Learn about 2016 trends in government and private healthcare spending, employer costs, and the patient-as-consumer movement that's spurring new provider models.

1. Healthcare Industry
Landscape
January 2016
Ed Park
Chief Operating Officer

2. 2

3. 3

4. 4

5. 5

6. What is
inevitable in
healthcare?

7. Government/Medicare will continue to push
towards fee-for-value
Employers will continue to shift risk onto patients –
high deductibles, private exchanges, etc.
Payers and Providers will continue to consolidate
Patients will begin to act more like consumers when
shopping for plans and shopping for providers
1
2
3
4

8. Purchaser response
Macro trends
Provider strategies

9. Macro trends

10. $2.9 trillion

11. 11
18
20
22
24
26
28
2007 2008 2009 2010 2011 2012 2013 2014 2015
https://www.nasbo.org/sites/default/files/State%20Expenditure%20Report%20%28Fiscal%202013-2015%29S.pdf
Percentageoftotalstateexpenditures
Medicaid and K-12 Spending
Medicaid
K-12

12. 12
Source: NIHC Concentration of Health Care Spending (Washington, DC: National Institute for Health Care Management Foundation, July 2012),
http://www.nihcm.org/pdf/DataBrief3%20Final.pdf
Individual
Spender Tier
Spending
per Person
Percent of Total
Spending
Top 1% $97,859 21.8%
Top 5% $43,038 49.5%
Top 10% $28,452 65.2%
Top 30% $12,951 89.6%
It is well known that costs are highly concentrated
5% of patients represent half of spending

13. 13
Source: http://www.forbes.com/sites/danmunro/2012/12/30/2012-the-year-in-healthcare-charts/#2715e4857a0bb9c66a1458f9
We also spend more than twice as much per person
on healthcare as other developed countries
85
80
75
79
0 1000 2000 3000 4000 5000 6000 7000
AverageLifeExpectancyatBirth(Years)
Total Expenditure on Health per capita in USD
Linear Trend Line
Hungary
Japan
S. Korea
Mexico
UK
USA

14. 14
http://www.post-gazette.com/stories/news/health/us-health-care-costs-for-the-aged-are-sky-high-371246/
Annual Per Capital Healthcare Costs by Age
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
10 20 30 40 50 60 70 80 90
US
Germany
UK
Sweden
Spain
Less well known is how rapidly U.S. costs rise with age
relative to other countries

15. 15
Source: 2014 annual report of the Boards of Trustees of the Medicare trust funds.
Projected Change in Medicare Enrollment, 2000-2050
75 8580 9590 0500 1510
100
90
80
70
60
50
40
30
20
10
0
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2000 2010 2020 2013 2040 2050
1.9%
3.0%
2.4%
0.9%
0.4%
39.7
47.7
64.3
81.5
88.9 92.4
Average Annual Growth in Enrollment
Medicare Enrollment (in millions)
We know that overall costs will continue to increase as the
population ages – 11,000 people enter Medicare daily

16. 16
8.50%
9.60%
8.60%
7.20%
6.80%
6.50%
6.30%
4.80%
3.80%
3.90%
3.90%
4.10%
3.60%
5.30%
0%
2%
4%
6%
8%
10%
12%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Average Annual Percent Change in National Health
Expenditure (Nominal)
Source: Michael Chernew, Harvard School of Public Health
There was some respite as medical inflation slowed 2008-2013,
but spending appears to be re-accelerating

17. 17
Source: http://www.realclearpolicy.com/blog/2012/05/
30%
25%
20%
15%
10%
5%
0%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2085
1970
3.9%
2011
10.4%
2085
25.7%
Social
Security
Medicaid,
Obamacare
Subsidies,
CHIP
Medicare
Actual Projected
Actual
Revenue
Average
Historical
Revenue;
18.1%
2045: Entitlement spending
matches tax revenue average
Overall, we’re still on pace to bankrupt the U.S.

