Health Care 2020


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Health Care Advisory Board

Health Care 2020 Population Health, Consumerism, and the Future of Health Care Delivery

©2015 The Advisory Board Company • advisory.com

Health Care Advisory Board Project Director Yulan Egan

Contributing Consultant Corbin Santo, JD

Design Consultant Haley Chapman

Practice Manager Ben Umansky

Executive Director Lisa Bielamowicz, MD

LEGAL CAVEAT The Advisory Board Company has made efforts to verify the accuracy of the information it provides to members. This report relies on data obtained from many sources, however, and The Advisory Board Company cannot guarantee the accuracy of the information provided or any analysis based thereon. In addition, The Advisory Board Company is not in the business of giving legal, medical, accounting, or other professional advice, and its reports should not be construed as professional advice. In particular, members should not rely on any legal commentary in this report as a basis for action, or assume that any tactics described herein would be permitted by applicable law or appropriate for a given member’s situation. Members are advised to consult with appropriate professionals concerning legal, medical, tax, or accounting issues, before implementing any of these tactics. Neither The Advisory Board Company nor its officers, directors, trustees, employees and agents shall be liable for any claims, liabilities, or expenses relating to (a) any errors or omissions in this report, whether caused by The Advisory Board Company or any of its employees or agents, or sources or other third parties, (b) any recommendation or graded ranking by The Advisory Board Company, or (c) failure of member and its employees and agents to abide by the terms set forth herein. The Advisory Board is a registered trademark of The Advisory Board Company in the United States and other countries. Members are not permitted to use this trademark, or any other Advisory Board trademark, product name, service name, trade name, and logo, without the prior written consent of The Advisory Board Company. All other trademarks, product names, service names, trade names, and logos used within these pages are the property of their respective holders. Use of other company trademarks, product names, service names, trade names and logos or images of the same does not necessarily constitute (a) an endorsement by such company of The Advisory Board Company and its products and services, or (b) an endorsement of the company or its products or services by The Advisory Board Company. The Advisory Board Company is not affiliated with any such company.

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Health Care Advisory Board

Health Care 2020 Population Health, Consumerism, and the Future of Health Care Delivery

6

A Return to the Good Old Days? Health Care Spending on the Rebound National Health Expenditures See Biggest Jump Since Pre-Recession Annual Growth in National Health Expenditures 10% 9%

“U.S. Health-Care Spending Is on the Rise Again”

8% 7%

6.5%

6.3%

6% 5%

“Health care spending growth hits 10-year high”

4% 3%

5.0%

4.8% 3.8% 3.9% 3.9%

4.1%

3.6%

2%

“Health Spending Is Rising More Sharply Again”

1% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014

©2015 The Advisory Board Company • advisory.com • 30484

Source: Altarum Institute, Health Sector Trend Report, March 2015, accessed April 2015; Tozzi J, “U.S. Health-Care Spending Is on the Rise Again,” Bloomberg Businessweek, February 18, 2015, available at: www.bloomberg.com; Davidson P, “Health care spending growth hits 10-year high,” USA Today, April 1, 2014, available at: www.usatoday.com; Altman D, “Health Spending is Rising More Sharply Again,” The Wall Street Journal, February 27, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.

7

A Closer Look at the Numbers Higher Spending Not Exactly a Boon for Hospitals Hospital Price Growth Down for First Time on Record Annualized Hospital Price Growth, Jan. 2010-Jan. 2015 4.0%

2015 Hospital Price Growth Down Across All Payer Classes

3.5% 2.7%

3.0%

(2.9%)

2.9%

Medicare price growth

1.6% 2.0%

1.5%

(0.1%)

1.0%

Medicaid price growth

0.0% -0.1% -1.0%

Jan. '10

Jan. '11

Jan. '12

Jan. '13

Jan. '14

Jan. '15

1.6% Commercial price growth (lowest growth rate since 2002)

Source: Altarum Institute, Health Sector Economic Indicators: Price Brief, March 2015, March 2014, March 2013, March 2012, available at: www.altarum.org; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

8

No End in Sight for Reimbursement Cuts ACA Reductions Persist; New Threats Emerge Hospitals Bearing the Brunt of Payment Cuts

New Proposals Continue to Emerge

Reductions to Medicare Fee-for-Service Payments

President’s FY2016 Budget Proposal Includes Significant Cuts to Providers

2013 2014 2015 2016 2017

ACA IPPS1 Update Adjustments

($4B) ($14B)

ACA DSH2 Payment Cuts

($24B) ($29B)

MACRA3 IPPS Update Adjustments

($38B)

2018 2019 2020 2021 2022 1) Inpatient Prospective Payment System. 2) Disproportionate Share Hospital. 3) Medicare Access and CHIP Reauthorization Act of 2015. ©2015 The Advisory Board Company • advisory.com • 30484

$30.8B

$29.5B

Reduction in Medicare bad debt payments

Savings from moving to site-neutral payments

$14.6B

$720M

Cuts to teaching hospitals and GME payments

Cuts to critical access hospitals

($54B) ($67B) ($76B) ($86B)

($94B)

Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015; Budget of the United States Government (Proposed) FY 2016; Health Care Advisory Board interviews and analysis.

9

Market Forces Continue to Threaten Status Quo All Purchasers Looking to Curb Spending

1

2

3

Government

Employers

Consumers



Medicare doubling down on risk







Medicare Advantage poised for reform

Private exchanges increasing pricing pressure

Continued premium sensitivity on public exchanges



Self-insured employers focusing on utilization control



Price sensitivity increasing at point of care



Medicaid experimenting with risk, consumerism

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

10

Government

CMS Lays Down Marker for Value-Based Payment Historic Payment Targets Demonstrate Commitment to FFS1 Alternatives Aggressive Targets for Transition to Risk

FFS Increasingly Tied to Value

Percent of Medicare Payments Tied to Risk Models

Percent of Medicare Payments Tied to Quality 90% 85%

50% 80%

30% 20%

2016

2018

Medicare Shared Savings Program Bundled Payments for Care Improvement Initiative Patient-Centered Medical Home

2015

2016

2018

Hospital-Acquired Condition Reduction Program Examples of Quality/ Value Programs

Examples of Qualifying Risk Models

2015

Hospital Value-Based Purchasing Program Hospital Readmissions Reduction Program Merit-Based Incentive Payment System

1) Fee-for-Service. ©2015 The Advisory Board Company • advisory.com • 30484

Source: HHS, “Progress Towards Achieving Better Care, Smarter Spending, Healthier People,” available at: http://www.hhs.gov/, accessed February 2015; Health Care Advisory Board interviews and analysis.

11

Mandatory Risk Programs Taking a Toll on Providers Readmissions, HAC Penalties Outweighing VBP Bonuses After Accounting for Penalties1, Few Receive VBP2 Bonuses Estimated Net Impact of P4P3 Programs, FY 2015

28% Hospitals receiving a net bonus or breaking even

50% 3,087 hospitals in VBP program

1,700 hospitals received bonus payment

Hospitals receiving net penalties between 0% and 1%

792 hospitals received net payment increases

6.5% Hospitals receiving net penalties of 2% or greater

1) Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program. 2) Value-Based Purchasing. 3) Pay-for-Performance. Source: Rau J, “1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect,” Kaiser Health News, January 22, 2015, available at: kaiserhealthnews.org; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

12

SGR Repeal Includes Additional Push Toward Risk Both Tracks Impose Greater Risk, Strong Incentives for Alternative Models PFS1 Payment Models Beginning in 2019

MIPS Performance Category Weights For 2021

1 Merit-Based Incentive Payment System (MIPS) • Consolidates existing P4P programs 2 • Score based on quality, resource use, clinical improvement, and EHR use • Adjustments reach -9% / +27% by 2022 • From 2019 through 2024, potential to share in $500M annual bonus pool

2

Quality

EHR Use 25%

30%

15% Clinical Improvement

30% Resource Use

Revenue at Risk Requirements for APMs Alternative Payment Models (APMs) • Provides financial incentives (5% annual bonus in 2019-2024) and exemption from MIPS • Requires that physicians meet increased targets for revenue at risk • APMs must involve downside risk and quality measurement

1) Physician Fee Schedule. 2) Meaningful Use, Value-Based Modifier, and Physician Quality Reporting System. 3) Includes risk-based contracts with Medicare Advantage plans. ©2015 The Advisory Board Company • advisory.com • 30484

Required for All Providers 2019 – 2020

25%

Option 1 2021– 2022

50%

2023 and on

75%

OR

Option 2 25%

50%

75% 25%

Medicare

All-Payer3

Source: The Medicare Access and CHIP Reauthorization Act of 2015; Health Care Advisory Board interviews and analysis.

