The Latest Healthcare Financial Trends: What You Need to Know

The Latest Healthcare Financial Trends:
What You Need to Know
Bobbi Brown, Senior Vice President, Professional
Services
Dorian DiNardo, Senior Vice President, Analytics

© 2017 Health Catalyst
Proprietary and Confidential
Overview Agenda
• Review of 2017 trends.
• Areas for 2018.
• Transitions in payment.
• Disruption from all areas.
• Emerging skillsets.
• Preparation and response.

Bobbi Brown
Finance background and enjoys working with
clinical/operational to make change.
Professional services:
• Long range financial planning.
• Cost management.
• ROI analysis.
Partner in road trip

Dorian DiNardo
Information technology integration background and enjoys a
challenge.
Operations and Performance
Management Product Line:
• Leading Wisely.
• Measures Business Library.
• MACRA Measures and Insights.
• Community Care.

2017 Projections Update from Last Year
Physicians feel pinch
Technological advancement
Financial viability
Tolerate risk
Population health
Outcome improvement
Collaboration
No
Yes
Slower

Four Issues Facing Healthcare Systems
1. Financial pressure.
2. Uncertainty on health reform.
3. Mergers with new challenges.
4. Cut cost and innovate simultaneously.
Becker’s Hospital Review Conference Sept 27, 2017

Poll Question #1
What do you think will be the biggest impact to your organization in
2018? 116 Respondents
1. Payment/Payer influence. – 46%
2. Cost. – 21%
3. Technology. – 13%
4. Mergers and acquisitions. – 7%
5. Resources and staffing. – 14%

Trend #1:
Transitions in
Payment Models

Transitions in Payment Models
• Uncertainty.
• Trend - value-based purchasing continues.
• Markets vary.
• Risk – up and down (only 5% of MSSP ACOs in downside).
82.8%
• Commonwealth Fund fact:
Four large insurers account for
83% of total market

More ACOs
At the end of first quarter 2017, there were 923 ACOs across the U.S.,
which cover 32 million lives. Compared to the same period in 2016,
this is a net growth of 92 ACOs (138 started operations; 46 dropped
their contracts).
831
923
780
800
820
840
860
880
900
920
940
2016 2017
Number of ACOs
10% growth
Source: Health Affairs Blog, June 2017

Payment Models Review
Model Results
ACO
CMS- Pioneer, 32 to 8 org.
Next Generation, 18 org.
MSSP, 432 org (4th year).
CMS Models for 2016.
Pioneer (6 of 8 ) $68 M in savings.
Next Generation (11 of 18) $71M in savings, all
met quality at 100%.
MSSP (134 of 432) $700 M in savings.
Bundle
Voluntary BPCI- model 2 most popular
covering 242,000 episodes in first two years.
Major joint 60%.
Congestive heart failure 27%.
Lewin released 500 page study on third year of
program.
Mandatory- CJR (first year), 800 org in 67
markets.
Beginning to see change.
4.5% lower payment achieved over FFS.
Greatest impact on PAC.
Models in larger, urban, more affluent areas.
Voluntary program.
Few statistically differences in quality.
CJR(382 of 800) earned $37.6 M in reconciliation
payments.
90 Day readmit dropped 2% hip, 4% knee.

Explaining Sluggish Savings Under Accountable
Care
Framework Description
Incentives Too weak to change behavior.
Number of enrollees small for
comprehensive change.
Experience Little existing knowledge for needed change
Time needed to create solutions.
Complexity of organization Foundational work.
Complexity of large organizations.
Source: NEJM Article, November 9, 2017

CMS Proposes Cancellation of Cardiac Bundles
• Proposed start January 2018, Second delay.
• Mandatory bundle for heart attack bypass.
• Incentive for cardiac rehab.
• Scale back existing CJR - cut number of
geographic areas in half.
August 2017 proposal with comment period until October 2017.

1 in 4 Medical Payments Linked to APM
62%
43%
23%
29%
15%
28%
2015 2016
PAYMENT CATEGORIES
FFS APM P4P
6% increase
Goals for CMS/LAN APM:
• 30% in 2016.
• 50% in 2018.
Representing 245M Americans.
CMS active in payment
transformation.
Alternative Payment Model (APM)
Source: Health Care Payment Learning and Action Network Report

Humana Making Progress, Seeing Results
• Value Based Agreements
• 16.2% of PCP payments covering 51,500 physicians, 1.9 M Medicare
Advantage members.
• Cost 15% lower.
• Outcomes 7% lower ED visits.
• 6% lower hospital admissions.
• Prevention
• 13% higher colorectal screenings.
• 8% higher breast cancer screenings.

