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Georgia Society for Managed Care Creating and Sustaining Competitive Advantage Annual Meeting 2008

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Title: Georgia Society for Managed Care Creating and Sustaining Competitive Advantage Annual Meeting 2008


1
Georgia Society for Managed
Care Creating and Sustaining Competitive
Advantage Annual Meeting - 2008
2
Stuff we will talk about..
  • Lights on the hi-beamA macro look at our
    environment and industry
  • An Industry in transition but still a
    hi-volume/little margin business
  • A few key concepts
  • Power of the consumer
  • The concept of choice
  • Competing on Value
  • National Health Care solution
  • The physician model is broken
  • The Hospital is no longer the center of the
    universe
  • The insurance industry will get smaller and
    meaner
  • As you negotiate to drive profitable business to
    your enterprise, what differentiates you, and
    what competitive advantage does your
    hospital/system arm you with?

3
A strategic thinking model..
  • 1. What do we know?
  • 2. What does it mean to us?
  • 3. What actions should we take??

4
Healthcare is an Industry in Transition
5
A Confluence of Major Market Forces is Reshaping
the Industry
  • Growth and aging of the population
  • Influence and expectations of the Baby Boomer
    cohort
  • Prevalence of lifestyle illnesses and disease

Socio-Demographic
  • Escalating costs
  • Uninsured and uncompensated care
  • Labor shortages in the health industry
  • Growth in HSA and CDHP enrollment

Health Economics
  • Health coverage and financing
  • Public and private incentives alignment
  • Public safety and bioterrorism

Public Policy
  • Disclosure and accountability for quality and
    safety
  • Shifting patterns of demand for health services
  • Competition from niche and specialty providers
  • Pricing transparency

Competition
  • Advancements in clinical technologies
  • Clinical information and business intelligence
    systems
  • Adoption of electronic health records

Technology
6
A quick look at the high level macro stuff.
  • Globalization..the world is flat..look at
    www.indushealth.com
  • You have 12 years to learn to speak Chinese
    The emergence of China as the next superpower
  • Iraq, Iran, Afghanistan, Pakistan, Israel
    consuming our attention, and deflecting
    significant budget dollars away from our
    infrastructure
  • Butter vs. guns economics in U.S. for the next
    decade or so
  • Subprime mess, foreclosures, recession, more
    uninsured
  • A 500 billion federal deficit for 2008, and the
    majority of the state budgets are in deep trouble

7
The world is flat.
  • When the world is flat, you can innovate
    without having to emigrate.
  • We are about to see creative destruction
    on steroids


  • Thomas Friedman, New York Times
  • We are processing claims and handling customer
    phone calls from India and Pakistan where labor
    is 80 less
  • Radiology departments are outsourcing readings
    overseas
  • Tele-Doc services and internet consultations are
    available from board-certified specialists
  • Medical tourism is rising70 lower total cost,
    including travel

8
More macro stuff.
  • Do not look for solace from the Medicare/Medicaid
    funds (Oregon health plan lottery)
  • AHA says 1/3 of U.S. hospitals are operating in
    the red.
  • There is a growing disparity between the hospital
    haves and have-nots
  • as those with 3-6 total margin and access to
    capital are leveraging their position to gain
    further competitive advantage
  • The 2008 consumer is more affluent, more
    discerning, and seeking transparency in quality,
    safety and price
  • The BWB is no longer the center of the universe
    as access has moved to the suburbs
  • Forty seven million Americans without insurance
    during some period in 2007 and more small
    employers are finding it necessary to drop
    coverage

9
More macro stuff
  • There is a critical shortage of physicians,
    nurses, and key ancillary personnel, i.e.,
    pharmacists, radiology techs, physical therapists
  • Dr. Richard Cooper, Council on Physician and
    Nurse Supply
  • We will lack 200,000 physicians and as
    many as 800,000 nurses
  • by 2020, when the main surge of boomers
    will hit.
  • For most, we do not have the best health care in
    the world. Our ranking on many measurements puts
    us well behind other countries in infant
    mortality, diabetes care, cancer survival.
  • Rand Corporation National Report Card on Quality
    of Health Care in America
  • It doesnt matter whether youre rich
    or poor, white or black, insured or uninsured, we
    all get equally mediocre care. (the Oregon
    lottery)

