ben-umansky-carolinas-healthcare-system-rehab-summit-11-6.pptx

Health Care Advisory Board
The Emerging Era of Choice
Restructuring Health System Strategy for the Retail Revolution

©2014 The Advisory Board Company • advisory.com • 28603A
6
“Cord Cutters” and “Cord Nevers” Giving Up Broad Networks
Source: Experian Marketing Services, “Cross-Device Video Analysis,” April 17, 2014, available at: www.experian.com; Manjoo F, “Comcast vs. the
Cord Cutters,” The New York Times, February 15, 2014, available at: www.nytimes.com; Health Care Advisory Board interviews and analysis.
An Industry Built on a House of Cards
Paying for More Than You Use
“This is the battle hymn of the cord cutter: You
are paying too much for television, and you
aren’t watching most of what you’re paying for.”
Farhad Manjoo, The New York Times
U.S. Households
With Internet
But No Cable, 2013
6.5%
U.S. Adults Age 18-34
With Netflix or Hulu
But No Cable, 2013
18.1%

7
Most Hospitals Staying Afloat Through Cross-Subsidization
Source: American Hospital Association, “Trendwatch Chartbook
2014,” available at: www.aha.org; Health Care Advisory Board
interviews and analysis.
Revisiting a Tenuous Business Model
Hospital Payment-to-Cost
Ratio, Private Payer, 2012
149%
Hospital Payment-to-Cost
Ratio, Medicare, 2012
86%
• Above-cost pricing
• Robust fee-for-service
volume growth
• Steady price growth
• Only one component of
our total business
Commercial Insurance Public Payers
Below Cost
Above Cost
Traditional Hospital Cross-Subsidy

8
Entrenched Payers, Insulated Patients Unlikely to Upset Status Quo
Source: Health Care Advisory Board interviews and analysis.
Cross-Subsidy Depends on Inefficient Markets
Established Provider
• Commercial pricing
growth steady
• Network inclusion
likely for most plans
• Patient volume
depends largely on
referral patterns
Entrenched Payer
• High employer switching
costs impede competition
• Handful of broad networks
satisfy majority of passive
employers
• Excess cost growth easily
passed on to employers
through premium increases
Price-Insulated Patient
• Open access to broad
provider network standard
• Modest cost-sharing
obscures true prices
• Physician recommendation
dominates point-of-care
decisionmaking
Assumptions Underlying Provider Growth Strategy

9
Four Years Post-Reform, New Paradigm Finally Becoming Clear
The Retail Revolution
Medicare Reforms and
the Transition to Risk
Coverage Expansion and the Rise
of Individual Insurance
Activist Employers and
the Primacy of Value
1
2
3
Major Themes Reshaping Provider Strategy

10
Medicare Payment Cuts Becoming the Norm
Medicare Reforms and the Transition to Risk
Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R.6079, The Repeal of Obamacare Act,” July 24, 2012;
CBO, “Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act,” September 12, 2011; CBO,
“Bipartisan Budget Act of 2013,” December 11, 2013, all available at: www.cbo.gov; Health Care Advisory Board interviews and analysis.
1) Includes hospital, skilled nursing facility, hospice, and
home health services; excludes physician services.
2) Disproportionate Share Hospital.
Public-Payer Reimbursement Still in the Crosshairs
($4B)
($14B)
($21B) ($25B)
($32B)
($42B)
($53B)
($64B)
($75B)
($86B)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
ACA’s Medicare Fee-for-Service Payment Cuts
Reductions to Annual Payment Rate Increases1
$260B
Hospital payment
rate cuts,
2013-2022
Office of the
Actuary, CMS
“Notwithstanding
recent favorable
developments…
Medicare still
faces a substantial
financial shortfall
that will need to be
addressed with
further legislation”
Not the End of the Story
$56B $151B
Reduced Medicare
and Medicaid DSH2
payments, 2013-2022
Reduced Medicare
payments due to
sequestration and
2013 budget bill

11
More Mandatory Risk On the Horizon
Source: The Advisory Board Company, “Mortality Rates Are Only One of Many VBP Changes
to Come,” December 4, 2013, available at: www.advisory.com; CMS, “Request for Information
on Specialty Practitioner Payment Model Opportunities,” February 2014, available at:
www.innovation.coms.gov; Health Care Advisory Board interviews and analysis.
1) Includes Value-Based Purchasing Program, Hospital Readmissions
Reduction Program, and Hospital-Acquired Conditions Program.
Steady Shift Toward Risk-Based Payment
20% 25%
25%
30%
40%
30%
30%
30%
25%
70%
45%
20%
10%
FY 2013 FY 2014 FY 2015 FY 2016
Clinical Process
Patient Experience
Outcomes of Care
Efficiency
Medicare Value-Based Purchasing Program
Performance Criteria
6%
Other Mandatory Risk Programs
Hospital-Acquired
Condition
Penalties
Readmission
Penalties
No Trivial Thing
Weight in Total Performance Score
Medicare revenue at
risk from mandatory
pay-for-performance
programs2, FY 2017

12
Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based Options
Source: CMS, “More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for
Medicare Beneficiaries,” December 23, 2013; Health Care Advisory Board interviews and analysis.
More Providers Taking the Hint
Medicare ACO Program Entrants
1 in 10
Medicare FFS beneficiaries
attributed to an ACO
32
375
114
106
123
2012
MSSP1
Cohorts
2013
MSSP
Cohort
2012
Pioneer
ACO
Model
Total
2014
MSSP
Cohort
The Broader Picture
20.5M
Americans enrolled in
or attributed to
Medicare, Medicaid,
or commercial ACOs
46M-52M
Patients treated by ACOs
as of April, 2014
626
Total ACO count,
including commercial
and Medicaid ACOs,
May 2014
1) Medicare Shared Savings Program

13
Performance, Persistence Closely Correlated
Source: Centers for Medicare and Medicaid Services, http://innovation.cms.gov/Files/x/PioneerACO-Fncl-PY1PY2.pdf; “San Diego-Based Sharp
HealthCare Pulls Out of Pioneer ACO Program,” California Healthline, August 28, 2014; Health Care Advisory Board interviews and analysis.
1) Dropped out after second year; second-year performance
not reported
Some Pioneers Changing Course
Pioneer ACO Performance
First-year performance
Second-year performance
Dropped out after program year
Gross Savings as Percentage of Benchmark 1
-5.6%
(min)
7.1%
(max)
Alison Fleury, CEO
Sharp HealthCare ACO
“The model was financially detrimental…despite favorable
underlying utilization and quality performance”

14
Pending Program Updates Crucial for Future Participation
Source: Centers for Medicare and Medicaid Services, “New Affordable Care Act tools and payment models deliver
$372 million in savings, improve care,’ September 16, 2014; Health Care Advisory Board interviews and analysis.
1) Includes one participant’s $4M repayment of shared losses
Medicare Shared Savings Program a Mixed Bag
Medicare Shared Savings Program
ACO Performance
First Performance Year
$297M
Shared savings earned by
MSSP ACOs in first
performance year1
53
52
115
Held Spending
Below Benchmark,
Earned Shared
Savings Payment
Held Spending
Below Benchmark,
but Did Not Earn
Shared Savings
Did Not Hold
Spending
Below
Benchmark
Will ACOs have any ability to
prevent network leakage?
Issues to Watch for in Updated
Regulations
Will second-term ACOs
really have to bear
downside risk?
Will beneficiaries be
attributed to ACOs
prospectively?
Will benchmarks be
calculated differently?
Will the share of savings
paid to ACOs be higher?

15
Policymakers and (Some) Providers Angling for Higher-Octane Options
Source: H.R. 5558, http://welch.house.gov/uploads/ACO%20Bill%20Text.pdf;
Health Care Advisory Board interviews and analysis.
Transition to Risk Hardly Stalled
The Bigger Question: What Should
Medicare ACO Programs Be?
Training grounds for other risk models?
(e.g., Medicare Advantage)
Adaptive environments involving
progressively more risk?
Permanent middle grounds between
fee-for-service, capitation?
Bill in Brief:
“The ACO Improvement Act”
• Bipartisan bill (H.R. 5558) introduced
by Representatives Diane Black (R-
TN) and Peter Welch (D-VT)
Key Features
• ACOs would receive capitated
payments, not shared-savings
adjustments
• Patients would proactively select a
primary care provider rather than be
retroactively attributed
• ACOs could discount primary care
services to encourage network loyalty

16
Shift Signals Individualization of the Medicare Market
Source: Jacobson G et al., “Projecting Medicare Advantage Enrollment: Expect the Unexpected?”
Kaiser Family Foundation, June 12, 2013, available at: www.kff.org; Hollander C, “CMS to
Increase Medicare Advantage Pay Rate By 0.4%,” ModernHealthcare, April 7, 2014, available at:
www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
Medicare Advantage Gaining Momentum
Projected Medicare Advantage Enrollment
29.5% of Medicare
beneficiaries
10.4M
19.0M
2009 2020
Unambiguous incentive for
population health management
Provider Benefits Over Shared
Savings Models
Greater provider control over
network integrity
Less frequent patient churn

17
But Every Silver Lining Has Its Cloud
Coverage Expansion and the Rise of Individualized Insurance
Source: Gallup, “In U.S., Uninsured Rate Holds at 13.4%,” http://www.gallup.com/poll/178100/uninsured-rate-holds.aspx; Department of Health and
Human Services, “Impact of Insurance Expansion on Hospital Uncompensated Care Costs in 2014,”
http://aspe.hhs.gov/health/reports/2014/UncompensatedCare/ib_UncompensatedCare.pdf; Health Care Advisory Board interviews and analysis.
ACA (and Recovery) Making a Dent in Uninsurance
18.0%
(highest on
record)
13.4%
(lowest on
record)
2013 Q3 2014 Q3
Percentage of U.S. Adults Without Health Insurance
Employer-sponsored
coverage grows
Medicaid
expansion begins
Insurance
exchanges launch
$5.7B
Reduction in
uncompensated
care, 2014
A Bargain Still Unbalanced
$14B
ACA-related
reductions in Medicare
fee-for-service
payment, 2014
vs.

