Health Care Advisory Board The Emerging Era of

Health Care Advisory Board The Emerging Era of

Health Care Advisory Board The Emerging Era of Choice Restructuring Health System Strategy for the Retail Revolution 6 An Industry Built on a House of Cards Cord Cutters and Cord Nevers Giving Up Broad Networks 6.5% 18.1% U.S. Households With Internet But No Cable, 2013 U.S. Adults Age 18-34 With Netflix or Hulu But No Cable, 2013 2014 The Advisory Board Company advisory.com 28603A Paying for More Than You Use This is the battle hymn of the cord cutter: You are paying too much for television, and you arent watching most of what youre paying for. Farhad Manjoo, The New York Times 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. 7 Revisiting a Tenuous Business Model Most Hospitals Staying Afloat Through Cross-Subsidization Traditional Hospital Cross-Subsidy Commercial Insurance Public Payers Above-cost pricing Steady price growth Robust fee-for-service volume growth

Only one component of our total business Above Cost Below Cost 149% 86% Hospital Payment-to-Cost Ratio, Private Payer, 2012 Hospital Payment-to-Cost Ratio, Medicare, 2012 2014 The Advisory Board Company advisory.com 28603A Source: American Hospital Association, Trendwatch Chartbook 2014, available at: www.aha.org; Health Care Advisory Board interviews and analysis. 8 Cross-Subsidy Depends on Inefficient Markets Entrenched Payers, Insulated Patients Unlikely to Upset Status Quo Assumptions Underlying Provider Growth Strategy Entrenched Payer Established Provider Price-Insulated Patient High employer switching costs impede competition Commercial pricing growth steady Open access to broad provider network standard Handful of broad networks satisfy majority of passive

employers Network inclusion likely for most plans Modest cost-sharing obscures true prices Patient volume depends largely on referral patterns Physician recommendation dominates point-of-care decisionmaking Excess cost growth easily passed on to employers through premium increases 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 9 The Retail Revolution Four Years Post-Reform, New Paradigm Finally Becoming Clear Major Themes Reshaping Provider Strategy 1 Medicare Reforms and the Transition to Risk 2 Coverage Expansion and the Rise of Individual Insurance 3 Activist Employers and the Primacy of Value 2014 The Advisory Board Company advisory.com 28603A

Source: Health Care Advisory Board interviews and analysis. 10 Medicare Reforms and the Transition to Risk Public-Payer Reimbursement Still in the Crosshairs Medicare Payment Cuts Becoming the Norm ACAs Medicare Fee-for-Service Payment Cuts Reductions to Annual Payment Rate Increases 2013 2014 2015 2016 2017 2018 Not the End of the Story 1 2019 2020 2021 2022 -$4 -$14 -$21 -$25 -$32 -$42 -$53 -$64 -$75 -$86

$260B Hospital payment rate cuts, 2013-2022 $56B Reduced Medicare and Medicaid DSH2 payments, 2013-2022 1) Includes hospital, skilled nursing facility, hospice, and home health services; excludes physician services. 2) Disproportionate Share Hospital. 2014 The Advisory Board Company advisory.com 28603A $151B Reduced Medicare payments due to sequestration and 2013 budget bill Notwithstanding recent favorable developments Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation Office of the Actuary, CMS 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. 11 Steady Shift Toward Risk-Based Payment More Mandatory Risk On the Horizon Medicare Value-Based Purchasing Program

Performance Criteria Other Mandatory Risk Programs Hospital-Acquired Condition Penalties Weight in Total Performance Score 20% 45% 70% 10% Clinical Process 25% Patient Experience Readmission Penalties 30% 30% 40% Outcomes of Care Efficiency 30% 30% 25% 20% 25% FY 2013 FY 2014 FY 2015

FY 2016 No Trivial Thing 6% 1) Includes Value-Based Purchasing Program, Hospital Readmissions Reduction Program, and Hospital-Acquired Conditions Program. 2014 The Advisory Board Company advisory.com 28603A Medicare revenue at risk from mandatory pay-for-performance programs2, FY 2017 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. 12 More Providers Taking the Hint Dismal Outlook for Fee-for-Service Motivating a Look at Risk-Based Options Medicare ACO Program Entrants The Broader Picture 123 106 375 114 626 20.5M Total ACO count, including commercial and Medicaid ACOs, May 2014 Americans enrolled in or attributed to Medicare, Medicaid,

or commercial ACOs 32 2012 Pioneer ACO Model 2012 MSSP1 Cohorts 2013 MSSP Cohort 2014 MSSP Cohort Total 46M-52M Patients treated by ACOs as of April, 2014 1 in 10 Medicare FFS beneficiaries attributed to an ACO 1) Medicare Shared Savings Program 2014 The Advisory Board Company advisory.com 28603A Source: CMS, More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for Medicare Beneficiaries, December 23, 2013; Health Care Advisory Board interviews and analysis. 13 Some Pioneers Changing Course Performance, Persistence Closely Correlated 7.1% (max) Pioneer ACO Performance Gross Savings as Percentage of Benchmark 1

First-year performance Second-year performance Dropped out after program year -5.6% (min) The model was financially detrimentaldespite favorable underlying utilization and quality performance 1) Dropped out after second year; second-year performance not reported 2014 The Advisory Board Company advisory.com 28603A Alison Fleury, CEO Sharp HealthCare ACO 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. 14 Medicare Shared Savings Program a Mixed Bag Pending Program Updates Crucial for Future Participation Medicare Shared Savings Program ACO Performance Issues to Watch for in Updated Regulations First Performance Year Did Not Hold Spending Below Benchmark 53 Held Spending Below Benchmark, Earned Shared Savings Payment 115 $297M

52 Held Spending Below Benchmark, but Did Not Earn Shared Savings Shared savings earned by MSSP ACOs in first performance year1 Will second-term ACOs really have to bear downside risk? Will benchmarks be calculated differently? Will the share of savings paid to ACOs be higher? Will beneficiaries be attributed to ACOs prospectively? Will ACOs have any ability to prevent network leakage? 1) Includes one participants $4M repayment of shared losses 2014 The Advisory Board Company advisory.com 28603A 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. 15 Transition to Risk Hardly Stalled Policymakers and (Some) Providers Angling for Higher-Octane Options Bill in Brief: The ACO Improvement Act Bipartisan bill (H.R. 5558) introduced by Representatives Diane Black (RTN) and Peter Welch (D-VT) Key Features The Bigger Question: What Should Medicare ACO Programs Be? Permanent middle grounds between fee-for-service, capitation? ACOs would receive capitated

payments, not shared-savings adjustments Adaptive environments involving progressively more risk? Patients would proactively select a primary care provider rather than be retroactively attributed Training grounds for other risk models? (e.g., Medicare Advantage) ACOs could discount primary care services to encourage network loyalty 2014 The Advisory Board Company advisory.com 28603A Source: H.R. 5558, http://welch.house.gov/uploads/ACO%20Bill%20Text.pdf; Health Care Advisory Board interviews and analysis. 16 Medicare Advantage Gaining Momentum Shift Signals Individualization of the Medicare Market Projected Medicare Advantage Enrollment 29.5% of Medicare beneficiaries 19.0M Provider Benefits Over Shared Savings Models Unambiguous incentive for population health management Greater provider control over network integrity 10.4M Less frequent patient churn 2009

2014 The Advisory Board Company advisory.com 28603A 2020 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. 17 Coverage Expansion and the Rise of Individualized Insurance ACA (and Recovery) Making a Dent in Uninsurance But Every Silver Lining Has Its Cloud Percentage of U.S. Adults Without Health Insurance 2013 Q3 18.0% Insurance exchanges launch (highest on record) Medicaid expansion begins Employer-sponsored coverage grows 2014 Q3 13.4% (lowest on record) A Bargain Still Unbalanced $5.7B Reduction in uncompensated

care, 2014 2014 The Advisory Board Company advisory.com 28603A vs. $14B ACA-related reductions in Medicare fee-for-service payment, 2014 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. Medicaid Expansion 18 Medicaid Expansion Contentiousand Consequential 23 States Still Foregoing Expansion State Participation in Medicaid Expansion Financial Impact As of October 2014 For-profit health systemsreport far better financial returns through the first half of the year than expected, owed in large part to expanded Medicaid PricewaterhouseCoopers Participating 8M1 Not Currently Participating 5% Increase in Medicaid, Average Medicaid

CHIP2 enrollment, enrollment increase across October 2013-July 2014 non-expansion states 1) Estimate- does not include CT or ME. 2) Childrens Health Insurance Program. 2014 The Advisory Board Company advisory.com 28603A 2.4% Advisory Board estimate of impact of Medicaid expansion on typical hospitals 10-year operating margin projection 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. 19 Expanding or Not, States Pushing Medicaid Innovation Responsibility Migrating to Payers, Providers, Patients Competing Philosophies on Medicaid Reform Full Medicaid Managed Care E.g., Floridas Statewide Medicaid Managed Care Program Provider-Led Care Management Traditional StateRun Program E.g., Oregons Coordinated Care Organizations Exchange-Based Privatization E.g., Arkansas Private Option 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 20 Arkansas Turning to Private Market Exchange-Based Medicaid Drawing Interest, But Broader Uptake Uncertain

