2015 prognosis on healthcare

2015 Prognosis on Health Care

Ed Park, Chief Operating OfficerSeptember 17, 2014

The information presented in this Webinar is current as of date of live airing – September 17, 2014

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Healthcare spending backgroundSlowing… but still up

EmployersGetting tired of covering their employees

The Government Launching!

Emerging stakeholder strategies

Healthcare cost inflation is at a historic low

“Personal health care costs rose in the 12 months ending in May at the slowest rate in

the last 50 years, as spending on hospital and nursing home services declined.”

–USA Today, July 29, 2013Source: CMS, WSJ4

Care is moving out of the hospital while outpatient visits continue to

rise

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One theory is that there is an economic megatrend moving care out of the hospital, and we should

expect inpatient admissions to continue to drop by ~0.5% per year

http://www.objectivehealth.com/our-thinking/infographics/transition-outpatient-coronary-angioplasty-ptca

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Regardless, the trend on overall healthcare costs remains up!

http://www.medpac.gov/documents/Mar14_entirereport.pdf

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Employers(“private purchasers”)

Employer healthcare costs have tripled over the last decade

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Today’s average family premium is half a year’s work

at median wage

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http://www.nytimes.com/2014/04/28/business/economy/recovery-has-created-far-more-low-wage-jobs-than-better-paid-ones.html?_r=0

“The strongest employment growth during the sluggish recovery has been in low-wage work, at places

like strip malls and fast-food restaurants.”

New York Times, April 27, 2014

http://www.post-gazette.com/stories/news/health/us-health-care-costs-for-the-aged-are-sky-high-371246/

Retirees are particularly expensive

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“We continuously assess our benefit programs to strike a balance among employees, retirees, investors and our ability to compete,” GE said by e-mail.

GE, IBM Ending Retiree Health Plans in Historic Shift

Bloomberg News, Sept 9, 2013

http://www.bloomberg.com/news/2013-09-09/ge-to-ibm-ending-retiree-health-plans-in-historic-shift.html

“Walgreens is moving 120,000 employees to a private health insurance exchange where they can choose a plan from multiple insurers, a sign of the shifting landscape for corporate healthcare because of rising costs.”

Reuters, Sept 18, 2013

http://www.reuters.com/article/2013/09/18/us-healthcare-exchanges-private-idUSBRE98H03120130918

http://www.advisory.com/daily-briefing/2013/10/09/walmart-lowes-enter-bundled-pay-deal-with-four-health-systems

“A first-of-its-kind coalition of large U.S. employers—including Walmart and

Lowe's—will offer no-cost coverage for hip and knee implant procedures at four U.S. health systems starting on Jan. 1,

2014.”

“An increasing number of employees would be willing to use a private exchange to shop for employer-subsidized insurance, and to travel more than two hours to a center of excellence if their costs would be lower than using a local provider.”

Society of Human Resource Management,

October 24, 2013

http://www.shrm.org/hrdisciplines/benefits/articles/pages/health-exchanges-centers-of-excellence.aspx

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33 miles in 49 minutes = $7,994 difference

Arthroscopic Knee Surgery for Torn Cartilage Examples From The Alliance Market

.25 miles + elevator turn = $2,725 difference

11 miles in 20 minutes = $4,781 difference

Source: QualityCounts Outpatient Procedures & Tests Report, 2010; Source for Distance and Time: www.mapquest.com

Fort Atkinson and Madison

Janesville and Beloit

Madison and Madison

The cat is out of the bag and shopping will continue– variation in pricing is

the norm in the industry, not the exception

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The Government(“public purchasers”)

Many groups are still going about their business as if the Affordable Care Act (PPACA) had never been

passed

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But make no mistake, the ACA is changing the rules of

the game

Reductions in payments to hospitals to fund “value based purchasing” - Section 3001

Reductions in payments to hospitals based on the 30-day readmission rate - Sections 3001, 10335

Reductions in payments to hospitals for hospital-acquired conditions (HACs) – Section 3008

Establishment of Accountable Care Organizations – Section 3022, 10307

Establishment of Bundled Payment Pilots – Sections

3023, 10308

Funding of FQHCs – Section 5601, 10503

Expansion of Eligibility under Medicaid – Section 2001, 10201

Establishment of Insurance Exchanges – Section 1311

And more…• Pediatric ACO

Demonstration Project – Section 2706

• …

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While there are many carrots in this game, there is also a half-trillion dollar stick built

into the legislation (~10% of Medicare costs over 10 years)

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Most of this $575B is coming out of the hide of hospitals, who will try to cut

costs to “manage to Medicare” (but not all will be successful)

Total Hospital Medicare Margins by Year

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Hospitals have historically cost-shifted onto their commercial book, but that well is running dry

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The Grand Bargain in the ACA is that the Medicare fee cuts were supposed to

be made up for by expanded coverage

Source: Advisory Board

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This is somewhat working… in half the states

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http://www.npr.org/blogs/health/2014/05/09/311099950/health-centers-hurt-in-states-that-skipped-medicaid-expansion

“More than 1 million patients who use federally funded community

health centers will remain uninsured because they live in states that chose not to expand Medicaid under the Affordable

Care Act”

npr.org, May 9, 2014

This lack of Medicaid expansion has hurt more than hospitals

“More than eight million people signed up for private insurance in

federal and state exchanges during the initial enrollment

period, exceeding the administration’s original goal of

seven million”

New York Times, May 2, 2014

4 million individuals in Medicare Shared Savings Program

~40 million patients see physicians participating in 1 or more ACO

52% of population lives in markets served by ACOs

Meanwhile, ACOs are outpacing all expectations

Sources Muhlestein, D., Continued Growth of Public and Private Accountable Care Organizations, Health Affairs Blog, February 19, 2013; Reuters, “Accountable Care Organizations Now Serve 14% of Americans,”

February 19, 2013.