13

Bundling Slated to Become Next Mandatory Program CMMI Program Would Require Orthopedic Bundling in Select Markets The Comprehensive Care for Joint Replacement (CCJR) Model Key Program Features

Program Timeline July 2015 Program announced; accepting comments through September 8th

Focus on joints

Comprehensive episode

Average expenditure varies from $16,500 to $33,000 by geography

Includes all related Part A and Part B services for 90 days post-discharge

January 2016 First performance year begins; no episode discount for first year

2017-2020 Downside risk incorporated; 1% discount in 2017, 2% for 2018 onward

Mandatory in 75 markets

Retrospective bundle

No application process; CAHs1 and BPCI2 Phase II participants exempt

CMS will pay each provider separately, conduct annual reconciliation process

$153M ESTIMATED SAVINGS TO MEDICARE OVER THE 5 YEARS OF THE MODEL

1) Critical Access Hospitals. 2) Bundled Payments for Care Improvement Initiative. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

14

MSSP1 Continues to Grow Despite Mixed Results 89 ACOs Join in 2015, Few Generating Shared Savings in First Year Medicare ACO Program Growth Continues

One-Quarter of MSSP ACOs Share in Savings

As of January 2015

First Performance Year2 420

401

Held Spending Below Benchmark, Earned Shared Savings 26%

46%

19 13 Pioneer ACO

31 MSSP ACO

44 Total Medicare ACOs

Did Not Hold Spending Below Benchmark

27%

Reduced Spending, Did Not Qualify for Shared Savings

Early MSSP Participants Completing Third Performance Year (PY) PY 1

April 2012 Cohort (27)

PY 1

July 2012 Cohort (87)

PY 1

Jan. 2013 Cohort (106) Jan. 2014 Cohort (123)

PY 2

PY 3

PY 2

PY 3

PY 2

PY 3

PY 1

PY 2

2014

2015

PY 1

Jan. 2015 Cohort (89) 2012 1) Medicare Shared Savings Program. 2) For the 2012 and 2013 cohorts; percentages may not add to 100 due to rounding. ©2015 The Advisory Board Company • advisory.com • 30484

2013

Source: Spitalnic P, “Certification of Pioneer Model Savings,” CMS, April 10, 2015; available at www.cms.gov; “Shared Savings Program Fast Facts,” CMS, April 2015, available at: www.cms.gov; CMS, “Fact Sheets: Medicare ACOs continue to succeed in improving care, lowering cost growth,” September 16, 2014, available at www.cms.gov; McClellan M et al., “Changes Needed to Fulfill the Potential of Medicare’s ACO Program,” Health Affairs Blog, April 8, 2015, available at www.healthaffairs.org/blog; Health Care Advisory Board interviews and analysis.

15

Pioneer ACO Meets Requirements for Expansion First-Ever CMMI Pilot Certification Expands Model to More Beneficiaries Pioneer ACOs Generate Sufficient Savings to Merit CMS Expansion Total Medicare Savings Generated by Pioneer ACOs, 2012-2013 $104.5M

$384.2M

2013

Total

$279.7M

2012

10

Pioneer ACOs generated statistically significant savings relative to their markets in both 2012 and 2013

©2015 The Advisory Board Company • advisory.com • 30484

The Actuary’s certification that expansion of Pioneer ACOs would reduce net Medicare spending, coupled with Secretary Burwell’s determination that expansion would maintain or improve patient care without limiting coverage or benefits, means that HHS will consider ways to scale the Pioneer ACO Model into other Medicare programs.” U.S. Department of Health & Human Services

Source: “Affordable Care Act Payment Model Saves More than $384 Million in Two Years, Meets Criteria for First-Ever Expansion,” HHS, May 4, 2015, available at: www.hhs.gov; Spitalnic P, “Certification of Pioneer Model Savings,” CMS, April 10, 2015, available at: www.cms.gov; L&M Policy Research, “Evaluation of CMMI Accountable Care Organization Initiatives: Pioneer ACO Evaluation Findings from Performance Years One and Two”, March 10, 2015, available at: www.cms.gov; Health Care Advisory Board interviews and analysis.

16

MSSP Program Now Offering Higher-Risk Track Track Three Incorporates Features of Pioneer ACO Model New Rule Offers Greater Flexibility for Providers

Track 1 • Option to renew for second three-year term • Savings rate kept at 50% for second term

Track 2 • Shared savings, loss rate remains at 60% based on quality performance • Revises MSR1 and MLR2 from fixed 2% to variable 2%-3.9% based on number of beneficiaries

Track 3 • Shared savings up to 75%, shared losses from 40%75% based on quality performance

• Fixed 2% MSR and MLR • Prospective assignment • Waiver of SNF 3-day rule

Benchmarking Methodology Adjusted to Account for Prior Performance •

Benchmarks will be rebased in subsequent agreement periods based on an ACO’s financial and quality performance during prior agreement periods



CMS plans to develop a regionally adjusted benchmark formula to take effect in 2017 or later

1) Minimum Savings Rate. 2) Minimum Loss Rate. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Davis Wright Tremaine, “Keeping Track of the Tracks: Proposed ACO Regulations Alter MSSP Financial Models,” December 11, 2014, available at www.dwt.com; McDermott, Will & Emery, “CMS ACO Proposed Rule to Extend One-Sided Risk Track While Incentivizing Performance-Based Risk,” December 19, 2014, available at www.mwe.com; Health Care Advisory Board interviews and analysis.

17

CMMI’s Next-Gen ACO Will Test Full Performance Risk Model Significantly Expands Tools to Engage Patients, Control Utilization

Financial Model

Engagement Tools

Prospective benchmark using one year baseline historical spending, trended forward using regional factors

Beneficiary alignment through prospective attribution and voluntary beneficiary alignment

Risk arrangements include 80%-85% sharing rate or full performance risk

Coordinated care reward up to $50 annually for beneficiaries receiving at least 50% of care from ACO

Payment mechanisms include traditional FFS (with optional infrastructure payments), populationbased payments, or capitation

Benefit enhancements through payment and program waivers for telehealth, home health, and SNF admission

Source: CMS, “Open Door Forum: Next Generation ACO Model”, March 17, 2015, available at: www.innovation.cms.gov; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

18

Medicare Advantage Continues Record Growth Penetration Varies by Geography MA Enrollment to Nearly Double by 2025

MA Penetration Varies by State

Total Enrollment and Percentage of Total Medicare Population

Total MA Enrollment as a Percent of Total Medicare Population

35

30.0M (40%)

30

Millions

25 17.3M (30%)

20 15 10

10.4M (13%)

5 0 2005

22%

2015

of newly eligible beneficiaries chose MA in 2011

©2015 The Advisory Board Company • advisory.com • 30484

2025

39

0%-13%

states currently have provider-led plans in their markets

14%-25%

69%

26%-38%

39%-51%

of provider-led plans offer MA coverage options

Source: KFF, “Medicare Advantage Fact Sheet,” May 1, 2014, available at: www.kff.org; CBO, “March 2015 Medicare Baseline,” March 9, 2015, available at: www.cbo.gov; KFF, “Medicare Advantage Enrollees as a Percent of Total Medicare Population,” 2014, available at: www.kff.org; Mark Farrah & Associates, “Medicare Advantage Tops 17 Million Members”, March 27, 2015, available at: www.markfarrah.com; Jacobson G et al., “At Least Half of New Medicare Advantage Enrollees Had Switched from Traditional Medicare During 2006-11,” Health Affairs, January 2015, available at www.healthaffairs.org; McKinsey & Co., “Provider-Led Health Plans: The Next Frontier—Or the 1990s All Over Again?”, January 2015, available at: healthcare.mckinsey.com; Health Care Advisory Board interviews and analysis.

19

Provider Interest Fueling MA Growth Ability to Customize Contracts, Maintain Narrow Network Key Differentiators Attractive Elements of MA Contracts Greater Control Over the Network 64% if beneficiaries choose HMO plans, offering improved utilization management and network control

Fewer Patient Identification Issues Providers can target patients who are enrolled in the plan with lower levels of churn than in MSSP

Greater Opportunity to Tailor Risk Carrier contracts can be structured to include varying levels of provider payment risk and quality incentives

Customized Cost Target Development Providers can determine the cost target as part of negotiations with the plan, perhaps using the MLR

White Paper: Why a Successful Population Health Strategy Must Include Medicare Advantage Highlights attractive elements of MA and offers strategies to incorporate it into population health strategy

70%

of new MA plans approved since 2008 are provider-sponsored

18%

of MA enrollees chose a provider-sponsored MA plan in 2014 (about 2.8M enrollees)

Source: James Gutman, “Tide of Rising Provider MA-Plan Sponsorship is Likely to Continue,” AIS Health, February 19, 2015, available at: www.aishealth.com; Kaiser Family Foundation, “Medicare Advantage Fact Sheet,” May 1, 2014, available at: www.kff.org; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

20

CMS Charting a Path Toward Greater Risk Track 3, Pioneer and Next-Gen ACO Filling Out the Continuum Continuum of Medicare Risk Models

Pay-forPerformance • Hospital VBP Program • Hospital Readmissions Reduction Program • HAC Reduction Program

Bundled Payments • Comprehensive Care for Joint Replacement (CCJR) Model

Shared Savings • MSSP Track 1 (50% sharing)

Shared Risk • MSSP Track 2 (60% sharing) • MSSP Track 3 (up to 75% sharing)

• Bundled Payments for Care Improvement Initiative (BPCI)

• Next-Generation ACO (80-85% sharing)

Full Risk • Next-Generation ACO (optional full performance risk) • Medicare Advantage (providersponsored)

• Merit-Based Incentive Payment System Increasing Financial Risk

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

21

Future of Medicaid Expansion Less Clear Benefit of Expansion Clear for Hospitals, But Opposition Remains 30 States and DC Have Approved Expansion1 As of July 2015

Medicaid Expansion Positively Impacting Hospital Finances Medicaid Admissions increased 21% for investor-owned hospitals in expansion states

Self-Pay Admissions decreased by 47% for investor-owned hospitals in expansion states

Participating

Expansion by Waiver

Uncompensated Care costs reduced by $5 billion in expansion states in 2014

Not Currently Participating

11.7M

27% vs. 8%

Net increase in Medicaid, CHIP2 enrollment, July-Sept. 2013 to Feb. 20153

Growth in Medicaid, CHIP enrollment in expansion vs. non-expansion states, July-Sept. 2013 to Feb. 2015

1) Montana’s expansion requires federal waiver approval. 2) Children’s Health Insurance Program. 3) Excludes CT and ME. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Kaiser Family Foundation, “Current Status of State Medicaid Expansion Decisions,” January 27, 2015, available at: www.kff.org; HHS, “Insurance Expansion, Hospital Uncompensated Care, and the Affordable Care Act”, March 23, 2015, available at: www.aspe.hhs.gov; PwC Health Research Institute, “The Health System Haves and Have Nots of ACA Expansion”, 2014, available at: www.pwc.com; CMS, “Medicaid & CHIP: February 2015 Monthly Applications, Eligibility Determinations and Enrollment Report”, May 1, 2015, available at: www.medicaid.gov; Health Care Advisory Board interviews and analysis.