Arkansass Private Option CMS Wary of Other Modifications 1 Pennsylvania application for similar waiver denied over inclusion of work requirements Arkansas residents eligible for expanded Medicaid coverage select plans on exchange Arkansas proposal to require individual health savings account contributions still pending 2 Using federal matching funds, State pays full cost of silver plan; beneficiary pays no premium 3 Beneficiary holds private insurance; cost sharing based on existing Medicaid rules 2014 The Advisory Board Company advisory.com 28603A Program Likely Not Budget-Neutral $778M Increase in cost of expansion under exchange system relative to GAO estimate of cost under traditional Medicaid Source: Kaiser Family Foundation, Medicaid Expansion in Arkansas, October 8, 2014; Government Accountability Office, Medicaid Demonstrations: HHSs Approval Process for Arkansass Medicaid Expansion Waiver Raises Cost Concerns, August 8, 2014; Health Care Advisory Board interviews and analysis. 21 Insurance Exchanges

One Year In, Insurance Exchanges Generally on Track Aggregate Numbers in Line With Expectations; Enrollee Mix Older Initial Public Exchange Enrollment1 2013-2014 91% 7.0M (Original CBO Projection) Of enrollees still enrolled as of September 2014 3.78 8.02 2.09 exchange 25M Projected enrollment by 2018 2 28% Enrollees aged 18-34 1) Numbers do not add precisely due to rounding. 2014 The Advisory Board Company advisory.com 28603A 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. 22 Individuals Gravitating Toward Leaner Plans Premium Sensitivity Manifest at Two Levels Level 1: Choice of Metal Tier Gold 9% 5% 2% 20% 64%

Level 2: Plan Choice Within Metal Tier All Metal Levels1 Platinum Catastrophic Any Other Plan 36% 43% Bronze LowestCost Plan 21% Silver Second-Lowest-Cost Plan Factors Influencing Metal Level Premium Levers Beyond Benefit Design Deductible Non-Essential Services Covered Scope of Non-Essential Benefits Copays Network Composition Negotiated Payment Rates to Providers Out-of-Pocket Maximum Negotiated Rates Utilization Patterns, Trends

1) Data from federally-facilitated exchanges only. 2014 The Advisory Board Company advisory.com 28603A 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. 23 High Deductibles Dominating Exchange Markets Aggressive Cost Sharing Potentially Troublesome for Provider Strategy Individual Deductibles Offered On Public Exchanges 2014 $2,500 $6,250 Median Maximum Individual Deductibles Chosen on eHealth Individual Marketplace <$1,000 15.84% $1,00015.84% $2,999 Challenges for Providers High out-of-pocket costs discourage appropriate utilization Large patient obligations lead to more bad debt, charity care $6,000+ 38.61% Price-sensitive patients more likely to seek lowercost options 29.70% $3,000-$5,999 2014 The Advisory Board Company advisory.com 28603A

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. 24 Premium Sensitivity Supporting Narrow Networks Payers Betting Individual Consumers Value Affordability Over Broad Choice Average Percent of PPO Network Specialists Included in Exchange Plan Networks1 Breadth of Hospital Networks in Exchange Plans Anthem BlueCross BlueShield, 2014 20 Urban Markets, December 2013 100% PPO Network Breadth Broad 30.00% 38.00% Ultra-Narrow Narrow 62% 59% 59% 48% OB/GYNs Orthopedists Oncologists Cardiologists 32.00% Exclude 30% of 20 largest hospitals Exclude 70% of 20 largest hospitals 26% Median premium reduction directly attributable to network narrowing2

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. 2014 The Advisory Board Company advisory.com 28603A Source: Gottleib S, Hard Data On Trouble Youll 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. 25 Proper Risk Pricing Still Essential Is It Worth Winning Share With Unsustainable Premiums? Low Premiums Moving the Market but Perhaps Not the Right One 2013: 2014: PreferredOne offers lowest Silver plan premium in country; wins massive market share on Minnesota exchange (MNsure) 2% Market share in 20121 58% Market share in 2014 PreferredOne exits exchange Will still offer individual coverage through other successful channels with different risk profile Continuing to provide this coverage through MNsure is not sustainable. Marcus Merz CEO, PreferredOne

1) Pre-exchange individual market 2014 The Advisory Board Company advisory.com 28603A Source: Crostby J, Top Selling Insurer on MNsure Wont Be Back This Year, Minneapolis Star Tribune, September 16, 2014; Health Care Advisory Board interviews and analysis. 26 What Next for the Exchanges? Increased Insurer Participation Driving Competition Robust Marketplaces Beginning to Develop Issuers Offering Qualified Health Plans 248 191 61 67 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. Gail Boudreaux, EVP UnitedHealth Group 2014 2014 The Advisory Board Company advisory.com 28603A 2015 Competition At Work 4% Estimated reduction in second-lowest-cost silver premium of one new issuer entering market 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. 27 What to Watch for on the Exchanges Second Round of Open Enrollment Will Reveal True Dynamics Trends Well Be Watching: 1 Enrollment: Are the technical glitches really fixed? Will higher individual mandate penalties change anyones mind? Will the young and healthy turn out in force? 2 Choice and Mobility: How will automatic reenrollment affect consumer behavior? Will last years bargain hunters regret choosing high deductibles and narrow networks? Can plans that raise premiums maintain market share? 3 Market Reaction: How aggressively will providers court the newly insured? Will employers dump workers onto the exchanges? 2014 The Advisory Board Company advisory.com 28603A 28 Activist Employers and the Primacy of Value Employer-Sponsored Insurance at a Crossroads Will Employers Maintain Coverage, and How? Spectrum of Options for Controlling Health Benefits Expense Abdication Drop Coverage Activation Shift to Private Exchange

Convert to Self-Funding Pros: Pros: Pros: Escape from cycle of rising premium costs Responsiveness to employee preference Close control over network design Cons: Predictable, defined contributions Exemption from minimum benefits requirements Employer mandate penalty Labor market disadvantage 2014 The Advisory Board Company advisory.com 28603A Cons: Disruption to benefit design Cons: Risk employees may underinsure Network assembly challenging Greater financial risk

Source: Health Care Advisory Board interviews and analysis. 29 Huge Growth Forecast for Private Exchanges Low-Wage Employers Most Active Today, but Skilled Industries in the Wings Potential Growth Path for Private Exchange Enrollment 40 30 172 19 3 2014 Private exchange operators as of October, 2014 9 2015 2016 2017 2018 Prominent Employers Using Private Exchanges For Active Employees: 2014 The Advisory Board Company advisory.com 28603A For Retirees: (Medicare Advantage, Medigap plans) Source: Accenture, Are You Ready? Private Health Insurance Exchanges are Looming; privatehealthexchange.com; Health Care Advisory Board interviews and analysis. 30 Beyond the Buzzword Understanding Why Private Exchanges Matter Crucial Differences Between Private Exchanges, Traditional Group Markets 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 2014 The Advisory Board Company advisory.com 28603A On a private exchange, Individuals can switch networks, insurance carriers on their own Narrow networks can appeal to specific employee segments Defined contribution plans expose employees to cost differences Source: Health Care Advisory Board interviews and analysis. 31 Self-Funded Strategies Steadily Gaining Ground Small Employers Also Beginning to Show Interest Percentage of Covered Workers in Self-Funded Plans ACA Benefits Standards Avoidable Through Self-Funding 70% 65% 59% 60% 55% 49% 50% 61% 54% Essential Health

Benefits Guaranteed Issue and Renewability Modified Community Rating Medical Loss Ratio Requirements 45% 40% 2000 2005 26% 2010 2014 of small employers1 brokers have discussed with them the possibility of self-insurance 1) 3 to 50 FTEs. 2014 The Advisory Board Company advisory.com 28603A Source: Gabel JR et al., Small Employer Perspectives On The Affordable Care Acts Premiums, SHOP Exchanges, And Self-Insurance, Health Affairs, 32(11): 2032-39; Health Care Advisory Board interviews and analysis. 32 Hands-On Network Management Increasingly Feasible Custom Network Builders Offering Local Solutions IHS1 Custom Provider Network Solution 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. Innovative Healthware Services 2014 The Advisory Board Company advisory.com 28603A 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 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 employers network to selected list of hospitals, physicians, and ancillary care Source: Innovative Healthware Services, Inc., Arnold, MD; Health Care Advisory Board interviews and analysis. 33 Aggregators Pooling Employers, Providers Exporting Walmarts Centers of Excellence Program Case in Brief: Health Design Plus Third-party administrator based in Hudson, Ohio that creates Centers of Excellence (COE) programs for selffunded employers Assembled Walmarts 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 2014 The Advisory Board Company advisory.com 28603A It would be prohibitive for a small employerWhen you spread the administrative costs over a number of employers, it becomes more Bruce Sherman attractive. Medical Director, Employers Health Coalition Employers Health Coalition (Canton, Ohio) 300+ employer members with employees in all 50 states 3M covered lives Source: Walmart, Walmart, Lowes 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. 34 Some Providers Taking Lead in Network Assembly Intel-Presbyterian Partnership 5,400 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 Infrastructure for Care Management Conversion of Intels on-site clinic into full service patient-centered medical home 2014 The Advisory Board Company advisory.com 28603A Projected savings, 2013-2017

