Health Care Advisory Board
The Emerging Era of Choice
Restructuring Health System Strategy for the Retail Revolution
6
An Industry Built on a House of Cards
“Cord Cutters” and “Cord Nevers” Giving Up Broad Networks
6.5%
18.1%
U.S. Households
With Internet
But No Cable, 2013
U.S. Adults Age 18-34
With Netflix or Hulu
But No Cable, 2013
©2014 The Advisory Board Company • advisory.com • 28603A
Paying for More Than You Use
“This is the battle hymn of the cord cutter: You
are paying too much for television, and you
aren’t watching most of what you’re paying for.”
Farhad Manjoo, The New York Times
Source: Experian Marketing Services, “Cross-Device Video Analysis,” April 17, 2014, available at: www.experian.com; Manjoo F, “Comcast vs. the
Cord Cutters,” The New York Times, February 15, 2014, available at: www.nytimes.com; Health Care Advisory Board interviews and analysis.
7
Revisiting a Tenuous Business Model
Most Hospitals Staying Afloat Through Cross-Subsidization
Traditional Hospital Cross-Subsidy
Commercial Insurance
Public Payers
• Above-cost pricing
• Steady price growth
• Robust fee-for-service
volume growth
• Only one component of
our total business
Above Cost
Below Cost
149%
86%
Hospital Payment-to-Cost
Ratio, Private Payer, 2012
Hospital Payment-to-Cost
Ratio, Medicare, 2012
©2014 The Advisory Board Company • advisory.com • 28603A
Source: American Hospital Association, “Trendwatch Chartbook
2014,” available at: www.aha.org; Health Care Advisory Board
interviews and analysis.
8
Cross-Subsidy Depends on Inefficient Markets
Entrenched Payers, Insulated Patients Unlikely to Upset Status Quo
Assumptions Underlying Provider Growth Strategy
Entrenched Payer
Established Provider
Price-Insulated Patient
• High employer switching
costs impede competition
• Commercial pricing
growth steady
• Open access to broad
provider network standard
• Handful of broad networks
satisfy majority of passive
employers
• Network inclusion
likely for most plans
• Modest cost-sharing
obscures true prices
• Patient volume
depends largely on
referral patterns
• Physician recommendation
dominates point-of-care
decisionmaking
• Excess cost growth easily
passed on to employers
through premium increases
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
9
The Retail Revolution
Four Years Post-Reform, New Paradigm Finally Becoming Clear
Major Themes Reshaping Provider Strategy
1
Medicare Reforms and
the Transition to Risk
2
Coverage Expansion and the Rise
of Individual Insurance
3
Activist Employers and
the Primacy of Value
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
10
Medicare Reforms and the Transition to Risk
Public-Payer Reimbursement Still in the Crosshairs
Medicare Payment Cuts Becoming the Norm
ACA’s Medicare Fee-for-Service Payment Cuts
Reductions to Annual Payment Rate
2013
2014
2015
2016
2017
Not the End of the Story
Increases1
2018
2019
2020
2021
2022
($4B)
($14B)
($21B) ($25B)
($32B)
($42B)
($53B)
($64B)
($75B)
($86B)
$260B
Hospital payment
rate cuts,
2013-2022
$56B
$151B
Reduced Medicare
and Medicaid DSH2
payments, 2013-2022
1) Includes hospital, skilled nursing facility, hospice, and
home health services; excludes physician services.
2) Disproportionate Share Hospital.
©2014 The Advisory Board Company • advisory.com • 28603A
Reduced Medicare
payments due to
sequestration and
2013 budget bill
“Notwithstanding
recent favorable
developments…
Medicare still
faces a substantial
financial shortfall
that will need to be
addressed with
further legislation”
Office of the
Actuary, CMS
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 of Automatic Budget Enforcement Procedures Specified in the Budget Control Act,” September 12, 2011; CBO,
“Bipartisan Budget Act of 2013,” December 11, 2013, all available at: www.cbo.gov; Health Care Advisory Board interviews and analysis.
11
Steady Shift Toward Risk-Based Payment
More Mandatory Risk On the Horizon
Medicare Value-Based Purchasing Program
Performance Criteria
Other Mandatory Risk Programs
Hospital-Acquired
Condition
Penalties
Weight in Total Performance Score
20%
45%
70%
10%
Clinical Process
25%
Patient Experience
Readmission
Penalties
30%
30%
40%
Outcomes of Care
Efficiency
30%
30%
25%
20%
25%
FY 2013
FY 2014
FY 2015
FY 2016
No Trivial Thing
6%
1) Includes Value-Based Purchasing Program, Hospital Readmissions
Reduction Program, and Hospital-Acquired Conditions Program.
©2014 The Advisory Board Company • advisory.com • 28603A
Medicare revenue at
risk from mandatory
pay-for-performance
programs2, FY 2017
Source: The Advisory Board Company, “Mortality Rates Are Only One of Many VBP Changes
to Come,” December 4, 2013, available at: www.advisory.com; CMS, “Request for Information
on Specialty Practitioner Payment Model Opportunities,” February 2014, available at:
www.innovation.coms.gov; Health Care Advisory Board interviews and analysis.
12
More Providers Taking the Hint
Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based Options
Medicare ACO Program Entrants
123
The Broader Picture
375
106
114
32
2012
Pioneer
ACO
Model
2012
MSSP1
Cohorts
2013
MSSP
Cohort
2014
MSSP
Cohort
Total
626
20.5M
Total ACO count,
including commercial
and Medicaid ACOs,
May 2014
Americans enrolled in
or attributed to
Medicare, Medicaid,
or commercial ACOs
46M-52M
Patients treated by ACOs
as of April, 2014
1 in 10
Medicare FFS beneficiaries
attributed to an ACO
1) Medicare Shared Savings Program
©2014 The Advisory Board Company • advisory.com • 28603A
Source: CMS, “More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for
Medicare Beneficiaries,” December 23, 2013; Health Care Advisory Board interviews and analysis.
13
Some Pioneers Changing Course
Performance, Persistence Closely Correlated
7.1%
(max)
Pioneer ACO Performance
Gross Savings as Percentage of Benchmark
1
First-year performance
Second-year performance
Dropped out after program year
-5.6%
(min)
“The model was financially detrimental…despite favorable
underlying utilization and quality performance”
1) Dropped out after second year; second-year performance
not reported
©2014 The Advisory Board Company • advisory.com • 28603A
Alison Fleury, CEO
Sharp HealthCare ACO
Source: Centers for Medicare and Medicaid Services, http://innovation.cms.gov/Files/x/PioneerACO-Fncl-PY1PY2.pdf; “San Diego-Based Sharp
HealthCare Pulls Out of Pioneer ACO Program,” California Healthline, August 28, 2014; Health Care Advisory Board interviews and analysis.
14
Medicare Shared Savings Program a Mixed Bag
Pending Program Updates Crucial for Future Participation
Medicare Shared Savings Program
ACO Performance
Issues to Watch for in Updated
Regulations
First Performance Year
Did Not Hold
Spending
Below
Benchmark
$297M
53
Held Spending
Below Benchmark,
Earned Shared
Savings Payment
115
52
Held Spending
Below Benchmark,
but Did Not Earn
Shared Savings
Shared savings earned by
MSSP ACOs in first
performance year1
Will second-term ACOs
really have to bear
downside risk?
Will benchmarks be
calculated differently?
Will the share of savings
paid to ACOs be higher?
Will beneficiaries be
attributed to ACOs
prospectively?
Will ACOs have any ability to
prevent network leakage?
1) Includes one participant’s $4M repayment of shared losses
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Centers for Medicare and Medicaid Services, “New Affordable Care Act tools and payment models deliver
$372 million in savings, improve care,’ September 16, 2014; Health Care Advisory Board interviews and analysis.
15
Transition to Risk Hardly Stalled
Policymakers and (Some) Providers Angling for Higher-Octane Options
Bill in Brief:
“The ACO Improvement Act”
• Bipartisan bill (H.R. 5558) introduced
by Representatives Diane Black (RTN) and Peter Welch (D-VT)
Key Features
The Bigger Question: What Should
Medicare ACO Programs Be?
Permanent middle grounds between
fee-for-service, capitation?
• ACOs would receive capitated
payments, not shared-savings
adjustments
Adaptive environments involving
progressively more risk?
• Patients would proactively select a
primary care provider rather than be
retroactively attributed
Training grounds for other risk models?
(e.g., Medicare Advantage)
• ACOs could discount primary care
services to encourage network loyalty
©2014 The Advisory Board Company • advisory.com • 28603A
Source: H.R. 5558, http://welch.house.gov/uploads/ACO%20Bill%20Text.pdf;
Health Care Advisory Board interviews and analysis.
16
Medicare Advantage Gaining Momentum
Shift Signals Individualization of the Medicare Market
Projected Medicare Advantage Enrollment
29.5% of Medicare
beneficiaries
Provider Benefits Over Shared
Savings Models
19.0M
Unambiguous incentive for
population health management
Greater provider control over
network integrity
10.4M
Less frequent patient churn
2009
©2014 The Advisory Board Company • advisory.com • 28603A
2020
Source: Jacobson G et al., “Projecting Medicare Advantage Enrollment: Expect the Unexpected?”
Kaiser Family Foundation, June 12, 2013, available at: www.kff.org; Hollander C, “CMS to
Increase Medicare Advantage Pay Rate By 0.4%,” ModernHealthcare, April 7, 2014, available at:
www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
17
Coverage Expansion and the Rise of Individualized Insurance
ACA (and Recovery) Making a Dent in Uninsurance
But Every Silver Lining Has Its Cloud
Percentage of U.S. Adults Without Health Insurance
2013 Q3
18.0%
Insurance
exchanges launch
Medicaid
expansion begins
Employer-sponsored
coverage grows
(highest on
record)
2014 Q3
13.4%
(lowest on
record)
A Bargain Still Unbalanced
$5.7B
Reduction in
uncompensated
care, 2014
©2014 The Advisory Board Company • advisory.com • 28603A
vs.
$14B
ACA-related
reductions in Medicare
fee-for-service
payment, 2014
Source: Gallup, “In U.S., Uninsured Rate Holds at 13.4%,” http://www.gallup.com/poll/178100/uninsured-rate-holds.aspx; Department of Health and
Human Services, “Impact of Insurance Expansion on Hospital Uncompensated Care Costs in 2014,”
http://aspe.hhs.gov/health/reports/2014/UncompensatedCare/ib_UncompensatedCare.pdf; Health Care Advisory Board interviews and analysis.
18
Medicaid Expansion
Medicaid Expansion Contentious—and Consequential
23 States Still Foregoing Expansion
State Participation in Medicaid Expansion
Financial Impact
As of October 2014
“For-profit health
systems…report far better
financial returns through
the first half of the year than
expected, owed in large
part to expanded Medicaid”
PricewaterhouseCoopers
Participating
8M1
Not Currently Participating
5%
Increase in Medicaid,
Average Medicaid
CHIP2 enrollment,
enrollment increase across
October 2013-July 2014 non-expansion states
1) Estimate- does not include CT or ME.
2) Children’s Health Insurance Program.
©2014 The Advisory Board Company • advisory.com • 28603A
2.4%
Advisory Board estimate of impact of
Medicaid expansion on typical hospital’s
10-year operating margin projection
Source: The Advisory Board Company, “Where the States Stand on Medicaid Expansion,” September 4, 2014, available at: www.advisory.com; CMS,
“Medicaid and CHIP: July 2014 Monthly Applications, Eligibility Determinations and Enrollment Report,” September 22 2014; HHS, “Health Insurance
Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; PricewaterhouseCoopers, “Medicaid 2.0: Health System
Haves and Have Nots,” Health Care Advisory Board interviews and analysis.
