healthcare industry landscape

Healthcare Industry LandscapeJanuary 2016Ed ParkChief Operating Officer

What is inevitable in healthcare?

Government/Medicare will continue to push towards fee-for-value

Employers will continue to shift risk onto patients – high deductibles, private exchanges, etc.

Payers and Providers will continue to consolidate

Patients will begin to act more like consumers when shopping for plans and shopping for providers

1

2

3

4

Purchaser response

Macro trends

Provider strategies

Macro trends

$2.9 trillion

11

2007 2008 2009 2010 2011 2012 2013 2014 201518

20

22

24

26

28

https://www.nasbo.org/sites/default/files/State%20Expenditure%20Report%20%28Fiscal%202013-2015%29S.pdf

Perc

enta

ge o

f tot

al s

tate

exp

endi

ture

s

Medicaid and K-12 Spending

Medicaid

K-12

12

Source: NIHC Concentration of Health Care Spending (Washington, DC: National Institute for Health Care Management Foundation, July 2012), http://www.nihcm.org/pdf/DataBrief3%20Final.pdf

Individual Spender Tier

Spending per Person

Percent of Total Spending

Top 1% $97,859 21.8%

Top 5% $43,038 49.5%

Top 10% $28,452 65.2%

Top 30% $12,951 89.6%

It is well known that costs are highly concentrated5% of patients represent half of spending

13Source: http://www.forbes.com/sites/danmunro/2012/12/30/2012-the-year-in-healthcare-charts/#2715e4857a0bb9c66a1458f9

We also spend more than twice as much per person on healthcare as other developed

countries

85

80

75

79

0 1000 2000 3000 4000 5000 6000 7000

Aver

age

Life

Expe

ctan

cy a

t Birt

h (Y

ears

)

Total Expenditure on Health per capita in USD

Linear Trend Line

Hungary

Japan

S. Korea

Mexico

UK

USA

14

http://www.post-gazette.com/stories/news/health/us-health-care-costs-for-the-aged-are-sky-high-371246/

Annual Per Capital Healthcare Costs by Age$45,000$40,000$35,000$30,000$25,000$20,000$15,000$10,000$5,000

$010 20 30 40 50 60 70 80 90

USGermanyUKSwedenSpain

Less well known is how rapidly U.S. costs rise with age

relative to other countries

15

Source: 2014 annual report of the Boards of Trustees of the Medicare trust funds.

Projected Change in Medicare Enrollment, 2000-2050

75 8580 9590 0500 1510

100908070605040302010

0

10%9%8%7%6%5%4%3%2%1%0%

2000 2010 2020 2013 2040 2050

1.9%3.0%

2.4%

0.9% 0.4%

39.747.7

64.3

81.588.9 92.4

Average Annual Growth in EnrollmentMedicare Enrollment (in millions)

We know that overall costs will continue to increase as the population ages – 11,000 people enter

Medicare daily

16

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%

2%

4%

6%

8%

10%

12%

8.50%

9.60%

8.60%

7.20%6.80%

6.50%

6.30%

4.80%3.80%

3.90%

3.90%

4.10%

3.60%

5.30%

Average Annual Percent Change in National Health Expenditure (Nominal)

Source: Michael Chernew, Harvard School of Public Health

There was some respite as medical inflation slowed 2008-2013,

but spending appears to be re-accelerating

17

Source: http://www.realclearpolicy.com/blog/2012/05/

30%

25%

20%

15%

10%

5%

0%1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2085

19703.9%

201110.4%

208525.7%

Social Security

Medicaid, ObamacareSubsidies,CHIP

Medicare

Actual Projected

ActualRevenue

Average HistoricalRevenue;

18.1%

2045: Entitlement spending matches tax revenue average

Overall, we’re still on pace to bankrupt the U.S.

Government(“public purchasers”)

19

Reminder: the Grand Bargain of the ACA is to expand coverage while reducing Medicare rates

20

Source: The Advisory Board Company as of January 13, 2016. https://www.advisory.com/daily-briefing/resources/primers/medicaidmap

Expanding Medicaid

31States plus DC

ConsideringExpansion

2States

Not Expanding Medicaid

17States

Medicaid expansion continues to (selectively) move forward

And the public exchanges are on track with projections

22

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

0%2%4%6%8%

10%12%14%16%18%20%

17.3%

17.1%

16.9%

16.3%

16.8%

17.1%

18.0%

17.1%15.6%

13.4%

13.4%

12.9%

11.9%

11.4%

11.6%

11.9%

Lowest Uninsured Rate on RecordPercentage of U.S. Adults Without Insurance, by Quarter

Decrease in Uninsured Adult Visits on athenaNet1, Expansion States

32%

Decrease in Uninsured Adult Visits on athenaNet1, Non-Expansion States

16%

Source: Gallup, “Uninsured rate essentially unchanged throughout 2015.” 1Quarter 1, 2012 to Quarter 4, 2015. ACAView

All in, we are seeing the lowest uninsured rate on record

23

http://www.politico.com/tipsheets/morning-ehealth/2016/01/politicos-morning-ehealth-209-000-doctors-hit-with-meaningful-use-penalty-this-year-212129

