Health Care Industry Trends 2017 Ready-to-Use Presentation Slides - PowerPoint Presentation

Health Care Industry Trends 2017 Ready-to-Use Presentation Slides Market Innovation Center

Payment Reform Provider Market Purchaser Behavior Provider Selection

Payment Reform Update on Value-Based Purchasing ProgramUpdate on Bundled Payments Update on Accountable Care Organizations MACRA Update on Policy Landscape

Continuum of Medicare Risk Models Update on Value-Based Purchasing Program Source: HHS , “Progress Towards Achieving Better Care, Smarter Spending, Healthier People,” available at: http://www.hhs.gov/, accessed February 2015; Health Care Advisory Board interviews and analysis. Bundled Payments for Care Improvement. Comprehensive Care for Joint Replacement Model. Episode Payment Models. MACRA Final Rule established Track 1+ with details to follow, set to start in 2018. Bundled Payments Shared Savings Shared Risk Full Risk Comprehensive Primary Care Plus (CPC+) Medicare Shared Savings Program (MSSP) Track 1 MSSP Track 1+ 4 MSSP Track 2 MSSP Track 3 Next Generation ACO Model (NGACO) (80% share rate) NGACO (100% share rate) PCMH Payments BPCI 1 CJR 2 The Oncology Care Model Two-Sided Risk ArrangementEPM3 Alternative Payment Models 50% HHS goal for percent of Medicare payment in alternative models by 2018

Readmissions, HAC Penalties Outweigh VBP Bonuses Mandatory Risk Programs Taking a Toll on Providers Source: Rau J, “1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect,” Kaiser Health News , January 22, 2015, available at: kaiserhealthnews.org; Health Care Advisory Board interviews and analysis . Hospital-Acquired Condition Reduction Program, Hospital Readmissions Reduction Program. Value-Based Purchasing. Pay-for-Performance. 3,087 hospitals in VBP program 1,700 h ospitals received bonus payment 792 h ospitals received net payment increases After Accounting for Penalties, 1 Few Receive VBP 2 BonusesEstimated Net Impact of P4P3 Programs, FY 2015 Hospitals receiving a net bonus or breaking even 28% Hospitals receiving net penalties between 0% and 1% 50% Hospitals receiving net penalties of 2% or greater 6.5%

Update on Bundled Payments BPCI Participation Continues to Fluctuate 6,000 + Acute Care Hospitals Physician Practices PAC Providers 2 Bundled Payments for Care Improvement Initiative. Includes SNFs, HHA, Inpatient Rehabilitation Facilities, and Long-term Acute Care Hospitals. Does not add to 100% because Awardees not initiating episodes in BCPI are not included. Source: CMS, “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” January 2017; The Lewin Group, “CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2-4: Year 1 Evaluation & Monitoring Annual Report,” January 2015; Health Care Advisory Board interviews and analysis. Total Number of BPCI 1 Participants As of October 2016 Types of Organizations Participating in BPCI 3 Episode Initiators as of October 2016

CMS Scaling Mandatory Bundled Payment Efforts Unavoidable Episodic Price Cuts Expanding in Coming Years Source: Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis . MS-DRGs: 469, 470. MS-DRGs: 280-282; 246-251; 231-236; 480-482 .Applies to AMI and CABG Models; SHFFT Model to be implemented in 67 CJR markets. Includes models for Acute Myocardial Infarction ( AMI), Coronary Artery Bypass Graft ( CABG); and Surgical Hip and Femur Fracture Treatment (SHFFT) 2 Common Characteristics Across Both BundlesComprehensive Episodes Participating hospitals accountable for all related Part A and B services 90 days post-discharge Qualifies for APM TrackNew HIT requirements in 2018 allow bundles to count toward MACRA APM trackEpisode Payment Models (EPM)Comprehensive Joint Replacement (CJR)$170MEstimated savings to Medicare over the 5 years of the model$343MEstimated savings to Medicare over the 5 years of the modelCovers the most common inpatient surgeries for Medicare beneficiaries: hip and knee replacements1Targets PAC SpendAimed at DRGs with a large portion of cost due to variation in PAC utilization Retrospective PaymentCMS makes FFS payment to providers separately, conducts annual reconciliation process67Geographic areas (MSAs) selected98Geographic areas (MSAs) selected3

Potential Bundle Expansion in Future Source: Centers for Medicare and Medicaid Services; CMS, “Delivering coordinated, high quality care for patients,” Sep. 2016; Advisory Board Company interviews and analysis. Excluding orthopedic and cardiac conditions. 180 participants. 164 participants. 143 participants. 125 participants. 122 participants. Episodic Cost of Care for Most Commonly Selected Optional BPCI Bundles 1 Simple pneumonia and respiratory infections2COPD, bronchitis, asthma 3 Sepsis4 Cellulitis5 UTI6 54%57% 46%59% 64%BPCI Highlights Savings Through Reduced PAC Utilization Of the increased savings from orthopedic bundles in BPCI as a result of reduction in SNF and IRF utilization85% CMS Looks to BPCI for Mandatory Bundle Expansion “ 11 out of the 15 clinical episode groups analyzed showed potential savings to Medicare. Future evaluation reports will have more data to analyze individual clinical episodes within these and additional groups.” Dr. Patrick Conway, Acting CMS Principal Deputy Administrator and CMO

