State of the Union: The New Era of Health Care Reform

State of the Union: The New Era of Health Care Reform
Health Care Advisory Board State of the Union: The New Era of Health Care Reform Health System Strategy Amid Empowered Consumers, Activated Employers, and Reactive Insurers

Health Care Advisory Board
Project Director Trevor Goldsmith Contributing Consultants Amanda Berra Leif Brierley Vivian Ling Design Consultant Christina Lin Practice Manager Benjamin Umansky Executive Director Lisa Bielamowicz, MD

State of the Union: The New Era of Health Care Reform
Health Care Advisory Board State of the Union: The New Era of Health Care Reform Health System Strategy Amid Empowered Consumers, Activated Employers, and Reactive Insurers

The 42nd and 45th Presidents of the United States
Source: Health Care Advisory Board interviews and analysis. SCRIPTING: Elections are happening, but the infrastructure is embedded No ability to get crazy new ideas through No one will have 60 votes in the Senate

Hope and Change, Eight Years On
Surely President Obama’s Signature Achievement A Grand Promise for Change “The bill I’m signing will set in motion reforms that generations of Americans have fought for and marched for and hungered to see.” Barack Obama, on the Affordable Care Act, March 23, 2010 “This is a big [expletive] deal” Joe Biden, on the Affordable Care Act, March 23, 2010 Source: Solberg S and Pear R, “Obama Signs Health Care Overhaul Bill, With a Flourish,” New York Times, March 23, 2010; Health Care Advisory Board interviews and analysis. IMAGE SOURCE: Wikimedia Commons: SOURCE: Solberg S and Pear R, “Obama Signs Health Care Overhaul Bill, With a Flourish,” New York Times, March 23, 2010, available at: Alternative quote source:

Evaluating the ACA Against its Intentions
Major Reform Goals 1 2 3 Replace Costly Fee-for-Service Incentive Structures Improve Health Care Quality Achieve Universal, Affordable Coverage Chosen Method: Medicare-led Payment Reform FFS cuts New payment models Intent to catalyze broader commercial market change Chosen Method: Incentives + Transparency IT mandates Pay-for-Performance programs Market-facing transparency Chosen Method: Expansion of Existing System Insurance market regulation Expanded public coverage Market-based exchanges Obama-era Enabling Legislation February 17, 2009: Health Information Technology for Economic and Clinical Health (HITECH) Act March 23, 2010: Patient Protection and Affordable Care Act April 16, 2015: Medicare Access and CHIP Reauthorization Act (MACRA) Source: Health Care Advisory Board interviews and analysis.

Kicking the Legs Out From Under Fee-For-Service
Objective #1: Replace Costly Fee-for-Service Incentives Kicking the Legs Out From Under Fee-For-Service Policymakers’ Intention to Migrate Payment Perfectly Clear “Productivity” Adjustments and Other Cuts ($4B) ($14B) ($24B) ($29B) ($38B) ACA IPPS1 Update Adjustments ACA DSH2 Payment Cuts MACRA3 IPPS Update Adjustments ($54B) ($67B) ($76B) ($86B) ($94B) No Subtlety Here Providers should compare ACO earnings not with what they could earn in today’s fee-for- service payment environment but with what they could expect to earn in the future if they didn’t participate in such alternative payment models.” CMS Officials Inpatient Prospective Payment System Disproportionate Share Hospital Medicare Access and CHIP Reauthorization Act Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015; The Daily Briefing, “How to Understand Last Week’s Big Budget Deal,” November 2, 2015; Budget of the United States Government (Proposed) FY 2016; Pham H, et al., “Medicare’s Vision for Delivery-System Reform – The Role of ACOs,” New England Journal of Medicine, September 10, 2015; Health Care Advisory Board interviews and analysis. OLD SOURCE: Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015; The Daily Briefing, “How to Understand Last Week’s Big Budget Deal,” November 2, 2015; Budget of the United States Government (Proposed) FY 2016; Health Care Advisory Board interviews and analysis. Medicare numbers: 2015 Annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds;

MACRA Providing an Accelerant for Risk
Greater Payment Updates, Bonuses Depend on Payment Migration Annual Provider Payment Adjustments MIPS Bonuses/Penalties APM Bonuses/Penalties +/-4% Annual adjustment, 2019; scales up to 5% Annual lump-sum bonus from Advanced APM Track +/-9% Annual adjustment, 2022 (plus any bonuses/penalties from Advanced Payment Models themselves) $500M Additional bonus pool for high performers MIPS Track 2015 – 2019: 0.5% annual update (both tracks) 2020 – 2025: Payment rates frozen (both tracks) 2026 onward: 0.25% annual update (MIPS track) 0.75% annual update (Advanced APM track) Baseline payment updates1: Source: The Medicare Access and CHIP Reauthorization Act of 2015; : CMS, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, April 25, 2016; Health Care Advisory Board interviews and analysis. Relative to 2015 payment. NEW SCRIPTING Now dragging doctors into the mix OLD SCRIPTING MACRA is also mandatory for your physicians starting in 2019; is another way that they’re pushing you toward risk. This matters for your system because physicians will in all likelihood want to be in these APM models – you as a system have to make sure that those who do have a home within your system So that you can attract the physicians that you need There’s probably no way to qualify for MACRA without population health risk

Heavy Bias Toward Downside Risk
Meaningful Provider Exposure Required APMs (Affect MIPS payments; do not contribute to Advanced APM track eligibility Other Advanced APMs (contribute to “Other Payer” Advanced APM track eligibility in 2021) Medicare Advanced APMs (contribute to Advanced APM track eligibility) Qualifying Models Qualifying Models Qualifying Models Medicare Shared Savings Program Track 1 MSSP Track 2 MSSP Tracks 2, 3 Comprehensive Primary Care Plus (CPC+) Commercial contracts with sufficient downside risk Medicare Advantage Next Generation ACO Comprehensive ESRD Care Model1 Bundled Payments for Care Improvement Oncology Care Model Two-Sided Risk2 Requirements for Advanced APMs: Maximum possible loss must be at least 4% of spending target Threshold to trigger losses must be no greater than 4% above target Loss sharing rate must be at least 30% EHR use, quality requirements Comprehensive Care for Joint Replacement Large Dialysis Organization arrangement Available in 2018. Source: CMS, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, April 25, 2016; Health Care Advisory Board interviews and analysis. SOURCE CMS, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, April 25, 2016;

Advanced APM Qualification No Simple Feat
Substantial Share of Payment Must Flow Through Risk-Based Models Advanced APM Qualification Thresholds A Long Way to Go Physicians currently projected to qualify for Advanced APM track in 2019 4% Source: The Medicare Access and CHIP Reauthorization Act of 2015; : CMS, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, April 25, 2016; Health Care Advisory Board interviews and analysis. NEW SCRIPTING Now dragging doctors into the mix OLD SCRIPTING MACRA is also mandatory for your physicians starting in 2019; is another way that they’re pushing you toward risk. This matters for your system because physicians will in all likelihood want to be in these APM models – you as a system have to make sure that those who do have a home within your system So that you can attract the physicians that you need There’s probably no way to qualify for MACRA without population health risk

BPCI Not Encouraging Downside Risk
Despite Early Enthusiasm, Fewer Providers Willing to Take on Downside BPCI1 Participation Provider Challenges Significant drop-off after downside risk introduced 6,000+ Limited interest in prospective, inpatient- focused Model 4 No required downside risk for physicians Limited experience, skill in managing post-discharge costs or partnering with post-acute providers Savings to Medicare Complexity of managing up to 48 clinical areas Average savings per episode for orthopedic cases excluding spine2 $3,724 Challenge of expanding from surgical to medical episodes Bundled Payments for Care Improvement Initiative. Based on difference-in-differences analysis of 335 BPCI episodes and 10,926 control episodes. Source: Press et al., “Medicare’s New Bundled Payments: Design, Strategy, and Evolutions,” JAMA, December 17, 2015; CMS, “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” October 13, 2015; The Lewin Group, “CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2-4: Year 1 Evaluation & Monitoring Annual Report,” January 2015; Health Care Advisory Board interviews and analysis. SCRIPTING And the last thing they’re doing is actually changing the model itself But these programs look like they’re hurting providers too and not that many are joining The savings are actually being achieved, but providers don’t like it – though Medicare does Lots of problems with the program CBO scoring OLD SOURCE Source: Press et al., “Medicare’s New Bundled Payments: Design, Strategy, and Evolutions,” JAMA, December 17, 2015; CMS, “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” October 13, 2015; The Lewin Group, “CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2-4: Year 1 Evaluation & Monitoring Annual Report,” January 2015; Health Care Advisory Board interviews and analysis.

