Challenges to the Healthcare Industry

Introduction

Due to the rapidly changing healthcare industry there are many things that challenge insurance and healthcare leaders should be aware of. These changes are not only affecting people but it includes salaries, patient volume and reimbursement. Some of the forces that have played a role in these issues have caused an increase in the cost of living. If a healthcare organization does not stay up to date and adapt to these issues, it will suffer financially. In this proposal, I will discuss these forces that are affecting the healthcare industry, what their impacts are, and some opportunities and challenges they have created.

Major Forces in Healthcare and Their Impact

Salaries cuts are a major issue within numerous different industries including the healthcare industry. According to the consumer price index, there has been an increase of $.40 in consumer product from January 2007 to January 2017 (McMahon, 2017). With the prices of things going up like healthcare and insurance, it is also causing the price of living to rise and many people having to choose. Healthcare supplies and equipment costs are on a drastic rise which then leaves business trying to walk the line on what to pay their staff. This has led to little room for raises and a way higher turnover rate. This issue has forced businesses to create new options to increase retention rate such as; increased personal time off, stock options, or decreased benefit costs.

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Another issue that has a drastic effect on the healthcare is the reimbursement rates that are constantly decreasing. When the Affordable Care Act passed in 2001 there was a boost in patients receiving care because of the rise on insurance holders. Along with this increase Medicaid had an increase of reimbursement rates in 2014 to match Medicare rates.  (Xenon Health, 2015). This increase in Medicaid reimbursement was roughly 24 percent. However, after these two years the Medicaid rates returned to the normal rate of about 54 percent of what private insurance reimburses. An increase in Medicaid patients is leaving healthcare facilities with very low reimbursement rates, causing many challenges for healthcare facilities to cover their expenses.

With all of the evolving changes there has been a decrease in inpatient care. This change has happened because with the Affordable Care Act in place there as pressure to reduce readmissions. The Readmissions Reduction Program was passed in 2012 which stated that Medicaid and Medicare would reduce any payments for readmissions. Technology also was a major factor. Many of the services that would have required overnight observation can now be done as outpatient with the increase in technology. Many hospitals are creating many different networks with this change that include outpatient and inpatient specialties so the patient can remain within one company.

Currently with the new President in office there has a lot of challenges for healthcare providers because of the revisions being done to the Affordable Care Act. Medicaid is one of the major groups that is currently being affected by these changes. The government matches each dollar spent in the program with increased funds for states with increased lower income population (Fitzgerald, 2017). With all the changes taking place the government will soon start using block grants. Block grants are distributed to each state as a set amount and the state decides how to spend the money.  This does not leave states with increased lower income families extra funds for assistance and leaves the states in charge of finding this extra money. If this happens then there will be an increase in lower income families without health insurance that the hospitals will now have to provide care to and possibly receive no reimbursement for.

With proper financial decisions, healthcare facilities will remain profitable. As our country continues to revise healthcare plans, budgets, and mandates, we as healthcare leaders need to continue being flexible. With our adjustments including how we function, spend, or staff, we can continue providing high quality and affordable care to our communities.

technology remains a challenge for the healthcare industry for many different reasons (Appold, 2016).  The federal government now requires that many health care providers swith to using electronic health records in whic will improve safety, quality, and reduce health disparities. This will hel[with engaging more patients, improve care and helpwith bed side manners. As of right EHR does does not have the capability to cross reference care between facilities which in turn makes it difficult to coordinate the patient’s care (Appold, 2016).  Also, the implementation a new EHR system takes a lot of time, money, and resources.  Lastly, many organozations are struggling to get meaningful data from using EHR. This is a crtical part of improving care for patients and reducing costs that is hel[ful to the provider payment system (Appold, 2016).

Nowaday patients are turning more into consumers, they have more to say than actively participating in their care. The patients are backed by many rules and regulations that was set by the government which makes it harder on the providers. The healthcare industry is driven by the demand to satisfy the needs of patients and the government (Appold, 2016).  Providers are now challenged to meet those needs and provide services that will help the patient make better decisions concerning their care. Providers must publish their data on quality, such as patient outcomes and satisfaction, and readmission rates.  Healthcare providers are feeling the pressure of this because their payment for services is tied to patient satisfaction and quality indicators (Appold, 2016).  

