American Society for Clinical Laboratory Science - Michigan Wednesday, March 30, 2016 at the Kellogg Conference Center– East Lansing, MI

•• Origins of Laboratory NetworksOrigins of Laboratory Networks •• Origins of Laboratory NetworksOrigins of Laboratory Networks 1

•• Current Network Status/SuccessCurrent Network Status/Success •• Current Network Status/SuccessCurrent Network Status/Success 2

•• Networks in the ValueNetworks in the Value--Based Based FutureFuture

•• Networks in the ValueNetworks in the Value--Based Based FutureFuture 3

Today’s Overview Today’s Overview

•• Origins of Laboratory NetworksOrigins of Laboratory Networks •• Origins of Laboratory NetworksOrigins of Laboratory Networks 1

Laboratory testing Laboratory testing prior to the mid 60’sprior to the mid 60’s

Healthcare in the Healthcare in the ’70’s’70’s--’90’s’90’s

• Medicare expenditures were increasing by an average of 17% annually.

• By the early/mid eighties, Medicare expenses had grown so rapidly that there was significant pressure in Congress to reduce costs

Healthcare in the Healthcare in the ’70’s’70’s--’90’s’90’s

Healthcare in the ’80’sHealthcare in the ’80’s--’90’s’90’s

• DRG’s

• Introduction of Managed Care

• HMO’s

1985 1990 1995

Average

Length of Stay

(8.5 days)

Average Days

Length of Stay

(5.5 days)

Outpatient

Visits

(200,000)

Outpatient

Visits

(475,000)

Typical Hospital Trend Under Managed Care(Vanderbilt - Arch Pathol Lab Med; vol 121, July 97, 689 - 691)

Average length of stay has bottomed out while outpatient visits soar

Healthcare in the ’80’sHealthcare in the ’80’s--’90’s’90’s

1985 1990 1995

Inpatient

Tests

Outpatient

Tests

Total

Tests

Typical Hospital Trend Under Managed Care(Vanderbilt - Arch Pathol Lab Med; vol 121, July 97, 689 - 691)

Shows high reliance most hospital labs have on inpatient testing

Healthcare in the ’80’sHealthcare in the ’80’s--’90’s’90’s

Laboratory Laboratory OutreachOutreach

Laboratory Laboratory OutreachOutreach

Facility Contract

• Hospital-based service – Includes blanket medical

services

– Charge-master or fee schedule-based

• Billing process/form – UB04 (CMS 1450)

• Patient out-of-pocket responsibility is typically higher

Ancillary Contract

• Non-hospital based service – “Independent” laboratory

– Fee schedule-based

• Billing process/form – CMS 1500

• Patient out-of-pocket responsibility is typically lower

How do Payers Contract for Lab Services?How do Payers Contract for Lab Services?

Health Plan Perception of the Hospital Health Plan Perception of the Hospital

LaboratoryLaboratory

Independent 55%

POL 6%

Other 6%

HL1 3%

HL2 3%

HL3 2%

HL4 1%

HL5 1%

HL6 1%

HL8 1%

HL9 1%

HL10 1%

HL11 1%

HL12 1%

HL15 1%

HL17 1%

HL21 1%

HL23 1%

HL31 1%

HL32 1%

HL34 1% HL35 0%

HL36 0%

HL37 0%

HL40 0% HL42

0%

HL49 0%

HL50 0% Hospital fragmentation

(33%)

How How can can a hospital laboratory get access to a hospital laboratory get access to the ancillary the ancillary

contracts?contracts?

Community Laboratory NetworksCommunity Laboratory Networks

• Alliances between community laboratories to provide broad geographic coverage

• Network activities include securing payer contracts and test sharing

• Present ‘Value’ that is meaningful to the Plans – Hospital lab networks under single contracts

– Make it easy for physicians and patients to use the hospital lab: • Reasonable fees

• Coherent billing

Why Establish a Lab Network?Why Establish a Lab Network?

