The Future of Medicine and Physicians Role in Innovation

1. The Future of Medicine and Physicians Role in Innovation Ian Morrison PhD www.ianmorrison.com

2. Outline • Key Issues Driving Change • Healthcare 2020 • Private Purchaser • Consumer • Employer • Exchanges • Public Purchaser • Medicare • Medicaid • Payment Reform • Delivery System Transformation • Physician Engagement with Change and Innovation

3. Key Issues: ACA and Coverage Expansion • ACA is the “the Law of the Land”…at least until the 2016 Election • Two Americas • Public Exchanges got off to very rocky start, year two saw less drama • Private Exchanges gaining momentum, but question has shifted from why not to why? • Exchanges both public and private shift the market toward retail • Insurers are consolidating partly as a result of ACA and coverage expansion by public sector

4. Health Plan Consolidation Continues • Aetna buys Humana for $37 billion making a $115 billion run rate company • Anthem closes on Cigna in $54 billion makes a $117 billion run rate company • New Rivals for $154 billion UnitedHealth Group • Other: • Centene buys Health Net for $6.3 billion

5. Key Issues: Health Systems • Accountable Care is a megatrend, but maybe not ACOs • Medicare Advantage may be the end game for some • Pressure on costs and and delivering value intensifies • Hospital “prices” under intense scrutiny by press and purchasers • “Learning to live on Medicare” means taking out 10-20% of costs (more for academic institutions) and Medicare reimbursement rates will keep getting pressurized • From Volume to Value means high cost procedure oriented specialties (cardiovascular, ortho, neuro, oncology) move from key assets to liabilities in a capitated environment, how long, how much is extremely uncertain • Focus on Primary Care

6. Key Issues: Health Systems • The Massive Consolidation continues toward 100-200 Large Regional Systems • Doctors running to hospitals • Hospitals consolidating regionally • Role of private equity and for profits in consolidation • Focus on “Essentiality” may run into Attorney Generals and Anti-Trust concerns • The rich get richer: significant returns to scale and to integration • Doctors discretion in selection of specific technologies and clinical protocols will be increasingly constrained by large motivated health systems that employ them • Purchasers are extremely unhappy and are using consumer incentive tools, Skinny Networks and Spot Market trends as counter forces e.g. CalPers reference pricing • Care coordination of transitions will be at a premium • From fill the hospital to empty the hospital, it is going to be economically and culturally challenging • Will doctors, nurses and consumers go along with all this? • No matter what we must redesign the delivery system: and it needs to be science-based, technology-enabled and consumer friendly

7. SHP HOSPITALS 2015 REGIONAL VARIATION IN ATTITUDES TOWARDS CONSOLIDATION Health systems in the east are a bit more skeptical, pragmatic about the reasons behind consolidation. 48% Agree 54% Agree Hospitals need to be increasingly wary of antitrust considerations when integrating with other hospitals.* In the short term, our efforts towards consolidation are more about bargaining leverage than about quality or value (even if we get there eventually).* *New attribute in 2015 Base: All Hospital-Based Execs (2015: n=200) Q715: Please indicate how much you agree or disagree with each of the following statements.

8. Why is it different this time? • The ACA is a stimulator and accelerator of change • We have hit the wall of affordability for business, government and households • The data and tools are better for quality measurement and care management • The commitment of leaders to change is greater • Doctors have been “softened up” for employment and integration by bombardment of ACA, meaningful use, and lifestyle pressures • Consumers have been “empowered” • Slow but inexorable movement to value based purchasing may have hit tipping point in 2015 • Personalized precision medicine calls the bluff on solo practice • Population health requires scale and integration • Healthcare journalists no longer defenders of FFS and opposed to managed care but now data-driven champions of transparency • There are high profile champions of change not just Kaisinger…but AHA elites, large regional systems, and new enablers

9. CMS States Clear Value Goals for Medicare “Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018. Perhaps even more important, our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018. Alternative payment models include accountable care organizations (ACOs) and bundled-payment arrangements under which health care providers are accountable for the quality and cost of the care they deliver to patients.” Sylvia Burwell, CMS Administrator, January 26th, NEJM

10. Healthcare Transformation Taskforce • Chaired by Richard Gilfillan MD CEO of Trinity • Major health systems, payers and other stakeholders committing to 75% of their business in value-based models by 2020 • Participants include Advocate, Ascension, Trinity, Providence, Partners and more • California Players include Dignity, Heritage, Providence, Blue Shield, Optum and Aetna • More at hctf.org

11. The Tension

12. What Population Level Analytics Reveal • The 5/50 Problem • 5% account for 50% of spending • 1% account for 20% • Bottom 50% account for about 2% • Segmentation of populations • What you will find… • HONDAS • Behavioral Health • End of Life Care • Cancer • Frail elderly • Social Work not Medical Care • Specialty Pharmaceuticals

16. Insured Adults with Lower Incomes Were More Likely to Report They Had Delayed or Avoided Getting Care Because of Their Copayments or Coinsurance Percent responding “yes” Insured adults ages 19–64 who pay a copayment or coinsurance Note: FPL refers to federal poverty level. Source: The Commonwealth Fund Health Care Affordability Tracking Survey, September–October 2014.

