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Health Care Advisory Board. The Emerging Era of Choice. Restructuring Health System Strategy for the Retail Revolution. “Cord Cutters” and “Cord Nevers ” Giving Up Broad Networks. - PowerPoint PPT PresentationTRANSCRIPT
Health Care Advisory Board
The Emerging Era of ChoiceRestructuring Health System Strategy for the Retail Revolution
©2014 The Advisory Board Company • advisory.com • 28603A
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“Cord Cutters” and “Cord Nevers” Giving Up Broad Networks
Source: Experian Marketing Services, “Cross-Device Video Analysis,” April 17, 2014, available at: www.experian.com; Manjoo F, “Comcast vs. the Cord Cutters,” The New York Times, February 15, 2014, available at: www.nytimes.com; Health Care Advisory Board interviews and analysis.
An Industry Built on a House of Cards
Paying for More Than You Use
“This is the battle hymn of the cord cutter: You are paying too much for television, and you aren’t watching most of what you’re paying for.”
Farhad Manjoo, The New York Times
U.S. Households With Internet But No Cable, 2013
6.5%U.S. Adults Age 18-34 With Netflix or Hulu But No Cable, 2013
18.1%
©2014 The Advisory Board Company • advisory.com • 28603A
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Most Hospitals Staying Afloat Through Cross-Subsidization
Source: American Hospital Association, “Trendwatch Chartbook 2014,” available at: www.aha.org; Health Care Advisory Board interviews and analysis.
Revisiting a Tenuous Business Model
Hospital Payment-to-Cost Ratio, Private Payer, 2012
149%Hospital Payment-to-Cost
Ratio, Medicare, 2012
86%
• Above-cost pricing
• Robust fee-for-service volume growth
• Steady price growth
• Only one component of our total business
Commercial Insurance Public Payers
Below CostAbove Cost
Traditional Hospital Cross-Subsidy
©2014 The Advisory Board Company • advisory.com • 28603A
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Entrenched Payers, Insulated Patients Unlikely to Upset Status Quo
Source: Health Care Advisory Board interviews and analysis.
Cross-Subsidy Depends on Inefficient Markets
Established Provider
• Commercial pricing growth steady
• Network inclusion likely for most plans
• Patient volume depends largely on referral patterns
Entrenched Payer
• High employer switching costs impede competition
• Handful of broad networks satisfy majority of passive employers
• Excess cost growth easily passed on to employers through premium increases
Price-Insulated Patient
• Open access to broad provider network standard
• Modest cost-sharing obscures true prices
• Physician recommendation dominates point-of-care decisionmaking
Assumptions Underlying Provider Growth Strategy
©2014 The Advisory Board Company • advisory.com • 28603A
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Four Years Post-Reform, New Paradigm Finally Becoming Clear
Source: Health Care Advisory Board interviews and analysis.
The Retail Revolution
Medicare Reforms and the Transition to Risk
Coverage Expansion and the Rise of Individual Insurance
Activist Employers and the Primacy of Value
1
2
3
Major Themes Reshaping Provider Strategy
©2014 The Advisory Board Company • advisory.com • 28603A
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Medicare Payment Cuts Becoming the Norm
Medicare Reforms and the Transition to Risk
Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act,” September 12, 2011; CBO, “Bipartisan Budget Act of 2013,” December 11, 2013, all available at: www.cbo.gov; Health Care Advisory Board interviews and analysis.
1) Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services.
2) Disproportionate Share Hospital.
Public-Payer Reimbursement Still in the Crosshairs
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
($4B)($14B)
($21B) ($25B)($32B)
($42B)
($53B)
($64B)
($75B)
($86B)
ACA’s Medicare Fee-for-Service Payment Cuts
Reductions to Annual Payment Rate Increases1
$260BHospital payment
rate cuts, 2013-2022
Office of the Actuary, CMS
“Notwithstanding recent favorable developments… Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation”
Not the End of the Story
$56B $151BReduced Medicare and Medicaid DSH2 payments, 2013-2022
Reduced Medicare payments due to sequestration and 2013 budget bill
©2014 The Advisory Board Company • advisory.com • 28603A
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More Mandatory Risk On the Horizon
Source: The Advisory Board Company, “Mortality Rates Are Only One of Many VBP Changes to Come,” December 4, 2013, available at: www.advisory.com; CMS, “Request for Information on Specialty Practitioner Payment Model Opportunities,” February 2014, available at: www.innovation.coms.gov; Health Care Advisory Board interviews and analysis.
1) Includes Value-Based Purchasing Program, Hospital Readmissions Reduction Program, and Hospital-Acquired Conditions Program.
Steady Shift Toward Risk-Based Payment
FY 2013 FY 2014 FY 2015 FY 2016
30%
30%
30%
25%
70%
45%
20%10%
25%
30%
40%
20% 25%
Clinical Process
Patient Experience
Outcomes of Care
Efficiency
Medicare Value-Based Purchasing Program Performance Criteria
6%
Other Mandatory Risk Programs
Hospital-Acquired Condition Penalties
Readmission Penalties
No Trivial Thing
Weight in Total Performance Score
Medicare revenue at risk from mandatory pay-for-performance programs2, FY 2017
©2014 The Advisory Board Company • advisory.com • 28603A
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Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based Options
Source: CMS, “More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for Medicare Beneficiaries,” December 23, 2013; Health Care Advisory Board interviews and analysis.
More Providers Taking the Hint
Medicare ACO Program Entrants
1 in 10Medicare FFS beneficiaries attributed to an ACO
Series1
32
375
114
106
123
2012 MSSP1 Cohorts
2013 MSSP Cohort
2012 Pioneer
ACO Model
Total2014 MSSP Cohort
The Broader Picture
20.5MAmericans enrolled in or attributed to Medicare, Medicaid, or commercial ACOs
46M-52MPatients treated by ACOs as of April, 2014
626Total ACO count, including commercial and Medicaid ACOs, May 2014
1) Medicare Shared Savings Program
©2014 The Advisory Board Company • advisory.com • 28603A
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Performance, Persistence Closely Correlated
Source: Centers for Medicare and Medicaid Services, http://innovation.cms.gov/Files/x/PioneerACO-Fncl-PY1PY2.pdf; “San Diego-Based Sharp HealthCare Pulls Out of Pioneer ACO Program,” California Healthline, August 28, 2014; Health Care Advisory Board interviews and analysis.
1) Dropped out after second year; second-year performance not reported
Some Pioneers Changing Course
Pioneer ACO Performance
First-year performance
Second-year performance
Dropped out after program year
Gross Savings as Percentage of Benchmark1
-5.6% (min)
7.1% (max)
Alison Fleury, CEOSharp HealthCare ACO
“The model was financially detrimental…despite favorable underlying utilization and quality performance”
©2014 The Advisory Board Company • advisory.com • 28603A
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Pending Program Updates Crucial for Future Participation
Source: Centers for Medicare and Medicaid Services, “New Affordable Care Act tools and payment models deliver $372 million in savings, improve care,’ September 16, 2014; Health Care Advisory Board interviews and analysis.
1) Includes one participant’s $4M repayment of shared losses
Medicare Shared Savings Program a Mixed Bag
Medicare Shared Savings Program ACO PerformanceFirst Performance Year
$297MShared savings earned by MSSP ACOs in first performance year1
53
52
115
Held Spending Below Benchmark, Earned Shared Savings Payment
Held Spending Below Benchmark, but Did Not Earn Shared Savings
Did Not Hold Spending Below Benchmark
Will ACOs have any ability to prevent network leakage?
Issues to Watch for in Updated Regulations
Will second-term ACOs really have to bear downside risk?
Will beneficiaries be attributed to ACOs prospectively?
Will benchmarks be calculated differently?
Will the share of savings paid to ACOs be higher?
©2014 The Advisory Board Company • advisory.com • 28603A
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Policymakers and (Some) Providers Angling for Higher-Octane Options
Source: H.R. 5558, http://welch.house.gov/uploads/ACO%20Bill%20Text.pdf; Health Care Advisory Board interviews and analysis.
Transition to Risk Hardly Stalled
The Bigger Question: What Should Medicare ACO Programs Be?
Training grounds for other risk models? (e.g., Medicare Advantage)
Adaptive environments involving progressively more risk?
Permanent middle grounds between fee-for-service, capitation?
Bill in Brief:“The ACO Improvement Act”
• Bipartisan bill (H.R. 5558) introduced by Representatives Diane Black (R-TN) and Peter Welch (D-VT)
Key Features
• ACOs would receive capitated payments, not shared-savings adjustments
• Patients would proactively select a primary care provider rather than be retroactively attributed
• ACOs could discount primary care services to encourage network loyalty
©2014 The Advisory Board Company • advisory.com • 28603A
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Shift Signals Individualization of the Medicare Market
Source: Jacobson G et al., “Projecting Medicare Advantage Enrollment: Expect the Unexpected?” Kaiser Family Foundation, June 12, 2013, available at: www.kff.org; Hollander C, “CMS to Increase Medicare Advantage Pay Rate By 0.4%,” ModernHealthcare, April 7, 2014, available at: www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
Medicare Advantage Gaining Momentum
Projected Medicare Advantage Enrollment
29.5% of Medicare beneficiaries
10.4M
19.0M
2009 2020
Unambiguous incentive for population health management
Provider Benefits Over Shared Savings Models
Greater provider control over network integrity
Less frequent patient churn
©2014 The Advisory Board Company • advisory.com • 28603A
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But Every Silver Lining Has Its Cloud
Coverage Expansion and the Rise of Individualized Insurance
Source: Gallup, “In U.S., Uninsured Rate Holds at 13.4%,” http://www.gallup.com/poll/178100/uninsured-rate-holds.aspx; Department of Health and Human Services, “Impact of Insurance Expansion on Hospital Uncompensated Care Costs in 2014,” http://aspe.hhs.gov/health/reports/2014/UncompensatedCare/ib_UncompensatedCare.pdf; Health Care Advisory Board interviews and analysis.
ACA (and Recovery) Making a Dent in Uninsurance
18.0%(highest on record)
13.4%(lowest on record)
2013 Q3 2014 Q3
Percentage of U.S. Adults Without Health Insurance
Employer-sponsored coverage grows
Medicaid expansion begins
Insurance exchanges launch
$5.7BReduction in uncompensated care, 2014
A Bargain Still Unbalanced
$14BACA-related reductions in Medicare fee-for-service payment, 2014
vs.
©2014 The Advisory Board Company • advisory.com • 28603A
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23 States Still Foregoing Expansion
Medicaid Expansion
Source: The Advisory Board Company, “Where the States Stand on Medicaid Expansion,” September 4, 2014, available at: www.advisory.com; CMS, “Medicaid and CHIP: July 2014 Monthly Applications, Eligibility Determinations and Enrollment Report,” September 22 2014; HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; PricewaterhouseCoopers, “Medicaid 2.0: Health System Haves and Have Nots,” Health Care Advisory Board interviews and analysis.
1) Estimate- does not include CT or ME.2) Children’s Health Insurance Program.
Medicaid Expansion Contentious—and Consequential
Increase in Medicaid, CHIP2 enrollment,October 2013-July 2014
8M1
Advisory Board estimate of impact of Medicaid expansion on typical hospital’s 10-year operating margin projection
2.4%
State Participation in Medicaid Expansion
Participating Not Currently Participating
As of October 2014
5%Average Medicaid enrollment increase across non-expansion states
PricewaterhouseCoopers
“For-profit health systems…report far better financial returns through the first half of the year than expected, owed in large part to expanded Medicaid”
Financial Impact
©2014 The Advisory Board Company • advisory.com • 28603A
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Responsibility Migrating to Payers, Providers, Patients
Source: Health Care Advisory Board interviews and analysis.
