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Influence of Market Forces on Healthcare: A Case Study
Thomas P. Glynn, COO
April 9, 2009

Agenda

Market Forces: 1993

II. One Case: Partners Strategy and Founding

Market Forces: 2009

IV. Partners in the Suburban Market

V. Market Forces: 2009 - 2014?

I. Market Forces: 1993

Environment - 1993

Unemployment Rate – 7.5%

Stock Market – 3300

Volume – Down

Margins – Down

Beds – Down 24%

Research Grants – Slow Growth

Residency Slots – Going Down 20%

HMO Growth 27%
Capitation – wave of the future

50%

Strategic Response in 1993

Leadership roles in restructuring the area’s health care by creating the core for a superior integrated care delivery system

Geographic coverage

Comprehensive services

Highest quality programs and services

Reduce and transform system capacity and capabilities

Shift the mix of resources towards integrated care

Shift location of some services closer to the patient

Significantly improve cost position throughout the institution while improving quality of programs and patient care

Consolidation

Rationalization

Re-design

Ensure critical mass is retained for clinical, teaching, and research excellence

Resources X Strategy = Results

1993

Partners

Children’s

BIDMC

NEMC

Caritas

BMC

2009

Partners

BMC

Children’s

BIDMC

NEMC

Caritas

2000

Partners

BMC

Caritas

NEMC

Children’s

BIDMC

II. One Case: Partners Strategy and Founding

Partners Clinical Strategy

Physician driven (not corporate driven):

Physicians comprise the majority of executive decision-makers

Partners has an extended family of more than 5000 physicians

Patients pick doctors - not hospitals

Local:

Where people get their health care is usually a function of geography

Partners hospitals serve the largest share of patients in their home communities

Expanding the base is easier than de novo recruitment

Management:

GM vs. Microsoft

Coke vs. Pepsi

Physicians vs. Hospitals

Service vs. TV ads

80% of Academic Medical Center Patients come from Physician Referrals

Consumers

PCP

40%

Community

Specialists

40%

ER and Self-Referral

20%

AMC

ER and Self-Referral

20%

80%

20%

Physicians

Service Leader MGH FY93

Service Leader BWH FY93

Branding: GM vs. Microsoft

Branding – Partners Brand vs. MGH Brand and BWH Brand – Two of the best

Baybank - $25M to replace Harvard Trust

A stew not a puree in organizational culture

Parent Company – recognizes strength and energy comes from founding hospitals

“No one ever cured at Partners”

Partners HealthCare

1993

MGH vs. BWH

Two Administrative Systems

Zero Integrated Training Programs

200 Primary Care Physicians

Inpatient Volume Falling

Marketing = Used Cars

Cost Plus

2009

MGH and BWH (NSMC & NWH)

One Administrative System

28 Integrated Training Programs

1200 Primary Care Physicians

Inpatient Volume Rising

Marketing = Future

Cost Management

III. Market Forces: 2009

Partners is just one component of a large and diversified health care market

3 Medical Schools

2 Schools of Public Health

14 Teaching Hospitals

43 Community Hospitals

16 Psychiatric Hospitals

17 Long Term Acute Care Hospitals

8 Inpatient Rehabilitation Facilities

60 Community Health Centers

~3,700 Primary Care Physicians (1)

Eastern Massachusetts

1 Medical School

2 Teaching Hospitals

6 Community Hospitals

1 Psychiatric Hospital

2 Long Term Acute Care Hospitals

2 Inpatient Rehabilitation Facilities

7 Owned Community Health Centers

~850 Primary Care Physicians (1)

Partners

Source: American Hospital Directory

(1) Sources: Folios, Partners Corporate Provider Master, PCHI credentialing data base. Partners total includes all PCPs and PCP specialists credentialed by PCHI. Does not include OB/Gyns or peds

Partners HealthCare’s Market Share in Eastern MA

Notes:

PHS market share is calculated on “same store,” i.e. discharges for all hospitals currently in the system

Market share data only available from state through FY06

Partners’ inpatient Market Share in Eastern Massachusetts has been constant at 22% for 10 years

Acute	FY99	FY00	FY01	FY02	FY03	FY04	FY05	FY06
All Discharges	21.1%	21.4%	21.5%	21.8%	21.6%	21.8%	22.0%	21.9%

Eastern Massachusetts Communities where MGH and
BWH are the Top Inpatient Provider

Source: MADHFCP FY 07; Market leader is based on total inpatient volume excluding newborns.

Eastern Massachusetts Communities where PHS is
the Top Inpatient Provider

Source: MADHFCP FY 07; Market leader is based on total inpatient volume excluding newborns.

Partners Finances: Patient Share Percentage

Partners patient share percentage is moderate compared to similar organizations around the country with whom we compete for research funding and physician and scientific leadership

Note: Market share for other Honor Roll hospitals defined as percent of total discharges in each MSA, 2004 data; Only 2002 data available for Duke University

Sources: Bain & Co., Solucient 2006 Profiles of US Hospitals

Partners’ market share is moderate when compared with other health care providers throughout Massachusetts.

Hospital/System Market Share By Primary Service Area (FY07)

Source: FY07 MA Division of Healthcare Finance and Policy; Excludes MDC 15 (Newborns and Neonates)

Quality: Our Perspective

Boston is the only city with 2 hospitals (BWH & MGH) on the 2008 US News Top Ten List

All Massachusetts hospitals ranked by US News in at least one adult specialty are listed in the table above. If a hospital is not listed, it was not ranked in any adult specialty.

US News uses a comprehensive and detailed methodology that is over 100 pages long.

Partners Commitment: Impact on Preserving
Health Services

Community Hospitals

Union Hospital in Lynn losing $2m/year (1997)
Faulkner Hospital losing $4m/year (1998)
Newton-Wellesley Hospital losing $21m/year (1998)
New emergency rooms at Newton-Wellesley, Salem, and Union Hospitals

Mental Health Services

McLean Hospital in Belmont losing $9.7m/year (1993)
Added psychiatric beds at McLean, Faulkner, Newton-Wellesley, North Shore Medical Center, and MGH

Commitment to Mission: Our Perspective

We rescued these community hospitals.
We essentially ate their losses, and helped to turn them around.
And when other hospitals were closing psychiatric beds, we were adding them.

Massachusetts 2005 Health Insurance
Compared to US Average

* Ranking of 1 indicates most expensive and 50 indicates least expensive.

Source: Agency for Healthcare Research and Quality, 2007.

Premium increases are national – not uniquely local issues

Premiums are not adjusted to reflect standard benefit packages.

A portion of the premium differential reflects the impact of Massachusetts market dynamics:

State mandated benefits

Less cost-shifting to employees than in other areas of the country

MA	US	Difference	MA Rank out of 50*
Family Premium	$12,290	$11,381	8.0%	5th
Single Premium	$4,448	$4,118	8.0%	16th

2006 Family Health Insurance Premiums:
Massachusetts and New England States

Source: Agency for Healthcare Research and Quality. Medical Expenditure Panel Survey.

Four New England states have higher premiums than Massachusetts

The cost of living in Boston is 35% higher than the national average. But health care insurance costs in Massachusetts are only 8% above the national average.

Source: Council for Community and Economic Research Cost of Living Index 2006 Q1

Relative cost of health insurance premium is based on AHRQ 2006 employer survey.

Boston 2006 Cost of Living Index Relative to Other Communities

Boston has a higher relative cost of living overall –
health care is not unique

IV. Partners in the Suburban Market

Nationwide hospital outpatient visits have grown over the past two decades

Since 1986, hospital outpatient visits have increased by 156% while inpatient days have declined

Source: AHA Annual Statistics

The proportion of hospital outpatient revenue has been increasing steadily in the past decade

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2006, for community hospitals.

Despite the growth in outpatient procedures, hospitals are losing market share to free-standing and physician-sponsored outpatient facilities

Source: The Advisory Board Company

All U.S. Procedures, Hospital Market Share

1981

2005

Annual Volume Growth, Outpatient Procedures

2001-2003

Massachusetts has Experienced a Similar Growth in Outpatient Procedures

Source: Massachusetts 403 Cost Reports

Boston Globe September 18, 2006

“The rising number of Massachusetts residents with cancer will outstrip the capacity of radiation treatment facilities within four years, say public health officials, who for the first time in 13 years are asking hospitals that do not already offer such therapy to build expensive new treatment centers.”