$343M Estimated savings to Medicare Over the 5 Years of the Model
No Dodging Downside in 67 Markets Mandatory Episodic Price Cut for Orthopedics Coming in 2017 The Comprehensive Care for Joint Replacement (CJR) Model Program Features Program Timeline November 2015 Final details announced, including hospital participant list and revised quality methodology Focus on joints Average expenditure varies from $16,500 to $33,000 by geography Comprehensive episode Includes all related Part A and Part B services for 90 days post-discharge April 1, 2016 First performance year begins; no episode discount for first year Downside risk incorporated; up to 3% episode discount, depending on hospitals’ quality performance scores Mandatory in 67 markets Affects ~800 IPPS1 hospitals; excludes hospitals participating in BPCI2 Model 1 or Phase 2 of BPCI Models 2 or 4 for LEJR3 Retrospective bundle CMS makes FFS payment to each provider separately, conducts annual reconciliation process $343M Estimated savings to Medicare Over the 5 Years of the Model Inpatient Prospective Payment Systems. Bundled Payments for Care Improvement Initiative. Lower extremity joint replacements. Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

Similar Story for Medicare Shared Savings
Overwhelming Majority of ACO Participants Still in Shallow Water Continuum of Medicare Risk Models MSSP Track 1 MSSP Track 2 MSSP Track 3 Next Gen ACO Option to renew for second three-year term Savings rate kept at 50% for second term Shared savings, loss rate remains at 60% based on quality performance Revises savings, loss thresholds from fixed 2% to variable 2%-3.9% based on number of beneficiaries Shared savings up to 75%, shared losses from 40%- 75% based on quality performance Fixed 2% savings, loss thresholds Prospective assignment Risk arrangements include 80%-85% sharing rate or full performance risk Option for capitation 434 Participants 6 Participants 16 Participants 20 Participants Upside Risk Only Downside Risk Source: CMS, “New Hospitals and Health Care Providers Join Successful, Cutting-Edge Federal Initiative that Cuts Costs and Puts Patients at the Center of Their Care,” January 11, 2016, available at: Becker’s Hospital Review, “River Health ACO drops out of Next Generation program,” February 12, 2016, available at: Source: CMS, “Next Generation Accountable Care Organization Model (NGACO Model),” January 11, 2016, available at: CMS, “Open Door Forum: Next Generation ACO Model”, March 17, 2015, available at: Becker’s Hospital Review, “River Health ACO drops out of Next Generation program,” February 12, 2016, available at: Health Care Advisory Board interviews and analysis. SCRIPTING So Medicare offers all these programs for people to take on those models But we’re seeing that no one wants to wade into the deep end But they won’t be able to get to large scale population health payment adoption without more providers taking on risk; participating in the Medicare programs So they’re offering a bunch of options to try to get providers in And in some other programs, where Medicare wants you the providers to take on more risk, they’re offering you multiple options And if you’re thinking about what kind of home you want to offer for your providers who want to do alternative payment, Medicare ACOs continue to be an option [BETTER THAN THAT] Medicare continues to evolve ; they really want people to be in the program They’ve offered this new option, Next Gen – which some people are in [still not convinced of this scripting] PARTICIPANT SOURCES: Source: CMS, “New Hospitals and Health Care Providers Join Successful, Cutting-Edge Federal Initiative that Cuts Costs and Puts Patients at the Center of Their Care,” January 11, 2016, available at: Becker’s Hospital Review, “River Health ACO drops out of Next Generation program,” February 12, 2016, available at: Health Care Advisory Board interviews and analysis. Former Slide 16 information: So far, MSSP is not generating significant savings 28% of ACOs held spending sufficiently below benchmark to earn shared savings 46% of ACOs exceeded benchmark Conclusions from NEJM analysis: Early adopters are faring better First full year of MSSP participation associated with early savings among ACOs that entered the program in 2012, but not those who entered in 2013 MSSP Rewarding improvement, not historical success: Savings in 2012 MSSP cohort higher for those with baseline spending above local average vs. those with below-average spending Downside Risk needed: Majority of participation in track 1 is a strong hindrance to Medicare’s achieving of savings

Medicare Advantage a More Attractive Endpoint
Unintended Consequence: Reinvigoration of MA Medicare Advantage a More Attractive Endpoint Potential Advantages of MA over MSSP Provider Sponsorship of Medicare Advantage Plans, 2016 Control Over Network, Benefit Design 64% of beneficiaries choose HMO plans, offering improved utilization management, network control, benefits customization 150 of 259 new plans (58%) Opportunity to Tailor Risk Contracts can be structured to include varying levels of provider payment risk, quality incentives 253 of continuing plans (15%) Straightforward Patient Identification List of enrollees simpler, more immediate than MSSP attribution models MA Enrollment to Nearly Double by 2025 Total Enrollment and Percentage of Total Medicare Population Full Upside Potential Control of whole premium dollar creates clear incentive for total cost management 10.4M (13%) 16.8M (31%) 30.0M (40%) 2025 2015 2005 Source: Jacobson, et al., “What’s In and What’s Out? Medicare Advantage Market Entries and Exits for 2016,” October , Avalere, “Nearly 60 Percent of New Medicare Advantage Plans Are Sponsored By Healthcare Providers,” January 26, 2016, Health Care Advisory Board interviews and analysis. Source: Jacobson, et al., “What’s In and What’s Out? Medicare Advantage Market Entries and Exits for 2016,” October , available at Avalere, “Nearly 60 Percent of New Medicare Advantage Plans Are Sponsored By Healthcare Providers,” January 26, 2016, available at:

Erosion of FFS Foundation Push Toward Integration
Unintended Consequences: Provider Consolidation M&A on the Rise Eroding Prices, Demands for Integration Driving Many to Seek Scale Two Priorities of Transition to Value Drive Toward Consolidation Erosion of FFS Foundation Push Toward Integration Cuts in provider reimbursement Transformational shift of incentive structures Reporting, infrastructure burdens Physician alignment/ care coordination I.T./operational efficiency Hospital and Physician Consolidation Merger and Acquisition Activity 102 $8.7B 94,000 Hospital M&A deals, 2015 Value of hospital M&A transactions, 2015 Increase in vertically- consolidated1 physicians, Source: PricewaterhouseCooper, “Analysis and trends in US health services activity 2015 and 2016 outlook,” February 2016, available at: Becker’s Hospital Review, “6 forecasts for healthcare M&A in 2016,” February 24, 2016, available at: GAO, “Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform,” December 18, 2015, available at: Health Care Advisory Board interviews and analysis. Acquired or employed directly by hospitals or health systems. SOURCE HFMA, “Stable 2016 Outlook for Not-for-Profit Hospitals: Rating Agencies,” December 7, 2015, available at: Becker’s Hospital Review, “6 forecasts for healthcare M&A in 2016,” February 24, 2016, available at: SOURCE: PricewaterhouseCooper, “Analysis and trends in US health services activity 2015 and 2016 outlook,” February 2016, available at:

Regulators Poised to Prevent Consolidation
Integration That Could Assist with Value Stymied by FTC FTC Delivering on Earlier Threats Recent Mergers Challenged Advocate and NorthShore Penn State Hershey and PinnacleHealth Cabell Huntington and St. Mary’s Medical Center Cited Concerns Higher prices Fewer incentives to boost quality, serve consumers Source: Schencker L, “FTC challenges Northshore, Advocate mega-merger in Illinois,” December 18, 2015; Schorsch K, “FTC expert warns of $45 million cost increase at Advocate-NorthShore hearing,” Modern Healthcare, April 14, 2016, Schencker L, “FTC moves to block Penn State Hershey merger with PinnacleHealth,” December 8, 2015; Federal Trade Commission, “FTC Challenges Proposed Merger of Two West Virginia Hospitals,” November 6, 2015, available at: Health Care Advisory Board interviews and analysis. SCRIPTING Too faced regulatory environment Government has clearly picked a fight with itself Consolidation’s consequences will lead to prices going up; directly opposed to the affordability that the government was trying to achieve in the first place NEW SOURCE TO ADD FTC, “FTC Challenges Proposed Merger of Two West Virginia Hospitals,” November 6, 2015, available at:

Replacing Fee-for-Service: A Stalled Transition
1 MACRA: Grade: Large, limited-time incentive to adopt downside risk models Wide range of potential impact in complex MIPS track Replace Costly Fee-for-Service Incentive Structures ? Chosen Method: Medicare-led Payment Reform FFS Cuts New payment models Intent to catalyze broader commercial market change Bundled Payments Grade: Noticeable cost savings to Medicare Significant provider interest Limited scalability without further mandates B ACO Programs Very little cost savings in aggregate so far Constant battle to retain participants while also accelerating migration to downside risk Unattractiveness of ACO programs driving many to Medicare Advantage Overall Grade: Grade: C- C- Source: Health Care Advisory Board interviews and analysis.

Metrics and Transparency Drive Quality Approach
Objective #2: Improve Health Care Quality Metrics and Transparency Drive Quality Approach Emphasis on Collection, Reporting of Performance Data Information-Focused Approach to Quality Improvement 1 IT-Powered Delivery System (Meaningful Use Mandates) 2 3 Rigorous Scorekeeping (P4P Programs) Public Transparency (Hospital Compare, Physician Compare) Source: Health Care Advisory Board interviews and analysis.

