Published on February 07, 2014

Obamacare leads to new business models

Colleen Michele Jones, Reporter- Jacksonville Business Journal 


You can’t drive Jacksonville’s highways without seeing them: bright electronic billboards advertising estimated emergency room wait times for area hospitals.

With an average of 50 percent of a hospital’s revenue generated from emergency care and 20 percent coming from admissions resulting from those visits, the ER is big business for local health care providers.

For now.

Competition may cool down with the Affordable Care Act’s focus on preventive rather than emergency care and with more insured patients coming into the system due to increased access to coverage.

Industry experts say there may be a new battle on the horizon — a battle for survival in the still-evolving landscape of health care.

While CEOs of area hospitals see the need for reform, it doesn’t make navigating these largely uncharted waters easier. Change is hard, especially for hospitals whose business models have been entrenched for decades.

The government mandate that officially rolled out Jan. 1 moves the American health care system from one that pays per service to one that rewards coordinated, cost-efficient care that focuses on prevention. The model is otherwise known as “pay for performance” and essentially inverts the traditional revenue stream for hospitals.

“The new paradigm basically tells hospitals it’s not just about admits now — you’re going to get paid for keeping that person out of the hospital now,” said Dawn Emerick, CEO of the Health Planning Council of Northeast Florida.

Expect more streamlined, lower-cost treatments and approaches, more consolidation of services among regional hospital centers, and — potentially — facilities forced to shrink operations or close altogether, depending on the financial burden the ACA may impose on them.

“A lot of the care payment formula was, you do more things, you get more payments — a lot more tests, you kept people in the hospital more days,” U.S. Secretary of Health and Human Services Kathleen Sebelius told the Business Journal during a January visit to Jacksonville. “It didn’t necessarily have to do with how the patients were doing or how their treatment developed, so there’s more focus right now on the right care, the right patient and the right time and we are finally seeing a reduction in preventable hospital readmissions.”

‘A tough business right now’

The federal government estimates more than 200,000 people in Jacksonville are uninsured. Many qualify for subsidies on health care insurance premiums.

But projections of just how many people may sign up by this year’s deadline of March 31 are hard to pin down. Add concerns about how changing industry standards will affect a facility’s bottom line and you can see why the hospital CEO’s chair is a more uncertain place to be sitting these days.

“It’s a tough business right now,” said Russ Armistead, CEO of University of Florida Health Jacksonville. “The system is such a mess right now, we could go broke.”

Some Jacksonville medical facilities seem better prepared to deal with these changes, based largely on their existing resources, the structure of their organizations and the makeup of their patient base.

For example, UF Health, which contracts with the city of Jacksonville to take care of the lower-income population, is uniquely positioned to see more of an impact from the implementation of Obamacare.

Ninety percent of patients at UF Health are not covered by commercial insurance — they’re either indigent and must be treated regardless, or qualify for Medicaid. In this population, the ER is often a revolving door, with many patients returning again and again without the benefit of a primary care physician.

The ACA shifts the emphasis away from emergency triage to regular checkups, monitoring of chronic conditions like heart disease and vaccinations.

The goal: to decrease the number of trips to the emergency room and keep people out of the hospital.

Under the ACA, medical centers will be reimbursed less if patients return within a month and get more money if patients stay healthy. Will that financial formula be enough to offset losses in revenue hospitals may see?

“We’re not convinced that’s going to be the case,” said Hugh Greene, CEO of Baptist Health.

Hospitals have been transitioning for some time now in preparation for the ACA, beginning to offer bundled payments, beefing up their primary care networks and even forming partnerships with area competitors.

Uncertain fallout

Health industry experts have no crystal ball to predict exactly what changes will come as part of Obamacare, or how long the transition will take to unfold in very tangible ways.

Greene said, “We may not be sure of the true impact for five, 10 or 15 years.”

In a report released earlier this month, Moody’s Investor Service laid out nonprofit hospitals’ financial straits, saying the ACA would likely lower hospital reimbursement rates. Moody’s also expects bad debt to increase because some consumers may buy plans with high deductibles and co-pays they are unable to pay. Health care facilities will be forced to absorb these reductions, plus uncompensated care costs if people don’t buy insurance.

But despite all of that, despite the pain they’ll be going through, some health professionals say reform is needed.

“The system as we know it,” Greene said, “is not sustainable over time.”

Medicaid expansion a funding necessity for hospitals

With Florida opting not to expand the federal Medicaid program, the state is staring down a gap in hospital revenue that any potential influx of newly insured residents might not be able to offset.

Florida has opted out of $51.3 billion in federal funding that would have expanded Medicaid to cover 1 million Floridians who don’t earn enough to get subsided coverage through the exchange but make too much to qualify for Medicaid as it now exists.

The proposition was rejected by a state Senate panel last spring but the issue has resurfaced with the official rollout of Obamacare on Jan. 1. The Florida Legislature could reconsider the Medicaid expansion at the session that starts next week, but that is far from certain.

At a Jan. 24 news conference with U.S. Secretary of Health and Human Services Kathleen Sebelius in Jacksonville, state Rep. Mia Jones, D-Jacksonville, called for renewed discussion among lawmakers in Tallahassee, saying not to do so would create a disparity in coverage across minority and low-income groups. Jones proposed the formation of a special committee that would “push forward to find a solution.”