Case in Brief: Intel Corporation Large multinational employer headquartered in Santa Clara, California Customized Care Offerings Addition of depression screening into customary provider workflow 1) Presbyterian Healthcare Services. $8-10M Covered lives in contract Entered into narrow-network contract with Presbyterian Healthcare Services, an 8-hospital system in New Mexico, for employees at Rio Rancho plant 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. 35 Providers Must Win Share at Two Points of Sale Multiple Opportunities to Appeal to Decision-Makers Decision Processes Shaping Provider Choice 1 Secure Enrolled Lives Network Assembly Being chosen by payers, employers, exchange operators, custom network builders, and accountable physician entities to be offered as a network option 2014 The Advisory Board Company advisory.com 28603A 2 Win Share of Volumes Network Selection

Being chosen by individuals during plan enrollment Care Decision Being chosen by patients, referring physicians at the point of care Source: Health Care Advisory Board interviews and analysis. 36 Recognizing New Channels for Growth Key Decision-Makers in Traditional and New Growth Channels Secure Enrolled Lives Win Share of Volumes Traditional Growth Channels Entrenched Payer Custom Network Builder Established Provider New Growth Channels Activated Employer Cost-Conscious Referring Physician Vulnerable Payer Exchange Operator Relationship-Based Referring Physician

Care Delivery Network Price-Sensitive Consumer Accountable Physician Entity Individual Insurance Shopper 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 37 All Signs Point to a Retail Market New Dynamics Unfamiliar in Health Care, But Not in Broader Economy Traditional Market Retail Market Passive employer, price-insulated employee 1 Broad, open networks 2 Growing number of buyers Activist employer, price-sensitive individual Narrow, custom networks Proliferation of product options No platform for apples-toapples plan comparison 3 Disruptive for employers to change benefit options

4 Constant employee premium contribution, low deductibles 2014 The Advisory Board Company advisory.com 28603A Increased transparency Reduced switching costs 5 Greater consumer cost exposure Clear plan comparison on exchange platforms Easy for individuals to switch plans annually Variable individual premium contribution, high deductibles Source: Health Care Advisory Board interviews and analysis. 38 Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost Desirable Network Attributes Competitive Unit Prices Total Cost Control Geographic Reach and Clinical Scope Clinical and Service Quality

Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Avoid reactive position vis-a-vis price cuts, transparency Develop population health model to control cost trend Match service portfolios, footprints to target purchasers Clearly communicate total cost advantage to potential purchasers Explore partnership strategies that strengthen market presence Present unimpeachable clinical credentials to wholesale buyers Radically restructure cost structures to sustain lower unit prices 2014 The Advisory Board Company advisory.com 28603A Emphasize access, experience advantages to individual consumers

Source: Health Care Advisory Board interviews and analysis. 39 Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost Desirable Network Attributes Competitive Unit Prices Total Cost Control Geographic Reach and Clinical Scope Clinical and Service Quality Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Avoid reactive position vis-a-vis price cuts, transparency Develop population health model to control cost trend Match service portfolios, footprints to target purchasers Clearly communicate total cost advantage to

potential purchasers Explore partnership strategies that strengthen market presence Present unimpeachable clinical credentials to wholesale buyers Radically restructure cost structures to sustain lower unit prices 2014 The Advisory Board Company advisory.com 28603A Emphasize access, experience advantages to individual consumers Source: Health Care Advisory Board interviews and analysis. 40 Low Premiums Shaping More than Network Selection Care Choices, Network Assembly Dynamics Driven by Premium Pressure Consequences of Premium Sensitivity Price Sensitivity at Point of Care Premium Sensitivity at Point of Coverage Total Cost Scrutiny in Network Assembly Our price is now given by the market. Our business is changing from cost-based pricing to price-based costing. Health Care Executive 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis.

41 Price Sensitivity at the Point of Care Cost-Conscious Behavior Affecting Pillars of Profitability Consumers Paying More Out-of-Pocket MRI Price Variation Across Washington, DC Fall within HDHP deductible2 $2,183 $12,500 Fall within PPO deductible3 $730 $9,000 $411 $6,000 $900 $2,000 $150 $275 $400 $900 $1,000 $1,269 Price-sensitive shoppers will be acutely aware of price variation MRI prices range from $400 to $2,183 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. 2014 The Advisory Board Company advisory.com 28603A 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. 42 Walmart Bringing Everyday Low Prices to Health Care Low-Cost Access Potentially Just the Beginning Probably Worth Paying Attention Care Clinic Model Pricing: Walmart $4 For employees Walmart $40 For customers Hours: Weekdays Saturday Sunday 8AM-8PM 8AM-5PM 10AM-6PM Service: Two nurse practitioners provider primary care services on site Clinic refers to external specialists, hospitals as appropriate 2014 The Advisory Board Company advisory.com 28603A Our goal is to be the number one health-care provider in the industry. Labeed Diab President of Health & Wellness Walmart 130M

150M Annual emergency department visits Weekly visits to Walmart stores 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. 43 Broadening Our Concept of Cost Advantage Network Assemblers Looking at More Than Unit Price Two Cost-Focused Strategies for Appealing to Network Assemblers Low Unit Price Total Cost Control Price Cut Trend Control Improve efficiency to offer lower fee schedule Implement care management to control cost growth trend Degree of Cost Control 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 44 Creating Cost-Conscious PCPs CareFirst PCMH Total Cost Incentive Model Risk-adjusted PMPM1 Cost PMPM Cost Target Actual PMPM

Cost Virtual panel of 10-15 PCPs Baseline Year 1 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 1) Per member per month. 2014 The Advisory Board Company advisory.com 28603A Total cost target set by trending baseline risk-adjusted PMPM cost by average regional cost growth Panel shares in savings if riskadjusted PMPM cost is below target Year 2 1M Members covered by PCMH program 80% Eligible PCPs participating 29% Average pay increase for PCPs receiving bonuses

Source: Overland D, CareFirst Medical Home Saves More in Second Year, FierceHealthPayer, June 7, 2013, available at: www.fiercehealthpayer.com; Health Care Advisory Board interviews and analysis. 45 Steering Care to Most Efficient Specialists Total Cost Transparency Key to Referral Changes Specialists Color-Coded By Total Cost PCP Virtual Panels 27% Difference in risk-adjusted PMPM cost between topand bottom-quartile PCPs 66% Percent of panels earning bonuses, 2012 from PCMH $98M Savings program, 2012 Employed Specialist A (Red) Employed Specialist B (Yellow) Hospital A Hospital B Independent Specialist C (Green) Were seeing that [the data] changes the patterns. Theres a hubbub among the panels to see what their choices are, and what it

Chet Burrell costs them. President & CEO CareFirst BlueCross BlueShield 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 46 The Value of a Second Opinion Discerning When Not to Operate Large Employers and Hospitals Participating in Centers of Excellence Programs Pepsi Co. Walmart In 2013, expanded Centers of Excellence program to cover cardiac, spine, and hip/knee replacement surgery In 2011, offered employees free cardiac and complex joint replacement surgery at Johns Hopkins Medicine Lowes In 2010, offered employees free heart surgery at Cleveland Clinic 30-50% Of referred patients do not undergo surgery 2014 The Advisory Board Company advisory.com 28603A Source: The Advisory Board Company, Commercial Bundled Payment Tracker, October 9, 2013, available at: www.advisory.com; Health Care Advisory Board interviews and analysis. 47 Making the Case for Care Management Capabilities

Assuring Employers of Ability to Manage Future Costs Powerful Ways to Signal Care Management Capabilities Investment in Data Analytics Clinical and Claims Data Integration Demand for Out-ofNetwork Claims Data Telehealth Platforms and Programs Shows capability to assess patient risk and pinpoint interventions Illustrates advantage over traditional health plan Shows commitment to continuously manage care for attributed population Demonstrates ability to keep low-acuity cases in most appropriate care site 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. Chief Marketing Officer Large Health System 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 48 Promising Total Cost Savings to Employers Savings Guaranteed Off Of Projected Costs

Baseline spending projected using three years historical spending Two Separate Products with Different Payer Partners Guaranteed Savings Employer Health Spending Aetna Whole Health (Aetna) 2 Blue Priority (Anthem Blue Cross and Blue Shield) Roundys Supermarkets, Inc. was first large employer client Time 10% 1 Case in Brief: Aurora Health Care Average savings guaranteed to employers over three years 2014 The Advisory Board Company advisory.com 28603A 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 Source: Commins J, Aurora Health Offers Employers a Savings Guarantee, HealthLeaders Media, July 30, 2012, available at: www.healthleadersmedia.com; Aurora Health Care, Roundys Offers Employees

