Flaherty, William E.

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i! ,. cc: C. R. Richards M. Cascone W.c.r. 7/6/84 FLORIDA HOSPITAL ASSOCIATION. INCJBOX 6905. 307 PARK LAKE Cl R.. ORLANDO FL 32853 305/841-6230 CAPI f Al Off I Cf. I ' ; • j. : July 3, 1984 William E. Flaherty, President Blue Cross/Blue Shield of Florida, Inc. Post Office Box 60729 Jacksonville, Florida 32236-2729 Dear Bill: Thank you for your letter of JW'le 25, 1984. We are pleased that you will be able to meet with the Board of Trustees of the FHA on September 28, 1984. In addition to hearing from you about the changes taking place in the board structure of Blue Cross of Florida, the FHA Board would also be interested in: .,-, 1. • Blue Cross/Blue Shield of Florida's involvement in the (.__,/-development of HMOs and PPOs. 2. Developments at thE;t national .level (BCA) of guidel_ines �for ti-ghtening coverage of imaging. 3. The trend in other states for Blue Cross plans to partici­pate in various new forms of reimbursement {DRG-based.and all-payer systems) and what we may �pect in Florida. 4. Your views on what we can expect in Florida under the new Health Care Consumer Protection & Awareness Act, and other forms of regulatory pressure (specifically the role of the HCCB). 5. Future relationships between Blue Cross and the hospitals '--"'­of Florida.· 6. Effects of reduced utilization of hospitals. The hospitals appreciate the long-standing ties with Blue Cross/Blue Shield of Florida, and we look forward to exploring with_ you the new relationships that are developing in this time of rapid change. Thank you for the invitation to the July informational meeting. I look forward to seeing you there. ?T:t z::::de, �ident JMMcB:ss CAE cc: Jack T. Stephens, Jr., Chairman W.f.F. JUl S 1!184 I. INTRODUCTION A. Pleased to have th1s 1nv1tat1on to meet w1th you and exchange v1ews on 1ssues of mutual concern. ··i. · We are both operating 1n a rap1dly changing heath care market. Each of us 1s be1ng 1mpacted by leg1slat1ve act1on, grow1ng compet1t1on 1n the marketplace and env1ronmental c1rcumstances. Open corrmun1cation-w1th one another becomes more important than ever. So I'm espec1ally pleased that you've created th1s opportun1ty for us to come together. C. As Pres1dent of BCBSF, I value the support and counsel wh,ch you, as leaders 1n the hospital 1ndustry have cont1nually prov1ded to the company. D. Since the found1ng of BCBSF, you have made many contr1 but1 ons to our growth, deve 1 opment and success .. E. Market changes, are requ1r1ng a change 1n our longstand1ng role� and relat1onsh1ps w1th one another. 1. Our recent board restructure 1s an example of how we are chang1ng so that each of us can adapt and cont1nue play1ng a key role 1n health care 1n the e1ghties and _beyond.-2. Although our board will be smaller in size and the number of members directly involved in ·the delivery of care w111 be reduced, hope to f9ster a.cont1nued dialogue with the hosp1tal corrmun1ty. �) Creat1ng Inst1tut1onal Serv1ces Adv1sory con1J11ttee .. Both current hospital board members and addit1ona1 representat1ves from the provider - cofTl1lun1 ty wi 11 be invited to serve. · ... -. f. So, although our traditional roles and relat1onsh1ps are chang1ng. I believe there are many.opportunitites for us · to work cooperatively . . .  and continue the d1alogue we have always enjoyed. G. · In a recent letter from John (McBryde), he requested that I address several specif1c_po1nts; and I want to be respons1ve. So 1n the next 2Q.m1nutes, I'll be sharing my perspect1ve on such top1cs as! 1. BCBSF HMO's & PPO's 2. Trends in reimbursement 3. Relat1onship between BCBSF and hospitals 4. Imp11cations of the new HCCAA 5. BCA gu1del1nes on 1mag1n9, and 6. Effects of reduced ut111zat1on on hospitals ·; f .SLIDE #1 EMERGENCE OF HMO'S AND PPO'S . MARKET DEMAND A RESPONSE TO II. EMERGENCE OF HMO'S AND PPO'S A RESPONSE TO MARKET DEMAND A. These opt1ons represent an essent1al element 1n the changes we bel1eve are �eeded to make our health care system more responsive to Flor1dians' f1nanc1al concerns� W1th mult1ple choice in the marketplace, people can seek out.the care that gives them the most value for the1r health care dollar.,------------------SLIDE # _2 Cost/value 01agram (see attachment) SLIDE # 3 SFGH SLIDE # 4 CHP 2 !' c ·-. ...,...,....., :----- �---- ---�-----1. Progress of our two operat1onal HMO 1 s a) SFGH membersh1p ga1n of over 33% b) CHP enrolled an add1t1onal 14,000 people, pa1d off an outstand1ng loan and had a f1nanc1al ga1n _ 1n 1983. SLIDE# 5 Four-Year HMO strategy o Ten HMOs statew1de o Access1ble to 60% of Flor1da's res1dents o 25% of the HMO Market 2. Long-term HMO strategy a) A new site for development 1n 1984 (Jacksonville); two planned for_ early 1985 < 1 (Orlando & Tampa/St. Pete) b) By 1988, plan to have a m1n1mum of ten throughout flor1da c) Accessible to 60% of the populatio� d) Target 25% of the market by 1988 (approx. 