• Increases the ‘value’ of hospital lab outreach

– Regional foot print vs. single entity

• Reduces the fragmentation represented by individual hospitals and therefore reduces health plan leverage

• Reduce plan steerage and hurdles to contract participation; evens the competitive field

Networks increase the value of the hospital lab to health plans, employer groups and patients

Other

POLs

LabCorp

Quest

Indpendent Labs (Excl LCA/QD)

Hospitals

Hospitals

Hospitals

Hospitals

Hospitals

Hospitals Hospitals

Hospitals Hospitals Hospitals Hospitals Hospitals Hospitals Hospitals Hospitals Hospitals Hospitals

LABORATORY OUTREACH MARKET

17

Formation of JVHL, Inc.Formation of JVHL, Inc.

•• Current Network Status/SuccessCurrent Network Status/Success 2

GLN/JVHL Provider RosterGLN/JVHL Provider Roster

Over 130 participating

hospital-affiliated laboratories

in MI, OH, and IN

498 conveniently located

patient service centers

40 professional pathology

groups

Network SuccessNetwork Success

A synergistic relationship:

• A network is successful when members have effective laboratory outreach programs

• Network member outreach programs become more successful when network contracts aid in growth and expansion

• With changing payment models, members maximize their access to covered lives for future sustainability

Health Plan Agreements:Health Plan Agreements:

• 1994 – 2

• 2015 – 27 (8 Capitated; 19 FFS)

Covered Lives:Covered Lives:

• 1994 – 80,000

• 2015 – 4,700,000

Net Revenue for Lab Services:Net Revenue for Lab Services:

• 1994 - $1,000,000

• 2015 - $128,000,000

GLN/JVHL Operating Expenses:GLN/JVHL Operating Expenses:

• <3% (Over 97% net revenues are

returned to members

Network SuccessNetwork Success

Nationwide Network CoverageNationwide Network Coverage

Pacific Pacific NWNW

GeorgiaGeorgia

NJLA,NJLA, AllSpireAllSpire

OhioOhio

GLN/JVHLGLN/JVHL >130 >130 membersmembers

27 27 contractscontracts 4.7M 4.7M covered covered liveslives

$128 million in annual revenue from contracts

NECLANECLA 20 20 membersmembers

MontanaMontana

Chicago Chicago AreaArea

MissouriMissouri

SCLNSCLN

CSLNCSLN

CARENTCARENT 9 members, 15 hospitals9 members, 15 hospitals

$10M revenue$10M revenue from contractsfrom contracts

Lab Network Participation: Lab Network Participation: Key Key Drivers Drivers going going

forwardforward

• Healthcare “Reform”

• Narrow Networks

• Health Plan Tactics and Leverage

• Impact of Consumerism

Healthcare Reform:Healthcare Reform: Shift from Volume to ValueShift from Volume to Value

• March 23, 2010

• Goals

• Decrease the

number of

uninsured

Americans

• Reduce the

cost of health

care

Shift from Volume to ValueShift from Volume to Value

• Triple Aim Goals

– Improve Patient

Experience

– Improve Population Health

– Decrease Costs

Healthcare ReformHealthcare Reform : How : How will it affect Lab will it affect Lab

Contracting?Contracting?

• Population Health Management

• Accountable Payment Model’s

• Medicare

• Health Insurance Exchanges

– Will the changes affect the lab

Population Health Management (PHM)Population Health Management (PHM) The Future of Healthcare Paradigm ShiftThe Future of Healthcare Paradigm Shift

Today: Reactive and Volume-based

The Future: Proactive and Value-based

Drivers

Health Reform

Affordability Gap

Triple Aim

Weight of the Nation

Reimbursement

Encourage me!

Educate me!

Treat me

holistically!!

I will pay you!

Individuals are accountable for their health with the health system as their health advocate.