Expanding or Not, States Pushing Medicaid Innovation
Provider-Led Care Management
E.g., Oregon’s “Coordinated Care Organizations”
Exchange-Based Privatization
E.g., Arkansas’ “Private Option”
Full Medicaid Managed Care
E.g., Florida’s Statewide Medicaid Managed Care Program
Traditional State-Run Program
Competing Philosophies on Medicaid Reform
©2014 The Advisory Board Company • advisory.com • 28603A
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Exchange-Based Medicaid Drawing Interest, But Broader Uptake Uncertain
Source: Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” October 8, 2014; Government Accountability Office, “Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost Concerns,” August 8, 2014; Health Care Advisory Board interviews and analysis.
Arkansas Turning to Private Market
Arkansas residents eligible for expanded Medicaid coverage select plans on exchange
Arkansas’s “Private Option”
Using federal matching funds, State pays full cost of silver plan; beneficiary pays no premium
Beneficiary holds private insurance; cost sharing based on existing Medicaid rules
Program Likely Not Budget-Neutral
1
2
3$778M
Increase in cost of expansion under exchange system relative to GAO estimate of cost under traditional Medicaid
CMS Wary of Other Modifications
Pennsylvania application for similar waiver denied over inclusion of work requirements
Arkansas proposal to require individual health savings account contributions still pending
©2014 The Advisory Board Company • advisory.com • 28603A
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Aggregate Numbers in Line With Expectations; Enrollee Mix Older
Insurance Exchanges
Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Cheney K and Haberkorn J, “Obama: 8 Million Enrolled Under ACA,” Politico, April 17, 2014, available at: www.politico.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.
1) Numbers do not add precisely due to rounding.
One Year In, Insurance Exchanges Generally on Track
October to December
January to February
March Total
2.2M
2.1M
3.8M 8.0M
Initial Public Exchange Enrollment1
2013-2014
7.0M(Original CBO
Projection)
91%Of enrollees still enrolled as of September 2014
25M Projected exchange enrollment by 2018
Enrollees aged 18-34
28%
©2014 The Advisory Board Company • advisory.com • 28603A
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Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Health Care Advisory Board interviews and analysis.
1) Data from federally-facilitated exchanges only.
Individuals Gravitating Toward Leaner Plans
20%65%
9% 5%2%
Bronze
Level 1: Choice of Metal Tier
GoldPlatinum
Catastrophic
Silver
Premium Sensitivity Manifest at Two Levels
Factors Influencing Metal Level
Deductible
Copays
Out-of-Pocket Maximum
Non-Essential Services Covered
Network Composition
Level 2: Plan Choice Within Metal Tier
43%
21%
36%Any Other Plan
Lowest-Cost Plan
Second-Lowest-Cost Plan
All Metal Levels1
Scope of Non-Essential Benefits
Negotiated Payment Rates to Providers
Utilization Patterns, Trends
Premium Levers Beyond Benefit Design
Negotiated Rates
©2014 The Advisory Board Company • advisory.com • 28603A
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Aggressive Cost Sharing Potentially Troublesome for Provider Strategy
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.
High Deductibles Dominating Exchange Markets
$6,000+
$3,000-$5,999
Individual Deductibles Offered On Public Exchanges2014
Median
16%
16%
39%
30%
$1,000-$2,999
<$1,000
Individual Deductibles Chosen on eHealth Individual Marketplace
$2,500 $6,250Maximum
High out-of-pocket costs discourage appropriate utilization
Challenges for Providers
Large patient obligations lead to more bad debt, charity care
Price-sensitive patients more likely to seek lower-cost options
©2014 The Advisory Board Company • advisory.com • 28603A
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Payers Betting Individual Consumers Value Affordability Over Broad Choice
Source: Gottleib S, “Hard Data On Trouble You’ll Have Finding Doctors in Obamacare,” Forbes, March 8, 2014, available at: www.forbes.com; McKinsey & Company, “Hospital Networks: Configurations on the Exchange and Their Impact on Premiums,” December 2013; Health Care Advisory Board interviews and analysis.
1) “Pathway X” bronze plans compared to leading PPO plan offering across nine states.2) Comparing products by the same carrier of the same tier, across 7 carriers.
Premium Sensitivity Supporting Narrow Networks
Median premium reduction directly attributable to network narrowing2
26%
Breadth of Hospital Networks in Exchange Plans20 Urban Markets, December 2013
Exclude 30% of 20 largest hospitals
Average Percent of PPO Network Specialists Included in Exchange Plan Networks1
Anthem BlueCross BlueShield, 2014
OB/GYNs Orthopedists Oncologists Cardiologists
62% 59% 59%48%
38%
32%
30%
“Ultra-Narrow”
“Narrow”
Broad
Exclude 70% of 20 largest hospitals
100% PPO Network Breadth
©2014 The Advisory Board Company • advisory.com • 28603A
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Is It Worth Winning Share With Unsustainable Premiums?
Source: Crostby J, “Top Selling Insurer on MNsure Won’t Be Back This Year,” Minneapolis Star Tribune, September 16, 2014; Health Care Advisory Board interviews and analysis.
1) Pre-exchange individual market
Proper Risk Pricing Still Essential
Low Premiums Moving the Market… …but Perhaps Not the Right One
2%Market share in 20121
58%Market share in 2014
• PreferredOne offers lowest Silver plan premium in country;
• wins massive market share on Minnesota exchange (MNsure)
• PreferredOne exits exchange
• Will still offer individual coverage through other successful channels with different risk profile
2014:
Marcus MerzCEO, PreferredOne
“Continuing to provide this coverage through MNsure is not sustainable.”
2013:
©2014 The Advisory Board Company • advisory.com • 28603A
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Robust Marketplaces Beginning to Develop
What Next for the Exchanges?
Source: “UnitedHealth to Expand Exchange Presence as Profits Dip,” ModernHealthcare, April 17, 2014; Department of Health And Human Services, “Health Insurance Marketplace Will Have 25 Percent More Issuers in 2015,” September 23, 2014; Health Care Advisory Board interviews and analysis.
Increased Insurer Participation Driving Competition
Federally-Facilitated Marketplace (36 states)
State-Based Marketplace (8 states reporting)
191
61
248
67
2014 2015
Issuers Offering Qualified Health Plans
Estimated reduction in second-lowest-cost silver premium of one new issuer entering market
Gail Boudreaux, EVPUnitedHealth Group
“We had a very modest footprint in 2014. We do have a bias to increase that participation in 2015. […] The size of the overall market is positive.”
Competition At Work
4%
©2014 The Advisory Board Company • advisory.com • 28603A
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Second Round of Open Enrollment Will Reveal True Dynamics
What to Watch for on the Exchanges
Trends We’ll Be Watching:
Enrollment:
• Are the technical glitches really fixed?
• Will higher individual mandate penalties change anyone’s mind?
• Will the young and healthy turn out in force?
Choice and Mobility:
• How will automatic reenrollment affect consumer behavior?
• Will last year’s bargain hunters regret choosing high deductibles and narrow networks?
• Can plans that raise premiums maintain market share?
Market Reaction:
• How aggressively will providers court the newly insured?
• Will employers dump workers onto the exchanges?
1
2
3
©2014 The Advisory Board Company • advisory.com • 28603A
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Will Employers Maintain Coverage, and How?
Activist Employers and the Primacy of Value
Employer-Sponsored Insurance at a Crossroads
“Activation”“Abdication”
Convert to Self-Funding
Pros:
• Close control over network design
• Exemption from minimum benefits requirements
Cons:
• Greater financial risk
• Network assembly challenging
Shift to Private Exchange
Pros:
• Responsiveness to employee preference
• Predictable, defined contributions
Cons:
• Disruption to benefit design
• Risk employees may underinsure
Spectrum of Options for Controlling Health Benefits Expense
Drop Coverage
Pros:
• Escape from cycle of rising premium costs
Cons:
• Employer mandate penalty
• Labor market disadvantage
Source: Health Care Advisory Board interviews and analysis.
©2014 The Advisory Board Company • advisory.com • 28603A
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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 Exchanges
2014 2015 2016 2017 2018
3M9M
19M
30M
40M
Potential Growth Path for Private Exchange Enrollment
Private exchange operators as of October, 2014
172
Prominent Employers Using Private Exchanges
For Active Employees: For Retirees: (Medicare Advantage, Medigap plans)
©2014 The Advisory Board Company • advisory.com • 28603A
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Understanding Why Private Exchanges Matter
Beyond the Buzzword
Crucial Differences Between Private Exchanges, Traditional Group Markets
Individuals can switch networks, insurance carriers on their own
On a private exchange, In the group market,
Changes in network or carrier may require employer-level decisions
Provider networks must be broad enough to serve entire workforce
Defined benefit plans insulate employees from differences in cost
Narrow networks can appeal to specific employee segments
Defined contribution plans expose employees to cost differences
Source: Health Care Advisory Board interviews and analysis.
©2014 The Advisory Board Company • advisory.com • 28603A
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Small Employers Also Beginning to Show Interest
Source: Gabel JR et al., “Small Employer Perspectives On The Affordable Care Act’s Premiums, SHOP Exchanges, And Self-Insurance,” Health Affairs, 32(11): 2032-39; Health Care Advisory Board interviews and analysis.
1) 3 to 50 FTEs.
Self-Funded Strategies Steadily Gaining Ground
ACA Benefits Standards Avoidable Through Self-Funding
Modified Community Rating
Essential Health Benefits
Guaranteed Issue and Renewability
Medical Loss Ratio Requirements
26%of small employers’1 brokers have discussed with them the possibility of self-insurance
2000 2005 2010 201440%
45%
50%
55%
60%
65%
70%
49%
54%
59%61%
Percentage of Covered Workers in Self-Funded Plans
©2014 The Advisory Board Company • advisory.com • 28603A
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Custom Network Builders Offering Local Solutions
Source: Innovative Healthware Services, Inc., Arnold, MD; Health Care Advisory Board interviews and analysis.
Hands-On Network Management Increasingly Feasible
Case in Brief: Innovative Healthware Services
• Private company based in Arnold, Maryland that markets software solutions for PPOs, TPAs, providers, and payers
• “Custom Provider Network” limits a self-funded employer’s network to selected list of hospitals, physicians, and ancillary care
Self-funded employer submits list of physicians, hospitals, and ancillary care
IHS negotiates cost-effective provider agreements using Medicare-based pricing
IHS continually evaluates network providers to “ensure competitive price contracts”
IHS1 “Custom Provider Network” Solution
Innovative Healthware Services
“Working with the TPA and employer, we replace the ‘one size fits all’ network with a cost-effective customized network created around the needs of your business and your employees.”
©2014 The Advisory Board Company • advisory.com • 28603A
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Exporting Walmart’s Centers of Excellence Program
Source: Walmart, “Walmart, Lowe’s And Pacific Business Group On Health Announce A First Of Its Kind National Employers Centers Of Excellence Network,” October 8, 2013; Health Design Plus, “Health Design Plus & Employers Health Announce National Centers of Excellence Initiative,” June 11, 2013; Chen C, “Providers Using Bundled Payments, Quality to Entice Employers,” Health Data Management, March 11, 2014,; Health Care Advisory Board interviews and analysis.
