march 16, 2010
DESCRIPTION
Designing and Implementing Healthcare Solutions That Work New York Business Group on Health Ken Shachmut – Executive Vice President Brad Wolfsen – Vice President Safeway Health LLC. March 16, 2010. Agenda. Healthcare trends in the U.S. and at Safeway – Stark contrast - PowerPoint PPT PresentationTRANSCRIPT
Designing and ImplementingHealthcare Solutions That Work
New York Business Group on Health
Ken Shachmut – Executive Vice PresidentBrad Wolfsen – Vice President
Safeway Health LLC
March 16, 2010
2
Agenda
Healthcare trends in the U.S. and at Safeway – Stark contrast
Key factors for Safeway success
Introducing Safeway Health
3
9.1%
16.2%
25.9%
1980 2005 2020P
Healthcare costs consume a growing share of GDP
3.3%
8.4%
CPIExcludingHealthcare
Healthcare
Annual Growth1980 - 2007
Healthcare% of GDP
4
Safeway stands alone in holding healthcare costs flat – for several reasons
As a low margin business, we are highly motivated to control rising healthcare expenses
We have an extraordinary track record and culture of cost control
As a long-standing operating company, we are very good at seamless and detailed execution
We are great believers in the efficiency of markets . . . and saw an opportunity to create a market . . . where none existed
5
We expect Safeway’s per-capita healthcare costs to remain flat for another five years*
100100100100100100102949288
225207
191176
163150
138
100
128119
110
0
50
100
150
200
250
2005 2006 2007 2008 2009F 2010E 2011P 2012P 2013P 2014P 2015P
Index 2005 = 100
Business as Usual
New Plan
* Per-capita expenses for Safeway non-union EEs moving to new behavior-based plan from former PPO plan
Per-capita expenses are all-inclusive – Safeway contribution + EE premium + EE out-of-pocket expense
CAGR
8.4%
0.0%
6
Safeway Healthcare Savings Against Baseline
$153
$78
$47
$53
$231
$34
$19
2006 2007 2008 2009F 2006 -2009F
2010E 2006 -2010E
Savings vs. BAU in $ Millions
LivesCovered 10,100 18,000 27,900 28,000 31,000E
7
Potential Healthcare Savings – Typical Organization
9090909090
126
118
90
110
103
96
60
80
100
120
140
2010 2011 2012 2013 2014 2015
Healthcare Spending – 10,000 Employees ($ Millions)
Business as Usual: CAGR = 7.0%
New Plan: CAGR = 0.0%
Cumulative Savings Value 2011-2015 2015
$103 $36
$36
Assumes current per employee all-inclusive cost (ER contribution + EE premium + EE OOP) = $9,000
8
Escalating healthcare costs are the result of four root causes
Employer and employee interests are often not tightly aligned
Employees lack sufficient personal accountability and have inadequate “skin in the game”
Little or no information available to help employees make informed decisions about prospective care
An abundance of uncompensated and under-compensated care
Proposed Solution
Align Interests
Increase Personal Accountability
Create a Market
Public Policy
9
Cost escalation will continue under healthcare reform as proposed currently
Proposed legislation focuses on increasing access, and does not address cost control
Increased access is achieved through a coverage mandate and broad-based subsidies for low income wage earners
These increased costs will be financed largely by new taxes and Medicare cuts
The result will be higher total healthcare costs borne by the private sector – through increased cost-shifting and higher taxes
10
True healthcare reform can be totally self-financingAnnual Values for Total U.S. - $ Billion
$198
$144$42 $21
$42 $434
($88)
EstimatedCost
PrivateSector
Recovery(ReducedCost Shift)
Transp'cy Medicare /Medicaid
Efficiencies
HIPAA 20% HIPAA 30% HIPAA 50% Net Effect
Net Savings
$75
11
Agenda
Healthcare trends in the U.S. and at Safeway – Stark contrast
Key factors for Safeway success
Introducing Safeway Health
12
Safeway achieved its savings by transforming healthcare ownership and delivery
We focused on making our employees healthy and gave employees and their families the tools needed for personal success
