Becker's Hospital Review

Register Today! Becker's Hospital Review CIO and CEO Strategy Roundtables - Nov. 4 and 5, 2014 - Chicago 10 the healthcare industry has long been concerned about shifting away from fee-for-service, it appears more hospitals and health systems are embrac- ing managed care models that utilize value-based payment models. In June, a study commissioned by McKesson found 90 percent of payers and 81 percent of hospitals currently offer or have signed onto a mix of fee-for-service and other value-based reimbursement models. The study also found pay- ers and hospitals anticipate two-thirds of payments will be based on complex reimbursement models with value measures by 2020. There are still some challenges in paradise Although Health City has many desirable features, Dr. Shetty is going to face some challenges in the near future. A lot of people are traveling from the U.S. to other countries for cosmetic surgery be- cause they are required to pay out-of-pocket for those procedures. However, many people with health insurance do not believe they need to go elsewhere for care. "In the early years, Dr. Shetty is going to be chal- lenged to get patients to want to go to Health City, especially those who have insurance," says Dr. Pearl. "He will have to overcome U.S. patients' perception that the quality of healthcare isn't as good as soon as you leave your shores." Should U.S. hospitals view Health City as competition? Unless the healthcare system in the U.S. under- goes drastic change, it is possible Health City will have a negative effect on hospitals and surgical centers in America, and specifically in Florida — since it is just a short flight away from the Cayman Islands. "It is clear Health City is meant to extend care beyond the Cayman Islands," says Dr. Pearl. Health City will feature one bed per 25 Grand Cayman residents once the facility's expansion plans are completed, compared to the one bed per 333 people in the U.S. It is likely patients in the U.S. are going to begin traveling to Health City for care and that busi- nesses, such as insurance companies, are going to come up with incentives for people to get care there due to the cost savings they will achieve. Employers may also begin signing contracts with Health City for the hospital to provide its em- ployees with care, as these types of agreements are gaining popularity. For instance, Cleveland Clinic has entered into a number of direct contracting agreements with employers through its Program for Advanced Medical Care. Health City aims to be a Joint Commission inter- national accredited facility within the next six to nine months, and Dr. Abraham says he expects a more steady flow of U.S. patients to Health City at that point. Accreditation combined with high quality care, low prices and a vacation-like expe- rience should leave U.S hospitals with all eyes on the Cayman Islands, as healthcare of the future can already be found at Health City. n MORE ONLINE: Want more reading about Health City Cayman Islands? See the following stories available at www.BeckersHospitalReview.com: n "For a Look at the Future, Look to the Caymans" (May 2014) n "Ascension Health Partners With Indian Health System to Build Health City in Grand Cayman" (April 2012) Advocate launched its first commercial accountable care organization, Ad- vocateCare, with Blue Cross and Blue Shield of Illinois in October 2010, and APP has released an annual value report detailing programs and initiatives that transform care delivery and lead to better outcomes for a decade. "We believe that the [care] model is unsustainable unless we move into an out- comes-based model," Mr. Englehart says. Still, despite Advocate's commitment to a value-centric care system, he says he understands why hospitals and health systems might be fearful of making the leap from fee-for-service. The transition can undoubtedly be "painful," he says. Recent surveys and studies suggest a notable number of healthcare provid- ers expect the road from volume-driven reimbursement to value-based con- tracts to be a rocky one. A survey of 240 representatives from hospitals, physi- cian practices, health plans and pharmaceutical companies conducted during a series of webcasts in April and May by KPMG — an audit, tax and advisory services firm — found approximately 33 percent of healthcare managers ex- pect value-based contracts to have a negative effect on operating results. Sur- vey respondents from hospitals, health systems and large physician groups had particularly pessimistic expectations, with 49 percent saying they expect a drop in operating profits because of the transition to value-based payment. A study released in June by McKesson Health Solutions had similar results, finding that only 35 percent of the 350 healthcare providers surveyed thought value-based contracts would have a positive effect on their finances. "Many providers are saying 'Geez, this may hurt us,'" says David Nace, MD, McKes- son Health Solutions CMO. A focus on value and a possible revenue reduction As providers focus on preventive care and keeping patients out of the hos- pital, the decline in inpatient volumes is bound to have a financial impact, according to Jim Landman, director of healthcare finance policy, perspec- tives and analysis at the Healthcare Financial Management Association. "As a hospital-based system, the more you're reducing admissions to the hospital, you'll have a decline in revenue," he says. "That can be an outcome, especially if you are not able to increase market share. You'll be getting less revenue from hospital admissions because you're being more proactive." Many providers have already taken a fiscal hit as Medicare shifts from fee-for- service to value-based reimbursement. For instance, during the first year of the Medicare Hospital Readmissions Reduction Program — which was established by the Patient Protection and Affordable Care Act and took effect in fiscal year 2013 — CMS cut Medicare reimbursement by up to 1 percent for 2,213 hospi- tals with high readmission rates for heart attack, heart failure and pneumonia. The second round of penalties started Oct. 1, 2013, and CMS cut reimburse- ments for 2,225 hospitals in 49 states by up to 2 percent. In fiscal year 2015, the stakes will get even higher. Hospitals could see their Medicare payments cut by as much as 3 percent, and CMS plans to add chronic obstructive pulmonary disorder and total hip and knee replacement to the program. The Hospital Readmissions Reduction Program cuts might not seem like a lot, but for hospitals with high percentages of Medicare revenue and a low to nega- tive operating margin, it can be a sizeable amount, potentially the hospital's entire margin. "People are certainly threatened by that," says Bill Bithoney, MD, chief physician executive and managing director with BDO Consulting, where he co-leads clinical strategy for the firm's National Healthcare Advisory Prac- tice within BDO's Center for Healthcare Excellence & Innovation. However, despite the potential loss of income, providers are still better off taking on value-based contracts than they are sticking with fee-for-service, says Dr. Nace. McKesson's recent study indicates payers and hospitals antici- pate two-thirds of payments will be based on complex reimbursement mod- els with value measures by 2020. Furthermore, 90 percent of payers and 81 percent of hospitals surveyed already had a mix of fee-for-service and other reimbursement models. Consultants have predicted refusing to go along with the industry's inevitable transition to value-based payment could result in hospital margins as low as -17 percent. "They're saying, 'I don't know that this will be successful for us; it may hurt us financially,'" Dr. Nace says of providers taking on value-based contracts. "But what you're not hearing as much is, 'But not as much as if we didn't do anything.' What you're missing is, 'We're going to do it anyway, because we're dead if we don't.'" Does More Value Mean Less Profit? How to Keep Pay-for-Performance From Hurting Hospital Income (continued from cover)

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