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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

2016 The Advisory Board Company advisory.com

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

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


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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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


2016 The Advisory Board Company advisory.com

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)
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

Source: Health Care Advisory Board interviews and analysis.

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
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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%

2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

Provider-to-Patient

Provider-to-Provider

Real-time patient consultations

Real-time specialist consultations

Common applications:

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

Common applications:

Common applications:

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.
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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.


2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

<$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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

Source: Health Care Advisory Board interviews and analysis.

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)

.
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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.
2016 The Advisory Board Company advisory.com

$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.
2016 The Advisory Board Company advisory.com

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.


2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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
2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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

Source: Health Care Advisory Board interviews and analysis.

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
2016 The Advisory Board Company advisory.com

Clinical interactions
represent repeated
opportunities to
reinforce patient
preference through
superior experience

Care
Decision
Source: Health Care Advisory Board interviews and analysis.

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

Interactions per year

Interactions per year

Inpatient
Stays

Sick
2016 The Advisory Board Company advisory.com

Ambulatory
Visits

Health Care
Transactions

Healthy
Source: Health Care Advisory Board interviews and analysis.

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

2016 The Advisory Board Company advisory.com

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)

(On a scale of 0 to 10, with 0


being definitely not staying and
10 being definitely staying)

(On a scale of 0 to 10, with 0


being not at all likely and 10
being extremely likely)

9%

2016 The Advisory Board Company advisory.com

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

2016 The Advisory Board Company advisory.com

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
2016 The Advisory Board Company advisory.com

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
2016 The Advisory Board Company advisory.com

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.