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					     Healthcare:
Road to Value in Healthcare

                              Hannaford Bros. Co.
                                 Peter Hayes
                          MBGH Annual Conference
                                May 2007
Hannaford
• Largest northeast supermarket chain

• 5 New England States

• 26,000+ associates
Delhaize                                   U.S. Operations
• Eastern seaboard from Maine to Florida
  100,000+ associates
Healthcare Landscape
             Healthcare Landscape Overview
•National trends still 8-10% with the Northeast Region having the highest costs and
trends (2 times the southeast).

•Pressure to eliminate the “transparency” of provider quality and cost from the Bush
Administration, Medicare, Coalitions and Consumer Driven Health Plans.

•Accelerating legislative pressure by states to solve the “healthcare crisis”.
Massachusetts and Vermont have passed legislation mandating coverage that
becomes effective in mid 2007 which will impact our costs and adds tremendous
administrative complexity. New York, New Hampshire and Maine have pending
legislation.

•Rapidly expanding Medicare/Medicaid programs (i.e., Maine at 25% Medicare)
resulting in significant cost shifts. Public pay programs are approaching 50% of the
total reimbursement of providers which is resulting in significant cost shifting to our
plans (i.e., as much as $1000 per year).
             Healthcare Landscape Overview
• Significant regional and global costs along with huge quality variations

• Increasing obesity levels are driving over 40% of the medical trend

• “ Right Care” is still being delivered less than 50% of the time

• 50% of the US healthcare spend is estimated to be unnecessary (waste, errors, poor
quality, administrative inefficiencies, etc.)
                                                                     10%
                                                                     12%
                                                                              14%
                                                                              16%
                                                                              18%




                                                                0%
                                                                2%
                                                                4%
                                                                      6%
                                                                      8%
                                            United States (29)                                           15.2%

                                                Germany (14)


                                                Norway (13)


                                                 Canada (12)           9.9%

                                             Netherlands (19)


                                                Portugal (30)          9.6%

                                                 Belgium (20)


                                                   Malta (17)


                                                Slovenia (28)         8.8%
Disability adjusted, life expectancy rank

                                            New Zealand (23)


                                                    Japan (1)


                                                 Austria (16)


                                                 Finland (21)
                                                                                                          #1 in cost
                                                                                                                                       Health Care Spending as % of GDP, 2003*




                                            Luxembourg (15)
                                                                                                                       United States

                                                                              #29 out of 30 in quality
                                               Hannaford’s Population
                                                    in the higher cost locations




                                                                                                   n ,
                                                                                           Les s Tha $5500

                                                                                             5       9
                                                                                           $5, 00- $5, 99

                                                                                             0       4
                                                                                           $6, 00- $6, 99

                                                                                             5       9
                                                                                           $6, 00- $6, 99

                                                                                              0
                                                                                           $700+




                M e rce r Hu m a n Re so u rc e Co n su ltin g                                               6

Source: 2003 Mercer National Survey of Employer Sponsored Health Plans and other sources
                                                Plans Cost by State
                                       Annual Medical/RX Costs Per Associate
                                                         2006 Estimate

                            $7,000                                       $6,400      $6,500

                            $6,000                                                                Hannaford
Annual Cost Per Associate




                                                            $4,900                                 Average
  (2006 Projected Cost)




                            $5,000              $4,300                                              $5600
                                     $4,100
                            $4,000

                            $3,000

                            $2,000

                            $1,000

                               $0
                                     New York   Mass        Vermont      Maine    New Hampshire
           Plan Review
Health Management 50% Opportunity
         • Lifestyle Behavior Changes
         • Engaged Consumers/Patients
         • High Quality Efficient Care
       National Group on Health/Watson Wyatt
              Critical Strategic Levers
          Medical Trend:
                              Best Performing Companies                   3% trend
                              Poor Performing Companies                  11% trend

                   4 critical attributes of Best Performing companies strategies
                           Provider Quality                                      Hannaford Practices
Quality – Programs that promote the highest-quality providers and have      Providers of Distinction
employees that use them.                                                    Center of Excellence
                                                                            Aetna Fee Schedule
Health Improvement and Productivity – Programs that help employees          Healthy Behavior Credit
better manage their own health.                                             Simple Steps
                                                                            Health Coach
                                                                            Nurse on-site
                                                                            Wellness Program
                                                                            PHR
Data/Evidence – Programs that use data and hard evidence to manage          SHPS data warehouse
health care program costs and workforce health.                             Maine Health Management Coalition
                                                                            Care Focused Purchasing
Appropriate Use – Programs that engage employees to receive care when       Right Care, Right Place, Right Price
needed, but not overuse services.                                           Patient Advocacy
                                                                            Consumerism
                           High Risk Employees Cost More
                                     Impact on Individual Health Care Costs:
                                        High versus lower-risk employees
                     80
                             70.2%
                                                          Individuals at high risk for depression have
                     70                                    70.2 higher costs than those at lower risk.

