The Perfect Storm: Our Role in Delivering Value in Healthcare Matt Wain, Chief Operating Officer, MUSC Health May 6, 2016

Agenda Introduction MUSC Health Perfect Storm Changes Patient Focused High Reliability Our Role as Partners Questions & Comments Key Message: We currently find ourselves in the midst of 1 of only 3-4 ‘perfect storms’ that have affected healthcare, particularly academic medical centers, in the history of the US. (Flexner changes in early 1900s, Medicare/Medicaid, Revenue cuts in 1990s, and now) But like hurricanes – you can prepare to a degree. ----------- 2 2

Overview Employees - 8,000 Physicians - 750 Nurses - 2,400 1/11/2013 Overview Employees - 8,000 Physicians - 750 Nurses - 2,400 Four Hospitals Inpatient visits - 36,114 Observations - 5,629 Ambulatory surgeries - 3,693 Outpatient visits - 1,205,066 Off-campus care settings – 120 Emergency department visits - 66,736 Clinical trial studies - 581 actively enrolling Operating budget - $1.6 Billion

Accomplishments

Increase in Cost of Healthcare The Perfect Storm Increase in Cost of Healthcare Key Message: The US has experienced tremendous increases in the cost of care since WWII. ----------- 5 5

Why is this important? HealthCare becomes more of a business every day Double digit cost increases annually Balancing business and patient duties is difficult > 40% of private practice physicians spend at least one day per week managing business responsibilities. > 82% find this balance “challenging” or “extremely challenging” 74% identified financial management as an area they would like to improve Source: Medical Practice Monitor survey by OPEN Hospital Margins Decline Non-Profit Hospital Revenue Growth lowest in 2 decades (Moody’s)

Current U.S. Healthcare System Free Market Based Who, when and where is largely an individual decision Employer, Private, Government and Self Strengths Choice, Access, Technology, Availability Challenges Costs, Un/Under Insured

Current U.S. Healthcare System Costs 16.0% of US GDP spent on healthcare including: Technology Infrastructure Services Payment Consumer Costs Highest % Among Industrialized Nations 4.3 times higher than spending on National Defense Different perspectives on whether this is good or bad?

Current U.S. Healthcare System Uninsured Population 46.6 million uninsured in the United States including: Non-citizens Anyone without insurance for 1 day Those who choose not to be insured Can’t afford insurance and don’t have it for more than 2 years Based on median US income level

Current U.S. Healthcare System Uninsured Population 46.6 million uninsured in the United States including: Non-citizens Anyone without insurance for 1 day Those who choose not to be insured Can’t afford insurance and don’t have it for more than 2 years Based on median US income level 8.2 million Americans uninsured

Key Message: If the price of everything had grown as quickly as healthcare, this is what we would be paying at the grocery store! ----------------

The Perfect Storm Increase in Cost of Health Care Access to Health Care  Affordable Care Act – “Obamacare” Value-Based Purchasing Decrease in payment for unfunded Expansion of Medicaid Key Message: We have millions of citizens with no reasonable way to pay for care and therefore no (or limited) access to care. The ACA is a fix to that access, but to do that will result in significant changes to healthcare across the US. This will keep up for the next 3-5 years. ---------------- ACA is complex with many components but 3 that have an important impact for us are: 1. VBP – which links the amount of our payment with the quality and efficiency of our results 2. Decrease in payments we have historically received for unfunded care (called disproportionate share payments or ‘dish’ for short) 3. Expansion of Medicaid enrollment to provide payment coverage for more people 12 12

The Perfect Storm Recession  South Carolina Budget Deficit Increase in Cost of Health Care Access to Health Care  Affordable Care Act – “Obamacare” Recession  South Carolina Budget Deficit Key Message: SC, like most states in the nation, experienced a serious budget shortfall ---------------- 13 13

The Perfect Storm Decrease in Medicaid Funding Increase in Cost of Health Care Access to Health Care  Affordable Care Act – “Obamacare” Recession  South Carolina Budget Deficit Decrease in Medicaid Funding Key Message: One way that SC addressed its budget deficit was to reduce Medicaid payments. For us, that meant $20 M less per year for the same amount of care. ---------------- 14 14