18
23 States Still Foregoing Expansion
Medicaid Expansion
Source: The Advisory Board Company, “Where the States Stand on Medicaid Expansion,” September 4, 2014, available at: www.advisory.com; CMS,
“Medicaid and CHIP: July 2014 Monthly Applications, Eligibility Determinations and Enrollment Report,” September 22 2014; HHS, “Health Insurance
Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; PricewaterhouseCoopers, “Medicaid 2.0: Health System
Haves and Have Nots,” Health Care Advisory Board interviews and analysis.
1) Estimate- does not include CT or ME.
2) Children’s Health Insurance Program.
Medicaid Expansion Contentious—and Consequential
Increase in Medicaid,
CHIP2 enrollment,
October 2013-July 2014
8M1
Advisory Board estimate of impact of
Medicaid expansion on typical hospital’s
10-year operating margin projection
2.4%
State Participation in Medicaid Expansion
Participating Not Currently Participating
As of October 2014
5%
Average Medicaid
enrollment increase across
non-expansion states
PricewaterhouseCoopers
“For-profit health
systems…report far better
financial returns through
the first half of the year than
expected, owed in large
part to expanded Medicaid”
Financial Impact

19
Responsibility Migrating to Payers, Providers, Patients
Expanding or Not, States Pushing Medicaid Innovation
Provider-Led Care
Management
E.g., Oregon’s “Coordinated
Care Organizations”
Exchange-Based
Privatization
E.g., Arkansas’ “Private
Option”
Full Medicaid
Managed Care
E.g., Florida’s Statewide Medicaid
Managed Care Program
Traditional State-
Run Program
Competing Philosophies on Medicaid Reform

20
Exchange-Based Medicaid Drawing Interest, But Broader Uptake Uncertain
Source: Kaiser Family Foundation, “Medicaid Expansion in Arkansas,” October 8, 2014; Government Accountability
Office, “Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost
Concerns,” August 8, 2014; Health Care Advisory Board interviews and analysis.
Arkansas Turning to Private Market
Arkansas residents eligible for
expanded Medicaid coverage
select plans on exchange
Arkansas’s “Private Option”
Using federal matching funds,
State pays full cost of silver plan;
beneficiary pays no premium
Beneficiary holds private
insurance; cost sharing based
on existing Medicaid rules
Program Likely Not Budget-Neutral
1
2
3
$778M
Increase in cost of expansion
under exchange system relative
to GAO estimate of cost under
traditional Medicaid
CMS Wary of Other Modifications
Pennsylvania application for
similar waiver denied over
inclusion of work requirements
Arkansas proposal to require
individual health savings account
contributions still pending

21
Aggregate Numbers in Line With Expectations; Enrollee Mix Older
Insurance Exchanges
Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014; Cheney K and
Haberkorn J, “Obama: 8 Million Enrolled Under ACA,” Politico, April 17, 2014, available at: www.politico.com; Cheney K and Norman B, “Insurers See
Brighter Obamacare Skies,” Politico, April 15, 2014, available at: www.politico.com; Health Care Advisory Board interviews and analysis.
1) Numbers do not add precisely due to rounding.
One Year In, Insurance Exchanges Generally on Track
2.2M
2.1M
3.8M 8.0M
October to
December
January to
February
March Total
Initial Public Exchange Enrollment1
2013-2014
7.0M
(Original CBO
Projection)
91%
Of enrollees still enrolled
as of September 2014
25MProjected exchange
enrollment by 2018
Enrollees
aged 18-34
28%

22
Source: HHS, “Health Insurance Marketplace: Summary Enrollment Report for the Initial
Annual Open Enrollment Period,” May 1, 2014; Health Care Advisory Board interviews and
analysis.
1) Data from federally-facilitated exchanges only.
Individuals Gravitating Toward Leaner Plans
20%
65%
9%
5%
2%
Bronze
Level 1: Choice of Metal Tier
Gold
Platinum
Catastrophic
Silver
Premium Sensitivity Manifest at Two Levels
Factors Influencing Metal Level
Deductible
Copays
Out-of-Pocket
Maximum
Non-Essential
Services Covered
Network Composition
Level 2: Plan Choice Within Metal Tier
43%
21%
36%
Any Other
Plan
Lowest-
Cost Plan
Second-Lowest-Cost Plan
All Metal Levels1
Scope of Non-Essential Benefits
Negotiated Payment Rates to Providers
Utilization Patterns, Trends
Premium Levers Beyond Benefit Design
Negotiated Rates

23
Aggressive Cost Sharing Potentially Troublesome for Provider Strategy
Source: Breakaway Policy Strategies, “Eight Million and Counting: A Deeper Look at Premiums, Cost Sharing and
Benefit Design in the New Health Insurance Marketplaces,” May 2014; eHealth, “Health Insurance Price Index
Report for Open Enrollment and Q1 2014,” May 2014; Health Care Advisory Board interviews and analysis.
High Deductibles Dominating Exchange Markets
$6,000+
$3,000-$5,999
Individual Deductibles Offered On
Public Exchanges
2014
Median
16%
16%
39%
30%
$1,000-
$2,999
<$1,000
Individual Deductibles Chosen on
eHealth Individual Marketplace
$2,500 $6,250
Maximum
High out-of-pocket
costs discourage
appropriate utilization
Challenges for Providers
Large patient obligations
lead to more bad debt,
charity care
Price-sensitive patients
more likely to seek lower-
cost options

24
Payers Betting Individual Consumers Value Affordability Over Broad Choice
Source: Gottleib S, “Hard Data On Trouble You’ll Have Finding Doctors in Obamacare,” Forbes, March 8, 2014,
available at: www.forbes.com; McKinsey & Company, “Hospital Networks: Configurations on the Exchange and
Their Impact on Premiums,” December 2013; Health Care Advisory Board interviews and analysis.
1) “Pathway X” bronze plans compared to leading PPO plan offering across nine states.
2) Comparing products by the same carrier of the same tier, across 7 carriers.
Premium Sensitivity Supporting Narrow Networks
Median premium reduction directly
attributable to network narrowing2
26%
Breadth of Hospital Networks in
Exchange Plans
20 Urban Markets, December 2013
Exclude 30% of
20 largest hospitals
Average Percent of PPO Network Specialists
Included in Exchange Plan Networks1
Anthem BlueCross BlueShield, 2014
62% 59% 59%
48%
OB/GYNs Orthopedists Oncologists Cardiologists
38%
32%
30%
“Ultra-Narrow”
“Narrow”
Broad
Exclude 70% of
20 largest hospitals
100% PPO Network Breadth

25
Is It Worth Winning Share With Unsustainable Premiums?
Source: Crostby J, “Top Selling Insurer on MNsure Won’t Be Back This Year,” Minneapolis Star
Tribune, September 16, 2014; Health Care Advisory Board interviews and analysis.
1) Pre-exchange individual market
Proper Risk Pricing Still Essential
Low Premiums Moving the Market… …but Perhaps Not the Right One
2%
Market share
in 20121
58%
Market share
in 2014
• PreferredOne offers
lowest Silver plan
premium in country;
• wins massive market
share on Minnesota
exchange (MNsure)
• PreferredOne exits exchange
• Will still offer individual
coverage through other
successful channels with
different risk profile
2014:
Marcus Merz
CEO, PreferredOne
“Continuing to provide this
coverage through MNsure
is not sustainable.”
2013:

26
Robust Marketplaces Beginning to Develop
What Next for the Exchanges?
Source: “UnitedHealth to Expand Exchange Presence as Profits Dip,” ModernHealthcare, April 17, 2014;
Department of Health And Human Services, “Health Insurance Marketplace Will Have 25 Percent More
Issuers in 2015,” September 23, 2014; Health Care Advisory Board interviews and analysis.
Increased Insurer Participation Driving Competition
191
61
248
67
Federally-Facilitated
Marketplace (36 states)
State-Based Marketplace
(8 states reporting)
2014 2015
Issuers Offering Qualified Health Plans
Estimated reduction in
second-lowest-cost silver
premium of one new issuer
entering market
Gail Boudreaux, EVP
UnitedHealth Group
“We had a very modest
footprint in 2014. We do
have a bias to increase
that participation in
2015. […] The size of
the overall market is
positive.”
Competition At Work
4%

27
Second Round of Open Enrollment Will Reveal True Dynamics
What to Watch for on the Exchanges
Trends We’ll Be Watching:
Enrollment:
• Are the technical glitches really fixed?
• Will higher individual mandate penalties change anyone’s mind?
• Will the young and healthy turn out in force?
Choice and Mobility:
• How will automatic reenrollment affect consumer behavior?
• Will last year’s bargain hunters regret choosing high deductibles
and narrow networks?
• Can plans that raise premiums maintain market share?
Market Reaction:
• How aggressively will providers court the newly insured?
• Will employers dump workers onto the exchanges?
1
2
3

28
Will Employers Maintain Coverage, and How?
Activist Employers and the Primacy of Value
Employer-Sponsored Insurance at a Crossroads
“Activation”
“Abdication”
Convert to Self-Funding
Pros:
• Close control over
network design
• Exemption from
minimum benefits
requirements
Cons:
• Greater financial risk
• Network assembly
challenging
Shift to Private Exchange
Pros:
• Responsiveness to
employee preference
• Predictable, defined
contributions
Cons:
• Disruption to benefit
design
• Risk employees may
underinsure
Spectrum of Options for Controlling Health Benefits Expense
Drop Coverage
Pros:
• Escape from cycle of
rising premium costs
Cons:
• Employer mandate
penalty
• Labor market
disadvantage

29
Low-Wage Employers Most Active Today, but Skilled Industries in the Wings
Source: Accenture, “Are You Ready? Private Health Insurance Exchanges are Looming;”
privatehealthexchange.com; Health Care Advisory Board interviews and analysis.
Huge Growth Forecast for Private Exchanges
3M
9M
19M
30M
40M
2014 2015 2016 2017 2018
Potential Growth Path for Private Exchange Enrollment
Private exchange
operators as of
October, 2014
172
Prominent Employers Using Private Exchanges
For Active Employees: For Retirees:
(Medicare Advantage, Medigap plans)

30
Understanding Why Private Exchanges Matter
Beyond the Buzzword
Crucial Differences Between Private Exchanges, Traditional Group Markets
Individuals can switch networks,
insurance carriers on their own
On a private exchange,
In the group market,
Changes in network or carrier may
require employer-level decisions
Provider networks must be broad
enough to serve entire workforce
Defined benefit plans insulate
employees from differences in cost
Narrow networks can appeal to
specific employee segments
Defined contribution plans expose
employees to cost differences

