5Health System Strategy at the Tipping Point Health Care Advisory BoardHealth System Strategy at the Tipping PointForces Shaping Provider Strategy in the New Health Care Economy
6A Crumbling Cross-Subsidy The New Logic of ChoiceThe Rise of Productive Growth
7Not the Smoothest of Starts Federal Exchange Slow to Answer the Bell
8Some State Exchanges Faring Better Enrollment Slow, But Most Websites WorkingState Decisions on Exchange Participation16 States, District of Columbia Running Own ExchangesState Exchange Enrollment Within First Week of LaunchState-Based Exchange>40,000Completed applications in New YorkFederal Exchange16,311Completed applications in CaliforniaPartnership Exchange12,955Completed applications in Kentucky326Completed applications in MarylandSource: Kaiser Family Foundation, “State Decisions for Creating Health Insurance Exchanges, as of May 28, 2013,” available at: CNBC, “One Washington gets Obamacare Right,” available at: Kentucky Governor’s Office, “2.6 Million Page Views on Kynect for Affordable Health Insurance,” available at: Health Care Advisory Board interviews and analysis.
9Post-Subsidy Premiums Within Reach for Many Observation #1: Affordable PremiumsPost-Subsidy Premiums Within Reach for ManyBut Penalties Still Smaller than Cost of CoverageWeighted Average Monthly Premiums for Adult Individual Aged 27Penalties for Non-complianceYearAnnual Penalty2014$95 or 1% of income2015$325 or 2% of income2016$695 or 2.5% of incomeFor Second Cheapest Silver Plan, by State, 2014, Pre and Post subsidy1 for Income of $30,000Annual PenaltyIncome: $30,000Source: Kaiser Family Foundation, “Kaiser Health Tracking Poll,” March 2013, available at: kff.org; PwC, “Health Insurance Exchanges: Long on Options, Short on Time,” October 2012, available at: Health Care Advisory Board interviews and analysis.
10Trading Price for Volume on the Public Exchanges Observation #2: Low ReimbursementTrading Price for Volume on the Public ExchangesReimbursement Information Still Anecdotal , but Rates Not GenerousAnticipated Provider Reimbursement Rates for Exchange PlansCatholic Health Initiatives Modest discounts from commercial ratesWellPoint Inc.Between Medicare and Medicaid ratesMillern Medical Center120% below commercial ratesMeyers Health110% above Medicare ratesTenet Healthcare Up to 10% below commercial ratesMeriwether Hospital15% below commercial ratesPseudonym.Source: Mathews AW and Kamp J, “Another Big Step in Reshaping HealthCare,” Wall Street Journal, February 28, 2013, available at: Health Care Advisory Board interviews and analysis.
11Lower Prices through Narrower Networks Observation #3: Narrow NetworksLower Prices through Narrower NetworksMonthly Health Insurance PremiumsProminent Health Systems Largely on the SidelinesSelect California Exchange Plans, 20141Actual PremiumsCedars-Sinai Medical Center not participating in any exchange plan networksUCLA Health System participating in only one exchange plan network36%80%13Blue Shield of California network physicians in payer’s exchange plansCalifornia physicians, hospitals participating in at least one exchange planInsurers offering plans on Covered California exchange5MIndividuals expected to be eligible for Covered California exchange, 2014Source: Covered California, “Health Plans & Rates for 2014: Making the Individual Market in California Affordable, May 23, 2013, available at: Kliff S, “California Obamacare premiums: No ‘rate shock’ here,” Washington Post, May 23, 2013, available at: Terhune C, “Insurers limit doctors, hospitals in state-run exchange plans,” LA Times, May 24, 2013, available at: Health Care Advisory Board interviews and analysis.Silver plan premiums for 40-year old individual, before subsidy; actual rates represent HMO plans in Northern Los Angeles.
12Still Time to Work Out the Kinks Six Months of Open Enrollment Ahead (And More Every Year)Insurance Exchange Enrollment TimelineJanuary 1, 2014Exchange-purchased coverage goes into effectIndividuals without insurance have three months to purchase coverage, avoid penaltyOctober 15, 20142015 open enrollment period beginsOctober 1, 2013Exchange websites officially openMarch 31, 2014Open enrollment period endsIndividuals still uninsured subject to tax penalty in 2014 filingOpen enrollment periodPublication in Brief: Navigating Health Insurance Exchanges, October 2013An overview of the federal health insurance exchanges with questions, implications for providers; available at advisory.comSource: Health Care Advisory Board interviews and analysis.
13Enrollment Support an Immediate Imperative Potential Benefit to Providers Depends on Uninsured TurnoutProjected Federal Subsidies1Possible Provider Tactics for Facilitating EnrollmentCBO2 Projections,On-site or community- based information boothsAwareness campaigns, advertisingExisting infrastructure for Medicaid eligibility checksCertified Application Counselor statusFinancial support to cover post-subsidy premiums2014 average $5,150 per subsidized enrolleeNew Money Flowing Into System$40BProjected premium revenue from exchanges in 201486%Percentage of exchange enrollees projected to qualify for subsidiesSource: Congressional Budget Office, “CBO's February 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage,” available at: PwC, “Health Insurance Exchanges: Long on Options, Short on Time,” available at: accessed March 3, 2013; Health Care Advisory Board interviews and analysis.