Population health management

provides strategies for

improving health care

quality, access, and outcomes,

ultimately improving the health

of an entire population

Overview of Accountable Overview of Accountable

Payment Payment ModelsModels

1) Center for Medicare and Medicaid Innovation. 2) Marketing and Planning Leadership Council interviews and

analysis.

Key Attributes Value-Based Purchasing

Bundled Payments

Accountable Care Organizations (ACOs)

Definition

Pay-for-performance program differentially rewards or punishes hospitals (and likely ASCs and physicians in coming years) based on performance against predefined process and outcomes performance measures

Purchaser disburses single payment to cover certain combination of hospital, physician, post-acute, or other services performed during an inpatient stay or across an episode of care; providers propose discounts, can gain share on any money saved

Network of providers collectively accountable for the total cost and quality of care for a population of patients; ACOs are reimbursed through total cost payment structures, such as the shared savings model or capitation

Purpose

Create material link between reimbursement and clinical quality, patient satisfaction scores

Incent multiple types of providers to coordinate care, reduce expenses associated with care episodes

Reward providers for reducing total cost of care for patients through prevention, disease management, coordination

29

Source

ACO FrameworkACO Framework

Patient-Centered

o Teaching (and empowering) patients to manage their own care

Comprehensive

o A healthcare team that is wholly responsible

Coordinated

o Across disparate healthcare systems

Accessible

o For both access to care and clinical records

Committed to Quality and Safety

ACO Impact to LaboratoriesACO Impact to Laboratories

• Hospital ACO model

• Physician ACO model

• Health Plan driven ACO

– Is laboratory part of the discussion?

– How will lab be valued and reimbursed?

– Cost: Can your hospital lab compete on price?

What Do ACO’s NeedWhat Do ACO’s Need

from the Laboratory?from the Laboratory?

• Need for Patient-Centric results in longitudinal record

• Data integration

Data Integration

• Analysis of lab and diagnostic imaging data using predictive modelling for early identification of disease for improved population health and value-based care

• Disease identification to diagnose and confirm for individual patient/member intervention

• Determination of treatment plan based upon lab and diagnostic test results

• Identification of whether treatment is working using data for compliance surveillance

• Clinical decision making based on timely, comprehensive results which can ultimately improve outcomes

Medicare Changes due to ReformMedicare Changes due to Reform

M E D I C A R E

Source: http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8323.pdf

35

Medicare Advantage GrowthMedicare Advantage Growth

M E D I C A R E

Medicare Advantage GrowthMedicare Advantage Growth

36

M E D I C A R E

M E D I C A R E

Source: CMS -Better, smarter, healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value. [News release. 1.26.2015.]

Medicare moving towards value basedMedicare moving towards value based

Private Private PayorsPayors moving towards value basedmoving towards value based

P A Y OR S

Health Insurance ExchangesHealth Insurance Exchanges

Public Exchange Enrollment Exceeds 8 MillionPublic Exchange Enrollment Exceeds 8 Million

Bumpy Rollout Did Not Dampen Projections

Source: Radnofsky L and Nelson CM, “Obama Says Health-Insurance Enrollees Reach 8 Million,” Wall Street Journal, April 17, 2014, available at: www.wsj.com; CBO, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf; Demko P, “UnitedHealth to Expand Exchange Presence as Profits Dip,” ModernHealthcare, April 17, 2014, available at: www.modernhealthcare.com; Cheney K and Norman B, “Insurers See Brighter Obamacare Skies,” Politico, April 15, 2014, available at: www.politico.com; Health Care Advisory Board interviews and analysis.

Projected and Actual Enrollment in Qualified Health Plans

2014-2019

8.0M

6.0M

13.0M

22.0M

24.0M 25.0M 25.0M

2014 2015 2016 2017 2018 2019

Actual Enrollment Projected Enrollment

Unchanged despite flawed rollout

40

P U B L I C

H I X

333 Public exchange

operators in 2015

Source: McKinsey & Company

Low-Wage Employers Most Active Today, but Skilled Industries in the Wings

Source: Accenture, “Are You Ready? Private Health Insurance Exchanges are Looming;” privatehealthexchange.com; Health Care Advisory Board interviews and analysis.

