3rd Annual Humana Case Competition

Team Sage
Aditya Bhargava

Megan M Bowes
Krasina Koleva Nathan Vafaie

30 September 2013

Agenda

Medicare market share Humana overview

Applications of technology to better manage chronic conditions

Proposed strategy for Humana Implementation plan Financial analysis

Executive Summary
Chronic conditions are helping drive a rapid increase in healthcare costs
Healthcare costs are rising at a rate faster than that of national economic growth 20% of people generate 80% of healthcare costs Chronic conditions serve as a main driver of healthcare costs Medicare affiliated programs account for the vast majority of Humana revenues In the coming years, Medicare is expected to increase significantly in market share

There is an increasing need to lower healthcare costs by better managing chronic conditions

A better health outcome at a lower cost can be achieved through improved prevention and management of chronic conditions Pressure on insurers to better manage chronic conditions is increasing Increased patient engagement in their care has been shown to help achieve a better health outcome at a lower cost

How can Humana achieve a better health outcome at a lower cost by enhancing patient engagement?
Secure internet portals will enable patients to access information in their EHRs, personal health records, patient-provider secure e-mail messaging, personal monitoring devices, mobile health apps, and internet-based resources for health education, information, advice, and peer support The clinical information gleaned from the product will be remotely monitored The product will feature numerous feedback mechanisms between providers and patients Premium reduction financial incentives will be tied to meaningful use of the product by patients

Technology can be utilized to implement a multi-functional evidence based patient engagement program

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Growth in the number of eligible beneficiaries will help drive an increase in Medicare market share.
Inpatient volume by payer class
2011
5%

2021
1%

37%

27% 52% 20%

35%

22%
Medicare Medicaid Medicare Medicaid Commerical Self-pay

Medicare will serve as the payer for 52% of inpatients by 2021, a 15% increase from 2011 All the other payer class segments to witness a decline

Source: Health Care Advisory Board, 2011

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Medicare is responsible for nearly 78% of Humanas total revenues

Insurance type % of overall Revenues
69.8% 13% 7.9% 2.9%

% of enrollment

Growth in enrollment (2012 2013)

8.4% -0.1% 8.4% 10.5%

Average annual premium

$11,167 $4,254 $960 $1,985

Medicare Advantage Employer full-risk Medicare Part D Individual full-risk

32.6% 15.9% 42.9% 7.6%

Medicaid full-risk
Other

0.8%
5.6%

0.9%

51.8%

$4,278

Revenue generated / enrollment - highest for Medicare Advantage. Employer full-risk the only segment that recorded negative growth between 2012 and 2013.

Source: Analysis, Quarterly report, 10Q, June 2013

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Growth in enrollment likely being driven by attractive premiums

% Change in Average Humana Premium, June 2012 June 2013

Medicaid

9.3

Individual

3.3

-3.1

Medicare Part D

Employer

2.3

Medicare Adv
-4 -2 0

1.3

10

Source: Team Sage Analysis

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

To continue its growth momentum, Humana needs to enhance patient engagement in order to achieve a better health outcome at a lower cost
Two-pronged strategy to enhance patient engagement

Target current beneficiaries

65+ population is the primary market, with an emphasis on high cost beneficiaries Create an internet based portal to engage patients, families, their representatives, and health professionals on a single platform that can be accessed via an app

Preventive and healthcare interventions

Target 50+ population

Disease awareness and brand building initiatives

Long-term vision attract customers aged 50 years and above as potential future customers

There is a dramatic increase in per capita health spending as people age, Humanas beneficiaries are disproportionately 65+ patients Hence, the 65+ population (with an emphasis on high cost beneficiaries) represents the population that has the most potential to benefit from improved patient engagement with Humana

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Hire a 3rd party developer to enhance an already existing Humana program

Have a 3rd party developer create the app

Relatively low cost option that takes on little fixed costs or risk

Enhance the Humana Fit app instead of starting a new project

Humana already has a number of apps intended to enhance beneficiary health

App industry has low barriers

to entry and is highly

competitive, leaving few financial incentives for designing an app in-house

Enhancing an already existing app allows for an immediate market for the new enhanced version, an enhanced product brand, and an established product to work from