22

Medicaid Risk-Based Payment Models Expanding Providers Expanding Care Management Infrastructure to New Populations

17 states stat st at have Medicaid ACO programs in place or are pursuing one

Oregon

Colorado

Minnesota

Coordinated Care Organizations

Regional Care Collaborative Organizations

Integrated Health Partnerships



16 organizations accountable for 90% of Medicaid and dual-eligibles





15 delivery systems participating in Medicaid ACO program



21% reduction in ED use, 52% increase in PCMH1 enrollment since 2012

Seven regional organizations that convene provider networks around PCMHs





Uses a hybrid of several payment strategies to shift to value

Shared savings in year one; shared risk in following years

On track to generate 2% PMPY2 savings 1) Patient-Centered Medical Home. 2) Per Member Per Year. ©2015 The Advisory Board Company • advisory.com • 30484

Generated $29-$33M in net savings, 2014

Generated $10.5M in savings in first year

Source: Center for Health Care Strategies, “Medicaid Accountable Care Organizations: State Update,” March 2015, available at: www.chcs.org; Colorado Department of Health Care Policy & Financing, “Accountable Care Collaborative 2014 Annual Report,” available at: www.colorado.gov; Oregon Health Authority, “Oregon’s Health System Transformation: 2013 Performance Report,” June 24, 2014, available at: www.oregon.gov; Minnesota Department of Human Services, “Integrated Health Partnerships (IHP) Overview,” 2015, available at: www.dhs.state.mn.us; Health Care Advisory Board interviews and analysis.

23

Expansion States Experimenting with Benefit Design States Using Waiver Flexibility to Redesign Benefits, Influence Behavior Medicaid Waivers Encourage Healthy Behavior, Personal Responsibility Demonstration Proposals Approved by CMS

Premium Assistance for QHPs1

Demonstration Proposals Rejected by CMS

Work requirements as condition of eligibility

Benefits Lockouts

Private Managed Care Plans

Mandated premiums for beneficiaries below 100% FPL2

Work Program Referrals

Premiums/ Monthly Contributions

Service Copays

Cost sharing exceeding amounts permitted under federal law

Healthy Behavior Discounts

1) Qualified Health Plans. 2) Federal Poverty Level.

Source: Kaiser Family Foundation, “The ACA and Recent Section 1115 Medicaid Demonstration Waivers,” November 24, 2014, available at: www.kff.org; Modern Healthcare, “CMS Gives Arkansas, Iowa More Leeway in Medicaid Expansion Waivers,” available at: www.modernheatlhcare.com, accessed January 5, 2015; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

Volume and Value: Support Appropriate Utilization

24

Slow Shift to Risk Providers Still Have a Foot in Two Boats Growth in All Risk-Based Contracting Models Average Estimated Hospital Revenue Breakdown n = 88 100% 90%

Fee-for-Service

80% 70% 60%

Pay-for-Performance

50% 40%

Bundled Payment

30% 20%

Total Cost of Care

10% 0% Today

1

2

©2015 The Advisory Board Company • advisory.com • 30484

3

4

5

6

7

8

9

10 Years Source: Accountable Payment Survey; Advisory Board interviews and analysis.

25

Employers

Employer Health Cost Growth Slowing, but Enough? “Cadillac” Tax Motivating Quicker Action Good News and Bad News

3.9%

Refresher: The “Cadillac” Tax

Predicted growth in per-employee health benefit cost, 2015 (second lowest since 1997)

• 40% excise tax assessed on amount of employee health benefit exceeding $10,200 for individuals, $27,500 for families • Intended to encourage cost-effective benefits, offset ACA implementation cost • Threshold adjustments tied to consumer inflation, not health care inflation

1.7%

Annual consumer inflation, October 2014

©2015 The Advisory Board Company • advisory.com • 30484

• If employers make no changes to current benefit plans:

31%

51%

of all employers could incur tax in 2018

of all employers could incur tax in 2022

Source: Mercer, “Survey Predicts Health Benefit Cost Increases Will Edge Up in 2015,” September 11, 2014, available at: www.mercer.com; Hancock J, “Employer Health Costs Rise 4 Percent, Lowest Increase Since 1997,” Kaiser Health News, November 14, 2012, available at: www.kaiserhealthnews.com; Mercer, “Modest Health Benefit Cost Growth Continues as Consumerism Kicks into High Gear,” November 19, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.

26

Employers Not Converging on a Single Strategy Spectrum of Options for Controlling Health Benefits Expense





“Activation”

“Delegation”

“Abdication”

Manage Proactively

Shift to Private Exchange

Drop Coverage

• Outsource administrative burden to third party

• Shift employees to public exchange

• Facilitate shift to defined contribution

• Trade Cadillac tax for employer mandate penalty

Offer and encourage uptake in care management, disease management, preventive care May involve direct partnerships with ACOs

• Encourage employee uptake of HDHPs1

1) High Deductible Health Plan. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

27

Manage Proactively

Activist Employers Investing in a Range of Tools Four Primary Models for Controlling Employee Utilization Manage Costs at Point of Network Assembly

“The OneStop Shop”

ACO networks: Employer contracts with single delivery system based on promise of reduced cost trend

Manage Costs at Point of Referral, Point of Care

“The Accountable Physician”

Enhanced primary care: Employees directed to PCPs with proven ability to reduce utilization, refer responsibly

“The Neutral Third Party”

Personal health navigators: Guide employees through all health care related decisions, refer to high-value providers

“The Second Opinion”

Specialty carve-out networks: Employees evaluated against appropriateness of care criteria, sent to centers of excellence

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

28

Early Adopters of ACO Models Expanding Efforts Intel Extends Connected Care Model Established in New Mexico, 2013

Established in Oregon, 2014

Key Components of Connected Care Oregon •

Premium incentives to choose narrow network; both Kaiser and Providence networks set at $0 premium



Members assigned to PCMH



FFS payments tied to performance against cost, quality goals

Case in Brief: Intel Corporation • Large, multinational employer headquartered in Santa Clara, California

• In 2013, entered into narrow-network contract with Presbyterian Healthcare Services, an 8-hospital system in New Mexico, for employees at Rio Rancho plant • In 2014, implemented similar model in Oregon with Kaiser Permanente and Providence Health & Services

©2015 The Advisory Board Company • advisory.com • 30484

Source: Hayes E, “Intel Shares Details on Its New Providence and Kaiser Health Plans,” Portland Business Journal, October 24, 2014, available at: www.bizjournals.com/portland/blog; Health Care Advisory Board interviews and analysis.

29

Market Dynamics Slowing Broader Adoption Direct-to-Employer ACO Arrangements Remain Rare

Carrier, Broker Resistance • Little desire to disrupt stability of ESI1 marketplace • Hesitant to narrow networks for fear of jeopardizing provider relationships necessary for broad product offerings • Resistance from national employers to compete directly with regional ACOs • Fear that employer partners will bypass completely and partner directly with providers instead

Market Immaturity • Hesitance by employers to disrupt employee benefits without concrete proof of efficacy of ACO model • Lack of mature “plug and play” solutions means employers must invest significant time, energy into implementing ACO model • More interest from employers in models requiring incremental changes, rather than broad disruption to benefits

1) Employer-Sponsored Insurance. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

30

Not Everyone Buying Into the Value of Systemness Innovators Looking to Unbundle the Delivery System Quality doesn’t happen at the system level. Quality happens at the individual physician level. If I steer my employees to a single delivery system, the one thing I can be certain of is that the quality of care that they’ll receive will be variable.” Director of Benefits, Large National Employer

©2015 The Advisory Board Company • advisory.com • 30484

Pushing for Two Levels of Unbundling Physician Level •

Aggregate level facility or procedural data not a guarantee of individual physician performance



Innovators looking to identify highperforming clinicians and ensure steerage to those individuals

Procedure Level •

Single health system may not be high-quality across all clinical areas



Innovators cherry-picking facilities based on quality and cost efficiency with specific procedures (e.g. heart surgery) Source: Health Care Advisory Board interviews and analysis.