Aggregators Pooling Employers, Providers
Case in Brief: Health Design Plus• Third-party administrator based in
Hudson, Ohio that creates Centers of Excellence (COE) programs for self-funded employers
• Assembled Walmart’s centers of excellence bundled payment network
Two New Employer Coalition Partnerships
Pacific Business Group on Health(San Francisco, California)
• 60 large employer members
• Employees in all 50 states
• 10M covered lives
Employers Health Coalition(Canton, Ohio)
• 300+ employer members with employees in all 50 states
• 3M covered lives
Bruce ShermanMedical Director,
Employers Health Coalition
“It would be prohibitive for a small employer…When you spread the administrative costs over a number of employers, it becomes more attractive.”
©2014 The Advisory Board Company • advisory.com • 28603A
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Source: Intel Corporation, “Employer-Led Innovation for Healthcare Delivery and Payment Reform: Intel Corporation and Presbyterian Healthcare Services,” Santa Clara, California; Evans M, “Slimming Options,” Modern Healthcare, July 13, 2013, available at: www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
1) Presbyterian Healthcare Services.
Some Providers Taking Lead in Network Assembly
Case in Brief: Intel Corporation
• Large multinational employer headquartered in Santa Clara, California
• Entered into narrow-network contract with Presbyterian Healthcare Services, an 8-hospital system in New Mexico, for employees at Rio Rancho plant
5,400 Covered lives in contract
$8-10M Projected savings, 2013-2017
Intel-Presbyterian Partnership
Customized Care OfferingsAddition of depression screening into customary provider workflow
Infrastructure for Care ManagementConversion of Intel’s on-site clinic into full service patient-centered medical home
Narrowing of Health Plan OptionsIntel reducing number of health plan options from 8 to 4; two remaining plans are narrow networks of PHS1 providers
Shared AccountabilityUpside and downside risk for health care spending compared to projected target
©2014 The Advisory Board Company • advisory.com • 28603A
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Multiple Opportunities to Appeal to Decision-Makers
Source: Health Care Advisory Board interviews and analysis.
Providers Must Win Share at Two Points of Sale
Network Selection Care DecisionNetwork Assembly
Decision Processes Shaping Provider Choice
Being chosen by payers, employers, exchange operators, custom network builders, and accountable physician entities to be offered as a network option
Being chosen by patients, referring physicians at the point of care
Being chosen by individuals during plan enrollment
Secure Enrolled Lives Win Share of Volumes
1 2
©2014 The Advisory Board Company • advisory.com • 28603A
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Source: Health Care Advisory Board interviews and analysis.
Recognizing New Channels for Growth
Established Provider
Care Delivery Network
Relationship-Based Referring Physician
Cost-Conscious Referring Physician
Price-Sensitive Consumer
Entrenched Payer
Vulnerable Payer
Activated Employer
Exchange Operator
Custom Network Builder
Secure Enrolled Lives Win Share of Volumes
Traditional Growth Channels
Key Decision-Makers in Traditional and New Growth Channels
Individual Insurance Shopper
Accountable Physician Entity
New Growth Channels
©2014 The Advisory Board Company • advisory.com • 28603A
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New Dynamics Unfamiliar in Health Care, But Not in Broader Economy
Source: Health Care Advisory Board interviews and analysis.
All Signs Point to a Retail Market
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
©2014 The Advisory Board Company • advisory.com • 28603A
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Delivering Desirable Network Attributes at Low Cost
Source: Health Care Advisory Board interviews and analysis.
Redefining the Value Proposition
Competitive Unit Prices
Strategic Imperatives:
• Avoid reactive position vis-a-vis price cuts, transparency
• Radically restructure cost structures to sustain lower unit prices
Total Cost Control
Strategic Imperatives:
• Develop population health model to control cost trend
• Clearly communicate total cost advantage to potential purchasers
Geographic Reach and Clinical Scope
Strategic Imperatives:
• Match service portfolios, footprints to target purchasers
• Explore partnership strategies that strengthen market presence
Clinical and Service Quality
Strategic Imperatives:
• Present unimpeachable clinical credentials to wholesale buyers
• Emphasize access, experience advantages to individual consumers
Low Cost Desirable Network Attributes
Four Imperatives for Health Systems
©2014 The Advisory Board Company • advisory.com • 28603A
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Delivering Desirable Network Attributes at Low Cost
Source: Health Care Advisory Board interviews and analysis.
Redefining the Value Proposition
Competitive Unit Prices
Strategic Imperatives:
• Avoid reactive position vis-a-vis price cuts, transparency
• Radically restructure cost structures to sustain lower unit prices
Total Cost Control
Strategic Imperatives:
• Develop population health model to control cost trend
• Clearly communicate total cost advantage to potential purchasers
Geographic Reach and Clinical Scope
Strategic Imperatives:
• Match service portfolios, footprints to target purchasers
• Explore partnership strategies that strengthen market presence
Clinical and Service Quality
Strategic Imperatives:
• Present unimpeachable clinical credentials to wholesale buyers
• Emphasize access, experience advantages to individual consumers
Low Cost Desirable Network Attributes
Four Imperatives for Health Systems
©2014 The Advisory Board Company • advisory.com • 28603A
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Care Choices, Network Assembly Dynamics Driven by Premium Pressure
Source: Health Care Advisory Board interviews and analysis.
Low Premiums Shaping More than Network Selection
Premium Sensitivity at Point of Coverage
Price Sensitivity at Point of Care
Total Cost Scrutiny in Network Assembly
Consequences of Premium Sensitivity
Health Care Executive
“Our price is now given by the market. Our business is changing from cost-based pricing to price-based costing.”
©2014 The Advisory Board Company • advisory.com • 28603A
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Cost-Conscious Behavior Affecting Pillars of Profitability
Source: KFF, “2012 Employer Health Benefits Survey,” available at: www.kff.org; New Choice Health, “New Choice Health Medical Cost Comparison,” available at: www.newchoicehealth.com; Healthcare Blue Book, “Healthcare Pricing,” available at: www.healthcarebluebook.com; Kliff S, “How much does an MRI cost? In D.C., anywhere from $400 to $1,861,” Washington Post, March 13, 2013, available at: www.washingtonpost.com; Health Care Advisory Board interviews and analysis.
1) High-deductible health plan.2) $2,086; based on KFF report of average HDHP
deductible.3) $733; based on KFF report of average PPO deductible.
Price Sensitivity at the Point of Care
Consumers Paying More Out-of-Pocket
Fall within HDHP deductible2
$150 $275 $400$900 $1K
$2K
$6K
$9K
$18K $730
$900
$1,269
$2,183
$411
• Price-sensitive shoppers will be acutely aware of price variation
• MRI prices range from $400 to $2,183
MRI Price Variation Across Washington, DC
Fall within PPO deductible3
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Low-Cost Access Potentially Just the Beginning
Source: Canales MW, “Wal-Mart Opening Clinic in Cove,” Killeen Daily Herald, April 18, 2014, available at: www.kdhnews.com; Health Care Advisory Board interviews and analyais.
Walmart Bringing Everyday Low Prices to Health Care
• Two nurse practitioners provider primary care services on site
• Clinic refers to external specialists, hospitals as appropriate
Service:
Pricing:
$4 $40For Walmart employees
For Walmart customers
Hours:
Care Clinic Model
Weekdays
8AM-8PM
Saturday
8AM-5PM
Sunday
10AM-6PM
Labeed DiabPresident of Health & Wellness
Walmart
“Our goal is to be the number one health-care provider in the industry.”
130M 150MAnnual emergency department visits
Weekly visits to Walmart stores
Probably Worth Paying Attention
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Network Assemblers Looking at More Than Unit Price
Source: Health Care Advisory Board interviews and analysis.
Broadening Our Concept of Cost Advantage
Price Cut
Improve efficiency to offer lower fee schedule
Trend Control
Implement care management to control cost growth trend
Degree of Cost Control
Two Cost-Focused Strategies for Appealing to Network Assemblers
Low Unit Price Total Cost Control
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Baseline Year 1 Year 2
Source: Overland D, “CareFirst Medical Home Saves More in Second Year,” FierceHealthPayer, June 7, 2013, available at: www.fiercehealthpayer.com; Health Care Advisory Board interviews and analysis.
1) Per member per month.
Creating Cost-Conscious PCPs
Case in Brief: CareFirst BlueCross BlueShield• Not-for-profit health services company serving 3.4 million
members in Maryland, D.C., and northern Virginia
• In 2011, launched PCMH program providing opportunities for virtual panels of 10-15 PCPs to earn bonuses based on quality and total cost metrics
• Provides PCPs with color-coded rankings of specialists based on risk-adjusted PMPM costs
Eligible PCPs participating80%
Members covered by PCMH program1M
Average pay increase for PCPs receiving bonuses
29%
“Virtual panel” of 10-15 PCPs
Panel shares in savings if risk-adjusted PMPM cost is below target
PMPM Cost Target
Actual PMPM Cost
Total cost target set by trending baseline risk-adjusted PMPM cost by average regional cost growth
CareFirst PCMH Total Cost Incentive ModelRisk-adjusted PMPM1 Cost
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Total Cost Transparency Key to Referral Changes
Source: Health Care Advisory Board interviews and analysis.
Steering Care to Most Efficient Specialists
Specialists Color-Coded By Total Cost
PCP Virtual Panels
Employed Specialist A
(Red)
Employed Specialist B
(Yellow)
Independent Specialist C
(Green)
Hospital A Hospital B
Percent of panels earning bonuses, 201266%
Difference in risk-adjusted PMPM cost between top- and bottom-quartile PCPs
27%
Savings from PCMH program, 2012$98M
Chet BurrellPresident & CEO
CareFirst BlueCross BlueShield
“We’re seeing that [the data] changes the patterns. There’s a hubbub among the panels to see what their choices are, and what it costs them.”
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Discerning When Not to Operate
Source: The Advisory Board Company, “Commercial Bundled Payment Tracker,” October 9, 2013, available at: www.advisory.com; Health Care Advisory Board interviews and analysis.
The Value of a Second Opinion
Of referred patients do not undergo surgery
30-50%
Walmart
In 2013, expanded Centers of Excellence program to cover cardiac, spine, and hip/knee replacement surgery
Lowe’s
In 2010, offered employees free heart surgery at Cleveland Clinic
Pepsi Co.
In 2011, offered employees free cardiac and complex joint replacement surgery at Johns Hopkins Medicine
Large Employers and Hospitals Participating in Centers of Excellence Programs
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Assuring Employers of Ability to Manage Future Costs
Source: Health Care Advisory Board interviews and analysis.
Making the Case for Care Management Capabilities
Investment in Data Analytics
Shows capability to assess patient risk and pinpoint interventions
Clinical and Claims Data Integration
Illustrates advantage over traditional health plan
Demand for Out-of-Network Claims Data
Shows commitment to continuously manage care for attributed population
Telehealth Platforms and Programs
Demonstrates ability to keep low-acuity cases in most appropriate care site
Powerful Ways to Signal Care Management Capabilities
Chief Marketing OfficerLarge Health System
“In our market, there is plenty of talk about ‘accountable care’, but we are differentiating with the organizational commitment and the infrastructure investment to sustain a new economic model.”
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Source: Commins J, “Aurora Health Offers Employers a Savings Guarantee,” HealthLeaders Media, July 30, 2012, available at: www.healthleadersmedia.com; Aurora Health Care, “Roundy’s Offers Employees Innovative Health Care Plan Through Anthem’s Blue Priority & Aurora Accountable Care Network,” October 24, 2012, available at: www.aurorahealthcare.org; Health Care Advisory Board interviews and analysis.