31
Small Employers Also Beginning to Show Interest
Source: Gabel JR et al., “Small Employer Perspectives On The Affordable
Care Act’s Premiums, SHOP Exchanges, And Self-Insurance,” Health Affairs,
32(11): 2032-39; Health Care Advisory Board interviews and analysis.
1) 3 to 50 FTEs.
Self-Funded Strategies Steadily Gaining Ground
ACA Benefits Standards Avoidable
Through Self-Funding
Modified
Community Rating
Essential Health
Benefits
Guaranteed Issue
and Renewability
Medical Loss Ratio
Requirements
26%
of small employers’1 brokers
have discussed with them the
possibility of self-insurance
49%
54%
59%
61%
40%
45%
50%
55%
60%
65%
70%
2000 2005 2010 2014
Percentage of Covered Workers in
Self-Funded Plans

32
Custom Network Builders Offering Local Solutions
Source: Innovative Healthware Services, Inc., Arnold, MD; Health Care
Advisory Board interviews and analysis.
Hands-On Network Management Increasingly Feasible
Case in Brief:
Innovative Healthware Services
• Private company based in Arnold, Maryland
that markets software solutions for PPOs,
TPAs, providers, and payers
• “Custom Provider Network” limits a self-funded
employer’s network to selected list of hospitals,
physicians, and ancillary care
Self-funded employer submits list of
physicians, hospitals, and ancillary care
IHS negotiates cost-effective provider
agreements using Medicare-based pricing
IHS continually evaluates network providers
to “ensure competitive price contracts”
IHS1 “Custom Provider Network” Solution
Innovative Healthware
Services
“Working with the TPA
and employer, we
replace the ‘one size
fits all’ network with a
cost-effective
customized network
created around the
needs of your
business and your
employees.”

33
Exporting Walmart’s Centers of Excellence Program
Source: Walmart, “Walmart, Lowe’s And Pacific Business Group On Health Announce A First Of Its Kind National
Employers Centers Of Excellence Network,” October 8, 2013; Health Design Plus, “Health Design Plus & Employers Health
Announce National Centers of Excellence Initiative,” June 11, 2013; Chen C, “Providers Using Bundled Payments, Quality
to Entice Employers,” Health Data Management, March 11, 2014,; Health Care Advisory Board interviews and analysis.
Aggregators Pooling Employers, Providers
Case in Brief: Health Design Plus
• Third-party administrator based in
Hudson, Ohio that creates Centers of
Excellence (COE) programs for self-
funded employers
• Assembled Walmart’s centers of
excellence bundled payment network
Two New Employer Coalition Partnerships
Pacific Business Group
on Health
(San Francisco,
California)
• 60 large employer
members
• Employees in all 50 states
• 10M covered lives
Employers Health Coalition
(Canton, Ohio)
• 300+ employer members with
employees in all 50 states
• 3M covered lives
Bruce Sherman
Medical Director,
Employers Health Coalition
“It would be prohibitive for a
small employer…When you
spread the administrative
costs over a number of
employers, it becomes more
attractive.”

34
Source: Intel Corporation, “Employer-Led Innovation for Healthcare Delivery and Payment Reform: Intel Corporation
and Presbyterian Healthcare Services,” Santa Clara, California; Evans M, “Slimming Options,” Modern Healthcare,
July 13, 2013, available at: www.modernhealthcare.com; Health Care Advisory Board interviews and analysis.
1) Presbyterian Healthcare Services.
Some Providers Taking Lead in Network Assembly
Case in Brief: Intel Corporation
• Large multinational employer
headquartered in Santa Clara, California
• Entered into narrow-network contract
with Presbyterian Healthcare Services,
an 8-hospital system in New Mexico, for
employees at Rio Rancho plant
5,400 Covered lives in
contract
$8-10M Projected savings,
2013-2017
Intel-Presbyterian Partnership
Customized Care Offerings
Addition of depression screening into
customary provider workflow
Infrastructure for Care Management
Conversion of Intel’s on-site clinic into full
service patient-centered medical home
Narrowing of Health Plan Options
Intel reducing number of health plan
options from 8 to 4; two remaining plans
are narrow networks of PHS1 providers
Shared Accountability
Upside and downside risk for health care
spending compared to projected target

35
Multiple Opportunities to Appeal to Decision-Makers
Providers Must Win Share at Two Points of Sale
Network Selection Care Decision
Network Assembly
Decision Processes Shaping Provider Choice
Being chosen by payers, employers,
exchange operators, custom network
builders, and accountable physician
entities to be offered as a network option
Being chosen by patients,
referring physicians at the
point of care
Being chosen by
individuals during plan
enrollment
Secure Enrolled Lives Win Share of Volumes
1 2

36
Recognizing New Channels for Growth
Established
Provider
Care Delivery
Network
Relationship-Based
Referring Physician
Cost-Conscious
Referring Physician
Price-Sensitive
Consumer
Entrenched
Payer
Vulnerable
Payer
Activated
Employer
Exchange
Operator
Custom Network
Builder
Secure Enrolled Lives Win Share of Volumes
Traditional Growth Channels
Key Decision-Makers in Traditional and New Growth Channels
Individual
Insurance Shopper
Accountable
Physician Entity
New Growth Channels

37
New Dynamics Unfamiliar in Health Care, But Not in Broader Economy
All Signs Point to a Retail Market
Traditional Market Retail Market
Growing number of buyers
1
Proliferation of product options
2
Increased transparency
3
Reduced switching costs
4
Greater consumer cost exposure
5
Passive employer,
price-insulated employee
Activist employer,
price-sensitive individual
Broad, open networks Narrow, custom networks
No platform for apples-to-
apples plan comparison
Clear plan comparison
on exchange platforms
Disruptive for employers
to change benefit options
Easy for individuals to
switch plans annually
Constant employee
premium contribution,
low deductibles
Variable individual
premium contribution,
high deductibles

38
Delivering Desirable Network Attributes at Low Cost
Redefining the Value Proposition
Competitive Unit
Prices
Strategic Imperatives:
• Avoid reactive
position vis-a-vis
price cuts,
transparency
• Radically restructure
cost structures to
sustain lower
unit prices
Total Cost Control
• Develop population
health model to
control cost trend
• Clearly
communicate total
cost advantage to
potential purchasers
Geographic Reach
and Clinical Scope
• Match service
portfolios, footprints
to target purchasers
• Explore partnership
strategies that
strengthen market
presence
Clinical and Service
Quality
• Present
unimpeachable
clinical credentials to
wholesale buyers
• Emphasize access,
experience
advantages to
individual consumers
Low Cost Desirable Network Attributes
Four Imperatives for Health Systems

39
Competitive Unit
Prices
• Avoid reactive
position vis-a-vis
price cuts,
transparency
cost structures to
sustain lower
unit prices
Total Cost Control
health model to
control cost trend
• Clearly
communicate total
cost advantage to
Geographic Reach
and Clinical Scope
• Match service
strategies that
strengthen market
presence
Quality
• Present
unimpeachable
wholesale buyers
experience
advantages to

40
Care Choices, Network Assembly Dynamics Driven by Premium Pressure
Low Premiums Shaping More than Network Selection
Premium Sensitivity
at Point of Coverage
Price Sensitivity at
Point of Care
Total Cost Scrutiny in
Network Assembly
Consequences of Premium Sensitivity
Health Care Executive
“Our price is now given by the market. Our
business is changing from cost-based pricing
to price-based costing.”

41
Cost-Conscious Behavior Affecting Pillars of Profitability
Source: KFF, “2012 Employer Health Benefits Survey,” available at: www.kff.org; New Choice Health, “New Choice Health
Medical Cost Comparison,” available at: www.newchoicehealth.com; Healthcare Blue Book, “Healthcare Pricing,” available at:
www.healthcarebluebook.com; Kliff S, “How much does an MRI cost? In D.C., anywhere from $400 to $1,861,” Washington
Post, March 13, 2013, available at: www.washingtonpost.com; Health Care Advisory Board interviews and analysis.
1) High-deductible health plan.
2) $2,086; based on KFF report of average HDHP
deductible.
3) $733; based on KFF report of average PPO deductible.
Price Sensitivity at the Point of Care
Consumers Paying More Out-of-Pocket
Fall within HDHP deductible2
$150 $275 $400
$900 $1K
$2K
$6K
$9K
$18K $730
$900
$1,269
$2,183
$411
• Price-sensitive shoppers
will be acutely aware
of price variation
• MRI prices range from
$400 to $2,183
MRI Price Variation Across
Washington, DC
Fall within PPO
deductible3

42
Low-Cost Access Potentially Just the Beginning
Source: Canales MW, “Wal-Mart Opening Clinic in Cove,” Killeen
Daily Herald, April 18, 2014, available at: www.kdhnews.com; Health
Care Advisory Board interviews and analyais.
Walmart Bringing Everyday Low Prices to Health Care
• Two nurse practitioners provider
primary care services on site
• Clinic refers to external
specialists, hospitals as
appropriate
Service:
Pricing:
$4 $40
For Walmart
employees
For Walmart
customers
Hours:
Care Clinic Model
Weekdays
8AM-8PM
Saturday
8AM-5PM
Sunday
10AM-6PM
Labeed Diab
President of Health & Wellness
Walmart
“Our goal is to be the number
one health-care provider in
the industry.”
130M 150M
Annual emergency
department visits
Weekly visits to
Walmart stores
Probably Worth Paying Attention

43
Network Assemblers Looking at More Than Unit Price
Broadening Our Concept of Cost Advantage
Price Cut
Improve efficiency to
offer lower fee schedule
Trend Control
Implement care management
to control cost growth trend
Degree of Cost Control
Two Cost-Focused Strategies for Appealing to Network Assemblers
Low Unit Price Total Cost Control

44
Baseline Year 1 Year 2
Source: Overland D, “CareFirst Medical Home Saves More in Second Year,”
FierceHealthPayer, June 7, 2013, available at: www.fiercehealthpayer.com;
1) Per member per month.
Creating Cost-Conscious PCPs
Case in Brief: CareFirst BlueCross BlueShield
• Not-for-profit health services company serving 3.4 million
members in Maryland, D.C., and northern Virginia
• In 2011, launched PCMH program providing opportunities
for virtual panels of 10-15 PCPs to earn bonuses based on
quality and total cost metrics
• Provides PCPs with color-coded rankings of specialists
based on risk-adjusted PMPM costs
Eligible PCPs
participating
80%
Members covered
by PCMH program
1M
Average pay
increase for PCPs
receiving bonuses
29%
“Virtual panel” of
10-15 PCPs
Panel shares in
savings if risk-
adjusted PMPM
cost is below target
PMPM Cost
Target
Actual PMPM
Cost
Total cost target set
by trending baseline
risk-adjusted PMPM
cost by average
regional cost growth
CareFirst PCMH Total Cost Incentive Model
Risk-adjusted PMPM1 Cost

45
Total Cost Transparency Key to Referral Changes
Steering Care to Most Efficient Specialists
Specialists Color-Coded By Total Cost
PCP Virtual Panels
Employed
Specialist A
(Red)
Employed
Specialist B
(Yellow)
Independent
Specialist C
(Green)
Hospital A Hospital B
Percent of panels earning
bonuses, 2012
66%
Difference in risk-adjusted
PMPM cost between top-
and bottom-quartile PCPs
27%
Savings from PCMH
program, 2012
$98M
Chet Burrell
President & CEO
CareFirst BlueCross BlueShield
“We’re seeing that [the data]
changes the patterns.
There’s a hubbub among
the panels to see what their
choices are, and what it
costs them.”

46
Discerning When Not to Operate
Source: The Advisory Board Company, “Commercial Bundled
Payment Tracker,” October 9, 2013, available at: www.advisory.com;
The Value of a Second Opinion
Of referred patients do
not undergo surgery
30-50%
Walmart
In 2013, expanded
Centers of Excellence
program to cover
cardiac, spine, and
hip/knee replacement
surgery
Lowe’s
In 2010, offered employees
free heart surgery at
Cleveland Clinic
Pepsi Co.
In 2011, offered employees
free cardiac and complex
joint replacement surgery at
Johns Hopkins Medicine
Large Employers and Hospitals Participating in Centers of Excellence Programs

47
Assuring Employers of Ability to Manage Future Costs
Making the Case for Care Management Capabilities
Investment in
Data Analytics
Shows capability to
assess patient risk
and pinpoint
interventions
Clinical and Claims
Data Integration
Illustrates advantage
over traditional
health plan
Demand for Out-of-
Network Claims Data
Shows commitment to
continuously manage
care for attributed
population
Telehealth Platforms
and Programs
Demonstrates ability
to keep low-acuity
cases in most
appropriate care site
Powerful Ways to Signal Care Management Capabilities
Chief Marketing Officer
Large Health System
“In our market, there is plenty of talk about ‘accountable
care’, but we are differentiating with the organizational
commitment and the infrastructure investment to sustain a
new economic model.”

48
Source: Commins J, “Aurora Health Offers Employers a Savings Guarantee,” HealthLeaders Media, July
30, 2012, available at: www.healthleadersmedia.com; Aurora Health Care, “Roundy’s Offers Employees
Innovative Health Care Plan Through Anthem’s Blue Priority & Aurora Accountable Care Network,” October
24, 2012, available at: www.aurorahealthcare.org; Health Care Advisory Board interviews and analysis.
Promising Total Cost Savings to Employers
Average savings
guaranteed to
employers over
three years
10%
Savings Guaranteed Off Of Projected Costs
Case in Brief: Aurora Health Care
• 15-hospital, not-for-profit health system based in Milwaukee, Wisconsin
• Announced separate narrow network products with Aetna and Anthem
Blue Cross and Blue Shield that offer employers guaranteed savings
over three years
Two Separate Products with
Different Payer Partners
Time
Employer
Health
Spending
Guaranteed
Savings
Baseline spending
projected using
three years’
historical spending
1
2
Blue Priority
(Anthem Blue Cross
and Blue Shield)
Aetna Whole Health
(Aetna)
Roundy’s Supermarkets, Inc.
was first large employer client

49
Competitive Unit
Prices
• Avoid reactive
position vis-a-vis
price cuts,
transparency
cost structures to
sustain lower
unit prices
Total Cost Control
health model to
control cost trend
• Clearly
communicate total
cost advantage to
Geographic Reach
and Clinical Scope
• Match service
strategies that
strengthen market
presence
Quality
• Present
unimpeachable
wholesale buyers
experience
advantages to

50
1) Pseudonym.
Which Would You Choose?
Broad Geographic Reach…
Network in Brief: Crescent Health1
• National hospital provider with hospital
campuses across the country
• Despite broad geography, limited
clinical depth at local level
…or Deep Clinical Scope?
Network in Brief: Silica Healthcare1
• 6-hospital system in the Midwest with
employed physician network
• Care sites concentrated in roughly half
of single metropolitan area

51
Full Care Continuum Important for Payer Partners
Four Reasons PinnacleHealth System Selected for Risk-Based Product
Favorable Pricing
Structure
6-12 Months’ Experience
Under Performance Incentives
Broad Provider
Geographic Footprint
Comprehensive
Clinical Scope
Sample Clinical Services
Primary Care
Pediatric Care
Imaging
Cardiovascular Care
Orthopedics
Physical Therapy and Rehab
Inpatient Care
Case in Brief: CareConnect Point of Service
• Accountable care narrow network plan for mid-sized employers, created around
PinnacleHealth System and offered by Capital BlueCross in central Pennsylvania
• Network is open for specialty and inpatient care but narrowed to PinnacleHealth
System’s PCPs for primary care
• Will be expanded to individual market in 2015

52
Addressing Individual Limits in Geographic Reach
Combining Geographies to Match Purchaser Footprint
Network in Brief:
Healthcare Solutions
Network
Cincinnati-based
employers have
employees living on
both sides of river
• Joint venture collaboration
between Cincinnati, Ohio-
based TriHealth and
Edgewood, Kentucky-
based St. Elizabeth
Healthcare
• Offers health insurers
access to a unified, high-
quality, low-cost network
that covers the entire
Tristate region
• Both organizations offering
the network to their current
employees and dependents
Partnering to Expand Geographic Reach
St. Elizabeth
Healthcare
TriHealth
Neither Organization Able to Offer
Adequate Geographic Coverage Alone
Ohio
Kentucky

53
National and Hyper-Local Competition Reshaping Notions of Sufficiency
Geographic and Clinical Demands Intertwined
Neighborhood
Conveniences
Potential
Differentiators
• Disease management,
care navigation
• Digestive health
• Women’s midlife
• Sports medicine
• Midwifery
• Transplants
• Neurosurgery
• Complex cardiac (e.g.
TAVR1)
• Clinical trials
• Primary care
• Pediatrics
• Imaging
• Ambulatory surgery
• Radiation therapy
• Medical oncology
Core
Services
Local
Offerings
Regional/National
Destinations
• Emergency
• Dialysis
• Rehab
• Stroke
• Cardiology
• OB/Gyn
• Routine
orthopedics
• SNF
• Pediatric
specialty
• Oncology
• Alternative access points
(e.g. retail, urgent care)
• E-visits, remote
monitoring
• Home health
Purchasers’ Geographic Preferences for Clinical Services
Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel
• Cardiac surgery
• Technology-
intensive procedures
1) Transcatheter Aortic Valve Replacement.

54
Competitive Unit
Prices
• Avoid reactive
position vis-a-vis
price cuts,
transparency
cost structures to
sustain lower
unit prices
Total Cost Control
health model to
control cost trend
• Clearly
communicate total
cost advantage to
Geographic Reach
and Clinical Scope
• Match service
strategies that
strengthen market
presence
Quality
• Present
unimpeachable
wholesale buyers
experience
advantages to

55
“Quality” Means Different Things for Different People
Network Assemblers Individuals
Facility-level clinical
process, outcome
measures
Actual ease of
access, care
experience
Network-level
quality, access,
service ratings
Network Selection Care Decision
Quality Demands of Network Assemblers and Individuals

56
Steering Care Toward High-Quality Providers
1) Sample metrics include mortality rate,
complication rate, and readmissions rate.
Custom Network Builders Scrutinizing Performance
Step 1: Evaluation
of Clinical
Performance Data
Provider Evaluation Process at Imagine Health
National Top Quartile
Clinical Performance
Step 2: RFP
Evaluation of
Additional Factors Per capita
cost of care
Efficiency of
care utilization
Care experience
programs
1
Case in Brief:
Imagine Health
• Company based in
Cottonwood Heights,
Utah that builds custom,
high-performance
provider networks for
self-funded employers
• Selects participating
provider systems using
clinical performance data
and an RFP process
• Steers volumes to in-
network providers
through benefit design
and employee education

57
Chris Gorey
Chief Marketing Officer
Providence Health Systems
Boeing’s Access Requirements
Winning Contracts By Meeting Access Demands
Providers Must Also Deliver on Ease of Access
 Same-day PCP appointment
(acute conditions)
 3-day PCP appointment
(any condition)
 10-day specialist appointment
 Extended hours of operations
 Extended urgent care hours
 Centralized 1-800 number at ACO
level with care navigators for triage
and advocacy
 Member website
 Phone apps
Case in Brief: Providence-Swedish
Health Alliance
• Alliance between Providence Health Systems,
Swedish Health Services in Seattle, WA
• Awarded contract to serve as Boeing’s narrow
ACO network option
“[Geographic] access is critical.
But we can’t lose sight of the
patient experience. Health care
consumers need to see a
positive change in how they are
able to access healthcare.

58
An Expected Part of the Patient Experience
Source: Terry K, “Patients Seek More Online Access to Medical Records,” InformationWeek, September 17, 2013,
available at: www.informationweek.com; Silvestre, et al., “If You Build It, Will They Come? The Kaiser Permanente Model
of Online Health Care,” Health Affairs, March/April 2009: 334-344; Health Care Advisory Board interviews and analysis.
Online Access Becoming the New Baseline
Case in Brief: Kaiser Permanente Northern California
• Nation’s largest not-for-profit health plan based in Oakland, California; serves 9 million
members nationwide and 3.3 million in Northern California
• Began offering online health services in 1996; fully deployed KP.org patient portal in 2007
KP.org Portal Key Features
View medical
record
Schedule
appointments
Fill
prescriptions
Assign proxy
access
View lab
results
Communicate
with physician
82%
77% 76% 74%
Consumers Demanding Portal Features
n = 1,000 U.S. Consumers
Access to
Medical
Records
Online
Appointment
Booking
Prescription
Refill
Requests
Receiving
E-Mail/Text
Reminders

59
Patient Experience Vital For Securing Purchaser Choice Year Over Year
Welcome to the Renewals Business
Day 1
Day 365
Care Decision
Network Selection and Ongoing Experience
Care
Decision
Care
Decision
Care Decision
Clinical interactions
represent repeated
opportunities to
reinforce patient
preference through
superior experience
Annual network
selection in fluid
insurance market
implies consistent
reevaluation of
network performance
Patient
Experience

60
Not Immediately Obvious Which Advantages Will Dominate
Recipe for Success Becoming Far More Complex
Network Assembly Network Selection Care Decision
All providers included in nearly all
networks; only compete on price
negotiations
Employees have little choice of
networks
Most decisions made by
referring physician
• Low total per-member cost
• Promise of total cost savings
• Low premium
• Low employee contribution
• Low out-of-pocket
cost
• Broad geographic footprint
• Comprehensive clinical scope
• Inclusion of preferred
physicians
• Proximity to access
points
• High clinical process, outcomes
performance
• Adherence to evidence-based care
• On-demand access options
• Centralized navigation services
• Prompt appointment times
• Extended hours
• High population health
quality ratings
• High member satisfaction
ratings
• Positive brand association
• On-demand access options
• Great care experience
• On-demand access
options
• Prompt appointment
times
• Extended hours
Cost
Reach and
Scope
Clinical and
Service
Quality
Network Assemblers Individual Consumer
Retail
Market
Traditional Market
Threshold
Factors
Differentiating
Factors
Expanding Arena of Competition

61
Search for Financial, Geographic Scale Driving Hospital M&A
Strategic Advantage #1: Scale
Source: “Advocate and NorthShore Combine to Create Preeminent Health Care System,” Northshore University
Health System; Herman B, “Advocate-NorthShore merger continues trend toward regional supersystems,”
Modern Helathcare, Spetember 12, 2014; Health Care Advisory Board interviews and analysis.
Consolidation on the March
Other Notable Hospital M&A Activity
$6.5B
Combined system’s
expected annual
revenue
Baylor +
Scott and
White
Mount Sinai +
Continuum
Health Partners
Beaumont +
Botsford +
Oakwood
“Combined, we will create
economies of scale that will
allow us to reduce the trend
of rising health care costs.”
Michele Richardson
Advocate Board Chair
Case in Brief:
Advocate NorthShore Health Partners
• 16-hospital merger of Advocate Health
Care, NorthShore University HealthSystem
• Creates strong clinical, geographic
presence in Chicago area

62
Policy Tensions Remain Between Integration, Competitiveness
Aggregation Always Subject to Regulatory Scrutiny
January 2014:
Federal judge blocks merger of St.
Luke’s Health System and Saltzer
Medical Group
April 2014:
U.S. Court of Appeals orders
ProMedica to unwind its 2010
acquisition of St. Luke’s Hospital
January 2014:
FTC rules CHS must divest two
hospitals to complete HMA acquisition
…But Market Power Still a Red Flag
Allowances for Effective Coordination…
Bundled payment programs
open door to gainsharing
with Medicare revenues
Clinical Integration safe harbors
allow joint contracting between
independent physicians
CMS incentivizes, promotes ACO
programs

63
Insurer, Seven Competing Systems Offer Market-Wide Solution
Strategic Advantage #2: Integration
Source: “Anthem, Seven California Health Systems Team Up To Form HMO,“ California Healthline, September 17,
2014; Commins J, “Anthem Blue Cross, 7 CA Health Systems Create New Challenger, Business Model,”
HealthLeaders Media, September 18, 2014; Health Care Advisory Board interviews and analysis.
Vivity Betting on Coordination over Consolidation
Anthem
Blue Cross
Cedars-
Sinai
Medical
Center
Good
Samaritan
Hospital
PIH Health
MemorialCare
Health System
UCLA Health
Torrance
Memorial
Health
Huntington
Memorial
Hospital
• 7 health systems
• 14 hospitals
• 6,000 physicians
“What we are
recognizing is that the
most effective delivery
model is an integrated
delivery model. We can
reduce waste, improve
quality of care, provide
people access to the top
facilities in the nation,
frankly, and do that in an
integrated way.”
Pam Kehaly
Anthem Blue Cross

64
But Will Less-Intensive Arrangements Yield Sufficient Gains?
New Partnerships Aim at Integration Without M&A
Seven
systems in
NY, NJ, MA,
and PA form
Allspire
Network
Six hospitals form BJC
Collaborative:
14 systems ally to
form Stratus
Health Care
Two Systems form Georgia
Health Collaborative
Four health
systems form
regional
alliance Health
Innovations
Ohio
Four health systems
ally to form Noble
Health Alliance
Five health systems ally to form
accountable care initiative
Quality Health Solutions
Five SC systems
form cost saving
Initiant Healthcare
Collaborative
Five health systems
join Vanderbilt
Health Affiliate
Network

65
Born Out of Necessity, No-Frills Approach Suddenly Compelling
Strategic Advantage #3: Efficiency
The Community Hospital Resurgent?
Rural or
exurban setting
Medicare, Medicaid-
heavy payer mix
Limited service
portfolio
Physician
shortages
Smaller patient
population
Labor costs lower than
urban competitors
Already managing to
public-payer margins
Fewer unjustifiable
fixed costs
Early experience with team-
based care, telemedicine
More focused patient
engagement efforts
Common Challenges Potential Advantages
The Community
Hospital Initiative
• Dedicated research and
service effort included
within Health Care
Advisory Board
membership
• Focuses on issues facing
– Smaller organizations
– Independent hospitals
– Rural facilities
• For more information,
contact Ben Umansky at
umanskyb@advisory.com

Health Care Advisory Board
The New Network Advantage
Assembling the Scale, Scope, and Assets Needed to
Secure Profitable Growth

©2014 The Advisory Board Company • advisory.com
67
2
3
1
Road Map
Charting an Intentional Corporate Strategy
Leverage Beyond Price

68
Consolidation Dominating Industry Mindshare
Insecurity Abounds
The End of Independence?
“We want to stay independent. But when I
look at where things are going, I just don’t
see how we can compete without being part
of something bigger.”
CEO, standalone 200-bed hospital
$10 Billion or Bust?
“Any health system is going to need $10 billion
in revenue to survive in tomorrow’s market”
Overheard at 2014 J.P. Morgan
Healthcare Conference
What Was Your Reaction?
CHS-HMA merger
puts more pressure on
stand-alones to seek partners
-Page 6
SURVIVAL
BIGGEST
OF THE
August 5, 2013

69
But Will Less-Intensive Arrangements Yield Sufficient Gains?
New Partnerships Aim at Integration Without M&A
Seven
systems in
NY, NJ, MA,
and PA form
Allspire
Network
Six hospitals form BJC
Collaborative
14 systems ally to
form Stratus
Health Care
Two Systems form Georgia
Health Collaborative
Four health
systems form
regional
alliance Health
Innovations
Ohio
Four health systems
ally to form Noble
Health Alliance
Five health systems ally to form
accountable care initiative
Quality Health Solutions
Five SC systems
form cost saving
Initiant Healthcare
Collaborative
Five health systems
join Vanderbilt
Health Affiliate
Network

70
Five Major Varieties of Provider Partnership
No Shortage of Alternative Models
Merger or
Acquisition
Clinically-
Integrated
Hospital
Network
Accountable Care
Organization
Regional
Collaborative
Clinical Affiliation
Description Formal purchase of
one organization’s
assets by another,
or the combination
of two organizations’
assets into a single
entity
Collection of
hospitals
contracting
jointly in order to
support
improved
coordination,
outcomes;
modeled after
physician CI
networks
Independent
entity, owned by
one or several
independent
organizations, that
accepts risk-based
contracts and
distributes shared
savings
Flexible umbrella
structure, often
encompassing
many independent
organizations of
similar geography,
that may serve as
foundation for
further integration
Typically bilateral
agreement to
cooperate around
a particular
initiative or service
line; may involve
local or national
partners
Examples • Baylor Scott and
White
• Community
Health
Systems/Health
Management
Associates
• Trinity
Health/Catholic
Healthcare East
• Tenet/Vanguard
• Long Island
Health
Network
• Vanderbilt
Health
Affiliated
Network
• Quality Health
Solutions (WI)
• Arizona Care
Network
• Accountable
Care Alliance
• Allspire Health
Partners
• Stratus
Healthcare
• BJC
Collaborative
• Noble Health
Alliance
• Health
Innovations Ohio
• Evergreen
Healthcare with
Virginia Mason
• Mayo Clinic
Care Network
• Cleveland Clinic
Affiliate
Program

71
Defenses Around Old Business Model Unlikely to Hold
Protection Not the Right Motivation
Higher prices
charged to payers
Lower prices
paid to suppliers
Typical Advantages of Market Power
Regulators scrutinizing any
arrangement conferring
undue market power
Increasingly competitive
markets punishing inflexible,
high-cost providers
Size confers
price leverage
Volume-based negotiating
strategies like GPOs nearing
their limit
Diminishing Returns to Traditional Strategy

72
Partnerships Must Drive Market Advantage
Leverage Beyond Price the Key to Success
Cost Advantage
Winning Preference
Through Clinical Scope
and Geographic Reach
Lowering Unit
Prices Through
Operational Scale
Reducing Total
Costs Through
Population Health
Influence on Network
Assembly
Control Over Underlying
Cost Structures
Impact on Entire
Care Continuum
Product Advantage
Degree
of
Market
Advantage
Time to Maximum Benefit

73
Overcoming Financial Barriers
6. Jointly-Financed
Infrastructure Investment
Breaking Down Information Silos
7. Continuum-Wide Data
Transparency
Hardwiring Mutual Accountability
8. Network-Enabled
Performance Incentives
Source: The Advisory Board Company interviews and analysis.
III
Winning Preference Through
Clinical Scope and
Geographic Reach
I II
Cost Advantage
Product Advantage
Reducing Total
Costs Through
Population Health
Lowering Unit
Prices Through
Operational Scale
Leveraging Low-Price Care Sites
3. Top-of-site Referral Partnerships
Slimming Underlying Cost Structures
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services
Driving Network Assembly
1. Comprehensive Network Product
Appealing to Network Assemblers
2. Portfolio-Enhancing Clinical
Partnerships

74
Discrete Elements of Partnership Support Specific Goals
Meaningful Integration About More than the Model
Potential Elements of
Provider Integration
Payer Contracting
Brand/Identity
Strategic Plan
Governance
Operations
Clinical IT
Care Model
Expertise
Strengthens negotiating position, allows access to larger purchasers
Confers reputational benefits, signals strength of integration
Allows rationalized investments/divestitures
Enables process efficiencies, knowledge exchange
Broadens perspective over care continuum; reveals
opportunities for reducing total cost of care
Reduces fragmentation in care delivery; improves outcomes
Flattens learning curves; promotes best practices
Ensures stability and implementation of other shared elements
Potential Benefits

75
Choice of Model Only Determines Environment for Pursuing Integration
Concrete Decisions Beyond Legal Structure
Centralization
Collaboration
Independence
Questions for Every
Partnership
• Which strategic and operational
functions should be included in
your organization’s partnership
strategy?
• For each function: Is it better to
centralize the function by
combining it with that of a
partner, or is it better to
collaborate with a partner while
maintaining separate but aligned
versions of the same function?
• Does the legal structure of an
existing or proposed partnership
facilitate the appropriate degree
of integration for each function?

©2014 The Advisory Board Company • advisory.com
76
2
3
1
Road Map
Charting an Intentional Corporate Strategy
Leverage Beyond Price

77
Winning Preference Through
Clinical Scope and Geographic Reach
Driving Network Assembly
1. Comprehensive Network Product
Appealing to Network Assemblers
2. Portfolio-Enhancing Clinical Partnerships

78
1) Pseudonym.
Which Would You Choose?
Broad Geographic Reach…
Network in Brief: Crescent Health1
• National hospital provider with hospital
campuses across the country
• Despite broad geography, limited
clinical depth at local level
…or Deep Clinical Scope?
Network in Brief: Silica Healthcare1
• 6-hospital system in the Midwest with
employed physician network
• Care sites concentrated in roughly half
of single metropolitan area

79
Individual footprint
sufficient to
appeal to small
employers in local
market
Flexible Approach Meets the Demands of a Wide Range of Purchasers
Developing a Targeted Network Strategy (or Three)
Regional
Network in Brief:
Whitehaven Health1
• Integrated health
delivery system in the
Midwest
• Segments market
strategy by geography
• Health system footprint
is sufficient for
appealing to local
purchasers; regional
and super-regional
networks assembled
through partnership
Discussing
possibility of
additional
partnerships to form
state-wide network
able to contract with
state employers
Partnership with
like-minded,
geographically
contiguous health
system provides
flexibility to sign
larger regional
contracts
Local
Super-Regional
Partnership-driven
Geographic
Reach
Number of contracting possibilities
A Multi-Layered Approach to Network Development
1) Pseudonym.

80
Local
• Small employers
• Local payers
Regional
• Large employers
• National payers
Super-Regional
• State/national employers
• International purchasers
Deciding Whether to Take the Lead
What is your organization’s network strategy?
Driving Network
Assembly
Appealing to
Network Assemblers
A Key Decision at Every Level

81
Collaboration Provides a Financially-Sustainable, Proactive Approach
Leveraging Partnership to Appeal to Purchasers
Brand Marketing
Build or Buy
Driving Network
Assembly
Appealing to
Network Assemblers
Committed to
Independence
Open to
Collaboration
Pitfall:
Increasingly difficult for all but niche
providers to confidently position
organization as “must-have”
Pitfall:
Extremely slow and capital-
intensive; may require moving
away from core competencies
Comprehensive
Network Product
1
Portfolio-Enhancing
Clinical Partnerships
2

82
Addressing Individual Limits in Geographic Reach
Combining Geographies to Match Purchaser Footprint
Network in Brief:
Healthcare Solutions
Network
Cincinnati-based
employers have
employees living on
both sides of river
• Joint venture collaboration
between Cincinnati, Ohio-
based TriHealth and
Edgewood, Kentucky-
based St. Elizabeth
Healthcare
• Offers health insurers
access to a unified, high-
quality, low-cost network
that covers the entire
Tristate region
• Both organizations offering
the network to their current
employees and dependents
Partnering to Expand Geographic Scope
St. Elizabeth
Healthcare
TriHealth
Neither Organization Able to Offer
Adequate Geographic Coverage Alone
Ohio
Kentucky

83
Selling Narrow Network Product Through Commercial Insurers
Using Expanded Reach to Target Local Employers
TriHealth
St. Elizabeth’s
Healthcare
Solutions Network
Public Payers
Local Employers
Insurer sells HSN as a
narrow network product
Combined
geography
sufficient to
support large
Cincinnati
employers
Creating a Purchaser-Focused Network Solution
Governance
Organization CEOs serve
as Co-CEOs with support
of existing management
teams
Quality Alignment
Aligning quality targets
to work towards
demonstrable quality
improvements
Historical Relationship
Previous collaboration
around insurance
products key to
ensuring mutual trust
Key Partnership Elements

84
Network in Brief: EvergreenHealth and Virginia Mason
Creating a Comprehensive High-Value Network Through Partnership
Aligning to Expand Clinical Scope
EvergreenHealth
Gains access to
quaternary facility with
proven clinical
outcomes and access
to expanded
geography
Virginia Mason
Gains access to home
care services and fills
gap of secondary
facilities east of Seattle
with a partner with a
proven reputation for
value
• EvergreenHealth is a 318-bed medical center and integrated health system based in Kirkland,
Washington; Virginia Mason is a 336-bed medical center and group practice based in Seattle
• In 2012, partnered to create a broader network of care in the Puget Sound region with the
purpose of continuous improvement in quality and safety, reduction in cost of care, improving
patient experience, and shared recruitment to avoid oversupply of physicians
• Partnership leverages strengths of both organizations and broadens each partner’s scope of
services and expanded geographic reach
Beginning with Cardiac and Neuroscience Care
Virginia Mason
quaternary facility
EvergreenHealth
home care
EvergreenHealth
tertiary facility
Virginia Mason
clinics

85
Built on a Foundation of Shared Vision
Ensure A Cohesive Bond
Bob Malte, CEO,
EvergreenHealth
Linking a Network Without an LLC
“We set out to form an extremely
durable and long-term
partnership that allows us to
come together and create a
high-value network of care. To
do that, we forged a board-
driven, 20-year agreement that
ensures the partnership’s
strength and stability, ultimately
increasing the quality and value
of care available in our
community.”
Develop a
Long-Term Vision
Contractual partnership
agreement spans 20 years,
ensuring both parties are fully
committed to partnership
Ensure
Physician Support
Both partners demonstrate
clinical quality and outcomes
Secure
Support
Steering committee contains
equal representation from
both partners (CEOs,
CMOs, COOs)
Track
Performance
Quality dashboards track progress
on clinical areas; partnership
dashboard tracks progress on
priority activities aligned with
strategic partnership goals
Gary Kaplan MD, CEO,
Virginia Mason

86
Telemedicine Partnerships Allow Complex Care to Remain In-House
Tactic #2: Portfolio-Enhancing Clinical Partnerships
Source: Health Care Advisory Board interviews and analysis; Mayo Clinic Care
Network, available at: http://www.mayoclinic.org/about-mayo-clinic/care-network.
Bringing High-End Expertise to the Local Market
Network in Brief: Mayo
Clinic Care Network
• 26-member network;
partnership model that
extends Mayo physicians
and expertise to
members
• In addition to direct
access to clinical
expertise, members are
able to brand themselves
as members of Mayo
Clinic Care Network
1. eConsult: Specialists
can connect with Mayo
Clinic experts when they
want additional input on
complex patient care
2. AskMayoExpert: Web-
based system allows
members to access Mayo
perspective on hundreds of
medical conditions
Systems and AMCs Also Seeking to Enhance Portfolios

87
Conflicting Incentives a Risk When Partnering Regionally
Source: Health Care Advisory Board interviews and analysis
1) Pseudonym.
Competitive Dynamics Threaten Local Partnerships
Case in Brief: Nielsen
Park Hospital1
• Small, rural community
hospital in the South
• Partnered with large
tertiary system to
enable local access to
high-end specialty
services such as
cardiology, oncology
• Despite promising start
to partnership,
competition for
volumes between
partners threatening
sustainability of
affiliation
Multi-Layered Collaboration Promises Benefit…
Shared Staff
Physicians from
tertiary hub travel to
community hospital
Telemedicine
Allows community
physicians to consult with
specialists in real-time
Co-branding
Community hospital
able to brand itself as
affiliate of tertiary hub
…Tensions Over Referrals Threatens Affiliation
Tertiary hub looking to draw
as many referrals as possible
from community partner
Community hospital trying to
retain as many volumes as
possible within local community

88
Ideal Geography a Key Tension in Clinical Affiliation Decisions
Weighing a Local or National Partner
Consider Local Partner if…. Consider National Partner if….
 Local providers with same service
gap are interested in collaboration
 Local providers that currently offer
service are interested in partnering
for mutual benefit
 Demand for service is low enough
that local providers are willing to
share staff, equipment
 Patients value brand familiarity over
national reputation
 Ultimate aim of partnership is joint
contracting or shared population
health management
 Local competition for volumes in
targeted service area is high
 Local demand for service is
insufficient to justify full-time staff
 Targeted service may easily be
provided through telemedicine or
virtual physician-to-physician
consults
 Patients recognize and value
national reputation
 National providers have significant
quality advantage over any local
partnership options

89
Winning Preference Through Clinical Scope and Geographic Reach
Source: Health Care Advisory Board interviews and analysis
Key Takeaways
Shared vision and strategy key
to partnership around network
product
It is difficult to make the necessary
investments to ensure network
growth without a shared vision and a
significant amount of trust among
network partners.
Creation of a health plan may be a
component of network strategy,
but should not be the sole strategy
The most successful networks ensure
flexibility in contracting options;
achieving this means leading with a
provider network that can also
contract with commercial payers.
Certain models faster at bringing a
network together but may restrict
contracting ability
M&A and CI joint contracting
arrangements are slower to market,
but allow for tighter network integration
than faster models such as regional
alliances and clinical affiliations.
Competitive tendencies can
threaten the success of regional
clinical affiliations
Competition for volumes can
undermine regional affiliations; clear
referral protocols are necessary to
ensure each partner retains
appropriate volumes.

