Health Care Advisory Board

1. Health Care Advisory Board The Emerging Era of Choice Restructuring Health System Strategy for the Retail Revolution

2. “Cord Cutters” and “Cord Nevers” Giving Up Broad Networks 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. An Industry Built on a House of Cards Paying for More Than You Use U.S. Households With Internet But No Cable, 2013 6.5% “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.” U.S. Adults Age 18-34 With Netflix or Hulu But No Cable, 2013 18.1% FarhadManjoo, The New York Times

3. Most Hospitals Staying Afloat Through Cross-Subsidization Source: American Hospital Association, “TrendwatchChartbook 2014,” available at: www.aha.org; Health Care Advisory Board interviews and analysis. Revisiting a Tenuous Business Model Traditional Hospital Cross-Subsidy Commercial Insurance Public Payers • Above-cost pricing • Robust fee-for-service volume growth • Steady price 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

4. Entrenched Payers, Insulated Patients Unlikely to Upset Status Quo Source: Health Care Advisory Board interviews and analysis. Cross-Subsidy Depends on Inefficient Markets Assumptions Underlying Provider Growth Strategy • Entrenched Payer • High employer switching costs impede competition • Handful of broad networks satisfy majority of passive employers • Excess cost growth easily passed on to employers through premium increases • Established Provider • Commercial pricing growth steady • Network inclusion likely for most plans • Patient volume depends largely on referral patterns • Price-Insulated Patient • Open access to broad provider network standard • Modest cost-sharing obscures true prices • Physician recommendation dominates point-of-care decisionmaking

5. Four Years Post-Reform, New Paradigm Finally Becoming Clear Source: Health Care Advisory Board interviews and analysis. The Retail Revolution Major Themes Reshaping Provider Strategy Medicare Reforms and the Transition to Risk 1 Coverage Expansion and the Rise of Individual Insurance 2 3 Activist Employers and the Primacy of Value

6. Medicare Payment Cuts Becoming the Norm Medicare Reforms and the Transition to Risk 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. Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services. Disproportionate Share Hospital. Public-Payer Reimbursement Still in the Crosshairs ACA’s Medicare Fee-for-Service Payment Cuts Not the End of the Story Reductions to Annual Payment Rate Increases1 “Notwithstanding recent favorable developments… Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation” $260B $56B $151B Office of the Actuary, CMS Hospital payment rate cuts, 2013-2022 Reduced Medicare and Medicaid DSH2payments, 2013-2022 Reduced Medicare payments due to sequestration and 2013 budget bill

7. More Mandatory Risk On the Horizon 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. Includes Value-Based Purchasing Program, Hospital Readmissions Reduction Program, and Hospital-Acquired Conditions Program. Steady Shift Toward Risk-Based Payment Medicare Value-Based Purchasing Program Performance Criteria Other Mandatory Risk Programs Weight in Total Performance Score Hospital-Acquired Condition Penalties Clinical Process Patient Experience Readmission Penalties Outcomes of Care No Trivial Thing Efficiency Medicare revenue at risk from mandatory pay-for-performance programs2, FY 2017 6%

8. Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based Options More Providers Taking the Hint Medicare Shared Savings Program Source: CMS, “More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for Medicare Beneficiaries,” December 23, 2013; Health Care Advisory Board interviews and analysis. Medicare ACO Program Entrants The Broader Picture 20.5M 626 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 2012 Pioneer ACO Model 2012 MSSP1 Cohorts 2013 MSSP Cohort 2014 MSSP Cohort Total Medicare FFS beneficiaries attributed to an ACO

9. Performance, Persistence Closely Correlated 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. Dropped out after second year; second-year performance not reported Some Pioneers Changing Course 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” Alison Fleury, CEO Sharp HealthCare ACO

10. Pending Program Updates Crucial for Future Participation 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. Includes one participant’s $4M repayment of shared losses Medicare Shared Savings Program a Mixed Bag Medicare Shared Savings Program ACO Performance Issues to Watch for in Updated Regulations First Performance Year Will second-term ACOs really have to bear downside risk? Held Spending Below Benchmark, Earned Shared Savings Payment Did Not Hold Spending Below Benchmark Will benchmarks be calculated differently? Held Spending Below Benchmark, but Did Not Earn Shared Savings Will the share of savings paid to ACOs be higher? Will beneficiaries be attributed to ACOs prospectively? Shared savings earned by MSSP ACOs in first performance year1 $297M Will ACOs have any ability to prevent network leakage?

