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Health Care Industry Trends 2016Ready-to-Use Presentation Slides
Market Innovation Center
2
2
3
4
1
Road Map
©2016 The Advisory Board Company • advisory.com
Payment Reform
Provider Market
Purchaser Behavior
Provider Selection
©2016 The Advisory Board Company • advisory.com
33
Payment Reform
• Update on Value Based Purchasing Program
• Update on Bundled Payments
• Update on Accountable Care Organizations
©2016 The Advisory Board Company • advisory.com
4
Source: Health Care Advisory Board interviews and analysis.
Continuum of Medicare Risk Models
Bundled Payments
Shared Savings
Shared Risk
Full Risk
• Hospital VBP Program
• Hospital Readmissions Reduction Program
• HAC Reduction Program
• Merit-Based Incentive Payment System
• MSSP Track 1(50% sharing)
• MSSP Track 2(60% sharing)
• MSSP Track 3(up to 75% sharing)
• Next-GenerationACO (80-85% sharing)
• Next-Generation ACO (optional full performance risk)
• Medicare Advantage (provider-sponsored)
Pay-for-Performance
• Bundled Payments for Care Improvement Initiative (BPCI)
Increasing Financial Risk
©2016 The Advisory Board Company • advisory.com
5
Payment Targets Demonstrate Commitment to FFS1 Alternatives
Update on Value Based Purchasing Program
Source: HHS, “Progress Towards Achieving Better Care, Smarter Spending, Healthier People,” available at: http://www.hhs.gov/, accessed February 2015; Health Care Advisory Board interviews and analysis.
1) Fee-for-Service.
CMS Sets Targets for Value-Based Payments
2015 2016 2018
20%
30%
50%
Aggressive Targets for Transition to RiskPercent of Medicare Payments Tied to Risk Models
2015 2016 2018
80%
85%
90%
FFS Increasingly Tied to ValuePercent of Medicare Payments Tied to Quality
Medicare Shared Savings Program
Patient-Centered Medical Home
Bundled Payments for Care Improvement Initiative
Exa
mp
les
of Q
ual
ifyin
g R
isk
Mo
dels
Hospital-Acquired Condition Reduction Program
Hospital Readmissions Reduction Program
Hospital Value-Based Purchasing Program
Merit-Based Incentive Payment System
Exa
mp
les
of Q
ualit
y/V
alue
Pro
gra
ms
©2016 The Advisory Board Company • advisory.com
6
Mandatory Risk Programs Taking a Toll on Providers
Source: Rau J, “1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect,” Kaiser Health News, January 22, 2015, available at: kaiserhealthnews.org; Health Care Advisory Board interviews and analysis.
1) Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program. 2) Value-Based Purchasing. 3) Pay-for-Performance.
Readmissions, HAC Penalties Outweigh VBP Bonuses
3,087hospitals in VBP program
1,700hospitals received bonus payment
792hospitals received net payment increases
After Accounting for Penalties1, Few Receive VBP2 Bonuses
Estimated Net Impact of P4P3 Programs, FY 2015
Hospitals receiving net penalties of 2% or greater
6.5%
Hospitals receiving a net bonus or breaking even
28%
Hospitals receiving net penalties between
0% and 1%
50%
©2016 The Advisory Board Company • advisory.com
7Update on Bundled Payments
BPCI Participation Continues to Fluctuate
450 342
21101574
6,000+
27%54%
19%
Acute Care Hospitals
Physician Practices
PAC Providers2
1) Bundled Payments for Care Improvement Initiative.2) Includes SNFs, HHA, Inpatient Rehabilitation Facilities, and Long-term Acute Care Hospitals.3) Does not add to 100% because Awardees not initiating episodes in BCPI are not included.
Source: CMS, “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” February 2016; The Lewin Group, “CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2-4: Year 1 Evaluation & Monitoring Annual Report,” January 2015; Health Care Advisory Board interviews and analysis.
Total Number of BPCI1 ParticipantsAs of January 2016
Types of Organizations Participating in BPCI3
Episode Initiators as of January 2016
©2016 The Advisory Board Company • advisory.com
8
CMMI1 Program Requires Orthopedic Bundling in 67 Select Markets
1) Center for Medicare and Medicaid Innovation.2) Critical Access Hospitals. 3) Bundled Payments for Care Improvement Initiative.
Orthopedic Bundling Now Mandatory
Key Program Features
Mandatory in 67 markets
No application process; CAHs1 and BPCI2 Phase II participants exempt
Retrospective bundle
CMS will pay each provider separately, conduct annual reconciliation process
Comprehensive episode
Includes all related Part A and Part B services for 90 days post-discharge
The Comprehensive Care for Joint Replacement (CJR) Model
Focus on joints
Average expenditure varies from $16,500 to $33,000 by geography
Program Timeline
July 2015
Program announced; comment period through September 8th
April 2016
First performance year begins; no episode discount for first year
2017-2020
Downside risk incorporated; 1% discount in 2017, 2% for 2018 onward
$153MEstimated savings to Medicare over the 5 years of the model
Source: Centers for Medicare and Medicaid Services; Advisory Board interviews and analysis.
