如何進(jìn)行細(xì)分市場(chǎng)MicromarkeAnalysis

MicromarketAnalysisHow-to-GuideCONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.TaraHahn/CLFrankKochenash/PTPratKumar/ATTonyUeber/PTPracticedevelopmentdocumentJune2005PLANSCANDEVELOPWINNINGPROVIDERSTRATEGIESBYANALYZINGMICROMARKETS

Source: IrvingLevinAssociates;TheComparativePerformanceofU.S.Hospitals;TheSourcebook2005ProvidershaveconsolidatedinmanyMSAs…

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Market15Amicromarketbasedapproach…RevealsthemostcompetitivecontractingstrategiesIdentifieskeyprovidersneededtomakeanetworkviableEnablestailoringofcaremanagementtoolstomaximizetheireffectivenessOptimizesspendinglevelsformarketingandcontracting…butcaredeliveryhappenswithinsmallergeographicboundariesSeventeenmicromarketswereidentifiedbyanalyzinghospitalreferralpatternsbyzipcodeDespiteoveralldominantMSAshare,largeintegrateddeliverysystemdominatesonly3ofthe17micromarketsEXAMPLE

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Market21PLANSSHOULDCATEGORIZEEACHMICROMARKETBYLEVELOFPROVIDERCONSOLIDATIONMicromarketscategorizedbyHerfindalindexRelativePhysicianconcentrationPhysiciandominatedFragmentedConsolidatedPayor:MarketshaperProviderdominatedHospitaldominatedCLIENTEXAMPLEConsiderrisk-sharing/gain-sharingagreementsFacilitateintroductionofnewhospital/physiciancapacityConsiderclosepartnerships/narrownetworkproductswithkeyhospitalsFacilitateintroductionofnewphysiciancapacityTradevolumeforpricePartnerwiththeleadhospitalPartnerwithphysicianstocreateleveragewiththeleadinghospitalsRelativehospitalconcentrationFragmentedConsolidated2RELATIVEPROVIDERCONSOLIDATIONSUGGESTSDIFFERENTPROVIDERSTRATEGIESNetworkConsolidatedFragmentedFragmentedConsolidatedConsolidatedConsolidatedDevelopanarrownetworkChanneltopreferredhospitalsInfluencephysicianreferralpatternsHelppartnersdifferentiateclinicalprograms(e.g.,centersofexcellence)PickpartnerstomaximizeleverageofnarrownetworkproductProactivelydiscourageconsolidationPartnerwithleadhospitaltoensureindependenceandaccessPartnerwithleadhospitaltoensureindependenceandaccessBepreparedtointroducenewphysiciancapacityIfwilling,helpphysiciansoutofcontractsHelphospitalsdefendagainstphysiciancarve-outPartnerwithleadphysicianstoensureindependenceandaccessBepreparedtointroducenewphysiciancapacityIfwilling,helpphysiciansoutofcontractsBuildanarrownetworkproductaroundhospitalsHelphospitalsdefendagainstphysiciancarveoutContractMaintainadvantagedrateswitheachhospitalUsetheimpliedthreatofexclusionfromnetworkPayforperformance(e.g.,medicalmanagement)Considergain-sharingwithhospitalUtilizepartnershipagreementstosecurelong-termcontractsTieratestochangeofownershipclauseConsiderbroaderriskorgainsharingwithhospitalandphysiciansUtilizepartnershipagreementstosecurelong-termcontractsTieratestochangeofownershipMaintainadvantagedrateswitheachhospitalIntroduceincentive-basedpaymentsforphysiciansPartnerwithdominantphysicianstoimprovecostandqualityHospitalsPhysiciansFragmentedFragmentedThisslideisarepeatofpage42.3EXAMPLESOFSUCCESSFULMICROMARKETAPPROACHESMicromarket1Micromarket2CLIENTEXAMPLE4CLIENTSHAVELEARNEDIMPORTANTLESSONSTHROUGHMICROMARKETANALYSISPayorscanshareeconomicvaluebyfacilitatinghospitalcapacityconsolidationCountertoconventionalwisdom,globalrisksharingmaymakesenseinselectmicromarketsThebeststrategytobalancethemarketpowerofanaggressiveintegrateddeliverysystemisNOTtoout-competethemhead-to-head,buttostoptheirprogressinselectmarketsConsolidationofphysiciansincertainspecialties,e.g.,Oncology,maychangethebalanceofpowerinmanymicromarkets5UnderstandingcompetitivedynamicsHospitalsPhysiciansDefinemicromarketsDETAILEDAPPROACHFORMICROMARKETANALYSISClassifyDRGsMaphospitalfootprintsbasedonphysicianreferralpatternsCreatepreliminarymicro-marketsVerifyboundariesandfinalizemicromarketdefinitionsQuantifymarketshareIdentifyclinicalstrengths/

