State of the Union 2019—Revolution or Reformation?€¦ · Source: “IBISWorld industry...

Redefining traditional roles amid a radically

restructuring market

State of the Union 2019—Revolution or Reformation?

© 2019 Advisory Board • All rights reserved • advisory.com • WF953632-a 09/11

‹#›

Road mapRoad map2

The road to 20201

2 Meeting the affordability mandate

3 The new health care compact

http://www.advisory.com/



3

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.




4

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.


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.




5

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





6

As health status declines, receptivity to governmental intervention rises

Worsening public health adding fuel to the fire


“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




7

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


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%




8


Unaffordability is the single most important motivating

factor behind growing public and political receptivity to

disruptive solutions.


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.




9

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


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




‹#›

Road mapRoad map10

The road to 20201






11

Three questions shaping the future of the health care economy

On the cusp of something big?


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




12

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


Payers

Private payers shifted risk to consumers Public payers shifted risk to providers




13

At a crossroads: Revolution or reformation?


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




14


Even as purchasers continue to refine market-based

reforms, the limited success of those reforms has

increased the likelihood of government intervention.


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.




15

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


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%




16

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


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




17

Considerable variability in current proposals


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




18

A cheat sheet for extrapolating general effects on the bottom line

How to decipher any given proposal’s impact


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?




19

Non-comprehensive overview of 2019 proposals and announcements

States testing a range of spending caps


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




20

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


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




21

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


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




22

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


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




23


Focus on single payer obscures the fact that top-down

spending controls are becoming more politically

palatable on both sides of the aisle.


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.




24

Purchasers learning difficult lessons along the way

Not giving up on market-based reforms altogether


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




25

Revisiting the prerequisites for shopping—and their absence in health care

Health care is hardly a functional consumer market


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




26

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


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




27

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


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%




28

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


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




29

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


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




30

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


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




31

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


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




32

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


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




33

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


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




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





35


Employers are moving beyond the blunt force of HDHPs

and are increasingly attaching financial consequences

to specific, low-value choices.


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.




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


Progression to

alternative payment

methodology




37

Medicare Advantage continues rapid growth


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)




38

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


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




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


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




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


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)




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


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




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


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




43


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.


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.




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


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




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?


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




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


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




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


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




48

Common sentiments could call allegiances into question nationwide

North Carolina’s physicians are not alone


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




49


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.


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.




50

Third parties creating new business models for specialists and PCPs

Competition for physicians on the rise


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




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


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




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


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




53


Private equity aggregation of single-specialty

practices is a quietly disruptive force accelerating the

outmigration of care.


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.




54

Refining our approach to physician partnership


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




55

Mount Sinai flips historical definition of physician loyalty on its head

Taking a more strategic view on physician loyalty


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




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





57

Health First partners with Privia to create nimble, competitive platform

A more radical option: Outsourcing


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




58

Competitors choosing between specialization and scale

New business models for primary care emerging


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




59


Rather than trying to be all things to all people, emerging

primary care competitors are making deliberate trade-offs

between specialization and scale.


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.




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


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




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


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%




62

Shifting market share to high-performing hospitals


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




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.





64

ChenMed partners with first health system to grow into new market

Testing the waters with health system partners


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




65


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.


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.




66

Time to get proactive


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?




67

New entrants struggle to adapt model for younger, healthier patients

Success more mixed in commercial market


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




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


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




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


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




70


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




71

Artificial intelligence automates low-acuity care

AI-enabled diagnosis improves providers’ capacity


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




72


Vertical integration and technological development

are putting a scalable front door to the delivery

system within reach.


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.




73

Primary revenue sources typically extend beyond primary care alone

Innovators unlocking new sources of growth


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




74

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


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




75

Applications span operational and clinical domains

AI: Tantalizing promise of radical change


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




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


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




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





78

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


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)




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





80

Expanding array of devices for self-management


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




81

Source: Kubota T, “Stanford algorithm can diagnose pneumonia

better than radiologists,” Stanford News, November 15, 2017.

Visual diagnostics on the horizon


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




82

Where we are, and where we’re going


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




83


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.


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.




84

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


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

.




85


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.


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.




86

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


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




87

Consider full set of goals carefully to ensure right platform and resourcing

Clarify innovation goals to ensure ROI


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




88


Successful innovation requires articulation of a clear

goal; many are likely overweighting prestige and

underweighting business improvement potential.


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.




‹#›

Road mapRoad map89

The road to 20201






90

On the cusp of something big?


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




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


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




92

Industry must prepare to meet market’s demands

The new health care compact


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




93


No one segment of the industry can deliver affordability

on its own; success will require collaboration, and not

everyone will win.


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.




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?


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




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.




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