Enterprise Board October 24, 2017 Department of Health Care Policy - PowerPoint PPT Presentation

Colorado Healthcare Affordability and Sustainability Enterprise Board October 24, 2017 Department of Health Care Policy and Financing

Our Mission Improving health care access and outcomes for the people we serve while demonstrating sound stewardship of financial resources

Today’s Objectives Discuss how policymakers and the public can measure the • impact of the provider fee on hospitals’ financial position and the health care marketplace. Provide a high-level overview of hospital financial reporting • and analysis. Discuss available hospital financial data, what it can tell us, • what’s missing, how it can be improved upon and other potential sources of data. 3

Legislative Intent Reduce the need of hospitals and other health care providers • to shift the cost of providing uncompensated care to other payers Consult with hospitals to improve cost efficiency, patient • safety, and clinical effectiveness Monitor impact of hospital fee on broader health care • marketplace 4

Transparency “Analysis is necessary to understand and make more • transparent the main contributors to overhead costs (e.g., administrative and capital costs for all relevant providers) that affect the cost of providing care to Medicaid enrollees.” Colorado Commission on Affordable Healthcare “Demands for increased transparency about health care • quality and pricing are understandable, well-justified and reasonable, sought with a goal of better understanding the true costs and cost-drivers that now comprise 18 percent of the nation’s Gross Domestic Product (GDP) and nearly 10 percent of total household expenses”…”this report represents a step in the right direction but will not be the “be all, end all” of our commitment.” Steven Summer, CHA 5

CHA Transparency Initiative CHA recently released The Financial Health of Colorado Hospitals – • a report that presents primarily cost report derived financial and other information on Colorado hospitals, individually and statewide. Individual hospital information includes: • Quality data – CMS Five-Star Rating and HQIP score • Employment trends - including the number of full-time • equivalents employed and on contract Utilization Trends - including patient discharges, days, average • length of stay and hospital occupancy rate Financial Trends – including revenues, expenses, and margins • Expenses by category • Payer mix • 6

Hospital Financial Reporting - Overview Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) Board October 24, 2017 H EALTH M ANAGEMENT A SSOCIATES

Obje jective and Topics • Objective : a high-level overview of hospital financial reporting and analysis, providing a useful framework for the Chase Board’s review of Colorado hospital financial information. • Topics : • Overview of hospital financials • Types of hospitals, services • Hospital financial statement components • Charges and net patient service revenue • Reimbursement methods • Hospital financial analysis • Measuring performance and financial health • Available information and shortcomings • Colorado hospitals – recent data Health Management Associates 8

OVERVIEW OF HOSPITAL FINANCIALS H EALTH M ANAGEMENT A SSOCIATES H EALTH M ANAGEMENT A SSOCIATES

If You’ve Seen One Hospital, You’ve Seen One • Organization • System vs Independent • Tax-Exempt, Investor-Owned, Governmental • Location – large urban, urban, rural • Type • Small to large • Community, academic, other teaching, research • General acute, specialty • Service mix • Inpatient – medical, surgical, other • Emergency • Clinics – medical, behavioral, dental • Diagnostic – imaging, lab, cardiology, neurology • Cancer, rehab, other outpatient treatments and therapies • Ambulatory surgery • Payer mix – Medicare, Medicaid, private insurance, uninsured Health Management Associates 10

Fin inancial Statements • Balance Sheet * ASSETS LIABILITIES & NET ASSETS Cash 5% Current liabilities 15% Accounts receivable 17% Long-term debt 26% Investments 19% Other liabilities 12% Property and equipment 38% Unrestricted net assets 32% Other assets 21% Restricted net assets 15% Total Assets 100% Total Liabilities & Net 100% Assets * Massachusetts hospitals, 2013 Health Management Associates 11

Fin inancial Statements • Income Statement and Changes in Net Assets * Percentage of Oper. Revenue Net patient service revenue 92% Other operating revenue 8% Total operating revenue 100% Operating expenses 97% Operating margin 3% Investment income, other nonoperating revenue 2% Total margin, or revenue over expenses 5% Other changes in unrestricted net assets 4% Other changes in restricted net assets 1% Changes in net assets 10% * Massachusetts hospitals, 2013 Health Management Associates 12