We aligned the interests of employees with the company, motivating them to take personal ownership of healthcare decisions
We had the will to navigate the narrow path between HIPAA and ADA
We implemented aggressive changes with broad employee support
13
Safeway employees know that behavior matters
34
5551
4646
3532
67
Non-Compliant Behavior is Common% Non-Compliant with Recommended Care
Source: Elizabeth McGlynn, et al, The Quality of Health Care Delivered to Adults in the United States, NEJM, Vol. 348:2635-2645 June 26, 2003 (No. 26); NHANES 2005-06
Obese
$1,405
$645 $600$470
$1,400
2008 Incremental Cost
Unhealthy Behaviors are Expensive
CoronaryArtery
Disease
Hyper-tension
ColorectalCancer
Asthma HighCholesterol
Diabetes Overweight/Obesity
Smoking Obesity Lack of Exercise
Uncontrolled Hypertension
UncontrolledCholesterol
Healthy Employees
14
Safeway’s program features voluntary biometric screenings - Healthy Measures
Key biometric screenings are offered to all employees
– Biometrics are based on major healthcare cost drivers
– Underlying conditions are individually controllable through behavior change
Incentives motivate healthy behavior change
Participation can earn the lowest healthcare premium
– Voluntary
– Employees and spouses
15
13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46+
13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46+
Safeway Obesity Challenge – One Year Results
4%7%
37%
17%
34%
1%
2008
2009
Obese Class I
OverweightNormal WeightUnderweight Obese Class II
Obese Class III
3%5%
36%
15%
40%
1%
Overweight Reduction = 1 pptOverweight Reduction = 1 ppt
Obesity Reduction = 5 pptObesity Reduction = 5 ppt
0 +6 -1 -2 -2 -1
16
Calories In and Calories OutThe Basic Equation
3,500 1
Calories Pounds
=
17
Lose Weight - Create a Favorable Energy Imbalance
1. Reduce calories in by 3,500 / week
2. Increase calories out by 3,500 / week
3. Combine both tactics
– Reduce calories in by 1,750 per week
– Increase calories out by 1,750 per week
Three Ways to Lose 1 Pound per Week
BestApproach
The more you move, the more you can eat
18
1,750 Less Calories In per WeekMany ways to achieve the goal – 250 / day
Keep the volume and taste, not the calories
Handful of raisins instead
of candy
Replace 1-traditional
dressing withvery low cal
dressing
One lesschocolate chip
cookie
Substitute 2 diet soda
for 2 reg soda
1 less Café Latte
Cutting1,750 cals/wk
19
1,750 More Calories Out per WeekMany ways to achieve the goal – 250 / day
Add activities incremental to normal movement
65 minutes shopping at
Safeway 7 days / week
45 minuteswalking at 4 mph
6 days / week
40 minutes circuit weight
training4 days / week
4.5 hours playing golf
walking (w/o cart)per week
1.2 hours pacingwhile on the phone
5 days / week
Burning1,750 cals/wk
20
Safeway’s ability to influence lifestyle and reduce cost is unprecedented
16%17%
30%
40%
Blood Pressure Smoking Cholesterol BMI
Percent of Participants Passing in 2009 who Failed in 2008
Failed 2008 3,283 1,106 684 4,640
Passed 2009 1,326 336 118 746
Employees and Spouses
21
Safeway is building a culture of health and fitness with an holistic program
Behavior-based plan structure
Wellness services and programs– Built around major disease cost drivers– But focus is on getting healthy, not controlling costs– Results are excellent across the board
Support services and programs– Education– Care support– Cancer concierge service
Personal decision support tools
22
Safeway’s healthcare plan creates a “market”
We increased employee responsibility – largely through a behavior-driven model
We ensured that employees have adequate “skin in the game”– Employees begin to think of all healthcare spending as their money– They make smart, cost-effective decisions– They respond logically to financial incentives
We created sophisticated wellness programs to support our culture of health and fitness
We produced immediate cost savings with our behavior-based model, contrary to conventional wisdom