Low switching costs: can hire another third-party vendor, if required

Healthcare internet portal development is a rapidly developing highly competitive field that is not the focus of Humanas core business. Hiring a third party to develop the program will strategically position Humana to receive the benefits of technological advancement with relatively little risk

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Our Recommendation: Create a multi-functional mobile program that enhances active partnerships with patients
Use of social networking platforms to improve the quality of care for chronic care patients. Drug schedule reminders and periodic assessment of patient adherence

Social media

Use of educational videos and other online material to improve patients health literacy

Medication adherence Remote patient monitoring Clinical interventions

Health literacy

Numerous applications of the product

Patient health monitoring done remotely by doctors and medical staff of the provider

Managing the disease

Evidence-based population target for post-care maintenance and management

Lifestyle interventions

Assist patients in their health decisions

Support healthy lifestyle choices

Source: http://www.techandaging.org/briefingpaper.pdf

Strategies that allow for patient and family engagement at various levels across the health care system have a greater potential for success
Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

A three-staged approach should be deployed to make this product a success

Pre-Launch Patient Preparation

Rollout of core capabilities

Post Launch Analysis

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Pre-launch: Improved patient engagement starts with increasing patients knowledge and understanding their condition
Improve Health literacy
Culturally and linguistically appropriate text materials and videos concerning the patients condition can be utilized

Measure and reward success

Video use can be tracked Health literacy can be assessed and relevant support can be provided at clinical appointments

Encourage patients to
determine their own goals for behavior change and improved health outcomes Instruction for product use

Video use can be tied to patient

financial incentive program

can be provided

Appropriate pre-operative and pre-discharge information, e-learning programs and virtual support, and well-designed printed and electronic information materials can help improve patient knowledge, healthcare quality, and eliminate healthcare disparities
Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Core functionalities: supporting better lifestyle choices, clinical engagement, and medication adherence will improve outcomes
Connecting to patient community
Product has capability to connect patients with peers or support groups specific to their condition Option to view filmed interviews or attend online workshops to help patients understand their conditions and clinical options

Connecting to clinical support

Clinical data recorded on program is transmitted to provider Disease management - send appointment reminders - patient decision aids: have

Allowing for feedback

Nurse practitioners can be used to proactively contact poorly managed patients to provide comprehensive preventive advice in a reliable affordable

easily accessible medical

information available Connects to support network of providers that can help enhance personalized care

manner
Patient data management to measure the outcomes of care, assess utilization of the program, and improve medication

planning

adherence

Ongoing assessments and monitoring, medication adherence support, patient education, promotion of healthy choices and social engagement, and self-management coaching provide a holistic approach to enhancing patient engagement
Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Post-launch: Long-term data feedback should allow for a greater understanding of patient needs and strategic efficacy
Clinical feedback
Nurse practitioners follow-up

Financial incentives
Process measures like medication

with patient to ensure

adherence to personalized care plan Primary care physician receives monthly updates on patients Patient data can be compared before and after use of the product to assess efficacy

adherence can be tied to

financial incentives Continuing to follow established care plan can be linked to financial incentives

Strong incentives and analysis of information gained from use of the program must be utilized to improve clinical outcomes now and moving forward
Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Post-launch: the Patient Activation Measure is an evidence-based survey method the product uses to assess patient engagement

Source: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361049/

The Patient Activation Measure survey assesses the knowledge, skills and confidence integral to managing one's own health and healthcare. With the ability to measure activation and uncover related insights into consumer self-management abilities, care support and education can be more effectively tailored to help individuals become better self managers.

