the future of health care: a prognosis for 2016

The Future of Health Care:

A Prognosis for 2016Ed Park

Chief Operating Officer

2

4

Agenda

1 Macro Trends

Purchaser response

Provider strategies

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3

Macro trends

“Personal health care costs rose in the 12 months ending in May at the slowest rate in the last 50 years, as spending on hospital and nursing home services declined.”

–USA Today, July 29, 2013

6

Source: CMS, WSJ

Healthcare cost inflation has been tracking to a historic low

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

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35

30

25

20

15

10

5

0

-5

-10

-15

-20

v vv v v

v

vv

vv

vv 33%

-17%

Outpatient services per FFS Part B beneficiary

Inpatient discharges per FFS Part A beneficiary

v

v

v

v

Fiscal year

Cum

ulat

ive

perc

ent c

hang

e

vv

20062007

20082009

20102011

2012 2013

Medicare enrollment project to grow rapidly as members

of the baby-boom generation age into the program

Source: 2014 annual report of the Boards of Trustees of the Medicare trust funds, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2014.pdf.

100

90

80

70

60

50

402015 2020 2025 2030 20402035 2045 20502010

Num

ber

of b

enefi

ciar

ies

(in m

illion

s)

10,000 people will enter Medicare every day for the next 15 years

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Source: http://www.realclearpolicy.com/blog/2012/05/

30%

25%

20%

15%

10%

5%

0

19703.9%

201110.4%

208525.7%

< Social Security

< Medicaid, ObamacareSubsidies, CHIP

Actual Projected

ActualRevenue

Average HistoricalRevenue;

18.1%

2045: Entitlement spending matches tax revenue average

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

< Medicare

And overall, we’re still on pace to bankrupt the U.S.

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Government“public purchasers”

The Grand Bargain of the ACA is to expand coverage while reducing Medicare rates

-575.1

11

On the coverage side, there is increasing enrollment in the public exchanges…

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Expanding Medicaid

28States plus DC

ConsideringExpansion

5States

Not Expanding Medicaid

17States

Source: The Advisory Board Company.

…and Medicaid expansion continues to (selectively) move forward…

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Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

0%

4%

8%

12%

16%

20%17.5% 17.3% 16.9% 16.3% 16.8% 17.1%

18.0%17.1%

15.6%

13.4% 13.4% 12.9%11.9%

Source: http://www.gallup.com/poll/182348/uninsured-rate-dips-first-quarter.aspx

1 December 2013 to September 2014.

Lowest Uninsured Rate on RecordPercentage of U.S. Adults Without Insurance, by Quarter

34%Decrease in Proportion of

Uninsured Visits on athenaNet1,

ExpansionStates

10%Decrease in Proportion of

Uninsured Visits on athenaNet1, Non-Expansion

States

…resulting in the lowest uninsured rate on record

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Physicians providing care to Medicare patients could face a “tsunami” of regulatory penalties over the next 10 years, potentially seeing payments cut by more than 13 percent by the end of the decade.

- American Medical Association

On the other side of the ledger, the promised cuts are coming!

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By 2018, the Obama Administration wants 50% of all Medicare payment to flow through value-based entities

like ACOs, up from 30% today. 90% of payments to be tied

in some way to quality.

In January, CMS signaled that it would get more aggressive about making good on the promised cuts

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In July, CMS announced mandatory bundles in some areas through the Comprehensive Care for Joint

Replacement Initiative

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LET’SGEEKOUT

http://medicaleconomics.modernmedicine.com/medical-economics/news/top-5-financial-challenges-facing-physicians-2015?page=full

The carrots are becoming sticks – CMS has shifted to Penalty for Performance for PQRS and

MU

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Your Performance: Average Quality, Average Cost

Each year a Quality and Resource Use Report (QRUR) comes out where CMS uses practice’s data reported from PQRS to

show you where you fall in terms of performance.