Promising Total Cost Savings to Employers
Average savings guaranteed to employers over three years
10%
Savings Guaranteed Off Of Projected Costs
Case in Brief: Aurora Health Care
• 15-hospital, not-for-profit health system based in Milwaukee, Wisconsin
• Announced separate narrow network products with Aetna and Anthem Blue Cross and Blue Shield that offer employers guaranteed savings over three years
Two Separate Products with Different Payer Partners
Time
Employer Health
Spending
Guaranteed Savings
Baseline spending projected using three years’ historical spending 1
2Blue Priority (Anthem Blue Cross and Blue Shield)
Aetna Whole Health
(Aetna)
Roundy’s Supermarkets, Inc. was first large employer client
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Delivering Desirable Network Attributes at Low Cost
Source: Health Care Advisory Board interviews and analysis.
Redefining the Value Proposition
Competitive Unit Prices
Strategic Imperatives:
• Avoid reactive position vis-a-vis price cuts, transparency
• Radically restructure cost structures to sustain lower unit prices
Total Cost Control
Strategic Imperatives:
• Develop population health model to control cost trend
• Clearly communicate total cost advantage to potential purchasers
Geographic Reach and Clinical Scope
Strategic Imperatives:
• Match service portfolios, footprints to target purchasers
• Explore partnership strategies that strengthen market presence
Clinical and Service Quality
Strategic Imperatives:
• Present unimpeachable clinical credentials to wholesale buyers
• Emphasize access, experience advantages to individual consumers
Low Cost Desirable Network Attributes
Four Imperatives for Health Systems
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Source: Health Care Advisory Board interviews and analysis.
1) Pseudonym.
Which Would You Choose?
Broad Geographic Reach…
Network in Brief: Crescent Health1
• National hospital provider with hospital campuses across the country
• Despite broad geography, limited clinical depth at local level
…or Deep Clinical Scope?
Network in Brief: Silica Healthcare1
• 6-hospital system in the Midwest with employed physician network
• Care sites concentrated in roughly half of single metropolitan area
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Source: Health Care Advisory Board interviews and analysis.
Full Care Continuum Important for Payer Partners
Four Reasons PinnacleHealth System Selected for Risk-Based Product
Favorable Pricing Structure
6-12 Months’ Experience Under Performance Incentives
Broad Provider Geographic Footprint
Comprehensive Clinical Scope
Sample Clinical Services
Primary Care
Pediatric Care
Imaging
Cardiovascular Care
Orthopedics
Physical Therapy and Rehab
Inpatient Care
Case in Brief: CareConnect Point of Service
• Accountable care narrow network plan for mid-sized employers, created around PinnacleHealth System and offered by Capital BlueCross in central Pennsylvania
• Network is open for specialty and inpatient care but narrowed to PinnacleHealth System’s PCPs for primary care
• Will be expanded to individual market in 2015
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Addressing Individual Limits in Geographic Reach
Source: Health Care Advisory Board interviews and analysis.
Combining Geographies to Match Purchaser Footprint
Network in Brief: Healthcare Solutions Network
Cincinnati-based employers have employees living on both sides of river
• Joint venture collaboration between Cincinnati, Ohio-based TriHealth and Edgewood, Kentucky-based St. Elizabeth Healthcare
• Offers health insurers access to a unified, high-quality, low-cost network that covers the entire Tristate region
• Both organizations offering the network to their current employees and dependents
Partnering to Expand Geographic Reach
St. Elizabeth Healthcare
TriHealth
Neither Organization Able to Offer Adequate Geographic Coverage Alone
Ohio
Kentucky
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National and Hyper-Local Competition Reshaping Notions of Sufficiency
Source: Health Care Advisory Board interviews and analysis.
Geographic and Clinical Demands Intertwined
Neighborhood Conveniences
Potential Differentiators
• Disease management, care navigation
• Digestive health
• Women’s midlife
• Sports medicine
• Midwifery
• Transplants
• Neurosurgery
• Complex cardiac (e.g. TAVR1)
• Clinical trials
• Primary care
• Pediatrics
• Imaging
• Ambulatory surgery
• Radiation therapy
• Medical oncology
Core Services
Local Offerings
Regional/National Destinations
• Emergency
• Dialysis
• Rehab
• Stroke
• Cardiology
• OB/Gyn
• Routine orthopedics
• SNF
• Pediatric specialty
• Oncology
• Alternative access points (e.g. retail, urgent care)
• E-visits, remote monitoring
• Home health
Purchasers’ Geographic Preferences for Clinical Services
Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel
• Cardiac surgery
• Technology-intensive procedures
1) Transcatheter Aortic Valve Replacement.
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Delivering Desirable Network Attributes at Low Cost
Source: Health Care Advisory Board interviews and analysis.
Redefining the Value Proposition
Competitive Unit Prices
Strategic Imperatives:
• Avoid reactive position vis-a-vis price cuts, transparency
• Radically restructure cost structures to sustain lower unit prices
Total Cost Control
Strategic Imperatives:
• Develop population health model to control cost trend
• Clearly communicate total cost advantage to potential purchasers
Geographic Reach and Clinical Scope
Strategic Imperatives:
• Match service portfolios, footprints to target purchasers
• Explore partnership strategies that strengthen market presence
Clinical and Service Quality
Strategic Imperatives:
• Present unimpeachable clinical credentials to wholesale buyers
• Emphasize access, experience advantages to individual consumers
Low Cost Desirable Network Attributes
Four Imperatives for Health Systems
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Source: Health Care Advisory Board interviews and analysis.
“Quality” Means Different Things for Different People
Network Assemblers Individuals
Facility-level clinical process, outcome measures
Actual ease of access, care experience
Network-level quality, access, service ratings
Network Selection Care Decision
Quality Demands of Network Assemblers and Individuals
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Steering Care Toward High-Quality Providers
Source: Health Care Advisory Board interviews and analysis.
1) Sample metrics include mortality rate, complication rate, and readmissions rate.
Custom Network Builders Scrutinizing Performance
Step 1: Evaluation of Clinical Performance Data
Provider Evaluation Process at Imagine Health
National Top Quartile Clinical Performance
Step 2: RFP Evaluation of Additional Factors Per capita
cost of careEfficiency of care utilization
Care experience programs
1
Case in Brief: Imagine Health
• Company based in Cottonwood Heights, Utah that builds custom, high-performance provider networks for self-funded employers
• Selects participating provider systems using clinical performance data and an RFP process
• Steers volumes to in-network providers through benefit design and employee education
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Chris GoreyChief Marketing Officer
Providence Health Systems
Boeing’s Access Requirements
Winning Contracts By Meeting Access Demands
Source: Health Care Advisory Board interviews and analysis.
Providers Must Also Deliver on Ease of Access
Same-day PCP appointment(acute conditions)
3-day PCP appointment (any condition)
10-day specialist appointment
Extended hours of operations
Extended urgent care hours
Centralized 1-800 number at ACO level with care navigators for triage and advocacy
Member website
Phone apps
Case in Brief: Providence-Swedish Health Alliance
• Alliance between Providence Health Systems, Swedish Health Services in Seattle, WA
• Awarded contract to serve as Boeing’s narrow ACO network option
“[Geographic] access is critical. But we can’t lose sight of the patient experience. Health care consumers need to see a positive change in how they are able to access healthcare.
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An Expected Part of the Patient Experience
Source: Terry K, “Patients Seek More Online Access to Medical Records,” InformationWeek, September 17, 2013, available at: www.informationweek.com; Silvestre, et al., “If You Build It, Will They Come? The Kaiser Permanente Model of Online Health Care,” Health Affairs, March/April 2009: 334-344; Health Care Advisory Board interviews and analysis.
Online Access Becoming the New Baseline
Case in Brief: Kaiser Permanente Northern California• Nation’s largest not-for-profit health plan based in Oakland, California; serves 9 million
members nationwide and 3.3 million in Northern California
• Began offering online health services in 1996; fully deployed KP.org patient portal in 2007
KP.org Portal Key Features
View medical record
Schedule appointments
Fill prescriptions
Assign proxy access
View lab results
Communicate with physician
82%77% 76% 74%
Consumers Demanding Portal Features
n = 1,000 U.S. Consumers
Access to Medical Records
Online Appointment
Booking
Prescription Refill
Requests
Receiving E-Mail/Text Reminders
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Patient Experience Vital For Securing Purchaser Choice Year Over Year
Source: Health Care Advisory Board interviews and analysis.
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
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Not Immediately Obvious Which Advantages Will Dominate
Source: Health Care Advisory Board interviews and analysis.
Recipe for Success Becoming Far More Complex
Network Assembly Network Selection Care Decision
All providers included in nearly all networks; only compete on price negotiations
Employees have little choice of networks
Most decisions made by referring physician
• Low total per-member cost• Promise of total cost savings
• Low premium• Low employee contribution
• Low out-of-pocket cost
• Broad geographic footprint• Comprehensive clinical scope
• Inclusion of preferred physicians
• Proximity to access points
• High clinical process, outcomes performance
• Adherence to evidence-based care• On-demand access options• Centralized navigation services• Prompt appointment times• Extended hours
• High population health quality ratings
• High member satisfaction ratings
• Positive brand association• On-demand access options
• Great care experience• On-demand access
options• Prompt appointment
times• Extended hours
Cost
Reach and Scope
Clinical and Service Quality
Network Assemblers Individual Consumer
Ret
ail
Ma
rke
t
Traditional Market
Th
resh
old
Fa
ctors
Diffe
ren
tiatin
g
Fa
ctors
Expanding Arena of Competition
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Search for Financial, Geographic Scale Driving Hospital M&A
Strategic Advantage #1: Scale
Source: “Advocate and NorthShore Combine to Create Preeminent Health Care System,” Northshore University Health System; Herman B, “Advocate-NorthShore merger continues trend toward regional supersystems,” Modern Helathcare, Spetember 12, 2014; Health Care Advisory Board interviews and analysis.
Consolidation on the March
Other Notable Hospital M&A Activity
$6.5BCombined system’s expected annual revenue
Baylor + Scott and White
Mount Sinai + Continuum Health Partners
Beaumont + Botsford + Oakwood
“Combined, we will create economies of scale that will allow us to reduce the trend of rising health care costs.”
Michele RichardsonAdvocate Board Chair
Case in Brief:Advocate NorthShore Health Partners
• 16-hospital merger of Advocate Health Care, NorthShore University HealthSystem
• Creates strong clinical, geographic presence in Chicago area
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Policy Tensions Remain Between Integration, Competitiveness
Source: Health Care Advisory Board interviews and analysis.
Aggregation Always Subject to Regulatory Scrutiny
January 2014: Federal judge blocks merger of St. Luke’s Health System and Saltzer Medical Group
April 2014: U.S. Court of Appeals orders ProMedica to unwind its 2010 acquisition of St. Luke’s Hospital
January 2014: FTC rules CHS must divest two hospitals to complete HMA acquisition
…But Market Power Still a Red FlagAllowances for Effective Coordination…
Bundled payment programs open door to gainsharing with Medicare revenues
Clinical Integration safe harbors allow joint contracting between independent physicians
CMS incentivizes, promotes ACO programs
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Insurer, Seven Competing Systems Offer Market-Wide Solution
Strategic Advantage #2: Integration
Source: “Anthem, Seven California Health Systems Team Up To Form HMO,“ California Healthline, September 17, 2014; Commins J, “Anthem Blue Cross, 7 CA Health Systems Create New Challenger, Business Model,” HealthLeaders Media, September 18, 2014; Health Care Advisory Board interviews and analysis.
