Health It Statistics

Market Innovation Center
Health Care Industry

Trends 2016
Ready-to-Use Presentation Slides
Road Map
Payment Reform
Provider Market
3
4
Purchaser Behavior
2016 The Advisory Board Company advisory.com
Provider Selection
Payment Reform
Update on Value Based Purchasing Program
Update on Bundled Payments
Update on Accountable Care Organizations
Continuum of Medicare Risk Models
Pay-forPerformance
Hospital VBP
Program
Hospital
Readmissions
Reduction Program
Bundled
Payments
Bundled Payments
for Care
Improvement
Initiative (BPCI)
Shared
Savings
MSSP Track 1
(50% sharing)
Shared
Risk
MSSP Track 2
(60% sharing)
MSSP Track 3
(up to 75% sharing)
Next-Generation
ACO (80-85%
sharing)
HAC Reduction
Program
Full
Risk
Next-Generation
ACO (optional
full performance risk)
Medicare
Advantage (providersponsored)
Merit-Based
Incentive Payment
System
Increasing Financial Risk
Source: Health Care Advisory Board interviews and analysis.
Update on Value Based Purchasing Program
CMS Sets Targets for Value-Based Payments

Payment Targets Demonstrate Commitment to FFS1 Alternatives
Aggressive Targets for Transition to Risk
FFS Increasingly Tied to Value
Percent of Medicare Payments Tied to Risk Models
Percent of Medicare Payments Tied to90%

Quality
50%
85%
30%
80%
Examples of Qualifying
Risk Models
2015
2016
2018
Medicare Shared
Savings Program
Bundled Payments for Care
Improvement Initiative
Patient-Centered
Medical Home
2015
2016
2018
Hospital-Acquired Condition
Reduction Program
Examples of Quality/
Value Programs
20%
Hospital Value-Based
Purchasing Program
Hospital Readmissions
Reduction Program
Merit-Based Incentive
Payment System
1) Fee-for-Service.
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.
Readmissions, HAC Penalties Outweigh VBP Bonuses

Mandatory Risk Programs Taking a Toll on Providers
After Accounting for Penalties1, Few
Receive VBP2 Bonuses
Estimated Net Impact of

P4P3 Programs, FY 2015
28%
Hospitals receiving a net
bonus or breaking even
50%
3,087
hospitals in
VBP program
1,700
hospitals
received
bonus
payment
792
hospitals
received net
payment
increases
1) Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program.

2) Value-Based Purchasing.
3) Pay-for-Performance.
Hospitals receiving net

penalties between
0% and 1%
6.5%
Hospitals receiving net
penalties of 2% or greater
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.
Update on Bundled Payments
BPCI Participation Continues to Fluctuate
Total Number of BPCI1 Participants
Types of Organizations Participating in BPCI3
As of January 2016
Episode Initiators as of January 2016
6,000+
Physician Practices
21101574
450 342
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.
19%
PAC
Providers2
54%
27%
Acute Care
Hospitals
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.
Orthopedic Bundling Now Mandatory

CMMI1 Program Requires Orthopedic Bundling in 67 Select Markets
The Comprehensive Care for Joint Replacement (CJR) Model
Key Program Features
Program Timeline
July 2015
Focus on joints
Comprehensive episode
Average expenditure
varies from $16,500 to
$33,000 by geography
Includes all related Part A

and Part B services for 90
days post-discharge
Program announced; comment

period through September 8th
April 2016
First performance year begins; no
episode discount for first year
2017-2020
Mandatory in 67 markets
Retrospective bundle
No application process;
CAHs1 and BPCI2 Phase II
participants exempt
CMS will pay each provider

separately, conduct annual
reconciliation process
1) Center for Medicare and Medicaid Innovation.