A new program, the Value-Based Modifier (VM) is an adjustment that builds on top of PQRS

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Quality

Cost

Low Avg High

Low 0% +2.0% +4.0%

Avg -2.0% 0% +2.0%

High -4.0% -2.0% 0%

Groups with

10+ EPs

Quality

Cost

Low Avg High

Low 0% +1.0% +2.0%

Avg 0% 0% +1.0%

High 0% 0% 0%

With the VM, depending on how you place in the QRUR, a penalty or bonus will be applied your fee

schedule

Groups with <10 Eps &

Solo EPs

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http://www.ama-assn.org/resources/images/washington/medicare-sgr-penalties-850x1100.jpg

Year Deficit E-prescribing Health information

Physician quality reporting system, including Maintenance of Certification (MOC) Program

Value-based modifier (budget neutral increases and decreases in payments based on cost/quality data measures from 2 years earlier)

Total possible paymenty cuts including sequester

2014 (-2%)* (-2%) $4-12K 0.5% if no MOC:1%if MOC (-4%)

2015 (-2%) $2-8K (-1 to 2%) (-1.5%)

(-1.5%) Applied to groups of 100 or more/2013 data**

(-5.5% to 6.5%)

2016 (-2%) $2-4K (-2%) (-2%) (-2%) Groups of 10 or more/2014 data ** (-8%)

2017 (-2%) (-3%) (-2%) (-4%) all physicians/2015 data** (-11%)

2018 (-2%) (-3%) (-2%) (?) all physicians/2016 data**

(-12%) or more

2019 (-2%) (-3%) (-2%) (?) all physicians/2017 data**

(-13%) or more

*Red text indicates penalties, black text indicates bonuses. ** 2017 marks the third year that the VBM will be applied; the magnitude of the adjustments that will be made in future years is determined through annual rulemaking. Since adjustments have doubled each year since the VBM was first implemented, the potential for increasingly severe cuts in 2018 and beyond is significant. Some physicians will qualify for payment bonuses of an amount not yet known.

2017 (-2%) (-3%) (-2%) (-4%) (-11%)

There is 11% downside to 2017 Medicare payments based on 2015 performance!

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Source: http://www.healthcare-informatics.com/article/breaking-president-obama-signs-sgr-repeal-legislation-shifting-medicare-physician-payment-in

And the rules will keep changing… in 2019, as part of the SGR fix, MU+PQRS+VBM will be rolled into the

Merit-Based Incentive Payment System

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MU

VM

Source: The Medicare Access and CHIP Reauthorization Act of 2015; Advisory Board analysis.

Under MIPS, the swing in Medicare FFS rates will increase to 36% by the year

2022

Merit-Based Incentive Payment System1

2020: -5% to +15%

2019: -4% to +12%

2022 and on: -9% to +27%

2021: -7% to +21%2018: Last year of separate

MU, PQRS, and VBM penalties1. Positive adjustments may be scaled by a factor of up to 3 times the negative adjustment to ensure budget neutrality. Actual positive adjustments may be lower than numbers shown here. In addition, top performers may earn additional adjustments of up to 10 percent.

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Source: The Medicare Access and CHIP Reauthorization Act of 2015; Advisory Board analysis.

Starting in 2019, groups can opt out of MIPS if 25% of their revenue is Medicare AND they enter an

alternative model like MSSP

2.APM participants who are close to but fall short of APM bonus requirements will not qualify for bonus but can report MIPS measures and receive incentives or can decline to participate in MIPS.

2019 - 2024: 5% participation bonus2019 - 2020: 25% Medicare revenue requirement

2021 and on: Ramped up Medicare or all-payer revenue requirements

Advanced Alternative Payment Models2

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MIPS

MSSP

The Medicare Shared Savings Plan (MSSP) has its own set of complex rules

www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/RY2015-Narrative-Specifications.pdf

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As an ACO, quality hurdles must be met across 33 measures to obtain any savings realized in the MSSP

program.

Patient/Caregiver Experience1

Care Coordination2

Preventative Health3

At-Risk Populations4

The Medicare Shared Savings Plan (MSSP) has its own set of complex rules

www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/RY2015-Narrative-Specifications.pdf

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http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/downloads/Evaluation_Risk_Adj_Model_2011.pdf

Hypothetical example of CMS-HCC (version 12) expenditure predictions and risk score

community-residing, 76-year-old woman with AMI, angina pectoris, COPD, renal failure, chest pain, and ankle sprain

Risk marker Incremental prediction

Relative risk factor

Female, age 75-79 $3,409 0.457Acute myocardial infraction (HCC 81) $2,681 0.359Angina pectoris (HCC 83) $0 -Chronic obstructive pulmonary disease (HCC 108) $2,975 0.399Renal failure (HCC 131) $2,745 0.368Chest pain (HCC 166) $0 -Ankle sprain (HCC 162) $0 -Total $11,810 1.583

And regardless of model, providers will need to master HCC risk adjustment

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Employers(“private purchasers”)

Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage,

1999-2013

*Estimate is statistically different from estimate for the previous year shown (p<.05).Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2013.