18. Government
(“public purchasers”)

19. 19
Reminder: the Grand Bargain of the ACA is to expand coverage
while reducing Medicare rates

20. 20
Source: The Advisory Board Company as of January 13, 2016. https://www.advisory.com/daily-briefing/resources/primers/medicaidmap
Expanding
Medicaid
31States plus DC
Considering
Expansion
2States
Not Expanding
Medicaid
17States
Medicaid expansion continues to (selectively) move forward

21. And the public exchanges are on track with projections

22. 22
17.3%
17.1%
16.9%
16.3%
16.8%
17.1%
18.0%
17.1%
15.6%
13.4%
13.4%
12.9%
11.9%
11.4%
11.6%
11.9%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Lowest Uninsured Rate on Record
Percentage of U.S. Adults Without Insurance, by Quarter
Decrease in
Uninsured Adult Visits
on athenaNet1,
Expansion States
32%
Decrease in
Uninsured Adult Visits
on athenaNet1,
Non-Expansion States
16%
Source: Gallup, “Uninsured rate essentially unchanged throughout 2015.” 1Quarter 1, 2012 to Quarter 4, 2015. ACAView
All in, we are seeing the lowest uninsured rate on record

23. 23
http://www.politico.com/tipsheets/morning-ehealth/2016/01/politicos-morning-ehealth-209-000-doctors-hit-with-meaningful-use-penalty-this-year-212129
On the other side of the ledger, carrots are turning into sticks

24. 14%swing in Medicare FFS
payments in 2018 based
on 2016 performance
under MU/PQRS/VBM
(-10% to +4%)
24
36%swing in Medicare FFS
payments by 2022 under
MIPS
(-9% to +27%)

25. 25
CMS has signaled that it is putting its foot on the gas

26. 26
Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-01-26-3.html
2016
All Medicare FFS
85%
30%
2018
All Medicare FFS
90%
50%
All Medicare FFS (Categories 1-4)
FFS linked to quality (Categories 2-4)
Alternative payment models (Categories 3-4)
Target percentage of Medicare FFS payments linked to quality
and alternative payment models in 2016 and 2018

27. “2016 will be an enormous
and pivotal year for
progress and it’s starting
off with a bang”
–Andy Slavitt, Acting CMS Administrator
January 2016

28. Fee-For-Service
Optional
Value-Based
Mandatory
20152010 2020+
Meaningful Use
Stage 1
Meaningful Use
Stage 2
Meaningful Use
Stage 3
PQRS Bonuses PQRS Penalties
Value-Based Modifier (VBM)
Bonuses/Penalties
Merit-Based Incentive
Payment System
(MIPS)
Pioneer
ACOs
Medicare Shared Savings
Plan (MSSP) – Track 1/2/3 Next-Generation ACOs
Voluntary Bundled Payments (BPCI)
Mandatory Bundles (CJR)
(hips/knees)
?
FFS+
Global Risk
Episodic Risk

30. 30
Still, it is difficult to predict the future!

31. Employers
(“private purchasers”)

32. 32
Average Annual Worker and Employer Contributions
to Premiums and Total Premiums for Family Coverage,
1999-2015
*Estimate is statistically different from estimate for the previous year shown (p<.05).
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2015.
$4,955
$4,823
$4,565
$4,316
$4,129
$3,997*
$3,515
$3,354
$3,281*
$2,973*
$2,713
$2,661*
$2,412*
$2,137*
$1,787*
$1,619
$1,543
$12,591*
$12,011
$11,786
$11,429*
$10,944*
$9,773
$9,860*
$9,325*
$8,824
$8,508*
$8,167*
$7,289*
$6,657*
$5,866*
$5,274*
$4,819*
$4,247
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Worker Contribution
Employer Contribution
$5,791
$6,438*
$7,061*
$8,003*
$9,068*
$9,950*
$10,880*
$11,480*
$12,106*
$12,680*
$13,375*
$13,770*
$15,073*
$15,745*
$16,351*
$16,834*
$17,545*
Employer healthcare costs have tripled since 1999

33. 33
Source: Kaiser Employee Benefits Survey, 2013; median wage from EPI analysis of CPS
The Health Care Cost Crunch, 1999-2013
$20,000
$16,000
$12,000
$8,000
$4,000
$0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$20.50
$19.50
$18.50
$17.50
$16.50
$15.50
$14.40
8.7
10.4
13.1 16.0 17.8 19.3
22.7 24.5
Weeks of full time work (at median wage need to pay family premium)
Average annual premiums (single coverage)
Average annual premiums (family coverage)
Median wage (right axis)
Today’s average family premium is half a year’s work at median
wage