10
The biggest opportunity is in the physician model
  • There is a dramatic shift in the physician
    world.
  • Newer docs want quality of life balance, more
    time with family
  • Fewer are going into primary care,
  • More than 50 of docs are women,
  • They are not obligated to take call,
  • Their financial interests are not aligned with
    the hospital
  • They are taking home less money each year as the
    costs of doing business outpace their declining
    reimbursement
  • The majority would not recommend the profession
    to their children
  • The two-four person group is not a sustainable
    business model, and most primary care physicians
    will be in significantly larger groups, or
    employed

11
Specialist group formation and Hospital
employment..
  • While physician alignment has been
    typically a primary care play, the most recent
    changes have been in the employment of
    specialists, who are facing the same issues and
    pressures as the primary care physicians.
  • Piedmont Hospital in Atlanta (a huge cardiology
    practice)
  • WellStar in Atlanta (neurosurgeons, surgeons, OB)
  • Sentara Health in Norfolk (vascular group, ortho,
    etc)
  • Sutter Health in the San Francisco area (800 MSGP
    formed by the
  • merger of three large groups)

12
Setting the background for our discussion.
  • The Purpose of 90 of the 4,900 acute care
    hospitals in the US
  • To improve the health status of
    the communities we serve
  • The Vision of the more focused entities
  • We will be the health system of
    choice in those communities we serve, for those
    products and services we choose to offer, because
    we deliver demonstrably greater value than the
    competition.
  • Value in healthcare is CQ
    SQ Access,

  • Cost

13
.The Hospital Ecosystem.past fifty years
Consumers
Consumers
Big White Building
Entry Points Primary Care Urgent Care
ER
Specialists
Consumers
Consumers
14
A relentless examination of these EcoSystem
questions.
  • To what extent will our strategic thinking
    address each level of the ecosystem, i.e..,
  • The consumers, and their evolving needs and
    options
  • The primary care base, with needs and
    options,
  • New players on the primary care ring
  • The quantity, quality and loyalty of our
    specialty network,
  • The quality, efficiency,
    sustainability and reputation of our BWB
  • Our ability to brand new
    products and services away from the BWB
  • What, where, and to what extent do the ecosystems
    of our competitors overlap with ours?? Now?
    Their future plans??
  • What will be the impact of global outsourcing on
    our strategy
  • What outmigration is occurring, in which
    products and services and what is our plan to
    stop that movement away from us?
  • What will be our strategy to expand the
    boundaries or services/offerings of our
    ecosystem?
  • What differentiates us what is our leverage with
    the payers?

15
Supplier Purchaser Power Index (leverage!!)
  • 0_____________________________100

16
And two foundation questions.
  • Where will we be allowed to make a profit?
  • Why will they choose us?

17
Forces affecting our New Strategy Agenda
  • Enhanced consumerism is driving change
  • Consumer directed health plans are gaining
    traction
  • Demand for healthcare services is increasing
  • Big brands are entering the competitive arena
  • Hospitals and doctors will seek new ways to align
    interests
  • Health system strategy and structure will rapidly
    evolve

18
Enhanced consumerism is driving change . . .
Consumer values and expectations for innovation,
quality and access are intensifying.
19
Consumers Have a Different Definition of Quality
  • CONSUMERS FORM PREFERENCES ON PERCEIVED QUALITY
  • In the service industry, perceived quality is a
    summary construct of
  • Tangibles physical plant, facilities,
    equipment, etc.
  • Reliability trustworthiness in quality
  • Competence trust and confidence in the
    workforce
  • Responsiveness helpfulness, timeliness, etc.
  • Empathy caring, individualized attention, etc.
  • INDUSTRY DEFINITIONS OF QUALITY
  • Yet health care has historically viewed quality
    more as measurements than perceptions
  • Objective Quality extent to which superior
    outcomes are achieved (morbidity, mortality)
  • Product Quality nature of ingredients, features
    or services included (board certified physicians)
  • Clinical Quality conformance to evidence-based
    indicators (JCAHO, CMS)

20
Consumer Quality Criteria Good Physicians Top
List
Good physicians are ranked by consumers as the
most important factor in defining quality health
care
Source Solucient, 2005 HealthView Plus Survey
21
Quality Conscious Consumers Will Switch Hospitals
Eighteen percent (18) of all adults now
comprise a quality conscious consumer segment,
with significant influence over selection,
purchase and use of health services. They
Adult Population Likely to Access and Be
Influenced by Quality Data
  • Can draw a clear distinction among various
    hospitals for better care
  • Are more likely to change hospitals and
    physicians due to quality perceptions, and
    influence others to do so
  • Are more likely to be attracted to specialty
    hospitals and centers of excellence
  • Are likely to travel farther to obtain care they
    perceive as better

