Presentation on theme: "I. The Emerging Era of Choice"— Presentation transcript:
1I. The Emerging Era of Choice Health Care Advisory BoardI. The Emerging Era of ChoiceRestructuring Health System Strategy for the Retail RevolutionII. The New Network AdvantageAssembling the Scale, Scope, and Assets Needed to Secure Profitable Growth
2Presentation for Carolinas Healthcare November 6, 2014
5The Emerging Era of Choice Health Care Advisory BoardThe Emerging Era of ChoiceRestructuring Health System Strategy for the Retail Revolution
66.5% 18.1% An Industry Built on a House of Cards “Cord Cutters” and “Cord Nevers” Giving Up Broad NetworksPaying for More Than You UseU.S. Households With Internet But No Cable, 20136.5%“This is the battle hymn of the cord cutter: You are paying too much for television, and you aren’t watching most of what you’re paying for.”U.S. Adults Age With Netflix or Hulu But No Cable, 201318.1%Farhad Manjoo, The New York TimesSource: Experian Marketing Services, “Cross-Device Video Analysis,” April 17, 2014, available at: Manjoo F, “Comcast vs. the Cord Cutters,” The New York Times, February 15, 2014, available at: Health Care Advisory Board interviews and analysis.
7149% 86% Revisiting a Tenuous Business Model Most Hospitals Staying Afloat Through Cross-SubsidizationTraditional Hospital Cross-SubsidyBelow CostAbove CostCommercial InsurancePublic PayersAbove-cost pricingRobust fee-for-service volume growthSteady price growthOnly one component of our total business149%86%Hospital Payment-to-Cost Ratio, Private Payer, 2012Hospital Payment-to-Cost Ratio, Medicare, 2012Source: American Hospital Association, “Trendwatch Chartbook 2014,” available at: Health Care Advisory Board interviews and analysis.
8Price-Insulated Patient Cross-Subsidy Depends on Inefficient MarketsEntrenched Payers, Insulated Patients Unlikely to Upset Status QuoAssumptions Underlying Provider Growth StrategyEntrenched PayerHigh employer switching costs impede competitionHandful of broad networks satisfy majority of passive employersExcess cost growth easily passed on to employers through premium increasesEstablished ProviderCommercial pricing growth steadyNetwork inclusion likely for most plansPatient volume depends largely on referral patternsPrice-Insulated PatientOpen access to broad provider network standardModest cost-sharing obscures true pricesPhysician recommendation dominates point-of-care decisionmakingSource: Health Care Advisory Board interviews and analysis.
9The Retail RevolutionFour Years Post-Reform, New Paradigm Finally Becoming ClearMajor Themes Reshaping Provider Strategy1Medicare Reforms and the Transition to Risk2Coverage Expansion and the Rise of Individual Insurance3Activist Employers and the Primacy of ValueSource: Health Care Advisory Board interviews and analysis.
10$260B $56B $151B Public-Payer Reimbursement Still in the Crosshairs Medicare Reforms and the Transition to RiskPublic-Payer Reimbursement Still in the CrosshairsMedicare Payment Cuts Becoming the NormACA’s Medicare Fee-for-Service Payment CutsNot the End of the StoryReductions to Annual Payment Rate Increases1“Notwithstanding recent favorable developments… Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation”$260B$56B$151BHospital payment rate cuts,Reduced Medicare and Medicaid DSH2 payments,Reduced Medicare payments due to sequestration and 2013 budget billOffice of the Actuary, CMSSource: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act,” September 12, 2011; CBO, “Bipartisan Budget Act of 2013,” December 11, 2013, all available at: Health Care Advisory Board interviews and analysis.Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services.Disproportionate Share Hospital.
116% Steady Shift Toward Risk-Based Payment More Mandatory Risk On the HorizonMedicare Value-Based Purchasing Program Performance CriteriaOther Mandatory Risk ProgramsWeight in Total Performance ScoreHospital-Acquired Condition PenaltiesClinical ProcessPatient ExperienceReadmission PenaltiesOutcomes of CareNo Trivial ThingEfficiencyMedicare revenue at risk from mandatory pay-for-performance programs2, FY 20176%Source: The Advisory Board Company, “Mortality Rates Are Only One of Many VBP Changes to Come,” December 4, 2013, available at: CMS, “Request for Information on Specialty Practitioner Payment Model Opportunities,” February 2014, available at: Health Care Advisory Board interviews and analysis.Includes Value-Based Purchasing Program, Hospital Readmissions Reduction Program, and Hospital-Acquired Conditions Program.
12626 20.5M 46M-52M 1 in 10 More Providers Taking the Hint Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based OptionsMedicare ACO Program EntrantsThe Broader Picture2012 MSSP1 Cohorts2013 MSSP Cohort2012 Pioneer ACO ModelTotal2014 MSSP Cohort62620.5MTotal ACO count, including commercial and Medicaid ACOs, May 2014Americans enrolled in or attributed to Medicare, Medicaid, or commercial ACOs46M-52MPatients treated by ACOs as of April, 20141 in 10Medicare FFS beneficiaries attributed to an ACOMedicare Shared Savings ProgramSource: CMS, “More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for Medicare Beneficiaries,” December 23, 2013; Health Care Advisory Board interviews and analysis.
13Some Pioneers Changing Course Performance, Persistence Closely CorrelatedPioneer ACO Performance7.1% (max)Gross Savings as Percentage of Benchmark1First-year performanceSecond-year performanceDropped out after program year-5.6% (min)“The model was financially detrimental…despite favorable underlying utilization and quality performance”Alison Fleury, CEOSharp HealthCare ACODropped out after second year; second-year performance not reportedSource: Centers for Medicare and Medicaid Services, “San Diego-Based Sharp HealthCare Pulls Out of Pioneer ACO Program,” California Healthline, August 28, 2014; Health Care Advisory Board interviews and analysis.
14$297M Medicare Shared Savings Program a Mixed Bag Pending Program Updates Crucial for Future ParticipationMedicare Shared Savings Program ACO PerformanceIssues to Watch for in Updated RegulationsFirst Performance YearWill second-term ACOs really have to bear downside risk?Held Spending Below Benchmark, Earned Shared Savings PaymentDid Not Hold Spending Below BenchmarkWill benchmarks be calculated differently?Held Spending Below Benchmark, but Did Not Earn Shared SavingsWill the share of savings paid to ACOs be higher?Will beneficiaries be attributed to ACOs prospectively?Shared savings earned by MSSP ACOs in first performance year1$297MWill ACOs have any ability to prevent network leakage?Includes one participant’s $4M repayment of shared lossesSource: Centers for Medicare and Medicaid Services, “New Affordable Care Act tools and payment models deliver $372 million in savings, improve care,’ September 16, 2014; Health Care Advisory Board interviews and analysis.
15Transition to Risk Hardly Stalled Policymakers and (Some) Providers Angling for Higher-Octane OptionsBill in Brief: “The ACO Improvement Act”The Bigger Question: What Should Medicare ACO Programs Be?Bipartisan bill (H.R. 5558) introduced by Representatives Diane Black (R- TN) and Peter Welch (D-VT)Key FeaturesACOs would receive capitated payments, not shared-savings adjustmentsPatients would proactively select a primary care provider rather than be retroactively attributedACOs could discount primary care services to encourage network loyaltyPermanent middle grounds between fee-for-service, capitation?Adaptive environments involving progressively more risk?Training grounds for other risk models? (e.g., Medicare Advantage)Source: H.R. 5558, Health Care Advisory Board interviews and analysis.
16Medicare Advantage Gaining Momentum Shift Signals Individualization of the Medicare MarketProjected Medicare Advantage EnrollmentProvider Benefits Over Shared Savings Models29.5% of Medicare beneficiaries19.0MUnambiguous incentive for population health managementGreater provider control over network integrity10.4MLess frequent patient churn20092020Source: Jacobson G et al., “Projecting Medicare Advantage Enrollment: Expect the Unexpected?” Kaiser Family Foundation, June 12, 2013, available at: Hollander C, “CMS to Increase Medicare Advantage Pay Rate By 0.4%,” ModernHealthcare, April 7, 2014, available at: Health Care Advisory Board interviews and analysis.
17Coverage Expansion and the Rise of Individualized Insurance ACA (and Recovery) Making a Dent in UninsuranceBut Every Silver Lining Has Its CloudPercentage of U.S. Adults Without Health Insurance2013 Q32014 Q318.0%Insurance exchanges launchMedicaid expansion beginsEmployer-sponsored coverage grows13.4%(highest on record)(lowest on record)A Bargain Still Unbalanced$5.7B$14BReduction in uncompensated care, 2014vs.ACA-related reductions in Medicare fee-for-service payment, 2014Source: Gallup, “In U.S., Uninsured Rate Holds at 13.4%,” Department of Health and Human Services, “Impact of Insurance Expansion on Hospital Uncompensated Care Costs in 2014,” Health Care Advisory Board interviews and analysis.
188M1 5% 2.4% Medicaid Expansion Contentious—and Consequential 23 States Still Foregoing ExpansionState Participation in Medicaid ExpansionFinancial ImpactAs of October 2014“For-profit health systems…report far better financial returns through the first half of the year than expected, owed in large part to expanded Medicaid”PricewaterhouseCoopersParticipatingNot Currently Participating8M15%2.4%Increase in Medicaid, CHIP2 enrollment, October 2013-July 2014Average Medicaid enrollment increase across non-expansion statesAdvisory Board estimate of impact of Medicaid expansion on typical hospital’s 10-year operating margin projectionEstimate- does not include CT or ME.Children’s Health Insurance Program.Source: The Advisory Board Company, “Where the States Stand on Medicaid Expansion,” September 4, 2014, available at: CMS, “Medicaid and CHIP: July 2014 Monthly Applications, Eligibility Determinations and Enrollment Report,” September ; HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; PricewaterhouseCoopers, “Medicaid 2.0: Health System Haves and Have Nots,” Health Care Advisory Board interviews and analysis.
19Expanding or Not, States Pushing Medicaid Innovation Responsibility Migrating to Payers, Providers, PatientsCompeting Philosophies on Medicaid ReformFull Medicaid Managed CareE.g., Florida’s Statewide Medicaid Managed Care ProgramProvider-Led Care ManagementE.g., Oregon’s “Coordinated Care Organizations”Traditional State- Run ProgramExchange-Based PrivatizationE.g., Arkansas’ “Private Option”Source: Health Care Advisory Board interviews and analysis.
20$778M Arkansas Turning to Private Market Exchange-Based Medicaid Drawing Interest, But Broader Uptake UncertainArkansas’s “Private Option”CMS Wary of Other Modifications1Pennsylvania application for similar waiver denied over inclusion of work requirementsArkansas residents eligible for expanded Medicaid coverage select plans on exchangeArkansas proposal to require individual health savings account contributions still pending2Using federal matching funds, State pays full cost of silver plan; beneficiary pays no premiumProgram Likely Not Budget-Neutral3Increase in cost of expansion under exchange system relative to GAO estimate of cost under traditional Medicaid$778MBeneficiary holds private insurance; cost sharing based on existing Medicaid rulesSource: Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” October 8, 2014; Government Accountability Office, “Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost Concerns,” August 8, 2014; Health Care Advisory Board interviews and analysis.