34. Private Exchanges Direct Contracting
34
Activist employers continue to experiment, but advanced
mechanisms such as direct-to-employer contracting or private
exchanges have yet to catch fire

35. 35
SOURCE: Kaiser/HRET Survey of Employer Sponsored Health Benefits, 2006-2015
The dominant response so far has been to simply
increase the deductible
$775
$852
$1,124
$1,254
$1,391
$1,537 $1,596
$1,715
$1,797 $1,836
$496
$519 $553
$640 $686
$757
$875 $884
$971
$1,105
$584
$616
$735
$826
$917
$991
$1,097 $1,135
$1,217
$1,318
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
All Small Firms (3-199 Workers) All Large Firms (200 or More Workers)
All Firms
Deductibles Rising
The year-to-average increases in employer-paid health insurance deductibles aren’t all that big
because some firms haven’t raised them much. But the overall trend is for deductibles to keep
rising, especially at smaller firms.

36. $1,318average employee deductible
up 60% since 2009
36

37. 37
With patients at full risk up to the deductible,
Yelp for healthcare is going mainstream

38. Payers

39. 39
Source: 2014 Aetna investor presentation
38%
16%
34%
13%
25%
16%
50%
9%
Uninsured
Consumer Choice
• Public/Private Exchanges
• Individual MA
• Medicare Supplement
• Managed Medicaid
Government
• Medicare FFS
• Medicaid FFS
Employer
2014 2020
319M
334M
We are increasingly becoming a government funded industry

40. 40
Note: Includes cost and demonstration plans, and enrollees in Special Needs Plans as well as other Medicare Advantage plans
Source: MPR/Kaiser Family Foundation analysis of CMS Medicare Advantage enrollment files, 2008-2014, and MPR, “Tracking Medicare Health and Prescription Drug Plans
Monthly Report,” 2001-2207. Report of the Medicare Board of Trustees, 2002.
2.2 2.5 2.8
3.5
4.4
5.4
6.4
6.9 6.8
6.2
5.6 5.3 5.3 5.6
6.8
8.4
9.7
10.5
11.1
11.9
13.1
14.4
15.7
16.8
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Medicare Advantage Enrollment, 1992-2015
In Millions
BBA MMA ACA
Medicare Advantage and Managed Medicaid are growing
especially quickly

41. 41
As of March 31, 2015. t Assuming Anthem maintains CEO and headquarters
Source: The Wall Street Journal, http://www.wsj.com/articles/anthem-agrees-to-buy-cigna-for-48-billion-1437732331
These opportunities in managed Medicare/Medicaid, along with
regulation and reach for market share, is fueling a dance of the
elephants

42. 42
http://www.managedcaremag.com/archives/2015/12/big-meets-even-bigger-more-consolidation-offing
These proposed mergers raise the specter
of consolidating the already-potent market power of
these insurers
Anthem-Cigna merger increases market power
Anthem-Cigna merger raises competitive concerns
Aetna-Humana merger raises concerns
Both mergers reduce competition

43. 43
Source: http://www.wsj.com/articles/health-care-providers-insurers-supersize-1442850400
http://www.aha.org/research/reports/tw/chartbook/2015/15chartbook.pdf, Oliver Wyman
Irving Levin Associates
125 Deals
100
75
50
25
0
’09 ’10 ’11 ‘12 ‘13 ’14 ‘15
Full Year
To Aug.31
In part to counter this power imbalance, we have seen
significant hospital consolidation

44. 44
Source: Oliver Wyman, http://issuu.com/oliverwymangroup/docs/oliver_wyman_ahip_vertical_integrat
And back to the future – payers and providers are dipping their
toes in the waters of narrowed networks and vertical
consolidation

45. Patients

46. 46
Americans are the best shoppers in the world and we’re
starting to shop

47. 47
Access and convenience are becoming
increasingly important

48. Health systems are responding by increasingly trying to meet
patients where they are in their neighborhood…
48

49. 49
…or in the home with telehealth

50. 50
Remote monitoring has not yet hit mass-market
but it will inevitably play a larger role