“Treating these patients will require at least eight additional multi-million-dollar radiation facilities, and health officials in July changed state regulations to allow more hospitals to build such centers.”

Examples of Suburban Investments by Local AMCs

Source: Hospital Websites

Partners	Children’s	BIDMC and Affiliates	Lahey	Caritas	Dana Farber
Waltham	Waltham	Lexington	Peabody	Methuen	Milford
Danvers	Lexington	Needham	Lexington	Norwood	Weymouth
Foxboro	Peabody	Waltham	Arlington	Fall River	Londonderry, NH
Weymouth	Brockton	Chestnut Hill	Billerica
Milford	Winchester	Natick	Danvers
Martha’s Vineyard/ Nantucket	Beverly	Framingham	Amesbury
Concord	Methuen	Chelsea	Beverly
Lawrence	Framingham	Medway	Essex
Weymouth	Marlborough	Hamilton
Norwood	Eastham	Ipswich
Truro
Brookline

Examples of Suburban Investments by our National Competitors

Type of Facility	Partners	NY Presby.	Baylor	Univ. of Pitt Medical Center	Univ. of Penn. Health System	Cleveland Clinic	Johns Hopkins
Downtown Hospitals	2	9	1	1	3	1	3
Community Hospitals	5	15	5	13	--	8	--
Major Outpatient Facilities*	4	2	2	38	5	16	4
Specialty Hospitals and Other Major Facilities	4	1	3	--	1	2	--
Totals (excludes downtown hospitals)	13	18	10	51	6	26	4

Source: Hospital Websites

*Excludes hospital-licensed and affiliated community health centers

Community Hospitals Have Not Been Negatively Impacted by Partners

Community Hospitals 2001-2007

Share of admissions has remained stable at approximately 53%

Share of total net revenue has remained stable at approximately 40%

Average operating margin increased from negative 0.5% to positive 1.8%

V. Market Forces: 2009 - 2014?

Market Forces: 2009 - 2014?

Quality Websites – Who referees quality?

HMO’s as Health Care Organizations (vs. Insurance Companies)

Aging of Population – Baby Boomers

National Health Care Reform

Federal Reserve

Single Payor

Global Payment

Cost Pressures and Payment Reforms – State and National

Transparency, the concept

Provide the public comprehensive cost and quality information
Consumers will make “value” based choices using this information
A competitive marketplace will develop where cost effective, high quality providers will be rewarded with business growth

Did not make this list of America’s 50 best hospitals

Did not earn a clinical excellence award – 6 other Baltimore hospitals did

Only awards for specialty excellence were for bariatric surgery and pulmonary care

Ranked #1 overall

1st in the nation for urology, gynecology, rheumatology and ENT

2nd in ophthalmology, psychiatry, geriatrics and neurology/ neurosurgery

3rd in cancer

4th in heart and heart surgery

No other Maryland hospital made the top 20

2007

Ratings

2007

Ratings

Johns Hopkins: best in US, worst in Baltimore

Transparency, the reality

2008 Survey Results: Differences in behaviors and attitudes are significant: the health care consumer market is not homogeneous

Trusted source for treatment information: Medical societies and AMCs rate highest – MA less trusting of governmental sources than US overall

Sources	US	MA
Medical associations/societies (e.g., American Medical Association, American Cancer Society, etc.)	51	52
Academic medical centers/teaching hospitals	50	55
Community hospitals	31	26
U.S. Department of Health and Human Services	31	24
State Departments of Health and Human Services	28	19
Pharmacies	28	17
U.S. Food and Drug Administration (FDA)	27	21
Independent health-related websites (e.g. WebMD)	28	22
Independent health-related websites (e.g. WebMD)	26	24
Health insurance companies/health plans	13	13
Pharmaceutical, biotech, or medical device/product manufacturers	11	6
Employers (e.g. health benefits office)	10	7

Hospital Selection: 1 of 3 consumers check insurance coverage before use; 2 of 3 discuss the hospital with their physician – less “shopping” in MA

Measures	US	MA
Looked or asked for information about a particular hospital	10	13
Compared hospitals before choosing one	9	11
Checked to see if my insurance company/health plan covers the treatment	33	26
Checked to see if the hospital accepts my insurance/health plan	34	24
None of the above	53	62
Asked a doctor/medical professional	64	52
Contacted my/a health insurance company, program, or health plan	41	29
Read a health – or disease-related blog	10	10

Hospital reputation: Insurance coverage, reputation matter – perception of cost less relevant in MA

Measure	US	MA
Some people believe they get the same general quality of care no matter which hospitals they use. Other believe there are great differences in the quality of care provided by different hospitals (% see quality differences)	73	78
Affiliation with a religious organization	9	2
Affiliation with a medical school	20	20
Costs of services	41	25
Quality/satisfaction rankings	51	50
Overall reputation	64	64
Physician recommendation	64	67
Insurance coverage	74	76
Close to home	52	47

Baby Boomers: Impact on Medicine

Baby Boomers: 1946-1964

75 Million

Consumer Attitudes – Entitlement

Can do

Skeptical of Authority

Computer Literate

Start Turning 65 in 2011 – but not 80 until 2026

Expectations – Medicine is Omnipotent

Expecting a Miracle

“In the US, the baby-boom generation has transformed every institution with which it has come into contact. As this generation ages and begins to have chronic disease, we can expect healthcare to be next…”

- T. Lee, NEJM, 344, 26:2001

Baby Boomers Impact on Healthcare System

Children – 1980s

2. Parents – 1990s

3. Selves – 2025!

Healthier lifestyle

Health screenings and check-ups

Web-based independent research

Lifestyle Habits: Impact on Long Term Health

Greatest Generation – WWII Baby Boomers

Smokers Non-smokers

Whiskey Wine

Couch Potatoes Runners

Steak and Eggs Yogurt

Steak and Potatoes Chicken Stir-fry

Coke Bottled Water

Aspirin – Headache Aspirin – every other day

“If it get’s really bad, I’ll Annual check-ups and regular screening

Dr. Spock WebMD

call the doctor”

Baby Boomers’ Impact on Medicine:

More of the Same

More beds

More Surgery

65 is trigger

80 is big trigger

Population is driver

Less of the Same

More monitoring devices – blood pressure, heart rate, oxygen saturation

More drugs and devices

65 is 50

80 is 65

Innovation is driver: statins, genetic based therapy

More families providing financial support for healthy 90 year old patients

Two Crystal Balls

Appendix

Sheet1


FY2006 and FY2007 Community Benefit
Spending Comparison
(in $ millions)
									Partners	Umass Memorial		Boston	Beth Israel			Berkshire	Caritas St.		Mount	Caritas	Total	Others
		BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Total*	Medical Center	Children's	Medical Center**	Deaconness	Baystate	Tufts	Medical	Elizabeth's	Lahey	Auburn	Carney	Others	w/out BMC
COMPILED PER AG GUIDELINES
Community Benefit Programs
	Direct Expenses									25.0	24.3	16.3	6.6	2.9	4.2	3.9	6.3	0.1	0.8	0.4
	Program Expenses	3.2	0.6	4.9	1.4	0.4			10.5
	HC Subsidies (Net of Uncompensated Care)	9.3	N/A	31.6	N/A	N/A			40.9
	Grants for Community Health Centers	2.5	N/A	2.2	0.6	N/A			5.3
FY
	Associated Expenses	N/A	N/A	N/A	N/A	N/A			N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.6	N/A	N/A	N/A	N/A
	DoN Expenses	N/A	N/A	N/A	N/A	N/A			N/A	0.2	0.2	N/A	0.1	N/A	N/A	N/A	N/A	0.3	N/A	N/A
	Employee Volunteerism	N/A	N/A	N/A	N/A	N/A			N/A	N/A	N/A	N/A	N/A	N/A	0.1	N/A	N/A	N/A	0.1	N/A
	Other Leveraged Resources									3.2	2.1	7.2	1.7	3.4	0.2	1.0	0.6	N/A	1.4	N/A
	Grants	1.9	N/A	3.9	0.4	N/A			6.2
	Doctors Free Care	7.6	N/A	9.0	2.0	N/A			18.6
Community Services Programs		N/A	N/A	N/A	N/A	N/A			N/A	0.5	3.3	N/A	0.6	5.6	1.0	0.9	2.3	1.0	N/A	0.2
Net Charity Care (Shortfall plus Assessment)		21.5	4.1	36.8	9.0	6.1			77.5	20.0	5.6	(36.3)	23.7	14.1	4.3	3.8	2.4	7.2	4.6	-0.7
Corporate Sponsorships		N/A	N/A	N/A	N/A	N/A			N/A	0.2	0.2	N/A	N/A	0.6	0.1	0.1	N/A	N/A	0.1	N/A
FY06	TOTAL COMMUNITY BENEFIT	46.0	4.7	88.4	13.4	6.5			159.0	49.1	35.7	(12.8)	32.7	26.6	9.9	12.3	11.6	8.6	7.0	(0.1)	180.6	193.40
TOTAL PATIENT CARE-RELATED EXPENSES		952.1	114.9	1208.5	327.1	211.2			2813.8	921.0	649.2	1,028.0	642.1	717.0	477.4	236.9	314.6	N/A	205.3	104.4
Community Benefit as % of Expenses		4.0%	4.1%	6.6%	3.5%	3.1%			5.0%	5.3%	5.5%	-1.2%	5.1%	3.7%	2.1%	5.2%	3.7%	N/A	3.4%	-0.1%
Community Benefit W/Out UC as % of Expenses		2.6%	0.5%	4.3%	1.3%	0.2%			2.9%	0.0	0.0	2.3%	1.4%	1.7%	1.2%	3.6%	2.9%	N/A	1.2%	0.6%
Direct Community Benefit as % of Expenses		1.6%	0.5%	3.2%	0.6%	0.2%			2.0%	0.0	0.0	1.6%	1.0%	0.4%	0.9%	1.6%	2.0%	N/A	0.4%	0.4%
Community Benefit Programs
	Direct Expenses									19.2	24	26.7	8.2	3.3	3.7	4.6	5.5	0.1	1.1	0.2
	Program Expenses	5.6	0.8	7.7	1.5	0.4	0.4	0.3	16.7
	HC Subsidies (Net of Uncompensated Care)	10.2	N/A	31.7	N/A	N/A	N/A	N/A	41.9
	Grants for Community Health Centers	2.5	N/A	3.9	0.5	N/A	N/A	N/A	6.9
	Associated Expenses	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.7	N/A	N/A	N/A	0.1
	DoN Expenses	1.0	N/A	3.3	N/A	N/A	0.5	N/A	4.8	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.6	N/A	N/A
	Employee Volunteerism	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.1	N/A	N/A	N/A	N/A	0.1	N/A
	Other Leveraged Resources									3.9	3.5	6.5	1.6	1.4	0.4	1.0	0.4	N/A	1.3	N/A
	Grants	1.8	N/A	3.8	0.3	N/A	N/A	N/A	5.9
	Doctors Free Care	6.5	N/A	8.3	1.5	N/A	N/A	N/A	16.3
Community Services Programs		N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.7	3.3	N/A	0.6	7.7	1.4	0.9	2.0	0.9	N/A	0.2
Net Charity Care (Shortfall plus Assessment)		19.6	2.8	21.5	6.2	4.3	2.8	0.7	57.9	25.8	4.1	0.0	14.7	8.9	7.1	0.8	1.0	5.8	3.4	0.4
Corporate Sponsorships		0.4	N/A	0.4	0.1	N/A	N/A	N/A	0.9	0.2	0.1	0.1	0.1	0.7	0.1	0.1	N/A	N/A	0.1	N/A
FY07	TOTAL COMMUNITY BENEFIT	47.6	3.6	80.6	10.1	4.7	3.7	1.0	151.3	49.8	35.0	33.3	25.2	22.1	12.7	10.1	8.9	7.4	6.0	0.9	211.4	178.10
Change from Prior Year		1.6	-1.1	-7.8	-3.3	-1.8	3.7	1.0	-7.7	0.7	-0.7	46.1	-7.5	-4.5	2.8	-2.2	-2.7	-1.2	-1.0	1.0	30.8	(15.30)
Portion of Change Attributable to Charity Care		-1.9	-1.3	-15.3	-2.8	-1.8	N/A	N/A	-19.6	5.8	-1.5	36.3	-9.0	-5.2	2.8	-3.0	-1.4	-1.4	-1.2	1.1	23.3	(13.00)
TOTAL PATIENT CARE-RELATED EXPENSES		1035.7	125.1	1290.9	357.2	235.7	38.2	22.3	3348.1	882.8	671.5	1,120.7	793.6	638.1	490.0	260.8	319.3	N/A	220.0	98.4
Community Benefit as % of Expenses		4.0%	2.9%	5.6%	2.4%	2.0%	9.7%	4.5%	4.0%	5.6%	5.2%	3.0%	3.2%	3.5%	2.6%	3.9%	2.8%	N/A	2.7%	0.9%
Community Benefit W/Out UC as % of Expenses		2.7%	0.6%	4.6%	1.1%	0.2%	2.4%	1.3%	2.8%	2.7%	0.05	3.0%	1.3%	2.1%	1.1%	3.6%	2.5%	N/A	1.2%	0.5%
Direct Community Benefit as % of Expenses		1.8%	0.6%	3.4%	0.6%	0.2%	1.0%	1.3%	2.0%	2.2%	0.04	2.4%	1.0%	0.5%	0.8%	1.8%	1.7%	N/A	0.5%	0.2%
		Notes:
		*Partners actual Total Patient Care-Related Expenses also include:
		McLean $70.4M and Partners Continuing Care $167.5M, not reflected here.
		Martha's Vineyard and Nantucket Cottage Hospital were not part of the Partners system in FY2006.
		**Boston Medical Center Total Community Benefit was reported to the AG as $23.6,
		without considering their Net Charity Care amount $36.3 which, when calculated as for all other hospitals, results in ($12.8).

&L&D&R&F

Chart1

PHS Total

MGH

Umass Memorial

BWH

Children's

BMC

BIDMC

Baystate

Tufts

Berkshire

St. E

Lahey

Mt. Auburn

FY07 Community Benefit Spending According to AG Guidelines ($$ in millions)

151

80.6

49.8

47.6

33.3

25.2

22.1

12.7

10.1

8.9

7.4

Sheet2

	BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Umass Memorial	Children's	BMC	BIDMC	Baystate	Tufts	Berkshire	St. E	Lahey	Mt. Auburn	Carney
FY07	47.6	3.6	80.6	10.1	4.7	3.7	1.0	49.8	35.0	33.3	25.2	22.1	12.7	10.1	8.9	7.4	6.0	0.9
		FY07
	PHS Total	151
	MGH	80.6
	Umass Memorial	49.8
	BWH	47.6
	Children's	35.0
	BMC	33.3
	BIDMC	25.2
	Baystate	22.1
	Tufts	12.7
	Berkshire	10.1
	St. E	8.9
	Lahey	7.4
	Mt. Auburn	6.0

Sheet1 (2)


