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Health Strategy Partners
Focus on Performance
SLEEP 2014
WHAT TO EXPECT – HOW TO PREPARE
The Business of Sleep
October 29 & 30
Bear Mountain, NY
Terry Crabtree
Managing Partner
Health Strategy Partners
Health Strategy Partners
Focus on Performance
10/16/2013
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Health Strategy Partners
Focus on Performance
2013 GENERALLY AS PREDICTED
2013 LOOKING FORWARD
2013 LOOKING BACK
 Adjusting to expectations of slow
growth to no growth
 Most providers experienced
declining volume
 Sleep Benefits Managers (SBMs)
 SBMs tough, Care Centrix toughest
 Competitive bidding
 CBR2 reimbursement by 45%
 Aggregation of PCPs
 >50% of PCPs are now employed
 Rapidly growing number of ACOs
 ACOs growing at an increasing rate
 Around 3,700 sleep labs in the
US
 < 3,000 sleep labs
 NovaSom & WaterMark troubled
10/16/2013
3
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UNCERTAINTY RULES
Focus on Performance
LOOKING BACK AT 2013 PREDICTIONS
LABS CLOSING , AT RISK TO
CLOSING & MERGING
A SENSE OF INEVITABILITY
•
 Total Sleep Holdings – 12/2011
–
–
80 labs
New England, Southeast, Midwest, Louisiana,
Texas & Arizona
 Sleep Health Centers - 1/2013
–
–
Lawrence Epstein MD, CMO, Sleep Health Centers
•
39 labs
New England & Arizona
 Who’s Next
–
–




Graymark
Billy Bob
“Sleep Health Centers has shut down three of
its 15 sleep labs, and more closures may be
on the way.. The key, he says, is to become
more efficient without decreasing access to
care for patients who need it.
Lawrence Epstein MD, CMO, Sleep Health Centers
•
SleepMed /Watermark merge 3/13
NovaSom replaces CEO 7/13
Sleep team leaves MedSolutions
Care Centrix strengthens
10/16/2013
“Labs have already experienced a 20% percent
drop in the number of patients coming in for
testing. While the past decade was focused on
industry growth, it's now going to be about
consolidation and provision of better quality,
more efficient care.“
“… I am seeing sleep centers close all around
me. We have closed 7 centers since the first
of the year. …The "bread and butter" (garden
variety sleep apnea) of once profitable sleep
centers is now gone. The paradigm has
officially shifted, and it is up to us to figure out
how to change with the times. “
CMO of GrayMark
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Health Strategy Partners
2014 – STRAP ON YOUR SEAT
BELT, THE RIDE CONTINUES
Focus on Performance
• SBMs expand to ASO
accounts
• SBMs expand oversight
– Document compliance
– Fraud
• SBMs dilemma –
share IDTFs
OCST
• Dealing with CBR2
• Truckers testing
volume grows
• Dealing with
healthcare reform
• Shifting SBM focus
– Oncology, AIM
– Profitability, MedSolutions
10/16/2013
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MULTIPLE FACTORS AFFECTING
SLEEP ENVIRONMENT
Focus on Performance
- Soft Economy
- Increased Cost Shifting to
Patients
- Decreasing FFS Payments
+ Expanded Coverage
+ Quality Focus
Patient Experience
Clinical Outcome
Cost
- Rewards Scale
+ Encourages Coordination
of Care Across
Continuum
Consequences
+ More patients
- More patients say no
Healthcare
Reform
- Benefits Managers
- Competitive Bidding
- Relative Lack of Importance
+ /- OCST / HST
+ Trucker volume
10/16/2013
Environment
+ Consolidation of referring docs
- Consolidation of labs
+ Payor decisions localized
- Favors labs affiliated with
systems
+ Volume per lab increases
- All the volume increase is
OCST
Sleep Factors
+ Rural areas are least affected
- You may not be rural
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Focus on Performance
THE FUTURE – SHOULD YOU DECIDE
TO PARTICIPATE
• 1,000 fewer labs by 2015
• Down from peak of 3,700 in 2009
• Total volume / lab increases
• reaching levels last seen in 2007
• All volume increases are OCST
• how to make a profit
• Average revenue / lab increases slightly
• approaches 2009 levels due to volume increases
• Average $ / study declines
• due to combination of decreasing FFS payments and shift to OCST
• Rural areas continue to support independent labs
• much harder in metro areas due to health system dominance
• ACOs & value based pricing >30%
• the whole world flips
10/16/2013
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Health Strategy Partners
Focus on Performance
ESTIMATED SLEEP MARKET STUDY VOLUMES AND REVENUES
Total Studies
In Lab Studies
OCST Studies
$ Volume
3,500,000
$5,000,000,000
$4,500,000,000
3,000,000
$3,931,514,303
Number of Sleep Tests
2,500,000
Estimated Annual Retail Revenues
$4,000,000,000
$3,500,000,000
$3,013,474,370
$3,000,000,000
2,000,000
$2,882,594,166
$2,500,000,000
1,500,000
$2,000,000,000
1,000,000
500,000
HST Proj Mkt
Share
2011 - 5%
2012 - 15%
2013 - 30%
2014 - 40%
2015 - 47.5%
2016 - 50%
-
$1,500,000,000
$1,000,000,000
$500,000,000
$-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10/16/2013
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Health Strategy Partners
Focus on Performance
Affect on Total Studies As OCST Share Increases
Total Studies
Inlab Studies
OCST
Linear (Inlab Studies)
Linear (OCST)
3,000,000
As OCST share increases to 50% of the diagnostic studies, in lab studies decline by
≈1.4 million / yr. while OCST volume grows to ≈ 850K / yr. The net revenue effect to
sleep labs is a loss of just over $1B resulting in the closing of nearly 1,000 sleep labs.
