iProtean—New ACA Regulations

As boards grapple with the structural components of the Affordable Care Act—value-based purchasing, accountable care organizations, bundled payments, etc.—they need to also keep their eyes on the private insurance components of the Act.  These features garner the most attention in the mainstream media but even so, are not well understood by the general public.


Last week the Department of Health and Human Services (HHS) and CMS released new rules and regulations that include guidance on how to implement the insurance provisions of ACA.  The proposed rules, covering essential health benefits, premium pricing and wellness, had been delayed as the administration “tried to avoid stirring criticism from lobbyists and interest groups in the final weeks of the presidential campaign.” (New York Times, November 21, 2012).  There is a comment period for the proposed rules.


The proposed rules and regulations include:

  • Precluding insurers from adjusting premiums based on pre-existing or chronic health conditions
  • Specificity regarding benefits that must be included in health insurance exchange plans
  • Allowing employers to reward employees who work to remain healthy
  • Permitting insurers to set premiums for tobacco users 1.5 times higher than for non-smokers
  • Clarifying how insurers may increase premiums as a person ages


The proposed rule relating to essential health benefits affirms an earlier CMS guidance allowing states to choose the exact package of benefits that insurers must provide.  The package is based largely on what is already offered in many of the plans currently sold in the respective states.  “Essential health benefits” applies to the core package of services sold by insurers to individuals and employers (except self-insured companies) and includes categories such as emergency services, hospitalization, pediatric services, and more. (CQ, November 21, 2012; Health Care Reform Memo, November 26, 2012, Deloitte Center for Health Solutions)


HHS also moved back the deadline for states’ decisions on establishing their own health insurance exchanges from November 16 to December 14.  The extension was in response to a request from Republican governors for more time as they begin to decide how they will comply with Federal healthcare law.


The reaction from the insurance industry so far has been muted.  Karen Ignagni, president and CEO of America’s Health Insurance Plans, said in a statement, “We appreciate that the proposed rules issued today seek to minimize coverage disruption, and we look forward to working with the department to achieve this goal.” (CQ, November 21, 2012)


The implications of these components of the ACA on hospitals’ revenue will manifest over the next few years—some positive, some negative.  The individual players in the healthcare industry are intimately tied to one another, and when one is pressured (i.e., private insurers), the spillover is felt throughout—in this case, by providers.  Many experts predict less revenue for hospitals and more incentives to cut costs and restructure the way services are delivered to patients.  iProtean experts discuss this conundrum in iProtean’s foundational and advanced courses.


iProtean welcomes Nate Kaufman (Kaufman Strategic Advisers) to our list of experts!  Nate will appear in four upcoming advanced courses:  Financing Considerations for Integrated Delivery Systems, Making Difficult Decisions About Services and Programs, Value-Based Purchasing and Accountable Care Organizations and Developing an Employed Physician Strategy/Crafting Performance and Compensation Metrics.  We will notify our subscribers when the new courses appear in their course lists.


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iProtean—Reality on the Ground

What steps should a high-performing but small hospital take to assess a possible partnership or merger; should the board bring in a consultant or do this on its own?  How can a public hospital secure needed capital when its city owner is disinterested at best, obstructionist at worst?  How can a hospital secure the loyalty of its medical staff?  How should a board approach the issues surrounding physician compensation?


iProtean Symposium attendees posed these questions to a panel of experts that included Barry Bader (Bader & Associates), Marian Jennings (M. Jennings Consulting), Dan Grauman (DGA Partners) and Brian Wong, M.D (The Bedside Trust).  The answers were  specific, targeted and in some cases, personal.  We provide brief excerpts from their answers below.


Question:  A mid-sized hospital has weathered the recession and is now doing well financially, but the difficulties of the recession years concern the board, and it’s not convinced the hospital can withstand a future crisis.  What are the warning signs that will alert the board of the need for a merger or affiliation? 


Marian Jennings recommended the board do the following: 1) develop a five-year financial forecast—not a doom and gloom assessment, not a best-case scenario, but a realistic assessment of the future; 2) build a sensitivity analysis with trigger points that gives the board and management specific indicators where alternate actions should be contemplated; 3) establish as clearly as it can why it wants to partner with another organization—it’s important to focus on the “why” and not on the “how” at this stage; 4) be proactive in investigating merger/affiliation models and potential partners.  It is better to be proactive than to wait, she noted.


Dan Grauman noted the importance of an “independence assessment” (see iProtean blog Mergers & Acquisitions Dashboards, November 6, 2012).


Question:  When considering whether we should merge or affiliate with another organization, should we use a consultant or should we do this ourselves?


