Humana Inc.

3rd Annual Humana Case Competition

Team SageAditya 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

Chronic conditions are helping drive a rapid increase in healthcare costs

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

• 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?

Executive Summary

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

• 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

Growth in the number of eligible beneficiaries will help drive an increase in Medicare market share.

37%

22%

35%

5%

2011

Medicare Medicaid Commerical

52%

20%

27%

1%2021

Medicare Medicaid Commerical Self-pay

Inpatient volume by payer class

► 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


Medicare is responsible for nearly 78% of Humana’s total revenues

Insurance type % of overall Revenues

% of enrollment Growth in enrollment (2012 – 2013)

Average annual premium

Medicare Advantage 69.8% 32.6% 8.4% $11,167

Employer full-risk 13% 15.9% -0.1% $4,254

Medicare Part D 7.9% 42.9% 8.4% $960

Individual full-risk 2.9% 7.6% 10.5% $1,985

Medicaid full-risk 0.8% 0.9% 51.8% $4,278

Other 5.6%

► 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


Growth in enrollment likely being driven by attractive premiums

Medicare Adv

Employer

Individual

Medicaid

-4 -2 0 2 4 6 8 10

1.3

2.3

-3.1

3.3

9.3

Medicare Part D

% Change in Average Humana Premium, June 2012 – June 2013


Source: Team Sage 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 Preventive and healthcare interventions

► 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

► 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, • Humana’s 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

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

► App industry has low barriers

to entry and is highly

competitive, leaving few

financial incentives for

designing an app in-house

► Low switching costs: can hire

another third-party vendor,

if required

Enhance the Humana Fit app instead of starting a new project► Humana already has a number

of apps intended to enhance

beneficiary health

► 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

• Healthcare internet portal development is a rapidly developing highly competitive field that is not the focus of Humana’s 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

Our Recommendation: Create a multi-functional mobile program that enhances active partnerships with patients

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

Medication adherenceSocial media

Clinical interventions

Managing the disease

Lifestyle interventions

Remote patient monitoring

Health literacy

Drug schedule reminders and periodic assessment of patient adherence

Numerous applications of

the product

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

Assist patients in their health decisions

Support healthy lifestyle choices

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

Use of educational videos and other online material to improve patient’s health literacy

Use of social networking platforms to improve the quality of care for chronic care patients.


Strategies that allow for patient and family engagement at various levels across the health care system have a greater potential for success

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

Pre-Launch Patient

Preparation

Rollout of core capabilities

PostLaunch Analysis

1 2 3

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


Improve Health literacy►Culturally and linguistically appropriate text materials and videos concerning the patient’s condition can be utilized►Encourage patients to determine their own goals for behavior change and improved health outcomes►Instruction for product use can be provided

Measure and reward success►Video use can be tracked►Health literacy can be assessed and relevant support can be provided at clinical appointments►Video use can be tied to patient financial incentive program

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


Pre-launch: Improved patient engagement starts with increasing patients’ knowledge and understanding their condition

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

Allowing for feedback►Nurse practitioners can be used to proactively contact poorly managed patients to provide comprehensive preventive advice in a reliable affordable manner►Patient data management to measure the outcomes of care, assess utilization of the program, and improve medication adherence

Connecting to clinical support►Clinical data recorded on program is transmitted to provider ►Disease management - send appointment reminders - patient decision aids: have easily accessible medical information available►Connects to support network of providers that can help enhance personalized care planning


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

Clinical feedback►Nurse practitioners follow-up 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

Financial incentives►Process measures like medication 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

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


• 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.

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/

Risk Mitigation

People aged 65+ won’t use an internet based product or are not acquainted with technology

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

• Educate customers and patients that the product is for post-diagnosis education and management only

Competition from other internet based products

• This product leverages multi-functional, cutting-edge evidence based practices in a novel one-stop program

Challenges of this approach can be overcome with careful planning

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


Proper implementation of this project will require detailed data gathering, analytics, testing, measurements, feedback, and enhancements

►Product design and

development

►Use Predictive analytics

to select the sample

patient population

►Modify program based on

patient feedback

►Introduce to all patientsDesign and develop1

Pilot initiation2

App enhancements3Measure performance4

►Select 1000 patients for

pilot program

►Create baseline data and

compare with subsequent

outcomes to measure

performance after use

Phas

esM

ilest

ones

►Collect feedback and

measure performance on

yearly basis

Measure performance

(year 5)

Product Development (Six months)

Pilot (1.5 years)

Introduction to patients (in year 3)

Measure performance

(year 4)

Measure performance

(year 6)

Program Enhancements


Assumptions Potential Savings Cumulative Cost Over 5 years (approx.)

Cumulative Savings over 5 years (approx.)

Pessimistic Reduction of cost growth by 0.5% $203.356 billion $29 million

Moderate Reduction of cost growth by 1% $203.326 billion $59 million

Optimistic Reduction of cost growth by 2.5% $203.237 billion $148 million

• 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

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

• 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

A better health outcome at a lower cost can be achieved through improved prevention and management of chronic conditions.

Pulmonary conditionsHypertension

Mental disordersHeart disease

DiabetesCancers

Stroke

0 10,000 20,000 30,000 40,000 50,000 60,000

Estimated cases in 2023 (thousands)

► Increasing disease burden resulting in rising

healthcare costs and reduced productivity

► 20% of people drive 80% of healthcare costs*

2013 20230

2

4

6

2.484.15

Projected annual Healthcare costs* ($ trillions)

Treatment expenditures

Lost productivity

Total (2023)

790 3,363 4,153

Healthcare costs in 2023 ($ billions)

* Includes productivity losses, which account for 70% of costs Source: Study by Milken Institute


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

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

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

05000000

100000001500000020000000250000003000000035000000400000004500000050000000

Humana Expenses: Benefits Cost Growth(Past and Projected)

Humana Benefits Expense

Bene

fits E

xpen

se ($

)

Year

Source: Analysis, Annual report 2012

UnitedWellPoint Healthcare Aetna Humana

Revenue growth 15.1% 11.4% 18.7% 4.5%

Net profit margin 4.7% 4.3% 4.9% 4.3%

Medical care ratio (MCR) 83.8% 82.1% 82.3% 83.2%

SG&A as a % of revenue 13.6% 15.5% 18.2% 14.0%

Return on assets 5.7% 6.6% 4.2% 8.9%

Return on equity 13.7% 16.7% 15.2% 20.2%

Days in accounts receivable 22.5 11.1 15.4 14.1

Days in medical claims payable 40.9 48.5 57.8 46.7

Current ratio 1.80 0.78 0.88 1.87

Interest coverage 9.6 14.7 11.4 23.1

Comparative Financial Ratios, 1st Half of 2013

Humana Inc.

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