Incremental Growth in ACO Programs Update on Accountable Care Organizations Source: CMS, available at: data.cms.gov, accessed October 3, 2016; Advisory Board, “Where the ACOs are”, available at: advisory.com, accessed October 3, 2016: Health Care Advisory Board interviews and analysis. Overall Participation Continues to Grow Total ACO Participants at End of Each Performance Year

19 ACOs Join in 2016, Few Generating Shared Savings in First Year Source: CMS. “Fast Facts: All Medicare Shared Savings Program (Shared Savings Program) ACOs,” April 2016, “Pioneer ACO Model Frequently Asked Questions,” May 2016, available at www.cms.gov ; Kocot and White. Health Affairs Blog. “Medicare ACOs: Incremental Progress, But Performance Varies,” September 2016, available at www.healthaffairs.org/blog ; Health Care Advisory Board interviews and analysis. Medicare Shared Savings Program. Percentages may not add to 100 due to rounding. MSSP1 Continues to Grow Despite Mixed Results Medicare ACO Program Growth Continues MSSP ACOs Share in Savings 2015 Held Spending Below Benchmark, Earned Shared Savings Reduced Spending, Did Not Qualify for Shared Savings Did Not Hold Spending Below BenchmarkPioneer ACO MSSP ACOTotal Medicare ACOsAs of April 2016

CMS Highlights Positive Headlines ACO Program Expands Despite Lack of NPS 1 Source: Centers for Medicare and Medicaid Services ; Muhlestein, D et al. “Medicare Accountable Care Organization Results for 2015: the Journey to Better Quality and Lower Costs Continues,” Health Affairs, Sep. 2016; Health Care Advisory Board interviews and analysis. Net promoter savings Minimum savings rate. Total ACOs which earned savings grew by 4% from 2014 to 2015 Medicare saved $55M more in 2015 than 2014 for total savings of $466M A Closer Look at ACO Program Generates Concern CMS owes $214M more in 2015 bonus payments than was generated in savings Insufficient Savings $458M out of 2015’s net MSSP savings attributable to just 10 ACOs Select Few Drive SavingsOf ACOs that began in 2012, 42% generated savings above their MSR,2 5% higher than those that started in 2013, 20% higher than those that began in 2014 or 2015Experience Matters Providers question accuracy of CMS’s benchmarking methodologyBenchmarking Suspect

Mixed MSSP Results Inhibit Broader Participation Source: CMS, available at: data.cms.gov, accessed October 3, 2016; Health Care Advisory Board interviews and analysis. Proportion Earning Savings Has Remained Relatively Steady Over Time MSSP ACO Performance, 2012-2015

MACRA Rewrites the Rules of Risk MACRA Source: CMS, “CY 2016 Physician Fee Schedule Final Rule,” Oct 30, 2016, available at: www.federalregister.gov; Health Care Advisory Board interviews and analysis. Bipartisan Support at Center of MACRA Rollout This historic law has been a collaborative effort from the start . We are encouraged by this final rule and CMS’s commitment to ongoing collaboration with Congress and the health care community .” Bipartisan Leaders from House Energy and Commerce Committee and Ways and Means Committee 92-8 Legislation Enjoyed Bipartisan Support Senate vote on MACRA Legislation passed in April 2015 repealing the Sustainable Growth Rate (SGR) CMS released final rule in October 2016 stipulating program to be implemented on Jan 1, 2017 Created two payment tracks: Merit-Based Incentive Payment System (MIPS) Advanced Alternative Payment Model (APM) Legislation in Brief: MACRA 1 392-37 House vote on MACRA Medicare Access and CHIP Reauthorization Act.

MACRA Solidifies Role of Traditional Medicare Medicare ACOs Not Just a Stepping Stone to MA Risk Source: CMS, “All-Payer Combination Option ,” available at: https:// www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/MACRA-MIPS-and-APMs/Quality-Payment-Program-All-Payer-Overview.pdf, accessed October 3, 2016; Health Care Advisory Board interviews and analysis. MA Contributes to APM Thresholds Beginning in 2021… …But Providers Must Still Meet Traditional Medicare Threshold Two Ways to Qualify for APM Track in 2021 Is Medicare Threshold Score >50 %? NO YES Is Medicare Threshold Score >25 %? APM Is All-Payer Threshold Score >50%?APM YES NO APM YES