199920002001200220032004200520062007200820092010201120122013

$1,543$1,61

9$1,787*

$2,137*

$2,412*

$2,661*

$2,713

$3,281*

$3,354$3,515$3,997*

$4,129$4,316

$2,973*

$11,429*

$10,944*

$9,773$9,860*

$9,325*

$8,824$8,508*

$8,167*

$7,289*

$6,657*

$5,866*

$5,274*

$4,819*

$4,247* $5,791$6,438*

$7,061*

$8,003*

$9,068*

$9,950*

$10,880*

$11,480*

$12,106*

$12,680*

$13,375*

$13,770*

$15,073*

$15,745*

Worker ContributionEmployer Contribution

Employer healthcare costs have tripled over the last decade

$4,565 $11,786* $16,351*

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35

The Health Care Cost Crunch, 1999-2013

Source: Kaiser Employee Benefits Survey, 2013; median wage from EPI analysis of CPS

$20,000

$16,000

$12,000

$8,000

$4,000

$0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$20.50

$19.50

$18.50

$17.50

$16.50

$15.50

$14.40

8.710.4

13.1

16.0

17.8

19.3

22.7

24.5

Weeks of full time work (at median wage need to pay family premiumAverage annual premiums (single coverage)Average annual premiums (family coverage)Median wage (right axis)

Today’s average family premium is half a year’s work at median wage

The dominant response so far has been higher deductibles

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Source: Accenture Private Health Insurance Exchange Consumer Research

But trade-offs will become more complex% of respondents willing to accept tradeoff for reduced monthly premium

Higher Deductible

78%

Greater Cost Sharing

(e.g., Copay)

23%75%

Wellness Program

Participation

26%

Less Network Flexibility

25%

Fewer Services Covered

With 6 million enrollees for 2015, according to Accenture, a prominent management consulting company, private-exchange enrollment has doubled since 2014. May 2015

http://www.heritage.org/research/commentary/2015/5/a-health-care-revolution-on-private-exchanges

Source: Accenture analysis, based on data from : U.S. Census, Bureau of Labor and Statistics, Kaiser Employer Health Benefits Annual Survey. Calculation includes pre-65 employees and dependents.http://www.accenture.com/us-en/Pages/insight-private-health-insurance-exchange-annual-enrollment.aspx

2014 2015 2016 2017 20183 6

12

22

4040

30

20

10

0

Enro

llmen

t (M

illion

s)

EstimatedProjected

This trend towards private exchanges will likely continue to skyrocket

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The Cadillac Tax begins to reverse healthcare as an

employer-sponsored pre-tax expense

Effective 2018, the Cadillac Tax, a 40% corporate tax on benefits above a threshold, will push employers

towards exchanges

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And the beat goes on-- narrow networks are increasingly prevalent in the exchange market,

offering a new litmus test

Source: McKinsey Center for U.S. Health System Reform/McKinsey Advanced Healthcare Analytics analysis of publicly available rate filings and carrier information; AHA database, Data as of 11.15.2013, McKinsey & Company.