©2016 The Advisory Board Company • advisory.com
9
Where the Medicare ACOs Are
19 Pioneer and 405 Shared Savings Program ACOs
Update on Accountable Care Organizations
Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis
9
January 2015
©2016 The Advisory Board Company • advisory.com
10
19
404 423
89 ACOs Join in 2015, Few Generating Shared Savings in First Year
Source: Spitalnic P, “Certification of Pioneer Model Savings,” CMS, April 10, 2015; available at www.cms.gov; “Shared Savings Program Fast Facts,” CMS, April 2015, available at: www.cms.gov; CMS, “Fact Sheets: Medicare ACOs continue to succeed in improving care, lowering cost growth,” September 16, 2014, available at www.cms.gov; McClellan M et al., “Changes Needed to Fulfill the Potential of Medicare’s ACO Program,” Health Affairs Blog, April 8, 2015, available at www.healthaffairs.org/blog; Health Care Advisory Board interviews and analysis.
1) Medicare Shared Savings Program.2) For the 2012 and 2013 cohorts; percentages
may not add to 100 due to rounding.
MSSP1 Continues to Grow Despite Mixed Results
Medicare ACO Program Growth Continues
26%
27%
46%
One-Quarter of MSSP ACOs Share in SavingsFirst Performance Year2
Held Spending Below Benchmark, Earned
Shared Savings
Reduced Spending, Did Not Qualify
for Shared Savings
Did Not Hold Spending Below
BenchmarkPioneer ACO MSSP
ACOTotal
Medicare ACOs
As of April 2015
©2016 The Advisory Board Company • advisory.com
11
Proposed MSSP Rule Encourages More Risk
Track 1 Track 2 Track 3
• Option to renew for second three-year term
• Savings rate reduced to 40% for second term
• Shared savings, loss rate remains at 60% based on quality performance
• Revises MSR1 and MLR2 from fixed 2% to variable 2%-3.9% based on number of beneficiaries
• Beneficiary attestation
• Shared savings up to 75%, shared losses from 40%-75% based on quality performance
• Fixed 2% MSR and MLR
• Prospective assignment and beneficiary attestation
• Program waivers3
Track Three Incorporates Features of Pioneer ACO Model Proposed Tracks for the Medicare Shared Savings Program
Source: Davis Wright Tremaine, “Keeping Track of the Tracks: Proposed ACO Regulations Alter MSSP Financial Models,” December 11, 2014, available at www.dwt.com; McDermott, Will & Emery, “CMS ACO Proposed Rule to Extend One-Sided Risk Track While Incentivizing Performance-Based Risk,” December 19, 2014, available at www.mwe.com; Health Care Advisory Board interviews and analysis.
1) Minimum Savings Rate.2) Minimum Loss Rate.3) Include the SNF 3-day rule, telehealth waiver, home health waiver, and PAC referrals waiver.
Key Takeaways for Providers
• Encourages providers hesitant to assume downside risk to remain in program; reduces long-term attractiveness of upside-only contracts
• Track 3 provides options for providers to quickly assume more risk
• Provides flexibility for organizations with varying capabilities to assume risk
©2016 The Advisory Board Company • advisory.com
1212
Provider Market
• Finances
• Volume Performance
• Mergers and Acquisitions
• Partnerships and Affiliations
• Imaging Centers
• Ambulatory Surgery Centers
• Primary Care Network
• Telehealth
©2016 The Advisory Board Company • advisory.com
13Finances
Source: Altarum Institute, Health Sector Trend Report, March 2015, accessed April 2015; Tozzi J, “U.S. Health-Care Spending Is on the Rise Again,” Bloomberg Businessweek, February 18, 2015, available at: www.bloomberg.com; Davidson P, “Health care spending growth hits 10-year high,” USA Today, April 1, 2014, available at: www.usatoday.com; Altman D, “Health Spending is Rising More Sharply Again,” The Wall Street Journal, February 27, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.
Health Spending on the Rise Again…
2006 2007 2008 2009 2010 2011 2012 2013 20140%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
6.5% 6.3%
4.8%
3.8% 3.9% 3.9% 4.1%3.6%
5.0%
“U.S. Health-Care Spending Is on the Rise Again”
“Health care spending growth hits 10-year high”
“Health Spending Is Rising More Sharply Again”
Annual Growth in National Health Expenditures
©2016 The Advisory Board Company • advisory.com
14
Higher Spending Does Not Equate Price Growth for Hospitals
Source: Altarum Institute, Health Sector Economic Indicators: Price Brief, March 2015, March 2014, March 2013, March 2012, available at: www.altarum.org; Health Care Advisory Board interviews and analysis.
…But Hospital Price Growth Down for First Time
Annualized Hospital Price Growth, Jan. 2010-Jan. 2015
Jan. '10 Jan. '11 Jan. '12 Jan. '13 Jan. '14 Jan. '15-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%3.5%
1.6%
2.7% 2.9%
1.5%
-0.1%
2015 Hospital Price Growth Down Across All Payer Classes
Medicare price growth
(2.9%)
Medicaid price growth
(0.1%)
Commercial price growth (lowest growth rate since 2002)
1.6%
©2016 The Advisory Board Company • advisory.com
15
Modest Growth Anticipated for the Near Term
Inpatient and Hospital Based Outpatient Volume Projections
Source: Advisory Board Inpatient and Outpatient Market Estimators; Advisory Board research and analysis.