19
Expanding or Not, States Pushing Medicaid Innovation
Responsibility Migrating to Payers, Providers, Patients
Competing Philosophies on Medicaid Reform
Full Medicaid
Managed Care
E.g., Florida’s Statewide Medicaid
Managed Care Program
Provider-Led Care
Management
Traditional StateRun Program
E.g., Oregon’s “Coordinated
Care Organizations”
Exchange-Based
Privatization
E.g., Arkansas’ “Private
Option”
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
20
Arkansas Turning to Private Market
Exchange-Based Medicaid Drawing Interest, But Broader Uptake Uncertain
Arkansas’s “Private Option”
CMS Wary of Other Modifications
1
Pennsylvania application for
similar waiver denied over
inclusion of work requirements
Arkansas residents eligible for
expanded Medicaid coverage
select plans on exchange
Arkansas proposal to require
individual health savings account
contributions still pending
2
Using federal matching funds,
State pays full cost of silver plan;
beneficiary pays no premium
Program Likely Not Budget-Neutral
3
Beneficiary holds private
insurance; cost sharing based
on existing Medicaid rules
©2014 The Advisory Board Company • advisory.com • 28603A
$778M
Increase in cost of expansion
under exchange system relative
to GAO estimate of cost under
traditional Medicaid
Source: Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” October 8, 2014; Government Accountability
Office, “Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost
Concerns,” August 8, 2014; Health Care Advisory Board interviews and analysis.
21
Insurance Exchanges
One Year In, Insurance Exchanges Generally on Track
Aggregate Numbers in Line With Expectations; Enrollee Mix Older
Initial Public Exchange Enrollment1
2013-2014
3.8M
8.0M
91%
Of enrollees still enrolled
as of September 2014
7.0M
(Original CBO
Projection)
2.1M
exchange
25M Projected
enrollment by 2018
2.2M
October to
December
January to
February
1) Numbers do not add precisely due to rounding.
©2014 The Advisory Board Company • advisory.com • 28603A
March
Total
28%
Enrollees
aged 18-34
Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Cheney K and
Haberkorn J, “Obama: 8 Million Enrolled Under ACA,” Politico, April 17, 2014, available at: www.politico.com; Cheney K and Norman B, “Insurers See
Brighter Obamacare Skies,” Politico, April 15, 2014, available at: www.politico.com; Health Care Advisory Board interviews and analysis.
22
Individuals Gravitating Toward Leaner Plans
Premium Sensitivity Manifest at Two Levels
Level 1: Choice of Metal Tier
Level 2: Plan Choice Within Metal Tier
Gold
Platinum
5%
9%
2% Catastrophic
All Metal Levels1
Any Other
Plan
65%
20%
36%
Bronze
LowestCost Plan
43%
21%
Silver
Second-Lowest-Cost Plan
Factors Influencing Metal Level
Premium Levers Beyond Benefit Design
Deductible
Non-Essential
Services Covered
Scope of Non-Essential Benefits
Copays
Network Composition
Negotiated Payment Rates to Providers
Out-of-Pocket
Maximum
Negotiated Rates
Utilization Patterns, Trends
1) Data from federally-facilitated exchanges only.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial
Annual Open Enrollment Period,” May 1, 2014; Health Care Advisory Board interviews and
analysis.
23
High Deductibles Dominating Exchange Markets
Aggressive Cost Sharing Potentially Troublesome for Provider Strategy
Individual Deductibles Offered On
Public Exchanges
2014
$2,500 $6,250
Median
Challenges for Providers
High out-of-pocket
costs discourage
appropriate utilization
Maximum
Individual Deductibles Chosen on
eHealth Individual Marketplace
<$1,000
Large patient obligations
lead to more bad debt,
charity care
16%
39%
$1,000$2,999 16%
$6,000+
Price-sensitive patients
more likely to seek lowercost options
30%
$3,000-$5,999
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and
Benefit Design in the New Health Insurance Marketplaces,” May 2014; eHealth, “Health Insurance Price Index
Report for Open Enrollment and Q1 2014,” May 2014; Health Care Advisory Board interviews and analysis.
24
Premium Sensitivity Supporting Narrow Networks
Payers Betting Individual Consumers Value Affordability Over Broad Choice
Average Percent of PPO Network Specialists
Included in Exchange Plan Networks1
Breadth of Hospital Networks in
Exchange Plans
Anthem BlueCross BlueShield, 2014
20 Urban Markets, December 2013
100% PPO Network Breadth
Broad
30%
38%
“Narrow”
62%
59%
59%
48%
“Ultra-Narrow”
32%
Exclude 30% of
20 largest hospitals
Exclude 70% of
20 largest hospitals
OB/GYNs Orthopedists Oncologists Cardiologists
26%
Median premium reduction directly
attributable to network narrowing2
1) “Pathway X” bronze plans compared to leading PPO plan offering across nine states.
2) Comparing products by the same carrier of the same tier, across 7 carriers.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Gottleib S, “Hard Data On Trouble You’ll Have Finding Doctors in Obamacare,” Forbes, March 8, 2014,
available at: www.forbes.com; McKinsey & Company, “Hospital Networks: Configurations on the Exchange and
Their Impact on Premiums,” December 2013; Health Care Advisory Board interviews and analysis.
25
Proper Risk Pricing Still Essential
Is It Worth Winning Share With Unsustainable Premiums?
Low Premiums Moving the Market…
…but Perhaps Not the Right One
2013:
2014:
• PreferredOne offers
lowest Silver plan
premium in country;
• wins massive market
share on Minnesota
exchange (MNsure)
2%
58%
Market share
in 20121
Market share
in 2014
• PreferredOne exits exchange
• Will still offer individual
coverage through other
successful channels with
different risk profile
“Continuing to provide this
coverage through MNsure
is not sustainable.”
Marcus Merz
CEO, PreferredOne
1) Pre-exchange individual market
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Crostby J, “Top Selling Insurer on MNsure Won’t Be Back This Year,” Minneapolis Star
Tribune, September 16, 2014; Health Care Advisory Board interviews and analysis.
26
What Next for the Exchanges?
Increased Insurer Participation Driving Competition
Robust Marketplaces Beginning to Develop
Issuers Offering Qualified Health Plans
248
191
61
67
“We had a very modest
footprint in 2014. We do
have a bias to increase
that participation in
2015. […] The size of
the overall market is
positive.” Gail Boudreaux, EVP
UnitedHealth Group
Federally-Facilitated
Marketplace (36 states)
2014
©2014 The Advisory Board Company • advisory.com • 28603A
State-Based Marketplace
(8 states reporting)
2015
Competition At Work
4%
Estimated reduction in
second-lowest-cost silver
premium of one new issuer
entering market
Source: “UnitedHealth to Expand Exchange Presence as Profits Dip,” ModernHealthcare, April 17, 2014;
Department of Health And Human Services, “Health Insurance Marketplace Will Have 25 Percent More
Issuers in 2015,” September 23, 2014; Health Care Advisory Board interviews and analysis.
27
What to Watch for on the Exchanges
Second Round of Open Enrollment Will Reveal True Dynamics
Trends We’ll Be Watching:
1
Enrollment:
• Are the technical glitches really fixed?
• Will higher individual mandate penalties change anyone’s mind?
• Will the young and healthy turn out in force?
2
3
©2014 The Advisory Board Company • advisory.com • 28603A
Choice and Mobility:
•
How will automatic reenrollment affect consumer behavior?
•
Will last year’s bargain hunters regret choosing high deductibles
and narrow networks?
•
Can plans that raise premiums maintain market share?
Market Reaction:
•
How aggressively will providers court the newly insured?
•
Will employers dump workers onto the exchanges?
28
Activist Employers and the Primacy of Value
Employer-Sponsored Insurance at a Crossroads
Will Employers Maintain Coverage, and How?
Spectrum of Options for Controlling Health Benefits Expense
“Abdication”
Drop Coverage
“Activation”
Shift to Private Exchange
Convert to Self-Funding
Pros:
Pros:
Pros:
• Escape from cycle of
rising premium costs
• Responsiveness to
employee preference
• Close control over
network design
Cons:
• Predictable, defined
contributions
• Exemption from
minimum benefits
requirements
• Employer mandate
penalty
• Labor market
disadvantage
©2014 The Advisory Board Company • advisory.com • 28603A
Cons:
• Disruption to benefit
design
Cons:
• Risk employees may
underinsure
• Network assembly
challenging
• Greater financial risk
Source: Health Care Advisory Board interviews and analysis.
29
Huge Growth Forecast for Private Exchanges
Low-Wage Employers Most Active Today, but Skilled Industries in the Wings
Potential Growth Path for Private Exchange Enrollment
40M
30M
172
19M
Private exchange
operators as of
October, 2014
9M
3M
2014
2015
2016
2017
2018
Prominent Employers Using Private Exchanges
For Active Employees:
©2014 The Advisory Board Company • advisory.com • 28603A
For Retirees:
(Medicare Advantage, Medigap plans)
Source: Accenture, “Are You Ready? Private Health Insurance Exchanges are Looming;”
privatehealthexchange.com; Health Care Advisory Board interviews and analysis.
30
Beyond the Buzzword
Understanding Why Private Exchanges Matter
Crucial Differences Between Private Exchanges, Traditional Group Markets
In the group market,
On a private exchange,
Changes in network or carrier may
require employer-level decisions
Individuals can switch networks,
insurance carriers on their own
Provider networks must be broad
enough to serve entire workforce
Narrow networks can appeal to
specific employee segments
Defined benefit plans insulate
employees from differences in cost
©2014 The Advisory Board Company • advisory.com • 28603A
Defined contribution plans expose
employees to cost differences
Source: Health Care Advisory Board interviews and analysis.
31
Self-Funded Strategies Steadily Gaining Ground
Small Employers Also Beginning to Show Interest
Percentage of Covered Workers in
Self-Funded Plans
ACA Benefits Standards Avoidable
Through Self-Funding
70%
65%
59%
60%
54%
55%
50%
61%
Essential Health
Benefits
Guaranteed Issue
and Renewability
Modified
Community Rating
Medical Loss Ratio
Requirements
49%
45%
40%
2000
26%
2005
2010
2014
of small employers’1 brokers
have discussed with them the
possibility of self-insurance
1) 3 to 50 FTEs.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Gabel JR et al., “Small Employer Perspectives On The Affordable
Care Act’s Premiums, SHOP Exchanges, And Self-Insurance,” Health Affairs,
32(11): 2032-39; Health Care Advisory Board interviews and analysis.
32
Hands-On Network Management Increasingly Feasible
Custom Network Builders Offering Local Solutions
IHS1 “Custom Provider Network” Solution
“Working with the TPA
and employer, we
replace the ‘one size
fits all’ network with a
cost-effective
customized network
created around the
needs of your
business and your
employees.”
Innovative Healthware
Services
©2014 The Advisory Board Company • advisory.com • 28603A
Self-funded employer submits list of
physicians, hospitals, and ancillary care
IHS negotiates cost-effective provider
agreements using Medicare-based pricing
IHS continually evaluates network providers
to “ensure competitive price contracts”
Case in Brief:
Innovative Healthware Services
• Private company based in Arnold, Maryland
that markets software solutions for PPOs,
TPAs, providers, and payers
• “Custom Provider Network” limits a self-funded
employer’s network to selected list of hospitals,
physicians, and ancillary care
Source: Innovative Healthware Services, Inc., Arnold, MD; Health Care
Advisory Board interviews and analysis.
33
Aggregators Pooling Employers, Providers
Exporting Walmart’s Centers of Excellence Program
“It would be prohibitive for a
small employer…When you
spread the administrative
costs over a number of
employers, it becomes more
Bruce Sherman
attractive.”
Case in Brief: Health Design Plus
• Third-party administrator based in
Hudson, Ohio that creates Centers of
Excellence (COE) programs for selffunded employers
• Assembled Walmart’s centers of
excellence bundled payment network
Two New Employer Coalition Partnerships
Pacific Business Group
on Health
(San Francisco,
California)
• 60 large employer
members
Medical Director,
Employers Health Coalition
Employers Health Coalition
(Canton, Ohio)
• Employees in all 50 states
• 300+ employer members with
employees in all 50 states
• 10M covered lives
• 3M covered lives
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Walmart, “Walmart, Lowe’s And Pacific Business Group On Health Announce A First Of Its Kind National
Employers Centers Of Excellence Network,” October 8, 2013; Health Design Plus, “Health Design Plus & Employers Health
Announce National Centers of Excellence Initiative,” June 11, 2013; Chen C, “Providers Using Bundled Payments, Quality
to Entice Employers,” Health Data Management, March 11, 2014,; Health Care Advisory Board interviews and analysis.