                     60

                     50                       46.3%

                     40                                      34.8%
        Percent
                     30
                                                                             21.4%     19.7%
                     20
                                                                                                  14.5%
                                                                                                             11.7%      10.4%
                     10


                       0
                           Depression         Stress         Glucose          Weight   Tobacco-   Tobacco    Blood     Inactivity
                                                                                         past               Pressure




Source: Goetzel et al. (1998), Journal of Occupational and Environmental Medicine
Mercer Human Resource Consulting
Health Promotion
                    2006 NBGH Award
           Aetna                                          Medical Mutual of Ohio
           Baptist Health South Florida                   Pitney Bowes
PLATINUM
Platinum   FPL Group                                      Texas Instruments, Inc
           Johnson & Johnson                              Union Pacific Railroad



           AstraZeneca                                    Kellogg Company
           Bath Iron Works, A General Dyamics Company     Mayo Clinic
           Blue Cross and Blue Shield of North Carolina   Medtronic
 Gold      Cigna                                          Morgan Stanley
           Eastman Chemical Company                       Novartis Pharmaceuticals
           GE Aviation                                    Raytheon
           GE Transporation                               Texas Health Resources
           GlaxoSmithKline                                Washington Mutual
           Hannaford Brothers


           Blue Cross and Blue Shield of Minnesota        Fiserv, Inc.
           The Boeing Company                             Massachusetts General Hospital
Silver     Campbell Soup Company                          Quest Diagnostics
           CVS Pharmacy                                   Target Corporation
           General Mills
                   Hannaford’s Disease Profile
                               Executive Summary

•Hannaford has a 6% higher disease prevalence than benchmarks

• Hannaford has managed that risk significantly better than benchmark (i.e., 24%
below) resulting in an annual savings of $6,200,000

• 5 disease states - diabetes, hypertension, high cholesterol, back and coronary artery
disease account for 34% of total spend

•Hannaford’s delivery of evidence based medicine “right care” for our most costly
disease states (diabetes, CAD, CHF) is significantly below benchmarks and national
standards of care. This represents a significant opportunity to improve outcomes and
reduce costs.
                                    Hannaford Risk Scorecard
        Disease Class - Hannaford   Incidence Rate   Total Risk Score   EBM     Percent of Total Spend
      High Risk Management               0.7%             10.578        0.668            18%
      Stroke/TIA                         0.5%              7.549        1.238             4%
      Congestive Heart Failure           0.3%             12.396        2.008             3%
      Diabetes                           6.5%              5.285        14.57            8%
      Chronic Pulmonary Disease
      Coronary Artery Disease
                                         0.2%
                                         0..9%
                                                           8.840
                                                           7.002
                                                                        0.683
                                                                        1.258
                                                                                          1%
                                                                                         4%
                                                                                                          Hannaford
      Atrial Fibrillation
      Asthma
                                         0.2%
                                         2.8%
                                                           4.363
                                                           3.375
                                                                        0.495
                                                                        0.398
                                                                                          1%
                                                                                          2%
                                                                                                           Health
      Hypertension                       6.5%              3.082        0.682            8%               Dividend
      Hyperlipidemia                    12.0%              1.751        .2000            7%
      Low Back Pain                      5.8%              2.228         .112            7%
      Maternity/Infertility
      Total
                                         1.3%
                                         38%
                                                           2.442
                                                           3.324
                                                                        0.025
                                                                        0.563
                                                                                          3%
                                                                                         66%
                                                                                                          $6,200,000
        Disease Class - Benchmark   Incidence Rate   Total Risk Score   EBM     Percent of Total Spend
      High Risk Management               0.9%             12.530        0.690            18%
      Stroke/TIA                         0.8%              9.003        1.133             4%
      Congestive Heart Failure           0.5%             12.359        1.646             3%                 Every .5
      Diabetes                           4.6%              7.403        1.835            9%
      Chronic Pulmonary Disease          0.2%              9.580        0.551             1%
                                                                                                           reduction in
      Coronary Artery Disease
      Atrial Fibrillation
                                         1.5%
                                         0.2%
                                                           6.894
                                                           5.027
                                                                        1.047
                                                                        0.531
                                                                                         5%
                                                                                          0%
                                                                                                         total risk score
      Asthma                             3.4%              3.928        0.363             5%             is $3.03 million
      Hypertension                       7.5%              3.634        0.571            10%
      Hyperlipidemia                     8.4%              2.770        0.264            8%                  annually.
      Low Back Pain                      6.6%              2.605        0.077            8%
      Maternity/Infertility              1.4%              3.048        0.578             3%
      Total                             35.9%              4.360        0.578           72.6%
0.5
                        Risk Factors Drive Costs

