1. Healthcare’s Economic Outlook
Kayla Sutton
Managing director, economic outlook

2. Imperative to bend cost curve
Healthcare trends with the greatest impact on health system in coming year: reimbursement cuts remains the healthcare trend with the greatest impact on health systems, and continues to grow as a response (increasing to 69% of respondents choosing it as a top 2 trend)
-New care delivery models and health IT requirements are also growing in importance compared to previous surveys; HIT rose from 19% of respondents just 6 months ago to 24% now. New care delivery models has steadily increased from the spring 2012 survey where 16.5% of respondents chose it as a top trend to 28% of respondents currently
Note:
-advanced data analytics first offered as an option fall 2013
-HIT requirements first offered as a response option spring 2013
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

3. Healthcare cost drivers
45% of respondents chose “healthcare legislation” as a top driver of healthcare costs; it remains the top driver, according to respondents, though it appears health systems have been getting used to the implications of healthcare reform and other legislation impacting them since spring 2012 (since it dropped from ~51% of respondents spring 2012)
Labor costs – typically the highest actual expense of a health system – was ranked the second biggest driver of healthcare costs. Although labor costs are more predictable than some other expenses (such as healthcare legislation, overutilization, etc.), some reform outcomes such as ACOs and coordinating care across the continuum demand different staffing needs. New care delivery models put more uncertainty into labor cost predictions.
Misalignment of quality and payment incentives is another top driver of costs, rising from 17% of respondents in spring 2012 listing it as a driver to 23% currently
Overutilization and unjustified variation in care are two types of waste in healthcare system (stemming from misalignment of quality and payment incentives and lack of standardization). “Unjustified variation in care” was split out from overutilization for the fall 2013 survey so we could more accurately assess each type of variation in products and services.
Pharmaceuticals, medical devices and new clinical equipment/technology have all slightly declined from spring 2012
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

4. Market response from ACA
Provider consolidation
Payer consolidation and information technology acquisitions
Physician groups creating ACOs
Private payer, federal and state payment reforms
New collaborations and partnerships
Changes in employer and employee coverage practices
Provider consolidation
Presence Health; Dignity Health; Ascension; for-profits
Payer consolidation and information technology acquisitions
Consolidation: CIGNA acquired HealthSpring.
IT Acquisitions: Aetna acquired Medicity & UnitedHealth Group acquired Axolotl.
Physician groups creating ACOs
Private payer, federal and state payment reforms
Hawaii Medical Service Association model
Blue Cross Blue Shield of Massachusetts - Alternative Quality Contract
CMS - Bundled Payment, VBP, etc.
New collaborations and partnerships
Banner Health partners with Aetna on accountable care collaboration.
Texas Health Resources partners with Healthways on “proactive well-being improvement”.
Evolent Health partners with MedStar on population and health plan management solutions.
Changes in employer and employee coverage practices
18% increase in HSA products in 2011; greater focus on fitness and prevention
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

5. Patient forecasting
Need to better manage the continuum of care – no longer focusing solely on acute care facilities’ contracting and supplies, but the whole spectrum
61% of respondents forecast an increase in outpatients this year compared to last – 13% of them anticipate an increase greater than 5 percent; only 14% of respondents expect a decrease in outpatient discharges.
Conversely, 27 percent of respondents anticipate an increase in inpatients, while 40 percent forecast a decrease. New care delivery models and other incentives to reduce healthcare costs are motivating health systems to coordinate patient care in a manner than reduces costs and improves outcomes. Shifting patients to outpatient settings instead of hospital/acute care is one way to provide more appropriate care while reducing costs, so we expect this trend to continue.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

6. Creating or adopting ACOs
Six months ago (spring 2013), 22 percent of respondents stated that they had created or joined an accountable care organization. Our current survey showed a 21% increase since only six months ago.
-While many respondents pushed their anticipated ACO dates back from 2013, the percent of respondents indicating that their organization has no plans to join or create an ACO decreased 13% from the spring survey.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

