1. Revenue Cycle in The World of Commoditized Healthcare May 1, 2014 Sheldon Hamburger shamburger@thearistonegroup.com (248) 613-7166 shamburger@thearistonegroup.com

2. If you remember just one thing….. Your next CFO isn’t coming from the health industry. Your next CFO is coming from industrial USA.

3. Great news! Everything’s getting better And cheaper And more accessible

4. Bad News….

5. Our healthcare “insurance” timeline 1940s 1950s 1970s 1990s 2000s 1960s 1980s

6. Expansion of healthcare “industry"

7. The Good Development of new “stuff” Procedures Drugs Cures (1974 – 2010) # patents for drugs & surgical innovations increased by a factor of 6 per NEJM

8. The Bad “Too much” spending? Not “too much”, just unpredictable $14B $6B$2B $8B

9. The Ugly Efforts to control exploding healthcare spend Copays ($1 → $5 → $10, $10 → $20 → $40) Deductibles ($500 → $1,000 → $5,000) Squeezing providers HMO, PPO, ACO, ABC, 123 Result: exploding healthcare spend

10. A funny thing happened along the way

11. Cost reduction over time Attributes of a “commodity” Quality predictable even if variable Availability – it’s everywhere Convenience – it’s easy to get Replicable – “anyone” can do it

12. We see this every day

14. “Commodity” services Podiatry Dermatology Obstetrics Orthopedics Oncology Gastroenterology ……… It’s hard to make a wrong decision

15. 2013 Study – How patients choose Drs MedicalRetail Acceptance of insurance plan Cost Bedside manner/empathyCustomer service Proximity of office to home, work, or school Location Convenient office hoursStore hours

16. Effects on revenue cycle Charges/pricing Your customers Pricing models Retail-like offers Payment trends Payer views Patient views Unexpected pluses Customer service Patient expectations

17. New contracting models Payers shifting risk to providers ACOs, bundled payments, reference pricing Allows providers to make their own rules Driving simplification to improve profitability Telehealth (All this could eliminate the need for what we just built) Effects on revenue cycle driven mostly by these models –but not exclusively

18. Effects on revenue cycle Charges/pricing Your customers Pricing models Retail-like offers Payment trends Payer views Patient views Unexpected pluses Customer service Patient expectations

19. Who’s your customer? Financial responsibility Payer – contracts, big bills Patient – copays/deductibles Increasing for decades HSA/HRA/FSA/Cash Buying decision Payer – defines benefits(network) Patient – decides where to buy

20. Charges/pricing models Simplification Easier for customers (payer & patient) Easier for provider to manage Fixed priced models open doors Ability to offer discounts/coupons/packages Capture costs in addition/instead of fees

21. Customer pricing →

22. Simplified Pricing Models - Payer Shifting risk downstream thru packaged pricing ACOs – longitudinal care Bundled payments – episodic care Reference pricing What does the provider get in return for taking risk? Better payment terms (in advance!) Administrative simplification (no claims) Preferred patient referrals

23. Simplified Pricing Models - Payer Reference pricing Payer limits its payments (e.g., $10,000) Patient may opt to pay difference (e.g., $2,000) How will you bill the patient for the $2,000? What extras will you offer? Telehealth Charging a patient you never “see”

24. Simplified Pricing Models - Patient Patient paying 1 st dollar makes packages easier High deductible policies Packaged pricing Creative care packages Ex: “routine” visit & diagnostic tests Ex: ortho follow up – exam & PT test Think lifetime free rotation & alignment Concierge care Selling access/priority/off-hours care

25. Simplified Pricing Models - Patient Discounts/specials $25 screenings this week only Cardiac panel for an extra $10 “Frequent fliers” Promotion for meeting a goal Weight loss, cholesterol level Referral fees/gifts Gym memberships/personal trainer Weight loss program fee Spa/massage

26. Simplified Pricing Models - Patient Your own drug program Limited formulary $0 copay Regulatory/contract challenges Waiving copays

27. Cost Capture Capture costs in addition/instead of fees Current model is charge capture in order to generate claims Now we need to capture costs in order to measure margin

28. Other Issues No-charge visits Software/workflow changes? Affects on analytics

29. Effects on revenue cycle Charges/pricing Your customers Pricing models Retail-like offers Payment trends Payer views Patient views Unexpected pluses Customer service Patient expectations

30. Payments - Payer Global/bundled payments PMPM, single episodic payment Allocations Effects on analytics

31. Payments - Payer Progress payments Typically for episodes Ex: ½ at onset, ½ at completion

32. Payments - Payer Advances Estimated fees at beginning of each quarter Billing against a pool of money Periodic reconciliation

33. Payments - Payer Gainsharing/withholding Typically part of bundled payments Fee-for-service along the way Periodic review/reconciliation Result: payment or claw back

34. Payments - Payer “Realtime” transaction processing Payment authorization Deductible utilization (non-itemized?) Perhaps via the HSA/HRA/FSA

35. Payments - Patient Retail-like experience Complete transaction at POS Realtime payer transaction processing Authorizes payment “now” Think credit cards

36. Payments - Patient Retail-lite experience Internet/PayPal®/Mobile Storing credit cards Online payment plans - BillMeLater® Also used at POS

37. Other Issues Collection Need is reduced as more collected at POS Realtime financing further offloads the issue

38. Other Issues Rejections/pends are reduced/eliminated Regulatory/contract issues with “discounting/factoring” copays/deductibles

39. Effects on revenue cycle Charges/pricing Your customers Pricing models Retail-like offers Payment trends Payer views Patient views Unexpected pluses Customer service Patient expectations

40. Customer service expectations

41. Independent of “commoditization” High availability = 24x7 Internet availability for questions Clear view of bills/payments Including insurance transactions Ability to show transactions in various ways Sort by date, procedure, episode, payment Filter out non-financial items: rejections, etc.

42. Customer service expectations Responsiveness Phone: hold times, call-back delays Email: responsiveness, HIPAA Online chat: responsiveness, HIPAA Skype, Facetime, etc: HIPAA

43. Brief notes on cost management This is new to healthcare Key to profitability

44. Questions? Sheldon Hamburger shamburger@thearistonegroup.com (248) 613-7166