70% of hospital networks on

exchanges are narrow or

ultra-narrow

Ultra-narrow38%

Narrow32%

Broad30%

Distribution of networks by network breadth1

2014 individual exchange – Percent of analyzed silver networks (n = 1202)

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Provider Strategies

The health care chess board…

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem

At-risk healthsystem

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem

At-risk healthsystem

1Build a hospital-centered health system

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem

At-risk healthsystem

2Build a multispecialty group that focuses on primary care delivery and takes on significant risk

UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem

At-risk healthsystem

3Build a specialty group that focuses on doing a few things really, really well

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A fourth option, virtual networks, is being enabled as the floodgates

are open on interoperability

• Demographics• Referral Reason

(Referral)• Plan of Care• Reasons for Visit• Instructions (Discharge)• Insurance• Problems• Medications• Allergies

CCDA Content (MU2 Standard)• Immunizations• Diagnostic

Results• Vitals• Procedures• Encounters• Advance

Directives• Social History• Family History• Cognitive Status

The hole in the dike was Meaningful Use, which standardized key vocabularies

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Medications are manually reconciled by

the MA or provider

Vaccines, problems, allergiesare automaticallyreconciled with

source attributionnoted

All documents and notes across the

continuum of care (labs, imaging centers, discharge summaries)

are available

For the first time, a unified view of the patient, the holy grail of healthcare IT, is within reach

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UrgentCare

ImagingCenter

Lab

Pharmacy

RetailClinic

Small Physician

Group

Small Physician

GroupHospital

Hospital

Small Physician

Group

Small Physician

Group

Specialty Clinic

Orthopedics

SpecialSurgery

At-risk healthsystem

At-risk healthsystem

4These advances in interoperability will enable a strategy based on technology-enabled partnerships

We have been pushing forward aggressively with Epic, Cerner, and Meditech on interop

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The Argonaut Project

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55

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The newest battleground is patient access

6 OF TOP 10 FEATURES ON

ACCESS, CONVENIENCE

Service • Provider education on illness and wellness • Provider continuity

Affordability • In-network status • Eliminated out of pocket charges

Access, Convenience •Walk in availability, less than 30 minutes wait • Lab tests. X-rays, pharmacy onsite • 24/7 access • Same day appointment availability •Geographic proximity

SOURCE: The Advisory Board Company

Avg. wait time under

8 min.Avg. door to door time for patients is

45 min.Patients register via mobile tablet, saving

2½ minutes per patient

⅕ the cost of the ED

Retail clinics are growing at a blistering clip

The Growth of Retail Clinics

Source: Merchant Medicine LLC.

2007 2008 2009 2010 2011 2012 2013 2014 2015 -

500

1,000

1,500

2,000

Year

Reta

il Clin

ics a

t Sta

rt o

f Yea

r

60

Urgent care is growing explosively as well

The Growth of Urgent Care Centers

Source: Estill Advisory Group Research

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Year

Num

ber o

f Urg

ent C

are

Cent

ers

61

This surge in access is funded by big backers

62

And many health systems are launching their own branded urgent care centers

63

But retail/urgent is just the first salvo– telehealth is also coming of age

64

And telehealth platforms are rapidly increasing in sophistication

65

As patients take virtual care for granted, more complex cases will inevitably be

handled

66

And consumers will demand apps that are every bit as polished as any other consumer-native app

Quick Stats:

• 6,380 Google Play Store ratings: 4.54 / 5 stars

• 1,243 Apple App Store ratings: 4.5 / 5 stars• Net Promoter Score: 58

• Amex: 45• Netflix: 45• CVS: 26• Health insurance avg: 17

• 9,755 Facebook fans• Omada Health: 825• Propeller Health: 515

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We are still in the early innings, but this is all unfolding faster than many

expected

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And radically increased levels of funding will continue to fuel the patient-as-consumer rocket

Private-equity and Venture Capital Activity in Health IT

and related Services since 2008 (1)

(1) Chart summarizes private-equity and venture capital activity in health IT and related services since 2008, according to the Healthcare Growth Partners database. The data do not include buyout private equity activity. Source: Healthcare Growth Partners Health IT & Health Information Services 2015 Midyear Market Review.

$8000

$7000

$6000

$5000

$4000

$3000

$2000

$1000

$0

Total Transaction Value ($mm)Number of Transactions

Num

ber

of T

rans

acti

ons

Total Transaction Value

450

400

350

300

250

200

150

100

50

02008 2009 2010 2011 2012E 2013 2014 2015P

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Value-based payments (MU, PQRS/VBM, MSSP, MIPS, etc.) are here to stay1

Advances in interoperability are allowing for new kinds of partnerships2

The patient-as-consumer movement is rapidly unfolding– developing an intentional strategy for this is crucial3

Key Takeaways

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Thank You