Post on 31-Jul-2020
Redefining traditional roles amid a radically
restructuring market
State of the Union 2019—Revolution or Reformation?
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‹#›
Road mapRoad map2
The road to 20201
2 Meeting the affordability mandate
3 The new health care compact
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Current as of July 9, 2019, according to a New York Times survey of the candidates.
Source: Kirzinger A, et al., “KFF health tracking poll – January 2019: The public on next steps
for the ACA and proposals to expand coverage,” Kaiser Family Foundation, January 23, 2019.
How did we get here?
Presidential
candidates endorsing
Medicare for All, 2016
Presidential candidates supporting Medicare for All, 20201
Presidential candidates supporting public option, 20201
56%Of survey respondents favor a national health plan
in which all Americans would get their insurance
from a single government health plan
Public support for Medicare for All …if it would do the following
71%
67%
37%
37%
Guarantee insurance as a right
Eliminate premiums and out-of-pocket costs
Eliminate private health insurance
Require most Americans to pay more in taxes
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
The policy impact aside, the rise of Medicare for All is an
important indicator of the level of public discontent with
the state of the industry.
Health Care Advisory Board interviews and analysis.
The concept of Medicare for All has experienced a remarkable surge in public
and political support in recent years. It is reasonable to be skeptical about the
passage of legislation under that name—but no incumbent health care
organization can afford to ignore the growth in anger directed at the industry.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: “Federal subsidies for health insurance coverage for people under age 65: 2019 to 2029,” Congressional
Budget Office, May 2019; Witters D, “U.S. Uninsured Rate Rises to Four-Year High,” Gallup, January 23, 2019.
If upheld, challenge to ACA would eliminate coverage gains
Declining insurance coverage sparking concern
2M CBO estimate of additional uninsured
individuals in 2019 compared to 2017
ACA didn’t deliver universal coverage
Percentage of Americans who report
they are uninsured (ages 18+)
16.1% 18.0%
10.9%12.2%
13.7%
0%
10%
20%
2010 2014 2017 2018 Q4 2018
Ongoing legal challenges compounding uncertainty
Texas vs. United States
Backgro
und
Challenges constitutionality of individual mandate without
associated penalty
What’s a
t
sta
ke Argues that without mandate, constitutionality of the ACA in
its entirety should be struck down
Curr
ent
Sta
tus
District
Court
Supreme
Court
Fifth
Circuit
Appeals
court
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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As health status declines, receptivity to governmental intervention rises
Worsening public health adding fuel to the fire
Health Care Advisory Board interviews and analysis.
“U.S. officials say measles cases
hit 25-year record high”
“U.S. life expectancy declines again, a
dismal trend not seen since World War I”
“Millennials are less healthy and more
depressed than Gen X, report finds”
“U.S. teen opioid deaths soaring”
“How the opioid epidemic became
a uniquely American problem”
“A global health scorecard finds
U.S. lacking”
TIME
The Washington Post
Rolling Stone
USA Today
U.S. News & World Report
The New York Times
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Projected for 2017.
2. Inpatient Prospective Payment System.
Source: “Wage Growth Tracker,” Federal Reserve Bank of Atlanta, May 9, 2019; Kamal R and Sawyer B, “How much is health spending expected to
grow?” Kaiser Family Foundation, March 12, 2019; Girod C, et al., “2018 Milliman Medical Index,” Milliman, May 2018; “2019 annual report of the boards
of trustees of the federal hospital insurance and federal supplementary medical insurance trust funds,” Medicare Board of Trustees, April 22, 2019.
Consumers and policymakers grapple with unsustainable cost trajectory
Unaffordability is the biggest catalyst of all
Health Care Advisory Board interviews and analysis.
Consumer unaffordability Government unaffordability
Expiration of ACA rate adjustment in 2019 means higher rate
increases—and worsened budgetary problems for CMS
2026 Estimated date by which Medicare’s trust
fund will be depleted, 3 years earlier than
previously expected
$1,350 Average deductible among covered
workers in 2018 for single coverage
+3.2%Estimated payment rate update in FY
2020 if IPPS2 rule is finalized as proposed
Health economic indicators
Cumulative increase; Indexed to 100% in 2009
2009 2017
Wages
Private health
insurance spending1
Employee contribution
Employer contribution
123%
139%
169%
100%
142%
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
Unaffordability is the single most important motivating
factor behind growing public and political receptivity to
disruptive solutions.
Health Care Advisory Board interviews and analysis.
While much of the debate about Medicare for All centers on coverage, it is
concerns about health care affordability that have grown the most in recent
years—particularly affordability to the patient. Anxiety about unaffordability is
driving not only the increased receptivity to Medicare for All, but disruptive
solutions writ large.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. From last year of available data for each sector; Advisory Board analysis of IBISWorld industry reports. Source: “IBISWorld industry reports,” IBISWorld, 2016-2019.
Usual suspects in the line of fire
Health Care Advisory Board interviews and analysis.
Hospital20.26%
Insurance19.62%
Physician13.73%
Biotech and Pharma Manufacturing
11.12%
Practice Managemet
9.22%
Other Provider6.71%
Post-Acute5.91%
PBM3.62%
Pharmacy2.89%
Ancillary2.28%
Other1.69%
Vendor1.58%
Device Manufacturers
1.38%
Share of profits in health care industry1 Who’s feeling the heat in 2019?
Hospitals Insurance and TPAs
Physicians
Biotech and pharma
Practice management
PBMs
Competitive, purchaser, and/or policy uncertainty
Stable, winning favor
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Road mapRoad map10
The road to 20201
2 Meeting the affordability mandate
3 The new health care compact
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
11
Three questions shaping the future of the health care economy
On the cusp of something big?
Health Care Advisory Board interviews and analysis.
How far will purchasers go
to attain affordability?
How will the delivery system
respond to the affordability
mandate?
How can innovation help solve
the affordability problem?
1 2 3
• Rise of top-down spending controls
• Facilitation of consumer-led
shopping
• Refinement of provider-facing
risk models
• Resurgence of the autonomous
physician
• Aggregation of single-specialty
medicine
• Segmentation of primary care
• Advancement of AI-enabled
economies of scale
• Deployment of intentional innovation
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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PRIMARY GOALS STATUS TODAY
Off-load greater financial
responsibility to patients
Cumulative out-of-pocket
spending increased by 12.2%
from 2013 to 20171
Incentivize consumers to
seek high-value care
Workers with deductibles are
more likely to delay care;
deductibles reduce use by 13.8%2
Encourage competition
between providers on
basis of price
Little evidence of shopping
beyond imaging; only 14.4% of
HDHP3 enrollees shop based
on price
PRIMARY GOALS STATUS TODAY
Elevate delivery of
high-quality care
MedPAC calls for overhaul of
Medicare quality payment
programs in March 2019
Eliminate incentives
encouraging delivery of
unnecessary care
38% of Medicare payments
tied to APMs4 as of 2018,
compared to goal of 50%
Reduce government
spending on health care
Medicare spending growth
accelerated to 5.9% in 2018
1. Employer-sponsored insurance.
2. For those with a deductible greater than $1,000.
3. Defined as deductible amount greater than $1,350.
4. Alternative payment models.
Source: “2017 health care cost and utilization report,” HCCI, February 2019; Brot-Goldberg Z, et al., “What does a deductible do? The impact of cost-sharing on health care prices,
quantities, and spending dynamics,” NBER, October 2015; Kullgren J et al., “A survey of Americans with high-deductible health plans identifies opportunities to enhance consumer
behaviors,” HealthAffairs, March 2019; “Medicare payment policy: 2019 report to the congress” MedPAC, March 2019; “National Health Expenditure Projections 2018-2027,” CMS,
February 2019; “HHS not adhering to Obama admin's 2018 value-based payment goals,” Daily Briefing, February 21, 2018; “Progress of alternative payment models,” HCP LAN, 2018.
The era of risk-shifting has yielded decidedly mixed results
Reflecting on the last era of payment reform
Health Care Advisory Board interviews and analysis.
Payers
Private payers shifted risk to consumers Public payers shifted risk to providers
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At a crossroads: Revolution or reformation?
Health Care Advisory Board interviews and analysis.
Purchasers ramping up across two types of strategies to control spending
Top-down
reforms
Market-based
reforms
“Revolution” “Reformation”
Single payer Spending caps Provider-borne riskFacilitated consumer
shopping
Purchaser
means to
control spending
• Establish single
governmental payer
• Use centralized
rate-setting to establish
payment
• Index payment to “fair
market value”
• Institute a global cap on
annual spending
growth
• Eliminate payment and
regulatory barriers to
high-value care
• Incentivize PCPs to
promote efficient use of
downstream care
• Create stricter
transparency
requirements
• Tweak benefit design to
encourage shopping
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
Even as purchasers continue to refine market-based
reforms, the limited success of those reforms has
increased the likelihood of government intervention.
Health Care Advisory Board interviews and analysis.
The past decades’ worth of reforms attempted to improve quality and control
spending by shifting risk to providers and consumers. Results have been mixed
at best. While purchasers continue to evolve these approaches, various
stakeholders are losing patience—and looking to top-down, governmental
solutions to supplement (if not replace) market-based reforms.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Advisory Board is a subsidiary of UnitedHealth Group. All Advisory Board research,
expert perspectives, and recommendations remain independent. Source: Armstrong D and Tozzi J, “Health stocks crumble as
fears of ‘Medicare for All’ snowball,” Bloomberg, April 17, 2019.
10 years post-ACA, major industry overhaul is back on the table
Medicare for All puts a dent in the industry outlook
Health Care Advisory Board interviews and analysis.
