This document provides an overview of health reform and how hospitals are responding to changes. It discusses rising healthcare costs in the US compared to other countries. Key aspects of the reform are outlined, including the creation of Accountable Care Organizations and a shift to paying for outcomes rather than procedures. The document also summarizes some of the main ways hospitals are responding, such as aligning with physicians, focusing on the full care continuum, increasing transparency, emphasizing value over volume, and developing a shared community vision. Employer strategies for incentivizing employees to use high quality, low cost providers are also reviewed.

1. Davis County Chamber
of Commerce
David Entwistle
Chief Executive Officer
University of Utah Hospitals & Clinics
April, 2013

2. Health reform as a topic
1. I saw this topic and was so excited.
2. I feel I have marginal knowledge and want to learn
more.
3. What was the planning committee thinking when
they picked this topic?
4. I wonder if they can tell if I am asleep if I put on my
sunglasses.

3. Agenda
1. U.S. Spend Comparisons
2. National Perspective
3. Health Reform Outlined
4. How Hospitals Responding
5. Employer Strategies

4. Healthcare Spending per Capita,
2008
Adjusted for Differences in Cost of Living
* 2007.
Source: OECD Health Data 2010 (Oct. 2010)
4

5. Hospital Spending per Discharge,
2008
Adjusted for Differences in Cost of Living
* 2007.
** 2006.
Source: OECD Health Data 2010 (Oct. 2010)
5

6. 2009 U.S. Healthcare Expenditures per Capita Significantly
Greater Than Other OECD Countries for Similar Life
Expectancy
85
Japan
Spain
France
Canada
Average Life Expectancy
U.K.
80 Germany
U.S.
75
Turkey
70
$0 $2,000 $4,000 $6,000 $8,000
Healthcare Spending per Capita
Note: Canada average life expectancy for 2007. Italy life expectancy for 2008. Australia, Japan, Portugal, and Turkey
healthcare spending for 2008. Greece healthcare spending for 2007.
Source: OECD updated November 2011.

7. Costs by Age Categories
Healthcare Costs by Age U.S. is spending much
more for older ages
Source: Fischbeck, Paul. “US-Europe Comparisons of Health Risk for Specific
Gender-Age Groups.” Carnegie Mellon University; September, 2009.
7

8. Happy New Year!
“The aging population and the rising cost of
health care makes Medicare the biggest
contributor to our deficit...We’ve got to find
ways to reform that program without hurting
seniors who count on it to survive.”
President Barack Obama, January 1, 2013
News conference after Fiscal Cliff Tax Deal passes

9. At the Inauguration
“We must make the hard choices to reduce the
cost of health care and the size of our
deficit, But we reject the belief that America
must choose between caring for the generation
that built this country and investing in the
generation that will build its future.”
President Barack Obama, January 21, 2013
Inaugural Address

11. Sequestration Impact on Key
Budget Areas
Medicaid Medicare Other Defense
0.0% 0.0%
-2.0%
-2.0%
-4.0%
-6.0%
-8.0%
-7.8%
-10.0%
-10.0%
-12.0%
Source: cbo.gov

12. Healthcare Inflation Continues to Outpace National
Inflation
10%
9.50%
9%
8.50% 8.40%
8%
7% 7.10% 7.10%
6.80%
6.60%
6.20%
6%
5%
4.70%
4% 3.85% 3.90% 3.91%
3.80% 3.80%
3.39% 3.24%
3% 2.83% 2.85%
2.68%
2.27%
2% 2.10%
1.59% 1.64%
1%
0.34%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total National Health Expenditures US Inflation Rate
Source: Bureau of Labor Statistics and CMS

13. The Problem: Current Growth Rate

14. So What is Reform really about?
$/N
Healthier
Population
Lower Use
Lower Prices
Higher Quality
201 Time
3
Source: Len Nichols, George Mason University

15. Health Reform Law: Two Big Themes
• Payer Reform- More people will be
covered by insurance but at a lower
reimbursement rates for hospitals &
providers.
• Delivery Reform- Shift from “Pay for
Procedures” to “Pay for Outcomes.”
15

16. The Market is Changing…
• Focus on delivering greater value.
– Improved clinical outcomes
– Increased patient satisfaction
– Lower cost
• Payment systems and methodologies are changing…
rewarding those who deliver value.
• Initial projections indicate we will be paid on average at
Medicare Rates.
• Academic Medical Centers funding to support academic
mission will be diminished.

17. Accountable Care Organizations (ACO)
• Goal: maintain or improve quality of care while
reducing overall health care costs.
• ACO Model
– Care for a defined population of patients
– Focus on keeping individuals well
– Eliminate unnecesary, test, care, etc
17

18. So why Have ACOs been such a hot
topic in Reform?
• Dartmouth Atlas showed that costs and quality
could be attributed fairly accurately to the
“community practice” defined by hospital service
areas, and that performance varies widely from
one hospital community to another
• So...if cost and quality can be attributed to
hospitals and their “extended medical staffs”
perhaps they could be held accountable
• And...if they could be held accountable, they
could share in the savings from their lower
costs, and risk if costs could not be reduced.