Source Solucient, September 2004
22
Consumer directed plans are gaining traction . .
.
Employers and the government are transferring
responsibility for cost and decision-making to
consumers
23
The Objective
Empowered consumers will assert market forces to
improve the value and affordability of health
services
24
The Rate of Growth is the Critical Watch Point
  • Forrester Research estimates total CDP enrollment
    at less than 5 of the commercially insured
    market
  • Industry experts expect that number to be closer
    to 8 by the end of 2006 20 30 in 3 to 5
    years.
  • What to watch
  • The percentage of employers that have indicated
    an interest in adoption of such plans in the near
    future
  • The significant investments by health insurers
    and financial organizations to build
    infrastructure or acquire CDPs
  • The entrepreneurial activity by industry
    newcomers such as Revolution Health supported by
    industry moguls and well-known individuals such
    as Steve Case, Carly Fiorina, and Colin Powell.

Growth in HSA Membership
3.2M
1.1M
0.5M
2004
2005
2006
25
Whos Playing and How
  • Microsoft, Nokia, General Motors and Fujitsu Ltd.
    are among those large employers providing HSA
    benefits.
  • 27 percent of CDPs with a health savings account
    were sold to small employers that did not
    previously offer health benefit coverage for
    their employees.
  • CDPs are establishing innovative delivery options
    such as American-Community Mutual Insurance
    Companys 24/7 TelaDoc, which provides medical
    consultations to members of its new
    consumer-directed plan for a 35 fee
  • American Express, partnered with WellChoice Inc.
    to create American Express HealthPay Plus, a
    debit-type card to help members pay for medical
    expenses from their HSA fund.

26
Innovative Delivery Options for CDP Members
  • Dallas-based network of primary care physicians
  • Around-the-clock telephone consultations for
    non-emergency conditions
  • Physicians are board-certified IMs, FPs and GPs
  • Available to CDP health plan members or directly
    to individuals
  • Contracting with insurers such as
    American-Community Mutual Insurance
  • Fee to patient 35 per consult

Sources Web sites for TeleDoc and
American-Community Mutual Insurance, accessed
8/2/06.
27
Health Plans Innovate and Expand Scope to Serve
CDP Members
  • Health plans are rapidly creating end-to-end
    solutions for CDP products
  • Aggressively positioning to serve CDP plan
    members
  • Acquired CDP pioneer Definity in 2004
  • Now own bank for managing customers HSA
    transactions and rollover balances
  • Tools for subscribers include
  • On-line personal health records
  • Sophisticated disease-management and quality
    tools
  • Treatment Cost Estimator compares cost of area
    providers
  • HSA balance tracking tools
  • Check eligibility information and claim status
  • Compare hospitals physicians on quality metrics

Source UnitedHealthcare website
28
Will Self-Pay Patients Transform the Hospital
Business Model?
  • Consumers with co-pays and high deductibles may
    be paying up to 30 out-of-pocket, while that
    rate was only 1.5 under HMOs
  • Patients with high deductible plans spend less
  • Definity Health reports that spending for
    2004-2005 dropped 3 compared to 10 growth for
    traditional insurance plans
  • Hospitals collection rates for co-pays and
    deductibles are only 40

Adapting to a world where hospital patients are
no longer carefree spenders of somebody elses
money Wall Street Journal
August 2, 2006
Source Wall Street Journal, 8/2/06
29
Is it really more than cost-shifting?
  • A typical plan may reduce monthly premiums by
    30, but the deductible may be 1500-3000
  • For many, then, you are on your own for the first
    3,000 where do you go, what price will you
    pay, how do you get that information?
  • Advocates claim it brings consumerism and demands
    for transparency to the healthcare market
  • Critics fear the average working enrollee will
    forego needed care, especially diagnostics

30
Long-term Strategic Consequences
  • UTILIZATION
  • Traditional providers lose volume to emerging,
    lower-priced ventures
  • Utilization drops when consumers forgo treatment
    to save money
  • Hospitals see downstream higher-acuity patients
    who delayed treatment to save money
  • ECONOMIC
  • Price transparency/competition creates downward
    price pressures
  • Hospitals higher cost structure makes them
    unable to achieve niche margins
  • Increased self-pay causes bad debt to rise
  • OPERATIONAL
  • Retail-like conveniences will be required to stay
    competitive
  • Process improvement is required to gain
    competitive efficiencies
  • Infrastructure to deal with complexity of
    managing multi-tiered health plans
  • Clinical staff shortages worsen as new entrants
    compete for talent

