S., 2004 97% 80% 74% 64% 49% 23% 3% Top 1% Top 5% Top 10% Top 15% Top 20% Top 50% Bottom 50% Population Percentile Ranked by Health Care Spending Notes: Population includes those without any health care spending and excludes those living in institutions. Health spending is defined as total payments, or the sum of spending by all payer sources. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2004. 28 www.IHStrategies.com Current & Future Challenges to Community Hospitals The Commoditization and Globalization of Health Care WHOLESALE TO RETAIL RETAIL CLINICS QUALITY & PRICE INFORMATION MEDICAL TOURISM MARKET SEGMENTATION THE HEALTH CARE WORLD IS FLAT! 29 15 www.IHStrategies.com Current & Future Challenges to Community Hospitals Wholesale to Retail Number of Employers offering CDH Plans 60% Higher Higher Co-Pay Co-Pay & & Deductible Deductible Plans Plans Proliferating Proliferating 40% 2004 2006 Deposits in HSAs Consumer/Employer Consumer/Employer Deposits Deposits to to HSA/MSA’s HSA/MSA’s Increasing Increasing 2008 $2B+ Medicare Reform Law authorizes HSA 2004 2006 Cigna Shares Information Consumers Consumers Make Make Healthcare Healthcare Choices Choices Based Based on on Quality Quality and and Cost Cost Cigna publishes prices for 29 procedures for specific hospitals nationwide, draws 10,000 inquiries/month Source: McKesson 30 www.IHStrategies.com Current & Future Challenges to Community Hospitals Who's Going to Control the Money? $200B of Cumulative Revenue Will Be in Play Over The Next Five Years $200B Impact on projected 2005-2010 revenues (billions) 250 200 150 100 50 Payers 0 Providers Drug $25B Government Companies ($15B) -50 ($42B) ($31B $75B B Employers Custodians Consumers -100 -150 -200 ($140B) Positive CDHP Impact Negative CDHP Impact This chart compares projected 5 year revenues for future state with and without CDHP. Source: DiamondCluster, 2005 31 16 www.IHStrategies.com Current & Future Challenges to Community Hospitals Who’s Offering Consumer-Driven Health Plans? Percentage of Firms Offering Such Plans, By Size 50% 40% Small Firms (Fewer than 500 employees) 30% Large Firms (500 - 20,000 employees) 20% Jumbo Firms (20,000+ employees) 10% 0% 2005 2006 2007* 2008* * Likely to offer such plans Source: Mercer Human Resources Consulting, 866-879-3384, mercer.com 32 www.IHStrategies.com Current & Future Challenges to Community Hospitals Who’s Enrolling in HSAs? $30.4 Total HSA Deposits ($ in Billions) Average Age: 46 Average Income: $45,000+ * Projected Gender (Male/Female): 55% / 45% $13.6 Advanced Education: 62% $5.1 $0.13 $1.2 2004 2005 2006* 2007* 2008* Note: Based on 2006 survey of more than 14,000 HSA enrollees Source: Information Strategies, 201-242-0600, is-incorp.com 33 17 www.IHStrategies.com Current & Future Challenges to Community Hospitals Retail Clinics The rise of retail medical clinic chains Minute Clinic “You’re Sick, We’re Quick”, acquired by CVS, has 86 offices in 10 states; target is 1,500 RediClinic (former AOL chairman Steve Case) Solantic, run by Richard Scott, formerly of Columbia/HCA. Scott sees “a $10 billion market, I think there will be lots of players.” Walgreens Target developing their own clinics/brand and Wal-Mart developing their own clinics/brands WILL HOSPITALS PLAY? e.g., Aurora QuickCare’s 11 clinics; Alegent Health 7 clinics; AtlantiCare; Sutter Health Convenient Care Association forms Represents retail clinic providers; 700 retail clinics represented 34 www.IHStrategies.com Current & Future Challenges to Community Hospitals Quality & Price Information - Five key areas where public reporting will/has hit delivery systems: Comparative quality reporting Government picking up the pace ■ September 2004 CMS data reporting requirements will be in place on national public comparison of all hospitals’ performance ■ Many other efforts underway: Organizations Insurance Plans NBCH (V-8) NQF AARP NCQA JCAHO Specialty Groups AHRQ Leapfrog CMS/QIOs Health Systems Consultants State Government Research Orgs Defining Measures Data Gathering Reporting