1) Compound Annual Growth Rate
Inpatient Volume, CAGR1
2014-2019
Cardiac Services
Neurology
General Surgery
Orthopedics
General Medicine
Neurosurgery
Overall
0.9%
1.1%
1.1%
1.4%
2.7%
0.5%
Hospital-Based Outpatient Volume, CAGR1
2014-2019
Orthopedics
General Surgery
E&M
Cardiology
Radiology
Oncology
Overall
3.1%
2.2%
1.4%
2.3%
1.4%
1.7%
2.0%
(2.7%) 3.1%
©2016 The Advisory Board Company • advisory.com
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Volumes Continuing to Shift Outpatient
Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2015, available at: www.medpac.gov; Advisory Board Company Inpatient and Outpatient Market Estimators; Market Innovation Center interviews and analysis.
1) Outpatient services represent entire market regardless of site of service (includes hospital-based settings, ASCs, other freestanding providers and physician offices)
Medicare Volume Growth
Cumulative Percent Change
All Payer Volume Growth Projections1
2014-2019
Outpatient Services per FFS Part B Beneficiary
33.0%
(17.0%)
2006 2013
20%
17%
18%
12%
14.0%
6.0%
-9.0%
-13.0%
Oupatient Inpatient
Cardiac Services
Vascular Services
Orthopedics
Neurosurgery
Volume Performance
©2016 The Advisory Board Company • advisory.com
17
Source: CMS, “2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” May 31, 2013, available at: http://downloads.cms.gov/files/TR2013.pdf; Health Care Advisory Board interviews and analysis.
Medicare to Become Majority of Volume by 2022
Projected Number of Medicare Beneficiaries
Millions of Beneficiaries
54.0
57.3
60.7
64.3
66.4
Average Inpatient Case Mix By Volume
n = 785 Hospitals
2012 2022
42%58%
19%
15%
33%25%
6% 2%
Medicare
Medicaid
Commercial
Self-Pay
2014 2016 2018 2020 2022
17
©2016 The Advisory Board Company • advisory.com
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2009 2010 2011 2012 2013 2014
50
66
86 8998 95
Mergers and Acquisitions
Source: Beckers Hospital Review, “The Year of 95 Hospital Transactions,” 2015, available at: www.beckershospitalreview.com/; American Hospital Association, Fast Facts 2016, available at: http://www.aha.org/research/rc/stat-studies/fast-facts.shtml Health Care Advisory Board interviews and analysis.
M&A Continue at a Steady Rate
Hospital and Health System M&A ActivityTotal Deal Volume
Number of Hospitals Part of a Health System
2,668
3,183
19% growth across decade
©2016 The Advisory Board Company • advisory.com
19Partnerships and Affiliations
Source: Health Care Advisory Board interviews and analysis.
Five Major Types of Provider Partnership
Description
Merger or Acquisition
Formal purchase of one organization’s assets by another, or the combination of two organizations’ assets into a single entity
Clinically-Integrated Hospital Network
Collection of hospitals contracting jointly in order to support improved coordination, outcomes; modeled after physician CI networks
Accountable Care Organization
Independent entity, owned by one or several independent organizations, that accepts risk-based contracts and distributes shared savings
Regional Collaborative
Flexible umbrella structure, often encompassing many independent organizations of similar geography, that may serve as foundation for further integration
Clinical Affiliation Typically bilateral agreement to cooperate around a particular initiative or service line; may involve local or national partners
19
©2016 The Advisory Board Company • advisory.com
20Imaging Centers
Source: Advisory Board Imaging Outpatient Market Estimator; Imaging Performance Partnership interviews and analysis.
Outpatient Imaging Volume Growth Positive
8%9%
11%
5%6%
12%
2%
16%18%
24%
11%12%
26%
10%
5 yr growth 10 yr growth
Market-specific volume forecasts can be found in The Outpatient Imaging Market Estimator
Outpatient Volume Growth ProjectionsAll Providers, by Modality2014-2024
©2016 The Advisory Board Company • advisory.com
21
Total Number of Medicare-Certified ASCs
2008 2009 2010 2011 2012 2013 2014 20154955
5064
51525228
53075364
54145464
ASC Growth at All-Time Low
Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2015; ASC Association, available at http://www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsperstate; Market Innovation Center interviews and analysis.
Ambulatory Surgery Centers
Net percent growth from previous year
4.2%
2.2%1.7% 1.5% 1.5%
1.1% 0.9% 0.9%
©2016 The Advisory Board Company • advisory.com
22
A Growing Network of Immediate Access Choices
Markets Responding to Unmet Needs
Source: Mehrota A et al, "Visits To Retail Clinics Grew Fourfold From 2007 To 2009, Although Their Share Of Overall Outpatient Visits Remains Low," Health Affairs, August 2012; Health Care Advisory Board interviews and analysis.
Traditional Access Points
Consumer-Oriented
Access Points RetailClinic
Urgent Care Center
Virtual Visit
Primary Care Office
Low Acuity High Acuity Emergency Department
Consumer-Oriented Service Delivery Sites Filling the Gap
22Primary Care Network
©2016 The Advisory Board Company • advisory.com
23
Retail clinic
Imaging center
Urgent care clinic
Ambulatory surgical center
Primary care clinic
Medical office building
23%
45%
61%
61%
68%
84%
Current Capital Outlays, Planned Projects Point to Sustained Growth
Source: 2015 Facility Planning Survey; Facility Planning Forum research and analysis.