weaknessesUnderstandout-migrationDetermineoperationalandfinancialhealthDeterminelevelofPCPandspecialist(e.g.,oncology,cardiology,orthopaedics)consolidationDetermineamount/impactofverticalintegrationCategorizemicromarketsIdentifyappropriateprovidermanagementtools:NetworkContractualCaremanagementChannel/

physicianstrategyAssigntacticstoeachmicromarkettypeDevelopinitialstrategyTestqualitativelywith:HospitalsPhysiciansEmployersSubscribersReviseandimplementIdentifyappropriatetoolsforeachtypeofmarketCustomizestrategy/toolsforeachmarketEvaluateandupdateproviderstrategyAtaminimum,updateoverallcharacterizationevery2-3yearsSignificantmarketplacechangesmaynecessitateadeeperlevelofanalysis.Forexample,NewclinicalcapabilitiesChangesinownership/leadershipCompetitiveactivity6SelectcountiesthatdefinetheregionofinterestSelectallacutecarefacilitiesinregionandmaplocationsIdentifytertiaryandquaternarycarehospitalsCollectinpatientadmissiondataoncountiesofinterestSeeExhibitAIdentifyandlocatecompetinghospitals

ClassifyDRGsIdentifyquaternaryDRGsDefinedasaDRGinwhich>50%ofallcasesaretreatedatquaternaryhospitalsIdentifytertiaryDRGsDefinedasaDRGinwhich>50%ofallcasesaretreatedattertiaryandquaternaryhospitalsIdentifynormalDRGsDefinedasallremainingDRGs;theseareservicestypicallyperformedatcommunityhospitalsSeeExhibitBMaphospitalfootprintsUsingnormalDRGsonly,determinethenumberofcasesperzipcodetreatedbyeachhospital(ExhibitC)Createahospitalfootprintbyassigningzipcodestoeachhospital(ExhibitD)Create2mapsforeachhospitalfootprint(ExhibitE) (1)Numberofadmissionsperzipcode (2)MarketshareofzipcodeMICROMARKETANALYSISWORKPLANDETAIL–DEFINEMICROMARKETS7MICROMARKETANALYSISWORKPLANDETAIL–DEFINEMICROMARKETS(CONTINUED)Formpreliminarymicromarketsbyoverlayinghospitalfootprints1. Hospitalfootprintscompletelyenvelopedwithinanother(nontertiary)hospitalfootprintarepartofthesamemicromarket,e.g.,2. Hospitalfootprintswithsignificantoverlaparepartofthesamemicromarket,e.g.,3. Ifhospitalfootprintsdonotoverlaporonlyoverlapslightly,placeinseparatemicromarkets,e.g.,HospitalsAandBareinthesamemicromarket,definedbyhospitalA’sfootprintHospitalsAandBareinthesamemicromarket,definedbytheunionofbothhospitalfootprintsForsituationswhereitisunclearwhetherornotthehospitalfootprintoverlapissignificant,usethedecisioncriteriaofExhibitFtodetermineifHospitalsAandBareinthesamemicromarketHospitalsA,B,andCarepartofdifferentmicromarketsTheoverlappingzipcodesbetweenAandBarecontestedzipcodes.SeethenextstepforboundaryverificationHospitalAHospitalBMicromarketboundaryHospitalAHospitalBMicromarketboundaryMicromarketboundaryContestedzipcodesABCCreatepreliminarymicromarkets8CreatepreliminarymicromarketsVerifyboundariesandfinalizemicromarketdefinitionsMICROMARKETANALYSISWORKPLANDETAIL–DEFINEMICROMARKETS(CONTINUED)Whenitisuncleartowhichmicromarketazipcodebelongs,i.e.,acontestedzipcode,assignthezipcodebasedonthemarketshareofthehospitalsineachmicromarket,e.g.,CreateanoverallmapofthemicromarketsTestmicromarketswithknowledgeof:MarketdynamicsGeographicboundaries(e.g.,rivers,mountains,highways,railroads,etc.)andrefineasnecessaryIdentifyallremainingzipcodesnotyetassignedtoamicromarket:Forunassignedzipcodeswithinamicromarket,assigntothatmicromarketForallunassignedzipcodesphysicallyinbetweenothermicromarkets,usethesamemethodologyasoutlinedincreatingpreliminaryboundariesMapandnameallmicromarketsSeeExhibitH