Huge Growth Forecast for Private ExchangesHuge Growth Forecast for Private Exchanges

3M

9M

19M

30M

40M

2014 2015 2016 2017 2018

Potential Growth Path for Private Exchange Enrollment

Prominent Employers Using Private Exchanges

For Active Employees: For Retirees: (Medicare Advantage, Medigap plans)

Private exchange operators as of October

2014

172

41

Projected to surpass number of public exchange enrollees

P R I V A T E

H I X

Individuals Gravitating Toward Leaner PlansIndividuals Gravitating Toward Leaner Plans

Metal Tiers of Plans Chosen on Public Exchanges

October 2013 to April 2014

42

Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and Benefit Design in the New Health Insurance Marketplaces,” May 2014; eHealth, “Health Insurance Price Index Report for Open Enrollment and Q1 2014,” May 2014; Health Care Advisory Board interviews and analysis.

Public HIX Participants Choosing High DeductiblesPublic HIX Participants Choosing High Deductibles

Annual Deductibles of Individual Plans Selected on eHealth

13%

3%

11%

5%

30%

39% $6,000+

$3,000-$5,999

$2,000-$2,999

$1,000-$1,999

$500-$999 < $500

October 2013 – March 2014

43

Public Exchange Plans Mainly Narrow NetworkPublic Exchange Plans Mainly Narrow Network Majority of Public Exchange Plans Exclude

>30% of Largest Hospitals

Excludes 30% of 20 largest hospitals

Excludes 70% of 20 largest hospitals

Effect of Exchanges on Effect of Exchanges on LaboratoriesLaboratories

• Medicaid and Basic Health Plan option – Major shift to commercial plan administration

– Nearly 100% HMO coverage

– Price will be primary driver

• Commercial Insurance – ESI shift: Employees will seek low cost plans (>47% HMO)

– Shift to “Narrow Networks”

– Remaining ESI plans will require greater differentiation in products/services Lab competition will require BOTH price and service

Narrow NetworksNarrow Networks: New Leverage for Health Plans: New Leverage for Health Plans

• Increased acceptance by employer groups: – Currently >20% (16% in 2010) – Workers with high deductible plans ~20% ( up from

4% in 2006)

• Benefit cost for narrow networks must be 20-25% lower than open access products…therefore reimbursement will be lower

• New products are being branded as “accountable care partnerships” or as “high performance networks”

Narrow Network Acceptance

Health Plan Health Plan Tactics and LeverageTactics and Leverage: : Can They Steer Can They Steer

Lab?Lab?

• Employers buying into narrow networks:

– Home Depot case study:

• >331,000 employees (>700,000 potential insured patients)

• Benefit managed by Aetna; Quest Diagnostics is exclusive in-network lab provider

• Cost shifting

– High deductibles and coinsurance (OOP expense)

– In many benefit plans, OON utilization is NOT counted towards the annual OOP maximum

Health Plan Leverage: Health Plan Leverage: Can They Steer Lab?Can They Steer Lab?

• “Take it or leave it” rates

– Anthem BCBS of Indiana

– Uniform fee schedule for hospital testing

– “Godfather-like offer that they can’t refuse.”

– Rate cuts of 50-80%

– “…a test that may have cost $400 at an out-of-network laboratory would cost as little as $45 for a patient…reducing their out-of pocket costs from as much as $120 to $4.50.”

