IRCHD Indian River 4" Indian River County Indian River Medical Center Hospital MGdica? Cemer Foundation May 11th, 2017 STROUDWATER Table of Contents • • • • • • • • • • Engagement Overview Interview Results Market Analysis Financial Analysis FL & US Updates Key Findings Draft Strategic Objectives Key Issues Next Steps Appendix 2 Work Process Ovewiew STROUDWATER Work Process Overview May 11th SOA Meeting w/ Collaboration Committee June 15th AOI Meeting w/Collaboration Committee August 10th SOA/AOI Meeting w/Collaboration Committee August 24th Final Report to Boards 4 4 Interview Results 5% STROUDWATER Interview Summary What are IRMC’s greatest strengths? • • • • • • • Heart, GI, Ortho, Imaging, Cancer programs Community and Philanthropic Support High quality medical staff IRMA Provides healthcare to everyone Breadth of Services Breakeven on Medicare What are IRMC’s most pressing challenges? • • • • • • Current Governance Structure Aging Inpatient Facilities / Cleanliness of Some Areas Emergency Department Weak Margins Culture: accountability, retention and engagement Medical staff relations: divided medical staff 6 6 Interview Summary Where are some opportunities for IRMC to improve operating results? • Improve IRMC relationship with community physicians • Emergency Department • Improved use of mid-levels could free up more time for physicians to see patients • New Cancer Center continues to ramp up • Partners in Women’s Health program • Revenue Cycle at IRMA • IRMC’s approach to bringing in own physicians has created division in the medical staff 7 7 Interview Summary Where should IRMC be in 3-5 years, what does that vision look like? • • • • • • • Revised governance / changed relationship with district Improved operating margins with less reliance on philanthropy Continued ability to serve community needs Exceptional patient care with high quality physicians and nurses Improved culture with increased patient focus Investment in IRMA Significant investment in aging facilities “Must Haves” for IRMC and Community • • • • • • Different governance structure High quality care and medical staff Serve indigent care needs of the community Build strength of institution: clinical, financial, operating Enhanced physician/hospital alignment Better IT systems 8 8 Market Analysis 5% STROUDWATER IRMC Service Area Coded by 2016 Market Leaders • • • The IRMC service area has been segmented to reflect the market leader in each ZIP Code based upon 2016 all payer market share. Within the IRMC PSA there are two segments where competitors are the market leaders. • Sebastian has market share of 51.2% in the red segment • Lawnwood has market share of 54.8% in the yellow segment • IRMC has market share of 67.3% in the blue segment and 49.5% throughout its entire PSA (inclusive of blue, red and yellow segments) IRMC has negligible market share within its defined SSA, where Holmes is the market leader in the north (light blue) and Lawnwood is the market leader in the south (green) 10 10 IRMC Market Share Change by Service Line From 2011 to 2016, IRMC saw significant variability in its all payer market share by service line. These results reflect the dynamic, competitive nature of IRMC’s market. Overall IRMC PSA market share for all payers trended down by -4.68 percentage points from 2011 to 2016, using all payer data. Variability between hospitals in classifying patients as observation vs. inpatients may account for some of this decline. 2011 - 2016 Change in Market Share by Service Line: IRMC PSA 10.00% VASCULAR SURGERY UROLOGY TRAUMA THORACIC SURGERY RHEUMATOLOGY PULMONARY PSYCH/DRUG ABUSE OTOLARYNGOLOGY OTHER OB ORTHOPEDICS OPHTHALMOLOGY OPEN HEART ONCOLOGY MEDICAL OB/DELIVERY NEUROSURGERY NEUROLOGY NEPHROLOGY NEONATOLOGY HEMATOLOGY GYNECOLOGY GENERAL SURGERY -15.00% GENERAL MEDICINE -10.00% GASTROENTEROLOGY -5.00% ENDOCRINE 0.00% CARDIOLOGY 5.00% -20.00% -25.00% 11 11 Regional Trends and IRMC Seven of the eight service lines that are expected to decrease in volume within IRMC’s service area over the next 5 years make up less than 2% of IRMC patients and revenue. IRMC is most likely to be effected by Cardiology and General Surgery changes – as these services represent more than 12% of revenue each. Cardiology comprises 13.6% of discharges in the region and 12.03% of revenue at IRMC and is projected to decline by more than 11% regionally. General Surgery comprises 6.66% of discharges in the region and 12.84% of revenue at IRMC and is projected to decline by 2.5% regionally. Of the 6 service lines that are expected to increase in volume regionally over the next 5 years IRMC could benefit from General Medicine, and Psych/Drug Abuse. Both of which each make up over 5% of inpatients at IRMC, and over 4% of revenue. IRMC’s 2016 PSA market share for General Medicine is 48.3%, and is 71.3% for Psych/Drug Abuse. IRMC’s 2016 PSA market share for the other 3 service lines was: 52. 