TRENDS IN HEALTH CARE Howard S. Berliner, SC.D.

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Presentations text content in TRENDS IN HEALTH CARE Howard S. Berliner, SC.D.

Slide1

TRENDS IN HEALTH CARE

Howard S. Berliner, SC.D.

Presented to the PHHPC Retreat, September, 2017

Slide2

Number of all hospitals in the U.S. 1975-2015

Number of all hospitals in the U.S. from 1975 to 2015

Source:

American Hospital Association; US Department of Health and Human Services;

ID 185843

Note:

United States

Further information regarding this statistic can be found on

page 8

.

Slide3

Number of all hospital beds in the U.S. 1975-2014

Number of all hospital beds in the U.S. from 1975 to 2014

Source:

American Hospital Association; US Department of Health and Human Services;

ID 185860

Note:

United States

Further information regarding this statistic can be found on

page 8

.

Slide4

NUMBER OF HOSPITALS IN NEW YORK STATE: 1999-2015

Slide5

Slide6

Certificate of Need

Slide7

CON IN THE US 2017

WA

OR

CA

MT

ID

NV

AZ

UT

WY

CO

NM

TX

OK

KS

NE

SD

ND

MN

IA

MO

AR

LA

MS

AL

GA

FL

SC

TN

NC

IL

WI

MI

OH

IN

KY

WV

VA

PA

NY

ME

VT

NH

NJ

DE

MD

Washington D.C.

MA

CT

RI

AK

HI

Slide8

THE BACKGROUND TO CON

1946 Hill-Burton Act

Federal program to increase the supply of hospitals and hospital beds in the U.S.

Lasted until 1972Added over 300,000 beds to hospital supply in its lifetime

Slide9

Roemer’s Law

Named after Milton Roemer, a Professor at Cornell

Work done in 1950’s in central NY Found that as bed supply increased, bed occupancy remained the same

If a 100 bed hospital was 80% occupied, when the hospital added another hundred beds, it soon became 80% occupied againIn economics this phenomenon is called supply creating its own demandIn health care this was called Roemer’s law

Slide10

CON

With the federal government about to increase hospital utilization the additional number of beds that were being created combined with Roemer’s law led to a need to restrict bed supply

Main concern was that guaranteed reimbursement (through Medicare and Medicaid) would increase federal/state spending because hospitals would keep adding beds that would be filled

CON was a mechanism to achieve 2 goals:1) keep overall costs down by restricting the supply of new beds2) give the public (consumers) some say in health care policy including whether new beds were needed

Slide11

Health Care Cost Trends

Slide12

Source

: Health

US 2016

Slide13

HEALTH CARE COSTS

Health care costs have been increasing in the United States despite numerous measures meant to control or reduce spending

Three major reasons for this:

1) the population is growing2) the population in aging3) medical research provides new approaches to improving health care every dayWhile costs for some diseases/procedures might get reduced, overall health spending continues to increase

Slide14

THE FUNDAMENTAL LAW OF HEALTH ECONOMICS

HEALTH CARE COSTS= HEALTH CARE INCOMES

Slide15

Reducing health care costs

Any reduction in health care costs means a loss of jobs or a reduction in wages (or both)

Health care has been the only industry that has proved recession-proof as it has continued to grow on a steady basis

If the number of health care workers increases, health care costs will increase as well

Slide16

Labor vs. Capital

Health care is the only major industry in which labor costs are not generally replaced by capital (i.e., robots or machines)

When banks add ATM’s

– tellers are reducedWhen the Thruway uses EZ-PASS, toll attendents are reduedMoreover, when new equipment is utilized in the health care sector more labor is hired as wellWhen a hospital adds a new MRI, it hires more MRI technicians or upgrades other staff to perform a new role

Thus whereas in the rest of the economy, machines replace labor– in health care both grow togetherGreat for the economy– but makes health care more expensive

Slide17

Can We Lower Health Care Costs

We could have done it in 1980’s with original plans for DRG’s

– but high cost states modified rules so that cost changes were minimal

We did it in the mid-1990’s with strict HMO’s that kept people away from specialists and hospitals, rewarded not seeing people, used capitation, and paid hospitals lessBut everyone hated this approach so managed care companies stopped the controls and raised premiumsACA has many “small” cost control provisions, but most have only a very limited impact or are not effective at all

Slide18

Health Care Systems

Slide19

HEALTH CARE SYSTEMS

The growth of health systems is the major national identifiable trend of the last 10 years

The creation of health care oligopolies has been accompanied by the demise of small stand-alone general hospitals

Major consequences of this growth:1) health system owned insurance/financing companies2) cross-border ownership of health facilities3) Upstream and Dpwnstream integration (DSRIP)Particularly for Academic Medical Center led systems

4) possibility for true population health

Slide20

Origins of Health Systems

Integration of health facilities has long been a goal of health planners and health policy makers in the U.S.

