State of the Union 2018 - AzHFMA€¦ · State of the Union 2018 A New Era of Disruption, Competition, ... a long-term orientation. ... distributor Global Health Care Logistics Specialist

Health Care Advisory Board

State of the Union 2018 A New Era of Disruption,

Competition, and Cost Pressure

©2018 Advisory Board • All Rights Reserved • advisory.com • 36340A

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Meet Health Care’s Latest Disruptors 1

2 The New Era of Outmigration

3 The Emerging Logic of Competition

http://www.advisory.com/


3

Price Scrutiny Back With a Vengeance

Source: Szabo L, “As Drug Costs Soar, People Delay or Skip Cancer Treatments,” NPR, March 15, 2017; Pollack A, “Drug Goes from $13.50 a

Tablet to $750, Overnight,” The New York Times, September 20, 2015; Kliff S, “She Didn’t Get Treated at the ER. But She Got a $5,751 Bill

Anyway,” Vox, May 1, 2018; Cortes A, “An Outrageous Hospital Charge: I Paid $710 For an Hour of Babysitting,” STAT, April 12, 2017; CMS,

National Health Expenditure Data; Singhal S, Latko B, and Martin C, “The Future of Healthcare: Finding the Opportunities That Lie Beneath the

Uncertainty,” McKinsey&Company, January 2018; Health Care Advisory Board interviews and analysis.

1) Earnings before interest, taxes, depreciation, and amortization.

Two Areas of Health Care Spending Occupying Most of the Spotlight

“She didn’t get treated

at the ER. But she got

a $5,751 bill anyway”

“An outrageous hospital

charge: I paid $710 for

an hour of babysitting”

2 HOSPITAL PRICES

≈22% $1.1T Total hospital

expenditures,

2016

Percentage of industry

EBITDA in inpatient

acute care, 2016

“As Drug Costs Soar,

People Delay Or Skip

Cancer Treatments”

“Drug Goes From

$13.50 a Tablet to

$750, Overnight”

≈21% Percentage of industry

EBITDA1 in pharma

and biotech, 2016

$329B Total prescription

drug expenditures,

2016

1 DRUG PRICES



4

“Hearing Amazon’s Footsteps, the

Health Care Industry Shudders”

Sheer Size of Health Spending Drawing New Interest

Source: Business Wire, “Amazon, Berkshire Hathaway and JPMorgan Chase & Co. to partner on U.S. employee healthcare,” January 30, 2018; Bennett

J, “Be Afraid: Healthcare Feels the Amazon Effect,” Forbes, January 30, 2018; The New York Times, “Hearing Amazon’s Footsteps, the Health Care

Industry Shudders,” October 27,2017; The Economist, “Apple and Amazon’s Moves in Health Signal a Coming Transformation,” February 3, 2018; Scott

D, “Why Apple, Amazon, and Google Are Making Big Health Care Moves,” Vox, March 6, 2018; Health Care Advisory Board interviews and analysis.

• “Health Records” feature

allows iPhone users to manage

their own medical records

• Launching employee

onsite clinics focused on

population health

• Offering non-emergency

medical transportation

• Providers can book and

reimburse rides for patients

to and from appointments

within applications

“Be Afraid: Health Care Feels

the Amazon Effect”

Silicon Valley Tries Its Hand at Health Care

“Hard as it might be, reducing healthcare’s burden on

the economy while improving outcomes for employees

and their families would be worth the effort. Success is

going to require talented experts, a beginner’s mind, and

a long-term orientation.”

Jeff Bezos, CEO, Amazon

• Subsidiary Cityblock Health

will provide home care to

low-income, urban patients

• Subsidiary Verily exploring

Medicaid managed

care partnerships



5

Five Visions of Amazon Health Care in Five Years

Source: Health Care Advisory Board interviews and analysis.

1) Amazon’s over-the-counter drug product line.

2) Pharmacy benefit manager.

3) Out-of-pocket.