11. Policymakers and (Some) Providers Angling for Higher-Octane Options Source: H.R. 5558, http://welch.house.gov/uploads/ACO%20Bill%20Text.pdf; Health Care Advisory Board interviews and analysis. Transition to Risk Hardly Stalled Bill in Brief:“The ACO Improvement Act” The Bigger Question: What Should Medicare ACO Programs Be? • Bipartisan bill (H.R. 5558) introduced by Representatives Diane Black (R-TN) and Peter Welch (D-VT) Key Features • ACOs would receive capitated payments, not shared-savings adjustments • Patients would proactively select a primary care provider rather than be retroactively attributed • ACOs could discount primary care services to encourage network loyalty Permanent middle grounds between fee-for-service, capitation? Adaptive environments involving progressively more risk? Training grounds for other risk models? (e.g., Medicare Advantage)

12. Shift Signals Individualization of the Medicare Market 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. Medicare Advantage Gaining Momentum Projected Medicare Advantage Enrollment Provider Benefits Over Shared Savings Models 29.5% of Medicare beneficiaries 19.0M Unambiguous incentive for population health management Greater provider control over network integrity 10.4M Less frequent patient churn 2009 2020

13. But Every Silver Lining Has Its Cloud Coverage Expansion and the Rise of Individualized Insurance 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. ACA (and Recovery) Making a Dent in Uninsurance Percentage of U.S. Adults Without Health Insurance 2013 Q3 2014 Q3 Insurance exchanges launch Medicaid expansion begins Employer-sponsored coverage grows 18.0% 13.4% (highest on record) (lowest on record) A Bargain Still Unbalanced $5.7B $14B Reduction in uncompensated care, 2014 vs. ACA-related reductions in Medicare fee-for-service payment, 2014

14. 23 States Still Foregoing Expansion Medicaid Expansion 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. Estimate- does not include CT or ME. Children’s Health Insurance Program. Medicaid Expansion Contentious—and Consequential 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 Not Currently Participating 8M1 5% 2.4% Average Medicaid enrollment increase across non-expansion states Advisory Board estimate of impact of Medicaid expansion on typical hospital’s 10-year operating margin projection Increase in Medicaid, CHIP2 enrollment,October 2013-July 2014

15. Responsibility Migrating to Payers, Providers, Patients Source: Health Care Advisory Board interviews and analysis. Expanding or Not, States Pushing Medicaid Innovation Competing Philosophies on Medicaid Reform Full Medicaid Managed Care E.g., Florida’s Statewide Medicaid Managed Care Program Provider-Led Care Management E.g., Oregon’s “Coordinated Care Organizations” Traditional State-Run Program Exchange-Based Privatization E.g., Arkansas’ “Private Option”

16. Exchange-Based Medicaid Drawing Interest, But Broader Uptake Uncertain 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. Arkansas Turning to Private Market 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 Increase in cost of expansion under exchange system relative to GAO estimate of cost under traditional Medicaid 3 $778M Beneficiary holds private insurance; cost sharing based on existing Medicaid rules

17. Aggregate Numbers in Line With Expectations; Enrollee Mix Older Insurance Exchanges 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. Numbers do not add precisely due to rounding. One Year In, Insurance Exchanges Generally on Track Initial Public Exchange Enrollment1 2013-2014 91% Of enrollees still enrolled as of September 2014 7.0M(Original CBO Projection) 25M Projected exchange enrollment by 2018 28% Enrollees aged 18-34

18. 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. Individuals Gravitating Toward Leaner Plans Premium Sensitivity Manifest at Two Levels Data from federally-facilitated exchanges only. Level 1: Choice of Metal Tier Level 2: Plan Choice Within Metal Tier All Metal Levels1 Gold Platinum Catastrophic Lowest-Cost Plan Any Other Plan Bronze Silver Second-Lowest-Cost Plan Factors Influencing Metal Level Premium Levers Beyond Benefit Design Non-Essential Services Covered Deductible Scope of Non-Essential Benefits Copays Network Composition Negotiated Payment Rates to Providers Out-of-Pocket Maximum Negotiated Rates Utilization Patterns, Trends