MACRA and the Physician Employment Landscape MACRA Potentially Accelerating End of Independent Physician Practice Clinicians Already Seek Hospital Employment Increase in hospital ownership of physician practices from 2012-2015 50% Increase in physicians employed by hospitals from 2012-2015 38% Of U.S. physicians are employed by a hospital or health system 86% MACRA Potentially Accelerating Current Trend Due to the Requirements of MACRA, over the next few years we are likely to see: Continued growth in employment with large practices and systems Greater stress among physicians in all settings More practices take on risk-based contractsMore physicians leave Medicare42% 52%73%91%Source: Whitman, E, “CEO Power Panel: Are your physicians ready for reform?” Modern Healthcare, September 2016, : Castellucci, M, “Hospital ownership of medical practices grows by 86% in three years,” Modern Healthcare, September 2016; Health Care Advisory Board interviews and analysis. Modern Healthcare CEO Surveyn = 106

The ACA at a Turning Point Two Repeal Options on the TablePolicy Landscape Source: Advisory Board interviews and analysis. Piecemeal Change Changes to specific components of the ACA; most likely through budget reconciliation which only requires a majority vote in Congress Wholesale Immediate Repeal A full repeal of the ACA through a congressional vote in both the House and the Senate Potentially requires filibuster proof majority in Senate Budget reconciliation options limit repeal to tax-related measures May have to contend with widespread industry pushback Must contend with Republican governors in states supporting Medicaid expansion Complicated by entangled ACA policies Requires line-item specific transition planning Key Considerations of Each Approach

Introducing the American Health Care Act (AHCA) With Proposed Reconciliation Bill, GOP One Step Closer to ACA Repeal Source: House Ways and Means Committee , available at: https://waysandmeans.house.gov/american-health-care-act /; House Energy and Commerce Committee , available at: https:// energycommerce.house.gov/news-center/press-releases/energy-and-commerce-republicans-release-legislation-repeal-and-replace; Health Care Advisory Board interviews and analysis. Restores funding in 2018 in non-expansion states and 2020 in expansion states. Key Elements of the American Health Care Act Repeals ACA Taxes Reforms Individual Market Reforms Medicaid Financing Retains expansion for individuals who are enrolled by the end of 2019 Reverses DSH cuts 1 , provides additional funding for FQHCs, safety net providers Shifts Medicaid to a per capita allotment system in 2020 Eliminates individual mandate as of December 31, 2015 Requires insurers to penalize individuals who do not maintain continuous coverage In 2020, replaces subsidies with refundable tax credits adjusted for age and income Beginning in 2018, eliminates ACA taxes on health plans, medications , HSAs, medical devices, tanning services, investment income, etc. Delays implementation of the Cadillac Tax until 2025 American Health Care Act Proposed reconciliation bill released by House Republicans on March 6, 2017 Would repeal, replace, or adjust some components of the ACA, while leaving many others intact

Provider Market FinancesVolume PerformanceMergers and Acquisitions Imaging Centers Ambulatory Surgery Centers Primary Care Network Telehealth

Finances Source: Altarum Institute, Health Sector Trend Report, March 2015, accessed April 2015; Tozzi J, “U.S. Health-Care Spending Is on the Rise Again,” Bloomberg Businessweek, February 18, 2015, available at: www.bloomberg.com ; CMS, “National Health Expenditure Fact Sheet,” 2015, available at www.cms.gov; Davidson P, “Health care spending growth hits 10-year high,” USA Today, April 1, 2014, available at: www.usatoday.com ; Altman D, “Health Spending is Rising More Sharply Again,” The Wall Street Journal, February 27, 2015, available at: www.blogs.wsj.com ; Health Care Advisory Board interviews and analysis. Health Spending on the Rise Again… “ U.S. Health-Care Spending Is on the Rise Again” “ Health care spending growth hits 10-year high” “ Health Spending Is Rising More Sharply Again” Annual Growth in National Health Expenditures

Higher Spending Does Not Equate Price Growth for Hospitals Source: Altarum Institute, Health Sector Economic Indicators: Price Brief, March 2016, March 2015, March 2014, March 2013, available at: www.altarum.org ; Health Care Advisory Board interviews and analysis. …But Hospital Price Growth Down Annualized Hospital Price Growth, Jan. 2010-Jan. 2015 2016 Hospital Price Growth Down Across Medicaid and Medicare Medicare price growth (1.4%) Medicaid price growth (-2.2%) Commercial price growth 2.2%

Modest Growth Anticipated for the Near Term Inpatient and Hospital Based Outpatient Volume Projections Source: Advisory Board Market Scenario Planner; Advisory Board research and analysis. Compound Annual Growth Rate Inpatient Volume, CAGR 1 2015-2020 Hospital-Based Outpatient Volume, CAGR 1 2015-2020 ( 2.7%) 3.1% Volume Performance

