1. Healthcare Realities from the
post Presidential Election
Larry Kloess
Senior Advisor, Clayton Associates
April 2, 2013

2. Healthcare Realities from the post Presidential Election
Larry Kloess, November 15, 2012
1. Healthcare Trends
2. Healthcare Overview: Dissecting the Mess
3. The “New Normal” of Healthcare
4. Larry’s 10 Predictions for Healthcare

3. 10 Trends in Healthcare
• Unsustainable Spending: Healthcare spending is increasing at
7% a year; a rate that is unsustainable in the future.
• Regulatory Pressures: Healthcare regulations are increasing;
PPACA, HITECH Act, meaningful use, Medicaid reform, etc.
• Pressure on Hospital Margins: Hospital revenues are
squeezed thru readmission penalties, HACs, RACs, etc.
• Payment Reform: The healthcare sector is gradually
transitioning to Value Based Purchasing.
• Outpatient on the Rise: Outpatient centers are increasing in
size and scope.

4. 10 Trends in Healthcare
• Shortage of Primary Care: There is a shortage of primary care
docs. Expect to see more NPs and delivery models in the future.
• Pressure on Physician Margins: As practice costs have
increased, reimbursements from Medicare have decreased.
• Shared Risk: Payers and providers are pursuing shared risk
arrangements thru ACOs and new payment models.
• Evidence Based Medicine: Payers are requiring providers to
follow established clinical protocols & standards.
• Creative Innovation: Increase in health technology
entrepreneurship. VC’s $194M invested in 37 HC IT deals
in Q3, 2012 alone.

5. 10 Trends in Healthcare: An Infographic
Source: Visual.ly

6. Healthcare Overview: Dissecting the Mess

7. Cost of Healthcare in the U.S.
The cost of Healthcare in America and its % of GDP is unsustainable.
Source: CMMS & BEA.org Source: Kaiser Family Foundation Source: OECD Stats

8. The Economic Engine of Healthcare
The economic engine of healthcare, in terms of job growth, taxes paid, capital investment, number of jobs,
and technology infusion is huge. Too often, the public sees healthcare as purely a 'cost' to the economy;
rather than a ‘contributor’. But, healthcare is a huge part of our economy and a huge job creator.
Healthcare Industry Jobs
The healthcare industry will
create 5.6M more jobs by 2020.
16.4M Jobs total
11.5% of our economy
projected to grow at 3% a year.
At the occupational level, the
positions with the fastest
projected growth are registered
nurses (expected to add
712,000 jobs), retail sales
workers (707,000), home health
aides (706,000) and personal
care aides (607,000).
Source: Bureau of Labor Statistics

9. Challenges Facing Medicare
Medicare, which is expected to provide health insurance to more than 50 million elderly and disabled
Americans this year, is expected to start operating in the red in its largest fund in 2024, according to the
annual assessment by the trustees charged with overseeing the programs.
Source: CMS.gov report & medicare.gov

10. Clueless about Medicare
The U.S. Population does not understand the link between Medicare and the U.S. Debt.
“The net present value of the transfer — the amount that would have
to be set aside today to fund Medicare’s future intergenerational
promises — has grown to at least $25 trillion, as calculated by the
Government Accountability Office. This number is buried in
footnotes of the annual Treasury-OMB report and is so large (almost
twice the $14 trillion value of all public U.S. companies) that it defies
comprehension. It’s not surprising that Americans can’t relate the
alarming cost of this transfer to their own lives.”
Article:
“Clueless about Medicare” The Public does not want to
face this reality
Source: Washington Post Article: Clueless about Medicare

11. The Future of Healthcare
There are difficult choices ahead for healthcare no matter what strategy is pursued.
Source: Harvard University / Urban Institute

