Medicare Advantage Plans Pay Less than Traditional Medicare

Medicare Advantage (MA) plans paid hospitals 8 percent less than traditional Medicare between 2009 and 2012, Stanford University researchers recently reported in Health Affairs. The discrepancy between MA plans and private insurance was even greater.

 

According to the researchers’ study, MA plans paid hospitals about 91.5 percent of what FFS Medicare paid in 2012, while commercial plans paid an average of about 165 percent of FFS Medicare payments.

 

The driving factor for lower payments was the link to narrower provider networks and better bargaining power, especially for DRGs associated with inpatient stays.

“Knowing how Medicare Advantage prices compare to those of FFS Medicare is important for public policy,” wrote the researchers. (“Medicare Advantage Plans Pay Hospitals Less Than Traditional Medicare Pays, Health Affairs, August 2016)

 

Noted healthcare economist Paul Keckley commented on the study, noting that hospitals are apparently being paid less for taking care of sicker patients and thereby having to stretch scarce resources even further. “This one’s bad news if you’re a hospital. Can you interpret it any other way? . . . While this approach may ultimately result in lower costs, the savings benefit the plans and don’t ‘trickle back’ to providers.” (“Hospitals Receive Lower Payments from MA Than From Traditional Medicare: Study,” HFMA Weekly, August 26, 2016.)

 

Keckley suggested hospitals consider an approach that links high volumes with shared risk, which would ultimately result in sharing in the savings generated by managed care. Healthcare organizations may also need to seriously consider creating their own MA plan. (“Hospitals Receive Lower Payments from MA Than From Traditional Medicare: Study,” HFMA Weekly, August 26, 2016.)

 

Medicare Advantage Growth

 

The number of beneficiaries enrolled in private MA plans more than tripled in 12 years, going from 5.3 million in 2004 to 17.6 million in 2016, according to a recent Kaiser Family Foundation report. About 31 percent of Medicare beneficiaries belong to an MA plan. At least 40 percent of beneficiaries in five states are enrolled in MA: Minnesota (55 percent), Hawaii (46 percent), Oregon (44 percent), Florida (41 percent) and Pennsylvania (40 percent). Conversely, the MA enrollment rate is only 2 percent of Medicare beneficiaries in Wyoming and 1 percent in Alaska. (“Medicare Advantage,” Kaiser Family Foundation, 2016)

 

MA plans typically offer beneficiaries more benefits at lower premiums. Uwe Reinhardt, PhD, a health economics professor at Princeton University, noted in a JAMA Forum column posted June 1, that despite the positive attributes of MA, the majority of U.S. seniors remain with traditional Medicare. While Americans may have general doubts of the competency of government-run programs, Reinhardt suggested that private enterprises are often viewed as “ephemeral companions” that can easily change contracts or be acquired by a company with different ideas on management or social obligations.

 

“Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion,” Reinhardt wrote. “The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.” (“JAMA Forum: Why Many Medicare Beneficiaries Cling to an Allegedly Worse Deal,” news@JAMA, June 1, 2016)

 

 

To read the Kaiser Family Foundation Fact Sheet on Medicare Advantage, click here.

 

 

 

To read the JAMA Forum Article by Uwe Reinhardt, PhD, click here.

 

 

 

To read the Health Affairs abstract of the Stanford study, click here. Subscription is required for the full study.

 

 

 

iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.

 

Coming soon, Governance in an Era of Population Health, featuring Jim Rice, Karma Bass and Marian Jennings.

 

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

Threat of Cyber Attacks Requires Leadership Alignment

The threat from ransomware and other IT security challenges is expected to increase as hospitals acquire and hold ever-larger quantities of valuable patient electronic health records. The nature of the IT security threat changes so rapidly that ongoing education of hospital leaders is critical.

 

Hospitals have looked for effective ways to keep their leaders engaged on an issue that is not directly focused on the central organizational mission of providing patient care. The support of executives and hospital boards has proven critical to boosting both security resources and rank-and-file compliance with security adjustments in the wake of the malware attacks, according to hospital security leaders. The practical impact of leadership support includes faster acceptance by staff of the changes that some security technologies inject into an organization.

 

“CIOs [chief information officers] and CISOs [chief information security officers] need to be spending time with their boards to make sure they understand the risks and responsibilities and the oversight that’s needed at the board level with something like this,” one expert said.

 

Organizational support allows the CIO to enlist the help of departments such as education, communication and marketing in sharing knowledge and spreading information. Education plays a key role in preventing individual employee actions from devastating an entire organization. Information about how malware could affect other departments would alert other departmental leaders about the danger and also encourage them to look for vulnerabilities and find solutions.

 

Structural Changes

 

Some organizations have implemented changes to their structure and to the interactions among key leaders to better respond to evolving information security threats. Examples include establishing a board subcommittee to review security issues and another subcommittee on overall compliance and risk, through which the CIO communicates with the board. Meetings can occur a few times each year or more if needed.

