Cartoon – The Power of Data
Monthly Archives: July 2019
Cartoon – Long Term Investments
Aligning executive comp with long-term strategy
https://mailchi.mp/3675b0fcd5fd/the-weekly-gist-july-12-2019?e=d1e747d2d8
I recently had a conversation with the CEO of a regional health system we’ve worked with for many years. It’s a system at the forefront of the shift to risk-based contracting—rather than the 3-5 percent of revenue at risk common across the industry, his system already has a third of its revenue fully at risk. (That’s not counting performance bonuses and other “value-based” reimbursement—it’s true, delegated risk for total cost of care.)
The system managed to get to this point without owning its own insurance plan, but now the CEO is considering whether that’s the right next step, which was the topic of our discussion. We talked through the pros and cons of launching a provider-sponsored plan, which has proven to be a difficult step for many other health systems.
When I asked the CEO how his team was able to move so much faster to risk than other systems, he told me an important component of their approach was the incentive structure put in place for executives and facility leaders. Rather than continuing to pay bonuses based on hospital or system profitability, the board agreed to encourage executives to take a longer-term, strategic view by paying straight salary.
Eliminating P&L-based bonuses allowed leaders to focus on making the right decisions to transform the business, without being overly concerned about the short-term impact on profitability. It’s an idea worth considering for other systems committed to leaving fee-for-service behind. The critical ingredient, of course, is ensuring the board is fully bought into the strategy and has a high degree of trust in system executives to make the best long-term decisions on behalf of the organization.
What happens when a teaching hospital shuts down
https://mailchi.mp/3675b0fcd5fd/the-weekly-gist-july-12-2019?e=d1e747d2d8
It’s been less than a month since Hahnemann University Hospital in Philadelphia, the primary teaching hospital for Drexel University College of Medicine, announced that it will close in September. (A judge this week ordered the hospital to remain open while final bankruptcy and closure plans are approved.) The hospital was acquired by for-profit firm American Academic Health System (AAHS) from Tenet Healthcare Corp. just last year. AAHS cited untenable and irreversible financial losses as the reason for closure.
Hahnemann’s shuttering not only deprives the city of a 150-year old institution providing a large portion of its healthcare safety net, but also displaces 570 resident physicians, many of whom just arrived to begin training. The Philadelphia Inquirer eloquently captured the personal stories behind and implications of the closure. Many industry experts, including us, have questioned whether the country may be better served by fewer, larger teaching and research centers. With four medical schools, Philadelphia is a market where there may be too many academic medical centers, each operating at suboptimal scale.
But the Hahnemann saga illustrates the myriad difficulties of actually closing a financially-strained teaching hospital: challenges of for-profit “turnaround” management and performance goals, disruption for hundreds of trainees, and impact on access for the neediest patients. Getting to the right academic training and care delivery model for a region won’t come from reactive responses to abrupt closures, but will require community, government, academic and hospital leaders across organizations to collaborate on a long-term plan aimed at delivering greater value, scale and productivity.
Nonprofit Provider Pensions Remain Solidly Funded
https://www.healthleadersmedia.com/finance/nonprofit-provider-pensions-remain-solidly-funded
Nonprofit healthcare organizations benefited from an increase in pension funding last year, according to S&P.
Despite a volatile investment market, the median funded status of defined benefit pension plans for nonprofit healthcare organizations in 2018 was 85%, increasing nearly 5% due to a higher bond rate, according to an S&P Global Ratings report released Thursday afternoon.
Among nonprofit providers, Ponoma Valley Hospital Medical Center in California led the way with a 144.5% funding status, followed by Jackson County Schneck Memorial Hospital in Indiana and Northwestern Memorial Hospital in Illinois.
The lowest funded pension plans were at Northern Inyo County Hospital District in California, with a 44.6% funding status, followed by Kaiser Foundation Health Plan in California and Catholic Health System in New York.
The report found that most pension costs for Financial Accounting Standards Board (FASB) issuers are still low while Governmental Accounting Standards Board (GASB) issuers have dealt with cost as a credit pressure on the organization.
The ratings agency also noted that overall funded ratios have improved, crediting the absence of defined benefit plans as a positive factor, but indicated that such a trend is unlikely to continue going forward.
“In our view, most hospitals and health systems have managed their pension burdens well, with no credit implications,” the report stated. “However, we believe that even without a direct negative credit impact, in some circumstances, a high funding burden has inhibited improvement in credit quality.”
The report continued: “Furthermore, not all hospitals’ pension funding improved in 2018, and for providers already struggling with thin income statements and balance sheets, underfunded pension plans could contribute to credit
stress.”
Looking at the short-term, nonprofit providers are slated to experience a boost to their respective financial profiles due to a higher funded status resulting in “lower statutory minimum contributions” to defined benefit plans.
Conversely, the S&P report indicated that underfunded or soon-to-be underfunded defined benefit plans posed a credit risk for nonprofit providers.
As with other lingering financial challenges that health systems face, the looming pension crisis poses a substantial risk to long-term solvency and the ability to attract clinical talent.
According to the S&P report, the majority of issuers have closed plan offerings to new employees or eliminated plans to lower risk, while some have used debt funding to prop up plans despite an increased market risk.
Cartoon – Ted’s Return to Work
Cartoon – All in Favor
Cartoon – Go take it up with the Supreme Court
Cartoon – Making the Leap
Cartoon – Is this You?
HENRY KOTULA 