12. The Rise of Obesity
There has been a huge rise in Obesity in the last 20 years. The medical care costs of obesity in the United
States are staggering. In today’s dollars, these costs total about $160 billion per year.
70% of all health-care costs are the direct result of behavior
74% of all costs are confined to four chronic conditions
(cardiovascular disease, cancer, diabetes and obesity)
80% of cardiovascular disease and diabetes is preventable
60% of cancers are preventable
90%+ of obesity is preventable (I.e. Nutrition & Exercise)
Source: cdc.gov, OECD, Brookings, Reuters, Visually, WallStreetJournal

13. The Five P’s of Healthcare
• Patient: Today’s patients are generally older, heavier, sicker, and
out-patient oriented.
• Provider: It’s no longer just the doctor and the hospital.
• Payer: The organization or person actually paying the bill;
in our country it's the employer, government, or employee.
• Purchaser: The broker who negotiates on behalf of the
Payer; essentially, the insurance company.
• Politician: The rule-maker, regulator, surveyor, accrediting
entity, etc. who sets the parameters and priorities for the
sector; everyone in the sector must respond as a result.
• The Public: They are now weighing in on the cost and quality
of the services they receive, and demanding transparency and
convenience from their providers. The Public is creating a
"New Normal" for healthcare delivery.

14. The “New Normal” of Healthcare
Efficiency, Effectiveness, Transparency, Interconnectivity, & Convenience

15. The New Normal of Healthcare: Efficiency
Payers and Patients will no longer tolerate waste, duplication, and inefficiency. If providers
are not embracing Lean methodologies today, it might be too late for them to survive.
Access Case Study: Entrada Health
Costs
Time
Quality Mobile Dictation Platform for Doctors
that integrates with their EHR.
$3M Lead investment from FCA
Venture Partners.

16. The New Normal of Healthcare: Effectiveness
Payers and Patients will demand evidence based medicine and protocols. "Instead of
paying for 10 different hip replacement techniques, we'll pay for the best 3; period.”

17. The New Normal of Healthcare: Transparency
Payers and Patients will demand to see the provider's report card on quality and efficiency.
"Show me!”
Website for healthcare organization ratings , providing ratings and profiles
of hospitals, nursing homes and physicians to
consumers, corporations, health plans and hospitals. The company was
acquired in 2010 for $194M.
Source: CrunchBase

18. The New Normal of Healthcare: Interconnectivity
Payers and Patients will demand medical records and information to be transported
electronically for everyone's benefit. No duplication of effort or work arounds.
Download Your Personal Health Data
One million patients are now registered for
Blue Button, and are using it to access their
personal health records, officials at the
Department of Veterans Affairs announced
in September, 2012.
Source: HealthITNews

19. The New Normal of Healthcare: Convenience
Ease of access for primary care services; no longer requiring several weeks to see a
physician.
ZocDoc is a Doctor appointment booking /check-in service used by about 2M people every month.
The company has raised $95M in Venture Capital investment to scale worldwide.
Source: CrunchBase

20. Larry’s 10 Predictions for Healthcare

21. Larry’s Predictions for Healthcare
1. Primary Care Medicine:
The typical primary care physician's office within the next 5 years will closely resemble a dental practice of
today. Just as you see your dental hygienist, you'll see your nurse practitioner, and then the doctor at the end
of the exam. The focus will be on high volume, with high efficiency and effectiveness.

22. Larry’s Predictions for Healthcare
2. Hospital Transformations:
Sole community hospitals will no longer be independent. Large regional and national
hospital systems will be the norm. Small hospitals will be closed or converted into
24/7 freestanding emergency rooms, with imaging services, OP surgeries, and office
space. All hospitals will either pay tax or an equivalent amount in lieu of tax.

