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Presentation on theme: "Health Care Industry Trends 2013 Ready-to-Use Presentation Slides Marketing and Planning Leadership Council."— Presentation transcript:

1 Health Care Industry Trends 2013 Ready-to-Use Presentation Slides Marketing and Planning Leadership Council

2 Spending Trends Volume Performance Reimbursement Trends Coverage Expansion Growth Trends 2

3 © 2013 The Advisory Board Company 26534B Bending the Cost Growth Curve 3 Health Care Spending Growth Continues To Slow Percent Increase in National Health Care Spending Source: Centers for Medicare and Medicaid, “National Health Expenditure Accounts”, 2013, available at: Systems/Statistics-Trends-and Reports/NationalHealthExpendData/Downloads/tables.pdf; Department of Health and Human Services, “Growth in Medicare Spending Per Beneficiary Continues to Hit Historic Lows”, January, 2013, available at: Marketing and Planning Leadership Council interviews and analysis. Medicare Spending Growth per Beneficiary Spending Trends

4 © 2013 The Advisory Board Company 26534B Hospital Volume Growth Remains Sluggish 4 Source: “US Not-for-Profit Healthcare Outlook Remains Negative for 2013,” Moody’s Investors Service, January 22, 2013 Volume Performance Hospital Volume Growth Rates

5 © 2013 The Advisory Board Company 26534B Modest Growth Anticipated for the Near Term 5 Inpatient and Hospital Based Outpatient Volume Projections Inpatient Volume, CAGR Hospital-Based Outpatient Volume, CAGR Source: Advisory Board Inpatient and Outpatient Market Estimators; Advisory Board research and analysis. 1)Compound Annual Growth Rate (2.3%) 3.1% Volume Performance

6 © 2013 The Advisory Board Company 26534B Persistent Outpatient Shift 6 Outmigration a Long-Established Trend Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2012, available at: Marketing and Planning Leadership Council interviews and analysis.www.medpac.gov 1)Outpatient services represent entire market regardless of site of service (includes hospital-based settings, ASCs, other freestanding providers and physician offices) Medicare Volume Growth Cumulative Percent Change All Payer Volume Growth Projections % (8%) Cardiac Services Vascular Services Orthopedics Neurosurgery Volume Performance

7 © 2013 The Advisory Board Company 26534B ACA Includes Hospital Reimbursement Cuts 7 Reimbursement Trends 1)Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services. 2)Disproportionate Share Hospital. Medicare Fee-for-Service Payment Cuts Reductions to Annual Payment Rate Increases 1 $415B in total fee-for-service cuts, $260B Hospital payment rate cuts, $56B Reduced Medicare and Medicaid DSH 2 payments, 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: Marketing and Planning Leadership Council interviews and analysis. Law Reduces Annual Payment Increases Across Ten Years

8 © 2013 The Advisory Board Company 26534B RAC Audits Spur Increase in Observation 8 Shift from Inpatient to Observation Status a “Stealth” Price Cut 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; Marketing and Planning Leadership Council interviews and analysis.Clement: What Medicare is doing to limit observation statuswww.kaiserhealthnews.orgmoney.cnn.com Reimbursement Trends Potential Chest Pain Treatment Paths Medicare Payment Rates 1.6M 69%745K Observation stays nationwide, 2011 Increase in number of Medicare beneficiaries under observation, Hospital observation visits exceeding 24 hours, 2011 Breakdown of RAC Denials Hospital Overpayments Recovered, 2011 $152M$648M Inappropriate One-day Stays All Other Reasons 1)Recovery Audit Contractor.

9 © 2013 The Advisory Board Company 26534B Medicaid Expansion Uncertain 9 States Diverge Over Choice to Expand Medicaid Eligibility Coverage Expansion State Participation in Medicaid Expansion Participating Will Not Participate Undecided As of September 2013 Source: Health Care Advisory Board interviews and analysis.