Volumes Continuing to Shift Outpatient Source: “Report to the Congress: Medicare Payment Policy,” MedPAC, March 2015, available at: www.medpac.gov ; Advisory Board Company Market Scenario Planner; Market Innovation Center interviews and analysis. Outpatient services represent entire market regardless of site of service (includes hospital-based settings, ASCs, other freestanding providers and physician offices ) Medicare Volume Growth Cumulative Percent Change All Payer Volume Growth Projections 1 2015-2020 33.0% ( 17.0%) 2006 2013 Cardiac Services Vascular Services OrthopedicsNeurosurgery

Mergers and Acquisitions Source: Beckers Hospital Review, “Hospital M&A continues to accelerate in first half of 2016: 7 findings,” 2016, “The Year of 95 Hospital Transactions,” 2015, available at: www.beckershospitalreview.com/; American Hospital Association, Fast Facts 2017, available at: http:// www.aha.org/research/rc/stat-studies/fast-facts.shtml , “Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform,” December 18, 2015, available at: http://www.gao.gov/products/GAO-16-189; Health Care Advisory Board interviews and analysis . M&A Activity Still StrongHospital and Health System M&A ActivityTotal Deal VolumeNumber of Hospitals Part of a Health System 20% growth since 2004 Merger and Acquisition Activity $8.7B Value of hospital M&A transactions, 2015 86,000 Increase in vertically-consolidated 1 physicians, 2007-2013 2015 200420082012

Source: MedPAC eport to Congress, March 2016; Imaging Performance Partnership research and analysis. Medicare Payment Advisory Commission. Medicare Physician Fee Schedule. Volume of services equals units of service multiplied by each service’s relative value unit (RVU) from the physician fee schedule. Medicare Imaging Utilization Declining Percent Change in Utilization of Imaging Services Volumes of Service 3 Per Medicare Beneficiary MPFS 2006-2014Imaging Centers

Source: Advisory Board Imaging Outpatient Market Estimator; Imaging Performance Partnership interviews and analysis. Outpatient Growth Outlook Remains Modest Outpatient Volume Growth Projections All Providers, by Modality 2015-2025

Total Number of Medicare-Certified ASCs ASC Growth at All-Time Low Source: “Number of ASCs per State,” Advancing Surgical Care, June 2016; “Report to the Congress: Medicare Payment Policy,” MedPAC , March 2015; ASC Association , available at http:// www.ascassociation.org/advancingsurgicalcare/whatisanasc/numberofascsperstate ; Market Innovation Center interviews and analysis. Ambulatory Surgery Centers Net percent growth from previous year

Expanding Network of Options Available Providers Competing to Draw Patients Upstream Federally Qualified Health Center. Ambulatory Care Options Primary Care Office Worksite Clinic FQHC 1 Freestanding Emergency Department Retail Clinic High Acuity Low Acuity Emergency Department Urgent Care Center Primary Care Network Source: Market Innovation Center interviews and analysis. Virtual Visits Mobile Apps In-store Kiosk Remote MonitoringEmail

Current Capital Outlays, Planned Projects Point to Sustained Growth Source: 2015 Facility Planning Survey; Facility Planning Forum research and analysis . Investment in Outpatient Facilities Growing Percent of Respondents with Outpatient Facility Projects Planned 2015-2018, n= 31 Hospitals and Health Systems Capital Allocation for Ambulatory Investments Percent of Total Capital Outlays

Retail Clinics Expected to Continue Growing As of Nov. 2015 As of Jan. 2017 unless otherwise noted As of July 2015 Source: Accenture, “Number of US Retail Health Clinics Will Surpass 2800 by 2017, Accenture Forecasts,” 2015; CVS, “About Us: History,” 2016; Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; The Little Clinic, “Find a Clinic,” 2016; Walgreens, “Healthcare Clinic,” 2016; Market Innovation Center interviews and analysis. 2000-2016 1 Estimated Total Number of Retail Clinics in the US Retailer Operational Retail Clinics 2 >1000 >400 162 83 3 29 103 3

Urgent Care Ripe for Consolidation and Diversification Source: Concentra, “About Us,” 2016; American Family Care, “Locations,” 2016; Merchant Medicine, “The ConvUrgentCare Report,” Vol. 8, No. 7, July 2015; NextCare Urgent Care, “Locations,” 2016; UCAOA, “2014 Urgent Care Benchmarking Survey Report”; UCAOA, “Benchmarking Report Summary,” 2016; US Health Works Medical Group, “Find Locations,” 2016; Market Innovation Center interviews and analysis. As of January 2017 As of January 2017 Operator Operational Urgent Care Centers 2 300 200 152170 135 Urgent care and ongoing primary care Exclusively urgent care Continued growth likely in urgent care centers offering ongoing primary care to bolster referrals, relieve primary care offices, and manage population health Urgent Care Beginning to Offer Ongoing Primary Care Services 1 Approximate number of urgent care clinics in operation in the US 7357 Approximate number of hospitals and multispecialty groups operating more than five urgent care sites; most provider organizations run three or fewer sites 41

