Healthcare & Insurance Industry Outlook

(Front row, left to right) Kathy Ross, Government Employees Health Association; Erin Stucky, Blue Cross Blue Shield of Kansas City; Jeff Spencer, Holmes Murphy & Associates; Ron Rowe, Blue Cross Blue Shield of Kansas City; Renny Arensberg, KVC Health Systems; Gregg Laiben, Blue Cross Blue Shield of Kansas City. (Back row, left to right) Kevin Hicks, Overland Park Regional Medical Center; Lee Norman, University of Kansas Hospital; Tracey Hopper, (seated) MedTrak Services; Jaren Pippitt, Mosaic Life Care; Linda Bahrke, Mosaic Life Care; Gene Lampe, Garmin International; Brian Johnston, Polsinelli, PC; Bob Finuf, Children’s Mercy Hospital; David Feess, Liberty Hospital; Steve Salanski, Research Family Medicine; Jackie DeSouza, (seated) Research Medical Center; Corrine Everson, HCA Midwest Health System

ACA Cost, Compliance Issues Coming to

When Ingram’s launched the Industry Outlook series 16 years ago, we wondered if there would be enough new material in any given sector year-to-year to keep it fresh. Within months of that first assembly, the tech bubble burst, NASDAQ crashed, a recession set in, and then Sept. 11 happened. A few years later, we had the subprime debacle, a recession of major-league proportions, and an economy that did not want to recover.

Through it all, the health-care industry remained relatively stable. No outside event, not Sept. 11, not the fall of Baghdad, not the collapse of Lehman Brothers, affected the demand for services.

That all changed in March 2010, when Congress passed the Patient Protec-tion and Affordable Care Act, better known to the public as “Obamacare,” and to the health care industry by the shorthand “ACA.” ACA has put the industry through a wringer.

“I had more hair before March 2010,” joked Ron Rowe, vice-president of sales for Blue Cross Blue Shield of Kansas City and co-chair of the 2015 health-care assembly, which his company was kind enough to co-sponsor and host at its newly remodeled facilities in the Crown Center area.The reason for the hair loss, Rowe suggested, leaving aside the fact that he was five years older, was that “the whole definition of risk has changed.”

Health-insurance companies like Blue Cross Blue Shield once had as a goal keeping risk out to keep prices down.

“Now,” said Rowe, “it’s all risk is good.” Complicating matters is that the company gets reimbursed differently for risk than it used to, which is complicated even more by the fact that the definition of risk is not yet quite fixed and seems to change on a weekly basis.

Co-chair Jeff Spencer, the senior vice president at co-sponsor Holmes Murphy & Associates, spoke to the volatility of the transition. “You’re probably learning on the fly like we do,” said Spencer to his colleagues. “The rules change about every 48 hours.”

ACA Impact

That much agreed on, as an opening question we asked the participants how the ACA had most significantly affected—or would affect—their particular market niche.

“The biggest impact and the greatest cause of concern for us are the insurance exchanges,” said Bob Finuf, the vice-president at Children’s Mercy Hospital who is responsible for payer relations and population and health initiatives. Although the great majority of children are already covered by some form of insurance, Finuf is concerned that the network compositions being developed seem overly focused on price point.

“We’re just concerned,” said Finuf, “that consumers are not really availing themselves of the information necessary to make good, informed decisions in a comprehensive way.”

“I think this whole exchange business is going to evolve tremendously,” said Kevin Hicks, CEO at Overland Park Regional, who was also representing the larger HCA system. “I don’t know that we all know where that’s going to go.”

“The ACA rollout has really given us the opportunity to move more rapidly in the population health-management area,” said Linda Bahrke, the ACO/PHM administrator at Mosaic Life Care. Mosaic has benefitted from being a part of a Medicare demonstration project for accountable care organizations, or ACOs. “It has really given us an opportunity to practice what we preach in terms of reducing costs and improving quality.”

Jaren Pippett, who has responsibility for home and employer-based services at Mosaic Life Care, sees some potential benefits as well, particularly the alignment of incentives “to move care to the lower-cost locations, which quite typically tend to be the higher-comfort locations for patients.” This could mean, she said, “tremendous growth” in the home services division of Mosaic.