• Onsite clinics

for employees

• Whole Foods

retail clinics

• Telemedicine

• “Alexa” patient

engagement platform

• EHR; consumer-

driven data sharing

• Insurance broker

• Improving

wellness

programs

• Telemedicine

Primary Care

Operator

Consumer-Focused

Technology Platform

Employer

Aggregator

Industr

y

Impact

Pro

ble

ms

Addre

ssed

Pote

ntia

l

Str

ate

gie

s

Low High High

• Unnecessary

hospital utilization

• Inconsistent

clinical experience

• PillPack growth,

expansion

• “Basic Care”1

expansion

Next-Generation

Retail Pharmacy

Medium

• PBM2 cost

inflation

• High OOP3

drug costs

• Fragmentation

of care

• Sub-par financial

experience

• Supply chain

platform operator

• Wholesale medical

supply, device

distributor

Global Health Care

Logistics Specialist

Medium

• Inconsistent

clinical product

• Distributor

cost inflation

• Price variation

Near-Term Bet Long-Term Potential



6

Industry Transformation Already Well Underway


Primary Care

Operator

Consumer-Focused

Technology Platform

Global Health Care

Logistics Specialist

Employer

Aggregator

Next-Generation

Retail Pharmacy

Emerging Themes in Efforts to Disrupt the Health Care Value Chain

Threat of Disruption Catalyzing and Accelerating Broader Trends

Commercial

payers at the

forefront

Heightened

focus on

input costs

Data-driven

utilization

management

Active steerage

over hands-off

delegation

The primacy

of the

independent

physician




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8

More Immediate Disruption Coming From Within


The New

Performance

Standard

The Rise of the

Hospital-less IDN

Vertical mega-mergers

combining insurance assets

with low-cost delivery sites

New administration

raising the bar on

payment reform

efforts, while

delegating coverage

reform to states Recognizing the limits of

cost-shifting, employers

actively pursuing levers to

inflect health care prices

Three Major Trends Challenging the Health System Business Model

1

The Resurgence of

the Activist Employer 2

3

Private Sector Public Sector



9

In Pursuit of Relevance

Trend #1: The Rise of the Hospital-less IDN


Regulatory Limitations

on Horizontal Growth

Stagnating Growth in

Traditional Business Models

Pursuing vertical integration out of

near-term strategic necessity

Vertical Integration Addresses Three Major Challenges to Business

Less regulatory precedence

on anti-competitive nature

of vertical deals

Controlling greater share

of wallet, patient data

enhances value proposition

Problem:

Solution:

Pressure to Deliver

on Affordability

Pursuing vertical integration to

secure long-term option value

Easier to inflect spending in

new business than to upend

current revenue model

Looking Outside Traditional Business Lines for Survival



10

The Big Four

Four Deals Highlighting Two Major Themes

Source: Google Finance; Cigna, “Cigna to Acquire Express Scripts for $67 Billion,” March 8, 2018; CVSHealth, “CVS Health to

Acquire Aetna; Combination to Provide Consumers with a Better Experience, Reduced Costs and Improved Access to Health Care

Experts in Homes and Communities Across the Country,” December 3, 2017; Mattioli D, Nassauer S, and Mathews A, “Walmart in

Early-Stage Acquisition Talks With Humana,” The Wall Street Journal, March 29, 2018; DaVita, “DaVite Medical Group to Join

Optum,” December 6, 2017; Health Care Advisory Board interviews and analysis.

1) Advisory Board is an independent subsidiary of Optum.

Reintegration of the PBM Rebuilding the Front Door to the Health System

• Health plan

• PBM

• Health plan

• PBM

• Retailer

• Ambulatory Provider

• Health plan

• PBM

• Retailer


• Service provider with

≈80 health plan clients

• PBM


Cigna to acquire

Express Scripts for $67B

in cash and stock

CVS to acquire

Aetna for $69B in

cash and stock

Walmart (mkt. cap:

$258.8B) potential buyer

of Humana (mkt. cap:

$39.7B)

UHG to acquire DaVita

Medical Group for $4.9B

in cash

• Deal announced

March 8, 2018

• Expected to close by

December 31, 2018

• Deal announced

December 3, 2017

• DOJ requested more

information in

February 2018

• First rumors of

deal reported on

March 29, 2018

• Deal announced

December 6, 2017

• FTC requested second

round of additional

information on March

12, 2018

Sta

tus

Siz

e

Se

cto

rs

1

Cigna-Express Scripts CVS-Aetna Walmart-Humana Optum-DaVita1

2 3 4



11

Cigna-Express Scripts Emblematic of Broader Trend

Reintegration of the PBM

Source: Health Strategies Group, “Select Emerging PBMs Gain Market Share,”

February 23, 2017; Health Care Advisory Board interviews and analysis.

1) Pharmacy benefit managers.

Long-Term Potential

Reduced drug spend

Enables steerage to generics and

partner pharmacy where applicable

Independent PBMs1 a Dying Breed

Percentage Share of PBM Lives by Owner, 2017

Express Scripts

Plan to be acquired by Cigna ≈28%

≈26%

OptumRx

Subsidiary of United Health Group ≈19%

CVS Caremark

Plan to acquire Aetna

Long-Term Value Proposition

Dependent on True Integration

Cross-sell opportunities

Potential to grow health plan

membership through existing PBM

relationships, and vice versa

Administrative synergies

Ability to achieve economies of scale

through combined human resources,

technology, physical assets

Percentage of PBM

market shared potentially

affiliated with a major

health plan in 2019

≈75%

Near-Term Advantages

Improved utilization management

Combined data assets enables

better management of treatment

and adherence



12

Health Systems Enter the Fray

Source: Intermountain Healthcare, “Leading U.S. Health Systems Announce Plans to Develop a Not-for-profit Generic

Drug Company,” January 18, 2018; Abelson R and Thomas K, “Fed Up with Drug Companies Hospitals Decide to Start

Their Own,” The New York Times, January 18,2018; Health Care Advisory Board interviews and analysis.

“Fed Up with Drug Companies,

Hospitals Decide to Start Their Own”

Overview of Civica RX

New Provider Collaborative Civica RX Takes Aim at Pharma

120 health

systems

Interested in participating in

partnership, additional participants

will be announced later this year

$100M of

$200M

Funding secured between seven

initial health system members and

three philanthropic organizations

14 generic

drugs

Identified as initial focus areas;

first products expected on market

in early 2019

Martin

VanTrieste

Named CEO; former Chief Quality

Officer for Amgen, has agreed to lead

Civica RX without compensation



13

Building Hospital-less Integrated Delivery Networks

Rebuilding the Front Door to the Health System

Source: CVS Health; Aetna; Walmart, Humana; Optum Care; UnitedHealthcare; Yanofsky D and Zhou Y, “Eight out of

10 Americans Are Within 10 Miles of a CVS,” Quartz, December 5, 2017; Bowman J, “5 Things You Didn’t Know About

Wal-Mart Stores Inc.,” The Motley Fool, August 16, 2017; Health Care Advisory Board interviews and analysis.