217.0M (Original CBO Projection) Insurance ExchangesOne Year In, Insurance Exchanges Generally on TrackAggregate Numbers in Line With Expectations; Enrollee Mix OlderInitial Public Exchange Enrollment191%7.0M (Original CBO Projection)Of enrollees still enrolled as of September 201425MProjected exchange enrollment by 201828%Enrollees aged 18-34Numbers do not add precisely due to rounding.Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Cheney K and Haberkorn J, “Obama: 8 Million Enrolled Under ACA,” Politico, April 17, 2014, available at: Cheney K and Norman B, “Insurers See Brighter Obamacare Skies,” Politico, April 15, 2014, available at: Health Care Advisory Board interviews and analysis.
22Individuals Gravitating Toward Leaner Plans Premium Sensitivity Manifest at Two LevelsLevel 1: Choice of Metal TierLevel 2: Plan Choice Within Metal TierAll Metal Levels1GoldPlatinumCatastrophicLowest-Cost PlanAny Other PlanBronzeSilverSecond-Lowest-Cost PlanFactors Influencing Metal LevelPremium Levers Beyond Benefit DesignDeductibleNon-Essential Services CoveredScope of Non-Essential BenefitsCopaysNetwork CompositionNegotiated Payment Rates to ProvidersOut-of-Pocket MaximumNegotiated RatesUtilization Patterns, TrendsData from federally-facilitated exchanges only.Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Health Care Advisory Board interviews and analysis.
23$2,500 $6,250 High Deductibles Dominating Exchange Markets Aggressive Cost Sharing Potentially Troublesome for Provider StrategyIndividual Deductibles Offered On Public ExchangesChallenges for Providers2014High out-of-pocket costs discourage appropriate utilization$2,500$6,250MedianMaximumIndividual Deductibles Chosen on eHealth Individual MarketplaceLarge patient obligations lead to more bad debt, charity care<$1,000$6,000+$1,000-$2,999Price-sensitive patients more likely to seek lower- cost options$3,000-$5,999Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and Benefit Design in the New Health Insurance Marketplaces,” May 2014; eHealth, “Health Insurance Price Index Report for Open Enrollment and Q1 2014,” May 2014; Health Care Advisory Board interviews and analysis.
2426% Premium Sensitivity Supporting Narrow Networks Payers Betting Individual Consumers Value Affordability Over Broad ChoiceAverage Percent of PPO Network Specialists Included in Exchange Plan Networks1Breadth of Hospital Networks in Exchange PlansAnthem BlueCross BlueShield, 201420 Urban Markets, December 2013100% PPO Network BreadthBroad“Ultra-Narrow”“Narrow”Exclude 30% of 20 largest hospitalsExclude 70% of 20 largest hospitals26%Median premium reduction directly attributable to network narrowing2“Pathway X” bronze plans compared to leading PPO plan offering across nine states.Comparing products by the same carrier of the same tier, across 7 carriers.Source: Gottleib S, “Hard Data On Trouble You’ll Have Finding Doctors in Obamacare,” Forbes, March 8, 2014, available at: McKinsey & Company, “Hospital Networks: Configurations on the Exchange and Their Impact on Premiums,” December 2013; Health Care Advisory Board interviews and analysis.
252% 58% Proper Risk Pricing Still Essential Is It Worth Winning Share With Unsustainable Premiums?Low Premiums Moving the Market……but Perhaps Not the Right One2013:2014:PreferredOne offers lowest Silver plan premium in country;wins massive market share on Minnesota exchange (MNsure)PreferredOne exits exchangeWill still offer individual coverage through other successful channels with different risk profile2%58%“Continuing to provide this coverage through MNsure is not sustainable.”Market share in 20121Market share in 2014Marcus MerzCEO, PreferredOnePre-exchange individual marketSource: Crostby J, “Top Selling Insurer on MNsure Won’t Be Back This Year,” Minneapolis Star Tribune, September 16, 2014; Health Care Advisory Board interviews and analysis.
26Issuers Offering Qualified Health Plans What Next for the Exchanges?Increased Insurer Participation Driving CompetitionRobust Marketplaces Beginning to Develop“We had a very modest footprint in We do have a bias to increase that participation in […] The size of the overall market is positive.”Issuers Offering Qualified Health PlansGail Boudreaux, EVPUnitedHealth GroupCompetition At Work4%Estimated reduction in second-lowest-cost silver premium of one new issuer entering marketSource: “UnitedHealth to Expand Exchange Presence as Profits Dip,” ModernHealthcare, April 17, 2014; Department of Health And Human Services, “Health Insurance Marketplace Will Have 25 Percent More Issuers in 2015,” September 23, 2014; Health Care Advisory Board interviews and analysis.
27What to Watch for on the Exchanges Second Round of Open Enrollment Will Reveal True DynamicsTrends We’ll Be Watching:1Enrollment:Are the technical glitches really fixed?Will higher individual mandate penalties change anyone’s mind?Will the young and healthy turn out in force?2Choice and Mobility:How will automatic reenrollment affect consumer behavior?Will last year’s bargain hunters regret choosing high deductibles and narrow networks?Can plans that raise premiums maintain market share?3Market Reaction:How aggressively will providers court the newly insured?Will employers dump workers onto the exchanges?
28Shift to Private Exchange Convert to Self-Funding Activist Employers and the Primacy of ValueEmployer-Sponsored Insurance at a CrossroadsWill Employers Maintain Coverage, and How?Spectrum of Options for Controlling Health Benefits Expense“Abdication”“Activation”Drop CoverageShift to Private ExchangeConvert to Self-FundingPros:Escape from cycle of rising premium costsCons:Employer mandate penaltyLabor market disadvantagePros:Responsiveness to employee preferencePredictable, defined contributionsCons:Disruption to benefit designRisk employees may underinsurePros:Close control over network designExemption from minimum benefits requirementsCons:Greater financial riskNetwork assembly challengingSource: Health Care Advisory Board interviews and analysis.
29172 Huge Growth Forecast for Private Exchanges Low-Wage Employers Most Active Today, but Skilled Industries in the WingsPotential Growth Path for Private Exchange Enrollment172Private exchange operators as of October, 2014Prominent Employers Using Private ExchangesFor Active Employees:For Retirees: (Medicare Advantage, Medigap plans)Source: Accenture, “Are You Ready? Private Health Insurance Exchanges are Looming;” privatehealthexchange.com; Health Care Advisory Board interviews and analysis.
30Beyond the Buzzword Understanding Why Private Exchanges Matter Crucial Differences Between Private Exchanges, Traditional Group MarketsIndividuals can switch networks, insurance carriers on their ownOn a private exchange,In the group market,Changes in network or carrier may require employer-level decisionsProvider networks must be broad enough to serve entire workforceDefined benefit plans insulate employees from differences in costNarrow networks can appeal to specific employee segmentsDefined contribution plans expose employees to cost differencesSource: Health Care Advisory Board interviews and analysis.
3126% Self-Funded Strategies Steadily Gaining Ground Small Employers Also Beginning to Show InterestPercentage of Covered Workers in Self-Funded PlansACA Benefits Standards Avoidable Through Self-FundingEssential Health BenefitsGuaranteed Issue and RenewabilityModified Community RatingMedical Loss Ratio Requirements26%of small employers’1 brokers have discussed with them the possibility of self-insuranceSource: Gabel JR et al., “Small Employer Perspectives On The Affordable Care Act’s Premiums, SHOP Exchanges, And Self-Insurance,” Health Affairs, 32(11): ; Health Care Advisory Board interviews and analysis.3 to 50 FTEs.
32Hands-On Network Management Increasingly Feasible Custom Network Builders Offering Local SolutionsIHS1 “Custom Provider Network” SolutionSelf-funded employer submits list of physicians, hospitals, and ancillary care“Working with the TPA and employer, we replace the ‘one size fits all’ network with a cost-effective customized network created around the needs of your business and your employees.”IHS negotiates cost-effective provider agreements using Medicare-based pricingIHS continually evaluates network providers to “ensure competitive price contracts”Case in Brief: Innovative Healthware ServicesPrivate company based in Arnold, Maryland that markets software solutions for PPOs, TPAs, providers, and payers“Custom Provider Network” limits a self-funded employer’s network to selected list of hospitals, physicians, and ancillary careInnovative Healthware ServicesSource: Innovative Healthware Services, Inc., Arnold, MD; Health Care Advisory Board interviews and analysis.
33Aggregators Pooling Employers, Providers Exporting Walmart’s Centers of Excellence ProgramCase in Brief: Health Design Plus“It would be prohibitive for a small employer…When you spread the administrative costs over a number of employers, it becomes more attractive.”Third-party administrator based in Hudson, Ohio that creates Centers of Excellence (COE) programs for self- funded employersAssembled Walmart’s centers of excellence bundled payment networkBruce ShermanMedical Director, Employers Health CoalitionTwo New Employer Coalition PartnershipsPacific Business Group on Health (San Francisco, California)60 large employer membersEmployees in all 50 states10M covered livesEmployers Health Coalition (Canton, Ohio)300+ employer members with employees in all 50 states3M covered livesSource: Walmart, “Walmart, Lowe’s And Pacific Business Group On Health Announce A First Of Its Kind National Employers Centers Of Excellence Network,” October 8, 2013; Health Design Plus, “Health Design Plus & Employers Health Announce National Centers of Excellence Initiative,” June 11, 2013; Chen C, “Providers Using Bundled Payments, Quality to Entice Employers,” Health Data Management, March 11, 2014,; Health Care Advisory Board interviews and analysis.
345,400 $8-10M Some Providers Taking Lead in Network Assembly Intel-Presbyterian Partnership5,400Covered lives in contractCustomized Care OfferingsAddition of depression screening into customary provider workflowInfrastructure for Care ManagementConversion of Intel’s on-site clinic into full service patient-centered medical homeNarrowing of Health Plan OptionsIntel reducing number of health plan options from 8 to 4; two remaining plans are narrow networks of PHS1 providersShared AccountabilityUpside and downside risk for health care spending compared to projected target$8-10MProjected savings,Case in Brief: Intel CorporationLarge multinational employer headquartered in Santa Clara, CaliforniaEntered into narrow-network contract with Presbyterian Healthcare Services, an 8-hospital system in New Mexico, for employees at Rio Rancho plantPresbyterian Healthcare Services.Source: Intel Corporation, “Employer-Led Innovation for Healthcare Delivery and Payment Reform: Intel Corporation and Presbyterian Healthcare Services,” Santa Clara, California; Evans M, “Slimming Options,” Modern Healthcare, July 13, 2013, available at: Health Care Advisory Board interviews and analysis.
