Co-opetition

Sean Hartzell, Associate Principal, ECG

September 22, 2017

Learning Objectives

» Define co-opetition.

» Understand the market forces converging in healthcare in order to foster an environment conducive to co-opetition.

» Describe examples of co-opetition in healthcare and other industries.

» Discuss value-nets and how they help identify co-opetition opportunities.

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Today’s session will focus on the concept of co-opetition. By the end of the session, participants will be able to:

Increasing Role of Government in Healthcare

» ACA regulations on insurers:

› Guaranteed coverage for enrollees

› Mandate requiring individuals to be insured

› Regulations on premium pricing

› Mandates on minimum levels of essential benefits

» Medicare Access and CHIP Reauthorization Act:

› Physician legislation from 2015 tying payment amount to performance and value

› Includes many of the same quality and reporting requirements as PQRS, VBM, and meaningful use

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156 Million

Approximately half of the U.S. population will receive healthcare coverage through a government program or exchange by 2020.

Serving as the largest single-payor organization in the United States, the government continues to play an increasing role in healthcare by influencing care delivery transformation and driving new payment models.

Source: http://www.center-forward.org/wp-content/uploads/2012/04/Medicare-Medicaid-and-the-Military-04-12-update-2.pdf.

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Marquee Payors Are Placing Bets

Continued Push toward Value-Based Care

3

HHS Shift to Alternative Payment Models

HHS announced concrete targets for Medicare reimbursement delivered through alternative payment models.

Value-based care is coming quickly, and the pressure is on to adapt.

75%

50%

75%

$65 Billion

of Medicare Advantage membership in value-

based models by

2017

of Medicare payments by

2018

in payments tied to value-based

models by

201820% 50%

in payments tied to membership in value-

based models by

2020FFS with No Link to QualityAlternative Payment Models

2014 2018

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Following the government’s lead, the highly consolidated private payor base is increasingly shifting to value-based payments and alternative payment models.

Transitioning to New Payment Models

4

Providers will need to operate under an evolving payor dynamic; care delivery transformation will need to be appropriately paced with the transition to financial risk.

Leading with Care Delivery Transformation» Quickly invest resources into coordination and integration.

» Implement rapid improvement cycles to prove the concept.

» Quantify and capitalize on wins for value-based payments.

Risks» Payors benefit from the free-rider effect and have no

incentive to negotiate mutually beneficial terms.

» Care delivery transformation reduces utilization, putting financial performance at risk.

Leading with Payment Transformation» Analyze and estimate risk thresholds.

» Secure greater market share through risk-based contracts.

» Transform the care delivery model with cost targets based on the estimated risk thresholds.

Risks» Care delivery transformation efficiencies may not be

realized, and the organization may suffer from the downside risk.

Clin

ical

Tra

nsf

orm

atio

n

Payment Transformation

Missed revenue opportunity or

financial loss from reduction in volume

Financial loss through downside

risk

No financial loss, but limited preparedness

for movement to value

Payment aligned with improvements

in quality and reductions in volume

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Developing a Full Continuum of Care

5

Comprehensive Physician Services» Distribution, scope, and size of a provider network

» Level of access to providers across the continuum of care (e.g., tertiary, subacute, post-acute care providers)

» Ability to provide additional access through contractual relationships (if necessary)

Coordination of the Delivery Network» Utilization of multidisciplinary clinical teams to

provide comprehensive care (formal or informal)

» Development of and compliance with standardized, evidence-based clinical protocols that span across care settings

» Willingness to engage with other providers and transfer information and data to optimize patient care

The future environment will require a delivery network that is reasonable in size, adequate in scope, and sufficiently coordinated for its defined populations.

Primary and Specialty

Care

Ambulatory Care

TertiaryCare

Post-Acute Care

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Lead, Follow, or Get Out of the Way

6

Competitive Advantage

Healthcare leaders must be flexible, strategic, and constantly exploring new approaches to providing, paying for, and managing healthcare delivery.

Explore New Market Opportunities

Capture Consumer Preference

Drive Competitive Differentiation

Shape the Solutions of the Future

Develop Expertise to Manage Risk

Capitalize on Potential to Be the Industry Leader

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Hospitals/health systems and physicians will be challenged to take risks and explore new

models that may completely shift how organizations look and operate.

Co-opetition

Co-opetition takes place when firms collaborate to increase the total value that they can then individually capture. An organization may be motivated towardco-opetition in order to:

Source: Ritala, Paavo, "Coopetition strategy–when is it successful? Empirical evidence on innovation and market performance," British Journal of Management 23.3 (2012): 307–324.

