H.H.C. Group Health Insurance Consultants. Providing Current Information on Health Insurance Industry Issues and Legislation

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H.H.C. Group Health Insurance Consultants January 2014 Vol.

health insurance exchanges for employee healthcare coverage in 2014.

The survey found that the vast majority of employers plan to continue offering group health insurance to their full-time employees next year.

1 H.H.C. Group Health Insurance Consultants January 2014 Vol. 16, Issue 1 Providing Current Information on Health Insurance Industry Issues and Legislation Few Employers Looking to Private Health Exchanges for 2014 J ust 5% of employers plan to pursue private health insurance exchanges for employee healthcare coverage in This is one of the major findings of the latest Compensation, Retirement and Benefit Trends Survey conducted by Verisight and McGladrey Compensation. The survey found that the vast majority of employers plan to continue offering group health insurance to their full-time employees next year. Only 4% of employers plan to discontinue coverage completely and provide employees a subsidy to obtain coverage in a state or federal exchange. Just 5% of employers plan to pursue private health insurance exchanges for With the delay in the employer mandate, many employers naturally have pushed the play or pay decision process down the road, said Bill O Malley of McGladrey, a tax consultant. employee healthcare coverage in While some companies have announced their decision to discontinue employer-sponsored health coverage for part-time employees directing them to the public health exchanges for coverage more than 8 in 10 survey respondents expect to continue coverage for full-time employees during the next plan year, said Verisight Executive Vice President Martha Sadler. Instead of opting out of providing health insurance, the survey found employers are continuing their efforts to control costs. 35% are increasing the portion of premium payments made by their employees. 23% are raising employee co-payments or coinsurance and 22% are increasing employee deductibles. 22% are implementing wellness programs. The survey, conducted online, polled over 1,000 organizations nationwide. Almost two thirds (65%) of companies responding have 51 to 1000 full-time employees. monitor and report on trends in employer sponsored healthcare coverage. PRIVATE EXCHANGES Inside Click on Titles Below to Link to... g M&A Looking Strong in 2014 g U.S. Health Spending Grows at Historically Slow Rate Again g ACO Growth Rate Slowing Is There Trouble Ahead? g U.S. Continues to Spend More, Get Less for Its Healthcare Dollar g New 3-Star Providers g H.H.C. Group Now on Twitter

M&A Looking Strong in 2014 Trends seen in 2013 are expected to continue into the new year H ospital merger and acquisition (M&A) activity was strong in the second half of 2013 and experts expect the

2 M&A Looking Strong in 2014 Trends seen in 2013 are expected to continue into the new year H ospital merger and acquisition (M&A) activity was strong in the second half of 2013 and experts expect the trend to continue in Third quarter 2013 statistics published by Hammond Harlon Camp, an investment banking firm, and M&A data publisher Irving Levin Associates show that: M&A activity was up 20% versus the same period in mergers or acquisitions took place, up from 223 in the third quarter of $51 billion was spent on M&As, a 35% increase from the same period a year earlier and only 4% below the previous quarter. While the number of M&As has increased steadily, the overall value of individual deals has declined. Many large mergers and acquisitions had already taken place and most of the remaining healthcare facilities and hospitals available were smaller in size than was previously the case. Commenting on these trends, Frank Trembulek, Chief Operating Officer at Geisinger Health System said, we ve seen significant consolidation in the last couple of years, both mergers and closures, He added that in Pennsylvania the pace has accelerated, and there are few remaining free-standing hospitals. They ve either been acquired by us, or they have been acquired by Community Health Centers. While the number of M&As has increased steadily, the overall value of individual deals has declined. Many large mergers and acquisitions had already taken place and most of the remaining healthcare facilities and hospitals available were smaller in size than was previously the case. Trembulek anticipates the focus now will shift to getting more physician groups to join networks. The smaller, one, two, or three doctor practices can t afford to go it alone, Trembulek said. We re now seeing accelerated interest by [independent] physicians to become employed. More and more physicians are looking a larger partner with which to share the financial burdens resulting from the transition to electronic record, the increasing costs of operating an independent business, or the impact of new healthcare regulations. The primary driving factor behind this M&A activity is economics. Larger organizations enjoy economies of scales and, theoretically, less financial vulnerability. According to Tom Carden of Martin Health Advisors, another significant factor that will spur M&A activity will be a reduction in the uncertainties surrounding the launch of major pieces of the Patient Protection and Affordable Care Act (PPACA). In 2012, there were a lot of questions about the Affordable Care Act: Will it happen? What will it look like? Will it have a real impact on my business? said Carden. In 2013, the uneasiness was taken out of the equation. Consequently, he believes that investors will be a greater interest in hospital and healthcare organization acquisitions. According to Carden, there is a lot of equity capital available. There is a lot of money sitting on the sidelines not being used. track and report on healthcare M&As and on their impact on the self-insurance industry. 2 H.H.C. Group enewsletter January 2014