Number of Accountable Care Organizations

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SOURCE: Reward Health Sciences. April 25, 2013. http://rewardhealth.com/archives/2549

And the number of physician-led ACOs is outpacing hospital-

based ACOs

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Prediction:uncertainty and

confusion are here to stay

Stakeholder Strategies

The new world order has caused a scramble for

patient volume

Combined with revenue difficulties, this is creating tremendous pressure to

consolidate

“Healthcare is a low-margin economic activity. Almost a quarter of American

hospitals are already losing money. With that number bound to increase in

coming years, we already know what to expect because we’ve seen it before in

the airline, supermarket, phone and electronics businesses. There will be a wave of mergers and acquisitions to

improve quality and lower costs.”

Delos Cosgrove, M.D.CEO and President at Cleveland Clinic

The Great Consolidation BeginsMarch 11, 2013

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Hospitals are merging at record levels

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And there are no net new hospitals being built

http://www.medpac.gov/documents/Mar14_entirereport.pdf

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Meanwhile, physicians are increasingly choosing

employment

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Clinical-Transformation-New-Business-Models-for-a-New-Era-in-Healthcare.pdf#zoom=50

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…although there are some dissenting views here!

“To paraphrase Mark Twain, the reports of the death of private practice medicine have

been greatly exaggerated,” said AMA President Ardis Dee Hoven, M.D. “This new

data shows that while there has been an increase in hospital employment, more than half of physicians (53.2 percent) were self-employed in 2012, and 60 percent worked in practices wholly owned by physicians.”

The American Medical AssociationSept 17, 2013http://www.ama-assn.org/ama/pub/news/news/2013/2013-09-17-new-study-physician-practice-arrangements.page

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Hospital Employed

Physician-Owned Practice (Non-Owner)

Physician-Owned Practice (Owner)

Solo Practice

Independent Contractor

35%

12%

23%

21%

9%

40%

15%

22%

15%

8%

Physicians by Practice Setting

2013 2012

http://www.jacksonhealthcare.com/media/191888/2013physiciantrends-void_ebk0513.pdf39

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Three dominant consolidation strategies

are emerging

Build a hospital-centered health system

Build a multispecialty group that focuses on primary care delivery and takes on

significant risk

Build a specialty group that focuses on doing a few things really, really well

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Hospital

The health care chess board…

Imaging Center

Orthopedics

Specialty Clinic

Lab

Pharmacy

Urgent Care

Special SurgeryRetail Clinic

Small Physician Group

HospitalSmall Physician

Group

Small Physician Group

Small Physician Group

At-risk health system

At-risk health system

1Build a hospital-centered health system

Specialty Clinic

Special SurgeryRetail Clinic

Small Physician Group

At-risk health system

Hospital

Imaging Center

Urgent Care

Pharmacy

Lab

HospitalSmall Physician

Group

Small Physician Group

Small Physician Group

Orthopedics

Special Surgery

Specialty Clinic

Retail Clinic

Small Physician Group

At-risk health system

Imaging Center

Urgent Care

Pharmacy

Small Physician Group

Small Physician Group

Build a multispecialty group that focuses on primary care delivery and takes on significant risk2

Lab

Orthopedics

Hospital

Hospital

Small Physician Group

At-risk health system

Build a specialty group that focuses on doing a few things really, really well3

Hospital

Small Physician Group

Small Physician Group

At-risk health system

At-risk health system

Small Physician Group

HospitalSmall Physician Group

Imaging Center

Orthopedics

Specialty Clinic

Lab

Pharmacy

Urgent Care

Specialty Clinic Retail Clinic

Other Macro Trends

Demographics (and expectations) are changing

Marie Meeker, “Internet Trends” presentation. http://allthingsd.com/20130529/mary-meekers-internet-trends-report-is-back-at-d11-slides/

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High-tech customer engagement is becoming the new norm

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In addition, technology is enabling new kinds of business integration across organizational boundaries

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coordination@amazon: “…to construct a product detail page, our software calls on between 200 and 300 services to

present a highly personalized experience for that customer.” - 2010 Letter to

Shareholders

Hospital

Small Physician Group

Small Physician Group

At-risk health system

At-risk health system

Small Physician Group

HospitalSmall Physician Group

Imaging Center

Orthopedics

Specialty Clinic

Lab

Pharmacy

Urgent Care

Special SurgeryRetail Clinic

And technology will enable new forms of coordination across

providers

The cat is out of the bag: employers and patients are beginning to shop for care and will have ever-higher expectations 1 Market pressure is forcing consolidation, but there are multiple strategies to align groups2Technology will enable healthcare enterprises to coordinate in new ways to deliver truly patient-centric care3

Key Takeaways

athenahealth is the largest cloud-based network of physicians

55,000 providers strong. …actively exchanging health information with each other.

with payers, labs, pharmacies, HIEs, etc.

6% Increase in Collections

8% Decrease in No Show Rate

97% EHR Adoption Rate

95.5% Meaningful Use Attestation Rate

32% Reduction in Days in Account

Receivable