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Economic Forecast Breakfast

April 10, 2015

Roy Nascimento President, North Central Massachusetts Chamber of Commerce

Welcome

Ed Manzi Chairman & CEO, Fidelity Bank

Introductions

John Merrill President & COO, Fidelity Bank

Survey Review

Direct Survey Method

• Conducted by Princeton Research Associates • Data collected over last 4 weeks • Phone surveys

• 200 consumers • 200 businesses

• All respondents within the North Central MA footprint

5

Survey Results Consumer

Consumer Survey Demographics

7

45%

28%

6%

19%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Full time

Part time

Unemployed

Retired

Other

Thinking about Massachusetts overall, over the next 12 months how do you think the economy will be in comparison to today?

8

25%

48%

16%

4% 3% 4%

0%

10%

20%

30%

40%

50%

60%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Thinking about North Central Mass., over the next 12 months how do you think the economy will be in comparison to today?

9

18%

45%

28%

2% 3% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Thinking only about your job opportunities or security, over the next 12 months how do you think they will be in comparison to today?

10

19%

35%

25%

5% 5%

11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Thinking only about your advancement opportunities at work or in a new job, over the next 12 months how do you think they will be in comparison to today?

11

19%

27% 29%

4% 6%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Which of the following best describes your personal spending plan in 2015?

12

12%

43%

30%

12%

6%

1% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Significant increase

Slight increase No change Slight decrease Significant decrease

Don't know

What do you think is the top challenge facing your region?

13

20%

16%

12%

12%

10%

0% 5% 10% 15% 20% 25% 30% 35%

Employment / job creation

Quality of public education

Corporate and personal taxes

Cost of health care

Cost of fuel & energy

How would you rate your town or city’s snow removal efforts over the past winter?

14

Excellent 29%

Good 41%

Not so good 13%

Poor 16%

Don't know 1%

Survey Results Business

Business Survey Demographics

16

24%

10%

34%

20%

12%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Principal owner or partner

President / CEO

Senior management

Middle management

Other

Thinking about Massachusetts overall, over the next 12 months how do you think the economy will be in comparison to today?

17

9%

51%

31%

4% 2% 3% 0%

10%

20%

30%

40%

50%

60%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Thinking about North Central Massachusetts, over the next 12 months how do you think the economy will be in comparison to today?

18

12%

46%

31%

3% 4% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Thinking only about your business, over the next 12 months how do you think the economy will be in comparison to today?

19

46%

29%

20%

2% 2% 1% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Much better

Somewhat better

About the same

Somewhat worse

Much worse

Don't know

Which of the following best describes your hiring plan for this region in 2015?

20

9%

46%

38%

2% 1% 4%

0%

10%

20%

30%

40%

50%

60%

Significant increase

Slight increase

No change Slight decrease

Significant decrease

Don't know

Which of the following best describes your business’s spending plan for this region in 2015?

21

13%

21%

40%

8% 9% 9%

0%

10%

20%

30%

40%

50%

60%

Significant increase

Slight increase

No change Slight decrease

Significant decrease

Don't know

Thinking about your business, what is the most challenging issue you expect to face in the next two years?

22

18%

13%

10%

9%

8%

0% 5% 10% 15% 20% 25%

Transportation / infrastructure

Corporate and personal taxes

Real estate prices / market

Cost of healthcare

Availability of skilled labor

What do you think is the top challenge facing this region?

23

15%

10%

10%

10%

8%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Corporate and personal taxes

Transportation / infrastructure

Quality of public education

International Competition

Cost of fuel & energy

What effect did this season’s snow fall have on your business?

24

Negative 29%

No Effect 40%

Positive 31%

Survey Takeaways - Overall • Both consumers and businesses continue to have a very

favorable outlook on both the North Central MA and greater MA regions and this outlook continues to improve.

• Both consumers and businesses plan to increase spending in 2015. 55% of consumers and 34% of businesses to at least “slightly increase.”

• Consumers and businesses showing positive trending

outlooks on employment. Consumer concerns fading and businesses planning to hire.

25

Survey Takeaways - Consumer • Top concern still employment but trending positive. • Quality of public education spiked as a major concern

with 16% citing it as top challenge - up from 9%. • Cost of fuel and energy concerns faded with only 10%

indicating it as a top challenge – down from 22%. • Concerns over the cost of health care faded slightly to

12% from 20%.

26

Survey Takeaways - Business • Transportation and infrastructure a growing concern for region and

businesses. • Commitment to hiring continued, with 55% stating at least a “slight

increase” in their hiring plan.

• Concern for availability of skilled labor subsiding with only 8% citing it as top challenge – down from 18%.

