Healthcare Industry
Update
The Seven Signs That
Convergence Is Coming
Carolinas HealthCare System
2013 HealthCare CPE Event – Reshaping Healthcare
November 1, 2013
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm
of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 127142
FOR INTERNAL USE ONLY
1
Who Is KPMG?
 K stands for Klynveld. Piet Klynveld founded the accounting firm Klynveld Kraayenhof & Co. in
Amsterdam in 1917.
 P is for Peat. William Barclay Peat founded the accounting firm William Barclay Peat & Co. in London in
1870.
 M stands for Marwick. James Marwick founded the accounting firm Marwick, Mitchell & Co. with Roger
Mitchell in New York City in 1897.
 G is for Goerdeler. Dr. Reinhard Goerdeler was for many years chairman of Deutsche TreuhandGesellschaft and later chairman of KPMG. He is credited with laying much of the groundwork for the
KMG merger.
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm
of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 127142
FOR INTERNAL USE ONLY
2
Current Perspectives on Healthcare Reform and Market Transformation
Our view is that there is an ongoing transformation of the healthcare industry –
particularly on a local market basis in anticipation of new economic models for
financing healthcare and despite the uncertainties at the Federal and State levels.
The Four Imperatives Remain The Same
 The need to be agile around cost structures
 The need for greater size and scale
 The need for strong governance and greater transparency around quality and pricing
 The need to continue to be vigilant around compliance
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
3
Future sustainability of entitlement programs
Year
2011
2010
2009
2008
2007
Revenues
$755.30
$730.9B
$690.5B
$650.0B
$610.0B
Profit
$53.20
$52.9B
$34.4B
$17.0B
$27.8B
Profit
Margin
7.0%
7.2%
5.0%
2.6%
4.60%
Uncompensated
Care
$41.1B
$39.3B
$39.1B
$36.4B
$34.0B
Percent of
Expenses
6.0%
5.8%
6.0%
5.8%
5.8%
Source: American Hospital Association, all U.S. Hospitals
Source: AHA Town Hall Webcast, January 15, 2013
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
4
Distinguishing T from C
Today’s transformation is inward looking
– assembling the component parts,
experimenting with new payment
models, monitoring employer and
consumer trends and understanding the
role of new entrants.
Tomorrow’s transformation will be
defined by collaborating with others,
coordinating care across the
continuum and developing extended
operating models, which we call
Convergence.
 Health plan, physician, or health system-led
integrated delivery models through mergers
and acquisitions, joint ventures, management
agreements, etc.
 The next stage in the evolution of the
healthcare industry reflects a convergence of
interests among providers, payers, and life
science companies
 Alternative payment models coupled with
increasing employer and consumer
engagement
 Utilizing advanced analytics, enabled by new
technologies to change the practice of
medicine and the business of healthcare
 Emerging role of private equity, retail health,
life sciences companies, etc.
 Convergence is currently expressing itself
through data and analytics collaboratives,
innovative public private partnerships, and
previously siloed stakeholder groups working
together in new ways.
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
5
New Models Are Emerging Every Day
Convergence of roles, responsibilities and relationships drive new business models.
“[Our] promise will really come to fruition when other great groups, large academic medical practices, research universities, biotech, pharma and device companies,
other insurers and health policy groups, all come together and help us use informatics to pull out the data here that will really define value… the potential is almost
limitless and really should change the way we design healthcare systems in the future.” – Dr. John Noseworthy, CEO Mayo Clinic, April 2013
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
6
The Seven Signs Convergence Is Coming
 Volume declines and new metrics
 Reimbursement reductions coming online
 Health insurance exchanges coming online
 Strong signals from private payers
 Faint but increasing signals from public payers
 Frequent questions by health systems on whether to build or buy a health plan
 Governance questions on the linkage of strategy and risk
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
7
The Key Elements Of An Effective Risk Management Program
Source: Expectations of Risk Management Outpacing Capabilities, KPMG International, 2013.
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26118NSS
8
Levels of Risk in an Organization
Enterprise Risks are key / top risks of the enterprise and risk
information supports:
Strategic plan initiatives and objectives
Enterprise Level
Decisions regarding solvency, capital allocation and business
initiatives
Management and Board Monitoring
Next level of risks is more detailed or specific risks but mapped and
linked to top enterprise risks
Risk detail helps business focus on risks, gaps, mitigation and
action plans to remediate
Department, Functional or
Business Unit Level
Internal Audit Plan is developed from risk information at this
level
Process level risks are very granular and detailed and may be
identified as part of the following:
SOX, Privacy, Compliance, etc
Understanding operational risks in the process, or application
level.
Process Level
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26118NSS
9
The Risks Around Convergence At The Enterprise Level

Acknowledging continuing margin compression in the cost shift

Evaluating the opportunity to disrupt or the risk of being disrupted given the velocity of local market
changes, including physician and other provider alignment

Preparing for revenue transformation as new revenue streams emerge around public and private
exchanges, narrow networks, and other value-based arrangements

Monitoring employer and consumer attitudes/acceptance

Evaluating “make or buy” decisions on the necessary tools, technology, and talent

Becoming agile around cost structures given declining volumes coupled with clinical transformation

Conducting scenario planning, predictive modeling, and war gaming around market transformation and
the impact on financial performance

Assuring the integrity of clinical reporting and developing new metrics for the transition from volume to
value

Converting unstructured data into information for decision making to enable clinical, operational and
financial benchmarking across the continuum of care along with real-time predictive clinical surveillance
systems

Managing increasingly complex compliance regimes and enhancing transparency in reporting
© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26690NSS
10
Discussion
Presenter information
Ed Giniat
National Sector Leader – Healthcare & Life Sciences
312-665-2073
eginiat@kpmg.com
For more information, visit the KPMG Healthcare & Pharma Institute
@ http://www.kpmghealthcarepharmainstitute.com
The information contained herein is of general nature and is not
intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a
thorough examination of the particular situation.
© 2013 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 26118NSS
The KPMG name, logo and “cutting through complexity” are
registered trademarks or trademarks of KPMG International.