Vivity Betting on Coordination over Consolidation
AnthemBlue Cross
Cedars-Sinai Medical Center
Good Samaritan Hospital
PIH Health
MemorialCare Health System
UCLA Health
Torrance Memorial Health
Huntington Memorial Hospital
• 7 health systems
• 14 hospitals
• 6,000 physicians
“What we are recognizing is that the most effective delivery model is an integrated delivery model. We can reduce waste, improve quality of care, provide people access to the top facilities in the nation, frankly, and do that in an integrated way.”
Pam KehalyAnthem Blue Cross
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But Will Less-Intensive Arrangements Yield Sufficient Gains?
Source: Health Care Advisory Board interviews and analysis.
New Partnerships Aim at Integration Without M&A
Seven systems in NY, NJ, MA, and PA form Allspire NetworkSix hospitals form BJC
Collaborative:
14 systems ally to form Stratus Health Care
Two Systems form Georgia Health Collaborative
Four health systems form regional alliance Health Innovations Ohio
Four health systems ally to form Noble Health Alliance
Five health systems ally to form accountable care initiative Quality Health Solutions
Five SC systems form cost saving Initiant Healthcare Collaborative
Five health systems join Vanderbilt Health Affiliate Network
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Born Out of Necessity, No-Frills Approach Suddenly Compelling
Strategic Advantage #3: Efficiency
Source: Health Care Advisory Board interviews and analysis.
The Community Hospital Resurgent?
Rural or exurban setting
Medicare, Medicaid-heavy payer mix
Limited service portfolio
Physician shortages
Smaller patient population
Labor costs lower than urban competitors
Already managing to public-payer margins
Fewer unjustifiable fixed costs
Early experience with team-based care, telemedicine
More focused patient engagement efforts
Common Challenges Potential Advantages
The Community Hospital Initiative
• Dedicated research and service effort included within Health Care Advisory Board membership
• Focuses on issues facing
– Smaller organizations
– Independent hospitals
– Rural facilities
• For more information, contact Ben Umansky at [email protected]
Health Care Advisory Board
The New Network AdvantageAssembling the Scale, Scope, and Assets Needed to Secure Profitable Growth
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2
3
1
Road Map
Charting an Intentional Corporate Strategy
Leverage Beyond Price
The New Network Advantage
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Consolidation Dominating Industry Mindshare
Source: Health Care Advisory Board interviews and analysis.
Insecurity Abounds
The End of Independence?
“We want to stay independent. But when I look at where things are going, I just don’t see how we can compete without being part of something bigger.”
CEO, standalone 200-bed hospital
$10 Billion or Bust?
“Any health system is going to need $10 billion in revenue to survive in tomorrow’s market”
Overheard at 2014 J.P. Morgan Healthcare Conference
What Was Your Reaction?
CHS-HMA merger puts more pressure on
stand-alones to seek partners
-Page 6
SURVIVALBIGGESTOF THE
August 5, 2013
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But Will Less-Intensive Arrangements Yield Sufficient Gains?
Source: Health Care Advisory Board interviews and analysis.
New Partnerships Aim at Integration Without M&A
Seven systems in NY, NJ, MA, and PA form Allspire NetworkSix hospitals form BJC
Collaborative
14 systems ally to form Stratus Health Care
Two Systems form Georgia Health Collaborative
Four health systems form regional alliance Health Innovations Ohio
Four health systems ally to form Noble Health Alliance
Five health systems ally to form accountable care initiative Quality Health Solutions
Five SC systems form cost saving Initiant Healthcare Collaborative
Five health systems join Vanderbilt Health Affiliate Network
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Five Major Varieties of Provider Partnership
Source: Health Care Advisory Board interviews and analysis.
No Shortage of Alternative Models
Merger or Acquisition
Clinically-Integrated Hospital Network
Accountable Care Organization
Regional Collaborative
Clinical Affiliation
Description Formal purchase of one organization’s assets by another, or the combination of two organizations’ assets into a single entity
Collection of hospitals contracting jointly in order to support improved coordination, outcomes; modeled after physician CI networks
Independent entity, owned by one or several independent organizations, that accepts risk-based contracts and distributes shared savings
Flexible umbrella structure, often encompassing many independent organizations of similar geography, that may serve as foundation for further integration
Typically bilateral agreement to cooperate around a particular initiative or service line; may involve local or national partners
Examples • Baylor Scott and White
• Community Health Systems/Health Management Associates
• Trinity Health/Catholic Healthcare East
• Tenet/Vanguard
• Long Island Health Network
• Vanderbilt Health Affiliated Network
• Quality Health Solutions (WI)
• Arizona Care Network
• Accountable Care Alliance
• Allspire Health Partners
• Stratus Healthcare
• BJC Collaborative
• Noble Health Alliance
• Health Innovations Ohio
• Evergreen Healthcare with Virginia Mason
• Mayo Clinic Care Network
• Cleveland Clinic Affiliate Program
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Defenses Around Old Business Model Unlikely to Hold
Source: Health Care Advisory Board interviews and analysis.
Protection Not the Right Motivation
Higher prices charged to payers
Lower prices paid to suppliers
Typical Advantages of Market Power
Regulators scrutinizing any arrangement conferring undue market power
Increasingly competitive markets punishing inflexible, high-cost providers
Size confers price leverage
Volume-based negotiating strategies like GPOs nearing their limit
Diminishing Returns to Traditional Strategy
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Partnerships Must Drive Market Advantage
Source: Health Care Advisory Board interviews and analysis.
Leverage Beyond Price the Key to Success
Cost Advantage
Winning Preference Through Clinical Scope and Geographic Reach
Lowering Unit Prices Through
Operational Scale
Reducing Total Costs Through
Population Health
Influence on Network Assembly
Control Over Underlying Cost Structures
Impact on Entire Care Continuum
Product Advantage
Deg
ree
of M
arke
t Adv
anta
ge
Time to Maximum Benefit
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Overcoming Financial Barriers
6. Jointly-Financed Infrastructure Investment
Breaking Down Information Silos
7. Continuum-Wide Data Transparency
Hardwiring Mutual Accountability
8. Network-Enabled Performance Incentives
Source: The Advisory Board Company interviews and analysis.
The New Network Advantage
IIIWinning Preference Through
Clinical Scope and Geographic Reach
I II
Cost AdvantageProduct Advantage
Reducing Total Costs Through
Population Health
Lowering Unit Prices Through
Operational Scale
Leveraging Low-Price Care Sites
3. Top-of-site Referral Partnerships
Slimming Underlying Cost Structures
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services
Driving Network Assembly
1. Comprehensive Network Product
Appealing to Network Assemblers
2. Portfolio-Enhancing Clinical Partnerships
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Discrete Elements of Partnership Support Specific Goals
Source: Health Care Advisory Board interviews and analysis.
Meaningful Integration About More than the Model
Potential Elements of Provider Integration
Payer Contracting
Brand/Identity
Strategic Plan
Governance
Operations
Clinical IT
Care Model
Expertise
Strengthens negotiating position, allows access to larger purchasers
Confers reputational benefits, signals strength of integration
Allows rationalized investments/divestitures
Enables process efficiencies, knowledge exchange
Broadens perspective over care continuum; reveals opportunities for reducing total cost of care
Reduces fragmentation in care delivery; improves outcomes
Flattens learning curves; promotes best practices
Ensures stability and implementation of other shared elements
Potential Benefits
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Choice of Model Only Determines Environment for Pursuing Integration
Source: Health Care Advisory Board interviews and analysis.
Concrete Decisions Beyond Legal Structure
Contracting Brand/Identity
Strateg
ic PlanExp
erti
se
Care M
odel
Clinical IT Operations
Go
vern
ance
Centralization
Collaboration
Independence
Questions for Every Partnership
• Which strategic and operational functions should be included in your organization’s partnership strategy?
• For each function: Is it better to centralize the function by combining it with that of a partner, or is it better to collaborate with a partner while maintaining separate but aligned versions of the same function?
• Does the legal structure of an existing or proposed partnership facilitate the appropriate degree of integration for each function?
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2
3
1
Road Map
Charting an Intentional Corporate Strategy
Leverage Beyond Price
The New Network Advantage
77
Winning Preference Through Clinical Scope and Geographic Reach
Driving Network Assembly
1. Comprehensive Network Product
Appealing to Network Assemblers
2. Portfolio-Enhancing Clinical Partnerships
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Source: Health Care Advisory Board interviews and analysis.
1) Pseudonym.
Which Would You Choose?
Broad Geographic Reach…
Network in Brief: Crescent Health1
• National hospital provider with hospital campuses across the country
• Despite broad geography, limited clinical depth at local level
…or Deep Clinical Scope?
Network in Brief: Silica Healthcare1
• 6-hospital system in the Midwest with employed physician network
• Care sites concentrated in roughly half of single metropolitan area
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Individual footprint sufficient to appeal to small employers in local market
Flexible Approach Meets the Demands of a Wide Range of Purchasers
Source: Health Care Advisory Board interviews and analysis.
Developing a Targeted Network Strategy (or Three)
Regional
Network in Brief: Whitehaven Health1
• Integrated health delivery system in the Midwest
• Segments market strategy by geography
• Health system footprint is sufficient for appealing to local purchasers; regional and super-regional networks assembled through partnership
Discussing possibility of additional partnerships to form state-wide network able to contract with state employers
Partnership with like-minded, geographically contiguous health system provides flexibility to sign larger regional contracts
Local
Super-Regional
Partnership-driven
Geo
gra
phic
Rea
ch
Number of contracting possibilities
A Multi-Layered Approach to Network Development
1) Pseudonym.
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Local
• Small employers
• Local payers
Regional
• Large employers
• National payers
Super-Regional
• State/national employers
• International purchasers
Source: Health Care Advisory Board interviews and analysis.
Deciding Whether to Take the Lead
What is your organization’s network strategy?
Driving Network Assembly
Appealing to Network Assemblers
A Key Decision at Every Level
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Collaboration Provides a Financially-Sustainable, Proactive Approach
Source: Health Care Advisory Board interviews and analysis.
Leveraging Partnership to Appeal to Purchasers
Brand MarketingBuild or Buy
Driving Network Assembly
Appealing to Network Assemblers
Committed to Independence
Open to Collaboration
Pitfall:
Increasingly difficult for all but niche providers to confidently position organization as “must-have”
Pitfall:
Extremely slow and capital-intensive; may require moving away from core competencies
ComprehensiveNetwork Product
1
Portfolio-Enhancing Clinical Partnerships
2
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Addressing Individual Limits in Geographic Reach
Source: Health Care Advisory Board interviews and analysis.
Combining Geographies to Match Purchaser Footprint
Network in Brief: Healthcare Solutions Network
Cincinnati-based employers have employees living on both sides of river
• Joint venture collaboration between Cincinnati, Ohio-based TriHealth and Edgewood, Kentucky-based St. Elizabeth Healthcare
• Offers health insurers access to a unified, high-quality, low-cost network that covers the entire Tristate region
• Both organizations offering the network to their current employees and dependents
Partnering to Expand Geographic Scope
St. Elizabeth Healthcare
TriHealth
Neither Organization Able to Offer Adequate Geographic Coverage Alone
Ohio
Kentucky
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Selling Narrow Network Product Through Commercial Insurers
Source: Health Care Advisory Board interviews and analysis.