• Concern over taxes decreased dramatically from 23% to 13%

• Quality of public education spiked as a major concern for the region.

• Concerns grew regarding real estate and the market from only 3% in 2014 to 10%.

27

Economic Forecast Panelists

Lt. Governor Karyn Polito Commonwealth of Massachusetts

Jeff Fuhrer EVP & Sr. Policy Advisor, Federal Reserve Bank of Boston

Deborah Weymouth President & CEO, HealthAlliance Hospital

Lt. Governor Karyn Polito

Commonwealth of Massachusetts

Jeff Fuhrer Executive Vice President & Senior Policy Advisor

Federal Reserve Bank of Boston

North Central MA Chamber of Commerce Economic Breakfast

April 10, 2015 Jeff Fuhrer, EVP and Senior Policy Advisor

Federal Reserve Bank of Boston

X Not this lady

X Not this guy

32

1. Unprecedented depth and duration of recession 2. Extraordinary policy responses 3. Complications going forward as a consequence

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

0 8 16 24 32 40 48 56 64 72 80 Months after recession onset

Employment, recession start=1.0

Current (2007-present)

0

1

2

3

4

5

6

0 0.5

1 1.5

2 2.5

3 3.5

4 4.5

2006

:Jan

2006

:Sep

20

07:…

20

08:Ja

n 20

08:S

ep

2009

:…

2010

:Jan

2010

:Sep

20

11:…

20

12:Ja

n 20

12:S

ep

2013

:…

2014

:Jan

2014

:Sep

Fund

s rat

e, pe

rcen

t

$ tri

llion

s

Federal Reserve Assets ($ trillions) Agency and MBS CB Swaps CPFF TAF Treasuries

Funds rate

Range of all

Average of all postwar

Sources: Bureau of Labor Statistics (employment), Board of Governors of the Federal Reserve H.4.1, Haver Analytics

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2006

:Jan

2006

:Jul

2007

:Jan

2007

:Jul

2008

:Jan

2008

:Jul

2009

:Jan

2009

:Jul

2010

:Jan

2010

:Jul

2011

:Jan

2011

:Jul

2012

:Jan

2012

:Jul

2013

:Jan

2013

:Jul

2014

:Jan

2014

:Jul

2015

:Jan

Funds rate

6+ YEARS Of ZERO

INTEREST RATES… (and counting)

33 of 16

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

0 2 4 6 8 10 12 14 16 18 20 22 Quarters into recovery

Contribution of government spending and investment to GDP growth

Average, 1947-2006 Current recovery

Sources: Bureau of Economic Analysis, Haver Analytics

1. Subtracting near zero in 2015 2. Taxes, transfers less

contractionary in 2015 3. Less craziness improves

confidence, reduces uncertainty

34 of 16

By household income growth (4% after inflation over past 12 mos.)

By increases in net worth

By lower oil prices We’ll talk more in a

minute Confidence has

improved

35 of 16

Sources: Bureau Economic Analysis (spending, income, saving rate), Flow of Funds Accounts (HH wealth), Core Logic (house prices), Board of Governors H.15 release (mortgage rates), Haver Analytics

-6 -4 -2 0 2 4

20

40

60

80

100

2004:Jan 2006:Jan 2008:Jan 2010:Jan 2012:Jan 2014:Jan

Consumer confidence and spending

Consumer sentiment Consumer spending growth

-1.0

1.5

2011:Q1 2012:Q1 2013:Q1 2014:Q1

$ B

illio

ns

Increase in Household Net Worth Housing assets Stock market assets

4

5

6

7

8

9

10

11

-1000

-800

-600

-400

-200

0

200

400

2007:Nov 2008:Nov 2009:Nov 2010:Nov 2011:Nov 2012:Nov 2013:Nov 2014:Nov

Tho

usan

ds

Employment growth (3-month average)

Total nonfarm Private nonfarm Unemployment rate (right)

Sources: Bureau of Labor Statistics, Haver Analytics

… and lots of progress on unemployment

Mar 3-mo

Emp. 126 197

Unemp 5.5 -0.1

36 of 16

• Broader measures of slack have also improved • But are not quite back to normal yet

Holy mackerel! Effects on US spending

Adds 0.5 ppt?

Effects on inflation

Subtracts 0.2 ppt, core

Effects on US oil production

Hurts US producers’ income more than in previous years

Effects on Russia/financial stability

40 50 60 70 80 90

100 110

20140101 20140423 20140813 20141203 20150325

US

$ pe

r bar

rel

Oil price per barrel, WTI

37 of 16

Capital goods orders have weakened Effects of the stronger

dollar have contributed Housing—even

adjusting for weather—is weaker than we’d like

Foreign economies Pushing the dollar up But keeping rates low Their recovery will help

us Weather?