2,528,869
Estimated Number of Sleep Studies Performed Annually
2,500,000
2,232,806
1,949,079
2,000,000
1,720,864
1,492,649
1,500,000
1,264,434
1,000,000
770,997
616,797
462,598
500,000
308,399
154,199
0
0
100%
10/16/2013
90%
80%
70%
Share of Inlab Studies (PSG & Titration Studies Combined)
60%
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50%
9
Health Strategy Partners
Focus on Performance
ESTIMATED SLEEP MARKET NUMBER OF LABS AND VOLUME PER LAB
No. of labs
In Lab Studies / lab
OCST Studies / Lab
Total Studies / Lab
4,000
1,000
894
900
3,500
835
796
3,000
763
Number of Sleep Tests
708
2,500
670
666
800
756
816
778
689 678 701
729
689
700
683
668
663
Estimated Annual Retail Revenues
823
655
646
600
620
585
576
596
2,000
500
400
1,500
298
300
259
1,000
212
Assumes that by 2017 50% of all OCSTs will be
performed by local sleep lab companies
200
136
500
100
55
-
1
2
5
23
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10/16/2013
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Health Strategy Partners
Focus on Performance
SBMS EXPAND TO ASO CLIENTS
WHAT IS ASO
• Health plans business =
– Fully insured
– Administrative services only
– Each represent about 50%
• Fully Insured lives
– Carry full financial risk
• ASO lives
– Employer carries the risk
– Plan receives administrative fee
10/16/2013
WHAT WILL CHANGE IN 2014
• Plan documents
– benefits provided
– medical management services
provided
– Both driven by the “plan
document”
• Sleep benefits management to
be in all plan documents for
2014
• Should increase OCST share
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Health Strategy Partners
Focus on Performance
SBMS EXPAND OVERSIGHT
MOSTLY A WELLPOINT ISSUE
COMPLIANCE
• Too much “fudging” of
compliance data
• Obtain compliance data
directly from patient device
• Penalty for nonparticipation could be
steep
10/16/2013
FRAUD
• Some providers are
falsifying diagnosis to
obtain in lab approval
• 10+ providers have been
turned over to internal
review and oversight
• Potential penalty –
exclusion form the network
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Health Strategy Partners
Focus on Performance
SBMS ARE SOMEWHAT CONFLICTED
OPTIMIZE OCST SHARE VS.
MAINTAIN NETWORK BALANCE
• The harder & faster SBMs
push OCST
• The faster weak IDTFs get
pushed out of the market
• The more the market is
dominated by high priced
hospital providers
• The harder it is to reduce
costs
10/16/2013
NEED FOR NEW REVENUE SOURCES
VS. SBM FOCUS
• Sleep is not that profitable
for SBMs
• AIM focused on oncology
infusions for 2014 – far
more $ than sleep
• MedSolutions focused on
– cutting cost
– Improving profitability of
existing business
• CareCentrix could be a
problem
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Health Strategy Partners
Focus on Performance
MAINTAINING A BALANCED
NETWORK
KEY ISSUES FOR THE PLAN
PLAN ACTIONS
• Provide reasonable access
members
• AIM
• Quality Provider Program
• Maintain a strong
negotiating position with
providers
– Pricing
– Performance
• If the number of IDTFs
declines too much – plan
loses negotiating position
10/16/2013
– Call patients scheduled for a
hospital visit
– Let them know the
availability of other lower
cost locations
– Have a 35% success rate in
imaging
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Health Strategy Partners
Focus on Performance
SHIFTING SBM FOCUS
AIM
• Implementation schedule
for SBM is full
• New clients have to wait 4
– 6 months for
implementation
• 2014 focus is on oncology
infusions – opportunity for
savings / AIM earnings far
greater than with sleep
10/16/2013
MEDSOLUTIONS
• Company has been for sale
for 2+ years
• No buyers at a price
MedSolutions wants
• Need to generate more
EBITDA soon as investors
are restless
• Cutting costs, focus on
basics
– Were considering capitation
with regional plans
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Health Strategy Partners
Focus on Performance
CBR2
• Major hit to sales and EBITDA – 45%
• Large providers lost > $100K / month in EBITDA
• Apria so cash strapped that they have stopped
virtually all capital expenditure investments
• Rumor is that Lincare is buying from Chinese
vendor B3 to reduce costs
• Pressure on DME manufacturers is mounting
– Price will decline, fewer feature heavy devices
10/16/2013
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Health Strategy Partners
Focus on Performance
PRODUCT LINE EXPANSION OPTIONS
Home sleep testing
– National HST / OCST
companies are not the
solution
– Start your own service
– Partner with an existing
provider
• A complex, time consuming
business
10/16/2013
DME
– Contracting can be
problematic
Oral Appliances
– Current price point too
high
– Complex referral &
reimbursement process
– Growing at 20+% per
year
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Health Strategy Partners
Focus on Performance
DRIVE COMPLIANCE TO INCREASE
CPAP SUPPLIES REVENUES
Every one knows this needs to be done
This is basic
Basics make sense
10/16/2013
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Health Strategy Partners
Focus on Performance
LOW COST –SELF ADJUSTING
ORAL APPLIANCE OPTION
http://amisleep.com/about/
10/16/2013
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Health Strategy Partners
ORAL APPLIANCES
POTENTIAL USE OF LOW COST OPTION
Focus on Performance
Oral appliance
candidates
%
No.