Now with the ACA in place the demand for for more providers has increased due to many uninsured now having access to care. This demand is even higher when baby boomers start increasing. Technology has needed to advance due to the need to provide adequate skills that are required to aid in patients care (Herman, 2014).  All of those factors affect employment, recruitment, training and employee education. Labor costs and staffing continue to become an issue becuase of the challenges being increased in the healthcare industry.   Personnel expenses are one of the highest costs for providers and account for at least half of their operating revenue (Herman, 2014). 

A smarter way that is considered smarter would be leasing which would help in coping with the changes in healthcare. Some advantages of leasing would be fast financing approvl proccess, improved cash flow, decreased need to liquidate investments and many tax advantages (White, 2016). Above all of the options listed leasing allows orginzations to use their cash for investments so that it can increase flow efficiency.

Due to the always changing healthcare environment leasing is a flexible option that provides a reponsive reaction (White, 2016).  This allows providers to get medical equiptment that may be needed, they can attract and treat more ptients, delivering better outcomes to their patients health. With the healthcare environment now traditional borrowing may be harder than ever. Lenders want to see your revenue and make sure you are successful before lending out money.

 It is important that healthcare providers understand how the healthcare environment is changing and how to make the most of the emerging trends and technology.  Navigating the tough times ahead will require healthcare organizations to be innovative and creative in their thinking and planning.  Organizations that is able to think outside the box will be able to develop the necessary strategies to meet patient needs, improving the delivery of care and stay competitive in today’s healthcare environment.

Healthcare Organization

United Healthcare is Connecticut’s largest provider of healthcare, living, homecare, and hospice services for seniors (United Healthcare.org, n.d).  They are a not-for profit, statewide system with many affiliate corporations.  They offer independent and assisted living communities and senior healthcare services such as dementia care, hospital, home health, hospice and palliative care, long-term skilled nursing, primary care physicians, and rehabilitation services.  Their mission is to enhance quality of life through a continuum of person-centered care (United Healthcare.org, n.d).  As United Healthcare enters their second century of service, their vision is to continue providing innovative services through a continuum of care with an engaged workforce and advanced leadership.  United Healthcare values integrity and trust, respect and compassion, and competence and quality (United Healthcare.org, n.d).

 United Healthcare’s consolidated financial statements, obtained through the state of Connecticut’s Department of Public Health website, are the combined financial statements for the organization and all of its affiliates (Connecticut.gov, n.d.).  The consolidated financial statements are for fiscal year 2015 and include balance sheets, statements of operations and changes in net assets, and cash flow statements for the entire organization (Connecticut.gov, n.d.).  The consolidated financial statements provide a comprehensive overview of United Healthcare’s operations.  Without them, there is no way to know how well the organization is doing as a whole.

The consolidated financial statements were reviewed by an independent auditor to determine whether or not United Healthcare adhered to the generally accepted accounting principles (GAAP) of the United States.  The independent audit report revealed that United Healthcare’s consolidated financial statements were presented fairly and in accordance with the GAAP (Connecticut.gov, n.d.).  The GAAP are a common set of accounting principles, standard, and procedures that companies must follow when they compile their financial statements (Investopedia.com, n.d.).  Any supplemental information provided by United Healthcare was used to support their accounting practices and assist with audit analysis. 

Opportunities

 By the year 2030, the over sixty-five population will double in size (AHA.org, 2007).  More seniors will be living longer and managing more than one chronic condition, therefore utilizing more healthcare services.  The baby boomers will also have different expectations regarding their care and will have more medical services and technologies available to them than ever before (AHA.org, 2007). Meeting the healthcare and insurance challenges of the baby boomers requires numerous resources, new approaches to care delivery, and a greater focus on wellness and prevention (AHA.org, 2007).  Since 2010, United Healthcare has been working hard to restructure their organization in order to adapt to the influx of baby boomers to the insurance system.  As a result, they have created a seamless continuum of care that is solely dedicated to caring for the elderly (United Healthcare.org, n.d.). 

As healthcare reimbursement decreases and pay-for-performance and other outcome and quality driven initiatives take effect, it is important that United Healthcare affiliates to work together to ensure better patient outcomes.  This is especially true when it comes to reducing hospital readmissions because they are quite costly for healthcare providers (Seniorsbluebook.com, 2017).  The Hospital Readmission Reduction Program, instituted by the Centers for Medicare & Medicaid Services (CMS), financially penalizes hospitals for any readmission to the hospital within thirty days of discharge.  CMS considers most hospital readmissions to be preventable, especially those associated with chronic conditions (Seniorsbluebook.com, 2017).