7. Reduced utilization and costs due to incentives
Potential ACO Impact
Reduced utilization and costs due to incentives
Greater demand for proven effectiveness and value analysis of new products
Suppliers need to demonstrate value through cost, quality and experience
Value will be measured not just at the site of delivery but across the continuum of care
Purchasing
Supply chain innovation (by-product)
1. Reduced utilization and costs when physicians and hospitals due to incentives to keep costs per capita down
Result in more downward pressure on supply chain costs, and perhaps a broader “customer”
2. Greater demand for clinical effectiveness (vs. cost per unit) and value analysis of new products (particularly higher cost products)
3. Suppliers should also look to other measures when marketing/demonstrating their value, to address cost, quality and experience.
4. Value will be measured not just at the site of delivery but across the continuum
ROI should consider total patient costs, not just inpatient, outpatient or episodic costs
5. Purchasing:
One price for all classes of trade acute and non-acute)
Centralized purchasing  greater transparency between facilities
6. Supply chain innovation (by-product)
Greater necessity for good outcomes/lowered cost will progress collaboration and efficiencies in the supply chain to help reduce costs
EX: Pharmacy automation reduce risks of adverse events/readmissions
HFHS, Detroit Medical and Cardinal Health collaboration
Big Data
Summary: Take advantage of today’s payment levels
Coverage expansion (revenue relief) in question
Don’t be distracted by the political environment
Value-based payment reforms and market transformation is happening -- this time
Movement to more market-based system with greater transparency, consumer choice and demands on providers
Provider-led transformation will require policy change, de-regulation, scale and smart decisions
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

8. Partnerships for population health management
Scale is an important factor in whether health systems decide to engage in wider population health efforts. Scale is required in terms of data: population health requires a significant amount community or population-based data to accurately stratify risk and identify areas to create specific programs (e.g., disease registries, disease management programs, education, etc.).
To build scale, health systems are engaging in various partnerships, the most common of which is with their own provider leadership. Internal partnerships are important to make sure there is provider buy-in on operational decisions and potential changes to the way care is provided. Secondarily, half of respondents indicate they are engaging with health and wellness-focused community groups and local health or public health departments.
Nearly half of respondents state they are working with large local employers and/or private payers, while 39% are working with public payers (such as in the Medicare Shared Savings Program, MSSP, or Pioneer)
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

9. Resource dedication for population health
There are a variety of different programs that health systems are implementing for population health. Two-thirds of respondents are dedicating the most resources toward lifestyle and wellness coaching (Heartland Health’s Mosaic Life Care, for example).
-56% are dedicating resources to home health; 55% are dedicating resources to transitional and end-of-life care; and 51% are investing in patient-centered medical homes.
All of these programs are built to improve patient engagement and/or care coordination. Some of the other programs listed as areas of resource dedication for population health are payer partnerships, risk stratification, patient registries and integrated clinical, supply chain and financial metrics, which are more technology-focused areas that will provide the data infrastructure for population health.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

10. Approaches to using data
Approaches to using data for population health:
64% of respondents are integrating clinical and claims data (likely from their payer partnerships)
45% are using predictive analytics to determine patients with the highest risk and to forecast which patients will require additional care
44% are using an integrated data solution to reduce silos between various data sources
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

11. Factors with the greatest influence on supply chain decisions
A health system’s cost savings’ goals will have the biggest influence on supply chain decisions in the next twelve months. Cost savings goals have been the top driver of supply chain decisions for the past 18 months. Supply chains are being leveraged to reduce costs throughout health systems by reducing variation and unnecessary costs.
Only 13% of respondents report that they do not have a formal cost savings goal for this year. 41% have a goal between 1-5% savings; 33% have a goal of 6-10% savings
22% of respondents indicate that the need to reduce overutilization or variation in care will have the greatest influence on their supply chains. Waste in the U.S. healthcare system is an area of continued discussion – health systems are working to identify areas that they can standardize products and services to reduce unnecessary variation, as well as identify areas where supply spend doesn’t match with outcomes (e.g., PPI). In addition to our updated waste dashboard, published in the Quality Outlook, Premier identified two areas of unnecessary spending in the fall Economic Outlook:
- “Cost of Complications in Obstetrics”: shows the variation in cost for complications in obstetrics patients. Despite the large percent of hospital patients who are obstetrics, as well as the reductions in mortality and other adverse events during labor & delivery, this is still an area where many health systems could standardize care and reduce additional costs from complications.
- “Level of care management in the ICU”: ICU care is more expensive than critical care units and medical- surgical units (because there’s a higher number of nurses/practitioners per patient). However, care management pathways are not always defined with the greatest efficiency. This article highlights the variation of cost and the necessity of properly managing level of care for patients in the hospital.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