IfmarketshareofhospitalsA+BisgreaterthanthemarketshareofhospitalsC+D+Einthecontestedzipcode,thenassignthecontestedzipcodetomicromarketX,elseassignittomicromarketYSeeExhibitGforexampleMicromarketYContestedzipcodesABCMicromarketXEDXY9QuantifymarketshareIdentifyclinicalstrengths(weaknesses)UnderstandoutmigrationDetermineoperationalandfinancialhealthMICROMARKETANALYSISWORKPLANDETAIL–UNDERSTANDHOSPITALCOMPETITIVEDYNAMICSIdentifythemainhospitalparticipantsinthemicromarketDeterminethemarketsharefornormal,tertiary,andquaternaryDRGsSeeExhibitIMeasuremarketsharefornormalandadvanced*DRGsbyspecialtyline.Ataminimum,analyzeforcardiology,oncology,orthopaedics,andopenhearts**ListtheclinicalcapabilitiesofeachparticipanthospitalUsemarketshareandclinicalcapabilitiestodeterminestrengthsandweaknessesforeachhospitalSeeExhibitJAllcasesnottreatedatoneofthemainhospitalsinamicromarketareoutmigrationMeasurethenormalDRGoutmigrationbyspecialtylinetodetermineclinicalshortcomingsinthemicromarketMeasuretheadvancedDRGoutmigrationbyspecialtylinetodeterminewhichtertiaryandquaternaryhospitalsarebenefitingfromthemicromarketExhibitJalsodescribesoutmigrationSeeExhibitKAnalyzeavailablefinancialandoperationalstatisticstoassessthehealthandvulnerabilityofthemainhospitalsOperationalmetricsOperatingincomeOccupancyrateBedsFinancialmetricsNetincomeFundbalanceLong-termdebt/equityDriversofperformancePayorandMedicarereimbursementMarketsharehistoryCMIchangesSeeExhibitLforexamplesofanalyses*AdvancedDRGs=tertiary+quaternaryDRGs**OpenheartsdefinedasDRG104-10910DeterminePCPconsolidationDeterminespecialistconsolidationDeterminetheamount/impactofverticalintegrationMICROMARKETANALYSISWORKPLANDETAIL––UNDERSTANDPHYSICIANCOMPETITIVEDYNAMICSForeachadmissiondeterminethereferringphysicianGroupreferringphysiciansintopracticesCalculatethepercentageofadmissionsoriginatinginthemicromarketthatarereferredbyeachpracticeIdentifythetop7referringpractices.ThesearetypicallyPCPpracticesSeeExhibitMForselectclinicalspecialties(e.g.,cardiologyandoncology)determinetheattendingphysicianforeachspecialtyadmissionGroupattendingphysiciansintopracticegroupsCalculatethepercentageofspecialty(e.g,.cardiology)admissionsattendedbyeachpracticeIdentifythetop7attendingpractices.ThesearetypicallyspecialistpracticesSeeExhibitMIfnecessary,performtheaboveanalysisbutonlyforadmissionstoaparticularhospitalratherthantheentiremicromarket.Thisgivesagoodindicationofhowdependentahospital’’sreferralbaseisonasinglepracticeorphysicianSeeExhibitNForthereferringphysiciansandattendingphysicianspreviouslyfound,determinethefractionofcasestreatedbyphysiciansthatareownedbyanintegrateddeliverysystemSeeExhibitMSummarizephysicianconsolidationontoasinglechartbyplottingthefractionofcasestreatedbythetop2groupsvs.thefractiontreatedbyIDSphysiciansSeeExhibitODeterminetheimpactofverticalintegrationonreferralpatternsandoutmigrationSeeExhibitP11MICROMARKETANALYSISWORKPLANDETAIL––IDENTIFYAPPROPRIATETOOLSFOREACHTYPEOFMICROMARKETCategorizethemicromarketsintotypesbasedontheframeworkandrulesofExhibitQFillthemarketstructurematrixofExhibitQbyplottingtheHerfindahl-HirschmanIndex(HHI)*forhospitalconsolidationvs.theHHIforphysicianPCPconsolidationThisessentiallydefineswhichparty(physicians,hospitals,orpayors)hasthegreatestpowerineachmicromarketFillthecompetitivedynamicsmatrixofExhibitQbyplottingcompetitiveHospital14’’smarketshare(dis)advantageagainsttheotherleadinghospitalofeachmicromarketThecompetitiveintensity,population,geographic,andstabilitylocationdeterminethepriorityandurgencyofactionrequiredineachmicromarketConsidernetwork,contractual,andcaremanagementleversSeeExhibitRforaframeworktoidentifytoolsSeeExhibitSforvariousdetailsonderivingavailableleversappropriatetoeachmicromarkettype*TheHHIforanymarketisthesumofthesquaresofeachparticipant’’smarketshare.WhencalculatingtheHHIconsideranintegrateddeliverysystemasoneentityAssigntacticstoeachbasicmicromarkettypeCategorizemicromarketsIdentifyappropriateprovidermanagementtools12MICROMARKETANALYSISWORKPLANDETAIL––CUSTOMIZESTRATEGY/TOOLSFOREACHMICROMARKETUsingavailableleversforthegenerictypeofmicromarket,craftastrategythataddressestheuniquecharacteristicsofeachmicromarketDevelopstrategyasasetofhypothesesandtestanalyticallyForexample,““webelievehospitalXwouldbenefitfromagainsharingarrangementwithhospitalYtotreatcardiovasculardisease.Thiswouldyield$___peryear””DevelopinitialstrategyTestqualitatively

withhospitals,physicians,employers,andsubscribersInterviewhospitaladministratorstoverifyanalysesandtesthypothesesIfnecessary,interviewappropriatephysiciansIfnecessary,conductmarketresearchonconsumersandinterviewemployersReviseandimplementFinalizestrategybasedonfeedbackImplementstrategies13ANOTEABOUTOUTPATIENTSERVICESThisanalysisreliesalmostentirelyuponpubliclyavailablein-patientinformationontheassumptionthatoutpatientutilizationtrendswillmimicinpatienttrendsVerifyingthisassumptionisdifficultduetothelackofoutpatientinformationClaimsdataisonesourceofalargeamountofrelativelyrobustoutpatientutilizationdataExhibitTgivesonewaytoaddressthisproblem.ExhibitTdefinesspecialtylinesforinpatientandoutpatientservicesbyprimarydiagnosisusingICD-9codes.Thisisnotaperfectmethodsince,dependingontheclaimsprocess,asingleoutpatientvisitmayresultinmultipleclaimsforservicesdoneorservicesperformedinsupportofaspecialtycourseoftreatmentmaynotgetcorrelatedwiththeprimarydiagnosisNevertheless,thecodingmethodofExhibitTcanbeusefultodeterminetherelativeproportionsofservicelinebusinesswithinahospitalorsystem(ExhibitU)14Exhibits15GEOGRAPHICAREAOFINTERESTAreaofinterestis13countiesandallacutecarefacilitiescontainedtherein16HOSPITALDISTRIBUTIONOFCASESBYDRGNote:DRGclassifiedquaternaryif>50%ofcasesaretreatedatquaternaryhospitals;classifiedtertiaryif>50%ofcasesaretreatedattertiaryhospitals,elsetheDRGisclassifiedasnormalNumberofadmissionsExhibitB001-Craniotomy>17XTrauma002-CraniotomyForTrauma>17003-Craniotomy0-17004-SpinalProcs005-ExtracranialVascularProcs006-CarpalTunnelRelease007-Periph+CranN+OthNSProcCcTypeofHospitalHospital#ofCases#ofCases#ofCases#ofCases#ofCases#ofCases#ofCasesTertiary491016167011quaternary30028729156333quaternary3374007711831168422534113028774111112072003106010100186021007840140048304Tertiary8370148217681007601030017602Tertiary591151874084502640748515630105109610767045907130356028109440600004003440039016104390452003801100038030000320221003200000031006206261510012500000124030000220620002209Tertiary1001703500131011002Total1124154190304226210421Fractionconcentratedatquaternaryhospitals57%44%4%35%12%60%35%Fractionconcentratedattertiaryhospitals75%56%96%62%26%70%61%DRGclassification*QuaternaryTertiaryTertiaryTertiaryNormalQuaternaryTertiaryDRGNeurosurgery17GEOGRAPHICDISTRIBUTIONOFCASESBYHOSPITALNote1 