Laying the Groundwork for Performance Management
IT-Powered Delivery System Laying the Groundwork for Performance Management Today’s Focus on Connectivity; Quality Impact Still Over the Horizon Over the past five years, we’ve more than doubled the adoption of electronic health records for physicians. So that means they can track what’s going on better and make fewer mistakes.” President Obama, 2013 Current State Stage 3: (2018-Onward) Improved Outcomes Data improves delivery, outcomes Enhanced access, care continuity Stage II ( ): Advanced Clinical Processes Evidence-based medicine, team- based care/case management Stage I ( ): Data Capture, Sharing Patient-centered care coordination Care coordination Engaged, self managed patients Basic EHR functionality Patient engagement Disease registries, population health management Connect to public health Privacy and security protections Data-driven quality improvement Source: Health Care IT Advisor, “Meaningful Use ‘Crash Course,’” 2016, available at: Health Care Advisory Board interviews and analysis. SOURCE: Health Care IT Advisor, “Meaningful Use ‘Crash Course,’” 2016, available at: Number: Marketplace, “The government may want a refund for its $30 billion investment in electronic medical records,” April 14, 2016, available at: Meaningful use objectives: such as amount of data collected for a patient, implementation of clinical decision support intervention, reporting of public health data c $18.9B $13.0B Amount paid to EHs1 Amount paid to EPs2

“Walled Data Gardens” Stymying Interoperability
Unintended Consequence: IT Tribalism “Walled Data Gardens” Stymying Interoperability EHR Oligopoly Yields Highly Capable but Imperfectly Compatible Solutions EHR Adoption Among 20 Large Systems Interoperability Challenges Remain System # Acute Care Facilities Inpatient EHR Ascension 142 Cerner CHI 103 Cerner/Epic Trinity Health 92 Baylor Scott & White Health 48 Epic/GE Adventist Health System 46 CHRISTUS Health 40 Cerner/Epic/Meditech Dignity Health 39 Kaiser Permanente 37 Epic Providence 34 Banner Health 29 Sutter Health 24 Mercy Health (OH) 23 Intermountain Healthcare 22 Northwell Health 21 Allscripts UPMC SSM Health 20 Adventist Health 19 New York-Presbyterian 17 Allscripts/Epic UnityPoint Health Hospital Sisters Health System 14 Insufficiencies in interoperability standards Entrenched legacy systems difficult to displace Multiple customized interfaces to work with other platforms drive costs up $21.9B Total incentive payments to eligible hospitals and physicians Source: Health Care Advisory Board interviews and analysis. SOURCE Market share: HealthIT.gov, “EHR Vendors Reported by Hospitals Participating in the CMS EHR Incentive Programs,” March 2015, available at: dashboard.healthit.gov;

Multiple Initiatives to Measure and Incent Quality
Rigorous Scorekeeping Multiple Initiatives to Measure and Incent Quality Rapid Proliferation of Metrics Hospital Admissions Reduction Program Reimbursement penalty based on excessive 30-day readmission rates 1%-3% hospital inpatient Medicare payment at risk Value Based Purchasing Pay-for-performance based on success against variety of value measures Only 792 hospitals out of 3,087 received bonuses Hospital-Acquired Condition Penalty Reimbursement penalty targeted hospitals with higher rates of HACs 25% of hospitals mandated to face penalty 700+ Quality metrics providers must report to CMS Other CMS Programs Source: CMS, “National Impact Assessment of the Centers for Medicare & Medicaid Services (CMS) Quality Measures Reports,” February 14, 2016, available at: Health Care Advisory Board interviews and analysis. SCRIPTING Then they just started adding more things to what you need to do Byzantine model of things because they’ve added so much other stuff More trouble than its worth To very little effect SOURCES: PROGRAMS: Advisory Board Program Poster CMS, “National Impact Assessment of the Centers for Medicare & Medicaid Services (CMS) Quality Measures Reports,” February 14, 2016, available at: OLD SOURCE Source: Rau J, “1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect,” Kaiser Health News, January 22, 2015, available at: kaiserhealthnews.org; Health Care Advisory Board interviews and analysis.

2.1M $20B 87K Having a Measurable Impact on Quality 2010-2014
CMS Estimates of ACA’s Impact on Quality Hospital Readmissions HRRP1 and all-causes, 2.1M Fewer hospital-acquired conditions $20B Health care cost reductions 87K Patient lives saved These results represent real people who did not die or suffer infections or harm in the hospital." 2 Patrick Conway, MD Chief Medical Officer, CMS Hospital Readmissions Reduction Program. Source: Commins J, “HACs Plummet 17%, Save $20B Under Obamacare,” HealthLeaders Media, December 2, 2015; Health Care Advisory Board interviews and analysis.

28% 50% 6.5% Creating Winners and Losers
Readmissions, HAC Penalties Outweighing VBP Bonuses After Accounting for Penalties1, Few Receive VBP2 Bonuses Estimated Net Impact of P4P3 Programs, FY 2015 Hospitals receiving a net bonus or breaking even 28% Hospitals receiving net penalties between 0% and 1% 50% Hospitals receiving net penalties of 2% or greater 6.5% 3,087 1,700 792 hospitals in VBP program hospitals received bonus payment hospitals received net payment increases Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program. Value-Based Purchasing. Pay-for-Performance. Source: Rau J, “1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect,” Kaiser Health News, January 22, 2015, available at: kaiserhealthnews.org; Health Care Advisory Board interviews and analysis.

MIPS Rewriting Rules for Physician Quality, Payment
MIPS Track MIPS Rewriting Rules for Physician Quality, Payment MIPS Score Components Weights of MIPS Score Components 1 Quality (Replaces PQRS, VBPM): Over 200 measures to choose from, 80% of which are tailored to specialists Providers only required to report 6 measures Cost: Continuation of two measures from VBPM: Total per capita costs for all attributed beneficiaries and MSPB Adds episode-based measures for specialists Seeks to include Part D costs No reporting requirement 2 3 Clinical Practice Improvement Activities: Over 90 activities to choose from; some activities weighted higher than others Clinicians in non-eligible APMs and NCQA Patient-Centered Medical Homes receive favorable scoring Quality Cost Clinical Practice Improvement Activities Advancing Care Information 4 Advancing Care Information (replaces Meaningful Use for physicians) Applies to all clinicians1 Clinicians given opportunity to report as group or individual No longer requires all-or-nothing EHR measurement Only requires reporting of 11 measures Physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and groups that include such clinicians. Source: CMS, “Medicare Program; Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models,” May 9, 2016, available at: Advisory Board Company interviews and analysis. Still accepting quality measure suggestions/proposed measure suggestions

Significant Flexibility in MIPS Quality Category
MIPS requires providers to report on at least 6 quality metrics1 selected from over 200 options CMS will use claims data to calculate 3 population-based measures: All-cause hospital readmission measure Acute conditions composite measure Chronic conditions composite measure Bonus points are awarded for: Reporting extra outcome metrics Reporting metrics in high-priority domains3 Reporting via certified EHR technology Selections must include at least 1 outcome metric and 1 “cross-cutting” metric.2 Sample Outcomes Measures Hemoglobin A1C control Depression remission at six months ED visits in last 30 days of life Functional status change for orthopedic patients Surgical site infections Sample Cross-cutting Measures Documentation of advanced care plan Tobacco use screening and intervention Control of high-blood pressure -4% / +4% Maximum bonus or penalty under MIPS, 2019 CMS specifies exceptions for certain specialties and clinicians without six applicable metrics and/or without applicable outcome metrics. “Cross-cutting” metrics are metrics broadly available to all clinicians with patient-facing encounters regardless of specialty . High-priority domains are appropriate use, patient safety, efficiency, patient experience, and care coordination. Source: CMS, “Medicare Program; Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models,” May 9, 2016, available at: Advisory Board Company interviews and analysis.

Larger Practices Expected to Fare Better
Unintended Consequence: Endangering Independent Practice Larger Practices Expected to Fare Better Solo and Small Practices Likely to be Hit Hard Percentage of Eligible Clinicians Projected to Receive MIPS Penalties, Bonuses1 Penalty Bonus Practice Size 2-9 Solo 10-24 25-99 100+ Projections based on 2014 data. Source: CMS, “Medicare Program; Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models,” April 27, 2016, available at: Health Care Advisory Board Company interviews and analysis. CMS itself projects, using 2014 data, 87 percent of solo practices will face a negative adjustment in year one of MACRA, equating to a total of $300 million lost. The numbers aren't much better for practices with 2-9 eligible docs. From page 676 in the rule

$15.4B Enough is Enough? A Trusted Voice Raising Concerns
Unintended Consequence: Information Overload Enough is Enough? A Trusted Voice Raising Concerns Intemperate measurement is as unwise and irresponsible as is intemperate health care…The aim should be to measure only what matters, and mainly for learning… The CMS has, to its credit, removed many process measures from programs, but progress toward a much smaller set of outcome measures needs to be faster. Such discipline would restore to care providers an enormous amount of time wasted now on generating and responding to reports that help no one at all.” Don Berwick, MD, MPP Former CMS Administrator Former CEO of Institute for Healthcare Improvement $15.4B Annual physician practice spending on quality reporting Source: Berwick D, “Era 3 for Medicine and Health Care,” April 5, 2016, JAMA, available at: jama.jamanetwork.com; Casalino L et al.; “US Physician Practices Spend More Than $15.4 Billion Annually To Report Quality Measures,’ Health Affairs, May 2016; Health Care Advisory Board interviews and analysis. SCRIPTING: This is to the point where now there are too many “We’ve clearly gone too far” SOURCE: Berwick D, “Era 3 for Medicine and Health Care,” April 5, 2016, JAMA, available at: jama.jamanetwork.com; STUFF “useless but nonetheless mandated” “intemperate measurement is as unwise and irresponsible as is intemperate health care” “The aim

Scant Efforts Toward Meaningful Transparency
Public Transparency Scant Efforts Toward Meaningful Transparency Compare Websites Not Hitting the Mark Establishment of Compare Websites 1998: Nursing Home Compare 2005: Home Health Compare 2005: Hospital Compare 2010: Physician Compare Difficult to Use… …And Little Used Historically, the Compare websites have conveyed few conceptual clues to help orient lay users to the sites’ overall purpose and content.” Hospital, Physician Compare users 10M Annually Healthgrades users L&M Policy Research and Mathematica Policy Research 8.9M Monthly Source: Findlay SD “Consumers’ Interest in Provider Ratings Grows, and Improved Report Cards and Other Steps Could Accelerate their Use,” Health Affairs 35 no. 4 (2016): ; L&M Policy Research and Mathematica Policy Research, Quality Reporting on Medicare’s Compare Websites: Lessons Learned from Consumer Research, December 2015: Health Care Advisory Board interviews and analysis.

