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• Service delivery reform (comprehensive, coordinated care executed through provider teams, patient-centered care, education, innovation, HIT/data sharing)
• Reimbursement reform (value over volume, clinical quality incentives/penalties, provider transparency and accountability, various forms of bundled payments)
• Health coverage access reform (Medicaid expansion, Marketplaces, more services covered, less coverage limits, tighter insurance regulation)
› Aging population/potential for higher acuity patients
› Proliferation of chronic conditions
› Return to physician employment/affiliation model
› Horizontal integration continues • Material increase in hospital/hospital activity
› Since 1998, almost 20% increase in hospital systems of more than 21 hospitals
• In Q1 2015, 23 hospital transactions announced nationally (27 – Q1 2014) › 35% involve acquisitions by for-profit organizations, a
slight uptick from recent years
› Horizontal and vertical integration occurring across the industry, not just hospital/hospital• Hospital/physician practice/home health agency/ASC• Physician practice/physician practice• Hospital/payor• Payor/payor
› Total operating revenue of the acquired organizations nearly $5B:• Meridian Health and Hackensack University Health• Lancaster General Health and University of Penn Health
System• National Surgical Healthcare and Optum Healthcare• Ventas (REIT) and Ardent Medical Services (10 Hospitals)• Peconic Bay Medical Center and LIJ Health System• LifePoint Hospitals and Roaring Spring Nason Hospital
› Ohio hospitals are definitely in the consolidation/collaboration game • Hospital/hospital:
› University Hospitals and Samaritan Regional Health System› Cleveland Clinic and Akron General› Mercy Health and Summa
› Degrees of hospital/payor relationships• No relationship:
› OON/non-participating (UCR/higher patient cost-sharing)› Direct provider contracting with employers› Provider discounting arrangements/concierge medicine
› Traditionally seen as adversaries - payors want to cut costs, while hospitals want quality care• Resulted in fragmented, expensive health care, along
with patient dissatisfaction
› Pre-ACA industry model for care access, care affordability, and care quality not sustainable – significant portion of population would be unable to access or afford quality care
› Adversaries must work together post-ACA • Gain efficiencies and align incentives by integrating
payor’s payment system with provider’s care delivery system
5. Hospitals As Payors› Renewed interest from hospital perspective:
• Provider/payor interests must become aligned (movement toward risk-based payment models, and industry focus on access, care coordination, cost containment, and population management)
• Less revenue predictability under new reimbursement models• Reduced emphasis on inpatient care (keep patients healthy)• Significant capital investments outstanding • Payor role can be used to develop key relationships with other industry
players • Prior consolidation supports robust network development and expanded
care coordination/management• Potential for differentiation and competitive advantage• Diversification/alternative revenue streams (premium payments, potential
ASO fees, increased MA payments) • Data access/sharing/aggregation
› Payors have full spectrum of health care data on covered lives (hospitals know only limited episodes of care)
› Sophisticated analytics support delivery of quality care while also managing costs, as well as provider role in population health management
• Millions of new patients/insureds flood industry post-ACA
› Hospitals can take on payor role in a variety of ways:• Joint venture with existing insurer (equity or contractual) • Merge with/acquire existing payor • Create new insurance product from scratch• Potential insurance license leasing/assignment arrangement
› Each model presents distinct opportunities and challenges, both legal and business
› Many providers remain cautious regarding potential payor role• HealthLeaders Media Survey (released March 2015):
Surveyed 300 leaders nationally at health systems, hospitals, and physician organizations› 26% health systems report ownership/operation payor arm (16%
hospitals and 7% physician organizations)› 28% respondents report assessing and deciding against payor
arm
› Ohio hospitals are in the game (examples: Premier Health and CHP/HealthSpan Partners)
5. Hospitals As Payors – JV› Hospital considerations (in addition to traditional JV issues):
• Potential for lower cost market entry (especially contractual JV – private label product, risk pool arrangement, enhanced contracting arrangement)
• Access to insurance expertise, management expertise, and other key resources and capabilities (each party does what they do best)
• New compliance obligations and liability segregated in new entity (equity)
• Data sharing/aggregation • Independent, but interdependent • Easier to unwind - could be short-term or long-term• Competition issues (between insurer JV partner and JV plan entity)
› Examples: • Elevate Health Solutions – Harvard Pilgrim Health Care, Dartmouth
Hitchcock, and Elliot Health System • Innovation Health – Aetna and Inova • Tandigm Health – Independence Blue Cross and DaVita HealthCare
Partners• Blue Cross Blue Shield of Arizona Advantage – BCBS AZ and Banner
5. Hospitals As Payors – Create New Health Plan Product
› Hospital considerations: • Large capital investment with probable early losses• Resource intensive• New licensure/regulatory framework (insurance) –
initially and ongoing• Potential for delays to eventual market entry • Must buy/develop necessary expertise• Must carefully define market in relationship to network
Industry Predictions› Hospitals and payors will continue to partner,
integrate, and move into each other’s markets
› Newer models will continue to expand and change industry landscape• Payors opening retail clinics
• Retailers opening clinics
• Employer-based clinics (both wellness and occupational)
• Direct provider relationships with employers and consumers (MedLion)
› Additional government scrutiny?
› *Difficult to predict provider and payor activity on national scale due to influence of unique regional/local market factors *Standard attorney disclaimer