A Peak Into the FutureHealthcare Systems &

Hospitals

August, 2016

Need to Know Where the Puck is Going

Consolidation of Health Plans5 major plans down to 3Regional consolidationsHealth Systems starting their own plansMoving the financing “upstream”

Federal and State GovernmentsMACRA legislation Bundling of major surgical servicesPresidential & Congressional election

Physician Practice ArrangementsCurrently more than 200,000 employedAccenture projects 67% will be employed within 3 years

What is driving the outlook for the next 3-5 years

The Big 5 become the Big 3Aetna (acquiring Humana)Anthem (acquiring CIGNA)United131 Million covered lives

Reasons for mergersScale EconomicsNegotiating leverage with hospitals & physiciansDiversification (more MA plans)

The consequence for Hospitals & SystemsAnthem has access to national Blues rates; typically lowerAnthem converts all CIGNA agreements to BCBS ratesMargins drop for hospitals

Health Plans

Declining Hospital I/P margins Increasing complexity of patient population Medical inflation (CMS projects 4.9% - next 3 years) Niche players taking profitable lines Increasing regulatory developments & scrutiny Health Plan negotiating leverage dropping New payment models

Bundled payments – CMSOrtho & CardiacCommercial payers to follow

Advanced Alternative Payment ModelsNextGen ACOs

Hospital Headwinds

Physician Headwinds MACRA replaces The Sustainable Growth Rate (SGR)

Will impose 4-9% reimbursement reductions on physicians who do not move to value based payment methodology

Annual reimbursement increases are prescribed MACRA charts the path for physician compensation for the

next 10 years in 2 separate tracks Merit Based Incentive Payments (MIPs) Alternative Payment Models (APMs)

Physicians will wonder the following: “How can I avoid the 4-9% cuts in reimbursement under MIPs?” “How can I get exempted from MIPs and lock in the annual bonus

payment of 5% under the APM track “How do I join an APM?”

2026 and beyond

0.25% annual updates 0.75 annual updates

2019-20254-9% penalties/bonuses* 5% lump sum bonus

2015-20180.5% annual updates

Merit-based Incentive Payments (MIPs)

Alternative Payment Models(APMs)

*Bonuses may be higher

Physicians will Follow the Money

ADVANCING CARE INFORMATION 25%

COST 10%

CLINICAL PRACTICE IMPROVEMENT ACTIVITIES

15%

(

Performance Category Weights for MI PS

Quality 50%

20192017 2018

MI PS Performance Period All MIPS performance categories are aligned to a

performance period of one full calendar year 2017 performance measurement period 2019 1st payment year

2024 20252020 2021 I

I

I

2023

25%

2022

50% 75%

Advanced APMs Requires Participants (physicians & hospitals) to use certified

EHR technology Bases payment on Quality measures comparable to MIPS

quality performance category The APM either:

Requires APM entities (hospitals and physicians) to bear more than nominal risk for monetary losses

Is a Medical Home Model expanded under CMMI What are the current APMs under MACRA

MSSP (Track 2 and 3)NextGen ACOESRDCPC+OCM (2 sided risk beginning in 2018)

Next Generation Accountable Care Organization (NGACO) Newest of ACO models; went live in July 2016 with 21

organizations participating This is the 3rd version of ACOs

Pioneer (2012- part of ACA)32 participants; 9 leftBurdensome reporting, limited upside, difficult quality measures

Medicare Shared Savings Program (MSSP)404 participants; most successfulFixed some flaws of Pioneer model2 tracks for cost management; 1/3 received any bonus payments

NGACOFinancial risk of care coupled with quality measures2 tracks – 80% of savings or losses of 100%2nd year move to capitation aka a Medicare Advantage Plan

Max Adjustment

(+/-)

+5 % bonus(excluded from

MIPS)

Putting it all together

Fee Schedule

MIPS

Advanced APMs

Financial performance Improve eroding I/P margins through efficiency & supply chain productivity Add new services that are higher in margin Improve cash flow through enhanced contracting and denials recovery Effective Population Health Management including risk stratification

Compete on the basis of “Demonstrated Value” Best customer experience Best price Best service Documented best outcomes

Failure to build a robust & viable physician organization Ensures the ability to compete in new payment models Counterbalance to commercial payors contracting leverage Locks in referrals to hospitals By sharing risk and quality profitability improves For the most part, Physicians are seeking the comfort of the hospital

Hospital Risk