Aetna Investor Day Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“At a recent investor conference, I was actually asked multiple times, “What do you think investors will look back on in a couple of years and really kick themselves over?” I really didn’t have to think about it very long because I think the fog of 2014 and all of the change in 2014 is masking the incredible growth opportunities that are before this company and, frankly, this industry.”

Mark T. Bertolini – Chairman, Chief Executive Officer

” Here’s how you want to think about taxes and fees. You’ve got to get them in the baseline and then — for in future years, the pain isn’t nearly as bad as it was this year.”

“there are 2 ways you solve for these taxes and fees. One is you price for it, and we will detail some of that later. And the other is you solve for it.”

“we believe in the future, that with virtual integration with the provider system, that we’ll become like the Intel Inside of the provider system through virtual integration, connecting with them in ways that allows them to do a bigger piece of what we do today.”

“Secondly, we believe that the marketplace is going to retail. And I’ll show you some statistics in a moment. And that retail marketplace is going to have individuals making the buying decision. And what they value is fundamentally different than the people we have dealt with in the past as benefit managers.”

“what’s happened with the Affordable Care Act is that it has — broke open the black box of managed care. How the business works has been exposed and regulated in far finer ways than it has in the past.”

“what does that cause you to do? Well, you have 2 choices. You can admit you’re a commodity. And when you do that, you put your thumb in your mouth, you get in a corner in a fetal position and you wait till it all goes away, till you’re out of business, or you keep cutting costs, cutting price and hope you’re the last standing. Think of the steel industry in the United States.”

“The other option is to take a look at the things you do as a company and decide which of those things that you do are of value to other parts of the value chain and create a different business model that makes you relevant in powering the rest of the value chain so that you’re no longer a commodity. And that’s the choice we have made.”

“We believe that we have the opportunity to enable the provider network to handle risk, to change the way the provider system works. And we have the opportunity to drive a retail market in health care. ”

“in the future. It will not be about employer-sponsored insurance, it will be about who is providing the subsidy to the individual who’s buying a health care policy. And we believe that subsidy will come in 1 of 3 places: it’ll be the employer providing a subsidy, the government providing a subsidy or people paying for all of it out of pocket.”

“when you get to a retail marketplace where the individuals making the decision based on the subsidy they get from either the employer or the government, their view of what is important changes, and it needs to be a system where the consumer gets what they want or finds what they want, value.”

“Third is that the distribution channel is going to change, and I think pretty dramatically over time. That’ll be more of a retail marketplace, not the model we have today.”

“the system is labyrinthian in its thinking and the way we work. Just take a look at Healthcare.gov. And those people can’t figure it out, and so we have to make it a lot simpler.”

“When you incorporate out-of-pocket cost changes with the amount of premium employees are paying, employees, consumers are now paying 41% of the health care dollar in the United States. We are not far from them paying more than their employers. That’s a huge change.”

“More and more are asking their doctor, do I need to do this? Oh, by the way, how much does it cost? ”

“we believe that the retail marketplace, whether it’s fully insured or self-funded, the retail marketplace grows to 75 million by 2020.”

“here’s how we see it breaking out: we believe there will be 9% uninsured; that there’ll be 15% in government fee-for-service, Medicaid and Medicare; and then the retail market will be individual private and public exchanges, Individual MA, Medical Supplement, managed Medicaid, 46%; and there’ll be 30% remaining in the commercial employer-sponsored market but with largely, probably, employees making a greater part of the decision given their out-of-pocket.”

“CMS, every time they make a decision, impacts the rest of this industry. They’re like the blocking fullback going through the line, and we’re like tailbacks following them. Every time they fix the SGR, we reduce our physician fee schedules because we don’t have to make up for what we thought the SGR was going to generate.”

“if you’re one of those people trying to navigate the health care system, you’re looking in a system that was originally built in 1945 for — with the Hilbert and ACT and a whole bunch of other programs to create a health care system that takes care of people and to employ people after they came back from the war.”

“so this model has to change. This is too complex for consumers to figure out. The incentives are all wrong in dealing with an individual consumer. And so moving this payment model will get all of these parts of the system to work together.”

“all the tools that we invest in, the ACS investments we made, the retail exchange, private exchange models we will build and our public exchange participation is all aimed at having the system work for the individual versus having the individual trying to find their way through the maze.”