Anthem Inc.
UnitedHealth Group1
Decrease in stock prices one week after release of Sanders’ proposal
-18%
-12%
$28BCombined loss in market value among
hospitals and insurers, April 16, 2019
Medicare for All
Act of 2019
Introduced by: Sanders,
Baldwin, Blumenthal, Booker,
Gillibrand, Harris, Leahy, Markey,
Merkley, Schatz, Udall, Warren,
Whitehouse, Hirono
April 10th, 2019
HCA Healthcare Inc.
Community Health Systems
-16%
-5%
Pfizer Inc.
-7%
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: White C and Whaley C, “Prices paid to hospitals by private health plans are high relative to Medicare and vary widely,” RAND, 2019;
“Health sector economic indicators: Price brief,” Altarum, March 15, 2019; Schulman K, “The implications of ‘Medicare for All’ for US
hospitals,” JAMA, April 4, 2019; Goldsmith J, et al., “Medicare expansion: A preliminary analysis of hospital financial impacts,” Navigant, 2019.
Medicare for All proposal would entail large reimbursement shift
A clear threat to the cross-subsidy
Health Care Advisory Board interviews and analysis.
241%Percentage that private health
insurance pays hospitals compared
to Medicare, on average
Employers shoulder an outsized
share of health care costs
Cumulative hospital price
growth by payer segment
June 2014–February 2019
12%
6%
1%
Privatepay
Medicare Medicaid
Initial Medicare for All projections paint
bleak picture for hospital finances
22%Projected decline in net margin
at model health system under
Medicare for All
15.9%Projected net decline in
hospital revenue under
Medicare for All
JAMA
Navigant
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Considerable variability in current proposals
Health Care Advisory Board interviews and analysis.
Comparing plans to expand public coverage
Medicare for All Medicare public option Medicare buy-in at 50 Medicaid buy-in
Proposed
approach
Would transition all U.S.
residents to a national
health insurance plan
Would offer a public health
plan tied to Medicare fee
schedule as an option on
the public exchanges
Would offer Medicare Parts
A and B and/or Medicare
Advantage as options on
the exchanges for those
aged 50-64
Would allow states to offer
Medicaid coverage as an
option on the public
exchanges
Disruptive
potential Very high High Medium Low
Current
supporters
• Bernie Sanders
• Kamala Harris
• Elizabeth Warren
• Cory Booker
• Kirsten Gillibrand
• Joe Biden • Debbie Stabenow
• Nancy Pelosi
• Amy Klobuchar
• Brian Schatz
• Ben Ray Luján
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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A cheat sheet for extrapolating general effects on the bottom line
How to decipher any given proposal’s impact
Health Care Advisory Board interviews and analysis.
Key questions
Target population
• Does the proposal target only the currently uninsured, or would it shift those with private insurance to
public insurance?
• Would coverage be mandatory or optional?
Reimbursement level • At what level will payment be set?
• How do rates compare on an aggregate basis considering current uncompensated care costs?
Timeline for implementation • How quickly would changes be phased in?
Administrative impact• To what extent will the proposed changes result in decreased administrative costs through simplified
revenue cycle operations?
Impact to utilization • Will decreased cost sharing, broader payer networks, or expansion of coverage to previously
uninsured populations increase health care utilization?
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Non-comprehensive overview of 2019 proposals and announcements
States testing a range of spending caps
Health Care Advisory Board interviews and analysis.
1. State innovation model.
Price cap
WA: Legislature passes “public
option” proposal for the exchanges;
caps rates at 160% or Medicare
MT: Announces $13.6M savings
from indexing rates to Medicare for
state health plan
WY: Requesting waiver to reimburse
for all air ambulance services in the
state at Medicaid rates
CA: Sets payment for surprise out-
of-network bills at greater of 125%
of Medicare’s rate or the average in-
network rate in the region
Per capita cap
NH: All-payer ACO model limits
expenditure growth to 3.5%; sole SIM1
model to slow increase in spending
MD: Expands all-payer global budget
program to outpatient services, setting a
per capita limit on total cost of care
UT: Received waiver for partial Medicaid
expansion with annual spending caps
Global spending cap
TN: Approved legislation for
state to submit Medicaid block
grant proposal to CMS
LA: “Netflix model” caps
spending for Hepatitis C drugs
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Georgia and Tennessee have not expanded Medicaid; Alaska has expanded Medicaid.
2. The Trump administration has rejected Utah’s request for partial expansion as of July 2019.
3. Federal poverty level; estimated 40K fewer people covered compared to full expansion. Source: “Status of state Medicaid expansion decisions,” Kaiser Family Foundation, May 13, 2019.
Funding caps could limit enrollment and reimbursement prospects
Block grants for Medicaid back on table
Health Care Advisory Board interviews and analysis.
Medicaid program status
Have not expanded MedicaidExpanded Medicaid
Per capita cap
Open questions
States submit Medicaid spending cap waivers
Block grant debated by
state officials1
► Will other states use flexibility
granted by CMS to only partially
expand Medicaid?
► Does CMS have the authority to
approve block grants under current
law?
► If block grants are approved, how will
enrollment, Medicaid financing, and
provider rates be affected over time?
Utah2 Tennessee
CoveragePartially expands Medicaid to
100% FPL3
Non-expansion state; first state to
submit block grant proposal to
CMS
Federal
funding
For expansion population, federal
government pays 90% of enrollee
costs, with annual spending cap
Lump sum payment given to
state; funding rises with
population growth and inflation,
rather than enrollment
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Compared to 16 other developed economies for 27 Part B drugs included in CMS’s analysis.
Proposals push beyond incremental changes
Bringing out the sledgehammer for pharmacy prices
Health Care Advisory Board interviews and analysis.
Providers
Lower reimbursement for
administered drugs
PBMs
Shift in sources of
revenue and profit
Drug manufacturers
Greater competition and
pricing pressure
Range of price controls under debate
Index and/or cap
reimbursement to rates paid
by international governments
(U.S. pays 80% more for
drugs on average1)
Modify patent laws and FDA
approval processes to limit
exclusivity periods and
promote generic entry
Give the federal government
the authority to negotiate—
or centrally set—the prices
of drugs
Stakeholder implications
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: Adler L, et al., “State approaches to mitigating surprise out-of-network
billing,” USC-Brookings Schaeffer Initiative for Health Policy, February 2019.
Implications for network design and contract negotiations could be drastic
Bipartisan agreement: Surprise bills must go
Health Care Advisory Board interviews and analysis.
No Surprises Act
Sponsors: Rep. Frank Pallone (D-NJ),
Rep. Greg Walden (D-OR)
Lower Health Care Costs Act of 2019
Sponsors: Sen. Lamar Alexander (R-TN),
Sen. Patty Murray (D-WA)
Price indexingPrice mandates
Potential implications
Several different legislative solutions proposed to address payment
for surprise medical bills
Plan pays median
in-network
negotiated rate
Price indexed to
Medicare rates
► Shifts negotiating leverage toward
payers by decreasing incentive to
include providers in-network
► Could increase receptivity to
price indexing or price
mandates in other scenarios
Arbitration
Third party resolves
payment dispute
Network matching
Physicians and
hospitals required to be
in same payer network
Surprise billing
legislation up
for debate
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
Focus on single payer obscures the fact that top-down
spending controls are becoming more politically
palatable on both sides of the aisle.
Health Care Advisory Board interviews and analysis.
While Medicare for All represents an extreme manifestation of rate-setting, it is far
from the only form of spending control under debate in the political sphere. As
legislators look to address state budgetary shortfalls, skyrocketing
pharmaceutical prices, and surprise hospital bills, more hard-edged price caps
and spending controls are attracting bipartisan support.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Purchasers learning difficult lessons along the way
Not giving up on market-based reforms altogether
Health Care Advisory Board interviews and analysis.
HDHPs are too blunt—and too limited—a tool to exert large-scale
pricing pressure on the market.
Financial risk without meaningful transparency only serves
to enrage patients.
Upside-only risk arrangements are insufficient to change long-standing
practices, and likely to cost payers in the long term.
Independent physician groups have been able to pivot to risk-based
models more successfully than hospital-based organizations.
Even under risk-based models, reimbursement and regulatory barriers
often prevent providers from delivering high-value care.
Facilitation of
consumer-led shopping
Refinement of provider-
facing risk models
1
2
3
4
5
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Revisiting the prerequisites for shopping—and their absence in health care
Health care is hardly a functional consumer market
Health Care Advisory Board interviews and analysis.
Choice Meaningful variation in price
and/or quality
Significant variation between
new and existing players
Transparency Ability to compare between
different options that are available
Reviews increasingly
accessible, but price
comparisons remain elusive
Necessary conditions for shopping
Necessary condition Current state in health careDescription
Financial
responsibility
Consumer has financial stake in
purchasing process
Incentive to shop limited to
services under deductible;
coinsurance impact limited
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Struck down by a federal judge on July 8, 2019; HHS currently
working with Department of Justice to determine next steps.
Source: Florko N, “Drug makers will have to include prices in TV ads as soon as this summer,” Statnews, May 8, 2019; Executive Order 13877 on Improving Price and
Quality Transparency in American Healthcare to Put Patients First, June 24, 2019; Remarks by President Trump at Signing of Executive Order 13877, White House.
A renewed push to mandate transparency
Health Care Advisory Board interviews and analysis.
Hospitals must post list prices
online as of January 1, 2019
Drug makers required to disclose list
prices in TV ads for prescription drugs1
Administration’s actions on health care transparency in 2019
“We are fundamentally changing the nature of the health care marketplace…
prices will come down by numbers that you won’t even believe.”