35Providers Must Win Share at Two Points of Sale Multiple Opportunities to Appeal to Decision-MakersDecision Processes Shaping Provider Choice12Secure Enrolled LivesWin Share of VolumesNetwork AssemblyNetwork SelectionCare DecisionBeing chosen by payers, employers, exchange operators, custom network builders, and accountable physician entities to be offered as a network optionBeing chosen by individuals during plan enrollmentBeing chosen by patients, referring physicians at the point of careSource: Health Care Advisory Board interviews and analysis.
36Traditional Growth Channels Recognizing New Channels for GrowthKey Decision-Makers in Traditional and New Growth ChannelsSecure Enrolled LivesWin Share of VolumesTraditional Growth ChannelsEntrenched PayerRelationship-Based Referring PhysicianEstablished ProviderNew Growth ChannelsCustom Network BuilderActivated EmployerCost-Conscious Referring PhysicianVulnerable PayerExchange OperatorCare Delivery NetworkPrice-Sensitive ConsumerAccountable Physician EntityIndividual Insurance ShopperSource: Health Care Advisory Board interviews and analysis.
371 2 3 4 5 All Signs Point to a Retail Market New Dynamics Unfamiliar in Health Care, But Not in Broader EconomyTraditional MarketRetail MarketGrowing number of buyers1Passive employer, price-insulated employeeActivist employer, price-sensitive individualProliferation of product options2Broad, open networksNarrow, custom networksIncreased transparency3No platform for apples-to- apples plan comparisonClear plan comparison on exchange platformsReduced switching costs4Disruptive for employers to change benefit optionsEasy for individuals to switch plans annuallyConstant employee premium contribution, low deductiblesGreater consumer cost exposure5Variable individual premium contribution, high deductiblesSource: Health Care Advisory Board interviews and analysis.
38Desirable Network Attributes Redefining the Value PropositionDelivering Desirable Network Attributes at Low CostFour Imperatives for Health SystemsLow CostDesirable Network AttributesCompetitive Unit PricesStrategic Imperatives:Avoid reactive position vis-a-vis price cuts, transparencyRadically restructure cost structures to sustain lower unit pricesTotal Cost ControlStrategic Imperatives:Develop population health model to control cost trendClearly communicate total cost advantage to potential purchasersGeographic Reach and Clinical ScopeStrategic Imperatives:Match service portfolios, footprints to target purchasersExplore partnership strategies that strengthen market presenceClinical and Service QualityStrategic Imperatives:Present unimpeachable clinical credentials to wholesale buyersEmphasize access, experience advantages to individual consumersSource: Health Care Advisory Board interviews and analysis.
39Desirable Network Attributes Redefining the Value PropositionDelivering Desirable Network Attributes at Low CostFour Imperatives for Health SystemsLow CostDesirable Network AttributesCompetitive Unit PricesStrategic Imperatives:Avoid reactive position vis-a-vis price cuts, transparencyRadically restructure cost structures to sustain lower unit pricesTotal Cost ControlStrategic Imperatives:Develop population health model to control cost trendClearly communicate total cost advantage to potential purchasersGeographic Reach and Clinical ScopeStrategic Imperatives:Match service portfolios, footprints to target purchasersExplore partnership strategies that strengthen market presenceClinical and Service QualityStrategic Imperatives:Present unimpeachable clinical credentials to wholesale buyersEmphasize access, experience advantages to individual consumersSource: Health Care Advisory Board interviews and analysis.
40Low Premiums Shaping More than Network Selection Care Choices, Network Assembly Dynamics Driven by Premium PressureConsequences of Premium SensitivityPrice Sensitivity at Point of CarePremium Sensitivity at Point of CoverageTotal 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 ExecutiveSource: Health Care Advisory Board interviews and analysis.
41Price Sensitivity at the Point of Care Cost-Conscious Behavior Affecting Pillars of ProfitabilityConsumers Paying More Out-of-PocketMRI Price Variation Across Washington, DCFall within HDHP deductible2$2,183$730Fall within PPO deductible3$411$900$1,269Price-sensitive shoppers will be acutely aware of price variationMRI prices range from $400 to $2,183High-deductible health plan.$2,086; based on KFF report of average HDHP deductible.$733; based on KFF report of average PPO deductible.Source: KFF, “2012 Employer Health Benefits Survey,” available at: New Choice Health, “New Choice Health Medical Cost Comparison,” available at: Healthcare Blue Book, “Healthcare Pricing,” available at: Kliff S, “How much does an MRI cost? In D.C., anywhere from $400 to $1,861,” Washington Post, March 13, 2013, available at: Health Care Advisory Board interviews and analysis.
42$4 $40 130M 150M Walmart Bringing Everyday Low Prices to Health Care Low-Cost Access Potentially Just the BeginningCare Clinic ModelProbably Worth Paying AttentionPricing:$4For Walmart employees$40“Our goal is to be the number one health-care provider in the industry.”For Walmart customersHours:Labeed Diab President of Health & Wellness WalmartWeekdays8AM-8PMSaturday8AM-5PMSunday10AM-6PMService:130M150MTwo nurse practitioners provider primary care services on siteClinic refers to external specialists, hospitals as appropriateAnnual emergency department visitsWeekly visits to Walmart storesSource: Canales MW, “Wal-Mart Opening Clinic in Cove,” Killeen Daily Herald, April 18, 2014, available at: Health Care Advisory Board interviews and analyais.
43Broadening Our Concept of Cost Advantage Network Assemblers Looking at More Than Unit PriceTwo Cost-Focused Strategies for Appealing to Network AssemblersLow Unit PriceTotal Cost ControlPrice CutImprove efficiency to offer lower fee scheduleTrend ControlImplement care management to control cost growth trendDegree of Cost ControlSource: Health Care Advisory Board interviews and analysis.
44CareFirst PCMH Total Cost Incentive Model Creating Cost-Conscious PCPsCareFirst PCMH Total Cost Incentive ModelTotal cost target set by trending baseline risk-adjusted PMPM cost by average regional cost growthRisk-adjusted PMPM1 CostPMPM Cost TargetActual PMPM CostPanel shares in savings if risk- adjusted PMPM cost is below target“Virtual panel” of PCPsCase in Brief: CareFirst BlueCross BlueShield1MMembers covered by PCMH programNot-for-profit health services company serving 3.4 million members in Maryland, D.C., and northern VirginiaIn 2011, launched PCMH program providing opportunities for virtual panels of PCPs to earn bonuses based on quality and total cost metricsProvides PCPs with color-coded rankings of specialists based on risk-adjusted PMPM costs80%Eligible PCPs participatingAverage pay increase for PCPs receiving bonuses29%Source: Overland D, “CareFirst Medical Home Saves More in Second Year,” FierceHealthPayer, June 7, 2013, available at: Health Care Advisory Board interviews and analysis.Per member per month.
45Specialists Color-Coded By Total Cost Steering Care to Most Efficient SpecialistsTotal Cost Transparency Key to Referral ChangesSpecialists Color-Coded By Total CostDifference in risk-adjusted PMPM cost between top- and bottom-quartile PCPs27%PCP Virtual Panels66%Percent of panels earning bonuses, 2012$98MSavings 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 costs them.”Employed Specialist A (Red)Employed Specialist B (Yellow)Independent Specialist C (Green)Hospital AHospital BChet BurrellPresident & CEOCareFirst BlueCross BlueShieldSource: Health Care Advisory Board interviews and analysis.
4630-50% The Value of a Second Opinion Discerning When Not to Operate Large Employers and Hospitals Participating in Centers of Excellence ProgramsPepsi Co.In 2011, offered employees free cardiac and complex joint replacement surgery at Johns Hopkins MedicineWalmartIn 2013, expanded Centers of Excellence program to cover cardiac, spine, and hip/knee replacement surgeryLowe’sIn 2010, offered employees free heart surgery at Cleveland Clinic30-50%Of referred patients do not undergo surgerySource: The Advisory Board Company, “Commercial Bundled Payment Tracker,” October 9, 2013, available at: Health Care Advisory Board interviews and analysis.
47Making the Case for Care Management Capabilities Assuring Employers of Ability to Manage Future CostsPowerful Ways to Signal Care Management CapabilitiesInvestment in Data AnalyticsShows capability to assess patient risk and pinpoint interventionsClinical and Claims Data IntegrationIllustrates advantage over traditional health planDemand for Out-of- Network Claims DataShows commitment to continuously manage care for attributed populationTelehealth Platforms and ProgramsDemonstrates 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 OfficerLarge Health SystemSource: Health Care Advisory Board interviews and analysis.
4810% Promising Total Cost Savings to Employers Savings Guaranteed Off Of Projected CostsTwo Separate Products with Different Payer PartnersBaseline spending projected using three years’ historical spending1Aetna Whole Health (Aetna)Guaranteed SavingsEmployer Health Spending2Blue Priority (Anthem Blue Cross and Blue Shield)Roundy’s Supermarkets, Inc. was first large employer clientTimeCase in Brief: Aurora Health Care10%15-hospital, not-for-profit health system based in Milwaukee, WisconsinAnnounced separate narrow network products with Aetna and Anthem Blue Cross and Blue Shield that offer employers guaranteed savings over three yearsAverage savings guaranteed to employers over three yearsSource: Commins J, “Aurora Health Offers Employers a Savings Guarantee,” HealthLeaders Media, July 30, 2012, available at: 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: Health Care Advisory Board interviews and analysis.
49Desirable Network Attributes Redefining the Value PropositionDelivering Desirable Network Attributes at Low CostFour Imperatives for Health SystemsLow CostDesirable Network AttributesCompetitive Unit PricesStrategic Imperatives:Avoid reactive position vis-a-vis price cuts, transparencyRadically restructure cost structures to sustain lower unit pricesTotal Cost ControlStrategic Imperatives:Develop population health model to control cost trendClearly communicate total cost advantage to potential purchasersGeographic Reach and Clinical ScopeStrategic Imperatives:Match service portfolios, footprints to target purchasersExplore partnership strategies that strengthen market presenceClinical and Service QualityStrategic Imperatives:Present unimpeachable clinical credentials to wholesale buyersEmphasize access, experience advantages to individual consumersSource: Health Care Advisory Board interviews and analysis.
50Which Would You Choose? Broad Geographic Reach… …or Deep Clinical Scope?Network in Brief: Crescent Health1Network in Brief: Silica Healthcare1National hospital provider with hospital campuses across the countryDespite broad geography, limited clinical depth at local level6-hospital system in the Midwest with employed physician networkCare sites concentrated in roughly half of single metropolitan areaPseudonym.Source: Health Care Advisory Board interviews and analysis.
51Full Care Continuum Important for Payer Partners Four Reasons PinnacleHealth System Selected for Risk-Based ProductSample Clinical ServicesPrimary CarePediatric CareImagingCardiovascular CareOrthopedicsPhysical Therapy and RehabInpatient CareFavorable Pricing StructureComprehensive Clinical ScopeBroad Provider Geographic Footprint6-12 Months’ Experience Under Performance IncentivesCase in Brief: CareConnect Point of ServiceAccountable care narrow network plan for mid-sized employers, created around PinnacleHealth System and offered by Capital BlueCross in central PennsylvaniaNetwork is open for specialty and inpatient care but narrowed to PinnacleHealth System’s PCPs for primary careWill be expanded to individual market in 2015Source: Health Care Advisory Board interviews and analysis.