34
Some Providers Taking Lead in Network Assembly
Intel-Presbyterian Partnership
5,400
Narrowing of Health Plan Options
Intel reducing number of health plan
options from 8 to 4; two remaining plans
are narrow networks of PHS1 providers
Shared Accountability
Upside and downside risk for health care
spending compared to projected target
Infrastructure for Care Management
Conversion of Intel’s on-site clinic into full
service patient-centered medical home
©2014 The Advisory Board Company • advisory.com • 28603A
Projected savings,
2013-2017
Case in Brief: Intel Corporation
• Large multinational employer
headquartered in Santa Clara, California
Customized Care Offerings
Addition of depression screening into
customary provider workflow
1) Presbyterian Healthcare Services.
$8-10M
Covered lives in
contract
• Entered into narrow-network contract
with Presbyterian Healthcare Services,
an 8-hospital system in New Mexico, for
employees at Rio Rancho plant
Source: Intel Corporation, “Employer-Led Innovation for Healthcare Delivery and Payment Reform: Intel Corporation
and Presbyterian Healthcare Services,” Santa Clara, California; Evans M, “Slimming Options,” Modern Healthcare,
July 13, 2013, available at: www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
35
Providers Must Win Share at Two Points of Sale
Multiple Opportunities to Appeal to Decision-Makers
Decision Processes Shaping Provider Choice
1
Secure Enrolled Lives
Network Assembly
Being chosen by payers, employers,
exchange operators, custom network
builders, and accountable physician
entities to be offered as a network option
©2014 The Advisory Board Company • advisory.com • 28603A
2
Win Share of Volumes
Network Selection
Being chosen by
individuals during plan
enrollment
Care Decision
Being chosen by patients,
referring physicians at the
point of care
Source: Health Care Advisory Board interviews and analysis.
36
Recognizing New Channels for Growth
Key Decision-Makers in Traditional and New Growth Channels
Secure Enrolled Lives
Win Share of Volumes
Traditional Growth Channels
Entrenched
Payer
Custom Network
Builder
Established
Provider
Relationship-Based
Referring Physician
New Growth Channels
Activated
Employer
Cost-Conscious
Referring Physician
Vulnerable
Payer
Exchange
Operator
Care Delivery
Network
Price-Sensitive
Consumer
Accountable
Physician Entity
Individual
Insurance Shopper
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
37
All Signs Point to a Retail Market
New Dynamics Unfamiliar in Health Care, But Not in Broader Economy
Traditional Market
Retail Market
Passive employer,
price-insulated employee
1
Broad, open networks
2
Growing number of buyers
Activist employer,
price-sensitive individual
Narrow, custom networks
Proliferation of product options
No platform for apples-toapples plan comparison
3
Disruptive for employers
to change benefit options
4
Constant employee
premium contribution,
low deductibles
©2014 The Advisory Board Company • advisory.com • 28603A
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.
38
Redefining the Value Proposition
Delivering Desirable Network Attributes at Low Cost
Four Imperatives for Health Systems
Low Cost
Desirable Network Attributes
Competitive Unit
Prices
Total Cost Control
Geographic Reach
and Clinical Scope
Clinical and Service
Quality
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
• Avoid reactive
position vis-a-vis
price cuts,
transparency
• Develop population
health model to
control cost trend
• Match service
portfolios, footprints
to target purchasers
• Clearly
communicate total
cost advantage to
potential purchasers
• Explore partnership
strategies that
strengthen market
presence
• Present
unimpeachable
clinical credentials to
wholesale buyers
• Radically restructure
cost structures to
sustain lower
unit prices
©2014 The Advisory Board Company • advisory.com • 28603A
• Emphasize access,
experience
advantages to
individual consumers
Source: Health Care Advisory Board interviews and analysis.
39
Redefining the Value Proposition
Delivering Desirable Network Attributes at Low Cost
Four Imperatives for Health Systems
Low Cost
Desirable Network Attributes
Competitive Unit
Prices
Total Cost Control
Geographic Reach
and Clinical Scope
Clinical and Service
Quality
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
• Avoid reactive
position vis-a-vis
price cuts,
transparency
• Develop population
health model to
control cost trend
• Match service
portfolios, footprints
to target purchasers
• Clearly
communicate total
cost advantage to
potential purchasers
• Explore partnership
strategies that
strengthen market
presence
• Present
unimpeachable
clinical credentials to
wholesale buyers
• Radically restructure
cost structures to
sustain lower
unit prices
©2014 The Advisory Board Company • advisory.com • 28603A
• Emphasize access,
experience
advantages to
individual consumers
Source: Health Care Advisory Board interviews and analysis.
40
Low Premiums Shaping More than Network Selection
Care Choices, Network Assembly Dynamics Driven by Premium Pressure
Consequences of Premium Sensitivity
Price Sensitivity at
Point of Care
Premium Sensitivity
at Point of Coverage
Total Cost Scrutiny in
Network Assembly
“Our price is now given by the market. Our
business is changing from cost-based pricing
to price-based costing.”
Health Care Executive
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
41
Price Sensitivity at the Point of Care
Cost-Conscious Behavior Affecting Pillars of Profitability
Consumers Paying More Out-of-Pocket
MRI Price Variation Across
Washington, DC
Fall within HDHP deductible2
$2,183
$18K
Fall within PPO
deductible3
$730
$9K
$411
$6K
$900
$2K
$150 $275 $400
$900
$1K
$1,269
• Price-sensitive shoppers
will be acutely aware
of price variation
• MRI prices range from
$400 to $2,183
1) High-deductible health plan.
2) $2,086; based on KFF report of average HDHP
deductible.
3) $733; based on KFF report of average PPO deductible.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: KFF, “2012 Employer Health Benefits Survey,” available at: www.kff.org; New Choice Health, “New Choice Health
Medical Cost Comparison,” available at: www.newchoicehealth.com; Healthcare Blue Book, “Healthcare Pricing,” available at:
www.healthcarebluebook.com; Kliff S, “How much does an MRI cost? In D.C., anywhere from $400 to $1,861,” Washington
Post, March 13, 2013, available at: www.washingtonpost.com; Health Care Advisory Board interviews and analysis.
42
Walmart Bringing Everyday Low Prices to Health Care
Low-Cost Access Potentially Just the Beginning
Probably Worth Paying Attention
Care Clinic Model
Pricing:
Walmart
$4 For
employees
Walmart
$40 For
customers
Hours:
Weekdays
Saturday
Sunday
8AM-8PM
8AM-5PM 10AM-6PM
Service:
• Two nurse practitioners provider
primary care services on site
• Clinic refers to external
specialists, hospitals as
appropriate
©2014 The Advisory Board Company • advisory.com • 28603A
“Our goal is to be the number
one health-care provider in
the industry.”
Labeed Diab
President of Health & Wellness
Walmart
130M
150M
Annual emergency
department visits
Weekly visits to
Walmart stores
Source: Canales MW, “Wal-Mart Opening Clinic in Cove,” Killeen
Daily Herald, April 18, 2014, available at: www.kdhnews.com; Health
Care Advisory Board interviews and analyais.
43
Broadening Our Concept of Cost Advantage
Network Assemblers Looking at More Than Unit Price
Two Cost-Focused Strategies for Appealing to Network Assemblers
Low Unit Price
Total Cost Control
Price Cut
Trend Control
Improve efficiency to
offer lower fee schedule
Implement care management
to control cost growth trend
Degree of Cost Control
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
44
Creating Cost-Conscious PCPs
CareFirst PCMH Total Cost Incentive Model
Risk-adjusted PMPM1 Cost
PMPM Cost
Target
Actual PMPM
Cost
“Virtual panel” of
10-15 PCPs
Baseline
Year 1
• Not-for-profit health services company serving 3.4 million
members in Maryland, D.C., and northern Virginia
• In 2011, launched PCMH program providing opportunities
for virtual panels of 10-15 PCPs to earn bonuses based on
quality and total cost metrics
• Provides PCPs with color-coded rankings of specialists
based on risk-adjusted PMPM costs
©2014 The Advisory Board Company • advisory.com • 28603A
Panel shares in
savings if riskadjusted PMPM
cost is below target
Year 2
Case in Brief: CareFirst BlueCross BlueShield
1) Per member per month.
Total cost target set
by trending baseline
risk-adjusted PMPM
cost by average
regional cost growth
1M
Members covered
by PCMH program
80%
Eligible PCPs
participating
29%
Average pay
increase for PCPs
receiving bonuses
Source: Overland D, “CareFirst Medical Home Saves More in Second Year,”
FierceHealthPayer, June 7, 2013, available at: www.fiercehealthpayer.com;
Health Care Advisory Board interviews and analysis.
45
Steering Care to Most Efficient Specialists
Total Cost Transparency Key to Referral Changes
Specialists Color-Coded By Total Cost
PCP Virtual Panels
Employed
Specialist A
(Red)
Employed
Specialist B
(Yellow)
Hospital A
Hospital B
Independent
Specialist C
(Green)
27%
Difference in risk-adjusted
PMPM cost between topand bottom-quartile PCPs
66%
Percent of panels earning
bonuses, 2012
$98M
Savings from PCMH
program, 2012
“We’re seeing that [the data]
changes the patterns.
There’s a hubbub among
the panels to see what their
choices are, and what it
Chet Burrell
costs them.”
President & CEO
CareFirst BlueCross BlueShield
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
46
The Value of a Second Opinion
Discerning When Not to Operate
Large Employers and Hospitals Participating in Centers of Excellence Programs
Pepsi Co.
Walmart
In 2013, expanded
Centers of Excellence
program to cover
cardiac, spine, and
hip/knee replacement
surgery
In 2011, offered employees
free cardiac and complex
joint replacement surgery at
Johns Hopkins Medicine
Lowe’s
In 2010, offered employees
free heart surgery at
Cleveland Clinic
30-50%
Of referred patients do
not undergo surgery
©2014 The Advisory Board Company • advisory.com • 28603A
Source: The Advisory Board Company, “Commercial Bundled
Payment Tracker,” October 9, 2013, available at: www.advisory.com;
Health Care Advisory Board interviews and analysis.
47
Making the Case for Care Management Capabilities
Assuring Employers of Ability to Manage Future Costs
Powerful Ways to Signal Care Management Capabilities
Investment in
Data Analytics
Clinical and Claims
Data Integration
Demand for Out-ofNetwork Claims Data
Telehealth Platforms
and Programs
Shows capability to
assess patient risk
and pinpoint
interventions
Illustrates advantage
over traditional
health plan
Shows commitment to
continuously manage
care for attributed
population
Demonstrates ability
to keep low-acuity
cases in most
appropriate care site
“In our market, there is plenty of talk about ‘accountable
care’, but we are differentiating with the organizational
commitment and the infrastructure investment to sustain a
new economic model.”
Chief Marketing Officer
Large Health System
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
48
Promising Total Cost Savings to Employers
Savings Guaranteed Off Of Projected Costs
Baseline spending
projected using
three years’
historical spending
Two Separate Products with
Different Payer Partners
Guaranteed
Savings
Employer
Health
Spending
1
2
Average savings
guaranteed to
employers over
three years
©2014 The Advisory Board Company • advisory.com • 28603A
Blue Priority
(Anthem Blue Cross
and Blue Shield)
Roundy’s Supermarkets, Inc.
was first large employer client
Time
10%
Aetna Whole Health
(Aetna)
Case in Brief: Aurora Health Care
• 15-hospital, not-for-profit health system based in Milwaukee, Wisconsin
• Announced separate narrow network products with Aetna and Anthem
Blue Cross and Blue Shield that offer employers guaranteed savings
over three years
Source: Commins J, “Aurora Health Offers Employers a Savings Guarantee,” HealthLeaders Media, July
30, 2012, available at: www.healthleadersmedia.com; Aurora Health Care, “Roundy’s Offers Employees
Innovative Health Care Plan Through Anthem’s Blue Priority & Aurora Accountable Care Network,” October
24, 2012, available at: www.aurorahealthcare.org; Health Care Advisory Board interviews and analysis.
