Competition and Strategies �in Minnesota’s Provider �

and Payer Markets

Presented to:Minnesota Medical Group Management Association

July 28, 2017Allan Baumgarten, J.D., M.A.

Overview

v ACA gave a push to trends already in motion:�  Consolidation of health plans, provider systems� Move to narrow networks, high deductible

health plans�  Renewed interest in hospital-owned health plans

v What is different about Minnesota? “We excel in recounting all the ways that we excel”

Presentation Outline -1v Key health plan trends

v Growth and profitability by line of businessv Disruption in state programsv Transition from Medicare Cost plans

v Key provider system trends –focus on growthv Continued profitability with declining inpatient daysv Significant capital investmentv Further consolidation and expansion of market

boundaries

Presentation Outline - 2v Strategies of health plans

v Focus on niche lines of business/growth opportunities

v Narrow networks and risk-sharingv Strategies of provider systems:

v Consolidation, partnerships and convenient carev Focus on small clinicsv Emergence of regional systemsv Health insurance plans

v Outlook for 2017v Looking beyond the ACA coverage expansions – the big

picture of likely changes

Health Plan Trendsv Growth, profitability by line of business

v Evolution of Minnesota HMOsv Medicare Advantage and Cost plans

v  Transition for 2018: uncertainty and opportunityv Individual plans, narrow (or high performance)

networks and risk-sharingv  State public programs

v Administrative shortcomings – compare to Michiganv Impact of competitive bid

Health Plan Trends -2

v Decline of full risk capitation arrangementsv Impact of limited risk contracts for Medicarev Incentives under commercial contracts

v Challenges of individual market – declining enrollment, even with rebates

v Role of national health plans: v Goal of new competition: Possible entry of national, for-

profit HMO companies through new plans or acquisitions: what is the likelihood?

Health Plan Trends:�HMO Enrollment, 1987-2016

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Commercial Insured

Self-funded Employer (Est)

Public Programs

Medicare

Enrollment in Individual Plans, 2013-2017

2013 Mar-14 Mar-15 Mar-16 March-170

50,000

100,000

150,000

200,000

250,000

300,000

350,000

HMO

PPO

Enrollment in Public Programs, 1989-2017

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

5/1/

17

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Blue Plus

UCare

HealthPartners

County HIOs

Hennepin Health

Medica

Other

Provider System Trends

v Evolution of systems, market sharev Continued strong profitabilityv Declining or flat inpatient utilizationv Expanding geographic reach, moving toward

population health and risk-sharing; also covering bets for volume incentives

Largest Hospital Systems � in Minnesota by Revenues

$3,115,066,513

$2,966,580,029

$2,862,845,059

$2,234,177,344

$1,650,580,496

$1,431,401,372

$1,064,566,699

$956,503,870$831,624,000

$800,627,280$730,224,727

$232,076,123

$272,337,613

$504,702,663

$275,393,591

$109,305,794

$35,864,005

$46,108,699

$184,882,103$40,273,000

-$3,051,084$38,842,115

7.5%

9.2%

17.6%

12.3%

6.6%

2.5%

4.3%

19.3%4.8%

-0.4%5.3%

Fairview/HealthEastFairview/HealthEast

AllinaAllina

Mayo ClinicMayo Clinic

Sanford HealthSanford Health

EssentiaEssentia

HealthPartnersHealthPartners

AveraAvera

CentraCareCentraCare

Hennepin HealthHennepin Health

North MemorialNorth MemorialChildren'sChildren's

Net PatientNet PatientRevenuesRevenues Net Income Net Income Margin MarginSystem

Largest Hospital Systems � in Minnesota by Inpatient Days

1,888

1,653

1,637

1,188

944

890

598

523479

411340

471,098

425,966

364,625

253,780

225,118

177,099

126,557

124,027110,236

101,11186,850

68.5%

70.6%

61.0%

58.7%

65.9%

56.2%

58.0%

65.0%63.1%

73.5%71.1%

Fairview/HealthEastFairview/HealthEast

AllinaAllina

Mayo ClinicMayo Clinic

Sanford HealthSanford Health

Health PartnersHealth Partners

EssentiaEssentia

CentraCareCentraCare

AveraAveraNorth MemorialNorth Memorial

Children'sChildren's

Hennepin HealthHennepin Health

Set Up BedsSet Up Beds Inpatient daysInpatient days OccupancyOccupancySystem

Twin Cities Hospital Market Share by Revenue, 2015

Fairview/HealthEast (30.1%)

Allina (25.8%)HealthPartners (14.7%)

Hennepin County (8.5%)

North Memorial (8.2%)

Children's (7.5%)Other (5.2%)

Net Income for Twin Cities Hospitals, 2001-2015

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-200,000,000

-100,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000 Allina

Fairview

HealthEast

HealthPartners

Children's

Park Nicollet*

Hennepin County

North Memorial

Other

TOTAL

Inpatient Days in Twin Cities Hospitals, 2005-2015

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Allina

Fairview

HealthPartners

Park Nicollet*

HealthEast

North Memorial

Children's

Hennepin County

Other

Health Plan Strategies

v Limited networks, high deductible health plans

v Provider payment increases tied to performance, participation in primary care home models, care coordination

v Expansion of Medicaid plans into individual and small business

v Transition to Medicare Advantage

Provider System Strategies-1

v Expansion/Consolidation/Capital Investment; Going beyond traditional local market boundaries�  Impact of Fairview/HealthEast merger�  Case of HealthPartners - UnityPoint�  Challenge for independent hospitals – recent

examples of Grand Itasca, District Onev Convenient care – retail, urgent care and

free-standing emergency departments

Provider System Strategies - 2

v Moving toward population health and Triple Aim; preparing for increased performance-based payment and risk sharing while also covering bets for volume incentives

v Strategic partnerships – Clinically integrated networks – do they add value?

v National networks: Mayo, Cleveland Clinic, MD Anderson

Provider System Strategies 3

v Clinically integrated networks: Where is the extra value?

v Accountable Care Organizationsv Insurance plans – what is the outlook for

provider-sponsored health plans? v Look at largest provider systems and their

strategies: Fairview, HealthPartners, Allinav Transition for Medicare Cost to full-risk:

new opportunities for providers?

Provider Payment Trends

v Most payment still tied to discounted fee-for-service – rewarding volume

v CMS goal: 50% of Medicare payments based on quality by 2018. MACRA pushes movement to alternative payment methods

v UnitedHealthcare goal: increase payments tied to value to $65 billion in 2018

v What is actually happening for commercial insurance?

Provider System Strategies 4:�Smaller Clinics

v Impact of MACRA, general trend toward performance-based payment

v Participation in data reporting on quality and cost measures

v Impact of trends toward narrow networks, high deductible plans

Solo Practitioners With Highest Diabetes Care Ratings

Outlook

v Continued consolidation and partnerships for both health plans and provider systems

v Impact of Republican bills – look beyond reversing ACA coverage expansions to:v Undoing Medicaid expansion, slashing $$v Loss of group consumer protectionsv Medicare ACOs, bundled paymentsv Medicare change to premium supportv Medicaid block grants to states

For Additional Information

Allan Baumgartenwww.AllanBaumgarten.com4800 W. 27th StreetMinneapolis, MN 55416v E-mail: Baumg010@umn.eduv 952/925-9121v Twitter @allanbaumgarten