1) As of March 31, 2018.

2) As of December 31, 2017.

Consumer Loyalty Platform

CVS-Aetna OptumCare Walmart-Humana

Ph

ysic

al

Asse

ts

Care Management Platform

• 9,800+ retail and 68,000+

network pharmacies

• ≈71% of population lives within

5 miles of a CVS

• 5,358 Walmart retail locations

• ≈70% of population lives within

5 miles of a Walmart

• 1100+ CVS MinuteClinics;

offer 40% of PCP services,

with plan to expand to 90%

• CVS owns home

hemodialysis technology

• CVS: 62M ExtraCare members

• Aetna: 22.2M medical members

• 81% Commercial

• 8% Medicaid

• 8% Medicare Advantage

• 3% Medicare Supplement

• 19 Walmart Care Clinics

• 195 Humana-operated

primary care clinics

• Humana at Home;

adding Kindred at Home

• 38% Medicare Advantage

• 35% Military Services

• 20% Commercial

• 3% Medicare Supplement

• 4% State-based and Other

• Walmart: 270M customers/week

• Humana: 14M medical members

Clin

ica

l

Cap

ab

ilitie

s

Cove

red

Liv

es

Me

dic

al

Me

mb

ers

hip

• Ambulatory provider networks

in 12 states: AZ, CA, CO, CT,

FL, IN, NV, NJ, NY, OH, TX, UT

• Primary care

• Pediatric care

• Specialty and surgical care

• Urgent care

• Senior and advanced care

Aetna1 Humana2

Varies based on plan

partner(s) in given market

• 80 health plan clients covering

more than 15M members



14

Not Many Lightweights Here

OptumCare Focusing in on Savvy Population Health Managers


Key Themes in Physician Group Acquisitions

Established Expertise

Managing Population Health 1

Committed to Independence

from Hospitals 4

Strict Referral Management

Within Curated Network 3

Optum Making Clear Bets with Investment, Onboarding Strategy

Locality of Value Recognition

Acquired entities benefit from

Optum’s scale through capital

investments (e.g. IT) and shared

intellect but maintain local brand

Continued Site of Care Shift

Investments in urgent care and

ambulatory surgery centers

assume continued shift from

inpatient to outpatient care

Physician-Led Managed Care

Medical group partners

unaffiliated with larger systems,

have existing contracts with

population risk delegation

Significant penetration in

Medicare Advantage risk 2



15

Assessing the Challenges and Opportunities

Systems Must Define Relationship With New Delivery Models


Key Elements of New Delivery Models

Robust Primary

Care Capabilities

Control Over Specialty

Referral Chain

Propensity to Refer to

Non-Hospital Settings

Ability to Refer to

High-Value Hospitals

• Own extensive

primary care network

• No investments or

partnerships with

convenient care entities

Potential Health System Upside:

• Own comprehensive

multispecialty network

• No existing

relationships with

competitive entities

• High-cost acute

care provider

• Haven’t invested

heavily in alternative

sites of care

• High-cost acute

care provider

• Limited differentiation

on basis of quality,

unique offerings

• Provide clinic staff

• Fill network gaps

• Utilize as low-cost

sites of care for at

risk patients

• Become efficient

specialist referral

of choice

• Build indispensable

specialist network

• Become low-cost

acute care provider

of choice

• Build indispensable

OP procedural

network

• Become low-cost

acute care provider

of choice

• Offer true

differentiated

clinical value

Health Systems Most at Risk:



16

Reaching the Limits of Cost-Shifting?

Trend #2: The Resurgence of the Activist Employer

Source: HCCI, “2016 Health Care Cost and Utilization Report,” January 2018; PwC, “Medical cost

trend: Behind the numbers 2018,” June 2017; Health Care Advisory Board interviews and analysis.

Commercial Spending Growth Driven by Price

Cumulative Percent Change in Price, Utilization 2012-2016 EXCERPT

Medical cost trend: Behind the

numbers 2018

PwC Health Research Institute

In recent years, low utilization growth—

largely driven by increased cost-sharing

with American consumers—has helped

counteract prices that have continued to

rise. However, further cost shifting to

consumers is getting more difficult, so

annual utilization growth could start to

rise in the future. Without low utilization

serving as a counterbalance, rising

prices likely will put upward pressure

on overall healthcare costs. To slow

healthcare spending growth moving

forward, employers will consider

supply-side management strategies—

such as narrower provider networks

and value-based purchasing—that

focus on bringing price, rather than

utilization, down.