Innovative Health Care Plan Through Anthems Blue Priority & Aurora Accountable Care Network, October 24, 2012, available at: www.aurorahealthcare.org; Health Care Advisory Board interviews and analysis. 49 Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost Desirable Network Attributes Competitive Unit Prices Total Cost Control Geographic Reach and Clinical Scope Clinical and Service Quality Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Avoid reactive position vis-a-vis price cuts, transparency Develop population health model to control cost trend Match service portfolios, footprints to target purchasers Clearly communicate total cost advantage to

potential purchasers Explore partnership strategies that strengthen market presence Present unimpeachable clinical credentials to wholesale buyers Radically restructure cost structures to sustain lower unit prices 2014 The Advisory Board Company advisory.com 28603A Emphasize access, experience advantages to individual consumers Source: Health Care Advisory Board interviews and analysis. 50 Which Would You Choose? Broad Geographic Reach or Deep Clinical Scope? Network in Brief: Crescent Health1 Network in Brief: Silica Healthcare1 National hospital provider with hospital campuses across the country 6-hospital system in the Midwest with employed physician network Despite broad geography, limited clinical depth at local level Care sites concentrated in roughly half

of single metropolitan area 1) Pseudonym. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 51 Full Care Continuum Important for Payer Partners Four Reasons PinnacleHealth System Selected for Risk-Based Product Sample Clinical Services Primary Care Favorable Pricing Structure Comprehensive Clinical Scope Pediatric Care Imaging Cardiovascular Care Orthopedics Broad Provider Geographic Footprint 6-12 Months Experience Under Performance Incentives 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 Systems PCPs for primary care Will be expanded to individual market in 2015 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 52 Combining Geographies to Match Purchaser Footprint

Addressing Individual Limits in Geographic Reach Partnering to Expand Geographic Reach Cincinnati-based employers have employees living on both sides of river Network in Brief: Healthcare Solutions Network TriHealth Ohio Kentucky St. Elizabeth Healthcare Neither Organization Able to Offer Adequate Geographic Coverage Alone 2014 The Advisory Board Company advisory.com 28603A Joint venture collaboration between Cincinnati, Ohiobased TriHealth and Edgewood, Kentuckybased St. Elizabeth Healthcare Offers health insurers access to a unified, highquality, low-cost network that covers the entire Tristate region Both organizations offering the network to their current employees and dependents Source: Health Care Advisory Board interviews and analysis. 53 Geographic and Clinical Demands Intertwined National and Hyper-Local Competition Reshaping Notions of Sufficiency Purchasers Geographic Preferences for Clinical Services Balancing an Increasing Demand for Convenience with an Increasing Willingness to Travel Potential Differentiators

Alternative access points (e.g. retail, urgent care) E-visits, remote monitoring Home health Womens midlife Sports medicine Transplants Neurosurgery Complex cardiac (e.g. TAVR1) Clinical trials Midwifery Primary care Pediatrics Core Services Disease management, care navigation Digestive health Imaging Ambulatory surgery Radiation therapy Medical oncology Neighborhood Conveniences Emergen cy Dialysis Rehab Stroke Cardiolog y OB/Gyn Routine orthopedi cs

SNF Pediatric specialty Oncology Local Offerings Cardiac surgery Technologyintensive procedures Regional/National Destinations 1) Transcatheter Aortic Valve Replacement. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 54 Redefining the Value Proposition Delivering Desirable Network Attributes at Low Cost Four Imperatives for Health Systems Low Cost Desirable Network Attributes Competitive Unit Prices Total Cost Control Geographic Reach and Clinical Scope Clinical and Service Quality Strategic Imperatives: Strategic Imperatives: Strategic Imperatives: Strategic Imperatives:

Avoid reactive position vis-a-vis price cuts, transparency Develop population health model to control cost trend Match service portfolios, footprints to target purchasers Clearly communicate total cost advantage to potential purchasers Explore partnership strategies that strengthen market presence Present unimpeachable clinical credentials to wholesale buyers Radically restructure cost structures to sustain lower unit prices 2014 The Advisory Board Company advisory.com 28603A Emphasize access, experience advantages to individual consumers Source: Health Care Advisory Board interviews and analysis. 55 Quality Means Different Things for Different People Quality Demands of Network Assemblers and Individuals

Network Assemblers Individuals Network Selection Facility-level clinical process, outcome measures 2014 The Advisory Board Company advisory.com 28603A Network-level quality, access, service ratings Care Decision Actual ease of access, care experience Source: Health Care Advisory Board interviews and analysis. 56 Custom Network Builders Scrutinizing Performance Steering Care Toward High-Quality Providers Provider Evaluation Process at Imagine Health National Top Quartile Clinical Performance Step 1: Evaluation of Clinical 1 Performance Data 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 Step 2: RFP Evaluation of Additional Factors Per capita cost of care Efficiency of care utilization Care experience programs Steers volumes to innetwork providers through benefit design and employee education 1) Sample metrics include mortality rate, complication rate, and readmissions rate. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 57 Providers Must Also Deliver on Ease of Access Winning Contracts By Meeting Access Demands Boeings Access Requirements Case in Brief: Providence-Swedish Health Alliance Alliance between Providence Health Systems, Swedish Health Services in Seattle, WA Same-day PCP appointment (acute conditions) Awarded contract to serve as Boeings narrow ACO network option 3-day PCP appointment (any condition) 10-day specialist appointment [Geographic] access is critical. But we cant lose sight of the

patient experience. Health care consumers need to see a positive change in how they are able to access healthcare. Chris Gorey Chief Marketing Officer Providence Health Systems 2014 The Advisory Board Company advisory.com 28603A 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 Source: Health Care Advisory Board interviews and analysis. 58 Online Access Becoming the New Baseline An Expected Part of the Patient Experience Consumers Demanding Portal Features n = 1,000 U.S. Consumers 82% 77% 76% 74% Access to Online Prescription Receiving Medical Appointment Refill E-Mail/Text Records Booking Requests Reminders KP.org Portal Key Features Communicate

with physician Assign proxy access View medical record Fill prescriptions Schedule appointments View lab results Case in Brief: Kaiser Permanente Northern California Nations 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 2014 The Advisory Board Company advisory.com 28603A 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. 59 Welcome to the Renewals Business Patient Experience Vital For Securing Purchaser Choice Year Over Year Network Selection and Ongoing Experience Annual network selection in fluid insurance market implies consistent reevaluation of network performance Day 1 Day 365 Care Decision Care Decision Patient

Experience Care Decision 2014 The Advisory Board Company advisory.com 28603A Clinical interactions represent repeated opportunities to reinforce patient preference through superior experience Care Decision Source: Health Care Advisory Board interviews and analysis. 60 Recipe for Success Becoming Far More Complex Not Immediately Obvious Which Advantages Will Dominate Network Assemblers Network Assembly Traditional Market Retail Market Reach and Scope Clinical and Service Quality 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 Threshold Differentiating Factors Factors Cost

Individual Consumer Expanding Arena of Competition 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 61 Strategic Advantage #1: Scale Consolidation on the March Search for Financial, Geographic Scale Driving Hospital M&A Case in Brief: Advocate NorthShore Health Partners $6.5B 16-hospital merger of Advocate Health Care, NorthShore University HealthSystem Combined systems expected annual revenue Creates strong clinical, geographic presence in Chicago area Other Notable Hospital M&A Activity 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 2014 The Advisory Board Company advisory.com 28603A Baylor + Scott and White Mount Sinai + Continuum Health Partners

Beaumont + Botsford + Oakwood 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. 62 Aggregation Always Subject to Regulatory Scrutiny Policy Tensions Remain Between Integration, Competitiveness Allowances for Effective Coordination But Market Power Still a Red Flag Bundled payment programs open door to gainsharing with Medicare revenues April 2014: U.S. Court of Appeals orders ProMedica to unwind its 2010 acquisition of St. Lukes Hospital Clinical Integration safe harbors allow joint contracting between independent physicians January 2014: Federal judge blocks merger of St. Lukes Health System and Saltzer Medical Group CMS incentivizes, promotes ACO programs January 2014: FTC rules CHS must divest two hospitals to complete HMA acquisition 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 63

Strategic Advantage #2: Integration Vivity Betting on Coordination over Consolidation Insurer, Seven Competing Systems Offer Market-Wide Solution 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 2014 The Advisory Board Company advisory.com 28603A Anthem Blue Cross UCLA Health CedarsSinai Medical Center PIH Health 7 health systems 14 hospitals Huntington Memorial Hospital 6,000 physicians Good Torrance Samaritan Memorial Hospital Health

MemorialCare Health System 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. 64 New Partnerships Aim at Integration Without M&A But Will Less-Intensive Arrangements Yield Sufficient Gains? Five health systems ally to form accountable care initiative Quality Health Solutions Six hospitals form BJC Collaborative: Four health systems form regional alliance Health Innovations Ohio Five health systems join Vanderbilt Health Affiliate Network Four health systems ally to form Noble Health Alliance 14 systems ally to form Stratus Health Care Two Systems form Georgia Health Collaborative 2014 The Advisory Board Company advisory.com 28603A Seven systems in NY, NJ, MA, and PA form Allspire