400,000 · Florid1ans) SLIDE # 6 In1t1at1on of PPO Network o Market1ng 1n Duval and Dade counties o 17 serv1ce areas throughout Flor1da by m1d _1985 o Projected enrollment of 60,000 w1th1n f1rst year 3. PPO Act1v1ty a) Acceptance of HMO's 1s serving a�-a catalyst for evaluating the potential of another alternat1v� de11very system: the Preferred Provider Organ1zat1on (PPO). - 3 -�' �-1 b) Expect several Preferred Prov1der arrangements- to be offered to employer groups soon 1n corrroun1t1es around the state. 1. We have started market1ng 1n Duval and Dade count1es 2. These two locat1ons are part of a total of 17 serv1ce areas we hope to develop by m1d 1985 3. Some of the cr1ter1a cons1dereo 1n.the selection of these areas 1nclude: population number of hosp1tal scope of serv1ces . corrrnunity percept1ons cost effect1veness, etc . 4. Projected enrollment of 60,000- by 1988 4. PPOs and HMOs are an 1ntegral element 1n our strateg1c plans for future growth and development a. >They repres_�nt our recog.n1t1on that -1n order to meet buyer demand, we must prov1de options 1n f1nanc1ng and de 11 very _ b. While these new 1n1t1at1ves ar� a major part of our strateg1c plans, they do not supplant our cofTIT11tment to our trad1t1onal bus1ness- 11nes. 1. These 11nes account for 99 percent of our business and we expect to ma1ntain and expand these as well. III. FUTURE RELATIONSHIPS BETWEEN BCBSF AND THE HOSPITALS Of FLORIDA A. As each of us adapts to new market cond1t1ons we are both becom1ng more and more 1nvolved 1n the f1nanc1ng and delivery aspects of health care. 1. Th1s may well lead us 1nto compet1t1on w1th one another 1n some areas. - 4 -·<· 2. Ant1-trust 1mp11cat1ons pr·eclude us from business as usual, 1n wh1ch a representative group of hospitals 3. 4 negot1ated a contract w1th us. SLIDE # 7 BCBSF/HOSPITAL CONTRACT AGREEMENTS A shared comn1tment to: o cost consciousness o qual1ty consc1ousness o enhance comnun1ty percept1ons, and o prov1de w1de scope of se�v1ce Increasingly, we w111 be negot1at1ng contracts. 1nd1v1dually w1th one another based on a shared com,. ltment to: cost consc1ousness qua11ty consc1ousness convnuntty percept1ons, and level of serv1ce Wh1le the compet1t1ve nature of our bus1ness 1s . grow1ng, a strong need rema1ns for us to work together closely 1n offer1ng consumers the$e 1ntegrate� f1nanc1ng and del1very systems. SLIDE # 8 REIMBURSEMENT TRENDS IV� REIMBURSEMENT TRENDS SLIDE #. 9 -REIMBURSEMENT TRENDS o Trans1t1onal Stage o PCPP Status o Need for Hosp1tal Input o Exper1mentat1on w1th payment plans - 5 -: A.' The bas1c reimbursement method that we created e1ght_ years ago, and wh1ch has ex1sted qetween us s1nce then 1s the. Prospect1ve Charge Payment Program (PCPP)� 1. Its val1dity and v1ab111ty are in question as a result of enactment of the Health Care Consumer Protect1on and Awareness Act and chang1ng market cond1t1ons. 2. These c1rcumstances necessitate that we des1gn and negotiate a new contractual reimbursement program. a.- We w111 be seeking input from the hospital conJllun1ty as to alternative reimbursement forms wh1ch may be appropriate. 3. Together, hope we can develop other forms of reimbursement . . . those wh1ch are reflective of the resources corrm1tted to the care of the patient, such as: a. enhancements of DRG b. cap1tat1on payment methods (as 1n N.O., Mass., Rochester, NY i etc.) c. norms based on peer groupings 4. Whatever re1mbursement form(s) we choose, it 1s likely to be mod1f1ed as our industry continues to change at an accelerat1ng pace. 5. Our challenge will be to adjust and 1nit1ate f1nancing and delivery programs which reflect and respond to the changing health care needs of .the residents of Florida. B. Trends among other BCBS Plans. 1. If- we examine BCBS Plans nat1onw1de, because of the devers1ty of approaches doubt that we could'1dentify the one or the best hospital payment program that lies ahead. - 6 -:, � .. , a) Several 1nnovat1ve programs are takin� shape and may serve as models for the future. b) Historically, Plans in NE and Midwest, w1th large market share, have negot1ated s1gn1ficant d1scount arrangements w1th providers. Plans 1n the South and Southwest, w1th less market penetration, tend to have paid on the bas1s of charges. c) /·" Increasing competition among insurors 1s requ1r1ng Plans to assess their reimbursement relationships with providers and seek to negot1ate the best arrangement they can for their customers ·SLIDE# 10 REIMBU�SEMENT TREND� o Prospective_ Payment o Increased Pred1ctab111ty of cost o DRG-based payment of cost 2. In surveying the various payment plans be1ng­developed, the majority are prospective types -0f payment wh1ch should allow buyers to better pred1ct the1r costs for health care services. 