—President Donald Trump
CMS builds app-based out-of-pocket
cost calculator for Medicare procedures
and drugs and procedure price lookup tool
Finalized regulations Impending regulations
June 24, 2019: Executive Order on Improving
Price and Quality Transparency
Directs federal agencies to create regulations requiring
hospitals and insurers to disclose prices and provide
pre-service bills
July 29, 2019: Proposed Hospital Outpatient
Prospective Payment Rule
Requires hospitals to publish payer-specific negotiated
charges and prominently display charges for 300
“shoppable” procedures
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: Appleby J, “Cat bites the hand that feeds; hospital bills $48,512,” NPR, February 26, 2019.
Negotiated rates still start with sticker price
Chargemaster transparency not a meaningless reform
Health Care Advisory Board interviews and analysis.
Unexpected bill leads to public outcry
Patient arrives at
ED after cat bite
Patient charged list price
of $46,422 for rabies
immune globulin
Newspaper calls hospital to
inquire about charge; hospital
confirms charge was accurate
Hospital drops list price for
drug 79% in anticipation of
the January 1 transparency
requirement
$48,512Total amount billed to patient
and her insurance for ED visit
Amount of bill attributable to one
preventive medication ($46,422)
96%
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: West MG, “How much should a knee replacement cost? NYC City Council wants to find out,” The Wall Street Journal, November 16, 2018.
Labor union targets rate variation at NYC hospitals
Health Care Advisory Board interviews and analysis.
Price variation highlighted in 32BJ campaign
Average price paid
at NYC hospitals
Average price paid
at Hospital A
Hip replacement $57,568 $82,843
Vaginal delivery $16,675 $23,634
Cataract surgery $4,352 $10,929
32BJ Health Fund
Self-funded plan for Local 32BJ of the Service
Employees International Union • New York, New
York
• Examined claims data and determined they
were paying higher prices at one health
system relative to prices paid at other
comparable hospitals in the NYC area
• Highlighted health system with higher
prices in public ads; this motivated hospital
to negotiate with plan to remain in network
CASE EXAMPLE
ENDOSCOPY RATES
$3,056 at average
NYC hospital
$7,860 at
Hospital A
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: White C and Whaley C, “Prices paid to hospitals by private health plans are high relative to Medicare and vary widely,” RAND, 2019.
RAND study illuminates employer cross-subsidy and price variability
Exposing the cost shift to activate employers
Health Care Advisory Board interviews and analysis.
241% Percentage that private health
insurance pays hospitals compared
to Medicare, on average
RAND: Prices paid to hospitals by
private health plans are high relative to
Medicare and vary widely
Scope of study:
• 4M covered lives
• 25 states
• 1,598 hospitals (identified by name)
• Commercial claims data from 2015 to 2017
Key audiences for the report
• Self-insured employers that have
participated in the study and that are
assessing the reasonableness of the
prices they are paying for hospital care
• Other employers that are struggling with
high and rising health care costs and
want to better understand patterns and
trends in hospital prices
• Policymakers and researchers who are
concerned with hospital pricing and price
transparency
EXCERPT
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: “2018 annual survey: Employer health benefits,” Kaiser Family Foundation, 2018.
Most employers recognize HDHP shortfalls—and are looking beyond
HDHPs not the silver bullet
Health Care Advisory Board interviews and analysis.
Two major shortfalls of HDHPs
“Too blunt”
“Too limited”
HDHPs lead to delays in care and reductions
in utilization for all services below the
deductible, including preventive care.
HDHPs do not encourage price shopping for
services above the deductible, including
many high-cost, “shoppable” services.
Off-loading more costs to patients
Average annual deductible for single coverage
$0
$400
$800
$1,200
$1,600
2009 2018
$1,350
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Assumes coinsurance sharing rate of 19%. Source: “2018 annual survey: Employer health benefits,” Kaiser Family Foundation, 2018.
Despite increases in plans with coinsurance, few services are “shoppable”
Coinsurance a partial—but still limited—solution
Health Care Advisory Board interviews and analysis.
68%
40%
50%
60%
70%
2009 2018
Hospital admissions Outpatient surgery
69%
In theory, rise in coinsurance provides
incentive to shop beyond deductible
Percentage of workers in a plan with hospital and
outpatient coinsurance
In practice, out-of-pocket max still limits
incentive to shop
Price threshold where consumer hits out-of-pocket max
Plan type1 Price threshold
Generous plan
• Deductible: $800
• OOP max: $2,000
<$7,000
Average plan
• Deductible: $1,600
• OOP max: $3,872
<$13,500
Skimpy plan
• Deductible: $3,200
• OOP max: $6,000
<$18,000
1
2
3
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: Evans M, “Walmart, other employers get choosier about workers’ doctors,” The Wall Street Journal, April 4, 2019;
Galewitz P, “Walmart charts new course by steering workers to high-quality imaging centers,” Kaiser Health News, May 15, 2019.
Walmart evolves and expands financial incentives to ensure COE use
Targeting cost exposure at the provider level
Health Care Advisory Board interviews and analysis.
2013 2017 2019
Raises employee cost-sharing to
50% for use of non-COE locations for
spine surgery
Mandates use of a COE location for
spine surgery; raises cost-sharing for
use of non-certified imaging centers
Offers zero cost-sharing for use of a
center of excellence (COE) location for
heart, hip and knee replacement, and
spinal procedures
Savings come from surgery avoidance
Have
surgery
Employee surgeriesWalmart paymentsWalmart
Retail corporation with 1.5M employees • Bentonville, Arkansas
• Starting in 2019, employees must use a Center of Excellence
location for spine surgery or else pay the full cost at a non-COE
location; selected 800 preferred imaging centers to improve
diagnostic accuracy and reduce unnecessary procedures
• Since the program’s inception, Walmart has expanded the number
of COE locations to 15 health systems (including Mayo Clinic,
Cleveland Clinic, and Johns Hopkins) and expanded the number of
surgical episodes it covers under the program
CASE EXAMPLE
$32K$29K
COE location Non-COE location
54%
46%
Avoid
surgery
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. UnitedHealthcare has an investment relationship with Bind. Advisory Board is a subsidiary
of UnitedHealth Group, the parent company of UnitedHealthcare. All Advisory Board
research, expert perspectives, and recommendations remain independent.
Bind1 varies employee obligation by value of service
Reorienting benefit design around value
Health Care Advisory Board interviews and analysis.
Savings for employers
compared to original plans
10%–15%
Of Bind members have an
account on the company’s portal
75%
Copays range from $15–$500Additional premiums and copays
vary by member choice of provider
Add-in coverage
Core coverage
• Preventive care
• Primary and specialty care
• Urgent, emergency, and hospital care
• Chronic care
• Pharmacy needs
86%Of consumers choose lowest
cost provider when selecting
add-in coverage
• Plannable procedures not covered by core
insurance
• Treatments with low efficacy and wide
variation in prices for the same quality of care
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
Case in brief
34
• Bind offers on-demand health insurance with a baseline core product of
essential health services and add-in coverage that members can
purchase as needed
• Add-ins provide up-front prices for treatments that can be planned
• Bind sets prices for add-in services based on each physician’s historical
costs and outcomes performance
• Members see up-front prices on Bind’s mobile app and select among a
list of providers; 75% of members have an account on the app
• Bind offers 10%-15% savings to employers on average compared to
traditional self-insured products
Health insurance start-up | Minneapolis, Minnesota
Bind Health
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
Employers are moving beyond the blunt force of HDHPs
and are increasingly attaching financial consequences
to specific, low-value choices.
Health Care Advisory Board interviews and analysis.
With evidence mounting that HDHPs decrease utilization for both high- and low-
value services, employers are looking to more targeted forms of cost-sharing to
shift employee behavior. The next generation of benefit design is likely to include
more nuanced enrollee-facing incentives—and penalties—to steer at two levels:
among different providers and toward (or against) specific clinical services.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
36
Traditional
fee-for-servicePay-for-performance
Shared savings and
bundles
Population-based
payments1
Medicare
Advantage48.0% 2.5% 39.2% 10.3%
Original
Medicare10.5% 51.2% 33.8% 4.5%
Medicaid 67.8% 7.2% 20.8% 4.2%
Commercial 56.5% 15.2% 26.6% 1.7%
All-
payer41.0% 25.4% 29.8% 3.8%
1. Prospective PMPM payments, global budgets or full/percent of premium payments, and
integrated delivery systems. Source: “Progress of alternative payment models,” HCP LAN, 2018.
Pace of transition to risk highly variable across payer segments
Checking in on the alternative payment landscape
Health Care Advisory Board interviews and analysis.
Progression to
alternative payment
methodology
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
37
Medicare Advantage continues rapid growth
Health Care Advisory Board interviews and analysis.
Source: “Medicare Advantage premiums continue to decline while plan choices and benefits increase in 2019,” CMS,
September 28, 2018; Jacobson G, “A dozen facts about Medicare Advantage,” Kaiser Family Foundation, November 13, 2018.
24%
36%
50%
10%
20%
30%
40%
50%
60%
2010 2019 2027
Medicare Advantage penetration, historical
and projected
Projected based on
historical trendHistorical
Expansion of supplemental benefits
Plans can cover services that diagnose, prevent,
or improve effects of health conditions, as well
as other non-medical services that address
social determinants of health
New flexibilities finalized by CMS in 2019 could
further boost enrollment
Custom benefit design
Plans can design disease-specific benefits for
enrollees with chronic or high-risk conditions
(e.g., reduced co-pays for diabetic enrollees)
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Emergency triage, treat, and transport. Source: Porter S, “Verma: CMS developing more mandatory payment models,” April 26, 2019.