Kathy Ross, vice president of clinical operations for GEHA, is equally optimistic, and for many of the same reasons. “We’re really looking at opportunities around wellness, preventing disease, preventing progression of disease. It’s been a positive thing in my particular area.”

Steve Salanski, program director of family medicine residency at Research Medical Center, shared many of these same aspirations. “HCA is hopeful that we’re going to see true payment reform,” said Salanski, specifically in the direction of keeping people healthy, rather than waiting and treating disease after it become problematic in the hospitals.

“I have to agree with Dr. Salanski,” said Jackie DeSouza, CEO of Research Medical Center. “I think access to more primary-care services for all different types of population is exactly the direction we seem to be headed.”

David Feess, Liberty Hospital CEO, observed that the ACA was helping change his hospital’s mission to focus more on outpatient care and wellness, as well as reaching out to employers and the people in our community. “We are really changing how you view a community hospital,” said Feess.

“The ACA has created a lot of opportunities for us in different areas,” said Erin Stuckey, senior vice president of marketing at BCBS. One of those areas is Blue KC, said Gregg Laiben, its medical director for executive services. Laiben observed that Blue KC now has a broader range of individuals insured. “I really believe this is going to help us hone and refine and drive down exactly what we need to do to meet those members’ needs.”

From the employer perspective, however, the outlook is not as optimistic. Brian Johnston, a partner at Polsinelli who works primarily with employers, is concerned about cost and compliance.

“The compliance burden is going to be significant for employers on a going-forward basis,” said Johnston. So too is the cost effect of having to offer more coverage to more employees. “On the plus side,” said Johnston, “it is also causing employers to become much more strategic about how they are approaching those things.”

“I do agree with Brian,” said Jeff Spencer. “I think the financial aspect of the equation is going to be a challenge employers will continue to have to deal with, especially larger employers.”

Given that employers are going to be subject to many external pressures they have no control over, like renegotiating contracts from insurers to providers, the challenge for employers, said Spencer, is to engage their employees to stay healthier, use their insurance less, live longer lives, and remain more productive.

Gene Lampe, director of human resources for Garmin International, noted that Garmin had already increased its focus on health-care outcomes, specifically the introduction of new ideas and the acceleration of existing concepts like ACOs. “Garmin has gotten into the wellness business in a certain way,” said Lampe, “that hopefully will produce some long-term advantages for our country and for health-care consumers.”

Lee Norman, chief medical officer at the University of Kansas Hospital, seconded a point that Kevin Hicks had made, namely that the Medicare rate cuts that ushered in the ACA era are a real problem, especially since they have not been offset by Medicaid expansion in either Missouri or Kansas. Norman expects an increase in demand, adding, “We’re having a hard time keeping up and managing growth as it is.”

MedTrak Services, which sells pharmacy benefit management services to smaller companies, has not yet felt the impact, said Tracey Hopper, vice president of marketing. MedTrak works with many companies that are self-insured, and “it makes sense,” said Hopper, “for companies to stay self-insured.”

Reimbursement Models

“A couple of people mentioned a shift in the way reimbursements are made,” said Ron Rowe. He wondered how long the transition from a fee-for-service base reimbursement to a fee-for-value base would take and what kind of impact that transition would have on employers and providers.

“I think generally sooner rather than later,” said Linda Bahrke. She explained that the fee-for-value model calls for a measurement of quality and outcome, not just the utilization of a service.

Bahrke noted that recently Medicare moved the timeline up and expects that 50 percent of reimbursements will be value-based by 2019. “I think the fact that we’re seeing some progress in the ACO, some savings, is showing the country that we can make a difference,” said Bahrke.

The question was raised as to how one measures value. “That’s an excellent question,” said Bahrke. As she acknowledged, such a process is complex and not yet fully evolved.

Jeff Spencer inquired about reference-based pricing. As Spencer explained, instead of accessing a network, an employer negotiates a contract with a payer at some percentage over Medicare. He asked his colleagues if that were a model they would consider.