Concerns about Oversimplification Add Up
CMS Delays Publishing Hospital Quality Star Ratings Timeline of Release of Ratings Remains Uncertain February 2015 CMS announces it will change quality star ratings for hospitals to guide consumers in selecting and comparing providers July 2016 CMS will publish ratings after further evaluation of stakeholder concerns CMS Announces Five-Star Quality Rating System Backlash Delays Release of Ratings Pending Publication Date April 2016 Following AHA lobbying, Congressional criticism, CMS postpones release of ratings Key Complaints From Detractors Confusing Methods AHA was unable to come up with the same conclusions as CMS using the same raw data Demographic Data Unaccounted For Unique challenges for hospitals caring for low-income or comorbid populations not acknowledged in star ratings Source: American Health Care Association, “Five Star: What You Need to Know,” February 2015, available at: Rice S, “CMS Delays New Hospital Quality Ratings Amid Pressure from Congress, Industry,” Modern Healthcare, April 20, 2016, available at: modernhealthcare.com; “No hospital quality stars today: Why CMS just delayed the new ratings,” Advisory Board Daily Briefing, April 21, 2016, available at: Health Care Advisory Board interviews and analysis.

Improving Health Care Quality: Mixed and Complex
2 IT Infrastructure and Interoperability Grade: EHR implementation proceeding; likely much more aggressively than without intervention Costs crowding out other investment B- Improve Health Care Quality Chosen Method: Incentives + Transparency IT mandates Pay-for-Performance programs Market-facing transparency Pay-for-Performance Programs Providers responded quickly to readmission, HAC incentives Infrastructure in place to scale up financial consequence if needed Overengineered metrics proving burdensome Grade: B+/C- Overall Grade: B Market Transparency Government-run transparency platforms of limited use, infrequently used Grade: C Source: Health Care Advisory Board interviews and analysis.

Expanding Coverage by Reforming Existing System
Objective #3: Achieve Universal, Affordable Coverage Expanding Coverage by Reforming Existing System Correcting for the Deficiencies of the Market Insurer Regulations Essential health benefits Guaranteed issue Dependent coverage to age 26 Community rating Employer mandate Intended to prevent dumping into new safety nets Individual mandate Intended to preserve quality of risk pools Medicaid expansion Intended to apply to all adults under 138% of federal poverty line Supreme Court decision gave states option not to expand Exchange subsidies Commercial insurance sold on consumer-facing marketplaces Subsidies for those between 100%-400% of federal poverty line Above-Market Supply Above-Market Demand Source: Health Care Advisory Board interviews and analysis.

Attempting to Create an Orderly Marketplace
Enrollment Not Hitting Original Estimates, but Not Dropping Either Exchange Enrollment State-run vs. Federally-facilitated Exchanges End of OEP1 End of OEP December End of OEP Final Enrollment (including projected drop-off) December Enrollment on state run exchanges 24.4% 6.3M Enrollment on federally facilitated exchanges “Young Invincibles” Still Scarce 2016 federal exchange enrollees aged (compared to 2.5M in 2015) 2.7M Source: HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 13,” February 4, 2016; HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 7,” December 22, 2015; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: December Enrollment Report,” Dec. 30, 2014; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: March Enrollment Report,” March 10, 2015; HHS, “Open Enrollment Week 13: February 7, 2015 – February 15, 2015, available at: HHS, “Open Enrollment Week 14: February 16, 2015 – February 22, 2015, available at: CBO, January 2015 Baseline: Insurance Coverage Provisions for the Affordable Care Act, available at: Washington Times, “Obamacare Official: 7.3 Million Americans Are Still Enrolled and Paid Up,” Sept. 18, 2014; available at: Kaiser Family Foundation, “Total Marketplace Enrollment and Financial Assistance,” June 30, 2015; Pradhan R, “White House Lowballs Obamacare Target in an Election Year,” Politico, October 15, 2015; Health Care Advisory Board interviews and analysis. Open Enrollment Period. Drop-off due to individuals not paying premiums or voluntarily dropping coverage.

Birth of a Market Not Without Pangs
CO-OPs1, Established Carriers Struggling Startup Ventures Largely Failing Financial Losses Mounting Notable CO-OP failures: 52% of CO-OPs closed by 2016 $1.5B Individual market losses, 2015 $282M ACA plan losses, 2015 To date, more than half a million Americans have lost coverage thanks to the failure of these co- ops” [In 2014] insurers would have had to price average premiums more than 25 percent higher in order to avoid losses” Adrian Smith The Wall Street Journal Mercatus Center, George Mason University Difficulties Facing Exchange Plans Misuse of special enrollment period Risk corridor underpayment Miscalibrated risk pricing Adverse selection Source: BCBSNC, “Blue Cross 2015 Financials: ACA Losses Grow; Improvements in Other Lines of Business, Strong Investments Create Small Profit,” February 26, 2016, Smith A, “ObamaCare’s Cascading Co-op Failures,” The Wall Street Journal, November 2, 2015; Blase B et al. “The Affordable Care Act in 2014: Significant Insurer Losses Despite Substantial Subsidies” Mercatus Center, George Mason University; Sachdev A, “Blue Cross Parent Lost $1.5 Billion on Individual Health Plans Last Year” Chicago Tribune, March 11, 2016; Commonwealth Fund, “Why Are Many CO-OPs Failing? How New Nonprofit Health Plans Have Responded to Market Competition,” December 10, 2015, Health Care Advisory Board interviews and analysis. Consumer Oriented and Operated Plans. Data point from Leif: May 4, 2016 “Humana May Exit Obamacare Individual Plans in Some States,” Reuters, From article: “The company [Humana] said on Wednesday that first-quarter earnings fell 46 percent due to higher costs in individual plans, including Obamacare, and its direct-to-customer Medicare Advantage plans.”

United Dropping Out of Most Exchange Markets
Mid-to-High Pricing Strategy Neither Won Share Nor Paid Bills Much Ado About Nothing? 1.6% We cannot broadly serve [the exchange market] on an effective and sustained basis.” Stephen J. Hemsley CEO of UnitedHealth Group United’s exchange enrollees as percentage of United’s total beneficiaries 6.2% United’s overall exchange market share of enrollees $650M Anticipated 2016 loss on exchange products 1% Estimated impact on premiums of United’s withdrawal States with United Health Exchange Plans 77% Percentage of exchange enrollees in markets with 3 or more carriers even after United’s withdrawal Source: Chicago Tribune, “UnitedHealth to quit 22 U.S.-organized state health markets,” April 20, 2016, available at: Health Care Advisory Board interviews and analysis. STATES LEAVING THE EXCHANGES: Florida, Kansas, Massachusetts, Texas, North Carolina, Maryland, Georgia New York and Nevada, Virginia will continue to have United But Harken will stay Currently covering 795K people, expect to drop to 650K by December Only small percentage of revenue comes from insurance Also withdrawing from some related state insurance markets for small businesses SOURCE Chicago Tribune, “UnitedHealth to quit 22 U.S.-organized state health markets,” April 20, 2016, available at: Effect on markets: Kaiser Family Foundation, “Analysis of UnitedHealth Group’s Premiums and Participation in ACA Marketplaces,” April 18, 2016, available at:

Other Carriers Remain Enthused
We remain committed to the public exchange market and the vital role it plays in providing many individuals with access to affordable, high-quality health care.” Centene’s exchange experience continues to be favorable. We are achieving margins at the higher end of our targeted range.” Michael Neidorff CEO, Centene Spokesperson Anthem Targeting the Lower End of the Market 1-2% Raised guidance on exchange product profit margins Centene exchange enrollees eligible for premium subsidies 90% 3-4% Source: Hiltzik M, “Healthcare shocker: These insurers are making money on Obamacare,” The Los Angeles Times, April 27, 2016; Demko P, “Anthem committed to Obamacare markets — Cigna to expand,” Politico, April 20, 2016; Health Care Advisory Board interviews and analysis. SOURCE CENTENE: politico from eric cragun, 4/26/16 – original source is investor call ANTHEM: Demko P, “Anthem committed to Obamacare markets — Cigna to expand,” April 20, 2016, Politico, available at:

Premium Adjustments Abound
Competitive Marketplace Driving Premium Changes Percentage Changes in Benchmark Silver Plan Premiums 2015 – 20161 New Mexico Virginia Maryland New Hampshire Wyoming New Jersey Missouri Arkansas Pennsylvania Texas Rhode Island Maine DC Georgia New York Connecticut Michigan Wisconsin Florida California Ohio Illinois Mississippi Indiana Washington Data based on premium changes from major cities within each state where complete rates were available for all insurers; no data were available for Massachusetts. Source: Kaiser Family Foundation, “Analysis of 2016 Premium Changes in the Affordable Care Act’s Health Insurance Marketplaces,” October 27, 2015; Health Care Advisory Board interviews and analysis.

Medicaid Expansion Unexpectedly Fragmented
Benefit Clear for Hospitals, But Opposition Remains 31 States and DC Have Approved Expansion1 Medicaid Expansion Positively Impacting Hospital Finances As of May 2016 Not Currently Participating Participating Expansion by Waiver Medicaid Admissions increased 21% for investor-owned hospitals in expansion states Self-Pay Admissions decreased by 47% for investor-owned hospitals in expansion states Uncompensated Care costs reduced by $5 billion in expansion states in 2014 11.7M 27% vs. 8% Net increase in Medicaid, CHIP2 enrollment, July-Sept to Feb Growth in Medicaid, CHIP enrollment in expansion vs. non-expansion states, July-Sept to Feb. 2015 Montana’s expansion requires federal waiver approval. Children’s Health Insurance Program. Excludes CT and ME. Source: Kaiser Family Foundation, “Current Status of State Medicaid Expansion Decisions,” January 27, 2015, available at: Fausset R and Goodnough A, “Louisiana’s New Governor Signs an Order to Expand Medicaid,” New York Times, January 12, 2016; HHS, “Insurance Expansion, Hospital Uncompensated Care, and the Affordable Care Act”, March 23, 2015, available at: PwC Health Research Institute, “The Health System Haves and Have Nots of ACA Expansion”, 2014, available at: CMS, “Medicaid & CHIP: February 2015 Monthly Applications, Eligibility Determinations and Enrollment Report”, May 1, 2015, available at: Health Care Advisory Board interviews and analysis.