31

Steering Employees to High-Performing Facilities Centers of Excellence Help Employers Reduce Procedural Spend BridgeHealth Offers Three Tiers of Service Targeting Surgery Spend Case in Brief: BridgeHealth Medical

SURGERY PATH • Web portal that helps guide employees when making surgery treatment decision

Scope of Services

• Offers shared decision-making and transparency tools

HIGH PERFORMANCE NETWORK • Care coordinators direct employees to hospitals in top quartile of quality ranking system • Offers case rates 15-40% below typical PPO payments

SURGERY BENEFIT MANAGEMENT Combines Surgery Path and High Performance Network offerings to maximize impact, increase employee decision support options

• Health care company based in Denver, CO; helps employers manage surgery spend • Identifies highperforming hospitals and surgical teams for key procedures and negotiates preset case rates • Uses care coordinators to guide employees through process of selecting facility for procedure, scheduling, and follow up

Source: BridgeHealth Medical, “Products,” available at: www.bridgehealthmedical.com/products, accessed May 8, 2015; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

32

Incentivizing PCPs to Make Smart Referrals Shifting Risk onto the Primary Care Physician Identifying High-Value Referral Partners Case in Brief: Iora Health • Progressive medical group based in Cambridge, Massachusetts with 12 clinics throughout the U.S.

Eliminating High Spenders

Finding a Cultural Fit

• Refers selectively to highquality, cost-effective specialty partners

Use payer claims data to eliminate physicians who are drumming up volumes

Identify most collaborative partners (e.g. those willing to commit to curbside consults)

1

2

Giving PCPs Control of the Budget “In our initial arrangements, we were creating a lot of value, but not always sharing in it. Now, with broader shared risk, the incentives are more aligned.”

Zander Packard, COO, Iora Health

©2015 The Advisory Board Company • advisory.com • 30484

From Primary Care Capitation to Global Risk

Under original model, Iora receives PMPM fee for primary care services

New contracts with insurers include shared risk based on total cost

Source: Iora, available at: www.iora.com, accessed April 17, 2015; Health Care Advisory Board interviews and analysis.

33

Concierge Navigators Influencing Referral Patterns Compass Delivers Savings to Employers Through Premier Providers Premier Providers Chosen for HighQuality, Cost-Effective Care

High-Quality Physicians Reduce Employees’ Average Annual Health Care Spending

Compass reviews medical claims data, conducts interviews to identify top performers

$6,698

$4,903 annual savings $3,875

Providers must: • Maintain updated medical practices • Demonstrate compassion and concern for patients • Deliver care that reduces excessive visits and spending

$2,752

$1,795

Bottom 50%

Top 50%

Top 25%

Top 10%

Case in Brief: Compass Professional Health Services • Health navigation and transparency company based in Dallas, Texas • Markets a health activation platform to employers that provides cost and quality data, promotes wellness and prevention, and engages employees in care pathways using Compass Premier Providers • Clients include Southwest Airlines, Dillard’s, Michaels, and The Container Store Source: Compass, available at: http://www.compassphs.com/solutions/pathways/, accessed April 30, 2015; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

34

Shift to Private Exchange

Other Employers Taking a More Hands-Off Approach Private Exchange Enrollment Continues to Grow Private Exchange Enrollment Doubles in 2015, But Lags Behind Initial Projections

Analysts Remain Bullish on Long-Run Growth Prospects

Projected Private Exchange Enrollment Among Pre-65 Employees and Dependents

More Big Names Making the Jump

40M

Newer Market Entrants Hitting Their Stride 22M

50%

12M

(800kà1.2M)

6M 3M 2014

2015

2013 Projection

Enrollment growth for Towers Watson’s exchange solutions, 2015

2016 Actual Enrollment

©2015 The Advisory Board Company • advisory.com • 30484

2017

2018 2015 Projection

500%

Enrollment growth for Mercer’s exchange solutions, 2015

(220kà1M)

Source: Accenture, “Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015,” April 7, 2015, available at: www.accenture.com; Towers Watson, “Enrollment in Health Benefits Through Towers Watson’s Exchange Solutions Expected to Reach About 1.2 Million in 2015,” March 19, 2015, available at: www.towerswatson.com; Mercer, “Mercer Marketplace-the flexible private exchange-posts individual participant and client gains,” October 13, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.

35

Many Still in Wait-and-See Mode Long-Run Impact Depends on Results, Broader Uptake Across Industries Employers Waiting to See Results, Watching Industry Peers Top Three Factors That Would Cause Employers to Consider a Private Exchange

Evidence that private exchanges can deliver greater value than current model

74%

The actions of other large companies in our industry

Inability to stay below the excise tax using our current approach

For us, the decision to move to the private exchange model was independent of the ACA. We had pulled all of the levers available to us as a self-insured employer— there was nowhere left to go from a cost-savings perspective. At the end of the day, the private exchange was a way to achieve more predictable cost savings.”

56%

36%

©2015 The Advisory Board Company • advisory.com • 30484

Tom Sondergeld, Senior Director of Health & Wellness, Walgreens Source: Towers Watson/National Business Group on Health, “Employer Survey on Purchasing Value in Health Care,” 2014, available at: www.towerswatson.com; Health Care Advisory Board interviews and analysis.

36

Exchanges Delivering on First-Order Savings Facilitating Shift to Defined Contribution, Encouraging HDHP Uptake Sears Exchange Model

Three Years In, Sears Continues to See Migration to HDHPs Grow Year-Over-Year Percentage of Sears Employees Selecting HDHP Option

Fully-insured

35% 27%

Defined contribution Multi-carrier

17% 3.5% Pre-Exchange

Year 1 Exchange

Year 2 Exchange

Year 3 Exchange

Case in Brief: Sears Holdings Corporation • Retail chain headquartered in Hoffman Estates, Illinois • One of earliest large employers to adopt private exchange model; implemented Aon Active Health Exchange in 2013 • Has held defined contribution steady over the last few years; future adjustments based on premium growth and business performance ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

37

Consumers

Consumers Continue to Flock to Public Exchanges Second Round of Enrollment Hitting Targets Second Open Enrollment Period Yields Over 10 Million Enrollees Total 2015 Plan Selections in the Marketplaces

Federal Exchanges Driving Most Enrollment

11.7 HHS1 Projection 9.0M-9.9M

10.2

2014 Enrollment 8M

8.8M

2.8M

Enrollment on federally facilitated exchanges, 2015

Enrollment on state run exchanges, 2015

Demographics Largely Unchanged

28% Total at end of OEP

2

Total as of April 2015

1) Health and Human Services. 2) Open Enrollment Period. 3) Drop-off due to individuals not paying premiums or voluntarily dropping coverage. ©2015 The Advisory Board Company • advisory.com • 30484

3

2015 enrollees aged 18-34 (compared to 28% in 2014)

Source: HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: December Enrollment Report,” Dec. 30, 2014; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: January Enrollment Report,” Jan. 27, 2015; HHS, “Open Enrollment Week 13: February 7, 2015 – February 15, 2015, available at: http://www.hhs.gov/healthcare/facts/blog; HHS, “Open Enrollment Week 14: February 16, 2015 – February 22, 2015, available at: www.hhs.gov/healthcare/facts/blog; HHS, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” March 10, 2015; CBO, January 2015 Baseline: Insurance Coverage Provisions for the Affordable Care Act, available at: www.cbo.gov; Washington Times, “Obamacare Official: 7.3 Million Americans Are Still Enrolled and Paid Up,” Sept. 18, 2014; available at: http://www.washingtontimes.com; Health Care Advisory Board interviews and analysis.

38

In Year Two, Premium Adjustments Abound Competitive Marketplace Driving Premium Changes Average Premium Increases Modest, but High Market-by-Market Variability Statewide Average Premium Changes for Benchmark Silver Plans, 2014 to 20151

<0%

0%

0%-5% 5.01%-10%

Average premium increase nationally

10.01%-15% >15% Limited/no data

Takeaways Competition Increased Number of carriers increased by 19%; number of products increased by 27% 1) For 40-year-old, non-smoker. ©2015 The Advisory Board Company • advisory.com • 30484

New Entrants Priced Competitively Over half of new price leaders were either recent or new entrants

Source: The Commonwealth Fund, “Analysis Finds No Nationwide Increase in Health Insurance Marketplace Premiums,” accessed May 1, 2015, available at: www.commonwealthfund.org; Health Care Advisory Board interviews and analysis.

39

Exchanges a More Fluid Marketplace Than Expected Avoiding Premium Increases the Primary Motivation for Shoppers Switching Rates Higher Than Expected

Most Continue to Select Silver, Bronze Plans Plan Selections on Healthcare.gov, 2014-2015

100%

0%

12%

29%

Average annual switching among active employees with FEHBP1 coverage

Returning federal exchange enrollees changing plans in 2015

Premium Increases the Primary Motivator

55% Switchers who cited rise in monthly premiums as among top three reasons for switching

Bronze

65%

67%

20%

22%

2014

2015

Silver

Gold

Platinum

Catastrophic

Source: The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: www.advisory.com; McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: www.healthcare.mckinsey.com; HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: www.aspe.hhs.gov; Health Care Advisory Board interviews and analysis.

1) Federal Employee Health Benefits Plan. ©2015 The Advisory Board Company • advisory.com • 30484

40

Despite Predictions, Networks Remain Narrow Insurers Betting Consumers Will Continue to Trade Choice for Price Narrow Network Plan Designs Continue to Dominate Exchange Marketplace

Narrow Network Premium Advantages Increasing Over Time

Network Breadth in Largest City of Each State

Median PMPM Difference For Products From the Same Payer and Product Type

22%

Ultra Narrow

21%

38%

Narrow

41%

40%

Broad

38%

2014

©2015 The Advisory Board Company • advisory.com • 30484

2015

11-17%

15-23%

Narrow network premium advantage in 2014

Narrow network premium advantage in 2015

Few Buying-Up to Broad Networks

17% Consumers with narrow-network plans for year one that switched to a broad-network plan in year two Source: McKinsey & Co., “Hospital Networks: Evolution of the Configurations on the 2015 Exchanges,” April 2015, available at: www.healthcare.mckinsey.com; Health Care Advisory Board interviews and analysis.

