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SLHS 1 HSA 6108 Planning and Marketing in Health Care Dr. Alan S. Whiteman Florida Atlantic University College of Business Executive MHA Program This final exam is a taken home exam. You will have to prepare the written response to the case study. This is an individual activity and collaboration with classmates is not allowed, per the FAU Academic Integrity Policy. The following format is to be used for your written case, and you must have a minimum of 4-6 references for the case: Case Format • Summary of the organization’s background and marketplace (this should be brief) • Identification of the issues/problems in the case Analysis of the case, which must include: • A SWOT analysis • Trends in health insurance • Overall trends in US healthcare Propose a methodology for assessing the success of your strategies. Recommendations based on strategies for the organization: • Design one or more strategies for positioning the organization in the market • Design one or more strategies for dealing with health insurance changes • Defend each of these strategies Propose a methodology for assessing the success of your strategies. Questions to focus your thoughts and guide your responses: • What is the most important uncertainty that SLHS faces? • What might be alternate scenarios for the Kansas City health insurance market? • What changes in organizational structure would be most advantageous for SLHS? • Are there strategies that work in any environment? SLHS 2 A STRATEGY FOR THE SAINT LUKE’S HEALTH SYSTEM Introduction Health insurance markets are changing in ways that are likely to make consumers more sensitive to price differences. This means that health care organizations, even successful, profitable ones like the Saint Luke’s Health System of Kansas City (SLHS) have to reassess their strategies. Although the effects of the Affordable Care Act (ACA) have been widely publicized, other changes in insurance markets may be more important. As of 2014 nearly 16 million Medicare beneficiaries had chosen Medicare Advantage plans. This represents a near tripling of Medicare Advantage enrollment since 2004 with over half enrolling in HMO plans (The Henry J. Kaiser Family Foundation, 2014). How price sensitive these customers are is far from clear, but many have chosen plans with limited provider networks in exchange for the lower premiums of Medicare Advantage plans. Another potentially significant change is the expansion of high-deductible insurance plans with associated price transparency tools. As of 2014 about 20% of those with employment-based health insurance plans were in high-deductible plans. This share has risen significantly (Kaiser Family Foundation and Health Research & Educational Trust, 2014). In addition these enrollees increasingly have access to price transparency tools, which allow them to compare the prices that they will pay different providers for services. While the literature on high-deductible plans with price transparency tools is limited, in some cases this combination can pressure providers with high prices to react (Robinson & Brown, 2013). At present only about three million people buy employer-sponsored health insurance through a private exchange, but projections are that millions more will do so by 2020 (Birhanzel, Brown, & Tauber, 2014). What sorts of plans these exchange participants will choose is not clear, but the experience of the ACA marketplace plans suggests that they will choose plans with higher deductibles and narrower networks to keep premiums low. Of course, the ACA set up health care marketplaces to facilitate individual and small group health insurance purchases. More than seven million people bought insurance via marketplaces in 2014, and most chose plans with higher deductibles than are standard in employment-based plans. In addition, many of the plans chosen had narrow networks that excluded providers who had negotiated high prices (Corlette, Lucia, & Ahn, 2014). The net effect of these insurance changes is that insurers (who generally bear full risk in most of these new plans) and consumers (who typically pay the entire additional cost of more generous plans and often pay directly for all of the care that they receive) are increasingly concerned about the prices that they pay for care. Especially for providers that have successfully negotiated higher-than-average prices, these developments pose a profound strategic challenge. SLHS 3 Major Hospitals and Health Systems The Kansas City market is quite competitive. HCA is the largest health system, and SLHS is the second largest. HCA, SLHS, and the University of Kansas Hospital (soon to be renamed the University of Kansas Health System) have added the most market share in the last few years; North Kansas