69000

69500

70000

70500

71000

71500

2014:Oct 2014:Nov 2014:Dec 2015:Jan 2015:Feb 2015:Mar

Capital goods

Mfrs.' orders of capital goods

550

600

650

700

750

2014:Oct 2014:Nov 2014:Dec 2015:Jan 2015:Feb 2015:Mar

Housing

Housing starts

Housing permits Weather?

38 of 16

-1.5 -1

-0.5 0

0.5 1

1.5 2

2.5 3

3.5

2009:Jan 2010:Jul 2012:Jan 2013:Jul 2015:Jan

Inflation: persistently below 2%

Core PCE inflation (12-mo.) Total PCE inflation -1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2007:Q2 2009:Q2 2011:Q2 2013:Q2

Wages, compensation (4-qtr. growth) ECI Average hourly earnings Nonfarm compensation

FOMC inflation goal

Sources: BEA (PCE inflation, profit share), Bureau of Labor Statistics and CBO (unemployment gap, chained core CPI, import prices, labor costs), Haver Analytics (Treasury inflation expectations)

2%

All three measures: No wage pressures

39 of 16

Underpinnings for spending are good Employment and income growth strong to date Wealth increases significant (housing and financial) Low oil prices help Strong consumer confidence readings

Tepid growth in housing, capital equipment Some risks from foreign economic and geopolitical

activity Inflation persistently low

40 of 16

1. Inflation below the Fed’s target usually implies a weak economy

-2

-1

0

1

2

3

4

5

6

1990

:I 19

91:II

19

92:II

I 19

93:IV

19

95:I

1996

:II

1997

:III

1998

:IV

2000

:I 20

01:II

20

02:II

I 20

03:IV

20

05:I

2006

:II

2007

:III

2008

:IV

2010

:I 20

11:II

20

12:II

I 20

13:IV

20

15:II

Bad times (high unemployment) Good times (low unemployment) Inflation gap (Actual inflation - Fed target)

So low inflation is in part a sign that the economy hasn’t fully recovered yet

41 of 16

2. When times are normal, other things equal, lower inflation=lower interest rates (and vice versa)

0 2 4 6 8

10 12 14 16 18

1960

19

63

1966

19

69

1972

19

75

1978

19

81

1984

19

87

1990

19

93

1996

19

99

2002

20

05

2008

20

11

2014

Interest rates and inflation, 1960-present

BAA Corporate rate 30-yr. Mortgage rate 10-year Treasury yield Federal funds rate Inflation (PCE)

High inflation

years

Low inflation

years Low

inflation years

42 of 16

So low interest rates limit our ability to respond to and offset recessions (more room to lower rates)

This mattered A LOT in the recent recession Hence our use of “non-traditional” policies

0

1

2

3

4

5

6

1 2 3 4 5 6 7 8 9 10

Starting interest rates at different rates of inflation

Inflation=3% Inflation = 2% Inflation = 1%

Recession hits

43 of 16

3. Too close to deflation? Deflation increases incentive to save/postpone consumption Can be both a symptom of and a contributor to a very weak

economy

4. Wage adjustments during recessions are more difficult Historically, workers do not like outright wage cuts But have accepted slower wage growth, especially slower

than inflation Harder to do if prevailing inflation is very low or negative

44 of 16

NOT a restrictive monetary policy Going from a hugely expansionary policy to a highly

expansionary policy

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

0 1 2 3 4 5 6 7 8 9

Fed balance sheet ($ trillions) 30-year mortgage rate 10-year Treasury rate Federal funds rate

45 of 16

Recovery still in train Some recent weak data makes me cautious, but still

optimistic

Inflation is lower than desired

We discussed why anyone might want higher inflation!

“Lift-off ” does not mean restrictive monetary policy

46 of 16

Deborah Weymouth President & CEO

HealthAlliance Hospital

Health Care in our Community

Deborah Weymouth HealthAlliance Hospital

About HealthAlliance HealthAlliance Hospital is a not-for-profit, full service, acute care hospital

that serves the communities in North Central Massachusetts and Southern New Hampshire. As a member of UMass Memorial Health Care, HealthAlliance Hospital offers you direct access to the advanced medical technology and specialty services that are part of the region’s academic medical center.

The HealthAlliance system includes: • 122-bed community hospital with services on two campuses in Leominster

and Fitchburg • More than 1,300 Employees • Over 250 Physicians • Providing 40+ Health Care Specialties • 200 Volunteers

“Delivering confidence and compassion in every health care experience”

Questions??