CMS continues its multi-front advance toward value
Health Care Advisory Board interviews and analysis.
Decrease regulatory barriers
to value-based care
Refine alternative
payment model optionsMandate participation
• Allow MA plans and Medicaid MCOs
to use government funds to cover
non-medical services
• Expand reimbursement for telehealth
services
• Allow ambulance care teams greater
flexibility (ET3)1
• Investigate reforms to Stark law to
enable care coordination
• Revamp ACO program to accelerate
transition to downside risk
• Establish shared risk/reward
program for Part D plans
• Create global risk-sharing model for
primary care providers and risk-
bearing entities
• Propose mandatory Radiation
Oncology bundled payment model
(RO) for radiotherapy treatment of
17 common cancer types
• Propose mandatory End-Stage
Renal Disease Treatment Choices
payment model (ETC) for End-
Stage Renal Disease (ESRD)
treatment facilities and clinicians
who manage beneficiaries with
ESRD
Administration actions on value-based payment in 2019
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
39
Source: “Remarks by Administrator Seema Verma at the Federation of
American Hospitals 2019 public policy conference,” CMS, March 4, 2019.
Changes purport to eliminate barriers to care coordination
Verma: Stark reforms coming in 2019
Health Care Advisory Board interviews and analysis.
Three strategic implications rise to surface
New flexibilities to distribute
incentive payments and shared
savings payments between
physicians and hospitals
Opportunities to make shared
infrastructure investments with
independent physicians (e.g.,
data/analytics)
Partnerships with nontraditional
groups, including distributors, medical
device, home health, and
pharmaceutical manufacturers
Likely Stark reform
Expand and standardize safe harbor protections
beyond current waiver system in exchange for a
willingness to participate in alternative payment
methodologies
[CMS reforms will] represent the most significant changes
to the Stark law since its inception…It is our hope that
these changes will help spur better care coordination and
help support our work to remove barriers to innovation.”
—Seema Verma, Administrator, CMS
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
40
1. Medicare Shared Savings Program.
2. Previous Track 1 participants must begin participation at Level B; previous participants in
risk-based models (e.g., Tracks 2 or 3) may not participate in BASIC track. Source: CMS, “Final Rule Creates Pathways to Success for the
Medicare Shared Savings Program,” December 21, 2018.
New MSSP1 rule eliminates upside-only Track 1
Pushing providers out of the shallow end
Health Care Advisory Board interviews and analysis.
Current model
New model
Program overhaul reduces upside-only participation from six years to two
Illustrative participation pathways to maximize time in upside-only models
Year 7Year 3
Enter BASIC Track2
Level A Level B Level C Level D Level E
Share
rate up to 40%;
no losses
Share
rate up to 40%;
no losses
Share
rate up to 50%;
30% loss rate
Share
rate up to 50%;
30% loss rate
Share
rate up to 50%;
30% loss rate
Enter ENHANCED Track
Share rate up to 75%;
Shared loss rate between 40%-75%
(1 minus sharing rate)
Enter Track 1 Renew Track 1 Enter Track 2 or 3
Share rate up to 50%; no losses Share rate up to 50%; no lossesShare/loss rate up to 60% (Track 2)
or 75% (Track3)
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
41
1. 50% shared savings or shared losses for total cost of all Part A and Part B services.
2. Upside of up to 50% of revenue and downside of up to 10% of revenue.
3. The model will be offered in 26 regions: Statewide: AK, AR, CA, CO, DE, FL, HI, LA, ME,
MA, MI MO, NE, NH, NJ, ND, OK, OR, RI, TN, VA; Regional: Buffalo, NY, North Hudson-
Capital region NY, Greater Kansas City, Philadelphia, Northern Kentucky.
4. High need population.Source: “Direct Contracting,” CMS Newsroom, April 22, 2019; “Primary Care First:
Foster independence, reward outcomes,” CMS Newsroom, April 29, 2019.
CMS announces new “Primary Cares” models for 2020
Doubling down on primary care
Health Care Advisory Board interviews and analysis.
Direct Contracting (DC)
Offers primary care practices and other risk-bearing
entities three new payment model options with variable
scope of contracted services and downside risk
Primary Care First (PCF)
Offers primary care practices simplified population-
based payments, flat-rate visit fees, performance-based
incentive payments,2 and performance transparency to
groups that meet the following criteria:
DC Professional
Capitation for primary care services; 50% shared risk1
DC Global
Capitation for services across sites; 100% shared risk
DC Geographic
Capitation for all care within a defined region; 100%
shared risk
1 2
• Located in a participating region3
• Primary care services make up 70% of
collective billing revenue
• Minimum of 125 Medicare beneficiaries
per location
• 2015 Certified EHR technology
• Network of non-primary care services to
meet seriously ill patient needs (e.g.,
hospice, palliative care)HN
P4
option
Genera
l op
tion
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
42
1. Tax identification number.
Source: “Direct Contracting,” CMS Newsroom, April 22, 2019; “Primary Care
First: Foster independence, reward outcomes,” CMS Newsroom, April 29, 2019.
New models “Foster Independence, Reward Outcomes”
Downplaying importance of size, access to capital
Health Care Advisory Board interviews and analysis.
Initial ACO eligibility
requirements favored hospitals
New models encourage smaller,
non-hospital partners
Required scale
• Have enough physicians to manage a minimum
of 5,000 Medicare FFS beneficiaries
• Must be in same TIN1 and participating TINs
must be clinically integrated
Required capital reserves
• Must be able to cover expense of population health
investments a year or more before savings distributed
• Must invest in IT integration to meet quality reporting
requirements and enable data mining
Welcomes smaller practices
• Primary Care First requires only 125 beneficiaries to
participate
• Voluntary alignment may help attract more
beneficiaries to meet minimum Direct Contracting
model requirement
Eases capital requirements
• Earlier performance reconciliation and payout
• Enhanced data sharing may reduce need to invest
in EHR integration
Offers salary enhancement
CMS officials estimate that a PCP making $200K
today could make $300K under the model
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
43
Advisory Board insight
Signaling its new faith in physician-led steerage, CMS is
adding enticements to make it difficult for PCPs not to
participate in value-based models.
Health Care Advisory Board interviews and analysis.
As the evidence behind the success of physician-led models grows (particularly
in contrast to hospital-led approaches), the federal government is introducing new
models that cater to physician practices. Perhaps most importantly, CMS has
indicated a willingness to reallocate spending to primary care in an attempt to
decrease spending across the rest of the continuum.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
44
1. Advisory Board is a subsidiary of Optum. All Advisory Board research, expert
perspectives, and recommendations remain independent.
Source: Schnurman M, “Why PepsiCo is paying D-FW employees to go to the doctor's office,” The Dallas Morning News, December 2, 2018; “Atrius Health, Blue Cross Blue Shield of
Massachusetts announce deeper collaboration to transform health care experience,” BCBS of MA Newsroom, February 7, 2019; “CareFirst PCMH Program Background, History and
Results (2011-2016),” CareFirst BlueCross BlueShield, Q2 2017; Japsen B, “Humana to expand senior care clinic network to new markets,” Forbes, March 19, 201.
Both public and private payers looking to physicians
Health Care Advisory Board interviews and analysis.
CMS creating tailored value-based care
programs for physicians
Private payers creating closer
relationships with physicians
Refining existing ACO program
MSSP overhaul includes distinction between high- and
low revenue ACOs to create lower-risk participation
option for physician groups
Creating new “Primary Cares” models
• Primary Care First track targeted to individual
physician practices
• Direct Contracting track targeted to large medical
groups and risk-bearing entities
Employers promoting independent PCPs
PepsiCo Inc. waives premiums for employees that use an
independent physician in Dallas-Fort Worth
Health plans offer path to value
• BCBS of Massachusetts and Atrius announce seven-
year deal that pays a prospective, capitated amount for
130K commercial PPO members
• CareFirst PCMH model offers practice support without
downside financial risk
Health plans building hospital-less IDNs
• OptumCare1: 17 networks across 13 states
• Humana: 233 owned, joint-ventured, and alliance clinics
across 30 markets
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
45
North Carolina market characteristics
1. Large group market in 2017.
Source: “Healthy Marketplace Index,” Health Care Cost Institute, 2019; “Market share and
enrollment of largest three insurers-large group market,” Kaiser Family Foundation, 2017.
Private and public sectors mount aggressive strategies to manage spending
Is North Carolina now the epicenter for change?
Health Care Advisory Board interviews and analysis.
Public sector Private sector
State moves to Medicaid managed care BCBS of North Carolina mandates
transition to downside risk for commercial
contracts through Blue Premier program
Visionary leader
Patrick Conway became CEO of
Blues plan after role as CMMI
director and CMS’s CMO
Unsustainable cost trends
Charlotte is the 10th most
expensive metro area in the U.S.
based on health care prices
Dominant payer
Blues plan has 63%
market share in the state1
High consolidation activity
Region’s major health
systems merge (Atrium-
Wake, Mission-HCA)
Treasurer proposes reference-based
pricing for state health plan to manage
budget shortfall
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
46
Source: Sharp JP, et al., “Engineering a rapid shift to value-based
payment in North Carolina,” NEJM Catalyst, January 23, 2019.
Creating a path to value for independent PCPs
Health Care Advisory Board interviews and analysis.
