Market Innovation Center -...

Health Care Industry Trends 2016Ready-to-Use Presentation Slides

Market Innovation Center

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Road Map

©2016 The Advisory Board Company • advisory.com

Payment Reform

Provider Market

Purchaser Behavior

Provider Selection


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Payment Reform

• Update on Value Based Purchasing Program

• Update on Bundled Payments

• Update on Accountable Care Organizations


4

Source: Health Care Advisory Board interviews and analysis.

Continuum of Medicare Risk Models

Bundled Payments

Shared Savings

Shared Risk

Full Risk

• Hospital VBP Program

• Hospital Readmissions Reduction Program

• HAC Reduction Program

• Merit-Based Incentive Payment System

• MSSP Track 1(50% sharing)

• MSSP Track 2(60% sharing)

• MSSP Track 3(up to 75% sharing)

• Next-GenerationACO (80-85% sharing)

• Next-Generation ACO (optional full performance risk)

• Medicare Advantage (provider-sponsored)

Pay-for-Performance

• Bundled Payments for Care Improvement Initiative (BPCI)

Increasing Financial Risk


5

Payment Targets Demonstrate Commitment to FFS1 Alternatives

Update on Value Based Purchasing Program

Source: HHS, “Progress Towards Achieving Better Care, Smarter Spending, Healthier People,” available at: http://www.hhs.gov/, accessed February 2015; Health Care Advisory Board interviews and analysis.

1) Fee-for-Service.

CMS Sets Targets for Value-Based Payments

2015 2016 2018

20%

30%

50%

Aggressive Targets for Transition to RiskPercent of Medicare Payments Tied to Risk Models

2015 2016 2018

80%

85%

90%

FFS Increasingly Tied to ValuePercent of Medicare Payments Tied to Quality

Medicare Shared Savings Program

Patient-Centered Medical Home

Bundled Payments for Care Improvement Initiative

Exa

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of Q

ual

ifyin

g R

isk

Mo

dels

Hospital-Acquired Condition Reduction Program

Hospital Readmissions Reduction Program

Hospital Value-Based Purchasing Program

Merit-Based Incentive Payment System

Exa

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of Q

ualit

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alue

Pro

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Mandatory Risk Programs Taking a Toll on Providers

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.

1) Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program. 2) Value-Based Purchasing. 3) Pay-for-Performance.

Readmissions, HAC Penalties Outweigh VBP Bonuses

3,087hospitals in VBP program

1,700hospitals received bonus payment

792hospitals received net payment increases

After Accounting for Penalties1, Few Receive VBP2 Bonuses

Estimated Net Impact of P4P3 Programs, FY 2015

Hospitals receiving net penalties of 2% or greater

6.5%

Hospitals receiving a net bonus or breaking even

28%

Hospitals receiving net penalties between

0% and 1%

50%


7Update on Bundled Payments

BPCI Participation Continues to Fluctuate

450 342

21101574

6,000+

27%54%

19%

Acute Care Hospitals

Physician Practices

PAC Providers2

1) Bundled Payments for Care Improvement Initiative.2) Includes SNFs, HHA, Inpatient Rehabilitation Facilities, and Long-term Acute Care Hospitals.3) Does not add to 100% because Awardees not initiating episodes in BCPI are not included.

Source: CMS, “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” February 2016; 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.

Total Number of BPCI1 ParticipantsAs of January 2016

Types of Organizations Participating in BPCI3

Episode Initiators as of January 2016


8

CMMI1 Program Requires Orthopedic Bundling in 67 Select Markets

1) Center for Medicare and Medicaid Innovation.2) Critical Access Hospitals. 3) Bundled Payments for Care Improvement Initiative.

Orthopedic Bundling Now Mandatory

Key Program Features

Mandatory in 67 markets

No application process; CAHs1 and BPCI2 Phase II participants exempt

Retrospective bundle

CMS will pay each provider separately, conduct annual reconciliation process

Comprehensive episode

Includes all related Part A and Part B services for 90 days post-discharge

The Comprehensive Care for Joint Replacement (CJR) Model

Focus on joints

Average expenditure varies from $16,500 to $33,000 by geography

Program Timeline

July 2015

Program announced; comment period through September 8th

April 2016

First performance year begins; no episode discount for first year

2017-2020

Downside risk incorporated; 1% discount in 2017, 2% for 2018 onward

$153MEstimated savings to Medicare over the 5 years of the model

Source: Centers for Medicare and Medicaid Services; Advisory Board interviews and analysis.


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Where the Medicare ACOs Are

19 Pioneer and 405 Shared Savings Program ACOs

Update on Accountable Care Organizations

Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis

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January 2015


10

19

404 423

89 ACOs Join in 2015, Few Generating Shared Savings in First Year

Source: Spitalnic P, “Certification of Pioneer Model Savings,” CMS, April 10, 2015; available at www.cms.gov; “Shared Savings Program Fast Facts,” CMS, April 2015, available at: www.cms.gov; CMS, “Fact Sheets: Medicare ACOs continue to succeed in improving care, lowering cost growth,” September 16, 2014, available at www.cms.gov; McClellan M et al., “Changes Needed to Fulfill the Potential of Medicare’s ACO Program,” Health Affairs Blog, April 8, 2015, available at www.healthaffairs.org/blog; Health Care Advisory Board interviews and analysis.