17. Consumers Don’t Feel “Empowered” By Escalation In Cost Shifting Consumer Emotions Towards Healthcare They Receive This year, again, 3 in 10 (29%) say they had to forego medical care due to cost this (vs. 30% in 2013) & and 2 in 10 (23%) asked a doctor for a cheaper medication (vs. 24% in 2013) Prepared for: Strategic Health Perspectives Base: All 2014 US Adults (n=2501) Source: Q1850 How would you describe your feelings about the health care you receive today, including how much you pay for it and the benefits you receive? Please select all that apply.

18. CONSUMERS AT RISK FEEL EXTREMELY POWERLESS, NEGATIVE Consumer Emotions Towards Healthcare They Receive Borderline are those who have major burden of health care cost and are extremely concerned about ability to pay for a serious health problem. Prepared for: Strategic Health Perspectives Base: All 2014 US Adults (n=2501) Source: Q1850 How would you describe your feelings about the health care you receive today, including how much you pay for it and the benefits you receive? Please select all that apply.

19. Consumers feel less empowered and accepting of their healthcare This year, significantly more say they are powerless, angry, resigned, and depressed; fewer are relieved, though slightly more are hopeful. Consumer Emotions Towards Healthcare They Receive BORDERLINE(n=433) 14% 37% 43% 52% 15% 62% 5% 8% 4% 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 Prepared for: Strategic Health Perspectives Base: All US Adults (2014 n=2501, 2015 n=5037) Source: Q47 How would you describe your feelings about the health care you receive today, including how much you pay for it and the benefits you receive? Please select all that apply.

20. TRENDED SHP CONSUMER 2014 Consumers consistently value Lower premiums, want to keep current doctor Virtually no difference over prior year in benefit tradeoffs Relative Importance of Benefit, Under Age 65 AboveAverage Average* Below Average Base: All US Adults Less Than 65 (2010 n=2501, 2012 n=2052, 2013 n=1546), 2014 n=1233 in half sample) Respondents were given a maximum difference trade off exercise in which they were forced to choose the most preferred and least preferred plan feature.

21. The Policy Context

22. Obama Care: The Original Simple Version • Coverage Expansion to 30 million people by 2015 on • 15 million through Medicaid Expansion • 15 million through subsidized health insurance exchanges • Regulation of health insurance practices • Guaranteed issuance • Individual Mandate • Paid for by supplementary Medicare Tax on $250K+ earners and “voluntary” taxes on healthcare stakeholders • Promising pilots and processes for reimbursement reform • Patient Centered Medical Homes • Accountable Care Organizations • Innovation Center at CMS • The Cadillac Tax

23. Current Status of State Individual Marketplace and Medicaid Expansion Decisions, 2014 ME VT WA NH* MT ND MN OR MA NY WI* SD ID MI* RI CT WY PA* NJ IA* NE OH DE IN* IL NV MD CO UT* WV VA* CA DC KS MO* KY NC TN AK AZ SC OK AR* NM GA AL MS LA TX FL HI State-based Marketplace and Moving Forward with the Medicaid expansion (16 States including DC) Federally-Facilitated or Partnership Marketplace and Moving Forward with the Medicaid Expansion (11 States) Federally-Facilitated or Partnership Marketplace and Not Moving Forward with the Medicaid Expansion (23 States) State-based Marketplace and Not Moving Forward with the Medicaid expansion (1 State) NOTES: *AR and IA have approved waivers for Medicaid expansion; MI has an approved waiver for expansion and plans to implement in Apr. 2014. NH passed legislation approving the Medicaid expansion in March 2014; the expansion will start July 1, 2014. WI amended its Medicaid state plan and existing waiver to cover adults up to 100% FPL, but did not adopt the expansion. IN and PA have pending waivers for alternative Medicaid expansions. These states along with MO, VA, UT have been classified as Open Debate on the Medicaid expansion decision. SOURCE: State Decisions on Health Insurance Marketplaces and the Medicaid Expansion, 2014, KFF State Health Facts, http://kff.org/health-reform/state-indicator/state-decisions-for-creating-health-insurance-exchanges-and-expanding-medicaid/.