23. Larry’s Predictions for Healthcare
3. Employer Health:
Employers, especially the larger ones, will take charge of their employees' health and create
incentives for a healthier workforce. In the face of rising health benefit claims, the ROI is too
compelling for the employer to not embrace it. Many will focus on the chronically ill within their
workforce - e.g., diabetic employees, obese employees - to give them cash incentives for better
health. Many employers will also install health clinics inside their factories or offices.
Case Study: Safeway Case Study: PharmMD
PharmMD connects patients, physician and
Obesity and smoking rates are roughly 70% of the pharmacists to improve lives and lower healthcare
national average and our health-care costs for four costs through medication therapy management
years have been held constant. technology. Misuse of medications results in $177
This is the beginning of the trend. billion in medical costs, annually.
Source: Wall Street Journal

24. Larry’s Predictions for Healthcare
4. Alignment:
Hospitals, Payers, and Physicians will align under models very similar to Kaiser Permanente,
where the doctors are employed by the hospital, and the hospital is aligned with a given
insurance company. Many insurance companies will actually own hospitals and certain
physician groups; especially primary care practices. "Narrow networks" and "Accountable Care
Organizations" will be the norm, not the exception.
Source: Premier Inc.

25. Larry’s Predictions for Healthcare
5. Value (not Volume):
Success will be determined by the level of value provided to the patient, rather than the level of
volume performed on them. For example, if a diabetic patient is no longer on any medication and
hasn't been to an ER in over 12 months, then that cost savings will be rewarded. If an orthopedic
surgeon produces the very best outcomes for hip replacement (lowest cost, shortest stay in the
hospital, lowest complication rate) then that surgeon will be rewarded with a bonus. Mistakes,
redos, and readmissions will be penalized.
Source: healthonomics

26. Larry’s Predictions for Healthcare
6. iPad World:
Everything will be on the IPad or tablet; i.e., the medical record, IP and OP material, drug store
prescription reports, hospital bill, doctor bill, etc. And, we'll have complete clinical connectivity
with the doctor and the hospital from our own IPad. For example, blood pressure monitoring,
glucose, pulse oximeter, Skype with our doctor, etc., everything will connect into the IPad.

27. Larry’s Predictions for Healthcare
7. Prescription drugs:
Prescription drugs will no longer be advertised to the general public; no different
than tobacco and liquor today. No one needs to know about the purple pill; only the
doctor and the pharmacist need to know about it.
Source: CDC Study & NYT Article

28. Larry’s Predictions for Healthcare
8. Creative Innovation:
Creative innovation which focuses on convenience and value will be the norm, not the
exception. Examples will include texting your physician and hospital (it will be standard practice
in 5 years), voice recognition transcription via iPhone, pharmacy to pharmacy transfer and
interconnectivity of prescription information, and adult day care inside hospitals with Skype
capabilities throughout the day (no different than child care today).
Nimble Medicine Set to Reshape Healthcare
– Dave Chase, CEO of Avado, in Forbes

29. Larry’s Predictions for Healthcare
9. The Healthcare Bubble:
Just as we experienced the housing bubble and the banking bubble just a few short years ago, we will
experience a "healthcare bubble" within 5 years. Especially true among hospitals, as providers continue to
expand their debt obligations through extremely low interest financing, the future payment pressures and
cuts in Medicare reimbursement will cause many providers to fail. Some will be acquired by competitors,
some will be converted to other uses (e.g., 24/7 emergency centers, multi-specialty outpatient clinics), but
others will close; causing a ripple effect across the bond market.
Source: New England Journal of Medicine

30. Larry’s Predictions for Healthcare
10. Military medicine:
As with every major military conflict in our nation's history, the medical and surgical lessons learned from the
battlefield will become quickly deployed in medical schools and healthcare settings throughout the country.
We can expect this to occur within the next 5 years as new techniques for trauma care, pain management,
psycho therapy, medication management, and other new methods for delivering care become incorporated into
the teaching curricula of major academic training centers across the US.
The new Veterans Affairs Medical Center in
North Las Vegas will assist 45,000 veterans. The U.S. military is using acupuncture to treat
The Hospital is a $600 million, 1.3 million- American soldiers, with results that are being
square-foot complex. described as “off the charts.”
Source: Metro West Whole Health & The Last Vegas Sun

31. Closing Thought: Go Watch Escape Fire

32. Healthcare Realities from the
post Presidential Election
Larry Kloess
Senior Advisor, Clayton Associates
April 2, 2013