14The Bigger Danger: Collapse of the Cross-Subsidy Assumptions About Future Growth Beginning to FalterThree Axioms of Hospital EconomicsRobust Employer- Sponsored CoverageNew Danger: Cost concerns, innovative options driving employers to restructure benefits; changes unlikely to yield health system advantageSteady Public-Payer Pricing GrowthNew Danger: Medicare rate cuts, contingent payments widening gap to goal for feasible cross- subsidizationPredictable Volume ChannelsNew Danger: Falling utilization rates coupled with non-traditional competition narrowing potential volume streamsSource: Health Care Advisory Board interviews and analysis.
15Employer-Sponsored Coverage at a Crossroads Faltering Assumption #1: Robust Employer-Sponsored CoverageEmployer-Sponsored Coverage at a CrossroadsEmployers Choosing Between Abdication, ActivationSpectrum of Options for Controlling Health Benefits Expense“Abdication”“Activation”No Health BenefitsDefined Contribution/ Private ExchangeSelf-Funded BenefitsPros:Total escape from cycle of rising premium costsCons:Fine for violating employer mandateLoss of important labor market differentiatorPros:Health benefits still part of compensation packagePredictable, controllable cost growthCons:Fundamental disruption in benefit designEmployees may under- insurePros:Full control over networksExemption from minimum benefits requirementsCons:Greater exposure to unexpected expendituresComplex network negotiationsSource: Health Care Advisory Board interviews and analysis.
16Employers Already Scaling Back Coverage Option 1: Drop CoverageEmployers Already Scaling Back CoverageErosion of Employer-Sponsored Coverage Well UnderwayIndividuals Covered by ESI1Contribution to Insurance PremiumsNon-elderly PopulationCoverage for Family of Four11.5M fewer individuals20022012EmployerWorker95% growth102% growth23%Employers planning to offer CDHP2 as only plan option, 201425%Insured non-elderly adults with deductibles $1,000 or higher, 2012Employer-sponsored insurance.Consumer-directed health plan.Sources: Sonier J, et al., “State-Level Trends in Employer-Sponsored Health Insurance,” Robert Wood Johnson Foundation, April 2013, available at: Collins R, et al., “Insuring the Future,” The Commonwealth Fund, April 2013, available at: Towers Watson, “Reshaping Health Care,” 2013, available at: Health Care Advisory Board interviews and analysis.
17Some Employers Dodging Their Mandate Despite Delay, Employers Finding Ways to Avoid Insurance RequirementStrategies to Avoid ACA PenaltiesMemo to ManagersTo comply with the Affordable Care Act, Regal had to increase our health care budget to cover those newly deemed eligible based on the law's definition of a full time employee. To manage this budget, all other employees will be scheduled in accord with business needs and in a manner that will not negatively impact our health care budget…Cut jobs to remain under 50 FTEs1Convert full-time employees to part-time statusHire all new employees at part-time statusSplit into smaller companies with fewer than 50 FTEsCase in Brief: Regal Entertainment Group31%Franchisees that plan to cut jobs to stay under 50-employee threshold232%Retail and hospitality companies that plan to “change workforce strategy” to avoid penalties3In March 2013, reduced number of work shifts for non-salaried employees to ensure part-time statusFirst public company to institute policyFull-time equivalents.n=72 franchisees, all industries.n=1,203 employers.Source: Reynolds J and Merin J, “Business Leaders Give 2013 Outlook Mixed Reviews,” International Franchise Association, January 2013, available at: Mercer, “Health Reform Poses Biggest Challenges to Companies with the Most Part-Time and Low-Paid Employees,” August 8, 2012, available at: “Regal Entertainment Group Cuts Employee Hours, Explicitly Blames Obamacare in Memo: Report,” The Huffington Post, April 17, 2013, available at: Health Care Advisory Board interviews and analysis.
18New Path for Employer Cost Shifting Option 2: Private Health Insurance ExchangesNew Path for Employer Cost ShiftingPrivate Health Insurance Exchanges Open for BusinessPrivate Health Insurance ExchangesOver 100,000 employees enrolled in Aon Hewitt’s private health insurance exchange in fall 2012Benefits offered by nine national, regional carriersLaunching private health insurance exchange in nine statesExpect to serve employers covering approximately 30,000 individualsOffering suite of exchange offerings to employersWill include coverage from 10 major insurers”Responding to Market Demands15%“The high-caliber carrier participation in Mercer’s private benefits exchange matches the increasing interest displayed by our clients and prospects.”Employers considering private exchange model for 2014Julio A. Portalatin President and CEO, MercerSource: Towers Watson, “18th Annual Towers Watson Employer Survey on Purchasing Value in Health Care,” 2013, available at: Wall JK, “Mercer Courts Employers with Private Exchange,” Indianapolis Business Journal, April 22, 2013, available at: Health Care Advisory Board interviews and analysis.
