1. Health Economics & “The Future World of Health Care” Thomas S. Campanella, MA, JD Professor of Health Economics Baldwin Wallace University Of-counsel, Baker Hostetler LLP Central Ohio HFMA March 21, 2014

2. Health Economics & The Future World of Health Care  Using Economics as a framework  Follow the Money  Active Purchasers of Health Care Services  The New Health Care World

3. Using Economics as a Framework  Scarcity  Choices  Opportunity costs

4. Using Economics as a Framework  The optimal use of scarce resources demands innovation & a value-driven focus  Innovation & value starts with an individual and organizational mindset

5. Using Economics as a Framework  A goal of economics is to understand, explain, and predict the behavior of decision-makers (individuals, organizations, government, etc.)  The ability to predict fosters innovation and the ability to meet the current and future value-driven needs of your customer

6. Using Economics as a Framework Adam Smith:  “The pursuit of self-interest is the primary motivator of economic decision-making”  “Guided by the ‘invisible hand’ of the mkt., this self-serving behavior, in turn, serves to promote the interests of others”

7. Using Economics as a Framework  “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” (“Wealth of Nations,” Adam Smith)  Meeting the needs of the customer, the classic “win-win”

8. Follow the Money  A health care system is shaped by what you pay for and how you pay for it (self-interest).  Medicare, the primary architect of our health care system (all eyes to Washington)  A short review of Medicare’s payment policies’ impact on our health care system

9. Follow the Money  Medicare’s payment policies’ impact on our healthcare system & resulting innovations: 1. Cost to DRGs: Inpatient innovations 2. DRGs I/P – Cost O/P: Ignites O/P industry 3. DRGs I/P – The growth of new industries 4. MCOs follow Medicare’s lead (the stakes increase)

10. Follow the Money  Medicare’s future risk-based payment methodologies (bundled payments, value- based & capitation, etc.), which tie in multiple stakeholders will incent: 1. Breaking down the silos 2. Team-based solutions 3. Make vs. buy decisions (innovative partnerships) 4. Innovation and value-driven thinking

11. Follow the Money  Per the CDC, poor lifestyles impact directly or indirectly 70% of healthcare costs (What are the innovative solutions?)  The focus on wellness, prevention & primary care will foster new approaches to proactively meet the needs of the patient  Population health tied to Community Benefit will foster increased collaboration and innovation to meet the needs of the community

12. Follow the Money What has driven our high health care costs? +Self-interest (non-value-driven payment methodologies) + Asymmetric information + Moral hazard (financial & life-style) ______________________________ = High health care costs  Reversing the above high health care cost formula will require innovations and a value driven focus at all levels

13. Active Purchasers of Health Care Services  The transition from Passive Purchasers of health care services to Active Purchasers will foster “real competition” and a more value- based system  Active Purchasing: Setting the stage for the new world of health care that rewards value

14.  Examples of Active Purchasers: 1. Consumers with “skin” in the game (CDHP) 2. Exchanges(Public, SHOP, Private, Medicare?) 3. Self-insured employers 4. Active Purchasing benefit designs: a. Indemnity benefits (caps) b. Value-based c. Tiered networks 5. Payers implementing risk-based reimbursement methodologies Active Purchasers of Health Care Services

15.  Active Purchasing will increase demand for user-friendly cost & quality information (asymmetric information)  User-friendly information combined with the financially engaged consumer and employer sets the stage for value driven competition

16. Active Purchasers of Health Care Services  Competition (self-interest) between suppliers of services to meet demands of purchasers will foster innovation, efficiency and value  Competition takes production out of the hands of the less efficient and places it in the hands of the more efficient – constantly promoting more efficient methods of production  Private sector examples (computers, cars)

17. The New World of Health Care  For-profits aggressively compete and collaborate with providers  The return of the HMOs (provider – MCO)  Health systems contracting with employers  Increased popularity of retail clinics  Major competition in the outpatient arena  Increased role for primary care  Increase demand for cost-quality transparency  Increased lifestyle accountability  Population health tied to tax-exempt status

18. The New World of Health Care  More than enough dollars to reward the Winners who are able to provide perceived and actual value in the health care marketplace  For-profits with resources and the willingness to innovate will play multiple roles  Make vs. buy decisions (creative partnerships)  Changing roles of health care stakeholders  Strategic but nimble

19. The New World of Health Care  Will your organization be a Winner or a Loser in this new world of health care?  A Loser holds on to the past and denies the realities of the future  A Winner not only recognizes this future value- based world, but embraces it  A Winner creates a culture based on value, innovation and the customer

20. Conclusion BE A Winner!!!