1) Medicare Shared Savings Program.2) For the 2012 and 2013 cohorts; percentages

may not add to 100 due to rounding.

MSSP1 Continues to Grow Despite Mixed Results

Medicare ACO Program Growth Continues

26%

27%

46%

One-Quarter of MSSP ACOs Share in SavingsFirst Performance Year2

Held Spending Below Benchmark, Earned

Shared Savings

Reduced Spending, Did Not Qualify

for Shared Savings

Did Not Hold Spending Below

BenchmarkPioneer ACO MSSP

ACOTotal

Medicare ACOs

As of April 2015

http://www.cms.gov/

http://www.cms.gov/

http://www.cms.gov/

http://www.healthaffairs.org/blog


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Proposed MSSP Rule Encourages More Risk

Track 1 Track 2 Track 3

• Option to renew for second three-year term

• Savings rate reduced to 40% for second term

• Shared savings, loss rate remains at 60% based on quality performance

• Revises MSR1 and MLR2 from fixed 2% to variable 2%-3.9% based on number of beneficiaries

• Beneficiary attestation

• Shared savings up to 75%, shared losses from 40%-75% based on quality performance

• Fixed 2% MSR and MLR

• Prospective assignment and beneficiary attestation

• Program waivers3

Track Three Incorporates Features of Pioneer ACO Model Proposed Tracks for the Medicare Shared Savings Program

Source: Davis Wright Tremaine, “Keeping Track of the Tracks: Proposed ACO Regulations Alter MSSP Financial Models,” December 11, 2014, available at www.dwt.com; McDermott, Will & Emery, “CMS ACO Proposed Rule to Extend One-Sided Risk Track While Incentivizing Performance-Based Risk,” December 19, 2014, available at www.mwe.com; Health Care Advisory Board interviews and analysis.

1) Minimum Savings Rate.2) Minimum Loss Rate.3) Include the SNF 3-day rule, telehealth waiver, home health waiver, and PAC referrals waiver.

Key Takeaways for Providers

• Encourages providers hesitant to assume downside risk to remain in program; reduces long-term attractiveness of upside-only contracts

• Track 3 provides options for providers to quickly assume more risk

• Provides flexibility for organizations with varying capabilities to assume risk

http://www.dwt.com/

http://www.mwe.com/


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Provider Market

• Finances

• Volume Performance

• Mergers and Acquisitions

• Partnerships and Affiliations

• Imaging Centers

• Ambulatory Surgery Centers

• Primary Care Network

• Telehealth


13Finances

Source: Altarum Institute, Health Sector Trend Report, March 2015, accessed April 2015; Tozzi J, “U.S. Health-Care Spending Is on the Rise Again,” Bloomberg Businessweek, February 18, 2015, available at: www.bloomberg.com; Davidson P, “Health care spending growth hits 10-year high,” USA Today, April 1, 2014, available at: www.usatoday.com; Altman D, “Health Spending is Rising More Sharply Again,” The Wall Street Journal, February 27, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.

Health Spending on the Rise Again…

2006 2007 2008 2009 2010 2011 2012 2013 20140%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

6.5% 6.3%

4.8%

3.8% 3.9% 3.9% 4.1%3.6%

5.0%

“U.S. Health-Care Spending Is on the Rise Again”

“Health care spending growth hits 10-year high”

“Health Spending Is Rising More Sharply Again”

Annual Growth in National Health Expenditures

http://www.bloomberg.com/

http://www.usatoday.com/

http://www.blogs.wsj.com/


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Higher Spending Does Not Equate Price Growth for Hospitals

Source: Altarum Institute, Health Sector Economic Indicators: Price Brief, March 2015, March 2014, March 2013, March 2012, available at: www.altarum.org; Health Care Advisory Board interviews and analysis.

…But Hospital Price Growth Down for First Time

Annualized Hospital Price Growth, Jan. 2010-Jan. 2015

Jan. '10 Jan. '11 Jan. '12 Jan. '13 Jan. '14 Jan. '15-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%3.5%

1.6%

2.7% 2.9%

1.5%

-0.1%

2015 Hospital Price Growth Down Across All Payer Classes

Medicare price growth

(2.9%)

Medicaid price growth

(0.1%)

Commercial price growth (lowest growth rate since 2002)

1.6%

http://www.altarum.org/


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Modest Growth Anticipated for the Near Term

Inpatient and Hospital Based Outpatient Volume Projections

Source: Advisory Board Inpatient and Outpatient Market Estimators; Advisory Board research and analysis.