Thismatrixwillbecompletedforallhospitalsinallzipcodeswithintheregionofinterest.Paralleltablesaremadetogiveboththehospitalmarketshareofeachzipcodeaswellasthefractionofthehospital’stotalbusinessthatcomesfromeachzipcodeNote2Dependingonthesourcesomehospitaldischargesdonotprovidethepatientzipcodeforprivacyreasons(e.g.,psychology,AIDS).ThisdoesnotinvalidatethedataunlessthereisreasontobelievethatthoseprivacycSource: StateDataNumberofadmissionsZipCodeHospital1Hospital23MedicalCenterHospital12GeneralHospitalMemorialHospitalHospital26HealthCenterHospitalHospital14AHospital14BHospital14CHospital9Hospital24Otherhospitals...1576610382522839994177116130332108311521341221022763651341123177201491151214591371214322764121523239181237631483342851182162365115610543341023342374258160183147151021282364261141912911012710261681424351116212432842816369511225150139412225131953110103423528164615237601685829389862558125320180683142153982862117437227488321100893122244649allotherzips...Hospital18<25%25%Hospital’sshareofzipcodeHospitaladmissionsfromzipcodeaspercentofahospital’stotalprivacyadjusted*admissions0-5%6%XASSIGNINGZIPCODESTOHOSPITALS*Patients’homezipcodesarenotdisclosedforsomecases(e.g.,STDs,psychiatriccases,abortion).Thistypicallyrepresents~10%ofahospital’stotalnumberofadmissionNote:1zipcodemaybeassignedtomorethanonehospital;hospitalfootprintsmayoverlapsozipcodescanbeassignedtomorethan1hospital(tosimplifyanalysisonlyconsiderzipcodeswith100admissions)AssignzipcodetohospitalAssignzipcodetohospitalAssignzipcodetohospital19Source: StateData;MapInfoZipcodeswhereeachhospitalgets>=100normalDRGadmissionsZipcodeswhereeachhospitalhas>=25%marketshareofnormalDRGadmissionsHospital27Hospital24Hospital1020Ispopulation(ABC)>25%(ABC)YesNoA,B,CarepartofsamemicromarketIs(AB)>25%(AB)Is(AC)>25%(AC)Is(CB)>25%(CB)A,BarepartofsamemicromarketYesNoA,Barequestionable*A,CarepartofsamemicromarketYesNoA,Carequestionable*C,BarepartofsamemicromarketYesNoC,Barequestionable*(ABC)ACBUNDERSTANDINGMICROMARKETBOUNDARIESMMA,B,andCfootprints*Inquestionablesituations,themicromarketsareprobablyseparate;however,therelativemarketsharesofeachhospital,thecharacterofthecompetition,andgeographicconsiderations(e.g.,riversandhighways)needtobetakenintoaccount21EXAMPLEOFCONTESTEDZIPCODESPopulation(Market14Market13)<25%population(Market14Market13).Therefore,Market14andMarket13aredifferentmicromarketsMarket14ownsagreatershareofzipcodexxxxx;therefore,zipcodexxxxxxbecomespartofMarket14micromarketXXXXXisacontestedzipcodeRegion1micromarketMarket13micromarket22MAPOFMICROMARKETSINREGIONOFINTERESTMarket1Market14Market6Market16Market7Market5Market4Market3Market2Market9Market12Market13Market10Market11Market8Market1523SHAREOFINPATIENTDRGsINMARKET13OtherHosp10Quarter-naryDRG100%=Percent*Accountsfor71%ofHospital10’stotalbusiness**Directcostsarethoseassociatedwithprovidingdirectservicestopatients.Othermonetarymeasures,suchastotalcost,revenue,orestimatedcontributionmargincanbeusedifavailableSource: StateData––January-December1999Hosp9Hosp14Hosp24CasevolumeOtherHosp10NormalDRGTertiaryDRGQuarter-naryDRG100%=Hosp9Hosp14Hosp24Directcost**TotaloutmigrationtoHospital14isworth$XXmillionindirectcostsNormalDRGTertiaryDRG24HOSPITALSHAREOFCORESPECIALTYDRGsMarket14OB/GYNNeona-tologyCardi-ologyOrtho-paedicsOncol-ogyNeu-rologyMarket13Hosp24Hosp9*Hosp10Hosp14***Hospital1andHospital9**Hospital14AandHospital14BSource: StateData––January-December1999PercentofadmissionsHosp24Hosp14**Hosp9*Hospital28Hosp10Hospital27Hospital29OtherOtherTotalOB/GYNNeona-tologyCardi-ologyOrtho-paedicsOncol-ogyNeu-rologyTotal100%=100%=25MARKETSHAREOFHEARTSURGERYDRGs*OtherCasesNumberofcases,totalcost*IncludesDRGs103-109(Hearttransplants,cardiacvalveprocedures,coronarybypasses,othercardiacprocedures);115-118(permanentpacemakerimplant,otherpermanentpacemakerimplants/PTCA,cardpacemakerrevXdevicerepair/devicereplacement)**Hospital14AandHospital14B***Hospital1andHospital9Source: StateData––January-December1999Hosp26Hosp14**Hosp9***Hosp10Hosp24TotalcostMarket14CasesTotalcostMarket13Hospital14pulls~Xcardiacsurgerycasesworth~$XmillionoutofCountyCreatingagain-sharingpartnershipbetweenHospital24,Hospital10,andthephysicianscouldkeepmoreofthisbusinessinCounty(assumingabilitytorenegotiatecontractswithHospital14physiciansorbringinnewphysicians)100%=100%=26HOSPITAL10OPERATINGPROFITTRENDSANDIMPACTOFKEYDRIVERS*Netpatientrevenue–salaries,benefits,physicianprofessionalfees,supplies,leasesandrentals,provisionforbaddebt**Doesnotincludeone-timepensioncurtailmentloss***Datanotavailablefor2000OperatingprofittrendsIncreaseinexpensesvs.peergroupRelativeimpactofkeydrivers1997-99***DecreaseinMedicarereimbursementDecreaseinCMINetdecreaseinPayor9reimbursement(allproducts)PatientmixchangetoPayor9productsPayor9$Millions1997199819992000-28%CAGR**27Hospital10HospitalZHospital24Hospital14HospitalYSource: CHIPSdatabaseHospital27KEYFINANCIALMEASURES–FY99OperatingmarginLong-termdebit/equityratioPercent1457628LONG-TERMDEBT/ASSETRATIO––1999Hospital14DHospital14AHospital14CHospital14BHospital10Source: CHIPSdatabaseTotalHospital14HealthSystemHospital14E29CONTRIBUTIONMARGIN*OFCASESLEAVINGHOSPITAL10’sCOREMARKET$Millions*Estimatecontributionmargin=(1.03Xtotalcost)––directcost** DRG116and137*** DRG104-112Source: StateData–January-December1999EvenifHospital14successfullyshifted100%ofthecasesfromHospital14toHospital10,itwouldonlygenerate$1.8millionofnetcontributionHospital14OtherNormalcardiologySpecialcardiology**Openhearts******Oncology4.8Totalout-migration0.32.31.21.030PHYSICIANMARKETCONCENTRATION*Databaseonly–notproviderdirectoryNote:Primaryzipcodeofphysiciansgroup–nosecondaryzipcodesPCP*OB/GYNGeneralsurgeryCardiologyOrtho-paedicsRadiationOncologyNeurologyMarket14PercentMarket13PercentTotalphysiciansNumberTotalgroupsNumberTotalphysiciansNumberTotalgroupsNumberHospital14physiciansNumberHospital14physiciansNumberTop2practicesNext5practicesBalancePercentofadmissions4767497515532321596318112519189301354104120011022700503210010010031ONCOLOGYCASES––ATTENDINGPHYSICIANNumberofcasesHospital24100%=249casesHospital10100%=252casesPhysician24CPhysician24BPhysician24AOtherHospital14Othernon-Hospital14Physician10CPhysician10APhysician10BOtherHospital14Othernon-Hospital14Source:StateData––January-December1999;Payor9data;hospitalinterviews32PCPsPercentAverage18%Average36%00Admissionsservedbytop2groupsinmicromarketAdmissionsservedbyHospital14