2) Critical Access Hospitals.
3) Bundled Payments for Care Improvement Initiative.
Downside risk incorporated; 1%

discount in 2017, 2% for 2018 onward
$153M
Estimated savings to Medicare over the
5 years of the model
Source: Centers for Medicare and Medicaid Services;
Advisory Board interviews and analysis.
Update on Accountable Care Organizations
Where the Medicare ACOs Are

19 Pioneer and 405 Shared Savings Program ACOs
January 2015
Source: Centers for Medicare and Medicaid Services; Health Care

Advisory Board interviews and analysis
10
MSSP1 Continues to Grow Despite Mixed Results

89 ACOs Join in 2015, Few Generating Shared Savings in First Year
Medicare ACO Program Growth Continues
One-Quarter of MSSP ACOs Share in Savings
As of April 2015
First Performance Year2

Held Spending Below
Benchmark, Earned
Shared Savings
404
423
19
Pioneer ACO
MSSP
ACO
1) Medicare Shared Savings Program.

2) For the 2012 and 2013 cohorts; percentages
may not add to 100 due to rounding.
Total
Medicare ACOs
26%
46%
Did Not Hold
Spending Below
Benchmark
27%
Reduced Spending,
Did Not Qualify
for Shared Savings
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 Medicares ACO
Program, Health Affairs Blog, April 8, 2015, available at www.healthaffairs.org/blog; Health Care Advisory Board interviews and analysis.
11
Proposed MSSP Rule Encourages More Risk

Track Three Incorporates Features of Pioneer ACO Model
Proposed Tracks for the Medicare Shared Savings Program
Track 3
Track 2
Track 1
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
Encourages providers hesitant to assume downside risk to remain in program;

reduces long-term attractiveness of upside-only contracts
Key Takeaways
for Providers
Track 3 provides options for providers to quickly assume more risk

Provides flexibility for organizations with varying capabilities to assume risk
1) Minimum Savings Rate.

2) Minimum Loss Rate.
3) Include the SNF 3-day rule, telehealth waiver, home health waiver, and PAC referrals waiver.
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.
12
Provider Market
Finances
Volume Performance
Mergers and Acquisitions
Partnerships and Affiliations
Imaging Centers
Ambulatory Surgery Centers
Primary Care Network
Telehealth
13
Finances
Health Spending on the Rise Again
Annual Growth in National Health Expenditures

10%
9%
U.S. Health-Care Spending

Is on the Rise Again
8%
6.5%
7%
6.3%
6%
Health care spending

growth hits 10-year high
5.0%
4.8%
5%
4%
3.8%
3.9%
3.9%
4.1%
2009
2010
2011
2012
3.6%
3%
2%
Health Spending Is Rising

More Sharply Again
1%
0%
2006
2007
2008
2013
2014
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.
14
But Hospital Price Growth Down for First Time

Higher Spending Does Not Equate Price Growth for Hospitals
Annualized Hospital Price Growth, Jan. 2010-Jan. 2015
3.5%
4.0%
3.5%
2.7% 2.9%
3.0%
(2.9%)
Medicare price growth
2.5%
2.0%
1.6%
1.5%
(0.1%)
1.5%
Medicaid price growth
1.0%
1.6%
0.5%
0.0%
-0.5%
Jan. '10
2015 Hospital Price

Growth Down Across
All Payer Classes
Jan. '11
Jan. '12
Jan. '13
Jan. '14
-0.1%
Jan. '15
Commercial price growth

(lowest growth rate since
2002)
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.
15
Modest Growth Anticipated for the Near Term

Inpatient and Hospital Based Outpatient Volume Projections
Inpatient Volume,
CAGR1
Hospital-Based Outpatient
Volume, CAGR1
2014-2019
2014-2019
Overall
Overall
0.5%
Neurosurgery
General Medicine
2.7%
Oncology
Radiology
1.4%
Orthopedics
1.1%
Cardiology
General Surgery
1.1%
E&M
Neurology
Cardiac Services
General Surgery
0.9%
(2.7%)
Orthopedics
2.0%
1.7%
1.4%
2.3%
1.4%
2.2%
3.1%
3.1%
1) Compound Annual Growth Rate

Source: Advisory Board Inpatient and Outpatient Market Estimators;

Advisory Board research and analysis.
16
Volume Performance
Volumes Continuing to Shift Outpatient