19The Future of Employer-Sponsored Insurance? Private Exchanges Poised For Rapid GrowthProjected Private Exchange EnrollmentFactors Influencing Move to Private Exchange ModelsLogistical difficulty of benefit renegotiationsInternal politics of benefit changes27%Attractiveness of other optionsPercentage of consumers receiving employer-sponsored coverage today projected to receive benefits through private exchanges in 2018Source: Accenture, “One-in-Four Consumers Will Receive Employer Health Benefits Through Insurance Exchanges in Five Years, Accenture Research Shows,” available at: Health Care Advisory Board interviews and analysis.
20Igniting a Race to the Bottom Exchange Shoppers Trading Premiums for DeductiblesResults of Open Enrollment Process1242%Employees on Aon Hewitt health insurance exchanges selecting plans less rich than the previous yearCase in Brief: Sears, Darden RestaurantsFor 2013 open enrollment, self-insured large employers redesigned benefits to reduce health spend through defined contribution modelEmployers offered employees lump sum credit to choose coverage in Aon Hewitt’s online marketplacePreferred provider organization.Health maintenance organization.Source: Mathews AW, “To Save, Workers Take On Health-Cost Risk,” Wall Street Journal, March 17th, 2013, available at: Health Care Advisory Board interviews and analysis.
21Not the Commercial Insurance We’re Used To Individually-Purchased Coverage No Longer an AfterthoughtProjected Individual Market Size, CompositionImplications of Shift to Individually-Purchased Insurance87MPrice Sensitivity at Point of CoverageLower premiumsNarrower networksHigher deductibles, copays65M31MPrice Sensitivity at Point of CareAscendance of cost to patient as competitive differentiator constrains pricing strategyContinued, even intensified, imperative for effective collections threatens revenue outlookPatient reluctance to seek non-essential care undermines volumes and population health effortsSource: Congressional Budget Office, May 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage, available at: Health Care Advisory Board interviews and analysis.
22Significant Shift Toward Self-Funding Option 3: Self-Funded BenefitsSignificant Shift Toward Self-FundingEmployers Bearing More Risk, Turning to Providers as AlliesPercentage of Self-Insured EmployersPartially or Completely Self-InsuredEmployer Interest in Provider-Oriented StrategiesAdopt new accountable payment modelsContract directly with hospitals, physicians, ACOsOffer incentives for care coordinationOffer performance- based paymentsIn Place in 2013Planned for 2014Source: Kaiser Family Foundation, “2012 Employer Health Benefits Survey,” available at: Towers Watson, “18th Annual Towers Watson Employer Survey on Purchasing Value in Health Care,” 2013, available at: Health Care Advisory Board interviews and analysis.
23Self-Insurance Looking More and More Attractive Self-Funded Status Shelters Groups From Many ACA RequirementsConsumer Protection Under Affordable Care ActApplies to fully insured small-group plansApplies to self-funded small-group plansBans annual and lifetime plan limitsBans rescissions by insurersBans discrimination against patients with pre-existing conditionsRequires coverage of dependent children up to age 26Requires coverage of preventive services with no cost sharingRequires plans to maintain 80:20 medical loss ratioRequires insurers to use modified community ratingRequires plan to offer minimum package of essential health benefits in 10 categoriesRequires guaranteed issue and renewabilityAverage employee base typically required to justify a self-funded insurance planSelf-funded employers exempt from many ACA mandatesSource: US Department of Health and Human Services, “rights and Protections,” available at Calsyn M and Lee EO, “The Threat of Self-Insured Plans Among Small Businesses,” Center for American Progress, June 19, 2013; Health Care Advisory Board interviews and analysis.
24Public Payer Reimbursement Already a Prime Target Faltering Assumption #2: Steady Public Payer Pricing GrowthPublic Payer Reimbursement Already a Prime TargetMedicare Payment Cuts Becoming the NormACA’s Medicare Fee-for-Service Payment CutsReductions to Annual Payment Rate Increases1$415B in total fee-for-service cuts,$260BHospital payment rate cuts,$56BReduced Medicare and Medicaid DSH2 payments,Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services.Disproportionate Share Hospital.Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,” July 24, 2012, available at: Health Care Advisory Board interviews and analysis.