Using Expanded Reach to Target Local Employers
TriHealth
St. Elizabeth’s
Healthcare Solutions Network
Public Payers
Local Employers
Insurer sells HSN as a narrow network product
Combined geography sufficient to support large Cincinnati employers
Creating a Purchaser-Focused Network Solution
Governance
Organization CEOs serve as Co-CEOs with support of existing management teams
Quality Alignment
Aligning quality targets to work towards demonstrable quality improvements
Historical Relationship
Previous collaboration around insurance products key to ensuring mutual trust
Key Partnership Elements
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Network in Brief: EvergreenHealth and Virginia Mason
Creating a Comprehensive High-Value Network Through Partnership
Source: Health Care Advisory Board interviews and analysis.
Aligning to Expand Clinical Scope
EvergreenHealth
Gains access to quaternary facility with proven clinical outcomes and access to expanded geography
Virginia Mason
Gains access to home care services and fills gap of secondary facilities east of Seattle with a partner with a proven reputation for value
• EvergreenHealth is a 318-bed medical center and integrated health system based in Kirkland, Washington; Virginia Mason is a 336-bed medical center and group practice based in Seattle
• In 2012, partnered to create a broader network of care in the Puget Sound region with the purpose of continuous improvement in quality and safety, reduction in cost of care, improving patient experience, and shared recruitment to avoid oversupply of physicians
• Partnership leverages strengths of both organizations and broadens each partner’s scope of services and expanded geographic reach
Beginning with Cardiac and Neuroscience Care
Virginia Mason quaternary facility
EvergreenHealth home care
EvergreenHealth tertiary facility
Virginia Mason clinics
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Built on a Foundation of Shared Vision
Source: Health Care Advisory Board interviews and analysis.
Ensure A Cohesive Bond
Bob Malte, CEO, EvergreenHealth
Linking a Network Without an LLC
“We set out to form an extremely durable and long-term partnership that allows us to come together and create a high-value network of care. To do that, we forged a board-driven, 20-year agreement that ensures the partnership’s strength and stability, ultimately increasing the quality and value of care available in our community.”
Develop a Long-Term Vision
Contractual partnership agreement spans 20 years, ensuring both parties are fully committed to partnership
EnsurePhysician Support
Both partners demonstrate clinical quality and outcomes
Secure Support
Steering committee contains equal representation from both partners (CEOs, CMOs, COOs)
TrackPerformance
Quality dashboards track progress on clinical areas; partnership dashboard tracks progress on priority activities aligned with strategic partnership goals
Gary Kaplan MD, CEO, Virginia Mason
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Telemedicine Partnerships Allow Complex Care to Remain In-House
Tactic #2: Portfolio-Enhancing Clinical Partnerships
Source: Health Care Advisory Board interviews and analysis; Mayo Clinic Care Network, available at: http://www.mayoclinic.org/about-mayo-clinic/care-network.
Bringing High-End Expertise to the Local Market
Network in Brief: Mayo Clinic Care Network
• 26-member network; partnership model that extends Mayo physicians and expertise to members
• In addition to direct access to clinical expertise, members are able to brand themselves as members of Mayo Clinic Care Network
1. eConsult: Specialists can connect with Mayo Clinic experts when they want additional input on complex patient care
2. AskMayoExpert: Web-based system allows members to access Mayo perspective on hundreds of medical conditions
Systems and AMCs Also Seeking to Enhance Portfolios
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Conflicting Incentives a Risk When Partnering Regionally
Source: Health Care Advisory Board interviews and analysis
1) Pseudonym.
Competitive Dynamics Threaten Local Partnerships
Case in Brief: Nielsen Park Hospital1
• Small, rural community hospital in the South
• Partnered with large tertiary system to enable local access to high-end specialty services such as cardiology, oncology
• Despite promising start to partnership, competition for volumes between partners threatening sustainability of affiliation
Multi-Layered Collaboration Promises Benefit…
Shared Staff
Physicians from tertiary hub travel to community hospital
Telemedicine
Allows community physicians to consult with specialists in real-time
Co-branding
Community hospital able to brand itself as affiliate of tertiary hub
…Tensions Over Referrals Threatens Affiliation
Tertiary hub looking to draw as many referrals as possible from community partner
Community hospital trying to retain as many volumes as possible within local community
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Ideal Geography a Key Tension in Clinical Affiliation Decisions
Source: Health Care Advisory Board interviews and analysis.
Weighing a Local or National Partner
Consider Local Partner if…. Consider National Partner if….
Local providers with same service gap are interested in collaboration
Local providers that currently offer service are interested in partnering for mutual benefit
Demand for service is low enough that local providers are willing to share staff, equipment
Patients value brand familiarity over national reputation
Ultimate aim of partnership is joint contracting or shared population health management
Local competition for volumes in targeted service area is high
Local demand for service is insufficient to justify full-time staff
Targeted service may easily be provided through telemedicine or virtual physician-to-physician consults
Patients recognize and value national reputation
National providers have significant quality advantage over any local partnership options
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Winning Preference Through Clinical Scope and Geographic Reach
Source: Health Care Advisory Board interviews and analysis
Key Takeaways
Shared vision and strategy key to partnership around network product
It is difficult to make the necessary investments to ensure network growth without a shared vision and a significant amount of trust among network partners.
Creation of a health plan may be a component of network strategy, but should not be the sole strategy
The most successful networks ensure flexibility in contracting options; achieving this means leading with a provider network that can also contract with commercial payers.
Certain models faster at bringing a network together but may restrict contracting ability
M&A and CI joint contracting arrangements are slower to market, but allow for tighter network integration than faster models such as regional alliances and clinical affiliations.
Competitive tendencies can threaten the success of regional clinical affiliations
Competition for volumes can undermine regional affiliations; clear referral protocols are necessary to ensure each partner retains appropriate volumes.
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Source: Health Care Advisory Board interviews and analysis.
Weighing the Models
ModelComprehensive Network Product
Portfolio-Enhancing Clinical Partnerships
Comments
Merger or Acquisition
M&A clearly expands geographic reach and clinical scope; however, it is a much slower and more capital-intensive approach than other models.
Clinically-Integrated Hospital Network
CI is probably the most common means of pursuing joint contracting; this model will be essential for those organizations looking to partner around a narrow network offering.
Accountable Care Organization
Sharing risk is probably the quickest way to enable joint contracting; however, starting an ACO involves costs and cultural shift.
Regional Collaborative
Collaboratives often involve more members so there is greater potential to expand reach and scope; however, attempts to contract jointly will likely invite significant regulatory scrutiny.
Clinical Affiliation Agreement
These, typically bi-lateral agreements, are well-suited to filling a specific clinical gap; however, they often span large geographies and thus tend to limit opportunities to contract jointly.
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Source: Health Care Advisory Board interviews and analysis.
Ideal Partners
Complementary Clinical Assets
Complementary Geography
Strong Brand Name
Shared Strategic Vision
Willingness to Share Referrals
Five Characteristics of the Ideal Partner
Partners that span a different part of the care continuum are ideal for bringing new capabilities to the network
For the purposes of expanding reach or sharing referrals, partners with contiguous geography are ideal; national partners ideal for telemedicine partnerships
Consider whether patients value national brands or prefer a local partner (i.e. the “best hospital in town” or the hospital that they have been to before)
Particularly important for those organizations looking to jointly own and sell a market-facing network; affiliations of this nature require long-term commitment
Clinical affiliations in particular require clarity around referral protocols and where volumes will be retained to ensure competitive tensions do not undermine partnership
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Lowering Unit Costs Through Operational Scale
Leveraging Low-Price Care Sites
3. Top-of-Site Referral Partnerships
Slimming Underlying Cost Structures
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services
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Limited Ability to Compete Against Low-Cost Providers
Source: Regents Health Resources, “Imaging Market File,” Radiology Business Journal , April 2011; Health Care Advisory Board interviews and analysis.
1) MRI, CT, Radiography, Nuclear Medicine, Ultrasound, Mammography, and PET.
2) Hospital Outpatient Department.
High Cost Driving Price Rigidity
High Fixed Cost Production Model
Low-Cost Narrow-Focus Care SitesHospital Outpatient
DepartmentFreestanding
Imaging Center
$779
$334
Difference in Average Price for Common Imaging Procedures1
HOPD2 vs. Freestanding Imaging Facilities, 2011
57% lower
Struggling to offset expensive fixed cost base
Lack of back-office efficiency
Facilities with low-fixed costs
Streamlined focus on narrow set of services
vs.
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Three Tactics for Increasing Price Flexibility
Source: Health Care Advisory Board interviews and analysis.
Use Networks to Build Operational Scale
Slimming Underlying Cost Structures
4
Next-Generation Shared Services
Leveraging Low-Price Care Sites
Top-of-Site Referral Partnerships
3 5
Clinical Footprint Rationalization
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Sending Patients to the Right Site, at the Right Cost
Tactic #3:Top-of-Site Referral Partnerships
Source: Health Care Advisory Board interviews and analysis.
Re-envisioning Top-of-Site Care
Tertiary Hospital to Community Hospital
Emergency Department to Urgent Care Provider
Primary Care Office to Retail Clinic
School Clinic
Urgent Care
Pediatric After Hours Women’s
Clinic
Pediatric Urgent Care
Medical Home
E-Visits
Full Worksite
Clinic
Mental Health Urgent Care
Advanced Care
Center
Retail Clinic
Chronic Disease Clinic
An Expanding Network of Low-Acuity Partners
Three Main No-Regrets Focus Areas for Volume Shifts
1
2
3
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Faulkner’s Stubbornly Low Prices Show Benefit of Strategy
Source: Sussman et al, “Integration of an Academic Medical Center and a Community Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.
1) Came together under common corporate parent
More Than Just Theoretical
Brigham and Women’s Proving the Point
Lower commercial prices at Faulkner vs. BWH, as of 2012
General admissions shifted from BWH to Faulkner since 2005
19%
13.7%2013 Case
Mix Index0.801.38
Faulkner Hospital
BWH contracts with local multispecialty group (Harvard Vanguard Medical Group) came up for renegotiation
HVMG received attractive terms from another local hospital
BWH able to retain contract by offering to shift more lower-acuity volumes to Faulkner at lower unit price
Attractive Strategy In Negotiations with Purchasers
Merged1 1997
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Integration of Clinical Programs Needed to Encourage Top-of-Site Care
Source: Sussman et al, “Integration of an Academic Medical Center and a Community Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.
Removing Obstacles to Volume Reallocation
Joint Clinical Programs
Due to limited operating room availability at Brigham, unfilled rooms at Faulkner made available to BWH surgeons
Key Elements of the Brigham and Women’s-Faulkner Volume Reallocation Effort
Integrated Teaching Programs
Brigham surgery and medicine residents perform a portion of training at Faulkner
Co-branding Opportunity
Patient Convenience
Less travel, availability of private rooms, better parking all seen as improving the patient experience
Cross-Branding Opportunity
Combining the two organization’s name resonated with patient focus groups and held pushback at bay from both entities
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Most Markets Far From Rationalized
Tactic #4: Clinical Footprint Rationalization
Source: Alicia Caramenico, “Council: Eliminate excess hospital beds to save $116M,” Fierce Healthcare, May 2013; Health Care Advisory Board interviews and analysis.
