HSC's 17th Annual Wall Street Comes to Washington Conference

Originally published by the Center for Studying Health System Change (HSC), a nonpartisan policy research organization that operated with principal funding from the Robert Wood Johnson Foundation.

Conference Transcript -- December 19, 2012

Moderator: Paul Ginsburg, President, HSC

About the Wall Street Comes to Washington Conference

HSC's 17th annual Wall Street Comes to Washington conference brought together equity and bond analysts, health policy researchers, and Washington-based health policy experts to discuss market developments in health care and their implications for policy. The Peter G. Peterson Foundation provided support for the event. The conference format was a roundtable discussion, with Paul Ginsburg, HSC's president, moderating questions that panelists had received in advance.

Panelists

The panel featured Robert Berenson, M.D., an Institute Fellow at The Urban Institute, serving as the health policy expert. The Wall Street analysts included Scott Fidel, Director and Senior Equity Research Analyst at Deutsche Bank; Lisa Goldstein, M.P.A., Associate Managing Director at Moody's Investors Service; Carl McDonald, C.F.A., Director and Senior Analyst at Citi Investment Research; and Sheryl Skolnick, Ph.D., Managing Director and Co-Head of Research at CRT Capital Group, LLC. Two analysts covered health insurers and managed care, while two covered providers, primarily hospitals.

Post-Election Rush Toward Accountable Care and Risk-Bearing

The conference opened with a discussion of innovative contracting between payers and providers, including accountable care organizations (ACOs), global payments, and episode-based bundles. Sheryl Skolnick described a dramatic shift in provider attitudes following the 2012 presidential election. Before the election, she estimated about 60 percent of the provider community held out hope that health reform would never fully take effect and saw little reason to embrace rapid change. After the election confirmed the Affordable Care Act would move forward, not-for-profit hospital systems in particular began a near-panic rush to engage consultants and assess their readiness to take on financial risk.

Hospitals were acquiring physician practices again -- a trend that brought back memories of the 1990s, when similar strategies produced mixed results. Skolnick cautioned that the structures being created -- physician-hospital organizations (PHOs), independent practice associations (IPAs), preferred provider organizations, and various hybrid arrangements -- echoed earlier experiments with capitated risk. The goal for many systems was to become more like Kaiser Permanente at the local level, though Kaiser had a significant head start and a unique market position.

For-profit hospital systems, by contrast, were taking a more measured approach. Rather than rushing into risk-bearing arrangements, they were proceeding with smaller pilot programs and watching the not-for-profit sector's experience before committing to large-scale changes. Skolnick found this caution notable and suggested it was not necessarily the wrong strategy given the remaining uncertainties about how ACOs and other new models would perform financially.

The Managed Care Perspective on Provider Contracting

From the managed care side, panelists discussed how health plans were developing new contracting arrangements that gave providers more responsibility for cost and quality outcomes. United Healthcare's Optum consulting arm, for instance, had seen a surge in activity from hospital systems seeking guidance on whether they were prepared to accept risk-based contracts. Plans were exploring narrow-network products, shared-savings arrangements, and other models that aimed to align provider incentives with cost containment goals.

Hospital Financial Outlook and Medicare Payment Changes

The panel discussed the financial outlook for hospitals in light of Medicare payment changes, including readmission penalties and value-based purchasing. Lisa Goldstein from Moody's provided the bond analyst perspective on hospital creditworthiness, noting that the combination of payment reforms, the shift to outpatient care, and the implementation of electronic health records was creating both opportunities and risks for hospital systems. Smaller, standalone hospitals faced the greatest challenges in adapting to the new environment, while larger systems with diversified revenue streams were better positioned to absorb the changes.

Insurance Market Changes and Exchange Implementation

Panelists also weighed in on the upcoming implementation of health insurance exchanges and the expected effects on the commercial insurance market. Carl McDonald from Citi Investment Research discussed how publicly traded insurers were positioning themselves for the exchange markets while managing uncertainty about enrollment levels and risk pools. Robert Berenson provided the policy context, connecting the market-level developments the analysts were tracking to broader questions about health reform implementation and the sustainability of cost growth trends.

The conference transcript was posted on the HSC website and reflected a snapshot of how market analysts and policy experts were processing the post-election health care landscape in late 2012.

Sources and Further Reading

AHRQ -- Federal health care quality research agency.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and funding.

Urban Institute -- Nonpartisan policy research organization.