We introduced elements of transparency
Aligned Interests
23
Lack of transparency enables a wide range in provider prices
$3,664
$7,245
$15,773
$28,887
$3,039$1,010$887$913
MRI Spine ColonoscopyDiagnostic
CT Scan Abdomen Knee Arthroscopy
Low Cost High Cost
4:1 8:1 16:1 10:1
High Cost : Low Cost Multiple
Cost Per Procedure - Greater SF Bay Area MSA
24
Colonoscopy - Diagnostic
$8
87
$9
16
$9
25
$9
32
$9
65
$9
81
$1
,01
5$
1,1
10
$1
,16
9$
1,2
49
$1
,42
8$
1,4
63
$1
,53
0$
1,5
35
$1
,64
2$
1,6
43
$1
,71
3$
1,7
21
$1
,72
8$
1,9
63
$1
,99
4$
2,0
99
$2
,30
9$
2,3
20
$2
,45
1$
2,7
71
$2
,81
6$
2,8
76
$2
,88
1$
2,9
87
$3
,01
3$
3,0
39
$3
,04
9$
3,2
71
$3
,30
1$
3,3
18
$3
,33
3$
3,3
67
$3
,64
7$
3,7
69
$3
,79
3$
4,5
18
$4
,57
6$
5,5
96
$5
,68
2$
5,7
34 $7
,24
5
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Room & Supplies Professional Medications Diagnostics
Cost Per Procedure – Greater SF Bay Area MSA
Diagnostic Colonoscopy Providers
25
Colonoscopy - Diagnostic
$887$1,249
$1,963
$2,876$3,333
$3,769
$5,596
$7,245
Golden GateEndoscopy
Ctr
MidPeninsula
EndoscopyCtr
Sutter TracyComm Hosp
John MuirMed CtrWalnutCreek
Sutter MedCtr Sacto
Santa RosaMem Hosp
South BaySurg Ctr
PleasantonSurg Ctr
Room & Supplies Professional Medications Diagnostics
Cost Per Procedure – Greater SF Bay Area MSA
Diagnostic Colonoscopy Providers
Note: Representative sample: 8 out of 47 facilities
26
MRI - Spine
$913
$1,477$1,728
$2,276$2,460
$3,016
$3,664
University ofCalifornia
Davis Med Ctr
John Muir MedCtr Walnut
Creek
Eden Med Ctr Sutter TracyCommunity
Hospital
ValleycareHealth System
StanfordHospital
Santa RosaMemorialHospital
Facility Professional
Cost Per Procedure – Greater SF Bay Area MSA
MRI Providers
27
CT Scan – Abdomen
$1,010
$2,447$3,513
$4,312$5,470
$6,081$7,375
$15,773
GoodSamaritanHospital
John MuirMed CtrWalnutCreek
StanfordHospital
Sutter TracyCommunity
Hospital
CaliforniaPacific
Medical Ctr
SutterSolano
Medical Ctr
Alta BatesSummit
Medical Ctr
DoctorsHospital of
Manteca
Facility Professional
Cost Per Procedure – Greater SF Bay Area MSA
CT Scan ProvidersNote: Representative sample: 8 out of 30 facilities
28
Knee Arthroscopy
$3,079 $3,624 $4,793 $5,443$8,013 $9,002
$24,028
$28,887
ValleyCareMed Ctr
John MuirConcord
San RamonReg Med Ctr
RosevilleSurgeryCenter
John MuirMed CtrWalnutCreek
MillsPeninsulaHlth Svcs
HaciendaSurgeryCenter
PleasantonSurgeryCenter
Room & Supplies Professional Medications Other
Cost Per Procedure – Greater SF Bay Area MSA
Knee Arthroscopy ProvidersNote: Representative sample: 8 out of 16 facilities
29
Safeway Chronic Med Switching Experience
46%
21%
20%
13%
34%
66%
97%
1%2%
Lowest-cost generic
Other generics
Brands
100% 100%
Distribution of Scripts
Pre LaunchRx Count
Post LaunchRx Count
Post LaunchRx Employer Cost
100%
30
Safeway navigates HIPAA and ADA effectively
Our programs were designed after extensive legal analysis
Our views on HIPAA were strongly endorsed by the U.S. Senate during the healthcare reform debate
– The “Safeway amendment” would raise HIPAA limits to 30%
– Overwhelming endorsement by HELP and Finance Committees
Healthy Measures was reviewed and praised by U.S. Department of Labor representatives – meets “the letter and the spirit” of HIPAA
HIPAA and ADA
31
Employees love the Safeway healthcare plan
Our Healthy Measures program is voluntary and yet boasts a 76% participation rate
When participants were surveyed . . . 78% rated the program good, very good or excellent
When asked, 76% of participants suggested more incentives to encourage healthy behavior
We have had no significant complaints about any element of our plan in 110,000+ member years
Employee Support
32
Agenda
Healthcare trends in the U.S. and at Safeway – Stark contrast
Key factors for Safeway success
Introducing Safeway Health
33
Safeway Health was formed in 2009 to commercialize the Safeway experience