“And now if we can make that happen on an individual basis, then what happens is private exchanges allow us to take this across the country. ”

“If you have a health system that’s approaching its community, sign up individuals to be part of its health plan, the carrier doesn’t matter anymore. Multi carrier is extraneous as a concept. It’s really about, are you able to offer a breadth of plan designs, a breadth of care management capability, wellness, et cetera, a product set that provides value to consumers to want to purchase in that place.”

“That same experience is going to occur here when these retail marketplaces occur up. They’re going to want to stay with their system, the people who know them, not necessarily the benefit plan that they have before.”

“the only constant is change and change brings opportunity.”

“Public exchanges are struggling. The enrollment is lower than everybody expected. But my view is that by 2015, if we get it fixed right, it will be a new start, and 5 years from now, nobody will remember it. I think it’s just going to continue. I’m saying public exchanges are here to stay.”

“I don’t think we’re going to repeal the Affordable Care Act. I think we’re going to change it, we’re going to make it better, because it’s now starting to get metastatic to the system in the way we’re all changing and the way the system’s evolving. And while its intention wasn’t to have that all happen, it’s happening anyway, because the private sector is reacting to it.”

“So in the long term, public exchanges will survive. We believe there will be 25 million members on public exchanges and $75 billion in premium. That’s a CBO estimate. We think that’s legitimate”

“in 2016, it’s a completely different game. The ACA pressures abate, hopefully we’ll be over some of the kludginess of what’s going on today, longer-term revenue growth opportunities begin to mature and we’ll return to longer-term operating EPS growth dynamics. So we think the next couple of years is like hard work.”

“For every million members that go from self-insured to fully-insured, it’s $4 billion more in revenue. And 4x to 5x margin, dollars of margin. Public exchanges for every million members, $3 billion of revenue. Medicare Advantage, every 500,000 members, $5.5 billion of revenue. Every 100,000 of dual eligibles, which we’ve won a number of large contracts, $3.5 billion of revenue.”

“we believe that we can go from 2013 to 2020 all the way up to $100 billion in revenue. We believe we can more than double our revenue.”

Joseph M. Zubretsky – Senior Executive Vice President of National Businesses

“[Providers] now understand that by forming communities, health care communities, with physicians, ancillary and ambulatory facilities and acute care facilities and engaging in virtual integration themselves, they can change their revenue model, be reimbursed on the basis of value and not volume and completely change the game.”

“aiming our product line in our business at the large sophisticated integrated delivery systems and freestanding hospitals is the way to go. Because the hospitals are rolling up the docs. We thought about rolling up physician practices. We thought about buying bricks-and-mortar, vertical integration. Our view is, let the hospitals deploy their capital, monetizing the value of physician contracts and physician practices, let them create the communities and we’ll contract with the hospitals.”

“In order for these to work really nicely, having 30%, 40% and 50% market share aggregated in the ratio delivered to the insurance marketplace is about right. So in Chicago, where it’s very fragmented, you need 6, 8 or 10 ACO deals to make it work. But in Dallas and Houston, you may only need 1, 2 or 3. Concentration of patient market share is what make these work really well.”

“if anybody think that just because you own a physician’s contract, you can tell them what to do and how to behave, you’re wrong.”

“our differentiated solution allows us to then convert from volume-based reimbursement to value.”

“This is about enabling them to convert from episodic acute care to patient population health. Episodic acute care, when you show up, I’ll patch you up and send your home. Patient population health, I know everything there is to know about everybody in this room, you’re part of my medical community, you’re part of the medical home.”

“The shift from episodic acute care to patient population health allows the hospital system to convert from volume-based reimbursement to value-based reimbursement.”

“Aetna is your patient aggregator.”

“the business of provider contracting. We’re not in that business anymore. We’re in the business of Supply Chain Management. And the most complex, arcane, Byzantine supply chain ever designed is the healthcare delivery system”

“this is not an HMO. An HMO had a gatekeeper, that gatekeeper was sitting as a payer. That HMO shifted the risk, but it didn’t share the risk.”

“the intense clinical focus of the ACO is a completely new model and is completely anathema to the HMO model of the mid 1990s.”

Dijuana K. Lewis – Executive Vice President of Consumer Products and Enterprise Marketing

“the healthcare system was built to deliver healthcare. It was not built to deliver a simple shopping experience for consumers. That’s the transition that we are making”