41

Trading Low Premiums for High Deductibles Average Public Exchange Deductibles by Tier, 2015

2015 Enrollees Favor Higher Deductibles Annual Deductibles as Percentage of All Individual Plans Selected on eHealth Platform, 2014-2015

Bronze:

$5,181

$5,081

2015

2014

39% 34%

34% 30%

Silver:

$2,927

$2,898

2015

2014

23% 16%

16%

Gold:

$1,198

$1,277

2015

2014

10%

Platinum:

$243

$347

2015

2014

<$1,000

$1,000-$2,999 $3,000-$5,999 2014

$6,000+

2015

Source: eHealth, “Health Insurance Price Index Report for the 2015 Open Enrollment Period,” March 2015, available at: www.news.ehealthinsurance.com; HealthPocket.com, “2015 Obamacare Deductibles Remain High but Don’t Grow Beyond 2014 Levels,” November 20, 2014, available at: www.healthpocket.com; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

42

Majority Satisfied with Coverage So Far, Backlash Against Narrow Networks, HDHPs Not Widespread Exchange Enrollees Generally as Happy as Others with Health Coverage…

…And Particularly Satisfied with the Cost of Their Coverage

Ratings of Healthcare Coverage Quality, 2014

Ratings of Healthcare Coverage Cost, 2014

72% Good or Excellent

75%

Newly insured satisfied with cost of health care

61%

Satisfaction rate among all insured individuals

71%

27%

Fair or Poor 29%

All Insured

Newly-Insured Through Exchanges

©2015 The Advisory Board Company • advisory.com • 30484

Source: Gallup, “Newly Insured Through Exchanges Give Coverage Good Marks,” November 14, 2014, available at: www.gallup.com; Health Care Advisory Board interviews and analysis.

43

Higher Deductibles Driving Increased Price Sensitivity Consumers Increasingly Soliciting Pricing Information Many Americans Lack Cash Flow to Cover Potential OOP Costs

More Consumers Attempting to Find Pricing Information

Households Without Enough Liquid Assets to Pay Deductibles 35% 24%

1

Mid-range deductible

Higher-range deductible

2

A surprising percentage of people with private insurance…simply do not have the resources to pay their deductibles.”

56%

Consumers who have tried to find out how much they would have to pay before getting care

67%

Those with deductibles of $500 to $3,000 who have solicited pricing information

74%

Those with deductibles higher than $3,000 who have solicited pricing information

Drew Altman, President, Kaiser Family Foundation 1) $1,200 Single; $2,400 Family 2) $2,500 Single; $5,000 Family

Source: Altman D, “Health-Care Deductibles Climbing Out of Reach,” Wall Street Journal, March 11, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

44

Pricing Tools Currently Falling Short Few Consumers Have Actually Seen or Used Price Information

Majority Report Difficulty Finding Cost Information

Percentage of Consumers Who Have Seen or Used Price Information in Past 12 Months

Consumer Assessment of Difficulty Locating Pricing Information for Doctors and Hospitals Don’t Know

Very Easy

18% Health Plans 9%

Very Difficult 10% 29%

6%

Hospitals

23%

2%

Somewhat Easy 35%

6% Doctors 3%

Somewhat Difficult Saw Information

©2015 The Advisory Board Company • advisory.com • 30484

Used Information Source: Kaiser Family Foundation, “Kaiser Health Tracking Poll: April 2015,” April 21, 2015, available at: www.kff.org; Health Care Advisory Board interviews and analysis.

45

Transparency Goes Mainstream Tools Increasing in Accessibility, Sophistication Surprise Release Makes Pricing Information Available to General Public

Payers Pooling Pricing Information to Create More Accurate Datasets

Cost estimates are averages based on historical BCBSNC claims data Estimates vary based on plan network design (broad vs. narrow)

Case in Brief: BCBS North Carolina

Case in Brief: Guroo

• Not-for-profit health insurance company based in Chapel Hill, North Carolina

• Price transparency tool powered by the Health Care Cost Institute

• In January 2015, released new pricing transparency tool to general public

• Aggregates three billion insurance claims from over 40 million Americans Source: Munro D, “Could This Pricing Tool For Consumers Disrupt Healthcare?” Forbes, January 15, 2015, available at: www.forbes.com; Guroo, available at www.guroo.com, accessed May 1, 2015; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

46

A Dizzying Array of Cost Control Efforts

Government MSSP

Pioneer ACO

Employers

BPCI Onsite clinics HospitalAcquired Condition Reduction Program

Employercentered medical homes

Consumers

Private exchanges

High-performance networks

PatientCentered Medical Home

Transparency tools

Narrow networks

Second opinion services HDHPs

IPPS payment reductions

Value-Based Purchasing

COEs

Personal health navigators

Reference-based pricing

DSH payment cuts

Readmissions Reduction Program

Site-neutral payments MIPS

Next-Generation ACO

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

47

Purchasers Pulling Four Distinct Cost-Saving Levers Goal is Clear, but Methods Vary Primary Focus of Public Payers

1

Primary Focus of Commercial Payers, Employers

2

3

4

Care Management

Network Optimization

Referral Management

Individual Accountability



High-risk care management



ACO networks





HDHPs







Disease management

Discount networks

At-risk primary care physicians



Value-based insurance design





Wellness/ prevention

High-performance networks

Second opinion services/COEs



Personal health navigator programs

Reference-based pricing



Price transparency



Approach to Value

Network Value: Delivering Through Integration ©2015 The Advisory Board Company • advisory.com • 30484

Episodic Value: Maximizing Per-Unit Efficiency Source: Health Care Advisory Board interviews and analysis.

48

All Signs Point to a Retail Market New Dynamics Unfamiliar in Health Care, But Not in Broader Economy

Traditional Market

Retail Market

Passive employer, price-insulated employee

1

Broad, open networks

2

Growing number of buyers

Activist employer, price-sensitive individual

Narrow, custom networks

Proliferation of product options No platform for apples-toapples plan comparison

3

Disruptive for employers to change benefit options

4

Constant employee premium contribution, low deductibles

©2015 The Advisory Board Company • advisory.com • 30484

Increased transparency

Reduced switching costs

5 Greater consumer cost exposure

Clear plan comparison on exchange platforms

Easy for individuals to switch plans annually

Variable individual premium contribution, high deductibles

Source: Health Care Advisory Board interviews and analysis.

49

Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost

Desirable Network Attributes

Competitive Unit Prices

Total Cost Control

Geographic Reach and Clinical Scope

Clinical and Service Quality

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

• Avoid reactive position vis-a-vis price cuts, transparency

• Develop population health model to control cost trend

• Match service portfolios, footprints to target purchasers

• Clearly communicate total cost advantage to potential purchasers

• Explore partnership strategies that strengthen market presence

• Present unimpeachable clinical credentials to wholesale buyers

• Radically restructure cost structures to sustain lower unit prices

©2015 The Advisory Board Company • advisory.com • 30484

• Emphasize access, experience advantages to individual consumers

Source: Health Care Advisory Board interviews and analysis.

50

Low Premiums Shaping More than Network Selection Care Choices, Network Assembly Dynamics Driven by Premium Pressure Consequences of Premium Sensitivity Price Sensitivity at Point of Care Premium Sensitivity at Point of Coverage Total Cost Scrutiny in Network Assembly

“Our price is now given by the market. Our business is changing from cost-based pricing to price-based costing.” Health Care Executive

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

51

Price Sensitivity at the Point of Care Cost-Conscious Behavior Affecting Pillars of Profitability Consumers Paying More Out-of-Pocket

MRI Price Variation Across Washington, DC

Fall within HDHP deductible2

$2,183 $730

$18K

Fall within PPO deductible3

$9K

$411

$6K $900 $2K $150 $275 $400

$900

$1K

$1,269

• Price-sensitive shoppers will be acutely aware of price variation • MRI prices range from $400 to $2,183 1) High-deductible health plan. 2) $2,086; based on KFF report of average HDHP deductible. 3) $733; based on KFF report of average PPO deductible.

Source: KFF, “2012 Employer Health Benefits Survey,” available at: www.kff.org; New Choice Health, “New Choice Health Medical Cost Comparison,” available at: www.newchoicehealth.com; Healthcare Blue Book, “Healthcare Pricing,” available at: www.healthcarebluebook.com; Kliff S, “How much does an MRI cost? In D.C., anywhere from $400 to $1,861,” Washington Post, March 13, 2013, available at: www.washingtonpost.com; Health Care Advisory Board interviews and analysis.

©2015 The Advisory Board Company • advisory.com • 30484

52

Walmart Bringing Everyday Low Prices to Health Care Low-Cost Access Potentially Just the Beginning Probably Worth Paying Attention

Care Clinic Model Pricing: Walmart $4 For employees

Walmart $40 For customers

Hours: Weekdays

Saturday

Sunday

8AM-8PM

8AM-5PM 10AM-6PM

Service: • Two nurse practitioners provide primary care services on site • Clinic refers to external specialists, hospitals as appropriate

©2015 The Advisory Board Company • advisory.com • 30484

“Our goal is to be the number one health-care provider in the industry.”