Telehealth Projected to Continue to Grow Key Distinction Lies in Growth Rate Compared to Visit Volumes Source: Sprang R, “CMS Medicare Reimburses Nearly $14 million for Telemedicine in 2014,” CteL News, May 8, 2015, http://ctel.org/2015/05/cms-medicare-reimburses-nearly-14-million-for-telemedicine-in-2014 / ; Planning 20/20 research and analysis. CMS data. 2015 HIS Analytics report. Year-Over-Year Medicare Reimbursement for Telehealth Services1In millions of dollars 604% Growth 2014 Medicare reimbursements under its Part B telehealth benefit $13.9M 0.0023% Percent of total 2014 Medicare Part B reimbursements spent on telehealth services

Purchaser Behavior Commercial PayersEmployers Medicare Coverage Expansion

End of 2014 OEP 1 End of 2015 OEP Dec. 2015 2 End of 2016 OEP Final 2016 Enrollment Dec. 2014 2 Public Exchange Enrollment Falling Short of Targets Group Market Longevity Limiting New Growth Commercial Payers Source: HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 13,” Feb. 2016; HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 7,” Dec. 2015; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: December Enrollment Report,” Dec. 2014; HHS, “Health Insurance Marketplace 2015 Open Enrollment Period: March Enrollment Report,” Mar. 2015; HHS, “Open Enrollment Week 13: February 7, 2015 – February 15, 2015; HHS, “Open Enrollment Week 14: February 16, 2015 – February 22, 2015; CBO, January 2015 Baseline: Insurance Coverage Provisions for the Affordable Care Act; Washington Times, “Obamacare Official: 7.3 Million Americans Are Still Enrolled and Paid Up,” Sept. 2014; Kaiser Family Foundation, “Total Marketplace Enrollment and Financial Assistance,” Jun. 2015; Pradhan R, “White House Lowballs Obamacare Target in an Election Year,” Politico , Oct. 2015; KFF, “Survey of Non-Group Health Insurance Enrollees, Wave 3”, May 2016; KFF, “Marketplace Plan Selections by Age,” Feb. 2016 , available at: http://kff.org/health-reform/state-indicator/marketplace-plan-selections-by-age/? currentTimeframe=0; Health Care Advisory Board interviews and analysis. Open Enrollment Period. Drop-off due to individuals not paying premiums or voluntarily dropping coverage . Enrollees aged 18-34. Exchange Enrollment 2014-2016 CBO Projection for Final EnrollmentSmaller and Sicker Than Expected28%Proportion of total public exchange population made up of “young invincibles”325MOriginal CBO Projection for public exchange enrollment Concerns about employer-sponsored health insurance evaporating after the implementation of health reform have not materialized…as of now, the law has had little to no effect on employer-sponsored insurance. ”Employers Not Dropping CoverageKathy HempsteadRobert Wood Johnson Foundation

Increasingly Unstable Public Exchanges Established Carriers Scaling Back, Co-ops Faltering Source: Smith A “ObamaCare’s Cascading Co-op Failures” The Wall Street Journal , Nov. 2015 ; Blase B et al. “The Affordable Care Act in 2014: Significant Insurer Losses Despite Substantial Subsidies” Mercatus Center, George Mason University; Sachdev A, “Blue Cross Parent Lost $1.5 Billion on Individual Health Plans Last Year” Chicago Tribune , Mar. 2016 ; Commonwealth Fund, “Why Are Many CO-OPs Failing? How New Nonprofit Health Plans Have Responded to Market Competition,” Dec. 2015 ; The Hill, “Frustration mounts over ObamaCare co-op failures,” Aug. 2016; Health Care Advisory Board interviews and analysis. Difficulties Facing Exchange Plans 70% of CO-OPs closed as of Aug 2016 Startup Ventures Largely Failing Notable CO-OP failures: Abuse of special e nrollment p eriod Risk corridor u nderpayment Inaccurate risk adjustment Adverse selection To date, more than half a million Americans have lost coverage thanks to the failure of these co-ops.” Adrian Smith The Wall Street Journal Some Insurers Reconsidering Participation We cannot broadly serve [the exchange market] on an effective and sustained basis.” State exchanges Aetna is departing in 2017 11 State exchanges Humana is departing in 2017 8 Stephen J. Hemsley CEO of UnitedHealth Group

Rate Increases and Reduced Competition Source: Tracer, Z, “UnitedHealth to quit 22 U.S.-organized state health markets,” Chicago Tribune, April, 2016; Tracer, Z, “Aetna to Quit Most Obamacare Markets, Joining Major Insurers,” Bloomberg, Aug. 2016; Castellucci, M, “One-third of ACA exchanges will lack competition in 2017,” Modern Healthcare , Aug. 2016; Herman, B, “Humana dumps ACA plans as feds blast its Aetna deal,” Modern Healthcare , Jul. 2016; Gaba C, “Avg. Indy Mkt Rate Hikes: 24.1% Requested (all states); 29.6% Requested (11 states); 30.0% APPROVED (11 states),” Aug. 2016; Health Care Advisory Board interviews and analysis. Of exchange regions will have only one participating insurer in 2017 36% ! 2017 Individual Marketplace Premium Increases Minimum, Average, Maximum As of August 30, 2016 Requested (All states) Requested (Approved states only) Approved (Approved states only) Subsidy Growth Likely to Stress Federal Budget More than eight in 10 marketplace enrollees won’t be directly affected by increases in [2017] premiums because they receive a government subsidy that will insulate them.” Kaiser Health News Subsidy Growth Tracks Premium Spikes 24.4% 3.6% 66.4% 59.0% 29.9%3.6%58.6%30.2% 1.3% State exchanges with only one participating insurer 5