24. Big Drop in Uninsured under Obamacare

25. Uninsured Rate Has Dropped Almost Everywhere Even in states not expanding Medicaid, uninsured rates have fallen

26. Minnesota had Exchange ChallengesWisconsin did the Badger Care Switcheroo Oregon Medicaid grew 69% over the same period Source: KFF from DHHS, May 1 2014, March 2015

27. How to Pick a Health Plan on an Exchange • Step 1. Decide on the diseases you and your family are going to have in the coming year • Step 2. Find the best doctors and hospitals for those diseases • Step 3. Identify which plans offer those doctors and hospitals • Step 4. Select the cheapest plan • Step 5. If there are no affordable plans with all the doctors and hospitals you want, go back to Step 1 and pick some new diseases

28. Private Purchasers will Act by 2020 • Short Term (1-3 years) • Transparency on Cost and Quality • CDHP/HDHP • Benefit Buy Downs (including retirees and spouses) • Reference Pricing • Private Exchanges • Narrow Networks • Out of Network Prices • Longer Term (3-10 Years) • Stay or Go • Defined Benefit to Defined Contribution • Activist Engagement • Cadillac Tax 2018

29. Two Competing Visions See E. Emanuel et al., "A Systemic Approach to Containing Health Care Spending," and J. Antos et al., "Bending the Cost Curve through Market-Based Incentives," www.NEJM.org, Aug. 1, 2012.)

30. Employers Are Seeing a prolonged respite from double-digit premium increases, but these are still running at two times CPI Projections For 2015: Trend before plan & contribution changes =6.5% Trend after plan and contribution changes =5.0% CPI-U= 2.5% SOURCE: Towers-Watson NBGH Annual Surveys (2014-2015)

31. Private Purchasers reassessing their role Source: Personal Communication, PBGH, 2013 • Redefinition of benefits: Buy-downs (CDHP) and elimination or scaling back of commitment to spouses, dependents, retirees and early retirees, part timers etc • Consideration of the role of Exchanges and possible ‘exit’ from employer-sponsored benefits • Growing interest in direct contracting with providers and ‘accountable’ systems • Pushing greater responsibility onto employees to encourage them to shop based on cost, quality (movement toward defined contribution strategy, more limited plan offering, consumer shopping tools). • More activist wellness including biometric screening

32. SHP EMPLOYERS 2014 Employers are of two minds on providing health insurance Exploring ways to get out of providing it, and feeling a responsibility to employees Agreement with Statements About Healthcare (Top-2 Box % - Agree Somewhat/Strongly) * Asked only of Employers with 50 or more employees Base: All Employer Health Benefit Decision Makers (n=337) Q800: Please indicate your level of agreement with the following statements. Do you strongly agree, somewhat agree, somewhat disagree or strongly disagree?

33. SHP EMPLOYERS 2014 Coinciding with economic improvement, the perceived value of employer healthcare in the labor market is on the upswing Company’s Position on Employer-Sponsored Healthcare (Labor Market) (Top-2 Box % - Describes Completely/Very Well) Note: Scale changed (added “well” in the middle) in 2012 Base: All Employer Health Benefit Decision Makers (n=337) Q1100: How well does each of the following statements describe your company’s position on employer-sponsored healthcare? Does the statement describe your company completely, very well, well, somewhat well or not at all?

34. Seven Large Employer Archetypes How do these archetypes view their benefit responsibilities?

35. Access to After-Hours Care Adults, 2013 Easy getting after-hours care without going to the ER Primary care physicians, 2012 Practice has arrangement for patients’ after-hours care to see doctor or nurse Percent * In Norway, doctors asked whether their practice had arrangements or there were regional arrangements. Base: Needed care after hours. Source: 2012 and 2013 Commonwealth Fund International Health Policy Surveys.

36. Silicon Valley Elite EmployersSay “Bring the Doctors to Us” • Stanford Health Care • Onsite and Nearsite Clinics • Qualcomm • Dreamworks • Santa Clara Nearsite Clinic Kaiser’s Mobile Health Van • PAMF’s Care A Van • Brocade • Cadence • KLA Tencor • Marvell • Net App • Nvidia • Oracle • San Desk • Symantec • Synopsys • Varian • VM Ware • Yahoo • Facebook • E Bay • Net App • Nvidia • Oracle • Stanford • VM Ware • Yahoo

37. Public Purchasers • Medicare Advantage is surprisingly resilient • Medicaid expansion is massive in half the country • Public exchanges will grow after a rocky start • Public employers have huge retiree health benefit problems • Public payers more dominant by 2020

38. Medicare Advantage Enrollment is Highly Variable Across the Country (0% to 53%) and Growth Continues

39. Boomers, Young People Attracted to Medicare Advantage Harvard School of Public Health/SSRS poll, Mat 13-26, 2013.

40. Massive Medicaid, 2015 • US Medicaid Population edges out France for top 20 spot in total population with 70,515,716 enrollees • US Medicaid spending edges out Argentina for top 25 economies at $540 billion • US Medicaid is bigger than Wal-Mart by $50 + billion

41. Massive Medicaid • Medicaid expansion is a big deal in the states that are doing it…e.g. California Medi-Cal has 12.2 million enrollees and a budget in excess of $90 Billion for 2014-15 FY most from Federal sources • Oregon Medicaid enrollment now over 1,000,000 a 69 % increase over pre ACA levels • The last mile of enrollment • Churning in Medicaid eligibles • Who will take these enrollees and what will be the financial impact on providers that do take them?