Hospital Patient Care Revenue by Type MAJOR TEACHING SMALL COMMUNITY Other Other 5% Clinics 5% 5% Clinics Inpatient 15% 25% Diagnostics 11% Cancer Center 5% Inpatient Amb Surgery Diagnostics 59% 7% 18% Emergency 8% Emergency 28% Amb Surgery 9% Health Management Associates 13

Hospital Patient Care Revenue by Source LARGE URBAN SAFETY NET SUBURBAN COMMUNITY No Insurance No Insurance 5% 2% Private Insurance 20% Medicare Medicare 38% 43% Private Insurance 46% Medicaid 32% Medicaid 14% Colorado, Average Payment to Cost, 2015 Medicare 0.72 Medicaid 0.75 Private Insurance 1.58 Health Management Associates 14

Hospital Expenses BY TYPE BY FUNCTION Other 8% Inpatient units Other general 15% 16% Depreciation 10% OR and related 4% Depreciation 6% Salaries/wages 41% Purchased services Diagnostics 12% 10% Administrative 17% Supplies 15% Supplies and drugs 20% Clinic 8% Benefits Emergency 14% 4% Health Management Associates 15

Hospital Revenue – Gross and Net Colorado Hospitals in 2016 In millions Charges $56,415 Contractual adjustments ($41,381) Net patient service revenue $15,034 • Gross charges : a uniform charge is recorded for every discrete unit of patient care service. • Patient day, ER visit, 15 minutes in OR, lab test, supply item, drug unit/dose • Typically several thousand items in the chargemaster • In theory, charges should bear a reasonable relationship to cost, in practice – NOT • Contractual adjustments : the difference between the charge and the amount the hospital expects to receive for a given encounter • Colorado average = 73% of charges • Not atypical at all Health Management Associates 16

Hospital Revenue – Reimbursement Types • Cost reimbursement • Unit of service based: • Percentage of charges • Inpatient per diem (amount per patient day) • Fee schedules (amount for each discrete procedure and test) • Encounter based: • Per discharge using diagnosis-related groups (DRGs) • Per outpatient visit using ambulatory payment groups • Episode based: • Bundled payment – one rate for inpatient encounter covering all services from admission date -3 to discharge date +30 • Episodes of care – one rate anchored to a surgical procedure or course of treatment for a period of time • Population based: • Shared savings or loss: A traditional reimbursement model subject to a target spend per person, difference between traditional reimbursement and target is shared by hospital and payer • Capitation – a flat payment per person per month for all services, or a subset of services • Incentives Health Management Associates 17

Hospital Revenue – Reimbursement Concepts • Risk continuum: to what extent is the hospital at risk for managing expenses? LOW HIGH episode population cost units encounter • What is reimbursable? • Traditional - services provided • Value based – outcomes • Equity (especially important in Medicare, Medicaid) Reimbursement should recognize valid cost differences and differentiate payment accordingly • Teaching hospitals may bear significant GME costs • Hospitals with higher percentage of low-income patients incur more costs and need more financial support • Rural hospitals may bear significant costs to maintain essential services, even if underutilized Health Management Associates 18

HOSPITAL FINANCIAL ANALYSIS H EALTH M ANAGEMENT A SSOCIATES H EALTH M ANAGEMENT A SSOCIATES

Measuring and Comparing Fin inancial Performance • Many measures are used to compare hospitals across many domains: • process of care • outcomes • safety • patient experience • financial Focus here is financial. • Two major challenges: 1. Accessing consistent financial information 2. Accounting for relevant differences between hospitals Health Management Associates 20

Measuring and Comparing Fin inancial Performance Challenge 1: Accessing Consistent Data • Publicly available sources : • Medicare cost report • Content • Strengths and weaknesses • Colorado’s all -payer claims database • Additional information could be collected from hospitals: • Who does this now : • Associations • Rating agencies • Several states • What additional information : • Financial statements • Surveys and custom reports • Specific requests Health Management Associates 21