Protect the share of the market they have been able to capture and to conquer a larger share of what remains.

Use fewer resources, or use current resources more efficiently, in serving the share of the market.

Increase the size of the current market or create totally new ones.

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Co-opetition Can Yield Positive Outcomes

Who are the players in my network? How can we collaborate with them to maximize value?

Amazon and Microsoft announced they will cooperate in voice computing,

allowing their digital assistants to work with each other. (WSJ, August 31, 2017)

Uber and Toyota announce new leasing options that will allow Uber drivers to lease their vehicles from Toyota and cover their payments through their generated earnings. (Time, May 24, 2016)

GE and Intel form a new healthcare joint venture, Care Innovations, focused on telehealth and independent living. (August 2, 2010)

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Co-opetition in Economics

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Source: http://www.investopedia.com/university/economics/economics2.asp.http://www.economicsonline.co.uk/Global_economics/Comparative_advantage.html.

In macroeconomics, the production possibility frontier (PPF) represents the point at which a company’s economy is most efficiently producing goods and services. However, this may lead to an overall inefficient allocation of resources when factoring in the benefits of trade.

Country B should specialize in producing trucks, leaving Country A to produce cars.

When the PPF shifts outwards, we can imply that there has been growth in an economy.

Value-Nets Are Ripe for Co-opetition

Source: Porter, Michael, "The five competitive forces that shape strategy," Harvard business review 86.1 (2008): 25–40.

Competitors Company Complementors

Customers

Suppliers

» Customers: These are the people who buy a product or service.

» Suppliers: These provide your organization with the resources you need to produce a saleable product. (Keep in mind that suppliers can be outside organizations or a company’s own employees.)

» Competitors: Competitors take a share of a company’s target market by offering a similar product or service.

» Complementors: These are other players who provide a product or service that can be linked to the company’s in order to make both offerings more attractive to customers.

Co-opetition uses competitors, complementors, and suppliers to improve a company’s position with customers.

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Co-opetition in Healthcare

With the passage of the Affordable Care Act and the adoption of value-based payment models, hospitals and healthcare systems are being challenged to improve the health of the communities they serve.

Source: Ritala, Paavo, "Coopetition strategy–when is it successful? Empirical evidence on innovation and market performance," British Journal of Management 23.3 (2012): 307–324.http://www.hpoe.org/Reports-HPOE/2016/creating-effective-hospital-community-partnerships.pdf.

Example Goal

Clinically Integrated Networks To improve the overall health and well-being of the community.

Accountable Care Organizations To deliver high-quality care and spend healthcare dollars more wisely

Centers of Excellence To offer a comprehensive set of services, in response to need for disease-based management

Everyone can make a bigger impact if they work collaboratively rather than independently.

- Robert Wood Johnson Foundation, Community Partnerships to Build a Culture of Health

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As providers prepare for value-based reimbursement, further collaboration among providers and with payors through innovative alignment models has become a key strategic trend.

ISSUE SOLUTION(to scale)

Growing Operating

Costs

Mounting Regulatory Mandates

Declining Reimbursement

Changing Payment Models

» Increased collaboration

» Horizontal integration

» Vertical integration

» Increased purchasing power

» Coordinated services

» Cost cuts

Clinical Affiliations

Regional Collaboratives

Accountable Care Organizations

Clinically Integrated Networks

Mergers or Acquisitions

Source: 2015 AHA Environmental Scan.

Provider Collaborations

Providers and Payors Becoming One (Vertical Integration)

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In response to these market factors, we see one of the following happening: (1) providers and payors becoming one or (2) providers and payors choosing to work together.

Providers and Payors Working Together (Integration Among Competitors)

How CHI is building and buying its own insurance plan (March 27, 2013)Could purchasing a payor now save money in the future?

WSJ: Why hospitals are launching insurance plans (December 17, 2012)20% of hospital leaders intend to market an insurance plan.

New Philadelphia collaboration promotes innovation in healthcare (May 27, 2015)Eight Philadelphia-area institutions are coming together in an initiative aimed at making the region a global leader in healthcare innovation.

Introducing Anthem Blue Cross Vivity (September 17, 2014)Anthem Blue Cross partners with seven L.A. and Orange County health systems to launch Vivity, a new offering that uniquely aligns care.

Aetna and Inova Health System establish health plan partnership in Northern Virginia (June 22, 2012)

Independence Blue Cross and DaVita HealthCare Partners announce joint venture (April 8, 2014)Tandigm Health’s innovative coordinated care model provides higher-quality care, lower costs.