42. Ahead of the Curve on Value-Based Payment • “The future is already here…it is just not evenly distributed” • William Gibson • California has 55.4% in value-based payment (in all in-network commercial based payment) up from for 41.8% in 2013 • US has leapt up to 40% in 2014 up from 10.9% in 2013 according to CPR exceeding CPR’s 2020 goal of 20% Source: Catalyst for Payment Reform, 2014

43. SHP HOSPITALS 2015 EVEN LARGE SYSTEMS ANTICIPATE ONLY HALF CAPITATED PAYMENTS IN NEXT 5 YEARS Anticipated Growth in Capitation/Value Evenly Split Completely Fee for Service Completely Capitated Payments (0) (50) (100) IN 5 YRS51 TODAY: 35 Total: (↓2%) TODAY: 38 IN 5 YRS49 Smaller TODAY: 36 IN 5 YRS56 Mid Size TODAY: 31 IN 5 YRS52 Larger Base: All Hospital-Based Execs (2015: n=200; 2014: n=202; 2013 n=210) Q705/Q706/Q707: Many hospitals are starting to be paid differently for their services, moving from a fee for service environment to more capitation or value based payments. Where is your hospital/hospital system on the spectrum today, and where will you be five years from now?

44. SHP PHYSICIANS 2015 PCPS ANTICIPATE FASTER MOVE, BUT STILL ONLY HALF OF PAYMENTS CAPITATED IN 5 YEARS Anticipated Growth in Capitation/Value Evenly Split Completely Fee for Service Completely Capitated Payments (0) (50) (100) IN 5 YRS47 TODAY: 27 Total: TODAY: 31 IN 5 YRS51 PCPs TODAY: 22 IN 5 YRS45 Office based Specialists Hospital based Specialists TODAY: 33 IN 5 YRS47 Base: All Physicians (2015: n=626; 2014 n=600) Q1280: Many physician practices are starting to be paid differently for their services, moving from a fee for service to more capitation or value based payments. Where is your practice on the spectrum today, and where will you be in five years from now?

45. STRATEGIC HEALTH PERSPECTIVES℠ Health Systems Taking Risk

46. Health Systems Taking Risk • Health Systems with Legacy Health Plans • Inter-Mountain, Sharp, Presbyterian, Spectrum Health, Providence • Health Systems that recently built, acquired or merged with a Health Plan function • Partners (Boston), Sutter, Dignity Health (Western Healthcare Advantage), Memorial (Long Beach), Baylor Scott and White, North Shore Long Island Jewish, Ascension, CHI • Health Systems that are going deep on Commercial ACO plans and/or CMS ACOs with plan partners • Montefiore, Steward, Aetna Whole Health (Inova, Banner, Aurora), Memorial Hermann, Stanford • Vivity (UCLA, Cedars, Memorial, Torrance, Good Samaritan, PIH, Huntington and Anthem Blue Cross) • About Health/Blue Priority Anthem Wisconsin • Health Systems “Go Your Own Way” • Evolent Health (UPMC and Advisory Board Offering) includes Piedmont/Wellstar, Medstar

47. SHP HOSPITALS 2015 Majority exploring risk bearing strategies Directional growth in hospitals committing to clinical integration for contracting w/ payers. Hospital Insurance Risk Management Strategy 51% of smaller hospitals have no plans No real differences by size of system No Plan On Journey Base: All Hospital-Based Execs (2015: n=200; 2014: n=202) Q980: Which of the following best describes your hospital’s/hospital system’s “risk bearing” strategy?

48. SOURCE: Harris Poll for STRATEGIC HEALTH PERSPECTIVES At the end of the day, people trust hospitals more than health plans % Trust in Industries 42 % Trust none of the Industries on the list Source: Harris Poll, December 2013

49. STRATEGIC HEALTH PERSPECTIVES℠ New Thinking: Some Examples

50. SHP HOSPITALS 2015 Managing Referrals: continued focus Increasing awareness, intent to do something about it Current Approach to Referral Management from Physicians Affiliated with Hospital Base: All Hospital-Based Execs (2015: n=200; 2014: n=202) Q417: Which of the following best describes your approach to the management of the referrals from physicians affiliated with your hospital?