Investment in Outpatient Facilities Growing
Percent of Respondents with Outpatient Facility Projects Planned
2015-2018, n= 31 Hospitals and Health Systems
Capital Allocation for Ambulatory Investments
Percent of Total Capital Outlays
20142013 27.0%20.0%
©2016 The Advisory Board Company • advisory.com
24
Retail Clinics Expected to Continue Growing
1) As of Nov. 20152) As of July 20153) Clinics owned by Walmart; Walmart also leases retail space to
providers in dozens of stores.Source: Accenture, “Number of US Retail Health Clinics Will Surpass 2800 by 2017, Accenture Forecasts,” 2015; Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; Market Innovation Center interviews and analysis.
2000-20151
Estimated Total Number of Retail Clinics in the US
2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
202
868
1135 1172 12201355 1418
17431869 1918
Retailer
Operational Retail Clinics2 979 412 162 83 173
24
©2016 The Advisory Board Company • advisory.com
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Urgent Care Ripe for Consolidation, Diversification
Source: Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; UCAOA “2014 Urgent Care Benchmarking Survey Report”; Market Innovation Center interviews and analysis.
1) As of 2013.2) As of July 2015.
Operator
Operational Urgent Care Centers2
290 166 146 145 123
Urgent care and ongoing primary care
Exclusively urgent care
85%
15%
Continued growth likely in urgent care centers offering ongoing primary care to bolster referrals, relieve primary care offices, and manage population health
Urgent Care Beginning to Offer Ongoing Primary Care Services1
Approximate number of urgent care clinics in operation in the
US
6100
Approximate number of hospitals and multispecialty groups operating
more than five urgent care sites; most provider organizations run
three or fewer sites
41
©2016 The Advisory Board Company • advisory.com
26
Telehealth: Untangling the Terminology
Key Terms and How They Relate to Telehealth Technologies
Telehealth
Source: Market Innovation Center research and analysis.
Use Cases Modalities Platforms
Professional Consultation
Diagnosis and Treatment
Monitoring and Care Coordination
Remote Patient Monitoring
Asynchronous Store-and-Forward
Telephonic
Web-based
Mobile, Smart Device
Kiosk
Bluetooth-Enabled Peripheral Devices
Real-time Virtual Visits
Defining “Telehealth”The use of medical information exchanged from one site to another via electronic communications to improve a patient’s clinical health status.
- American Telemedicine Association
Why invest in telehealth? What are the applications? How is telehealth offered?
©2016 The Advisory Board Company • advisory.com
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Modalities Differ by Recipient and Timing of Service
Typically, Synchronous Provider-to-Patient Is Most Favorably Reimbursed
Source: Market Innovation Center research and analysis.
Intended Recipient
Tim
ing
of I
nter
actio
n
Provider-to-Patient Provider-to-Provider
Synchronous
Real-time patient consultations
Common applications:
• Virtual primary care
• Virtual urgent care
• Virtual pre- and post-op
Real-time specialist consultations
Common applications:
• Telestroke
• TeleICU
• Telepsychiatry
Asynchronous
Time lag between patient request and subsequent provider response
Common applications:
• Secure e-messaging
• Remote patient monitoring
• Wearables (e.g., Fitbit)
Time lag between initial provider request and specialist response
Common applications:
• Teleradiology
• Telepharmacy
• Teledermatology
1 2
34
©2016 The Advisory Board Company • advisory.com
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Telehealth Projected to Continue Growth
Projections Agree on Growth, But How Aggressive?
Sources: Herman B, “Virtual reality: More insurers are embracing telehealth,” Modern Healthcare, February 2016, available at: http://www.modernhealthcare.com/article/20160220/MAGAZINE/302209980; ”Global Telemedicine Market – Growth, Trends and Forecasts (2015-2020),” Mordor Intelligence, http://www.mordorintelligence.com/industry-reports/global-telemedicine-market-industry, December 2015; Japsen, Bruce, “Doctors’ Virtual Consults with Patients to Double by 2020,” Forbes, http://www.forbes.com/sites/brucejapsen/2015/08/09/as-telehealth-booms-doctor-video-consults-to-double-by-2020/#2d4da3675d66, August 2015; Market Innovation Center research and analysis.
1) CMS data.2) 2015 HIS Analytics report.
2015 2020
16.6
26.9
2.1
5.4
14.5
21.5
Total
PCP Visits
Specialty Consults0.0
5.0
10.0
15.0
20.0
$2.5
$17.6
Year-Over-Year Medicare Reimbursement for Telehealth Services1
In millions of dollars
Estimated U.S. Growth in Virtual Consults2
Millions of Visits5-YR
Growth
62%
48%
157%
604% Growth
©2016 The Advisory Board Company • advisory.com
2929
Purchaser Behavior
• Commercial Payers
• Employers
• Medicare
• Coverage Expansion
©2016 The Advisory Board Company • advisory.com
30
Source: HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: December Enrollment Report,” Dec. 30, 2014; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: January Enrollment Report,” Jan. 27, 2015; HHS, “Open Enrollment Week 13: February 7, 2015 – February 15, 2015, available at: http://www.hhs.gov/healthcare/facts/blog; HHS, “Open Enrollment Week 14: February 16, 2015 – February 22, 2015, available at: www.hhs.gov/healthcare/facts/blog; HHS, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” March 10, 2015; CBO, January 2015 Baseline: Insurance Coverage Provisions for the Affordable Care Act, available at: www.cbo.gov; Washington Times, “Obamacare Official: 7.3 Million Americans Are Still Enrolled and Paid Up,” Sept. 18, 2014; available at: http://www.washingtontimes.com; Health Care Advisory Board interviews and analysis.