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Challenges of this approach can be overcome with careful planning

Risk
People aged 65+ wont use an internet based product or are not

Mitigation
Several studies indicate that age, education, and income levels are not accurate indicators of patients willingness to

acquainted with technology

adopt technology for better health outcomes*

Use of technology prevalent among patients suffering from chronic diseases

Data protection

All members need to create login protection for using the product Implement IT best-practices to ensure data security

Potential for patients to incorrectly self-diagnose Competition from other internet based products

Educate customers and patients that the product is for post-diagnosis education and management only This product leverages multi-functional, cutting-edge evidence based practices in a novel one-stop program

*Source: Online social networking by patients with diabetes: a qualitative evaluation of communication with Facebook. J Gen Intern Med. 2011

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Proper implementation of this project will require detailed data gathering, analytics, testing, measurements, feedback, and enhancements
Product Development (Six months) Program Enhancements Measure performance (year 4) Measure performance (year 6)

Pilot (1.5 years)

Introduction to patients (in year 3)

Measure performance (year 5)

4 Measure performance 3 App enhancements

Phases
Collect

feedback and

2 Pilot initiation 1 Design and develop

Product
Select 1000

Modify program based

on

measure performance on yearly basis

patients for

patient feedback
Introduce

design and

pilot program
Create

to all patients

Milestones

development
Use Predictive

baseline data and

analytics

compare with subsequent

outcomes to measure performance after use

to select the sample patient population

Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Creation and use could lead to an average savings of 9.4%

Annual increase in Humana benefits expense between 2006-2013: Average: 9.4% Median: 7.5% Total Humana benefits expense over the next 5 years at current median rate of cost growth: $203.385 billion Potential Savings
Reduction of cost growth by 0.5% Reduction of cost growth by 1% Reduction of cost growth by 2.5%

Assumptions
Pessimistic Moderate Optimistic

Cumulative Cost Over 5 years (approx.)

$203.356 billion $203.326 billion $203.237 billion

Cumulative Savings over 5 years (approx.)

$29 million $59 million $148 million

Using this product would not only result in better health outcomes, it would also result in enormous savings for Humana. Though development and use of the product would increase SG&A costs, a potential decrease in cost growth could lead to cheaper premiums relative to competitors and a subsequent increase in market share

Appendix

Chronic disease prevalence is expected to increase significantly in the next decade

Estimated cases in 2023 (thousands)
Stroke Cancers

Diabetes
Heart disease Mental disorders Hypertension Pulmonary conditions
0 20,000 40,000 60,000

Increasing disease burden resulting in rising

healthcare costs and reduced productivity

20% of people drive 80% of healthcare costs*

*Source: Statistical Brief #73. March 2005. Agency for Healthcare Research and Quality

Projected annual Healthcare costs* ($ trillions)

6 4 2 0 2013 2023 * Includes productivity losses, which account for 70% of costs 2.48 4.15

Healthcare costs in 2023 ($ billions)

Treatment expenditures 790 Lost productivity 3,363 Total (2023) 4,153

Source: Study by Milken Institute

A better health outcome at a lower cost can be achieved through improved prevention and management of chronic conditions.
Executive Summary | Chronic Conditions | Humana | Technological Applications and Strategy | Implementation | Financial Analysis

Estimated Per Capita Health Expenditures, by Age and Sex, 1995

Source: From Baby Boom to Elder Boom: Providing Health Care for an Aging Population. Copyright 1996, Watson Wyatt Worldwide.

Humana Benefits Expense

Humana Expenses: Benefits Cost Growth (Past and Projected) 50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2006 2008 2010 2012 2014 2016 2018 Year
Source: Analysis, Annual report 2012

Benefits Expense ($)

Comparative Financial Ratios, 1st Half of 2013

WellPoint Revenue growth Net profit margin Medical care ratio (MCR) SG&A as a % of revenue Return on assets Return on equity Days in accounts receivable Days in medical claims payable Current ratio Interest coverage 15.1% 4.7% 83.8% 13.6% 5.7% 13.7% 22.5 United Healthcare 11.4% 4.3% 82.1% 15.5% 6.6% 16.7% 11.1 Aetna 18.7% 4.9% 82.3% 18.2% 4.2% 15.2% 15.4 Humana 4.5% 4.3% 83.2% 14.0% 8.9% 20.2% 14.1

40.9 1.80 9.6

48.5 0.78 14.7

57.8 0.88 11.4

46.7 1.87 23.1