For her part, Sebelius added that while most people qualify for some kind of financial help in the form of subsidies under the Affordable Care Act, a large group of people in Florida would not be covered if Medicaid expansion were not enacted.

“They’re really in a terrible gap unless the ... Legislature moves,” she said.

Russ Armistead, CEO of University of Florida Health Jacksonville, said Obamacare assumed that those who couldn’t afford insurance on the government marketplace “would get coverage through the Medicaid expansion.”

Baptist Health’s CEO, Hugh Greene, said if Florida continues to turn down the federal funds, “it dramatically reduces the pool of reimbursement for hospitals.”

The plans moving forward

How the changes stemming from Obamacare will affect Northeast Florida’s hospitals is largely based on the makeup of a hospital’s patient base, how the hospital has traditionally generated revenue and a facility’s existing resources.

The Business Journal asked hospital CEOs to speculate on how the Affordable Care Act might change the way they do business:

Baptist Health

Hugh Greene, CEO of Baptist Health, a nonprofit, large-scale health network which includes Wolfson Children’s Hospital

• On how the ACA may impact it financially:

“We’re going to be rewarded not for volume [of services] any more but how well we keep people healthy, so the question is: How will we make up for that? That is a huge question and one that every health care executive in the country is asking — how do we bring in more money to offset those potential losses?”

• On the potential influx of newly insured patients:

“We are already the second leading provider of charity care in the area, behind UF Health. So we do have a very significant share of the uninsured population. The ACA was supposed to bring additional revenue into hospitals, but without Medicaid expansion in Florida we’re not going to see the level of reimbursement we would have hoped.”

• On how the facility is preparing for the shift:

1) Have staff communicate more to coordinate patient care.

2) Add more resources to help those transitioning out of the hospital, for example with visiting nurses.

3) Make primary care physicians the first point of contact in overseeing care.

4) Invest more in information technology to improve patient record-keeping.

5) Create partnerships with other health care providers to streamline costs and efficiencies, for example, through bundled payments.

Mayo Clinic

Bill Rupp, CEO of Mayo Clinic Florida, a high-end specialized care medical center which also operates an ER

• On how the ACA may impact it financially:

“Not knowing how many folks might sign on for insurance, as well as those who fall into the Medicaid gap, we just have to find different ways of delivering services that are more cost-efficient.”

• On the potential influx of newly insured patients:

“We already do some charity care, so we like everyone else [in the field] have to find ways to continue to do this. … I suspect we’re going to make this transition in fits and starts and try to keep populations healthier and out of the ER.”

• On how the facility is preparing for the shift:

“We’re offering more value-added procedures, such as contracting with Florida Blue for hip replacements at a fixed cost with assured outcomes.

“We also know that we have to use technology more. For example, there are ways to use Skype and video conferencing for physician consultations that would make sense in some cases and reduce the number of doctor visits required.”

Memorial Health

Jim O’Loughlin, CEO of Memorial Health, a for-profit acute care hospital network

• On how the ACA may impact it financially:

“Hospitals will now be [monetarily] penalized if a patient in their care is readmitted within 30 days, so hospitals like Memorial are investing more in resources to keep them healthy, but other factors play into this, such as socioeconomic levels and the willingness of patients to follow advice.”

• On the potential influx of newly insured patients:

“Today, a majority of admissions to Memorial come in through the ER. Now, with the rollout of the ACA, we may see fewer ER visits with more people choosing urgent care clinics. …If we don’t see as many people coming into the system, then the financial pressure on hospitals will be significant.”

• On how the facility is preparing for the shift:

“I think we’ll be spending more and more on outpatient services and the convenience of these services. We’re also going to continue to focus on making the ER as efficient as possible.”

St. Vincent's

David Meyer, chief strategy/marketing officer for St. Vincent’s HealthCare, a nonprofit health system with three large medical centers

• On how the ACA may impact it financially:

“We’ll definitely take a hit in reimbursement — it’s just whether those without insurance buy into the system enough to help offset that.”

• On the potential influx of newly insured patients:

“Theoretically, it could reduce the user rates of hospitals, but you have to look at the population growth in the Jacksonville area, particularly in the senior population which typically has more health issues. So you have to figure those factors into a potential decrease in user rates.”

• On how the facility is preparing for the shift:

“As an industry, we have to develop delivery models and facilities that are lower-cost infrastructure models.”

UF Health

Russ Armistead, CEO of University of Florida Health Jacksonville, an academic medical center that also contracts with the city to provide care to lower-income patients

• On how the ACA may impact them financially:

“We have a contract with the city [of Jacksonville] for $24 million annually to take care of a group of people who live in the city or county and have an income below the federal poverty level. The problem is, we spent $60 million at cost last year. So that [lower-income] group we’re trying to keep out of the ER and improve their health status.”

• On the potential influx of newly insured patients:

“Eighty percent of the patients we’re seeing would qualify for the Medicaid expansion but that’s not going to happen, and these people are stuck in the middle — many of them can’t afford the premiums for the [ACA] exchange program to get access to care.”

• On how the facility is preparing for the shift:

“We are focused on increasing our primary care network; we now have four facilities and we are expanding to six. But these are not 24/7 clinics for acute care, so we will still see many coming to our ER."