Health Care Industry Trends 2013

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

Growth Trends Spending Trends Volume Performance Reimbursement Trends
Coverage Expansion

Bending the Cost Growth Curve
Spending Trends Bending the Cost Growth Curve Health Care Spending Growth Continues To Slow Percent Increase in National Health Care Spending Medicare Spending Growth per Beneficiary Source: Centers for Medicare and Medicaid, “National Health Expenditure Accounts”, 2013, available at: 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.

Hospital Volume Growth Remains Sluggish
Volume Performance Hospital Volume Growth Remains Sluggish Hospital Volume Growth Rates Source: “US Not-for-Profit Healthcare Outlook Remains Negative for 2013,” Moody’s Investors Service, January 22, 2013

Modest Growth Anticipated for the Near Term
Volume Performance Modest Growth Anticipated for the Near Term Inpatient and Hospital Based Outpatient Volume Projections Inpatient Volume, CAGR1 Hospital-Based Outpatient Volume, CAGR1 3.1% (2.3%) Let’s talk about the state of growth And it’s not pretty: Across the course of our calls, we’re finding that volume growth—especially high-margin inpatient volume growth—is pretty hard to find We need this growth—we’re dependent on it to subsidize unprofitable, mission-driven services and to continue to invest in facilities, technologies, and, increasingly, physicians And yet many institutions are hoping to just toe the line: as we’ve asked about the growth targets that people are setting, many are saying that if they could maintain their existing inpatient business, they’d be happy; they just want to avoid decline That’s a far cry from ten years ago when many were seeing inpatient growth of 2-4 percent And it becomes even bleaker—and noticeably unsustainable—if we examine what’s happening to the existing book of business Given decelerating reimbursement growth, a case mix shift toward medical cases, and weakening payer mix, this is a time when we need more growth than ever Compound Annual Growth Rate Source: Advisory Board Inpatient and Outpatient Market Estimators; Advisory Board research and analysis.

Persistent Outpatient Shift
Volume Performance Persistent Outpatient Shift Outmigration a Long-Established Trend Medicare Volume Growth All Payer Volume Growth Projections1 Cumulative Percent Change 34% (8%) 2004 2011 Cardiac Services Vascular Services Orthopedics Neurosurgery CEO 2013 SOU CEO A FINAL Outpatient services represent entire market regardless of site of service (includes hospital-based settings, ASCs, other freestanding providers and physician offices) Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2012, available at: Marketing and Planning Leadership Council interviews and analysis.

ACA Includes Hospital Reimbursement Cuts
Reimbursement Trends ACA Includes Hospital Reimbursement Cuts Law Reduces Annual Payment Increases Across Ten Years Medicare Fee-for-Service Payment Cuts Reductions to Annual Payment Rate Increases1 $415B in total fee-for-service cuts, $260B Hospital payment rate cuts, $56B Reduced 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: Marketing and Planning Leadership Council interviews and analysis.

RAC Audits Spur Increase in Observation
Reimbursement Trends RAC Audits Spur Increase in Observation Shift from Inpatient to Observation Status a “Stealth” Price Cut Medicare Payment Rates Breakdown of RAC Denials Potential Chest Pain Treatment Paths Hospital Overpayments Recovered, 2011 $152M $648M Inappropriate One-day Stays All Other Reasons 1.6M 69% 745K Observation stays nationwide, 2011 Increase in number of Medicare beneficiaries under observation, Hospital observation visits exceeding 24 hours, 2011 Recovery Audit Contractor. 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.

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

Will Individuals Shop on the Exchanges?
Coverage Expansion Will Individuals Shop on the Exchanges? Low Awareness, Weak Penalties May Dampen Enrollment Individuals’ Awareness of Exchanges Penalties for Non-compliance How Much Respondents Have Heard About Their State’s Health Insurance Exchange Year Penalty1 2014 $95 or 1% of income 2015 $325 or 2% of income 2016 $695 or 2.5% of income n=1,204 Nothing at All A Lot Some Sample Penalties Office Worker Income: $30,000 Real Estate Agent Income: $190,000 Only a Little Who Are The Enrollees? $1,900 $3,800 $4,750 70% 56% 33 In good to excellent health Employed full-time Median age Higher of the two values. 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.

