Supply Chain: The Horizon of Health Care

1. Supply Chain: The Horizon of Health Care The Affordable Care Act

2. Health Care GDP

3. Affordable Care Act Coverage Expansion Market Reforms Delivery System Reform Timeline 2010 – legislation passed / prevention services start; coverage up to 25 years old 2011 – Medicare preventive services are free / Rx expansion 2012 – Advent of ACO structures; physician payments reduced for non-reporting 2013- Health Insurance Marketplace opens 10/2013. readmission penalties assessed 2014 – Medicaid expansion/ pre-existing condition ban, annual limit bans and clinical trial coverage, tax credits and penalties 2015- Physician value reimbursement; 2017 – VBP increase to 2% withholding

4. COVERAGE EXPANSION 48.4M Americans Uninsured – CMS 2014 Individual “minimum essential” coverage is mandated Penalties will be applied (supported by the Supreme Court) $95 or 1% 2014 $325 or 2% 2015 $695 or 2.5% 2015 (max $2,085 w/ future cost of living adjustment) 2014 State Exchanges established 19 state operated; 25 federal; 7 partnerships 2017 Expansion of Exchanges http://www.census.gov/popclock/ http://capsules.kaiserhealthnews.org/wp-content/uploads/2013/03/social-marketing-research-for-the-health-insurance-marketplace.pdf

5. Exchanges: Where? www.pewstates.org http://kff.org/statedata/

6. MARKET REFORMS Coverage for individuals under the age of 26 – over 3 million Americans received new coverage FY 2011 2014 – Annual dollar limits are banned. Employer penalties $2k per employee (50+) Patient Bill of Rights covering pre-existing conditions Preventative benefits; immunizations, screening ACA ensures American’s have access to “Essential Health Benefits” defined by CMS as: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management 0. Pediatric services, including oral and vision care

7. DELIVERY SYSTEM REFORMS • ACO – Accountable Care Organizations • Currently service 20M Americans (315M) • Quality Measures: 33 measures; 4 areas • Patient / Caregiver Experience • Care Coordination • Preventative Health • At Risk Population • Health Homes – 7 states • Value Based Purchasing & Penalties • Readmissions: Heart Attack, Heart Failure & Pneumonia (2,217 facilities ; $280M) • 2015 Hospital Acquired Infections & Conditions (Medicare) http://www.cms.gov/medicare/medicare-fee-for-service-payment/sharedsavingsprogram/downloads/aco_qualitymeasures.pdf http://www.kaiserhealthnews.org/Stories/2012/October/03/medicare-revises-hospitals-readmissions-penalties.aspx

8. Supply Chain & ACA • Organizations are on a tight gross profit and looking toward cost containment as a source to off set revenue reduction. • 16% of total US GDP is health care related. • NJ hospitals averaged 3% in GP (2012) – smallest margin in 3 years. • Pensions and investments continue to errode margins. • Supply Chain has been valued in organizations between 35 and 50 percent of operational spend.

9. Mergers and Acquisitions: Providers & Suppliers Providers: 9% up in volume; down 31.5% value PMG & Home Health increased significantly in value – ACO related procurement. Hospitals declined in value but remain flat in mergers Suppliers: 2% up in volume’ down 42% in value. Decrease in Device and RX volume and value Increase in Biotech & eHealth volume but decrease in value Regulation & taxation has hurt the sector now rebounding through merger and acquisitions Tech and Devices are looking up in 2013 with high FDA approvals in the last year.

10. Physician Relationship Changes Largest contracting segment in health care. EHR difficulties and small practices ACO model strengthened value of practices Concerns with Stark Law – driving Employment Employment Law concerns

11. Outpatient & Wellness ACO models & Outpatient Services Largest growing supplier segment between 1999 and 2007 Supply Chain Non-Acute / IDN relationships Standardization Outpatient Service Model Changes: Pharmacy Access, DME Wellness Immunization Mandates – grants, bulk buys, contracted services Hypertension & Diabetes Dietary Contracts / Nutritionals Co-Branding / Congruent Services Insurance Company Incentives Real Estate & Retail Mobile Wellness / Fairs – Marketing

12. Portfolio Diversification & Retail • Diverse Revenue Centers • Training / Education • Support Service Model • Real Estate / Leasing • Device and Innovation R & D:Spin off companies • International Outreach • Consulting • Medical Tourism • Retail • Product recognition changes • Hospital based marketing / product selection • Diversified Services: DME, Orthotics, Home Infusion Medications, Blood Banking

13. Service Line Strategies • Oncology • Screening ,internal and high risk programs • Staging and intervention : drugs, devices, IC • Technology assessment and reimbursement • Cardiology & Orthopaedics • Reduction in readmission / never events • Lowest total cost procedures / highest quality • Niche small vendors vs. large merged orgs • Ambulatory Care • Expansion and Growth • Standardization • Technology Shift :Lease vs. Buy • Closed loop controls!!!!!!!!!!!!!!!

14. Quality & Patient Safety Everyone’s responsibility!!!!! Evidence Based not Emotionally Based. Supplies & Pharmaceuticals HAI, VAPS, CLABSI, CAUTI, HH, Images Off Label uses – Consolidation (Product & Market) Equipment Smart Pumps, reduction of blood loss, minimally invasive technology, radiation exposure Contracting Terms and Conditions – new incentives (put your money where your mouth is), BAA, rebate structures / pass through of risk / reward Staffing / Services Outsourced alignment / mgmt Strategic sourcing – GPO, local, collaborative Information Technologies EMR technology / medication management, interface potential with clinical diagnostics / interventions

15. Volume vs. Value • Not just for providers! • Old World • Volume based discounts • GPO – Regional Alliances • “Federal Regulations” • Selling points on quality / product efficacy • Consolidate or remove services / reps. • Consignment – Trunk Stock • New World • Open play market & provider choice • Strategic agreements/ risk sharing • Quality requirements • Provider competition • Increased TOTAL VALUE of offer – what does the customer need? • Limited inventory availabilities.