10 © 2013 The Advisory Board Company 26534B Who Are The Enrollees? Will Individuals Shop on the Exchanges? 10 Low Awareness, Weak Penalties May Dampen Enrollment Source: 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.kff.orgwww.pwc.com Coverage Expansion 1)Higher of the two values. Individuals’ Awareness of Exchanges How Much Respondents Have Heard About Their State’s Health Insurance Exchange Nothing at All Only a Little A Lot Some YearPenalty $95 or 1% of income 2015$325 or 2% of income 2016$695 or 2.5% of income Penalties for Non-compliance n=1,204 70% In good to excellent health 56% Employed full-time 33 Median age Sample Penalties Office Worker Income: $30,000 Real Estate Agent Income: $190,000 $1,900 $3,800 $4,750

11 © 2013 The Advisory Board Company 26534B Bracing for the Churn 11 Significant Crossover Expected Between Medicaid, Exchanges Coverage Expansion Source: Benjamin D. Sommers and Sara Rosenbaum, “Issues In Health Reform: How Changes in Eligibility May Move Millions Back and Forth Between Medicaid and Insurance Exchanges”, Health Affairs, 30, no.2 (2011): ; Marketing and Planning Leadership Council interviews and analysis.Issues In Health Reform: How Changes in Eligibility May Move Millions Back and Forth Between Medicaid and Insurance Exchanges 1)Among adults with family incomes below 200 percent of the federal poverty line 2)Using 133% of the federal poverty level as the eligibility threshold 28 M Adults projected to undergo shift in eligibility across Medicaid- exchange market within one year 2 Impact of Coverage Transitions Fluctuations in plan design, resulting in variable levels of benefits, premiums, and cost-sharing Potential disruption of existing provider networks, steering enrollees to new care sites Likely increase in hospital reimbursement with shift from Medicaid to commercial insurance on state exchange Plan Benefits Provider Networks Payment Rate Percentage of Future Enrollees with Change in Eligibility Between Medicaid, Exchange 1 n=19,248

12 Pay-for-Performance Bundled Payments Accountable Care Organizations Payment Reform 12

13 © 2013 The Advisory Board Company 26534B Health Reform Seeks to Change Provider Incentives Overview of Accountable Payment Models 1)Center for Medicare and Medicaid Innovation. Key Attributes Bundled Payments Value-Based Purchasing Accountable Care Organizations (ACOs) Definition Purchaser disburses single payment to cover certain combination of hospital, physician, post-acute, or other services performed during an inpatient stay or across an episode of care; providers propose discounts, can gainshare on any money saved Pay-for-performance program differentially rewards or punishes hospitals (and likely ASCs and physicians in coming years) based on performance against predefined process and outcomes performance measures Network of providers collectively accountable for the total cost and quality of care for a population of patients; ACOs are reimbursed through total cost payment structures, such as the shared savings model or capitation Purpose Incent multiple types of providers to coordinate care, reduce expenses associated with care episodes Create material link between reimbursement and clinical quality, patient satisfaction scores Reward providers for reducing total cost of care for patients through prevention, disease management, coordination Advisory Board Assessment Increases accountability for cost and quality within episodes of care without removing FFS volume incentive; new lever for financial alignment between independent specialists and hospitals Withhold-earnback model will put significant dollars at risk for all providers, force immediate focus on quality and experience metrics Long-range goal of CMS to migrate to risk contracting; will spark industry-wide investment in primary care infrastructure to establish narrower networks Role of CMMI 1 Accepting providers’ proposals to test four different bundled payment models, including one without inpatient care Dedicating $500M to Partnership for Patients, targeting hospital- acquired infections, readmissions Accepting providers’ proposals to test various payment systems, including both shared savings and partial capitation 13 Source: Marketing and Planning Leadership Council interviews and analysis. Accountable Payment Models

14 © 2013 The Advisory Board Company 26534B New Responsibilities of Accountable Care 14 Categorization of Risk-Based Payment Models Accountable Payment Models Cost of Care Quality of Care Volume of Care Performance RiskUtilization Risk Bundled Pricing Bundled Payments for Care Improvement program Commercial bundled contracts Shared Savings Medicare Shared Savings Program Pioneer ACO Program Commercial ACO contracts Pay-for-Performance Value-Based Purchasing Readmissions penalties Quality-based commercial contracts Source: Health Care Advisory Board interviews and analysis.