49
Redefining the Value Proposition
Delivering Desirable Network Attributes at Low Cost
Four Imperatives for Health Systems
Low Cost
Desirable Network Attributes
Competitive Unit
Prices
Total Cost Control
Geographic Reach
and Clinical Scope
Clinical and Service
Quality
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
• Avoid reactive
position vis-a-vis
price cuts,
transparency
• Develop population
health model to
control cost trend
• Match service
portfolios, footprints
to target purchasers
• Clearly
communicate total
cost advantage to
potential purchasers
• Explore partnership
strategies that
strengthen market
presence
• Present
unimpeachable
clinical credentials to
wholesale buyers
• Radically restructure
cost structures to
sustain lower
unit prices
©2014 The Advisory Board Company • advisory.com • 28603A
• Emphasize access,
experience
advantages to
individual consumers
Source: Health Care Advisory Board interviews and analysis.
50
Which Would You Choose?
Broad Geographic Reach…
…or Deep Clinical Scope?
Network in Brief: Crescent Health1
Network in Brief: Silica Healthcare1
• National hospital provider with hospital
campuses across the country
• 6-hospital system in the Midwest with
employed physician network
• Despite broad geography, limited
clinical depth at local level
• Care sites concentrated in roughly half
of single metropolitan area
1) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
51
Full Care Continuum Important for Payer Partners
Four Reasons PinnacleHealth System Selected for Risk-Based Product
Sample Clinical Services
Primary Care
Favorable Pricing
Structure
Comprehensive
Clinical Scope
Pediatric Care
Imaging
Cardiovascular Care
Orthopedics
Broad Provider
Geographic Footprint
6-12 Months’ Experience
Under Performance Incentives
Physical Therapy and Rehab
Inpatient Care
Case in Brief: CareConnect Point of Service
• Accountable care narrow network plan for mid-sized employers, created around
PinnacleHealth System and offered by Capital BlueCross in central Pennsylvania
• Network is open for specialty and inpatient care but narrowed to PinnacleHealth
System’s PCPs for primary care
• Will be expanded to individual market in 2015
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
52
Combining Geographies to Match Purchaser Footprint
Addressing Individual Limits in Geographic Reach
Partnering to Expand Geographic Reach
Cincinnati-based
employers have
employees living on
both sides of river
Network in Brief:
Healthcare Solutions
Network
TriHealth
Ohio
Kentucky
St. Elizabeth
Healthcare
Neither Organization Able to Offer
Adequate Geographic Coverage Alone
©2014 The Advisory Board Company • advisory.com • 28603A
• Joint venture collaboration
between Cincinnati, Ohiobased TriHealth and
Edgewood, Kentuckybased St. Elizabeth
Healthcare
• Offers health insurers
access to a unified, highquality, low-cost network
that covers the entire
Tristate region
• Both organizations offering
the network to their current
employees and dependents
Source: Health Care Advisory Board interviews and analysis.
53
Geographic and Clinical Demands Intertwined
National and Hyper-Local Competition Reshaping Notions of Sufficiency
Purchasers’ Geographic Preferences for Clinical Services
Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel
Potential
Differentiators
• Alternative access points
(e.g. retail, urgent care)
• Disease management,
care navigation
• Transplants
• E-visits, remote
monitoring
• Digestive health
• Women’s midlife
• Complex cardiac (e.g.
TAVR1)
• Home health
• Sports medicine
• Clinical trials
• Midwifery
• Primary care
• Pediatrics
Core
Services
• Neurosurgery
• Emergency • Routine
orthopedics
• Dialysis
• Imaging
• Rehab
• SNF
• Ambulatory surgery
• Stroke
• Radiation therapy
• Cardiology
• Pediatric
specialty
• Medical oncology
• OB/Gyn
Neighborhood
Conveniences
• Cardiac surgery
• Technologyintensive procedures
• Oncology
Local
Offerings
Regional/National
Destinations
1) Transcatheter Aortic Valve Replacement.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
54
Redefining the Value Proposition
Delivering Desirable Network Attributes at Low Cost
Four Imperatives for Health Systems
Low Cost
Desirable Network Attributes
Competitive Unit
Prices
Total Cost Control
Geographic Reach
and Clinical Scope
Clinical and Service
Quality
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
Strategic Imperatives:
• Avoid reactive
position vis-a-vis
price cuts,
transparency
• Develop population
health model to
control cost trend
• Match service
portfolios, footprints
to target purchasers
• Clearly
communicate total
cost advantage to
potential purchasers
• Explore partnership
strategies that
strengthen market
presence
• Present
unimpeachable
clinical credentials to
wholesale buyers
• Radically restructure
cost structures to
sustain lower
unit prices
©2014 The Advisory Board Company • advisory.com • 28603A
• Emphasize access,
experience
advantages to
individual consumers
Source: Health Care Advisory Board interviews and analysis.
55
“Quality” Means Different Things for Different People
Quality Demands of Network Assemblers and Individuals
Network Assemblers
Individuals
Network Selection
Facility-level clinical
process, outcome
measures
©2014 The Advisory Board Company • advisory.com • 28603A
Network-level
quality, access,
service ratings
Care Decision
Actual ease of
access, care
experience
Source: Health Care Advisory Board interviews and analysis.
56
Custom Network Builders Scrutinizing Performance
Steering Care Toward High-Quality Providers
Provider Evaluation Process at Imagine Health
National Top Quartile
Clinical Performance
Step 1: Evaluation
of Clinical
Performance Data 1
Case in Brief:
Imagine Health
• Company based in
Cottonwood Heights,
Utah that builds custom,
high-performance
provider networks for
self-funded employers
• Selects participating
provider systems using
clinical performance data
and an RFP process
Step 2: RFP
Evaluation of
Additional Factors
Per capita
cost of care
Efficiency of
care utilization
Care experience
programs
• Steers volumes to innetwork providers
through benefit design
and employee education
1) Sample metrics include mortality rate,
complication rate, and readmissions rate.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
57
Providers Must Also Deliver on Ease of Access
Winning Contracts By Meeting Access Demands
Boeing’s Access Requirements
Case in Brief: Providence-Swedish
Health Alliance
• Alliance between Providence Health Systems,
Swedish Health Services in Seattle, WA
 Same-day PCP appointment
(acute conditions)
• Awarded contract to serve as Boeing’s narrow
ACO network option
 3-day PCP appointment
(any condition)
 10-day specialist appointment
“[Geographic] access is critical.
But we can’t lose sight of the
patient experience. Health care
consumers need to see a
positive change in how they are
able to access healthcare.
Chris Gorey
Chief Marketing Officer
Providence Health Systems
©2014 The Advisory Board Company • advisory.com • 28603A
 Extended hours of operations
 Extended urgent care hours
 Centralized 1-800 number at ACO
level with care navigators for triage
and advocacy
 Member website
 Phone apps
Source: Health Care Advisory Board interviews and analysis.
58
Online Access Becoming the New Baseline
An Expected Part of the Patient Experience
Consumers Demanding Portal Features
n = 1,000 U.S. Consumers
82%
77%
76%
74%
Access to
Online
Prescription Receiving
Medical Appointment
Refill
E-Mail/Text
Records
Booking
Requests Reminders
KP.org Portal Key Features
Communicate
with physician
Assign proxy
access
View medical
record
Fill
prescriptions
Schedule
appointments
View lab
results
Case in Brief: Kaiser Permanente Northern California
• Nation’s largest not-for-profit health plan based in Oakland, California; serves 9 million
members nationwide and 3.3 million in Northern California
• Began offering online health services in 1996; fully deployed KP.org patient portal in 2007
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Terry K, “Patients Seek More Online Access to Medical Records,” InformationWeek, September 17, 2013,
available at: www.informationweek.com; Silvestre, et al., “If You Build It, Will They Come? The Kaiser Permanente Model
of Online Health Care,” Health Affairs, March/April 2009: 334-344; Health Care Advisory Board interviews and analysis.
59
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
©2014 The Advisory Board Company • advisory.com • 28603A
Clinical interactions
represent repeated
opportunities to
reinforce patient
preference through
superior experience
Care
Decision
Source: Health Care Advisory Board interviews and analysis.
60
Recipe for Success Becoming Far More Complex
Not Immediately Obvious Which Advantages Will Dominate
Network Assemblers
Care Decision
Employees have little choice of
networks
Most decisions made by
referring physician
• Low premium
• Low employee contribution
• Low out-of-pocket
cost
• Inclusion of preferred
physicians
• Proximity to access
points
• High population health
quality ratings
• High member satisfaction
ratings
• Positive brand association
• On-demand access options
• Great care experience
• On-demand access
options
• Prompt appointment
times
• Extended hours
Differentiating
Factors
All providers included in nearly all
Traditional Market networks; only compete on price
Network Selection
Threshold
Factors
Network Assembly
Individual Consumer
negotiations
• Low total per-member cost
Retail Market
Cost • Promise of total cost savings
Reach and • Broad geographic footprint
Scope • Comprehensive clinical scope
Clinical and
Service
Quality
• High clinical process, outcomes
performance
• Adherence to evidence-based care
• On-demand access options
• Centralized navigation services
• Prompt appointment times
• Extended hours
Expanding Arena of Competition
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
61
Strategic Advantage #1: Scale
Consolidation on the March
Search for Financial, Geographic Scale Driving Hospital M&A
Case in Brief:
Advocate NorthShore Health Partners
$6.5B
• 16-hospital merger of Advocate Health
Care, NorthShore University HealthSystem
Combined system’s
expected annual
revenue
• Creates strong clinical, geographic
presence in Chicago area
Other Notable Hospital M&A Activity
“Combined, we will create
economies of scale that will
allow us to reduce the trend
of rising health care costs.”
Michele Richardson
Advocate Board Chair
©2014 The Advisory Board Company • advisory.com • 28603A
Baylor +
Scott and
White
Mount Sinai +
Continuum
Health Partners
Beaumont +
Botsford +
Oakwood
Source: “Advocate and NorthShore Combine to Create Preeminent Health Care System,” Northshore University
Health System; Herman B, “Advocate-NorthShore merger continues trend toward regional supersystems,”
Modern Helathcare, Spetember 12, 2014; Health Care Advisory Board interviews and analysis.
62
Aggregation Always Subject to Regulatory Scrutiny
Policy Tensions Remain Between Integration, Competitiveness
Allowances for Effective Coordination…
…But Market Power Still a Red Flag
Bundled payment programs
open door to gainsharing
with Medicare revenues
April 2014:
U.S. Court of Appeals orders
ProMedica to unwind its 2010
acquisition of St. Luke’s Hospital
Clinical Integration safe harbors
allow joint contracting between
independent physicians
January 2014:
Federal judge blocks merger of St.
Luke’s Health System and Saltzer
Medical Group
CMS incentivizes, promotes ACO
programs
January 2014:
FTC rules CHS must divest two
hospitals to complete HMA acquisition
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
63
Strategic Advantage #2: Integration
Vivity Betting on Coordination over Consolidation
Insurer, Seven Competing Systems Offer Market-Wide Solution
“What we are
recognizing is that the
most effective delivery
model is an integrated
delivery model. We can
reduce waste, improve
quality of care, provide
people access to the top
facilities in the nation,
frankly, and do that in an
integrated way.”
Pam Kehaly
Anthem Blue Cross
©2014 The Advisory Board Company • advisory.com • 28603A
Anthem
Blue Cross
UCLA Health
CedarsSinai
Medical
Center
PIH Health
• 7 health systems
• 14 hospitals
Huntington
Memorial
Hospital
• 6,000 physicians
Good
Torrance
Samaritan
Memorial
Hospital
Health
MemorialCare
Health System
Source: “Anthem, Seven California Health Systems Team Up To Form HMO,“ California Healthline, September 17,
2014; Commins J, “Anthem Blue Cross, 7 CA Health Systems Create New Challenger, Business Model,”
HealthLeaders Media, September 18, 2014; Health Care Advisory Board interviews and analysis.