0%

5%

10%

15%

20%

25%

-15%

-10%

-5%

0%

5%5%

0%

Pric

e

Utiliza

tion

2012 2013 2014 2015 2016

Prescriptions: 23%

Inpatient: 22%

Outpatient: 17%

Professional: 14%

Prescriptions: 2%

Outpatient: -0.4%

Professional: -3%

Inpatient: -13%



17

Looking to Network Design to Inflect Price

But Not Always Pulling the Traditional Levers


Broad

network

PPO

Direct

contract

with ACO

Payer-led

narrow

network

PPO with

procedural

steerage

Narrow

network

HMO

Expanding Set of Options More Palatable to Employees

PPO with

PCP-led

steerage

Traditional network strategies

Emerging network strategies



18

Some Renewed Interest in Direct ACO Contracting

Limited Signs of Trend Coming to Fruition

Source: Livingston S, “Left Out of the Game: Health Systems Offer Direct-to-Employer Contracting to Eliminate Insurers,”

Modern Healthcare, January 27, 2018; Minemyer P, “Disney Contracts Directly with Orlando Health, Florida Hospital for New

HMO Plans,” Fierce Healthcare, February 6, 2018; Baylor Scott & White Health, “Baylor Scott & White Quality Alliance

Collaborates With Dallas Area Rapid Transit to Improve Quality and Health Care Affordability,” September 27, 2017; Emory,

“Emory Healthcare and Walmart Collaborate on Employee Health, Spine Surgery and Joint Replacement Surgery,” April 19,

2018; PwC, “Medical Cost Trend: Behind the Numbers 2019,” June 2018; Health Care Advisory Board interviews and analysis.

Large Employers Expressing More Interest in Direct ACO Contracts

Considering

Implemented [VALUE]

21%

23%

2014 2018

9%



19

Significant Barriers Remain

Three Factors Inhibiting Provider-Employer Partnerships

Source: CEB Survey of Employers on Future Health Benefits

Changes 2015; Health Care Advisory Board interviews and analysis.

The data we’ve

seen makes it really

clear that no one

organization is the

best at everything

from a cost and

quality perspective.

So a narrow network

built around an anchor

system is a really risky

proposition.”

SVP of Health & Benefits,

Benefits Consulting Firm

Inconsistent

Outcomes

Poor Track

Record

Administrative

Complexity

Some early participants

content to pay

downside penalties in

exchange for volume

of narrow network

Some ACOs focusing

solely on revenue

maximization through

coding, rather than care

or utilization management

Surveyed Employers

Ranking Barrier in Top 3

26%

38%

42%

48%

66% Administrative complexity,

resource constraints

Providers lack sufficient

geographic coverage

Don’t know how

best to proceed

Insufficient economic

rationale

Potential to jeopardize

carrier relationships



20

Payer-Led Solutions an Easier Lift

Multi-State Employers Increasingly Willing to Deploy Regional Networks

Administrative Complexity

Source: Brino A, “Inside Aetna’s Accountable Care Strategy,” April 28, 2015, Healthcare Payer News; Jayanthi A, Rosin T, “50

things to Know About ACOs,” Becker’s Hospital Review, July 7, 2015; Health Care Advisory Board interviews and analysis.

Case in Brief: Banner | Aetna

• Joint venture health plan co-owned by Banner Health, an 18-hospital system based in

Phoenix, Arizona and Aetna, a health insurer with approximately 22.2 million members

• Two companies originally partnered around an ACO arrangement starting in 2012;

expanded to joint venture health plan offering in 2017

Benefit of Aetna’s National Scale Benefits of Banner’s Local Expertise

• National-level infrastructure scale

• Relationships with multi-state

employers, national accounts

• Care management infrastructure

(e.g., local pharmacy teams)

• Existing provider network

(Banner Health Network)



21

• Participating employers saw 8.1% lower medical costs

compared to other SelectHealth large employers

• Participating employees have 4.5% fewer emergency room

visits and a 3.8% lower hospital admission rate

Long-Term Guarantees Help Allay Concerns

Growth Requires Sustained Performance and Commitment Over Time

Poor Track Record

Source: Utah Business, “SelectHealth is Changing the Cost Curve for Employer-Sponsored

Health Insurance,” March 6, 2018; Health Care Advisory Board interviews and analysis.

SelectHealth Share Raising the Bar on Trend Guarantees

SelectHealth

Share launches,

guaranteeing

annual rate

increases at or

below 4% for

2016-2018

SelectHealth Share

guaranteeing

current customers

annual rate

increases at or

below 2% for

2019-2021

2016 2017 2018 2019

Case in Brief: Intermountain Healthcare

• Integrated health system based in Salt Lake City, Utah

• Fully owned SelectHealth Share health plan limits annual rate increase

if employers and consumers meet participation requirements



22

Some Employers Taking a More Selective Approach

Bypassing Narrow Networks in Favor of Procedural Steerage

Inconsistent Outcomes

Source: Grand Rounds; Health Care Advisory Board interviews and analysis.

Case in Brief: Grand

Rounds

• Health care company

based in San Francisco,

California; helps

employers solve

challenges in health care

including: network

optimization, finding

high-quality providers,

and avoiding unnecessary

costs

• Began with Grand Rounds

Beacon, expertise for

complex care

• Now offering Summit,

clinical navigation and

network optimization

Grand Rounds Uses Second Opinions and Network

Optimization to Target High-Cost Procedures

Beacon

Expertise for

complex care

Summit

Clinical

navigation

Service Provided Impact on Cost

• Avoid inappropriate

treatment

• Results in changing

course of care 66% of

the time and $8,900

savings per case

Helps members with complex

needs answer critical care

questions such as: “Is my

diagnosis correct?” and “Does my

physician have the appropriate

expertise to oversee my care?”