Medicare Volume Growth
All Payer Volume Growth Projections1
Cumulative Percent Change
2014-2019
33.0%
-13.0%
Cardiac
Services
Vascular
Services
2006
2013
(17.0%)
12%
-9.0%
18%
6.0%
Orthopedics
17%
14.0%
Neurosurgery
20%
Outpatient Services per FFS Part B Beneficiary
Oupatient
1) Outpatient services represent entire market regardless
of site of service (includes hospital-based settings,
ASCs, other freestanding providers and physician
offices)
Inpatient
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.
17
Medicare to Become Majority of Volume by 2022

Projected Number of
Medicare Beneficiaries
Average Inpatient Case Mix

By Volume
Millions of Beneficiaries
n = 785 Hospitals
6%
66.4
64.3
2%
25%
33%
15%
60.7
19%
57.3
58%
54.0
2014
42%
2016
2018
2020
2022
2012
2022
Self-Pay
Medicaid
Commercial
Medicare
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.
18
Mergers and Acquisitions
M&A Continue at a Steady Rate
Hospital and Health System

M&A Activity
Number of Hospitals Part of a Health

System
Total Deal Volume
98
89
86
95
3,183
66
50
2,668
2009
2010
2011
2012
2013
19%
growth
across
decade
2014
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.
19
Partnerships and Affiliations
Five Major Types of Provider Partnership
Description
Merger or
Acquisition
Formal purchase of one organizations 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
20
Imaging Centers
Outpatient Imaging Volume Growth Positive

Outpatient
Volume Growth
Projections
All
Providers,
by Modality
2014-2024
26%
24%
18%
16%
11%
8%
12%
11%
12%
10%
9%
5%
6%
2%
5 yr growth
10 yr growth
Market-specific volume forecasts can be found in The Outpatient Imaging Market Estimator
Source: Advisory Board Imaging Outpatient Market Estimator;

Imaging Performance Partnership interviews and analysis.
21
Ambulatory Surgery Centers
ASC Growth at All-Time Low

Total Number of Medicare-Certified ASCs
5307
4.2%
5364
5464
5414
5228
5064
2.2%
5152
1.7%
2008
4955
2009
2010
1.5%
2011
1.5%
2012
1.1%
2013
0.9%
2014
0.9%
2015
Net percent growth

from previous year
Source: Report to the Congress: Medicare Payment Policy, MedPAC, March

2015; ASC Association, available at
http://www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsper
state
22
Primary Care Network
A Growing Network of Immediate Access Choices

Markets Responding to Unmet Needs
Consumer-Oriented Service Delivery Sites Filling the Gap
Traditional
Access
Points
Primary
Care Office
ConsumerOriented
Access Points
Low Acuity
High Acuity
Virtual
Visit
Urgent Care
Center
Retail
Clinic
Emergency
Department
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.
23
Investment in Outpatient Facilities Growing

Current Capital Outlays, Planned Projects Point to Sustained Growth
Capital Allocation
for Ambulatory Investments
Percent of Respondents with Outpatient Facility

Projects Planned
Percent of Total Capital Outlays
2015-2018, n= 31 Hospitals and Health Systems
Medical office building

84%
Primary care clinic
Ambulatory surgical center
68%
61%
Urgent care clinic

61%
20.0%
2013
27.0%
2014
Imaging center
45%
Retail clinic
23%
Source: 2015 Facility Planning Survey; Facility Planning Forum

research and analysis.
24
Retail Clinics Expected to Continue Growing

Estimated Total Number of Retail Clinics in the US
2000-20151
1743
1135
1172
1220
2008
2009
2010
1355
1418
2011
2012
1869
1918
2014
2015
868
202
2000
2006
2007
2013
Retailer
Operational
Retail Clinics2
979
1) As of Nov. 2015
2) As of July 2015
3) Clinics owned by Walmart; Walmart also leases retail space to
providers in dozens of stores.
412
162
83
173
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.
25
Urgent Care Ripe for Consolidation, Diversification