Laboratory Industry Report, Vol 15, Iss 10, May 21, 2015

Impact of ConsumerismImpact of Consumerism: : ((OOP) costsOOP) costs

• Deductibles:

– Majority of medium to small employer-sponsored plans carry a deductible of >$1000 per enrollee

– High deductible plan product utilization is on the rise

• Co-pays/Coinsurance

– In network: 20% is common

– Additional co-pay for hospital outpatient services

• OON Benefits

– Cost of premium is reduced for plans with little to no OON benefit

Bottom Line: Costs will drive consumers to low cost providers

Consumers Seeking Accurate EstimatesConsumers Seeking Accurate Estimates

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

Compared to Not Knowing How Much the Visit Costs Until Receiving the Bill:

Would rather have to go to another clinic for lab tests,

x-rays, or pharmacy

Would rather drive 20 minutes to the clinic

Would rather pay $50 out of pocket

Would rather pay $100 out of pocket

92%

76%

74%

38%

52

So what does this mean for So what does this mean for

Laboratories in a ValueLaboratories in a Value--Based Based

World?World?

•• Networks in the ValueNetworks in the Value--Based Based FutureFuture 3

New Paradigm of HealthcareNew Paradigm of Healthcare

• Move towards accountable care environments

• Shift from fee-for-service payment models to

value-based systems

Results from diagnostic testing provide critical information

to aid providers in screening, detection, diagnosis and treatment.

65%

25%

10%

% of Costs

Poly Chronic

At Risk/Singular Procedure

Minor Health Issues

5%

20%

75%

% of Members

Poly Chronic

At Risk/Singular Procedure

Minor Health Issues

Targeting the Right MembersTargeting the Right Members

Data: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999–2010. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999–2010; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999–2010 (April to April).

Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2011.

• 45% of the population has at least one chronic disease

• #1 cause of death & disability

Chronic DiseasesChronic Diseases

• Accounts for 75 cents of every $1.00 of healthcare expense

• Responsible for 7 of 10 deaths in the U.S. • 26 million Americans have diabetes including 7

million who do not know it

Sources: 2010 World Economic Forum and AON Hewitt 2012 Health Care Survey

• 69% Percent of adults are overweight

• 36% Percent of adults are classified as Obese

• $147 Billion annual cost

• For every 100 employees, Obese workers have: – 184 lost workdays (14 lost workdays for normal-weight)

– 12 Worker’s Comp claims (5.8 workers comp claims for normal-weight)

Obesity Related StatsObesity Related Stats

NOTE: Obesity-related conditions include heart disease, stroke, type 2 diabetes and certain types of cancer, some of the leading causes of preventable death.

Data: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999–2010. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999–2010; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999–2010 (April to April).

Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2011.

Costs of Lab TestingCosts of Lab Testing

• Lab portion of

healthcare spending is

approximately <3%.

• In overall costs,

ordering a few more or

less does not make a

big difference.

• However, what

happens to the patient

downstream based on

those results can be

expensive (imaging,

surgery, hospital

stays, etc.).

Source: Medicare Payment Advisory Commission (MedPAC). A Data Book: Health Care Spending and the Medicare Program, June 2011.

>70% of Medicare $$ are spent on only 14% of patients who have 6 or more

chronic conditions.

Costs of Lab TestingCosts of Lab Testing

Source: Medicare Payment Advisory Commission (MedPAC). A Data Book: Health Care Spending and the Medicare Program, June 2011.

Increased Lab Testing is a vital component Increased Lab Testing is a vital component of early chronic disease that can save

significant $$.

Beneficiaries with diabetes account

Source: Congressional Diabetes Caucus

MC Beneficiaries with diabetes account

for 32% of MC spending.

Source: Congressional Diabetes Caucus

Consider the Hgb A1c costs about $13

$1,852

$5,955

$26,894 $27,630

$53,659

Costs of Lab TestingCosts of Lab Testing

What we know about lab testing…What we know about lab testing…

• Instrumental in providing screening

tests needed for preventive care.

• Critical to disease detection and

diagnosis.

• Vital in monitoring disease progression

and treatment efficacy.