Singular clinical entry point for all

health care needs; optimizes

employer’s existing network for

quality, employees guided to most

appropriate resources within it

• Recommended

physicians achieve

10-30% lower cost per

patient compared to

average



23

Encouraging PCPs to Make Cost-Conscious Referrals

Customized Network Dashboard Highlights Cost Differentials

Source: “CareFirst PCMH Program Background, History and Results (2011-2016),” CareFirst

BlueCross BlueShield, Q2 2017; Health Care Advisory Board interviews and analysis.

1) Pseudonym.

2) Patient-Centered Medical Home.

CA

RE

FIR

ST

BLU

EC

RO

SS

BLU

ES

HIE

LD

.

CareFirst’s Red-Yellow-Green PCMH Referral Guide

Campbell1 Medical

Group’s Favorites List

Name NPI Type

Dr. Steven Hawking # Neurology

Dr. Marie Curie # Radiology

Dr. Charles Darwin # Dermatology

Dr. Albert Einstein # Psychology

Dr. Francis Crick # Cardiology

Dr. James Watson # Internal Med.

Dr. Niels Bohr # Nuclear Med.

Dr. Jane Goodall # Behavioral

Dr. Rosalind Franklin # Gynecology

Dr. Ada Lovelace # Hematology

Dr. Gregor Mendel # Genetics

Dr. Jennifer Doudna # Orthopedics

Dr. Maria Mitchell # Pulmonology

Dr. Lise Meitner # Internal

Illustrative Favorites List

PCMH2 PCPs asked to submit

list of preferred specialists

Specialists color-coded and

ranked according to cost

CareFirst generates referral

guide using favorites list



25

Focus on Improved Referrals Gives Clear Results

Substantial Earnings Accrued by Both Parties

1) Patient-Centered Medical Home.

Source: “CareFirst PCMH Program Background, History and Results (2011-2016),” CareFirst

BlueCross BlueShield, Q2 2017; Health Care Advisory Board interviews and analysis.

Focus area that most

influences cost and quality

is the cost effectiveness

of referral patterns

#1

Average incentive award

as percent of increased

fee schedules, 2016

49% Panels receiving

Outcome Incentive

Award, 2016

60%

Net savings produced

by CareFirst’s PCMH

model, 2016

$153M

CareFirst’s PCMH1 Performance Results “If [a payer] were to place

risk on [these physicians],

they typically seek cover

by joining a big hospital

system. Our program

helps them stay

independent, and we

have found that

independence has led

to greater freedom in

judgment about when

and where to refer, and

that in turn drives [down]

a lot of healthcare costs.”

Chet Burrell

CEO, CareFirst



26

CMS Aims to Facilitate Steerage

Using Government Influence to Advance Efforts in the Private Sector

Source: CMS, FY 2019 IPPS Final Rule, August 2, 2018;

Health Care Advisory Board interviews and analysis.

Specific

Proposals

Standardize current approach Expand beyond current efforts

With 2019 IPPS Rule, CMS Looking to Advance Two Key Transparency Goals

2019 Hospital Inpatient

Prospective Payment

System Final Rule

Transparency

Goal

Requires hospitals to:

• Post “standard charges”

(e.g., charge master) online

• Update charge

information annually

• Ensure charges are posted

in machine-readable format

Seeking comment on:

• Other types of price information

hospitals should make public

• Mechanisms for enforcing

hospital compliance

• How CMS can work with third

parties to improve usability

2 1

Efforts designed to

advance private

sector transparency



27

Toward More Meaningful Transparency

Responding to Consumer Needs, Not Government Mandates

Source: 2018 Consumer Financial Experience Survey; Financial Leadership Council

interviews and analysis; Health Care Advisory Board interviews and analysis.

Pre-Service Bill 1

Online Price Estimator 2

Financial Counselor 3

Consolidated Bill 4

Patient Portal 5

Payment Plan 6

Financial Call Center 7

Patients for whom knowing the

entire amount they will owe before

receiving care is somewhat or

extremely important

90%

2018 Consumer Financial Experience Survey

Please rank the following offerings according to how

beneficial they would be to you if you were undergoing

non-emergency surgery.

Pre-Service Bill: A more precise estimate of the total cost of

a procedure sent after scheduling but prior to receiving care,

including what portion will be covered by insurance, what

portion is expected to be paid by the patient, how much must

be paid upon arrival for care, and an explanation of how to

pay the patient portion of the bill.



28

Focus on Medicare Not Fading Anytime Soon

Medicare’s “Benjamin Button” Decade Coming to a Close

Trend #3: The New Performance Standard

Source: MedPAC, “Report to the Congress: Medicare Payment Policy,” March 2018; Health Care Advisory Board interviews and analysis.

0%

10%

20%

30%

40%

50%

60%

2010 2015 2020 2025 2030 2035 2040 2045

Sh

are

of

Me

dic

are

En

roll

me

nt

Year

Ages 65-74 years Ages 85+ years

Age Distribution of Medicare Population, Historic and Projected, 2010-2045

2021: First Baby Boomers Turn 75



29

A New Era for Medicare and Medicaid

Current Administration Setting a Higher Performance Bar

Source: Azar A, “Remarks on Value-Based Transformation to the Federation of American

Hospitals,” HHS, March 5, 2018; Health Care Advisory Board interviews and analysis.