1) Compound Annual Growth Rate

Inpatient Volume, CAGR1

2014-2019

Cardiac Services

Neurology

General Surgery

Orthopedics

General Medicine

Neurosurgery

Overall

0.9%

1.1%

1.1%

1.4%

2.7%

0.5%

Hospital-Based Outpatient Volume, CAGR1

2014-2019

Orthopedics

General Surgery

E&M

Cardiology

Radiology

Oncology

Overall

3.1%

2.2%

1.4%

2.3%

1.4%

1.7%

2.0%

(2.7%) 3.1%


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Volumes Continuing to Shift Outpatient

Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2015, available at: www.medpac.gov; Advisory Board Company Inpatient and Outpatient Market Estimators; Market Innovation Center interviews and analysis.

1) Outpatient services represent entire market regardless of site of service (includes hospital-based settings, ASCs, other freestanding providers and physician offices)

Medicare Volume Growth

Cumulative Percent Change

All Payer Volume Growth Projections1

2014-2019

Outpatient Services per FFS Part B Beneficiary

33.0%

(17.0%)

2006 2013

20%

17%

18%

12%

14.0%

6.0%

-9.0%

-13.0%

Oupatient Inpatient

Cardiac Services

Vascular Services

Orthopedics

Neurosurgery

Volume Performance

http://www.medpac.gov/


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Source: CMS, “2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” May 31, 2013, available at: http://downloads.cms.gov/files/TR2013.pdf; Health Care Advisory Board interviews and analysis.

Medicare to Become Majority of Volume by 2022

Projected Number of Medicare Beneficiaries

Millions of Beneficiaries

54.0

57.3

60.7

64.3

66.4

Average Inpatient Case Mix By Volume

n = 785 Hospitals

2012 2022

42%58%

19%

15%

33%25%

6% 2%

Medicare

Medicaid

Commercial

Self-Pay

2014 2016 2018 2020 2022

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http://downloads.cms.gov/files/TR2013.pdf


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2009 2010 2011 2012 2013 2014

50

66

86 8998 95

Mergers and Acquisitions

Source: Beckers Hospital Review, “The Year of 95 Hospital Transactions,” 2015, available at: www.beckershospitalreview.com/; American Hospital Association, Fast Facts 2016, available at: http://www.aha.org/research/rc/stat-studies/fast-facts.shtml Health Care Advisory Board interviews and analysis.

M&A Continue at a Steady Rate

Hospital and Health System M&A ActivityTotal Deal Volume

Number of Hospitals Part of a Health System

2,668

3,183

19% growth across decade


19Partnerships and Affiliations


Five Major Types of Provider Partnership

Description

Merger or Acquisition

Formal purchase of one organization’s assets by another, or the combination of two organizations’ assets into a single entity

Clinically-Integrated Hospital Network

Collection of hospitals contracting jointly in order to support improved coordination, outcomes; modeled after physician CI networks

Accountable Care Organization

Independent entity, owned by one or several independent organizations, that accepts risk-based contracts and distributes shared savings

Regional Collaborative

Flexible umbrella structure, often encompassing many independent organizations of similar geography, that may serve as foundation for further integration

Clinical Affiliation Typically bilateral agreement to cooperate around a particular initiative or service line; may involve local or national partners

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20Imaging Centers

Source: Advisory Board Imaging Outpatient Market Estimator; Imaging Performance Partnership interviews and analysis.

Outpatient Imaging Volume Growth Positive

8%9%

11%

5%6%

12%

2%

16%18%

24%

11%12%

26%

10%

5 yr growth 10 yr growth

Market-specific volume forecasts can be found in The Outpatient Imaging Market Estimator

Outpatient Volume Growth ProjectionsAll Providers, by Modality2014-2024

http://www.advisory.com/Research/Imaging-Performance-Partnership/Tools/2010/Outpatient-Imaging-Market-Estimator


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Total Number of Medicare-Certified ASCs

2008 2009 2010 2011 2012 2013 2014 20154955

5064

51525228

53075364

54145464

ASC Growth at All-Time Low

Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2015; ASC Association, available at http://www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsperstate; Market Innovation Center interviews and analysis.

Ambulatory Surgery Centers

Net percent growth from previous year

4.2%

2.2%1.7% 1.5% 1.5%

1.1% 0.9% 0.9%

http://www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsperstate

http://www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsperstate


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A Growing Network of Immediate Access Choices

Markets Responding to Unmet Needs

Source: Mehrota A et al, "Visits To Retail Clinics Grew Fourfold From 2007 To 2009, Although Their Share Of Overall Outpatient Visits Remains Low," Health Affairs, August 2012; Health Care Advisory Board interviews and analysis.

Traditional Access Points

Consumer-Oriented

Access Points RetailClinic

Urgent Care Center

Virtual Visit

Primary Care Office

Low Acuity High Acuity Emergency Department

Consumer-Oriented Service Delivery Sites Filling the Gap

22Primary Care Network


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Retail clinic

Imaging center

Urgent care clinic

Ambulatory surgical center

Primary care clinic

Medical office building

23%

45%

61%

61%

68%

84%

Current Capital Outlays, Planned Projects Point to Sustained Growth

Source: 2015 Facility Planning Survey; Facility Planning Forum research and analysis.