15 © 2013 The Advisory Board Company 26534B Components of Value-Based Purchasing 15 Source: Marketing and Planning Leadership Council interviews and analysis. Value-Based Purchasing Payment WithholdQuality Performance AssessmentRedistribution of Payment Payment withhold applies to base operating DRG payment Withhold applies only to roughly 3,100 hospitals meeting VBP inclusion criteria Provision assesses performance on 12 process of care measures and 8 patient experience of care measures Scored on achievement relative to national benchmarks and improvement compared to historical baseline Quality measure scores combined to form single figure Total Performance Score (TPS) Payment directly proportional to Performance Score Roughly half of hospitals earn back more than withhold, others earn back less Lowest performer Highest performer 123

16 © 2013 The Advisory Board Company 26534B Readmissions Penalties in Brief 16 Penalty-Only Program Means No Upside for High Performers Readmissions Penalties Readmissions Incentives Program in Brief: Hospital Readmissions Reduction Program CMS to reduce payments for hospitals exceeding risk adjusted national averages for readmissions for heart failure, AMI and pneumonia Penalties based on all-condition readmissions Penalties to equal payments for readmissions above national average Penalty to reach up to 3% of Medicare inpatient revenue in 2015 and remain capped at that level Percentage of Inpatient Medicare Revenue at Risk Source: Marketing and Planning Leadership Council interviews and analysis.

17 © 2013 The Advisory Board Company 26534B 17 1)Bundled Payments for Care Improvement. Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis. Bundled Payments BPCI 1 Participation by State Medicare’s Largest Payment Innovation Program More than 450 Providers Participating in BPCI providers providers >50 providers 0 providers 450+ Total Number BPCI Participants as of February 2013

18 © 2013 The Advisory Board Company 26534B Redefining the Acute Care Episode 18 Bundled Payments Drive Delivery System Integration 1)Center for Medicare and Medicaid Innovation. Bundled Payment Framework Lump Sum Payments Drive Integration Through Shared Accountability Payer Physician Services Hospital Services Post-Acute Services Program in Brief: Medicare’s Bundled Payments for Care Improvement CMMI 1 initiative offering four voluntary bundled payment models; more than 450 providers selected to participate Models 1-3 provide retrospective reimbursement; Models 2 and 3 include post-episode reconciliation; Model 4 offers single prospective payment Acute care hospitals, physician groups, health systems eligible for all models; post-acute facilities may participate without hospitals in Model 3 Physicians eligible for gainsharing bonuses up to 50 percent of traditional fee schedule For all models, applicants must propose quality measures, which CMS will use to develop set of standardized metrics Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis. Bundled Payments

19 © 2013 The Advisory Board Company 26534B BCPI Participants Favoring Longer Episodes 19 Participation by Model Type Bundled Payments Hospital Inpatient Services Hospital and Physician Inpatient and Post-Discharge Services Hospital and Physician Inpatient Services Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

20 © 2013 The Advisory Board Company 26534B Not Just a Medicare Program 20 Private Sector Bundling Pilots Emerging Nationwide Bundled Payments 1)Coronary Artery Bypass Graft. Bundling for obstetrics Bundling total joint replacement Bundling for CABG 1 Exploring cardiac bundling Four physician groups bundling for orthopedic surgery Bundling joint replacements, procedures with “defined outcomes” Developing orthopedic bundling Reimbursing for “Baskets of Care” Participating in Prometheus Pilot Bundling for cardiac surgery Bundling total knee replacement Participating in Prometheus Pilot Source: Health Care Advisory Board interviews and analysis. ACE Demo Sites

21 © 2013 The Advisory Board Company 26534B ACOs Off and Running 21 ACO Presence Steadily Extending Nationwide Source: Muhlestein D, “Continued Growth of Public and Private Accountable Care Organizations,” Health Affairs Blog, February 19, 2013; Oliver Wyman, “Accountable Care Organizations Now Serve 14% of Americans,” February 19, 2013; Leavitt Partners, “Growth and Dispersion of ACOs,” August 2013; Health Care Advisory Board interviews and analysis. Accountable Care Organizations 1)As of February Total Number of Operating ACOs September 2013 Widening Reach of ACOs 1 52% Portion of U.S. population living in a primary care service area with an ACO 14% Portion of U.S. population treated by an ACO 4M Medicare FFS beneficiaries treated by an ACO April 2012 MSSP 1 Cohort July 2012 MSSP Cohort Private Sector ACOs Pioneer ACO Model Total Jan MSSP Cohort Pioneers switching to MSSP