Network Five SC systems form cost saving Initiant Healthcare Collaborative Source: Health Care Advisory Board interviews and analysis. 65 Strategic Advantage #3: Efficiency The Community Hospital Resurgent? Born Out of Necessity, No-Frills Approach Suddenly Compelling Common Challenges Potential Advantages Already managing to public-payer margins The Community Hospital Initiative Limited service portfolio Fewer unjustifiable fixed costs Dedicated research and service effort included within Health Care Advisory Board membership Physician shortages Early experience with teambased care, telemedicine Medicare, Medicaidheavy payer mix Focuses on issues facing Smaller organizations Independent hospitals Rural or

exurban setting Labor costs lower than urban competitors Smaller patient population More focused patient engagement efforts 2014 The Advisory Board Company advisory.com 28603A Rural facilities For more information, contact Ben Umansky at [email protected] Source: Health Care Advisory Board interviews and analysis. Health Care Advisory Board The New Network Advantage Assembling the Scale, Scope, and Assets Needed to Secure Profitable Growth 67 Road Map 1 Leverage Beyond Price 2 The New Network Advantage 3 2014 The Advisory Board Company advisory.com Charting an Intentional Corporate Strategy 68 Insecurity Abounds

Consolidation Dominating Industry Mindshare What Was Your Reaction? $10 Billion or Bust? August 5, 2013 Any health system is going to need $10 billion in revenue to survive in tomorrows market Overheard at 2014 J.P. Morgan Healthcare Conference SURVIVAL OF THE BIGGEST CHS-HMA merger puts more pressure on stand-alones to seek partners -Page 6 The End of Independence? We want to stay independent. But when I look at where things are going, I just dont see how we can compete without being part of something bigger. CEO, standalone 200-bed hospital 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 69 New Partnerships Aim at Integration Without M&A But Will Less-Intensive Arrangements Yield Sufficient Gains? Five health systems ally to form accountable care initiative Quality Health Solutions Six hospitals form BJC Collaborative Four health systems form regional alliance Health Innovations

Ohio Five health systems join Vanderbilt Health Affiliate Network Four health systems ally to form Noble Health Alliance 14 systems ally to form Stratus Health Care Two Systems form Georgia Health Collaborative 2014 The Advisory Board Company advisory.com 28603A Seven systems in NY, NJ, MA, and PA form Allspire Network Five SC systems form cost saving Initiant Healthcare Collaborative Source: Health Care Advisory Board interviews and analysis. 70 No Shortage of Alternative Models Five Major Varieties of Provider Partnership Merger or Acquisition ClinicallyIntegrated Hospital Network Accountable Care Organization

Regional Collaborative Clinical Affiliation Description Formal purchase of one organizations 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 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 71 Protection Not the Right Motivation Defenses Around Old Business Model Unlikely to Hold Typical Advantages of Market Power Higher prices charged to payers Size confers price leverage Lower prices paid to suppliers Diminishing Returns to Traditional Strategy Regulators scrutinizing any arrangement conferring undue market power 2014 The Advisory Board Company advisory.com 28603A Volume-based negotiating strategies like GPOs nearing their limit Increasingly competitive markets punishing inflexible, high-cost providers

Source: Health Care Advisory Board interviews and analysis. 72 Leverage Beyond Price the Key to Success Partnerships Must Drive Market Advantage Degree of Market Advantage Product Advantage Cost Advantage Influence on Network Assembly Control Over Underlying Cost Structures Impact on Entire Care Continuum Winning Preference Through Clinical Scope and Geographic Reach Lowering Unit Prices Through Operational Scale Reducing Total Costs Through Population Health Time to Maximum Benefit 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 73 The New Network Advantage Product Advantage Cost Advantage

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

2014 The Advisory Board Company advisory.com 28603A Source: The Advisory Board Company interviews and analysis. 74 Meaningful Integration About More than the Model Discrete Elements of Partnership Support Specific Goals Potential Elements of Provider Integration Payer Contracting Potential Benefits Strengthens negotiating position, allows access to larger purchasers Brand/Identity Confers reputational benefits, signals strength of integration Strategic Plan Allows rationalized investments/divestitures Governance Ensures stability and implementation of other shared elements Operations Enables process efficiencies, knowledge exchange Clinical IT Broadens perspective over care continuum; reveals opportunities for reducing total cost of care Care Model Expertise 2014 The Advisory Board Company advisory.com 28603A Reduces fragmentation in care delivery; improves outcomes Flattens learning curves; promotes best practices Source: Health Care Advisory Board interviews and analysis.

75 Concrete Decisions Beyond Legal Structure Choice of Model Only Determines Environment for Pursuing Integration i act ntr Co ng Bra nd cP egi Collaboration la n Exp er Questions for Every Partnership ty at Str tise Independence /Ide nti Go ve rna n l

de Mo re Ca ce Centralization Clin i cal IT 2014 The Advisory Board Company advisory.com 28603A r Ope atio ns Which strategic and operational functions should be included in your organizations 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? Source: Health Care Advisory Board interviews and analysis. 76 Road Map

1 Leverage Beyond Price 2 The New Network Advantage 3 2014 The Advisory Board Company advisory.com Charting an Intentional Corporate Strategy 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 Which Would You Choose? Broad Geographic Reach or Deep Clinical Scope? Network in Brief: Crescent Health1 Network in Brief: Silica Healthcare1 National hospital provider with hospital campuses across the country 6-hospital system in the Midwest with employed physician network Despite broad geography, limited clinical depth at local level Care sites concentrated in roughly half of single metropolitan area 1) Pseudonym.

2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 79 Developing a Targeted Network Strategy (or Three) Flexible Approach Meets the Demands of a Wide Range of Purchasers A Multi-Layered Approach to Network Development Geographic Reach Partnership-driven Super-Regional Regional Local Individual footprint sufficient to appeal to small employers in local market Partnership with like-minded, geographically contiguous health system provides flexibility to sign larger regional contracts Discussing possibility of additional partnerships to form state-wide network able to contract with state employers 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 Number of contracting possibilities 1) Pseudonym. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 80 Deciding Whether to Take the Lead A Key Decision at Every Level Local Small employers Local payers Regional Large employers National payers Super-Regional State/national employers International purchasers What is your organizations network strategy? Driving Network Assembly 2014 The Advisory Board Company advisory.com 28603A Appealing to Network Assemblers Source: Health Care Advisory Board interviews and analysis. 81 Leveraging Partnership to Appeal to Purchasers Collaboration Provides a Financially-Sustainable, Proactive Approach Committed to

Independence Driving Network Assembly Appealing to Network Assemblers Build or Buy Brand Marketing Pitfall: Pitfall: Extremely slow and capitalintensive; may require moving away from core competencies Increasingly difficult for all but niche providers to confidently position organization as must-have Open to Collaboration 2014 The Advisory Board Company advisory.com 28603A 1 2 Comprehensive Network Product Portfolio-Enhancing Clinical Partnerships Source: Health Care Advisory Board interviews and analysis. 82 Combining Geographies to Match Purchaser Footprint Addressing Individual Limits in Geographic Reach Partnering to Expand Geographic Scope Cincinnati-based

employers have employees living on both sides of river Network in Brief: Healthcare Solutions Network TriHealth Ohio Kentucky St. Elizabeth Healthcare Neither Organization Able to Offer Adequate Geographic Coverage Alone 2014 The Advisory Board Company advisory.com 28603A Joint venture collaboration between Cincinnati, Ohiobased TriHealth and Edgewood, Kentuckybased St. Elizabeth Healthcare Offers health insurers access to a unified, highquality, low-cost network that covers the entire Tristate region Both organizations offering the network to their current employees and dependents Source: Health Care Advisory Board interviews and analysis. 83 Using Expanded Reach to Target Local Employers Selling Narrow Network Product Through Commercial Insurers Creating a Purchaser-Focused Network Solution Insurer sells HSN as a narrow network product Combined geography sufficient to support large Cincinnati

employers TriHealth Local Employers Healthcare Solutions Network St. Elizabeths Public Payers Key Partnership Elements Historical Relationship Governance Quality Alignment Previous collaboration around insurance products key to ensuring mutual trust Organization CEOs serve as Co-CEOs with support of existing management teams Aligning quality targets to work towards demonstrable quality improvements 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 84 Aligning to Expand Clinical Scope Creating a Comprehensive High-Value Network Through Partnership Beginning with Cardiac and Neuroscience Care 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 Virginia Mason quaternary facility EvergreenHealth home care EvergreenHealth tertiary facility EvergreenHealth Virginia Mason clinics Gains access to quaternary facility with proven clinical outcomes and access to expanded geography Network in Brief: EvergreenHealth and Virginia Mason 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 partners scope of services and expanded geographic reach 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 85 Ensure A Cohesive Bond Built on a Foundation of Shared Vision Linking a Network Without an LLC 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 Track Performance Steering committee contains equal representation from both partners (CEOs, CMOs, COOs) Quality dashboards track progress on clinical areas; partnership dashboard tracks progress on priority activities aligned with strategic partnership goals 2014 The Advisory Board Company advisory.com 28603A 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 boarddriven, 20-year agreement that ensures the partnerships strength and stability, ultimately increasing the quality and value of care available in our community. Gary Kaplan MD, CEO, Virginia Mason Bob Malte, CEO, EvergreenHealth Source: Health Care Advisory Board interviews and analysis.

