Home » Taking the pulse of healthcare reform

Taking the pulse of healthcare reform

By Mark Green

While Kentucky business executives continue to seek clarity on what the federal healthcare reform that goes into effect Oct. 1 will bring, top leaders in the commonwealth’s healthcare sector say they see several distinct trends occurring – prompted by the market forces Obamacare is unleashing.

stethescope♦ Health insurance products for individuals spending their own dollars are in ascendance.

♦ Cost pressures are driving individuals, employers, insurers and providers alike to assume more risk, according to Kentucky healthcare executives.

♦ Wellness programs are sprouting, as people and organizations seek to avoid rather than treat costly illnesses and chronic conditions.

♦ Care providers and the organizations paying for care are seeking more effective management to avoid expensive mistakes and readmissions.

“Without a doubt the most significant development in healthcare in many years will begin Oct. 1, when consumers will be able to enroll for health insurance benefits online,” said Deb Moessner, president of Anthem Blue Cross and Blue Shield of Kentucky, which has 1.2 million policyholders in the state. “The online exchanges will be available (also) for small businesses to purchase health benefits.”

Already, the rise in healthcare spending, which has outpaced inflation for decades, has slowed significantly as group medical insurance plans have shifted more of the cost to individuals.

Deb Moessner, President, Anthem Blue Cross and Blue Shield of Kentucky
Deb Moessner, President, Anthem Blue Cross and Blue Shield of Kentucky

“If it’s my money I’m spending, I spend it differently than I do if I’m spending my company’s money,” said Garry Ramsey, chief marketing officer with Bluegrass Family Health, a group insurance provider to Kentucky and Southern Indiana businesses that is based in Lexington. “The biggest impact of the law, I think, will be this move into individual products, and the consumer-based decision making this will create.”

People spending their own dollars are willing to assume more risk to spend less. Individual plans with higher deductibles and lower premiums will be popular.

Meanwhile, similar market incentives are at work at the provider level.

“The central force shaping the change in our healthcare delivery system is clearly emerging: The system will be value-based and providers will be expected to deliver cost-effective, high-quality outcomes,” said Dr. Michael Karpf, executive vice president of UK Healthcare. “To transition to this value-based system, most experts agree that the system must move from the current fee-for-service reimbursement model to another approach that shifts risk to providers.”

Dr. Michael Karpf, Executive Vice President, UK Healthcare
Dr. Michael Karpf, Executive
Vice President, UK Healthcare

Hospitals, clinics and others that achieve better health outcomes will be paid better. Medicare has announced it will stop paying for care given patients readmitted to a facility within 30 days for the same problem – facilities will eat the cost of unsuccessful treatment.

Financial models are changing.

Jeff Bringardner, Kentucky President, Humana
Jeff Bringardner, Kentucky President, Humana

“We are changing our financial model in Kentucky to compensate providers for quality outcomes versus paying for each medical service that’s provided,” said Jeff Bringardner, Kentucky president for Humana, a $40 billion health and wellness company based in Louisville. “We’ve had a positive response from doctors and hospitals because it mirrors their shift into accountable care.”

Humana and Norton for the past three years have been conducting one of four national pilot programs seeking to develop best practices for accountable care organizations.

Seeking clarity amid Obamacare confusion

With the Oct. 1 deadline to begin implementing some of the Patient Protection and Affordable Care Act’s major provisions, many in the Kentucky business community are still wondering what the impact on their operations will be. Political opponents of the Affordable Care Act continue to strongly oppose it and call for its repeal, even though the U.S. Supreme Court upheld its general legality last year. The Republican majority in the U.S. House of Representatives has held at least 40 votes to overturn Obamacare.

In July, the Obama administration delayed by one year the mandate set to come into effect in October that employers must report whether they meet the 50 full-time employee (FTE) threshold that requires them to offer healthcare plans to workers – and show that they do, indeed, offer health insurance plans that is strong enough and within ACA cost guidelines.

John Hackbarth, Chief Financial Officer, Owensboro Health
John Hackbarth, Chief Financial Officer, Owensboro Health

Given this environment, The Lane Report decided to ask a selection of Kentucky healthcare sector leaders for their views on what will happen over the next six to 12 months.

PeopleNo one expects a repeal of the ACA, although the enforcement practicalities of some provisions as currently structured have been questioned – e.g., making the IRS the policeman who must enforce mandatory insurance coverage by collecting tax penalties “is suspect,” said John Hackbarth, chief financial officer for Owensboro Health.

“The IRS already has a poor track record on enforcing unpaid taxes,” Hackbarth said. “Add the non-covered penalty to the mix and therein lies another element of poor government enforcement with higher government administrative costs and little to no increased revenue to offset the cost of the program.”