25No Question About Further Cuts, Just Methods Medicare Cuts Central to Long-Term Deficit Reduction PlansA Bipartisan Path Forward to Securing America’s FutureApril 2013Simpson-Bowles CommissionIncrease Medicare eligibility age from 65 to 67Reduce payments for hospital, post-acute care, and drugsExpand bundled payments and pay-for-performanceA Bipartisan Rx for Patient-Centered Care and System-Wide Cost ContainmentApril 2013Bipartisan Policy CenterEstablish ACO-like “Medicare Networks,” create strong incentives for participationEstablish mandatory bundled payments nationallyEqualize office visit paymentsBending the Curve: Person-Centered Health Care ReformApril 2013Brookings InstitutionTransition to “Medicare Comprehensive Care” organizations that receive global capitation paymentCap Medicare payment growth to per capita GDP rate$585B$560B$360BTotal estimated health care savings,Total estimated health care savings,Total estimated health care savings,Source: Bowles E and Simpson A, “A Bipartisan Path Forward to Securing America’s Future,” Moment of Truth Project, April 2013, available at: Daschle T, et al., “A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment,” Bipartisan Policy Center, April 18, 2013, available at: bipartisanpolicy.org; Antos J, et al., “Bending the Curve: Person-Centered Health Care Reform,” Brookings Institution, April 2013, available at: Health Care Advisory Board interviews and analysis.
26Contingent Payment Models Becoming the Norm Reimbursement Increasingly Tied to PerformanceMandatory Medicare Pay-for- Performance ProgramsMedicare Payment RatesPotential Chest Pain Treatment PathsMaximum Payment PenaltyHospital Value-Based Purchasing ProgramHospital Readmissions Reduction ProgramHospital-Acquired Condition PenaltyRAC Reaction Spilling Over to Volume25%1.6M69%Hospitals mandated to face hospital-acquired condition penaltyObservation stays nationwide, 2011Increase in number of Medicare beneficiaries under observation,Source: CMS, Bundled Payments for Care Improvement Initiative, 2012, available at: innovation.cms.gov; Source: The Advisory Board Company Daily Briefing, “Clement: What Medicare is doing to limit observation status,” May 28,2013, Washington, DC; Jaffe S, “Medicare Seeks to Limit Number of Seniors Placed In Hospital Observation Care,” Kaiser Health News, May 3, 2013, available at: Gengler A, “The Painful New Trend in Medicare,” CNN Money, August 7, 2012, available at: money.cnn.com; Health Care Advisory Board interviews and analysis.
27Volumes Still Soft Post-Downturn Faltering Assumption #3: Predictable Volume ChannelsVolumes Still Soft Post-DownturnConsumers Still Tightening their BeltsHouseholds Postponing or Cancelling Medical Care95%Percentage of primary care physicians reporting that patients rationing or forgoing medications, treatments due to financial concerns20062009Is it Cyclical……Or Is It An Enduring Trend?“In 2009, despite the economic downturn, the number of prescription drugs dispensed rebounded to prerecession rates of growth.”“We have a very weak economy and it’s just a different environment for the elective parts of healthcare. This could go beyond the recession. Being a less aggressive consumer of healthcare is here to stay.”Health Affairs, 2011Paul Ginsburg, Economist, Center for Studying Health System ChangeSource: Martin A, et al., “Recession Contributes to Slowest Annual Rate of Increase in Health Spending in Five Decades,” Health Affairs, 2011, 30: 11-22; Johnson A, Rockoff J, & Mathews A, “Americans Cut Back on Visits to Doctor,” Wall Street Journal, July 29, 2010; Health Insurance, “With or Without Health Insurance, Americans Skipping Doctors Visits, Surgeries,” available at: accessed September 21, 2011; Thomson Reuters, “Thomson Reuters Study Finds More Patients Postponing Medicare Care Due to Cost,” available at: accessed September 21, 2011; Health Care Advisory Board interviews and analysis.
28Population Health Efforts Shaping Volume Outlook Utilization Patterns Difficult to PredictInpatient Volume Under Different Population Health AssumptionsQuite a Difference7.6%Total inpatient volume growth, , with no additional population health management effort1.1%Total inpatient volume growth, , with aggressive population health management effortsSource: Health Care Advisory Board interviews and analysis.
29New Competitors Emerging in Ripest Markets Walgreens Entering the Care Management Industry2013: Launches three ACOs; begins diagnosing and managing chronic disease2009: Launches flu vaccine campaignSimple Acute ServicesVaccinations and PhysicalsChronic Disease MonitoringChronic Disease Diagnosis and Management2007: Acquires Take Care Health Systems2012: Offers three new chronic disease testsCase in Brief: Walgreen Co.”Not Just a DrugstoreLargest drug retail chain in the United States, with 372 Take Care ClinicsIn April 2013, became first retail clinic to offer diagnosis and treatment of chronic diseases“Our vision is to become ‘My Walgreens’ for everyone in America by transforming the traditional drugstore into a health and daily living destination...”Walgreen Co. OverviewSource: Japsen B, “How Flu Shorts Became Big Sales Booster for Walgreen, CVS,” Forbes, February 8, 2013, available at: “Take Care Clinics at Select Walgreens Expand Service Offerings,” Reuters, May 31, 2012, available at: Murphy T, “Drugstore Clinics Expand Care into Chronic Illness,” The Salt Lake Tribune, April 4, 2013, available at: Walgreens, “Company Overview,” available at: Health Care Advisory Board interviews and analysis.