City Hospital, Liberty Hospital and the Ascension Health System have lost the most market share. Detailed data about each system’s hospitals may be found on their respective websites. Table 1: Inpatient Market Shares in the Kansas City Metropolitan Area HCA Saint Luke’s Health System Truman Medical Center Shawnee Mission Medical Center University of Kansas Hospital North Kansas City Hospital Ascension Health System Prime Healthcare Liberty Hospital Children’s Mercy System Olathe Medical Center Other Hospitals 2011 22.6% 16.1% 9.2% 9.0% 8.5% 8.4% 6.0% 4.4% 4.5% 3.6% 3.5% 4.2% 2012 23.1% 16.4% 8.7% 8.7% 9.1% 7.8% 5.6% 4.2% 4.1% 3.2% 3.7% 5.4% 2013 23.6% 16.6% 8.8% 8.8% 9.9% 7.9% 5.2% 4.2% 3.6% 3.3% 3.4% 4.7% Saint Luke’s Health System SLHS is a not-for-profit integrated health system with 11 hospitals and more than 60 primary and specialty care practices in Kansas and Missouri. The health system has 1,318 licensed beds and more than 1,300 physicians on its active medical staff. For more details about the system go to http://www.saintlukeshealthsystem.org/locations/search. Recognized in 2003 with the Malcolm Baldrige Award, Saint Luke’s Hospital is the flagship hospital of the system. It features a broad range of programs, including award-winning heart surgery program, a nationally recognized transplant program, a state-of-the-art women’s program, and a trauma program. Saint Luke’s Hospital is also the primary teaching hospital for the University of Missouri-Kansas City School of Medicine. SLHS 4 The Saint Luke’s Mid America Heart and Vascular Institute is world-renowned for its work in the diagnosis and treatment of heart disease. The nation’s first heart hospital, the Heart Institute has earned a world-wide reputation for excellence in the treatment of heart disease, including interventional cardiology, cardiovascular surgery, imaging, heart failure, transplant, heart disease prevention, women’s heart disease, electrophysiology, outcomes research, and health economics. With more than 50 full-time board-certified cardiovascular specialists on staff, the Heart Institute offers one of the largest heart failure/heart transplant programs in the country, has the largest experience with transcatheter aortic valve replacement in the Midwest, and is a global teaching site for the newest approaches to opening challenging blocked arteries using minimally invasive techniques. SLHS is nationally recognized for its programs in cancer, neurological disorders, and stroke. It is a regional leader in orthopedic procedures and organ transplantation, and it operates specialty centers in digestive diseases, diabetes, and arthritis. SLHS hospitals also earn high marks from Kansas City patients. Table 2 shows that most SLHS patients would recommend their hospital. Table 2: HCAHPS Scores The University of Kansas Hospital Saint Luke’s East Saint Luke’s Hospital Olathe Medical Center North Kansas City Hospital Saint Luke’s South Saint Luke’s Northland Lee’s Summit Medical Center Truman Medical Center-Lakewood Liberty Hospital Saint Joseph Medical Center Menorah Medical Center Saint Mary’s Medical Center Overland Park Regional Medical Center Providence Medical Center Research Medical Center Research Belton Hospital Centerpoint Medical Center Truman Medical Center-Hospital Hill National Average Patients who would definitely recommend 85% 84% 81% 78% 78% 77% 76% 74% 74% 73% 73% 71% 71% 68% 67% 66% 66% 65% 61% 71% SLHS 5 HCHAPS data are drawn from Hospital Compare. Data are the most recent available and are from the last quarter of 2013. The sample is limited to adult, full-service hospitals within 25 miles of downtown Kansas City, MO. In December of 2013 Moody’s Investors Service reaffirmed an A1 bond rating for SLHS based on continued good operating performance since 2009 (Moody’s Investors Service, 2013). Moody’s estimates that SLHS has a debt-to-cash flow of 4.0 and a robust net income. As Figure 3 shows, not all local hospitals have had this sort of robust financial performance. Table 3: Billed Charges and Net Incomes The University of Kansas Hospital Shawnee Mission Medical Center Olathe Medical Center North Kansas City Hospital Liberty Hospital Prime Healthcare Saint John Hospital Providence Medical Center Saint Luke’s Health System Saint Luke’s Hospital Saint Luke’s South Saint Luke’s East Saint Luke’s Northland Anderson County Hospital Saint Luke’s Cushing Memorial Hospital Hedrick Medical Center Wright Memorial Hospital Kansas City Orthopaedic Institute Crittenton Children’s Center Ascension Health System Saint Joseph Medical Center Saint Mary’s Medical Center Children’s Mercy System Children’s Mercy Hospital Children’s Mercy South HCA System Research Medical Center Billed Charges Net Income $3,960,600,832 1.2% $1,378,971,008 2.0% $583,910,912 