2% for Nephrology, 45.2% for Hematology, and 40.2% for Neurology. 12 12 Public Leapfrog Scores IRMC recently earned a Leapfrog Hospital Safety Grade of an A. IRMC performed above average in almost every measure in both outcome measures, and process measures, and was never the worst performing hospital. Sebastian and Lawnwood both received a C, and Holmes received a B. Outcome Measures: Including accidents, Process Measures: Including management errors, and injuries. structures and procedures of a hospital to protect against medical errors, and injuries. Time Periods: 07/01/2013 – 06/30/2015, 2016 Time Periods: 07/01/2013 – 06/30/2015, 2016 Ratings Above Average Hospital Score Ratings Below Average Hospital Score Hospital Safety Score Rating IRMC 10 5 A Sebastian 10 5 Lawnwood 9 Holmes 7 Hospital Ratings Above Average Hospital Score Ratings Below Average Hospital Score Hospital Safety Score IRMC 10 5 A C Sebastian 6 9 C 6 C Lawnwood 8 7 C 8 B Holmes 5 2 B Hospital 13 13 Commercial Insurance Payment Comparison IRMC charges and is paid less than its competitors and peer group across an array of services, as depicted below. This payment differential has positive implications for IRMC’s value proposition to patients and payers, including area employers. Commercial Insurance Payments 60,000 50,000 40,000 30,000 20,000 10,000 - IRMC Vaginal Birth Heart Catheter with Stent Pneumonia Fluid in the lungs Stroke/Brain Bleed Hip, Knee, or Ankle Replacement 9,015 4,986 14,165 3,548 21,649 5,162 Sebastian - 41,271 10,028 - 13,913 32,605 Lawnwood 8,849 55,295 12,069 23,719 25,556 45,456 Holmes 7,636 32,470 7,616 18,254 15,414 31,545 - - 10,966 17,345 13,929 33,348 UF Health Shands Hospital 8,139 41,399 6,568 18,288 19,632 33,907 Florida Hospital Orlando 10,148 51,910 8,723 40,989 29,376 49,385 Median 8,139 41,335 8,723 18,271 15,414 33,348 Palm Bay Source: Mission to Care Date Accessed: April 2017 14 14 Key Findings: Market Analysis • IRMC has lost approximately five percentage points of market share across its PSA over the last five years. • While IRMC is the market leader on average across its PSA, in several segments of the PSA Sebastian and Lawnwood are the market leaders based in 2016 all payer market share • Portions of IRMC’s service area will remain very competitive • Orthopedics provides the largest portion of IRMC revenue – more than 18% of IRMC revenue • It is followed by General Surgery and Cardiology – both of which provide more than 12% of total IRMC revenue • Pulmonary and Open Heart each provide nearly 8% of IRMC revenue • GI and General Medicine each provide more than 5% of IRMC revenue • General Surgery and Cardiology - together about 25% of IRMC revenue - are both projected to see declines in service area discharges over the next five years of 2.5% and 11.6%, respectively • In both cases, gains in outpatient volume will offset the decline in inpatient business if IRMC is positioned to capture that business 15 15 Key Findings, continued • Cardiology is projected to experience the largest decline in inpatient volume of 11.6% over the next five years • This decline will be offset by growth in outpatient cardiology of 11.5% over the same time period • IRMC’s business is changing - while service area inpatient volumes are projected to increase modestly, the composition of inpatient demand will evolve and the shift to outpatient services will continue • These changes have profound implications for how IRMC should allocate capital and clinical resources • Core measures quality results for IRMC lagged on ED, cleanliness and explanation of medications • IRMC’s Leapfrog scores compare favorably with peers: it is the only A rated hospital among its competitors • IRMC charges significantly less than its competitors for comparable services • Charging less for services enhances IRMC’s value proposition to patients and payers • However, IRMC’s current weak margins are a risk factor 16 16 Key Findings: IRMC Service Volume Trends • IRMC has seen significant transformation of key service lines over the last five years (2012 through 2016): • Discharges have decreased by 7.9% (-1,250) • ED visits have increased by 9.6% (+5,360) • I/P Surgeries have modestly grown by 2.0% (+73) • O/P Surgeries have surged by 47.3% (+1,240) • Technology, emerging payment models, utilization patterns, physician recruitment and competition are all key factors in the above trends • The dynamic nature of demand for its services amplifies IRMC’s operating risk profile. • Implications for IRMC include: the type and magnitude of needed investments, provider recruitment, changing clinical and operational constraints, and financial results. 