Aria Health 111 Years of Caring Strategic t Plan to Survive the Accountable Care Act (ACA) Andrew DeVoe Chief Financial Officer (CFO) & Treasurer Aria Health Philadelphia, PA
Financial Disclaimer Certain statements included in this Presentation constitute forward looking statements. Such statements generally are identifiable ifi by the terminology used, such as plan, expect, predict, estimate, anticipate, budget, or other similar words. Such forward looking statements include, but are not limited to, certain statements contained in this presentation. The achievement of certain results or other expectations contained in such forward looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements described to be materially different from any future results, performance, or achievements expressedor implied by such forward looking statements. Aria Health does not plan to issue any updates or revisions to those forward looking statements if or when its expectations or events, conditions, or circumstances on which such statements are based occur or fail to occur. 2
About our Presenter Andrew DeVoe Chief Financial Officer (CFO) & Treasurer Aria Health Veteran Healthcare Executive 25+ Years of Healthcare Experience 14 years: For Profit Hospitals 5 years: Non for ProfitHospitals (EVP) 6 years: CEO of Private Equity Backed Ventures Andrew DeVoe brings more than 25 years of healthcare financial and operational experience in not for profit profithospitals, for profit hospitals, and investor owned owned providers across the country. DeVoe is an industry recognized specialist who has led hospitals and healthcare organizations through turnarounds by maximizing key areas of their financial processes. 3
About the Challenge How do you improve financial and quality performance metrics at a 111 year old community health system in one of the most competitive healthcare markets kt in the United dstates? t How do you achieve success in the age of the Accountable Care Act (ACA)? How do you navigate the seismic shift from Fee For Service (FFS) to Fee For Value (FFV)? How do you accomplish these goals while maintaining mission and commitment to patient communities? 4
Philadelphia Healthcare Market An Overview Highly Competitive and Crowded Market 11 for profit and 32 not for profit healthcare organizations Overbedded by 20% and services overutilized 4 academic medical schools According to Modern Healthcare, cost per day 25% higher than national average Perfect Storm Effect AccountableCareAct Act (ACA) implementation, shrinkingreimbursements reimbursements, decreasing inpatient volumes, and shift from Fee For Service (FFS) to Fee For Value (FFV) have left hospitals within the Philadelphia healthcare market struggling to survive Significantconsolidation consolidation efforts through closings and mergers of hospitals and surgical centers the Philadelphia/Delaware market 10 Years Ago: 55 Acute Care Hospitals Currently: 43 Acute Care Hospitals (PHC4: Regions 8 & 9) 5
Philadelphia Healthcare Market Overview Healthcare systems within Philadelphia are looking toward new and innovative ways to survive this marketplace Physician Aggregation Example Tandigm Health Launched in April 2014, Tandigm is an Independence Blue Cross (IBC) joint venture with Davita HealthCare Partners, Inc. (50 50 partners) Designed to help manage primary care physician practices in the Philadelphia area Has signed hundreds of physicians to date Model similar to a traditional health management organization in that IBC spends a fixed amount for each insured person Non traditional difference Tandigmutilizes physiciansascare as care managersvs vs. gatekeeper Hospital Partnerships Jefferson Abington merger plans St. Mary s affiliation with Trinity Health Crozer Keystone seeking partner 6
Aria Health Organizational Overview History: Founded in 1903, Aria Health is a not for profit integrated health system serving diverse communities across Northeastern Philadelphia and Lower Bucks County 485 licensed beds; 3 inpatient facilities Full range of primary and secondary services Strong physician network with 45 physician practices as well as loyal, independent primary care base Primary health system for a service area with a population of 1 million Frankford Campus Torresdale Campus Bucks County Campus Mission: To provide exceptional patient care and customer service to members of the communities served by the Hospitals to recognize a patient s right to considerate and respectable care, regardless of ability to pay. 7
Aria Health Organizational Overview Current and Future Goal: Focus on improving quality care and reducing costs across continuum of care in order to provide Aria Health the privilege of serving its community in perpetuity petu ty as it has since 1903 8
Aria Uniquely Positioned in Philadelphia Unique geography and catchment area 29 zip code service area from Lower Northeast Philadelphia through Lower Bucks County Total population in excess of 1 million Patients prefer convenient access to Patients prefer convenient access to primary and specialty care right in their neighborhood Barbed Wire Effect Strong community relationships and connections Strong balance sheet Comparatively low cost, high value health system Connected rehab, hospice, home care,, p wellness, and LTC capabilities HFMA Conference March 26, 2015 9
Aria Market Share Within the last Fiscal Year, Aria Health has a positive trend in market share 10
Aria Competitive Landscape Among Regional Main Players University of Pennsylvania Health System Jefferson Health System Main Line Health Among Regional Secondary Players Aria Health Temple Health System Einstein Health System Tenet Health System Crozer Chester Chester MedicalCenter 11