Urgent Care Beginning to Offer
Ongoing Primary Care Services1
6100
Urgent care and

ongoing primary care
Approximate number of urgent

care clinics in operation in the
US
15%
41
Exclusively
urgent care
85%
Approximate number of hospitals

and multispecialty groups operating
more than five urgent care sites;
most provider organizations run
three or fewer sites
Continued growth likely in urgent care

centers offering ongoing primary care to
bolster referrals, relieve primary care
offices, and manage population health
Operator
Operational
Urgent Care
Centers2
1) As of 2013.
2) As of July 2015.
290
166
146
145
123
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.
26
Telehealth
Telehealth: Untangling the Terminology

Key Terms and How They Relate to Telehealth Technologies
Defining Telehealth
The use of medical information exchanged from one site to another
via electronic communications to improve a patients clinical health
status.
- American Telemedicine Association
Why invest in telehealth?

Use Cases
What are the applications?

Modalities
Diagnosis and
Treatment
Real-time
Virtual Visits
Professional
Consultation
Remote Patient
Monitoring
How is telehealth offered?

Platforms
Telephonic
Web-based
Mobile,
Smart Device
Kiosk
Monitoring and
Care Coordination
Asynchronous
Store-and-Forward
Bluetooth-Enabled
Peripheral Devices
Source: Market Innovation Center research and analysis.
27
Modalities Differ by Recipient and Timing of Service

Typically, Synchronous Provider-to-Patient Is Most Favorably Reimbursed
Intended Recipient
Timing of Interaction
Synchronous
Asynchronous
Provider-to-Patient
Provider-to-Provider
Real-time patient consultations
Real-time specialist consultations
Common applications:
Virtual primary care
Telestroke
Virtual urgent care
TeleICU
Telepsychiatry
Virtual pre- and post-op
Time lag between patient request

and subsequent provider response
Time lag between initial provider

request and specialist response
Secure e-messaging
Teleradiology
Remote patient monitoring
Telepharmacy
Wearables (e.g., Fitbit)
Teledermatology
Source: Market Innovation Center research and analysis.
28
Telehealth Projected to Continue Growth

Projections Agree on Growth, But How Aggressive?
Year-Over-Year Medicare
Reimbursement for Telehealth Services1
Estimated U.S. Growth in

Virtual Consults2
In millions of dollars
Millions of Visits
5-YR
Growth
20.0
$17.6
26.9
62%
21.5
15.0
604% Growth
48%
16.6
14.5
5.4
10.0
157%
2.1
2015
2020
5.0
$2.5
Total
PCP Visits
0.0
1) CMS data.
2) 2015 HIS Analytics report.
Specialty Consults
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 (20152020), 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.
29
Purchaser Behavior
Commercial Payers
Employers
Medicare
Coverage Expansion
30
Commercial Payers: Public Exchanges
Consumers Continue to Flock to Public Exchanges

Second Round of Enrollment Hitting Targets
Second Open Enrollment Period Yields Nearly 12 Million Enrollees
Total 2015 Plan Selections in the Marketplaces
Federal Exchanges Driving Most Enrollment
HHS1
Projection
9.0M-9.9M
8.8M
2.8M
Enrollment on
federally facilitated
exchanges, 2015
Enrollment on state
run exchanges, 2015
8M
2014
Enrollment
9.5
4
Demographics Largely Unchanged
4
0
28%
1) Health and Human Services.

2015 enrollees aged

18-34 (compared to
28% in 2014)
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.
31
In Year Three, Premium Adjustments Abound

Exchange Options Reflect Tougher Economic Reality for Insurers
Average Premium Increases Modest, but High Market-by-Market Variability
Statewide Average Premium Changes for Benchmark Silver Plans, 2015 to 20161
<0%
0%-5%
5.01%-10%
10.01%-15%
>15%
Limited/no data
Takeaways
More Expensive
Average premiums in 37 states using
Healthcare.gov increased by 7.5%
1) For 40-year-old, non-smoker.
Fewer Options
Number of products decreased
by 12%
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.
32
Exchanges a More Fluid Marketplace Than Expected

Avoiding Premium Increases the Primary Motivation for Shoppers
Switching Rates Higher Than Expected
Most Continue to Select Silver, Bronze Plans