 

Among the unanswered questions regarding structural responses to the growing health IT security threat is how a hospital should organize its IT leadership. Slightly more than 50 percent of hospitals have a full-time CISO while others assign the security executive’s role to another officer, such as a CIO or chief technical officer. And for those hospitals that have a full-time CISO, about half have him/her report to the CIO; others have the CISO and CIO as peers, both reporting directly to the CEO or the board.

 

One expert noted, “A CISO with an equal voice may lend a hand to being able to more quickly report what is happening with cyber security instead of having another layer in the chain.”

.

Additionally, higher-ranked CISOs can have more autonomy in hiring and technical asset allocations and greater ability to deviate from the typical three-year lifecycle of technology assets if a cyber threat changes.

 

However, having a CISO report to the CIO has its advantages. For example, if the CISO has independence and receives support for his/her role and the information security program, it can result in positive outcomes.

 

Cost Effective Investments to Prevent Cyber Attacks

 

Examples of steps taken by hospitals to strengthen their ability to prevent or limit cyber attacks include:

 

  • A “silver bullet” software package that can provide 80 to 90 percent of the help an organization needs to prevent malware attacks. It focuses on individual computer users to prevent them from unknowingly opening malware attachments in an email—the most common way in which such attacks are initiated. Malware also can enter through ads that are clicked or even just viewed while browsing the Internet.
  • A separate communication challenge for healthcare IT security leaders to learn from hospitals that have been attacked.
  • Spending a full day with IT security leaders of other health systems or vendors to discuss differences in their responses, the latest vulnerabilities and different ways to prevent attacks.
  • Comparing the organization’s cyber security effort to those of other hospitals in the region on practices such as the number of staff on security teams, the number responding to incidents, and details of incident response plans.

 

The information above was excerpted from a leadership report, “Aligning Leadership in the Era of Ransomware,” from the Healthcare Financial Management Association, published July 28, 2016. For a copy of the full report, contact Carlin Lockee at clockee@iprotean.com.

 

 

 

iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.

 

Coming soon, Governance in an Era of Population Health, featuring Jim Rice, Karma Bass and Marian Jennings.

 

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

Nontraditional Partnerships and Credit Ratings, Part 2

Nontraditional partnerships explicitly form to manage accountable care organizations and clinically integrated networks. Shared governance is typical in these types of partnerships. Other nontraditional partnerships include insurance companies, retailers and pharmacy companies.

 

Accountable care organizations and clinically integrated networks both collaborate among hospitals and physicians to manage large groups of patients to reduce the cost of care below a certain benchmark and allow independent physicians to collaborate with a hospital without violating anti-trust laws.

 

Clinically integrated networks have their own governance structures that work with hospital management to establish, implement and monitor outcomes and costs against targets. Physicians in a clinically integrated network are not necessarily employed by the hospital as opposed to the traditional M&A or physician practice acquisition by hospitals.

 

Nontraditional partnerships present risks different from traditional M&As. For example, financial risks loom large, especially for new lines of business. Or if the healthcare system provides its brand equity (i.e., its name on buildings and marketing materials), it risks dilution of its reputation from poor customer experience.

 

Credit Impact

 

Moody’s Investors Service considers various financial and strategic factors when evaluating the credit impact of a given nontraditional partnership. (Moody’s Investors Service Sector in Depth, May 2016) These include:

  • The size of the venture relative to overall operations
  • Size of the investment and projected impact to operating margins
  • Choice of financing (debt, equity or use of joint venture partner’s financing)
  • Legal structure of the partnership

 

“In general, the credit effect of financial disruptions from any new strategy with nontraditional partners depends on management’s ability to make mid-plan course corrections, availability of cash reserves or access to liquidity and financial strength of the system.” (Hospitals Look to Nontraditional Partnerships to Diversify Operations, Moody’s Investors Service Sector in Depth, May 2016)

 

Moody’s noted in its report that most negative rating actions to date have resulted from challenges associated with insurance companies or “large scale” physician integration plans. Its analysts wrote, “We consider insurance companies to be among the riskiest nontraditional partnerships because most hospitals’ expertise is in the delivery side of health care, not the underwriting side.” Required experience/skills include strong actuarial expertise in underwriting, pricing know-how, customer service and proven ability to project use rates.

 

With respect to large scale physician integration plans, the credit risk arises from the need to meld cultures and to make employment terms clear.

 

 

We extend a special thank you to Moody’s Investors Service for allowing iProtean to share its Sector In-Depth with our subscribers.

 

 

iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.

 

Coming soon, Governance in an Era of Population Health, featuring Jim Rice, Karma Bass and Marian Jennings.