22 © 2013 The Advisory Board Company 26534B Where the Medicare ACOs Are Pioneer and 228 Shared Savings Program ACOs Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis. Accountable Care Organizations August 2013

23 © 2013 The Advisory Board Company 26534B Mechanics of the Medicare Shared Savings Program 23 Applying Total Cost Accountability to Fee-for-Service Payments Source: Health Care Advisory Board interviews and analysis. Accountable Care Organizations Program in Brief: Medicare Shared Savings Program Cohorts launched April 2012, July 2012, and January 2013; contracts to last minimum of three years Physician groups and hospitals eligible to participate, but primary care physicians must be included in any ACO group Participating ACOs must serve at least 5,000 Medicare beneficiaries Bonus potential depends on Medicare cost savings, quality metrics Two payment models available: one with no downside risk, the second with downside risk in all three years Shared Savings Payment Cycle Shared Savings Payment Bonuses or penalties levied based on variance of expenditures from target 4 Distribution ACO responsible for dividing bonus payments among stakeholders 5 Assignment Patients assigned to ACO based on terms of contract 1 Comparison Total cost of care for assigned population compared to risk-adjusted target expenditures 3 Billing Providers bill normally, receive standard fee-for-service payments 2

24 © 2013 The Advisory Board Company 26534B Three Primary Levers for ACOs to Reduce Spending 24 ACOs Targeting Total Cost of Care Source: Health Care Advisory Board interviews and analysis. Accountable Care Organizations Retain Utilization Within Network Population Health Manager Prevent Utilization through Medical Management Options for Risk-Bearing Providers Example: High-risk patient care management (e.g., medication management, care transitions management) Example: Cost incentives to encourage in-network imaging referrals Example: Volume steerage to high-value acute care providers Direct Unavoidable Utilization to Low-Cost, High-Quality Partner Inpatient, outpatient procedures Select inpatient medical care

25 © 2013 The Advisory Board Company 26534B First Year Pioneer ACO Results Are In 25 Strong Quality Performance, Uneven Financial Results Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis. Accountable Care Organizations Gross savings: $87.6M First Year Pioneer ACO Results Year One Financial Results Beneficiary Cost Growth, Earned bonuses, totaling $76M 2 Incurred losses, totaling $4M 25 Generated lower risk-adjusted readmission rates 32 Successfully reported quality measures Year Two Participation Decisions Moving to MSSP 1 Opting Out Entirely Staying in Pioneer ACO Model 1)Medicare Shared Savings Program.

26 Mergers and Acquisitions Partnerships and Affiliations Physician Market Imaging Centers Ambulatory Surgery Centers Retail Clinics Provider Market 26

27 © 2013 The Advisory Board Company 26534B Health Systems Increasingly the Norm 27 Source: AHA Hospital Fast Facts, available at Healthleaders Media 2011 Industry Survey, available at: Levin Associates, “Hospital Mergers and Acquisitions”, available at: Advisory Board interviews and analysis. Mergers and Acquisitions 1)January Hospital Mergers and AcquisitionsM&A Plans for the next months 1 Number of Hospitals Part of a Health System n=189 No M&A Activity Planned Completed Deals Underway Exploring Potential Deals

28 © 2013 The Advisory Board Company 26534B P&A: The New M&A? 28 Partnerships and Affiliations On the Rise 2011: Duke Health, Lifepoint form community hospital joint venture to explore joint affiliation options 2011: Medium-sized academic medical center partners with smaller rival to fill cath lab service deficiencies 2011: Large academic medical center signs preliminary partnership agreement with six rival hospitals to better compete with bigger systems Source: The Advisory Board Company, “Cardiovascular Regionalization and Network Strategy”, Washington, DC; Duke- Lifepoint Healthcare, “Duke University Health System and LifePoint Hospitals Partner to Create Innovative Options for Community Hospitals,” available at: accessed May 3, 2011; Accountable Care Alliance, Omaha, NE; Crosby J, “HealthPartners, Allina form a 'lab' for health reform,” StarTribune, available at accessed November 5 th, 2011; Marketing and Planning Leadership Council interviews and analysis. 2010: Nebraska Medical Center, Methodist Hospital agree to accountable care alliance Partnerships and Affiliations 2011: Allina and HealthPartners affiliate to create a “testing lab” for accountable care 2011: Large medical center agrees to sell CON-approved open- heart surgery suite to competitor Growth Goals for Partnerships Ambulatory footprint Access to new regions New clinical program Brand equity