Plan Selections on Healthcare.gov, 2014-2015
100%
0%
12%
Average annual
switching among
active employees
with FEHBP1 coverage
29%
Returning federal
exchange enrollees
changing plans in 2015
Premium Increases the Primary Motivator
55%
Switchers who cited rise in monthly
premiums as among top three
reasons for switching
1) Federal Employee Health Benefits Plan.
65%
67%
20%
22%
2014
2015
Catastrophic
Platinum
Gold
Silver
Bronze
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.
33
Despite Predictions, Networks Remain Narrow

Insurers Betting Consumers Will Continue to Trade Choice for Price
Narrow Network Plan Designs Continue
to Dominate Exchange Marketplace
Narrow Network Premium Advantages

Increasing Over Time
Network Breadth in Largest City of Each State
Median PMPM Difference For Products From

the Same Payer and Product Type
22%
Ultra Narrow
21%
11-17%
15-23%
Narrow network
premium
41% advantage
in 2014
Narrow network
premium
advantage
in 2015
38%
Narrow
Few Buying-Up to Broad Networks

40%
Broad
38%
2015
2014
17%
Consumers with narrow-network
plans for year one that switched to
a broad-network plan in year two
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.
34
Trading Low Premiums for High Deductibles

Average Public Exchange
Deductibles by Tier, 2016
Bronze:
$5,731
$5,181
2016
2015
2015 Enrollees Favor Higher Deductibles

Annual Deductibles as Percentage of All Individual Plans
Selected on eHealth Platform, 2014-2015
39%
34%
30%
34%
Silver:
$3,117
$2,927
2016
2015
23%
16%
Gold:
$1,165
$1,198
2016
2015
16%
10%
Platinum:
$233
$243
2016
2015
<$1,000
$1,000-$2,999 $3,000-$5,999
2014
$6,000+
2015
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.
35
Majority Satisfied with Coverage

So Far, Backlash Against Narrow Networks, HDHPs Not Widespread
Exchange Enrollees Generally as Happy
as Others with Health Coverage
And Particularly Satisfied with

the Cost of Their Coverage
Ratings of Healthcare Coverage Quality, 2014
Ratings of Healthcare Coverage Cost, 2014
72.0%
Good or Excellent
71%
75%
Newly insured
satisfied with cost
of health care
61%
Satisfaction rate
among all insured
individuals
27.0%
Fair or Poor
29%
All Insured
Newly-Insured Through Exchanges
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.
36
Employers
Refresher: The Cadillac Tax

Cadillac Tax Spurring Employers to Change Benefits
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
If Employers Make No Changes to

Current Benefit Plans:
26%
of all employers
could incur tax
in 2018
42%
of all employers
could incur tax
in 2028
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.
37
Activist Employers Investing in a Range of Tools

Four Primary Models for Controlling Employee Utilization
Manage Costs at
Point of Network
Assembly
The OneStop Shop
ACO networks:
Employer contracts with single delivery system
based on promise of reduced cost trend
Manage Costs at
Point of Referral,
Point of Care
The
Accountable
Physician
Enhanced primary care:

Employees directed to PCPs with proven ability
to reduce utilization, refer responsibly
The Neutral
Third Party
Personal health navigators:

Guide employees through all health care related
decisions, refer to high-value providers
The Second
Opinion
Specialty carve-out networks:

Employees evaluated against appropriateness
of care criteria, sent to centers of excellence
38
Employers Moving Away From the Traditional HMO

Looking to Combine Network Advantages with Consumer Accountability
Employers Looking to Narrower Networks
17%
Employers with a high
performance or tiered
network in their largest
health plan
Percent of Covered Workers Enrolled

in a Plan with a $1,000+ Deductible
58%
9%
Employer eliminated
hospitals or health
systems from their
plans to reduce costs
in 2015
46%
50%
61%
49%
17%
22%
63%
26%
28%
2012
2013
39%
32%
17%
2010
2011
2014
2015
Small Firms (3-199

Workers)
.
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.
39
Private Exchange Enrollment Continues to Grow