5.7% $1,186,026,368 0.9% $535,607,462 -2.2% $99,750,964 $532,002,482 -9.2% -7.1% $1,755,030,624 $370,541,742 $600,404,384 $421,957,616 $23,970,234 $107,074,524 $73,488,783 $37,831,802 $87,326,896 $49,204,135 1.5% -1.3% 3.2% 1.8% 1.1% -6.3% 5.7% -1.5% 14.9% 1.1% $589,254,544 $278,750,960 0.9% 0.3% $1,554,472,960 $240,471,562 4.0% 1.2% $1,609,800,832 0.3% SLHS 6 Menorah Medical Center Centerpoint Medical Center Overland Park Regional Medical Center Lee’s Summit Medical Center Research Belton Hospital $687,057,664 $1,266,488,128 $977,410,112 $302,725,456 $225,858,584 2.9% 2.5% 5.1% 1.4% 3.7% Source: Compiled from American Hospital Directory (2014) reports. Recently consolidation has occurred in the Kansas City market. Prime Healthcare, a California turnaround company, has entered the market through its acquisition of the Sisters of Charity operation. HCA sought to acquire Ascension’s Kansas City health system, but two years following the announcement of their intent to purchase, has backed off due to opposition by regulators. Prime Healthcare recently completed the purchase of Ascension’s Kansas City hospitals. The Current Health Insurance Market in Kansas City The health insurance market in Kansas City is competitive by national standards, but a wave of consolidation may change that. Measured by claims volume Medicare is the largest insurance plan in the Region. Five firms—Blue Cross Blue Shield of Kansas City, United HealthCare, Humana, Aetna, and Cigna—account for 95% of the commercial marketplace. The remainder is made up of network PPOs that do not take risk. Consolidation is taking place rapidly in the health insurance market. Aetna recently purchased Coventry Health Care; WellPoint recently acquired Amerigroup, a firm focused on Medicaid programs; and Cigna bought HealthSpring, which specializes in Medicare plans. In addition, rumors about consolidation of Blue Cross plans are circulating again. The driving force behind this appears to be the ACA, as the promise of additional Medicaid customers, additional lowincome commercial customers, increasing price competition among insurers, and increasing needs to use claims information more effectively promise to change the market. The Kansas City market has an above-average share of employees enrolled in high-deductible health insurance plans. Over 70 percent of Kansas City area employer-sponsored health insurance offerings include a high-deductible plan as an option, although only about a third of employees have chosen highdeductible plans (Stafford, 2014). Both the offer rate and the takeup rate for high-deductible plans have increased sharply. Furthermore, an increasing number of employees are being offered price transparency tools. It is also possible that new insurers may emerge, perhaps in the form of partnerships between provider organizations and traditional insurers. These might be outgrowths of Accountable Care Organizations or narrow PPO networks that buyers choose (as opposed to ones that they are forced to accept, as was the SLHS 7 case in the 1990s). It also appears that some Medicaid managed care plans, which are used to providing care to low-income people, may offer plans on the exchanges. Blue Cross Blue Shield of Kansas City is the largest health plan in Kansas City with an estimated 50% commercial market share offering both HMO and PPO products. SLHS participates in all PPO products but no HMO products. Blue Cross has a large book of individual and small group business. In addition, they have reserves of nearly $1 billion. Aetna was a small player in the Kansas City commercial market; however, following its acquisition of Coventry, Aetna has become the second largest commercial plan, just ahead of UnitedHealthcare. A significant portion of Coventry’s current business is small group. In addition, they are one of the two largest Medicare Advantage insurers in the market, with Humana being the other one. Finally, Coventry has a Managed Medicaid product that they offer in Missouri. They offer no Medicaid product in Kansas. Neither the state of Missouri nor Kansas has opted to expand Medicaid at this time. Coventry, Centene, and Wellcare offer products in Missouri. United HealthCare, Centene, and Amerigroup offer products in Kansas. History In anticipation of reimbursement reductions SLHS launched “Focus 2015” in 2012. Focus 2015 sought to reduce costs by $100 million through increases in efficiency and other reductions. Originally led by external consultants, Focus 2015 is now led by an internal team that emphasizes a Lean Six Sigma approach to improvement. The creation of Focus 2015 suggests that SLHS leadership saw opportunities to become more efficient, but no compelling data about costs of care are available. In 2013 Blue Cross Blue Shield of Kansas City approached SLHS and