MOVING FORWARD

Hospital Quality Institute

2016 Annual Conference November 4, 2016

C. Duane Dauner President / CEO

California Hospital Association

Federal Issues

1

Divided government

Election politics

‒ Candidates/issues

‒ Violence

Immigration

Medicare and Medicaid

‒ ACA/other cuts

Income inequality

ACA

Tax reform

Foreign policy

2016

2

ELECTIONS

Federal

‒ President

‒ U.S. Senate

‒ U.S. House of Representatives

State

‒ Constitutional officers

‒ Legislators

‒ Local governments

‒ Ballot initiatives

Political dividers

‒ Wedge issues

‒ Basic policies

Post Election Day in D.C.

3

FOUR POSSIBILITIES

DEMOCRATS SWEEP • ACA tweaks • Public option/Medicare at 55 • Providers as pay-fors • Republican opposition in Senate

‒ Reconciliation

TRUMP WINS/DEMOCRATS CONTROL ONE (+) CHAMBER

• Stalemate ‒ ACA ‒ Medicare expansion ‒ Medicaid block grants

• Triangulation?

CLINTON WINS/REPUBLICANS CONTROL ONE (+) CHAMBER

• Stalemate ‒ ACA ‒ Medicare expansion ‒ Premium support ‒ Medicaid block grants

• Triangulation?

REPUBLICANS SWEEP • ACA repeal • Replace/triangulation? • No Medicare expansion • Medicaid block grants • Deficit reduction? • Democratic opposition in Senate

‒ Reconciliation

CMS Policies

4

Medicare DSH

New model would bundle payments to acute care

hospitals for heart attack and CABG

Expands CJR to include surgical treatments for hip

and femur fractures beyond replacement (7/1/17)

Medicaid Managed Care Rule

New Administration

2017

5

U.S. Supreme Court

Modification of year-end 2016 rules

Medicare

Medicaid/DSH

Immigration

Tax reform

Foreign policy

Expiring laws

2017

Workforce/residency slots

ACA

HOPD site-neutral payments (Section 603)

AWI/Rural floor

Medicaid Managed Care rule implementation

Broad RAC reform

Cybersecurity

Income inequality

Executive compensation

6

2017

7

Rural provisions

‒ Physician supervision

GME (IME and DME)

Readmissions measures for socio-demographic

factors

Bundled payments and

global payments

Evolving risk arrangements/

VBP

MACRA

Workplace

2017

Rx pricing

Behavioral health

Charity care/community benefit

Insurance company consolidations

Tax-exempt status

Cybersecurity

Hospital consolidations

Violence and gun control

Surprise bills

PS/QI

State Issues

9

Power and influence

2016 election/aftermath

Behavioral health

ACA implementation

Long-term financial stability

Unique priorities

Pressure points/EMS

State budgets/Medicaid

Prisons

State Priorities

10

Hospital Fee Program / 2016 Initiative /

Extension (Prop 52)

Proposition 30 Extension (Prop 55)

Tobacco Tax (Prop 56)

Executive Compensation

2017-2018 Budget

Legislation

Medi-Cal

HQI

Adversarial actions

Behavioral health / homeless / substance abuse

Upstream social determinants of health

Hospital-physician alignment

Prisons

Specific issues

EMS/EDs

PS/QI

State Priorities (cont’d)

11

12

Propositions

0

1,500,000

3,000,000

4,500,000

6,000,000

7,500,000

9,000,000

10,500,000

12,000,000

13,500,000

15,000,000

2000 2005 2010 2015 2020 2025

Medi-CalEnrollment

Covered CaliforniaEnrollment

13 *California 2015 population – 39.1 million

Medi-Cal and Covered California Enrollment

(estimated) (estimated) *

Demand for care by Medicaid patients

Low payments to doctors have reduced access

Medicaid patients turn to

overcrowded hospital EDs

Wait times increase

Hospitals are blamed

Behavioral health utilization

Out of network / surprise billings

14

Coverage Does not Equal Access

Medicaid payments

ED visits

Cost Shift Crisis

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

50

55

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Private payer

Medi-Cal (Excludes Fee)

Medicare

Cost of Providing Care and Services

2020

Medi-Cal uncompensated care in hospitals exceeds $8 billion a year

2020 cost shift will exceed 55%

2017

Future

2015

* Exchange flexibility

*

GDP Average Growth

Health Care Expenditures Average Growth

16

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

1947-2000 2000-2015

GDP AverageGrowth

Health CareExpendituresAverage Growth

*People working fewer hours; less economic output being generated for each

hour of labor; supply-demand interactions

Percent of Population with Flat or

Declining Income

17

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Italy

France

GreatBritain

U.S.