Regarding healthcare reform, he said, Owensboro Health customers continue to ask, “It is really law?” along with “What does it mean to me?”

Stephen Williams, CEO, Norton Healthcare
Stephen Williams, CEO, Norton Healthcare

Kentucky healthcare leaders may not agree with all the provisions of the federal law, but they strongly back the need for significant healthcare reform.

“The financing system for American healthcare is fundamentally dysfunctional. It has to change,” said Norton Healthcare CEO Stephen Williams. “Am I an advocate of everything that’s in the Affordable Care Act? I assure you I am not. But the absolute necessity for financial change is there, and most anybody in healthcare the last 20 to 30 years would subscribe to that notion.”

UK Healthcare’s Karpf agrees.

Bigger systems trend will continue

“The healthcare system in the United States must change because of unsustainable costs and limited access to care,” Karpf said.

U.S. healthcare does offer the best services, Williams said, “but the system doesn’t work well. It’s too expensive. There are access issues. Folks are going to hospital emergency rooms to get primary care. We all know intuitively it’s inefficient, so there’s great frustration on many levels about the system. Fundamentally we do have the best – we set the standard for quality – but we have a lot of things that need to be fixed.”

One key reform goal is shifting the financial model from fee-for-service to fee-for-outcomes – healthier patients and populations will generate the most revenue rather than increasing the volume of tests and procedures conducted and medicines prescribed.

“Hospitals will respond in different ways,” Karpf said. “The Affordable Care Act and the federal debate over budget deficits have accelerated the change process. Healthcare providers must understand their strategic goals and identify the necessary resources to achieve them.”

Over the next 12 months, Karpf predicted that healthcare providers “of all types will continue to formalize existing and new relationships with both providers and payors to forge virtual or real networks” whose goal is better outcomes.

UK Healthcare for several years has been partnering with other providers, including Louisville-based Norton Healthcare and entities in nearby states to grow a regional network. It seeks to provide care efficiently close to home when possible or refer more serious cases to larger facilities that can develop into specialty-procedure centers of excellence.

Karpf has explained the approach repeatedly the past few years as UK Healthcare built a new $800 million medical center that opened last year. To develop expertise in complex lifesaving services such as major organ transplantation, providers have to draw patients from a geographic footprint with a population large enough to generate those cases – and if Kentucky does not have centers of excellence facilities, its residents must leave to receive care.

“However, there must be an appreciation that these relationships are challenging to establish and manage, and will evolve over time,” Karpf said. UK Healthcare has spent 10 years “revamping its organizational and operational model and developing a single corporate support group to serve the hospital, College of Medicine, the faculty practice plans and ambulatory services. UK developed a common vision and strategy by coordinating four simultaneous planning processes – financial, facilities, strategic and academic. This structure is critical to facing the changing landscape of healthcare.”

Stephen Hanson, CEO, Baptist Health
Stephen Hanson, CEO, Baptist Health

Louisville-based Baptist Health includes seven acute-care facilities from Paducah to Corbin and manages a large Elizabethtown hospital. Within the past year it added the former Trover system in Madisonville and consolidated its branding.

“The Patient Protection and Affordable Care Act will drive hospitals to expand the care networks, including physician practice acquisition,” Baptist CEO Stephen Hanson said. “There will be a continuation of mergers and consolidations to control costs and improve operational efficiencies.”

KentuckyOne Health (KOH) came into existence in early 2012 as another large regional network when Louisville-based Jewish Hospital and St. Mary’s HealthCare merged with Lexington-based St. Joseph’s Health System, a six-hospital subsidiary of Catholic Health Initiatives (CHI). University of Louisville Hospital and the James Graham Brown Cancer Center were able to join later, and Denver-based CHI is investing $320 million into the deal, much of it going to improve operations at UofL, which provides the most indigent care in the state.

Systems adding access points for new patients

Ruth Brinkley, CEO, KentuckyOne Health
Ruth Brinkley, CEO, KentuckyOne Health

“Over time, we expect to see more and more people with access to health insurance, which is very positive,” said Ruth Brinkley, CEO of Kentucky-One Health. “How people access that care is the next question.”

KOH is increasing the number of access points for care in the commonwealth, Brinkley said. Areas of the state face doctors shortages, she said, explaining that this is one reason KOH has partnered with UofL, which has a medical school.

“KentuckyOne Health is developing a strategy to offer more primary care providers in the state, as well as increasing opportunities with telemedicine programs,” she said. “We want to be able to treat patients as close to home and at the most cost-effective and high-quality setting that is possible.

Putting enough access points in place will help achieve the population health goals that are a concern for KOH, which has a focus on the underserved and vulnerable.

“Collectively, KentuckyOne Health facilities are providing more charity care than anyone else in the state, and University of Louisville Hospital continues to provide more charity care than all the other Louisville hospitals combined,” Brinkley said.