FY2006 and FY2007 Community Benefit
									Partners	Umass Memorial		Boston	Beth Israel			Berkshire	Caritas St.		Mount	Caritas	Total	Total Others
		BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Total	Medical Center	Children's	Medical Center**	Deaconness	Baystate	Tufts	Medical	Elizabeth's	Lahey	Auburn	Carney	Others	(w/out BMC)
COMPILED PER AG GUIDELINES
Community Benefit Programs
	Direct Expenses									25.0	24.3	16.3	6.6	2.9	4.2	3.9	6.3	0.1	0.8	0.4
	Program Expenses	3.2	0.6	4.9	1.4	0.4			10.5
	HC Subsidies (Net of Uncompensated Care)	9.3	N/A	31.6	N/A	N/A			40.9
	Grants for Community Health Centers	2.5	N/A	2.2	0.6	N/A			5.3
FY
	Associated Expenses	N/A	N/A	N/A	N/A	N/A			N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.6	N/A	N/A	N/A	N/A
	DoN Expenses	N/A	N/A	N/A	N/A	N/A			N/A	0.2	0.2	N/A	0.1	N/A	N/A	N/A	N/A	0.3	N/A	N/A
	Employee Volunteerism	N/A	N/A	N/A	N/A	N/A			N/A	N/A	N/A	N/A	N/A	N/A	0.1	N/A	N/A	N/A	0.1	N/A
	Other Leveraged Resources									3.2	2.1	7.2	1.7	3.4	0.2	1.0	0.6	N/A	1.4	N/A
	Grants	1.9	N/A	3.9	0.4	N/A			6.2
	Doctors Free Care	7.6	N/A	9.0	2.0	N/A			18.6
Community Services Programs		N/A	N/A	N/A	N/A	N/A			N/A	0.5	3.3	N/A	0.6	5.6	1.0	0.9	2.3	1.0	N/A	0.2
Net Charity Care (Shortfall plus Assessment)		21.5	4.1	36.8	9.0	6.1			77.5	20.0	5.6	(36.3)	23.7	14.1	4.3	3.8	2.4	7.2	4.6	-0.7
Corporate Sponsorships		N/A	N/A	N/A	N/A	N/A			N/A	0.2	0.2	N/A	N/A	0.6	0.1	0.1	N/A	N/A	0.1	N/A
FY06	TOTAL COMMUNITY BENEFIT	46.0	4.7	88.4	13.4	6.5			159.0	49.1	35.7	(12.8)	32.7	26.6	9.9	12.3	11.6	8.6	7.0	(0.1)	180.6	193.4
TOTAL PATIENT CARE-RELATED EXPENSES		952.1	114.9	1208.5	327.1	211.2			2,813.8	921.0	649.2	1,028.0	642.1	717.0	477.4	236.9	314.6	N/A	205.3	104.4
Community Benefit as % of Expenses		4.0%	4.1%	6.6%	3.5%	3.1%			0.0	0.1	0.1	(0.0)	0.1	0.0	0.0	0.1	0.0	N/A	0.0	(0.0)
Community Benefit W/Out UC as % of Expenses		2.6%	0.5%	4.3%	1.3%	0.2%			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	N/A	0.0	0.0
Direct Community Benefit as % of Expenses		1.6%	0.5%	3.2%	0.6%	0.2%			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	N/A	0.0	0.0
Community Benefit Programs
	Direct Expenses									19.2	24.0	26.7	8.2	3.3	3.7	4.6	5.5	0.1	1.1	0.2
	Program Expenses	5.6	0.8	7.7	1.5	0.4	0.4	0.3	16.7
	HC Subsidies (Net of Uncompensated Care)	10.2	N/A	31.7	N/A	N/A	N/A	N/A	41.9
	Grants for Community Health Centers	2.5	N/A	3.9	0.5	N/A	N/A	N/A	6.9
	Associated Expenses	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.7	N/A	N/A	N/A	0.1
	DoN Expenses	1.0	N/A	3.3	N/A	N/A	0.5	N/A	4.8	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.6	N/A	N/A
	Employee Volunteerism	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.1	N/A	N/A	N/A	N/A	0.1	N/A
	Other Leveraged Resources									3.9	3.5	6.5	1.6	1.4	0.4	1.0	0.4	N/A	1.3	N/A
	Grants	1.8	N/A	3.8	0.3	N/A	N/A	N/A	5.9
	Doctors Free Care	6.5	N/A	8.3	1.5	N/A	N/A	N/A	16.3
Community Services Programs		N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.7	3.3	N/A	0.6	7.7	1.4	0.9	2.0	0.9	N/A	0.2
Net Charity Care (Shortfall plus Assessment)		19.6	2.8	21.5	6.2	4.3	2.8	0.7	57.9	25.8	4.1	- 0	14.7	8.9	7.1	0.8	1.0	5.8	3.4	0.4
Corporate Sponsorships		0.4	N/A	0.4	0.1	N/A	N/A	N/A	0.9	0.2	0.1	0.1	0.1	0.7	0.1	0.1	N/A	N/A	0.1	N/A
FY07	TOTAL COMMUNITY BENEFIT	47.6	3.6	80.6	10.1	4.7	3.7	1.0	151.3	49.8	35.0	33.3	25.2	22.1	12.7	10.1	8.9	7.4	6.0	0.9	211.4	178.1
Change from Prior Year		1.6	-1.1	-7.8	-3.3	-1.8	3.7	1.0	(7.7)	0.7	(0.7)	46.1	(7.5)	(4.5)	2.8	(2.2)	(2.7)	(1.2)	(1.0)	1.0	30.8	(15.3)
Portion of Change Attributable to Charity Care		-1.9	-1.3	-15.3	-2.8	-1.8	N/A	N/A	(19.6)	5.8	(1.5)	36.3	(9.0)	(5.2)	2.8	(3.0)	(1.4)	(1.4)	(1.2)	1.1	23.3	(13.0)
TOTAL PATIENT CARE-RELATED EXPENSES		1035.7	125.1	1290.9	357.2	235.7	38.2	22.3	3348.1	882.8	671.5	1,120.7	793.6	638.1	490.0	260.8	319.3	N/A	220.0	98.4
Community Benefit as % of Expenses		4.0%	2.9%	5.6%	2.4%	2.0%	9.7%	4.5%	4.0%	5.6%	5.2%	3.0%	3.2%	3.5%	2.6%	3.9%	2.8%	N/A	2.7%	0.9%
Community Benefit W/Out UC as % of Expenses		2.7%	0.6%	4.6%	1.1%	0.2%	2.4%	1.3%	2.8%	2.7%	0.05	3.0%	1.3%	2.1%	1.1%	3.6%	2.5%	N/A	1.2%	0.5%
Direct Community Benefit as % of Expenses		1.8%	0.6%	3.4%	0.6%	0.2%	1.0%	1.3%	2.0%	2.2%	0.04	2.4%	1.0%	0.5%	0.8%	1.8%	1.7%	N/A	0.5%	0.2%
		Notes:
		*Partners actual Total Patient Care-Related Expenses also include:
		McLean $70.4M and Partners Continuing Care $167.5M, not reflected here.
		Martha's Vineyard and Nantucket Cottage Hospital were not part of the Partners system in FY2006.
		**Boston Medical Center Total Community Benefit was reported to the AG as $23.6,
		without considering their Net Charity Care amount $36.3 which, when calculated as for all other hospitals, results in ($12.8).

&L&D&R&F

A Comparison of Hospital Community Benefit Spending as a Percent of Patient-Care Related Expenses