Source Price Sensitive Health Care Consumers
Potential Impact on Health Systems, 1/14/2005,
Trinity Health, http//bshsi.com/tews/papers
31
Demand for healthcare services will increase . .
.
. . . But the venue in which it is delivered will
change --innovations in technology, services and
new models of care are proliferating.
32
Boomers at the Gate a pig in a python
  • Key Factors Shaping Demand
  • Desires to delay aging and maintain active
    lifestyle
  • Concerns about chronic disease
  • Entry into new adult life stages
  • Increasing amounts of discretionary dollars
  • Continued absence of disposable time
  • Psychological shift from material possessions to
    experiences

Sources Harvard Business Review 2004 AgeWave
33
Surgery is Migrating to Non-Hospital Settings
80 of all procedures now done in an outpatient
setting
83 of ASCs are wholly or partly owned by
physicians
Imaging services are also growing faster in
office-based settings than in hospital-based
outpatient departments
Source Medicare Standard Analytical File AHA
Trendwatch
34
The Changing Economic Engine of Hospitals
The percentage of hospital net revenue from
outpatient procedures continues to climb, making
hospitals increasingly vulnerable to niche
competitors
Outpatient Percentage of Hospital Net Revenue
Median
Hospital Contribution Margin 2005
Source HCAB
35
Big brands are entering the competitive arena . .
.
Health systems wont just compete against other
provider brands but against new entrants such as
CVS and GE
36
Competition from Niche and Specialty Providers
  • Biotech and medical supply companies have joined
    the pharmaceuticals in advertising direct to
    consumer to influence choice in purchasing
  • Health systems will move to create or sustain
    competitive advantage through development of
    specialized branded centers of excellence
  • Interest in and demand for retail medicine will
    increase -- a virtual variety store of
    offerings are attracting healthcare shoppers
  • Big brands such as GE, American Express and CVS
    are entering the healthcare arena from primary
    care to long term care to healthcare financing,
    consumers will begin to shop the mega brands

Source COR Healthcare Market Strategist,
Retail 101 Ringing up hospitals sales, August
2003
37
Johnson JohnsonMarketing Orthopedic Devices
Direct to Consumer
38
Choose a Device and Contact a Surgeon
39
Retail Healthcare is Exploding
  • Convenient retail health clinics are opening
    across the nation at an exponential rate
  • Provide walk-in care staffed by nurse
    practitioners
  • Average fees are 30-60 for minor ailments
    10-150 for screenings, injections disease
    counseling
  • Located inside mass market retailers CVS, Rite
    Aid, Target, Wal-Mart, corporate offices
  • Embraced by consumers/employers/payers as lower
    cost venue than PCP or ED
  • CVS acquisition could accelerate growth plans to
    have 450 500 sites by end of 2007

Source CVS buys MinuteClinic, Star Tribune,
7/13/06, web sites for MinuteClinic, RediClinic,
Take Care Health Systems, accessed 7/27/06
40
Health system strategy structure will rapidly
evolve . . .
Expect big, long view, transformational changes
from industry leaders
41
Difficult financials providing the momentum
  • More than 2,000 of the nations 4900 acute-care
    hospitals do not make a profit treating patients
  • Of the hospitals that are profitable,
    approximately 1,000 do not generate sufficient
    cash flow to fund essential, non-discretionary
    capital expenses necessary to comply with
    regulations and/or remain competitive with
    increasingly dominant academic medical centers
  • The majority of potentially insolvent hospitals
    are located in urban areas
  • As States and municipalities begin to limit
    spending in the face of slumping tax revenues and
    a weakening economy, the financial health of many
    hospitals is likely to further deteriorate. Many
    will encounter serious liquidity crises and face
    the prospect of radically restructuring or
    shutting their doors.
  • Alvarez and Marshall Healthcare Industry Group
    Study, April 22, 2008

42
Safety in numbers?
  • Stand-alone acute care hospitals are seeking
    partnering and/or merger opportunities for
    leverage and economies of scale.
  • Its also about access to capital, to managed
    care contracts, to physicians, to A players
  • Those with and stability will be able to
    attract physicians in new, long term models,
  • Academic Medical Centers are expanding their
    eco-system reach to stabilize the upstream
    referrals. Count those zip codes in my
    network.
  • Insurance companies, now fewer and larger, and
    are insensitive to the needs of the smaller
    hospitals take it or leave it at the
    negotiation table