United Healthcare Home Health & Hospice (MHH&H), the organization’s home care agency, helps to reduce the hospital readmission rates of United Healthcare Health Center (MHC), the organization’s acute care hospital.  MHH&H provides skilled nursing care, rehabilitation, cardiac and wound care, and hospice and palliative care (United Healthcare.org, n.d).  Their services improve health outcomes by providing follow-up care and increasing communication between patients and providers, and decreasing medication errors.  They also help patients comply with their treatment plans and provide a better understand their conditions through education. 

                                                          Proposal

Another way United Healthcare can help reduce hospital readmission rates is by upgrading their telemedicine system to include advanced telehealth monitoring.  Traditional telemedicine is only capable of monitoring a patient’s blood pressure, heart rate, oxygen level, and weight.  However, advanced telehealth monitoring offers a broad range of technology and techniques to deliver virtual medical, health, and education services to patients in their homes (cchpca.org, n.d.).  Advanced telehealth typically includes real-time video communication, transmission of patient health history to providers, remote patient monitoring, and mobile health.  This innovative monitoring system not only enhances patient care, but can also help those with chronic conditions, such as heart failure, diabetes, and chronic obstructive pulmonary disease by providing a consistent connection to healthcare professionals who can intervene before a small change can become a big problem (cchpca.org, n.d.).

Remote patient monitoring uses pre-loaded software on a tablet that has advanced connectivity to the internet (cchpca.org, n.d.).  Upon discharge from the hospital, at risk patients are provided with a tablet to use while receiving services from United Healthcare.  The tablet helps patients to comply with treatment plans and engages them in their care.  Patient data, such as activity, diet, weight, vital signs, and medication use are obtained daily and monitored through the telehealth system.  The information is then available for clinician and caregiver review (cchpca.org, n.d.).  The software also provides patient education using video demonstrations that cover many healthcare topics and conditions.  This feature also provides quizzes, utilizing teach-back methods to improve a patient’s understanding of their condition (cchpca.org, n.d.).

Besides reducing hospital readmission rates, the advanced telehealth monitoring system increases patient engagement, cuts costs, reduces clinician overhead, and improves health outcomes (Seniorsbluebook.com, 2017).  With the advances in this technology, telehealth is on its way to becoming a huge asset to aging baby boomers.  My capital budget proposal is to purchase a minimum of 20 tablets with 4G internet connectivity for each of the 13 branches of United Healthcare, for a total of 260 tablets, and the advanced telehealth monitoring software with above mentioned capabilities.

A company located in in California known as Care Innovations supplies home care agencies like Unoted Health with monitoring systems. These systems are known to focus on the behavior changes of the partient the reduces the need to be be readdmitted and it improves clinical outcomes (Careinnovations.com, 2017).  Their systems are customizable and include educational videos, care plans, and medication reminders.  Each remote tele-monitoring kit comes with a tablet with 4G internet connectivity for patient use, installed software, and two Bluetooth peripheral monitoring devices such as blood pressure cuff, scale, glucometer, and pulse oximeter.  The software used to monitor patients can be integrated with United Healthcare’s current EHR system.  This software allows clinicians to manage patients through the use of video chat, wound imaging, and text messaging.  The system also allows family members and caregivers to be involved with the patient’s care and well-being (Careinnovations.com, 2017).  The costs associated with this proposal include:

Consultation and Implementation Cost   $37,500

EHR Integration Cost      $12,000

Total        $49,500

Remote Patient Monitoring System Cost    $155.00 (Per system)

(Includes hardware and software – tablet,

4G connectivity, two peripheral devices)

Remote Patient Monitoring System Cost   $40,300 (Proposal 260 tablets)

Total Proposal Purchase Cost     $89,800

Optional Ongoing Fees

Monthly Protection and Maintenance Cost  $  15.00 (Per system)

Annual Protection and Maintenance Cost   $180.00 (Per system)

Total Annual Protection and Maintenance Cost  $46,800 (Proposal 260 tablets)

Total Proposal Purchase Cost including Ongoing Fees $136,600

 The financial penalties associated with the HRRP are significant for healthcare organizations.  In FY 2015, ABC Healthcare was charged a little less than $50K in hospital readmission penalties.  In FY 2014, their assessed penalty was 1.14% and 1.17% the following year (Kaiser Health News, 2016).  In 2016, the HRRP penalties reached an all-time high of $528M.  This is $108M more than the previous year due to changes relating to how hospital readmissions are measured (USNews.com, 2016).  Unfortunately, these penalties are expected to continue to grow until healthcare organizations get a better handle on their readmission rates.  The integration of advanced telehealth monitoring will not only assist healthcare organizations to reduce their hospital readmission rates, but it will also help to improve clinical outcomes, which is also now tied to provider reimbursement.    