Results X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 35 18 www.IHStrategies.com Current & Future Challenges to Community Hospitals Medical Tourism or Global Health Care Patients going to a different country for either urgent or elective procedures is becoming a worldwide, multi-billion dollar business Bumrumgard International Hospital treats 55,000 Americans a year (New York Times, October 15, 2006) Dubai Healthcare City, open in 2010; joint venture with Harvard Medical School Doha specialty teaching hospital; joint venture with Weil-Cornell Medical School 2,000 new hospital beds within 30 minutes of New Delhi International airport by 2010 (ABC News, December 29, 2006) PlanetHospital.com; meditourinternational.com; MedRetreat.com; medjourneys.com; indushealth.com; TreatMeAbroad.com; Bridge Health International 40+ employers offer medical travel insurance plans to their employees Joint Commission International provides accreditation and standards to 125 international hospitals Blue Cross Blue Shield of South Carolina creates Companion Global Healthcare, a medical concierge subsidiary 36 www.IHStrategies.com Current & Future Challenges to Community Hospitals Medical Tourism West Virginia State Employees Plan Legislature passes change to West Virginia state employees health plan Allows for out-of-state care, when less expensive Encourages state officials to seek less expensive care opportunities 37 19 www.IHStrategies.com Current & Future Challenges to Community Hospitals Medical Tourism - Heart Surgery With A Warranty! Geisinger Health System ProvenCare: Flat rate for bypass surgery $25,000$30,000 Includes any complications that may occur 90 days post-op Relies on following 40 Best Practice Guidelines In 117 cases, mortality rate dropped to 0 from 1.5%; re-admission within 30 days of surgery dropped to 5.1% from 6.6%; hospital charges dropped 5.2% 38 www.IHStrategies.com Current & Future Challenges to Community Hospitals The Looming Physician Shortage A perfect storm: Growing population (especially elderly) doctors Declining physician income Work-life balance issues Retiring 250,000 physicians will retire in the next 10-20 years, just when the boomers hit 70 9,000 physicians retired in 2000; 23,000 will retire in 2025 Estimate of the shortage of physicians by 2020: 85,000 to 200,000 Over 50% of medical school students are female Estimates are current medical graduates equal 0.7 of 1990 graduates; 0.5 of 1980 graduates 39 20 www.IHStrategies.com Current & Future Challenges to Community Hospitals First-Year M.D. Enrollment Per 100,000 Population Has Declined Since 1980 Number of Enrollees 7.5 7.3 7 6.8 6.4 6.5 6.2 6 5.8 5.6 5.5 5.4 5.2 5 5 4.5 4 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: AAMC 2006; U.S. Census Bureau 40 www.IHStrategies.com Current & Future Challenges to Community Hospitals Percent Change in Average Physician Income, Adjusted for Inflation, 1995-2003 10.0% 6.90% 5.0% 0.0% -2.10% -5.0% -10.0% -7.10% -8.20% -10.20% -15.0% All Physicians Primary Care Medical Specialists Surgical Professional/ Specialists Technical Workers Source: Community Tracking Study Physicians survey, Center for Studying Health System Changes 41 21 www.IHStrategies.com Current & Future Challenges to Community Hospitals Number of Physicians by Age: 1980, 1990, and 2005 65 & Over 55-64 45-54 36-44 Under 35 1980 1990 2005 Source: American Medical Association, Physician Characteristics and Distribution in the U.S., 2007 Edition 42 www.IHStrategies.com Summary 43 22 www.IHStrategies.com Summary Challenges abound Great opportunities exist Demonstrate value of the not-for-profits to our communities through Community Benefit Plans Adapt to a changing customer base Link more closely with your physicians Report fully on your quality outcomes and your value proposition Concentrate on the people issues: ■ ■ ■ ■ ■ Workforce shortages Retention plans Part-time permanent Seasonal workers Great place to work goals CONGRATULATIONS ON 25 YEARS REPRESENTING GEORGIA’S NOT-FOR-PROFIT COMMUNITY HOSPITALS! 44 23