“It depends on the number, right?” said Bob Finuf of Children’s Mercy to general laughter. In health care, all proposals depend on “numbers.” As he noted, most physician fee schedules are based at least indirectly on Medicare already. “I think we all view it as an inevitability,” he added.

The University of Kansas Hospital has done analyses of its Medicare break-even strategy. “If every payer had the same fee schedule as Medicare does,” said Lee Norman, “we’d be badly underwater.” He added, “I think we can demonstrate outcomes, but I still think there has to be enough payment in the pot to make it possible, and I don’t think it’s there now.”

“I think we lose sight of the fact, the Affordable Care Act gets a little too much publicity,” said Kevin Hicks. As he noted, value-based outcomes were pursued well before the ACA. The real drivers were Medicare and Medicaid. For all the flaws of these systems, they do have a tremendous database that is useful for benchmarking performance.

Hicks noted that hospital performance had improved significantly over the years with regard to readmission rates, infection rates, complications, and hospital-acquired conditions.

Controlling Demand

One thing that the ACA seems to have accomplished, said Jeff Spencer, is increas-ed demand for services. He wondered how providers were going to address the bottlenecks in the system when caring for the newly insured.

Among the steps that the University of Kansas Hospital must take, said Lee Norman, is to reduce readmission rates. “It can be done,” he said. He acknowledged that as an academic medical center, its continuum of care isn’t as strong as at community hospitals. That much said, he sees the opportunity to improve that continuum by working with community practitioners more closely.

Given limited resources, Gregg Laiben expressed concern about duplication of efforts. On the wellness front, for instance, any number of people are engaged in the process from BCBS to physician providers to hospital coordinators. “Seems like there are all kinds of people doing these same types of things,” said Laiben. He asked his colleagues if they could work better together to streamline services and deploy resources where they could be better used.

Kathy Ross confirmed Laiben’s suspicions. She sat on a panel dealing with post-hospital follow-up and came to the conclusion that all the representatives involved—from a payer, from a providers group, from the home health agency, and the discharge planner from a hospital—were making calls to the same patients after they left the hospital, asking the same questions.

“I think this happens over and over again,” said Ross. In “this new world of being incentivized to keep people out of the hospital, we’re tripping over each other and we are using and duplicating expen-sive resources.”

As Gene Lampe noted, some employers are moving into a similar space with off-site clinics. Garmin, in fact, is looking at doing the same. “The challenge is,” said Lampe, “you really have to use data more effectively so the on-site clinic isn’t replicating what the primary physician is doing and what others are doing in the system.”

Electronic Medical Records

Steve Salanski observed that in the Kansas City market there are two developing health-information exchanges, or HIEs, in competition with each other. The net result is that information-sharing is limited. “That hurts us in terms of making those electronic systems work to their best effectiveness,” said Salanski.

On the positive side, said Corrine Everson, the vice president of marketing and business development at Research Medical Center, the pharmaceutical world is ahead of providers. From what she can see, they are doing a good job of allowing patients to transfer their information as need be. Said Everson, “There might be an opportunity to learn from the pharmacy world.”

By and large, physicians have not been eager to move to electronic medical records. According to Lee Norman, the transition has been a tough eight-year, $100-million plus process at the University of Kansas.

“It’s been one of the least gratifying things I’ve been a part of,” said Norman, “just because it is so hard.” He believes the industry underestimated the money and the manpower needed to optimize electronic records.

“Within the HCA Health System,” said Kevin Hicks, “we have crossed the Rubicon.” All of HCA’s physicians are on EMRs, and “all of them are past denial.” It has not been easy, but from a production standpoint, most of the physicians are at least back to where they were before EMRs.

Renny Arensberg, executive vice president of KVC Health Systems, used the words “unbelievable” and “awesome” to describe the way EMRs are working within KVC. “The learning curve has been quite something,” she conceded, “but it’s really an incredibly valuable tool to all the children that we serve.”

Health care, said Gregg Laiben, has not exactly led the way in the revolution of information technology. One challenge is that other commercial services have heightened patient expectations for service delivery. Those expectations will lead to competition in which not every health-care participant will survive.

The difference between health care and other industry sectors, said Gene Lampe, is that consumers expect the providers to cooperate. “That’s the real challenge,” said Lampe, “and unless the government comes in and really leads the way with Medicare and Medicaid, I’m not optimistic that we’re going to get there.”

