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GPO Trends and Perspectives: Premier’s Economic Outlook
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GPO Trends and Perspectives: Premier’s Economic Outlook

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Featuring results from a semiannual health system executive survey on supply chain and marketplace trends impacting the industry, this presentation will provide insight on ways that industry …

Featuring results from a semiannual health system executive survey on supply chain and marketplace trends impacting the industry, this presentation will provide insight on ways that industry stakeholders are working to bend the cost curve and meet the demands of the Affordable Care Act. Data will include trends in capital budgets, commodity prices, economic indicators and other factors impacting contracting, as well as large-scale market trends and examples of how stakeholders have found opportunities provide high-quality, low-cost care.

Speaker: Kayla L. Sutton, Managing Director, Economic Outlook,
Premier, Inc.

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  • Healthcare trends with the greatest impact on health system in coming year: reimbursement cuts remains the healthcare trend with the greatest impact on health systems, and continues to grow as a response (increasing to 69% of respondents choosing it as a top 2 trend)-New care delivery models and health IT requirements are also growing in importance compared to previous surveys; HIT rose from 19% of respondents just 6 months ago to 24% now. New care delivery models has steadily increased from the spring 2012 survey where 16.5% of respondents chose it as a top trend to 28% of respondents currently Note:-advanced data analytics first offered as an option fall 2013-HIT requirements first offered as a response option spring 2013
  • This chart shows MS-DRG cost per case and the percent of cost covered by CMS payments. Due to reform, sequestration and general increasing pressures on health systems to reduce costs, it has spurred greater discussion about cost-saving measures. With the baby boomers aging into Medicare, the number of patients with Medicare coverage is going to grow exponentially in the next decade. Since Medicare payments are often significantly lower than commercial payments, health systems need to address the payment and cost gap by identifying areas where costs can be reduced. Our fall EO features a Medicare Breakeven article that identifies that areas with the greatest payment and cost gap. Our spring EO theme is around Medicare Breakeven and will highlight opportunities for member health systems to identify areas of savings to meet Medicare payment levels.
  • Healthcare cost drivers:45% of respondents chose “healthcare legislation” as a top driver of healthcare costs; it remains the top driver, according to respondents, though it appears health systems have been getting used to the implications of healthcare reform and other legislation impacting them since spring 2012 (since it dropped from ~51% of respondents spring 2012)Labor costs – typically the highest actual expense of a health system – was ranked the second biggest driver of healthcare costs. Although labor costs are more predictable than some other expenses (such as healthcare legislation, overutilization, etc.), some reform outcomes such as ACOs and coordinating care across the continuum demand different staffing needs. New care delivery models put more uncertainty into labor cost predictions. Misalignment of quality and payment incentives is another top driver of costs, rising from 17% of respondents in spring 2012 listing it as a driver to 23% currentlyOverutilization and unjustified variation in care are two types of waste in healthcare system (stemming from misalignment of quality and payment incentives and lack of standardization). “Unjustified variation in care” was split out from overutilization for the fall 2013 survey so we could more accurately assess each type of variation in products and services. Pharmaceuticals, medical devices and new clinical equipment/technology have all slightly declined from spring 2012
  • Provider consolidationPresence Health; Dignity Health; Ascension; for-profitsPayer consolidation and information technology acquisitionsConsolidation: CIGNA acquired HealthSpring.IT Acquisitions: Aetna acquired Medicity & UnitedHealth Group acquired Axolotl.Physician groups creating ACOsPrivate payer, federal and state payment reformsHawaii Medical Service Association modelBlue Cross Blue Shield of Massachusetts - Alternative Quality ContractCMS - Bundled Payment, VBP, etc.New collaborations and partnershipsBanner Health partners with Aetna on accountable care collaboration.Texas Health Resources partners with Healthways on “proactive well-being improvement”.Evolent Health partners with MedStar on population and health plan management solutions.Changes in employer and employee coverage practices18% increase in HSA products in 2011; greater focus on fitness and prevention
  • Need to better manage the continuum of care – no longer focusing solely on acute care facilities’ contracting and supplies, but the whole spectrum61% of respondents forecast an increase in outpatients this year compared to last – 13% of them anticipate an increase greater than 5 percent; only 14% of respondents expect a decrease in outpatient discharges.Conversely, 27 percent of respondents anticipate an increase in inpatients, while 40 percent forecast a decrease. New care delivery models and other incentives to reduce healthcare costs are motivating health systems to coordinate patient care in a manner than reduces costs and improves outcomes. Shifting patients to outpatient settings instead of hospital/acute care is one way to provide more appropriate care while reducing costs, so we expect this trend to continue.