Second Round of Enrollment Hitting Targets
Commercial Payers: Public Exchanges
1) Health and Human Services.
Consumers Continue to Flock to Public Exchanges
Second Open Enrollment Period Yields Nearly 12 Million Enrollees
4 4
9.5
0
HHS1 Projection9.0M-9.9M
Enrollment on federally facilitated exchanges, 2015
8.8MEnrollment on state run exchanges, 2015
2.8M
2015 enrollees aged 18-34 (compared to 28% in 2014)
28%
Demographics Largely Unchanged
Federal Exchanges Driving Most EnrollmentTotal 2015 Plan Selections in the Marketplaces
8M2014
Enrollment
©2016 The Advisory Board Company • advisory.com
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Exchange Options Reflect Tougher Economic Reality for Insurers
Source: CMS, 2016 Marketplace Affordability Snapshot,” October 26 2015; Kaiser Family Foundation, “Monthly Silver Premiums for a 40 Year Old Non-Smoker Making $30,000/Year,” available at kff.org; CNBC, “Fewer plans to be on biggest Obamacare exchange for 2016,” available at cnbc.com; Health Care Advisory Board interviews and analysis.
In Year Three, Premium Adjustments Abound
Statewide Average Premium Changes for Benchmark Silver Plans, 2015 to 20161
Average Premium Increases Modest, but High Market-by-Market Variability
Takeaways
Fewer OptionsNumber of products decreased by 12%
10.01%-15%
>15%
Limited/no data
5.01%-10%
0%-5%
<0%
1) For 40-year-old, non-smoker.
More ExpensiveAverage premiums in 37 states using Healthcare.gov increased by 7.5%
©2016 The Advisory Board Company • advisory.com
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Avoiding Premium Increases the Primary Motivation for Shoppers
Source: The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: www.advisory.com; McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: www.healthcare.mckinsey.com; HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: www.aspe.hhs.gov; Health Care Advisory Board interviews and analysis.
1) Federal Employee Health Benefits Plan.
Exchanges a More Fluid Marketplace Than Expected
Switching Rates Higher Than Expected
Premium Increases the Primary Motivator
Switchers who cited rise in monthly premiums as among top three reasons for switching
55%
0%
100%
12% 29%Average annual switching among active employees with FEHBP1 coverage
Returning federal exchange enrollees changing plans in 2015
2014 2015
20% 22%
65% 67%
Catastrophic Platinum Gold Silver Bronze
Most Continue to Select Silver, Bronze PlansPlan Selections on Healthcare.gov, 2014-2015
©2016 The Advisory Board Company • advisory.com
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Insurers Betting Consumers Will Continue to Trade Choice for Price
Source: McKinsey & Co., “Hospital Networks: Evolution of the Configurations on the 2015 Exchanges,” April 2015, available at: www.healthcare.mckinsey.com; Health Care Advisory Board interviews and analysis.
Despite Predictions, Networks Remain Narrow
Narrow Network Plan Designs Continue to Dominate Exchange Marketplace Network Breadth in Largest City of Each State
Narrow Network Premium Advantages Increasing Over Time
15-23%Narrow network premium advantage in 2014
11-17%Narrow network premium advantage in 2015
Few Buying-Up to Broad Networks
17% Consumers with narrow-network plans for year one that switched to a broad-network plan in year two
Median PMPM Difference For Products From the Same Payer and Product Type
Broad
Narrow
Ultra Narrow
38%
41%
21%
40%
38%
22%
2015 2014
©2016 The Advisory Board Company • advisory.com
34
Source: eHealth, “Health Insurance Price Index Report for the 2015 Open Enrollment Period,” March 2015, available at: www.news.ehealthinsurance.com; HealthPocket.com, “2016 Affordable Care Act Market Brings Higher Average Premiums for Unsubsidized,” November 2, 2015, available at: www.healthpocket.com; Health Care Advisory Board interviews and analysis.
Trading Low Premiums for High Deductibles
<$1,000 $1,000-$2,999 $3,000-$5,999 $6,000+
16% 16%
30%
39%
10%
23%
34% 34%
2014 2015
2015 Enrollees Favor Higher Deductibles Annual Deductibles as Percentage of All Individual Plans Selected on eHealth Platform, 2014-2015
Average Public Exchange Deductibles by Tier, 2016
Bronze:
Silver:
Gold:
Platinum:
$5,731
$3,117
$1,165
$233
$5,181
$2,927
$1,198
$243
20152016
20152016
20152016
20152016
©2016 The Advisory Board Company • advisory.com
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So Far, Backlash Against Narrow Networks, HDHPs Not Widespread
Source: Gallup, “Newly Insured Through Exchanges Give Coverage Good Marks,” November 14, 2014, available at: www.gallup.com; Health Care Advisory Board interviews and analysis.