Source:

1. Lab Industry Strategic Outlook 2011: Market Trends and Analysis. G2 Intelligence. 2011

2. Pantanowitz et al. “Medical laboratory informatics.” Clin Lab Med 2007; 27:823-43

3. Communicating the Laboratory Value to Healthcare, Clinical Laboratory News 2004

2.3%

75%

95%

of a health system’s costs consist of laboratory testing1

of the objective information in a patient’s medical record is laboratory2

of the downstream costs in any hospital are influenced by laboratory results3

The Critical Role of the LaboratoryThe Critical Role of the Laboratory

Importance of LaboratoryImportance of Laboratory

Laboratory testing is a key regulator of other healthcare costs

Hospital Labs can impact patient outcomes by:Hospital Labs can impact patient outcomes by:

• Promote most appropriate test selection options.

• Add applicable interpretations that help avoid adverse events.

• Point to the most appropriate treatment protocol.

• Increase speed and accuracy of correct diagnoses

• Monitor patient health to prevent disease

• Provide rapid turnaround times to reduce hospital LOS

THE VALUE OF A LABORATORY IN A CAPITATED ENVIRONMENT

FIXED MONTHLY REVENUE

Laboratory Pharmacy Surgery Inpatient Outpatient Transplant

MONTHLY EXPENSES

▸ Every test, visit and procedure is an expense and is paid for out of the same lump sum

▸ Appropriate testing and downstream savings reduce overall treatment costs and enable hospital to retain more revenue

MONTHLY EXPENSES

Laboratory Pharmacy Surgery Inpatient Outpatient Transplant

THE VALUE OF A LABORATORY IN A CAPITATED ENVIRONMENT

Hospital Lab Outreach: Hospital Lab Outreach: What Are the Challenges?What Are the Challenges?

TODAY’S CHALLENGES • Exclusion from insurer/employer benefit products • Health plan steerage; that is, payers discourage patients from using the

hospital lab citing excessive out of pocket costs • Rapid Expansion of Narrow Networks

– 70% Narrow or Ultra-Narrow • Exclusion from a Narrow Network • Increasing consumer responsibility for cost

– Deductables, Co-Pay, Co-Insurance • Traditional Medicare shifting to Medicare Advantage • “Quality” incentives to drive provider behavior

TOMORROW’S CHALLENGES • Exclusion from capitated networks that are value-based for

reimbursement vs. FFS payments

Does your system have a strategy for tomorrow?

Laboratory NetworksLaboratory Networks Laboratory NetworksLaboratory Networks

The Strategic Value of Networks The Strategic Value of Networks

Today and into the FutureToday and into the Future

• Laboratory networks increase the value of the hospital laboratories to health plans, employer groups and patients – We must educate the stakeholders on our true value

• Especially true for ACO participation

• Networks help reduce health plan steerage and remove hurdles to contract participation for hospitals; evens the competitive field – Gains access to covered lives which is essential for patient centered

care across the healthcare continuum (PHM)

• Laboratory networks ease the transition from a volume-based (price) to a value-based payer environment. – Secure relationships with patients, providers and payers today – Leverage utilization management protocols and demonstrate savings

today – Establish experience, reputation and processes for success in the

future

Value Value of of Networks to Health PlansNetworks to Health Plans • No interference to national contracts • Networks reduce fragmentation represented by individual

hospitals – Changes view of laboratory from single laboratory outreach entity to

regional footprint

• Reduces plan leakage attributable to regional, non-contracted labs

• Decreases the cost of hospital-based testing services; move from % charges to ancillary fee schedule for Outreach patients

• Introduces utilization management practices across a broad network of participating labs

• Increases member access to preferred in-network services

72

Who Can Network?Who Can Network?

• Start locally, build regionally-

– A network can start with as little as 2 community hospital systems

• Specialized hospitals (e.g. children’s) can participate-

– The core of the network is usually comprised of ‘routine’ testing laboratories

• It is okay to compete! (within the network)

QUESTIONS?

• Mike Hiltunen MBS, MT(ASCP)

• m.hiltunen@charter.net

• (616) 499-2944

• www.greatlakeslabnetwork.com

Contact Information:Contact Information: