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The Role of Healthcare and Higher Education in Philadelphia’s Economy: Vision for the Future

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Navigant’s Chris Myers presents on “The Role of Healthcare and Higher Education in Philadelphia’s Economy: Vision for the Future”. Chris outlines the current state and the future expected developments …

Navigant’s Chris Myers presents on “The Role of Healthcare and Higher Education in Philadelphia’s Economy: Vision for the Future”. Chris outlines the current state and the future expected developments of the Philadelphia provider sector and how Philadelphia systems, despite strong brands, generally have not moved beyond traditional service areas and are focused on local/regional competition. In addition, Chris highlights that hospital competition and M&A activity in Philadelphia will accelerate across the mid-term. Across the longer-term, select systems will expand beyond the region and there will be a greater emphasis on population health as payers and providers partner to bend the cost curve.

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  • 1. 2013 PHILADELPHIA INVESTOR CONFERENCEThe Role of Healthcare and Higher Education in Philadelphia’s Economy:Vision for the FutureChris MyersApril 2013
  • 2. 2NAVIGANT HEALTHCARE OVERVIEWNavigant Consulting (NCI) is a $800M+ global specialty consulting firm with headquarters in Chicago. With over 450dedicated healthcare professionals, Navigant provides a full spectrum of strategic, operating and financial advisoryservices to the healthcare industry.» Revenue CyclePerformanceImprovement» ClinicalDocumentationImprovement» Reimbursement RateAnalysis» Pricing Analysis» Auditing ServicesRevenueManagement» PerformanceImprovement PlanDevelopment ,Assessment andImplementation» Clinical OperationsImprovement» Interim Management» Supply ChainImprovement» Physician Group andFaculty PracticeManagementOperationalPerformanceImprovement» Strategic AlternativeAssessments» Merger & AcquisitionAdvisory Services» Capital Placements» Recapitalizations &Restructurings» Valuations & FairnessOpinions» Financial AdvisoryMergers &Acquisitions,Restructuring*» Compliance Monitoringof Managed CarePrograms» Reactive Risk MitigationServices» Proactive ComplianceReviews» Developing IntegratedCompliance and RiskManagement,Monitoring and TestingProcessesFraud &Compliance» Market Assessments» Real EstateManagement» Program/ServicePortfolio Optimization» Hospital-PhysicianClinical Integration» Pricing &Reimbursement» Delivery Innovation» Managed Care ProgramAnalysisStrategy* Investment Banking services provided through Navigant Capital Advisors, LLC, a FINRA Broker Dealer.
  • 3. 3NATIONALLY, HEALTH SYSTEMS FOCUSING ON THREEIMPERATIVES1. Continued and expanded drive toward provider consolidation• Thinly capitalized and distressed hospitals and physician groups increasingly willseek partnerships, resulting in some transactions that could not have beenpredicted two years ago (50% of hospitals in systems in 2000 vs. 67% in 2012)• Growing innovative solution set beyond traditional M&A aimed at economies ofscale, value-based reimbursement and population management, including: ACO,CIN, hybrids (taxable and tax exempt; secular and Catholic), back officecollaboration, minority membership and more• Continued consolidation of regional markets and large regional systems breakingdown traditional service areas• Continued sponsor-driven reconfiguration of Catholic health systems2. Reimbursement cuts are requiring improved performance• Large federal and state budget deficits have exacerbated Medicare and Medicaidsolvency issues, pressuring provider payment and requiring new discipline andapproaches to performance improvement3. A new reimbursement paradigm is emerging• Value based rather than volume based payment
  • 4. 4PHILADELPHIA PROVIDER SECTOR: CURRENT STATE1. Philadelphia survived the economic downturn more than the US, as education andhealthcare are major employers (5 medical schools, 4M residents!)2. Philadelphia is one of only 4 large markets in the US where the hospital sector isunconcentrated, while the commercial payer sector is “superconcentrated” (see nextpage)Commercial insurer sector: HHI ~ >4,550 (IBC 60%, Aetna 30%, Others 10%) VS.Hospital sector: HHI ~ < 1,000 (Jefferson 18%, Penn 13%, CHE 10%, Temple,Abington, Crozer-Keystone each 7%, Others 38%)3. Hospital sector:• Nationally recognized organizations• Hospitals in Philadelphia are BIG by national standards (as small ones have closedand the big ones have gotten larger)• No traditional public “safety net” hospital4. Physician sector:• Most health systems have large, growing employed / aligned physician groups• There are few private practice primary care physicians and specialists (cardiologyin play now) are increasingly seeking employment with health systems
  • 5. 5PHILADELPHIA IS UNCONCENTRATED FOR HEALTH SYSTEMS, BUTSUPERCONCENTRATED FOR COMMERCIAL PAYERSNote: An Elzinga-Hogarty test (based on an analysis of patient origin data) may be used to define the relevant market; the information above is for MSAs.Sources: US Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (8/19/2010); 2012 AMA Competition in Health InsuranceStudy (January 2010 data) [Data updated November 2012]; HealthLeaders Market Overview Reports [Data updated December 2012]; NCI Analysis.Commercial Payer HHI vs. Health System HHIHealth Systems Commercial Payers SuperConcentrated (18)Highly Concentrated(25)Moderately Concentrated(26)Unconcentrated(18)Super Concentrated(16)• Columbia, SC• Grand Rapids• Lansing• Portland, ME• Scranton• Wilmington• Charleston• Greenville• Honolulu• Birmingham• Indianapolis• Pittsburgh• Baltimore• Chicago• Detroit• PhiladelphiaHighly Concentrated(29)• Austin• Des Moines• Cape Coral• Fresno• Norfolk• Buffalo• Harrisburg• Hartford• Knoxville• Las Vegas• Lexington• Omaha• Raleigh• Richmond• Rochester• Southern CT• Syracuse• Tucson• Cincinnati• Greensboro• Louisville• Milwaukee• Minneapolis• Nashville• Providence• Southern NJ• Boston• Northern NJ• Oklahoma CityModerately Concentrated(42)• Charlotte• ColoradoSprings• Dayton• Orlando• Spokane• Toledo• Worcester• Albany• Albuquerque• Columbus• El Paso• Madison• Memphis• Salt Lake City• Springfield, MA• Tulsa• Baton Rouge• Cleveland• Dallas• Denver• Jacksonville• Little Rock• New Orleans• Phoenix• Portland, OR• Sacramento• San Antonio• San Diego• St. Louis• Tampa• West PalmBeach• Atlanta• Houston• Kansas City• Los Angeles• Miami• New York City• Orange County• Riverside• San Francisco• Seattle• Washington,DCUnconcentrated (0) • None • None • None • NoneThe Herfindahl-Hirschman Index (HHI) is calculated as the sum of the squares of each organization’s market share. The US Department ofJustice and Federal Trade Commission define markets with an HHI of >2500 as Highly Concentrated, 1500 to 2500 as Moderately Concentratedand <1500 as Unconcentrated. NCI has outlined a fourth category “super concentrated” to describe markets with an HHI >3500.
  • 6. 6PHILADELPHIA PROVIDER SECTOR: EXPECTEDDEVELOPMENTS1. Large integrated, well-capitalized systems are moving across and beyond Pennsylvania(UPMC, Geisinger, Community). Regulatory / economic uncertainty in adjacent states(NJ, NY, MD) presents opportunities for strong PA systems2. Philadelphia systems, despite strong brands, generally have not moved beyondtraditional service areas and are focused on local / regional competition3. Physicians will continue to join strong health systems4. Hospital competition and M&A activity in Philadelphia will accelerate across the midterm. Across the longer-term, select Philadelphia systems will expand beyond theregion• Recent: Temple acquired Fox Chase; Prime acquired Roxborough; Catholic HealthEast and Trinity Health are exploring a national merger• Future: Market in play. Continued system formation, mostly around academicmedical centers, with freestanding hospitals and small systems seeking capitaland/or regional partners5. Market has not been an early adopter of reform (few ACOs, status of InsuranceExchange, etc.), but there will be a greater emphasis on population health as payersand provider partner to bend the cost curve (Medicare and Medicaid are growthsegments)

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