Investment in Outpatient Facilities Growing

Percent of Respondents with Outpatient Facility Projects Planned

2015-2018, n= 31 Hospitals and Health Systems

Capital Allocation for Ambulatory Investments

Percent of Total Capital Outlays

20142013 27.0%20.0%


24

Retail Clinics Expected to Continue Growing

1) As of Nov. 20152) As of July 20153) Clinics owned by Walmart; Walmart also leases retail space to

providers in dozens of stores.Source: Accenture, “Number of US Retail Health Clinics Will Surpass 2800 by 2017, Accenture Forecasts,” 2015; Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; Market Innovation Center interviews and analysis.

2000-20151

Estimated Total Number of Retail Clinics in the US

2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

202

868

1135 1172 12201355 1418

17431869 1918

Retailer

Operational Retail Clinics2 979 412 162 83 173

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Urgent Care Ripe for Consolidation, Diversification

Source: Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; UCAOA “2014 Urgent Care Benchmarking Survey Report”; Market Innovation Center interviews and analysis.

1) As of 2013.2) As of July 2015.

Operator

Operational Urgent Care Centers2

290 166 146 145 123

Urgent care and ongoing primary care

Exclusively urgent care

85%

15%

Continued growth likely in urgent care centers offering ongoing primary care to bolster referrals, relieve primary care offices, and manage population health

Urgent Care Beginning to Offer Ongoing Primary Care Services1

Approximate number of urgent care clinics in operation in the

US

6100

Approximate number of hospitals and multispecialty groups operating

more than five urgent care sites; most provider organizations run

three or fewer sites

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26

Telehealth: Untangling the Terminology

Key Terms and How They Relate to Telehealth Technologies

Telehealth

Source: Market Innovation Center research and analysis.

Use Cases Modalities Platforms

Professional Consultation

Diagnosis and Treatment

Monitoring and Care Coordination

Remote Patient Monitoring

Asynchronous Store-and-Forward

Telephonic

Web-based

Mobile, Smart Device

Kiosk

Bluetooth-Enabled Peripheral Devices

Real-time Virtual Visits

Defining “Telehealth”The use of medical information exchanged from one site to another via electronic communications to improve a patient’s clinical health status.

- American Telemedicine Association

Why invest in telehealth? What are the applications? How is telehealth offered?


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Modalities Differ by Recipient and Timing of Service

Typically, Synchronous Provider-to-Patient Is Most Favorably Reimbursed

Source: Market Innovation Center research and analysis.

Intended Recipient

Tim

ing

of I

nter

actio

n

Provider-to-Patient Provider-to-Provider

Synchronous

Real-time patient consultations

Common applications:

• Virtual primary care

• Virtual urgent care

• Virtual pre- and post-op

Real-time specialist consultations


• Telestroke

• TeleICU

• Telepsychiatry

Asynchronous

Time lag between patient request and subsequent provider response


• Secure e-messaging

• Remote patient monitoring

• Wearables (e.g., Fitbit)

Time lag between initial provider request and specialist response


• Teleradiology

• Telepharmacy

• Teledermatology

1 2

34


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Telehealth Projected to Continue Growth

Projections Agree on Growth, But How Aggressive?

Sources: Herman B, “Virtual reality: More insurers are embracing telehealth,” Modern Healthcare, February 2016, available at: http://www.modernhealthcare.com/article/20160220/MAGAZINE/302209980; ”Global Telemedicine Market – Growth, Trends and Forecasts (2015-2020),” Mordor Intelligence, http://www.mordorintelligence.com/industry-reports/global-telemedicine-market-industry, December 2015; Japsen, Bruce, “Doctors’ Virtual Consults with Patients to Double by 2020,” Forbes, http://www.forbes.com/sites/brucejapsen/2015/08/09/as-telehealth-booms-doctor-video-consults-to-double-by-2020/#2d4da3675d66, August 2015; Market Innovation Center research and analysis.

1) CMS data.2) 2015 HIS Analytics report.

2015 2020

16.6

26.9

2.1

5.4

14.5

21.5

Total

PCP Visits

Specialty Consults0.0

5.0

10.0

15.0

20.0

$2.5

$17.6

Year-Over-Year Medicare Reimbursement for Telehealth Services1

In millions of dollars

Estimated U.S. Growth in Virtual Consults2

Millions of Visits5-YR

Growth

62%

48%

157%

604% Growth

http://www.modernhealthcare.com/article/20160220/MAGAZINE/302209980

http://www.mordorintelligence.com/industry-reports/global-telemedicine-market-industry

http://www.forbes.com/sites/brucejapsen/2015/08/09/as-telehealth-booms-doctor-video-consults-to-double-by-2020/#2d4da3675d66


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Purchaser Behavior

• Commercial Payers

• Employers

• Medicare

• Coverage Expansion


30

Source: HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: December Enrollment Report,” Dec. 30, 2014; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: January Enrollment Report,” Jan. 27, 2015; HHS, “Open Enrollment Week 13: February 7, 2015 – February 15, 2015, available at: http://www.hhs.gov/healthcare/facts/blog; HHS, “Open Enrollment Week 14: February 16, 2015 – February 22, 2015, available at: www.hhs.gov/healthcare/facts/blog; HHS, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” March 10, 2015; CBO, January 2015 Baseline: Insurance Coverage Provisions for the Affordable Care Act, available at: www.cbo.gov; Washington Times, “Obamacare Official: 7.3 Million Americans Are Still Enrolled and Paid Up,” Sept. 18, 2014; available at: http://www.washingtontimes.com; Health Care Advisory Board interviews and analysis.