86 Tactic #2: Portfolio-Enhancing Clinical Partnerships Bringing High-End Expertise to the Local Market Telemedicine Partnerships Allow Complex Care to Remain In-House Systems and AMCs Also Seeking to Enhance Portfolios Network in Brief: Mayo Clinic Care Network 26-member network; partnership model that extends Mayo physicians and expertise to members 1. eConsult: Specialists can connect with Mayo Clinic experts when they want additional input on complex patient care 2014 The Advisory Board Company advisory.com 28603A 2. AskMayoExpert: Webbased system allows members to access Mayo perspective on hundreds of medical conditions In addition to direct access to clinical expertise, members are able to brand themselves as members of Mayo Clinic Care Network Source: Health Care Advisory Board interviews and analysis; Mayo Clinic Care Network, available at: http://www.mayoclinic.org/about-mayo-clinic/care-network. 87 Competitive Dynamics Threaten Local Partnerships Conflicting Incentives a Risk When Partnering Regionally Multi-Layered Collaboration Promises Benefit 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 Co-branding Telemedicine Shared Staff Community hospital able to brand itself as affiliate of tertiary hub Allows community physicians to consult with specialists in real-time Physicians from tertiary hub travel to community hospital 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 1) Pseudonym. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis

88 Weighing a Local or National Partner Ideal Geography a Key Tension in Clinical Affiliation Decisions Consider Local Partner if. Consider National Partner if. Local providers with same service gap are interested in collaboration Local competition for volumes in targeted service area is high Local providers that currently offer service are interested in partnering for mutual benefit Local demand for service is insufficient to justify full-time staff Demand for service is low enough that local providers are willing to share staff, equipment Targeted service may easily be provided through telemedicine or virtual physician-to-physician consults Patients value brand familiarity over national reputation Patients recognize and value national reputation Ultimate aim of partnership is joint contracting or shared population health management National providers have significant quality advantage over any local partnership options 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis.

89 Key Takeaways Winning Preference Through Clinical Scope and Geographic Reach Shared vision and strategy key to partnership around network product Creation of a health plan may be a component of network strategy, but should not be the sole strategy 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. 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 Competitive tendencies can threaten the success of regional clinical affiliations 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. Competition for volumes can undermine regional affiliations; clear referral protocols are necessary to ensure each partner retains appropriate volumes. 2014 The Advisory Board Company advisory.com 28603A

Source: Health Care Advisory Board interviews and analysis 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. ClinicallyIntegrated 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 wellsuited to filling a specific clinical gap; however, they often span large geographies and thus tend to limit opportunities to contract jointly. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 91 Ideal Partners Five Characteristics of the Ideal Partner Complementary Clinical Assets Complementary Geography Strong Brand Name Shared Strategic Vision Willingness to Share Referrals 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 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 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 High Cost Driving Price Rigidity Limited Ability to Compete Against Low-Cost Providers High Fixed Cost Production Model Difference in Average Price for Common Imaging Procedures1 Struggling to offset expensive fixed cost base HOPD2 vs. Freestanding Imaging Facilities, 2011 $779 57% lower $334 Lack of back-office efficiency vs. Low-Cost Narrow-Focus Care Sites Facilities with low-fixed costs Streamlined focus on narrow set of services 1) MRI, CT, Radiography, Nuclear Medicine, Ultrasound, Mammography, and PET. 2) Hospital Outpatient Department. 2014 The Advisory Board Company advisory.com 28603A Source: Regents Health Resources, Imaging Market File, Radiology Business Journal , April 2011; Health Care Advisory Board interviews and analysis. 94 Use Networks to Build Operational Scale Three Tactics for Increasing Price Flexibility Leveraging Low-Price

Care Sites Slimming Underlying Cost Structures 3 4 5 Top-of-Site Referral Partnerships Clinical Footprint Rationalization Next-Generation Shared Services 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 95 Tactic #3:Top-of-Site Referral Partnerships Re-envisioning Top-of-Site Care Sending Patients to the Right Site, at the Right Cost An Expanding Network of LowAcuity Partners Pediatric After Hours Urgent Care Pediatric Urgent Care 1 Womens Clinic

Chronic Disease Clinic Full Worksite Clinic Medical Home Mental Health Urgent Care E-Visits Retail Clinic Advanced Care Center Three Main No-Regrets Focus Areas for Volume Shifts 2 3 Tertiary Hospital to Community Hospital Emergency Department to Urgent Care Provider Primary Care Office to Retail Clinic School Clinic 2014 The Advisory Board Company advisory.com 28603A

Source: Health Care Advisory Board interviews and analysis. 96 More Than Just Theoretical Faulkners Stubbornly Low Prices Show Benefit of Strategy Brigham and Womens Faulkner Hospital Merged1 1997 2013 Case Mix Index Proving the Point 13.7% 0.80 1.38 19% General admissions shifted from BWH to Faulkner since 2005 Lower commercial prices at Faulkner vs. BWH, as of 2012 Attractive Strategy In Negotiations with Purchasers BWH contracts with local multispecialty group (Harvard Vanguard Medical Group) came up for renegotiation 1) Came together under common corporate parent 2014 The Advisory Board Company advisory.com 28603A 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 Source: Sussman et al, Integration of an Academic Medical Center and a Community Hospital: The Brigham and Womens/Faulkner Hospital Experience, Journal of Academic Medicine, 2005; Health Care Advisory Board interviews and analysis. 98 Removing Obstacles to Volume Reallocation Integration of Clinical Programs Needed to Encourage Top-of-Site Care Key Elements of the Brigham and Womens-Faulkner Volume Reallocation Effort Integrated Teaching Programs Joint Clinical Programs Brigham surgery and medicine residents perform a portion of training at Faulkner Due to limited operating room availability at Brigham, unfilled rooms at Faulkner made available to BWH surgeons Co-branding Opportunity Patient Convenience Cross-Branding Opportunity Less travel, availability of private rooms, better parking all seen as improving the patient experience Combining the two organizations name resonated with patient focus groups and held pushback at bay from both entities 2014 The Advisory Board Company advisory.com 28603A Source: Sussman et al, Integration of an Academic Medical Center and a Community Hospital: The Brigham and Womens/Faulkner Hospital Experience, Journal of Academic

Medicine, 2005; Health Care Advisory Board interviews and analysis. 99 Tactic #4: Clinical Footprint Rationalization Right-Sizing Facility Footprint a Clear Opportunity Most Markets Far From Rationalized Despite Reductions in Hospital Beds, Most Organizations Still Have Excess Capacity Significant Opportunity for Savings in Reducing Excess Bed Capacity U.S. Inpatient Beds, Occupancy Rate 1980-2009 Estimated Cost Savings from Eliminating Expectedly Empty Beds in Rhode Island1 1,364,516 1,213,327 106022893.20 1,080,601 % 983,628 951,045 944,277 84326226.50 % 70995485.70 65017810.80 64861269.00 64021980.60 % % % % $25-106K Per bed when removing beds piecemeal, includes reduction in supply and staff expenses $580K 1980 1990

1995 Inpatient Beds 2000 2008 Occupancy Rate 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. 2014 The Advisory Board Company advisory.com 28603A 2009 Per bed when closing entire facilities, includes facility, supply, and staffing cost reductions Source: Alicia Caramenico, Council: Eliminate excess hospital beds to save $116M, Fierce Healthcare, May 2013; Health Care Advisory Board interviews and analysis. 100 First, Do No Harm Strategic Alignment Allows for More Efficient Planning for Future Capacity Avoids Duplication of Services within Shared Market Northwest Metro Alliance Combined Planning Process 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

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 2014 The Advisory Board Company advisory.com 28603A Source: 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 101 Address All Stakeholder Incentives Consolidation of More Lucrative Services May Require Financial Alignment HSHS-Prevea Partnership Finds Opportunity to Rationalize Duplicative Imaging Capacity in Wisconsin Components of Alignment Necessary to Execute on Capacity Rationalization 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 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 103

Limit to What Can Be Achieved Without Full Merger Byron1 Merger Showcases Potential of Full-Service Line Consolidation Decision to Consolidate Duplicative CV Services at Byron Health1 Bells Medical Center1 900 cases/year Large campus with excess capacity Large Profitability Differential Bells program clearly more profitable than Clarkes program Clarkes Hospital1 200 cases/year Capacity constraints for other services 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 0% Loss in market-share after consolidation 25% Reduction in number of CardioPulmonary Perfusionists needed 1) Pseudonym. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 105 Tactic #5: Next-Generation Shared Services Creating Advantage Through Internal Outsourcing Applying the Shared Services Concept to Health Care Attributes of a Top-Performing Shared Services Organization

Treats operational units as clients, competes for business vs. outside vendors 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 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 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 106 Translating Cost Savings into Competitive Pricing Significant Opportunity to Improve Network Attractiveness Savings Reallocation Options for Hypothetical Medium-Size U.S Hospital 1 Margin Improvement Improve margins from 6.5% to 9% New Investments 2

150-bed hospital carries out successful cost-savings initiative 3 e.g. Two new 1.5 T MRI Scanners e.g. Four new 64 Slice CT scanners e.g. One new IMRT1 Machine Universal Price Reductions Manages to cut $2 million from operating expenses 4 Reduce prices overall by up to 5.9% while still maintaining existing margins Service-Specific Price Reductions e.g. reduce outpatient imaging prices up to 35% while still maintaining existing margins 1) Intensity Modulated Radiation Therapy 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 107 Key Takeaways Lowering Unit Costs Through Operational Scale Scale no guarantee of cost savings

Regardless of the model chosen, successful consolidation requires an investment in a dedicated crossorganizational consolidation function. No model guarantees such a function. Integration of clinical programs necessary to promote top-of-site volume allocation Models that encourage clinical alignment will facilitate more efficient volume reallocation. 2014 The Advisory Board Company advisory.com 28603A 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. Rationalization of underutilized capacity historically elusive Potential merger savings based on consolidation and closure of facilities should be highly scrutinized. Source: Health Care Advisory Board interviews and analysis. 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. ClinicallyIntegrated 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. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 109 Ideal Partners Five Characteristics of the Ideal Partner Complementary Case Mix Low Cost Structure 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. 2014 The Advisory Board Company advisory.com 28603A Willingness to Consolidate Consolidation requires commitment and close cooperation; ideal partners are committed to executing on centralization and consolidation possibilities.

