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HCE College Bowl 2013 Aaron Margulis Jesse Levi Andrew Meehan. Hospital STATUS Turnaround. financial viability. challenges to . STAND-ALONE HOSPITAL No Economies of Scale No Leverage with Payers & Suppliers No Physician Alignment Platform No deployed EMR. OPERATIONAL INEFFICIENCIES

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hce college bowl 2013 aaron margulis jesse levi andrew meehan
HCE College Bowl 2013

Aaron Margulis

Jesse Levi

Andrew Meehan

HospitalSTATUS Turnaround

financial viability
financial viability.

challenges to

STAND-ALONE HOSPITAL

No Economies of Scale

No Leverage with Payers & Suppliers

No Physician Alignment Platform

No deployed EMR

OPERATIONAL INEFFICIENCIES

Historically High ALOS

ICU ALOS continues to be extremely high

LABOR SHORTAGE

Alameda County is a designated RN Shortage Area (Source: OSHPD)

Difficulty in recruiting physicians

slide3

INCREASING COSTS

Wages & Salaries up by 61% (2007-2011)

MD Professional Fees up by 75% (2007-2011)

Supplies up by 24% (2007-2011)

LIQUIDITY & LONG-TERM DEBT LOAD

Liquidity: 1.8 Days Cash on Hand (FY2011)

High Debt Burden (negative debt service ratio; FY2011)

UNFAVORABLE PAYER MIX/ REIMBURSEMENT LEVELS

High Med-Cal & Uninsured Population

Below Market Managed Care Reimbursement

UNCERTAINTIES & POOR OUTLOOK WITH RESPECT TO ACA

Expansion of Avoidable Readmission Penalties through 2014

Decreased CMS DSH Payments in 2014

Does not Address 124,000 Undocumented Aliens Residing in Alameda County

slide4

THE

PLAN

3 phases

slide5

PHASE 1

PHASE 2

PHASE 3

  • FROM RED TO BLACK
  • BALANCE SHEET REHAB
  • PARTNERSHIP
  • Operations Redesign
  • Strategic Cost Management
  • Clinical Transformation
  • Payer Contract Renegotiation
  • Restructure long-term debt
  • Unlock liquidity from fixed assets
  • Seek new capital partners
  • Reevaluate and realign capital expenditures
  • Position Hospital for acquisition, affiliation or merger that would allow for infusion of capital for:
  • IT infrastructure
  • Physician Alignment Vehicle
phase 1 from red to black
PHASE 1 FROM RED TO BLACK
  • Strategic Cost Management
  • WAGES & BENEFITS

MD PROF FEES

SUPPLY CHAIN

  • Supply costs have increased by 24% over last five years (2007-2011) to over $16 million per year
  • Pursue a strategy of product and vendor standardization that can add more leverage to lower costs
  • Implement caps for high-dollar items
  • Develop a formal process to justify high-cost purchases especially in the presence of lower cost alternatives
  • Wages have increased by 61% in the last five years (2006-11)
  • Benefits are at 22% (FY 2011)
  • Decreasing Wages by 1.25% would save $993,000 annually
  • Bringing Benefits down to 20% would save $1,250,000
  • Constitute IM/OB Hospitalist and RAPE specialty subsidies, medical directorships and ED on-call pay
  • Grown by 75% over five years to nearly $6 million dollars (2007-2011)
  • Cut 5% from Management Groups in exchange for longer contract periods and place more dollars in a P4P bucket. Cut 2.5% from individual providers
  • Net Savings: $300,000
  • Net Savings: $2,243,000

Net Savings: $560,000

clinical transformation
Clinical transformation
  • Managing Clinical Utilization
  • Intensivist Program
  • ICU LOS was 17.3 days in 2012
  • Our Goal: cut LOS to 4 days
  • Use of evidence-based guidelines per SCCM standards
  • Multidisciplinary team approach
  • 12-hour in-house coverage
  • Net savings of $9.8 million
  • Managing Clinical Variation
  • Super Committee
  • Medical Staff Committee
  • Expedite approval process for evidence-based protocols and order sets
  • Monitoring adherence to evidence-based care for sepsis, AMI, CHF and PNA
  • Refer fall-outs for peer review
medicare managed care reimbursement
Medicare Managed care reimbursement

SRH has generated comparable reimbursement rates from Medicare Managed Care plans relative to other hospitals in the same market.

Net Inpatient Revenues per Discharge

SRH Payer Mix | Inpatient Discharges, 2011

Source: OSHPD Annual Financial Disclosure Report

Source: OSHPD Annual Financial Disclosure Report

third party managed care reimbursement
THIRD PARTY Managed care reimbursement

SRH has generated highly unfavorable reimbursement rates from Third Party Managed Care plans relative to other hospitals in the same market.

Net Inpatient Revenues per Discharge

SRH Payer Mix | Inpatient Discharges, 2011

Source: OSHPD Annual Financial Disclosure Report

Source: OSHPD Annual Financial Disclosure Report

payer contract renegotiation
Payer Contract renegotiation

Obtain higher reimbursement rates from third party managed care payers

Value Proposition: lower cost structure, quality care, payer will have to pay higher costs if SRH closes

Seeking 20% increase in rates, generating $2 million in additional revenue

  • Court health plans to obtain Medicare Advantage contracts to increase volume at favorable rates, once operational efficiencies have been realized and demonstrated
slide11

Phase One

financial impact

Strategic Intervention Financial Impact

Wages and Benefits $2,243,000

MD Professional Fees $ 300,000

Supply Chain $ 560,000

IntensivistProgram $9,800,000

Payer Contract Renegotiation $2,000,000

NET IMPACT TO SRH: $14,903,000

balance sheet rehabilitation
BALANCE SHEET REHABILITATION

Restructure Long-term Debt

Unlock Liquidity in Existing Assets

Seek New Capital Partners

Reevaluate and Realign Capital Investments

slide13

Strategic Partnership

  • Consolidation in Regional Market
    • Partnership between UCSF and Children’s Hospital Oakland
    • Potential acquisition of San Leandro Hospital by Sutter Health
  • Stand-alone hospitals cannot survive under health reform
  • Approach merger or acquisition partners
  • SRH offers a distinct value proposition
slide14

Impact of

health reform

  • Most hospitals will benefit from the ACA
    • Expansion of Medi-Cal
  • Expectation that ACA will have negative effect on SRH
    • Revenues tied to clinical outcomes, quality of care and cost efficiency
    • Expansion of CMS penalties for preventable readmissions in 2014
    • Lack of physician alignment platform hinders continuity of care
    • Expected decreases in DSH payments
    • Newly insured patients in our service area will likely obtain plans with bronze rating or silver rating
    • Does not address 124,000 undocumented aliens residing1 in Alameda County

Source: California Public Policy Institute, 2011

slide15

Conclusion

Leadership

Operations

Balance Sheet Rehabilitation

Acquisition