Healthcare: Road to Value in Healthcare

Hannaford Bros. Co.

Peter HayesMBGH Annual Conference

May 2007

U.S. Operations

Hannaford

• Largest northeast supermarket chain

• 5 New England States

• 26,000+ associatesDelhaize

• Eastern seaboard from Maine to Florida 100,000+ associates

Healthcare Landscape

Healthcare Landscape Overview•National trends still 8-10% with the Northeast Region having the highest costs and trends (2 times the southeast).

•Pressure to eliminate the “transparency” of provider quality and cost from the Bush Administration, Medicare, Coalitions and Consumer Driven Health Plans.

•Accelerating legislative pressure by states to solve the “healthcare crisis”. Massachusetts and Vermont have passed legislation mandating coverage that becomes effective in mid 2007 which will impact our costs and adds tremendous administrative complexity. New York, New Hampshire and Maine have pending legislation.

•Rapidly expanding Medicare/Medicaid programs (i.e., Maine at 25% Medicare) resulting in significant cost shifts. Public pay programs are approaching 50% of the total reimbursement of providers which is resulting in significant cost shifting to our plans (i.e., as much as $1000 per year).

Healthcare Landscape Overview

• Significant regional and global costs along with huge quality variations

• Increasing obesity levels are driving over 40% of the medical trend

• “ Right Care” is still being delivered less than 50% of the time

• 50% of the US healthcare spend is estimated to be unnecessary (waste, errors, poor quality, administrative inefficiencies, etc.)

15

.2%

9.9

%

9.6

%

8.8

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Uni

ted

Sta

tes

(29)

Ger

man

y (1

4)

Nor

way

(13

)

Can

ada

(12)

Net

herl

ands

(19

)

Por

tuga

l (30

)

Bel

gium

(20

)

Mal

ta (

17)

Slo

veni

a (2

8)

New

Zea

land

(23

)

Japa

n (1

)

Aus

tria

(16

)

Fin

land

(21

)

Lux

embo

urg

(15)

Health Care Spending as % of GDP, 2003*

Disability adjusted, life expectancy rank

United States

#1 in cost

#29 out of 30 in quality

Me rce r Hu m a n Re so u rc e Co n su ltin g 6

$5,500 - $5,999

Less Than $5, 500

$6,000 - $6,499

$6,500 - $6,999

$7000+

Source: 2003 Mercer National Survey of Employer Sponsored Health Plans and other sources

Hannaford’s Population in the higher cost locations

Plans Cost by StateAnnual Medical/RX Costs Per Associate

2006 Estimate

$4,100 $4,300$4,900

$6,400 $6,500

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

An

nu

al C

ost

Per

Ass

ocia

te

(200

6 P

roje

cted

Cos

t)

New York Mass Vermont Maine New Hampshire

Hannaford Average $5600

Health Management 50% Opportunity

• Lifestyle Behavior Changes

• Engaged Consumers/Patients

• High Quality Efficient Care

Plan Review

National Group on Health/Watson Wyatt Critical Strategic Levers

Best Performing Companies 3% trendPoor Performing Companies 11% trend

4 critical attributes of Best Performing companies strategiesProvider Quality Hannaford Practices

Quality – Programs that promote the highest-quality providers and haveemployees that use them.

Providers of Distinction Center of Excellence Aetna Fee Schedule

Health Improvement and Productivity – Programs that help employeesbetter manage their own health.

Healthy Behavior Credit Simple Steps Health Coach Nurse on-site Wellness Program PHR

Data/Evidence – Programs that use data and hard evidence to managehealth care program costs and workforce health.

SHPS data warehouse Maine Health Management Coalition Care Focused Purchasing

Appropriate Use – Programs that engage employees to receive care whenneeded, but not overuse services.

Right Care, Right Place, Right Price Patient Advocacy Consumerism

Medical Trend:

Source: Goetzel et al. (1998), Journal of Occupational and Environmental MedicineMercer Human Resource Consulting

70.2%

46.3%

34.8%

21.4% 19.7%14.5%

11.7% 10.4%

0

10

20

30

40

50

60

70

80

Percent

Depression Stress Glucose Weight Tobacco-past

Tobacco BloodPressure

Inactivity

Impact on Individual Health Care Costs: High versus lower-risk employees

Individuals at high risk for depression have 70.2 higher costs than those at lower risk.