2000-2015

Trends

18

Consumers’ involvement

Bundled, global and risk-based payments

Consolidation of payers and providers

Transparency and data

Disruptive technology

Exchanges – 2017

Socio-demographics

Millennials and Gen X

Boundary erosion / differentiation

New schools for health care professionals

The New Health Economy is Changing the Health Care

Landscape and Driving Deal Activity in the Market

19

New Entrants & Disrupters

Convergences

Risk Shifting

Consolidation & Affiliation

Source: Hospital Physician Alignment. The Future of Integrated Health Care, PwC

Health care leaders will need to adjust their strategy to align

with the new definitions of success in the New Health Economy

20

Changes in utilization and services

Changes in payment models

New relationships, alignments and partners

Aligned clinical and financial incentives

Markets/competition

Coordinated care

Value and risk

PS/QI

Reliability

Future of California Hospitals and

Physicians

Challenges for California Hospitals

and Physicians

21

Fixed assets and expenses

Time / cost of transformation

Creation of coordinated care

partnerships and arrangements

Leadership

Differentiation

Financial stability and risk

Enterprise entities

Hospitals and Physicians

22

CHARACTERISTICS

Costs and prices / contracts

Political environment

Labor environment

Utilization

Changing landscape

and trends

Community benefit

Tax status

Workforce and

compensation

Hospitals

23

OUTPATIENT

CENTER

HOSPITAL

Systems and consolidation

Partnerships and alliances

Evolving roles in communities

Virtual networks

Integrated

systems

Enterprises

Future roles A

MB

UL

AT

OR

Y

SE

RV

ICE

S

MOB

CAMPUS

Predictive modeling

Multiple networks / differentiation

Unit cost and utilization focus

Evolving into pharma, specialty, mental health,

long-term care, ambulatory settings

Provider segmentation

Case management

Delivery Innovations

24

Focus on Innovation

25

INTERNET OF THINGS Networks of sensors in machines and other physical objects that monitor, collect, and exchange data leveraging cloud computing

DIGITAL LABOR Disintermediation of knowledge and expertise-based professions through disruptive technologies such as cognitive systems, artificial intelligence, and robotic process automation

MOBILIZED INTERNET Combination of increasingly powerful and low-cost mobile computing devices, high-speed wireless connectivity, and apps

PLATFORM COMPANIES Digitally based model where other businesses can easily connect their business with your platform, build products and services on top of it, and co-create value in an ecosystem

RACE FOR THE CUSTOMER Changing consumer demographics, behaviors, and expectations driving businesses to become more customer-centric and to improve the overall customer experience

Platforms

26

DEFAULT SEARCH

EXPERIENCE

3.5B Google searches per day

DEFAULT DIGITAL GOODS MARKETPLACE

1.6M apps available

1.4 M app developers

DEFAULT SHOPPING

EXPERIENCE

41% of U.S. households use Prime

First stop for 44% of U.S. online shoppers

DEFAULT SOCIAL

EXPERIENCE

1.1B daily active users

Platforms become the default entry point for specific customer experiences,

then expand to create integrated ecosystems

Platforms have Become the Next

Dominant Business Model

27

PLATFORM

VALUE

CONSUMERS PRODUCERS

eCommerce Continues to Disrupt

Physical Retail

28

Nearing 10% of all total retail sales

Source: 2015 US Economic Census, BI Intelligence

0%

10%

20%

30%

40%

50%

60%

2005 2007 2009 2011 2013 E2015

Digital's Share of US Retail Sales

Media, Sporting, and Hobby Goods

Electronics, Appliances, Computers

Clothing and Accessories

Furniture and Home Furnishings

Health and Personal Care

Food and Beverage

Groceries and

health &

personal care

products are

on the path to

be disrupted

New Players are Disrupting the Customer

Value Chain for Consumer Goods

29

New ways to explore, buy and receive products

EXPLORE

Inspiration

Social media

and curated

content

Information

Nutrition and

product

information,

guides and apps

Personalization

Marketing,

coupon

discovery and

loyalty

PLAN

Recommended

meal planners

Quantified

self food and

nutrition

personalization

RECEIVE

Click and collect

Curbside pickup

Delivery to home

and same day

delivery

PURCHASE

Source from

multiple channels:

Restaurants,

farmers markets,

online channels,

stores, subscription

models

New online

grocery platforms

and mobile ordering

anywhere and

anytime

Connected

kitchen and

inventory

management

SELECT

Emerging

brands and

products

DIY meal

assembly

boxes

DIFM ready

made meal

boxes and

meals

ENGAGE

Social media

sharing

Loyalty

programs

Advertising

and

influencers

By 2020, 80% of the Global Population will

own a Smartphone

30

and the Smartphone owns our attention

of smartphone

owners say it

never leaves

their side

87% Millennials checks

their phones every

minutes

Goldfish now have

better attention spans

than humans

Human in 2000: 12 seconds Human in 2013: 8 seconds

Goldfish: 9 seconds

10

Apps Fill all Free Moments

31

Source: Techcrunch.com, 2015

The Next Wave(s) of Tech Innovation

are Already Underway

32

3D printing, IoT, VR, AR, Frictionless Payments, etc.

The Future

33

Risk for defined populations

Total care/whole person care

Team orientation/safe quality care

Actual and virtual models

Enterprise

structures

Disruptors

Continuous

change

Technology

The Future

34 34 2016 2017 2018 2019 2020

Next Steps

35

Solidifying position/starting point

Strategic assessment and planning

Choosing models and partners

Strategic development of assets

Being open, agile and flexible

Creating the Future

36

Understanding where we are and what trends

are beyond our control

Knowing where we intend to go

Having the vision and courage to take

calculated risks