Covid 19 Effected Economic Of USA

 

Covid 19 Effected  Economic Of USA

         I hoped all my readers are healthy & safe and sound. I'm going to be talking to you today about the economics of  healthcare in particular focusing on covid19 and the thoughtful and I’ll argue lasting collision that this pandemic is having on the healthcare industry in order to do that, I’m going to start with a little introduction on healthcare economics and I’m going to use months in healthcare numbers to illustrate a few key points so,

 I’ll start with top line revenue so Munson healthcare as a system generates 1.2 billion dollars in revenue on an annual basis we generate this revenue based on the volume of services that we provide so for every service we receive payment that's called fee for service reimbursement and it truly is the basis of our reimbursement model for the us. Health care industry when we look at who pays the bills for health care for months in health care specifically you'll see that 70 percent of our payments come from governmental payers that's Medicare and Medicaid and with governmental payers we're unable to negotiate pricing it's dictated for us and it's set based on state and federal budget line items so as we think about governmental reimbursement it is at best flat and in some cases declining.

     So 70 percent of our reimbursement is either flat or declining now

let's look at our expenses, so what do we spend money on over half of our expenses are our people so salaries wages and benefits the next largest expense over 20 percent is our supplies and it's important to note that both of those expense line items increase year over year. We have to stay market competitive with our wages we also experience inflationary costs and supplies such as pharmaceuticals from our vendors so when you think about our top line revenue being either flat or declining and our expenses rising on an annual basis that makes it increasingly challenging to generate an operating margin and at months in healthcare our goal is to generate an operating margin of four and a half percent per year so you may ask you know I thought months in healthcare was a not-for-profit organization.

              Why do they need to generate an operating margin well our operating margin as a not-for-profit. Organization is 100 reinvested back in our facilities in our communities and in a normal year months in healthcare will spend over 60 million dollars reinvesting in our facilities through

improvements expansions renovations investments in new and innovative technology and also investments to enhance our information technology platforms and without a margin we wouldn't be able to make those investments. We also as a not-for-profit health system provide significant support for our community that comes in many forms in community support education programs but it also comes through free and heavily discounted care that we provide to members of our community who are unable to pay for that service, so with that background I’m now going to focus on the health care industry pre-covert and some of the challenges that we're facing as an industry 

I’m going to start with a cartoon because I think it pretty accurately sums up the us health care industry and I think most would agree we're at a point that we need more than a couple of cortisone shots to fix what is wrong with us health care and why is that fundamentally our industry and our trajectory is unsustainable and that's for a couple of reasons number one health care represents 18 of our gdp as a country and that is continuing to grow we spend two and a half times what other developed countries spend on health care and our outcomes are worse we also um in a number of studies that suggested that as many as 30 of health care expenditures are actually unnecessary and I talked earlier about that fee for service    reimbursement model so we get paid for every service that we provide that creates an inherent incentive to do more to increase our volumes we do better financially when we do and provide more services and so I’ll argue that that fee for service reimbursement model is a large part of why our health care industry is unsustainable and cms is the center for Medicare and Medicaid Services again our largest payer it's important to note that they're focusing on how they can fundamentally get rid of fee-for-service in order to address the unsustainability of healthcare costs in this country. 

 

 Now I want to look at this issue of healthcare costs through a slightly different lens through the lens of our families in the united states and you can see over the last 20 years the burden on health and families in this country has increased significantly as they shoulder more and more costs associated with their care as both payers and employers shift that burden to patients and families. We could show a similar graph for employers in this country because employers who provide private health insurance they also sear year over year increases in their costs and insurance premiums to be able to provide that care so all around the healthcare status quo is unsustainable so where do we go from here I think we need to take a step back and really ask ourselves the question of what is the primary business of health care is it to make sick people better is it to keep people healthy or it's both now I’m going to argue that it's both but I think it's important to note that our health care system as it stands today was based and built on this premise of making sick people better and so our fee for service reimbursement model rewards volume and really rewards this concept of making sick people better when somebody comes to our doors we provide care then we get paid for it our current model does not support this concept of keeping people healthy being part of our core business now payers are starting to shift and align reimbursement to incentivize this behavior and that's called value-based reimbursement, which I’ll talk more about but as it stands today in order to incorporate this concept of keeping people healthy into the core business of health care our reimbursement model needs to fundamentally be overhauled and shift from this true volume-based reimbursement model to more of a value-based reimbursement model. 