Coverage Expansion Impact Unmistakable
“Universal Coverage” Still a Distant Goal, but Millions More Now Covered US Adult Uninsurance Rate HHS estimate of adults gaining health insurance coverage as a result of ACA 20M Q3 2013: 18.0% Major ACA coverage expansion provisions took effect January 1, 2014 Q1 2016: 11.0% Source: Gallup, “U.S. Uninsured Rate at 11.0%, Lowest in Eight-Year Trend,” April 7, 2016, Gallup, “U.S. Uninsured Rate 11.9% in Fourth Quarter of 2015,” January 7, 2016, available at Health Care Advisory Board interviews and analysis. SOURCE Gallup, U.S. Uninsured Rate at 11.0%, Lowest in Eight-Year Trend, April 7, 2016; Gallup, “U.S. Uninsured Rate 11.9% in Fourth Quarter of 2015,” January 7, 2016, available at:

Universal, Affordable Coverage: Clear Progress
Guaranteed issue, other provisions fundamentally reshaped coverage access Political fights persist; mandates weak Insurance Regulation A- Grade: 3 Achieve Universal, Affordable Coverage Insurance Exchanges Enrollment stable Premium growth reasonable; “death spiral” largely avoided Market-driven value dynamic accelerating B+ Grade: Chosen Method: Expansion of Existing System Insurance market regulation Expanded public coverage Market-based exchanges Medicaid Expansion 31 states + DC have expanded coverage 19 states not yet expanding 16 million more Medicaid/CHIP enrollees, largely in expansion states Waivers offer flexibility to some state models B Grade: Overall Grade: A- Source: Health Care Advisory Board interviews and analysis.

Final Grade: Incomplete
Progress Towards Administration’s Own Goals Only Part of the Picture 1 2 3 Replace Costly Fee-for- Service Incentive Structures Improve Health Care Quality Achieve Universal, Affordable Coverage C- B A- Unfinished Business: Reengineer health care delivery system, not just payment system, to generate greater value Catalyze private market reform, not just entitlement program reform Source: Health Care Advisory Board interviews and analysis.

Government Shifting Risk to Providers in Many Forms
“Population Health Risk” Only the Tip of the Iceberg Actuarial Risk Alternative payment models, Medicare Advantage placing burden to control total costs on providers Financial Risk Public-side payment cuts stretch commercial cross-subsidy to breaking point; IT and clinical transformation investments further strain balance sheets Clinical Risk Providers now financially responsible for consequences of sub-par clinical quality, inefficient care delivery Strategic Risk Market conditions pose existential danger to small practices, independent hospitals, smaller systems; tenability of academic medical centers, other higher-priced organizations also in question Source: Health Care Advisory Board interviews and analysis.

Serving Two Masters Public, Private Markets Demanding Different Value in Different Ways Purchaser Approach to Value: Provider Approach to Value: Public Sector “Public Utility” Rate setting Regulation Accountability controls Population-level Focus Total cost control Care management Medicare, Medicaid High cost per capita Chronic illness, comorbidities Rising share of population Private Sector “Market Commodity” Market dynamics Consumer preference End-user Focus Unit cost control Consumer-oriented innovation Insurers, employers, individual consumers Generally healthy with episodic care needs Access, experience, convenience paramount Large share-of-wallet opportunity Source: Health Care Advisory Board interviews and analysis.

More Providers Moving Into Health Plan Space
Enrollment Growth Clouded by Negative Margins in Individual Market Growth in PSHP1 Enrollment Millions +400K Growth in public exchange enrollment in PSHPs, -10% Aggregate margin for provider-sponsored health plans in ACA marketplace, Provider-Sponsored Health Plans. Excludes Kaiser plans. Including Kaiser aggregate PSHP margin was +1.4%. Source: Khanna G et al., “The Market Evolution of Provider-Led Health Plans,” McKinsey & Company, 2016; McKinsey Center for U.S. Health System Reform, “Exchanges Three Years In: Market Variation and Factors Affecting Performance,” McKinsey & Company, 2016; Health Care Advisory Board interviews and analysis. Aggregate margin figures for ACA marketplace plans in 2014 are post-3R and post-tax.

Commercial Risk Market a Zero-Sum Game
Tensions Between Blues, Risk-Seeking Providers on the Rise Blue Cross/Blue Shield Market Share 2013, Large Employer Market “Catholic Health Initiatives in bitter price war with Blue Cross Blue Shield of Nebraska” – Healthcare Finance, 2015 “UPMC, Highmark collide in Supreme Court” – Pittsburgh Post-Gazette, 2015 “Florida Blue, Florida Hospital battle over contract” – Orlando Sentinel, 2015 “Texas hospital suffers major setback in lawsuit against BCBS over PPO exclusion” – Becker’s Hospital Review, 2016 0%-25% 76%-99% 26%-50% 51%-75% Source: Kaiser Family Foundation, “Market Share and Enrollment of Largest Three Insurers- Large Group Market, 2013,” available at: Health Care Advisory Board interviews and analysis. SOURCE: Kaiser Family Foundation, “Market Share and Enrollment of Largest Three Insurers- Large Group Market, 2013,” available at:

National Carriers Pursuing a Different Strategy
Designing Narrow or Co-Branded Networks at a Lower Price to Consumers Notable Provider Partners Aetna’s Spectrum of “Accountable Care Solutions” Pay-for-performance incentives Delegated risk through commercial ACOs Greater risk shifting to providers Co-branded ‘Whole Health” insurance products 77 ACO agreements as of Q1 2016 Consulting support for providers launching health plans We’re comfortable being known as the health plan that wants to put health systems in the business of selling insurance.” Daniel Finke, CEO Aetna Accountable Care Solutions Source: Brino A, “Inside Aetna’s accountable care strategy,” April 28, 2015, Healthcare Payer News, available at: Jayanthi A, Rosin T, “50 things to know about ACOs,” Becker’s Hospital Review, July 7, 2015, available at: Health Care Advisory Board interviews and analysis. SCRIPTING Aetna is extremely interested in provider partners – they’re not shy about the fact that they want to strongly support providers eventually moving into their own plans They tend to pick a single health system that’s good at holding down costs and cares about quality That’s why they have so many joint ventures Hoping to have 75% of their medical spending linked to value-based contracting by 2020 HPAC COMMENTS Prop up provider sponsored health plans Empowering providers to take on risk, partnering with a single system Focused more on provider ability; commitment to quality Inova was a market share play though Aetna doesn’t want to be a big health plan; they’re thinking a lot about margin vs. members DEF need to send this to RK – Aetna is super prickly NOTES No Aetna numbers on risk-based membership SOURCES Earnings transcript: Brino A, “Inside Aetna’s accountable care strategy,” April 28, 2015, Healthcare Payer News, available at: Savings of $9.50 per member per month; 5:1 return on investment for employers ^”What is Value-Based Care?”; available at: $5M in shared savings from Banner Lower cost sharing by being part of an ACO; lower premium

The ACA Did Not Disrupt the Zero-Sum Status Quo
Risk-Shifting Logic Has Further Entrenched Traditional Players Zero sum competition involves the pursuit of greater bargaining power rather than efforts to provide better care. Health plans, hospital groups, and physician groups have consolidated primarily to gain more clout and to cut better deals with suppliers and customers. But the quality and efficiency gains from consolidation are quite modest.” Michael Porter, 2004 Risk Shifting in Health Care, 2016 Who Holds Risk? Source: Michael Porter and Elizabeth Teisberg, “Redefining Competition in Health Care.” Harvard Business Review, (6):64-76, accessible at Health Care Advisory Board interviews and analysis. SCRIPTING So all of this effort didn’t create a real market You have all these constituents bickering about shifting risk back and forth But it leaves out the most important people, the real purchasers of healthcare, the end users of employer and individuals, who still have crap healthcare Everything here is just risk shifting, doesn’t involve the most important stakeholders

Moving from Zero-Sum to Positive-Sum Competition
Value-Seeking Agents Catalyzing New Market Employers Consumers Competition at the wrong level has been exacerbated by the pursuit of the wrong objective: reducing cost…The right goal is to improve value (quality of health outcomes per dollar expended).” Michael Porter, 2004 Source: Michael Porter and Elizabeth Teisberg, “Redefining Competition in Health Care.” Harvard Business Review, (6):64-76, accessible at Health Care Advisory Board interviews and analysis

Employers Reaching the Limits of Their Tolerance
Scale, Data Assets, Provider-Side Expertise All Command Attention Founding Members HTA’s Announced Goals Greater marketplace efficiencies Learning from data American Express American Water Ingersoll Rand BNSF International Paper Brunswick Corporation Lincoln Financial Caterpillar, Inc. Macy’s Coca-Cola Marriott DuPont NextEra Energy HCA Pitney Bowes Hartford Financial Services Group Shell Verizon IBM Weyerhaeuser Educating employees Breaking bad habits April 15, 2016: “Health Transformation Alliance Announces Appointment of Dr. Glenn Steele as Vice Chairman” “Former Geisinger CEO Brings Decades of Experience in Health Care Innovation and Influence to HTA” 4M Covered lives $14B Annual health spending Source: Health Transformation Alliance, available at “Health Transformation Alliance Announces Appointment of Dr. Glenn Steele as Vice Chairman,” Health Transformation Alliance Press Release, April 15, 2016, “Leading US Companies Announce Plan to Transform the Corporate Health Care System,” Health Transformation Alliance Press Release, February 5, 2016; Health Care Advisory Board interviews and analysis.