Source: Mass. AG Website

Sheet1


FY2007 Community Benefit Spending Comparison
(in $ millions)
									Partners	Umass Memorial		Boston	Beth Israel			Berkshire	Caritas St.		Mount	Caritas
		BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Total*	Medical Center	Children's	Medical Center	Deaconness	Baystate	Tufts	Medical	Elizabeth's	Lahey	Auburn	Carney
COMPILED PER AG GUIDELINES
Community Benefit Programs
	Direct Expenses									19.2	24	26.7	8.2	3.3	3.7	4.6	5.5	0.1	1.1	0.2
	Program Expenses	5.6	0.8	7.7	1.5	0.4	0.4	0.3	16.7
	HC Subsidies (Net of Uncompensated Care)	10.2	N/A	31.7	N/A	N/A	N/A	N/A	41.9
	Grants for Community Health Centers	2.5	N/A	3.9	0.5	N/A	N/A	N/A	6.9
	Associated Expenses	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	2.7	N/A	N/A	N/A	0.1
	DoN Expenses	1.0	N/A	3.3	N/A	N/A	0.5	N/A	4.8	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.6	N/A	N/A
	Employee Volunteerism	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.1	N/A	N/A	N/A	N/A	0.1	N/A
	Other Leveraged Resources									3.9	3.5	6.5	1.6	1.4	0.4	1.0	0.4	N/A	1.3	N/A
	Grants	1.8	N/A	3.8	0.3	N/A	N/A	N/A	5.9
	Doctors Free Care	6.5	N/A	8.3	1.5	N/A	N/A	N/A	16.3
Community Services Programs		N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0.7	3.3	N/A	0.6	7.7	1.4	0.9	2.0	0.9	N/A	0.2
Net Charity Care (Shortfall plus Assessment)		19.6	2.8	21.5	6.2	4.3	2.8	0.7	57.9	25.8	4.1	0.0	14.7	8.9	7.1	0.8	1.0	5.8	3.4	0.4
Corporate Sponsorships		0.4	N/A	0.4	0.1	N/A	N/A	N/A	0.9	0.2	0.1	0.1	0.1	0.7	0.1	0.1	N/A	N/A	0.1	N/A
FY07	TOTAL COMMUNITY BENEFIT	47.6	3.6	80.6	10.1	4.7	3.7	1.0	151.3	49.8	35.0	33.3	25.2	22.1	12.7	10.1	8.9	7.4	6.0	0.9
TOTAL PATIENT CARE-RELATED EXPENSES		1035.7	125.1	1290.9	357.2	235.7	38.2	22.3	3348.1	882.8	671.5	1,120.7	793.6	638.1	490.0	260.8	319.3	N/A	220.0	98.4
Community Benefit as % of Expenses		4.0%	2.9%	5.6%	2.4%	2.0%	9.7%	4.5%	4.0%	5.6%	5.2%	3.0%	3.2%	3.5%	2.6%	3.9%	2.8%	N/A	2.7%	0.9%
Community Benefit W/Out UC as % of Expenses		2.7%	0.6%	4.6%	1.1%	0.2%	2.4%	1.3%	2.8%	2.7%	0.05	3.0%	1.3%	2.1%	1.1%	3.6%	2.5%	N/A	1.2%	0.5%
Direct Community Benefit as % of Expenses		1.8%	0.6%	3.4%	0.6%	0.2%	1.0%	1.3%	2.0%	2.2%	0.04	2.4%	1.0%	0.5%	0.8%	1.8%	1.7%	N/A	0.5%	0.2%
Net Charity Care per 8/2002 DHCFP Report
	Free Care Costs	14.7	2.0	22.0	4.4				1.1	5.385		3.7	N/A	1.8	17.2	1.5	3.8	6.3	2.1	10.0
	Liability to the Pool	6.3	0.3	3.4	(1.0)				4.0	-1.054		(0.8)	N/A	1.6	1.3	7.1	9.0	4.0	1.9	(0.5)
	Total	21.0	2.4	25.5	3.4				5.1	4.331	0.00	2.9	N/A	3.4	18.5	8.6	12.7	10.2	4.0	9.4
	Variance from amount reported	1.41	(0.44)	3.97	(2.82)				(52.82)	-21.469	-4.10	2.91	N/A	(5.47)	11.44	7.77	11.73	4.44	0.61	9.04
*Partners actual Total Patient Care-Related Expenses also includes: McLean $75.5 M and Partners Continuing Care $167.5M, not reflected here.
For the first time in FY2007, Martha's Vineyard Hospital and Nantucket Cottage Hospital are reported as part of Partners.

&L&D&R&F

Chart1

Umass

MGH

Children's

PHS Total

BWH

Berkshire

Baystate

BIDMC

BMC

St. E's

Mt. Auburn

Tufts

FY07 Community Benefit Spending According to AG Guidelines as a Percent of Patient-Care Related Expenses

0.0564114182

0.0560074367

0.0521221147

0.043

0.039683306

0.0387269939

0.0346340699

0.0317540323

0.0297135719

0.0278734732

0.0272727273

0.0259183673

Sheet2


FY2007 Community Benefit Spending Comparison
(in $ millions)
									Partners	Umass Memorial		Boston	Beth Israel			Berkshire	Caritas St.		Mount	Caritas
		BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Total*	Medical Center	Children's	Medical Center	Deaconness	Baystate	Tufts	Medical	Elizabeth's	Lahey	Auburn	Carney
FY07	TOTAL COMMUNITY BENEFIT	47.6	3.6	80.6	10.1	4.7	3.7	1.0	151.3	49.8	35.0	33.3	25.2	22.1	12.7	10.1	8.9	7.4	6.0	0.9
TOTAL PATIENT CARE-RELATED EXPENSES		1035.7	125.1	1290.9	357.2	235.7	38.2	22.3	3348.1	882.8	671.5	1,120.7	793.6	638.1	490.0	260.8	319.3	N/A	220.0	98.4
Community Benefit as % of Expenses		4.0%	2.9%	5.6%	2.4%	2.0%	9.7%	4.5%	4.0%	5.6%	5.2%	3.0%	3.2%	3.5%	2.6%	3.9%	2.8%	N/A	2.7%	0.9%
Community Benefit W/Out UC as % of Expenses		2.7%	0.6%	4.6%	1.1%	0.2%	2.4%	1.3%	2.8%	2.7%	0.05	3.0%	1.3%	2.1%	1.1%	3.6%	2.5%	N/A	1.2%	0.5%
Direct Community Benefit as % of Expenses		1.8%	0.6%	3.4%	0.6%	0.2%	1.0%	1.3%	2.0%	2.2%	0.04	2.4%	1.0%	0.5%	0.8%	1.8%	1.7%	N/A	0.5%	0.2%
Net Charity Care per 8/2002 DHCFP Report
	Free Care Costs	14.7	2.0	22.0	4.4				1.1	5.385		3.7	N/A	1.8	17.2	1.5	3.8	6.3	2.1	10.0
	Liability to the Pool	6.3	0.3	3.4	(1.0)				4.0	-1.054		(0.8)	N/A	1.6	1.3	7.1	9.0	4.0	1.9	(0.5)
	Total	21.0	2.4	25.5	3.4				5.1	4.331	0.00	2.9	N/A	3.4	18.5	8.6	12.7	10.2	4.0	9.4
	Variance from amount reported	1.41	(0.44)	3.97	(2.82)				(52.83)	-21.469	-4.10	2.91	N/A	(5.47)	11.44	7.77	11.73	4.44	0.61	9.04
*Partners actual Total Patient Care-Related Expenses also includes: McLean $75.5 M and Partners Continuing Care $167.5M, not reflected here.
For the first time in FY2007, Martha's Vineyard Hospital and Nantucket Cottage Hospital are reported as part of Partners.
		BWH	Faulkner	MGH	NSMC	NWH	MVH	NCH	Total*	Umass	Children's	BMC	BIDMC	Baystate	Tufts	Berkshire	St. E's	Lahey	Mt. Auburn	Carney
Community Benefit as % of Expenses		4.0%	2.9%	5.6%	2.4%	2.0%	9.7%	4.5%	4.0%	5.6%	5.2%	3.0%	3.2%	3.5%	2.6%	3.9%	2.8%	N/A	2.7%	0.9%
		Community Benefit as % of Expenses
	MVH	9.7%
	Umass	5.6%
	MGH	5.6%
	Children's	5.2%
	PHS Total	4.3%
	BWH	4.0%
	Berkshire	3.9%
	Baystate	3.5%
	BIDMC	3.2%
	BMC	3.0%
	St. E's	2.8%
	Mt. Auburn	2.7%
	Tufts	2.6%

Sheet3

Partners Direct Community Benefit Spending has more than Doubled Since 1996

Note:

Analysis includes hospitals as they were acquired

Average Annual Percent Change = 13%

More than $65 M in Capital Commitments

Boston Healthcare for the Homeless

American Cancer Society Hope Lodge
Charlestown Recovery House
Harbor Health Services
(Neponset Health Center & Geiger-Gibson Health Center)

North End Community Health Center
Codman Square Health Center
Upham’s Corner Health Center
Dorchester House Health Center

Lynn Community Health Center
Renovation
Market Square & Western Ave. Sites
Eye Clinic

South End Community Health Center
Whittier Street

Revere Health Center

Charlestown Health Center

Brookside Health Center

Southern Jamaica Plain Health Center

Partners PILOT Payments Totaled $3.6 M in 2007;
Over 80% of Payments Made by Medical Institutions

MGH paid $2 M
BWH paid $1 M
BIDMC paid $167 K

Source: Boston Municipal Research Bureau

* Massport is a state authority, not a 501 (c) 3

Partners Ranked as the 5th Largest Corporate Charitable Contributor

Other Rankings:

#17 BIDMC

#32 Tufts Medical Ctr.

Source:

Boston Business Journal, Book of Lists, 2009

Gall Bladder vs. Gall Bladder

MGH and BWH Costs are Higher Compared to their Local Competitors (All Payers)

Sources: MA DHCFP 2006 403 Cost Reports (cost and discharge data from Schedules 18 and Schedule 3). CMI calculated with Partners MDW APDRGv21 discharge volume and internal AP21 weights.

Partners 2006 Hospital Costs Remain Below the U.S. News and World Report Honor Roll Median

Source: Analysis of PPS-23 (2006) Medicare Cost Report data.