3. There is currently impetus toward ORG based reimbursement programs -- particularly so 1n Florida, where so much of a hospital�s care 1s Medicare related. I - 1 -. � - . --_-. ., (:;-"'T SLIDE # 11 BCA TASK FORCE CONCLUSIONS Outmoded Payment Pract1ces o Uncontrolled billed charges o No process for lim1ting costs o No differentiation of Plan rates from hosp1tal charges 4. Also 1nd1cat1ve of poss1ble payment trends are the conclusions of a spec1al BCA reimbursement task force created in 1 82. The task force identified 3 Plan payment practices no longer considered acceptable: a) uncontrolled billed charges, b) _no process for limiting costs be1ng paid, and c) no d1fferentiation of Plan rates from hosp1tal {: charges SLIDE # 12  STATE REGULATION AND ALL-PAYOR SYSTEMS V. STATE RATE REGULATION AND ALL-PAYOR SYSTEMS A. R��ulatory approaches likely will continue to be promoted, chiefly by those unable or unwilling to develop compet1tive payment options and those advocating a "quick fix" approach to cost containment. 1 . . It's significant to note that those state's which.have an all-payor system are in jeopardy of losing their Medicare waiver (e.g. N. J., Mass., Maryland). . a. The rate of increase-in hosplta-Ladmiss1ons 1s dropping more dramatically in non-waiver states. - 8 -B. Through my participat1on on the Governor' s Task force and my role on the HCCB, you probably know that I advocate the competitive model over regulation. •-:.· 1. Under rate regulation, even where applied as a safety net, you tend to f1nd that what is intended as a ceiling essentially becomes the floor. 2. When you set a maximum allowable rate of increase, you have an incentive to go right to 1t. That's because it may be denied in future years unless you budget for it in the planning year. C. The recent enactment of the Health Care Consumer P�otection and Awareness Act, in the main, represents a political· response to the public' s growing outrage. with current health care costs. 1. · It �111 be incumbent upon us, �s advocate� of free market compet1t1on, to effectively manage health care costs if we are to stave off further regulation. 2. Any doubts that the battle i� over, in my view, are premature. SLIDE #13 WHAT LIES AHEAD VI. EFFECTS OF REDUCED UTILIZATION ON HOSPITALS A. Our diverse and changing environment, of course, makes ·it difficult to forecast with accuracy what lies ahead for us. - 9 -.. ...,.,,,,,,.--: 1 .  Despite th1s unpted1ctab1ltty, 1t 1s not a question as to whether we are go1ng to change. The question 1s when, how much and 1n what way? 2. Just as market cond 1t1 ons requfre us to change our structure and 1n1t1ate alternative f1nanc1ng and· delivery systems, hospitals also are changing. Competitive pressures, Medicare payment constraints, reduced ut111zation, etc., br1nging this about. a) Most recently, we are 1dentHying a move by b1g business and organized labor toward uniform health care benefits, un1form delivery. of that benefit nationwide and predictability and containment of cost. b) Recent BCA 01agnost1c imaging guidelines represent another example of the impetus for adaption and change. 1. SCA res�arch indicates that d1agnost1c radiology services now account for 3 � 5% of total hospital charges. 2. intent of the guidelines is to encourage appropriate selection and use of imaging procedures. 3. guidelines developed with and supported by many representatives from the provider comnunity. 4. our own medical staff will be working with you and physicians to evaluate the impact of these guidelines and the appropriateness of developing medical policy pr1or to 1mplement1ng or 1ntegrat1ng any of them 1nto our own ut111zat1on management programs. - 10 -�c 3. For all of us to succeed w�'ll need to respond to these env1ronmental changes. At the same t1me, we won't want to jeopard1ze or downgrade quality. S LIDE I 14 FACTORS FOR SUCCESS o flex1b111ty to change o R1sk-tak1ng o Respond to market needs 4. As we position ourselves to continue playing a key role 1n health care in  the eighties and beyond, -- flex1b111ty, a willingness to take risks and responsiveness to market demand should enable us to successfully deliver quality products and service at reasonable cost. S LIDE# 15 COST/VALUE SLIDE Thank you. I'd be happy to answer any quest1ons. - 11 -. --r.-· 

Remarks: Transcript of Remarks by William E. Flaherty before the Florida Hospital Association Board of Trustees, with attachment: Letter to William E. Flaherty from John M. McBryde

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Remarks: Transcript of Remarks by William E. Flaherty before the Florida Hospital Association Board of Trustees, with attachment: Letter to William E. Flaherty from John M. McBryde

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