30Savvy Providers Targeting Growing Market Segments Medicare-Focused Providers Offering Compelling Specialized ServiceJenCare’s Recent ExpansionAdults Aged 45-64, DeKalb County, GeorgiaJenCare Neighborhood Medical Centers opens new clinic in Atlanta metro region12,000-square-foot space caters to low-, moderate-income Medicare beneficiariesCase in Brief: JenCare Neighborhood Medical CentersSenior-oriented physician practices in Georgia, Kentucky, Virginia, Illinois, and Louisiana operated by Florida-based ChenMedPractices focus on rapidly-growing market for Medicare-insured primary care services38%Reduction in inpatient days for senior ChenMed patientsSource: Crossroads News, “JenCare Mecical One-Stop Center Caters Wholly to Seniors,” available at: Health Care Advisory Board interviews and analysis.
31A Giant Finding Its Footing BigCo Poised to Disrupt Referral ChainsBigCo’s1 Migration into Primary Care123Space Leased to Provider PartnersSelf-run Screenings, Wellness Services“Integrated Care Center”Limited success through non-owned retail clinicsValuable experience gainedScreenings, educational services offered through in- store clinicsPatient engagementFull primary care servicesReferrals to selected provider partnersCase in Brief: BigCoLarge corporation with over 4,000 retail stores in the United StatesPhasing out current retail clinic model, extending primary care access through virtual and in-store delivery channelsPseudonym.Source: Health Care Advisory Board interviews and analysis.
32Nearing the Limits of Extractive Growth Strategies Legacy Growth Levers Increasingly Time-LimitedTraditional Hospital Growth StrategyConsolidate Market PositionLock Up Referral StreamsDemand Price IncreasesEmerging Limitations:High degree of existing consolidation in major marketsHeightened scrutiny of hospital mergersLimited appetite for full acquisitionsEmerging Limitations:Increasingly competitive battlefield for physician affiliationsPhysician cost accountability calling historical system loyalties into questionLanguid overall demandRise of disruptive competitionEmerging Limitations:Dilution of traditional commercial coverageMarket pressures intensifying price competitionDirect, indirect cuts to public payer reimbursement widening gap to goalSource: Health Care Advisory Board interviews and analysis.
33Tomorrow’s Growth All About Winning Share Securing Preference from Purchasers, Physicians, PatientsThree Key Decision-MakersWholesale Purchasers (Payers, Employers)Referring ProvidersConsumersSystem GrowthSource: Health Care Advisory Board interviews and analysis.
34The New Logic of Choice A Crumbling Cross-Subsidy The Rise of Productive Growth
35Understanding the New Logic of Choice Three Groups Responsible for Allocating Market ShareDecision Makers and Their PrioritiesWholesale Purchasers (Payers, Employers)Referring ProvidersConsumersToday’s Priority:Low total cost of care for entire populationsProvider Wishlist:Comprehensive networkProven population health management capabilitiesToday’s Priority: High-quality, low-cost episodic careProvider Wishlist:Best-in-class outcomesData access, connectivityCross-continuum collaborationToday’s Priority: Affordability, on-demand access, and tailored serviceProvider Wishlist:Multifunctional range of access optionsAppropriate match of price level to service qualitySource: Health Care Advisory Board interviews and analysis.
36Commercial Payers Demanding More Value Taking Measures to Keep Employers in the GameCommercial Payer Cost Control InitiativesBenefits Value Advisor program participants eligible for savings by choosing alternative provider90%Price Transparency ToolsHealth Care Service Corp. Benefits Value Advisor programUnitedHealthcare’s myHealthcare Cost Estimator$2KAverage savings per claimBundled PaymentBCBS of Western NY, Kaleida Health cardiac surgery bundleConnectiCare, St. Francis Hospital hip and knee replacement bundleCase in Brief: Benefits Value Advisor ProgramProgram offered by Health Care Service Corp., operator of BCBS plans in four statesHealth care expert uses data, cost estimators, provider-finders to help consumers choose low-cost alternativesNarrow Networks, SteerageHarvard Pilgrim Focus NetworkAnthem BCBS Compass SmartShopper ProgramSource: Hostetter M and Klein S, “Health Care Price Transparency: Can It Promote High-Value Care?”, The Commonwealth Fund, April/May 2012, available at: Appleby J, “HMO-Like Plans May Be Poised to Make Comeback in Online Insurance Markets,” Kaiser Health News, January 22, 2013, available at: Health Care Service Corporation, “Health Care Consumers Realize Significant Cost Savings Through Benefits Value Advisor Program,” April 17, 2013, available at: Health Care Advisory Board interviews and analysis.