all hospitals in Kansas City with a take-it-or-leave-it proposal to participate in its exchange products. All hospitals were offered the same, non-negotiable fee schedule. SLHS analyzed this proposal and determined it would pay more than Medicaid but less than Medicare, largely covering the incremental cost of services but falling well short of covering the average cost of services. From another perspective, the proposal requested a more than 40 percent discount from current Blue Cross rates. SLHS declined the offer and was not included in one of Blue Cross’s exchange products. SLHS was included in a Blue Cross broad network exchange product (which cost more). Coventry also approached SLHS with an offer for their exchange product. It was willing to negotiate, but indicated it needed a rate below Medicare (representing a more than 40% discount). SLHS declined the offer and was not included in any Coventry exchange networks in 2014. As of 2015 ACA Open Enrollment, four firms offered marketplace plans in the Kansas City area: Blue Cross Blue Shield of Kansas City, CoventryOne, Humana, and UnitedHealthcare. Blue SLHS 8 Cross Blue Shield of Kansas City continued to exclude SLHS from its Select plans (but included SLHS in other networks). Coventry and UnitedHealthcare did not include any of the SLHS hospitals in in their marketplace network. Humana included SLHS in its network. These marketplace networks represent a significant change in insurers’ strategy. In previous years SLHS was a “must have” provider in Kansas City networks. For example, UnitedHealthcare lost major employer contracts in 2009 when it did not renew its contract with SLHS. Ultimately UnitedHealthcare had to agree to the premium prices that SLHS commanded (Sherry, 2010). In sharp contrast, marketplace plans that excluded SLHS were quite popular with individual customers. Lower income individuals may not be willing to pay extra to have access to “must have” providers. SLHS can simply ignore the small numbers of patients who have bought marketplace plans, but most analysts predict rapid expansion of individual insurance plans offered in public or private exchanges. As a result, narrow networks like these may increasingly challenge the core business model of SLHS. Health Research Paper Rubric (1) Health Research Paper Rubric (1) Criteria Ratings Pts This criterion is linked to a Learning OutcomeIntroduction 50 pt This criterion is linked to a Learning OutcomeFocus & Sequencing 50 pt This criterion is linked to a Learning OutcomeContent Includes: • The components of health care delivery systems or global health issue and what are the challenges and ways (initiatives and programs) to address population health issues presented in paper. • Critically analyzes and assesses the environmental, social, economic, and political influences on the development of a country’s healthcare system. 50 pt This criterion is linked to a Learning OutcomeConclusion 50 pt This criterion is linked to a Learning OutcomeGrammar & Mechanics 50 pt This criterion is linked to a Learning OutcomeAPA Style & Communication Citations & References 50 pt Total Points: 300 SLHS 9 References American Hospital Directory. (2014). Free Profile. Retrieved February 20, 2014 www.ahd.com Birhanzel, R., Brown, S., & Tauber, J. (Producer). (2014, March 3, 2015). With the Rise of Private Health Insurance Exchanges, Providers Must Rethink Business Models. Retrieved from http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture Corlette, S., Lucia, K., & Ahn, S. (2014). Implementation of the Affordable Care Act: Cross -Cutting Issues: Georgetown University Health Policy Institute. Kaiser Family Foundation and Health Research & Educational Trust. (2014). 2014 Employer Health Benefits Survey. Moody’s Investors Service. (2013). Moody’s affirms Saint Luke’s Health System’s (MO) A1; Outlook stable [Press release]. Retrieved from https://www.moodys.com/research/Moodys Robinson, J. C., & Brown, T. T. (2013). Increases in consumer cost sharing redirect patient volumes and reduce hospital prices for orthopedic surgery. Health Affairs, 32 (8), 1392 -1397. doi: 10.1377/hlthaff.2013.0188 Sherry, M. (2010). UnitedHealthcare, Saint Luke’s Health System mend their partnership, Kansas City Business Journal . Retrieved from http://www.bizjournals.com/kansascity/stories/2010/06/07/daily13.html?page=all Stafford, D. (2014, November 19, 2014). Per -employee health coverage costs rose 5.4 percent in the Kansas City area this year, The Kansas City Star. Retrieved from http://www.kansascity.com/news/business/workplace/article4013786.html The Henry J. Kaiser Family Foundation. (2014). Medicare Advantage: Total Enrollment, by Plan Type. Retrieved November 21, 2014, from http://kff.org/medicare/state-indicator/total -enrollment-by -plan-type/#