29 © 2013 The Advisory Board Company 26534B The New Purpose of Partnership 29 Intent of Partnerships and Affiliations Rapidly Evolving Source: Marketing and Planning Leadership Council interviews and analysis. Partnerships and Affiliations Objectives of Partnership “New Market” Partnership Value ScaleScopeReach GeographicClinicalOperationalFinancial Consolidate local position Centralize supply purchasing Merge back office functions Increase operational efficiency Integrate services across care continuum Develop care management competencies Stake regional footprint Establish national network

30 © 2013 The Advisory Board Company 26534B A Host of Available Affiliation Approaches 30 Partnership Models Addressing Existing, Emerging Challenges Partnerships and Affiliations Source: Health Care Advisory Board interviews and analysis. Partnership ModelDescription Joint Purchasing Hospital organizations band together to form group purchasing organizations centered on vendor negotiations in order to cut supply costs Best-Practice Sharing Joint forums among hospitals to discuss clinical protocols, operational initiatives that have been successfully implemented Regional Clinical Networks Collaboration among hospitals to steer patients with acute conditions (i.e. STEMI, AAA) to most appropriate site Service Outreach Hospital sends physicians to outlying partner sites, sets up outreach clinics on a temporary basis in order to reach more patients, grow volumes Quality Assurance Review Hospital medical staff review medical protocols, outcomes of partner hospital, then advise on protocols to drive quality gains Equipment SharingHospital loans medical equipment, facility space to affiliated partner Shared Physician Staffing Partner hospitals loan or share physicians with one another in order to fill gaps in service coverage, usually for more advanced procedures Joint Program Management Hospital provides administrative, operational oversight of CV program at partner site Joint Program Development Hospital serves in advisory capacity for another hospital seeking to build up a new program; support may cover clinical, legal, HR, marketing

31 © 2013 The Advisory Board Company 26534B How Are We Growing? 31 Physician Employment, Medical Group Ownership Continue to Rise Source: Advisory Board Survey on Physician Employment Trends; MGMA Physician Compensation and Production Survey, available at: mgma.com; Advisory Board interviews and analysis. Physician Market Hospitals Employing or Affiliating with Physicians n=46 Hospitals and Health Systems Medical Group Ownership 44.8% Physicians currently employed or under contract 70% Hospitals reporting increase in physician employment requests

32 © 2013 The Advisory Board Company 26534B Physician Groups Finding Unlikely Partners 32 DaVita, HealthCare Partners Join Forces for Scale Source: Mathews AW, “Dialysis Firm Bets on Branching Out,” Wall Street Journal, May 21, 2012, available at: Lee J, “HealthCare Partners Acquires N.M. Medical Group,” Modern Physician, September 11, 2012, available at: Dunn L, “HealthCare Partners Acquires Two Independent Practice Networks in California,” Becker’s Hospital Review, September 12, 2012, available at: Health Care Advisory Board interviews and analysis.www.wsj.comwww.modernphysician.comwww.beckershospitalreview.com Physician Market 1)Through acquisition of ABQ Health Partners and Arta Health Network. Case in Brief: DaVita HealthCare Partners In May 2012, dialysis chain DaVita acquired California-based HealthCare Partners for $4.42 billion Deal presents new revenue stream for DaVita, opportunity to capitalize on physician-risk model HealthCare PartnersDaVita Experience thriving under value-based payment models Active in successfully acquiring physician groups across the country Joint Strategy Expand, acquire physician groups outside of existing markets Franchise value-based physician groups across United States DaVita Acquires Experienced Population Manager 984 Newly acquired physicians since merger 1 Fiscally savvy, generating $7B in annual revenue Effective in successfully scaling businesses across diverse markets

33 © 2013 The Advisory Board Company 26534B Imaging Center Market Dips After Years of Growth 33 First Decline Since 2009 Source: Radiology Business Journal, “Imaging-center Growth Hits the Wall in 2013; Volumes Plummeted in 2011,” August 30, 2013; Marketing and Planning Leadership Council interviews and analysis. Imaging Centers Net percent growth from previous year Total Number of Imaging Centers in the U.S