Second Round of Enrollment Hitting Targets

Commercial Payers: Public Exchanges

1) Health and Human Services.

Consumers Continue to Flock to Public Exchanges

Second Open Enrollment Period Yields Nearly 12 Million Enrollees

4 4

9.5

0

HHS1 Projection9.0M-9.9M

Enrollment on federally facilitated exchanges, 2015

8.8MEnrollment on state run exchanges, 2015

2.8M

2015 enrollees aged 18-34 (compared to 28% in 2014)

28%

Demographics Largely Unchanged

Federal Exchanges Driving Most EnrollmentTotal 2015 Plan Selections in the Marketplaces

8M2014

Enrollment

http://www.hhs.gov/healthcare/facts/blog

http://www.hhs.gov/healthcare/facts/blog

http://www.cbo.gov/

http://www.washingtontimes.com/


31

Exchange Options Reflect Tougher Economic Reality for Insurers

Source: CMS, 2016 Marketplace Affordability Snapshot,” October 26 2015; Kaiser Family Foundation, “Monthly Silver Premiums for a 40 Year Old Non-Smoker Making $30,000/Year,” available at kff.org; CNBC, “Fewer plans to be on biggest Obamacare exchange for 2016,” available at cnbc.com; Health Care Advisory Board interviews and analysis.

In Year Three, Premium Adjustments Abound

Statewide Average Premium Changes for Benchmark Silver Plans, 2015 to 20161

Average Premium Increases Modest, but High Market-by-Market Variability

Takeaways

Fewer OptionsNumber of products decreased by 12%

10.01%-15%

>15%

Limited/no data

5.01%-10%

0%-5%

<0%

1) For 40-year-old, non-smoker.

More ExpensiveAverage premiums in 37 states using Healthcare.gov increased by 7.5%


32

Avoiding Premium Increases the Primary Motivation for Shoppers

Source: The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: www.advisory.com; McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: www.healthcare.mckinsey.com; HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: www.aspe.hhs.gov; Health Care Advisory Board interviews and analysis.

1) Federal Employee Health Benefits Plan.

Exchanges a More Fluid Marketplace Than Expected

Switching Rates Higher Than Expected

Premium Increases the Primary Motivator

Switchers who cited rise in monthly premiums as among top three reasons for switching

55%

0%

100%

12% 29%Average annual switching among active employees with FEHBP1 coverage

Returning federal exchange enrollees changing plans in 2015

2014 2015

20% 22%

65% 67%

Catastrophic Platinum Gold Silver Bronze

Most Continue to Select Silver, Bronze PlansPlan Selections on Healthcare.gov, 2014-2015

http://www.advisory.com/

http://www.healthcare.mckinsey.com/

http://www.aspe.hhs.gov/


33

Insurers Betting Consumers Will Continue to Trade Choice for Price

Source: McKinsey & Co., “Hospital Networks: Evolution of the Configurations on the 2015 Exchanges,” April 2015, available at: www.healthcare.mckinsey.com; Health Care Advisory Board interviews and analysis.

Despite Predictions, Networks Remain Narrow

Narrow Network Plan Designs Continue to Dominate Exchange Marketplace Network Breadth in Largest City of Each State

Narrow Network Premium Advantages Increasing Over Time

15-23%Narrow network premium advantage in 2014

11-17%Narrow network premium advantage in 2015

Few Buying-Up to Broad Networks

17% Consumers with narrow-network plans for year one that switched to a broad-network plan in year two

Median PMPM Difference For Products From the Same Payer and Product Type

Broad

Narrow

Ultra Narrow

38%

41%

21%

40%

38%

22%

2015 2014

http://www.healthcare.mckinsey.com/


34

Source: eHealth, “Health Insurance Price Index Report for the 2015 Open Enrollment Period,” March 2015, available at: www.news.ehealthinsurance.com; HealthPocket.com, “2016 Affordable Care Act Market Brings Higher Average Premiums for Unsubsidized,” November 2, 2015, available at: www.healthpocket.com; Health Care Advisory Board interviews and analysis.

Trading Low Premiums for High Deductibles

<$1,000 $1,000-$2,999 $3,000-$5,999 $6,000+

16% 16%

30%

39%

10%

23%

34% 34%

2014 2015

2015 Enrollees Favor Higher Deductibles Annual Deductibles as Percentage of All Individual Plans Selected on eHealth Platform, 2014-2015

Average Public Exchange Deductibles by Tier, 2016

Bronze:

Silver:

Gold:

Platinum:

$5,731

$3,117

$1,165

$233

$5,181

$2,927

$1,198

$243

20152016

20152016

20152016

20152016

http://www.news.ehealthinsurance.com/

http://www.healthpocket.com/


35

So Far, Backlash Against Narrow Networks, HDHPs Not Widespread

Source: Gallup, “Newly Insured Through Exchanges Give Coverage Good Marks,” November 14, 2014, available at: www.gallup.com; Health Care Advisory Board interviews and analysis.