High Risk Employees Cost More

Health Promotion

Aetna Medical Mutual of OhioBaptist Health South Florida Pitney BowesFPL Group Texas Instruments, IncJohnson & Johnson Union Pacific Railroad

AstraZeneca Kellogg CompanyBath Iron Works, A General Dyamics Company Mayo ClinicBlue Cross and Blue Shield of North Carolina MedtronicCigna Morgan StanleyEastman Chemical Company Novartis PharmaceuticalsGE Aviation RaytheonGE Transporation Texas Health ResourcesGlaxoSmithKline Washington MutualHannaford Brothers

Blue Cross and Blue Shield of Minnesota Fiserv, Inc.The Boeing Company Massachusetts General HospitalCampbell Soup Company Quest DiagnosticsCVS Pharmacy Target CorporationGeneral Mills

PLATINUM

2006 NBGH Award

Gold

Silver

Platinum

Hannaford’s Disease Profile Executive Summary

•Hannaford has a 6% higher disease prevalence than benchmarks

• Hannaford has managed that risk significantly better than benchmark (i.e., 24% below) resulting in an annual savings of $6,200,000

• 5 disease states - diabetes, hypertension, high cholesterol, back and coronary artery disease account for 34% of total spend

•Hannaford’s delivery of evidence based medicine “right care” for our most costly disease states (diabetes, CAD, CHF) is significantly below benchmarks and national standards of care. This represents a significant opportunity to improve outcomes and reduce costs.

Hannaford Risk Scorecard Disease Class - Hannaford Incidence Rate Total Risk Score EBM Percent of Total Spend

High Risk Management 0.7% 10.578 0.668 18%Stroke/TIA 0.5% 7.549 1.238 4%Congestive Heart Failure 0.3% 12.396 2.008 3%

Diabetes 6.5% 5.285 14.57 8%Chronic Pulmonary Disease 0.2% 8.840 0.683 1%Coronary Artery Disease 0..9% 7.002 1.258 4%

Atrial Fibrillation 0.2% 4.363 0.495 1%Asthma 2.8% 3.375 0.398 2%Hypertension 6.5% 3.082 0.682 8%Hyperlipidemia 12.0% 1.751 .2000 7%Low Back Pain 5.8% 2.228 .112 7%Maternity/Infertility 1.3% 2.442 0.025 3%Total 38% 3.324 0.563 66%

Disease Class - Benchmark Incidence Rate Total Risk Score EBM Percent of Total Spend

High Risk Management 0.9% 12.530 0.690 18%Stroke/TIA 0.8% 9.003 1.133 4%Congestive Heart Failure 0.5% 12.359 1.646 3%

Diabetes 4.6% 7.403 1.835 9%Chronic Pulmonary Disease 0.2% 9.580 0.551 1%Coronary Artery Disease 1.5% 6.894 1.047 5%Atrial Fibrillation 0.2% 5.027 0.531 0%Asthma 3.4% 3.928 0.363 5%Hypertension 7.5% 3.634 0.571 10%Hyperlipidemia 8.4% 2.770 0.264 8%Low Back Pain 6.6% 2.605 0.077 8%Maternity/Infertility 1.4% 3.048 0.578 3%Total 35.9% 4.360 0.578 72.6%

0.5

Hannaford Health

Dividend

$6,200,000

Every .5 reduction in

total risk score is $3.03 million

annually.

Risk Factors Drive Costs

3432 41306664

9221 10095

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

<35 35-44 45-54 55-64 65+

0-2 Risks

3-4 Risks

5+ Risks

5+ Risks = 582 Hannaford Members

3-4 Risks = 5598 Hannaford Members

0-2 Risks = 10,876 Hannaford Members

Hannaford Opportunity

Move all of 5+ to 4 risks =

Move everyone to 2 or less risks =

$7,000,000(24%)

$1,700,000 (6%)

Health Risk AppraisalBehavior Change 2005-2006

20%

15%

27%

16%21%

13%

26%

20%

65%62%

82%

75%

14%

6%

21%16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Em

otio

nal

lyU

nfu

lfill

ed

Str

ess

Hig

h C

hol

estr

ol

Ove

rdu

eP

reve

nta

tive

Vis

its

Ph

ysic

alA

ctiv

ity

Poo

r D

iet

Sm

okin

g

Hea

rt D

isea

se

Jun-05 Mar-06

Member EngagementParticipants Enrolled

1.6%

3.3%

7.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

% o

f T

ota

l P

op

ula

tio

n

2004 2005 2006

• Introduce $20 Healthy Behavior Credit

• Required to take HRA

• Required to take HRA and participate in disease management

1/1/05 1/1/06TIMELINE

Potential Dividend

1100 members x $1000/yr.