Private Exchange Enrollment Doubles in
2015, But Lags Behind Initial Projections
Analysts Remain Bullish on Long-Run

Growth Prospects
Projected Private Exchange Enrollment Among

Pre-65 Employees and Dependents
More Big Names Making the Jump
40
22
Newer Market Entrants Hitting Their Stride
12
6
3
2014
2015
2013
Projection
50%
Enrollment growth for Towers

Watsons exchange solutions,
2015
500%
Enrollment growth for Mercers

exchange solutions, 2015
(800k1.2M)
2016
Actual
Enrollment
2017
2018
2015
Projection
(220k1M)
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 Watsons 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.
40
Medicare
No End in Sight for Inpatient Reimbursement Cuts

Price Cuts Continue Unabated
Hospitals Bearing the Brunt of Payment Cuts
New Proposals Continue to Emerge
Reductions to Medicare Fee-for-Service Payments
Presidents FY2016 Budget Proposal

Includes Significant Cuts to Providers
2013
2014
2015
2016
2017
ACA IPPS1 Update

Adjustments
($4B)
($14B)
ACA DSH2 Payment Cuts
($24B)
($29B)
MACRA3 IPPS Update

Adjustments
($38B)
2018
2019
2020
2021
2022
1) Inpatient Prospective Payment System.
2) Disproportionate Share Hospital.
3) Medicare Access and CHIP Reauthorization Act of 2015.
$30.8B
$29.5B
Reduction in Medicare
bad debt payments
Savings from moving to

site-neutral payments
$14.6B
$720M
($54B)
($67B)
($76B)
($86B)
($94B)
Cuts to teaching hospitals Cuts to critical

and GME payments
access hospitals
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.
41
Medicare Advantage Continues Record Growth

MA1 Enrollment to Nearly Double by 2025
MA Penetration Varies by State
Total Enrollment and Percentage of

Total Medicare Population
Total MA Enrollment as a Percent of

Total Medicare Population, 2015
30.0M
(40%)
16.8M
(31%)
10.4M
(13%)
2005
2015
2025
0%-10%
10%-19%
30%-39%
24%
of newly eligible
beneficiaries
chose MA in 2012
1) Medicare Advantage.
39
states currently have

provider-led plans in
their markets
69%
20%-29%
30%-39%
of provider-led plans
offer MA coverage
options
Source: KFF, Medicare Advantage Fact Sheet, June 29, 2015, available at: www.kff.org; McKinsey & Co., Provider-Led Health Plans: The
Next FrontierOr 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.
42
Coverage Expansion
Future of Medicaid Expansion Less Clear

Benefit of Expansion Clear for Hospitals, But Opposition Remains
31 States and DC Have Approved Expansion
As of January 2016
Medicaid Expansion Positively

Impacting Hospital Finances
Medicaid Admissions increased
21% for investor-owned hospitals in
expansion states
Self-Pay Admissions decreased by

47% for investor-owned hospitals in
expansion states
Participating
Expansion
by Waiver
Not Currently
Participating
Uncompensated Care costs

reduced by $5 billion in expansion
states in 2014
14.5M
18% vs. 5%
Net increase in Medicaid, CHIP1

enrollment, Oct 2013 to Jan 2016
Growth in Medicaid enrollment in

expansion vs. non-expansion states,
FY 2015
1) Childrens Health Insurance Program.

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.
43
Provider Selection
Independent Physicians
Patients
44
Independent Physicians
Referral Choice Criteria Different for PCPs, Specialists

Emerging and Traditional Differentiators for Physicians
The Extended Service Line Referral Pathway
Sources of Influence
PCP
Consumer
Interventions
Medical
Specialist
Proceduralist
Hospital
Traditional Differentiators
Top-notch specialty capabilities and technology
Superior specialist access
Value-Based
Incentives
Operations focused on specialist efficiency
Emerging Differentiators
Steerage
Mechanisms
Comprehensive care continuum

Highest value of care
Superior patient access and experience
Source: Service Line Strategy Advisor interviews and analysis.
45
What PCPs Value Most for Referrals