On the other side of the ledger, carrots are turning into sticks

14%

swing in Medicare FFS payments in 2018

based on 2016 performance under

MU/PQRS/VBM (-10% to +4%)

24

36%

swing in Medicare FFS payments by 2022

under MIPS (-9% to +27%)

25

CMS has signaled that it is putting its foot on the gas

26

Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-01-26-3.html

2016

All Medicare FFS

85%

30%

2018

All Medicare FFS

90%

50%

All Medicare FFS (Categories 1-4)FFS linked to quality (Categories 2-4)Alternative payment models (Categories 3-4)

Target percentage of Medicare FFS payments linked to quality and alternative payment models in 2016

and 2018

“2016 will be an enormous and pivotal year for progress and it’s starting off with a bang”

–Andy Slavitt, Acting CMS AdministratorJanuary 2016

Fee-For-ServiceOptional

Value-BasedMandatory

20152010 2020+

Meaningful Use Stage 1



PQRS Bonuses PQRS Penalties

Value-Based Modifier (VBM) Bonuses/Penalties

Merit-Based Incentive Payment

System (MIPS)

Pioneer ACOs

Medicare Shared Savings Plan (MSSP) – Track 1/2/3 Next-Generation ACOs

Voluntary Bundled Payments (BPCI) Mandatory Bundles (CJR)(hips/knees) ?

FFS+

Global Risk

Episodic Risk

30

Still, it is difficult to predict the future!

Employers(“private purchasers”)

32

Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage,

1999-2015

*Estimate is statistically different from estimate for the previous year shown (p<.05).Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2015.

20152014201320122011201020092008200720062005200420032002200120001999

$4,955$4,823

$4,565$4,316$4,129$3,997

$3,515$3,354$3,281

$2,973$2,713$2,661

$2,412$2,137

$1,787$1,619$1,543

$12,591$12,011

$11,786$11,429

$10,944$9,773

$9,860$9,325

$8,824$8,508

$8,167$7,289

$6,657$5,866

$5,274*$4,819

$4,247Worker ContributionEmployer Contribution

$5,791$6,438*

$7,061*$8,003*

$9,068*

$9,950*$10,880*

$11,480*

$12,106*$12,680*

$13,375*$13,770*

$15,073*$15,745*

$16,351*$16,834*

$17,545*

Employer healthcare costs have tripled since 1999

33

Source: Kaiser Employee Benefits Survey, 2013; median wage from EPI analysis of CPS

The Health Care Cost Crunch, 1999-2013$20,000

$16,000

$12,000

$8,000

$4,000

$01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$20.50

$19.50

$18.50

$17.50

$16.50

$15.50

$14.40

8.710.4

13.1

16.0

17.8

19.3

22.7

24.5

Weeks of full time work (at median wage need to pay family premium)Average annual premiums (single coverage)Average annual premiums (family coverage)Median wage (right axis)

Today’s average family premium is half a year’s work at median wage

Private Exchanges Direct Contracting

34

Activist employers continue to experiment, but advanced mechanisms such as direct-to-employer contracting or private exchanges have yet to catch

fire

35

SOURCE: Kaiser/HRET Survey of Employer Sponsored Health Benefits, 2006-2015

The dominant response so far has been to simply increase the deductible

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0 $200 $400 $600 $800

$1,000 $1,200 $1,400 $1,600 $1,800 $2,000

$775 $852 $1,124

$1,254 $1,391

$1,537 $1,596 $1,715 $1,797 $1,836

$496 $519 $553 $640 $686 $757 $875 $884 $971

$1,105 $584 $616

$735 $826 $917 $991 $1,097 $$1,135 $1,217 $1,318

All Small Firms (3-199 Workers)All Large Firms (200 or More Workers)All Firms

Deductibles RisingThe year-to-average increases in employer-paid health insurance deductibles aren’t all

that big because some firms haven’t raised them much. But the overall trend is for deductibles to keep rising, especially at smaller firms.

$1,318

average employee deductibleup 60% since 2009

36

37

With patients at full risk up to the deductible, Yelp for healthcare is going mainstream

Payers

39

Source: 2014 Aetna investor presentation

38%

16%

34%

13%

25%

16%

50%

9%Uninsured

Consumer Choice• Public/Private Exchanges• Individual MA• Medicare Supplement• Managed Medicaid

Government• Medicare FFS• Medicaid FFS

Employer

2014

2020

319M334M

We are increasingly becoming a government funded industry

40

Note: Includes cost and demonstration plans, and enrollees in Special Needs Plans as well as other Medicare Advantage plansSource: MPR/Kaiser Family Foundation analysis of CMS Medicare Advantage enrollment files, 2008-2014, and MPR, “Tracking Medicare Health and Prescription Drug Plans Monthly Report,” 2001-2207. Report of the Medicare Board of Trustees, 2002.