3 U.S. Health Spending Grows at Historically Slow Rate Again H ealthcare spending in the United States in 2012 grew at a historically slow rate for the fourth straight year and healthcare spending as a share of gross domestic product declined for the first time in 15 years. In 2012 the rate of healthcare spending in the U.S. increased by 3.7% to $2.8 trillion, making it the fifth year in a row that healthcare spending has grown by less than 4.0%. This is the slowest sustained period of growth since the federal government began to collect this information in the 1960s. Healthcare spending as a share of national gross domestic product dropped slightly from 17.3% to 17.2%. This was the first decline in healthcare spending as percent of GNP since 1997, according to Aaron Catlin, a deputy director of the CMS National Health Statistics Group, in a report just released by the Office of the Actuary at the Center for Medicare and Medicaid Services. The slow rate of growth was partially a result of a drop in the rate of increase of spending for prescription drugs from 2.5% in 2011 to 0.4% in The decrease was due primarily to the availability of generic alternatives for heavily used brand-name drugs whose patents expired in 2012 including Plavix and Lunesta and the availability of a generic alternative to Lipitor starting in November Premiums for privately insured Americans growing by only 3.2%. Additionally, a smaller increase for nursing home spending also contributed to keeping the rate of increase in health care spending in check. Some economists believe the lingering effects of the recession contributed to the slow rate of increase. In contrast to these slower growing sectors, spending for hospital care, clinical services and physician services increased year-to-year. Spending for clinical services grew by 7.1% in 2012 versus 6.6% the prior year. Spending for hospital care was up 4.9% versus 3.5% the prior year, as a result of both higher prices and increased utilization. Prices for physician services dropped in 2012, but the rate of spending for these services grew from 3.5% to 4.0%, as a result of increased demand. Other sectors experiencing more rapid growth were Medicaid and consumer out-of-pocket expenditures. Medicaid spending increased 3.3%, versus 2.4% in 2011 as states expanded their safety-net programs and increased payments, according to the Health Affairs report. Consumer out-of-pocket spending rose 3.8%, versus 3.5% in 2011, partly as a result of more highdeductible insurance plans, according to a CMS spokesperson. Looking toward the future, the outlook for healthcare spending in the U.S. remains unclear. Policymakers are concerned the large number of baby boomers joining Medicare in the next decade will accelerate the rate of spending growth. They also see the drop in the rate of growth in prescription spending as a one-time occurrence. Some, like Dana Goldman, a health economist and director of the University of Southern California's Center for Health Policy and Economics, believe the higher growth rates in hospital and physician spending reflect a rebound from the recession. He also thinks that rising hospital prices also suggest that as hospitals consolidate they are gaining more price leverage in many markets. On the other hand, Goldman believes that the fifth straight year of slow growth suggests forces other than the economy may be at work. The persistence of this trend, the more it continues, the less likely it is that it can be explained just by the recession, he said. Costs for Medicare grew at a 4.8% rate in 2012, down slightly from 5.0% the prior year. According to Micah Hartman, a Medicare statistician, while the private sector might cut back on health spending in a recession, Medicare is traditionally immune to the economy. monitor and report on healthcare trends, especially those impacting the self-insurance industry. 3 H.H.C. Group enewsletter January 2014

ACO Growth Rate Slowing Is There Trouble Ahead? C ommercial Accountable Care Organization (ACO) growth slowed in 2013 and projected growth for 2014 is only up slightly from spring 2013.

The percentage of hospitals and health systems having created or joined an Accountable Care Organization (ACO) increased to 26.6% in fall 2013 from 21.9% six months earlier.

4 ACO Growth Rate Slowing Is There Trouble Ahead? C ommercial Accountable Care Organization (ACO) growth slowed in 2013 and projected growth for 2014 is only up slightly from spring These were two of the findings from an online survey commissioned by Premier, Inc. The percentage of hospitals and health systems having created or joined an Accountable Care Organization (ACO) increased to 26.6% in fall 2013 from 21.9% six months earlier. However, only an additional 7.2% indicated they would be joining or creating an ACO by the end of 2013 versus 14.3% in spring. 21% anticipated their organization would create or join an ACO in 2014, up 3 percentage points from Premier s spring 2013 survey. On the plus side, 12% of healthcare CEOs cited population health as their top strategic issue in the latest survey. Last year that number was only 3%. The slowdown in ACO formation was also reflected in numbers released by the Centers for Medicare and Medicaid Services (CMS). In January CMS announced 106 new Medicare ACOs. Since that time only 35 new commercial ACOs have been announced, according to a David Muhlestein (Leavitt Partners) Health Affair blog. This compares to the over 400 ACOs created from the end of 2010 to September Mr. Muhlestein described the slowdown as surprising. He believes three reasons for the slowdown. The percentage of hospitals and health systems having created or joined an Accountable Care Organization (ACO) increased to 26.6% in fall 2013 from 21.9% six months earlier. Few new trailblazers. Most of the physician groups, health systems and hospitals that were willing and ready to pursue riskbased accountable care contracts have already done so. No consistently successful model to emulate. Organizations still on the sidelines have not seen one model for risk-bearing contracts that has worked repeatedly. These followers are reluctant to move forward until they feel their own risks are limited. Muhlestein wrote that these organizations will be watching the renewal rates by currents ACOs before committing themselves. "Going forward, this rate of renewal will be a strong indicator of whether potential ACOs will become actual ACOs," he concludes. Payer Reluctance. While some payers have energetically established contracts with provider organizations, others are still not doing so. A total of 454 people responded to the survey. Those providing input included supply chain, service line and administrative managers, as well as C-suite level people (who provided almost 30% of the responses). monitor and report on the progress and impact of ACOs in the marketplace. 4 H.H.C. Group enewsletter January 2014