64
New Partnerships Aim at Integration Without M&A
But Will Less-Intensive Arrangements Yield Sufficient Gains?
Five health systems ally to form
accountable care initiative
Quality Health Solutions
Six hospitals form BJC
Collaborative:
Four health
systems form
regional
alliance Health
Innovations
Ohio
Five health systems
join Vanderbilt
Health Affiliate
Network
Four health systems
ally to form Noble
Health Alliance
14 systems ally to
form Stratus
Health Care
Two Systems form Georgia
Health Collaborative
©2014 The Advisory Board Company • advisory.com • 28603A
Seven
systems in
NY, NJ, MA,
and PA form
Allspire
Network
Five SC systems
form cost saving
Initiant Healthcare
Collaborative
Source: Health Care Advisory Board interviews and analysis.
65
Strategic Advantage #3: Efficiency
The Community Hospital Resurgent?
Born Out of Necessity, No-Frills Approach Suddenly Compelling
Common Challenges
Potential Advantages
Already managing to
public-payer margins
The Community
Hospital Initiative
Limited service
portfolio
Fewer unjustifiable
fixed costs
• Dedicated research and
service effort included
within Health Care
Advisory Board
membership
Physician
shortages
Early experience with teambased care, telemedicine
• Focuses on issues facing
Rural or
exurban setting
Labor costs lower than
urban competitors
Medicare, Medicaidheavy payer mix
Smaller patient
population
©2014 The Advisory Board Company • advisory.com • 28603A
More focused patient
engagement efforts
– Smaller organizations
– Independent hospitals
– Rural facilities
• For more information,
contact Ben Umansky at
umanskyb@advisory.com
Source: Health Care Advisory Board interviews and analysis.
Health Care Advisory Board
The New Network Advantage
Assembling the Scale, Scope, and Assets Needed to
Secure Profitable Growth
67
Road Map
1
Leverage Beyond Price
2
The New Network Advantage
3
Charting an Intentional Corporate Strategy
©2014 The Advisory Board Company • advisory.com
68
Insecurity Abounds
Consolidation Dominating Industry Mindshare
What Was Your Reaction?
$10 Billion or Bust?
August 5, 2013
“Any health system is going to need $10 billion
in revenue to survive in tomorrow’s market”
Overheard at 2014 J.P. Morgan
Healthcare Conference
SURVIVAL
OF THE
BIGGEST
CHS-HMA merger
puts more pressure on
stand-alones to seek partners
-Page 6
The End of Independence?
“We want to stay independent. But when I
look at where things are going, I just don’t
see how we can compete without being part
of something bigger.”
CEO, standalone 200-bed hospital
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
69
New Partnerships Aim at Integration Without M&A
But Will Less-Intensive Arrangements Yield Sufficient Gains?
Five health systems ally to form
accountable care initiative
Quality Health Solutions
Six hospitals form BJC
Collaborative
Four health
systems form
regional
alliance Health
Innovations
Ohio
Five health systems
join Vanderbilt
Health Affiliate
Network
Four health systems
ally to form Noble
Health Alliance
14 systems ally to
form Stratus
Health Care
Two Systems form Georgia
Health Collaborative
©2014 The Advisory Board Company • advisory.com • 28603A
Seven
systems in
NY, NJ, MA,
and PA form
Allspire
Network
Five SC systems
form cost saving
Initiant Healthcare
Collaborative
Source: Health Care Advisory Board interviews and analysis.
70
No Shortage of Alternative Models
Five Major Varieties of Provider Partnership
Merger or
Acquisition
ClinicallyIntegrated
Hospital
Network
Accountable Care
Organization
Regional
Collaborative
Clinical Affiliation
Description
Formal purchase of
one organization’s
assets by another,
or the combination
of two organizations’
assets into a single
entity
Collection of
hospitals
contracting
jointly in order to
support
improved
coordination,
outcomes;
modeled after
physician CI
networks
Independent
entity, owned by
one or several
independent
organizations, that
accepts risk-based
contracts and
distributes shared
savings
Flexible umbrella
structure, often
encompassing
many independent
organizations of
similar geography,
that may serve as
foundation for
further integration
Typically bilateral
agreement to
cooperate around
a particular
initiative or service
line; may involve
local or national
partners
Examples
• Baylor Scott and
White
• Community
Health
Systems/Health
Management
Associates
• Trinity
Health/Catholic
Healthcare East
• Tenet/Vanguard
• Long Island
Health
Network
• Vanderbilt
Health
Affiliated
Network
• Quality Health
Solutions (WI)
• Arizona Care
Network
• Accountable
Care Alliance
• Allspire Health
Partners
• Stratus
Healthcare
• BJC
Collaborative
• Noble Health
Alliance
• Health
Innovations Ohio
• Evergreen
Healthcare with
Virginia Mason
• Mayo Clinic
Care Network
• Cleveland Clinic
Affiliate
Program
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
71
Protection Not the Right Motivation
Defenses Around Old Business Model Unlikely to Hold
Typical Advantages of Market Power
Higher prices
charged to payers
Size confers
price leverage
Lower prices
paid to suppliers
Diminishing Returns to Traditional Strategy
Regulators scrutinizing any
arrangement conferring
undue market power
©2014 The Advisory Board Company • advisory.com • 28603A
Volume-based negotiating
strategies like GPOs nearing
their limit
Increasingly competitive
markets punishing inflexible,
high-cost providers
Source: Health Care Advisory Board interviews and analysis.
72
Leverage Beyond Price the Key to Success
Partnerships Must Drive Market Advantage
Degree of Market Advantage
Product Advantage
Cost Advantage
Influence on Network
Assembly
Control Over Underlying
Cost Structures
Impact on Entire
Care Continuum
Winning Preference
Through Clinical Scope
and Geographic Reach
Lowering Unit
Prices Through
Operational Scale
Reducing Total
Costs Through
Population Health
Time to Maximum Benefit
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
73
The New Network Advantage
Product Advantage
Cost Advantage
I
II
III
Winning Preference Through
Clinical Scope and
Geographic Reach
Lowering Unit
Prices Through
Operational Scale
Reducing Total
Costs Through
Population Health
Driving Network Assembly
Leveraging Low-Price Care Sites
Overcoming Financial Barriers
1. Comprehensive Network Product
3. Top-of-site Referral Partnerships
Appealing to Network Assemblers
Slimming Underlying Cost Structures
6. Jointly-Financed
Infrastructure Investment
2. Portfolio-Enhancing Clinical
Partnerships
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services
Breaking Down Information Silos
7. Continuum-Wide Data
Transparency
Hardwiring Mutual Accountability
8. Network-Enabled
Performance Incentives
©2014 The Advisory Board Company • advisory.com • 28603A
Source: The Advisory Board Company interviews and analysis.
74
Meaningful Integration About More than the Model
Discrete Elements of Partnership Support Specific Goals
Potential Elements of
Provider Integration
Payer Contracting
Potential Benefits
Strengthens negotiating position, allows access to larger purchasers
Brand/Identity
Confers reputational benefits, signals strength of integration
Strategic Plan
Allows rationalized investments/divestitures
Governance
Ensures stability and implementation of other shared elements
Operations
Enables process efficiencies, knowledge exchange
Clinical IT
Broadens perspective over care continuum; reveals
opportunities for reducing total cost of care
Care Model
Expertise
©2014 The Advisory Board Company • advisory.com • 28603A
Reduces fragmentation in care delivery; improves outcomes
Flattens learning curves; promotes best practices
Source: Health Care Advisory Board interviews and analysis.
75
Concrete Decisions Beyond Legal Structure
Choice of Model Only Determines Environment for Pursuing Integration
Independence
Collaboration
Centralization
Questions for Every
Partnership
• Which strategic and operational
functions should be included in
your organization’s partnership
strategy?
• For each function: Is it better to
centralize the function by
combining it with that of a
partner, or is it better to
collaborate with a partner while
maintaining separate but aligned
versions of the same function?
• Does the legal structure of an
existing or proposed partnership
facilitate the appropriate degree
of integration for each function?
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
76
Road Map
1
Leverage Beyond Price
2
The New Network Advantage
3
Charting an Intentional Corporate Strategy
©2014 The Advisory Board Company • advisory.com
77
Winning Preference Through
Clinical Scope and Geographic Reach
Driving Network Assembly
1. Comprehensive Network Product
Appealing to Network Assemblers
2. Portfolio-Enhancing Clinical Partnerships
78
Which Would You Choose?
Broad Geographic Reach…
…or Deep Clinical Scope?
Network in Brief: Crescent Health1
Network in Brief: Silica Healthcare1
• National hospital provider with hospital
campuses across the country
• 6-hospital system in the Midwest with
employed physician network
• Despite broad geography, limited
clinical depth at local level
• Care sites concentrated in roughly half
of single metropolitan area
1) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
79
Developing a Targeted Network Strategy (or Three)
Flexible Approach Meets the Demands of a Wide Range of Purchasers
A Multi-Layered Approach to Network Development
Geographic Reach
Partnership-driven
Super-Regional
Regional
Local
Individual footprint
sufficient to
appeal to small
employers in local
market
Partnership with
like-minded,
geographically
contiguous health
system provides
flexibility to sign
larger regional
contracts
Discussing
possibility of
additional
partnerships to form
state-wide network
able to contract with
state employers
Network in Brief:
Whitehaven Health1
• Integrated health
delivery system in the
Midwest
• Segments market
strategy by geography
• Health system footprint
is sufficient for
appealing to local
purchasers; regional
and super-regional
networks assembled
through partnership
Number of contracting possibilities
1) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
80
Deciding Whether to Take the Lead
A Key Decision at Every Level
Local
Regional
Super-Regional
• Small employers
• Large employers
• State/national employers
• Local payers
• National payers
• International purchasers
What is your organization’s network strategy?
Driving Network
Assembly
©2014 The Advisory Board Company • advisory.com • 28603A
Appealing to
Network Assemblers
Source: Health Care Advisory Board interviews and analysis.
81
Leveraging Partnership to Appeal to Purchasers
Collaboration Provides a Financially-Sustainable, Proactive Approach
Committed to
Independence
Driving Network
Assembly
Appealing to
Network Assemblers
Build or Buy
Brand Marketing
Pitfall:
Pitfall:
Extremely slow and capitalintensive; may require moving
away from core competencies
Increasingly difficult for all but niche
providers to confidently position
organization as “must-have”
Open to
Collaboration
©2014 The Advisory Board Company • advisory.com • 28603A
1
2
Comprehensive
Network Product
Portfolio-Enhancing
Clinical Partnerships
Source: Health Care Advisory Board interviews and analysis.
82
Combining Geographies to Match Purchaser Footprint
Addressing Individual Limits in Geographic Reach
Partnering to Expand Geographic Scope
Cincinnati-based
employers have
employees living on
both sides of river
Network in Brief:
Healthcare Solutions
Network
TriHealth
Ohio
Kentucky
St. Elizabeth
Healthcare
Neither Organization Able to Offer
Adequate Geographic Coverage Alone
©2014 The Advisory Board Company • advisory.com • 28603A
• Joint venture collaboration
between Cincinnati, Ohiobased TriHealth and
Edgewood, Kentuckybased St. Elizabeth
Healthcare
• Offers health insurers
access to a unified, highquality, low-cost network
that covers the entire
Tristate region
• Both organizations offering
the network to their current
employees and dependents
Source: Health Care Advisory Board interviews and analysis.