Labeed Diab President of Health & Wellness Walmart

130M

150M

Annual emergency department visits

Weekly visits to Walmart stores

Source: Canales MW, “Wal-Mart Opening Clinic in Cove,” Killeen Daily Herald, April 18, 2014, available at: www.kdhnews.com; Health Care Advisory Board interviews and analyais.

53

New Competitors Emerging in Ripest Markets Walgreens Entering the Care Management Industry 2013: Launches three ACOs; begins diagnosing and managing chronic disease

2009: Launches flu vaccine campaign Simple Acute Services

Vaccinations and Physicals

2007: Acquires Take Care Health Systems

Chronic Disease Monitoring

Chronic Disease Diagnosis and Management

2012: Offers three new chronic disease tests



Case in Brief: Walgreen Co.

Not Just a Drugstore

• Largest drug retail chain in the United States, with 372 Take Care Clinics

“Our vision is to become ‘My Walgreens’ for everyone in America by transforming the traditional drugstore into a health and daily living destination...”

• In April 2013, became first retail clinic to offer diagnosis and treatment of chronic diseases

©2015 The Advisory Board Company • advisory.com • 30484

Walgreen Co. Overview

Source: Japsen B, “How Flu Shorts Became Big Sales Booster for Walgreen, CVS,” Forbes, February 8, 2013, available at: www.forbes.com; “Take Care Clinics at Select Walgreens Expand Service Offerings,” Reuters, May 31, 2012, available at: www.reuters.com; Murphy T, “Drugstore Clinics Expand Care into Chronic Illness,” The Salt Lake Tribune, April 4, 2013, available at: www.sltrib.com, Walgreens, “Company Overview,” available at: www.walgreens.com; Health Care Advisory Board interviews and analysis.

54

Locate Walk-In Clinics in High-Need Areas Geisinger Bringing Convenient Care to Vulnerable Populations

Clinic Channel

Patient Population

Clinics located within retail shopping centers, adjacent to public transportation

Each clinic treats 7,000– 10,000 patients per year, targets high-risk families

Case in Brief: Geisinger Careworks • Walk-in medical clinics that treat low-acuity illnesses requiring immediate treatment • Operates clinics in 11 locations across Pennsylvania based in areas to increase service to low income residents • Geisinger opening between 20 and 25 new walk-in medical clinics ©2015 The Advisory Board Company • advisory.com • 30484

Space Requirements

Space needs range from 1,000 to 3,000 square feet to accommodate two exam rooms, onsite labs

Expanding Health System Geographic Reach

40% Careworks clinics’ patients that are new to Geisinger

Source: Geisinger Careworks, 2014, available at: www.careworkshealth.com/cwh/index.html; The Daily Item, “Geisinger to Open 20 to 25 Careworks Clinics, available at; www.dailyitem.com/0100_news/x766450074/Geisinger-to-open-20-25-Careworksclinics”, Facility Planning Forum interviews and analysis.

55

Broadening Our Concept of Cost Advantage Network Assemblers Looking at More Than Unit Price Two Cost-Focused Strategies for Appealing to Network Assemblers Low Unit Price

Total Cost Control

Price Cut

Trend Control

Improve efficiency to offer lower fee schedule

Implement care management to control cost growth trend

Degree of Cost Control

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

56

Creating Cost-Conscious PCPs CareFirst PCMH Total Cost Incentive Model Risk-adjusted PMPM1 Cost PMPM Cost Target

Actual PMPM Cost

“Virtual panel” of 10-15 PCPs Baseline

Year 1

1M

Members covered by PCMH program

80%

Eligible PCPs participating

29%

Average pay increase for PCPs receiving bonuses

• Not-for-profit health services company serving 3.4 million members in Maryland, D.C., and northern Virginia • In 2011, launched PCMH program providing opportunities for virtual panels of 10-15 PCPs to earn bonuses based on quality and total cost metrics • Provides PCPs with color-coded rankings of specialists based on risk-adjusted PMPM costs ©2015 The Advisory Board Company • advisory.com • 30484

Panel shares in savings if riskadjusted PMPM cost is below target

Year 2

Case in Brief: CareFirst BlueCross BlueShield

1) Per member per month.

Total cost target set by trending baseline risk-adjusted PMPM cost by average regional cost growth

Source: Overland D, “CareFirst Medical Home Saves More in Second Year,” FierceHealthPayer, June 7, 2013, available at: www.fiercehealthpayer.com; Health Care Advisory Board interviews and analysis.

57

Steering Care to Most Efficient Specialists Total Cost Transparency Key to Referral Changes Specialists Color-Coded By Total Cost

PCP Virtual Panels

Employed Specialist A (Red)

Employed Specialist B (Yellow)

Hospital A

Hospital B

Independent Specialist C (Green)

27%

Difference in risk-adjusted PMPM cost between topand bottom-quartile PCPs

66%

Percent of panels earning bonuses, 2012

$98M

Savings from PCMH program, 2012

“We’re seeing that [the data] changes the patterns. There’s a hubbub among the panels to see what their choices are, and what it Chet Burrell costs them.” President & CEO CareFirst BlueCross BlueShield

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

58

The Value of a Second Opinion Discerning When Not to Operate Large Employers and Hospitals Participating in Centers of Excellence Programs Pepsi Co.

Walmart In 2013, expanded Centers of Excellence program to cover cardiac, spine, and hip/knee replacement surgery

In 2011, offered employees free cardiac and complex joint replacement surgery at Johns Hopkins Medicine

Lowe’s In 2010, offered employees free heart surgery at Cleveland Clinic

30-50% Of referred patients do not undergo surgery

©2015 The Advisory Board Company • advisory.com • 30484

Source: The Advisory Board Company, “Commercial Bundled Payment Tracker,” October 9, 2013, available at: www.advisory.com; Health Care Advisory Board interviews and analysis.

59

Making the Case for Care Management Capabilities Assuring Employers of Ability to Manage Future Costs Powerful Ways to Signal Care Management Capabilities

Investment in Data Analytics

Clinical and Claims Data Integration

Demand for Out-ofNetwork Claims Data

Telehealth Platforms and Programs

Shows capability to assess patient risk and pinpoint interventions

Illustrates advantage over traditional health plan

Shows commitment to continuously manage care for attributed population

Demonstrates ability to keep low-acuity cases in most appropriate care site

“In our market, there is plenty of talk about ‘accountable care’, but we are differentiating with the organizational commitment and the infrastructure investment to sustain a new economic model.” Chief Marketing Officer Large Health System ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

60

Promising Total Cost Savings to Employers Savings Guaranteed Off Of Projected Costs Baseline spending projected using three years’ historical spending

Two Separate Products with Different Payer Partners

Guaranteed Savings

Employer Health Spending

2

Average savings guaranteed to employers over three years

©2015 The Advisory Board Company • advisory.com • 30484

Aetna Whole Health (Aetna) Blue Priority (Anthem Blue Cross and Blue Shield)

Roundy’s Supermarkets, Inc. was first large employer client

Time

10%

1

Case in Brief: Aurora Health Care • 15-hospital, not-for-profit health system based in Milwaukee, Wisconsin • Announced separate narrow network products with Aetna and Anthem Blue Cross and Blue Shield that offer employers guaranteed savings over three years Source: Commins J, “Aurora Health Offers Employers a Savings Guarantee,” HealthLeaders Media, July 30, 2012, available at: www.healthleadersmedia.com; Aurora Health Care, “Roundy’s Offers Employees Innovative Health Care Plan Through Anthem’s Blue Priority & Aurora Accountable Care Network,” October 24, 2012, available at: www.aurorahealthcare.org; Health Care Advisory Board interviews and analysis.

61

Recognizing the Importance of Timely Claims Data Incorporating Claims Data Stipulations in Contracts Covenant Health Requires Monthly Claims Data Feed to Drive Population Health Efforts

Population Health Management Analytics System

Contract stipulates full monthly claims data dump from health plan Health plan uploads full claims data dump to Covenant Health’s analytics system

Claims data provides Covenant Health with insights on attributed patient population

Case in Brief: Covenant Health • Three-hospital health system based in Lubbock, Texas • When negotiating population health contracts, requires health plans to agree to full monthly claims data dump to Covenant Health’s population health management analytics system • If health plan does not agree to data requirements, Covenant Health will not sign contract ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

62

Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost

Desirable Network Attributes

Competitive Unit Prices

Total Cost Control

Geographic Reach and Clinical Scope

Clinical and Service Quality

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

• Avoid reactive position vis-a-vis price cuts, transparency

• Develop population health model to control cost trend

• Match service portfolios, footprints to target purchasers

• Clearly communicate total cost advantage to potential purchasers

• Explore partnership strategies that strengthen market presence

• Present unimpeachable clinical credentials to wholesale buyers

• Radically restructure cost structures to sustain lower unit prices

©2015 The Advisory Board Company • advisory.com • 30484

• Emphasize access, experience advantages to individual consumers

Source: Health Care Advisory Board interviews and analysis.

63

Combining Geographies to Match Purchaser Footprint Addressing Individual Limits in Geographic Reach Partnering to Expand Geographic Reach

Cincinnati-based employers have employees living on both sides of river

Network in Brief: Healthcare Solutions Network TriHealth Ohio Kentucky

• Joint venture collaboration between Cincinnati, Ohiobased TriHealth and Edgewood, Kentuckybased St. Elizabeth Healthcare • Offers health insurers access to a unified, highquality, low-cost network that covers the entire Tristate region

St. Elizabeth Healthcare

Neither Organization Able to Offer Adequate Geographic Coverage Alone

©2015 The Advisory Board Company • advisory.com • 30484

• Both organizations offering the network to their current employees and dependents

Source: Health Care Advisory Board interviews and analysis.