Cultural Closeness Existing Capabilities 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. Source: Health Care Advisory Board interviews and analysis. 110 Reducing Total Costs Through Population Health 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 111 Providers Judged by Ability to Reduce Utilization Controlling Unit Costs Only Part of the Equation Three Provider Strategies to Appeal to Network Assemblers on Cost Low Unit Price

Price Cut Improve efficiency to offer lower fee schedule Total Cost Control Utilization Management Rationalize utilization to secure referral preference Trend Control Implement care management to control cost growth trend Degree of Cost Control 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 112 A Clear Path for Improvement Steps To Total Cost Management Well Established Attaining Financial Success From Patient Management Hig h- Trade high-cost services for low-cost management Risk Rising-Risk Pati Patients ents Low-Risk Patients Avoid unnecessary higheracuity, higher-cost spending Keep patient healthy, loyal to the system 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 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 113 Population Health a Difficult Ambition Acting Alone Partnership Offers a Path Forward Problem #1: Insufficient financial capital Problem #2: Fragmented data and expertise Problem #3: Lack of shared accountability Reducing Financial Barriers Breaking Down Information Silos Hardwiring Mutual Accountability 7 8 6 Jointly-Financed Infrastructure Investment 2014 The Advisory Board Company advisory.com 28603A Continuum-Wide Data Transparency Network-Enabled Performance Standards Source: Health Care Advisory Board interviews and analysis.

114 Tactic #6: Jointly-Financed Infrastructure Investment Population Health Requires Extensive Investment Common Areas of Investment An Undeniable Financial Burden $12M AHAs1 estimate of ACO start-up costs fora 5-hospital system $14.1M AHAs estimate of ongoing annual ACO costs for a 5-hospital system 1) American Hospital Association. 2014 The Advisory Board Company advisory.com 28603A Care management staffing Disease Registry Electronic Medical Record Post-Acute Care network Patient-Centered Medical Home Management resources Legal and consulting support Predictive analytics

Health Information Exchange PCP recruitment Specialist network Patient engagement tools 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-devaco.pdf, accessed May 5, 2014; Health Care Advisory Board interviews and analysis. 115 Partnership Reduces Individual Financial Burden Shared Care Management Investment Through ACO Arizona Care Network Shared Staffing Model Shared Investment Areas Abrazo Health Dignity Health Arizona Care management teams (RN, community resource specialist, pharmacist) Arizona Care Network Jointly-owned physicianled ACO and CI network Physician support staff (e.g. for quality training) IT infrastructure 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 2014 The Advisory Board Company advisory.com 28603A

Source: Health Care Advisory Board interviews and analysis. 116 Tactic #7: Continuum-Wide Data Transparency Pool Data Across Network to Pinpoint Efforts Partners Benefitting from Master Patient Index Regional Utilization Trends Reveal Top Population Health Opportunities 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 2014 The Advisory Board Company advisory.com 28603A 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 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. 117

Putting the Master Patient Index into Practice Ensures Management of Riskiest Population Segments Real-Time Data Enables Targeted Resource Deployment at One Member Hospital z 1 2 12% Examination of regionwide, 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 Reduction in 30-day acute myocardial infarction readmission rate at one member hospital 16% z Aggressive case management of identified patients leads to reduction in readmissions 2014 The Advisory Board Company advisory.com 28603A 4 3 Member hospital uses population-level insight to identify patients at increased risk for readmission

9% 12% Reduction in 30-day pneumonia readmission rate at one member hospital 20% Reduction in readmissions across all member hospitals 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. 118 Drilling Down to the Individual Patient Level Four Approaches to Real-Time Data Sharing Among Network Partners Manual Data-Sharing Agreements EMR Look-Ups Key to Partnership: Consensus on how often to proactively push data Key to Partnership: Shared or linked EMR systems Example: Visiting Nurse Service of New York sends home health assessment to three hospital partners every day Example: Through their partnership in the Northwest Metro Alliance, Allina and HealthPartners have read only-access to each others Epic systems ADT1 Feed Regional HIE Key to Partnership: Ideal partner has access to out-of-system utilization data

Key to Partnership: Shared funding to ensure financial sustainability Example: Blue Shield of California provides real-time utilization data with provider partners through CalPERS ACO Example: Medical Home Network in Chicago has set up a regional HIE that provides participants with last 90 days of patient data 1) Admission, Discharge, Transfer. 2014 The Advisory Board Company advisory.com 28603A 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. 119 Establish a Common Network Language Shared Processes Eliminate Gaps in Stand-Alone Efforts Consolidating Risk Scores First Step to Aligned Care Management Analysis of Top 1,000 Riskiest Patients Revealed: Each individual algorithm failed to identify some high-risk patients Inconsistent identification reduced ability to prevent: Prior to creation of CalPERS ACO, each participant had individual risk scoring process 2014 The Advisory Board Company advisory.com 28603A ER visits Admissions from ER Inpatient readmissions Risk scores consolidated into single process and single IT platform Source: Blue Shield of California, An Accountable Care Organization Pilot: Lessons

Learned, available at: https://www.blueshieldca.com/employer/documents/knowledgecenter/features/EKH_ACO%20Lessons%20Learned%20Case%20Study.pdf, accessed 3 May 2014; Health Care Advisory Board interviews and analysis. 121 Tactic #8: Network-Enabled Performance Incentives Hardwiring Mutual Accountability Two Promising Strategies to Hold Partners Accountable Formal Shared Risk Membership-Based Incentive Including partners in formal risk-based arrangements (e.g. shared savings, global payment contracts) Positioning membership in the network itself as performance incentive (e.g., preferred referral network) Candidates: Candidates: Hospital ACO partners Clinical Integration Network Employed physicians Post-Acute Care Providers Ancillary providers 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 122 Extend Shared Risk Beyond Hospital and Physicians

Bringing Ancillary Providers to the Table Through Shared Savings MMC Physician-Hospital Organization ACO Home Health Included because of high Medicare utilization SNF Included because of high Medicare utilization Lab Included due to relevance for any population Behavioral Health Included in case of expansion to Medicaid Network in Brief: MMC Physician-Hospital Organization PHO composed of 1,100 physicians from the Community Physicians of Maine and the seven MaineHealth hospitals; based in southern and coastal Maine As part of participation in the Medicare Shared Savings Program, will be sharing savings with ancillary providers based on value performance measures 2014 The Advisory Board Company advisory.com 28603A PHO has worked with each provider to identify relevant performance metrics; focusing specifically on 33 metrics from MSSP to promote performance against value-based metrics across sites 5% Portion of savings that will be distributed to other providers, i.e. not hospitals, PCPs, or specialists Source: MMC Physician-Hospital Organization, available at: http://www.mainehealth.org/mhaco, accessed May 3, 2014; Health Care Advisory Board interviews and analysis;

123 Creating the Incentive to Keep Up Implementing Lessons from Physician CI 1 Creating Motivation to Meet Network Standard Threat of Probation Incents Improvement All physicians must meet a minimal performance threshold on CI score Physicians who score below minimum threshold placed on probation for one year Benefits to Network Inclusion Favorable payer rates from joint contracting Access to IT infrastructure Network in Brief: Cronulla Health Care2 Clinically integrated physician network affiliated with six Cronulla Health Care hospitals in the Midwest Instituted CI score, non-negotiable membership requirements to improve unity, quality of physician partners in network 1) Clinical integration. 2) Pseudonym. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 124 Extending Network Exclusivity to the PAC World Promise of Increased Referrals Creates Performance Incentive for PACs Setting Out Strict Quality Standards to Achieve and Maintain Preferred Status SNF Standards Requiring Monthly Reporting to Ensure Continuous Performance Monthly SNF Scorecard Overall rating of four or five stars _____ Long-term care mortality rate Quality rating of three, four, or five stars