34 © 2013 The Advisory Board Company 26534B Total Number of Medicare-Certified ASCs ASC Growth Continues to Slow 34 Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2012; Marketing and Planning Leadership Council interviews and analysis. Ambulatory Surgery Centers 7.3% 1.3% 5.6% 5.9% 4.4% 2.4% 1.9% Net percent growth from previous year

35 © 2013 The Advisory Board Company 26534B Meet Your New Competitors 35 Walgreens Aims to Become the Premier Health Destination Source: 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. Retail Clinics 2009: Launches flu vaccine campaign Simple Acute Services Vaccinations and Physicals Chronic Disease Monitoring Chronic Disease Diagnosis and Management 2013: Launches three ACOs; begins diagnosing and managing chronic disease Case in Brief: Walgreen Co. Largest drug retail chain in the United States, with 372 Take Care Clinics In April 2013, became first retail clinic to offer diagnosis and treatment of chronic diseases 2007: Acquires Take Care Health Systems 2012: Offers three new chronic disease tests Not Just a Drugstore “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. Overview ”

36 © 2013 The Advisory Board Company 26534B Walmart Eying the Health Care Industry 36 Moving Beyond Basic Retail Clinics Source: Holmes TJ, “The Diffusion of Wal-Mart and Economics of Density,” May, 2006; Zimmerman A and Hudson K, “Managing Wal- Mart: How U.S.-Store Chief Hopes to Fix Wal-Mart,” The Wall Street Journal, April 17, 2006, available at: Aboraya A, “Wal-Mart Plans to Offer Primary Care in 5-7 Years,” Orlando Business Journal, January 11, 2013, available at: Aboraya A, “Exclusive: Wal-Mart Exploring Private Health Insurance Exchange for Small Biz,” Orlando Business Journal, January 11, 2013, available at: Health Care Advisory Board interviews and analysis.www.wsj.com Retail Clinics Vice President Health and Wellness Payer Relations ” “That’s where we’re going now: full primary care services in five to seven years.” Potential Evolution of Health Care Products 33% Estimated portion of the US population that visits Walmart every week 4,600+ Number of Walmart stores in the United States Median distance between a residence and Walmart 4.2 miles Basic Retail Clinic Full Primary Care Health Insurance Exchange Scope of Services

37 Commercial Payers Employers Purchaser Behavior 37

38 © 2013 The Advisory Board Company 26534B Commercial Payers Demanding More Value 38 Taking Measures to Keep Employers in the Game Commercial Payers 1)Benefits Value Advisor. Source: 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.www.commonwealthfund.orgwww.kaiserhealthnews.orgwww.hcsc.com Examples of Commercial Payer Cost Control Initiatives Health Care Service Corp. Benefits Value Advisor program UnitedHealthcare’s myHealthcare Cost Estimator BCBS of Western NY, Kaleida Health cardiac surgery bundle ConnectiCare, St. Francis Hospital hip and knee replacement bundle Harvard Pilgrim Focus Network Anthem BCBS Compass SmartShopper Program Price Transparency ToolsBundled PaymentNarrow Networks, Steerage

39 © 2013 The Advisory Board Company 26534B Doubling Down on Steerage 39 Anthem Paying Consumers to Pick Low-Cost Providers Source: Andrews M, “Cash rewards for thrifty health consumers,” The Washington Post, March 26, 2012; Compass Smartshopper, available at: Advisory Board interviews and analysis. Commercial Payers 476 Participating members of SmartShopper pilot program $250K$100 Health care costs avoided over two year pilot program Typical incentive paid to participants choosing lower-cost providers Members receiving care at a low-cost provider from the list receive financial reward Member accesses list of low-cost providers through toll-free number or website Member works with referring physician to switch to lower-cost provider or location for service Upon receipt of claim, Anthem identifies member access of low-cost provider list Before Scheduled ProcedureFollowing Procedure Anthem’s Compass SmartShopper Program