83
Using Expanded Reach to Target Local Employers
Selling Narrow Network Product Through Commercial Insurers
Creating a Purchaser-Focused Network Solution
Insurer sells HSN as a
narrow network product
Combined
geography
sufficient to
support large
Cincinnati
employers
TriHealth
Local Employers
Healthcare
Solutions Network
St. Elizabeth’s
Public Payers
Key Partnership Elements
Historical Relationship
Governance
Quality Alignment
Previous collaboration
around insurance
products key to
ensuring mutual trust
Organization CEOs serve
as Co-CEOs with support
of existing management
teams
Aligning quality targets
to work towards
demonstrable quality
improvements
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
84
Aligning to Expand Clinical Scope
Creating a Comprehensive High-Value Network Through Partnership
Beginning with Cardiac and Neuroscience Care
Virginia Mason
Gains access to home
care services and fills
gap of secondary
facilities east of Seattle
with a partner with a
proven reputation for
value
Virginia Mason
quaternary facility
EvergreenHealth
home care
EvergreenHealth
tertiary facility
EvergreenHealth
Virginia Mason
clinics
Gains access to
quaternary facility with
proven clinical
outcomes and access
to expanded
geography
Network in Brief: EvergreenHealth and Virginia Mason
• EvergreenHealth is a 318-bed medical center and integrated health system based in Kirkland,
Washington; Virginia Mason is a 336-bed medical center and group practice based in Seattle
• In 2012, partnered to create a broader network of care in the Puget Sound region with the
purpose of continuous improvement in quality and safety, reduction in cost of care, improving
patient experience, and shared recruitment to avoid oversupply of physicians
• Partnership leverages strengths of both organizations and broadens each partner’s scope of
services and expanded geographic reach
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
85
Ensure A Cohesive Bond
Built on a Foundation of Shared Vision
Linking a Network Without an LLC
Develop a
Long-Term Vision
Contractual partnership
agreement spans 20 years,
ensuring both parties are fully
committed to partnership
Ensure
Physician Support
Both partners demonstrate
clinical quality and outcomes
Secure
Support
Track
Performance
Steering committee contains
equal representation from
both partners (CEOs,
CMOs, COOs)
Quality dashboards track progress
on clinical areas; partnership
dashboard tracks progress on
priority activities aligned with
strategic partnership goals
©2014 The Advisory Board Company • advisory.com • 28603A
“We set out to form an extremely
durable and long-term
partnership that allows us to
come together and create a
high-value network of care. To
do that, we forged a boarddriven, 20-year agreement that
ensures the partnership’s
strength and stability, ultimately
increasing the quality and value
of care available in our
community.”
Gary Kaplan MD, CEO,
Virginia Mason
Bob Malte, CEO,
EvergreenHealth
Source: Health Care Advisory Board interviews and analysis.
86
Tactic #2: Portfolio-Enhancing Clinical Partnerships
Bringing High-End Expertise to the Local Market
Telemedicine Partnerships Allow Complex Care to Remain In-House
Systems and AMCs Also Seeking to Enhance Portfolios
Network in Brief: Mayo
Clinic Care Network
• 26-member network;
partnership model that
extends Mayo physicians
and expertise to
members
1. eConsult: Specialists
can connect with Mayo
Clinic experts when they
want additional input on
complex patient care
©2014 The Advisory Board Company • advisory.com • 28603A
2. AskMayoExpert: Webbased system allows
members to access Mayo
perspective on hundreds of
medical conditions
• In addition to direct
access to clinical
expertise, members are
able to brand themselves
as members of Mayo
Clinic Care Network
Source: Health Care Advisory Board interviews and analysis; Mayo Clinic Care
Network, available at: http://www.mayoclinic.org/about-mayo-clinic/care-network.
87
Competitive Dynamics Threaten Local Partnerships
Conflicting Incentives a Risk When Partnering Regionally
Multi-Layered Collaboration Promises Benefit…
Case in Brief: Nielsen
Park Hospital1
• Small, rural community
hospital in the South
• Partnered with large
tertiary system to
enable local access to
high-end specialty
services such as
cardiology, oncology
• Despite promising start
to partnership,
competition for
volumes between
partners threatening
sustainability of
affiliation
Co-branding
Telemedicine
Shared Staff
Community hospital
able to brand itself as
affiliate of tertiary hub
Allows community
physicians to consult with
specialists in real-time
Physicians from
tertiary hub travel to
community hospital
…Tensions Over Referrals Threatens Affiliation
Tertiary hub looking to draw
as many referrals as possible
from community partner
Community hospital trying to
retain as many volumes as
possible within local community
1) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis
88
Weighing a Local or National Partner
Ideal Geography a Key Tension in Clinical Affiliation Decisions
Consider Local Partner if….
Consider National Partner if….
 Local providers with same service
gap are interested in collaboration
 Local competition for volumes in
targeted service area is high
 Local providers that currently offer
service are interested in partnering
for mutual benefit
 Local demand for service is
insufficient to justify full-time staff
 Demand for service is low enough
that local providers are willing to
share staff, equipment
 Targeted service may easily be
provided through telemedicine or
virtual physician-to-physician
consults
 Patients value brand familiarity over
national reputation
 Patients recognize and value
national reputation
 Ultimate aim of partnership is joint
contracting or shared population
health management
 National providers have significant
quality advantage over any local
partnership options
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
89
Key Takeaways
Winning Preference Through Clinical Scope and Geographic Reach
Shared vision and strategy key
to partnership around network
product
Creation of a health plan may be a
component of network strategy,
but should not be the sole strategy
It is difficult to make the necessary
investments to ensure network
growth without a shared vision and a
significant amount of trust among
network partners.
The most successful networks ensure
flexibility in contracting options;
achieving this means leading with a
provider network that can also
contract with commercial payers.
Certain models faster at bringing a
network together but may restrict
contracting ability
Competitive tendencies can
threaten the success of regional
clinical affiliations
M&A and CI joint contracting
arrangements are slower to market,
but allow for tighter network integration
than faster models such as regional
alliances and clinical affiliations.
Competition for volumes can
undermine regional affiliations; clear
referral protocols are necessary to
ensure each partner retains
appropriate volumes.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis
90
Weighing the Models
Model
Comprehensive
Network Product
Portfolio-Enhancing
Clinical Partnerships
Comments
Merger or
Acquisition
M&A clearly expands geographic reach and
clinical scope; however, it is a much slower and
more capital-intensive approach than other
models.
ClinicallyIntegrated
Hospital
Network
CI is probably the most common means of
pursuing joint contracting; this model will be
essential for those organizations looking to
partner around a narrow network offering.
Accountable
Care
Organization
Sharing risk is probably the quickest way to
enable joint contracting; however, starting an
ACO involves costs and cultural shift.
Regional
Collaborative
Collaboratives often involve more members so
there is greater potential to expand reach and
scope; however, attempts to contract jointly will
likely invite significant regulatory scrutiny.
Clinical
Affiliation
Agreement
These, typically bi-lateral agreements, are wellsuited to filling a specific clinical gap; however,
they often span large geographies and thus tend
to limit opportunities to contract jointly.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
91
Ideal Partners
Five Characteristics of the Ideal Partner
Complementary
Clinical Assets
Complementary
Geography
Strong
Brand Name
Shared Strategic
Vision
Willingness to
Share Referrals
Partners that span
a different part of
the care continuum
are ideal for
bringing new
capabilities to the
network
For the purposes of
expanding reach or
sharing referrals,
partners with
contiguous
geography are
ideal; national
partners ideal for
telemedicine
partnerships
Consider whether
patients value
national brands or
prefer a local
partner (i.e. the
“best hospital in
town” or the
hospital that they
have been to
before)
Particularly
important for those
organizations
looking to jointly
own and sell a
market-facing
network; affiliations
of this nature
require long-term
commitment
Clinical affiliations
in particular require
clarity around
referral protocols
and where volumes
will be retained to
ensure competitive
tensions do not
undermine
partnership
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
92
Lowering Unit Costs Through
Operational Scale
Leveraging Low-Price Care Sites
3. Top-of-Site Referral Partnerships
Slimming Underlying Cost Structures
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services
93
High Cost Driving Price Rigidity
Limited Ability to Compete Against Low-Cost Providers
High Fixed Cost Production Model
Difference in Average Price for
Common Imaging Procedures1
Struggling to offset
expensive fixed cost
base
HOPD2 vs. Freestanding Imaging Facilities, 2011
57% lower
Lack of back-office
efficiency
$779
$334
vs.
Low-Cost Narrow-Focus Care Sites
Hospital Outpatient
Department
Freestanding
Imaging Center
Facilities with
low-fixed costs
Streamlined focus on
narrow set of services
1) MRI, CT, Radiography, Nuclear Medicine, Ultrasound,
Mammography, and PET.
2) Hospital Outpatient Department.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Regents Health Resources, “Imaging Market File,” Radiology Business
Journal , April 2011; Health Care Advisory Board interviews and analysis.
94
Use Networks to Build Operational Scale
Three Tactics for Increasing Price Flexibility
Leveraging Low-Price
Care Sites
Slimming Underlying Cost
Structures
3
4
5
Top-of-Site Referral
Partnerships
Clinical Footprint
Rationalization
Next-Generation
Shared Services
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
95
Tactic #3:Top-of-Site Referral Partnerships
Re-envisioning Top-of-Site Care
Sending Patients to the Right Site, at the Right Cost
An Expanding Network of LowAcuity Partners
Pediatric
After
Hours
Urgent
Care
Pediatric
Urgent
Care
1
Women’s
Clinic
Chronic
Disease
Clinic
Full
Worksite
Clinic
Medical
Home
Mental
Health
Urgent
Care
E-Visits
Retail
Clinic
Advanced
Care
Center
Three Main No-Regrets Focus
Areas for Volume Shifts
2
3
Tertiary
Hospital to
Community
Hospital
Emergency
Department to
Urgent Care
Provider
Primary Care
Office to
Retail Clinic
School
Clinic
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
96
More Than Just Theoretical
Faulkner’s Stubbornly Low Prices Show Benefit of Strategy
Faulkner
Hospital
Brigham
and Women’s
Merged1
1997
2013 Case
Mix Index
Proving the Point
13.7%
0.80
1.38
19%
General admissions
shifted from BWH to
Faulkner since 2005
Lower commercial
prices at Faulkner vs.
BWH, as of 2012
Attractive Strategy In Negotiations with Purchasers
BWH contracts with local
multispecialty group (Harvard
Vanguard Medical Group)
came up for renegotiation
1) Came together under common corporate parent
©2014 The Advisory Board Company • advisory.com • 28603A
HVMG received
attractive terms from
another local hospital
BWH able to retain contract
by offering to shift more
lower-acuity volumes to
Faulkner at lower unit price
Source: Sussman et al, “Integration of an Academic Medical Center and a Community
Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of
Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.
98
Removing Obstacles to Volume Reallocation
Integration of Clinical Programs Needed to Encourage Top-of-Site Care
Key Elements of the Brigham and Women’s-Faulkner Volume Reallocation Effort
Integrated Teaching Programs
Joint Clinical Programs
Brigham surgery and medicine
residents perform a portion of
training at Faulkner
Due to limited operating room
availability at Brigham, unfilled
rooms at Faulkner made available
to BWH surgeons
Co-branding Opportunity
Patient Convenience
Cross-Branding Opportunity
Less travel, availability of private
rooms, better parking all seen as
improving the patient experience
Combining the two organization’s
name resonated with patient focus
groups and held pushback at bay
from both entities
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Sussman et al, “Integration of an Academic Medical Center and a Community
Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic
Medicine, 2005; Health Care Advisory Board interviews and analysis.
99
Tactic #4: Clinical Footprint Rationalization
Right-Sizing Facility Footprint a Clear Opportunity
Most Markets Far From Rationalized
Despite Reductions in Hospital Beds,
Most Organizations Still Have Excess Capacity
Significant Opportunity for Savings in
Reducing Excess Bed Capacity
U.S. Inpatient Beds, Occupancy Rate
1980-2009
Estimated Cost Savings from Eliminating
Expectedly Empty Beds in Rhode Island1
$25-106K
1.46 M
1.36 M
1.21 M
78%
70%
1.08 M 0.98 M
0.95 M
66%
66%
69%
68%
Per bed when removing
beds piecemeal, includes
reduction in supply and
staff expenses
$580K
1980
1990
1995
2000
Inpatient Beds
1) Calculated by taking 18% of the average cost per bed, by bed
type, from the 2009 and 2010 Medicare Cost Report Data,
inflated at 2% annually to reflect natural price growth.