64

Full Care Continuum Important for Payer Partners Four Reasons PinnacleHealth System Selected for Risk-Based Product Sample Clinical Services Primary Care

Favorable Pricing Structure

Comprehensive Clinical Scope

Pediatric Care Imaging

Cardiovascular Care Orthopedics Physical Therapy and Rehab

Broad Provider Geographic Footprint

6-12 Months’ Experience Under Performance Incentives

Inpatient Care

Case in Brief: CareConnect Point of Service • Accountable care narrow network plan for mid-sized employers, created around PinnacleHealth System and offered by Capital BlueCross in central Pennsylvania • Network is open for specialty and inpatient care but narrowed to PinnacleHealth System’s PCPs for primary care • Will be expanded to individual market in 2015 ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

Network Alignment: Allow for Timely & Appropriate Expertise

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The High Cost of Misalignment Inefficiencies Abound Across Care Continuum Average Risk-Adjusted Hospital Spending1 Total Episode of Care, Congestive Heart Failure Δ% $9,278

+20%

$1,986

+80%

$1,378

+64%

$7,756 $1,102

Readmissions Post-Acute

$842

Physician and Ancillaries

$975

$1,088

+12%

$4,837

$4,826

0%

Low-Cost Hospitals

High-Cost Hospitals

Hospital

1) Spending reflects national standardized payment rates for Medicare and does not reflect differences in the cost to the facility of providing services. Low-cost hospitals are in the bottom quartile of risk-adjusted episode spending, and high-cost hospitals are in the top quartile of risk-adjusted hospital spending. ©2015 The Advisory Board Company • advisory.com • 30484

Source: MedPAC, “Report to Congress: Reforming the Delivery System,” June 2008; McWilliams JM et al. “Outpatient Care Patterns and Organizational Accountability in Medicare;” Advisory Board interviews and analysis.

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Filling Gaps Across the Care Continuum Cedars-Sinai Enhanced Care Program Cedars-Sinai NP evaluates SNF patient within 24 hours post-discharge

Inter-facility transfer report sent to SNF, includes inpatient physician / nursing notes Inpatient Discharge

SNF Admission

NP Visit

Weekly Follow-Up

Cedars-Sinai NP visits SNF weekly to check patient

SNF medication list sent to Cedars-Sinai pharmacy team for medication reconciliation within 24-72 hours

Case in Brief: Cedars-Sinai • 850-bed hospital system in Los Angeles, CA • Cedars-Sinai analyzed readmission rates and found that patients at Skilled Nursing Facilities (SNFs) had a higher than average readmission rate • Cedars Sinai delivers care transitions services to 8 SNFs in their market free of charge to prevent readmissions; Cedars-Sinai Nurse Practitioner (NP) manages care between Cedars-Sinai, SNFs, and the attending MDs for each patient ©2015 The Advisory Board Company • advisory.com • 30484

25%

Reduction in readmissions from participating SNFs

50%

Participating patients with drugrelated issue identified

Source: Advisory Board interviews and analysis.

67

Geographic and Clinical Demands Intertwined National and Hyper-Local Competition Reshaping Notions of Sufficiency Purchasers’ Geographic Preferences for Clinical Services Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel

Potential Differentiators

• Alternative access points (e.g. retail, urgent care)

• Disease management, care navigation

• Transplants

• E-visits, remote monitoring

• Digestive health • Women’s midlife

• Complex cardiac (e.g. TAVR1)

• Sports medicine

• Clinical trials

• Home health

• Midwifery

• Primary care • Pediatrics

Core Services

• Neurosurgery

• Emergency • Routine orthopedics • Dialysis

• Imaging

• Rehab

• SNF

• Ambulatory surgery

• Stroke

• Radiation therapy

• Cardiology

• Pediatric specialty

• Medical oncology

• OB/Gyn

• Cardiac surgery • Technologyintensive procedures

• Oncology

Regional/National Destinations

Local Offerings

Neighborhood Conveniences 1) Transcatheter Aortic Valve Replacement. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

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Expanding Access at Both Ends of the Spectrum Outpatient Facility Models Moving in Two Directions Outpatient Facility Models Market Growth

Market Growth

“Hospital Without Beds”

Specialty Diagnostic and Treatment

Facility Square Footage

Retail Walk-In Clinic • Satellite clinic offering routine care, physicals, health screenings

Traditional Primary Care • Neighborhood center with basic primary care, limited labs, ancillaries

• Focused factory Full-Service Medical Office Building co-locating surgical specialties, labs, • Community facility advanced imaging with multispecialty care, onsite labs, imaging services

• Regional hub with full suite of services; serving expansive catchment area • 100,000-150,000 SF

• 50,000-100,000 SF

• 30,000-50,000 SF

• 10,000-15,000 SF

• 1,500-2,250 SF

Remote Access

©2015 The Advisory Board Company • advisory.com • 30484

Practice Integration

Source: Facility Planning Forum interviews and analysis.

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Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost

Desirable Network Attributes

Competitive Unit Prices

Total Cost Control

Geographic Reach and Clinical Scope

Clinical and Service Quality

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

Strategic Imperatives:

• Avoid reactive position vis-a-vis price cuts, transparency

• Develop population health model to control cost trend

• Match service portfolios, footprints to target purchasers

• Clearly communicate total cost advantage to potential purchasers

• Explore partnership strategies that strengthen market presence

• Present unimpeachable clinical credentials to wholesale buyers

• Radically restructure cost structures to sustain lower unit prices

©2015 The Advisory Board Company • advisory.com • 30484

• Emphasize access, experience advantages to individual consumers

Source: Health Care Advisory Board interviews and analysis.

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“Quality” Means Different Things for Different People Quality Demands of Network Assemblers and Individuals

Network Assemblers

Individuals Network Selection

Facility-level clinical process, outcome measures

©2015 The Advisory Board Company • advisory.com • 30484

Network-level quality, access, service ratings

Care Decision

Actual ease of access, care experience

Source: Health Care Advisory Board interviews and analysis.

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Custom Network Builders Scrutinizing Performance Steering Care Toward High-Quality Providers Provider Evaluation Process at Imagine Health National Top Quartile Clinical Performance

Case in Brief: Imagine Health

Step 1: Evaluation of Clinical Performance Data 1

• Company based in Cottonwood Heights, Utah that builds custom, high-performance provider networks for self-funded employers • Selects participating provider systems using clinical performance data and an RFP process

Step 2: RFP Evaluation of Additional Factors

Per capita cost of care

Efficiency of care utilization

• Steers volumes to innetwork providers through benefit design and employee education

Care experience programs

1) Sample metrics include mortality rate, complication rate, and readmissions rate. ©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

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Value Proposition: Enhance Customer Experience

Patient Experience is King Convenience Consistently Tops Patient Priorities Top Preferences for On-Demand Care n = 3,873 1

I can walk in without an appointment, guaranteed to be seen within 30 mins

2

If I need lab tests or x-rays, I can get them done at the clinic instead of going to another location

3

The provider is in-network for my insurer

4

The visit will be free

5

The clinic is open 24 hours a day, 7 days a week

Efficiency, Convenience Key

63%

Patients that indicate wait time “very” or “extremely” important

Redefining Value in Health Care “Retail medicine is changing how consumers view value within health care. Consumer focused delivery is helping redefine “high quality” as “convenient.” Moody's Investor Service Report, 2014

©2015 The Advisory Board Company • advisory.com • 30484

Source: Marty Stempniak, Hospital & Health Networks, “What, No Wait?”, November, 2013, available at: www.hhnmag.com/display/HHN-newsarticle.dhtml?dcrPath=/templatedata/HF_Common/NewsArticle/data/HHN/Magazine/2013/Nov/1113HHN_Coverstory ; Advisory Board interviews and analysis.

73

Providers Must Also Deliver on Ease of Access Winning Contracts By Meeting Access Demands Boeing’s Access Requirements Case in Brief: Providence-Swedish Health Alliance • Alliance between Providence Health Systems, Swedish Health Services in Seattle, WA

q Same-day PCP appointment (acute conditions)

• Awarded contract to serve as Boeing’s narrow ACO network option

q 3-day PCP appointment (any condition)

q 10-day specialist appointment

“[Geographic] access is critical. But we can’t lose sight of the patient experience. Health care consumers need to see a positive change in how they are able to access healthcare.

Chris Gorey Chief Marketing Officer Providence Health Systems ©2015 The Advisory Board Company • advisory.com • 30484

q Extended hours of operations q Extended urgent care hours q Centralized 1-800 number at ACO level with care navigators for triage and advocacy q Member website q Phone apps

Source: Health Care Advisory Board interviews and analysis.

74

Paying to Bolster Primary Care Access “Concierge-Lite” Practice Becomes Employer Offering One Medical Group Care Model Same-day appointment booking online through One Medical mobile app Physician email consultations for minor illnesses, ongoing health management Coordination of tests, treatments, specialist referrals, hospitalizations

Telehealth service through Google Hangouts Newest offering

Employer Subscribers Adobe, Doximity, Fitbit, NBCUniversal, On Deck Capital, Percolate, Quantcast, Sequoia Benefits, Uber, Wanelo ©2015 The Advisory Board Company • advisory.com • 30484

50% 40+

Growth in membership, 2013 Companies subscribing to enterprise offering

Case in Brief: One Medical Group • 90-physician network practicing in San Francisco, New York, Boston, Chicago, Los Angeles, and Washington, DC • $149 to $199 annual membership allows access to same-day appointments, email consultations, and online electronic medical records • Recently debuted enterprise offering for employers to offer as a perk Source: Rao L, “One Medical Group Raises $40M To Help Reinvent The Doctor’s Office,” TechCrunch, April 17, 2014; available at: www.techcrunch.com; Health Care Advisory Board interviews and analysis.