Reduce burdensome

regulations

Advance

value-based models

Promote patient

control of health data

Encourage greater

transparency

Alex Azar and Seema Verma Lay Out Four-Pronged Regulatory Agenda

CM

S.

Ww

sgconnect.

Key Observations

Coverage expansion and coverage

reform no longer a top federal priority,

increasingly delegated to state

governments

The administration is taking an unsentimental,

performance-focused approach to delivery

system reform via payment reform



30

Enrollment Impact Highly Variable State-by-State

Coverage Reform

Source: KFF, “Change in marketplace Enrollment, 2017-2018,” 2018; CMS, Marketplace Open Enrollment

Period Public Use Files for 2017 and 2018; Health Care Advisory Board Interviews and analysis.

-3.3%

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Change in Marketplace Enrollment, 2017-2018

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-3.6% -23.5

Federally-facilitated exchange

State-based exchange

State-based exchange using federal website

12.1%


https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Marketplace-Products/Plan_Selection_ZIP.html

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Marketplace-Products/2018_Open_Enrollment.html


31

Four States Weighing Decision to Join 32 Existing Expansion States

Medicaid Expansion Gets a Second Wind

Source: KFF, “Medicaid Waiver Tracker: Which States Have Approved and Pending Section

115 Medicaid Waivers,” May 16, 2018; Health Care Advisory Board interviews and analysis.

As Repeal Prospects Dim, Some Reconsidering Medicaid Expansion

Expansion

by waiver

Not

participating Participating

As of June 2018

Considering

expansion

Maine

Type: Full

Status: adopted

through 2017 ballot

initiative; however,

Governor resisting

implementation

Virginia

Type: Expansion by waiver

Status: Adopted; lawmakers

finalizing details of 1115

waiver including work

requirements

Nebraska

Type: Full

Status: expansion supporters collecting signatures to place

expansion on November ballot; signatures due July 6th

Utah

Type: Partial

Status: Governor

and legislature

passed bill to

seek approval

for expansion up

to 100% of FPL

Idaho

Type: Full

Status:

pending

signature

verification,

poised to be

ballot

measure in

November



32

Performance at minimum Stage 3

thresholds would not guarantee points

necessary to avoid penalty under new

scoring method

Be Careful What You Wish For

Source: CMS; Health Care Advisory Board research and analysis.

1) Meaningful Use.

Delivery System Reform

Meaningful Use Overhaul-in-Brief

Performance-based scoring method

replaces previous all-or-nothing MU

thresholds requirement

Some Stage 3 MU measures eliminated,

and new measures are introduced

Promoting Interoperability (PI) Programs

focus on information exchange between

providers and electronic access to health

information for patients

Rebranded MU to PI

Reconfigured Scoring

Refreshed Measures

MU1 Overhaul Introduces Flexibility, But Not Necessarily Easier

44.5 PI Points

Earned

50 PI Points

Required

to Avoid

Penalty

110 Possible

PI Points

Available

in 2019



33

1

2

Congress Slows MACRA1 Roll-Out in 2018

1) Medicare Access and CHIP Reauthorization Act.

2) Merit-based Incentive Payment System.

MIPS2 Poised to Become the New SGR?

Source: CMS, Medicare Access and CHIP Reauthorization Act”; Dickson V, “CMS Will Give Providers Flexibility on MACRA Requirements,”

Modern Healthcare, September 2016; CMS, Medicare Program; CY 2018 Updates to the Quality Payment Program; and Quality Payment Program:

Extreme and Uncontrollable Circumstance Policy for the Transition Year, November 2017; Health Care Advisory Board interviews and analysis.

Implications for Providers

Likely slows ramp-up

of MIPS; provides

more transition time

for those who need it

Lower threshold may result

in fewer dollars for top MIPS

performers, those who have

invested heavily in preparation

Does not change

long-term incentives

to consider advanced

APM participation

Under 2018 MACRA Rule Under Bipartisan Budget Act

CMS must weigh cost

category at 30% in 2019

CMS can weigh cost category

between 10-30% through 2021

CMS must set 2019 performance

threshold at 2018 mean/median

CMS can gradually increase

performance threshold through 2021

Congress Grants CMS Two New Flexibilities to Control Pace of MIPS Roll-Out



34

ACOs Poised for Major Overhaul

Source: “Next Generation Accountable Care Organization Model (NGACO Model),” January 18,

2018; CMS, “2018 Medicare Shared Savings Program Organizations,” January 2018; CMS,

“Speech: Remarks by CMS Administrator Seema Verma at the American Hospital Association

Annual Membership Meeting,” May 7, 2018; Health Care Advisory Board interviews and analysis.

1) As of January 2018.

2) Medicare Shared Savings Program.

3) Next Generation ACO.

460 Participants1

58 Participants

8 Participants

38 Participants

55 Participants

MSSP Track 3 MSSP Track 2 MSSP Track 1+ MSSP2 Track 1 NGACO3

CMS Zeroes in on Upside-Only Models

2018 ACO Participation, by Model

“…The majority of ACOs, while receiving many waivers of federal rules and

requirements, have yet to move to any downside risk. And even more

concerning, these ACOs are actually increasing Medicare spending, and the

presence of these “upside-only” tracks may be encouraging consolidation in the

market place, reducing competition and choice for our beneficiaries…Our

system cannot afford to continue with models that are not producing

results.”