Sentinel Efforts to Circumvent Traditional Approach
Boeing Signs Value-Based Direct Contracts in Two New Markets 2015: Direct Contract with Major Systems Near Seattle Headquarters Enhanced Benefits Attract Employees Free primary care Provider partners: 78K Free generic drugs Total employees Reduced premiums Case in Brief: The Boeing Company 2016: Expansion to Other Major Boeing Locations Over 148,750 US employees Issued highly-prescriptive RFP for risk-bearing health system partners in Seattle region Early success prompts expansion to other markets St. Louis Charleston Source: Health Care Advisory Board interviews and analysis.

Some Employers Steering for Specific Procedures
United Airlines Expands Bundle Offerings to Orthopedics Case in Brief: United Airlines 82,000 employees; headquarters in Chicago, Illinois Recently launched bundled payment contract with Rush University Medical Center for hip and knee replacements, and spinal fusion surgeries Bundled payment contract also in place with Cleveland Clinic for cardiac surgery Financial incentive for participating employees (waiving of copays and coinsurance) Comprehensive travel planning for patient and caregiver Physicians review medical record, determine eligibility Flat bundle price paid to Rush Key Program Features Rush at financial risk for complications, such as infections or implant failures Quality Is Top Concern The entire motivation for us is the quality of the care…. We don’t want cost to be a barrier for our employees.” Anthony Scattone, VP of Benefits United Airlines Source: Sachdev A., “United Offers Employees Cheaper Hip, Knee Replacements if They Travel to Chicago’s Rush,” Chicago Tribune, May 6, 2016, Health Care Advisory Board interviews and analysis.

Significant Barriers Slowing Wider Adoption
Basic Practical, ROI Questions Are Still Unanswered Employer Interest in Direct Contracting with Providers Largest Barriers to Partnering with or Purchasing Services Directly from Providers n=106 Percentage of Surveyed Employers Ranking Barrier in Top 3 n=106 Administrative complexity/ resource constraints Providers lack sufficient geographic or service coverage Don’t know how best to proceed Insufficient economic rationale Potential to jeopardize carrier relationships Broker pushback Employee pushback Providers lack track record and experience compared to others 88% of employers have little or moderate interest in provider partnerships Lack of provider interest Providers don’t offer relevant services today Providers only looking to steer hospital volumes Source: CEB Survey of Employers on Future Health Benefits Changes 2015; Health Care Advisory Board interviews and analysis.

Offloading Risk to Employees
Employers Increasingly Turning to High-Deductible Plans ESI Average Deductible for Single Coverage1 Percentage of Covered Workers with Annual Deductible of $2,000 or More3 By Plan Type, By Firm Size, 2 Among covered workers with a general annual health plan deductible. Includes HDHP/SO. For single coverage. Source: Kaiser Family Foundation and Health Research & Educational Trust, “Employer Health Benefits 2015 Annual Survey; Health Care Advisory Board interviews and analysis.

50% 500% 40-60% Defined Contribution the Next Major Shift?
Private Exchange Enrollment Continues to Grow Private Exchange Enrollment Still Grows in 2016, But Lags Behind Initial Projections Projected Private Exchange Enrollment Among Pre-65 Employees and Dependents 40-60% Employees on private exchanges who select a high-deductible health plan option 2015 projection Newer Market Entrants Hitting Their Stride 50% Enrollment growth for Towers Watson’s exchange solutions, (800k1.2M) 500% Enrollment growth for Mercer’s exchange solutions, (220k1M) Source: Accenture, “Eight Million U.S. Employees Enrolled in Private Health Insurance Exchanges for 2016 Benefits, According to Accenture” January 20, 2016; Accenture, “Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015,” April 7, 2015, available at: Towers Watson, “Enrollment in Health Benefits Through Towers Watson’s Exchange Solutions Expected to Reach About 1.2 Million in 2015,” March 19, 2015, available at: Mercer, “Mercer Marketplace-the flexible private exchange-posts individual participant and client gains,” October 13, 2014, available at: “Private Insurance Exchanges: What You Need to Know” Health Care Advisory Board 2015; Health Care Advisory Board interviews and analysis.

Bringing 401(k) Expertise to Health Care
Fidelity Moving into the Private Exchange Business Case in Brief: Fidelity Launched centralized benefits management platform January 2016 after 2015 pilot Offers bundled benefits options to small- and mid-size businesses traditionally served by independent brokers Acts as benefits broker; also provides technology platform, record-keeping, and account management Fidelity Health Marketplace’s Centralized Benefits Management Model Health Insurance Benefits Medical Dental HSA, HRA, FSA Vision Health Management Support Other Employer Benefits Telemedicine Life, AD&D1 Insurance Wellness coaching Short, Long-Term Disability Commuter Programs Fidelity Enjoying a Head Start with Customers 25M 22.8M $5.1T Individual investors Brokerage accounts Total customer assets Source: Fidelity Health Marketplace, available at Ryan G, “Fidelity moves deeper into health care space with new exchange,” Boston Business Journal January 26, 2016; Fidelity, “Fidelity by the Numbers,” Health Care Advisory Board interviews and analysis. Accidental death and dismemberment

Many Apparently Willing to Accept Cost Shifting
Consumers Electing to Bear Very High Cost Exposure Average Deductible for Exchange-Sold Health Plans Exchange Enrollment, by Metal Tier 2015 Bronze Silver Gold Platinum Nearly 90% of exchange enrollees are in bronze or silver plans Federal Employee Health Benefits Plan. Source: HealthPocket.com, “2015 Obamacare Deductibles Remain High but Don’t Grow Beyond 2014 Levels,” November 20, 2014, available at: Health Care Advisory Board interviews and analysis. NEW SOURCE Deductibles: HealthPocket.com, “2015 Obamacare Deductibles Remain High but Don’t Grow Beyond 2014 Levels,” November 20, 2014, available at: HHS, “Health Insurance Marketplaces 2016 Open Enrollment Period: Final Enrollment Report,” March 11, 2016; OLD SOURCE Source: HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 13,” February 4, 2016;The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: Health Care Advisory Board interviews and analysis.

12% 43% 55% Consumers Proving to Be Savvy Coverage Shoppers
Purchase Decisions Driven Largely by Price Switching Rates Higher Than Expected Active Health Plan Shopping on the Rise 100% Percentage of those renewing coverage who actively shopped for plans Percentage of those renewing coverage who switched plans 0% 12% 43% Average annual switching among active employees with FEHBP1 coverage Returning federal exchange enrollees changing plans in 2016 Premium Increases the Primary Motivator 55% Switchers who cited rise in monthly premiums as among top three reasons for switching Source: HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 13,” February 4, 2016;The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: Health Care Advisory Board interviews and analysis. Federal Employee Health Benefits Plan.

Evolving Business Model of New Insurer
Oscar Appeals to Tech-Friendly Younger New Yorkers User-friendly web enrollment and plan design Effective mobile app facilitates physician search On-call telemedicine for common conditions Free visits to PCPs, generic drugs, routine care Rebates tied to free fitness- tracker use 400% Growth in New York individual market, 12-15% Estimated Oscar market share in New York individual market, 2016 Source: Tracer Z. “How Health Insurance Startup Oscar Is Going to Get to 1 Million Members” Bloomberg.com February 19, 2016; Rosin T, “10 things to know about Oscar Health Insurance: Will it be the Uber of health plans?” Becker’s Hospital Review, August 4, 2015, Health Care Advisory Board interviews and analysis.

Expansion Requires Strategic Shift
Competitive Pricing Drives Network Narrowing Dallas: 20 hospitals; 15 part of Baylor Health Care System Los Angeles: 16 hospitals; 13 part of Providence/St. Joseph’s Health Broad, Multi-System Network in New York: Bronx Lebanon Hospital Center – All Divisions Jacobi Medical Center Lincoln Medical & Mental Health Center Montefiore Medical Center (five locations) Einstein College North Central Bronx Hospital St. Barnabas Hospital Beth Israel Medical Center – Kings Highway Division Brookdale Hospital Medical Center Brooklyn Hospital Center Coney Island Hospital Interfaith Medical Center Kings County Hospital Center Lutheran Medical Center New York Community Hospital of Brooklyn SUNY Downstate Medical Center Wyckoff Heights Medical Center Franklin Hospital Glen Cove Hospital Long Island Jewish Hospital Mercy Medical Center Nassau University Medical Center North Shore University Hospital – Manhasset North Shore University Hospital – Sysosset Plainview Hospital St. Francis Hospital St. Joseph Hospital Steven Alexandra Cohen Children’s Medical Center South Nassau Communities Hospital Winthrop University Hospital Good Samaritan Hospital Nyack Hospital Bellevue Hospital Center Beth Israel Medical Center – Petrie Division Harlem Hospital Center Lenox Hill Hospital Metropolitan Hospital Center Mount Sinai Hospital And more than 40 more… 5 hospitals; all part of Baptist Health System San Antonio: Oscar Networks in New Markets Dominated by Single Health Systems Source: Oscar Health, “2016 New York Network Overview,” “2016 Southern California Network Overview,” “2016 Dallas/Fort Worth Network Overview,” “2016 San Antonio Network Overview,” Health Care Advisory Board interviews and analysis