©2014 The Advisory Board Company • advisory.com • 28603A
2008
Occupancy Rate
2009
Per bed when closing
entire facilities, includes
facility, supply, and
staffing cost reductions
Source: Alicia Caramenico, “Council: Eliminate excess hospital beds to save $116M,”
Fierce Healthcare, May 2013; Health Care Advisory Board interviews and analysis.
100
First, Do No Harm
Strategic Alignment Allows for More Efficient Planning for Future Capacity
Avoids Duplication of Services
within Shared Market
Northwest Metro Alliance
Combined Planning Process
• Alliance creates guiding
principles and rules
• Shared incentives under
HealthPartners’ health plan
encourages cooperation
• Allows for collaborative planning
across the entire population
Example: HealthPartners and Allina
Health are joint owners of two outpatient
imaging centers in the market
Network in Brief: Northwest Metro
Alliance
• Partnership between Bloomington-based
HealthPartners and Minneapolis-based
Allina Health, centered in northwest
suburbs of Minneapolis
• Joint planning done through alliance
reduces duplicative efforts
©2014 The Advisory Board Company • advisory.com • 28603A
Source: HealthPartners and Allina Hospitals and Clinics, available at:
https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntr
b_008919.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis
101
Address All Stakeholder Incentives
Consolidation of More Lucrative Services May Require Financial Alignment
HSHS-Prevea Partnership Finds Opportunity to
Rationalize Duplicative Imaging Capacity in
Wisconsin
Components of Alignment Necessary to
Execute on Capacity Rationalization
Cultural Alignment
• Long working relationship
since 1995
Strategic Alignment
• Shared vision of regional growth
• Launched three-way joint venture
with Dean Health
• Collaborating on a number of
population health management
projects
Financial Alignment
• Agreed to sign PSA with Prevea
physicians ensuring physician
compensation at fair market value
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
103
Limit to What Can Be Achieved Without Full Merger
Byron1 Merger Showcases Potential of Full-Service Line Consolidation
Decision to Consolidate Duplicative CV Services at Byron Health1
Bells Medical Center1
• 900 cases/year
• Large campus with excess capacity
Large Profitability Differential
Bells program clearly more
profitable than Clarkes program
Clarkes Hospital1
• 200 cases/year
• Capacity constraints for other services
Close Geographic Proximity
Programs within 5 miles of each
other, serving same population
Operational Gains
Potential cost savings from
consolidated staffing, space
Staffing Cost Savings
0%
Loss in market-share
after consolidation
25%
Reduction in number of CardioPulmonary Perfusionists needed
1) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
105
Tactic #5: Next-Generation Shared Services
Creating Advantage Through ‘Internal Outsourcing’
Applying the “Shared Services” Concept to Health Care
Attributes of a Top-Performing Shared Services Organization
Treats operational units
as clients, competes for
business vs. outside
vendors
Strategy, functionality
driven by needs at
operational unit level
Focus on process
standardization and
continuous improvement
Transfer of insight from
high-performing units to
low performing units
Concept in Brief: Shared Services Organization
• Single service organization performs selection of business support activities on
behalf of multiple operating units
• “Shared” processes moved out of individual operating units and into separately
managed shared services organization (SSO)
• An SSO has same expectations, responsibilities and accountabilities as external
vendor does to its clients, making it more than just a centralization function
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
106
Translating Cost Savings into Competitive Pricing
Significant Opportunity to Improve Network Attractiveness
Savings Reallocation Options for Hypothetical Medium-Size U.S Hospital
1
Margin Improvement
•
Improve margins from 6.5% to 9%
New Investments
2
•
•
150-bed hospital carries out
successful cost-savings initiative
3
•
e.g. Two new 1.5 T MRI Scanners
•
e.g. Four new 64 Slice CT scanners
•
e.g. One new IMRT1 Machine
Universal Price Reductions
•
Manages to cut $2 million from
operating expenses
4
Reduce prices overall by up to 5.9%
while still maintaining existing margins
Service-Specific Price Reductions
•
e.g. reduce outpatient imaging
prices up to 35% while still
maintaining existing margins
1) Intensity Modulated Radiation Therapy
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
107
Key Takeaways
Lowering Unit Costs Through Operational Scale
Scale no guarantee of cost
savings
Regardless of the model chosen,
successful consolidation requires an
investment in a dedicated crossorganizational consolidation function.
No model guarantees such a
function.
Integration of clinical programs
necessary to promote top-of-site
volume allocation
Models that encourage clinical
alignment will facilitate more efficient
volume reallocation.
©2014 The Advisory Board Company • advisory.com • 28603A
Cross-organizational transparency
necessary to unlock full benefits of
consolidation
Though non-merger models have the
ability to centralize and consolidate
costs, mergers provide an extra level
of cross-organizational transparency
and therefore a greater opportunity to
cut costs.
Rationalization of underutilized
capacity historically elusive
Potential merger savings based
on consolidation and closure of
facilities should be highly
scrutinized.
Source: Health Care Advisory Board interviews and analysis.
108
Weighing the Models
Model
Top-of-Site
Referral
Partnerships
Clinical
Footprint
Rationalization
Next
Generation
Shared
Services
Comments
Merger or
Acquisition
Greatest possibility for consolidation of business
functions, rationalization of referrals and clinical
capacity though success requires partnership
beyond financial integration.
ClinicallyIntegrated
Hospital
Network
Contracting leverage gained through CI offers
incentive for clinical collaboration but little
incentive for operational consolidation and
rationalization.
Accountable
Care
Organization
Huge incentive for rationalization of referrals,
though less for consolidation of operations;
strategic alignment offers possibility to prevent
duplication of future clinical investment.
Regional
Collaborative
Potential, though limited, to consolidate and
centralize business operations, and gain
leverage over vendors, suppliers.
Clinical
Affiliation
Agreement
Focus on operational alignment limits potential to
consolidate business operations, though may
help to rationalize referral patterns, prevent
future duplication of investment.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
109
Ideal Partners
Five Characteristics of the Ideal Partner
Complementary
Case Mix
Low Cost
Structure
Partnerships between
organizations that
have complementary
service capabilities
provide opportunity
for mutual benefit by
reallocating volumes
between sites.
Organizations with
a low existing cost
structure represent
good opportunities
to expand low-price
sites of care.
©2014 The Advisory Board Company • advisory.com • 28603A
Willingness to
Consolidate
Consolidation
requires
commitment and
close cooperation;
ideal partners are
committed to
executing on
centralization and
consolidation
possibilities.
Cultural
Closeness
Existing
Capabilities
Consolidation and
centralization are
highly political
process; a high
degree of cultural
alignment is
necessary across all
organizational levels
to prevent significant
pushback.
Partners with
already highly
efficient operational
functions provide
best opportunity
for consolidation
as scaling existing
functions is easier
than building anew.
Source: Health Care Advisory Board interviews and analysis.
110
Reducing Total Costs
Through Population Health
Overcoming Financial Barriers
6. Jointly-Financed Infrastructure Investment
Breaking Down Information Silos
7. Continuum-Wide Data Transparency
Hardwiring Mutual Accountability
8. Network-Enabled Performance Incentives
111
Providers Judged by Ability to Reduce Utilization
Controlling Unit Costs Only Part of the Equation
Three Provider Strategies to Appeal to Network Assemblers on Cost
Low Unit Price
Price Cut
Improve efficiency to
offer lower fee schedule
Total Cost Control
Utilization Management
Rationalize utilization to
secure referral
preference
Trend Control
Implement care
management to control
cost growth trend
Degree of Cost Control
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
112
A Clear Path for Improvement
Steps To Total Cost Management Well Established
Attaining Financial Success From Patient Management
HighRisk
Patients
Rising-Risk
Patients
Low-Risk Patients
Trade high-cost services for
low-cost management
Avoid unnecessary higheracuity, higher-cost spending
Keep patient healthy, loyal
to the system
Study in Brief: Playbook for Population Health
• Study summarizes the key leadership and care model capabilities needed for financial
success under population health
• Available at advisory.com/pophealthplaybook
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
113
Population Health a Difficult Ambition Acting Alone
Partnership Offers a Path Forward
Problem #1: Insufficient
financial capital
Problem #2: Fragmented
data and expertise
Problem #3: Lack
of shared accountability
Reducing
Financial Barriers
Breaking Down
Information Silos
Hardwiring Mutual
Accountability
7
8
6
Jointly-Financed
Infrastructure Investment
©2014 The Advisory Board Company • advisory.com • 28603A
Continuum-Wide Data
Transparency
Network-Enabled
Performance Standards
Source: Health Care Advisory Board interviews and analysis.
114
Tactic #6: Jointly-Financed Infrastructure Investment
Population Health Requires Extensive Investment
Common Areas of Investment
An Undeniable Financial
Burden
$12M
AHA’s1 estimate
of ACO start-up costs
fora 5-hospital system
$14.1M
AHA’s estimate of
ongoing annual ACO costs
for a 5-hospital system
1) American Hospital Association.
©2014 The Advisory Board Company • advisory.com • 28603A
Care management
staffing
Disease
Registry
Electronic
Medical Record
Post-Acute
Care network
Patient-Centered
Medical Home
Management
resources
Legal and
consulting support
Predictive
analytics
Health Information
Exchange
PCP
recruitment
Specialist
network
Patient
engagement tools
Source: American Hospital Association, “Activities and Costs to Develop an Accountable
Care Organization,” available at: http://www.aha.org/content/11/aco-white-paper-cost-devaco.pdf, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
115
Partnership Reduces Individual Financial Burden
Shared Care Management Investment Through ACO
Arizona Care Network Shared Staffing Model
Shared Investment Areas
Abrazo
Health
Dignity Health
Arizona
• Care management teams (RN,
community resource specialist,
pharmacist)
Arizona Care
Network
Jointly-owned physicianled ACO and CI network
• Physician support staff (e.g. for
quality training)
• IT infrastructure
Network in Brief: Arizona Care Network
• Physician-led ACO and CI network; jointly-owned by Abrazo Health and Dignity Health Arizona
• Population health infrastructure investments made at network level, allowing Abrazo and
Dignity to share costs of resources such as staffing, IT
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
116
Tactic #7: Continuum-Wide Data Transparency
Pool Data Across Network to Pinpoint Efforts
Partners Benefitting from Master Patient Index
Regional Utilization Trends Reveal Top Population Health Opportunities
Network in Brief: Dallas-Fort
Worth Hospital Council
Foundation
• Consortium of 156 hospital
and associate members in
Northern Texas
• Provides educational
programs, collaborative
efforts, strategic alliances, and
advocacy with the local and
state governments
• Discovered that 25% of
readmitted patients in the
region did not return to their
original hospital for care,
making it difficult to accurately
predict readmission rates
©2014 The Advisory Board Company • advisory.com • 28603A
80 area hospitals feed patient
utilization data into enterprise
data warehouse
Master patient index matches
patient records across facilities
and organizations
Data is fed into analytic tools that
provide insight into regional
trends in utilization
Paying members receive access
to quality dashboard that helps
pinpoint population health efforts
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data
for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078,
accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
117
Putting the Master Patient Index into Practice
Ensures Management of Riskiest Population Segments
Real-Time Data Enables Targeted Resource Deployment at One Member Hospital
z
1
2
12%
Examination of regionwide, cross-facility
utilization patterns
reveals readmissions
as area of opportunity
Analytic tools reveal
clinical, demographic
trends among patients
who had been
readmitted in the past
Reduction in 30-day acute
myocardial infarction readmission
rate at one member hospital
16%
4
3
z
Aggressive case
management of
identified patients
leads to reduction in
readmissions
©2014 The Advisory Board Company • advisory.com • 28603A
Member hospital uses
population-level insight
to identify patients at
increased risk for
readmission
9%
12%
Reduction in 30-day
pneumonia readmission
rate at one member hospital
20%
Reduction in readmissions
across all member hospitals
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data
for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078,
accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
118
Drilling Down to the Individual Patient Level
Four Approaches to Real-Time Data Sharing Among Network Partners
Manual Data-Sharing Agreements
EMR Look-Ups
Key to Partnership: Consensus on how
often to proactively push data
Key to Partnership: Shared or linked EMR
systems
Example: Visiting Nurse Service of New
York sends home health assessment to
three hospital partners every day
Example: Through their partnership in the
Northwest Metro Alliance, Allina and
HealthPartners have read only-access to
each other’s Epic systems
ADT1 Feed
Regional HIE
Key to Partnership: Ideal partner has
access to out-of-system utilization data
Key to Partnership: Shared funding to
ensure financial sustainability
Example: Blue Shield of California
provides real-time utilization data with
provider partners through CalPERS ACO
Example: Medical Home Network in
Chicago has set up a regional HIE that
provides participants with last 90 days of
patient data
1) Admission, Discharge, Transfer.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Chicago Tribune, available at: http://articles.chicagotribune.com, accessed October 1, 2012 ; Health Affairs, “Four Years Into A
Commercial ACO For CalPERS: Substantial Savings And Lessons Learned,”; HealthPartners and Allina Hospitals and Clinics,
available at: https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntrb_008919.pdf, accessed 3
May 2014 Health Care Advisory Board interviews and analysis.