5 U.S Continues to Spend More, Get Less for Its Healthcare Dollar he United States continues to spend more on healthcare but has worse outcomes that other developed countries. T This is the key finding of a Journal of the American Medical Association (JAMA) analysis conducted in conjunction with the University Of Rochester School Of Medicine and the Boston Consulting Group. The analysis is based on publicly available information regarding who supplies and who pays for medical care. Key findings in the report include: The U.S. spends almost 18% of gross domestic product on healthcare. That is 50%-60% more than any other developed nation. Life expectancy, which has been increasing for the last century, has been growing more slowly in the U.S. than in other developed countries since the 1980s. The U.S. lags by three years for both women and men. Those younger than 65 with chronic illnesses account for two-thirds of healthcare expenditures, making them the biggest consumers of healthcare, not seniors as many believe. Individuals out-of-pocket healthcare costs as a percentage of the cost of their medical care has fallen from 23% in 1980 to 11% in The federal government s share has risen from 31% to 42% over the same period while employers contributions increased from 44% to 47% over the last three decades. Insurer and hospital consolidation resulting in a fewer and larger insurance companies and hospital systems. People will have less choice and will be more likely to have to deal with an institution rather than an individual physician. Information technology, and An insufficient number of primary care physician affecting both preventive medicine and the coordination of care when someone becomes sick. Without the attention of the primary care physician there is a greater likelihood patients will suffer complications. Only a few specialists tend to look for them. The report concludes that more investment in people, especially primary care doctors, and in innovations that streamline the process Looking forward, the researchers believe three of the major factors that will greatly impact health and medicine in the coming decade will be: 5 H.H.C. Group enewsletter January 2014 of care is necessary. It notes that 4% of healthcare spending has gone to biomedical research focusing on new drug and device technologies, while only 0.1% was spent to improve the process of care. They note that political infighting is keeping the U.S. from creating ways to deliver care that is both more effective and efficient. track and report on trends in healthcare spending and innovation in care delivery designed to increase effectiveness while containing costs.

Three Star Preferred Provider Program Additions One of H.H.C. Group s strengths is its relationships with providers. We are pleased to announce the following new program members: Atherotech, Inc.

77034 Joseph A. Tisone Louisville, KY 40217 Kelly Wilcynski Bellevue, WA 98004 Low T Center Southlake, TX 76092 Partners in Recovery Roseville, MN 55113 Quality Respiratory Care, Inc.

6 Three Star Preferred Provider Program Additions One of H.H.C. Group s strengths is its relationships with providers. We are pleased to announce the following new program members: Atherotech, Inc. Birmingham, AL Buckhead Injury Wellness Institute Atlanta, GA Carlisle Physician Service Atlanta, GA Crowley Cardiac Wellness Crowley, LA Grace Emergency Room Houston, TX Joseph A. Tisone Louisville, KY Kelly Wilcynski Bellevue, WA Low T Center Southlake, TX Partners in Recovery Roseville, MN Quality Respiratory Care, Inc. West Helena, AR San Juan County Hospital Monticello, UT Sumner Medical Group Gallatin, TN Terry Pinnes Orthopaedic Med La Jolla, CA West Side GI New York, NY H.H.C. Group is now on The information contained in this newsletter is for general guidance and education in matters that H.H.C. Group believes may be of interest to our clients and other members of the self-funded insurance industry. H.H.C. Group is not a law firm and this newsletter shall not be considered legal advice or used as a substitute for professional legal consultation. Contact Information Additional product/services information: Please visit or call ext Repricing support/assistance: Please appeals@hhcgroup.com or call ext Medical Review Program support/information: Please mrp@hhcgroup.com or call ext Claim referral submission: Please referrals@hhcgroup.com or call ext H.H.C. Group Please follow 6 H.H.C. Group enewsletter January 2014 To learn more about any of H.H.C. Group s services contact your sales representative or Bob Serber, at ext. 163 or rserber@hhcgroup.com 438 North Frederick Avenue, Suite 200A, Gaithersburg, MD Phone (800) or (301) Fax (800) or (301)

The Latest Findings on National Health Spending From CMS

The Latest Findings on National Health Spending From CMS Lekha S. Whittle, Economist Office of the Actuary, Centers for Medicare & Medicaid Services Moderator: Cori Uccello, MAAA, FSA, FCA, MPP Senior