Seema Verma, CMS Administrator



35

Pushing Providers Out of the Shallow End

Proposed MSSP Rule Would Eliminate Upside-Only Track 1

Source: CMS, “Accountable Care Organizations--Pathways to Success,”

August 9, 2018; Health Care Advisory Board interviews and analysis.

1) Previous Track 1 participants must begin participation at Level B; previous

participants in risk-based models (e.g. Track 2, 3) may not participate in BASIC track.

Current

Model

Proposed

Model

Program Overhaul Would Reduce Upside-Only Participation From Six Years to Two

Illustrative Participation Pathways to Maximize Time in Upside-Only Models

Enter MSSP Track 1

Share rate up to 50%,

no losses

Renew MSSP Track 1


no losses

Year 7 Year 3

Enter BASIC Track1

Level A Level B Level C Level D Level E

Share

rate up to

25%; no

losses

Share

rate up to

25%; no

losses

Share

rate up to

30%; 30%

loss rate

Share

rate up to

40%; 30%

loss rate

Share

rate up to

50%; 30%

loss rate

Enter ENHANCED Track

Share rate up to 75%;

Shared loss rate between 40-60%

(1 minus sharing rate)

Enter Track 1


no losses

Renew Track 1


no losses

Enter Track 2 or 3

Share/loss rate up to 60%

(track 2) or 75% (track 3)



36

More Risk, More Quickly for Hospital-Led ACOs

CMS Proposes Distinction Between High and Low Revenue ACOs

Source: CMS, “Accountable Care Organizations--Pathways to Success,”

August 9, 2018; Health Care Advisory Board interviews and analysis.

1) ACO whose total Medicare Parts A and B FFS revenue of its ACO participants based on revenue

for the most recent calendar year for which 12 months of data are available, is at least 25 percent

of the total Medicare Parts A and B FFS expenditures for the ACO’s assigned beneficiaries

High Revenue ACOs1 Low Revenue ACOs

May renew in BASIC track for

second agreement period

Likely subject to lower

maximum losses

Must move to ENHANCED track

in second agreement period

Likely subject to higher

maximum losses

“…we are proposing to redesign the Shared Savings Program to…promote

free-market principles by encouraging the development of physician-only and rural

ACOs in order to provide a pathway for physicians to stay independent…”

CMS Proposed Rule, August 9, 2018



37

A Clear Pattern Emerging

Physician Groups Lead the Pack in ACO Performance

Source: CMS, Shared Savings Program: Program Data, 2016; Health Care Advisory Board interviews and analysis.

2016 MSSP Results, by Entity Type

Type of ACO Number

of ACOs

Spending below

target, savings

Spending below

target, no savings

Spending above

target

Physician-Only 134 45% 22% 33%

Hospital 226 23% 26% 52%

FQHC 58 31% 28% 42%

PAC Facility 8 38% 13% 51%

All 432 31% 25% 44%




Editable Road Map



are needed


If 4, delete row 5.






for all levels






NEED MORE SECTIONS?




into this deck.






39

Outmigration a Unifying Theme

Private and Public Sectors Converging on Common Solutions


Public Sector Private Sector

The Rise of the

Hospital-less IDN

The Resurgence of

the Activist Employer

Vertical mega-mergers

focusing in on lower-cost

delivery networks

Recognizing the limits of

cost-shifting, employers

actively pursuing levers to

inflect health care prices

1

2

The New Performance

Standard

New administration raising

the bar on delivery system

reform, while delegating

coverage reform to states

3

Key Themes From

the New Era of Outmigration

The primacy of the

independent physician

Data-driven utilization

management

Heightened focus

on input costs

Active steerage over

hands-off delegation



40

Confronting a False Choice


Resist Pricing Pressure Compete on Basis of Value

• Rationalize acute care services

and footprint

• Invest in ambulatory and sub-

acute care assets

• Tier physician network and

redirect volumes to high-value

physicians within own network

• Lock up remaining acute

care market

• Double down on physician

practice acquisition, particularly

within vulnerable specialties

• Leverage scale to reduce cost

• Pursue out-of-market acute

care acquisitions to attain multi-

regional economies of scale

• Use physician acquisitions

to improve network

comprehensiveness and

integrated value proposition

Shift Traditional Strategies

Focus to Value Creation



41

Committing to Lower Regional Health Care Costs

COPA1 Allows Wellmont and Mountain States Health Alliance to Merge

Source: Conduent Community Health Solutions Healthy Communities Institute, “Ballad Health

Population Health Improvement Plan,” 2017; Health Care Advisory Board interviews and analysis.

1) Certificate of public advantage.