19. Aggressive Cost Sharing Potentially Troublesome for Provider Strategy 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. High Deductibles Dominating Exchange Markets Individual Deductibles Offered On Public Exchanges Challenges for Providers 2014 High out-of-pocket costs discourage appropriate utilization $2,500 $6,250 Median Maximum Individual Deductibles Chosen on eHealth Individual Marketplace Large patient obligations lead to more bad debt, charity care <$1,000 $6,000+ $1,000-$2,999 Price-sensitive patients more likely to seek lower-cost options $3,000-$5,999

20. Payers Betting Individual Consumers Value Affordability Over Broad Choice 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. “Pathway X” bronze plans compared to leading PPO plan offering across nine states. Comparing products by the same carrier of the same tier, across 7 carriers. Premium Sensitivity Supporting Narrow Networks 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 Broad 100% PPO Network Breadth “Ultra-Narrow” “Narrow” Exclude 30% of 20 largest hospitals Exclude 70% of 20 largest hospitals 26% Median premium reduction directly attributable to network narrowing2

21. Is It Worth Winning Share With Unsustainable Premiums? 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. Pre-exchange individual market Proper Risk Pricing Still Essential 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) • PreferredOne exits exchange • Will still offer individual coverage through other successful channels with different risk profile 2% 58% “Continuing to provide this coverage through MNsure is not sustainable.” Market share in 20121 Market share in 2014 Marcus Merz CEO, PreferredOne

22. Robust Marketplaces Beginning to Develop What Next for the Exchanges? 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. Increased Insurer Participation Driving Competition “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.” Issuers Offering Qualified Health Plans Gail Boudreaux, EVP UnitedHealth Group Competition At Work 4% Estimated reduction in second-lowest-cost silver premium of one new issuer entering market

23. Second Round of Open Enrollment Will Reveal True Dynamics What to Watch for on the Exchanges 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 • 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? 3 • Market Reaction: • How aggressively will providers court the newly insured? • Will employers dump workers onto the exchanges?

24. Will Employers Maintain Coverage, and How? Activist Employers and the Primacy of Value Employer-Sponsored Insurance at a Crossroads Source: Health Care Advisory Board interviews and analysis. Spectrum of Options for Controlling Health Benefits Expense “Abdication” “Activation” Drop Coverage Shift to Private Exchange Convert to Self-Funding • Pros: • Escape from cycle of rising premium costs • Cons: • Employer mandate penalty • Labor market disadvantage • Pros: • Responsiveness to employee preference • Predictable, defined contributions • Cons: • Disruption to benefit design • Risk employees may underinsure • Pros: • Close control over network design • Exemption from minimum benefits requirements • Cons: • Greater financial risk • Network assembly challenging

25. Low-Wage Employers Most Active Today, but Skilled Industries in the Wings Source: Accenture, “Are You Ready? Private Health Insurance Exchanges are Looming;” privatehealthexchange.com; Health Care Advisory Board interviews and analysis. Huge Growth Forecast for Private Exchanges Potential Growth Path for Private Exchange Enrollment 172 Private exchange operators as of October, 2014 Prominent Employers Using Private Exchanges For Active Employees: For Retirees: (Medicare Advantage, Medigap plans)

26. Understanding Why Private Exchanges Matter Beyond the Buzzword Source: Health Care Advisory Board interviews and analysis. 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 Defined contribution plans expose employees to cost differences

27. Small Employers Also Beginning to Show Interest 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. 3 to 50 FTEs. Self-Funded Strategies Steadily Gaining Ground Percentage of Covered Workers in Self-Funded Plans ACA Benefits Standards Avoidable Through Self-Funding Essential Health Benefits Guaranteed Issue and Renewability Modified Community Rating Medical Loss Ratio Requirements 26% of small employers’1 brokers have discussed with them the possibility of self-insurance

28. Custom Network Builders Offering Local Solutions Source: Innovative Healthware Services, Inc., Arnold, MD; Health Care Advisory Board interviews and analysis. Hands-On Network Management Increasingly Feasible IHS1 “Custom Provider Network” Solution Self-funded employer submits list of physicians, hospitals, and ancillary care “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.” 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 Innovative Healthware Services