NYC Health & Hospitals- 4 Years of Savings
• MSSP Results
• Reduced costs between 4-12%, Savings of $3.6M in 2016.
• 90% score for quality.
• Perfect score for “at-risk” measures.
• Needed
• Data.
• Framework.
• Engaged front-line.
Source: Healthcare Finance, Nov 9, 2017

Post ACA
Trends in provision of preventive cardiovascular services.
Diabetes screening: 3.9%
Source: American Journal of Managed Care, November 2017
7.6%
2006-2010 2011-2013
VS
Tobacco use screening: 64.4% 74.5%
Aspirin therapy: 11.1% 13.5%
Hypertension screening: 73.2% 76.4%

Innovation and Transformation in Payment
Seema Verma, CMS Administrator
Verma outlined her new direction for the Center for Medicare and
Medicaid Innovation, which includes a continued focus on value and
movement away from paying for volume. Also seeking to reduce
complexity and focus on outcomes, and working to increase choice
and competition in the healthcare market; the goals are providing price
transparency and empowering beneficiaries as consumers.
Source: September 2017 Wall Street Journal article

Verma’s Vision for Medicaid
• Return to federal-state partnership.
• Freedom in the waivers to design innovative programs.
• Favor proposals with community
involvement/work activities.
• Create scorecards to monitor
and increase accountability.
• Streamline process and reporting.
Source: CMS, November 7, 2017.
• Currently there are 33 states with waivers and 18 states have pending
waivers.

Final Quote
I think APMs are here to stay, but they’ll continue to morph. With that,
organizational competence in care coordination, informatics,
consumer behavior modification, medical management, and cost
controls will be put to the test.
- Paul Keckley, Keckley Report November 20, 2017

Cost - Needs Increased Focus
The transition to VBP will increase organization’s focus on cost.
Healthcare previously relied on payment increases to meet bottom line
needs, particularly from commercial payers. Organizations see the
expense trend growing faster than the payment trend.
All hospitals 2014-15 2015-16
Revenue 7.4% 6.6%
Expense 6.2% 7.5%
Source: Moody's Investor Services, May update
CA Comparable Hospitals 2014-15 2015-16
Revenue 13.0% 5.5%
Expense 10.0% 7.0%
Source: OSHPD data

Split of Health Dollars Public named prescription
drugs as top health care
priority for President and
Congress.
PwC Health Research
Institute
Medical cost trend projections:
• 2017 ⎯ 6%
• 2018 ⎯ 6.5%

Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) Historical (1960-2014) data from Centers for
Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group (Accessed on December 7, 2015)
After Several Years of Modest Growth, Prescription Drug Spending
Rose Sharply in 2014.
Average annual growth rate of prescription drug spending per capita for 1970’s – 1990’s;
Annual change in actual prescription drug spending per capita 2000 – 2014
7.1%
11.8%
10.4%
14.7%
13.7%
12.6%
10.9%
8.1%
5.4%
8.2%
4.2%
1.5%
3.8%
-0.7%
1.5%
-0.6%
1.6%
11.4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1970s
1980s
1990s
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Prescription Drug Spending
Total Health Spending

Top DRGs by Payment
$0 $1 $2 $3 $4 $5 $6 $7 $8
Renal failure w mcomplications
Sepsis w ventilation
Heart failure with comorid complications
Pneumonia
Life support
Spinal fusion
Heart failure and shock w mcomplications
Infectious/parasitic disease w mcomplications
Major joint replace
Sepsis wo ventilation
2015 Top DRG's by payments
Dollars in billions
Source: CMS data

Components of Medicare Spend Increases
10%
6%
7%
3%
4%
2%
1%
2%
1%
3%
0%
2%
4%
6%
8%
10%
12%
14%
1980 1990 2000 2010-15 Projected
Medicare Spend
Spend/ben Enrollment
Source: MedPac report March 2017

Spending – Annualized Increase 4% or $933.5 B
Factors associated with increases:
• Population growth.
• Population aging.
• Disease prevalence.
• Service utilization.
• Service price.
Highest conditions with increase:
• Diabetes.
• Low back and neck pain.
• Hypertension.
During same period (1996-2013) overall economy grew 2.4%.
Source: JAMA, November 2017
Conclusion: Largest increase service
price component.