Consumers Trade Low Premiums for High Deductibles Source: HealthPocket.com, “2015 Obamacare Deductibles Remain High but Don’t Grow Beyond 2014 Levels,” November 20, 2014, available at: www.healthpocket.com; Health Care Advisory Board interviews and analysis. Average Deductible for Exchange-Sold Health Plans 2014-2016 Exchange Enrollment, by Metal Tier 2015 Bronze Silver Gold Platinum Nearly 90% of exchange enrollees are in bronze or silver plans

Consumer Purchase Decisions Driven by Price Source: HHS, “Health Insurance Marketplace Open Enrollment Snapshot – Week 13,” February 4, 2016; The Advisory Board Company Daily Briefing, “More than 1 Million ACA Enrollees Changed Their Health Plans This Year,” March 2, 2015, available at: www.advisory.com; McKinsey & Co., 2015 OEP: Insight into Consumer Behavior, March 2015, available at: www.healthcare.mckinsey.com; HHS, Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report, March 10, 2015, available at: www.aspe.hhs.gov; Health Care Advisory Board interviews and analysis . Federal Employee Health Benefits Plan. Switching Rates Higher Than Expected Premium Increases the Primary Motivator Switchers who cited rise in monthly premiums among top three reasons for switching 55% 0% 100% 12% 43% Average annual switching among active employees with FEHBP 1 coverage Returning federal exchange enrollees changing plans in 2016 Active Health Plan Shopping on the Rise Percentage of those renewing coverage who actively shopped for plans Percentage of those renewing coverage who switched plans

Employers Turn to High-Deductible Health Plans Employers Source: Kaiser Family Foundation and Health Research & Educational Trust, “Employer Health Benefits 2015 Annual Survey,” 2015; Health Care Advisory Board interviews and analysis. Among covered workers with a general annual health plan deductible. Includes HDHP/SO. For s ingle coverage. ESI Average Deductible for Single Coverage 1 By Plan Type, 2006-2015 Percentage of Covered Workers with Annual Deductible of $2,000 or More 3 By Firm Size, 2006-2015 2

Source: Accenture, “ Eight Million U.S. Employees Enrolled in Private Health Insurance Exchanges for 2016 Benefits, According to Accenture” January 20, 2016; Accenture, “Private Health Insurance Exchange Enrollment Doubled from 2014 to 2015,” April 7, 2015, available at: www.accenture.com ; Towers Watson, “Enrollment in Health Benefits Through Towers Watson’s Exchange Solutions Expected to Reach About 1.2 Million in 2015,” March 19, 2015, available at: www.towerswatson.com; Mercer, “Mercer Marketplace-the flexible private exchange-posts individual participant and client gains,” October 13, 2014, available at: www.mercer.com ; “Private Insurance Exchanges: What You Need to Know” Health Care Advisory Board 2015; Health Care Advisory Board interviews and analysis. Private Exchange Enrollment Growing Slowly Private Exchange Enrollment Still Grows in 2016, But Lags Behind Initial Projections Projected Private Exchange Enrollment Among Pre-65 Employees and Dependents 2015 projection Employees on private exchanges who select a high-deductible health plan option 40%-60%

Medicare Source: CBO, “Letter to the Honorable John Boehner Providing an Estimate for H.R. 6079, The Repeal of Obamacare Act,” July 24, 2012; CBO, “Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015; Budget of the United States Government (Proposed) FY 2016; Health Care Advisory Board interviews and analysis. Inpatient Prospective Payment System. Disproportionate Share Hospital. Medicare Access and CHIP Reauthorization Act of 2015. Price Cuts for Inpatient Reimbursements Continue Hospitals Bearing the Brunt of Payment Cuts New Proposals Continue to Emerge $29.5B S avings from moving to site-neutral payments $ 30.8B Reduction in Medicare bad debt payments President’s FY2016 Budget Proposal Includes Significant Cuts to Providers $14.6B Cuts to teaching hospitals and GME payments $720MCuts to critical access hospitals Reductions to Medicare Fee-for-Service Payments($4B)($14B)($24B)($29B)($38B)($54B) ($67B)($76B)($86B)($94B)ACA IPPS1 Update Adjustments ACA DSH2 Payment Cuts MACRA3 IPPS Update Adjustments