Requiring hospitals to take on
downside risk
Blue Premier requires hospitals
to transition to two-sided risk by
contract year three
Providing support for
independent PCPs
Partnering with Aledade to give
independent PCPs an option to
participate in Blue Premier program
Enabling primary care
innovators to enter market
Partnering with CareMore Health,
Iora Health, and CityBlock Health
to build Medicare- and Medicaid-
focused clinics across state
Actions taken by BCBS of North Carolina
Blue Cross and Blue Shield of North Carolina
Nonprofit health plan with 3.9M members • Based in Durham, North Carolina
• Launched Blue Premier commercial contract, which is modeled off of the NextGen ACO Model and
BCBS of Massachusetts Alternative Quality Contract
• Risk and base sharing rate selected by ACO at 50%, 75%, or 100% symmetrical savings and losses
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
47
Source: Roberts D, “Doctors ‘step off the treadmill’ and detail why they
are splitting off from Novant,” The Charlotte Observer, March 7, 2019.
Groups view autonomy as most viable path to control costs
Physician groups break from region’s health systems
Health Care Advisory Board interviews and analysis.
We have two great health care systems
in Charlotte. We’re lucky. Atrium and
Novant provide excellent care. Not to
their own fault, but we’re dealing with a
system that is unsustainable…As
physicians, we’re on the front line.
Our pen writes most of the cost
that’s there, so we’re at the front line
to really impact that cost.”
—Dr. Ehab Sharawy, Holston Medical Group
Physician discontent reaches a breaking point
Secession from Atrium Defection from Novant
Tryon Medical Partners
• Newly formed independent
practice created by former Atrium
physicians
• 89-physician multispecialty group
Holston Medical Group
• Existing group that Novant’s
former physicians have joined
• 40-physician multi-specialty group
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Common sentiments could call allegiances into question nationwide
North Carolina’s physicians are not alone
Health Care Advisory Board interviews and analysis.
Physician backlash against health system
employment stems from many factorsThird parties provide attractive alternatives
Clinical autonomy
and practice
supports
Productivity-based model leaves less time with
the patient (real or perceived)►
Compensation often based on physician and clinic
contract performance, with more control over panel size
Perception of top-down “protocolization” of clinical
practice and operations►
Practice leadership and clinical decision-making left to
physicians
Insufficient practice support staff and workflow
supports promotes burnout►
Ambulatory-focused support to improve clinical
performance, patient experience, and access to care
Business and
financial
opportunities
Growth capital is going to other parts of the
organization, rather than the practice►
Control over ambulatory strategy and investment in new
care sites (e.g., ASCs)
Missed value-based contracting opportunities
from being hospital-based—and higher cost► Leverage low-cost network to win purchaser contracts
More competitive salary can be offered by non-
hospital organizations due to Stark regulations►
Give physicians an equity stake in growth of the practice
or offer higher than “fair market value” compensation
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
49
Advisory Board insight
Successful execution against the goals of physician
employment is fast becoming a disadvantage as
well-capitalized third parties target physician discontent
and offer a path to autonomy.
Health Care Advisory Board interviews and analysis.
While the trend toward health system employment continues to grow nationwide,
physician loyalty to hospitals is not a foregone conclusion. Discontent with the
loss of autonomy associated with employment—combined with the proliferation of
third parties that offer alternatives and payer interest in fostering independence—
are putting the physician market in a state of flux.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
50
Third parties creating new business models for specialists and PCPs
Competition for physicians on the rise
Health Care Advisory Board interviews and analysis.
Investors driving two overarching trends in physician landscape
Aggregation of single-specialty medicine
Private equity firms are expanding the scope of specialties in
which they invest—and the dollar amount invested
Segmentation of primary care
Health plans, tech companies, and retailers are eyeing the
primary care market, and building profitable business models
for niche consumer segments
1
Private equity and
national practice firms
Retailers and technology
companies
Health plans
2
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
51
1. Advisory Board is a subsidiary of UnitedHealth Group. All Advisory Board research,
expert perspectives, and recommendations remain independent. Source: Greene J, “Orthopedic group blazes trail as hip, knee replacements
move out of hospitals,” Modern Healthcare, December 10, 2018.
Single-specialty groups are seizing opportunities to shift site of care
Fast-tracking the outmigration of care
Health Care Advisory Board interviews and analysis.
Purchasers continue to shift
care to lower cost settings
Single-specialty group seizes on
local contracting opportunity
Change in CMS coverage determination
CMS announced removal of total knee
arthroplasty from “inpatient only” list in 2018
Expansion of commercial bundles for
procedural care
Humana, UnitedHealth Group1, others expand
bundled payment programs in 2019
Five independent orthopedic groups form
Michigan Orthopaedic Surgeons
Group contracts with local payer on
bundled payments program; performs
procedures at owned ASC
Outpatient surgeries performed in 2018
that would have otherwise been
performed at local health system
700
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
52
1. Private equity. Source: Casalino L, “Private equity acquisition of physician practices,” Annals of Internal Medicine, January 8, 2019.
Current wave of investment intensifying competition for hospital services
PE1 accelerating single-specialty consolidation
Health Care Advisory Board interviews and analysis.
2x to 4x EBITDA
Purchase price of small practices
Initial private equity activity focused on non-core
specialties circa 2011
Strategy:
• Recruit additional physicians and acquire smaller practices to
add to a platform practice
• Improve profitability through back-office efficiencies (e.g., revenue
cycle, payer contracting) and increasing procedural revenue
Current wave of private equity targets lucrative
services and physicians circa 2019
Increase valuation of practice for resale
f
8x to 12x EBITDA
Purchase price of large practices
Specialties:
• Dermatology
• Ophthalmology
• Dentistry
• Anesthesia
Compete for hospital-based revenue
Strategy:
• Pull out ancillaries from hospital setting
• Shift care to lower-priced outpatient settings
• Profit from bundled payment and/or risk contracts
Specialties:
• Gastroenterology
• Orthopedics
• Urology
• Women’s health
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
53
Advisory Board insight
Private equity aggregation of single-specialty
practices is a quietly disruptive force accelerating the
outmigration of care.
Health Care Advisory Board interviews and analysis.
While neither physician consolidation nor private equity investment in physicians
are new trends, the confluence of these two factors represents a newly disruptive
force, particularly given the current focus on specialties like orthopedics that have
a significant potential to shift care away from the hospital setting.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Refining our approach to physician partnership
Health Care Advisory Board interviews and analysis.
Early medical group employment Integrated physician enterprise strategy
Deep integration into health system strategy
and leadership at highest governance council
Transactional relationship for payer contracting
leverage and improved revenue cycle
Focused on referral management and early
attempts at care coordination
Freedom to innovate in care delivery and
create a more integrated clinical product
Moved beyond “loss” mentality; pursuing contracts
and making investments for mutual growth
Investments in support services—often
creating a physician “subsidy” mentality
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
55
Mount Sinai flips historical definition of physician loyalty on its head
Taking a more strategic view on physician loyalty
Health Care Advisory Board interviews and analysis.
10% » 60%Shift in market share for lower-extremity
joint replacements
In the past, we were always reliant on
surgeons to bring cases to the system.
Now, the system is also bringing cases
to the physicians.”
—Niyum Gandhi
Chief Population Health Officer, Mount Sinai
Six best surgeons chosen for COE program
Health system contracts
with local union, 32BJ
System selects six
highest-quality surgeons
Surgeons follow standardized
care pathway, deliver $12,000
savings per case to employer
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
Case in brief
56
• Co-designed Center of Excellence with 32BJ Health Fund for lower-
extremity joint replacement
• Selected six of the system’s best orthopedic surgeons to participate in the
COE program with 32BJ Health Fund
• Physicians must meet predetermined criteria to participate in the program
and adhere to clinical pathway once admitted
• Program generated 100 new cases in year one
• Mount Sinai has increased market share from 10% to 60%
• COE program has expanded to include bariatric and gender affirmation
surgery; plans to add cardiac, spine, maternity, and GI programs in
coming years
8-hospital health system • Based in New York, New York
Mount Sinai Health System
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
57
Health First partners with Privia to create nimble, competitive platform
A more radical option: Outsourcing
Health Care Advisory Board interviews and analysis.
Health First’s rationale for partnership
with Privia Health
Privia’s platform provides value and incentive
alignment needed to appeal to independent
physicians in the market
Privia’s tools and proprietary technology
support better management of revenue cycle
and value-based care contracts
Partnership assists in meeting the new
competitive bar set by private equity groups,
health plans, and other physician groups
Health First
Integrated delivery network • Based in Brevard, Florida
• Transitioned management of its 400-clinician
multispecialty employed group into a joint-ventured
MSO with Privia Health
• Each party holds a 50% equity stake in the new
company and will share equally in profits
• Growth will be achieved by appealing to
independent practices across central Florida
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Competitors choosing between specialization and scale
New business models for primary care emerging
Health Care Advisory Board interviews and analysis.
High-touch management
Coordinate care for complex chronic
care patients
Convenient access
Provide low-cost access for
generally healthy patients
Control total costs
Destroy demand for hospitalizations,
ED visits, and specialty care referrals to
profit from risk contracts
Enhance efficiency
Improve productivity of clinical workforce
to profit from primary care itself
Care model
Business model
ScaleSpecialization
Bright.md
Crossover
Health
ChenMed
Iora
CVS
HealthHUB®
OneMedical
Commonwealth
Care Alliance
Oak Street 98point6CareMore
Landmark
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
Rather than trying to be all things to all people, emerging
primary care competitors are making deliberate trade-offs
between specialization and scale.
Health Care Advisory Board interviews and analysis.