90
Weighing the Models
Model
Comprehensive
Network Product
Portfolio-Enhancing
Clinical Partnerships
Comments
Merger or
Acquisition
M&A clearly expands geographic reach and
clinical scope; however, it is a much slower and
more capital-intensive approach than other
models.
Clinically-
Integrated
Hospital
Network
CI is probably the most common means of
pursuing joint contracting; this model will be
essential for those organizations looking to
partner around a narrow network offering.
Accountable
Care
Organization
Sharing risk is probably the quickest way to
enable joint contracting; however, starting an
ACO involves costs and cultural shift.
Regional
Collaborative
Collaboratives often involve more members so
there is greater potential to expand reach and
scope; however, attempts to contract jointly will
likely invite significant regulatory scrutiny.
Clinical
Affiliation
Agreement
These, typically bi-lateral agreements, are well-
suited to filling a specific clinical gap; however,
they often span large geographies and thus tend
to limit opportunities to contract jointly.

91
Ideal Partners
Complementary
Clinical Assets
Complementary
Geography
Strong
Brand Name
Shared Strategic
Vision
Willingness to
Share Referrals
Five Characteristics of the Ideal Partner
Partners that span
a different part of
the care continuum
are ideal for
bringing new
capabilities to the
network
For the purposes of
expanding reach or
sharing referrals,
partners with
contiguous
geography are
ideal; national
partners ideal for
telemedicine
partnerships
Consider whether
patients value
national brands or
prefer a local
partner (i.e. the
“best hospital in
town” or the
hospital that they
have been to
before)
Particularly
important for those
organizations
looking to jointly
own and sell a
market-facing
network; affiliations
of this nature
require long-term
commitment
Clinical affiliations
in particular require
clarity around
referral protocols
and where volumes
will be retained to
ensure competitive
tensions do not
undermine
partnership

92
Lowering Unit Costs Through
Operational Scale
Leveraging Low-Price Care Sites
3. Top-of-Site Referral Partnerships
Slimming Underlying Cost Structures
4. Clinical Footprint Rationalization
5. Next-Generation Shared Services

93
Limited Ability to Compete Against Low-Cost Providers
Source: Regents Health Resources, “Imaging Market File,” Radiology Business
Journal , April 2011; Health Care Advisory Board interviews and analysis.
1) MRI, CT, Radiography, Nuclear Medicine, Ultrasound,
Mammography, and PET.
2) Hospital Outpatient Department.
High Cost Driving Price Rigidity
High Fixed Cost Production Model
Low-Cost Narrow-Focus Care Sites
$779
$334
Hospital Outpatient
Department
Freestanding
Imaging Center
Difference in Average Price for
Common Imaging Procedures1
HOPD2 vs. Freestanding Imaging Facilities, 2011
57% lower
Struggling to offset
expensive fixed cost
base
Lack of back-office
efficiency
Facilities with
low-fixed costs
Streamlined focus on
narrow set of services
vs.

94
Three Tactics for Increasing Price Flexibility
Use Networks to Build Operational Scale
Slimming Underlying Cost
Structures
4
Next-Generation
Shared Services
Leveraging Low-Price
Care Sites
Top-of-Site Referral
Partnerships
3 5
Clinical Footprint
Rationalization

95
Sending Patients to the Right Site, at the Right Cost
Tactic #3:Top-of-Site Referral Partnerships
Re-envisioning Top-of-Site Care
Tertiary
Hospital to
Community
Hospital
Emergency
Department to
Urgent Care
Provider
Primary Care
Office to
Retail Clinic
School
Clinic
Urgent
Care
Pediatric
After
Hours Women’s
Clinic
Pediatric
Urgent
Care
Medical
Home
E-Visits
Full
Worksite
Clinic
Mental
Health
Urgent
Care
Advanced
Care
Center
Retail
Clinic
Chronic
Disease
Clinic
An Expanding Network of Low-
Acuity Partners
Three Main No-Regrets Focus
Areas for Volume Shifts
1
2
3

96
Faulkner’s Stubbornly Low Prices Show Benefit of Strategy
Source: Sussman et al, “Integration of an Academic Medical Center and a Community
Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of
Academic Medicine, 2005; Health Care Advisory Board interviews and analysis.
1) Came together under common corporate parent
More Than Just Theoretical
Brigham
and Women’s Proving the Point
Lower commercial
prices at Faulkner vs.
BWH, as of 2012
General admissions
shifted from BWH to
Faulkner since 2005
19%
13.7%
2013 Case
Mix Index
0.80
1.38
Faulkner
Hospital
BWH contracts with local
multispecialty group (Harvard
Vanguard Medical Group)
came up for renegotiation
HVMG received
attractive terms from
another local hospital
BWH able to retain contract
by offering to shift more
lower-acuity volumes to
Faulkner at lower unit price
Attractive Strategy In Negotiations with Purchasers
Merged1
1997

98
Integration of Clinical Programs Needed to Encourage Top-of-Site Care
Source: Sussman et al, “Integration of an Academic Medical Center and a Community
Hospital: The Brigham and Women’s/Faulkner Hospital Experience,” Journal of Academic
Medicine, 2005; Health Care Advisory Board interviews and analysis.
Removing Obstacles to Volume Reallocation
Joint Clinical Programs
Due to limited operating room
availability at Brigham, unfilled
rooms at Faulkner made available
to BWH surgeons
Key Elements of the Brigham and Women’s-Faulkner Volume Reallocation Effort
Integrated Teaching Programs
Brigham surgery and medicine
residents perform a portion of
training at Faulkner
Co-branding Opportunity
Patient Convenience
Less travel, availability of private
rooms, better parking all seen as
improving the patient experience
Cross-Branding Opportunity
Combining the two organization’s
name resonated with patient focus
groups and held pushback at bay
from both entities

99
Most Markets Far From Rationalized
Tactic #4: Clinical Footprint Rationalization
Source: Alicia Caramenico, “Council: Eliminate excess hospital beds to save $116M,”
Fierce Healthcare, May 2013; Health Care Advisory Board interviews and analysis.
Right-Sizing Facility Footprint a Clear Opportunity
Per bed when removing
beds piecemeal, includes
reduction in supply and
staff expenses
$25-106K
Per bed when closing
entire facilities, includes
facility, supply, and
staffing cost reductions
$580K
1.46 M
1.36 M
1.21 M
1.08 M 0.98 M 0.95 M
78%
70%
66%
66% 69%
68%
1980 1990 1995 2000 2008 2009
Inpatient Beds Occupancy Rate
Despite Reductions in Hospital Beds,
Most Organizations Still Have Excess Capacity
U.S. Inpatient Beds, Occupancy Rate
1980-2009
1) Calculated by taking 18% of the average cost per bed, by bed
type, from the 2009 and 2010 Medicare Cost Report Data,
inflated at 2% annually to reflect natural price growth.
Significant Opportunity for Savings in
Reducing Excess Bed Capacity
Estimated Cost Savings from Eliminating
Expectedly Empty Beds in Rhode Island1

100
Northwest Metro Alliance
Combined Planning Process
Strategic Alignment Allows for More Efficient Planning for Future Capacity
Source: HealthPartners and Allina Hospitals and Clinics, available at:
https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntr
b_008919.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis
First, Do No Harm
Network in Brief: Northwest Metro
Alliance
• Partnership between Bloomington-based
HealthPartners and Minneapolis-based
Allina Health, centered in northwest
suburbs of Minneapolis
• Joint planning done through alliance
reduces duplicative efforts
• Alliance creates guiding
principles and rules
• Shared incentives under
HealthPartners’ health plan
encourages cooperation
• Allows for collaborative planning
across the entire population
Example: HealthPartners and Allina
Health are joint owners of two outpatient
imaging centers in the market
Avoids Duplication of Services
within Shared Market

101
Consolidation of More Lucrative Services May Require Financial Alignment
Address All Stakeholder Incentives
Cultural Alignment
• Long working relationship
since 1995
Strategic Alignment
• Shared vision of regional growth
• Launched three-way joint venture
with Dean Health
• Collaborating on a number of
population health management
projects
Financial Alignment
• Agreed to sign PSA with Prevea
physicians ensuring physician
compensation at fair market value
Components of Alignment Necessary to
Execute on Capacity Rationalization
HSHS-Prevea Partnership Finds Opportunity to
Rationalize Duplicative Imaging Capacity in
Wisconsin

103
Byron1 Merger Showcases Potential of Full-Service Line Consolidation
1) Pseudonym.
Limit to What Can Be Achieved Without Full Merger
Bells Medical Center1
• 900 cases/year
• Large campus with excess capacity
Clarkes Hospital1
• 200 cases/year
• Capacity constraints for other services
Decision to Consolidate Duplicative CV Services at Byron Health1
Large Profitability Differential
Bells program clearly more
profitable than Clarkes program
Close Geographic Proximity
Programs within 5 miles of each
other, serving same population
Operational Gains
Potential cost savings from
consolidated staffing, space
Staffing Cost Savings
25%
Loss in market-share
after consolidation
0%
Reduction in number of Cardio-
Pulmonary Perfusionists needed

105
Applying the “Shared Services” Concept to Health Care
Tactic #5: Next-Generation Shared Services
Creating Advantage Through ‘Internal Outsourcing’
Attributes of a Top-Performing Shared Services Organization
Treats operational units
as clients, competes for
business vs. outside
vendors
Concept in Brief: Shared Services Organization
• Single service organization performs selection of business support activities on
behalf of multiple operating units
• “Shared” processes moved out of individual operating units and into separately
managed shared services organization (SSO)
• An SSO has same expectations, responsibilities and accountabilities as external
vendor does to its clients, making it more than just a centralization function
Strategy, functionality
driven by needs at
operational unit level
Focus on process
standardization and
continuous improvement
Transfer of insight from
high-performing units to
low performing units

106
Significant Opportunity to Improve Network Attractiveness
1) Intensity Modulated Radiation Therapy
Translating Cost Savings into Competitive Pricing
Margin Improvement
• Improve margins from 6.5% to 9%
New Investments
• e.g. Two new 1.5 T MRI Scanners
• e.g. Four new 64 Slice CT scanners
• e.g. One new IMRT1 Machine
Service-Specific Price Reductions
• e.g. reduce outpatient imaging
prices up to 35% while still
maintaining existing margins
Universal Price Reductions
• Reduce prices overall by up to 5.9%
while still maintaining existing margins
• 150-bed hospital carries out
successful cost-savings initiative
• Manages to cut $2 million from
operating expenses
1
2
3
4
Savings Reallocation Options for Hypothetical Medium-Size U.S Hospital

107
Lowering Unit Costs Through Operational Scale
Key Takeaways
Scale no guarantee of cost
savings
Regardless of the model chosen,
successful consolidation requires an
investment in a dedicated cross-
organizational consolidation function.
No model guarantees such a
function.
Cross-organizational transparency
necessary to unlock full benefits of
consolidation
Though non-merger models have the
ability to centralize and consolidate
costs, mergers provide an extra level
of cross-organizational transparency
and therefore a greater opportunity to
cut costs.
Integration of clinical programs
necessary to promote top-of-site
volume allocation
Models that encourage clinical
alignment will facilitate more efficient
volume reallocation.
Rationalization of underutilized
capacity historically elusive
Potential merger savings based
on consolidation and closure of
facilities should be highly
scrutinized.