19. ACOs: Some early lessons and
questions
– Intense focus on cost and cost reduction
– Physicians move to laser-like focus on “My Results
vs. Peers”
– A huge interest in and need for data
– Physicians have been willing to make difficult
decisions that had been avoided in the past
– Costs decrease from:
• Reduced ED use; Reduced admissions: Reduced
discretionary diagnostics

20. Forget the 80-20 Rule. It’s the 5-50 Role that will
get you in Population Health Management
ACOs routinely report that 5 percent of their
populations account for 50 percent of their
claims costs. These 5 percent are patients with
one or more chronic illnesses. The need is to
focus on the 5 percent, and then on the “Pre-5
percent”, or the next 5 percent.

21. Concentration of Health Spending in the
U.S., 2004
97%
80%
74%
64%
49%
23%
3%
Top 1% Top 5% Top 10% Top 15% Top 20% Top 50% Bottom
50%
Population Percentile Ranked by Health Care Spending

22. Variability of Quality and Cost
Cost and LOS Variation by Surgeon, Major Joint Replacement (MS-DRG 470)
Avg. Cost
ALOS
Avg: $14,962
Individual Physicians
Source: Internal data from client in southeast United States
22

23. Reliable care costs less (Premier)
Data reveal that lower hospital costs are associated with
patients receiving better patient care
Hospital Costs for Pneumonia Patients
$10,298
$9,158
Average Hospital Costs
$8,412
Low High
Degree of Patient Process Measurement and Improvements

24. How Hospitals
Responding

25. Financial Model is Changing
– Health industry growing beyond sustainability…
– We must focus on cost reduction
– Key to success is a systematic approach, data-
driven process & communication
– Must focus care processes that limit variation
25

26. Promote & Reward Accountability
• Accelerate payment and delivery system reforms
• Eliminate preventable infection and complications
• Engage individuals in their health and health care
• Better manage advanced illness
• Advance the use of health information technology
and electronic health records
• Promote transparency of quality and pricing
information
“Ensuring a Healthier Tomorrow”, American Hospital Association

27. Use limited health care dollars wisely
• Eliminate non-value added treatments
• Revamp care for vulnerable populations
• Promote population health
• Modernize federal health programs
• Simplify administrative and regulatory processes
• Reform the medical liability system
“Ensuring a Healthier Tomorrow”, American Hospital Association

28. Top 5 Things Hospitals Doing to Respond
1. Align high-quality physicians
– ACOs require physician partnership.
– Hospitals must align physicians & engage
them to create lower-cost, higher-quality
outcomes.
– Implement strategies to strengthen physician
relationships.
28

29. Top 5 Things Hospitals Doing to Respond
2. Focus beyond the hospital
– The hospital itself is no longer the center of
the health care model.
– Organizations need to assess the continuum of
care.
29

30. Top 5 Things Hospitals Doing to Respond
3. Create information transparency
– Build IT infrastructure; create common IT
across the care continuum.
– Pricing (Time, Bitter Pill)
– The success of the population management
model depends on information transparency
across multiple organizations.
30

31. Top 5 Things Hospitals
Can Do To Respond (continued)
4. Think value, not volume
– Move the organization’s direction from
growing inpatient volumes to delivering the
most effective care.
– Monitor costs, not margin
5. Create a shared community vision
– Bring providers together – requires a
common vision between the community and
providers of care.
31

32. 32

33. Different strategies for different healthcare
spend segments
Source: Wellspan Health

34. Employers Getting Aggressive on Cost and Quality
School System in Southern California; 55 School Districts
$500 Million in Healthcare Claims
Top 10% of Users Account for 60-70% of claims. Sent
these records to Best Doctors for 2nd Opinion:
15% had Wrong Diagnosis
60% of Treatments were NOT state-of-the-art
WHAT TO DO???

35. Incentivize Employees to Go to Best
Providers!

36. Incentivize Employees to Go to Best
Providers!
Out of Network
NO Reimbursement

37. Incentivize Employees to Go to Best
Providers!
16% Premium
Contribution
$1,000 Deductible
Higher Co-Pay

38. Incentivize Employees to Go to Best
Providers!
8% Premium Contribution
Small Deductible
Co-Pay

39. Incentivize Employees to Go to Best
Providers!
NO Premium Increase
NO Deductible
NO Co-Pay

40. Incentivize Employees to Go to Best
Providers!
16% Premium NO Premium Increase
Contribution NO Deductible
$1,000 Deductible NO Co-Pay
Higher Co-Pay
8% Premium Contribution
Out of Network Small Deductible
NO Co-Pay
Reimbursement

41. Results?
By adjusting Premium Contributions, Co-
Payments, and Deductibles 87% of Covered
Population now go to the Low Cost & High
Quality Quadrant of Providers
Preliminary Savings to the TPA and VEBA
(Voluntary Employee Benefit Association) are in
the Multiple Millions of Dollars

42. Case Study – Individual Intervention
One Year of Services Visit Count
Ambulatory Visits 12
Hospital Admits – Medical & Mental 8
Hospital Outpatient – Radiology, GI 16
Emergency Room Visits 59
Total 95

43. Care Management Interventions
• Care Manager contacted patient
• Primary Care Physician identified
• Team meeting with physician, Care
Manager, and patient to develop a
Care Plan
• Care Manager contacts patient
weekly
• Patient utilizing various day
treatment and wellness programs
• No Emergency Room visits since
Care Manager made contact 2
months ago

44. Summary
• Tremendous Challenges Ahead
• Momentum for change in Provider Industry
Growing
• Costs Leveling Off
• Risks and incentives are shifting
• Must be new innovative solutions
• We must take accountability for own health in
proactive ways

45. Questions?