Median = $8,554

Case Mix and Wage Adjusted Medicare Inpatient Cost Per Case

Then Massachusetts looks a little high --- but only a little.
Cheaper than New Jersey
3% above Texas and only 8.5 percent above California

BUT THIS IS NO REASON FOR COMPLACENCY

THINK $32,000 FOR FAMILY COVERAGE

------------------------------------------------------

Some of the most important health care research conducted in the last decade was John Wennberg at Dartmouth
Substantial geographic variation in costs
Cost variation not related to quality – often higher quality in less costly regions.
There is also substantial variation within geographic areas

Why do MGH and BWH Have Higher Prices?

Higher Costs
Standby Capacity
Teaching Intensity
Patient Severity
Research Intensity
Need to cover reimbursement shortfalls from Medicaid (81¢) and Medicare (92¢)
Quality
Commitment to areas that chronically lose money
Psychiatry
Obstetrics
Community health centers
Non acute care (e.g., rehabilitation)
Pediatrics
Primary Care
Investments to create a integrated delivery system
Electronic medical records, disease management, etc.
Commitment to developing new medical techniques and technology

Chart based on Koenig et al., “Estimating the Mission-Related Costs of Teaching Hospitals,” Health Affairs, no.6 (2003): 112-122.

All Teaching Hospitals Have Higher Costs Due to their Broad Mission and Complex Patients

Standby capacity is the capacity to provide high-technology or intensive services whose availability is essential to the healthcare system

Standby capacity is the largest single component of teaching hospitals mission-related costs

Chart based on Koenig et al., “Estimating the Mission-Related Costs of Teaching Hospitals,” Health Affairs, no.6 (2003): 112-122.

Notes:

1. Median costs are from the Massachusetts Health Care Quality and Cost Council website

Not all Teaching Hospitals Are the Same-

BWH and MGH Have Greater Standby Capacity

than their Peers

Hospital	“Cost” of Gall Bladder Removal1	Level I Trauma (Adult)	Number of ICU beds	Adult Burn Unit	Separate Psych ED	Pediatric ICU
MGH	$10,600		156			
BWH	$10,100		132		--	--
BIDMC	$9,700		93	--	--	--
NEMC	Not available	--	73	--	--	
BMC	Not available		77	--		--

Transfer-in patients are patients transferred to MGH and BWH from other facilities.

Transfer-in patients make up 12-13 percent of patients at BWH and MGH.

Transfer-in patients are sicker and more medically complex than other patients.
They account for 41-43% of all deaths.
The raw unadjusted mortality rate for transfer-in patients is 5 times higher than the non-transfer group.

Community Hospitals Rely on MGH and BWH to be Available to Treat their Sickest and Most Complex Patients

Additional Suburban Expansion Slides

Newton-Wellesley Ambulatory Surgical Center

Framingham, MA

Helps prevent the situation that occurred at Union Hospital

At Union, a private group of orthopedic surgeons created their own outpatient facility after NSMC declined to create one. As a result, the non-profit community hospital lost a major revenue source that subsidized less profitable services including psychiatry and emergency services. A similar situation might have occurred had we not pursued a new center in cooperation with the physicians.

Over the past 2 years, complex joint cases and gastric bypass cases have increased by 10-14 percent at Newton-Wellesley.

Newton-Wellesley’s main campus lacks the necessary space to safely accommodate the increases in surgery and GI cases.

Mass General/North Shore Outpatient Center

Danvers, MA

NSMC functions as a safety net hospital for the region.
Since 2003, the hospital has lost $56 million on treating low-income patients covered under public programs.
NSMC depends on Partners subsidies in order to continue its role as a safety net hospital
The project was suggested by NSMC and builds on the long history of NSMC/MGH tertiary-care collaborations.
More than 40 percent of the facility will be used to relocate existing services from the NSMC Cancer Center, which has outgrown its current space in Peabody.

Cancer Center at Milford Regional Medical Center

Milford, MA

Milford Regional Medical Center and its physicians invited Partners to collaborate on its cancer center in cooperation with the Dana Farber Cancer Institute.

Partners only provides physician services at the cancer center.

Patriot Place, Foxboro, MA

A rare clinical opportunity
About 30,000-40,000 current BWH patients live in the Foxboro area.
Population growth in Foxboro and the surrounding region is expected to outpace the growth in other parts of Eastern Massachusetts.
Between 2006 to 2016 the Foxboro market is projected to grow by 10.3%, compared to 4.7% for Eastern Massachusetts.
The site will include a Partners’ medical home project.
Sturdy Memorial, a local community hospital in the region, has a strong financial performance.
For FY2007 it had an total margin of 14.74%, compared to the median margin for the state of 2.99%.

Cancer Center at South Shore Hospital

Weymouth, MA

South Shore Hospital decided to build a cancer center and invited Partners and Dana Farber Cancer Institute to participate.

The Cancer Center builds on the existing relationship between Brigham and Women’s Hospital and South Shore Hospital

Brigham and Women’s Hospital has provided OB/GYN, cardiac care and other clinical services in the past to South Shore Hospital.

Operating Assumptions - Compared

Mergers of Teaching Hospitals in Boston, New York and Northern California

Prof. John Kastor, M.D. – former chair of Medicine at University of Maryland and Chief of Medical Services at the University of Maryland Hospital

Case Studies: Boston Partners (BWH & MGH)

New York New York (Cornell) and

Presbyterian (Columbia)

No. California UCSF and Stanford

Year: 1999

Dimensions – At similar state of development

1Includes BWH and MGH only

2Different methods for counting research and physician practice staff

	Boston1	New York	California
Budget	$1.8B	$1.6B	$1.5B
Employees2	16,000	14,000	12,000
Inpatient Discharges	88,000	90,000	60,000
Doctors	5000	6000	2000
Market Share	13%	22%	30%
Unions	BWH	Presbyterian	UCSF
Date of Merger	March 2004	June 1996	November 1996

Scorecard I

	Boston	New York	California
Governance	Parent Co.	Full Asset	Full Asset
Boards	System Board	System Board	Univ. Caucus
Roles of University & System	CEO	CEO	Universities
Finances	Positive	Break-even	Losses
Comprehensive Mgd. Care Contracting	Yes	No	No
Allegiance Transfer Effort	Modest	Modest	Failed
Brand	BWH & MGH	NY Presbyterian Hospital	UCSF-Stanford Health Care
Management	Strong	Strong	Mixed
Leadership Transition	Smooth	OK	Hunter
Clinical Programs	Service Lines	Service Lines	Incomplete
Education Support	Joint Programs	OK	Cut

Inherited

One Medical School

One University

Independence from Medical School

Independence from University

Founders’ budgets breaking even

Selected Strategy

Parent Company

Board Composition

Finances

Comprehensive contracting

Modest allegiance transfer

Brand

Management

Leadership Transition

Clinical Programs

Education Support

Anthropology – Choices we made

Managed Locally

Brand

Workplace

Hospital Operations

Operating Budget Tradeoffs

Clinical

Boards

Management Transition

Space

Planning

Marketing

Research

Education

Managed Centrally

Financial Framework –

Margin Targets

Capital Allocations

Legal

Contract Negotiations

Materials

Real Estate

Local Comparisons

Partners

PCHI

BWH and MGH

Physician Focus; No TV Ads

Existing Satellites

Moderate Debt

Stable Leadership:

Nesson, Thier

Mongan

Otten, Gottlieb

CareGroup

Community Hospitals

BID

Consumer Focus: TV Ads

New Satellites

Significant Debt

Changing Leadership

Rabkin, Reinertsen, CFO and GC

Kressel, Rosenblatt, Melzer, Levy

Operating Assumptions – Kastor’s Criteria

Structure

Governance

Boards

Roles of University vs. Hospital CEO

Finance

Budget Balance

Comprehensive Managed Care Contracting

Culture

Allegiance Transfer

Leadership Transition

Brand

Management

Program

Clinical Program Integration

Education Support

Scorecard II

	Boston	New York	California
Governance	+	_	_
Boards	+	+	_
Roles of University & System	+	+	_
Finances	+	+	_
Comprehensive Mgd. Care Contracting	+	+	_
Allegiance Transfer Effort	+	+	_
Brand	+	_	+
Management	+	+	_
Leadership Transition	+	+	_
Clinical Programs Education Support	Incomplete +	Incomplete +	Incomplete _

Key Factors

Boston	New York	California
Parent Company Model	Business People on the Boards	Losses - $1M per week
Preserve MGH and BWH Brands and organization	Reasonable leadership transition	University role in Boards
Smooth leadership transition	Clinical Consolidation	Cost of Merger
One medical school; One University	Failure of Columbia - Cornell Care	UCSF public processes
Independence from university	Break-even budget	UCSF Pension subsidy
Break-even budget	Mt. Zion losses
Comprehensive Contracting
Faculty Practice Plan in Hospital

Management: Operating Choices

GM vs. Microsoft: Practical

Coke vs. Pepsi: Flexible

Physicians vs. Hospitals: Physician-driven

Service vs. T.V. Ads: Mission-driven

Coke vs. Pepsi

Patriot’s Day

What made them great

Consistency is not necessary for greatness

Tom Peters: Wang, Data General, Digital vs. MGH and BWH on responding to change

Respect organizational cultures

Systems Experience

Rational = ƒ(economics)

vs.