11th Largest Employer in

Worcester Co.

Why Did We Need Reform?

Cost Quality

17.9% of GDP

Summary of Health Care Reform “Federal health reform — the Affordable Care Act (ACA) — became law in

March 2010, and the implementation is reshaping the American health care system.”

Trends to Watch…… • Value-Based Purchasing Models • Health Insurance Reform • Integrated Systems of Care • Health Insurance Exchanges • Medicaid Expansion and Flexibility • Information Technology

Reform Implications

“Volume” to “Value” • Bundled Payments for Episodes of Care • Population Health Status Critical • Consumerism Increasing • Quality Transparency Increasing • Patient Engagement in Care • Resources/Payments Decreasing • Risk Shifting to Providers

Care Shifts and Payer Shifts

Care Moving to Outpatient Baby Boomers Dominate

Medicare Impact

IMF Report: Cost of Life Expectancy

Where does my premium dollar GO?

Cost Shifting

Why doesn’t it work now like it used to??

COST DRIVERS

Common Causes Prescription Drugs

Medicare

Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Estimated Impact

Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services; annual reductions rounded. Disproportionate Share Hospital.

1)Medicare Payment Cuts Continue

($4B)

($14B) ($21B)

($25B) ($32B)

($42B)

($53B)

($64B)

($75B)

($86B)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

ACA’s Medicare Fee-for-Service Payment Cuts Reductions to Annual Payment Rate Increases1

$415B in total fee-for-service cuts, 2013-2022

$260B Hospital payment

rate cuts, 2013-2022

$56B Reduced Medicare and

Medicaid DSH2 payments, 2013-2022

$151B Reduced Medicare payments

due to sequestration and 2013 budget bill

61

Current Financial Results

Pay for PERFORMANCE

Value Based Purchasing: Demand Side Strategy Safety 20%

Efficiency 25% Patient Experience 25%

Outcomes 25% Process 5%

65 89 95 98

2010 2011 2012 2013

Mergers/Acquisitions Continue to Rise

Source: AHA Hospital Fast Facts, il bl t h GE C it l

Mergers and Acquisition

September 2013.

Hospital Mergers and Acquisitions

M&A Plans for the Next 12 Months1

Number of Hospitals Part of a Health System

2000-2012

2000 2003 2006 2009 2012

2542 2626 2775

2921 3100

88%

12%

n=189

No M&A Activity Planned

Planning to Pursue M&A Within the Next

12 Months

63

Will Employers Maintain Coverage, and How?

Employers

Source: Health Care Advisory Board interviews and analysis.

1)Traditional Employer Coverage Eroding

“Activation” “Abdication”

Convert to Self-Funding

Pros:

• Close control over network design

• Exemption from minimum benefits requirements

Cons:

• Greater financial risk

• Network assembly challenging

Shift to Private Exchange

Pros:

• Responsiveness to employee preference

• Predictable, defined contributions

Cons:

• Disruption to benefit design

• Risk employees may underinsure

Spectrum of Options for Controlling Health Benefits Expense

Drop Coverage

Pros:

• Escape from cycle of rising premium costs

Cons:

• Employer mandate penalty

• Labor market disadvantage

64

Employers

Source: Herring B and Lentz LK: “What Can We Expect from the ‘Cadillac Tax’ in 2018 and Beyond?” Inquiry, 48(4):322-37;

Full-time equivalents.

1)Employers’ Alternatives to Providing Coverage

Average Cost of 2014 Employer-Sponsored Insurance

$5,884

$16,351

Single Family

Penalty per employee for failing to provide

qualifying health coverage

$2,000

Several Strategies to Avoid ACA Mandate Penalties…

Cut jobs to remain under 50 FTEs1

Convert full-time employees to part-time status

Hire all new employees at part-time status

Split into smaller companies with fewer than 50 FTEs

…Though Some May Consider Penalty a More Economical Option

65

Commercial Payers

Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and Benefit Design in the

1)Public Exchange Participants Choosing High Deductibles

Annual Deductibles of Individual Plans Selected on eHealth

13%

3%

11%

5%

30%

39% $6,000+

$3,000-$5,999

$2,000-$2,999

$1,000-$1,999

$500-$999 < $500

October 2013 – March 2014

66

A Growing Network of Immediate Access Choices

Markets Responding to Unmet Needs

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.

Primary Care Network

Traditional Access Points

Consumer-Oriented Access

Points Retail Clinic

Urgent Care Center

Virtual Visit

Primary Care Office

Low Acuity High Acuity Emergency Department

Consumer-Oriented Service Delivery Sites Filling the Gap

Driving Provider Questions: • Should we partner to establish retail clinics?