17 Financial Analysis 5% STROUDWATER Balance Sheet Strength Incl. Foundation IRMC TTM 2017* 2015 S&P BBB Average Age of Net Fixed Assets (years) 14.0 13.1 Cushion Ratio (X) 19.8 12.6 2.8 3.3 106.0 164.4 59.2 46.5 8.4 13.8 205.2 132.0 16.9 37.5 Maximum Debt Service Coverage (X) Days Cash on Hand Days in Accounts Receivable Cash Flow / Total Liabilities (%) Unrestricted Cash / Long-Term Debt (100%) Long-Term Debt / Capitalization (%) Median net revenue 2015 BBB rated hospitals is $264M * includes Foundation assets • • • Conservatively leveraged balance sheet (LTD/Capitalization) Liquidity as measured by days cash on hand, cash flow to liabilities and days in AR indicate weaker liquidity to BBB hospital credits Despite recent investments in a heart center, cancer center, VRA, etc., average age of plant still exceeds BBB-, BBB and BBB+ (11.2 years) hospitals. • Capital investment to increase facility capacity and increase service line offerings needs to be balanced with increasing operating margins • • Green Ratios exceed medians and indicate relative strength compared to medians Red ratios are below medians and indicate risk or relative weakness compared to medians 19 19 IRMC Historical Operating Cash Flow Operating EBIDA 35,000 30,000 25,000 20,000 217 15,000 3,636 10,000 5,000 8,633 2,146 13,984 11,220 19,261 13,984 12,764 9,156 10,500 2012 EBIDA ($000s) 2013 2014 Survive - Debt Service 2015 2016 TTM 2017 GAP Sustain - Debt Service + 120% of Dep'n Exp. Thrive - Debt Service + 120% of Dep'n Exp. + 4% operating exp. • • • • • • Operating cash flows peaked in 2015 and have declined since. Cash flows required to service debt have increased due to term loan borrowings in 2014 for VRA acquisition and funding for construction of the Health & Wellness Center in 2015 and 2016. Levels of investment needed to achieve a “sustain” level have also increased with the addition property and equipment associated with the VRA acquisition and completion of the Health & Wellness Center. The reduction in EBIDA from 2015 to 2016 is primarily attributable to $6.7M fewer unrestricted contributions and $1M indigent care reimbursement from the District (Other revenue). TTM 2017 results include increases in wages and benefits and professional service fees that exceed revenue growth. Net cumulative investment gap to Sustain level and to Thrive level from October 2011 thru March 2017 are 20 approximately $17M and $44M, respectively. 20 Summary of Key Findings - Financial For FY 2012 to FY 2016 and trailing twelve months YTD consolidated operating results: • Strong top line patient revenue growth is offset by expense growth. • Weakening cash flows from operations during the most recent 18 months. • Liquidity as measured by days cash on hand, cash flow to liabilities and days revenue in accounts receivable indicate weaker liquidity than BBB rated stand alone hospital credits. • IRMC has a conservatively leveraged balance sheet compared to comparable stand alone hospitals as measured by long term debt / capitalization. • Average age of plant and equipment, which is an accounting calculation to gauge capital investment, indicates that IRMC’s plant and equipment are older than comparable sized stand-alone hospitals which suggests under investment in IRMC’s asset base. • For the ten years ended 2016 the cumulative amounts transferred to IRMC from Foundation = $70M. The cumulative operations EBIDA of IRMC $110M. 21 21 Florida and US Updates 5% STROUDWATER Government Sponsored Change Federal • Long-term fiscal outlook threatens Medicare and Medicaid funding • Medicare trust fund faces near term shortfalls • AHCA transitions Federal funding for Medicaid to per capita / block grant formula • Fundamentals do not favor enhanced Federal support for provider payments Florida • Low Income Pool (LIP) funding awaiting action by legislature (September) • Current FL Medicaid funding proposal projected to have negative $400K annual impact on IRMC • Long-term: Legislature and Governor will continue to scrutinize Medicaid and LIP expenditures 23 23 Draft Strategic Objectives 5% STROUDWATER The Role of Strategic Objectives Develop clarity and consensus around a shared set of objectives that reflect the perspectives of key stakeholders: District Board, IRMC, physicians, staff and the community Strategic Objectives serve multiple purposes: • A communication tool for sharing with stakeholders the criteria that will guide decision-making • Parameters for objectively evaluating IRMC’s strategic options • Consistency for District Collaborative Committee and a guidepost to ensure the process stays on track • Milestones to evaluate whether the preferred strategic option – once selected – is on track • If preferred strategic option is to partner: • Define the “ask” from potential partners and provide the basis for objectively evaluating partner options • Evidence that the District and IRMC Boards followed a reasonable and prudent process in choosing a partner (for legal purposes, including AG, FTC and DOH reviews) 25 25 Preliminary Draft Strategic Objectives IRMC’s future strategic direction – with or without an affiliation - should enable IRMC to achieve the following strategic objectives: 1) Implement an efficient and effective governance structure that best insures achievement of the corporate charter and mission 2) Promote an IRMC organizational culture that embraces accountability, excellence and a patient first focus 3) Maintain and enhance the long term financial viability of IRMC 4) Continue to strengthen the clinical quality of IRMC’s services and programs 5) Enhance IRMC’s ability to recruit and retain high quality physicians 6) Strengthen IRMC’s capacity to make needed investments in technology, facilities, programs and people 7) Strengthen IRMC’s population health capabilities 8) Enhance IRMC’s market position 9) Broaden and deepen community support and engagement with IRMC’s mission 10) Maintain and expand access to needed service lines of care for all residents of Indian River County 11) Position IRMC as an employer of choice for staff and clinical partner of choice for the entire medical community 26 26 Four Paths Ahead • • Continue independent with • District Board (status quo) Independent without the District • Board Partner with affiliate and Retain District Board Partner with affiliate without retaining District Board 27 27 Strategic Options Rated Against Objectives Strategic Objective Independent: Existing Structure Independent: New Structure Affiliate: FP Affiliate: NFP Governance Structure No Change Changed Changed Changed Culture Potential: On journey with Virginia Mason Potential: On journey with Virginia Mason Potential: Assess Fit Potential: Assess Fit Financial Viability Challenging Challenging Potential: Assess Capabilities; Negotiate Commitments Potential: Assess Capabilities; Negotiate Commitments Clinical Quality Potential: Resources Potential: Resources Potential: Assess whether a priority Potential: Assess whether a priority Ability to Recruit Quality Physicians No Change May enhance Potential: Assess Capabilities Potential: Assess Capabilities Potential: Partner’s capital and may retain Foundation; Negotiate Commitments Needed Investments Retains Foundation May retain Foundation Potential: Partner’s capital but lose Foundation; Negotiate Commitments Enhance Population Health Capabilities Challenging Challenging Partner Research Partner Research Market Position Potential: Resources a Key Potential: Resources a Key Potential: Assess Capabilities Potential: Assess Capabilities Community Support & Engagement Legacy issues a constraint Potential opportunity for fresh start Some concerns re: FP; Implications for Foundation Potential: less resistance to NFP Access to Needed Service Lines of Care Potential Potential Potential but partner risk; Negotiate Commitments Potential but partner risk: Negotiate Commitments28 Employer of Choice / Clinical Partner of Choice Challenging Potential Potential: Assess Capabilities Potential: Assess Capabilities 28 Key Issues 5% STROUDWATER Risk Factors and Opportunities • Investment – Adequately fund investments to provide high quality, accessible and patient focused facilities and services • Competition – Anticipate competitive moves by Sebastian and other providers; how can IRMC remain the provider of choice? • Portions of IRMC’s PSA and key service lines experience significant competitive pressures • Pricing – Maintain IRMC’s pricing advantage relative to other organizations while ensuring financial sustainability • Quality – Build on Leapfrog “A” results and address any lagging CMS indicators • Recruitment – Renew an aging medical staff • Technology – Ensure adequate investment in new technology and adapt to technology impacts on demand for services • Operations – Examine operations to identify and capture performance improvement opportunities • Agility – Respond to the shift to outpatient settings, regulatory changes, new payment models, service area demographics and utilization changes 30 30 STROUDWATER Next Steps • June 15 – Collaboration Committee: Operational Assessment • August 10 – Collaboration Committee: Strategic and Operational Assessment, Findings and Recommendations • August 23 – Joint IRCHD, IRMC and Foundation Board Meeting 32 32 Appendix 5% STROUDWATER Mission To provide exceptional, patient-centered, evidencebased healthcare to residents of Indian River County and surrounding areas 34 34