UnitedHealthcare expanding telemedicine to reach 20 million members (May 15, 2015)

UnitedHealthcare sets aside$5 billion for acquisition of physician practices (June 2016)

Emerging Trends

CHI Franciscan Health partners with urgent care operator CityMD to open new clinics in the Pacific Northwest (February 16, 2016).

Providence provides eICU to medical centers in three Alaskan cities (March 6, 2012);

Overlake Medical Center and Evergreen Health formed Eastside Health Alliance to collaborate in cardiac, neuroscience, and

thoracic surgery (January 18, 2017).

Improving Competitiveness

Risk and Cost-Sharing

Ensuring Interoperability

Mayo Clinic Care Network allows partner health systems in the United States, Puerto

Rico, and Mexico to connect directly with Mayo Clinic specialists for input (2011).

CHI created post-acute care continuing care networks of preferred SNFs in each of its

markets to support joint-replacement bundled payment initiatives (2013).

The potential increase in care value from co-opetition can result an increased ability to gain scale and efficiencies, as well as increased presence in the market.

Co-opetition in Practice

Mechanisms Examples

Integration of Resources

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Fragmented Health Systems

Pediatric Care’s Co-opetition Grid

Low Competition in Pediatric

Care

High Competition in Pediatric

Care

Dominant Integrated Delivery Networks (IDNs)

Alignment with an IDN or larger health system

essential for viability

Fragmented pediatric care; fierce competition may deter consolidation,

but market is ripe for various alignment

opportunities

Competition and fragmentation in high-profitability, low-acuity pediatric cases; threat of nonlocal pediatric

care entry

Limited threat to dominant pediatric player;

limited incentives for partnerships

Understanding the dynamics of the market can aid in choosing the model that would best strengthen a company’s position.

Source: http://www.ecgmc.com/thought-leadership/articles/co-opetition-the-key-to-maximizing-the-value-of-childrens-healthcare.

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Pediatric Markets

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Seattle, WAAtlanta, GA

San Francisco, CATampa, FL

Houston, TXJackson, MS

Richmond, VAMinneapolis, MN

Fragmented Health Systems

Low Competition in Pediatric Care

High Competition in Pediatric Care

Dominant IDNs

Seattle Children’s

Seattle Children’s Hospital is a pediatric specialty care and research hospital that experiences low competition in pediatric care within a market dominated by a few IDNs.

Competitors Complementors

Customers

Suppliers

» Mary Bridge Children’s Hospital

» Providence-Swedish

» Kaiser Permanente

» University of Washington

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East Coast Neurosciences Institute

Right Care Right Location Right Time Right Price Right Providers and Leadership

Guiding Principles

East Coast Neurosciences Institute will be the preferred neurosciences provider by delivering high-quality, coordinated, and accessible care.

Vision StatementVision Statement

Develop an integrated regional care network in collaboration with partners to deliver coordinated, accessible neurosciences care across the continuum.

Strategic DirectionStrategic Direction

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In order to achieve the vision and direction laid out for East Coast Neurosciences, the organization needs to maintain focus on a few key guiding principles.

Guiding Principles

Principle Description

Right Care» Ensure the most fundamental needs of patients are considered.

» Implement evidence-based care protocols to ensure all patients receive the highest-quality care across the neurosciences continuum.

Right Location» Provide appropriate care at the local level.

» Transfer only when necessary.

Right Time» Provide consistent neurosciences coverage at partner hospitals.

» Proactively manage emergent cases to ensure high-quality outcomes.

Right PriceDeploy evidence-based protocols to reduce unnecessary testing, transfers, and procedures to lower the overall cost of care through the creation and sharing of a robust data repository.

Right Providers and Leadership

» Share leadership between organizations, recognizing the value that each brings to the table.

» Engage physicians to provide consistent, active management of neurosciences across partner organizations.

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East Coast Neurosciences and Y Health System will develop a multifaceted relationship focused on providing leading-edge neurosciences services to the community.

The Relationship

Name Description Proposed Fees

Professional Services

East Coast Neurosciences shall provide inpatient and outpatient professional clinical services to Y Health System.

East Coast Neurosciences will bill and collect for all professional services performed at Y Health System facilities.*Out of Network

Service Line Management

» Management and oversight of Y Health System’s neurosciences service line will be provided through:

› Medical directorships.

› Governing council leadership.

› Use of standardized care protocols developed by East Coast Neurosciences.