Source: KFF, “Medicare Advantage Fact Sheet,” May, 2016, available at: www.kff.org ; McKinsey & Co., “Provider-Led Health Plans: The Next Frontier—Or the 1990s All Over Again?”, January 2015, available at: healthcare.mckinsey.com; MedPac, “Do new Medicare beneficiaries choose Medicare Advantage right away?” Sept. 15, 2014; Health Care Advisory Board interviews and analysis. Medicare Advantage. As of 2014 Medicare Advantage Continues Record Growth 10.4M (13%) 16.8M (31%) 30.0M (40%) 2025 2015 2005 MA 1 Enrollment to Nearly Double by 2025 Total Enrollment and Percentage of Total Medicare Population MA Penetration Varies by State Total MA Enrollment as a Percent of Total Medicare Population, 2016 0%-10% 10%-19% 20%-29% states currently have provider-led plans in their markets 43 2 30%-39% 30%-39% >40% o f provider-led plans offer MA coverage options 69%

Future of Medicaid Expansion Less Clear Benefit of Expansion Clear for Hospitals, But Opposition Remains Coverage Expansion Source: Kaiser Family Foundation, “Current Status of State Medicaid Expansion Decisions,” January 27, 2015, www.kff.org ; Fausset R and Goodnough A, “Louisiana’s New Governor Signs an Order to Expand Medicaid,” New York Times , January 12, 2016; HHS, “Insurance Expansion, Hospital Uncompensated Care, and the Affordable Care Act”, March 23, 2015, www.aspe.hhs.gov ; PwC Health Research Institute, “The Health System Haves and Have Nots of ACA Expansion”, 2014, www.pwc.com ; CMS, “Medicaid & CHIP: February 2016 Monthly Applications, Eligibility Determinations and Enrollment Report”, April 29, 2016, www.medicaid.gov; Advisory Board Company interviews and analysis. Montana’s expansion requires federal waiver approval. Medicaid Expansion Positively Impacting Hospital Finances 31 States and DC Have Approved Expansion1 As of October 2016 Medicaid admissions increased 21% for investor-owned hospitals in expansion states Self-pay admissions decreased by 47% for investor-owned hospitals in expansion states Uncompensated care costs reduced by $5 billion in expansion states in 2014 Not Currently Participating Participating Expansion by Waiver Louisiana Only state to expand Medicaid in 2016

Millions of New Patients Insured Under ACA Source: Gallup, “U.S. Uninsured Rate at 11.0%, Lowest in Eight-Year Trend,” April 7, 2016, available at: www.gallup.com/poll/190484/uninsured-rate-lowest-eight-year-trend.aspx; Gallup , “U.S. Uninsured Rate 11.9% in Fourth Quarter of 2015,” January 7, 2016, available at: www.gallup.com/poll/188045/uninsured-rate-fourth-quarter-2015.aspx; Health Care Advisory Board interviews and analysis. US Adult Uninsured Rate Major ACA coverage expansion provisions took effect January 1, 2014 22M HHS estimate of adults gaining health insurance coverage as a result of the ACA Q3 2013: 18.0% Summer 2016 uninsured rate of 8.6% is the lowest in US history

Provider Selection Independent PhysiciansPatients

Independent Physicians Referral Choice Criteria Different for PCPs, Specialists Source: Service Line Strategy Advisor interviews and analysis. The Extended Service Line Referral Pathway Hospital PCP Medical Specialist Proceduralist Consumer Interventions Top-notch specialty capabilities and technology Superior specialist access Operations focused on specialist efficiency Comprehensive care continuum Highest value of care Superior patient access and experience Traditional Differentiators Emerging Differentiators Sources of Influence Value-Based Incentives Steerage Mechanisms Emerging and Traditional Differentiators for Physicians 45

Patients Source: Health Care Advisory Board interviews and analysis. Market Forces Turning Patients into Consumers Traditional Market Retail Market Growing number of buyers 1 Proliferation of product options 2 Increased transparency 3 Reduced switching costs 4 Greater consumer cost exposure 5 Passive employer, price-insulated employee Activist employer, price-sensitive individual Broad, open networks Narrow, custom networks No platform for apples-to-apples plan comparison Clear plan comparison on exchange platformsDisruptive for employers to change benefit optionsEasy for individuals to switch plans annually Constant employee premium contribution, low deductiblesVariable individual premium contribution, high deductibles Characteristics of a Traditional vs. Retail Market 46

Scope and Investment Must Expand to Encompass Entire Experience Source: Health Care Advisory Board interviews and analysis. Inpatient Satisfaction Scores Miss Most Interactions Ambulatory Care 350,000 + Interactions per year Inpatient Visits 17,000 + Interactions per year PROVIDER SEARCH, SCHEDULING, COLLECTIONS 2,500,000 +Interactions per year Inpatient Stays Ambulatory Visits Health Care Transactions Average Health System Interactions Sick Healthy