We are confident that Safeway’s experience is completely transportable to other organizations
Existing healthcare players are not well equipped to deliver the Safeway results
Transformational change often comes from outside the sector
34
Safeway Health complements traditional service providers – who perform critical roles
Insurance companies
– Process claims
– Provide basic healthcare plans that may have been moderately tailored
– Provide a broad network and “negotiate” rates with healthcare providers
Healthcare benefits consultants
– Review healthplan options available in the market
– Provide actuarial analysis of alternative plans and elements
– Estimate costs and set employee premiums and out-of-pocket rates
Pharmacy Benefits Managers (PBM)
– Provide a pharmacy network and “negotiate” drug reimbursement rates
– Establish co-pay and co-insurance levels
35
Our business model is a shared savings model
Safeway Health receives 25% of the shared savings against a business-as-usual baseline
Program improvements are added every year to enhance savings – with Safeway serving as the beta site for new ideas
Safeway Health services are comprised of analysis, plan design, implementation, and continuous improvement - using
– Behavior incentives,
– Existing medical transparency vehicles, and
– Our proprietary drug transparency tool
Our contract term is five years, and will deliver value for 10 years
36
Potential Healthcare Savings – Typical Organization
9090909090
126
118
90
110
103
96
60
80
100
120
140
2010 2011 2012 2013 2014 2015
Healthcare Spending – 10,000 Employees ($ Millions)
Business as Usual: CAGR = 7.0%
New Plan: CAGR = 0.0%
Cumulative Annuity Savings Value 2011-2015 2016-2020
$103 $36
Total Value (10 yrs) = $283
($103 + 5 x $36)
Ann
Val
$36
Assumes current per employee all-inclusive cost (ER contribution + EE premium + EE OOP) = $9,000
37
Why a 5-Year Contract?
During the 5-year contract, the client team will become self-sufficient and should not require further core Safeway Health services
Safeway Health’s value delivered is very high - $283 mil / 10,000 EEs– $103 during 5 year contract– $180 total annuity value over the next 5 years - $36 million / year
Other (potential) contract terms are not appropriate– 10 years would ignore the principle of self sufficiency at 5 years– 3 years unfairly constrains Safeway Health’s opportunity
New programs are still being implemented Over 60% of total value is delivered in years 4 and 5
Safeway Health’s total fees over 5 years are only 9% of the total value delivered over a 10-year cycle
38
Five elements of cost savings define our scope and holistic approach
25%
13%
26%
10%
26% Existing behavior rules
Rx Transparency
Medical transparency
New behavior rules
Future concepts
5 Year Cost Savings Against Baseline Projection
Not yet captured by SWY
39
Implementation
Best in class
High value
Fee – fraction of savings
Team assigned
Analysis
Scenarios
Behavior
Transp’cy
Wellness
Value for client & staff
Safeway Health delivers high value plan design . . . with no client commitment
Contract Plan Design
Client
Decision
No Engagement
No implemen- tation
No client commitment
No fee
YES
NO
40
Safeway Health - your partner in “private healthcare reform”
Safeway stands alone in reducing costs while improving benefits
Safeway implementation expertise
– Renown for implementing effective cost reduction programs across the business
– Proven healthcare solutions with implementation templates
– No complaints in 110,000+ member-years
Client retains full control
– Safeway Health proposes changes . . . and advocates aggressively
– Client makes the final decision
Favorable economics – shared savings model aligns incentives
41
Safeway Health Contact Information Ken Shachmut – Executive Vice President
(925) [email protected]
Brad Wolfsen – Vice President(925)[email protected]
Dale Tyerman(925)[email protected]
Safeway Health LLC5918 Stoneridge Mall RoadPleasanton, CA 94588-3229Fax (925) 738-1213
