Humana Inc.

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
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
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
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
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
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
A three-staged approach should be deployed to make this product a success
Pre-Launch Patient Preparation
Rollout of core capabilities
Post Launch 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
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
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
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.
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
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
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.
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

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3rd Annual Humana Case Competition

Medicare market share Humana overview

Applications of technology to better manage chronic conditions

27% 52% 20%

Source: Health Care Advisory Board, 2011

Medicare is responsible for nearly 78% of Humanas total revenues

Growth in enrollment (2012 2013)

Average annual premium

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

32.6% 15.9% 42.9% 7.6%

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

Growth in enrollment likely being driven by attractive premiums

Source: Team Sage Analysis

Target current beneficiaries

Preventive and healthcare interventions

Disease awareness and brand building initiatives

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

Have a 3rd party developer create the app

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

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

Medication adherence Remote patient monitoring Clinical interventions

Numerous applications of the product

Managing the disease

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

Assist patients in their health decisions

Support healthy lifestyle choices

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

Pre-Launch Patient Preparation

Rollout of core capabilities

Post Launch Analysis

Measure and reward success

Video use can be tied to patient

Connecting to clinical support

Allowing for feedback

easily accessible medical

with patient to ensure

adherence can be tied to

Challenges of this approach can be overcome with careful planning

acquainted with technology

adopt technology for better health outcomes*

Pilot (1.5 years)

Introduction to patients (in year 3)

Measure performance (year 5)

4 Measure performance 3 App enhancements

2 Pilot initiation 1 Design and develop

Modify program based

measure performance on yearly basis

baseline data and

compare with subsequent

to select the sample patient population

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

Cumulative Cost Over 5 years (approx.)

Cumulative Savings over 5 years (approx.)

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

Increasing disease burden resulting in rising

healthcare costs and reduced productivity

20% of people drive 80% of healthcare costs*

Projected annual Healthcare costs* ($ trillions)

Healthcare costs in 2023 ($ billions)

Source: Study by Milken Institute

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