Majority Satisfied with Coverage
Exchange Enrollees Generally as Happy as Others with Health Coverage…Ratings of Healthcare Coverage Quality, 2014
…And Particularly Satisfied with the Cost of Their CoverageRatings of Healthcare Coverage Cost, 2014
Newly insured satisfied with cost of health care
75%
Satisfaction rate among all insured individuals
61%
Good or Excellent
Fair or Poor
72.0%
27.0%
71%
29%
All Insured
Newly-Insured Through Exchanges
©2016 The Advisory Board Company • advisory.com
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Cadillac Tax Spurring Employers to Change Benefits
Employers
Refresher: The Cadillac Tax
26% 42%of all employers could incur tax in 2028
If Employers Make No Changes to Current Benefit Plans:
of all employers could incur tax in 2018
Source: Mercer, “Survey Predicts Health Benefit Cost Increases Will Edge Up in 2015,” September 11, 2014, available at: www.mercer.com; Hancock J, “Employer Health Costs Rise 4 Percent, Lowest Increase Since 1997,” Kaiser Health News, March 2 2016, available at: www.kaiserhealthnews.com; Mercer, “Modest Health Benefit Cost Growth Continues as Consumerism Kicks into High Gear,” November 19, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.
The Cadillac Tax
• 40% excise tax assessed on amount of employee health benefit exceeding $10,200 for individuals, $27,500 for families
• Intended to encourage cost-effective benefits, offset ACA implementation cost
• Threshold adjustments tied to consumer inflation, not health care inflation
©2016 The Advisory Board Company • advisory.com
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Source: Health Care Advisory Board interviews and analysis.
Activist Employers Investing in a Range of Tools
Four Primary Models for Controlling Employee Utilization
ACO networks: Employer contracts with single delivery system based on promise of reduced cost trend
Manage Costs at Point of Network Assembly
“The One- Stop Shop”
Enhanced primary care: Employees directed to PCPs with proven ability to reduce utilization, refer responsibly
“The Accountable Physician”
Personal health navigators: Guide employees through all health care related decisions, refer to high-value providers
“The Neutral Third Party”
“The Second Opinion”
Specialty carve-out networks: Employees evaluated against appropriateness of care criteria, sent to centers of excellence
Manage Costs at Point of Referral, Point of Care
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Looking to Combine Network Advantages with Consumer Accountability
Source: Kaiser Family Foundation/Health Research & Educational Trust, “Employer Health Benefits 2015 Annual Survey,” September 2015, available at: www.kff.org; Health Care Advisory Board interviews and analysis.
.
Employers Moving Away From the Traditional HMO
Employers Looking to Narrower Networks
17%
17%Employers with a high performance or tiered network in their largest health plan
9%Employer eliminated hospitals or health systems from their plans to reduce costs in 2015
Percent of Covered Workers Enrolled in a Plan with a $1,000+ Deductible
2010 2011 2012 2013 2014 2015
46%50% 49%
58%61% 63%
17%22%
26% 28%32%
39%
Small Firms (3-199 Workers)
©2016 The Advisory Board Company • advisory.com
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Source: Accenture, “Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015,” April 7, 2015, available at: www.accenture.com; Towers Watson, “Enrollment in Health Benefits Through Towers Watson’s Exchange Solutions Expected to Reach About 1.2 Million in 2015,” March 19, 2015, available at: www.towerswatson.com; Mercer, “Mercer Marketplace-the flexible private exchange-posts individual participant and client gains,” October 13, 2014, available at: www.mercer.com; Health Care Advisory Board interviews and analysis.
Private Exchange Enrollment Continues to Grow
Analysts Remain Bullish on Long-Run Growth Prospects
More Big Names Making the Jump
Newer Market Entrants Hitting Their Stride
Private Exchange Enrollment Doubles in 2015, But Lags Behind Initial Projections Projected Private Exchange Enrollment Among Pre-65 Employees and Dependents
Enrollment growth for Towers Watson’s exchange solutions, 201550%Enrollment growth for Mercer’s exchange solutions, 2015500%
(800k1.2M)
(220k1M) 2014 2015 2016 2017 2018
36
12
22
40
2013 Projection
Actual Enrollment
2015 Projection
©2016 The Advisory Board Company • advisory.com
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Price Cuts Continue Unabated
Medicare
Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015; Budget of the United States Government (Proposed) FY 2016; Health Care Advisory Board interviews and analysis.
1) Inpatient Prospective Payment System.2) Disproportionate Share Hospital.3) Medicare Access and CHIP Reauthorization Act of 2015.
No End in Sight for Inpatient Reimbursement Cuts
Hospitals Bearing the Brunt of Payment Cuts New Proposals Continue to Emerge
$29.5BSavings from moving to site-neutral payments
$30.8BReduction in Medicare bad debt payments
President’s FY2016 Budget Proposal Includes Significant Cuts to Providers
$14.6BCuts to teaching hospitals and GME payments
$720MCuts to critical access hospitals
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Reductions to Medicare Fee-for-Service Payments
($4B)
($14B)
($24B)
($29B)
($38B)
($54B)
($67B)
($76B)
($86B)
($94B)
ACA IPPS1 Update Adjustments
ACA DSH2 Payment Cuts
MACRA3 IPPS Update Adjustments
©2016 The Advisory Board Company • advisory.com
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Source: KFF, “Medicare Advantage Fact Sheet,” June 29, 2015, available at: www.kff.org; McKinsey & Co., “Provider-Led Health Plans: The Next Frontier—Or the 1990s All Over Again?”, January 2015, available at: healthcare.mckinsey.com; MedPac, “Do new Medicare beneficiaries choose Medicare Advantage right away?” Sept. 15, 2014; Health Care Advisory Board interviews and analysis.