Impact of Coverage Transitions
Coverage Expansion Bracing for the Churn Significant Crossover Expected Between Medicaid, Exchanges Percentage of Future Enrollees with Change in Eligibility Between Medicaid, Exchange1 Impact of Coverage Transitions n=19,248 Fluctuations in plan design, resulting in variable levels of benefits, premiums, and cost-sharing Plan Benefits Potential disruption of existing provider networks, steering enrollees to new care sites Provider Networks 28 M Likely increase in hospital reimbursement with shift from Medicaid to commercial insurance on state exchange Adults projected to undergo shift in eligibility across Medicaid-exchange market within one year2 Payment Rate 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. Among adults with family incomes below 200 percent of the federal poverty line Using 133% of the federal poverty level as the eligibility threshold

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

Health Reform Seeks to Change Provider Incentives
Accountable Payment Models 13 Health Reform Seeks to Change Provider Incentives Overview of Accountable Payment Models 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 CMMI1 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 Center for Medicare and Medicaid Innovation. Source: Marketing and Planning Leadership Council interviews and analysis.

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

Components of Value-Based Purchasing
1 2 3 Payment Withhold Quality Performance Assessment Redistribution of Payment Lowest performer Highest performer 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 Source: Marketing and Planning Leadership Council interviews and analysis.

Readmissions Penalties in Brief
Penalty-Only Program Means No Upside for High Performers Program in Brief: Hospital Readmissions Reduction Program Readmissions Incentives Percentage of Inpatient Medicare Revenue at Risk 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 Source: Marketing and Planning Leadership Council interviews and analysis.

Medicare’s Largest Payment Innovation Program
Bundled Payments Medicare’s Largest Payment Innovation Program More than 450 Providers Participating in BPCI1 BPCI1 Participation by State 1-19 providers 20-49 providers >50 providers 0 providers 450+ Total Number BPCI Participants as of February 2013 Bundled Payments for Care Improvement. Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

Redefining the Acute Care Episode
Bundled Payments Redefining the Acute Care Episode Bundled Payments Drive Delivery System Integration Bundled Payment Framework Program in Brief: Medicare’s Bundled Payments for Care Improvement Lump Sum Payments Drive Integration Through Shared Accountability CMMI1 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 Payer Physician Services Hospital Services Post-Acute Services Center for Medicare and Medicaid Innovation. Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

BCPI Participants Favoring Longer Episodes
Bundled Payments BCPI Participants Favoring Longer Episodes Participation by Model Type 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.

Not Just a Medicare Program
Bundled Payments Not Just a Medicare Program Private Sector Bundling Pilots Emerging Nationwide Reimbursing for “Baskets of Care” Exploring cardiac bundling Participating in Prometheus Pilot Bundling for obstetrics Developing orthopedic bundling Bundling for CABG1 Participating in Prometheus Pilot Bundling for cardiac surgery Bundling joint replacements, procedures with “defined outcomes” Bundling total knee replacement Bundling total joint replacement Four physician groups bundling for orthopedic surgery ACE Demo Sites Coronary Artery Bypass Graft. Source: Health Care Advisory Board interviews and analysis.

Total Number of Operating ACOs
Accountable Care Organizations ACOs Off and Running ACO Presence Steadily Extending Nationwide Total Number of Operating ACOs September 2013 Widening Reach of ACOs1 April MSSP1 Cohort July MSSP Cohort Private Sector ACOs Pioneer ACO Model Total Jan MSSP Cohort Pioneers switching to MSSP Portion of U.S. population living in a primary care service area with an ACO 52% Portion of U.S. population treated by an ACO 14% Medicare FFS beneficiaries treated by an ACO 4M CEO 2013 SOU CEO A FINAL As of February 2013. 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.