52St. Elizabeth Healthcare Combining Geographies to Match Purchaser FootprintAddressing Individual Limits in Geographic ReachPartnering to Expand Geographic ReachNetwork in Brief: Healthcare Solutions NetworkCincinnati-based employers have employees living on both sides of riverTriHealthJoint venture collaboration between Cincinnati, Ohio- based TriHealth and Edgewood, Kentucky- based St. Elizabeth HealthcareOffers health insurers access to a unified, high- quality, low-cost network that covers the entire Tristate regionBoth organizations offering the network to their current employees and dependentsOhioKentuckySt. Elizabeth HealthcareNeither Organization Able to Offer Adequate Geographic Coverage AloneSource: Health Care Advisory Board interviews and analysis.
53Geographic and Clinical Demands Intertwined National and Hyper-Local Competition Reshaping Notions of SufficiencyPurchasers’ Geographic Preferences for Clinical ServicesBalancing an Increasing Demand for Convenience with an Increasing Willingness to TravelAlternative access points (e.g. retail, urgent care)E-visits, remote monitoringHome healthDisease management, care navigationDigestive healthWomen’s midlifeSports medicineMidwiferyTransplantsNeurosurgeryComplex cardiac (e.g. TAVR1)Clinical trialsPotential DifferentiatorsPrimary carePediatricsImagingAmbulatory surgeryRadiation therapyMedical oncologyEmergencyRoutine orthopedicsDialysisRehabSNFStrokePediatric specialtyCardiologyOncologyOB/GynCardiac surgeryTechnology- intensive proceduresCore ServicesNeighborhood ConveniencesLocal OfferingsRegional/National DestinationsTranscatheter Aortic Valve Replacement.Source: Health Care Advisory Board interviews and analysis.
54Desirable Network Attributes Redefining the Value PropositionDelivering Desirable Network Attributes at Low CostFour Imperatives for Health SystemsLow CostDesirable Network AttributesCompetitive Unit PricesStrategic Imperatives:Avoid reactive position vis-a-vis price cuts, transparencyRadically restructure cost structures to sustain lower unit pricesTotal Cost ControlStrategic Imperatives:Develop population health model to control cost trendClearly communicate total cost advantage to potential purchasersGeographic Reach and Clinical ScopeStrategic Imperatives:Match service portfolios, footprints to target purchasersExplore partnership strategies that strengthen market presenceClinical and Service QualityStrategic Imperatives:Present unimpeachable clinical credentials to wholesale buyersEmphasize access, experience advantages to individual consumersSource: Health Care Advisory Board interviews and analysis.
55“Quality” Means Different Things for Different People Quality Demands of Network Assemblers and IndividualsNetwork AssemblersIndividualsNetwork SelectionCare DecisionFacility-level clinical process, outcome measuresNetwork-level quality, access, service ratingsActual ease of access, care experienceSource: Health Care Advisory Board interviews and analysis.
56Custom Network Builders Scrutinizing Performance Steering Care Toward High-Quality ProvidersProvider Evaluation Process at Imagine HealthCase in Brief: Imagine HealthNational Top Quartile Clinical PerformanceStep 1: Evaluation of Clinical Performance DataCompany based in Cottonwood Heights, Utah that builds custom, high-performance provider networks for self-funded employersSelects participating provider systems using clinical performance data and an RFP processSteers volumes to in- network providers through benefit design and employee education1Step 2: RFP Evaluation of Additional FactorsPer capita cost of careEfficiency of care utilizationCare experience programsSample metrics include mortality rate, complication rate, and readmissions rate.Source: Health Care Advisory Board interviews and analysis.
57Providers Must Also Deliver on Ease of Access Winning Contracts By Meeting Access DemandsCase in Brief: Providence-Swedish Health AllianceBoeing’s Access RequirementsAlliance between Providence Health Systems, Swedish Health Services in Seattle, WAAwarded contract to serve as Boeing’s narrow ACO network optionSame-day PCP appointment (acute conditions)3-day PCP appointment (any condition)10-day specialist appointmentExtended hours of operationsExtended urgent care hoursCentralized number at ACO level with care navigators for triage and advocacyMember websitePhone apps“[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 SystemsSource: Health Care Advisory Board interviews and analysis.
58Online Access Becoming the New Baseline An Expected Part of the Patient ExperienceConsumers Demanding Portal FeaturesKP.org Portal Key Featuresn = 1,000 U.S. ConsumersCommunicate with physicianAssign proxy accessView medical recordFill prescriptionsSchedule appointmentsView lab resultsAccess to Medical RecordsOnline Appointment BookingPrescription Refill RequestsReceiving /Text RemindersCase in Brief: Kaiser Permanente Northern CaliforniaNation’s largest not-for-profit health plan based in Oakland, California; serves 9 million members nationwide and 3.3 million in Northern CaliforniaBegan offering online health services in 1996; fully deployed KP.org patient portal in 2007Source: Terry K, “Patients Seek More Online Access to Medical Records,” InformationWeek, September 17, 2013, available at: Silvestre, et al., “If You Build It, Will They Come? The Kaiser Permanente Model of Online Health Care,” Health Affairs, March/April 2009: ; Health Care Advisory Board interviews and analysis.
59Welcome to the Renewals Business Patient Experience Vital For Securing Purchaser Choice Year Over YearNetwork Selection and Ongoing ExperienceAnnual network selection in fluid insurance market implies consistent reevaluation of network performanceDay 1Day 365Patient ExperienceCare DecisionCare DecisionClinical interactions represent repeated opportunities to reinforce patient preference through superior experienceCare DecisionCare DecisionSource: Health Care Advisory Board interviews and analysis.
60Expanding Arena of Competition Recipe for Success Becoming Far More ComplexNot Immediately Obvious Which Advantages Will DominateNetwork AssemblersIndividual ConsumerNetwork AssemblyNetwork SelectionCare DecisionAll providers included in nearly all networks; only compete on price negotiationsEmployees have little choice of networksMost decisions made by referring physicianLow total per-member costPromise of total cost savingsLow premiumLow employee contributionLow out-of-pocket costBroad geographic footprintComprehensive clinical scopeInclusion of preferred physiciansProximity to access pointsHigh clinical process, outcomes performanceAdherence to evidence-based careOn-demand access optionsCentralized navigation servicesPrompt appointment timesExtended hoursHigh population health quality ratingsHigh member satisfaction ratingsPositive brand associationGreat care experienceTraditional MarketThreshold FactorsCostRetail MarketReach and ScopeDifferentiating FactorsClinical and Service QualityExpanding Arena of CompetitionSource: Health Care Advisory Board interviews and analysis.
61$6.5B Consolidation on the March Strategic Advantage #1: ScaleConsolidation on the MarchSearch for Financial, Geographic Scale Driving Hospital M&ACase in Brief: Advocate NorthShore Health PartnersCombined system’s expected annual revenue16-hospital merger of Advocate Health Care, NorthShore University HealthSystemCreates strong clinical, geographic presence in Chicago area$6.5BOther 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.”Baylor + Scott and WhiteMount Sinai + Continuum Health PartnersBeaumont + Botsford + OakwoodMichele RichardsonAdvocate Board ChairSource: “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.
62Aggregation Always Subject to Regulatory Scrutiny Policy Tensions Remain Between Integration, CompetitivenessAllowances for Effective Coordination……But Market Power Still a Red FlagBundled payment programs open door to gainsharing with Medicare revenuesApril 2014: U.S. Court of Appeals orders ProMedica to unwind its acquisition of St. Luke’s HospitalClinical Integration safe harbors allow joint contracting between independent physiciansJanuary 2014: Federal judge blocks merger of St. Luke’s Health System and Saltzer Medical GroupCMS incentivizes, promotes ACO programsJanuary 2014: FTC rules CHS must divest two hospitals to complete HMA acquisitionSource: Health Care Advisory Board interviews and analysis.
63Vivity Betting on Coordination over Consolidation Strategic Advantage #2: IntegrationVivity Betting on Coordination over ConsolidationInsurer, 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.”Anthem Blue CrossUCLA HealthPIH HealthCedars- Sinai Medical Center7 health systems14 hospitals6,000 physiciansHuntington Memorial HospitalGood Samaritan HospitalTorrance Memorial HealthMemorialCare Health SystemPam KehalyAnthem Blue CrossSource: “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.
64New Partnerships Aim at Integration Without M&A But Will Less-Intensive Arrangements Yield Sufficient Gains?Four health systems form regional alliance Health Innovations OhioFive health systems ally to form accountable care initiative Quality Health SolutionsSeven systems in NY, NJ, MA, and PA form Allspire NetworkSix hospitals form BJC Collaborative:Five health systems join Vanderbilt Health Affiliate NetworkFour health systems ally to form Noble Health Alliance14 systems ally to form Stratus Health CareFive SC systems form cost saving Initiant Healthcare Collaborative Two Systems form Georgia Health CollaborativeSource: Health Care Advisory Board interviews and analysis.
65The Community Hospital Resurgent? Strategic Advantage #3: EfficiencyThe Community Hospital Resurgent?Born Out of Necessity, No-Frills Approach Suddenly CompellingCommon ChallengesPotential AdvantagesThe Community Hospital InitiativeMedicare, Medicaid- heavy payer mixAlready managing to public-payer marginsDedicated research and service effort included within Health Care Advisory Board membershipFocuses on issues facingSmaller organizationsIndependent hospitalsRural facilitiesFor more information, contact Ben Umansky atLimited service portfolioFewer unjustifiable fixed costsPhysician shortagesEarly experience with team- based care, telemedicineRural or exurban settingLabor costs lower than urban competitorsSmaller patient populationMore focused patient engagement effortsSource: Health Care Advisory Board interviews and analysis.
66The New Network Advantage Health Care Advisory BoardThe New Network AdvantageAssembling the Scale, Scope, and Assets Needed to Secure Profitable Growth
67Leverage Beyond Price The New Network Advantage Charting an Intentional Corporate Strategy
68Insecurity Abounds BIGGEST Consolidation Dominating Industry Mindshare What Was Your Reaction?$10 Billion or Bust?“Any health system is going to need $10 billion in revenue to survive in tomorrow’s market”August 5, 2013Overheard at 2014 J.P. Morgan Healthcare ConferenceSURVIVALBIGGESTOF THEThe End of Independence?CHS-HMA merger puts more pressure on stand-alones to seek partners-Page 6“We want to stay independent. But when I look at where things are going, I just don’t see how we can compete without being part of something bigger.”CEO, standalone 200-bed hospitalSource: Health Care Advisory Board interviews and analysis.
69New Partnerships Aim at Integration Without M&A But Will Less-Intensive Arrangements Yield Sufficient Gains?Four health systems form regional alliance Health Innovations OhioFive health systems ally to form accountable care initiative Quality Health SolutionsSeven systems in NY, NJ, MA, and PA form Allspire NetworkSix hospitals form BJC CollaborativeFive health systems join Vanderbilt Health Affiliate NetworkFour health systems ally to form Noble Health Alliance14 systems ally to form Stratus Health CareFive SC systems form cost saving Initiant Healthcare Collaborative Two Systems form Georgia Health CollaborativeSource: Health Care Advisory Board interviews and analysis.