Proposal Impact

The operating budget only covers one-year period and typically excludes the capital budget, which has a longer duration (Wright, n.d.).  Capital budgets cover capital expenses, such as the advanced telehealth proposal, which will be capitalized and appear as long-term asset on the balance sheet.  As this asset depreciates, it will show up on the income statement as a depreciation expense (Wright, n.d.).  Therefore, this capital expenditure will impact the income statement far less than it will impact the balance sheet.  The capital expenditure will also have an impact on cash and the cash flow statement, both of which do not appear in a typical operating budget (Wright, n.d.).

The operating budget reflects the interest portion of these payments.  The operating budget also reflects the maintenance and upkeep that is required on the asset (Wright, n.d.).  According to Wright (n.d.), the capital budget can impact the operating budget, as most debt financing used to fund investment in capital assets require principal and interest payments. 

Flexed Versus Fixed

A budget that remains as one amount regardless of the volume is known as a fixed budget (DifferenceBetween.com (2011).  This budget is used for future situations that are predictable and known to the healthcare world. They are used by many different orginations that do not expect increase in the business environment. They are simple to prepare, less complicated, and easier to track since the budget does not vary (DifferenceBetween.com (2011).

A flexible budget, also known as a dynamic budget is variable and adjusts when activity levels increase or decrease (DifferenceBetween.com (2011).  In healthcare, this budget is more useful than the fixed budget because the healthcare environment is always changing and the need to prepare the budget is always possible. Many orginations that use a flex budget are more prepared t deal with unexpected events and have the ability to provide adequate care. This type of budget can be complex to prepare, especially when there are numerous scenarios to consider (DifferenceBetween.com (2011). 

Proposal Justification

Ratio Selection

Profitability ratios. Profitability ratios measure how well an organization is performing in terms of its ability to generate a profit.  Ratios in this category can be used by investors and creditors to evaluate an organization’s return on investment based on their resources and assets (MyAccountingCourse.com, n.d.).

Payback Period. Payback period is a capital budgeting ratio that is used to calculate the length of time it takes for an investment to earn enough money to pay for itself.  It is a time-based measurement that helps managers analyze a projects risk.  This ratio was chosen because to see if the advanced telehealth proposal is worth pursuing.

Net Present Value (NPV). The NPV is another capital budgeting formula that is used to evaluate the amount of money that an investment will generate compared with the cost adjusted for the time value of money.  This is an important because it costs money to borrow money and interest rates depreciate future cash.  This formula is similar to the IRR, but focuses on the expected dollar return instead of the percentage rate of return (MyAccountingCourse.com, n.d.).  

Ratio Results

Payback Period. The first step is to calculate the investment’s payback period.  Then, if the payback period is less than three years, which is United Healthcare’s required timeframe to pay off investments less than $100K, then the proposal can be accepted.

Payback Period  =  Project Cost

       Annual Cash Inflows

 Payback Period  =     $89,800

    $50,000

Payback Period  =   1.796 years

 Since the investment will only take a little over a year and a half to pay itself back, this proposal could be accepted.  The $50K annual cash inflow is the amount of funds United Healthcare will gain from not being penalized from the HRRP.

 A second payback period evaluation can be conducted to include the ongoing expenses for the first year of the capital budget proposal for the first year, then after, it could be incorporated into the organization’s operating expenses.  This evaluation shows that it will take a little over two and a half years for United Healthcare to recoup its investment of the advanced telehealth system.  Again, this is within their required payback timeframe and the proposal could be accepted.  Although, this ratio does not give a time value of money, which is important.  It also ignores cash flow after the payback period.  A better calculation to determine a capital budget proposal is the NPV.