Majority Satisfied with Coverage

Exchange Enrollees Generally as Happy as Others with Health Coverage…Ratings of Healthcare Coverage Quality, 2014

…And Particularly Satisfied with the Cost of Their CoverageRatings of Healthcare Coverage Cost, 2014

Newly insured satisfied with cost of health care

75%

Satisfaction rate among all insured individuals

61%

Good or Excellent

Fair or Poor

72.0%

27.0%

71%

29%

All Insured

Newly-Insured Through Exchanges

http://www.gallup.com/


36

Cadillac Tax Spurring Employers to Change Benefits

Employers

Refresher: The Cadillac Tax

26% 42%of all employers could incur tax in 2028

If Employers Make No Changes to Current Benefit Plans:

of all employers could incur tax in 2018

Source: Mercer, “Survey Predicts Health Benefit Cost Increases Will Edge Up in 2015,” September 11, 2014, available at: www.mercer.com; Hancock J, “Employer Health Costs Rise 4 Percent, Lowest Increase Since 1997,” Kaiser Health News, March 2 2016, available at: www.kaiserhealthnews.com; Mercer, “Modest Health Benefit Cost Growth Continues as Consumerism Kicks into High Gear,” November 19, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.

The Cadillac Tax

• 40% excise tax assessed on amount of employee health benefit exceeding $10,200 for individuals, $27,500 for families

• Intended to encourage cost-effective benefits, offset ACA implementation cost

• Threshold adjustments tied to consumer inflation, not health care inflation

http://www.mercer.com/

http://www.kaiserhealthnews.com/



37


Activist Employers Investing in a Range of Tools

Four Primary Models for Controlling Employee Utilization

ACO networks: Employer contracts with single delivery system based on promise of reduced cost trend

Manage Costs at Point of Network Assembly

“The One- Stop Shop”

Enhanced primary care: Employees directed to PCPs with proven ability to reduce utilization, refer responsibly

“The Accountable Physician”

Personal health navigators: Guide employees through all health care related decisions, refer to high-value providers

“The Neutral Third Party”

“The Second Opinion”

Specialty carve-out networks: Employees evaluated against appropriateness of care criteria, sent to centers of excellence

Manage Costs at Point of Referral, Point of Care


38

Looking to Combine Network Advantages with Consumer Accountability

Source: Kaiser Family Foundation/Health Research & Educational Trust, “Employer Health Benefits 2015 Annual Survey,” September 2015, available at: www.kff.org; Health Care Advisory Board interviews and analysis.

.

Employers Moving Away From the Traditional HMO

Employers Looking to Narrower Networks

17%

17%Employers with a high performance or tiered network in their largest health plan

9%Employer eliminated hospitals or health systems from their plans to reduce costs in 2015

Percent of Covered Workers Enrolled in a Plan with a $1,000+ Deductible

2010 2011 2012 2013 2014 2015

46%50% 49%

58%61% 63%

17%22%

26% 28%32%

39%

Small Firms (3-199 Workers)

http://www.kff.org/


39

Source: Accenture, “Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015,” April 7, 2015, available at: www.accenture.com; 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: www.towerswatson.com; Mercer, “Mercer Marketplace-the flexible private exchange-posts individual participant and client gains,” October 13, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.

Private Exchange Enrollment Continues to Grow

Analysts Remain Bullish on Long-Run Growth Prospects

More Big Names Making the Jump

Newer Market Entrants Hitting Their Stride

Private Exchange Enrollment Doubles in 2015, But Lags Behind Initial Projections Projected Private Exchange Enrollment Among Pre-65 Employees and Dependents

Enrollment growth for Towers Watson’s exchange solutions, 201550%Enrollment growth for Mercer’s exchange solutions, 2015500%

(800k1.2M)

(220k1M) 2014 2015 2016 2017 2018

36

12

22

40

2013 Projection

Actual Enrollment

2015 Projection

http://www.accenture.com/

http://www.towerswatson.com/



40

Price Cuts Continue Unabated

Medicare

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; Budget of the United States Government (Proposed) FY 2016; Health Care Advisory Board interviews and analysis.

1) Inpatient Prospective Payment System.2) Disproportionate Share Hospital.3) Medicare Access and CHIP Reauthorization Act of 2015.