Consumers Prefer Convenient, Affordable Primary Care Source: 2014 Primary Care Consumer Choice Survey, Marketing and Planning Leadership Council interviews and analysis. Average Utilities for Top Ten Preferred Primary Care Clinic Attributes n=3,873 If I need lab tests or x-rays, I can get them done at the clinic instead of going to another location The provider is in-network for my insurer The visit will be free The clinic is open 24 hours a day, 7 days a week I can get an appointment for later today The provider explains possible causes of my illness and helps me plan ways to stay healthy in the future Each time I visit the clinic, the same provider will treat me If I need a prescription, I can get it filled at the clinic instead of going to another location The clinic is located near my home I can walk in without an appointment, and I’m guaranteed to be seen within 30 minutes 48

Source: 2015 Primary Care Physician Consumer Loyalty Survey, Market Innovation Center interviews and analysis .Most Patients Are Not Loyal to PCP Percent of Consumers Highly Loyal in Each of Three Loyalty Measures 9 % If your primary care moved to another clinic or practice, how likely are you to follow him/her to another clinic or practice? (On a scale of 0 to 10, with 0 being “definitely would not follow” and 10 being “definitely follow”) How likely are you to stay with your primary care physician over the next 12 months? (On a scale of 0 to 10, with 0 being “definitely not staying” and 10 being “definitely staying”) How likely are you to recommend your primary care physician to friends or family members? (On a scale of 0 to 10, with 0 being “not at all likely” and 10 being “extremely likely”) 53% 36%

Consumers Value Friend & Family Recommendations Word-of-Mouth Most Frequently Cited Driver of Consumer Choice Source : Fox S and Duggan M, “Health Online 2013,” Pew Research Center, http://www.pewinternet.org/2013/01/15/health-online-2013 / ; “2016 Report to the Nation,” Healthgrades, October 2015, https://www.healthgrades.com/quality/healthgrades-2016-report-to-the-nation; “What Do Consumers Want from Specialty Care?” Market Innovation Center, 2015; Market Innovation Center interviews and analysis. Top Drivers of Consumer ChoicePercentage of Respondents Citing Driver as #1 Influence in Decision for Specialist 60% of adults turn to family and friends for information or support on health issues 72% of internet users look online for health information 75% of self-referrers consult at least one source when finding a specialist>80% of Millennials have smartphones, and 25% read online reviews before looking for a provider35% of adults go online to figure out their medical conditionFriend or relative recommendedPersonal or previous relationshipAffiliated with a hospital I like/trustBoard or subspecialty certification Short distance

Price and Travel Time Top Consumers’ Surgical Care Priorities Source: MIC Surgical Care Consumer Choice Survey 2016. Relative importance depicts how much difference each attribute could make in the total utility of a product. That difference is the range in the attribute’s utility values for the five factors. We calculate percentages from relative ranges, obtaining a set of attribute importance values that add to 100 percent. Includes cost of care and travel Surgical Shoppers are Price Sensitive Average Relative Importance 1 of Six Surgical Care Attributes Cost of Surgery 2 Quality of Surgeon Hospital Affiliation Referrer’s Recommendation Location of Follow-Up Visit Travel Time to Hospital Cost of care is more important than the five other attributes combined; comprises more than half of consumers’ preference Travel time is second most important and about twice as important as the next most important attribute, referrer’s recommendation Hospital affiliation matters more than quality of the surgeon

Higher Deductibles Drive Increased Price Sensitivity Source: Brot-Goldberg Z et al., “What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics,” The National Bureau of Economic Research, October 2015, available at: http://www.nber.org; Altman D, “Health-Care Deductibles Climbing Out of Reach,” Wall Street Journal , March 11, 2015, available at: www.blogs.wsj.com; Health Care Advisory Board interviews and analysis . $1,200 Single; $2,400 Family. $2,500 Single; $5,000 Family. Fail to Pay? Households Without Enough Liquid Assets to Pay Deductibles 1 2 2 Shop Carefully? 56% 74% Consumers with deductibles higher than $3,000 who have solicited pricing information Consumers searching for price information before getting care 3 Forgo Care? Spending Reductions Following Implementation of High-Deductible H ealth Plans 1 25%Reduction in physician office spending 18% Reduction in ED spending

Consumers Prioritize Continuity, Price for Virtual Visits Average Utilities for Top Ten Preferred Urgent Care Virtual Visit Attributes n=2,429 I will pay less out-of-pocket for the virtual visit than an office visit I can schedule the virtual visit to be 15 minutes from now I will know the exact cost of the virtual visit before I schedule it The virtual visit is offered by my health insurance company The virtual visit is offered by the hospital my regular provider is associated with The virtual visit will be with another physician in my regular provider’s practice The virtual visit will be with an advanced practitioner in my regular provider’s practice, but not with my regular provider I will pay the same amount out-of-pocket for the virtual visit as I would for an office visit I can see a provider immediately Source: 2016 Market Innovation Center Virtual Visits Consumer Choice Survey. The virtual visit will be with my regular provider