Referrals Hinge on Accessibility and Communication
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
1.5x
PCPs 1.5 times more likely to
refer based on physician
communication than specialists
2x
PCPs two times more likely to
refer based on timely availability
of appointments than specialists
1) Top four factors (out of 17 options) rated by PCPs as either a

moderate or major factor in their specialty referral decision
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,.
46
Patients
Market Forces Turning Patients into Consumers

Catalyzing a Shift in Network Demands
Characteristics of a Traditional vs. Retail Market
Traditional Market
Retail Market
Passive employer,
price-insulated employee
Broad, open networks
Growing number of buyers
Activist employer,
price-sensitive individual
Narrow, custom networks
Proliferation of product options

No platform for apples-toapples plan comparison
Disruptive for employers

to change benefit options
Constant employee
premium contribution,
low deductibles
Increased transparency
Reduced switching costs
5
Greater consumer cost exposure
Clear plan comparison

on exchange platforms
Easy for individuals to

switch plans annually
Variable individual
premium contribution,
high deductibles
47
Welcome to the Renewals Business

Patient Experience Vital For Securing Purchaser Choice Year Over Year
Network Selection and Ongoing Experience
Annual network
selection in fluid
insurance market
implies consistent
reevaluation of
network performance
Day 1
Day 365
Care Decision
Care Decision
Patient
Experience
Care
Decision
Clinical interactions
represent repeated
opportunities to
reinforce patient
preference through
superior experience
Care
Decision
48
Inpatient Satisfaction Scores Miss Most Interactions

Scope and Investment Must Expand to Encompass Entire Experience
Average Health System Interactions
INPATIENT VISITS
AMBULATORY CARE
PROVIDER SEARCH, SCHEDULING, COLLECTIONS
17,000+
350,000+
2,500,000+
Interactions per year
Inpatient
Stays
Sick
Ambulatory
Visits
Health Care
Transactions
Healthy
49
Consumers Top 10 Primary Care Clinic Attributes

Prioritizing Convenience and Affordability
Average Utilities for Top Ten Preferred Primary Care Clinic Attributes
n=3,873
I can walk in without an appointment, and Im guaranteed
to be seen within 30 minutes
If I need lab tests or x-rays, I can get them done
at the clinic instead of going to another location
3.98
The provider is in-network for my insurer
3.95
The visit will be free
3.94
The clinic is open 24 hours a day,

7 days a week
3.91
4.11
3.70
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
3.04
Each time I visit the clinic, the

same provider will treat me
3.01
If I need a prescription, I can get it filled at the

clinic instead of going to another location
3.00
The clinic is located near my home
3.00
Source: 2014 Primary Care Consumer Choice Survey, Marketing

and Planning Leadership Council interviews and analysis.
50
Most Patients Are Not Loyal to PCP

Percent of Consumers Highly Loyal
in Each of Three Loyalty Measures
If your primary care moved
to another clinic or practice,
how likely are you to follow
him/her to another clinic or
practice?
How likely are you to stay

with your primary care
physician over the next 12
months?
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 definitely would not
follow and 10 being definitely
follow)

being definitely not staying and
10 being definitely staying)

being not at all likely and 10
being extremely likely)
9%
53%
36%
Source: 2015 Primary Care Physician Consumer Loyalty Survey,

Market Innovation Center interviews and analysis.
51
Specialty Self-Referrals Drive Over a Third of Business

Top Reasons for Self Referrals Centered on Recommendation, Affiliation
Percent of Respondents
Self-Referring
Cost Not a Major

Deciding Factor
Top Drivers of SelfReferrers Choice
n = 12,610
32%
Recommendation
34%
Previous
Relationship
Affiliation
Specialization
Distance
19%
2%
25%
15%
36%
14%
28%
12%
42%
11%
Respondents
ranking out-ofpocket cost as the
leading reason they
chose a specialist
Respondents Citing Factor As:

Most influential
driver of choice
A driver of
choice
Source: 2015 Specialty Consumer Choice Survey, Market

Innovation Center interviews and analysis.
52
Surgical Shoppers Extremely Price Sensitive