  • Six months ago (spring 2013), 22 percent of respondents stated that they had created or joined an accountable care organization. Our current survey showed a 21% increase since only six months ago. -While many respondents pushed their anticipated ACO dates back from 2013, the percent of respondents indicating that their organization has no plans to join or create an ACO decreased 13% from the spring survey.
  • 1. Reduced utilization and costs when physicians and hospitals due to incentives to keep costs per capita downResult in more downward pressure on supply chain costs, and perhaps a broader “customer”2. Greater demand for clinical effectiveness (vs. cost per unit) and value analysis of new products (particularly higher cost products)3. Suppliers should also look to other measures when marketing/demonstrating their value, to address cost, quality and experience. 4. Value will be measured not just at the site of delivery but across the continuum ROI should consider total patient costs, not just inpatient, outpatient or episodic costs5. Purchasing:One price for all classes of trade acute and non-acute)Centralized purchasing  greater transparency between facilities6. Supply chain innovation (by-product) Greater necessity for good outcomes/lowered cost will progress collaboration and efficiencies in the supply chain to help reduce costs EX: Pharmacy automation reduce risks of adverse events/readmissions HFHS, Detroit Medical and Cardinal Health collaboration Big DataSummary: Take advantage of today’s payment levelsCoverage expansion (revenue relief) in question Don’t be distracted by the political environment Value-based payment reforms and market transformation is happening -- this timeMovement to more market-based system with greater transparency, consumer choice and demands on providersProvider-led transformation will require policy change, de-regulation, scale and smart decisions
  • A health system’s cost savings’ goals will have the biggest influence on supply chain decisions in the next twelve months. Cost savings goals have been the top driver of supply chain decisions for the past 18 months. Supply chains are being leveraged to reduce costs throughout health systems by reducing variation and unnecessary costs. Only 13% of respondents report that they do not have a formal cost savings goal for this year. 41% have a goal between 1-5% savings; 33% have a goal of 6-10% savings22% of respondents indicate that the need to reduce overutilization or variation in care will have the greatest influence on their supply chains. Waste in the U.S. healthcare system is an area of continued discussion – health systems are working to identify areas that they can standardize products and services to reduce unnecessary variation, as well as identify areas where supply spend doesn’t match with outcomes (e.g., PPI). In addition to our updated waste dashboard, published in the Quality Outlook, Premier identified two areas of unnecessary spending in the fall Economic Outlook: - “Cost of Complications in Obstetrics”: shows the variation in cost for complications in obstetrics patients. Despite the large percent of hospital patients who are obstetrics, as well as the reductions in mortality and other adverse events during labor & delivery, this is still an area where many health systems could standardize care and reduce additional costs from complications. - “Level of care management in the ICU”: ICU care is more expensive than critical care units and medical- surgical units (because there’s a higher number of nurses/practitioners per patient). However, care management pathways are not always defined with the greatest efficiency. This article highlights the variation of cost and the necessity of properly managing level of care for patients in the hospital.