Barry Bader said boards should definitely bring in a consultant to assist them in this process.  “You can’t facilitate the process and also be a part of the process,” he noted, but added that you may want to bring in someone who works on a professional fee basis, not “percentage of the deal.”


Dan Grauman noted that this is a tricky and complex area.  Some large consulting firms and investment bankers get a success fee when the deal goes through.  That is completely different from assessing whether or with whom an organization should merge.  Sometimes the large firms are the right choice; for example, when a hospital board has agreed to sell the organization, and clearly understands the implications of a sale.


Question:  A public critical access hospital with a long-term care wing/clinic needs a new facility.  It has no debt and is doing well financially, but receives no financial support from the city.  What can the board do to get financial support from the city for building the needed facility?


Barry Bader noted that given the lack of political support, the board should focus on the financial and strategic aspects of this dilemma.  He suggested that the board take this outside the political process by 1) identifying support on the City Council; and 2) forming a joint study committee that includes those City Council members and also members of the community.  The committee should assess three options and the impact of those options on the community:  status quo (i.e., do nothing), convert to 501(c)(3) and merge with another organization, or issue debt for a new facility.  He noted the importance of an objective assessment and building consensus.


Question:  We’re doing well, but want to keep on doing well and are worried about the loyalty of the medical staff.  How can we can keep the loyalty of the physicians and continue to provide services that are valuable to them? 


Barry Bader said it’s not enough to ask the chief of staff to bring medical staff concerns/issues to the board.  He suggested that the board instruct management to commission a medical staff needs assessment, and that the assessment be conducted by someone outside the organization who would conduct a series of interviews with the physicians.  “You may be surprised by what you learn,” he noted.  In addition to identifying areas where the physicians say they are well served by the hospital and areas that need improvement, the assessment should also identify negative aspects of the physicians workplace that the hospital cannot address.  In these cases, educating physicians about the constraints the hospital faces will be helpful.


Question:  How should the board approach the issues surrounding physician and executive compensation?   


Dan Grauman emphasized that the board should adopt a physician compensation policy  that provides guidelines to management as they pursue employment arrangements.  The guidelines need some specificity; e.g., not to exceed the 75th percentile unless an exception is merited.  For exceptions, other criteria must be detailed and the consideration must go to the board compensation committee for a final decision.  The board may want to seek outside help when developing its physician compensation policy.


Mr. Grauman noted that if you currently have employed physicians who were hired at a time that the board did not have a compensation policy, it is important to retroactively apply the elements of the policy to those “existing legacy deals.”  Many of the existing contractual arrangements were agreed to at a time when there was less federal scrutiny, and they may now be problematic.  “These are difficult discussions but you may have to undo one or more deals, and it’s a “Pandora’s Box” of problems—but they must be addressed,” he said.


Barry Bader added that the considerations surrounding physician and executive compensation are much the same.  A strong compensation philosophy and policy must be grounded in the needs of the organization and appropriate market studies to match the organization’s needs.  The board must do its job by establishing both the physician and executive compensation policies.  It should designate independent board members to evaluate compensation for the chief executive and for those physicians who merit exceptions.




Each of the iProtean experts addresses these questions in more detail in the upcoming advanced course additions to the iProtean library of courses.  We have added Nate Kaufman and Susan Douglass to our list of experts.  Look for both Nate and Susan in the upcoming course Developing an Employed Physician Strategy and Physician Compensation.



For a complete list of iProtean courses, click here.


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iProtean—Hospitals and the Fiscal Cliff—Is There Positive News?

The flurry of news reports since last week’s election about the fiscal cliff—the budget-cutting initiatives known as “sequestration” combined with automatic tax increases—and the implications for Medicare was led by a report from the Congressional Budget Office that emphasized the need to cut Medicare spending.  The National Coalition on Health Care also released a plan with a series of “tough policy recommendations to cut spending, raise revenues and continue to shift Medicare away from its fee-for-service roots.” (CQ, Norman, November 9. 2012).


Other key health policy makers have been addressing healthcare providers, essentially noting that “cost containment” for Medicare and Medicaid will be part of any deficit-reduction agreement between Congress and the White House.


Moody’s Investors Service released a Special Comment following the election that, in addition to noting the credit impacts that will now materialize under the Affordable Care Act, also emphasized the pressure to reduce Medicare.  So is there any good news for hospitals?