Aria Historical Financial Metrics* Days Cash on Hand EBIDA 300 250 200 150 100 50 0 235 249 242 202 149 152 2010 2011 2012 2013 2014 Projected FY 15 illions Mi $80 $70 $60 $50 $40 $30 $20 $10 $ $(10) 2010 2011 2012 2013 2014 Projected FY 15 Total Operating Revenue Long term Debt Millions $460 $450 $440 $430 $420 $410 $400 $390 $380 2010 2011 2012 2013 2014 Projected FY 15 Millions $60 $50 $40 $30 $20 $10 $ 2010 2011 2012 2013 2014 Projected FY 15 *Financial metrics reflect Aria s hospital division 12
Aria Health Navigating Change Perfect Storm Impact: When storm hit, Ai Aria experienced ddirect negative impact on both volumes and financial indicators 13
Aria IBC Inpatient Volume Excluding Impact of Utilization Review 6000 Inpatient Ad dmissions (B Billed) 5000 4000 3000 2000 1000 0 2010 2011 2012 2013 Calendar Year Aria Health has lost more than $120 million in revenue due to declining reimbursements and increased utilization review. *2013 based on Q1 Q3 Q3 annualized. Data based on submitted inpatient claim volume without regard to utilization managementandand related denials. **IBC commercial and Medicare products, excluding other BCBS volume 14
Aria Challenges in the World of Physician Services & Specialty Care In the past few years, Aria Health has been acquiring and employing several physician practices: Over 40 practices employed within Philadelphia and Bucks County Key to population p health and physician integration strategy Necessary, but expensive Added costs related to renting and staffing office space Increase in salary and benefits Physicians drop productivity As a result, Aria is actively implementing cost reduction plans and productivity metrics to better integrate the employed physician model. 15
Aria Health Navigating Change How is Aria Turning the Tide? 16
Aria Partners in Success Aria s Key Stakeholders Most important partners in any successful organizational effort specifically improvement of financial i and quality metrics are key stakeholders including employees (clinical and nonclinical) and physicians (employed and independent) Communicate early and often to ensure understanding and buy in Transparency is key Foster trust and collective commitment to organizational changes that support sustainability and delivery of exceptional healthcare services 17
Aria Impact of Process Improvement Initiatives Over Next 18 Months (in Millions) Process Improvement Initiatives 18
Aria Cash Performance* Cash Compared to Historical $35,000,000, 2013 2014 $30,000,000 $25,000,000 $20,000,000 $15,000,000 July Aug. Sept. Oct. Nov. Dec. Over an $11.5M improvement *Financial i metrics ti reflect Ai Aria s hospital ldivisioni i 19
Aria Journey Toward Population Health Aria Health is: Transitioning its business model from FFS to FFV and diversifying revenue sources Partnering with the PCP network to perform on value-based contracts, assisting with backfilling the decrease in acute care volume Currently earning greater than 75% of available incentives on current valuebased contracts Dedicated to moving toward financial risk in the right model with the right payer and right partners Currently in value-based contracts t with multiple l payers Independently investing in population health services capabilities Lower Per Capita Costs Enhanced Patient Experience Triple Aim * Plus One Population Health Management Physician Satisfaction * Source: Essence Healthcare, The Collaborative Payer New Hope for Medicare and Primary Care, 2008 20
Providers Taking Population Health Risk $ FFS Dollars Valley of Despair Declining FFS revenue Increasing value based revenue P4Q Risk based Dollars Contract Risk Shared Savings Self Funded Employees Exchanges Medicare Advantage Pop pulation Ma anagement Capabilitie es FFS P4P Upside Risk Only Upside/Downside Risk Time Capitation 21
Aria Financial Distribution Aria s Value Based Contracts: One full risk ikmdi Medicare Advantage contract Two shared savings Commercial contracts Total Bonus Potential: $8M Hospital 50%** Physicians 50%** Value Based Dollars IPE s Shared Services Aria s Integrated SS/P4P Lumeris Full Risk Provider Entity (IPE) 6% Care Mgmt. Two payers Technology Commercial/MA Personnel 50% 50% Aria Hospitals (three campuses) Aria Employed Physicians Independent, Contracted Physicians **50% post shared services cost
Aria Early Returns in FFV Model Category Impact Trend Bonus Payments Hospital Volume SS/P4P Contracts: $6M collected over 18 months Full Risk Contracts: First year, trending toward bonus Not negatively impacted; Aria is a low cost, preferred provider Better managing utilization and physician referral patterns Attributed Increase of 4k commercial lives Membership Increase of 2,500 Medicare Advantage lives Medical Cost Lowered Medicare Advantage MCR trend by 7% over 2014 Quality Closed roughly 2,000 gaps in care over Q4 14 Readmissions Lowered potentially preventable readmission rate 8% over Q3/Q4 14
Aria Looking Ahead We explored the best options for Aria and our patients, chose some difficult steps, and took action. The result is stability and signs of progress we didn t have 24 months ago. Aria has come a long way in the last year, but we have a distance to go as well. Future Market Considerations: The cost of providing care rising faster than reimbursements Government challenges continue Patients acting like consumers more than ever before Market continues to change; evolve Everyone is talking to everyone about everything Real and ever present If you re not in creative, strategic discussions, you re behind 24
Aria Looking Ahead The success of Aria s turnaround efforts gives us the freedom to look beyond the next quarter and into the future for Aria. We are currently asking who do we need to be five years from now? 10 years from now? Collaborative, C b i open stakeholder khld relationships will remain key to future strategic planning and ensuring that Aria Health continues to serve its patient community as it has for 111 years. 25