Harken Health Offers Unlimited Primary Care
United Subsidiary Betting on Primary Care Harken Staffed by Iora Physicians Case in Brief: Harken Health 10 Harken clinics (4 in Chicago, 6 in Atlanta) Health insurer based in Chicago, Illinois Independently operated subsidiary of UnitedHealth Group Offers small group insurance, and individual insurance through public exchange in Atlanta and Chicago-area Expanding into Miami and Fort Lauderdale, Florida in 2017 Consumer-Friendly Plan Offerings Unlimited primary care and 24/7 access to physicians at Harken clinics No copays, coinsurance, or need to meet the deductible for primary care visits Access to broader United specialist network Source: Tracer Z, “Health Startup Led by Ex-United Manager Goes Where Rivals Quit,” Bloomberg, May 26, 2016, Snowbeck C, “UnitedHealthcare Launches a Smaller, ‘Very, Very Different' Insurer,” Star Tribune, March 14, 2016, Health Care Advisory Board interviews and analysis. Collects a “membership fee” instead of a copay; 100 person team Free primary care; typically among lowest priced plans in markets; copays required for specialists and prescription drugs; members who need generic drugs for chronic illnesses can buy two month supplies and get third month free 4 clinics in Chicago; 6 in Atlanta for unlimited visits; also access to doctors by telephone and Internet; (covers 35K members who signed up this winter) Chicago network launched Nov 2015 for a 27-year-old on one of its silver plans will be $ with a $3,750 individual deductible. (not including subsidies) (Chicago); comparison: . A Blue Cross and Blue Shield of Illinois silver plan with a similar provider network is a bit more at $297 a month (also with a $3,750 deductible) but charges a standard 20% coinsurance, Harken spends twice as much on primary care as the average insurer “want Harken to play to Middle America” – CEO of Harken, Georgia Health News Expansion plans for 2017, but unspecified Can use United’s broad network Physicians are salaried; Also free yoga and cooking classes HOW DOES ACCESS WORK Harken sells a “bronze” quality plan with a $6,850 deductible to a 40-year-old in Chicago for $242 per month. UnitedHealthcare offers slightly lower deductibles and monthly costs of $255 and $269. Calls clinics “health centers” No copays at the centers, no coinsurance Received $65M in capital from United to fund startup expenses Individual (HIX) and small group market? No public plans yet to expand to MA, but seems likely given that’s what Iora does; hiring in Miami SOURCES ON NEXT SLIDE QUESTIONS Premiums Why Chicago and Atlanta? Access? Is iora at risk? Does Harken do any referral management? EXTRA INFO

Physicians Control Access to Broad Network
Access to United’s Broad Network Directed by Iora Physicians Harken Health Simple, low-cost plans Five insurance plan options all have preferred network tier, creating financial incentives to avoid higher cost providers Iora Salaried physicians have no incentive to offer more visits or choose certain providers Physicians control the referral chain Broad United specialist network Avoids issue of consumer dissatisfaction with narrower networks Avoids provider dissatisfaction of being cut out of networks Source: Star Tribune, “UnitedHealthcare launches a smaller, 'very, very different' insurer,” March 14, 2016, available at: Kaiser Health News, “UnitedHealth Tries Boutique-Style Health Plan,” April 4, 2016, available at: Health Care Advisory Board interviews and analysis. Star Tribune, “UnitedHealthcare launches a smaller, 'very, very different' insurer,” March 14, 2016, available at: SOURCES Kaiser Health News, “UnitedHealth Tries Boutique-Style Health Plan,” April 4, 2016, available at: QUOTE about middle america: Georgia Health News, “‘Relationship-based’ health plan debuts in Atlanta,” November 10, 2015, available at: BCBS deductible comparison: Healthcare Dive, “How the disruptive insurer Harken Health is tackling the Illinois, Georgia markets,” April 12, 2016, available at: Chicago Tribune, “Health insurance startup joins Illinois market in flux,” October 18, 2015, available at: 100 person team Collects a “membership fee” instead of a copay; Free primary care; typically among lowest priced plans in markets; copays required for specialists and prescription drugs; members who need generic drugs for chronic illnesses can buy two month supplies and get third month free 4 clinics in Chicago; 6 in Atlanta for unlimited visits; also access to doctors by telephone and Internet; (covers 35K members who signed up this winter) Chicago network launched Nov 2015 for a 27-year-old on one of its silver plans will be $ with a $3,750 individual deductible. (not including subsidies) (Chicago); comparison: . A Blue Cross and Blue Shield of Illinois silver plan with a similar provider network is a bit more at $297 a month (also with a $3,750 deductible) but charges a standard 20% coinsurance, Harken spends twice as much on primary care as the average insurer “want Harken to play to Middle America” – CEO of Harken, Georgia Health News Expansion plans for 2017, but unspecified Can use United’s broad network Physicians are salaried; Also free yoga and cooking classes HOW DOES ACCESS WORK Harken sells a “bronze” quality plan with a $6,850 deductible to a 40-year-old in Chicago for $242 per month. UnitedHealthcare offers slightly lower deductibles and monthly costs of $255 and $269. Calls clinics “health centers” No copays at the centers, no coinsurance Received $65M in capital from United to fund startup expenses Individual (HIX) and small group market? No public plans yet to expand to MA, but seems likely given that’s what Iora does; hiring in Miami

Bright Health Bets on Exclusive Provider Partnerships
Industry Veterans Start Ahead on Learning Curve Case in Brief: Bright Health Active Ingredient: Ultra-Narrow Network Design Having a health plan structure with a single delivery system is a great way to evaluate and improve and coordinate care. If you don’t have a group of people you’re accountable for, it’s hard to know if you’re making a difference.” Health insurance startup based in Minneapolis, Minnesota Launching exchange plan in Colorado with Centura Health as exclusive provider in 2017 Developing mobile platform to facilitate scheduling, interaction between enrollees, provider, and insurer Bob Sheehy, Founder and CEO, Bright Health Bright’s Stated Growth Ambition April 2016 Founded by former United and Definity executives with $80M in venture backing 2017 Launches health plan in Colorado 2018 Enters Medicare Advantage market Expansion to 3 to 5 states Source: Tracer Z, “Health Startup Led by Ex-United Manager Goes Where Rivals Quit,” Bloomberg, May 26, 2016, Crosby J, “Former UnitedHealth Executive to Launch New Health Plan,” Star Tribune, April 7, 2016, Health Care Advisory Board interviews and analysis.

56% 25% 18% 74% Higher Deductibles Driving Increased Price Sensitivity
Consumer Responses Generally Dangerous for Provider Economics Forgo Care? Spending Reductions Following Implementation of High- Deductible Health Plans 1 25% Reduction in physician office spending 18% Reduction in ED spending Fail to Pay? Households Without Enough Liquid Assets to Pay Deductibles 1 2 Shop Carefully? 56% 74% Consumers with deductibles higher than $3,000 who have solicited pricing information Consumers searching for price information before getting care 3 $1,200 Single; $2,400 Family. $2,500 Single; $5,000 Family. Source: Brot-Goldberg Z et al., “What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics,” The National Bureau of Economic Research, October 2015, available at: Altman D, “Health-Care Deductibles Climbing Out of Reach,” Wall Street Journal, March 11, 2015, available at: Health Care Advisory Board interviews and analysis.

County Price Average for Total Knee Replacement
Living Under a Microscope Consumers Have Access to More Information than Ever Before Transparency Comes to California Sample Transparency Sites September 21, 2015 Attention Shoppers: New Calif. Website Details Costs, Quality of Medical Procedures Where You Live Matters What you pay may differ based on where you live County Price Average for Total Knee Replacement San Joaquin Valley Average Estimate: $24,614 High Estimate: $62,375 Monterey Coast Average Estimate: $46,568 High Estimate: $86,483 Source: Ostrov BF, “Attention Shippers: New Calif. Website Details Costs, Quality of Medical Procedures,” Kaiser Health News, available at: Health Care Advisory Board interviews and analysis. All logos are registered trademarks.

Turning to Unlikely (and Uncomfortable) Sources
Crowdsourced Reviews Getting More Reliable “Now the millions of consumers who use Yelp… will have even more information at their fingertips when they are in the midst of the most critical life decisions, like which hospital to choose for a sick child or which nursing home will provide the best care for aging parents.” Jeremy Stoppelman, CEO Yelp Acclaimed news source partners with review website with more than 85 million monthly users ProPublica compiles and provides Yelp with Hospital Compare metrics on ER wait time, doctor communication and room noise levels Incorporates Medicare data on more than 25 thousand facilities, including 4,600 hospitals “Yelp’s Consumer Protection Initiative: ProPublica Partnership Brings Medical Info to Yelp” Yelp, Official Blog, August 5, 2015; Health Care Advisory Board interviews and analysis.

Just What Consumers Are Looking For
Yelp Reviews Capture Surprisingly Detailed Picture of Consumer Experience Study in Brief: Yelp Reviews Of Hospital Care Can Supplement And Inform Traditional Surveys Of The Patient Experience Of Care Topic Domains Addressed by Yelp, HCAHPS Published in Health Affairs, April 2016 Analysis of 16,862 hospital Yelp reviews, HCAHPS scores for 1,352 hospitals Moderate correlation found between Yelp, HCAHPS scores 12 7 4 Domains covered in Yelp reviews, but not HCAHPS Covered in both Yelp and HCAHPS Covered by HCAHPS only Topics Covered in Yelp Reviews Without Clear HCAHPS Analogue Cost of hospital visit Amenities Quality of nursing Insurance and billing Scheduling Quality of staff Ancillary testing Compassion of staff Quality of technical aspects of care Facilities Family member care Specific type of medical care Source: Ranard B et al.; “Yelp Reviews Of Hospital Care Can Supplement And Inform Traditional Surveys Of The Patient Experience Of Care,” Health Affairs, April 2016; Health Care Advisory Board interviews and analysis.