No End in Sight for Inpatient Reimbursement Cuts

Hospitals Bearing the Brunt of Payment Cuts New Proposals Continue to Emerge

$29.5BSavings from moving to site-neutral payments

$30.8BReduction in Medicare bad debt payments

President’s FY2016 Budget Proposal Includes Significant Cuts to Providers

$14.6BCuts to teaching hospitals and GME payments

$720MCuts to critical access hospitals

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Reductions to Medicare Fee-for-Service Payments

($4B)

($14B)

($24B)

($29B)

($38B)

($54B)

($67B)

($76B)

($86B)

($94B)

ACA IPPS1 Update Adjustments

ACA DSH2 Payment Cuts

MACRA3 IPPS Update Adjustments


41

Source: KFF, “Medicare Advantage Fact Sheet,” June 29, 2015, available at: www.kff.org; McKinsey & Co., “Provider-Led Health Plans: The Next Frontier—Or the 1990s All Over Again?”, January 2015, available at: healthcare.mckinsey.com; MedPac, “Do new Medicare beneficiaries choose Medicare Advantage right away?” Sept. 15, 2014; Health Care Advisory Board interviews and analysis.

1) Medicare Advantage.

Medicare Advantage Continues Record Growth

10.4M(13%)

16.8M(31%)

30.0M(40%)

202520152005

MA1 Enrollment to Nearly Double by 2025Total Enrollment and Percentage of Total Medicare Population

MA Penetration Varies by StateTotal MA Enrollment as a Percent of Total Medicare Population, 2015

0%-10% 10%-19% 20%-29%

states currently have provider-led plans in their markets

39of provider-led plans offer MA coverage options

69%of newly eligible beneficiaries chose MA in 2012

24%

30%-39% 30%-39%

http://www.kff.org/


42

Growth in Medicaid enrollment in expansion vs. non-expansion states, FY 2015

18% vs. 5%

Medicaid Expansion Positively Impacting Hospital Finances

Benefit of Expansion Clear for Hospitals, But Opposition Remains

Coverage Expansion

Source: Kaiser Family Foundation, “Current Status of State Medicaid Expansion Decisions,” March 2, 2016, available at: www.kff.org; HHS, “Insurance Expansion, Hospital Uncompensated Care, and the Affordable Care Act”, March 23, 2015, available at: www.aspe.hhs.gov; PwC Health Research Institute, “The Health System Haves and Have Nots of ACA Expansion”, 2014, available at: www.pwc.com; CMS, “Medicaid & CHIP Application, Eligibility, and Enrollment Data, March 2, 2016, available at: www.medicaid.gov; Health Care Advisory Board interviews and analysis.

1) Children’s Health Insurance Program.

Future of Medicaid Expansion Less Clear

31 States and DC Have Approved ExpansionAs of January 2016

Not Currently Participating

ParticipatingExpansion 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

14.5MNet increase in Medicaid, CHIP1 enrollment, Oct 2013 to Jan 2016

http://www.kff.org/

http://www.aspe.hhs.gov/

http://www.pwc.com/

http://www.medicaid.gov/


4343

Provider Selection

• Independent Physicians

• Patients


44Independent Physicians

Referral Choice Criteria Different for PCPs, Specialists

Source: Service Line Strategy Advisor interviews and analysis.

The Extended Service Line Referral Pathway

HospitalPCP Medical Specialist

Proceduralist

Consumer Interventions

• Top-notch specialty capabilities and technology

• Superior specialist access

• Operations focused on specialist efficiency

• Comprehensive care continuum

• Highest value of care

• Superior patient access and experience

Traditional Differentiators

Emerging Differentiators

So

urc

es o

f In

flu

ence

Value-Based Incentives

Steerage Mechanisms

Emerging and Traditional Differentiators for Physicians

44


45

Referrals Hinge on Accessibility and Communication

Source: Kinchen, KS, et al., “Referral of Patients to Specialists: Factors Affecting Choice of Specialist by Primary Care Physicians,” Annals of Family Medicine, May/June 2004, 2: 245-252; Barnett, Michael L. et al., “Reasons for Choice of Referral Physician Among Primary Care and Specialist Physicians.,”Journal of General Internal Medicine, September 16th, 2011; Service Line Strategy Advisor interviews and analysis,.

1) Top four factors (out of 17 options) rated by PCPs as either a moderate or major factor in their specialty referral decision

What PCPs Value Most for Referrals

Top Four Factors When Choosing a Specialist

Rated as Moderate or Major Importance1

n = 553

100%96% 95% 94%

PCPs’ Referral Decision Factors Compared to Specialists’

PCPs 1.5 times more likely to refer based on physician communication than specialists

1.5x

PCPs two times more likely to refer based on timely availability of appointments than specialists

2x

45


46

Catalyzing a Shift in Network Demands

Patients


Market Forces Turning Patients into Consumers

Traditional Market Retail Market

Growing number of buyers

1

Proliferation of product options

2

Increased transparency

3

Reduced switching costs

4

Greater consumer cost exposure

5

Passive employer, price-insulated employee

Activist employer, price-sensitive individual

Broad, open networks Narrow, custom networks

No platform for apples-to-apples plan comparison

Clear plan comparison on exchange platforms

Disruptive for employers to change benefit options

Easy for individuals to switch plans annually

Constant employee premium contribution,

low deductibles

Variable individual premium contribution, high deductibles

Characteristics of a Traditional vs. Retail Market

46


47

Patient Experience Vital For Securing Purchaser Choice Year Over Year


Welcome to the Renewals Business

Day 1

Day 365

Care Decision

Network Selection and Ongoing Experience

Care Decision

Care Decision

Care DecisionClinical interactions represent repeated opportunities to reinforce patient preference through superior experience