  • Top supply chain trends: -Increased physician-health system engagement remains the top supply chain trend with 25% of respondents citing it as the top trend; however, there’s been a 35% decrease since fall 2012. Physician-health system engagement is important in decisions that drive down costs while improving outcomes (or at least keeping outcomes the same), but require physician buy-in. PPI is a good example of this. -Supply chain integration to align with clinical care, revenue capture and IT across the health system – alternatively – has seen a 220% increase since last year. -Focus on waste management has declined from fall 2012, but after increasing spring 2013. Waste management is becoming more common for health systems, so although the emphasis on it doesn’t seem to be wavering amongst our members, it isn’t necessarily as new a trend. -NOTE: options with N/A spring 2013 and fall 2012 are new to the fall 2013 survey. Ways health systems are using data for population health:64% of respondents are integrating clinical and claims data (likely from their payer partnerships) 45% are using predictive analytics to determine patients with the highest risk and to forecast which patients will require additional care44% are using an integrated data solution to reduce silos between various data sources
  • Within the supply chain, product standardization is receiving the most dedicated resources (confirming the comment made on previous slide that waste management isn’t losing its emphasis within health systems). In fact, there’s been a 43% increase in respondents indicating product standardization is being dedicated the most resources since last fall. IT investments are the second largest area of resource dedication for supply chain, though response fell from the spring 2013 survey. Reducing costs for commodity products appears to be a growing need for health systems, whereas comparative effectiveness/value analysis research has decreased from last year.
  • 47% of respondents indicate they have the capability and have full implemented centralized purchasing across acute and alternate sites. We’d still be interested to know whether they are using the same formulary or have standardized product choices across facilities. 42% have a centralized purchasing capability that isn’t fully implemented and 12% do not have the capability.
  • 58% of respondents to the fall survey forecast an increased or flat capital budget compared to last year. This is down from 63% spring 2013; 67% last fall. These are forecasts compared to the previous year, so as we get back to 2010-2011, many health systems would’ve been recovering from the recession and anticipating increased capital budgets compared to the previous year. Currently, we’re seeing a fairly significant increase in the percent of respondents expecting a decrease in capital budgets, especially decreases greater than 10%.
  • Capital spending report – November 2013We saw an 11% decrease in respondents indicating their greatest area of capital investment would be IT and telecommunications in this survey compared to only six months ago. This is the first time IT has fallen below 40% of respondents indicating it as the top investment area since fall 2011. Infrastructure, on the other hand, rose 4 percentage points from the spring survey – a 26 percent increase from fall 2011 (and its highest point since fall 2011). Infrastructure costs are likely rising in accordance with greater care coordination, population health efforts, and new care delivery models. Health systems are building new facilities to better manage patient and community needs.
  • Theme of the fall 2013 edition is population health management. In addition to our survey questions on supply chain, finance and general industry trends impacting our members, we also asked a population health battery to help gauge what our members are doing in this area.
  • Transcript

    • 1. Contracts and Chargebacks Seminar: Perspectives on Process Improvement October 21 – 22, 2013 | Hotel du Pont, Wilmington, Del. GPO Trends and Perspectives: Premier’s Economic Outlook October 22 | 1:30 PM-2:00 PM Kayla L. Sutton Managing Director, Economic Outlook Premier healthcare alliance Slide 1
    • 2. Imperative to bend cost curve Reimbursement cuts 68.8% New care delivery models 28.0% Health IT requirements 24.3% Uncompensated care Consolidation among health systems Employer health benefits/ insurance exchanges Utilization of products and services Comparative effectiveness research Advanced data analytics 0.0% Spring 2012 2 20.5% 16.8% 16.5% 10.8% 7.5% 6.8% 10.0% 20.0% Fall 2012 30.0% 40.0% 50.0% Spring 2013 60.0% 70.0% 80.0% Fall 2013 Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 3. Medicare Breakeven Percent of cost covered by CMS payment 200.0% 180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 Average cost per case Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities 3 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 4. Healthcare cost drivers 60.0% 50.0% 40.0% 30.0% 20.0% Fall 2013 10.0% Spring 2013 Fall 2012 0.0% Spring 2012 Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities 4 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 5. Market response from ACA Provider consolidation Payer consolidation and information technology acquisitions Physician groups creating ACOs Private payer, federal and state payment reforms New collaborations and partnerships Changes in employer and employee coverage practices 5 Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 6. Patient forecasting Inpatient forecast 7.2% 5.0% 22.3% 32.7% 32.7% 6 Increase by more than 5% Increase by up to 5% No change Decrease by up to 5% Decrease by more than 5% Outpatient forecast 10.7% 3.6% 13.2% 24.6% 47.8% Increase by more than 5% Increase by up to 5% No change Decrease by up to 5% Decrease by more than 5% Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 7. Creating or adopting ACOs 30.0% 26.6% 26.5% 25.0% 23.1% 21.9% 21.0% 20.0% 15.0% 18.0% 14.3% 11.5% 9.7% 10.0% 10.6% 9.7% 7.2% Fall 2013 5.0% Spring 2013 0.0% We already By the end have an of 2013 ACO in place 7 By the end of 2014 By the end of 2015 After 2015 My health system will not be creating or joining an ACO in the foreseeable future Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 8. Potential ACO Impact 1. Reduced utilization and costs due to incentives 2. Greater demand for proven effectiveness and value analysis of new products 3. Suppliers need to demonstrate value through cost, quality and experience 4. Value will be measured not just at the site of delivery but across the continuum of care 5. Purchasing 6. Supply chain innovation (by-product) 8 Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 9. Factors with the greatest influence on supply chain decisions Cost savings' goals 27.1% Reductions in overutilization/ variation in care 21.8% Integrating the supply chain across the continuum of care 12.0% Implementing healthcare IT 7.8% Comparative effectiveness/ value analysis research 8.9% Drug shortages 8.4% Medical device prices Commodity prices Other 0.0% 7.8% 3.9% 2.2% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities 9 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 10. Trends impacting supply chain Fall 2013 Supply chain integration to align with clinical care, revenue capture and IT across facility/health system Focus on waste management (e.g., resource utilization, as a means to reduce supply cost) Comparative effectiveness/value analysis research Centralized purchasing Use of new supply chain metrics/processes Population health management and care coordination across the continuum Location and product identification standardization (e.g., GLN and GTIN) 10 N/A N/A 38.4% 10.7% 6.3% 13.9% N/A 29.6% 20.1% Increased physician-health system engagement across clinical and supply chain operations Fall 2012 24.8% Trends Spring 2013 21.4% 17.3% 10.3% n/a n/a 15.0% n/a n/a 5.0% n/a n/a 5.6% 7.8% 4.8% 5.3% 1.5% 2.7% Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 11. Standardization receiving most resources Product standardization IT investments – EHR-specific Building relationships with physicians and clinicians Reducing costs for physician preference products Fall 2012 Spring 2013 Fall 2013 Reducing costs for commodities products Comparative effectiveness/ value analysis research Data standardization IT investments – non-EHRspecific 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communities 11 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 12. Centralized purchasing Yes - we have the capability and have fully implemented centralized purchasing across acute and alternate sites 11.7% 46.5% 41.8% Yes - we have the capability, but have not fully implemented centralized purchasing across acute and alternate sites No - we do not have the capability for centralized purchasing across acute and alternate sites 12 Source: Premier’s fall 2013 Economic Outlook, Population health: Unlocking the value of healthier communitiesPROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 13. Capital budget forecasts 30.0% 25.0% 20.0% Fall 2013 15.0% Spring 2013 Fall 2012 Spring 2012 10.0% Fall 2011 5.0% 0.0% Increased Increased Increased No Decreased Decreased Decreased by 30% or by 10% to by 1% to Change by 1% to by 10% to by 30% or more 29% 9% 9% 29% more 13 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 14. Areas of capital investment IT and telecommunications Infrastructure (e.g., construction) Surgical suites/equipment Fall 2011 Spring 2012 Imaging equipment Fall 2012 Spring 2013 Other clinical equipment Fall 2013 Laboratory equipment Other 0.0% 14 10.0% 20.0% 30.0% 40.0% 50.0% PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 15. Major factors impacting 2014 commodity prices U.S. monetary policy/quantitative easing Strength of U.S. dollar compared to other currencies Resiliency of European Union Demand from China and emerging markets Suppliers identified energy, labor and plastic resins as the top cost drivers of raw materials 15 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.
    • 16. Questions? Contact: Kayla_Sutton@PremierInc.com www.premierinc.com/economicoutlook 16 PROPRIETARY & CONFIDENTIAL – © 2013 PREMIER INC.

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