$1,000,000++

“Best in Class” benchmark

Comparison Hannaford, D1, Healthy 2010 Targets and Market

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Diabetes

High Blood Pressure

High Cholesterol

O verweight/Underweight

Physical Inactivity

Tobacco Use

Poor Diet

Market

Healthy People 2010 Targets

D1

HBC

Quality of Care

$7,000

$1,500

$3,500

$2,500

$3,500

$500

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Congestive Heart Failure Diabetes

An

nu

al C

ost

Medication Company Evidence Based Medicine All Other

$12,000

$6,500

Appropriate Diabetic Care

Savings Opportunity 60% of Cost

Care Management Opportunities

30.2%

52.0%50.0%

69.4%

30.9%

55.5%

52.2%

60.5%

55.2%

80% 80% 80%

60%

90% 90% 90%

80%

90% 90%

70%

80%

62.9%

53.4%

70.0%

41.3%

19.9%

38.0%

41.4%

19.1%

44.5%

62.9%66.4%

38.0%

53.2%

18.4% 21.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hannaford 19.1% 30.2% 38.0% 19.9% 41.4% 41.3% 52.0% 70.0% 53.4% 50.0% 69.4% 62.9%

Commercial 21.6% 38.0% 53.2% 18.4% 30.9% 66.4% 55.5% 62.9% 44.5% 52.2% 60.5% 55.2%

Goal 80% 80% 80% 60% 90% 90% 90% 80% 90% 90% 70% 80%

Eye Exam HbA1c Test Lipid Panel Urine Micro ACE Rx Statin Rx Statin Rx Lipid Panel Beta-Blocker ACE/ARB Stress Echo Lipid Panel

Diabetes CAD CHF

EBM Compliance Concerns – Population Based Metrics

Financial UpdatesAnnual Associate Medical/RX costs

$4,764$5,256 $5,220 $5,220

0

1000

2000

3000

4000

5000

6000

Ann

ual C

osts

Per

Ass

ocia

te(d

olla

rs in

mill

ions

)

2004 Actual 2005 Actual 2006 Actual 2007 Budgeted

2004Actual2005Actual2006Actual2007Budgeted

2004 2005 2006 2007

% sales .77% .91% .80% .77%

Annual % Increase - +10.3% <.7%> -

Accumulated - +10.3% +4.3% +1%

186186

165

394

313

259

100

200

300

400

2003 2006 2009

Cos

t Per

Mem

ber

Per

Mon

th

Hannaford Actual National Average

National Trend Projected

(assumes 8% trend)

Forecast

Healthcare Savings

*This was accomplished even with acquisition of Victory’s 20% higher cost structure and 2005 aberrant catastrophic claim year.

Healthcare dividend to date

$82,000,000

Projected additional dividend

$109,000,000

Source: Medical Benefits - volume 24 - 1/15/07

TrendNational

TrendHBC

Actual2003-2006

21% 13%

Projected2007-2009

26% 0%

Need to create a healthcare market with the following characteristics:

– Informed and engaged consumers

– Market Transparency

• Treatment Options

• Outcome and Quality Metrics

• Cost

– Aligned Incentives

– Leverage National and Community Partnerships (medical, education, coalitions, public policy)

Start of a Solution

So. Maine MedME Medical

GoodallMercy

ParkviewMidCoastNo Maine MedPenobscot Bay

RumfordMillinocket

St. MaryBridgton

YorkPenobscot Valley

Eastern ME MedMayo

Maine GeneralSt. Joseph

Inland HosptialCentral ME. MedFranklin

Stephen'sBlue Hill

CalaisWaldoTAMC

HoultonSebasticook

Cary Mt. Desert

Maine CoastDownEAst

Redington-FairviewSt Andrews

MilesDean

-30 -20 -10 0 10 20 30 40

Percent Variance in Inpatient & Outpatient Hospital Allowed Payments

Hospitals best medication safety practices reduce

inpatient mortality 40% (Leapfrog, IOM)

Maine Opportunity

= +$300,00 (5%)

Total Hannaford

Opportunity $2,000,000

• Care Focused Purchasing

• Bridges to Excellence

• Leapfrog

• Tiered Quality/Efficiency Networks (Aetna, Cigna, UHC, Pacific Care, Hummana). Coming in 2007 - Primary Care & Specialists - Providers of Distinction.