Where the Medicare ACOs Are
Accountable Care Organizations Where the Medicare ACOs Are 23 Pioneer and 228 Shared Savings Program ACOs August 2013 Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

Mechanics of the Medicare Shared Savings Program
Accountable Care Organizations Mechanics of the Medicare Shared Savings Program Applying Total Cost Accountability to Fee-for-Service Payments Shared Savings Payment Cycle Program in Brief: Medicare Shared Savings Program 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 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 Source: Health Care Advisory Board interviews and analysis.

Three Primary Levers for ACOs to Reduce Spending
Accountable Care Organizations Three Primary Levers for ACOs to Reduce Spending ACOs Targeting Total Cost of Care Options for Risk-Bearing Providers Example: High-risk patient care management (e.g., medication management, care transitions management) 1 Prevent Utilization through Medical Management Example: Cost incentives to encourage in-network imaging referrals 2 Retain Utilization Within Network Population Health Manager Direct Unavoidable Utilization to Low-Cost, High-Quality Partner Inpatient, outpatient procedures Select inpatient medical care Example: Volume steerage to high-value acute care providers 3 Source: Health Care Advisory Board interviews and analysis.

First Year Pioneer ACO Results Are In
Accountable Care Organizations First Year Pioneer ACO Results Are In Strong Quality Performance, Uneven Financial Results Year One Financial Results Year Two Participation Decisions Beneficiary Cost Growth, 2012 Gross savings: $87.6M Moving to MSSP1 Opting Out Entirely Staying in Pioneer ACO Model First Year Pioneer ACO Results 13 Earned bonuses, totaling $76M 2 Incurred losses, totaling $4M 25 Generated lower risk-adjusted readmission rates 32 Successfully reported quality measures Medicare Shared Savings Program. Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

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

Health Systems Increasingly the Norm
Mergers and Acquisitions Health Systems Increasingly the Norm Hospital Mergers and Acquisitions M&A Plans for the next months1 n=189 No M&A Activity Planned Number of Hospitals Part of a Health System Exploring Potential Deals Completed Deals Underway MPLC 2013 SOU: Speech A FINAL Irving Levin Associates has released summary data on health care M&A activity during Deal volume for hospitals showed an uptick of 2.2% over 2011 — 94 deals, up from 92 in However, dollar value of the deals declined 77.2%, from $8.3 billion in 2011 to $1.9 billion in In the health services market overall, the number of deals was up 8.9%, but total dollar value was down 31.5%. January 2012. 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.

Growth Goals for Partnerships
Partnerships and Affiliations P&A: The New M&A? Partnerships and Affiliations On the Rise 2011: Medium-sized academic medical center partners with smaller rival to fill cath lab service deficiencies 2011: Allina and HealthPartners affiliate to create a “testing lab” for accountable care 2011: Large academic medical center signs preliminary partnership agreement with six rival hospitals to better compete with bigger systems 2011: Duke Health, Lifepoint form community hospital joint venture to explore joint affiliation options Growth Goals for Partnerships 2010: Nebraska Medical Center, Methodist Hospital agree to accountable care alliance 2011: Large medical center agrees to sell CON-approved open-heart surgery suite to competitor Ambulatory footprint Access to new regions New clinical program Brand equity 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 5th, 2011; Marketing and Planning Leadership Council interviews and analysis.

The New Purpose of Partnership
Partnerships and Affiliations The New Purpose of Partnership Intent of Partnerships and Affiliations Rapidly Evolving Scale Scope Reach Financial Operational Clinical Geographic 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 “New Market” Partnership Value Objectives of Partnership Source: Marketing and Planning Leadership Council interviews and analysis.

A Host of Available Affiliation Approaches
Partnerships and Affiliations A Host of Available Affiliation Approaches Partnership Models Addressing Existing, Emerging Challenges Partnership Model Description 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 Sharing Hospital 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 Source: Health Care Advisory Board interviews and analysis.