_____ Long-term hospitalization index Registered nurses on-site 24/7 _____ Total readmission rate within 30 days Ability to start IV lines 24/7 _____ Total readmission rate within 72 hours Ability to admit patients within two hours Network in Brief: OSF Healthcare Network in Brief: North Shore-LIJ Eight-hospital, not-for-profit health system based in Peoria, Illinois 16-hospital, not-for-profit health system based in Great Neck, New York As part of Pioneer ACO strategy, created a preferred SNF network limited to 17 facilities who met target criteria In 2008, created a SNF affiliate network of 19 from list of potential 266 2014 The Advisory Board Company advisory.com 28603A Source: Healthcare Financial Management Association, Bridging Acute and Post-Acute Care, available at: http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_PostAcute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis. 125 Preferred Networks Prove Ability to Reduce Total Cost Promote Continuous Improvement Through Focused Partnership Reducing Hospitalizations at OSFs Preferred Network Reducing Readmissions and ED Visits at North Shore-LIJs Affiliates Heart Failure Rehospitalization Rate Readmissions From Affiliated SNFs

0.3 0.1 0.1 0.0 2010 2012 2011 2013 All-Cause Readmission Rate 0.1 0.1 2010 2014 The Advisory Board Company advisory.com 28603A >50% Reduction in ED visits from affiliated SNFs 2012 Source: Healthcare Financial Management Association, Bridging Acute and Post-Acute Care, available at: http://www.hfma.org/acutepostacute/#120_Days_to_Launching_a_Continuing_Care_Network_for_PostAcute_Care, accessed May 3, 2014; Health Care Advisory Board interviews and analysis. 126 Mutual Benefit Necessary to Create Incentive Critical Elements of Preferred PAC Network Key PAC Benefit Key Health System Benefit Access to Operational Resources Data Transparency Health systems may provide access to functionalities like their GPOs1 or IT

systems that PAC2 providers would be unable to access on their own Regular data reports from PAC partners ensure that performance continues to meet high-bar; highlights areas where additional support may be needed Shared Care Pathways and Training Shared Staff Health systems and PAC providers have different areas of expertise and may share protocols and training resources to improve network as a whole PAC providers may be able to expand hospital capacity by taking on complex patients; health systems may send staff to monitor high-risk patients at PAC sites Areas of Mutual Benefit 1) Group Purchasing Organizations. 2) Post-Acute Care. 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 127 Key Takeaways Reducing Total Costs Through Population Health Alignment models that allow flexibility in partner choice create inherent performance incentives Standardizing care according to best practice requires tight financial alignment Joint contracting networks, alliances, and ACOs offer greater ability to switch out low-performing partners than full-asset mergers Though looser collaborations may

allow members to pinpoint best practices, standardizing care according to best practice will require partnership models that bring tighter financial alignment between partners Adding more partners reduces financial burden, but also any potential reward Easier to contract for risk through single entity Adding more partners to population health efforts can lower financial costs, and improve care management, but it can also spreads potential savings across greater number of organizations 2014 The Advisory Board Company advisory.com 28603A Difficulties in analyzing and valuing risk are exacerbated when multiple parties are negotiating and signing separate contracts with payers Source: Health Care Advisory Board interviews and analysis. 128 Weighing the Models Model Jointly-Financed Infrastructure Investment ContinuumWide Data Transparency NetworkEnabled Performance Standards Comments

Merger or Acquisition Long development time for mergers lowers flexibility of partner selection, though full financial alignment allows greater clinical alignment ClinicallyIntegrated Hospital Network Investment in CI tends to focus on joint contracting for fee-for-service contracts, rather than population health management Accountable Care Organization Though financial incentives are aligned to support population health coordination, lack of strategic alignment precludes more helpful consolidation of resources Regional Collaborative Clinical Affiliation Agreement 2014 The Advisory Board Company advisory.com 28603A Though number of partners may support greater economies of knowledge, little incentive to collaborate on population health May incentivize collaboration on specific clinical objectives, but broader alignment vehicle necessary to facilitate population health coordination Source: Health Care Advisory Board interviews and analysis.

129 Ideal Partners Three Characteristics of the Ideal Partner Common Patient Population Complementary Population Health Assets Access to Claims Data Organizations that share a patient population benefit when they partner to coordinate transitions and population health, whether they are working under fee for service or riskarrangements All partnerships should involve some division of accountability, or efficient allocation of resources. Provider organizations that have access to patient claims data, either through an owned health plan, or an existing relationship with a payer, represent ideal partners in population health 2014 The Advisory Board Company advisory.com 28603A Partnerships that bring together complementary assets can reduce new expenditures, minimize the need to rationalize existing assets Organizations should ensure that they negotiate access to claims data when setting up any riskbased arrangement with a commercial payer Source: Health Care Advisory Board interviews and analysis.

130 Road Map 1 Leverage Beyond Price 2 The New Network Advantage 3 2014 The Advisory Board Company advisory.com Charting an Intentional Corporate Strategy 131 Partnerships Must Drive Market Advantage Leverage Beyond Price the Key to Success Degree of Market Advantage Product Advantage Cost Advantage I II III Winning Preference Through Clinical Scope and Geographic Reach Lowering Unit Prices Through Operational Scale Reducing Total Costs Through Population Health Driving Network Assembly

Leveraging Low-Price Care Sites Overcoming Financial Barriers Slimming Underlying Cost Structures Breaking Down Information Silos Hardwiring Mutual Accountability Appealing to Network Assemblers Time to Maximum Benefit 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 132 Model Choice No Guarantee of Success Models Set Ground Rules ...But Underlying Challenges Remain Legal Ability to Cooperate Integration Planning Models like M&A, clinical integration, and shared risk provide legal framework that enables collaboration Legal framework only the enabler; benefits of collaboration only realized through integration Alignment of Governance Stakeholder Buy-In

Partnership creates formal governance structure; leaders may be new or pulled from partner organizations Governance structure no guarantee of buy-in from key stakeholders such as physicians and board members Shared Identity Cultural Alignment Partnership creates unified identify, whether through formal legal structure or informal collaboration Identity may be in name-only; true cultural alignment requires robust communication plan, extensive training 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis. 133 Network Strategy Must Be More Than Just a Hobby Success Depends on Focused, Intentional Strategy and Execution Five Characteristics of Intentional Corporate Strategy 1 2 Clarity of Purpose Professionally Managed Pipeline Transactional Discipline Intentional corporate strategy starts with well-formed, clearly articulated organizational purpose

Partnership function should be an organized, routine process, not an episodic activity Robust due diligence process prevents partnership for the sake of partnership 4 3 5 Scientific Approach to Cultural Fit Integration as Core Competency Cultural affinities and possible contradictions explored in parallel to financial due diligence Integration planning begins long before partnership is finalized and continuous indefinitely through rigorous monitoring 2014 The Advisory Board Company advisory.com 28603A Source: Health Care Advisory Board interviews and analysis.

Recently Viewed Presentations

  • A Performance Study of Explicit Congestion Notification (ECN ...

    A Performance Study of Explicit Congestion Notification (ECN ...

    ECN Routers Explicit Congestion Notification (ECN) , a RED variant, marks packets to signal congestion. ECN must be supported by both TCP senders and receivers. ECN-compliant TCP senders initiate their congestion avoidance algorithm after receiving marked ACK packets from the...
  • Asian Gypsy Moth Lymantria dispar asiatica Asian Gypsy

    Asian Gypsy Moth Lymantria dispar asiatica Asian Gypsy

    The Asian gypsy moth appears to prefer larch, oak, poplar, alder, willow, and some evergreens. Younger larvae prefer oak to all other hosts. Nonetheless, they can also potentially attack other plants as well. When the population levels are high, they...
  • Short Story Telling a fictional story . .

    Short Story Telling a fictional story . .

    Short Story B a s i c s i n a B o x Short Story at a Glance RUBRIC Standards for Writing A successful short story should use the elements of character, setting, and plot to create a convincing...
  • WoK Q4 2005 Upgrades Summary - DINI

    WoK Q4 2005 Upgrades Summary - DINI

    All the power and functionality you would expect from an ISI Web of Knowledge resource Challenges IRs contain immense variety of document types and formats They are evolving in scope, content, and goals Huge interest in the Academic/Library Community Web...
  • Moving Forward Together: Engaging Students through Research and

    Moving Forward Together: Engaging Students through Research and

    Mick Healey University of Gloucestershire, UK "… universities should treat learning as not yet wholly solved problems and hence always in research mode" (Humboldt, 1810 translated 1970, quoted by Elton, 2005, 110)
  • Improving D&#x27;s GC

    Improving D's GC

    Sometime, the whole bitfield is not needed. Create a nameless field. uint, "", 29. Make it usable for out struct/subclasses. uint, "_derived", 29. Ideally make it private/protected. Or use in private struct elements. Need to implement the remaining fields manually....
  • Pan Joist Floor System - University of Kentucky College of ...

    Pan Joist Floor System - University of Kentucky College of ...

    Pan Joist Floor System ACI 318, 8.11.1 "Joist construction consists of a monolithic combination of regularly spaced ribs and a top slab arranged to span in one direction or two orthogonal directions."
  • Covalent Bonding &amp; Intermolecular Forces

    Covalent Bonding & Intermolecular Forces

    explanation of properties of molecular substances (including low melting point and boiling point, softness, and non-conduction of electricity) with reference to their structure, intramolecular bonding and intermolecular forces