Success = ƒ(economics and anthropology)

Environmental Challenge in 1993

Emerging analysis primacy of primary care

Development of integrated delivery systems

Overcapacity in Boston hospitals

Changing care patterns (more outpatient)

Uncertainty of research and teaching funding

Expected strong growth in HMO enrolled population: (27% in 1990 in MA vs. projected 52% in 2000)

Greater marketplace emphasis on cost relative to quality, choice, and reputation

*Bureau of Labor Statistics, CPI for Medical Care, MA-NH-ME- CT

MGH and BWH only

Total Cost per Adjusted CMAD Year to Year Trend

(including inflation adjustment*)

Unit costs at Partners have remained flat.

Cost: Our Perspective

Chart2

FY98	FY98	FY98	FY98	FY98	FY98
FY99	FY99	FY99	FY99	FY99	FY99
FY00	FY00	FY00	FY00	FY00	FY00
FY01	FY01	FY01	FY01	FY01	FY01
FY02	FY02	FY02	FY02	FY02	FY02
FY03	FY03	FY03	FY03	FY03	FY03
FY04	FY04	FY04	FY04	FY04	FY04
FY05	FY05	FY05	FY05	FY05	FY05
FY06	FY06	FY06	FY06	FY06	FY06
FY07	FY07	FY07	FY07	FY07	FY07
FY08 Feb YTD	FY08 Feb YTD	FY08 Feb YTD	FY08 Feb YTD	FY08 Feb YTD	FY08 Feb YTD

Tot Cost/Adj CMAD NY AP 8

Tot Cost/Adj CMAD in '93 dollars NYAP 8

Tot Cost/Adj CMAD NYAP 14

Tot Cost/Adj CMAD in '93 dollars NYAP 14

Tot Cost/Adj CMAD NYAP 21

Tot Cost/Adj CMAD in '93 dollars NYAP 21

Tot Cost/ Adj CMAD

4517

3428.067614534

4665

3376.1163000904

4749

3230.5573491929

5413

3523.5842818428

5440

3390.4722366373

5677

3415.870240481

5897

3387.0382592061

5911

3395.0793878527

6020

3295.3600729262

6366

3326.3284750924

6144

3210.3302153578

6570

3231.1254888311

6829

3309.2701684165

Graph


	Combined BWH/GH	Tot Cost/Adj CMAD NY AP 8	Tot Cost/Adj CMAD in '93 dollars NYAP 8	Tot Cost/Adj CMAD NYAP 14	Tot Cost/Adj CMAD in '93 dollars NYAP 14	Tot Cost/Adj CMAD NYAP 21	Tot Cost/Adj CMAD in '93 dollars NYAP 21
	FY93
	FY94
	FY95
	FY96
	FY97
	FY98	$ 4,517	$ 3,428
	FY99	$ 4,665	$ 3,376
	FY00	$ 4,749	$ 3,231
1	FY01	$ 5,413	$ 3,524
1, 2, 3	FY02	$ 5,440	$ 3,390
1	FY03	$ 5,677	$ 3,416
	FY04	$ 5,897	$ 3,387	$ 5,911	$ 3,395
	FY05			$ 6,020	$ 3,295
	FY06			$ 6,366	$ 3,326	6144	$ 3,210
	FY07					$ 6,570	$ 3,231
	FY08 Feb YTD					$ 6,829	$ 3,309
1	FY02 and FY03 utilize Final Audited FY02 IP expense %
2	FY02 September YTD Actual (restated) Cost per CMAD
3	CPI for September utilized to calculate FY02 YTD inflation
	Cost deflated by CPI medical care index
	Source: U.S. Department of Labor - Bureau of Labor Statistics

&CPartners' Academic Hospitals Inflation Adjusted Cost Per CMAD FY93 to FY03 (Cost per CMAD for FY01,FY02 and FY03 Budget based upon FY00 403 IP%)

&L Page &P&RUpdated 10-29-02

Graph

Tot Cost/Adj CMAD NY AP 8

Tot Cost/Adj CMAD in '93 dollars NYAP 8

Cost/CMAD

BWH/GH Combined Cost/Case Mix Adjusted Discharge ('02 Based on Restated CMI)

Boston-CPI

Consumer Price Index-All Urban Consumers
Series Catalog:
Series ID : CUURA103SAM
Not Seasonally Adjusted
Area : Boston-Brockton-Nashua, MA-NH-ME-CT
Item : Medical care
Base Period : 1982-84=100
Data:
Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Ann
1990	173.2		177.9		181.7		182.3		182.7		187.5		181.6
1991	189.7		198.4		201.8		205.4		204.6		210.4		202.7
1992	213.8		218.6		223.9		223.9		227.4		232.5		224.2
1993	233.9		232.7		237.7		240.1		240.2		246.1		239.0
1994	247.3		249.3		250.4		250.2		251.8		255.0		251.1
1995	257.9		262.7		265.1		266.7		265.9		273.9		266.1
1996	275.2		278.5		278.5		279.8		282.3		286.5		280.8
1997	291.4		289.8		292.0		292.8		291.8		298.2		293.1
1998	303.5		308.9		313.6		316.3		316.5		320.0		313.9
1999	322.7		327.2		326.7		330.1		331.9		337.2		330.2
2000	343.5		344.3		344.8		346.3		353.1		355.6		348.6
2001	359.9		364.3		369.4		368.6		369.0		373.9		368.2
2002	377.7		374.1		383.8	384.4	385.0	385.2	385.4		391.0		383.4
2003	391.8		392.5		395.8		397.7		399.2		405.3		397.9
2004	412.2		412.6		412.8		415.0		418.2		423.5		416.5
2005	430.4		433.7		435		435.8		438.8		447		437.5
2006	447		454.5		456.7		457.8		459.7		462.4
2007	471.633		475.155		478.927		481.6		488.41		489.806		481.925
2008	495.676
								% Change	Annual	Cumulative
								FY93	Base	Base
								FY94	4.83%	4.8%
								FY95	5.60%	10.7%
								FY96	6.17%	17.5%
								FY97	3.37%	21.5%
								FY98	8.46%	31.8%
								FY99	4.87%	38.2%
								FY00	6.39%	47.0%
								FY01	4.50%	53.6%
								FY02	4.44%	60.4%
								FY03	3.58%	66.2%
								FY04	4.76%	74.1%
								FY05	4.93%	82.7%
								FY06	4.76%	91.4%
								FY07	6.25%	103.3%
								FY08 Feb YTD	5.10%	106.4%

Tot Cost

Avg % Annual Growth
FY98-FY99	3%
FY99-FY00	2%
FY00-FY01	14%
FY01-FY02	1%
FY02-FY03 Dec YTD	4%
FY98-FY08 Feb YTD	5.1%
Avg % Annual Growth - Infl Adj
FY98-FY99	-2%
FY99-FY00	-4%
FY00-FY01	9%
FY01-FY02	-4%
FY02-FY03 Dec YTD	0%
FY98-FY08 Feb YTD	-0.3%

Sheet2

Sheet3

MA Ranked 31st out of 40 States for Average Annual Growth In Family Premiums 1997- 2004

Average Annual Growth

In Family Premiums 1997 - 2004

Source: Agency for Health Care Quality and Research Medical Expenditure Panel Survey. Note: Data only reported for 40 states in 1997