51. 51
Quick Stats
6,380 Google Play Store ratings: 4.54 / 5 stars
1,243 Apple App Store ratings: 4.5 / 5 stars
Net Promoter Score: 58
• Amex: 45
• Netflix: 45
• CVS: 26
• Health insurance avg: 17
9,755 Facebook fans
• Omada Health: 825
• Propeller Health: 515
Consumers are beginning to demand healthcare experiences that are
every bit as sophisticated as other consumer experiences

52. 52

53. Provider Strategies

54. Consolidation remains the dominant
primary response

55. The health care chess board…
Urgent
Care
Imaging
Center
Lab
Pharmacy
Retail
Clinic
Small
Physician
Group
Small
Physician
Group
Hospital
Hospital
Small
Physician
Group
Small
Physician
Group
Specialty
Clinic
Orthopedics
Special
Surgery
At-risk health
system
At-risk health
system

56. Urgent
Care
Imaging
Center
Lab
Pharmacy
Retail
Clinic
Small
Physician
Group
Small
Physician
Group
Hospital
Hospital
Small
Physician
Group
Small
Physician
Group
Specialty
Clinic
Orthopedics
Special
Surgery
At-risk health
system
At-risk health
system
1 Build a hospital-centered health system and own most of
the continuum of care

57. Urgent
Care
Imaging
Center
Lab
Pharmacy
Retail
Clinic
Small
Physician
Group
Small
Physician
Group
Hospital
Hospital
Small
Physician
Group
Small
Physician
Group
Specialty
Clinic
Orthopedics
Special
Surgery
At-risk health
system
At-risk health
system
2 Build a multispecialty group that focuses on primary care
delivery with “consulting” specialists

58. Urgent
Care
Imaging
Center
Lab
Pharmacy
Retail
Clinic
Small
Physician
Group
Small
Physician
Group
Hospital
Hospital
Small
Physician
Group
Small
Physician
Group
Specialty
Clinic
Orthopedics
Special
Surgery
At-risk health
system
At-risk health
system
3 Build a specialty bloc that focuses on doing a few things
well

59. 59
4 Create a new model at the periphery – a reinvention of
traditional primary care

60. 60
Stepping back, some of the most successful strategies will be hybrids

61. 61
ownership
vs
alignment

62. 62
Advances in interoperability are making these hybrid models easier

63. 63
Medications
are manually
reconciled by
the MA or
provider
Vaccines,
problems, allergies
are automatically
reconciled with
source attribution
noted
All documents and
notes across the
continuum of care
(labs, imaging centers,
discharge summaries)
are available
For the first time, a cross-system view of the patient is within reach

64. 64

65. The Argonaut Project

66. 66
Note: Responses from physicians in management-led organizations
Source: Bain Front Line of Healthcare Survey, January 2015
What is the most important change your organization
needs to make in order to achieve its mission?
Responses from physicians in management-led organizations
Physician leadership remains the scarcest commodity
Engage Physicians
Communicate With Physicians
Improve Tech Capabilities
QualityPatientCare
AdaptToChangingHealthcareLandscape
ImproveWorkEnvironment
Better Access
Alignment On Mission
IncreaseServices
Other
StayOnCurrentPath
Increase Services Group Oversight
Improve Allocation Of Resources
Align With Other Health Entities
Maintain/Increase Autonomy
Better Training
Reduced Overhead
Accountability Increase Efficiency
Reduce Costs
Improve Reimbursements
Improve Leadership
Improve Facility
Improve BenefitsFocus On StaffingImprove Org Structure
LowerCosts
PhysicianLeadership
Grow Market Share
Focus On Niche
Increase patient Time
Increase Marketing
ReduceBureaucracy
IncreasepatientVolume
Continue Clinical Excellence

67. 67
The government is becoming an even bigger player and value-
based payments (MU, PQRS/VBM, MSSP, CJR, MIPS, etc.) are
here to stay1
The patient-as-consumer movement is rapidly unfolding–
developing an intentional strategy for this is crucial2
With great uncertainty comes great opportunity – those who lead
can gather outsized gains3
Key Takeaways

68. Thank You