Future trends in global healthcare will see rising costs become unsustainable, leading to reforms. Reimbursements are expected to decrease by 10% over the next decade as risk shifts from payers to providers. Payment will differ based on outcomes, satisfaction, and access. To prepare, providers must drive down costs, improve outcomes, and diversify revenue through clinical integration and managing episodes of care across larger systems. The creation of true healthcare systems is needed to efficiently standardize processes and align incentives to manage costs and risk.

1. Future Trends in Global Healthcare Thomas McAfee, MD Dean of Clinical Affairs, Physician in Chief

2. Agenda Why global healthcare reform? What changes can we expect to see? What strategies should we take to be ready?

3. Why healthcare reform?

4. Costs Going Up…and Up…and Up… *Projected U.S. 1960s 2007 2016* Total Health Expenditures $27 billion $2.2 trillion $4.1 trillion Per Capita Spending $126 $7,421 $12,782 Percent of GDP 5% 16.2% 19.6%

5. Costs Going Up…and Up…and Up…No plan to bend the curve!

6. Higher costs, higher quality? Per capita spending Average Life Expectancy

7. The Current Model is Not Sustainable! Developed and developing countries spending higher and higher percentage of GDP on healthcare. Governments cannot foot the bill Employers and patients cannot pick up the slack Changing demographics will increase healthcare costs! The value of our current investments in healthcare are not clear.

8. Re-newed focus on VALUE Value = Cost/Outcomes

9. What is driving costs to outpace inflation? Healthcare system level Healthcare delivery level: physician practice and hospitals Patient level

10. Cost Drivers at the Healthcare System Level Drug and technology costs Outpacing inflation Administrative costs System inefficiencies Advertising Health plan profits Malpractice Population disparities Access Uninsured

11. Cost Drivers at the Hospital and Physician Level Inappropriate utilization of services Knowledge gap Defensive medicine Misaligned incentives Capacity and access issues: delayed treatments Poor coordination of transitions of care: re-admissions End of life issues: failure to plan Practice, workflow inefficiencies

12. Cost Drivers at the Patient Level Patient non-adherence Patients don’t want to accept limitations Patient demand for services is increasing often fueled by mis-aligned incentives

13. What will healthcare reform look like?

14. Reimbursement headed down! Healthcare is in a financial bubble and headed for a deflationary cycle Governments will be forced to drop reimbursement - private payers will ride the coat tails Expect a 10% decrease in “real” dollars over the next decade.

15. Not Only Will Reimbursements Drop, But: Risk will shift from government and private payers to providers and patients. Expect more bundled payments for episodes of care with risk for complications, outcomes, efficiency

16. Transparency and Payment Differentials based on: Clinical outcomes: complications, re-admissions, cost for episodes of care Patient satisfaction Access

17. What should we do to get ready?

18. Its Simple!!! Drive down costs at every level Measure and improve clinical outcomes Measure and improve patient satisfaction Protect Margin through product diversification Larger scale not enough: need clinical integration to manage costs of care and risk.

19. “ The Journey of 1,000Miles Begins with One Step” University of Virginia reduced supply costs by $9.4 million Standardizing surgical implants saved $2.4 million in hip and knee replacements, $4 million in spine Rx switch from rocuronim to zemuron saved $130,000 Replacing disposable pillows with reusable netted $285,000/year Mid-Atlantic AMC reduced FTEs by 260 by phasing out positions and using job reassignment bank Jackson Memorial hired transplantation trained pharmacist to manage CMV immune globulin use…annual savings of $2 million

20. Protect Margin through Product Diversification Create capacity by reducing readmits and managing LOS Fill unused capacity with “core” services, not commodity services Centers of Excellence Active management of access, cost and outcome Transparency of outcome

21. Systems, Not Networks, What “true” healthcare systems do: Act like a central nervous system Standardize care processes efficiently Service Line/Program rationalization across system Integrate and align physicians and hospitals Create alignment of incentives/compensation Create sustainable scale/dilute fixed costs Manage efficient episodes of care through multispecialty integration..

22. Solutions at the Practice Level Practice evidence-based medicine Improve quality, outcomes, reduce errors Make communication, patient education a priority Incorporate palliative, hospice planning in the treatment continuum Optimize office, work flow efficiency Make Health Information Technology the backbone of your practice!

23. Summary Rate of healthcare cost rise is not sustainable, value proposition unclear Payers, private and public will seek to bend the cost curve Expect decrease in reimbursement Expect transfer of risk to providers based on episodes of care and outcomes To maintain margins and manage risk, expect: Intense pressure for MD’s and Hospitals to drive down costs of production Creation of integrated Health Systems to dilute fixed costs, rationalize services , and manage risk Investment in health information will be critical