Overall Financial Data for Hospitals
5.6%
6.6% 7.3% 6.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2013 2014 2015 2016
Hospital Operating Margin
20
40
60
80
100
120
140
160
180
2013 2014 2015 2016
Days Cash on Hand
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Total Medicare Medicaid Commerical Managed
Care
Contractual Allowance % of GPSR
2013 2016$7,950
$8,000
$8,050
$8,100
$8,150
$8,200
$8,250
$8,300
$8,350
2013 2014 2015 2016
Net Revenue/Case CMI Adjusted
Source: Truven Health Analytics: Health Leaders Oct 2017

Why are Hospitals Losing Money by the Millions?
Hospital contribution to cost hikes:
• Purchasing expensive medical equipment and generating demand.
• Hiring specialists.
• Tolerating massive inefficiencies.
Source: Robert Pearl, M.D., Forbes
Are we stuck with old investments?
Can we change from within or do we need outside forces?

How U.S. Hospitals and Health Systems Can Reverse
their Sliding Financial Performance.
 Lack of discipline in managing the size of their workforces.
 Managing revenue cycle.
 Reducing needless variation.
 Standardization.
“If health systems are to improve their financial performance, they must
achieve both strategic and operational discipline. If they don’t, their current
travails almost certainly will deepen.”
- Jeff Goldsmith, Harvard Business Review, October 5, 2017

Consumers at Risk
25.3%
39.4%
42.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
2010 2016 2017QTR1
% Privately Insured in HDHP
0% 10% 20% 30% 40% 50% 60%
Compared costs
Considered another provider
Searched for out-of-pocket estimate
Aware of price before care
Percentage of Patients Shopping
Jumps to 18.4% with higher
deductible
Source: CDC November 2017
Source: Health Affairs, Aug 2017

50 States Graded on Transparency and 43 Fail
C
A
C
Source: Price Transparency & Physician Quality Report Care 2017
“A” Score Transparency:
New Hampshire
Maine
“A” Score Quality:
Minnesota
California
A C
A
C
B
B

Maryland Public Website

Final Quote on Costs
Nobody is going to pay more for healthcare. So we’ve got to bring our
costs down and we have to focus on our patients and our quality. Just
focus on your basics and you’ll be okay.
- Tom Jackiewicz, CEO, Keck Medicine, USC

Trend #2:
Disruption From
Established Players
and Newcomers
Disruption is a business buzzword that is over-used.

Disruption signs:
• New future.
• New language.
• New economics.
Source: Healthcare Disrupted, Jeff Elton and Anne O’Riordan
Are We at a Tipping Point?
36

“Medicare for All”: Universal Healthcare
“Medicare for All” has become a slogan and movement for universal
healthcare (i.e., a single-payer system). The website claims tentative
support from 27 percent of the members of the House of
Representatives.

Maryland – Global Hospital Budget
All payer global budget since 2014.
• Margins are up.
• Readmissions and spend under national trends.
• 48% reduction in potentially preventable complications.
• $429M less spending in Medicare.
• Collaborations with community expanding.

Moving Away From the Inpatient Hospital Business
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Outpatient Hospital Visits
in millions
95
100
105
110
115
120
125
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Trend of Admits per Thousand
Source; AHA Chartbook

Break Association of Hospital With Beds
“The more we know about healing, the more it appears that health
care spaces will need a different approach—one that sometimes
looks more like a park than a long fluorescent hallway full of beds"
Source: Neel Shah, M.D., Politico, Nov 8, 2017).

New Ideas in all Areas
Designing buildings for an uncertain future.
• Design trends-accommodate evidence-based care, new approaches, ever-
changing models of care.
Source: Modern Healthcare, September 11, 2017
September 2017 article in the Wall Street Journal summarized the
capital spend planned outside the traditional hospital, as both for-profit
and not-for-profit systems invest in emergency rooms, surgery center,
and urgent care clinics.