Moody’s notes that sequestration—a 2% reduction in payments to physicians, hospitals and other healthcare providers on January 1, 2013, unless Congress and the Administration agree on a deficit-reduction plan—would hit hospitals hard, but “even if the administration brokers a deal in the next two months that negates the sequester, there remains significant pressure to further reduce Medicare and other federal healthcare programs because of the magnitude of the federal deficit and the growth rate of healthcare spending nationally.”  The need for reductions will continue to place considerable pressure on reimbursement for not-for-profit hospitals.  (Moody’s Investor Services, Special Comment:  Re-Election of President Barack Obama is Credit Neutral for Not-for-Profit Hospitals, November 7, 2012)


But the good news is that the implementation of the individual mandate and health insurance exchanges actually may bode well for hospitals.  Moody’s views the impact of health insurance exchanges, combined with implementation of the individual mandate as a material credit positive for hospitals.  It noted that while state-run insurance exchanges would likely reduce the current number of enrollees in private healthcare plans, and exchange reimbursement rates will likely be lower than current private insurance rates, larger pools of insured patients (through both the exchanges and the the individual mandate) will boost payments overall, which would be a plus for hospitals.


Last week, Health and Human Services announced that it would extend deadlines for states to file their plans for health insurance exchanges.  States still must let the government know whether they plan to create their own exchanges by November 16, but they will have until December 14 to provide details.  States that elect not to have their own exchanges have until February to file their applications for “partnership exchanges” with the Federal government.  For states that have been sitting on the sidelines pending the outcome of the election, the extended dates should be welcome.


For more information on the impact of Medicare cuts and provisions of the Affordable Care Act, look for upcoming advanced courses featuring Lisa Goldstein (Moody’s Investors Service), Marian Jennings (M. Jennings Consulting), Nate Kaufman (Kaufman Strategic Advisors) and Dan Grauman (DGA Partners).  New courses include Financing for Integrated Delivery Systems, Value-Based Purchasing and Accountable Care Organizations, Affiliation and Consolidation Strategies and more.



For a complete list of iProtean courses, click here.


For more information about iProtean, click here.

iProtean—Mergers & Acquisitions Dashboards

The times are such that it makes sense for a board to review its ability to remain independent on a regular basis—every quarter, every six months, for example.  Dan Grauman from DGA Partners recommends the use of an independence dashboard  for the board’s use. This dashboard serves a tool to evaluate the organization’s position as the market unfolds.


An independence dashboard would show the five major organizational attributes of the hospital and specific indicators for each attribute (each attribute and/or indicator can be weighted as the board sees fit).  An example follows:


Market Position

  • Market share overall and by major product line
  • Admissions, ER and outpatient trends by service and product line
  • Key competitor activity; outmigration trends
  • Population and housing trends

Financial Performance and Access to Capital

  • Profitability—operating and bottom line
  • Cash position
  • Leverage and overall capitalization

Physician-Hospital Alignment

  • Medical staff resources by specialty; additions, retirements, etc.
  • Relationship between hospital and medical staff
  • Consolidation and acquisition activity

Population Health Management Readiness

  • Overall preparedness for clinical integration and population health management
  • Ability to manage with new payment innovations—ACOs, bundled payments; degree of adoptions re. Care management and clinical IT


  • Effectiveness/historical performance of current management team
  • Strength of relation between the board and administration
  • Presence of medical leadership and structure necessary for success


If, during the scheduled dashboard review, the board sees red flags that are potentially negative, it’s time for the board to take a hard look at whether the hospital can continue to go it alone.  If attributes and indicators are strong, then the board may want to consider waiting until the next review or possibly exploring a looser affiliation with another organization.


Another type of dashboard Mr. Grauman recommends is the decision scorecard.  When a board determines that the organization needs a partner, it must first understand the details and nuances of the different partnerships models.  The board can then identify potential partners and “stack them up” against specific criteria the board has identified.


Mr. Grauman provided an example of a decision scorecard with sample decision criteria.  These included (this is an example only—each board should identify its own criteria):

  • Culture:  style of engagement
  • Experience:  track record acquiring and integrating community hospitals
  • Financial:  ability/desire to provide capital and payer contracting
  • Operations:  support/integration of back office & IT functions
  • Clinical:  support seamless, accessible continuum of care
  • Medical staff:  support development and recruitment
  • Autonomy
  • Level of interest
  • Barriers


The board should evaluate the potential partners against its decision criteria in a thoughtful way.  “And this is board work,” Mr. Grauman noted.  Management provides support to the board in this process.  He emphasized that this must be a structured process whereby the board brings discipline to a complex decision.


Dan Grauman appears in several iProtean foundational courses and also is featured in the upcoming advanced iProtean courses:  Affiliation & Consolidation Strategies Part 1 and 2, Transforming Your Organization into an Integrated Delivery System, Financing Considerations for an Integrated Delivery System and Developing an Employed Physician Strategy.



For a complete list of iProtean courses, click here. www.iprotean.com/index.php/iprotean/onlineCourses/Available_courses


For more information about iProtean, click here. www.iprotean.com/index.php/iprotean/demo