“The ‘gap’ between the uninsured and the insured is a concern,” she said. “The assumption is that everyone will have insurance under the Affordable Care Act, but it has been estimated that even after full implementation, 10 percent of Kentucky residents will still be without insurance. We will still need to serve those patients.”

Andrew Henderson,CEO, Lexington Clinic
Andrew Henderson,
CEO, Lexington Clinic

Lexington Clinic, a multispecialty medical group that sees more than 2,000 Central Kentucky patients a day, expects many of the currently uninsured to be covered as of Jan. 1 and to begin coming to medical offices rather than emergency rooms, said Dr. Andrew Henderson, CEO.

“While this injection of newly insured patients will exacerbate the issue of primary care access, it also offers the opportunity for patients to receive preventive and ongoing maintenance of healthcare issues rather than crisis management,” Henderson said.

“As insurance coverage expands, we will continue to see increasing premiums, deductibles and co-pays, which place a heavier financial burden on our patients. This added financial responsibility will force many patients to be selective of services, and will determine whether or not patients make, or keep, their appointments. Healthcare organizations need to be sensitive to this increased burden and continue refining best practices to ensure they provide responsible care that is of value to the patient.”

They also need to be aware, he said, of patient worries that reform will force them to change doctors or dictate services and reassure patients that their care is top priority and their needs will be met regardless of what changes take place.

“It is essential that healthcare leaders surround themselves with knowledgeable, forward-thinking people to help lead their organizations through the ongoing changes,” Henderson said. “We must be open to new ideas and opportunities as the world of healthcare continues to evolve.”

Market forces urge taking risk to cut costs

Healthcare is going to become more competitive, according to Ramsey at Bluegrass Family Health, because the shift to individual insurance from group plans means many patients will be more cost-conscious. There are increasing avenues by which patients can compare costs (see article on page 30).

The health insurance industry will be more competitive, too, as a result.

“Instead of being sold B2B (business to business), it’s going to be B2C – business to consumer,” Ramsey said. “That’s a new dynamic.”

He compared the coming change to the travel industry.

“How many people use a travel agent today?” Ramsey said. “Almost none. They do it themselves. It’s consumer driven.

By the end of 2014, Ramsey expects 55 to 60 percent of Kentucky’s population will have individually obtained insurance. Medicaid, which is expanding in the state, will cover 27 to 28 percent of the population, and Medicare another 20 percent.

The rise of the individual insurance product presents marketplace opportunities, he said.

“You’re going to see different risk-takers in the marketplace. You will see employers and employees who will be bigger risk-takers,” Ramsey said. “They will choose higher deductibles because of the cost of premiums.”

While the individual insurance product is growing, large employers’ group plans will continue to play a large role for many Kentuckians, with millions of dollars at stake.

Higher deductibles guarantee lower premium costs – and avoid the new health insurance premium tax – but risks higher out-of-pocket costs for services if they are needed. To manage the need for services, employers will add onsite clinics and medical managers, Ramsey said, and providers will sell these services, perhaps on an hourly basis.

Opportunity: Managing employee health

In the past year, Baptist Health has created a new division called Baptist Health Employer Solutions to fill this need. Humana has introduced Humana Vitality.

“At Humana, we’ve tried to tackle the trend from a different perspective by encouraging people to get healthy and stay healthy,” Bringardner said. “One of the ways we’ve done this is through integrated care … centering on individual members and their primary care physicians. We’re engaging members through a variety of platforms, such as our wellness rewards program – HumanaVitality. HumanaVitality and other integrated care programs include sophisticated data analytics that allow members – and their supporting medical teams – to address gaps in care and develop a plan for a long, healthy life.

Traci Elliott, Executive Director, Baptist Health Employer Solutions
Traci Elliott, Executive Director, Baptist Health Employer Solutions

“We are incentivizing providers to manage their patients’ health. That’s because putting the individual at the center of the health system yields better medical results and improved affordability for everyone,” Bringardner explained.

Humana and Baptist Health are themselves large employers that bear significant costs for their workers’ healthcare.

“As a large employer in Kentucky, focused on the health and well-being of our own associates, Baptist Health recognized the challenges that the rising direct and indirect costs of unhealthy employees pose to the bottom line,” said Traci Elliott, executive director of Employer Solutions. “In response, Baptist Health created a division called Baptist Health Employer Solutions, focused on delivering products and services to employers that improve quality and overall costs. The services and products center around narrow networks, wellness and population management, on-site clinics and medical home models. The demand from employers is increasing and our business will continue to grow across the state as we bring value and proven solutions to the table.”

Mark Green is editorial director of The Lane Report. He can be reached at [email protected].