37Shared Accountability Necessary for Success EmployersShared Accountability Necessary for SuccessBest Performing Employers Collaborate Closely with ProvidersAverage Annual Employer Health Cost GrowthStudy in Brief: 18th Annual Towers Watson/National Business Group on Health Employer SurveyAnnual survey tracks employers’ strategies to manage health benefits and their resultsIdentified “best performers” as employers who held cost growth below median benchmarks for at least four consecutive yearsBest performers more likely to use supply-side strategies, share total cost responsibility with providersPricing and benefit design tactics did not differentiate employersBest Performers More Likely to Focus on Provider StrategiesAdopt new accountable payment modelsContract directly with hospitals, physicians, ACOsOffer incentives for care coordinationOffer performance- based paymentsBest PerformersLow PerformersSource: Towers Watson, “18th Annual Towers Watson/National Business Group on Health, Employer Survey on Purchasing Value in Health Care: Reshaping Health Care Best Performers Leading the Way,” available at: accessed March 15, 2013; Health Care Advisory Board interviews and analysis.
38Shopping Carefully for Acute Care Services Walmart Steering Employees to Preferred Providers for Surgical CareWalmart Centers of Excellence PartnersCleveland ClinicGeisinger Medical CenterMayo ClinicMercy Hospital SpringfieldScott & White Memorial HospitalVirginia Mason Medical CenterCase in Brief: Walmart Centers of ExcellenceWalmart entered into bundled payment agreements with six health systems covering heart, spine, and transplant surgeriesProgram launched in January 2013; includes 1.1 million covered livesProviders selected based on convenience, quality, and potential for cost savingsSource: Walmart News, “Walmart Expands Health Benefits to Cover Heart and Spine Surgeries at No Cost to Associates,” October 12, 2012, available at: Health Care Advisory Board interviews and analysis.
39Rewarding Care Management Expertise Large Employer Contracts Directly with Health System5,400Covered lives in contract$8-10MProjected savings through contract,Key Components of PartnershipCustomized 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 targetCase 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.
40Demonstrate Network Reliability Provider Value Proposition Must Match Employer NeedThree Employer PrerequisitesComprehensive Care CapabilityAdequate Geographic ScopeFlexible Relationship ModelDiverse suite of clinical services within health systemReliable access to network of specialty providersEffective coordination across continuumSufficient network coverage for all employeesConvenient access points to ensure timely utilization, promote continuous engagementStaged implementation based on employer’s readiness, provider’s ability to earn trustIncremental path to exclusive relationshipSource: Health Care Advisory Board interviews and analysis.
41Physicians Still at the Center of Referral Decisions Specialist, Hospital Choices Especially Physician-DrivenInformation Sources Used to Select a Specialist Physician1Information Sources Used to Select a Facility for a Procedure120082008n=13,500n=13,50058% rely solely on referral from PCP69% rely solely on referring doctorSurvey respondents given option to “select all that apply.”Source: Tu HT and Lauer JR, “Word of Mouth and Physician Referrals Still Drive Health Care Provider Choice,” Center for Studying Health System Change, December 2008; Health Care Advisory Board interviews and analysis.
42Physicians Increasingly Responsible for Cost, Quality CMS, Third-Party Aggregators Providing Financial TailwindAccountable Care Organizations, by Sponsoring EntityFinancial Support for Physician ACOsAs of October, 2013Health insurer specializing in Medicare Advantage plans, partners with providers to establish MSSP1 ACOsCurrently operates 31 Medicare ACOs with 2,000+ physician partners; covers ~300,000 Medicare beneficiaries in 13 statesHospital SystemsPhysician Groups35 participants in Advance Payment ACO ModelProvides upfront and ongoing financial support to independent physician ACOsOtherMedicare Shared Savings Program.Source: Centers for Medicare and Medicaid Services, available at Health Affairs, “Continued Growth Of Public And Private Accountable Care Organizations,” available at: Universal American Corp.; Health Care Advisory Board interviews and analysis.
43Re-evaluating Historical Referral Decisions Physicians Actively Destroying and Directing DemandThree Options for Accountable ProvidersPrevent Utilization through Medical ManagementHeart failurePneumonia1Demand Direction as Important as Destruction50%Percentage of total savings attributed to lower cost referrals for organizations participating in BCBS Massachusetts’ Alternative Quality ContractRetain Utilization Within NetworkSpecialty referralsImagingPhysician Group2Direct Unavoidable Utilization to Low-Cost, High-Quality PartnerInpatient, outpatient proceduresSelect inpatient medical care3Source: Song Z, et al, "The ‘Alternative Quality Contract,’ Based On A Global Budget, Lowered Medical Spending And Improved Quality." Health Affairs, 31:8 (2012): ; Health Care Advisory Board interviews and analysis.
44Securing Preference from Accountable Decisionmakers Contingent Upon Continuous Collaboration, Clinical ExcellenceDelivering on Accountable Decisionmakers’ Top PrioritiesProvide Real-Time Utilization FeedbackGuarantee Continued Influence Over Care PathwayImmediate knowledge of patient admission, discharge, transferAccess to patient records during inpatient stayInput into treatment decisions, care protocols, referral partnersOversight of post-discharge care management responsibilitiesAssemble Reliable Specialist NetworkDeliver Superior Acute Care OutcomesSeamless access to comprehensive specialty expertiseShared commitment to episodic cost control, collaborative workflowConsistent low-cost, high-quality clinical performanceProven results from reducing readmissions, error ratesSource: Health Care Advisory Board interviews and analysis.