New competitors in the primary care space are carving out small slivers of the
patient population and building targeted clinical and business models to cater to
those segments. By contrast, legacy primary care models that attempt to
achieve both specialization and scale are largely designed around providers,
rather than patients.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
60
1. Advisory Board is a subsidiary of UnitedHealth Group. All Advisory Board
research, expert perspectives, and recommendations remain independent.
Flurry of primary care activity across 2018 and 2019
Health plans dial up primary care investments
Health Care Advisory Board interviews and analysis.
Vera Whole Health and Blue
Cross of Kansas City open 3
clinics
Walgreens-Humana Partners in
Primary Care opens 2 centers in
Kansas City
Iora Health partners with Humana to
open 10 clinics across WA, AZ, GA
Banner-Aetna partners with 98point6
Cityblock Health partners with
Emblem Health
Oak Street and BCBS of Rhode
Island open 3 sites
CareMore Health partners with Cigna
BCBS of Texas partners with
Sanitas to open 10 clinics
Oak Street Health-Humana opens
3 clinics
ChenMed-Humana opens 2
clinics, plans for 8 more
CVS opens 3 HealthHUBs® and plans
to open 1,500 locations by 2021
WellCare and VillageMD partner
on in-home primary care
UnitedHealth Group1 acquires
Peoples Health
Walgreens-Humana-Partners in
Primary Care opens 10 centers
BCBS of North Carolina partners
with CareMore Health, Cityblock
Health, Iora Health
UnitedHealth Group acquires DaVita
Medical Group
Oak Street Health partners
with Aetna
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
61
Source: Garg V, et al., “Rethinking how Medicaid patients receive care,” Harvard Business Review, October 5, 2018; Singh J, “Redefining primary care,” Credit Suisse,
April 22, 2019; Ghany R, et al., “High-touch care leads to better outcomes and lower costs in a senior population,” American Journal of Managed Care, September 2018.
Building a business around chronic care needs
Health Care Advisory Board interviews and analysis.
Key drivers of success among polychronic clinics
CLINICAL MANAGEMENT REFFERRAL MANAGEMENT FINANCIAL MANAGEMENT
• Frequent contact: Transportation
often provided to promote frequent
PCP visits
• Coordination: Care team notified
when patient has a health event
• Clinic services: On-site lab, imaging,
pharmacy, and specialty care
• Site-of-care steerage: Referral
coordinator avoids higher-cost settings
• Payment: Full-risk capitation
• Compensation: Based on cost
performance rather than RVUs
Reduces hospitalizations from timely
diagnosis of conditions and adherence to
preventive care strategies
Reduces specialist referrals and redirects
referrals to high-value third parties
Lowers PMPM costs and panels to 400-
500 patients without sacrificing revenue by
receiving higher, risk-adjusted payment for
polychronic patients
Fewer days in the hospital for
CareMore Medicaid patients17%Drop in specialist use
for Iora MA patients35%
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Shifting market share to high-performing hospitals
Health Care Advisory Board interviews and analysis.
High-value providers earn ChenMed referralsReferral ratio shifts to high-value hospitals over time
Hospital A Hospital B
2008
2013
2
1
1
4
Holding local AMC to high standards
to receive its business
Local AMC does not follow ChenMed’s
protocols when patients arrive to hospital
(e.g., admits without notifying PCP)
ChenMed shifts referrals from AMC to
competing local hospital
After volumes decline, AMC agrees to give
ChenMed limited privileges in the hospital
1
2
3a
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
Case in brief
63
• Three-quarters of ChenMed patients have five or more major chronic
conditions and more than 30% of ChenMed patients are dually eligible for
both Medicare and Medicaid
• After entering a market, ChenMed creates preferential relationships with
local hospitals that support success under capitated payment construct
High-touch primary care group serving low- to moderate-
income seniors; 65 practices across 8 states; CAGR1 of
35%-40% in 2019
ChenMed
1. Compound annual growth rate.
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
64
ChenMed partners with first health system to grow into new market
Testing the waters with health system partners
Health Care Advisory Board interviews and analysis.
OhioHealth-ChenMed
11-hospital health system • Columbus, Ohio
• Partnering with ChenMed to open three
co-branded senior-focused clinics in the
Columbus market; creating referral
relationship between ChenMed and
OhioHealth’s CIN for downstream care needs
• OhioHealth and ChenMed will co-invest over
$25 million over three years, with the
potential to scale further as they expand
• ChenMed will work only with a maximum of 3
to 4 plans per market
CASE EXAMPLEValue proposition of OhioHealth to ChenMed
Comprehensive network
OhioHealth and its clinically integrated network (CIN) provide
high-quality, comprehensive network for longitudinal care needs
Seamless coordination
ChenMed’s physicians have access to the patient and their health
information throughout the care journey, enabling PCPs to manage
utilization and serve as the patient’s primary gatekeeper for care
Brand equity
OhioHealth’s reputable brand name in Columbus provides a strategic
advantage to ChenMed as they enter a new market by giving them an
opportunity to co-brand clinics and appeal to consumers
Shared incentives
OhioHealth benefits from better outcomes and financial performance of
their MA lives, and gets a captive referral base of ChenMed patients
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Advisory Board insight
The generalist primary care model falls short in the
face of specialized approaches; health systems must
embrace new competition to the medical group—and
may need to seek external partners.
Health Care Advisory Board interviews and analysis.
Niche primary care operators recognize that their autonomy from hospitals
lends them an advantage in delivering on the market’s desire for affordability.
Partnering with these groups will require hospitals to demonstrate a new form of
value to physicians on the basis of reduced total cost and a willingness to tightly
coordinate care.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
66
Time to get proactive
Health Care Advisory Board interviews and analysis.
1Assess
competitive threat
• How large are the MA and managed Medicaid populations in your market?
• How progressive are payers in your market? Are they willing to consider
full-risk models like capitation?
2Determine
partnership stance
• Do you want to compete head-on with niche players or partner with them? Are you
largely looking to secure referrals or would you ever consider a larger-scale partnership?
• Are you able to demonstrate a cost advantage? Are you willing to implement a partner’s
care coordination protocols?
3Evaluate
internal capabilities
• How comfortable are your leadership team and your physician enterprise with
the concept of segmentation?
• If you create a segmented model for high-risk patients, how would the rest of the
primary care enterprise need to evolve?
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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New entrants struggle to adapt model for younger, healthier patients
Success more mixed in commercial market
Health Care Advisory Board interviews and analysis.
Past examples
Challenges
Retail clinic models Stand-alone direct-to-consumer models
ZoomCare • Financial struggles after entering
insurance business
• Acquired by PeaceHealth
Requires substantial marketing investment to
build patient panels
New competitors persistently come to market,
undercutting practices on price or providing a
superior patient experience
No proven best practice around
reimbursement or pricing model
Technology-enabled scale
Focus of
emerging models
Walmart • Currently operates 19 clinics in
three states
• Scaled back growth target after
limited success
Relies on foot traffic in a world of declining
retail shopping
Unsatisfying work environment for practitioners
Suboptimal patient experience with long wait
times and cramped spaces
Health plan integration
Clinics rely on cross-selling pharmacy or retail
services to generate meaningful profits
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
68
Source: “CVS Health testing new HealthHUB store format,” CVSHealth, February 13, 2019;
LaVito A, “CVS to open 1,500 HealthHUB stores over next two years,” CNBC, June 4, 2019
CVS HealthHUBs® seek to create a new front door to health care
Health plan integration provides new growth lever
Health Care Advisory Board interviews and analysis.
1,500HealthHUB® locations
planned by 2021
Connect members to screening services, smart
devices, and disease management apps
Chronic disease
management
Offer low-cost alternative to ED; direct members
to lower-priced downstream care sites
ED avoidance and
downstream navigation
Provide on-site dietitians and group activities
(e.g., yoga classes, weight management,
smoking cessation)
Member engagement
in wellness
Adjust cost-sharing to promote use of
HealthHUB ® services, including pharmacyCross-sell products
Non-Aetna members who use the HealthHUBs®
can be converted to Aetna’s MA plan
Growth of MA
membership
CVSHealth
Drive down
total costs
Leverage
benefit design
Grow
membership
20%Of CVS stores are
dedicated to health
services
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
69
Source: “Humana and Doctor on Demand launch virtual primary care plan to bring more services with lower costs to patients, insurers, and
employers,” Business Wire, April 24, 2019; Livingston S, “Humana announces virtual primary-care plan,” Modern Healthcare, April 24, 2019.
Telehealth platform, Doctor On Demand, manages patient relationship
Humana pilots new virtual primary care product
Health Care Advisory Board interviews and analysis.
Humana’s “on-hand”
virtual product
$0 copays for video
visits; $5 copay for lab
tests and prescriptions
Doctor on Demand’s “smart
referrals” feature ensures all
referrals remain in network
Downstream
navigation
Affordable
coverage
Lower costsVirtual access to services
50% Decrease in average monthly premiums compared to
industry standard plan (expected)
Members assigned dedicated
PCP from Doctor On Demand
Given digital blood pressure
cuff, thermometer, and logMedical
device kit
Virtual PCP
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Health Care Advisory Board interviews and analysis.