Right-Sizing Facility Footprint a Clear Opportunity
Per bed when removing beds piecemeal, includes reduction in supply and staff expenses
$25-106K
Per bed when closing entire facilities, includes facility, supply, and staffing cost reductions
$580K
1980 1990 1995 2000 2008 2009
1.46 M
1.36 M1.21 M
1.08 M 0.98 M 0.95 M78%
70%66%
66% 69%68%
Inpatient Beds Occupancy Rate
Despite Reductions in Hospital Beds, Most Organizations Still Have Excess Capacity
U.S. Inpatient Beds, Occupancy Rate 1980-2009
1) Calculated by taking 18% of the average cost per bed, by bed type, from the 2009 and 2010 Medicare Cost Report Data, inflated at 2% annually to reflect natural price growth.
Significant Opportunity for Savings in Reducing Excess Bed Capacity
Estimated Cost Savings from Eliminating Expectedly Empty Beds in Rhode Island1
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Northwest Metro Alliance Combined Planning Process
Strategic Alignment Allows for More Efficient Planning for Future Capacity
Source: HealthPartners and Allina Hospitals and Clinics, available at: https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntrb_008919.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis
First, Do No Harm
Network in Brief: Northwest Metro Alliance
• Partnership between Bloomington-based HealthPartners and Minneapolis-based Allina Health, centered in northwest suburbs of Minneapolis
• Joint planning done through alliance reduces duplicative efforts
• Alliance creates guiding principles and rules
• Shared incentives under HealthPartners’ health plan encourages cooperation
• Allows for collaborative planning across the entire population
Example: HealthPartners and Allina Health are joint owners of two outpatient imaging centers in the market
Avoids Duplication of Services within Shared Market
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Consolidation of More Lucrative Services May Require Financial Alignment
Source: Health Care Advisory Board interviews and analysis.
Address All Stakeholder Incentives
Cultural Alignment
• Long working relationship since 1995
Strategic Alignment
• Shared vision of regional growth
• Launched three-way joint venture with Dean Health
• Collaborating on a number of population health management projects
Financial Alignment
• Agreed to sign PSA with Prevea physicians ensuring physician compensation at fair market value
Components of Alignment Necessary to Execute on Capacity Rationalization
HSHS-Prevea Partnership Finds Opportunity to Rationalize Duplicative Imaging Capacity in
Wisconsin
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Byron1 Merger Showcases Potential of Full-Service Line Consolidation
Source: Health Care Advisory Board interviews and analysis.
1) Pseudonym.
Limit to What Can Be Achieved Without Full Merger
Bells Medical Center1 • 900 cases/year• Large campus with excess capacity
Clarkes Hospital1 • 200 cases/year • Capacity constraints for other services
Decision to Consolidate Duplicative CV Services at Byron Health1
Large Profitability Differential Bells program clearly more profitable than Clarkes program
Close Geographic Proximity Programs within 5 miles of each other, serving same population
Operational Gains Potential cost savings from consolidated staffing, space
Staffing Cost Savings
25%Loss in market-share after consolidation
0%Reduction in number of Cardio-Pulmonary Perfusionists needed
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Applying the “Shared Services” Concept to Health Care
Tactic #5: Next-Generation Shared Services
Source: Health Care Advisory Board interviews and analysis.
Creating Advantage Through ‘Internal Outsourcing’
Attributes of a Top-Performing Shared Services Organization
Treats operational units as clients, competes for business vs. outside vendors
Concept in Brief: Shared Services Organization
• Single service organization performs selection of business support activities on behalf of multiple operating units
• “Shared” processes moved out of individual operating units and into separately managed shared services organization (SSO)
• An SSO has same expectations, responsibilities and accountabilities as external vendor does to its clients, making it more than just a centralization function
Strategy, functionality driven by needs at operational unit level
Focus on process standardization and continuous improvement
Transfer of insight from high-performing units to low performing units
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Significant Opportunity to Improve Network Attractiveness
Source: Health Care Advisory Board interviews and analysis.
1) Intensity Modulated Radiation Therapy
Translating Cost Savings into Competitive Pricing
Margin Improvement
• Improve margins from 6.5% to 9%
New Investments
• e.g. Two new 1.5 T MRI Scanners
• e.g. Four new 64 Slice CT scanners
• e.g. One new IMRT1 Machine
Service-Specific Price Reductions
• e.g. reduce outpatient imaging prices up to 35% while still maintaining existing margins
Universal Price Reductions
• Reduce prices overall by up to 5.9% while still maintaining existing margins
• 150-bed hospital carries out successful cost-savings initiative
• Manages to cut $2 million from operating expenses
1
2
3
4
Savings Reallocation Options for Hypothetical Medium-Size U.S Hospital
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Lowering Unit Costs Through Operational Scale
Source: Health Care Advisory Board interviews and analysis.
Key Takeaways
Scale no guarantee of cost savings
Regardless of the model chosen, successful consolidation requires an investment in a dedicated cross-organizational consolidation function. No model guarantees such a function.
Cross-organizational transparency necessary to unlock full benefits of consolidation
Though non-merger models have the ability to centralize and consolidate costs, mergers provide an extra level of cross-organizational transparency and therefore a greater opportunity to cut costs.
Integration of clinical programs necessary to promote top-of-site volume allocation
Models that encourage clinical alignment will facilitate more efficient volume reallocation.
Rationalization of underutilized capacity historically elusive
Potential merger savings based on consolidation and closure of facilities should be highly scrutinized.
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Source: Health Care Advisory Board interviews and analysis.
Weighing the Models
ModelTop-of-Site
Referral Partnerships
Clinical Footprint
Rationalization
Next Generation
Shared Services
Comments
Merger or Acquisition
Greatest possibility for consolidation of business functions, rationalization of referrals and clinical capacity though success requires partnership beyond financial integration.
Clinically-Integrated Hospital Network
Contracting leverage gained through CI offers incentive for clinical collaboration but little incentive for operational consolidation and rationalization.
Accountable Care Organization
Huge incentive for rationalization of referrals, though less for consolidation of operations; strategic alignment offers possibility to prevent duplication of future clinical investment.
Regional Collaborative
Potential, though limited, to consolidate and centralize business operations, and gain leverage over vendors, suppliers.
Clinical Affiliation Agreement
Focus on operational alignment limits potential to consolidate business operations, though may help to rationalize referral patterns, prevent future duplication of investment.
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Ideal Partners
Complementary Case Mix
Low Cost Structure
Willingness to Consolidate
Cultural Closeness
Existing Capabilities
Five Characteristics of the Ideal Partner
Partnerships between organizations that have complementary service capabilities provide opportunity for mutual benefit by reallocating volumes between sites.
Organizations with a low existing cost structure represent good opportunities to expand low-price sites of care.
Consolidation requires commitment and close cooperation; ideal partners are committed to executing on centralization and consolidation possibilities.
Consolidation and centralization are highly political process; a high degree of cultural alignment is necessary across all organizational levels to prevent significant pushback.
Partners with already highly efficient operational functions provide best opportunity for consolidationas scaling existing functions is easier than building anew.
Source: Health Care Advisory Board interviews and analysis.
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Reducing Total Costs Through Population Health
Overcoming Financial Barriers
6. Jointly-Financed Infrastructure Investment
Breaking Down Information Silos
7. Continuum-Wide Data Transparency
Hardwiring Mutual Accountability
8. Network-Enabled Performance Incentives
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Controlling Unit Costs Only Part of the Equation
Source: Health Care Advisory Board interviews and analysis.
Providers Judged by Ability to Reduce Utilization
Price Cut
Improve efficiency to offer lower fee schedule
Utilization Management
Rationalize utilization to secure referral preference
Trend Control
Implement care management to control cost growth trend
Degree of Cost Control
Three Provider Strategies to Appeal to Network Assemblers on Cost
Low Unit Price Total Cost Control
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Steps To Total Cost Management Well Established
Source: Health Care Advisory Board interviews and analysis.
A Clear Path for Improvement
Keep patient healthy, loyal to the system
Avoid unnecessary higher-acuity, higher-cost spending
Trade high-cost services for low-cost management
High- Risk
Patients
Rising-Risk Patients
Low-Risk Patients
Study in Brief: Playbook for Population Health
• Study summarizes the key leadership and care model capabilities needed for financial success under population health
• Available at advisory.com/pophealthplaybook
Attaining Financial Success From Patient Management
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Partnership Offers a Path Forward
Source: Health Care Advisory Board interviews and analysis.
Population Health a Difficult Ambition Acting Alone
Reducing Financial Barriers
6
Jointly-Financed Infrastructure Investment
Hardwiring Mutual Accountability
8
Network-Enabled Performance Standards
Problem #3: Lack of shared accountability
Problem #1: Insufficient financial capital
Breaking Down Information Silos
7
Continuum-Wide Data Transparency
Problem #2: Fragmented data and expertise
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Population Health Requires Extensive Investment
Source: American Hospital Association, “Activities and Costs to Develop an Accountable Care Organization,” available at: http://www.aha.org/content/11/aco-white-paper-cost-dev-aco.pdf, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Tactic #6: Jointly-Financed Infrastructure Investment
1) American Hospital Association.
An Undeniable Financial Burden
AHA’s1 estimate of ACO start-up costs fora 5-hospital system
$12M
Care management staffing
Electronic Medical Record
Common Areas of Investment
Patient-Centered Medical Home
Disease Registry
Post-Acute Care network
Managementresources
AHA’s estimate of ongoing annual ACO costs for a 5-hospital system
$14.1MLegal and consulting support
Health Information Exchange
Predictive analytics
PCPrecruitment
Specialist network
Patient engagement tools
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Shared Care Management Investment Through ACO
Source: Health Care Advisory Board interviews and analysis.
Partnership Reduces Individual Financial Burden
Arizona Care Network Shared Staffing Model
Arizona Care Network
Dignity Health Arizona
• Care management teams (RN, community resource specialist, pharmacist)
• Physician support staff (e.g. for quality training)
• IT infrastructure
Abrazo Health
Network in Brief: Arizona Care Network
• Physician-led ACO and CI network; jointly-owned by Abrazo Health and Dignity Health Arizona
• Population health infrastructure investments made at network level, allowing Abrazo and Dignity to share costs of resources such as staffing, IT
Jointly-owned physician-led ACO and CI network
Shared Investment Areas
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Partners Benefitting from Master Patient Index
Tactic #7: Continuum-Wide Data Transparency
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Pool Data Across Network to Pinpoint Efforts
Network in Brief: Dallas-Fort Worth Hospital Council Foundation • Consortium of 156 hospital
and associate members in Northern Texas
• Provides educational programs, collaborative efforts, strategic alliances, and advocacy with the local and state governments
• Discovered that 25% of readmitted patients in the region did not return to their original hospital for care, making it difficult to accurately predict readmission rates
Regional Utilization Trends Reveal Top Population Health Opportunities
80 area hospitals feed patient utilization data into enterprise data warehouse
Master patient index matches patient records across facilities and organizations
Data is fed into analytic tools that provide insight into regional trends in utilization
Paying members receive access to quality dashboard that helps pinpoint population health efforts
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Ensures Management of Riskiest Population Segments
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Putting the Master Patient Index into Practice
20%Reduction in readmissions across all member hospitals
Real-Time Data Enables Targeted Resource Deployment at One Member Hospital
Reduction in 30-day acutemyocardial infarction readmission rate at one member hospital
12% 9%
16% 12%Reduction in 30-day pneumonia readmission rate at one member hospital
Examination of region-wide, cross-facility utilization patterns reveals readmissions as area of opportunity
Analytic tools reveal clinical, demographic trends among patients who had been readmitted in the past
z
Aggressive case management of identified patients leads to reduction in readmissions
Member hospital uses population-level insight to identify patients at increased risk for readmission
z1 2
34
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Drilling Down to the Individual Patient Level
Four Approaches to Real-Time Data Sharing Among Network Partners
Source: Chicago Tribune, available at: http://articles.chicagotribune.com, accessed October 1, 2012 ; Health Affairs, “Four Years Into A Commercial ACO For CalPERS: Substantial Savings And Lessons Learned,”; HealthPartners and Allina Hospitals and Clinics, available at: https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntrb_008919.pdf, accessed 3 May 2014 Health Care Advisory Board interviews and analysis.