 

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

How Nontraditional Partnerships Affect Hospitals’ Credit Ratings

In several of our courses we have covered the trend toward hospitals entering nontraditional businesses such as health insurance or retail operations as a means to absorb the impact of value-based reimbursement. Several of our experts have discussed mechanisms for such businesses: collaboration with existing companies, joint ventures with varying degrees of control, acquisition of existing businesses or building one or more businesses from scratch.

 

Moody’s Investors Service recently evaluated the credit impact of nontraditional partnerships. Its Special Outlook provided background on nontraditional partnerships. A summary appears here.

 

Nontraditional partners diversify the range of services healthcare systems provide.

 

Nontraditional partnerships are most appealing to larger healthcare systems with multiple campuses and a regional or multi-state presence because they have the management expertise, critical mass and financial resources to manage the risks.

 

“Healthcare systems often use nontraditional partnerships to gain expertise in different areas along the care continuum or to help
the organization enter new lines of business outside the systems’ core patient care expertise.” (Moody’s Special Outlook, May 2016) Hospitals manage or oversee management for a range of services such as patient care management and coordinating payments for such services. Examples include relationships with skilled nursing, rehabilitation facilities and other providers of post- acute care.

 

The obvious nontraditional partnership among large health systems is health insurance. Moody’s cites general examples of the types of partnerships:

  • healthcare systems starting new insurance companies, which are typically small at the outset
  • healthcare systems purchasing existing companies, which can be much larger
  • healthcare systems participating in narrow networks

 

The rationale for taking on a health insurance capability is multi-faceted. It is seen as a way to:

  • Control costs
  • Diversify revenues
  • Efficiently track and measure patient outcomes

 

Moody’s analysts noted, “Over the next several years, we expect a growing number of healthcare systems to enter the commercial health insurance business, seeking to improve care management and gain market share.”

 

In addition to health insurance, health systems are taking on “direct to employer” services . . . “a corollary to other population health strategies.” Typically these nontraditional partnership contracts are with large companies to provide a variety of services including on-site clinics, nurse hotlines and health screenings.

 

The strategy behind the “direct to employee” services focuses on engendering loyalty among patients and companies purchasing health care on behalf of their employees—creating relationships that generate future business.

 

 

Next week, we will cover Moody’s assessment of ownership structure and types of risks, and strategic factors for evaluating the credit impact of a given nontraditional partnership..

 

(Source: Hospitals Look to Nontraditional Partnerships to Diversify Operations, Moody’s Investors Service Sector in Depth, May 2016)

 

We extend a special thank you to Moody’s Investors Service for allowing iProtean to share its Special Outlook with our subscribers.

 

 

 

iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.

 

Coming soon, Governance in an Era of Population Health, featuring Jim Rice, Karma Bass and Marian Jennings.

 

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

Moody’s Releases Mid-Year Outlook

Moody’s Investors Service sees the outlook for the not-for-profit and public hospital sector as stable, reflecting its expectations for the fundamental business conditions in the sector over the next 12 to 18 months.

 

Operating cash flow growth will continue to grow but at slower rates than over the last two years. Growth of about 3 percent is expected over the next several quarters.

 

Favorable business conditions will ensure low rates of uninsured and growing patient volumes. But expenses are rising because of increasing drug costs and continued investments in staffing and population health strategies.

 

Moody’s key points include:

 

  • Operating cash flow is growing at about 3 to 4 percent, which is in line with historical averages. The growth rate will moderate slightly but will remain positive over the next several quarters. Factors contributing to slower operating cash flow growth include rising expenses, shifts in payer mix toward government payers and a stable number of people with insurance that is not showing the significant gains of the last two years.

 

  • The uninsured rate may increase because insurance exchanges are “showing signs of stress” with most insurers losing money on exchange-sold plans. Several large commercial insurers are participating in substantially fewer markets and many not-for-profit co-ops, established to compete with traditional insurance companies, have failed.

 

“It is credit negative to not-for-profit hospitals if healthcare insurers cannot make money on the exchanges because insurers will participate in fewer exchanges.” This may make it difficult for individuals to find health insurance and potentially reduce the number of people with insurance coverage.

 

  • Bad debt in Medicaid expansion states continues to decline, but at much lower rates than in recent years. Bad debt declined nearly 15 percent in Medicaid expansion states following implementation of the Affordable Care Act. However, bad debt in non-expansion states has grown in recent quarters.

 

  • Several more states have expanded Medicaid or announced intentions to do so over the past year.

 

  • Changes to reimbursement rates remain a long-term challenge. As reimbursement slowly shifts to value (i.e., quality outcomes play a greater role in hospital payments) from the fee-for-service model, hospitals experience a downward pressure on financial performance. Most hospitals are investing in physician practices and technology that enable them to better coordinate patient care and assume financial risk for the health outcomes of their patients.

(Source: Outlook Stable as Cash Flow Growth Slows but Remains Positive, Moody’s Investors Service Outlook, July 28, 2016)

 

 

iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.

 

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.