CVS Health
Pharmacy, retailer, PBM, and integrated Aetna health plan that has
22.8M members • Based in Woonsocket, Rhode Island
• Opened three HealthHUBs® in the Houston market that dedicate
20% of CVS stores to health services; plans to have 50 locations
by the end of 2019 and 1,500 by the end of 2021
• The locations offer new products such as digital health tools,
durable medical equipment, and supplies to manage chronic
health needs (e.g., sleep apnea and diabetes care)
• In addition to MinuteClinic and pharmacy services, there is an
on-site dietitian and an on-site care concierge who helps with
navigation throughout the consumer experience; 95% of
customers accepted help from the concierge in initial pilot
• Community spaces are available for health classes, nutritional
seminars, and education on health insurance benefits
• “Learning Tables” allow customers to explore health and
wellness apps and shop for additional CVS services
• On-demand health kiosks help customers measure and track
their blood pressure, weight, and BMI
CASE EXAMPLE
Humana Inc.
Health insurance company with over 16M covered lives • Based in
Louisville, Kentucky
• Launched a virtual primary care plan in partnership with
Doctor On Demand—a telehealth platform that provides
urgent care, preventive care, and behavioral health services
through video visits
• Members have a $0 copay for doctor visits using Doctor On
Demand and a $5 copay for common labs and prescriptions;
plan premiums are expected to be up to half the cost in
comparison to an industry-standard plan
• Doctor on Demand’s Synapse platform offers a single patient
profile that allows for synchronization with connected devices
and in-network referrals for all in-person visits
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
71
Artificial intelligence automates low-acuity care
AI-enabled diagnosis improves providers’ capacity
Health Care Advisory Board interviews and analysis.
2.5 minutesTime for provider to review
and approve diagnosis
90% Of cases are
resolved virtually
Typical patient visit SmartExam platform
• 15-20 minutes per case
• 20-30 patients per day
• 3 minutes per case
• 150-200 patients per
day (max)
20%-30% Expansion in panel
size at Prisma
Prisma Health
(formerly Greenville Health System)
8-hospital health system • Based in Greenville,
South Carolina
• Implemented Bright.md SmartExam
platform to improve patient access and
experience by boosting provider capacity
• Saw 20%-30% expansion in panel size
and resolved 90% of cases virtually
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
72
Advisory Board insight
Vertical integration and technological development
are putting a scalable front door to the delivery
system within reach.
Health Care Advisory Board interviews and analysis.
Primary care models targeted at young, healthy patients have struggled to
find their footing in recent years. But emerging models look to achieve
scale in new ways—whether through integration with a health plan, the use
of productivity-enhancing technology, or both.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
73
Primary revenue sources typically extend beyond primary care alone
Innovators unlocking new sources of growth
Health Care Advisory Board interviews and analysis.
Primary care
clinic visit fees
Cross-sell product
opportunities
Health plan
premium value
Stand-alone primary care
Medical home
Pharmacy-based retail
High-touch polychronic clinic
Vertically integrated models
Technology-enabled
primary care
Improve efficiency under FFS Capture downstream revenue Manage total costs under risk
Tra
ditio
nal
mod
els
Em
erg
ing
mod
els
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Most recent year of available data.
Source: “Labor productivity and costs,” Bureau of Labor Statistics, 2019; Himmelstein D, et al., “A comparison of hospital administrative
costs in eight nations,” HealthAffairs, September 2014; “The future of healthcare: A national survey of physicians,” The Doctors
Company, 2018; Korenda L, “No sick days, no collars: How tech might help hospitals shrink labor costs,” Deloitte, February 8, 2018;
Hospital productivity nearly stagnant for over a decade
Productivity a clear target for technological innovation
Health Care Advisory Board interviews and analysis.
25%Of total spending on hospital care is
attributable to administrative costs
60%Of hospital operating costs
can be attributed to labor
61%Of physicians believe EHRs have had a
negative impact on efficiency and productivity
Cumulative labor productivity, hospitals vs. overall economy
Bureau of Labor Statistics
-4%
0%
4%
8%
12%
16%
2005 2010 2015
Hospitals Economy-wide
1
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
75
Applications span operational and clinical domains
AI: Tantalizing promise of radical change
Health Care Advisory Board interviews and analysis.
Predict onset of disease
Diagnose pathologies in clinical images
Monitor and act on patient-generated
data from wearables in real-time
Identify biomarkers for new
drug discovery
Clinical diagnosis and treatment support
Streamlining labor-intensive
operational processes
Unlocking previously impractical or
impossible clinical opportunities
Predict bottlenecks and excessive
length of stay
Anticipate labor needs based on
expected demand
Resolve and prevent billing exceptions
Automate customer service interactions
Digitized operations
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
76
Source: “Virtual air traffic control for emergency departments,” Qventus, 2017.
Technology integrates into frontline workers’ workflows to improve efficiency
Streamlining labor-intensive operational tasks
Health Care Advisory Board interviews and analysis.
30%Drop in left without being
seen rates
20%Reduction in
door-to-doc time
24 min.Reduction in average
length of stay
6%Increase in annual
case capacity
► Activate more environmental
services staff when high
churn of beds is anticipated
► Send an early warning for
difficult patient placements
at discharge
► Prioritize inpatient transports
depending on expected bed needs
Real-time nudges sent to care team via mobile phones trigger
specific interventions
Mercy Hospital Fort Smith equips
staff with Qventus technology
► See that a radiology order is delayed
for a patient within a few days of
discharge and notify radiology to
prioritize the reading
RESULTS
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
Case in brief
77
• Partnered with Qventus to improve emergency department (ED) patient
flow and patient satisfaction
• Analytics applies machine learning algorithms to anticipate potential
capacity shortfalls and process bottlenecks
• Application sends real-time notifications (nudges) to care teams via their
mobile phones to trigger specific interventions
336-bed acute care hospital | Fort Smith, Arkansas
Mercy Hospital Fort Smith
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Mean A1c reduced from 7.8% to 6.9%; Livongo reports results
for two of its self-insured employer populations.
Source: Whaley C, et al., “Reduced medical spending associated with increased use of a remote diabetes management program and lower mean blood glucose values,” Journal of Medical Economics,
February 4, 2019; “Case study: Livongo demonstrates cost savings,” Livongo; Baum S, “Livongo playing a critical role in helping employers disrupt healthcare,” MedCityNews, April 23, 2019.
Employers turn to digital health for chronic disease management
Virtual management for chronic conditions
Health Care Advisory Board interviews and analysis.
Livongo sells chronic care management solutions directly to employers
Employers pay on
average $68 PMPM for
Livongo’s diabetes
management solution
Employee glucose
meter data is uploaded
to Livongo platform
Livongo’s AI-based solution
analyzes, predicts, and
prevents potential
escalations of disease
$88Decrease in medical spending
PMPM (including a 24.6% reduction
in spending on office-based services)
11.5%Average reduction in HbA1c
levels for users of Livongo1
600Current number of employer and
health plan contracts (200
added in January 2019 alone)
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
Case in brief
79
• Digital health technology offering cloud-based glucose monitoring to
patients with diabetes; also offers platform for hypertension, weight
management, and behavioral health
• Ended 2018 with over 115,000 active members; approved by CMS as an
enrolled provider for MA members in 2019
Digital health start-up • San Francisco, California
Livongo
Health Care Advisory Board interviews and analysis.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Expanding array of devices for self-management
Health Care Advisory Board interviews and analysis.
Aliv
eC
or
Kard
iaM
ob
ileM
edtr
onic
Min
ime
d670G
Medtronic’s “MiniMed Connect”
• Device mimics some functions of a healthy pancreas; measures and predicts glucose
level drift and adjusts dosing
• Trials showed a 44% reduction in hypoglycemia and reduction in average A1c values
from 7.4% to 6.9%
AliveCore’s “KardiaMobile”
• Developed a portable, consumer-grade single-lead EKG, retails for $99; EKG reports
can be sent to cardiologist for interpretation for $19
• Smartphone-based machine learning validates quality of trace, assesses possibility of
A-fib, classifies normal/abnormal sinus rhythm
CASE EXAMPLE
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
81
Source: Kubota T, “Stanford algorithm can diagnose pneumonia
better than radiologists,” Stanford News, November 15, 2017.
Visual diagnostics on the horizon
Health Care Advisory Board interviews and analysis.
Development of CheXNet
Sept. 26, 2017
ChestX-ray14 data set released along with a preliminary
algorithm that could detect the labelled conditions
≈One week later
CheXNet could diagnose 10 of the 14 pathologies more
accurately than all previous algorithms
≈One month later
CheXNet surpassed best published results for all 14
pathologies and outperformed Stanford radiologists
in detecting pneumonia
Stanford University Medical Center
Academic health system • Stanford, California
• Developed algorithm that can visualize
and diagnose 14 common pathologies in
chest X-rays
• Trained on ChestX-ray14, a public data
set released by the NIH containing
112,120 frontal-view chest X-ray images
labelled with the 14 possible pathologies
• Outperforms previous models from the
same data set for all 14 conditions and
diagnoses pneumonia at an accuracy
exceeding the performance of four
control radiologists
CASE EXAMPLE
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Where we are, and where we’re going
Health Care Advisory Board interviews and analysis.
Narrow,
tunnel-
vision
decisions
Clinical applications
Administrative applications
Flexible,
human-like
intelligence
Adaptive user
interfaces
INEVITABLE WITH TIME
TODAY’S OPPORTUNITY
SCIENCE FICTION
DISTANT FUTURE
An AI application landscape
Automated diagnosis
and treatment planClinical
chatbots
Radiology
interpretation
Recruiting
Smart
monitoring
Real-time medication
dosing adjustments
Administrative
chatbots (concierge)
Ambient
documentation
Worklist
prioritization
Capacity/staffing
management
Population health
risk predictions
The self-driving
hospitalInformation
security
Targeted
marketing
Revenue cycle
task automation
Precision
engagement
Predicting
terminal illness
Tumor DNA
diagnostics
Medical record
mining and extraction
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
83
Advisory Board insight
Innovation has already expanded the bounds of what is
practical or even possible—it is up to legacy health care
leaders to dictate the appropriate pace of adoption.