Annual network selection in fluid insurance market implies consistent reevaluation of network performance

Patient Experience

47


48

Scope and Investment Must Expand to Encompass Entire Experience


Inpatient Satisfaction Scores Miss Most Interactions

AMBULATORY CARE

350,000+

Interactions per year

INPATIENT VISITS

17,000+


PROVIDER SEARCH, SCHEDULING, COLLECTIONS

2,500,000+


InpatientStays

AmbulatoryVisits

Health CareTransactions

Average Health System Interactions

Sick Healthy


49

Consumers’ Top 10 Primary Care Clinic Attributes

Prioritizing Convenience and Affordability

Source: 2014 Primary Care Consumer Choice Survey, Marketing and Planning Leadership Council interviews and analysis.

Average Utilities for Top Ten Preferred Primary Care Clinic Attributesn=3,873

3.00

3.00

3.01

3.04

3.70

3.91

3.94

3.95

3.98

4.11

If I need lab tests or x-rays, I can get them done at the clinic instead of going to another location

The provider is in-network for my insurer

The visit will be free

The clinic is open 24 hours a day, 7 days a week

I can get an appointment for later today

The provider explains possible causes of my illness and helps me plan ways to stay healthy in the future

Each time I visit the clinic, the same provider will treat me

If I need a prescription, I can get it filled at the clinic instead of going to another location

The clinic is located near my home

I can walk in without an appointment, and I’m guaranteed to be seen within 30 minutes

49


50

Source: 2015 Primary Care Physician Consumer Loyalty Survey, Market Innovation Center interviews and analysis.

Most Patients Are Not Loyal to PCP

Percent of Consumers Highly Loyal in Each of Three Loyalty Measures

9%

If your primary care moved to another clinic or practice, how likely are you to follow him/her to another clinic or practice?

(On a scale of 0 to 10, with 0 being “definitely would not follow” and 10 being “definitely follow”)

How likely are you to stay with your primary care physician over the next 12 months?

(On a scale of 0 to 10, with 0 being “definitely not staying” and 10 being “definitely staying”)

How likely are you to recommend your primary care physician to friends or family members?

(On a scale of 0 to 10, with 0 being “not at all likely” and 10 being “extremely likely”)

53% 36%


51

Top Reasons for Self Referrals Centered on Recommendation, Affiliation

Source: 2015 Specialty Consumer Choice Survey, Market Innovation Center interviews and analysis.

Specialty Self-Referrals Drive Over a Third of Business

Percent of Respondents Self-Referring

n = 12,610

11%

12%

14%

15%

19%

42%

28%

36%

25%

32%Recommendation

Previous Relationship

Affiliation

Specialization

Distance

Top Drivers of Self-Referrers’ Choice

Most influential driver of choice

A driver of choice

Respondents Citing Factor As:

34%2%

Respondents ranking out-of-pocket cost as the leading reason they chose a specialist

Cost Not a Major Deciding Factor


52

Price and Travel Time Top Consumers’ Surgical Care Priorities

Source: MIC Surgical Care Consumer Choice Survey 2016.

1) Relative importance depicts how much difference each attribute could make in the total utility of a product. That difference is the range in the attribute’s utility values for the five factors. We calculate percentages from relative ranges, obtaining a set of attribute importance values that add to 100 percent.

2) Includes cost of care and travel

Surgical Shoppers Extremely Price Sensitive

Average Relative Importance1 of Six Surgical Care Attributes

53.22

19.83

9.21

7.265.524.95

Cost of Surgery2

Quality of Surgeon

Hospital Affiliation

Referrer’s Recommendation

Location of Follow-Up Visit

Travel Time to Hospital

Cost of care is more important than the five other attributes combined; comprises more than half of consumers’ preference

Travel time is second most important and about twice as important as the next most important attribute, referrer’s recommendation

Hospital affiliation matters more than quality of the surgeon


53

Consumers Increasingly Soliciting Pricing Information

Source: Altman D, “Health-Care Deductibles Climbing Out of Reach,” Wall Street Journal, March 11, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.

1) $1,200 Single; $2,400 Family2) $2,500 Single; $5,000 Family

Higher Deductibles Driving Increased Price Sensitivity

Many Americans Lack Cash Flow to Cover Potential OOP Costs Households Without Enough Liquid Assets to Pay Deductibles

Mid-range deductible Higher-range deductib le

0.2

0.4

1 2

A surprising percentage of people with private insurance…simply do not have the resources to pay their deductibles.”

Drew Altman, President, Kaiser Family Foundation

More Consumers Attempting to Find Pricing Information

56%Consumers who have tried to find out how much they would have to pay before getting care

67%

74%

Those with deductibles of $500 to $3,000 who have solicited pricing information

Those with deductibles higher than $3,000 who have solicited pricing information

http://www.blogs.wsj.com/

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