Outcomes:

reduced costs by 20%

improved quality by 20%

* Pacific Care

Potential Solution Sets

CFP Overview

Care Focused Purchasing

Value Based Purchasing

• National standardized reporting for quality and price transparency

• 29 million live database

• 1st public data release (9/2007)

Initial CFP Sponsoring Employers

The POD Goal is to…

Identify and select physicians in specialties responsible for

significant portions of health care spending who deliver cost-effective care. POD selection is based on a

balance of measures of clinical performance and efficiency.

Specialties Currently Included in POD

• Cardiology

• Cardiothoracic surgery

• Gastroenterology

• General surgery

• Neurology

• Neurosurgery

• Obstetrics & gynecology

• Orthopedic surgery

• Otolaryngology

• Plastic surgery

• Urology

• Vascular surgery

POD Selection Process

Four-Step Process

Case Volume

Clinical Performance

Clinical Efficiency

Strategic Levers

Strategic LeversProgram Components

• On-site nurses every location• Dedicated Aetna Health Promotion Nurse/Resource

•$20/week Healthy Behavior Credit• Required HRA• Tobacco free• Required disease management/health promotion

• Benefit Tiering for use “Providers of Distinction”

• Primary care• 12 specialists

• Required Centers of Excellence• Transplants• Complex cancers

• Engaging Consumers• Education• Incentives• Transparency •CDHP• Advocacy

• Leverage Informatics• Data warehousing • Data Analytics (mining)

• Leverage Provider Reimbursement System• Pay for health not units/service

• Leverage Community• Employers• Physicians• Delivery systems• Guiding Stars• Maine Health / Hannaford Healthy Living Club

2008 Initiative Review/DiscussionValue Based Purchasing

Strategic LeversEvidence Based

MedicineLeverage

TechnologyGlobalization Community Benefit Design

Reducing co-pays/co-insurance for life savingservices (i.e., diabeticmedications)

Incentives to use PHR Investigate off shoring Care Management Associate Discountleverage (AssuredRemitt)

Increasing associate costshare of less essentialservices

Home monitoring Radiology/Imaging “Ashville” likeprojects

Total Value- Red Brick- Trusted 3rd party- Flat fee schedule- Incent patient

compliance

Only paying for minimallyinvasive procedures

Leverage alternativecommunicationchannels

Specialist consults Healthy Living Club Carve out all labservices to Quest

Incorporating incentivesbased on Health Index

Specialist visits Medical procedures

Healthy Hannaford Leverage PointsCompensation & Wellness Increasing scope

Compensation Wellness Benefits HBC Providers Community

Associate

Customer

$ $ $ $

Competitive Advantage

Performance Management - bonus

Nurses - education - coachingB

enefit design - incentivesM

erch

andi

sing

- ph

arm

acis

t - m

eal

plan

ning

, Gui

ding

Sta

rs, e

tc...

Tierin

g - pa

y for

perfo

rman

ce -

pref

erre

d par

tner

Business

coali

tions (

CFP), sch

ools, ch

aritab

le

contri

butions,

federa

l and st

ate re

form,

health

y living cl

ub, corporat

e giving

Preferred employer Preferred destination

40

60

80

100

120

140

160

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

in m

illion

s ($

000,

000)

Status Quo

Reduced Risk of 1%

Accerated savings overfirst 5 years

Reduced risk of 5%per year

$74

$248

$319

POTENTIA L

SAVINGS

OVER

STATUS

QUO

Projected Spend and Opportunities ( 2004 - 2013)

100+ stores

1.2 billion capital

investment

Lessons Learned

• Build a business case and translate it into “CEO” speak

• Develop a comprehensive holistic strategy

• Create cultural alignment

• Create metrics to measure success that resonate with the business leaders

• Solutions should incorporate a community based initiative

• Change the paradigm that “health” is an expense to an “investment” in human capital with a significant and measurable ROI

Benefits Roundtable Survey Benefit Benchmarking

Survey of 25 Fortune 100 Companies (Union Pacific, AT&T, Chevron) of 20,000 employees

Hannaford ascompared to all

others

Overall employee satisfaction with health benefits provided+7%

Perception of quality of care received+40%

Perception of customer service+10%

Perception of what benefits at HBC cost versus other companies +24%