12. Medicare Breakeven
This chart shows MS-DRG cost per case and the percent of cost covered by CMS payments. Due to reform, sequestration and general increasing pressures on health systems to reduce costs, it has spurred greater discussion about cost-saving measures. With the baby boomers aging into Medicare, the number of patients with Medicare coverage is going to grow exponentially in the next decade. Since Medicare payments are often significantly lower than commercial payments, health systems need to address the payment and cost gap by identifying areas where costs can be reduced.
Our fall EO features a Medicare Breakeven article that identifies that areas with the greatest payment and cost gap. Our spring EO theme is around Medicare Breakeven and will highlight opportunities for member health systems to identify areas of savings to meet Medicare payment levels.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

13. Willingness to try non-branded PPI
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

14. Clinical innovation in percutaneous coronary intervention (PCI)
Transradial intervention (TRI) versus transfemoral intervention (TFI) for PCI procedures
In U.S., 10-11% of PCI done using TRI; 50-70% in Europe
Using Premier data, researchers showed benefits from TRI, including:
Higher patient satisfaction
Increased comfort
Early ambulation
Benefits from TRI allow for safer shift to same-day discharge KS
Tie to physician preference

15. PCI shift to outpatient careKS
Tie into healthcare costs – decreasing costs; innovation

16. Trends impacting supply chains
Fall 2013
Spring 2013
Fall 2012
Increased physician-health system engagement across clinical and supply chain operations
24.8%
29.6%
38.4%
Supply chain integration to align with clinical care, revenue capture and IT across facility/health system
20.1%
10.7%
6.3%
Focus on waste management (e.g., resource utilization, as a means to reduce supply cost)
13.9%
21.4%
17.3%
Comparative effectiveness/value analysis research
N/A
10.3%
n/a
Centralized purchasing
15.0%
Use of new supply chain metrics/processes
5.0%
Population health management and care coordination across the continuum
5.6%
7.8%
4.8%
Location and product identification standardization (e.g., GLN and GTIN)
5.3%
1.5%
2.7%
Top supply chain trends:
-Increased physician-health system engagement remains the top supply chain trend with 25% of respondents citing it as the top trend; however, there’s been a 35% decrease since fall Physician-health system engagement is important in decisions that drive down costs while improving outcomes (or at least keeping outcomes the same), but require physician buy-in. PPI is a good example of this.
-Supply chain integration to align with clinical care, revenue capture and IT across the health system – alternatively – has seen a 220% increase since last year.
-Focus on waste management has declined from fall 2012, but after increasing spring Waste management is becoming more common for health systems, so although the emphasis on it doesn’t seem to be wavering amongst our members, it isn’t necessarily as new a trend.
-NOTE: options with N/A spring 2013 and fall 2012 are new to the fall 2013 survey.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

17. Standardization receiving most resources
Within the supply chain, product standardization is receiving the most dedicated resources (confirming the comment made on previous slide that waste management isn’t losing its emphasis within health systems). In fact, there’s been a 43% increase in respondents indicating product standardization is being dedicated the most resources since last fall.
IT investments are the second largest area of resource dedication for supply chain, though response fell from the spring 2013 survey. Reducing costs for commodity products appears to be a growing need for health systems, whereas comparative effectiveness/value analysis research has decreased from last year.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

18. Cardiac rhythm management (CRM) Collaborative
Device purchases from multiple vendors
Reliance on line-item versus system pricing
Substantial price difference for devices
Tiered pricing
Little association between volume ordered and pricing of devices