43
Hospitals and doctors will seek new ways toalign
interests . . .
Technology, competition, innovation, clinical
performance and changing economics are new
drivers of physician/hospital integration
44
Drivers of New Models Shortages in Physician
Supply
  • SHORTAGES
  • US is facing a shortage in the physician
    workforce
  • Aging demographics increasing demand
  • Could continue for decades
  • PIPELINE
  • The Association of American Medical Colleges
    (2005) recommended an increase of 15 in
    enrollment in allopathic medical schools by 2015
  • Now revising that estimate upward to 30 (5,000
    students)
  • RETIREMENTS
  • One third of U.S. practicing physicians are age
    55
  • Approaching reduced hours or retirement
  • Some retiring early due to increased malpractice
    (OB)
  • FOREIGN-TRAINED
  • Reliance on international medical graduates
    (IMGs) is soaring

Sources The hazy doc shortage, Romano, Modern
Healthcare, 7/10/06 HCAB
45
The Hospitalist Model is Widely Embraced
Expected to Grow
  • Hospital-based inpatient specialists
  • Provide cost and outcome improvements
  • Model is especially effective in the ICU

Source HCAB
46
The Next Generation of Hospitalists is on the Way
  • LABORISTS
  • Labor delivery specialists OB emergency
    coverage if patients attending physician not
    available
  • SURGICALISTS
  • Hospital-based general surgeons who cover ED call
    but do not operate their own private practices

PLUS A FEW NEW ONES..NOCTURNISTS AND TRAVELISTS


Source HCAB
47
The evolution of the practice of medicine
  • Assumptions about the future physician model
  • Solo and small group practice a dinosaur
  • Evolving to larger groups for leverage (some
    hospital or system owned)
  • Evolving to mega-groups with PCP and specialists
    (MSGP)
  • Eventually merging into Integrated Delivery
    Systems (think Sutter, WellStar, Sentara,
    Intermountain, Advocate, Kaiser-Pemanente,etc)
  • It is likely that the more successful of these
    integrated systems
  • will not be those that boast we employ
    doctors but those that truly partner with
    physicians in the governance and day-to-day
    management of the enterprise (think WellStar)

48
The insurer world
  • There are fewer of them Blue Cross, United,
    Cigna and Aetna are stepping all over each other
    in most major markets
  • They are concerned about national health reform
  • They are coming off a boom cycle, and times will
    be difficult for awhile
  • More and more evidence that the products are
    just to expensive
  • They are content to shrink membership rather than
    compete on price
  • They are doing more CDHP business
  • They are doing more TPA business (25 as
    profitable to them)
  • They will continue to place fee pressure on
    providers, particularly those with little
    leverage
  • They are pushing transparency CQ, SQ and cost
  • P4P will increase, as will steering (see Blue
    Distinction.)

49
The national health care debate
  • With Hillary gone, mandates for universal
    coverage unlikely
  • McCain suggests tax incentives eliminate tax
    break for employers, and give tax credit to
    individuals for purchasing insurance
  • A menu of options similar to FEHBP
  • OK to cross state lines to purchase a policy
  • Risk pools for the very sick - Guaranteed
    Access Plan
  • Obama will stick with employer model large
    employers must offer insurance or pay into a pool
  • Parents must provide insurance for children
    subsidy for the poor
  • Both will lower costs by making processes more
    efficient (LOL)

50
1982 Strategic Plan for Sentara
  • Strategic Imperatives
  • 1. Grow profitable revenue
  • 2. Manage costs and quality
  • 3. Align interests with physicians

51
Redefining the Rules of Competition
  • Competitive Requirements
  • Superior clinical performance
  • Differentiated patient experience
  • Innovative models of care
  • Market-making partnerships and alliances
  • Technology enabled advantages
  • Differentiated brand identity
  • Advanced marketing capabilities
  • Operational Imperatives
  • Evidence based treatment practices with
    predictable outcomes
  • Efficient, timely registration, treatment and
    recovery processes
  • Automation and standardization
  • Collaborative and coordinated systems of care
  • Customer centric culture and processes
  • Entrepreneurial environment to stimulate and
    support innovation

52
A strategic thinking model..
  • 1. What do we know?
  • 2. What does it mean to us?
  • 3. What actions should we take??

53
Questions?
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