70No Shortage of Alternative Models Five Major Varieties of Provider PartnershipMerger or AcquisitionClinically-Integrated Hospital NetworkAccountable Care OrganizationRegional CollaborativeClinical AffiliationDescriptionFormal purchase of one organization’s assets by another, or the combination of two organizations’ assets into a single entityCollection of hospitals contracting jointly in order to support improved coordination, outcomes; modeled after physician CI networksIndependent entity, owned by one or several independent organizations, that accepts risk-based contracts and distributes shared savingsFlexible umbrella structure, often encompassing many independent organizations of similar geography, that may serve as foundation for further integrationTypically bilateral agreement to cooperate around a particular initiative or service line; may involve local or national partnersExamplesBaylor Scott and WhiteCommunity Health Systems/Health Management AssociatesTrinity Health/Catholic Healthcare EastTenet/VanguardLong Island Health NetworkVanderbilt Health Affiliated NetworkQuality Health Solutions (WI)Arizona Care NetworkAccountable Care AllianceAllspire Health PartnersStratus HealthcareBJC CollaborativeNoble Health AllianceHealth Innovations OhioEvergreen Healthcare with Virginia MasonMayo Clinic Care NetworkCleveland Clinic Affiliate ProgramSource: Health Care Advisory Board interviews and analysis.
71Protection Not the Right Motivation Defenses Around Old Business Model Unlikely to HoldTypical Advantages of Market PowerSize confers price leverageHigher prices charged to payersLower prices paid to suppliersDiminishing Returns to Traditional StrategyRegulators scrutinizing any arrangement conferring undue market powerVolume-based negotiating strategies like GPOs nearing their limitIncreasingly competitive markets punishing inflexible, high-cost providersSource: Health Care Advisory Board interviews and analysis.
72Leverage Beyond Price the Key to Success Partnerships Must Drive Market AdvantageProduct AdvantageCost AdvantageInfluence on Network AssemblyControl Over Underlying Cost StructuresImpact on Entire Care ContinuumWinning Preference Through Clinical Scope and Geographic ReachLowering Unit Prices Through Operational ScaleReducing Total Costs Through Population HealthDegree of Market AdvantageTime to Maximum BenefitSource: Health Care Advisory Board interviews and analysis.
73The New Network Advantage Product AdvantageCost AdvantageIIIIIIWinning Preference Through Clinical Scope and Geographic ReachLowering Unit Prices Through Operational ScaleReducing Total Costs Through Population HealthDriving Network AssemblyComprehensive Network ProductAppealing to Network AssemblersPortfolio-Enhancing Clinical PartnershipsLeveraging Low-Price Care SitesTop-of-site Referral PartnershipsSlimming Underlying Cost StructuresClinical Footprint RationalizationNext-Generation Shared ServicesOvercoming Financial BarriersJointly-Financed Infrastructure InvestmentBreaking Down Information SilosContinuum-Wide Data TransparencyHardwiring Mutual AccountabilityNetwork-Enabled Performance IncentivesSource: The Advisory Board Company interviews and analysis.
74Potential Elements of Provider Integration Meaningful Integration About More than the ModelDiscrete Elements of Partnership Support Specific GoalsPotential Elements of Provider IntegrationPotential BenefitsPayer ContractingStrengthens negotiating position, allows access to larger purchasersBrand/IdentityConfers reputational benefits, signals strength of integrationStrategic PlanAllows rationalized investments/divestituresGovernanceEnsures stability and implementation of other shared elementsOperationsEnables process efficiencies, knowledge exchangeClinical ITBroadens perspective over care continuum; reveals opportunities for reducing total cost of careCare ModelReduces fragmentation in care delivery; improves outcomesExpertiseFlattens learning curves; promotes best practicesSource: Health Care Advisory Board interviews and analysis.
75Questions for Every Partnership Concrete Decisions Beyond Legal StructureChoice of Model Only Determines Environment for Pursuing IntegrationQuestions for Every PartnershipContractingBrand/IdentityIndependenceCollaborationExpertiseStrategic PlanWhich strategic and operational functions should be included in your organization’s partnership strategy?For each function: Is it better to centralize the function by combining it with that of a partner, or is it better to collaborate with a partner while maintaining separate but aligned versions of the same function?Does the legal structure of an existing or proposed partnership facilitate the appropriate degree of integration for each function?CentralizationCare ModelGovernanceClinical ITOperationsSource: Health Care Advisory Board interviews and analysis.
76The New Network Advantage Leverage Beyond PriceThe New Network AdvantageCharting an Intentional Corporate Strategy
77Winning Preference Through Clinical Scope and Geographic Reach Driving Network AssemblyComprehensive Network ProductAppealing to Network AssemblersPortfolio-Enhancing Clinical Partnerships
78Broad Geographic Reach… …or Deep Clinical Scope? Which Would You Choose?Broad Geographic Reach……or Deep Clinical Scope?Network in Brief: Crescent Health1Network in Brief: Silica Healthcare1National hospital provider with hospital campuses across the countryDespite broad geography, limited clinical depth at local level6-hospital system in the Midwest with employed physician networkCare sites concentrated in roughly half of single metropolitan areaPseudonym.Source: Health Care Advisory Board interviews and analysis.
79A Multi-Layered Approach to Network Development Developing a Targeted Network Strategy (or Three)Flexible Approach Meets the Demands of a Wide Range of PurchasersA Multi-Layered Approach to Network DevelopmentNetwork in Brief: Whitehaven Health1Partnership-drivenIntegrated health delivery system in the MidwestSegments market strategy by geographyHealth system footprint is sufficient for appealing to local purchasers; regional and super-regional networks assembled through partnershipSuper-RegionalGeographic ReachDiscussing possibility of additional partnerships to form state-wide network able to contract with state employersRegionalLocalPartnership with like-minded, geographically contiguous health system provides flexibility to sign larger regional contractsIndividual footprint sufficient to appeal to small employers in local marketNumber of contracting possibilitiesPseudonym.Source: Health Care Advisory Board interviews and analysis.
80Deciding Whether to Take the Lead A Key Decision at Every LevelLocalSmall employersLocal payersRegionalLarge employersNational payersSuper-RegionalState/national employersInternational purchasersWhat is your organization’s network strategy?Driving Network AssemblyAppealing to Network AssemblersSource: Health Care Advisory Board interviews and analysis.
81Leveraging Partnership to Appeal to Purchasers Collaboration Provides a Financially-Sustainable, Proactive ApproachDriving Network AssemblyAppealing to Network AssemblersBuild or BuyBrand MarketingCommitted to IndependencePitfall:Extremely slow and capital- intensive; may require moving away from core competenciesPitfall:Increasingly difficult for all but niche providers to confidently position organization as “must-have”12Comprehensive Network ProductPortfolio-Enhancing Clinical PartnershipsOpen to CollaborationSource: Health Care Advisory Board interviews and analysis.
82Partnering to Expand Geographic Scope St. Elizabeth Healthcare Combining Geographies to Match Purchaser FootprintAddressing Individual Limits in Geographic ReachPartnering to Expand Geographic ScopeNetwork in Brief: Healthcare Solutions NetworkCincinnati-based employers have employees living on both sides of riverTriHealthJoint venture collaboration between Cincinnati, Ohio- based TriHealth and Edgewood, Kentucky- based St. Elizabeth HealthcareOffers health insurers access to a unified, high- quality, low-cost network that covers the entire Tristate regionBoth organizations offering the network to their current employees and dependentsOhioKentuckySt. Elizabeth HealthcareNeither Organization Able to Offer Adequate Geographic Coverage AloneSource: Health Care Advisory Board interviews and analysis.
83Using Expanded Reach to Target Local Employers Selling Narrow Network Product Through Commercial InsurersCreating a Purchaser-Focused Network SolutionInsurer sells HSN as a narrow network productCombined geography sufficient to support large Cincinnati employersTriHealthLocal EmployersHealthcare Solutions NetworkSt. Elizabeth’sPublic PayersKey Partnership ElementsHistorical RelationshipPrevious collaboration around insurance products key to ensuring mutual trustGovernanceOrganization CEOs serve as Co-CEOs with support of existing management teamsQuality AlignmentAligning quality targets to work towards demonstrable quality improvementsSource: Health Care Advisory Board interviews and analysis.
84Beginning with Cardiac and Neuroscience Care Aligning to Expand Clinical ScopeCreating a Comprehensive High-Value Network Through PartnershipBeginning with Cardiac and Neuroscience CareVirginia MasonVirginia Mason quaternary facilityEvergreenHealth tertiary facilityEvergreenHealthGains access to home care services and fills gap of secondary facilities east of Seattle with a partner with a proven reputation for valueGains access to quaternary facility with proven clinical outcomes and access to expanded geographyEvergreenHealth home careVirginia Mason clinicsNetwork in Brief: EvergreenHealth and Virginia MasonEvergreenHealth is a 318-bed medical center and integrated health system based in Kirkland, Washington; Virginia Mason is a 336-bed medical center and group practice based in SeattleIn 2012, partnered to create a broader network of care in the Puget Sound region with the purpose of continuous improvement in quality and safety, reduction in cost of care, improving patient experience, and shared recruitment to avoid oversupply of physiciansPartnership leverages strengths of both organizations and broadens each partner’s scope of services and expanded geographic reachSource: Health Care Advisory Board interviews and analysis.
85Linking a Network Without an LLC Ensure A Cohesive BondBuilt on a Foundation of Shared VisionLinking a Network Without an LLCDevelop a Long-Term VisionContractual partnership agreement spans 20 years, ensuring both parties are fully committed to partnershipEnsure Physician SupportBoth partners demonstrate clinical quality and outcomes“We set out to form an extremely durable and long-term partnership that allows us to come together and create a high-value network of care. To do that, we forged a board- driven, 20-year agreement that ensures the partnership’s strength and stability, ultimately increasing the quality and value of care available in our community.”Secure SupportSteering committee contains equal representation from both partners (CEOs, CMOs, COOs)Track PerformanceQuality dashboards track progress on clinical areas; partnership dashboard tracks progress on priority activities aligned with strategic partnership goalsGary Kaplan MD, CEO, Virginia MasonBob Malte, CEO, EvergreenHealthSource: Health Care Advisory Board interviews and analysis.