                So let's talk a little bit about value-based care what is it well it starts with a couple foundational concepts first it involves at the core a relationship between a patient and their primary care provider with that primary care provider really serving as the quarterback for their care so the primary care provider ensuring  that patient receives the appropriate preventive care on a regular basis and then if they have any chronic conditions that those conditions are monitored and managed appropriately then when that patient requires a higher level of care so a specialist referral or a procedure that there also be a special specialty physicians as well as a health system really partnered with that primary care physician to be able to deliver high quality care and in a much more coordinated way so that we can avoid unnecessary costly complications like a patient coming back to our emergency room after having a procedure or a patient coming back to be readmitted after they're discharged from one of our hospitals and that kind of foundation of primary care partnered with high quality collaborative group of specialists in a health system.

        I would argue provides not only better quality and safer care but at a lower cost so we're actually able to lower the total cost of care and what does that translate into it translates into lower insurance premiums it translates into more affordable care for patients for employers and for the government as our largest single payer. It also creates savings that payers are able to share with hospitals and physicians and reward them for keeping patients healthy and outside the four walls of the hospital. So it's a fundamentally different way of incentivizing behavior so what does value-based care look like as it relates to the demand for core hospital services such as the services offered by months of healthcare well you can see my very simple bar graph there we project that over time our demand for core services is going to continue to go down we've actually already seen this occur and I can give you a couple examples of those shifts first a total knee replacement so several years ago if you received a total knee replacement you stayed in the hospital for a couple of days that was an inpatient procedure now the majority of our total knee replacements are done on an outpatient basis and just this year Medicare made that same shift with total hip replacements.

        So we are going to see this continued shift away from inpatient to outpatient settings of care we are also seeing a shift away from high cost settings of care to lower cost settings of care a great example of that is a shift away from receiving care in an emergency department to lower cost options which include an urgent care walk-in clinic physician office or even a virtual visit, so we are  believe that we are going to see that trend continue and at months in healthcare, we were anticipating this we saw on the horizon that these changes were coming and that we needed to prepare for these changes that reduction in volume and that fundamental paradigm shift and how we're paid from volume to value so that is why it was a foundational element to our 2025 strategic plan and we call that transform care delivery.

        So before covid19  we as an industry were facing an unprecedented change so a change in our core business from not only taking care of sick people and making them better but also trying to keep people healthy and associated with that a paradigm shift and how we're paid for those services. So now you place a pandemic on top of that and I’m going to talk about the impacts of covid 19 on the economics of the health care system and I’ll start by just illustrating the unprecedented business disruption that we experienced associated with covid 19.

           I like to illustrate with a picture so I’m going to use a graph so the graph that you see that red squiggly line that represents the impatient census so the number of patients in the hospital at Munson medical center here in traverse city on a daily basis and that is our fiscal year 2019 and you'll see that area circled in yellow that dip that blip in that red line you might remember the polar vortex that occurred in the winter of 2019. During the polar vortex we experienced.

      What we called at the time a significant and sustained reduction in our volumes and that significant sustained reduction in our volumes basically wiped away our operating margin for that quarter because remember we get paid based on the volume of services we provide, so when our volume goes down our revenue goes down our financial performance suffers now I’d like to put that in comparison to what we saw with covid19. So the graph on the bottom here illustrates the same impatient census for Munson medical center for our fiscal year 2020 and you can see that the polar vortex looks like but a blip on the radar compared to the volume decreases we saw with covet 19.