19. Number of vendors by facility

20. 3 facilities with a cath lab
CRM case study
3 facilities with a cath lab
12 physicians performing CRM implantation (5 of whom employed by health system
Physician champion
Open communication with physicians
Cost & utilization review once per month
Vendor code of conduct:
Vendor rep with largest volume allowed in lab once per week
All other vendors allowed in lab once per month

21. E-procurement case studies
Program to assist smaller facilities in building greater supply chain and operational efficiencies
Improvement in operational efficiency and supply-related revenue capture
Decrease in medical-surgical supply expenses
Facility 1:
30-bed skilled nursing facility
Decrease in 32% of matched items
3.27% reduction in annual supply expense
Facility 2:
75-bed skilled nursing facility
Price decrease in 29% of supply items
4.89% reduction in total supply expense
Mountain States Health
Facility 1:
30-bed skilled nursing facility
Decrease in 32% of matched items
3.27% reduction in annual supply expense
Also saw savings on chargeable supply items, and improvements in inventory processing and employee efficiency
Facility 2:
75-bed skilled nursing facility
Price decrease in 29% of supply items
4.89% reduction in total supply expense
Additional supply-related patient revenue; cost reductions from lower EDI use and staffing efficiencies from better reporting

22. Centralized purchasing
47% of respondents indicate they have the capability and have full implemented centralized purchasing across acute and alternate sites. We’d still be interested to know whether they are using the same formulary or have standardized product choices across facilities.
42% have a centralized purchasing capability that isn’t fully implemented and 12% do not have the capability.
Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities

23. Incentives and Barriers to Clinical Integration
Outcomes-based measurements (74%)
Bonuses contingent on achievement of quality outcomes (68%)
Penalties for readmissions and infections (33%)
Lack of willingness on part of physicians (29%)
Difficulties in implementation of cross- continuum EHR (21%)
Lack of budget to create integration (15%)
Need for greater incentives to encourage participation (15%) KS
Segue: We saw in the last slide that increased physician-organization engagement maintains the greatest impact on health systems’ supply chains. Physician-organization engagement is essential to reducing standardizing supplies and overall care that will bend the cost curve and physician buy-in is also essential in meeting the goals of healthcare reform.
-Various incentives are in place through the ACA and general market competitiveness to encourage the shift away from fee-for-service, acute-focused care toward better quality, lower cost patient care. Survey respondents stat that outcomes-based measurements (74%) and bonuses contingent on quality achievements (68%) are the biggest incentives for clinical integration at their organizations.
-In this case, it appears the carrot is working better than the stick – compared to a majority who are incentivized by bonuses and achievement of outcomes, only 33% are motivated by the penalties they could incur for readmissions and infections.
-As we mentioned at our fall event, physician engagement with operational or supply chain decisions has been a barrier to creating effective clinical integration for many health systems. That continues to be a barrier for 29% of respondents, followed by difficulties in implementing cross-continuum EHRs, and a lack of budget.
N= 422
Source: Premier healthcare alliance spring 2013 member survey