86Systems and AMCs Also Seeking to Enhance Portfolios Tactic #2: Portfolio-Enhancing Clinical PartnershipsBringing High-End Expertise to the Local MarketTelemedicine Partnerships Allow Complex Care to Remain In-HouseSystems and AMCs Also Seeking to Enhance PortfoliosNetwork in Brief: Mayo Clinic Care Network26-member network; partnership model that extends Mayo physicians and expertise to membersIn addition to direct access to clinical expertise, members are able to brand themselves as members of Mayo Clinic Care NetworkeConsult: Specialists can connect with Mayo Clinic experts when they want additional input on complex patient careAskMayoExpert: Web-based system allows members to access Mayo perspective on hundreds of medical conditionsSource: Health Care Advisory Board interviews and analysis; Mayo Clinic Care Network, available at:
87Competitive Dynamics Threaten Local Partnerships Conflicting Incentives a Risk When Partnering RegionallyCase in Brief: Nielsen Park Hospital1Multi-Layered Collaboration Promises Benefit…Small, rural community hospital in the SouthPartnered with large tertiary system to enable local access to high-end specialty services such as cardiology, oncologyDespite promising start to partnership, competition for volumes between partners threatening sustainability of affiliationCo-brandingCommunity hospital able to brand itself as affiliate of tertiary hubTelemedicineAllows community physicians to consult with specialists in real-timeShared StaffPhysicians from tertiary hub travel to community hospital…Tensions Over Referrals Threatens AffiliationTertiary hub looking to draw as many referrals as possible from community partnerCommunity hospital trying to retain as many volumes as possible within local communityPseudonym.Source: Health Care Advisory Board interviews and analysis
88Consider Local Partner if…. Consider National Partner if…. Weighing a Local or National PartnerIdeal Geography a Key Tension in Clinical Affiliation DecisionsConsider Local Partner if….Consider National Partner if….Local providers with same service gap are interested in collaborationLocal providers that currently offer service are interested in partnering for mutual benefitDemand for service is low enough that local providers are willing to share staff, equipmentPatients value brand familiarity over national reputationUltimate aim of partnership is joint contracting or shared population health managementLocal competition for volumes in targeted service area is highLocal demand for service is insufficient to justify full-time staffTargeted service may easily be provided through telemedicine or virtual physician-to-physician consultsPatients recognize and value national reputationNational providers have significant quality advantage over any local partnership optionsSource: Health Care Advisory Board interviews and analysis.
89Key TakeawaysWinning Preference Through Clinical Scope and Geographic ReachShared vision and strategy key to partnership around network productIt is difficult to make the necessary investments to ensure network growth without a shared vision and a significant amount of trust among network partners.Creation of a health plan may be a component of network strategy, but should not be the sole strategyThe most successful networks ensure flexibility in contracting options; achieving this means leading with a provider network that can also contract with commercial payers.Certain models faster at bringing a network together but may restrict contracting abilityM&A and CI joint contracting arrangements are slower to market, but allow for tighter network integration than faster models such as regional alliances and clinical affiliations.Competitive tendencies can threaten the success of regional clinical affiliationsCompetition for volumes can undermine regional affiliations; clear referral protocols are necessary to ensure each partner retains appropriate volumes.Source: Health Care Advisory Board interviews and analysis
90Weighing the Models Model Comprehensive Network Product Portfolio-Enhancing Clinical PartnershipsCommentsMerger or AcquisitionM&A clearly expands geographic reach and clinical scope; however, it is a much slower and more capital-intensive approach than other models.Clinically-Integrated Hospital NetworkCI is probably the most common means of pursuing joint contracting; this model will be essential for those organizations looking to partner around a narrow network offering.Accountable Care OrganizationSharing risk is probably the quickest way to enable joint contracting; however, starting an ACO involves costs and cultural shift.Regional CollaborativeCollaboratives often involve more members so there is greater potential to expand reach and scope; however, attempts to contract jointly will likely invite significant regulatory scrutiny.Clinical Affiliation AgreementThese, typically bi-lateral agreements, are well-suited to filling a specific clinical gap; however, they often span large geographies and thus tend to limit opportunities to contract jointly.Source: Health Care Advisory Board interviews and analysis.
91Five Characteristics of the Ideal Partner Ideal PartnersFive Characteristics of the Ideal PartnerComplementary Clinical AssetsComplementary GeographyStrong Brand NameShared Strategic VisionWillingness to Share ReferralsPartners that span a different part of the care continuum are ideal for bringing new capabilities to the networkFor the purposes of expanding reach or sharing referrals, partners with contiguous geography are ideal; national partners ideal for telemedicine partnershipsConsider whether patients value national brands or prefer a local partner (i.e. the “best hospital in town” or the hospital that they have been to before)Particularly important for those organizations looking to jointly own and sell a market-facing network; affiliations of this nature require long-term commitmentClinical affiliations in particular require clarity around referral protocols and where volumes will be retained to ensure competitive tensions do not undermine partnershipSource: Health Care Advisory Board interviews and analysis.
92Lowering Unit Costs Through Operational Scale Leveraging Low-Price Care SitesTop-of-Site Referral PartnershipsSlimming Underlying Cost StructuresClinical Footprint RationalizationNext-Generation Shared Services
93High Fixed Cost Production Model Low-Cost Narrow-Focus Care Sites High Cost Driving Price RigidityLimited Ability to Compete Against Low-Cost ProvidersHigh Fixed Cost Production ModelStruggling to offset expensive fixed cost baseDifference in Average Price for Common Imaging Procedures1 HOPD2 vs. Freestanding Imaging Facilities, 2011Lack of back-office efficiency57% lowervs.Low-Cost Narrow-Focus Care SitesFacilities with low-fixed costsStreamlined focus on narrow set of servicesMRI, CT, Radiography, Nuclear Medicine, Ultrasound, Mammography, and PET.Hospital Outpatient Department.Source: Regents Health Resources, “Imaging Market File,” Radiology Business Journal , April 2011; Health Care Advisory Board interviews and analysis.
94Leveraging Low-Price Care Sites Slimming Underlying Cost Structures Use Networks to Build Operational ScaleThree Tactics for Increasing Price FlexibilityLeveraging Low-Price Care SitesSlimming Underlying Cost Structures345Top-of-Site Referral PartnershipsClinical Footprint RationalizationNext-Generation Shared ServicesSource: Health Care Advisory Board interviews and analysis.
95Re-envisioning Top-of-Site Care Tactic #3:Top-of-Site Referral PartnershipsRe-envisioning Top-of-Site CareSending Patients to the Right Site, at the Right CostAn Expanding Network of Low- Acuity PartnersThree Main No-Regrets Focus Areas for Volume ShiftsUrgent CarePediatric Urgent CarePediatric After HoursWomen’s ClinicTertiary Hospital to Community Hospital1Chronic Disease ClinicFull Worksite ClinicEmergency Department to Urgent Care Provider2Medical HomeMental Health Urgent CareRetail ClinicE-Visits3Primary Care Office to Retail ClinicSchool ClinicAdvanced Care CenterSource: Health Care Advisory Board interviews and analysis.
96Attractive Strategy In Negotiations with Purchasers More Than Just TheoreticalFaulkner’s Stubbornly Low Prices Show Benefit of StrategyProving the PointBrigham and Women’sFaulkner Hospital13.7%General admissions shifted from BWH to Faulkner since 2005Merged19%Lower commercial prices at Faulkner vs. BWH, as of 20122013 Case Mix Index1.380.80Attractive Strategy In Negotiations with PurchasersBWH contracts with local multispecialty group (Harvard Vanguard Medical Group) came up for renegotiationHVMG received attractive terms from another local hospitalBWH able to retain contract by offering to shift more lower-acuity volumes to Faulkner at lower unit priceSource: Sussman et al, “Integration of an Academic Medical Center and a Community Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.Came together under common corporate parent
97More Than Just Theoretical (cont.) Case in Brief: Brigham and Women’s/Faulkner HospitalCommon parent entity for the comprehensive affiliation agreement between Brigham and Women’s Hospital and Faulkner; subsidiary of Partners Healthcare, the largest integrated delivery network in MAInitiated “Faulkner 500” efficiency effort to shift 500 General Medical admissions per year from Brigham and Women’s Hospital to Faulkner Hospital to optimize capacity at both sitesSigned agreement with Harvard Vanguard Medical Group to treat community-hospital-level admissions at Faulkner with reduced rates, and reserve high-intensity cases for BWHSource: Health Care Advisory Board interviews and analysis.
98Co-branding Opportunity Removing Obstacles to Volume ReallocationIntegration of Clinical Programs Needed to Encourage Top-of-Site CareKey Elements of the Brigham and Women’s-Faulkner Volume Reallocation EffortIntegrated Teaching ProgramsBrigham surgery and medicine residents perform a portion of training at FaulknerJoint Clinical ProgramsDue to limited operating room availability at Brigham, unfilled rooms at Faulkner made available to BWH surgeonsCo-branding OpportunityPatient ConvenienceLess travel, availability of private rooms, better parking all seen as improving the patient experienceCross-Branding OpportunityCombining the two organization’s name resonated with patient focus groups and held pushback at bay from both entitiesSource: Sussman et al, “Integration of an Academic Medical Center and a Community Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.
99Significant Opportunity for Savings in Reducing Excess Bed Capacity Tactic #4: Clinical Footprint RationalizationRight-Sizing Facility Footprint a Clear OpportunityMost Markets Far From RationalizedDespite Reductions in Hospital Beds, Most Organizations Still Have Excess CapacityU.S. Inpatient Beds, Occupancy RateSignificant Opportunity for Savings in Reducing Excess Bed CapacityEstimated Cost Savings from Eliminating Expectedly Empty Beds in Rhode Island1$25-106KPer bed when removing beds piecemeal, includes reduction in supply and staff expenses$580KPer bed when closing entire facilities, includes facility, supply, and staffing cost reductionsCalculated by taking 18% of the average cost per bed, by bed type, from the 2009 and 2010 Medicare Cost Report Data, inflated at 2% annually to reflect natural price growth.Source: Alicia Caramenico, “Council: Eliminate excess hospital beds to save $116M,” Fierce Healthcare, May 2013; Health Care Advisory Board interviews and analysis.
100Avoids Duplication of Services within Shared Market First, Do No HarmStrategic Alignment Allows for More Efficient Planning for Future CapacityAvoids Duplication of Services within Shared MarketNorthwest Metro Alliance Combined Planning ProcessExample: HealthPartners and Allina Health are joint owners of two outpatient imaging centers in the marketAlliance creates guiding principles and rulesShared incentives under HealthPartners’ health plan encourages cooperationAllows for collaborative planning across the entire populationNetwork in Brief: Northwest Metro AlliancePartnership between Bloomington-based HealthPartners and Minneapolis-based Allina Health, centered in northwest suburbs of MinneapolisJoint planning done through alliance reduces duplicative effortsSource: HealthPartners and Allina Hospitals and Clinics, available at: accessed 3 May 2014; Health Care Advisory Board interviews and analysis
101Address All Stakeholder Incentives Consolidation of More Lucrative Services May Require Financial AlignmentHSHS-Prevea Partnership Finds Opportunity to Rationalize Duplicative Imaging Capacity in WisconsinComponents of Alignment Necessary to Execute on Capacity RationalizationCultural AlignmentLong working relationship since 1995Strategic AlignmentShared vision of regional growthLaunched three-way joint venture with Dean HealthCollaborating on a number of population health management projectsFinancial AlignmentAgreed to sign PSA with Prevea physicians ensuring physician compensation at fair market valueSource: Health Care Advisory Board interviews and analysis.