Payback Period  =  Project Cost

       Annual Cash Inflows

 Payback Period  =    $136,600

    $50,000

Payback Period  =   2.732 years

Net Present Value. Healthcare organizations only have so much money to spend on capital investment projects and need to know how best to spend it.  The NPV evaluates a project in terms of its cash outflows and cash inflows.  The project’s cost of $89,800 is considered cash outflow and the $50,000 saved from the HRRP is considered cash inflow.  This calculation will also use United Healthcare’s three year pay off timeframe as a gauge to accept or reject this proposal and a 6% discount rate as an estimate. The first step is to calculate the present value of each cash flow for each year, for a period of three years.  This calculation looks like this:

Present Value of Future = 50,000 + 50,000 + 50,000

        Cash Flows     1.06      1.06²       1.06³

Present Value of Future = $133,650

        Cash Flows

Net Present Value  = Present Value of Future – Present Value of Initial

     Cash Flows  Investment Costs

Net Present Value  =  $133,650 – $89,800

Net Present Value  =  $43,850

The NPV of $43,850 is greater than zero and means that proposal will earn a return that is higher than the 6% discount rate or opportunity cost.  Therefore, United Healthcare should accept this proposal.  A second NPV evaluation can be conducted to include the ongoing expenses for the first year of the capital budget proposal, then after, it could be incorporated into the organization’s operating expenses.  This evaluation shows that there will be a NPV of $50, which again is greater than zero and should be granted

Net Present Value  =  $133,650 – $133,600

Net Present Value  =  $50.00

                                       Short-Term Impact

The short-term impact this would have would be te capital budgeting decision that would impact the cash flow and how it is used. The reason for this involves the cost of capital and how it is used that would effect the financing strategies of the orginzation. The cost of the telehealth program with have an impact on United Health’s financial cost but will pay off int eh return of an investment in the lon run.

Intermediate to Long-Term Impact

 In the long term, hoe the healthcare chooses to invest in the company’s capital will drive them up the market. If approved the telehealth proposal will not just decrease United Healthcare hospital readmissions but improve the revenue and clinical outcomes of the patient. With the payback and NPV ratios this monitoring system will pay for itself in about two years. At during such time United Healthcare will be better equipted to handle baby boomers.

Conclusion

Added Value

 There are several benefits to purchasing an advanced telehealth monitoring system.  First, the new system will update United Healthcare’s outdated telemonitoring system using innovative technology, which is something that the baby boomers have come to expect.  EHR integration will also improve care coordination and population health, thus helping to reduce healthcare costs.  This factor is particularly important due to the increase of those with chronic conditions because their care can be quite complex and costly for healthcare organizations and the healthcare system in general.  The new system also engages patients in their care and provides education that can be customized to meet their individual needs.  This improves patient satisfaction, quality of care, and clinical outcomes, and again, helps to reduce costs.

Updating to an advanced telehealth monitoring system will help United Healthcare to reduce personnel costs and staffing, which is one of the highest costs for the organization and accounts for at least half of their operating revenue.  Remote telehealth monitoring will allow MHH&H staff to remotely monitor patients and to intervene when necessary to prevent health issues.  The system will also reduce the amount of overhead and the number of clinical home visits to patients.  On the flip side, it will improve patient communication with clinicians via video communication.  It is important for United Healthcare maximize their staff levels as best as possible so that they are able to meet the demand of incoming patients.  This new system will help ABC Healthcare to minimize their personnel costs and maximize the care they provide.

Lastly, and most importantly, this proposal will considerably reduce the HRRP penalty amount assessed to MHC.  It has been estimated that United Healthcare will save a minimum of $50K annually by updating to a newer monitoring system.  This is especially important to United Healthcare as HRRP penalties are expected to rise.  For this reason alone, it would be prudent for the organization to update their current telemonitoring system. 

United Healthcare is the largest provider of senior services in the state of Connecticut.  Over the last several years, they have done a remarkable job of restructuring their organization in order to adapt to the inflow of baby boomers entering the healthcare system.  Advanced telehealth monitoring has the ability to become a huge asset to United Healthcare and is just one more way this organization can lead the way in caring for this population.

Justification of Proposal

 Based on the United Healthcare’s financial analysis, this organization is more than able to implement this proposal.  Furthermore, it is in their best interest as it also affects so many other factors such as future personnel decisions and reimbursement through pay for performance.  Both the payback period and the NPV prove that this is a viable proposal for United Healthcare to pursue and that the return on investment will occur in more than a reasonable timeframe.

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