San Francisco Health Service SystemHealth Service Board

Q2 2011 Dashboard Summary Report

A Review of Kaiser Inpatient and Outpatient Trends

February 9, 2012

Prepared by Aon Hewitt Health & Benefits

Introduction

Inpatient and Outpatient services are the primary drivers of overall costs. To better understand our cost trends, Aon-Hewitt is initiating a review of the inpatient and outpatient utilization and cost trends over the past 5 years for each vendor, starting this month with Kaiser.

Inpatient Admissions include: Surgical, Medical (includes NICU), Maternity, Psych/Substance Abuse, and Skilled Nursing.

Utilization and Unit Cost metrics for inpatient services include:− Inpatient Days Per 1000 members− Inpatient Cost per Day− Total Costs (PMPM)

Outpatient Services include: Office Visits, Laboratory, Diagnostic Imaging, Urgent Care & Emergency, and Surgical Procedures.

Utilization and Unit Cost metrics for outpatient services include:− Outpatient Procedures Per 1000 members− Outpatient Cost per Procedure− Total Costs (PMPM)

This report provides information and observations of the Kaiser Active membership only. Similar findings were seen in the Kaiser Early Retiree membership. Medicare Retirees are not reviewed as Medicare is primary and we’ve seen a reduction in premium costs.

1Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation

Kaiser Actives: Membership

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Active membership in Kaiser has increased over the past four years but the age distribution has remained relatively consistent.

Kaiser active members has increased by

3,800 members in the last four years:

2007: 32,767 2011: 36,559

Membership distribution remains

stable:

Under 20 - 26%20-44 - 35%45-64 - 37%Over 65 - 2%

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation

Kaiser Actives: Inpatient Days

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation 3

Inpatient days declined 22% in

the last four years

Medical days have remained

flat

22% decline in surgical inpatient days in the last

four years

45% decline in maternity days in

the last four years

Perhaps as a result of “Thrive” and a focus on screening and prevention, our active members in Kaiser have reduced their use of hospital services by 22%.

Kaiser Actives: Inpatient Cost per Day

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Kaiser inpatient costs are increasing at an unsustainable rate (69%over the past four years) across all types of hospital stays. These cost increases have wiped out the savings from our member’s lower use of hospital days.

79% increase in surgical cost/day in last four years

62% increase in Medical cost/day

in the last four years

69% increase in Total cost/day in

the last four years

69% increase in Maternity

cost/day in last four years

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation

Kaiser Actives: Use of Outpatient Services

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation 5

Every quarter,our 36,500 HSS active Kaiser members use:

38,000 office visits

27,000 laboratory tests

6,500 diagnostic imaging services

1,500 urgent care & ER services

1,000 outpatient surgical procedures

The use of services hasn’t changed

significantly since 2005 except for higher laboratory use.

Use of Laboratory services rose significantly (from 2500/1000 members per year to 3000/1000 members per year). Use of other outpatient services have remained relatively flat.

Kaiser Actives: Costs for Outpatient Services

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation 6

Outpatient Surgical costs have increased

40% since the low point in 2007

Urgent Care & ER costs have increased 20% in the last four

years

Overall, the cost for all outpatient services

(Total) has increased 33% in the last four

years

Overall, the costs for all outpatient services increased by 33% in the past four years

Kaiser Actives: Total Costs

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Across all services (Total), costs

increases 29% in the last four years

28% increase in Inpatient costs

44% increase in Outpatient costs

Rx costs are flat

67% increase in ‘other’ costs

This increase is due almost entirely to

cost/service increases, not

utilization increases

If Kaiser had been able to hold their Inpatient cost per day charges to a 3% increase per year (instead of the 6% per year we’ve seen), the HSS costs would have been ~$45.00 PMPM lower today.

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation

Summary of Findings: Kaiser Active Trends

� Enrollment

− There was a 12% growth in the Kaiser Active membership over the last 4 years with a stable and consistent age distribution.

� Utilization & Cost

− Kaiser active members reduced utilization of inpatient services by 22%. Use of outpatient services increased by 8% mostly driven by more laboratory services

− Kaiser cost per inpatient day and cost per outpatient procedure are increasing at an unsustainable rate (69% in 4 years for inpatient, 33% in 4 years for outpatient).

− Aon believes that these cost increases are not due to a higher intensity of services expected with an older or higher risk population. The risk profile of the Kaiser Active membership has improved over the past 4 years.

� Recommendation

− The finding of cost increases across the populations require that HSS and Aon Hewitt explore these trends with Kaiser and look for solutions to correct these cost trends.

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation 8

Glossary

Health & Benefits Consulting | February 9, 2012 | Health Service Board Presentation 9