102Address All Stakeholder Incentives (cot’d) Case in Brief: Hospital Sisters Health System13-hospital health system based in Springfield, Illinois; geography spans Illinois and WisconsinHSHS Eastern WI Division partnered with Prevea Health, a multi- specialty group in the Green Bay area, since 1995Over time, HSHS and Prevea have increased level of financial integration to improve network efficiencySource: Health Care Advisory Board interviews and analysis.
103Decision to Consolidate Duplicative CV Services at Byron Health1 Limit to What Can Be Achieved Without Full MergerByron1 Merger Showcases Potential of Full-Service Line ConsolidationDecision to Consolidate Duplicative CV Services at Byron Health1Bells Medical Center1900 cases/yearLarge campus with excess capacityClarkes Hospital1200 cases/yearCapacity constraints for other servicesLarge Profitability DifferentialBells program clearly more profitable than Clarkes programClose Geographic ProximityPrograms within 5 miles of each other, serving same populationOperational GainsPotential cost savings from consolidated staffing, spaceStaffing Cost Savings0%25%Loss in market-share after consolidationReduction in number of Cardio-Pulmonary Perfusionists neededPseudonym.Source: Health Care Advisory Board interviews and analysis.
104Limit to What Can Be Achieved Without Full Merger Network in Brief: Byron Health12-hospital health system based in the EastCombined open-heart programs at two facilities within the system with the intention of generating cost reductions and improving operational efficiencySource: Health Care Advisory Board interviews and analysis.
105Attributes of a Top-Performing Shared Services Organization Tactic #5: Next-Generation Shared ServicesCreating Advantage Through ‘Internal Outsourcing’Applying the “Shared Services” Concept to Health CareAttributes of a Top-Performing Shared Services OrganizationTreats operational units as clients, competes for business vs. outside vendorsStrategy, functionality driven by needs at operational unit levelFocus on process standardization and continuous improvementTransfer of insight from high-performing units to low performing unitsConcept in Brief: Shared Services OrganizationSingle service organization performs selection of business support activities on behalf of multiple operating units“Shared” processes moved out of individual operating units and into separately managed shared services organization (SSO)An SSO has same expectations, responsibilities and accountabilities as external vendor does to its clients, making it more than just a centralization functionSource: Health Care Advisory Board interviews and analysis.
106Savings Reallocation Options for Hypothetical Medium-Size U.S Hospital Translating Cost Savings into Competitive PricingSignificant Opportunity to Improve Network AttractivenessSavings Reallocation Options for Hypothetical Medium-Size U.S Hospital1Margin ImprovementImprove margins from 6.5% to 9%New Investmentse.g. Two new 1.5 T MRI Scannerse.g. Four new 64 Slice CT scannerse.g. One new IMRT1 Machine2150-bed hospital carries out successful cost-savings initiativeManages to cut $2 million from operating expensesUniversal Price ReductionsReduce prices overall by up to 5.9% while still maintaining existing margins34Service-Specific Price Reductionse.g. reduce outpatient imaging prices up to 35% while still maintaining existing marginsIntensity Modulated Radiation TherapySource: Health Care Advisory Board interviews and analysis.
107Key Takeaways Lowering Unit Costs Through Operational Scale Scale no guarantee of cost savingsRegardless of the model chosen, successful consolidation requires an investment in a dedicated cross- organizational consolidation function. No model guarantees such a function.Cross-organizational transparency necessary to unlock full benefits of consolidationThough non-merger models have the ability to centralize and consolidate costs, mergers provide an extra level of cross-organizational transparency and therefore a greater opportunity to cut costs.Integration of clinical programs necessary to promote top-of-site volume allocationModels that encourage clinical alignment will facilitate more efficient volume reallocation.Rationalization of underutilized capacity historically elusivePotential merger savings based on consolidation and closure of facilities should be highly scrutinized.Source: Health Care Advisory Board interviews and analysis.
108Weighing the Models Model Top-of-Site Referral Partnerships Clinical Footprint RationalizationNext Generation Shared ServicesCommentsMerger or AcquisitionGreatest possibility for consolidation of business functions, rationalization of referrals and clinical capacity though success requires partnership beyond financial integration.Clinically-Integrated Hospital NetworkContracting leverage gained through CI offers incentive for clinical collaboration but little incentive for operational consolidation and rationalization.Accountable Care OrganizationHuge incentive for rationalization of referrals, though less for consolidation of operations; strategic alignment offers possibility to prevent duplication of future clinical investment.Regional CollaborativePotential, though limited, to consolidate and centralize business operations, and gain leverage over vendors, suppliers.Clinical Affiliation AgreementFocus on operational alignment limits potential to consolidate business operations, though may help to rationalize referral patterns, prevent future duplication of investment.Source: Health Care Advisory Board interviews and analysis.
109Five Characteristics of the Ideal Partner Ideal PartnersFive Characteristics of the Ideal PartnerComplementary Case MixLow Cost StructureWillingness to ConsolidateCultural ClosenessExisting CapabilitiesPartnerships between organizations that have complementary service capabilities provide opportunity for mutual benefit by reallocating volumes between sites.Organizations with a low existing cost structure represent good opportunities to expand low-price sites of care.Consolidation requires commitment and close cooperation; ideal partners are committed to executing on centralization and consolidation possibilities.Consolidation and centralization are highly political process; a high degree of cultural alignment is necessary across all organizational levels to prevent significant pushback.Partners with already highly efficient operational functions provide best opportunity for consolidation as scaling existing functions is easier than building anew.Source: Health Care Advisory Board interviews and analysis.
110Reducing Total Costs Through Population Health Overcoming Financial BarriersJointly-Financed Infrastructure InvestmentBreaking Down Information SilosContinuum-Wide Data TransparencyHardwiring Mutual AccountabilityNetwork-Enabled Performance Incentives
111Providers Judged by Ability to Reduce Utilization Controlling Unit Costs Only Part of the EquationThree Provider Strategies to Appeal to Network Assemblers on CostLow Unit PriceTotal Cost ControlPrice CutImprove efficiency to offer lower fee scheduleUtilization ManagementRationalize utilization to secure referral preferenceTrend ControlImplement care management to control cost growth trendDegree of Cost ControlSource: Health Care Advisory Board interviews and analysis.
112Attaining Financial Success From Patient Management A Clear Path for ImprovementSteps To Total Cost Management Well EstablishedAttaining Financial Success From Patient ManagementHigh Risk PatientsRising-Risk PatientsLow-Risk PatientsTrade high-cost services for low-cost managementAvoid unnecessary higher-acuity, higher-cost spendingKeep patient healthy, loyal to the systemStudy in Brief: Playbook for Population HealthStudy summarizes the key leadership and care model capabilities needed for financial success under population healthAvailable at advisory.com/pophealthplaybookSource: Health Care Advisory Board interviews and analysis.
113Breaking Down Information Silos Population Health a Difficult Ambition Acting AlonePartnership Offers a Path ForwardProblem #1: Insufficient financial capitalBreaking Down Information Silos7Continuum-Wide Data TransparencyProblem #2: Fragmented data and expertiseProblem #3: Lack of shared accountabilityReducing Financial BarriersHardwiring Mutual Accountability68Jointly-Financed Infrastructure InvestmentNetwork-Enabled Performance StandardsSource: Health Care Advisory Board interviews and analysis.
114Population Health Requires Extensive Investment Tactic #6: Jointly-Financed Infrastructure InvestmentPopulation Health Requires Extensive InvestmentCommon Areas of InvestmentAn Undeniable Financial BurdenCare management staffingDisease RegistryElectronic Medical RecordPost-Acute Care network$12MPatient-Centered Medical HomeManagement resourcesAHA’s1 estimate of ACO start-up costs fora 5-hospital systemLegal and consulting supportPredictive analytics$14.1MHealth Information ExchangePCP recruitmentAHA’s estimate of ongoing annual ACO costs for a 5-hospital systemSpecialist networkPatient engagement toolsAmerican Hospital Association.Source: American Hospital Association, “Activities and Costs to Develop an Accountable Care Organization,” available at: accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
115Partnership Reduces Individual Financial Burden Shared Care Management Investment Through ACOArizona Care Network Shared Staffing ModelAbrazo HealthShared Investment AreasCare management teams (RN, community resource specialist, pharmacist)Physician support staff (e.g. for quality training)IT infrastructureArizona Care NetworkDignity Health ArizonaJointly-owned physician- led ACO and CI networkNetwork in Brief: Arizona Care NetworkPhysician-led ACO and CI network; jointly-owned by Abrazo Health and Dignity Health ArizonaPopulation health infrastructure investments made at network level, allowing Abrazo and Dignity to share costs of resources such as staffing, ITSource: Health Care Advisory Board interviews and analysis.
116Regional Utilization Trends Reveal Top Population Health Opportunities Tactic #7: Continuum-Wide Data TransparencyPool Data Across Network to Pinpoint EffortsPartners Benefitting from Master Patient IndexRegional Utilization Trends Reveal Top Population Health OpportunitiesNetwork in Brief: Dallas-Fort Worth Hospital Council Foundation80 area hospitals feed patient utilization data into enterprise data warehouseConsortium of 156 hospital and associate members in Northern TexasProvides educational programs, collaborative efforts, strategic alliances, and advocacy with the local and state governmentsDiscovered that 25% of readmitted patients in the region did not return to their original hospital for care, making it difficult to accurately predict readmission ratesMaster patient index matches patient records across facilities and organizationsData is fed into analytic tools that provide insight into regional trends in utilizationPaying members receive access to quality dashboard that helps pinpoint population health effortsSource: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
11712% 9% 16% 12% 20% Putting the Master Patient Index into Practice Ensures Management of Riskiest Population SegmentsReal-Time Data Enables Targeted Resource Deployment at One Member Hospital12z12%9%Examination of region- wide, cross-facility utilization patterns reveals readmissions as area of opportunityAnalytic tools reveal clinical, demographic trends among patients who had been readmitted in the pastReduction in 30-day acutemyocardial infarction readmission rate at one member hospital16%12%43Reduction in 30-day pneumonia readmission rate at one member hospitalzAggressive case management of identified patients leads to reduction in readmissionsMember hospital uses population-level insight to identify patients at increased risk for readmission20%Reduction in readmissions across all member hospitalsSource: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
118Drilling Down to the Individual Patient Level Four Approaches to Real-Time Data Sharing Among Network PartnersManual Data-Sharing AgreementsKey to Partnership: Consensus on how often to proactively push dataExample: Visiting Nurse Service of New York sends home health assessment to three hospital partners every dayEMR Look-UpsKey to Partnership: Shared or linked EMR systemsExample: Through their partnership in the Northwest Metro Alliance, Allina and HealthPartners have read only-access to each other’s Epic systemsADT1 FeedKey to Partnership: Ideal partner has access to out-of-system utilization dataExample: Blue Shield of California provides real-time utilization data with provider partners through CalPERS ACORegional HIEKey to Partnership: Shared funding to ensure financial sustainabilityExample: Medical Home Network in Chicago has set up a regional HIE that provides participants with last 90 days of patient dataSource: Chicago Tribune, available at: accessed October 1, 2012 ; Health Affairs, “Four Years Into A Commercial ACO For CalPERS: Substantial Savings And Lessons Learned,”; HealthPartners and Allina Hospitals and Clinics, available at: accessed 3 May 2014 Health Care Advisory Board interviews and analysis.Admission, Discharge, Transfer.