40 © 2013 The Advisory Board Company 26534B Trading Price for Volume on the Public Exchanges 40 Expect Lower Provider Payment Rates, Less Patient Choice Source: Mathews AW and Kamp J, “Another Big Step in Reshaping HealthCare,” Wall Street Journal, February 28, 2013, available at: Hancock J, “Aetna Cuts Predictions for Obamacare Enrollment,” Kaiser Health News, April 30, 2013, available at: Health Care Advisory Board interviews and analysis.www.online.wsj.comwww.capsules.kaiserhealthnews.org Commercial Payers 1)Pseudonym. Anticipated Provider Reimbursement Rates for Exchange Plans Catholic Health Initiatives Modest discounts from commercial rates Tenet Healthcare Up to 10% below commercial rates Meriwether Hospital 1 5% below commercial rates WellPoint Inc. Between Medicare and Medicaid rates Meyers Health 1 10% above Medicare rates Case in Brief: Aetna Inc. Health insurer planning to sell narrow network exchange products in 14 states Searching for providers agreeing to lower rates in narrow network products Plans for rates to fall closer to Medicare than commercial reimbursement Aetna’s Planned Reduction in Exchange Network Size 25%-50% reduction in exchange network size, compared to networks for typical commercial products Millern Medical Center 1 20% below commercial rates

41 © 2013 The Advisory Board Company 26534B Employers Already Scaling Back Coverage 41 Erosion of Employer-Sponsored Coverage Well Underway 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.www.rwjf.orgwww.commonwealthfund.orgwww.towerswatson.com Individuals Covered by ESI 1 23% Employers planning to offer CDHP 2 as only plan option, % Insured non-elderly adults with deductibles $1,000 or higher, 2012 Non-elderly Population 11.5M fewer individuals Contribution to Insurance Premiums 1)Employer-sponsored insurance. 2)Consumer-directed health plan. Employers Coverage for Family of Four Employer Worker 95% growth 102% growth

42 © 2013 The Advisory Board Company 26534B Concerns for Long Term Liability of Health Benefits 42 Source: Towers Watson “Health Care Changes Ahead Survey 2012;” Advisory Board interviews and analysis. Employers “Very Confident” Health Benefits Will Be Offered At Their Organization a Decade From Now 2011 Employers

43 © 2013 The Advisory Board Company 26534B Employee Benefit Research Institute, 2011 Mounting Pressure on Employer-Sponsored Benefits 43 Will Defined Contribution Emerge as Funding Strategy? Source: Employee Benefit Research Institute, Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?”, July, 2012, no. 373;Towers Watson, “18 th Annual Towers Watson Employer Survey on Purchasing Value in Health Care”, 2013, available at: Marketing and Planning Leadership Council interviews.Employee Benefit Research Institute, Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again? Employers Company Health Benefits Strategy for Active Employees Over Next Decade Percentage of Employers Offering Private Exchanges 8.7% Growth in Employees’ Share of Premium Costs Between % Increase in Employer Spending on Health Benefits Relative to 5-yrs Prior Undecided Discontinue health coverage Continue offering defined benefit plans Consider shift to defined contribution Towers Watson Survey, n = 583

44 © 2013 The Advisory Board Company 26534B Real Movement in Exchange Plan Selection 44 Sears, Darden Exchange-Style Model in Year One Source: Mathews AW, “To Save, Workers Take On Health-Cost Risk,” Wall Street Journal, March 17 th, 2013; Marketing and Planning Leadership Council interviews and analysis.To Save, Workers Take On Health-Cost Risk Employers 1)Preferred Provider Organization 2)Health Maintenance Organization Case in Brief: Sears, Darden Restaurants Self-insured large employers redesigning employee benefits to reduce health spend through defined contribution strategy Offering employees lump sum credit to choose coverage from Aon Hewitt’s online marketplace 2013 Health Insurance Offerings at Sears, Darden Restaurants Employee selects coverage from menu of plans in online marketplace If selected plan cost exceeds credit, employee pays balance Employer offers employees fixed credit to select health care coverage Consumer Preferences on Sears-Darden Exchange 12

45 © 2013 The Advisory Board Company 26534B Most Employers Running to High(er) Deductibles 45 Source: Towers-Watson & National Business Group on Health, “Employer Survey on Purchasing Value in Health Care,” available at: Castlight Health, “Castlight Health and Life Technologies to Discuss Employee Engagement in Health Care at IHC FORUM East,” available at: “Mini-Microsoft”, available at: care-pops-cap-in-one.html; Claxton et al. “Employer Health Benefits: 2011 Annual Survey,” Kaiser Family foundation and Health Research & Educational Trust, Exhibit 4.3.; Advisory Board interviews and analysis. Employers 1)Consumer Directed/Driven Health Plans. 2)High-deductible health plan with savings option, defined as a health plan with a deductible of at least $1,000 for single coverage and $2,000 for family coverage. Select Employers Moving to CDHP percent CDHP Moving to 100 percent CDHP 100 percent CDHP 40 percent CDHP Percent of Firms Offering HDHP/SO 2 by Number of Employees 2011