199219931994 1995199619971998 199920002001 2002200320042005 200620072008 2009201020112012 201320142015

2.2 2.5 2.83.5

4.45.4

6.4 6.9 6.8 6.2 5.6 5.3 5.3 5.66.8

8.49.7

10.511.111.9

13.114.4

15.716.8

Total Medicare Advantage Enrollment, 1992-2015In Millions

BBA MMA ACA

Medicare Advantage and Managed Medicaid are growing especially quickly

41

As of March 31, 2015. t Assuming Anthem maintains CEO and headquartersSource: The Wall Street Journal, http://www.wsj.com/articles/anthem-agrees-to-buy-cigna-for-48-billion-1437732331

These opportunities in managed Medicare/Medicaid, along with regulation and reach for market share, is

fueling a dance of the elephants

42

http://www.managedcaremag.com/archives/2015/12/big-meets-even-bigger-more-consolidation-offing

These proposed mergers raise the specter of consolidating the already-potent market

power of these insurers

Anthem-Cigna merger increases market powerAnthem-Cigna merger raises competitive concernsAetna-Humana merger raises concernsBoth mergers reduce competition

43

Source: http://www.wsj.com/articles/health-care-providers-insurers-supersize-1442850400http://www.aha.org/research/reports/tw/chartbook/2015/15chartbook.pdf, Oliver WymanIrving Levin Associates

125 Deals

100

75

50

25

0’09 ’10 ’11 ‘12 ‘13 ’14 ‘15

Full YearTo Aug.31

In part to counter this power imbalance, we have seen significant hospital consolidation

http://www.wsj.com/articles/health-care-providers-insurers-supersize-1442850400

http://www.wsj.com/articles/health-care-providers-insurers-supersize-1442850400

http://www.aha.org/research/reports/tw/chartbook/2015/15chartbook.pdf

http://www.aha.org/research/reports/tw/chartbook/2015/15chartbook.pdf

44

Source: Oliver Wyman, http://issuu.com/oliverwymangroup/docs/oliver_wyman_ahip_vertical_integrat

And back to the future – payers and providers are dipping their toes in the waters of narrowed

networks and vertical consolidation

Patients

46

Americans are the best shoppers in the world and we’re starting to shop

47

Access and convenience are becoming increasingly important

Health systems are responding by increasingly trying to meet patients where they are in their neighborhood…

48

49

…or in the home with telehealth

50

Remote monitoring has not yet hit mass-market but it will inevitably play a larger role

51

Quick Stats6,380 Google Play Store ratings: 4.54 / 5 stars

1,243 Apple App Store ratings: 4.5 / 5 stars

Net Promoter Score: 58• Amex: 45• Netflix: 45• CVS: 26• Health insurance avg: 17

9,755 Facebook fans• Omada Health: 825• Propeller Health: 515

Consumers are beginning to demand healthcare experiences that are every bit as sophisticated as other

consumer experiences

Provider Strategies

Consolidation remains the dominant primary response

The health care chess board…

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem


UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery



1Build a hospital-centered health system and own most of the continuum of care

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery



2Build a multispecialty group that focuses on primary care delivery with “consulting” specialists

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery



3Build a specialty bloc that focuses on doing a few things well

59

4 Create a new model at the periphery – a reinvention of traditional primary care

60

Stepping back, some of the most successful strategies will be hybrids

61

ownershipvs

alignment

62

Advances in interoperability are making these hybrid models easier

63

Medications are manually reconciled by

the MA or provider

Vaccines, problems, allergiesare automaticallyreconciled with

source attributionnoted

All documents and notes across the

continuum of care (labs, imaging centers, discharge summaries)

are available

For the first time, a cross-system view of the patient is within reach

The Argonaut Project

66

Note: Responses from physicians in management-led organizationsSource: Bain Front Line of Healthcare Survey, January 2015

What is the most important change your organization needs to make in order to achieve its mission?

Responses from physicians in management-led organizations

Physician leadership remains the scarcest commodity

Engage Physicians

Communicate With PhysiciansImprove Tech Capabilities

Qua

lity

Pati

ent

Care

Adap

t To

Cha

ngin

g H

ealt

hcar

e La

ndsc

ape

Impr

ove

Wor

k En

viro

nmen

tBetter Access

Alignment On Mission

Incr

ease

Ser

vice

sO

ther

Stay

On

Curr

ent

Path

Increase Services Group Oversight Improve Allocation Of Resources

Align With Other Health Entities

Maintain/Increase Autonomy

Better Training

Reduced Overhead

Accountability Increase Efficiency

Reduce CostsImprove Reimbursements

Improve Leadership

Improve FacilityImprove BenefitsFocus On Staffing

Improve Org Structure

Low

er C

osts

Phys

icia

n Le

ader

ship

Grow Market Share

Focus On Niche

Increase patient TimeIncrease Marketing

Redu

ce B

urea

ucra

cy

Incr

ease

pat

ient

Vol

ume

Continue Clinical Excellence

67

The government is becoming an even bigger player and value-based payments (MU, PQRS/VBM, MSSP, CJR, MIPS, etc.) are here to stay1The patient-as-consumer movement is rapidly unfolding– developing an intentional strategy for this is crucial2With great uncertainty comes great opportunity – those who lead can gather outsized gains3

Key Takeaways

Thank You