Price and Travel Time Top Consumers Surgical Care Priorities
Average Relative Importance1 of Six Surgical Care Attributes
Travel Time
to Hospital
19.83
Cost of
Surgery2
Cost of care is more

important than the five other
attributes combined;
comprises more than half of
consumers preference
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 attributes 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
9.21
7.26
4.95 5.52
53.22
Travel time is second

most important and about
twice as important as the
next most important
attribute, referrers
recommendation
Referrers Recommendation
Hospital Affiliation
Location of Follow-Up Visit

Quality of Surgeon
Hospital affiliation matters
more than quality of the
surgeon
Source: MIC Surgical Care Consumer Choice Survey 2016.
53
Higher Deductibles Driving Increased Price Sensitivity

Consumers Increasingly Soliciting Pricing Information
Many Americans Lack Cash Flow
to Cover Potential OOP Costs
More Consumers Attempting

to Find Pricing Information
Households Without Enough Liquid Assets

to Pay Deductibles
0.4
0.2
Mid-range deductib le
Higher-range deductib le
A surprising percentage of people

with private insurancesimply do
not have the resources to pay their
deductibles.
56%
Consumers who have tried to

find out how much they would
have to pay before getting care
67%
Those with deductibles of $500

to $3,000 who have solicited
pricing information
74%
Those with deductibles higher

than $3,000 who have solicited
pricing information
Drew Altman, President,

Kaiser Family Foundation
1) $1,200 Single; $2,400 Family
2) $2,500 Single; $5,000 Family
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.

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Market Innovation Center

Health Care Industry

2016 The Advisory Board Company advisory.com

2016 The Advisory Board Company advisory.com

Continuum of Medicare Risk Models

Increasing Financial Risk

2016 The Advisory Board Company advisory.com

Source: Health Care Advisory Board interviews and analysis.

Update on Value Based Purchasing Program

CMS Sets Targets for Value-Based Payments

FFS Increasingly Tied to Value

Percent of Medicare Payments Tied to Risk Models

Percent of Medicare Payments Tied to90%

Readmissions, HAC Penalties Outweigh VBP Bonuses

Estimated Net Impact of

1) Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program.

Hospitals receiving net

Update on Bundled Payments

BPCI Participation Continues to Fluctuate

Total Number of BPCI1 Participants

Types of Organizations Participating in BPCI3

Episode Initiators as of January 2016

1) Bundled Payments for Care Improvement Initiative.

Orthopedic Bundling Now Mandatory

Includes all related Part A

Program announced; comment

CMS will pay each provider

1) Center for Medicare and Medicaid Innovation.

Downside risk incorporated; 1%

Update on Accountable Care Organizations

Where the Medicare ACOs Are

2016 The Advisory Board Company advisory.com

Source: Centers for Medicare and Medicaid Services; Health Care

MSSP1 Continues to Grow Despite Mixed Results

Medicare ACO Program Growth Continues

One-Quarter of MSSP ACOs Share in Savings

First Performance Year2

1) Medicare Shared Savings Program.

Proposed MSSP Rule Encourages More Risk

Shared savings, loss rate

Encourages providers hesitant to assume downside risk to remain in program;

Track 3 provides options for providers to quickly assume more risk

1) Minimum Savings Rate.

Health Spending on the Rise Again

Annual Growth in National Health Expenditures

U.S. Health-Care Spending

Health care spending

Health Spending Is Rising

2016 The Advisory Board Company advisory.com

But Hospital Price Growth Down for First Time

Medicaid price growth

2015 Hospital Price

2016 The Advisory Board Company advisory.com

Commercial price growth

Source: Altarum Institute, Health Sector Economic Indicators: Price Brief,

Modest Growth Anticipated for the Near Term

1) Compound Annual Growth Rate

Source: Advisory Board Inpatient and Outpatient Market Estimators;

Volumes Continuing to Shift Outpatient

All Payer Volume Growth Projections1

Cumulative Percent Change

Source: Report to the Congress: Medicare Payment Policy,

Medicare to Become Majority of Volume by 2022