Tenet Investor Presentation
42

2018 HOPD Payment Cut
Site-Neutral Policy
Off-campus provider-based departments that began operating after
November 2015 will receive only 40 percent of the payment rates of
older departments.
Reason:
Medicare was paying more in hospital outpatient setting than for the
same procedure in a doctor's office.
Source: Physicians
Advocacy Institute
and Avalere
Hospital Physician Office
Colonoscopy $ 1,066 $ 413
Cardiac Imaging $ 5,148 $ 2,862

2018 OPPS Rule
CMS removed total knee arthroplasties (TKA) for inpatient only list.
Impact per Advisory Board:
• Shift more surgeries to OP: Move 45% Medicare 275,000 cases.
• Lower reimbursement (approximate per case).
• Inpatient $12,400.
• Outpatient $10,100.

Anthem
In August of 2017, insurance plan provider Anthem announced it
would no longer pay for MRIs and CT scans performed at hospitals on
an outpatient basis; this policy will be implemented by March of 2018.
Motive:
• Control cost.
• Lower premiums.
• Help consumer with high-deductible plans.

MACRA-Medicare Access and CHIP Reauthorization Act
“We have a better framework to go forward,” said David Barbe, MD,
president of the American Medical Association. “It’s increasingly
looking at the value that care brings. That can be in terms of economic
savings. It can be in terms of improved quality. It can be in terms of
better interaction between physicians and patients.” Barbe also
acknowledged that getting participation from doctors and healthcare
organizations will be difficult.

MACRA and our Political Landscape
MACRA is legislation that passed with bipartisan support, making it difficult to fully dismantle.
• For example, the 2018 proposal had been to keep the cost category at 0%, but because the statute requires the
cost component to account for 30% by 2019, it was concluded it is best to ease the transition and stay with 10% for
2018.
Trump administration has enhanced flexibilities in 2018 rules.
• Increased number of physicians can opt out.
– Higher threshold for number of Medicare patients treated to be required to participate.
• “Extreme and uncontrollable circumstances” policy added, in response to this year’s natural disasters.
• MIPS bonus for clinicians who treat:
– Complex patients.
– Rural practices.
Patients Over Paperwork initiative informed low-volume threshold and natural disaster policy.
• Could influence quality measures in future, as streamlining a single set of measures is part of initiative.
Significantly fewer clinicians than anticipated will be participating in MIPS-only 39% of 1.5 million
Medicare clinicians will be complying with MIPS in 2018, according to CMS due to the low volume
threshold; APM track changes.

Amazon
Amazon’s healthcare technology team, called 1492, is working on
developing new capabilities that involve electronic medical records
systems and telemedicine. Their work has the industry asking a
couple key questions:
1. Will this Amazon team help make information available to
consumers?
2. Will this be the final push that is needed to open our medical
records?
Apple, Microsoft, and Google continue to investigate entering the
healthcare market. As innovators (and potential disruptors), these
companies could impact healthcare in many ways.

High Tech
Apple: Could Apple be taking a bite out of EHR’s?
• Consumers demanding more control, interoperability, more access
to health data.
Source: Modern Healthcare, September 11,2017
Apple, Microsoft, and Google continue to investigate entering the
healthcare market. As innovators (and potential disruptors), these
companies could impact healthcare in many ways.

Mergers
51
72
90
107
88
100 102
0
20
40
60
80
100
120
2005 2010 2011 2012 2013 2014 2015
Hospital Mergers
• Health care.
• Margin pressure.
• Pruning of portfolios.
• All industry in general.
• Fend off high tech.
$-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
2005 2010 2014 2015 2016 2017Nov
Dollar Value of US Mergers
In Trillions
Source: AHA, Irving Levin and WSJ Dealogic

Closure of Hospitals
Closures:
• Low occupancy.
• Poor reimbursement.
Rural hospitals:
• From 2010 - 53 closed.
• 273 at risk of closure.
• New models needed.
29
14
17
14
9
13
11
16
22
30
24 24
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015
Hospital Status
Open Closed

Models for Change
American healthcare is inefficient, ineffective and expensive. In other
words, it’s ripe for disruption, which could happen a number of ways.
- Robert Pearl, M.D., Forbes
Three models:
• High touch.
• High tech.
• Off shore – high efficiency, hyper specialization, technology.

Needs More Disruption: The Claims Process
There are new payment models, but, in most cases, claims are still
paid under FFS. Then, at the end of a specific time period, health
systems see the results of a reconciliation. Did the bundle payment
incentivize lower costs for hospital, physician, and post-acute care?