The Perfect Storm 1 of 15 States to Not Expand Medicaid Increase in Federal Spending Access to Health Care  Affordable Care Act – “Obamacare” Recession  South Carolina Budget Deficit Decrease in Medicaid Funding 1 of 15 States to Not Expand Medicaid Key Message: Currently SC is 1 of 15 states that have elected not to expand Medicaid. So we, and other SC hospitals, will not see the reduction in unfunded patients that this part of the plan would have addressed ---------------- About half of the states are electing to expand Medicaid. SC is not one of them. Even though SC is not expanding Medicaid, we will still see the cuts to monies we receive for taking care of unfunded patients. We have already experienced some of these cuts and more are scheduled to take place in October 2014. 15 15

The Perfect Storm Increase in Cost of Health Care Access to Health Care  Affordable Care Act – “Obamacare” Recession  South Carolina Budget Deficit Decrease in Medicaid Funding 1 of 15 States to Not Expand Medicaid Key Message: We will likely continue to see the same level of unfunded patients in the foreseeable future. Funding for that care is slated to be reduced or eliminated at some point. For us that is $45 Million per year. ---------------- The lack of Medicaid expansion and the lost of monies for unfunded care is particularly important at MUSC since we have the largest amount of unfunded patients. We are not alone – we are 1 of 6 hospitals across SC which see a large number of unfunded patients. 1 of 6 SC Hospitals with Largest share of unfunded patients 16 16

How Safe are We? The Perfect Storm Increase in Federal Spending Access to Health Care  Affordable Care Act – “Obamacare” Recession  South Carolina Budget Deficit Decrease in Medicaid Funding 1 of 15 States to Not Expand Medicaid Key Message: The perfect storm is approaching. We are already experiencing the ‘outer bands. Like with all storms, we need to be prepared. ---------------- Script - above 1 of 6 SC Hospitals with largest share of unfunded patients 17 17 How Safe are We?

third leading cause of death in the US How Safe is Healthcare? Scheduled Commercial Airlines European Railroads Nuclear Power Safe Driving in the United States Chartered Flights Chemical Manufacturing Healthcare During the May town halls, we discussed how healthcare compares to other industries and activities when it comes to safety… third leading cause of death in the US Mountaineering Bungee Jumping Unsafe

Gram-positive, spore-forming anaerobic bacteria Clostridium Difficile “C Diff” Gram-positive, spore-forming anaerobic bacteria 453,000 cases annually; 29,300 deaths Two-thirds of C Diff cases are estimated to originate in hospitals

Clostridium Difficile “C Diff” Various Surveys: 42% of hospital privacy curtains were contaminated with some bacteria; 4% with C Diff One C Diff outbreak linked to mop pads after a laundry malfunction Infection rate reduced by 47.8% with effective bed cover laundry methods Mattress cover openings/cracks result in increased incidence

The Perfect Storm Our Response Choluteca Bridge, Honduras Key Message: We have a response in order to be prepared for this “storm” ----------- So, what is our response – let’s review that….. Choluteca Bridge, Honduras 22 22

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Score Repurchase Recommend Moments of Truth “A moment of truth occurs anytime a customer comes into contact with your organization and can form an opinion.” Jan Carlzon Scandinavian Airlines It is these moments of truth that define us. Actually, it’s that moment of truth from the perception of the customers eyes that define us. Often field complaints. After listening I hear it’s one poor moment of truth surrounded by many good experiences… We talk about satisfaction but… Exceed expectations = loyalty Satisfaction = Risk Score Repurchase Recommend 5 90% 96% 4 56% 71% 3 12% 19% 2 7% 10% 1 3% 7% …About TV’s or something Business can… Better prices Convenient locations Frequent buyer perks – 9th hosp visit free Special discounts & sales Brand recognition …but we can’t.

Correlation of Patient Care and Service Excellence 5 COMPASSION 4 COURTESY 3 COMPETENCE 1-2 Fred Lee, “What if Disney Ran Your Hospital” Inspired Required Hired Fired (5-7 minutes) What about hospitals? What does this mean in healthcare? - the only source of loyalty for hospitals is patient/customer experiences (moments of truth). Background on Fred Lee Competence – customers assume quality. basic level indicating hire/fire Courtesy – Customer service not a hiring criteria might not fire for non-courtesy like we would for clinical inadequacy Compassion – emotional level difference between good and great Kelly Courtesy and Compassion more important than competence and efficiency => putting campus values in line with key factors for patient satisfaction and loyalty TASK vs. PURPOSE Airlines Concerned but assume safe Remember on time but experience is key mwain

Putting it all Together Key Message: The US has experienced tremendous increases in the cost of care since WWII. ----------- 27 27

Questions, Comments & Discussion