Case in Brief: Ballad Health

• New health system based in TN,

comprised of Mountain States

Health Alliance, a 13-hospital

system and 7-hospital system,

Wellmont Health System

• To overcome regulatory scrutiny,

sought approval for COPA which

requires combined system to

subject itself to 10 years of state

oversight, ensuring mergers’

provide sufficient value to

community to overcome

anticompetitive concerns

• COPA requires significant

investment in access, population

health, and interoperability

Sample of Ballad Health’s

Commitments under COPA:

• $75 million committed over 10 years to address 26

population health metrics targeting “Big Four”:

obesity, physical inactivity, tobacco use, and

substance abuse

• $140 million committed to expansion of services,

including $85 million for behavioral health and $28

million for rural health services

• $150 million committed to implementation of a

Common Clinical IT Platform

• “A comprehensive and enforceable set of conditions

that will ensure the rate of growth in healthcare

prices will be lower in our region than the

national average”



42

?

Horizontal Consolidation Still Valid Option

But Providers Must Define Geographic Limits of Value Proposition

Source: Kaufmann Hall, Hospital Merger and Acquisition Activity Continues Upward Momentum, According to Kaufman Hall Analysis; American

Hospital Association, “2016 Chartbook: Trends Affecting Hospitals and Health Systems;” Health Care Advisory Board interviews and analysis.

A Range of Horizontal Growth Strategies

Single-Market Scale Regional Expansion

and Diversification

Super-Regional

Dominance

Extended

National Footprint

Historic Ambition Emerging Ambition

Key Strategic Considerations

• At what level do we want to compete with new delivery models?

• Do we have the brand, consumer loyalty to compete outside our existing market?

• Are we able to leverage or buy the technology and physical infrastructure needed to achieve

economies of scale while operating disparate entities?



43

Some Systems Even Considering Global Reach

Ascension Taking Supply Chain Global with Ramsay Partnership

Source: Ascension, “Ascension and Ramsay Health Care to form global supply chain

joint venture,” May 2, 2018; Health Care Advisory Board interviews and analysis.

International Sourcing Streamlined Processes

• Largest non-profit health system in the U.S.

• Operate 2,500 sites of care, including

141 hospitals, in 22 states

• In 2017, reported $552.7 million in

operating income on net operating

revenue of $22.6 billion

• Largest for-profit hospitals operator in

Australia and France

• Own 230 hospitals and outpatient surgery

centers in six countries

• In 2017, reported net profit of $451.5 million

on net operating revenue of $6.5 billion

Global Health Care

Purchasing Organization

Two Key Goals

Improve Internal Financial

and Operational Performance

Offer a Competitive Alternative for Supply

Chain Sourcing to External Providers



44

Securing the Freedom to Choose

Degree of Influence Required

Deliver on Market

Demand for Value

Compete on the basis of unit or episodic price affordability where necessary by instilling

required level of cost-discipline to control rate of inpatient and outpatient cost growth relative

to revenue growth

Generate Differentiated

Form of Value

Build the

High-Value Network

Price

Advantage

Three Viable Paths Forward For Delivering on Value

Product

Advantage

Network

Advantage

Develop unique, industry-leading clinical capabilities by investing

in clinical innovation and focusing on niche treatments and

populations, or (consumer-obvious) superior quality

Build comprehensive,

integrated offering with

seamless patient access

or cross-market system

services




45

Uniquely Positioned To Be Part of the Solution

Hospitals the Frontline for Pressing National, Global Health Emergencies

Source: Hernandez D, “ Heroes of Las Vegas: the Hospital Staff Called to Action After the Mass Shooting,” November 16, 2017; NBC

News, “Opioid Crisis: A Hospital on the Front Lines, Determined to Save Children,” October 13, 2017; NPR, “Nurses, Hospitals Prepared

for Hurricane Irma to Ensure Patient Care Continues,” September 10, 2017; Health Care Advisory Board interviews and analysis.

“Nurses, Hospitals

Prepared For Hurricane

Irma To Ensure Patient

Care Continues”

“Opioid Crisis: A

Hospital on the Front

Lines, Determined to

Save Children”

“Heroes of Las Vegas:

the hospital staff

called to action after

the mass shooting



46

State of the Union 2018

14 Insights Informing Provider Strategy

1. The mere threat of outside disruption

is catalyzing industry transformation.

2. In a marked shift, the private sector is now

leading the charge on transformation.

3. Vertical mergers are taking aim at pharma

and acute care spending in a bid for relevance.

4. The reintegration of the PBM will have a

negligible impact on most providers due to

low likelihood of inflecting pharma price.

5. Efforts to build lower-cost networks

will create winners and losers among incumbent

hospitals and health systems.

6. Recognizing the limitations of HDHPs in

inflecting price, employers are pivoting

from delegation to active steerage.

7. Employers increasingly prefer steerage at the

procedural level to steerage at the network level.


8. For purchasers, physician independence—

combined with meaningful transparency—

may be more important than financial risk.

9. As Medicare not only grows—but ages—case

mix shifts will exacerbate payer mix challenges.

10. Local efforts—including provider action—will

ultimately be more meaningful in inflecting

coverage levels than federal policy.

11. Providers are trading reductions in reporting

burden for higher performance standards.

12. Taking a page from the private sector, CMS

is eyeing low-risk, physician-led solutions.

13. The need for scale to deliver value is

no longer an option—it’s a mandate.

14. Competing on the basis of price will require

unprecedented levels of cost discipline.


Documents

State of the Union 2018 - AzHFMA€¦ · State of the Union 2018 A New Era of Disruption, Competition, ... a long-term orientation. ... distributor Global Health Care Logistics Specialist