› Consistent data analytics related to quality of care, etc.

» Y Health System will compensate East Coast Neurosciences using fixed and incentive payments.

A management fee will be set in advance and split between base (fixed) and incentive (at-risk) payments.

Call Coverage

» East Coast Neurosciences shall provide 24-hour unrestricted call coverage (i.e., on site within 30 minutes of request).

» East Coast Neurosciences shall provide neurosurgery on-call services to the emergency department (ED) and inpatient consultations at the request of physicians on Y Health System’s medical staff.

Current call coverage will be compensated at a fixed rate per 24-hour period. Future coverage fee is dependent on changes in surgical capacities.

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Under this agreement, East Coast Neurosciences physicians would be compensated for overseeing the clinical management (e.g., medical directorships) of neurosciences through base fixed payments, as well as incentive payments contingent upon performance.

Service Line Management

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Y Health System

Fixed (Base)/Variable Payments

Representation Representation

NeurosciencesGoverning Board

Medical Directorships, Management, and Oversight

Neurosciences Service Line

East Coast Neurosciences

Responsibilities include:

» Clinical quality oversight and enhancement.

» Patient experience.

» Operational improvement.

» Program development.

» Formation of a neurology/cardiology collaboration.

Y Health System

EqualRepresentation

EqualRepresentation

GovernanceCouncil

Neurosciences Service Line

East Coast Neurosciences

Quality and Utilization

Review

Operational Efficiency

Satisfaction and

Experience

Financial Planning

Budgets(annual Y Health System and operating)

Expenditures (>10% over amounts budgeted)

Billing and Collection Policies

Payor Contracts(approval of terms)

Scope of Services

Planning Objectives

Management Policies

Staffing Needs(number and type)

Quality Measures

Performance Objectives

Patients and Staff

Referring Physicians

Key Areas of Focus1

Subcommittees Subcommittees

1 The Governance Council needs to review and approve decisions and recommendations made by each subcommittee within its specific areas of focus before implementation for the neurosciences service line. In any and all events, Y Health System will retain sole and exclusive control over matters specifically reserved to it pursuant to licensure regulations, accreditation requirements, payor reimbursement policies, and laws governing charitable organizations and referrals relationships.

Service Line Governance

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East Coast NeurosciencePartnership Structure

East Coast Neurosciences

Governance Council

Neuroscience Service Line

NeuroscienceService Line

Neuroscience Service Line

Neuroscience Service Line

Hospital D

Hospital F

Z Health System» Y Health System» Hospital A» Hospital B

Hospital C

ED Coverage

ED Coverage

Governance Council

Governance Council Governance

Council

ED Coverage

ED Coverage

Neuroscience Service Line

Hospital E

ED Coverage

Governance Council

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East Coast Neurosciences physicians are the preferred neurosciences providers serving partner organizations.

Clinical Services Distribution

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Locations Where Neurosciences Services Will Be PerformedService Hospital C Y Health System Hospital B

Neurosurgery

Primary Coverage Yes Yes Yes

Tertiary Services Yes Yes

Quaternary Services Yes

Spine Surgery

Neurospine Yes Yes Yes

Neurology

Inpatient Yes Yes Yes

Outpatient Yes Yes Yes

Pain Management

Inpatient Yes Yes

Outpatient Yes Yes Yes

Rehabilitation

Inpatient Yes

Outpatient Yes

Cardiology

Inpatient Yes

Outpatient Yes

Co-opetition Considerations

Who are the players in my network? How can we collaborate with them to maximize value?» Distribution, scope, and size of a provider network

» Level of access to providers across the continuum of care (e.g., tertiary, subacute, post-acute care providers)

» Ability to provide additional access through contractual relationships (if necessary)

Which relationships are complementary in nature? » Gaps in these health systems where we can add or maximize value

» Current challenges that can be potentially resolved through a co-operative model

What co-operative models can we develop within our service area, statewide, regionally, and nationally?

What is the incremental value we can create together, that we or our potential partner cannot create alone?» Increase in volume, increase in revenue, higher-quality outcomes

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In Conclusion: A Success Story

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Being disrupted is one of the biggest risk factors investors should watch for.

With Amazon building out its own delivery infrastructure and growing its online retail market share, it may appear that UPS and FedEx are going to

be disrupted by one of their biggest customers.

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Questions Discussion

about ECGECG partners with providers to create the strategies and solutions that are

transforming healthcare delivery. With over 40 years of service to the

healthcare industry, we can help your organization thrive in a value-based

world.

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