2,300 750K 3:1 From Passive Transparency to Active Recommendation
Referral Management Strategies a Key Focus for Employers Case in Brief: Compass Professional Health Services Health navigation and transparency company based in Dallas, Texas Digital engagement platform encourages enrollees to follow high-value care pathways Limited Universe of Providers: Providers meeting selective quality, cost of care requirements designated “cost-effective,” eligible for recommendation Sophisticated Cost Estimation: Comparisons take into account historical practice patterns to predict total pathway cost, not just initial price 2,300 Employer clients 750K Highly Specific Recommendations: Employee presented with three recommended providers, based on cost, quality, proximity, and personal preference Enrollees 3:1 Typical ROI on PMPM investment Source: Compass, available at: accessed April 30, 2015; Health Care Advisory Board interviews and analysis.

25% Innovations Crowding Onto the Field
Disruptive Services and Tech for Consumer Use (Existing and In Development) Inexpensive, rapid care at a ‘provider’ site Patient apps for condition self- management Physician hailing Remote diagnosis and link to clinicians Retail Clinics SmartChoice MRI Right Care PediaQ Mend OrthoNow Walgreens CVS Health Wal-Mart Pager.com Heal Dispatch Health MedZed (pediatric housecalls) Opternative: iPhone eye exam, RX Google contact lens: glucose monitoring EpiWatch: predicts seizures MoleMapper: cancerous mole screening Iphone-directed walk tests, cognition, fine motor skill, tremor evaluations Iodine’s Start app: Tracks depression symptoms and drug efficacy OneDrop: diabetes tracker ACC’s Statin intolerance self-checker Now also physiican facing detection of parasites in blood: SmartChoice MRI Source: Boulton G, “Smart Choice MRI to expand into Chicago market with $6.5 million in investments,” Journal Sentinel, Dec ; Health Care Advisory Board interviews and analysis. depression-apples-first-carekit-apps/#gref CellScope also using iphone for detection of parasites in blood doctors_us_559bfac1e4b04a9c98e83719 25% Consumers used a retail clinic in 2015— up from 15% in 2013 Source: Oliver Wyman, “The New Front Door to Health Care Is Here,” 2016, available at Health Care Advisory Board interviews and analysis

Early Intervention Displaces Entire Pathways
Providing a New Alternative for Low-Cost Care Sherpaa’s Custom Care Continuum 70% of consults resolved ‘in house,’ generating no insurance claim Key Features $0 70% Salaried PCPs diagnosis and treat over 500 separate conditions Employee contacts Sherpaa via computer or mobile device Cost to end-user $900 30% of consults referred directly to in-network physician Average cost savings to employer per Sherpaa consult Case in Brief: Sherpaa 90% Employees who use Sherpaa at least once in first year of service New York-based primary care telemedicine practice Uses asynchronous text communication instead of video Serves over 150 employer clients, charges a per member per month fee (~$25), regardless of utilization Source: Health Care Advisory Board interviews and analysis.

Walk-in Clinics an Attractive Substitution for Access
Not a Difficult Choice for Consumers Consumer-Oriented Service Delivery Sites Filling the Gap Moderate cost, poor access High access, high cost Primary Care Office Emergency Department Appointment required Normal business hours 5-66 day wait for new appointment No appointment required 24/7 access 4 hour average wait Walk-in Clinic Options Retail Clinic Urgent Care Center $160 $1200 $60-$150 79% No appointment required Extended hours common 30 minute average wait Retail clinic users rating quality about the same or better than traditional primary care Source: Oliver Wyman, “The New Front Door to Health Care is Here,” 2016, available at: Health Care Advisory Board interviews and analysis.

An Arms Race for Urgent Care Assets
Insurers, Providers and Private Equity All See Opportunity Recent Urgent Care Investments Insurer Investors Provider Partnerships Private Equity Welsh, Carson, Anderson, and Stowe joint venture with Select Medical acquires 290 clinics for $1B Partnered with Legacy Health (21 clinics) Dignity Health (12 clinics) Northwell Health (41 clinics) Optum (United Health Group) acquires >150 clinics ABRY acquires 87 clinics for undisclosed sum Anthem acquires stake in 33 clinics MedExpress can offer as much as 90% of the care typically delivered in a hospital emergency room at about 90% lower cost.” Larry Renfro, CEO Optum Source: Health Care Advisory Board interviews and analysis.

Not Your Father’s Urgent Care
Consumer Demands are the Center of the Zoom+ Universe Illness visits start at $145, specialty at $200 for self-pay patients Most clinics open until midnight on weekdays, more limited hours on weekends Scheduling, e-visits, bill pay can all be accomplished via mobile app Case in Brief: Zoom+ Private network of consumer-oriented clinics based in Hillsboro, Oregon; founded in 2006 as Zoomcare Low prices, evening and weekend hours, and co-located services appeal directly to consumers Currently offering primary, specialty, and urgent care services at more than 25 locations; multiple tiers of coverage through Zoom+ Performance Health Insurance Establishing a Loyal Base Annual Zoom users, 2014 (before rebrand, expansion) 250K Source: Portland Business Journal, “ZoomCare inks investment deal with Endeavour Capital,” July 8, 2014; Chase D, “I’ve Seen the Future of Health Care. I Like What I See,’ Forbes, November 23, 2015, available at: Health Care Advisory Board interviews and analysis. Portland Business Journal, “ZoomCare inks investment deal with Endeavour Capital,” July 8, 2014, available at: Portland Business Journal, “ZoomCare changes name, shifts business model,” May 22, 2015, available at:

Growing A Health System From A Very Different Seed
Zoom+ Services Expansion Plan 1 Adds Specialist Services Employs common specialists Partners with local health systems for others Pediatric primary, specialty, and wellness care Zoom+Super for “near- emergency” needs, open 20 hours a day 2 Incorporates Insurance Plan Specialty care, including cardiology, dermatology, orthopedics, and ENT On-Site pharmacy, labs, and imaging First sold on Oregon exchange in 2015 3 Expands to new Markets Zoom+Performance “Olympic-level” coaching, neuro-agility, body composition analysis Wellness coaching including food and movement-as-medicine Expanding into California New clinics opening in Portland, Boise, Seattle Source: Portland Business Journal, “ZoomCare inks investment deal with Endeavour Capital,” July 8, 2014; Chase D, “I’ve Seen the Future of Health Care. I Like What I See,’ Forbes, November 23, 2015, available at: Health Care Advisory Board interviews and analysis.

To Disrupt or to Sustain?
Market Evolution Will Force Incumbents to Innovate Can We Undermine Our Legacy Business? “Sustaining” Innovations Physician practice acquisition Incumbent companies do need to respond to disruption if it's occurring, but they should not overreact Freestanding emergency departments Partnerships for pricing leverage by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations. “Disruptive” Innovations Retail, urgent care footprint Telemedicine, remote diagnosis and treatment Clay Christensen Harvard Business Review, December 2015 Provider-sponsored health plan Source: Christensen C, Raynor M and McDonald R, “What is Disruptive Innovation?,” Harvard Business Review, December 2015, available at: Health Care Advisory Board interviews and analysis.

Don’t Overlook the Advantages of Incumbency
Health System Strengths Can Be Extended, Leveraged Incumbent Advantages 1 2 3 4 Financial Scale Comprehensive Clinical Scope Robust Information Assets Established Patient Relationships Imperatives for Hospitals and Health Systems Prioitize no-regrets, scalable investments; use pricing leverage strategically Assemble and coordinate diverse services into differentiated, consumer- oriented solutions Augment clinical data with broader market analytics, consumer- level insight to create unparalleled information advantage Convert patient- physician relationships and loose brand affinities to durable consumer loyalty Source: Health Care Advisory Board interviews and analysis.

A Limited Window of Relevance
Health Systems Must Meet Emerging Standards and Control Pace of Change Playing Catch-Up Seizing the Moment Meeting, even exceeding the bar without influencing pace of transition leaves systems in perennially reactive posture Shaping, meeting consumer demands before others generates market share gains, lasting influence over competitive dynamics Outperforming market standard Health System Value to Consumer Failure to meet emerging consumer demands leads to slow bleed as traditional growth channels falter Unstructured, sub-standard forays into “consumerism” self-disrupt without driving sufficient value for end users Underperforming market standard Head in the Sand Inviting Disaster Passive Reaction Active Acceleration Attitude Toward Consumer-Focused Transition Source: Health Care Advisory Board interviews and analysis.

Confronting a False Choice
Population Health, Consumerism Equally Urgent Public Sector Population Health Imperatives High-value network assembly Scalable care management Low total cost Medicare, Medicaid High cost per capita No-Regrets Priorities Superior access Reliable care delivery Leaner fixed cost structures Platforms for ongoing loyalty Chronic illness, comorbidities Rising share of population Private Sector Consumer Imperatives Improved experience Customization Low unit cost Insurers, employers, individual consumers Generally healthy with episodic care needs Access, experience, convenience paramount Large share-of-wallet opportunity Source: Health Care Advisory Board interviews and analysis.

Viewing Our Strategy Through a New Lens
Competitor-centric Strategy Consumer-centric Strategy Strategic Benchmark: Closest competitor’s performance Financial Metric: Share of existing market Executive Focus: Stewardship of community asset Strategic Benchmark: Maximum consumer value Financial Metric: Share of wallet, lifetime loyalty Executive Focus: Ongoing drive for improvement [I have a] passion to figure out customer-focused strategies as opposed to, say, competitor-focused strategies. If you’re competitor-focused, you tend to slack off when your benchmarks say that you’re the best. But if your focus is on customers, you keep improving. Jeff Bezos Source: Kirby J and Stewart TA “The Institutional Yes,” Harvard Business Review, October 2007; Health Care Advisory Board interviews and analysis.

State of the Union: The New Era of Health Care Reform

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State of the Union: The New Era of Health Care Reform

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