• Should we build or expand our urgent care footprint?

• Is virtual care something that we should provide?

• When should we enter into partnerships to meet patient demands?

67

Access Strategy for the Future

Unprecedented Competition

Primary Care for 130 Million

Increasingly Sophisticated

Vision Exam App

ZocDOC

Provide Alternatives and Create Capacity Urgent Care: -Convenient -Lower Cost vs. ED -High Quality Opened Jan. 5th http://www.urgentcareleominster.com/

Partnership including: HealthAlliance Hospital Heywood Health Care Community Health Connections Joint Coalition on Health Montachusett Public Health Network GOAL: Provide information and analyses relative to health status, issues, concerns and assets of North Central MA

Community Health Needs Assessment

•14 Focus Groups •17 Community Partners •21 Interviews with Key informants •Other Sources: MassCHIP, MPHN Community Assessment, Athol Community Assessment, North Quabbin Community Assessment, Ma Health Aging Report, Ma Dept of Edu, Ma Dept. of Workforce Dev., Ma Dept of Corrections, CDC Behavioral Risk Factor Surveillance System, US Census/American Community Survey

•Facilitator: Joanne Calista, Central MA AHEC, Inc.

Quantitative Data: Sources

• The Study Area population is generally older than that of the Commonwealth

which is a change from the last assessment. Our area reports 52% are older than 50 years of age compared to 33.5% in the State

• Unemployment rates have dropped similar to the Commonwealth (8.9%)

with the exception of Orange which is still high at 10.6% • The % of families living below 100% of poverty level in the State is 14.9%

while Gardner, Shirley, Royalston and Fitchburg all reported above 24%.

• According to 2014 HUD data, there were 158 individuals experiencing homelessness in our Study Area and majority were adults and 33% were under the age of 18

• Latinos largest racial/ethnic minority group in the study area, more than

twice the state percentage

Socio-Demographic Data

Our Region is HIGHER than the State Averages in… Suicide Mortality Rates Behavioral Health Hospitalizations Alcohol/Substance Abuse Rates Mortality Rates Diabetes Obesity Tobacco Use in Women Lung Cancer Mortality Cerebro-vasular Disease Rates Chronic Liver Disease Mortality Our Region is on PAR with the State Averages in…. Tobacco Use in Men High Blood Pressure Cancer Mortality Our Region is LOWER than the State Averages in…. Breast Cancer Mortality

Key Findings

Common Themes

• Substance Use and lack of treatment – Includes drugs, alcohol and tobacco use

• Mental Health –inadequate treatment resources

• Transportation • Cost of Health Care (copays/insurance limits) • Obesity – cost of healthy food • Shortage of clinicians/primary care/specialists

HealthAlliance Behavior Health Population Diagnosis Group # Visits # Patients

Alcohol and Drug Induced Psychoses 32 30 Dementia 1 1 Intellectual Disabilities 21 13 Mental Disorders Diagnosed in Childhood 166 136 Mood Disorders 584 449 Neuroses 320 278 Organic Psychotic Conditions 36 33 Other Non-Organic Psychoses 157 133 Other Nonpsychotic Mental Disorders 699 547 Paranoid States 51 46 Personality Disorders 29 23 Psychosexual Disorders 2 2 Psychotic Disorder 9 9 Pyschoses Associated with Childhood 21 17 Schizophrenia 146 83 Substance Use Disorders 714 517 Grand Totals 2988 2317

The data is based on patients with a coded Primary Dx in one of the above Dx groups from Jan 1, 2014 through Nov 30, 2014 The shape represents the SA category + pts with-drawning from alcohol and/or drugs

CHART II Investment in HealthAlliance Health Policy Commission

• 25 Single & Joint Awards were distributed amongst 28 Community Hospitals

• HealthAlliance received $3.8 million – Second Highest Single Hospital

Award

• Combined with the joint award between Heywood, Athol & HealthAlliance our region received $6 million investment for our Behavioral Health Patients

CHART Phase II – AIM Statement & Primary Drivers

The CHART Phase II Initiatives will reduce ED revisits and ED LOS, for patients with a Primary

and/or Secondary Behavioral Health (BH) diagnosis, by

15% and 31% respectively by the end of the 2-year period

of performance.

Improve the quality and efficiency of care provided to BH patients

presenting to HealthAlliance Hospital

Provide integrated, collaborative, holistic care to BH patients across all

care settings

Leverage technology to simplify administrative complexity and support

across settings of care

P1

P2

P3

We are all in this together…

Deborah Weymouth 978.466.2000

yhc@healthalliance.com

Questions