1) Medicare Advantage.
Medicare Advantage Continues Record Growth
10.4M(13%)
16.8M(31%)
30.0M(40%)
202520152005
MA1 Enrollment to Nearly Double by 2025Total Enrollment and Percentage of Total Medicare Population
MA Penetration Varies by StateTotal MA Enrollment as a Percent of Total Medicare Population, 2015
0%-10% 10%-19% 20%-29%
states currently have provider-led plans in their markets
39of provider-led plans offer MA coverage options
69%of newly eligible beneficiaries chose MA in 2012
24%
30%-39% 30%-39%
©2016 The Advisory Board Company • advisory.com
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Growth in Medicaid enrollment in expansion vs. non-expansion states, FY 2015
18% vs. 5%
Medicaid Expansion Positively Impacting Hospital Finances
Benefit of Expansion Clear for Hospitals, But Opposition Remains
Coverage Expansion
Source: Kaiser Family Foundation, “Current Status of State Medicaid Expansion Decisions,” March 2, 2016, available at: www.kff.org; HHS, “Insurance Expansion, Hospital Uncompensated Care, and the Affordable Care Act”, March 23, 2015, available at: www.aspe.hhs.gov; PwC Health Research Institute, “The Health System Haves and Have Nots of ACA Expansion”, 2014, available at: www.pwc.com; CMS, “Medicaid & CHIP Application, Eligibility, and Enrollment Data, March 2, 2016, available at: www.medicaid.gov; Health Care Advisory Board interviews and analysis.
1) Children’s Health Insurance Program.
Future of Medicaid Expansion Less Clear
31 States and DC Have Approved ExpansionAs of January 2016
Not Currently Participating
ParticipatingExpansion by Waiver
Medicaid Admissions increased 21% for investor-owned hospitals in expansion states
Self-Pay Admissions decreased by 47% for investor-owned hospitals in expansion states
Uncompensated Care costs reduced by $5 billion in expansion states in 2014
14.5MNet increase in Medicaid, CHIP1 enrollment, Oct 2013 to Jan 2016
©2016 The Advisory Board Company • advisory.com
4343
Provider Selection
• Independent Physicians
• Patients
©2016 The Advisory Board Company • advisory.com
44Independent Physicians
Referral Choice Criteria Different for PCPs, Specialists
Source: Service Line Strategy Advisor interviews and analysis.
The Extended Service Line Referral Pathway
HospitalPCP Medical Specialist
Proceduralist
Consumer Interventions
• Top-notch specialty capabilities and technology
• Superior specialist access
• Operations focused on specialist efficiency
• Comprehensive care continuum
• Highest value of care
• Superior patient access and experience
Traditional Differentiators
Emerging Differentiators
So
urc
es o
f In
flu
ence
Value-Based Incentives
Steerage Mechanisms
Emerging and Traditional Differentiators for Physicians
44
©2016 The Advisory Board Company • advisory.com
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Referrals Hinge on Accessibility and Communication
Source: Kinchen, KS, et al., “Referral of Patients to Specialists: Factors Affecting Choice of Specialist by Primary Care Physicians,” Annals of Family Medicine, May/June 2004, 2: 245-252; Barnett, Michael L. et al., “Reasons for Choice of Referral Physician Among Primary Care and Specialist Physicians.,”Journal of General Internal Medicine, September 16th, 2011; Service Line Strategy Advisor interviews and analysis,.
1) Top four factors (out of 17 options) rated by PCPs as either a moderate or major factor in their specialty referral decision
What PCPs Value Most for Referrals
Top Four Factors When Choosing a Specialist
Rated as Moderate or Major Importance1
n = 553
100%96% 95% 94%
PCPs’ Referral Decision Factors Compared to Specialists’
PCPs 1.5 times more likely to refer based on physician communication than specialists
1.5x
PCPs two times more likely to refer based on timely availability of appointments than specialists
2x
45
©2016 The Advisory Board Company • advisory.com
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Catalyzing a Shift in Network Demands
Patients
Source: Health Care Advisory Board interviews and analysis.
Market Forces Turning Patients into Consumers
Traditional Market Retail Market
Growing number of buyers
1
Proliferation of product options
2
Increased transparency
3
Reduced switching costs
4
Greater consumer cost exposure
5
Passive employer, price-insulated employee
Activist employer, price-sensitive individual
Broad, open networks Narrow, custom networks
No platform for apples-to-apples plan comparison
Clear plan comparison on exchange platforms
Disruptive for employers to change benefit options
Easy for individuals to switch plans annually
Constant employee premium contribution,
low deductibles
Variable individual premium contribution, high deductibles
Characteristics of a Traditional vs. Retail Market
46
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Patient Experience Vital For Securing Purchaser Choice Year Over Year
Source: Health Care Advisory Board interviews and analysis.
