PENN Medicine National Health Policy Forum The Cost of Hospital Care Keith A. Kasper SVP & Chief Financial Officer University of Pennsylvania Health System October 8, 2010 0
PENN Medicine Organizational Structure TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA PENN Medicine Board President of the University University EVP/SOM Dean School of Medicine Health System Clinical Components Clinical Practices of the University of Pennsylvania (CPUP) Academic & Research Clinical Hospital of the University of PA (HUP) PENN Presbyterian Medical Center (PPMC) Pennsylvania Hospital (PAH) Clinical Care Associates (CCA) Penn Home Care and Hospice Services (PHC&HS) 1
PENN Medicine Highlights $3.6 billion annual operating budget 80,000+ inpatient admissions at 3 hospitals including the nation s first hospital (Pennsylvania Hospital) and first teaching hospital (Hospital of the University of Pennsylvania) School of Medicine founded in 1765 as the nation s first; top recipient of NIH funding, $400+ million in FY10, strong success with stimulus grants. 1800+ full time faculty, 750 medical students, 580 PhD students, 1700+ residents and fellows, 17,000+ employees. Ranked #1 employer in Philadelphia. 2
Hospital of the University of Pennsylvania (HUP) HUP is a 782 licensed bed quaternary care hospital in an academic medical center located on the campus of the University of Pennsylvania. Fiscal Year 2010 Adjusted admissions (inpatient admissions adjusted for outpatient activity): 65,000 Average inpatient occupancy: 87% Total surgical cases: 25,000 Solid organ transplants (heart, kidney, liver, pancreas): 400 Overall case mix index (CMI) 1.86, Medicare CMI 2.39 (highest in the region) Total revenue : +$1.5B Pennsylvania Hospital Association (HAP) award for quality Nursing Magnet designation US News & World Report 2010 Honor Roll Hospital 3
HUP Revenue and Expenses per Adjusted Admission Over the last 6 years HUP has managed costs in line with payment and activity changes while making significant capacity, technology and quality investments. 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Revenue per Adj. Admit Expense per Adj. Admit 4
HUP Payer Mix as a Percent of Admissions HUP is a safety net hospital for the West Philadelphia community and is one of Pennsylvania s largest providers of care to the uninsured and under insured with 25% of admissions in Medicaid/Medicaid Managed and Self Pay categories. Level 1 Trauma Center and Obstetrics provider. Fifteen OB programs have closed in the region over the last several years. MANAGED CARE, 31% SELF PAY, 2% MEDICARE, 20% MANAGED MEDICARE, 9% COMMERCIAL, 3% BLUE CROSS, 13% MEDICAID, 1% MANAGED MEDICAID, 22% 5
Financial Performance Extremely Sensitive to Payer Mix UPHS Acute Care Reimbursement by Payer per $100 Expense $140 $120 $100 (sample public payer rate $85) $80 $60 $40 $20 $0 Medicare Medicaid Self Pay BC/Comm'l/Mgd Care 6
Medical Technology: Costly Competitive Advantage Medical technology is a key driver of increasing health care costs (and benefits) and, as such, is a frequent target of policy discussions. AMCs like HUP rely on advanced medicine driven by research, and even more advanced technology to maintain competitive advantage. AMCs attract talented faculty and staff, who are leaders in developing advanced technology, but we are also end users and must pay what the market will bear. 7
High Cost of Advancing Technology Traditional Technology X-Ray Machine $175,000 Open Surgery Instrument Set $10,000 Cardiac Balloon Catheter $500 Standard Technology circa 2000 CT Scanner $1 million Laparoscopic Surgery Set $15,000 Stent $2,300 Current Technology CT Functional Imaging w/pet $2.3 million Surgery Robot ~$2 million Treated Stent $5,000 Scalpel $20 Electrocautery $12,000 Harmonic (ultrasonic) Scalpel $30,000 8
Making Game-Changing Investments AMCs uniquely willing to invest in state-of-the-art technology. E.g., proton therapy required $140M investment - new infrastructure 9
Operating Costs Distribution and Analysis Total operating costs are in excess of $1.38B Salaries & Wages 44.5% Effective management of labor and benefits costs is essential to long term fiscal stability. Employee Benefits 10.6% Supplies and services 29.3% Depreciation & amortization 4.0% Interest 0.9% Malpractice 3.8% Provision for doubtful accts 5.1% Utilities 1.1% SOM Support (1) 0.7% Supply pricing is at industry leading levels (UHC comparisons). Opportunities in utilization remain but are difficult to capture. Malpractice costs do not include costs related to defensive medicine. Bad debts increased 9% over the prior year reflective of high unemployment. Support of research and teaching missions continues to increase. (1) The Health System provides over $300M of academic support to the Clinical Practice Group and SOM annually. 10
Controlling Costs: Focus on Quality, Effectiveness Deploy information technology solutions improving workflows and provider/patient communications.( Inpatient EMR (Allscripts) and outpatient EMR (EPIC), Nursing documentation (Allscripts), My Penn Health) Enhanced nursing, pharmacy and homecare staffing structures focusing on quality improvement initiatives: Reduced blood stream infections and urinary tract infections. Reduced medication errors. Improve transitions in care reducing hospital readmissions in collaboration with Blue Cross. Process improvement initiatives including revenue cycle, patient progression, laboratory specimen handling, new technology review and evidenced based evaluations. Refine alignment of physicians and hospitals to better meet multiple missions. 11
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