Final Quote on Disruption
You have to go to your boards and tell them that you’re going to have
less revenue because you’re going to stop doing things that people
don’t really need. - Marc Harrison, M.D., CEO Intermountain
Healthcare

Trend #3:
Emerging Data
Skillsets

Emerging Data Skillsets
The job title “data scientist” is
increasingly common. Data is
becoming more complex as more and
more data becomes available,
generating the need for more
predictive work, new roles and
skillsets.
A recent survey on the role of artificial intelligence (AI) in accounting asks
financial experts about their current and planned use of AI.

821 Job Hits on Indeed.com Requiring Individuals to Identify, Invest
and or Strategize on Emerging Technologies in Healthcare.

Machine Learning in Healthcare
Areas where machine learning helped accelerate improvement:
• Opioid addiction risk prediction.
• Readmission prediction for patients with heart failure.
• Sepsis prediction within 24 hours of admission.
• Propensity to pay prediction (allows organizations to dedicate
resources to outstanding bills most likely to be paid).
• The benefits of procedures to patients based on artificial
intelligence.

Digital Technology such as Blockchain
In 2007, the government of Estonia began a nationwide implementation of a
version of Blockchain to secure all Electronic Health Records (EHRs) in the
country. Estonia has virtually eliminated the need to have a Health Information
Exchange (HIE), all-payer claims database, or Electronic Medical Records (EMRs).
In 2016, there was a declaration to allow patient data exchange, cross-border e-
services and e-prescriptions.
In 2017, Estonia’s main objective is to compile all of the patient’s data into a unified
data health-record, over which each individual has full access. In addition to the
data collected by doctors, an individual can add extra information to his or her
personal account.
In Estonia, Blockchain (distributed ledger) gives citizens and residents more control
over their own data, empowering people to become more aware of those factors
influencing their health and people will progressively become more responsible for
managing their own health.
https://e-estonia.com/healthcare-is-changing-and-technology-is-changing-with-it/

Where Hospitals Are Investing in Innovation Today
Based on existing trends and future predictions, healthcare organizations
are currently investing in several key areas:
• Patient-generated data and customized services (e.g., integrating smart
watches with data).
• Network utilization and management (e.g., tracking patients).
• Referral management and in-network retention (i.e., keeping patients
within the health system).
• Social community support (i.e., partnerships with community to
coordinate care).
• Convenient patient access, including telemedicine (i.e., patient
experience).

Global Lessons In Frugal Innovation
Common features in all programs:
• Changed setting and providers.
• Improved communication.
• Changed behavior.
• Improved efficiency.
Source: Global lessons in frugal innovation to improve health care delivery in U.S. Health Affairs, November 2017

Final Quote
“There’s never been a better time in healthcare. You’re going to see
enormous innovation. I’m excited that we are going to try and give the
power to the people.”
- Marc Harrison, M.D., CEO Intermountain Healthcare

Trip Coming to an End…

Questions to Ask:
In addition to measuring how their organization’s plans match up with forecasted trends,
healthcare leaders can address the following areas as they prepare for 2018:
1. Does my thought process revolve around the patient throughout the continuum of care?
(Readmission rate is a useful metric here.)
2. How can my organization work with outside partners?
3. Can my health system pilot small innovations and then scale them to larger
populations?
4. Has my organization created too many silos? (If it takes many people to answer a
simple question, then yes.)
5. Does my organization have the right talent to keep up with change (e.g., machine
learning and predictive analytics specialists)?
6. Is my business model sensitive to the new trends? How does the model position the
organization in five years?

How Do We Prepare?
• Do something fun with machine learning.
• Interview a student in the field of data science.
• Revisit your strategic plan and look at the volume trends.
• Visit a community resource that is new to you. (Can be on-line)
• Ask managers to describe their accountability for cost and the tools they
use.
• Are managers enabled with information and enriched by the information
or starving for it?
• Is the consumer at the center of our plans? How do we demonstrate
that?
• What would happen if…..

Poll Question #2
What topics touched on today would you like to see covered in more
depth? (select all that apply) 120 Respondents
1. Population health. – 59%
2. Regulatory issues. – 28%
3. Cost improvement. – 55%
4. Future AI in healthcare. – 64%
5. More road trips. – 7%

Thanks so much for your time.
Contacts: Bobbi Brown bobbi.brown@healthcatalyst.com
Dorian DiNardo dorian.dinardo@healthcatalyst.com
More research:
healthcare.ai™
https://www.healthcatalyst.com/catalyst-ai/
https://www.politico.com/agenda/issue/agenda-2020-health

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