24. Supply Mix Index

25. Targeting cost opportunity with clinical data
4 Premier member hospitals identified over $17m in savings opportunities in 4 high cost / high volume MS-DRGs
Free-flowing information
Another strategy to push innovation is for research and information to be transparent and freely available.
While data in isolation has utility, it’s the ability to share openly with others, tinker with the problem and build upon success that has the power to initiate meaningful change.
For the University researchers, if they kept the protein problem secret, no one would have been able to contribute to the solution.
In the reform environment, identifying and rooting out unnecessary costs, or waste, is an absolute must.
Last year we embarked on a cost variance study with a subset of hospitals on our Group Purchasing Member Relations committee – or GPMR – which serves in an advisory capacity to Premier's board of directors,
Both John Knox and John Orsini are members of this committee, as is a representative from Bon Secours. NEED MORE????
Historically, providers have received their system detail behind the supply expense per case mix index adjusted acute discharge metric.
Though widely used as an adjustment factor to normalize supply consumption within the industry, the CMI metric includes various non-supply expense elements – such as salaries and benefits, and labor intensity by case. This approach can distort the view of supply consumption.
In 2010, the members of GPMR agreed to data transparency in a collaborative effort to identify key cost performance drivers.
They used Premier’s Supply Mix Index as an innovative benchmarking method when examining supply expense. Premier leveraged our extensive data to this index for more accurate supply consumption analysis.
Specific examples of this targeted approach of reducing costs while maintaining quality were presented for cardiac defibrillator implant patients, patients with cardiovascular procedures involving drug-eluting stents, spinal fusion patients and patients with major joint replacement.
The purpose of this work has been to generate a granular view of cost performance to enable an organization to address overutilization of resources, physician practice patterns and pricing variance.
The purpose of this presentation is recap the methodology utilized during this study and to stimulate dialogue with the Committee to determine what collaborative steps to take going forward as cost reduction opportunities are realized. While there are no formal action items, the series will remain an ongoing agenda item on future GPMR meetings with further analyses and outcomes-based discussion.
We targeted DRG targeting approach using Premier tools was tested through work with Ascension in
Premier’s Group Purchasing and Member Relations (GPMR) Committee adopted data transparency :
Benchmarked overall cost per case performance (SupplyFocus™)
Targeted specific MS-DRGs using Premier’s Supply Mix Index
Utilized QualityAdvisor™ data to identify utilization opportunities within targeted MS-DRGs
Drilled into performance variation to identify potential drivers:
Resource Utilization
Physician Cost per Case Variance
Non-supply cost drivers (e.g., length of stay, OR time)
Determined areas of focus to deploy resources and act on opportunities and drive savings
GPMR Success
Using 4 high-cost / high-volume MS-DRGs, $17.2M in savings opportunity was identified for 4 members
Cost variance drivers identified at resource and physician level.
Utilization, physician practice patterns and price points are key drivers.
Reviewing price points of cardiac defibrillators for 16 hospitals (on and off Premier contract) resulted in a $3k variance in pricing contributing to a $13k range of cost per case.

26. Capital budget forecasts
58% of respondents to the fall survey forecast an increased or flat capital budget compared to last year. This is down from 63% spring 2013; 67% last fall. These are forecasts compared to the previous year, so as we get back to , many health systems would’ve been recovering from the recession and anticipating increased capital budgets compared to the previous year.
Currently, we’re seeing a fairly significant increase in the percent of respondents expecting a decrease in capital budgets, especially decreases greater than 10%.

27. Areas of capital investment
Capital spending report – November 2013
We saw an 11% decrease in respondents indicating their greatest area of capital investment would be IT and telecommunications in this survey compared to only six months ago. This is the first time IT has fallen below 40% of respondents indicating it as the top investment area since fall 2011.
Infrastructure, on the other hand, rose 4 percentage points from the spring survey – a 26 percent increase from fall 2011 (and its highest point since fall 2011). Infrastructure costs are likely rising in accordance with greater care coordination, population health efforts, and new care delivery models. Health systems are building new facilities to better manage patient and community needs.

28. Inflation estimates

29. TRJ/CRB index
Currently 38% below 2008 peak and 42% above 2009 floor
Note: quantitative easing and commodity prices

30. Major factors impacting 2014 commodity prices
U.S. monetary policy/quantitative easing
Strength of U.S. dollar compared to other currencies
Resiliency of European Union
Demand from China and emerging markets
Suppliers identified energy, labor and plastic resins as the top cost drivers of raw materials

31. Commodities highlights
Commodity
Last month
change
Last year
What to Watch
Copper
-1.00%
-14.00%
678,225 metric tons of surplus; decreasing demand for metals
Cotton
-2.88%
14.55%
Rise in global demand and decreased production in US due to drought expected to increase prices
Natural Gas
-1.91%
2.42%
Report on June 6th showed largest inventory gain in four years; winter weather expected to raise prices in 2014
Oil
-5.83%
11.43%
Increasing global demand combined with increase in non-OPEC fuels production; China second-largest consumer of oil

32. Food price volatility

33. Questions?
Contact:
Theme of the fall 2013 edition is population health management. In addition to our survey questions on supply chain, finance and general industry trends impacting our members, we also asked a population health battery to help gauge what our members are doing in this area.