Health Care Advisory Board interviews and analysis.
Advancements in artificial intelligence illustrate that technological capabilities in
health care have already gone far beyond current practice. The nature of
today’s clinical and technological innovations mean that it will ultimately be up
to CEOs and their teams to determine the adoption rate moving forward—and
caution is well warranted.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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1. Fear of missing out.
Source: Weaver C, “Theranos, Walgreens reach deal to settle lawsuit,” The Wall Street Journal, June 21, 2017; Keshavan
M and Versel N, “Theranos doomsday clock: A full timeline of its rise and fall,” MedCity News, February 5, 2016.
In a bid for first-mover advantage, it’s easy to miss the red flags
FOMO1 drives specious investments
Health Care Advisory Board interviews and analysis.
Amount Walgreens
invested in Theranos$140M
Walgreens-Theranos wellness center
opens in Phoenix; 42 more centers
planned to open between 2013 and 2015
November 2013
October 2015
WSJ publishes article critical of
Theranos; Walgreens halts opening
new wellness centers
News emerges that Theranos clashed
with Arizona lab inspectors; efficacy of
Wellness Centers called into question
November 30, 2015
Walgreens stops doing tests at
Theranos lab in California; threatens
to end relationship
January-February 2016
$30MAmount Walgreens settled for
after suing Theranos, 2017
Walgreens terminates contract with
Theranos, closes all 40 Theranos
Wellness Centers
WSJ reports Walgreens executives doubted
Theranos prior to investing, but moved
ahead for fear of losing out to competitors
May 2016
June 2016
Melv
inA
.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
85
Advisory Board insight
Established players must find ways to innovate while
serving as a check on the vaporware common in Silicon
Valley—and the dangers of its fail-fast mentality.
Health Care Advisory Board interviews and analysis.
For incumbent health care players, the trick will be to make sure the rate of
change is principled. They must move deliberately enough to thoroughly vet
innovations and build out appropriate workflows to support successful rollouts.
At the same time, they must guard against losing speed due to far-more-
common rate limiters: organizational fragmentation, bureaucracy, and sheer
resistance to change.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
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Source: Anderson G et al., “Improving performance and enhancing innovation with
venture investing,” Healthcare Financial Management Association, March 2018.
Many systems incubating valuable concepts—but not yet reaping full gain
Innovation centers a starting point, not the finish line
Health Care Advisory Board interviews and analysis.
Of hospitals with 400+ beds
have an innovation center72%
Where innovation centers often go wrong
Not prioritizing innovations
that could yield substantial
operational improvements
today
Failure to follow through
with implementation and/or
provide oversight over time
Failure to establish specific,
holistic, system-wide
innovation goals—with
corresponding lack of
platform to capture goals
Taking a piecemeal, pilot-
oriented approach that fails
to standardize innovations
across the entire system
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
87
Consider full set of goals carefully to ensure right platform and resourcing
Clarify innovation goals to ensure ROI
Health Care Advisory Board interviews and analysis.
Invention of a novel
product or service
Iteration and application
of best practices
Three primary goals
Improve core business
• Process improvements to
streamline operational efficiency
• Clinical pathways that make
meaningful improvements to
patient outcomes
Diversify revenue
• Technology transfer for
commercialization of intellectual
property and business
development
• Venture fund for investment
returns
Enhance brand prestige
• R&D investments into new
clinical treatments
• Incubator for sourcing ideas
from within and outside the
organization
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
88
Advisory Board insight
Successful innovation requires articulation of a clear
goal; many are likely overweighting prestige and
underweighting business improvement potential.
Health Care Advisory Board interviews and analysis.
While most health care organizations—including a growing number of health
systems—have established an innovation function, the ROI of such efforts is
often unclear. And while innovation for the sake of prestige or commercialization
potential can be worthwhile, many organizations are missing more immediate
opportunities to focus innovation investments on solutions that could improve
their core business results.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
‹#›
Road mapRoad map89
The road to 20201
2 Meeting the affordability mandate
3 The new health care compact
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
90
On the cusp of something big?
Health Care Advisory Board interviews and analysis.
How far will purchasers go
to attain affordability?
How will the delivery system
respond to the affordability
mandate?
How can innovation help solve
the affordability problem?
1 2 3
• Uncertain—and disruptive—policy
proposals (Medicare for All,
surprise billing, pharmacy pricing)
• Restrictions to network breadth
and service coverage
• Purchaser faith in the
independent PCP
• Higher bar for physician competition;
new integration mandate
• Single specialty consolidation and the
outmigration of care
• Niche competition carving out
profitable patient segments
• Dramatically reshaping roles of the
workforce with artificial intelligence
• Innovation function creating
competitive differentiation
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
91
Source: Moody’s Investors Service, “Preliminary Medians – Profitability Holds Steady as Revenues and Expenses Converge,” April 25, 2019;
Moody’s Investors Service, “Revenue Growth and Cash Flow Margins Hit All-Time Lows in 2013 US Not-for-Profit Hospital Medians,” August 2014.
Despite progress on cost control, hospital margins remain slim
Doing what’s necessary, but not what’s sufficient
Health Care Advisory Board interviews and analysis.
Median revenue and expense growth rates for nonprofit hospitals Advisory Board reports
on cost management
Toward True
Sustainability
The Cost
Control Atlas
The New Cost
Mandate
6.3%
4.3%
5.1%
7.4%
5.7%
5.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenue growth Expense growth
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
92
Industry must prepare to meet market’s demands
The new health care compact
Health Care Advisory Board interviews and analysis.
Health plans
Health systems
Physicians
Medical device
Health IT
Drug makers
Health system-physician compact
• Health systems provide growth and
leadership opportunities, innovation
infrastructure
• Physicians champion care
standardization work, collaborate
on population health improvements
Health system-health plan compact
• Health systems offer reliable,
accessible, and efficient network
that provides top-of-site care
• Health plans streamline
administrative burden of revenue
cycle, reporting, and utilization
management
Producer-industry compact
• Producers facilitate the transition to
value-based care and propel
innovation management
Physician-health plan compact
• Physicians engage patients in disease
prevention and self-management and act
as quarterback to ensure efficient health
care journey
• Health plans provide data to inform
referrals, offer flexible contracting
opportunities that reward improvements
in outcomes
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
93
Advisory Board insight
No one segment of the industry can deliver affordability
on its own; success will require collaboration, and not
everyone will win.
Health Care Advisory Board interviews and analysis.
In the health care economy, a rising tide has historically lifted all boats. But as the
pressure on spending intensifies, legacy health care organizations will need to
break down historical silos and form new compacts to deliver on the mandate for
affordability. Partnerships must be strategic—not everyone will win in a market
focused on affordability.
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
94
Source: Moyer L, “Warren Buffett says US health care must be revamped or it will be
left to the government—which will probably make it worse,” CNBC, March 18, 2019.
The path to 2020: Revolution or reformation?
Health Care Advisory Board interviews and analysis.
We have a $3.4 trillion industry, which is as much as the
federal government raises every year, that basically feels
pretty good about the system. There's enormous
resistance to change while a similar acknowledgement
that change will be needed. And of course if the private
sector doesn't supply that over a period of time,
people will say 'we give up, we've got to turn this over
to the government,' which will probably be even worse.
— Warren Buffet
© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11
95
State of the Union15 insights on the future of the health care economy
1. The policy impact aside, the rise of Medicare
for All is an important indicator of the level of
public discontent with the state of the
industry.
2. Unaffordability is the single most important
motivating factor behind growing public and
political receptivity to disruptive solutions.
3. Even as purchasers continue to refine
market-based reforms, the limited success of
those reforms has increased the likelihood of
government intervention.
4. Focus on single payer obscures the fact that
top-down spending controls are becoming
more politically palatable on both sides of the
aisle.
5. Employers are moving beyond the blunt
force of HDHPs and are increasingly
attaching financial consequences to specific,
low-value choices.
6. Signaling its new faith in physician-led
steerage, CMS is adding enticements to
make it difficult for PCPs not to participate in
value-based models.
7. Successful execution against the goals of
physician employment is fast becoming a
disadvantage as well-capitalized third parties
target physician discontent and offer a path
to autonomy.
8. Private equity aggregation of single-specialty
practices is a quietly disruptive force
accelerating the outmigration of care.
9. Rather than trying to be all things to all
people, emerging primary care competitors
are making deliberate trade-offs between
specialization and scale.
10. The generalist primary care model falls short
in the face of specialized approaches; health
systems must embrace new competition to
the medical group—and may need to seek
external partners.
11. Vertical integration and technological
development are putting a scalable front
door to the delivery system within reach.
12. Innovation has already expanded the bounds
of what is practical or even possible—it is up
to legacy health care leaders to dictate the
appropriate pace of adoption.
13. Established players must find ways to
innovate while serving as a check on the
vaporware common in Silicon Valley—and
the dangers of its fail-fast mentality.
14. Successful innovation requires articulation of
a clear goal; many are likely overweighting
prestige and underweighting business
improvement potential.
15. No one segment of the industry can deliver
affordability on its own; success will require
collaboration, and not everyone will win.
Health Care Advisory Board interviews and analysis.
LEGAL CAVEAT
Advisory Board has made efforts to verify the accuracy of the information it provides to members. This report relies on data obtained from many sources, however, and
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IMPORTANT: Please read the following.
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