119
Establish a Common Network Language
Shared Processes Eliminate Gaps in Stand-Alone Efforts
Consolidating Risk Scores First Step to Aligned Care Management
Analysis of Top 1,000 Riskiest
Patients Revealed:
• Each individual algorithm failed to
identify some high-risk patients
• Inconsistent identification reduced
ability to prevent:
Prior to creation of CalPERS
ACO, each participant had
individual risk scoring process
©2014 The Advisory Board Company • advisory.com • 28603A
 ER visits
 Admissions from ER
 Inpatient readmissions
Risk scores consolidated
into single process and
single IT platform
Source: Blue Shield of California, “An Accountable Care Organization Pilot: Lessons
Learned,” available at: https://www.blueshieldca.com/employer/documents/knowledgecenter/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed
3 May 2014; Health Care Advisory Board interviews and analysis.
121
Tactic #8: Network-Enabled Performance Incentives
Hardwiring Mutual Accountability
Two Promising Strategies to Hold Partners Accountable
Formal Shared
Risk
Membership-Based
Incentive
Including partners in formal
risk-based arrangements (e.g.
shared savings, global
payment contracts)
Positioning membership in the
network itself as performance
incentive (e.g., preferred
referral network)
Candidates:
Candidates:
• Hospital ACO partners
• Clinical Integration Network
• Employed physicians
• Post-Acute Care Providers
• Ancillary providers
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
122
Extend Shared Risk Beyond Hospital and Physicians
Bringing Ancillary Providers to the Table Through Shared Savings
MMC Physician-Hospital Organization ACO
Home Health
Included because of
high Medicare utilization
SNF
Included because of
high Medicare utilization
Lab
Included due to relevance
for any population
Behavioral Health
Included in case of
expansion to Medicaid
Network in Brief: MMC Physician-Hospital Organization
• PHO composed of 1,100 physicians from the Community
Physicians of Maine and the seven MaineHealth hospitals;
based in southern and coastal Maine
• As part of participation in the Medicare Shared Savings
Program, will be sharing savings with ancillary providers
based on value performance measures
©2014 The Advisory Board Company • advisory.com • 28603A
PHO has worked with each
provider to identify relevant
performance metrics;
focusing specifically on 33
metrics from MSSP to
promote performance
against value-based
metrics across sites
5%
Portion of savings that
will be distributed to
“other providers”, i.e.
not hospitals, PCPs, or
specialists
Source: MMC Physician-Hospital Organization, available at: http://www.mainehealth.org/mhaco,
accessed May 3, 2014; Health Care Advisory Board interviews and analysis;
123
Creating the Incentive to Keep Up
Implementing Lessons from Physician CI1
Creating Motivation to Meet Network Standard
Threat of Probation Incents Improvement
• All physicians must meet a minimal
performance threshold on “CI score”
• Physicians who score below minimum
threshold placed on probation for one year
Benefits to Network Inclusion
• Favorable payer rates from
joint contracting
• Access to IT infrastructure
Network in Brief: Cronulla Health Care2
• Clinically integrated physician network affiliated with six Cronulla Health Care
hospitals in the Midwest
• Instituted CI score, non-negotiable membership requirements to improve unity,
quality of physician partners in network
1) Clinical integration.
2) Pseudonym.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
124
Extending Network Exclusivity to the PAC World
Promise of Increased Referrals Creates Performance Incentive for PACs
Setting Out Strict Quality Standards to
Achieve and Maintain Preferred Status
SNF Standards
Requiring Monthly Reporting to
Ensure Continuous Performance
Monthly SNF Scorecard
 Overall rating of four or five stars
_____ Long-term care mortality rate
 Quality rating of three, four, or five stars
_____ Long-term hospitalization index
 Registered nurses on-site 24/7
_____ Total readmission rate within 30 days
 Ability to start IV lines 24/7
_____ Total readmission rate within 72 hours
 Ability to admit patients within two hours
Network in Brief: OSF Healthcare
Network in Brief: North Shore-LIJ
• Eight-hospital, not-for-profit health
system based in Peoria, Illinois
• 16-hospital, not-for-profit health system
based in Great Neck, New York
• As part of Pioneer ACO strategy,
created a preferred SNF network limited
to 17 facilities who met target criteria
• In 2008, created a SNF affiliate network
of 19 from list of potential 266
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at:
http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_PostAcute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
125
Preferred Networks Prove Ability to Reduce Total Cost
Promote Continuous Improvement Through Focused Partnership
Reducing Hospitalizations at OSF’s
Preferred Network
Reducing Readmissions and ED Visits
at North Shore-LIJ’s Affiliates
Heart Failure Rehospitalization Rate
Readmissions From Affiliated SNFs
27%
6%
11%
2%
2010
2012
2011
2013
All-Cause Readmission Rate
13%
7.5%
2010
©2014 The Advisory Board Company • advisory.com • 28603A
>50%
Reduction in ED visits
from affiliated SNFs
2012
Source: Healthcare Financial Management Association, “Bridging Acute and Post-Acute Care,” available at:
http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_PostAcute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis.
126
Mutual Benefit Necessary to Create Incentive
Critical Elements of Preferred PAC Network
Key PAC Benefit
Key Health System Benefit
Access to Operational Resources
Data Transparency
Health systems may provide access to
functionalities like their GPOs1 or IT
systems that PAC2 providers would be
unable to access on their own
Regular data reports from PAC partners
ensure that performance continues to
meet high-bar; highlights areas where
additional support may be needed
Shared Care Pathways and Training
Shared Staff
Health systems and PAC providers have
different areas of expertise and may
share protocols and training resources
to improve network as a whole
PAC providers may be able to expand
hospital capacity by taking on complex
patients; health systems may send staff
to monitor high-risk patients at PAC sites
Areas of Mutual Benefit
1) Group Purchasing Organizations.
2) Post-Acute Care.
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
127
Key Takeaways
Reducing Total Costs Through Population Health
Alignment models that allow
flexibility in partner choice create
inherent performance incentives
Standardizing care according
to best practice requires tight
financial alignment
Joint contracting networks, alliances,
and ACOs offer greater ability to
switch out low-performing partners
than full-asset mergers
Though looser collaborations may
allow members to pinpoint best
practices, standardizing care
according to best practice will require
partnership models that bring tighter
financial alignment between partners
Adding more partners reduces
financial burden, but also any
potential reward
Easier to contract for risk
through single entity
Adding more partners to population
health efforts can lower financial costs,
and improve care management, but it
can also spreads potential savings
across greater number of organizations
©2014 The Advisory Board Company • advisory.com • 28603A
Difficulties in analyzing and
valuing risk are exacerbated
when multiple parties are
negotiating and signing separate
contracts with payers
Source: Health Care Advisory Board interviews and analysis.
128
Weighing the Models
Model
Jointly-Financed
Infrastructure
Investment
Merger or
Acquisition
ContinuumWide Data
Transparency
NetworkEnabled
Performance
Standards
Comments
Long development time for mergers
lowers flexibility of partner selection,
though full financial alignment allows
greater clinical alignment
ClinicallyIntegrated
Hospital
Network
Investment in CI tends to focus on joint
contracting for fee-for-service
contracts, rather than population health
management
Accountable
Care
Organization
Though financial incentives are aligned
to support population health
coordination, lack of strategic alignment
precludes more helpful consolidation of
resources
Regional
Collaborative
Clinical
Affiliation
Agreement
©2014 The Advisory Board Company • advisory.com • 28603A
Though number of partners may
support greater economies of
knowledge, little incentive to
collaborate on population health
May incentivize collaboration on
specific clinical objectives, but broader
alignment vehicle necessary to
facilitate population health coordination
Source: Health Care Advisory Board interviews and analysis.
129
Ideal Partners
Three Characteristics of the Ideal Partner
Common
Patient Population
Complementary
Population Health Assets
Access to
Claims Data
Organizations that share a
patient population benefit when
they partner to coordinate
transitions and population health,
whether they are working under
fee for service or riskarrangements
All partnerships should involve
some division of accountability, or
efficient allocation of resources.
Provider organizations that have
access to patient claims data,
either through an owned health
plan, or an existing relationship
with a payer, represent ideal
partners in population health
©2014 The Advisory Board Company • advisory.com • 28603A
Partnerships that bring together
complementary assets can reduce
new expenditures, minimize the
need to rationalize existing assets
Organizations should ensure that
they negotiate access to claims
data when setting up any riskbased arrangement with a
commercial payer
Source: Health Care Advisory Board interviews and analysis.
130
Road Map
1
Leverage Beyond Price
2
The New Network Advantage
3 Charting an Intentional Corporate Strategy
©2014 The Advisory Board Company • advisory.com
131
Partnerships Must Drive Market Advantage
Leverage Beyond Price the Key to Success
Degree of Market Advantage
Product Advantage
Cost Advantage
I
II
III
Winning Preference
Through Clinical Scope
and Geographic Reach
Lowering Unit Prices
Through Operational Scale
Reducing Total Costs
Through Population Health
• Driving Network
Assembly
• Leveraging Low-Price
Care Sites
• Overcoming
Financial Barriers
• Slimming Underlying
Cost Structures
• Breaking Down
Information Silos
• Hardwiring Mutual
Accountability
• Appealing to Network
Assemblers
Time to Maximum Benefit
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
132
Model Choice No Guarantee of Success
Models Set Ground Rules…
...But Underlying Challenges Remain
Legal Ability to Cooperate
Integration Planning
Models like M&A, clinical
integration, and shared risk
provide legal framework that
enables collaboration
Legal framework only the
enabler; benefits of
collaboration only realized
through integration
Alignment of Governance
Stakeholder Buy-In
Partnership creates formal
governance structure; leaders
may be new or pulled from
partner organizations
Governance structure no
guarantee of buy-in from key
stakeholders such as physicians
and board members
Shared Identity
Cultural Alignment
Partnership creates unified
identify, whether through
formal legal structure or
informal collaboration
Identity may be in name-only;
true cultural alignment requires
robust communication plan,
extensive training
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.
133
Network Strategy Must Be More Than Just a Hobby
Success Depends on Focused, Intentional Strategy and Execution
Five Characteristics of Intentional Corporate Strategy
1
2
Clarity of Purpose
Professionally Managed Pipeline
Transactional Discipline
Intentional corporate strategy
starts with well-formed, clearly
articulated organizational purpose
Partnership function should be
an organized, routine process,
not an episodic activity
Robust due diligence process
prevents “partnership for the
sake of partnership”
4
3
5
Scientific Approach to Cultural Fit
Integration as Core Competency
Cultural affinities and possible
contradictions explored in parallel
to financial due diligence
Integration planning begins long before
partnership is finalized and continuous
indefinitely through rigorous monitoring
©2014 The Advisory Board Company • advisory.com • 28603A
Source: Health Care Advisory Board interviews and analysis.