46 © 2013 The Advisory Board Company 26534B Self-Insured Looking for New Solutions 46 Employers Bearing More Risk, Turning to Providers as Allies Source: Kaiser Family Foundation, “2012 Employer Health Benefits Survey,” available at: Towers Watson, “18 th Annual Towers Watson Employer Survey on Purchasing Value in Health Care,” 2013, available at: Health Care Advisory Board interviews and analysis.www.kff.orgwww.towerswatson.com Employers Percentage of Self-Insured Employers Partially or Completely Self-Insured Adopt new accountable payment models Contract directly with hospitals, physicians, ACOs Offer incentives for care coordination Offer performance- based payments In Place in 2013 Planned for 2014 Employer Interest in Provider-Oriented Strategies

47 Independent Physicians Patients Provider Selection Trends 47

48 © 2013 The Advisory Board Company 26534B Specialist, Hospital Choices Driven by Physicians 48 Strong Referrals Management Still Critical 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. Physicians 1)Survey respondents given option to “select all that apply.” Information Sources Used to Select a Specialist Physician Information Sources Used to Select a Facility for a Procedure % rely solely on referral from PCP 69% rely solely on referring doctor n=13,500

49 © 2013 The Advisory Board Company 26534B The Logic of Physician Choice 49 Hospital Choice Driven by Service, Culture Source: Health Care Advisory Board interviews and analysis. Physicians Factors Driving Independent Physician Referral Decisions Clinical Quality High-quality nursing staff Supportive and knowledgeable physician network Positive patient-reported experiences Contractual Relationships Participation in management, operations Aligned incentives Service Quality Rapid access to lab, imaging results Prompt resolution of complaints and issues Non-disruptive IT, EMR systems Culture of Partnership Open communication channels Physician- oriented leadership Workshop of Choice Cutting-edge technology, facilities Efficient operating rooms, ICUs Access to preferred schedule slots

50 © 2013 The Advisory Board Company 26534B Medical Home Incentives Influencing Referrals 50 Source: NCQA, “PCMH Eligibility,” “NCQA and Pfizer Publish Strategies For Becoming A Patient-Centered Medical Home,” both available at: Health Care Advisory Board interviews and analysis.www.ncqa.org Physicians 1)National Committee for Quality Assurance. 2)Patient-centered medical home. NCQA PCMH Model Widely Adopted 5,000+ NCQA-certified medical homes 26,000 Approximate number of clinicians practicing in certified medical homes NCQA 1 PCMH 2 recognition requires:Hospital partner must offer: Medical Home Practice Changing Referral Priorities, Partner Expectations “Whole-person” careComprehensive care services Coordinated, integrated care across care system Health information system interoperability; care management resources High-quality performanceEvidence-based care protocols Team-based care Staff communication protocols, interdisciplinary care team meetings

51 © 2013 The Advisory Board Company 26534B Anticipating the “Activated” Patient 51 Consumer Role in Decision Making Increasingly Important 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. Patients 1)From 2003 to Consumer Viewpoint on Role in Care Decision Making n=2,071 26% High-Deductible Health Plan Enrollment Individuals with Deductible of $1000 or More 43% Decline in proportion of individuals with a deductible under $ % Respondents age 25 to 34 preferring fully active role in care decision making Doctor is completely in charge of treatment decisions Doctor makes the decisions with some input from patient Patient is completely in charge of treatment decisions Doctor and patient make a join treatment decision Patient makes final decision with some input from their doctor

52 © 2013 The Advisory Board Company 26534B Factors Influencing Patient Decisions Expanding 52 Patients Key Drivers of Consumers’ Health Care Decisions Source: Health Care Advisory Board interviews and analysis. Communication Education During Visit Social Media Presence Onsite Amenities Patient Portal Care Navigation Services Brand, Reputation Coordination with Other Providers Physician Recommendation Competitive Pricing Clinical Quality Experience, Service Quality Convenience, Access


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