doctorsMarket11Market10Market13Market1Market2Market3Market14Market7Market9Market5Market4Market16Market6Average18%Market12Market8Market1533CARDIOLOGISTSPercentAverage25%Average49%AdmissionsservedbyHospital14doctorsAdmissionsservedbytop2groupsinmicromarket00Market11Market10Market13Market1Market2Market3Market14Market7Market9Market5Market4Market16Market12Market6Average25%Market8Market1534ONCOLOGISTSPercentAverage39%Average48%00Admissionsservedbytop2groupsinmicromarketAdmissionsservedbyHospital14doctorsMarket11Market10Market13Market1Market2Market3Market14Market7Market5Market4Market16Market6Market12Market9Market8Market1535REFERRERSFORCARDIOLOGYOUTMIGRATIONTOHOSPITAL14*PercentInthecaseofCardiology,non-Hospital14physiciansareresponsiblefor~$XmillionoftheoutmigrationonadirectcostbasisEXAMPLE*Includesnormal,tertiary,andquaternaryDRGsSource:StateData––January-December1999CasesDirectcost100%=OtherphysiciansHospital14physicians36APPROACHTODEFININGAPROVIDERSTRATEGYFragmentedConsolidatedConsolidatedFragmentedHospital14relativecompetitivestrength+MarketstructureCompetitivedynamics=OverallproviderstrategyClearlydefinedintegratedsetofactionsforeachhospital(positiveandnegativeinfluencers)Aprioritizedandsequencedmanagementagendatoimplementproviderend-gamestrategiesRelativephysicianconcentrationLargeSmallRelativesizeAdvantagedDisadvantagedRelativehospitalconcentrationDefinesappropriatetoolboxDefinespriorityandconstraintsontoolboxBalancedEnsureaccessMaintainbalancePrevententryHospitaldominatedProviderdominatedDominantPayor9isanaturalleaderPhysiciandominated37MARKETSTRUCTURE-BASEDCLASSIFICATIONRelativehospitalconcentrationFragmentedConsolidatedRelativePCPconcentration*FragmentedConsolidatedChannelingtoolsaremostappropriateformarketsinthelowerleftboxPartnershipbuildingeffortsshouldbefocusedonthemostconsolidatedhospitalmarketstominimizeriskoflockout/rateincreasesMarketsintheupperrightboxmaybeagoodcandidatetoexplorefullrisksharingandgainexclusivepartnershipIncreasingphysicianconsolidationwouldunderminehospitalsintheupperleftboxHerfindalindexImplicationsSource:StateData;CY99;Payor9providerdatabase;McKinseyanalysisMarket4Market13Market12Market8Market15Market3Market5Market16Market11Market6Market7PhysiciandominatedMarket14Market9Market1Market2Market10HighmarkisanaturalleaderProviderdominatedHospitaldominated38NORMALDRGCASESFROMMARKET13MICROMARKETHospitalNormalDRGadmissionsMarketsharePercentSquareofmarketshare6,454837556504539195116961799,47668965621121004,638.878.034.428.332.44.21.51.04,818.639NORMALDRGCASESREFERREDBYPCPsCasesShareoftotalPercentSquareofmarketshareaddedintoHospital14totaladdedintoHospital14totaladdedintoHospital14totaladdedintoHospital14totaladdedintoHospital14totaladdedintoHospital14totaladdedintoHospital14totalGrandtotalHerfindahlIndex,PCPphysicianconsolidation3,542.3Practicegroup2,416532,803.5194418.1000.01,19426684.7223523.9000.08423.47923.06311.96311.9000.04010.82610.32200.2000.01800.21700.1000.01400.11100.11000.0900.0000.0700.0000.0500.06800.04,563ABCDEFGHIJK.LMNOPQRSTUVWXOthergroups40COMPETITIVEDYNAMICS-BASEDPRIORITIZATIONHospital14’srelativecompetitivestrength*Relativemarketsize*MarketshareofHospital14––marketshareofleadingnon-Hospital14provider**Anunstablemarketcanbecausedbythethreatofacquisition,merger,changeofleadership,orintroductionofnewclinicalcapabilitiesinamicromarketBold=Unstable**SmallLargeDisadvantagedAdvantagedBal