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

Physician Groups Finding Unlikely Partners
Physician Market Physician Groups Finding Unlikely Partners DaVita, HealthCare Partners Join Forces for Scale DaVita Acquires Experienced Population Manager HealthCare Partners Joint Strategy DaVita Experience thriving under value-based payment models Active in successfully acquiring physician groups across the country Fiscally savvy, generating $7B in annual revenue Effective in successfully scaling businesses across diverse markets Expand, acquire physician groups outside of existing markets Franchise value-based physician groups across United States Case in Brief: DaVita HealthCare Partners 984 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 Newly acquired physicians since merger1 Through acquisition of ABQ Health Partners and Arta Health Network. 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.

Imaging Center Market Dips After Years of Growth
Imaging Centers Imaging Center Market Dips After Years of Growth First Decline Since 2009 Total Number of Imaging Centers in the U.S. Net percent growth from previous year 2007 2008 2009 2010 2011 2012 2013 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.

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

Meet Your New Competitors
Retail Clinics Meet Your New Competitors Walgreens Aims to Become the Premier Health Destination 2013: Launches three ACOs; begins diagnosing and managing chronic disease 2009: Launches flu vaccine campaign Simple Acute Services Vaccinations and Physicals Chronic Disease Monitoring Chronic Disease Diagnosis and Management 2007: Acquires Take Care Health Systems 2012: Offers three new chronic disease tests Case in Brief: Walgreen Co. ” Not Just a Drugstore Largest drug retail chain in the United States, with 372 Take Care Clinics In 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. Overview 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.

Walmart Eying the Health Care Industry
Retail Clinics Walmart Eying the Health Care Industry Moving Beyond Basic Retail Clinics Potential Evolution of Health Care Products Basic Retail Clinic Full Primary Care Health Insurance Exchange Scope of Services ” “That’s where we’re going now: full primary care services in five to seven years.” Vice President Health and Wellness Payer Relations 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 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.

Purchaser Behavior Commercial Payers Employers

Commercial Payers Demanding More Value
Taking Measures to Keep Employers in the Game Examples of Commercial Payer Cost Control Initiatives Price Transparency Tools Bundled Payment Narrow Networks, Steerage 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 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.

Doubling Down on Steerage
Commercial Payers Doubling Down on Steerage Anthem Paying Consumers to Pick Low-Cost Providers Anthem’s Compass SmartShopper Program Member works with referring physician to switch to lower-cost provider or location for service Members receiving care at a low-cost provider from the list receive financial reward Before Scheduled Procedure Following Procedure Member accesses list of low-cost providers through toll-free number or website Upon receipt of claim, Anthem identifies member access of low-cost provider list 476 $250K $100 Participating members of SmartShopper pilot program Health care costs avoided over two year pilot program Typical incentive paid to participants choosing lower-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.

Trading Price for Volume on the Public Exchanges
Commercial Payers Trading Price for Volume on the Public Exchanges Expect Lower Provider Payment Rates, Less Patient Choice Anticipated Provider Reimbursement Rates for Exchange Plans Aetna’s Planned Reduction in Exchange Network Size 25%-50% reduction in exchange network size, compared to networks for typical commercial products WellPoint Inc. Between Medicare and Medicaid rates Catholic Health Initiatives Modest discounts from commercial rates Millern Medical Center1 20% below commercial rates Meyers Health1 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 Tenet Healthcare Up to 10% below commercial rates Meriwether Hospital1 5% below commercial rates Pseudonym. 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.

Employers Already Scaling Back Coverage
Erosion of Employer-Sponsored Coverage Well Underway Individuals Covered by ESI1 Contribution to Insurance Premiums Non-elderly Population Coverage for Family of Four 11.5M fewer individuals 2002 2012 Employer Worker 95% growth 102% growth 23% Employers planning to offer CDHP2 as only plan option, 2014 25% Insured non-elderly adults with deductibles $1,000 or higher, 2012 Employer-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.

Concerns for Long Term Liability of Health Benefits
Employers Concerns for Long Term Liability of Health Benefits Employers “Very Confident” Health Benefits Will Be Offered At Their Organization a Decade From Now 2011 PPR SOU Speech A Source: Towers Watson “Health Care Changes Ahead Survey 2012;” Advisory Board interviews and analysis.