29. Exporting Walmart’s Centers of Excellence Program 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. Aggregators Pooling Employers, Providers Case in Brief: Health Design Plus “It would be prohibitive for a small employer…When you spread the administrative costs over a number of employers, it becomes more attractive.” • Third-party administrator based in Hudson, Ohio that creates Centers of Excellence (COE) programs for self-funded employers • Assembled Walmart’s centers of excellence bundled payment network Bruce Sherman Medical Director, Employers Health Coalition Two New Employer Coalition Partnerships • Pacific Business Group on Health(San Francisco, California) • 60 large employer members • Employees in all 50 states • 10M covered lives • Employers Health Coalition(Canton, Ohio) • 300+ employer members with employees in all 50 states • 3M covered lives

30. 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. Presbyterian Healthcare Services. Some Providers Taking Lead in Network Assembly Intel-Presbyterian Partnership 5,400 Covered lives in contract 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 $8-10M Projected savings, 2013-2017 Shared Accountability Upside and downside risk for health care spending compared to projected target Case in Brief: Intel Corporation Customized Care Offerings Addition of depression screening into customary provider workflow • Large multinational employer headquartered in Santa Clara, California • Entered into narrow-network contract with Presbyterian Healthcare Services, an 8-hospital system in New Mexico, for employees at Rio Rancho plant Infrastructure for Care Management Conversion of Intel’s on-site clinic into full service patient-centered medical home

31. Multiple Opportunities to Appeal to Decision-Makers Source: Health Care Advisory Board interviews and analysis. Providers Must Win Share at Two Points of Sale Decision Processes Shaping Provider Choice 1 2 Secure Enrolled Lives Win Share of Volumes Network Assembly Network Selection Care Decision Being chosen by payers, employers, exchange operators, custom network builders, and accountable physician entities to be offered as a network option Being chosen by individuals during plan enrollment Being chosen by patients, referring physicians at the point of care

32. Source: Health Care Advisory Board interviews and analysis. 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 Relationship-Based Referring Physician Established Provider New Growth Channels Custom Network Builder Activated Employer Cost-Conscious Referring Physician Vulnerable Payer Care Delivery Network Exchange Operator Price-Sensitive Consumer Accountable Physician Entity Individual Insurance Shopper

33. New Dynamics Unfamiliar in Health Care, But Not in Broader Economy Source: Health Care Advisory Board interviews and analysis. All Signs Point to a Retail Market Traditional Market Retail Market 1 Passive employer, price-insulated employee Activist employer, price-sensitive individual Growing number of buyers 2 Broad, open networks Narrow, custom networks Proliferation of product options 3 Clear plan comparison on exchange platforms No platform for apples-to-apples plan comparison Increased transparency 4 Disruptive for employers to change benefit options Easy for individuals to switch plans annually Reduced switching costs 5 Constant employee premium contribution, low deductibles Variable individual premium contribution, high deductibles Greater consumer cost exposure

34. Delivering Desirable Network Attributes at Low Cost Source: Health Care Advisory Board interviews and analysis. Redefining the Value Proposition Four Imperatives for Health Systems Low Cost Desirable Network Attributes • Competitive Unit Prices • Strategic Imperatives: • Avoid reactive position vis-a-vis price cuts, transparency • Radically restructure cost structures to sustain lower unit prices • Total Cost Control • Strategic Imperatives: • Develop population health model to control cost trend • Clearly communicate total cost advantage to potential purchasers • Geographic Reach and Clinical Scope • Strategic Imperatives: • Match service portfolios, footprints to target purchasers • Explore partnership strategies that strengthen market presence • Clinical and Service Quality • Strategic Imperatives: • Present unimpeachable clinical credentials to wholesale buyers • Emphasize access, experience advantages to individual consumers

35. Delivering Desirable Network Attributes at Low Cost Source: Health Care Advisory Board interviews and analysis. Redefining the Value Proposition Four Imperatives for Health Systems Low Cost Desirable Network Attributes • Competitive Unit Prices • Strategic Imperatives: • Avoid reactive position vis-a-vis price cuts, transparency • Radically restructure cost structures to sustain lower unit prices • Total Cost Control • Strategic Imperatives: • Develop population health model to control cost trend • Clearly communicate total cost advantage to potential purchasers • Geographic Reach and Clinical Scope • Strategic Imperatives: • Match service portfolios, footprints to target purchasers • Explore partnership strategies that strengthen market presence • Clinical and Service Quality • Strategic Imperatives: • Present unimpeachable clinical credentials to wholesale buyers • Emphasize access, experience advantages to individual consumers