75

Online Access Becoming the New Baseline An Expected Part of the Patient Experience Consumers Demanding Portal Features n = 1,000 U.S. Consumers 82%

77%

76%

KP.org Portal Key Features

74%

Access to Online Prescription Receiving Medical Appointment Refill E-Mail/Text Records Booking Requests Reminders

Communicate with physician

Assign proxy access

View medical record

Fill prescriptions

Schedule appointments

View lab results

Case in Brief: Kaiser Permanente Northern California • Nation’s largest not-for-profit health plan based in Oakland, California; serves 9 million members nationwide and 3.3 million in Northern California • Began offering online health services in 1996; fully deployed KP.org patient portal in 2007 ©2015 The Advisory Board Company • advisory.com • 30484

Source: Terry K, “Patients Seek More Online Access to Medical Records,” InformationWeek, September 17, 2013, available at: www.informationweek.com; Silvestre, et al., “If You Build It, Will They Come? The Kaiser Permanente Model of Online Health Care,” Health Affairs, March/April 2009: 334-344; Health Care Advisory Board interviews and analysis.

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Promising On-Demand Access at Network Selection Marketing “A New Kind of Insurance” Advertising Free “Televisits” To Potential Enrollees

Case in Brief: Oscar

SCREENSHOT: OSCAR

• Startup insurance company based in New York, New York that sells plans on New York’s public exchange

Promises response time of less than one hour

• Offers free “televisits”, free generic drugs, and a limited number of free PCP visits per year

7 min

$40

10.6K

Average “televisit” response time

Fee paid to physician for each “televisit”

Public exchange enrollees as of March 2014

©2015 The Advisory Board Company • advisory.com • 30484

Source: Creswell J, “Start-Up Health Insurer Finds Foothold in New York,” The New York Times, March 28, 2014, available at: www.nytimes.com; Health Care Advisory Board interviews and analysis.

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Welcome to the Renewals Business Patient Experience Vital For Securing Purchaser Choice Year Over Year Network Selection and Ongoing Experience

Annual network selection in fluid insurance market implies consistent reevaluation of network performance

Day 1 Day 365

Care Decision

Care Decision Patient Experience

Care Decision

Clinical interactions represent repeated opportunities to reinforce patient preference through superior experience

Care Decision

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

78

Market Coalescing Around Two Broad Approaches Purchasers Pulling Us in Two (Potentially Opposite) Directions

1

Network Value: Delivering Through Integration

Episodic Value: Maximizing Per-Unit Efficiency

Betting on Wholesale Value

2

Unbundling the Health System

©2015 The Advisory Board Company • advisory.com • 30484



Purchasers prefer integrated, comprehensive solutions



Health systems win market share at organizational level through narrow networks, tiering



Providers bear much of risk for total cost of care



Purchasers prefer best-in-class point solutions; care coordination possibly outsourced to third parties



Health systems win market share at service line or patient level



Purchasers continue to bear risk for total cost of care

Source: Health Care Advisory Board interviews and analysis.

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“Systemness” Key to Proving Integration’s Value Systemness Confers Distinct, Compounding Advantages

Degree of Market Advantage

Operational Advantage

Product Advantage

Structural Advantage

• Centralized business functions

• Clinical standardization

• Footprint rationalization

• Supply chain efficiencies

• Solution-oriented product portfolio

• Optimal capital allocation

Transformational Advantage • Transition to population health identity

• Scalable process efficiencies

Can we recognize and pursue obviously beneficial economies of scale?

Can we take actions that benefit the system as a whole even when they may be unattractive to some of its parts?

Can we agree to work together toward difficult but common objectives?

Can we commit to change that is disruptive to all parts when that change is necessary for longterm success?

Degree of “Systemness”

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

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Consolidation on the March Search for Financial, Geographic Scale Driving Hospital M&A

Case in Brief: Advocate NorthShore Health Partners

$6.5B

• 16-hospital merger of Advocate Health Care, NorthShore University HealthSystem

Combined system’s expected annual revenue

• Creates strong clinical, geographic presence in Chicago area

Other Notable Hospital M&A Activity

“Combined, we will create economies of scale that will allow us to reduce the trend of rising health care costs.” Michele Richardson Advocate Board Chair

©2015 The Advisory Board Company • advisory.com • 30484

Baylor + Scott and White

Mount Sinai + Continuum Health Partners

Beaumont + Botsford + Oakwood

Source: “Advocate and NorthShore Combine to Create Preeminent Health Care System,” Northshore University Health System; Herman B, “Advocate-NorthShore merger continues trend toward regional supersystems,” Modern Helathcare, Spetember 12, 2014; Health Care Advisory Board interviews and analysis.

81

New Partnerships Aim at Integration Without M&A But Will Less-Intensive Arrangements Yield Sufficient Gains? Eight health care providers ally to form Integrated Health Network of Wisconsin

Four health systems form regional alliance Health Innovations Ohio

Seven systems in NY, NJ, MA, and PA form Allspire Network

Six hospitals form BJC Collaborative: Five health systems join Vanderbilt Health Affiliate Network

Four health systems ally to form Noble Health Alliance

14 systems ally to form Stratus Health Care

Two Systems form Georgia Health Collaborative

©2015 The Advisory Board Company • advisory.com • 30484

Five SC systems form cost saving Initiant Healthcare Collaborative

Source: Health Care Advisory Board interviews and analysis.

82

Aggregation Always Subject to Regulatory Scrutiny Policy Tensions Remain Between Integration, Competitiveness Allowances for Effective Coordination…

…But Market Power Still a Red Flag

Bundled payment programs open door to gainsharing with Medicare revenues

April 2014: U.S. Court of Appeals orders ProMedica to unwind its 2010 acquisition of St. Luke’s Hospital

Clinical Integration safe harbors allow joint contracting between independent physicians

January 2014: Federal judge blocks merger of St. Luke’s Health System and Saltzer Medical Group

CMS incentivizes, promotes ACO programs

January 2014: FTC rules CHS must divest two hospitals to complete HMA acquisition

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

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Strategic Advantage #2: Integration

Vivity Betting on Coordination over Consolidation Insurer, Seven Competing Systems Offer Market-Wide Solution

“What we are recognizing is that the most effective delivery model is an integrated delivery model. We can reduce waste, improve quality of care, provide people access to the top facilities in the nation, frankly, and do that in an integrated way.”

Pam Kehaly Anthem Blue Cross

©2015 The Advisory Board Company • advisory.com • 30484

Anthem Blue Cross UCLA Health

CedarsSinai Medical Center

PIH Health

• 7 health systems • 14 hospitals

Huntington Memorial Hospital

• 6,000 physicians

Torrance Good Memorial Samaritan Health Hospital MemorialCare Health System

Source: “Anthem, Seven California Health Systems Team Up To Form HMO,“ California Healthline, September 17, 2014; Commins J, “Anthem Blue Cross, 7 CA Health Systems Create New Challenger, Business Model,” HealthLeaders Media, September 18, 2014; Health Care Advisory Board interviews and analysis.

84

Strategic Advantage #3: Efficiency

The Community Hospital Resurgent? Born Out of Necessity, No-Frills Approach Suddenly Compelling Common Challenges

Potential Advantages Already managing to public-payer margins

The Community Hospital Initiative

Limited service portfolio

Fewer unjustifiable fixed costs

• Dedicated research and service effort included within Health Care Advisory Board membership

Physician shortages

Early experience with teambased care, telemedicine

• Focuses on issues facing

Medicare, Medicaidheavy payer mix

– Smaller organizations Rural or exurban setting

Labor costs lower than urban competitors

Smaller patient population

More focused patient engagement efforts

©2015 The Advisory Board Company • advisory.com • 30484

– Independent hospitals – Rural facilities • For more information, contact Ben Umansky at [email protected]

Source: Health Care Advisory Board interviews and analysis.

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Our Leadership Challenge Delivering on the Promise of Systemness Core Competencies of a True System Cost Efficiency

Trend Control



Scale-enabled lean cost structure





Rationalized footprint

Care managers, navigators have system-wide perspective



Rightsized services portfolio



Cross-continuum assets are leveraged to send patient to appropriate care site

Integration

Standardization



Interconnected care infrastructure that enables patient flow



Uniform care processes to produce consistent clinical outcomes



Single IT infrastructure with seamless transfer of information



Ability to communicate best practices across a system

©2015 The Advisory Board Company • advisory.com • 30484

Source: Health Care Advisory Board interviews and analysis.

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Patients the Greatest Beneficiaries of True Systemness System Competency

Patient Benefit

System Benefit

Affordability

Cost Efficiency

Cost efficiency may be translated into market-facing unit price advantages

Quality

Trend Control

Reflective of an ability to effectively manage utilization Consumer Loyalty

Coordination

Integration

Interconnectivity creates seamless, stress-free experience Predictability

Standardization

©2015 The Advisory Board Company • advisory.com • 30484

Standardized outcomes, with a consistent experience, at a predictable price point

Source: Health Care Advisory Board interviews and analysis.

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