Mounting Pressure on Employer-Sponsored Benefits
Will Defined Contribution Emerge as Funding Strategy? Percentage of Employers Offering Private Exchanges Company Health Benefits Strategy for Active Employees Over Next Decade Towers Watson Survey, n = 583 Employee Benefit Research Institute, 2011 Undecided Discontinue health coverage Consider shift to defined contribution Continue offering defined benefit plans 32% 8.7% Increase in Employer Spending on Health Benefits Relative to 5-yrs Prior Growth in Employees’ Share of Premium Costs Between MPLC 2013 SOU: Speech A FINAL 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, “18th Annual Towers Watson Employer Survey on Purchasing Value in Health Care”, 2013, available at: Marketing and Planning Leadership Council interviews.

Real Movement in Exchange Plan Selection
Employers Real Movement in Exchange Plan Selection Sears, Darden Exchange-Style Model in Year One 2013 Health Insurance Offerings at Sears, Darden Restaurants Consumer Preferences on Sears-Darden Exchange 1 Employer offers employees fixed credit to select health care coverage 2 Employee selects coverage from menu of plans in online marketplace 3 If selected plan cost exceeds credit, employee pays balance 1 2 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 MPLC 2013 SOU: Speech A FINAL Preferred Provider Organization Health Maintenance Organization Source: Mathews AW, “To Save, Workers Take On Health-Cost Risk,” Wall Street Journal, March 17th, 2013; Marketing and Planning Leadership Council interviews and analysis.

Most Employers Running to High(er) Deductibles
Select Employers Moving to CDHP1 Percent of Firms Offering HDHP/SO2 by Number of Employees 2011 40 percent CDHP Moving to 100 percent CDHP 100 percent CDHP 100 percent CDHP PPR SOU Speech A Consumer Directed/Driven Health Plans. 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. 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: 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.

Self-Insured Looking for New Solutions
Employers Self-Insured Looking for New Solutions Employers Bearing More Risk, Turning to Providers as Allies Percentage of Self-Insured Employers Partially or Completely Self-Insured Employer Interest in Provider-Oriented Strategies 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 Source: 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.

Provider Selection Trends
Independent Physicians Patients

Specialist, Hospital Choices Driven by Physicians
Strong Referrals Management Still Critical Information Sources Used to Select a Specialist Physician1 Information Sources Used to Select a Facility for a Procedure1 2008 2008 n=13,500 n=13,500 58% rely solely on referral from PCP 69% rely solely on referring doctor Survey 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.

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

Medical Home Incentives Influencing Referrals
Physicians Medical Home Incentives Influencing Referrals Medical Home Practice Changing Referral Priorities, Partner Expectations NCQA1 PCMH2 recognition requires: Hospital partner must offer: “Whole-person” care Comprehensive care services Coordinated, integrated care across care system Health information system interoperability; care management resources High-quality performance Evidence-based care protocols Team-based care Staff communication protocols, interdisciplinary care team meetings NCQA PCMH Model Widely Adopted Approximate number of clinicians practicing in certified medical homes 5,000+ NCQA-certified medical homes 26,000 National Committee for Quality Assurance. Patient-centered medical home. 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.

Anticipating the “Activated” Patient
Patients Anticipating the “Activated” Patient Consumer Role in Decision Making Increasingly Important High-Deductible Health Plan Enrollment Consumer Viewpoint on Role in Care Decision Making 26% Individuals with Deductible of $1000 or More n=2,071 Doctor is completely in charge of treatment decisions Doctor makes the decisions with some input from patient Doctor and patient make a join treatment decision Patient makes final decision with some input from their doctor Patient is completely in charge of treatment decisions 43% 33% Decline in proportion of individuals with a deductible under $5001 Respondents age 25 to 34 preferring fully active role in care decision making From 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.

Factors Influencing Patient Decisions Expanding
Patients Factors Influencing Patient Decisions Expanding Key Drivers of Consumers’ Health Care Decisions 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 Source: Health Care Advisory Board interviews and analysis.

Health Care Industry Trends 2013

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Health Care Industry Trends 2013

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