36. Care Choices, Network Assembly Dynamics Driven by Premium Pressure Source: Health Care Advisory Board interviews and analysis. Low Premiums Shaping More than Network Selection 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

37. Cost-Conscious Behavior Affecting Pillars of Profitability 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. High-deductible health plan. $2,086; based on KFF report of average HDHP deductible. $733; based on KFF report of average PPO deductible. Price Sensitivity at the Point of Care Consumers Paying More Out-of-Pocket MRI Price Variation Across Washington, DC $2,183 $730 $411 Fall within HDHP deductible2 Fall within PPO deductible3 $900 $1,269 • Price-sensitive shoppers will be acutely aware of price variation • MRI prices range from $400 to $2,183

38. Low-Cost Access Potentially Just the Beginning 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. Walmart Bringing Everyday Low Prices to Health Care Care Clinic Model Probably Worth Paying Attention Pricing: “Our goal is to be the number one health-care provider in the industry.” $4 $40 For Walmart employees For Walmart customers Hours: LabeedDiabPresident of Health & WellnessWalmart Weekdays 8AM-8PM Saturday 8AM-5PM Sunday 10AM-6PM 130M 150M Service: • Two nurse practitioners provider primary care services on site • Clinic refers to external specialists, hospitals as appropriate Annual emergency department visits Weekly visits to Walmart stores

39. Network Assemblers Looking at More Than Unit Price Source: Health Care Advisory Board interviews and analysis. Broadening Our Concept of Cost Advantage Two Cost-Focused Strategies for Appealing to Network Assemblers Low Unit Price Total Cost Control Price Cut Improve efficiency to offer lower fee schedule Trend Control Implement care management to control cost growth trend Degree of Cost Control

40. 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. Per member per month. Creating Cost-Conscious PCPs CareFirst PCMH Total Cost Incentive Model Total cost target set by trending baseline risk-adjusted PMPM cost by average regional cost growth Risk-adjusted PMPM1 Cost PMPM Cost Target Actual PMPM Cost Panel shares in savings if risk-adjusted PMPM cost is below target “Virtual panel” of 10-15 PCPs Case in Brief: CareFirst BlueCross BlueShield 1M Members covered by PCMH program • 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 80% Eligible PCPs participating Average pay increase for PCPs receiving bonuses 29%

41. Total Cost Transparency Key to Referral Changes Source: Health Care Advisory Board interviews and analysis. Steering Care to Most Efficient Specialists Specialists Color-Coded By Total Cost Difference in risk-adjusted PMPM cost between top- and bottom-quartile PCPs 27% PCP Virtual Panels 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 costs them.” Employed Specialist A (Red) Employed Specialist B (Yellow) Independent Specialist C (Green) Chet Burrell President & CEO CareFirst BlueCross BlueShield Hospital A Hospital B

42. Discerning When Not to Operate Source: The Advisory Board Company, “Commercial Bundled Payment Tracker,” October 9, 2013, available at: www.advisory.com; Health Care Advisory Board interviews and analysis. The Value of a Second Opinion Large Employers and Hospitals Participating in Centers of Excellence Programs Pepsi Co. In 2011, offered employees free cardiac and complex joint replacement surgery at Johns Hopkins Medicine Walmart In 2013, expanded Centers of Excellence program to cover cardiac, spine, and hip/knee replacement surgery Lowe’s In 2010, offered employees free heart surgery at Cleveland Clinic 30-50% Of referred patients do not undergo surgery

43. Assuring Employers of Ability to Manage Future Costs Source: Health Care Advisory Board interviews and analysis. Making the Case for Care Management Capabilities Powerful Ways to Signal Care Management Capabilities Investment in Data Analytics Shows capability to assess patient risk and pinpoint interventions Clinical and Claims Data Integration Illustrates advantage over traditional health plan Demand for Out-of-Network Claims Data Shows commitment to continuously manage care for attributed population Telehealth Platforms and Programs 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

44. 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. Promising Total Cost Savings to Employers Savings Guaranteed Off Of Projected Costs Two Separate Products with Different Payer Partners Baseline spending projected using three years’ historical spending Aetna Whole Health (Aetna) 1 Guaranteed Savings Employer Health Spending Blue Priority (Anthem Blue Cross and Blue Shield) 2 Roundy’s Supermarkets, Inc. was first large employer client Time Case in Brief: Aurora Health Care 10% • 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 Average savings guaranteed to employers over three years