119Consolidating Risk Scores First Step to Aligned Care Management Establish a Common Network LanguageShared Processes Eliminate Gaps in Stand-Alone EffortsConsolidating Risk Scores First Step to Aligned Care ManagementAnalysis of Top 1,000 Riskiest Patients Revealed:Each individual algorithm failed to identify some high-risk patientsInconsistent identification reduced ability to prevent:ER visitsAdmissions from ERInpatient readmissionsPrior to creation of CalPERS ACO, each participant had individual risk scoring processRisk scores consolidated into single process and single IT platformSource: Blue Shield of California, “An Accountable Care Organization Pilot: Lessons Learned,” available at: https://www.blueshieldca.com/employer/documents/knowledge-center/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis.
120Establish a Common Network Language (cont.) Network in Brief: CalPERS ACONorthern California-based ACO composed of Blue Shield of California, Hill Physicians Medical Group, and Dignity Health serving 42,000 CalPERS employees and dependentsBefore ACO, each entity had its own risk scoring methodologyAs first step in population health efforts, recognized need for a unified risk segmentationFrom , the ACO has generated gross savings of $105M with the majority of savings returned as lower premiumsAchieved 15% reduction in length of stay and 16% reduction in total inpatient days over first four years of ACOSource: Blue Shield of California, “An Accountable Care Organization Pilot: Lessons Learned,” available at: https://www.blueshieldca.com/employer/documents/knowledge-center/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis.
121Hardwiring Mutual Accountability Tactic #8: Network-Enabled Performance IncentivesHardwiring Mutual AccountabilityTwo Promising Strategies to Hold Partners AccountableFormal Shared RiskMembership-Based IncentiveIncluding partners in formal risk-based arrangements (e.g. shared savings, global payment contracts)Candidates:Hospital ACO partnersEmployed physiciansAncillary providersPositioning membership in the network itself as performance incentive (e.g., preferred referral network)Candidates:Clinical Integration NetworkPost-Acute Care ProvidersSource: Health Care Advisory Board interviews and analysis.
1225% Extend Shared Risk Beyond Hospital and Physicians Bringing Ancillary Providers to the Table Through Shared SavingsMMC Physician-Hospital Organization ACOHome Health Included because of high Medicare utilizationSNF Included because of high Medicare utilizationPHO has worked with each provider to identify relevant performance metrics; focusing specifically on 33 metrics from MSSP to promote performance against value-based metrics across sitesLab Included due to relevance for any populationBehavioral Health Included in case of expansion to MedicaidNetwork in Brief: MMC Physician-Hospital Organization5%PHO composed of 1,100 physicians from the Community Physicians of Maine and the seven MaineHealth hospitals; based in southern and coastal MaineAs part of participation in the Medicare Shared Savings Program, will be sharing savings with ancillary providers based on value performance measuresPortion of savings that will be distributed to “other providers”, i.e. not hospitals, PCPs, or specialistsSource: MMC Physician-Hospital Organization, available at: accessed May 3, 2014; Health Care Advisory Board interviews and analysis;
123Creating Motivation to Meet Network Standard Creating the Incentive to Keep UpImplementing Lessons from Physician CI1Creating Motivation to Meet Network StandardThreat of Probation Incents ImprovementBenefits to Network InclusionAll physicians must meet a minimal performance threshold on “CI score”Physicians who score below minimum threshold placed on probation for one yearFavorable payer rates from joint contractingAccess to IT infrastructureNetwork in Brief: Cronulla Health Care2Clinically integrated physician network affiliated with six Cronulla Health Care hospitals in the MidwestInstituted CI score, non-negotiable membership requirements to improve unity, quality of physician partners in networkClinical integration.Pseudonym.Source: Health Care Advisory Board interviews and analysis.
124Requiring Monthly Reporting to Ensure Continuous Performance Extending Network Exclusivity to the PAC WorldPromise of Increased Referrals Creates Performance Incentive for PACsSetting Out Strict Quality Standards to Achieve and Maintain Preferred StatusRequiring Monthly Reporting to Ensure Continuous PerformanceSNF StandardsMonthly SNF ScorecardOverall rating of four or five starsQuality rating of three, four, or five starsRegistered nurses on-site 24/7Ability to start IV lines 24/7Ability to admit patients within two hours_____ Long-term care mortality rate_____ Long-term hospitalization index_____ Total readmission rate within 30 days_____ Total readmission rate within 72 hoursNetwork in Brief: OSF HealthcareNetwork in Brief: North Shore-LIJEight-hospital, not-for-profit health system based in Peoria, IllinoisAs part of Pioneer ACO strategy, created a preferred SNF network limited to 17 facilities who met target criteria16-hospital, not-for-profit health system based in Great Neck, New YorkIn 2008, created a SNF affiliate network of 19 from list of potential 266Source: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at: accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
125>50% Preferred Networks Prove Ability to Reduce Total Cost Promote Continuous Improvement Through Focused PartnershipReducing Hospitalizations at OSF’s Preferred NetworkHeart Failure Rehospitalization RateAll-Cause Readmission RateReducing Readmissions and ED Visits at North Shore-LIJ’s AffiliatesReadmissions From Affiliated SNFs>50%Reduction in ED visits from affiliated SNFsSource: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at: accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
126Mutual Benefit Necessary to Create Incentive Critical Elements of Preferred PAC NetworkKey PAC BenefitKey Health System BenefitAccess to Operational ResourcesHealth systems may provide access to functionalities like their GPOs1 or IT systems that PAC2 providers would be unable to access on their ownData TransparencyRegular data reports from PAC partners ensure that performance continues to meet high-bar; highlights areas where additional support may be neededAreas of Mutual BenefitShared Care Pathways and TrainingHealth systems and PAC providers have different areas of expertise and may share protocols and training resources to improve network as a wholeShared StaffPAC providers may be able to expand hospital capacity by taking on complex patients; health systems may send staff to monitor high-risk patients at PAC sitesGroup Purchasing Organizations.Post-Acute Care.Source: Health Care Advisory Board interviews and analysis.
127Key Takeaways Reducing Total Costs Through Population Health Alignment models that allow flexibility in partner choice create inherent performance incentivesJoint contracting networks, alliances, and ACOs offer greater ability to switch out low-performing partners than full-asset mergersStandardizing care according to best practice requires tight financial alignmentThough looser collaborations may allow members to pinpoint best practices, standardizing care according to best practice will require partnership models that bring tighter financial alignment between partnersAdding more partners reduces financial burden, but also any potential rewardAdding more partners to population health efforts can lower financial costs, and improve care management, but it can also spreads potential savings across greater number of organizationsEasier to contract for risk through single entityDifficulties in analyzing and valuing risk are exacerbated when multiple parties are negotiating and signing separate contracts with payersSource: Health Care Advisory Board interviews and analysis.
128Weighing the Models Merger or Acquisition Jointly-Financed Infrastructure InvestmentContinuum-Wide Data TransparencyNetwork-Enabled Performance StandardsCommentsMerger or AcquisitionLong development time for mergers lowers flexibility of partner selection, though full financial alignment allows greater clinical alignmentClinically- Integrated Hospital NetworkInvestment in CI tends to focus on joint contracting for fee-for-service contracts, rather than population health managementAccountable Care OrganizationThough financial incentives are aligned to support population health coordination, lack of strategic alignment precludes more helpful consolidation of resourcesRegional CollaborativeThough number of partners may support greater economies of knowledge, little incentive to collaborate on population healthClinical Affiliation AgreementMay incentivize collaboration on specific clinical objectives, but broader alignment vehicle necessary to facilitate population health coordinationSource: Health Care Advisory Board interviews and analysis.
129Ideal Partners Three Characteristics of the Ideal Partner Common Patient PopulationComplementary Population Health AssetsAccess to Claims DataOrganizations that share a patient population benefit when they partner to coordinate transitions and population health, whether they are working under fee for service or risk- arrangementsAll partnerships should involve some division of accountability, or efficient allocation of resources.Partnerships that bring together complementary assets can reduce new expenditures, minimize the need to rationalize existing assetsProvider organizations that have access to patient claims data, either through an owned health plan, or an existing relationship with a payer, represent ideal partners in population healthOrganizations should ensure that they negotiate access to claims data when setting up any risk- based arrangement with a commercial payerSource: Health Care Advisory Board interviews and analysis.
130Charting an Intentional Corporate Strategy Leverage Beyond PriceThe New Network AdvantageCharting an Intentional Corporate Strategy
131Partnerships Must Drive Market Advantage Leverage Beyond Price the Key to SuccessProduct AdvantageCost AdvantageIIIIIIWinning Preference Through Clinical Scope and Geographic ReachLowering Unit Prices Through Operational ScaleReducing Total Costs Through Population HealthDegree of Market AdvantageLeveraging Low-Price Care SitesSlimming Underlying Cost StructuresOvercoming Financial BarriersBreaking Down Information SilosHardwiring Mutual AccountabilityDriving Network AssemblyAppealing to Network AssemblersTime to Maximum BenefitSource: Health Care Advisory Board interviews and analysis.
132Models Set Ground Rules… ...But Underlying Challenges Remain Model Choice No Guarantee of SuccessModels Set Ground Rules…...But Underlying Challenges RemainLegal Ability to CooperateModels like M&A, clinical integration, and shared risk provide legal framework that enables collaborationIntegration PlanningLegal framework only the enabler; benefits of collaboration only realized through integrationAlignment of GovernancePartnership creates formal governance structure; leaders may be new or pulled from partner organizationsStakeholder Buy-InGovernance structure no guarantee of buy-in from key stakeholders such as physicians and board membersShared IdentityPartnership creates unified identify, whether through formal legal structure or informal collaborationCultural AlignmentIdentity may be in name-only; true cultural alignment requires robust communication plan, extensive trainingSource: Health Care Advisory Board interviews and analysis.
133Five Characteristics of Intentional Corporate Strategy Network Strategy Must Be More Than Just a HobbySuccess Depends on Focused, Intentional Strategy and ExecutionFive Characteristics of Intentional Corporate Strategy123Clarity of PurposeProfessionally Managed PipelineTransactional DisciplineIntentional corporate strategy starts with well-formed, clearly articulated organizational purposePartnership function should be an organized, routine process, not an episodic activityRobust due diligence process prevents “partnership for the sake of partnership”45Scientific Approach to Cultural FitIntegration as Core CompetencyCultural affinities and possible contradictions explored in parallel to financial due diligenceIntegration planning begins long before partnership is finalized and continuous indefinitely through rigorous monitoringSource: Health Care Advisory Board interviews and analysis.