HHC created in 1969

Switch from municipal department to quasi-public agencyPush for Integrated Health Systems in 1980’sIn New York, big growth occurred after for-profit managed care companies allowed and demise of NYPHRM

Slide21

System Formation as a Response to Managed Care

Until mid-1990’s, NYPHRM and very high occupancy rates kept HMO’s from being a significant factor in NY health care

End of NYPHRM allowed for negotiated rates

AIDS drugs dropped occupancy rates very quickly From 1980’s-mid 1990’s, over 20% of acute care beds in NYC were filled with people with HIV or AIDSHMO strategy was to select a single (few) hospitals and guarantee them admissions in exchange for big price discountAcademic medical centers particularly worried as they were extremely high cost

Slide22

The Empire (Hospitals) Strike Back

Hospital mergers gave hospitals more bargaining power

Systems could confront HMO’s as a single entity and force them to put all hospitals in system in their networks or not have any of them

In many cases, mergers and system formation were pushed by hospital boards whose members (as opposed to management) were used to dealing with such tacticsVery tough in New York to pick only one system to contract with– employers are pushed by employees and by their boards to contract with hospitals they like and use and with which they may be affiliated

Slide23

(Potential) Advantages of System Formation

Elimination of duplication of services

Volume discounts on equipment, supplies, and drugsCareer paths for employees

Better rates from insurersImposition of quality control standards on entire systemGreater financial resources for expansion, renovation, and new programsAbility to regionalize services

Slide24

(Potential) Disadvantages of System Formation

Oligarchical organization affects supply and demand

Local factors disregarded or minimized in centralized planning

Higher prices for same careCorporate priorities outweigh local prioritiesIndividual hospital management now supplemented by corporate managementDealing with local doctors (particularly if it is an AMC-led system)

Slide25

Hospital System Trends—Create an Insurance Company

I want to thank Jeff Kraut and

Northwell for not waiting until after I gave this talk to kill off their insurance company

…SadThe overall goal of hospital systems is to be Kaiser– a full integrated health care system that uses its own insurance to finance its operationsLargest of the hospital system insurance companies is UPMC3.2 million membersCreated after numerous fights with local insurance company

Most (pace Northwell) are losing money—but this may be temporary

Slide26

Advantages of Becoming an Insurance Company

Can pay your own hospitals more and others less

Can be used for capitalGreater control over patients and doctors

Eliminate hassles of dealing with external insurance companies

Slide27

Disadvantages of Becoming and Insurance Company

Losing money

Fundamental conflict between goals of an insurer and those of a hospital system

Insurers want to pay less, hospitals want to get moreSystem may get worse treatment from other insurers who dislike the competitionNeed large number of hospitals, widely distributed to attract corporate businessNorthwell in Nassau, Suffolk, all NYC (except Bronx) Westchester and Hudson Valley, and Syracuse

Slide28

Doctor and Practice Purchase

As hospital systems buy up physicians and physician practices, the idea of having the financing of health care outside of the system seems increasingly problematic

This goes the other way as well

– with insurance companies purchasing hospitals and physician practices– because if you have the financing, why not control the delivery as wellEmblemHealth directly employs over 550 doctors in NYC

Slide29

Physicians Employed By Hospitals in the U.S.

Source: HealthCare Finance Sept, 2016

Slide30

Insurance Companies and Health Care Delivery

No prohibitive reason why insurance companies won’t start purchasing hospitals or health system

Highmark (Blue Cross of Western Pennsylvania) purchased 4 hospital Alleghany Health System ( to compete with UPMC)

As FTC limits ability of insurance companies to merge and concentrate, available cash might go towards health deliverySame problem as hospitals have, need wide delivery system in order for this to make sense and most large insurance companies are national

Slide31

Cross-Border Health Care Delivery

As hospitals run into FTC problems with system expansion on restraint of trade/monopoly issues:

Advocate and North Shore University (Illinois)

Hershey Medical Center and Pinnacle (Pensylvania)Inova and Prince William (Virginia)Systems will seek cross-border arrangements for growthThe Cleveland Clinic has its main campus in Cleveland, but a hospital in Southeastern Florida,

and Toronto, CanadaJohns Hopkins has its main campus and a satellite campus in Baltimore, but also has hospitals in Washington DC, and Bethesda, Maryland and a children’s hospital in St. Petersburg, Florida. The Mayo Clinic has its Main campus in Rochester, Minnesota, but also a large number of clinics in the state as well as in Wisconsin, Iowa, and Georgia. It has hospitals in Jacksonville, Florida and Phoenix, Arizona as well.

Massachusetts General is in the process of purchasing a hospital in New Hampshire. University of Pennsylvania is purchasing the Princeton Medical Center in NJ

Slide32

Cross-Border Health Care Delivery

Even the few examples cited above, do not take into account international hospitals owned by US health care systems

Much of this expansion is just the sale of branding rights

Others could lead to expansion of insurance products—particularly if Congress approves multi-state sale of insuranceHigher or Less-Restricted reimbursementLessened regulatory burdens

Slide33

Non-NY Owned Hospitals

University of Vermont and Adirondack Medical Center and Champlain Valley Physicians Hospital

UPMC and WCA hospitalGuthrie-Corning Cancer Center

Slide34

New York Hospitals in Other States

Memorial Sloan Kettering in New Jersey

Hospital For Special Surgery in New Jersey and ConnecticutMany academic affiliations which could lead to broader investment

Slide35

Health Systems Could Lead to Regionalization of Services and Population Health

The control over a large number of facilities in a geographic area could allow hospitals to to take full responsibility for all health care services and outcomes in a defined region

This would require changes in the way health systems are reimbursed (more of a capitation system) but could ensure more uniform health provision across the state

This would require the State to reallocate hospitals to different systems to eliminate the current and competitive locations of hospitals within other systems’ territories

Slide36

Narrow Networks

Some insurance companies, particularly in the individual market, have created narrow networks of providers and hospitals at a lower cost than insurance which is more inclusive.

This has occurred mostly in the Obamacare exchange market, but is spreading to the group health insurance market as well

Horizon Health, the large NJ insurer, has tiered hospitals based on cost and quality, and will exclude hospitals from its coverage networks if they fall short. Currently being litigatedThis could presage a return to the early battles between hospitals and HMO’s that led to the early growth of system formation

Slide37


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