45Seeking a Collaborative Partner New Preferred Partnership Driven by Shared VisionPartnership GoalsPartner on Care CoordinationCollaborate on Total Cost ManagementAtrius HealthIdeal PartnerDedicated resources for care coordination initiativesDevelopment, adoption of unified care standardsSeamless patient integrationTargeted focus on episodic cost controlCoordinated leadership, governancePrincipled referral decisionsCase in Brief: Atrius Health, Beth Israel Deaconess Medical CenterAtrius Health, an independent alliance of six physician groups and one home health/hospice provider in eastern and central Massachusetts; Beth Israel Deaconess Medical Center (BIDMC), a 649-bed academic medical center located in Boston, MAAtrius Health issued request for proposal for tertiary hospital partner to collaborate on Triple Aim goals with emphasis on care coordination, cost controlDesigned partnership contract around shared care coordination goalsSource: Health Care Advisory Board interviews and analysis.
46Ensuring Enterprise-Wide Coordination New Partners Collaborate Across Clinical, Operational ProcessesCommitments to Delivering High Value CareData SharingCare CoordinationReal-time utilization feedback for PCPs; can dictate patient transfer to Atrius Health facilityInteroperability between physician, hospital IT systemsAtrius Health care managers on-site, collaborate with floor RNs; responsible for care management, follow-upMutually-defined standards of careAtrius Health-preferred network honoredAtrius Health-BIDMC PartnershipDischarge PlanningStrategic AlignmentPCP notified of patient discharge, collaborates on discharge care plan“Care Continuation” office manages care transitions based on patient history, Atrius Health-preferred providersDedicated seats for Atrius staff on multiple BIDMC committeesCo-investments for planning, development of service expansionsSource: Health Care Advisory Board interviews and analysis.
47Anticipating the “Activated” Patient ConsumersAnticipating the “Activated” PatientConsumer Role in Decision Making Increasingly ImportantHigh-Deductible Health Plan EnrollmentConsumer Viewpoint on Role in Care Decision Making26%Individuals with Deductible of $1000 or Moren=2,071Doctor is completely in charge of treatment decisionsDoctor makes the decisions with some input from patientDoctor and patient make a join treatment decisionPatient makes final decision with some input from their doctorPatient is completely in charge of treatment decisions43%33%Decline in proportion of individuals with a deductible under $5001Respondents age 25 to 34 preferring fully active role in care decision makingFrom 2003 to 2012.Source: Collins R, et al., “Insuring the Future,” The Commonwealth Fund, April 2013, available at: Altarum Institute, “Altarum Institute Survey of Consumer Health Care Opinions,” Fall 2012, available at: Health Care Advisory Board interviews and analysis.
48Price Shopping Abetted by Transparency Free Apps, Tools Offer Platform for Comparison ShoppingTaking “Consumer-Driven” to the Next LevelInnovation in Brief: PokitDokService:Carpal Tunnel SurgeryLocation:TravelSurgeryUSA, Charleston, SCWebsite, mobile app marketed to individuals with high-deductible health plansOffers database of over three million providersBudget:$ 4,000NegotiatePayment Type:CashHSAInsuranceRequest Quote”“What Castlight Health is to people with employer-provided health insurance, PokitDok is to people with high-deductible plans. The new ‘set your price’ service for basic healthcare services may be what ‘consumer-driven healthcare’ needs to become a realistic option.”MedCity NewsSource: MedCityNews, “PokitDok Makes Cash Payments Easier for Doctors and Patients,” April 17, 2013, available at: Health Care Advisory Board interviews and analysis.
49Convenience a Critical Element of Choice Patients Seeking Alternatives to the Standard Office VisitRising Popularity of Retail Clinic VisitsOn-Demand Services Attracting Patients1.5M6.0M42%Consumers age 18 to 24 preferring independent, retail pharmacy for primary careSame-day appointment booking online, through mobile appPhysician consultations for minor illnesses, ongoing managementCoordinated tests, treatments, specialist referrals, hospitalizationsTop Reasons for Increase in Retail Clinic UseCase in Brief: One Medical GroupNearby LocationReduced Wait TimesService, Price Transparency90-physician network based in San Francisco, CaliforniaPatients pay $149 to $199 for annual membershipSource: The Advisory Board Company Daily Briefing, “Retail clinic visits soar, especially after hours,” August 17,2012, Washington, DC; PwC Health Research Institute, “The new gold rush: Prospectors are hoping to mine opportunities from the health industry,” available at: One Medical Group, “Our Services,” available at: Health Care Advisory Board interviews and analysis.