          So if that little blip had such a significant impact imagine the significance of the financial impact associated with the bottom falling out of our volumes that's illustrated in that bottom graph the good news is that through the cares act and through other federal and state grant programs we've been able to stabilize in the short term and make up for at least some of the losses that we have sustained through covet 19.

     So what is the economic impact on that significant business disruption on the healthcare industry I’m going to break it down into the short-term mid-term and long-term impacts that we're seeing in the short term we saw our elective business gone overnight, we closed services, we had other services whose volumes were down 80 or more percent. So the significance of the impact on our volumes I can't underscore enough we also saw community members afraid to seek necessary emergency care in our emergency rooms.

 

           They were afraid and we've had to do a lot of work to try to rebuild the confidence in our communities they can safely receive care in any of our facilities. In the mid-terms if I look out over the next year as  we reopen our services   we are not anticipating that our volumes are going

to rebound to pre-covet levels and we're already seeing this as we call patients to try to reschedule care that was either cancelled or postponed associated with covid19 patients are actually declining and refusing to reschedule those services and that's not unique to months in health care. As we talk to our colleagues across the state and across the country all other health systems are experiencing that same phenomenon we also over the next 12 months are facing a great deal of uncertainty one element of that uncertainty is what's going to happen with a virus. We know that we're going to have to care for both covid and non-covid patients but we are going to have a second peak and how is that going to impact our ability to care for the non-covid patient population. We also are unsure on the impact of our unemployment rate and job losses and insurance coverage. So are we going to see more commercially insured individuals shift to either being uninsured or covered by Medicaid? When we look out over the long term and the one to two year time horizon we're still not anticipating that our volumes are going to rebound to pre-coded levels and I’m going to talk about why in just a minute we also see on the horizon that due to declines in tax revenue as well as all the stimulus spending that has occurred that we have an impending federal and state budget deficit that has to be dealt with health care is a significant line item in both those federal and state budgets.

         So we're also anticipating that our reimbursement is at risk to go down associated with filling or addressing those budget gaps so I’m going to go back to my simple bar graph here and talk about now remember we thought that there was going to be a steady decline in the demand for hospital services as a result of this concept of keeping people healthy and outside our four walls as well as the shift of care from inpatient to outpatient and high costs to lower cost settings of care well that red line represents what we project to happen with covid.

                   So essentially what covid has done is accelerate that reduction in volume now what does that mean to the healthcare industry I think you can really sum it up in two words accelerated change I’m also going to break that down though in the short mid and long term so in the short term what we've seen across the country our health care systems making significant adjustments to their historic cost structures to come in line with the new normal our new level of volume those reduced volumes similar to what other industries are having to do like the restaurant industry associated with lower volumes it's we're not it's not unique to health care we've also seen a very rapid adoption of tele-health and what was thought to take years took weeks and we know that that is going to have a lasting impact on our care delivery model in the midterm over the next 12 months we see a great deal of work focusing on the redesign of care to improve efficiency as well as quality and a really accelerated preparation for value-based reimbursement and focusing on organizing our resources not just on making sick people better but also on keeping people healthy and in the longer term associated with the overall economic impact to employers those budget deficits at the fate the federal and state government level.

           We are anticipating that all of our payers are going to be shifting more rapidly to value-based reimbursement arrangements. So the bottom line is that the healthcare industry was facing a period of significant unprecedented change pre-covid a fundamental paradigm shift in our core business model and the way in which we get paid what covid 19, did is simply accelerate that and I would argue created that burning platform for change that we need as an industry in order to make this paradigm shift so as a healthcare leader we have a lot of work to do we have a challenge ahead of us. I’m confident that we will be able to innovate adapt and ultimately be successful in making this change and that will look back on covid 19 as truly being the catalyst that we needed to transform the U.S healthcare industry.

    Please give your opinion and discussion with this topic. I hope enjoy my reader and up dated with covid 19.                                                                                                                                 

                                                                                             Thank you