“If sharing of information is important, which I think it is,” said Kevin Hicks, “the minute that Medicare incentivizes hospital and physician reimbursement to participate in a health-insurance exchange by a given date, then it will happen.”

Polsinelli’s Brian Johnston raised another concern, namely the HIPPA privacy and data-protection firewalls that have to be built in to any health-care information system. “Outside of the health provider space,” said Johnston, “the rest of the universe is still largely immature in their knowledge of what all that means and entails.”

Genetic Profiling

Jeff Spencer pointed out that in his most recent State of the Union address, President Obama mentioned genetic profiling. He asked his colleagues whether that was an idea whose time has come and, if so, how would it affect their businesses going forward.

The point was made that in certain cases, if you can direct a therapy, like chemo, to certain genetic markers, it adds a real benefit. “That brings up a lot of ethical question as well,” said Lee Norman, sparking a round of laughter by adding, “but it is ironic that I know more about my Australian shepherd than I do about myself.”

Norman believes that genetic testing will advance when it is shown to have a solid benefit beyond making a person “more cocktail-party proficient” at discussing his or her genetic make-up.

“If you knew there was a treatment you could do to prevent something down the road,” said Salanski, “then there may be more benefit and more reason to want to know than learning about something you can’t prevent.”

The Bottom Line

The question was raised as to whether, when all was said and done, the ACA would increase the percent of health-care dollars spent on administration or decrease it.

“We have added to it,” said Ron Rowe, “and if you count taxes as an administrative expense, they’re up significantly.” He cited all the people hired just to interpret regulations, the health-care reform analysts, the development people, product designers and the like. “That’s what’s going on at Blue Cross,” said Rowe. “I can’t imagine what’s going on with the employers, consultants, and attorneys.”

Gene Lampe of Garmin agreed. “We’re spending far more time on it than we used to. There is a hidden cost, and we’re all paying it.”

“If you flash back to six years ago,” said Jeff Spencer, “what we did then and what we do now is a completely different world.” Holmes Murphy is expected to provide a wide range of services not within its traditional purview. The reporting requirements alone are exhausting, he said. “And the challenge is that the rules change, literally, about what, every week, week and a half?” The industry, Spencer believes, “has been turned on its head significantly over the last five years and I don’t see it getting righted any time soon.”

In the way of additional expenses, Ron Rowe noted that the product designs that Blue Cross has to offer now will soon be much more expensive. “The general public,” he added, “doesn’t realize that most of those costs have been delayed until ’16 or ’17.”

“That expectation needs to be shaped now,” said Renny Arensberg.

More troubling, said Jeff Spencer, these changes will hit the small employer market heavily, specifically those with between 50 and 100 employees.

As Brian Johnston noted, the vast majority of businesses are in the small business category. The real impact from a cost perspective and a compliance perspective will be felt in that marketplace very soon, and the businesses “are going to be completely unequipped to deal with it.”

“The reality for providers, when it happens,” said Bob Finuf, “that’s what we call bad debt.” Inevitably, high out-of-pocket costs shift to provider write-offs, which causes hospitals to raise their charges. “It’s a vicious circle,” said Finuf, “and the reality for us as providers is we’ve got to find a way to deal with it, too.”

To the question of whether enough formerly uninsured young had signed up to offset costs, Ron Rowe regretted, “They don’t think they need it or that it’s affordable.” He thought subsidies would help, but they have not. It is possible when the tax penalties increase enough to hurt, the situation may change.

Kevin Hicks ended on a positive note. Although the performance improvements had little to do with the ACA, he noted that outcome metrics, including patient satisfaction, had improved steadily over time.

To the question of whether enough formerly uninsured young had signed up to offset costs, Ron Rowe regretted, “They don’t think they need it or that it’s affordable.” He thought subsidies would help, but they have not. It is possible when the tax penalties increase enough to hurt, the situation may change.

Kevin Hicks ended on a positive note. Although the performance improvements
had little to do with the ACA, he noted that outcome metrics, including patient satisfaction, had improved steadily over time.