50Finding Care the Way You Find Dinner Suddenly Subject to the Marketplace of OpinionWave of Tools to Search Health Care Consumer RatingsConsumer Willingness to Spend Out-of-Pocket for Health-Related ToolsMarcus Welby, MDHealth Apps or ProgramsGeneral PracticeResources That Rate Physicians and Hospitals497 reviews (read below)Other available apps, websites:Health-Related Video GamesConsumer ReportsHealthGradesRateMDsVitalsZocDocPatientsLikeMeConsumers reading health-related reviews onlineConsumers using health-related online reviews to decide where to get care48%33%Source: PwC, “Scoring Healthcare: Navigating Customer Experience Ratings,” “The New Gold Rush: Prospectors are Hoping to Mine Opportunities from the Health Industry,” both available at: Health Care Advisory Board interviews and analysis.
51The Rise of Productive Growth A Crumbling Cross-SubsidyThe New Logic of ChoiceThe Rise of Productive Growth
52Understanding the New Logic of Choice Are We Prepared to Meet the Market’s Demands?Decision Makers and Their PrioritiesWholesale Purchasers (Payers, Employers)Referring ProvidersConsumersToday’s Priority:Low total cost of care for entire populationsProvider Wishlist:Comprehensive networkProven population health management capabilitiesToday’s Priority: High-quality, low-cost episodic careProvider Wishlist:Best-in-class outcomesData access, connectivityCross-continuum collaborationToday’s Priority: Affordability, on-demand access, and tailored serviceProvider Wishlist:Multifunctional range of access optionsAppropriate match of price level to service qualitySource: Health Care Advisory Board interviews and analysis.
53Competing Under Distinct Identities Carving a New Growth PathFour Emerging Provider IdentitiesBest-in-Class Acute Care DestinationConsumer-Oriented Ambulatory NetworkConsistently delivers efficient, effective acute care episodesEnsures reliable coordination, communication, data sharing across the care continuumMaintains extensive network of outpatient care sitesOffers convenient primary care, diagnostic, procedural services at competitive pricesFull-Service Population Health ManagerFinancially-Integrated Delivery SystemAssumes delegated risk from payers and/or employersPrioritizes care management, coordination to limit avoidable demandAssumes full risk by offering health plan to subscribersUnifies care financing and delivery into single coordinated care enterpriseSource: Health Care Advisory Board interviews and analysis.
54Scrambling to Assemble Attractive Assets Providers Seeking Capital, Geographic Reach, Clinical Scope, and MoreWide Range of Partnership ActivityLong Island Health NetworkHospital alliance contracts jointly without need for formal merger or acquisitionSSM Health Care, Dean ClinicSSM strengthens physician base; Dean bolsters financial, clinical foundationsDignity Health, U.S. HealthworksDignity expands ambulatory care foundations in new marketsCleveland Clinic, Community Health SystemsAffiliation spreads Cleveland Clinic brand, clinical expertiseBaylor Scott and White HealthMerges adjacent markets for greater geographic scaleSource: Health Care Advisory Board interviews and analysis.
55Developing an Intentional Corporate Strategy Haphazard, Reactive Dealmaking Unlikely to Support Strategic AimsFive Signs of Effective Corporate StrategyWell-Reasoned AmbitionRigorous AssessmentProactive ExecutionDefined EndsDistinct Criteria for Deal SourcingDay One Integration PlanningOpportunities assessed on the basis of how they help build a more valuable product to sell to consumersStrategy and criteria for assessing prospective partnerships written, communicated, and clearIntegration planning integrated into strategy and criteria for partnerships, continues throughout negotiation processPluralistic MeansScientific Approach to Cultural FitSpectrum of partnership vehicles considered before M&A, including affiliations, joint venturesFinancial assessment complemented with battery of analyses to assess cultural fitSource: Health Care Advisory Board interviews and analysis.
56Toward an Economics of Value Adapting to New Rules of CompetitionHealth System Strategy, c. 2003“Price-Extractive Growth”Health System Strategy,“Value-Based Growth”DescriptionGrow by being bigger: Leverage market dominance to secure prime pricing, network statusGrow by being better: Leverage cost, quality, service advantage to attract key decision makersKey Success FactorsExpand market shareStrengthen service linesExert pricing leverageSolidify referralsSecure physiciansIncrease utilizationExpand covered livesCompete on outcomesMinimize total costAssemble networkOffer convenienceExpand accessTarget of StrategyCommercial payersGovernment purchasersPhysiciansEmployersIndividualsPopulation health managersPerformance MetricsDischargesService line shareFee-for-service revenuePricing growthOccupancy rateProcess qualityShare of livesGeographic reachRisk-based revenueShare of walletOutcomes qualityTotal cost of careCompetitive DynamicsService line competitionCenters of excellenceReferral channelsPhysician loyaltyComprehensive carePatient engagementClinical qualityService qualityCritical InfrastructureInpatient capacityOutpatient imaging centersClinical technologyAmbulatory surgery centersPrimary care capacityCare management staff and systemsIT analyticsPost-acute care networkKey LeadersCEOCFOCOOCMOCNOBoardCPE1CTO2CIO3Chief physician executive.Chief transformation officer.Chief integration officer.Source: Health Care Advisory Board interviews and analysis.