45. Delivering Desirable Network Attributes at Low Cost Source: Health Care Advisory Board interviews and analysis. Redefining the Value Proposition Four Imperatives for Health Systems Low Cost Desirable Network Attributes • Competitive Unit Prices • Strategic Imperatives: • Avoid reactive position vis-a-vis price cuts, transparency • Radically restructure cost structures to sustain lower unit prices • Total Cost Control • Strategic Imperatives: • Develop population health model to control cost trend • Clearly communicate total cost advantage to potential purchasers • Geographic Reach and Clinical Scope • Strategic Imperatives: • Match service portfolios, footprints to target purchasers • Explore partnership strategies that strengthen market presence • Clinical and Service Quality • Strategic Imperatives: • Present unimpeachable clinical credentials to wholesale buyers • Emphasize access, experience advantages to individual consumers

46. Source: Health Care Advisory Board interviews and analysis. Pseudonym. Which Would You Choose? Broad Geographic Reach… …or Deep Clinical Scope? Network in Brief: Silica Healthcare1 Network in Brief: Crescent Health1 • National hospital provider with hospital campuses across the country • Despite broad geography, limited clinical depth at local level • 6-hospital system in the Midwest with employed physician network • Care sites concentrated in roughly half of single metropolitan area

47. Source: Health Care Advisory Board interviews and analysis. Full Care Continuum Important for Payer Partners Four Reasons PinnacleHealth System Selected for Risk-Based Product Favorable Pricing Structure Comprehensive Clinical Scope Broad Provider Geographic Footprint 6-12 Months’ Experience Under Performance Incentives 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

48. Addressing Individual Limits in Geographic Reach Source: Health Care Advisory Board interviews and analysis. Combining Geographies to Match Purchaser Footprint Partnering to Expand Geographic Reach Network in Brief: Healthcare Solutions Network Cincinnati-based employers have employees living on both sides of river • Joint venture collaboration between Cincinnati, Ohio-based TriHealth and Edgewood, Kentucky-based St. Elizabeth Healthcare • Offers health insurers access to a unified, high-quality, low-cost network that covers the entire Tristate region • Both organizations offering the network to their current employees and dependents TriHealth Ohio Kentucky St. Elizabeth Healthcare Neither Organization Able to Offer Adequate Geographic Coverage Alone

49. National and Hyper-Local Competition Reshaping Notions of Sufficiency Source: Health Care Advisory Board interviews and analysis. Geographic and Clinical Demands Intertwined TranscatheterAortic Valve Replacement. Purchasers’ Geographic Preferences for Clinical Services Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel • Alternative access points (e.g. retail, urgent care) • E-visits, remote monitoring • Home health • Disease management, care navigation • Digestive health • Women’s midlife • Sports medicine • Midwifery • Transplants • Neurosurgery • Complex cardiac (e.g. TAVR1) • Clinical trials Potential Differentiators • Primary care • Pediatrics • Imaging • Ambulatory surgery • Radiation therapy • Medical oncology • Emergency • Dialysis • Rehab • Stroke • Cardiology • OB/Gyn • Routine orthopedics • SNF • Pediatric specialty • Oncology • Cardiac surgery • Technology-intensive procedures Core Services Regional/National Destinations Neighborhood Conveniences Local Offerings

50. Delivering Desirable Network Attributes at Low Cost Source: Health Care Advisory Board interviews and analysis. Redefining the Value Proposition Four Imperatives for Health Systems Low Cost Desirable Network Attributes • Competitive Unit Prices • Strategic Imperatives: • Avoid reactive position vis-a-vis price cuts, transparency • Radically restructure cost structures to sustain lower unit prices • Total Cost Control • Strategic Imperatives: • Develop population health model to control cost trend • Clearly communicate total cost advantage to potential purchasers • Geographic Reach and Clinical Scope • Strategic Imperatives: • Match service portfolios, footprints to target purchasers • Explore partnership strategies that strengthen market presence • Clinical and Service Quality • Strategic Imperatives: • Present unimpeachable clinical credentials to wholesale buyers • Emphasize access, experience advantages to individual consumers