MA = 8.9%

Regional Market Share Comparison

96%

43%

35%

30%

22%

16%

15%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mayo Clinic -

Rochester, MN

Cleveland Clinic

- Cleveland

Duke - Raleigh-

Durham-Chapel

Hill

BJC - St. LouisPartners

Healthcare -

Boston

Johns Hopkins -

Baltimore

UCSF- San

Francisco

UCLA - Los

Angeles

New York

Presbyterian -

New York

74%

61%

52%

42%

43%

28%

22%

10%

20%

30%

40%

50%

60%

70%

80%

South Coast

(New

Bedford/Fall

River)

Cape Cod,

Cape &

Islands

Umass,

Central Mass

Children's,

Eastern Mass,

Age <18

Baystate,

Western Mass

South Shore,

Southeast

Expressway

PHS, Eastern

Mass

Caritas,

Eastern Mass

Hospital

Honor Roll Cancer Heart and Heart Surgery Endocrinology Gastrointestinal Disorders Geriatrics Gynecology Neurology/ Neurosurgery Kidney Disease Ophthalmology Orthopedics Otolaryngology Psychiatry Respiratory Disorders Rehabilitation Rheumatology

MGH5742441735431146

BWH82558122212111435147

SRH7

McLean4

DFCI5

MEEI45

BIDMC50321316925294839

TUFTS40

BMC312520

Baystate43

Lahey

NE Baptist23

Austen Riggs 15

$11,631

$11,934

$12,686

$12,416

$12,363

$12,290

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

NHCTMEMARIVT

162.3

138.4

118.7

106.1

108.0

135.6

100

125

150

175

HousingUtilitiesGroceryTransportationHealth Insurance

Premium

Composite

Percent of Hospital Gross Revenue from

Outpatient Services

31%

33%33%

34%

35%35%35%35%

36%

37%

38%

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

19961997199819992000200120022003200420052006

100,000

200,000

300,000

400,000

500,000

600,000

700,000

198619962006

Inpatient DaysOutpatient Visits

10%

90%

44%

56%

HospitalsNon-Hospitals

2.2%

5.8%

HospitalsNon-Hospitals

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

FY96FY07

Outpatient VisitsInpatient Days

Percent of Hospital Net Revenue from Outpatient Services For

Massachusetts

40.6%

43.6%

44.1%

44.6%

45.8%

46.1%

48.4%

49.7%

50.9%

51.2%

51.1%

20%

25%

30%

35%

40%

45%

50%

55%

FY97FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07

64,000

104,000

131,000

159,000

25,000

32,000

36,000

27,000

55,000

72,000

18,000

80,000

158,000

176,000

-4,000

-1,000

-50,000

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

December 2006June 2007December 2007March 2008

Private GroupIndividual PurchaseMassHealthCommonwealth Care

FY07FY08*FY09*

Estimated Reimbursement PercentageRemaining Gap

AG Com. Bene.

$151 M

Medicaid Losses

$144 M

Medicare Losses

$330 M

Research Losses

$135 M

Other $57 M

$100

$200

$300

$400

$500

$600

$700

$800

Medicare and Medicaid Losses

($$ in millions)

-$28

-$30

-$26

-$54

-$59

-$63

-$89

-$113

-$330

-$401

-$124

-$134

-$146

-$144

-$107

-$227

FY96FY97FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08

MedicaidMedicare

Number of Discharges Covered by Public Payers

5,000

10,000

15,000

20,000

25,000

30,000

35,000

MGH

BWH

BMC

BIDMC

NSMC

Northeast

Lahey

S.Shore

St. E's

Tufts

Mt. Auburn

NWH

Faulkner

MedicareMedicaid/Free Care/Commonwealth CareOther Govt.

($117)($115)

($160)

($229)

($263)

($267)

($87)

($88)

($98)

($99)

($92)

($105)

($11)

($14)

-$400

-$350

-$300

-$250

-$200

-$150

-$100

-$50

FY04FY05FY06FY07FY08FY09*

Dollars in Millions

MedicareMedicaidAdditional Medicaid Losses without Health Reform

FY07 Community Benefit Spending According to AG Guidelines

($$ in millions)

$151

$81

$50

$48

$35

$33

$25

$22

$13

$10

PHS Total

MGH

Umass Memorial

BWH

Children's

BMC

BIDMC

Baystate

Tufts

Berkshire

St. E

Lahey

Mt. Auburn

FY07 Community Benefit Spending According to AG Guidelines

as a Percent of Patient-Care Related Expenses

5.6%

5.2%

4.3%

4.0%

3.9%

3.5%

3.2%

3.0%

2.8%

2.7%

2.6%

Umass

MGH

Children's

PHS Total

BWH

Berkshire

Baystate

BIDMC

BMC

St. E's

Mt. Auburn

Tufts

100

FY96FY97FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07

Dollars in Millions

Health Center LossesHealth Center Grants

Community Benefit ProgramsDoN Spending

$6,437

$6,118

$6,015

$5,881

$5,163

$4,419

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

BWHMGHSt. E'sBMCTuftsBIDMC

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

$13,000

Cedars

HopkinsStanford

UCLA

UCSF

Michigan

NY-Pres

Chicago

Washington

BWH

MGH

Mayo

Barnes

Yale-NY

PennDuke

UPMC

Clev Clinic

Cost Per Case

$3,993

$3,984

$3,974

$985

$1,389

$2,214

$2,360

$260

$674

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Academic Health CenterOther TeachingOther Urban Community Hospital

BaseWages and Case MixMultiple Mission (Research, Standby Capacity, Teaching)

Mission-Related Costs of Teaching Hospitals

Indirect medical

education

26%

Standby capacity

29%

Wage and Case

Mix

37%

Research

4,517

4,665

4,749

5,413

5,677

3,428

3,376

3,231

3,524

3,3903,416

5,911

6,020

3,395

3,295

6,144

6,5706,829

3,210

3,231

3,309

5,440

$2,500

$3,500

$4,500

$5,500

$6,500

FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08 Feb

YTD

Tot Cost/Adj CMAD NY AP 8Tot Cost/Adj CMAD in '93 dollars NYAP 8

Tot Cost/Adj CMAD NYAP 14Tot Cost/Adj CMAD in '93 dollars NYAP 14

Tot Cost/Adj CMAD NYAP 21Tot Cost/Adj CMAD in '93 dollars NYAP 21

FY98-FY08 Feb YTD5.1%

FY98-FY08 Feb YTD-0.3%

Avg % Annual Growth

Avg % Annual Growth - Infl Adj

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

MNMS

PAVA

CAAR

CTNY

Coverage	Reimbursement	Quality and Cost Management
Expand Medicaid outreach and eligibility Create incentives that encourage businesses to provide for their employees Protect the safety net Create affordable products	Invest $270 million over 3 years - $90 million per year (approximately $45 million in state cost) Medicaid and uncompensated care pool reforms Adequate annual inflation adjustment	Focus on making the delivery of care more reliable Improve disease management Incentives for providers that promote efficient, high quality care Manage chronic medical conditions Medicaid managed care Invest in information technology Right care, right place Pay for performance

Category	AG	IRS
Community Benefit Program Expenses	$16.7	$16.7
Health Center Losses	$41.9	$21.6*
Grants for Community Health Centers	$6.9	$6.9
Determination of Need Commitments	$4.8	$4.8
Grants Managed	$5.9	$5.9
Doctors Free Care	$16.3	$16.3
Net Hospital Charity Care	$57.9	$81.8**
Bad Debt	not included	$45.2
Medicaid Loss (hospitals and doctors)	not included	$143.6
Medicare Loss (hospitals and doctors)	not included	$330.1
Unreimbursed Graduate Medical Education	not included	$8.1
Contributions for Charities	$0.9	$0.9
Linkage/In Lieu/Taxes	not included	not included
Research	not included	$135.0
Total	$151.3 M	$816.9 M

American Hospital Association	Catholic Hospital Association	IRS * (2010)	Mass. AG	Partners’ Broader Definition
Charity Care					
Bad Debt		--		--	
Medicaid Loss				--	
Medicare Loss		--		--	
Unreimbursed GME				--	
Program Expense					
Grants Managed					
Linkage/PILOT	--	--	--	--	
Volunteerism	?	?			--
Research	--	--		--	--
DON Community Commitment (Mass. only)	NA	NA	NA		
TOTAL	7	5	8	5	9