Welcome to the Renewals Business
Day 1
Day 365
Care Decision
Network Selection and Ongoing Experience
Care Decision
Care Decision
Care DecisionClinical interactions represent repeated opportunities to reinforce patient preference through superior experience
Annual network selection in fluid insurance market implies consistent reevaluation of network performance
Patient Experience
47
©2016 The Advisory Board Company • advisory.com
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Scope and Investment Must Expand to Encompass Entire Experience
Source: Health Care Advisory Board interviews and analysis.
Inpatient Satisfaction Scores Miss Most Interactions
AMBULATORY CARE
350,000+
Interactions per year
INPATIENT VISITS
17,000+
Interactions per year
PROVIDER SEARCH, SCHEDULING, COLLECTIONS
2,500,000+
Interactions per year
InpatientStays
AmbulatoryVisits
Health CareTransactions
Average Health System Interactions
Sick Healthy
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Consumers’ Top 10 Primary Care Clinic Attributes
Prioritizing Convenience and Affordability
Source: 2014 Primary Care Consumer Choice Survey, Marketing and Planning Leadership Council interviews and analysis.
Average Utilities for Top Ten Preferred Primary Care Clinic Attributesn=3,873
3.00
3.00
3.01
3.04
3.70
3.91
3.94
3.95
3.98
4.11
If I need lab tests or x-rays, I can get them done at the clinic instead of going to another location
The provider is in-network for my insurer
The visit will be free
The clinic is open 24 hours a day, 7 days a week
I can get an appointment for later today
The provider explains possible causes of my illness and helps me plan ways to stay healthy in the future
Each time I visit the clinic, the same provider will treat me
If I need a prescription, I can get it filled at the clinic instead of going to another location
The clinic is located near my home
I can walk in without an appointment, and I’m guaranteed to be seen within 30 minutes
49
©2016 The Advisory Board Company • advisory.com
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Source: 2015 Primary Care Physician Consumer Loyalty Survey, Market Innovation Center interviews and analysis.
Most Patients Are Not Loyal to PCP
Percent of Consumers Highly Loyal in Each of Three Loyalty Measures
9%
If your primary care moved to another clinic or practice, how likely are you to follow him/her to another clinic or practice?
(On a scale of 0 to 10, with 0 being “definitely would not follow” and 10 being “definitely follow”)
How likely are you to stay with your primary care physician over the next 12 months?
(On a scale of 0 to 10, with 0 being “definitely not staying” and 10 being “definitely staying”)
How likely are you to recommend your primary care physician to friends or family members?
(On a scale of 0 to 10, with 0 being “not at all likely” and 10 being “extremely likely”)
53% 36%
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Top Reasons for Self Referrals Centered on Recommendation, Affiliation
Source: 2015 Specialty Consumer Choice Survey, Market Innovation Center interviews and analysis.
Specialty Self-Referrals Drive Over a Third of Business
Percent of Respondents Self-Referring
n = 12,610
11%
12%
14%
15%
19%
42%
28%
36%
25%
32%Recommendation
Previous Relationship
Affiliation
Specialization
Distance
Top Drivers of Self-Referrers’ Choice
Most influential driver of choice
A driver of choice
Respondents Citing Factor As:
34%2%
Respondents ranking out-of-pocket cost as the leading reason they chose a specialist
Cost Not a Major Deciding Factor
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Price and Travel Time Top Consumers’ Surgical Care Priorities
Source: MIC Surgical Care Consumer Choice Survey 2016.
1) Relative importance depicts how much difference each attribute could make in the total utility of a product. That difference is the range in the attribute’s utility values for the five factors. We calculate percentages from relative ranges, obtaining a set of attribute importance values that add to 100 percent.
2) Includes cost of care and travel
Surgical Shoppers Extremely Price Sensitive
Average Relative Importance1 of Six Surgical Care Attributes
53.22
19.83
9.21
7.265.524.95
Cost of Surgery2
Quality of Surgeon
Hospital Affiliation
Referrer’s Recommendation
Location of Follow-Up Visit
Travel Time to Hospital
Cost of care is more important than the five other attributes combined; comprises more than half of consumers’ preference
Travel time is second most important and about twice as important as the next most important attribute, referrer’s recommendation
Hospital affiliation matters more than quality of the surgeon
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Consumers Increasingly Soliciting Pricing Information
Source: Altman D, “Health-Care Deductibles Climbing Out of Reach,” Wall Street Journal, March 11, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis.
1) $1,200 Single; $2,400 Family2) $2,500 Single; $5,000 Family
Higher Deductibles Driving Increased Price Sensitivity
Many Americans Lack Cash Flow to Cover Potential OOP Costs Households Without Enough Liquid Assets to Pay Deductibles
Mid-range deductible Higher-range deductib le
0.2
0.4
1 2
A surprising percentage of people with private insurance…simply do not have the resources to pay their deductibles.”
Drew Altman, President, Kaiser Family Foundation
More Consumers Attempting to Find Pricing Information
56%Consumers who have tried to find out how much they would have to pay before getting care
67%
74%
Those with deductibles of $500 to $3,000 who have solicited pricing information
Those with deductibles higher than $3,000 who have solicited pricing information