1000
Pts referred for sleep test
750
Scheduled
75%
615
Conducted
82%
492
Positive
80%
394
CPAP Setup
80%
276
Compliant
70%
250
Not Scheduled
5%
How many of these people may scheldule if they had
an alternative to CPAP
135
Not Conducted
123
Negative
98
Refuses CPAP
118
Non-compliant
5%
7
0%
0
50%
49
75%
89
157
Rev opty
Cost
GM
10/16/2013
13
$
$
300 $
100 $
$
They are negative, no therapy needed
An alternative to CPAP cojuld be an inducement
This is the target rich area. Trhese people are
positive, they are somewhat motivated, having failed
CPAP they need another option.
47,103
15,701
31,402
67%
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Health Strategy Partners
Focus on Performance
HEALTHCARE REFORM OFFERS
OPPORTUNITIES – TO SOME
• Hospital Affiliated
– Owner / operator
– Contract manager
– Benefit directly from the
purchase of PCPs
• Somewhat sheltered
from competition
– Payment models are
still FFS dominated
– Low level of interest in
sleep in early stage of
ACO formation
– No compelling
differential advantage
offered by competition
10/16/2013
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Health Strategy Partners
Focus on Performance
KEY STRATEGIES FOR SUCCESS
DOING THE SAME THING IS NOT ONE OF THEM
All strategies based on being in a market with large dominant
acquisitive health systems
• If you are a smaller independent lab
– Be acquired by a system
– Merge
• If you are a multi-site lab company with some or more hospital
contracts, create a Durable Competitive Advantage
– Complete product / service offering
– Develop a system allowing for uniform implementation of standardized care
across the system
•
•
•
•
Algorithm
IT system
Measurement and reporting capabilities
Care coordination
– Will your balance sheet support risk based contracting
• Case rate, shared savings – no capitated deals available
10/16/2013
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Health Strategy Partners
Focus on Performance
BECOME AN ACO LIKE SOLUTION
Become a quality leader for
attended studies
- The differences have to be real
& significant
- Requires superiority
-
Interpretations
Technical performance
Documented patient outcomes
Can a sleep company replace the
benefits manager?
Become the simpler easier
option
- Must be able to handle all
patients needs
- Have scalable IT system
- Handle back office functions for
referral source re: VOB
Become outcomes focused
- Establish KPIs
- Monitor and report performance
- Document superiority with facts
This could be the game changer.
10/16/2013
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Health Strategy Partners
Focus on Performance
AN EXAMPLE OF A FULL
SERVICE DX & TX MODEL
Partients Referred for a Sleep
Study
100
Time Line
1
Mild to Moderate OSA; No
Significant Co-morbids
FAST – LOW COST – OPTIMUM
OUTCOME
70%
All Other Cases
70
30
Patient requiring therapy are
treated within 20 – 30 days of
the first contact

100% of all patients requiring
therapy, receive a therapy
appropriate for their condition
15
70%
APAP Set-up
20
80% of all patients on therapy
are compliant with an
appropriate therapy
20
CPAP Set-up
42
29
Compliant Patients
70%
55
37
26
30
120
Non-compliant Patients, candidates for an oral appliance
13
24
11
4
Accept Oral Appliance
33%
8
4
120
10/16/2013
In Lab Study Complete
49
51
Negative Finding; Refer to Medical Management & Followup
21
85%
Positive Finding Rate
73%
79
110

30%
21
OCST Study Complete

Time Line
1
Total Patients
100
Positive Patients
79
Long Term Therapy
CPAP
O.A.
Total
63
55
8
130
80%
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Health Strategy Partners
Focus on Performance
• To be shown at the
meeting
AN EXAMPLE OF AN
OUTCOMES REPORT FOR A
SLEEP PROGRAM
COORDINATING CARE
ACROSS THE ENTIRE
CONTINUUM WITH A FOCUS
ON PATIENT FUNCTIONAL
IMPROVEMENT
10/16/2013
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