1) Admission, Discharge, Transfer.
Manual Data-Sharing Agreements
Key to Partnership: Consensus on how often to proactively push data
Example: Visiting Nurse Service of New York sends home health assessment to three hospital partners every day
EMR Look-Ups
Key to Partnership: Shared or linked EMR systems
Example: Through their partnership in the Northwest Metro Alliance, Allina and HealthPartners have read only-access to each other’s Epic systems
Regional HIE
Key to Partnership: Shared funding to ensure financial sustainability
Example: Medical Home Network in Chicago has set up a regional HIE that provides participants with last 90 days of patient data
ADT1 Feed
Key to Partnership: Ideal partner has access to out-of-system utilization data
Example: Blue Shield of California provides real-time utilization data with provider partners through CalPERS ACO
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Shared Processes Eliminate Gaps in Stand-Alone Efforts
Establish a Common Network Language
• Each individual algorithm failed to identify some high-risk patients
• Inconsistent identification reduced ability to prevent:
ER visits
Admissions from ER
Inpatient readmissions
Prior to creation of CalPERS ACO, each participant had individual risk scoring process
Risk scores consolidated into single process and single IT platform
Analysis of Top 1,000 Riskiest Patients Revealed:
Consolidating Risk Scores First Step to Aligned Care Management
Source: Blue Shield of California, “An Accountable Care Organization Pilot: Lessons Learned,” available at: https://www.blueshieldca.com/employer/documents/knowledge-center/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis.
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Two Promising Strategies to Hold Partners Accountable
Tactic #8: Network-Enabled Performance Incentives
Source: Health Care Advisory Board interviews and analysis.
Hardwiring Mutual Accountability
Including partners in formal risk-based arrangements (e.g. shared savings, global payment contracts)
Candidates:
• Hospital ACO partners
• Employed physicians
• Ancillary providers
Formal Shared Risk
Membership-Based Incentive
Positioning membership in the network itself as performance incentive (e.g., preferred referral network)
Candidates:
• Clinical Integration Network
• Post-Acute Care Providers
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Bringing Ancillary Providers to the Table Through Shared Savings
Source: MMC Physician-Hospital Organization, available at: http://www.mainehealth.org/mhaco, accessed May 3, 2014; Health Care Advisory Board interviews and analysis;
Extend Shared Risk Beyond Hospital and Physicians
Network in Brief: MMC Physician-Hospital Organization
• PHO composed of 1,100 physicians from the Community Physicians of Maine and the seven MaineHealth hospitals; based in southern and coastal Maine
• As part of participation in the Medicare Shared Savings Program, will be sharing savings with ancillary providers based on value performance measures
Home Health Included because of high Medicare utilization
Lab Included due to relevance for any population
PHO has worked with each provider to identify relevant performance metrics; focusing specifically on 33 metrics from MSSP to promote performance against value-based metrics across sites
SNF Included because of high Medicare utilization
Behavioral Health Included in case of expansion to Medicaid
Portion of savings that will be distributed to “other providers”, i.e. not hospitals, PCPs, or specialists
5%
MMC Physician-Hospital Organization ACO
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Implementing Lessons from Physician CI1
Source: Health Care Advisory Board interviews and analysis.
1) Clinical integration.2) Pseudonym.
Creating the Incentive to Keep Up
Network in Brief: Cronulla Health Care2
• Clinically integrated physician network affiliated with six Cronulla Health Care hospitals in the Midwest
• Instituted CI score, non-negotiable membership requirements to improve unity, quality of physician partners in network
• All physicians must meet a minimal performance threshold on “CI score”
• Physicians who score below minimum threshold placed on probation for one year
Creating Motivation to Meet Network Standard
Threat of Probation Incents Improvement Benefits to Network Inclusion
• Favorable payer rates from joint contracting
• Access to IT infrastructure
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Promise of Increased Referrals Creates Performance Incentive for PACs
Source: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at: http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_Post-Acute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
Extending Network Exclusivity to the PAC World
Setting Out Strict Quality Standards to Achieve and Maintain Preferred Status
Network in Brief: OSF Healthcare
• Eight-hospital, not-for-profit health system based in Peoria, Illinois
• As part of Pioneer ACO strategy, created a preferred SNF network limited to 17 facilities who met target criteria
SNF Standards
Overall rating of four or five stars
Quality rating of three, four, or five stars
Registered nurses on-site 24/7
Ability to start IV lines 24/7
Ability to admit patients within two hours
Requiring Monthly Reporting to Ensure Continuous Performance
Network in Brief: North Shore-LIJ
• 16-hospital, not-for-profit health system based in Great Neck, New York
• In 2008, created a SNF affiliate network of 19 from list of potential 266
Monthly SNF Scorecard
_____ Long-term care mortality rate
_____ Long-term hospitalization index
_____ Total readmission rate within 30 days
_____ Total readmission rate within 72 hours
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Promote Continuous Improvement Through Focused Partnership
Preferred Networks Prove Ability to Reduce Total Cost
Reducing Hospitalizations at OSF’s Preferred Network
Heart Failure Rehospitalization Rate
All-Cause Readmission Rate
Reducing Readmissions and ED Visits at North Shore-LIJ’s Affiliates
Readmissions From Affiliated SNFs
2011 2013
27%
11%
Reduction in ED visits from affiliated SNFs>50%
2010 2012
6%
2%
2010 2012
13%
7.5%
Source: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at: http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_Post-Acute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
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Source: Health Care Advisory Board interviews and analysis.
1) Group Purchasing Organizations.2) Post-Acute Care.
Mutual Benefit Necessary to Create Incentive
Areas of Mutual Benefit
Access to Operational Resources
Health systems may provide access to functionalities like their GPOs1 or IT systems that PAC2 providers would be unable to access on their own
Data Transparency
Regular data reports from PAC partners ensure that performance continues to meet high-bar; highlights areas where additional support may be needed
Shared Staff
PAC providers may be able to expand hospital capacity by taking on complex patients; health systems may send staff to monitor high-risk patients at PAC sites
Shared Care Pathways and Training
Health systems and PAC providers have different areas of expertise and may share protocols and training resources to improve network as a whole
Key Health System Benefit Key PAC Benefit
Critical Elements of Preferred PAC Network
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Reducing Total Costs Through Population Health
Source: Health Care Advisory Board interviews and analysis.
Key Takeaways
Alignment models that allow flexibility in partner choice create inherent performance incentives
Joint contracting networks, alliances, and ACOs offer greater ability to switch out low-performing partners than full-asset mergers
Standardizing care according to best practice requires tight financial alignment
Though looser collaborations may allow members to pinpoint best practices, standardizing care according to best practice will require partnership models that bring tighter financial alignment between partners
Adding more partners reduces financial burden, but also any potential reward
Adding more partners to population health efforts can lower financial costs, and improve care management, but it can also spreads potential savings across greater number of organizations
Easier to contract for risk through single entity
Difficulties in analyzing and valuing risk are exacerbated when multiple parties are negotiating and signing separate contracts with payers
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Source: Health Care Advisory Board interviews and analysis.
Weighing the Models
ModelJointly-Financed Infrastructure Investment
Continuum-Wide Data Transparency
Network-Enabled Performance Standards
Comments
Merger or Acquisition
Long development time for mergers lowers flexibility of partner selection, though full financial alignment allows greater clinical alignment
Clinically- Integrated Hospital Network
Investment in CI tends to focus on joint contracting for fee-for-service contracts, rather than population health management
Accountable Care Organization
Though financial incentives are aligned to support population health coordination, lack of strategic alignment precludes more helpful consolidation of resources
Regional Collaborative
Though number of partners may support greater economies of knowledge, little incentive to collaborate on population health
Clinical Affiliation Agreement
May incentivize collaboration on specific clinical objectives, but broader alignment vehicle necessary to facilitate population health coordination
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Source: Health Care Advisory Board interviews and analysis.
Ideal Partners
Common Patient Population
Organizations that share a patient population benefit when they partner to coordinate transitions and population health, whether they are working under fee for service or risk-arrangements
Complementary Population Health AssetsAll partnerships should involve some division of accountability, or efficient allocation of resources.
Partnerships that bring together complementary assets can reduce new expenditures, minimize the need to rationalize existing assets
Access to Claims DataProvider organizations that have access to patient claims data, either through an owned health plan, or an existing relationship with a payer, represent ideal partners in population health
Organizations should ensure that they negotiate access to claims data when setting up any risk-based arrangement with a commercial payer
Three Characteristics of the Ideal Partner
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2
3
1
Road Map
Charting an Intentional Corporate Strategy
Leverage Beyond Price
The New Network Advantage
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Leverage Beyond Price the Key to Success
Source: Health Care Advisory Board interviews and analysis.
Partnerships Must Drive Market Advantage
Winning Preference Through Clinical Scope and Geographic Reach
Lowering Unit Prices Through Operational Scale
Reducing Total Costs Through Population Health
Cost Advantage
I II III
Product Advantage
Deg
ree
of M
arke
t Adv
anta
ge
Time to Maximum Benefit
• Driving Network Assembly
• Appealing to Network Assemblers
• Leveraging Low-Price Care Sites
• Slimming Underlying Cost Structures
• Overcoming Financial Barriers
• Breaking Down Information Silos
• Hardwiring Mutual Accountability
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Source: Health Care Advisory Board interviews and analysis.
Model Choice No Guarantee of Success
Legal Ability to Cooperate
Models like M&A, clinical integration, and shared risk provide legal framework that enables collaboration
Shared Identity
Partnership creates unified identify, whether through formal legal structure or informal collaboration
Models Set Ground Rules…
Cultural Alignment
Identity may be in name-only; true cultural alignment requires robust communication plan, extensive training
Stakeholder Buy-In
Governance structure no guarantee of buy-in from key stakeholders such as physicians and board members
Integration Planning
Legal framework only the enabler; benefits of collaboration only realized through integration
Alignment of Governance
Partnership creates formal governance structure; leaders may be new or pulled from partner organizations
...But Underlying Challenges Remain
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Success Depends on Focused, Intentional Strategy and Execution
Network Strategy Must Be More Than Just a Hobby
Integration as Core CompetencyScientific Approach to Cultural Fit
Transactional DisciplineClarity of Purpose Professionally Managed Pipeline
Intentional corporate strategy starts with well-formed, clearly articulated organizational purpose
Partnership function should be an organized, routine process, not an episodic activity
Robust due diligence process prevents “partnership for the sake of partnership”
Cultural affinities and possible contradictions explored in parallel to financial due diligence
Integration planning begins long before partnership is finalized and continuous indefinitely through rigorous monitoring
Five Characteristics of Intentional Corporate Strategy
1 2 3
4 5
Source: Health Care Advisory Board interviews and analysis.