108
Weighing the Models
Model
Top-of-Site
Referral
Partnerships
Clinical
Footprint
Rationalization
Next
Generation
Shared
Services
Comments
Merger or
Acquisition
Greatest possibility for consolidation of business
functions, rationalization of referrals and clinical
capacity though success requires partnership
beyond financial integration.
Clinically-
Integrated
Hospital
Network
Contracting leverage gained through CI offers
incentive for clinical collaboration but little
incentive for operational consolidation and
rationalization.
Accountable
Care
Organization
Huge incentive for rationalization of referrals,
though less for consolidation of operations;
strategic alignment offers possibility to prevent
duplication of future clinical investment.
Regional
Collaborative
Potential, though limited, to consolidate and
centralize business operations, and gain
leverage over vendors, suppliers.
Clinical
Affiliation
Agreement
Focus on operational alignment limits potential to
consolidate business operations, though may
help to rationalize referral patterns, prevent
future duplication of investment.

109
Ideal Partners
Complementary
Case Mix
Low Cost
Structure
Willingness to
Consolidate
Cultural
Closeness
Existing
Capabilities
Five Characteristics of the Ideal Partner
Partnerships between
organizations that
have complementary
service capabilities
provide opportunity
for mutual benefit by
reallocating volumes
between sites.
Organizations with
a low existing cost
structure represent
good opportunities
to expand low-price
sites of care.
Consolidation
requires
commitment and
close cooperation;
ideal partners are
committed to
executing on
centralization and
consolidation
possibilities.
Consolidation and
centralization are
highly political
process; a high
degree of cultural
alignment is
necessary across all
organizational levels
to prevent significant
pushback.
Partners with
already highly
efficient operational
functions provide
best opportunity
for consolidation
as scaling existing
functions is easier
than building anew.

110
Reducing Total Costs
Through Population Health
Overcoming Financial Barriers
6. Jointly-Financed Infrastructure Investment
Breaking Down Information Silos
7. Continuum-Wide Data Transparency
8. Network-Enabled Performance Incentives

111
Controlling Unit Costs Only Part of the Equation
Providers Judged by Ability to Reduce Utilization
Price Cut
Improve efficiency to
offer lower fee schedule
Utilization Management
Rationalize utilization to
secure referral
preference
Trend Control
Implement care
management to control
cost growth trend
Degree of Cost Control
Three Provider Strategies to Appeal to Network Assemblers on Cost
Low Unit Price Total Cost Control

112
Steps To Total Cost Management Well Established
A Clear Path for Improvement
Keep patient healthy, loyal
to the system
Avoid unnecessary higher-
acuity, higher-cost spending
Trade high-cost services for
low-cost management
High-
Risk
Patients
Rising-Risk
Patients
Low-Risk Patients
Study in Brief: Playbook for Population Health
• Study summarizes the key leadership and care model capabilities needed for financial
success under population health
• Available at advisory.com/pophealthplaybook
Attaining Financial Success From Patient Management

113
Partnership Offers a Path Forward
Population Health a Difficult Ambition Acting Alone
Reducing
Financial Barriers
6
Jointly-Financed
Infrastructure Investment
Hardwiring Mutual
Accountability
8
Network-Enabled
Performance Standards
Problem #3: Lack
of shared accountability
Problem #1: Insufficient
financial capital
Breaking Down
Information Silos
7
Continuum-Wide Data
Transparency
Problem #2: Fragmented
data and expertise

114
Population Health Requires Extensive Investment
Source: American Hospital Association, “Activities and Costs to Develop an Accountable
Care Organization,” available at: http://www.aha.org/content/11/aco-white-paper-cost-dev-
aco.pdf, accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Tactic #6: Jointly-Financed Infrastructure Investment
1) American Hospital Association.
An Undeniable Financial
Burden
AHA’s1 estimate
of ACO start-up costs
fora 5-hospital system
$12M
Care management
staffing
Electronic
Medical Record
Common Areas of Investment
Patient-Centered
Medical Home
Disease
Registry
Post-Acute
Care network
Management
resources
AHA’s estimate of
ongoing annual ACO costs
for a 5-hospital system
$14.1M
Legal and
consulting support
Health Information
Exchange
Predictive
analytics
PCP
recruitment
Specialist
network
Patient
engagement tools

115
Shared Care Management Investment Through ACO
Partnership Reduces Individual Financial Burden
Arizona Care Network Shared Staffing Model
Arizona Care
Network
Dignity Health
Arizona
• Care management teams (RN,
community resource specialist,
pharmacist)
• Physician support staff (e.g. for
quality training)
• IT infrastructure
Abrazo
Health
Network in Brief: Arizona Care Network
• Physician-led ACO and CI network; jointly-owned by Abrazo Health and Dignity Health Arizona
• Population health infrastructure investments made at network level, allowing Abrazo and
Dignity to share costs of resources such as staffing, IT
Jointly-owned physician-
led ACO and CI network
Shared Investment Areas

116
Partners Benefitting from Master Patient Index
Tactic #7: Continuum-Wide Data Transparency
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data
for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078,
accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Pool Data Across Network to Pinpoint Efforts
Network in Brief: Dallas-Fort
Worth Hospital Council
Foundation
• Consortium of 156 hospital
and associate members in
Northern Texas
• Provides educational
programs, collaborative
efforts, strategic alliances, and
advocacy with the local and
state governments
• Discovered that 25% of
readmitted patients in the
region did not return to their
original hospital for care,
making it difficult to accurately
predict readmission rates
Regional Utilization Trends Reveal Top Population Health Opportunities
80 area hospitals feed patient
utilization data into enterprise
data warehouse
Master patient index matches
patient records across facilities
and organizations
Data is fed into analytic tools that
provide insight into regional
trends in utilization
Paying members receive access
to quality dashboard that helps
pinpoint population health efforts

117
Ensures Management of Riskiest Population Segments
Source: Healthcare Financial Management Association, “Dallas-Fort Worth Hospitals Share Data
for Dramatic Improvements,” available at: https://www.hfma.org/Content.aspx?id=22078,
accessed May 5, 2014; Health Care Advisory Board interviews and analysis.
Putting the Master Patient Index into Practice
20%
Reduction in readmissions
across all member hospitals
Real-Time Data Enables Targeted Resource Deployment at One Member Hospital
Reduction in 30-day acute
myocardial infarction readmission
rate at one member hospital
12% 9%
16% 12%
Reduction in 30-day
pneumonia readmission
rate at one member hospital
Examination of region-
wide, cross-facility
utilization patterns
reveals readmissions
as area of opportunity
Analytic tools reveal
clinical, demographic
trends among patients
who had been
readmitted in the past
z
Aggressive case
management of
identified patients
leads to reduction in
readmissions
Member hospital uses
population-level insight
to identify patients at
increased risk for
readmission
z
1 2
3
4

118
Drilling Down to the Individual Patient Level
Four Approaches to Real-Time Data Sharing Among Network Partners
Source: Chicago Tribune, available at: http://articles.chicagotribune.com, accessed October 1, 2012 ; Health Affairs, “Four Years Into A
Commercial ACO For CalPERS: Substantial Savings And Lessons Learned,”; HealthPartners and Allina Hospitals and Clinics,
available at: https://www.healthpartners.com/ucm/groups/public/@hp/@public/documents/documents/cntrb_008919.pdf, accessed 3
May 2014 Health Care Advisory Board interviews and analysis.
1) Admission, Discharge, Transfer.
Manual Data-Sharing Agreements
Key to Partnership: Consensus on how
often to proactively push data
Example: Visiting Nurse Service of New
York sends home health assessment to
three hospital partners every day
EMR Look-Ups
Key to Partnership: Shared or linked EMR
systems
Example: Through their partnership in the
Northwest Metro Alliance, Allina and
HealthPartners have read only-access to
each other’s Epic systems
Regional HIE
Key to Partnership: Shared funding to
ensure financial sustainability
Example: Medical Home Network in
Chicago has set up a regional HIE that
provides participants with last 90 days of
patient data
ADT1 Feed
Key to Partnership: Ideal partner has
access to out-of-system utilization data
Example: Blue Shield of California
provides real-time utilization data with
provider partners through CalPERS ACO

119
Shared Processes Eliminate Gaps in Stand-Alone Efforts
Establish a Common Network Language
• Each individual algorithm failed to
identify some high-risk patients
• Inconsistent identification reduced
ability to prevent:
 ER visits
 Admissions from ER
 Inpatient readmissions
Prior to creation of CalPERS
ACO, each participant had
individual risk scoring process
Risk scores consolidated
into single process and
single IT platform
Analysis of Top 1,000 Riskiest
Patients Revealed:
Consolidating Risk Scores First Step to Aligned Care Management
Source: Blue Shield of California, “An Accountable Care Organization Pilot: Lessons
Learned,” available at: https://www.blueshieldca.com/employer/documents/knowledge-
center/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed
3 May 2014; Health Care Advisory Board interviews and analysis.

121
Two Promising Strategies to Hold Partners Accountable
Tactic #8: Network-Enabled Performance Incentives
Including partners in formal
risk-based arrangements (e.g.
shared savings, global
payment contracts)
Candidates:
• Hospital ACO partners
• Employed physicians
• Ancillary providers
Formal Shared
Risk
Membership-Based
Incentive
Positioning membership in the
network itself as performance
incentive (e.g., preferred
referral network)
Candidates:
• Clinical Integration Network
• Post-Acute Care Providers

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