$12,000                                                                                     Hannaford
$10,000
                                                                                            Opportunity
                                                                                              Move all of 5+ to 4
 $8,000
                                                             9221         10095                      risks =
 $6,000                                       6664                                                 $1,700,000
                                                                                                      (6%)
 $4,000                        4130
                3432                                                                          Move everyone to
                                                                                          5+ Risks
 $2,000                                                                              3-4 Risks 2 or less risks =
                                                                                0-2 Risks          $7,000,000
    $0
          <35          35-44          45-54          55-64          65+                               (24%)

                           5+ Risks = 582 Hannaford Members
                           3-4 Risks = 5598 Hannaford Members
                           0-2 Risks = 10,876 Hannaford Members
               Health Risk Appraisal
                    Behavior Change 2005-2006
                                                 Jun-05      Mar-06

90%
80%                                                                         82%
                                                                                 75%
70%
                                                                 65%
60%                                                                 62%

50%
40%
30%
                    27%                            26%
20%   20%                     21%                     20%                                           21%
        15%           16%                                                                14%           16%
10%                                13%
                                                                                             6%
0%
      Emotionally




                               High Cholestrol




                                                                                          Smoking
                                                                 Physical




                                                                             Poor Diet
                                                  Preventative




                                                                 Activity
                     Stress
      Unfulfilled




                                                                                                      Heart Disease
                                                    Overdue

                                                     Visits
                                   Member Engagement
                                            Participants Enrolled
                        8.0%                                                              7.9%                           Potential
                                                                                                                         Dividend
                        7.0%
% of Total Population




                                                                                                                   1100 members
                        6.0%                                                                                        x $1000/yr.
                        5.0%
                        4.0%                                                                                       $1,000,000++
                                                                 3.3%
                        3.0%
                                                                                                                “Best in Class”
                        2.0%     1.6%                                                                               benchmark
                        1.0%
                        0.0%
                                2004                            2005                       2006
                               1/1/05                      TIMELINE        1/1/06


                                 • Introduce $20 Healthy Behavior Credit     • Required to take HRA and participate in
                                                                             disease management
                                 • Required to take HRA
                                               Comparison
                    Hannaford, D1, Healthy 2010 Targets and Market
                Poor Die t




              Tobacco Use




       Physical Inactivity




O ve rwe ight/Unde rwe ight




        High C hole ste rol




    High Blood Pre ssure                                                Market
                                                                        Healthy People 2010 Targets
                                                                        D1
                 Diabe te s                                             HBC


                              0%   10%   20%    30%   40%   50%   60%     70%         80%             90%
Quality of Care
                                 Care Management Opportunities

      $14,000
                               $12,000
      $12,000

      $10,000                  $3,500                                                          Appropriate
                                                                                               Diabetic Care
Annual Cost




              $8,000
                                                                           $6,500
                               $1,500                                                            Savings
              $6,000
                                                                                 $500          Opportunity
                                                                                               60% of Cost
              $4,000                                                        $3,500
                               $7,000

              $2,000
                                                                            $2,500
                 $0
                       Congestive Heart Failure                            Diabetes

                                  Medication Company   Evidence Based Medicine     All Other
EBM Compliance Concerns – Population Based Metrics
        100%


                                                                              90%           90%           90%                          90%         90%
        90%


                     80%           80%           80%                                                                    80%                                                  80%
        80%


                                                                                                                70.0%                                    69.4% 70%
        70%
                                                                                      66.4%
                                                                                                                   62.9%                                             62.9%
                                                                60%                                                                                         60.5%
        60%
                                                                                                     55.5%                                                               55.2%
                                           53.2%                                                  52.0%                        53.4%            52.2%
                                                                                                                                             50.0%
        50%
                                                                                                                                44.5%
                                                                      41.4%         41.3%
        40%                    38.0%     38.0%

                           30.2%                                         30.9%
        30%

                   21.6%
               19.1%                                   19.9%
                                                           18.4%
        20%



        10%



         0%
               Eye Exam    HbA1c Test    Lipid Panel    Urine Micro    ACE Rx       Statin Rx     Statin Rx      Lipid Panel   Beta-Blocker ACE/ARB      Stress Echo Lipid Panel
                                                   Diabetes                                                          CAD                                     CHF
 Hannaford        19.1%      30.2%          38.0%          19.9%         41.4%         41.3%         52.0%          70.0%        53.4%         50.0%        69.4%        62.9%
 Commercial       21.6%      38.0%          53.2%          18.4%         30.9%         66.4%         55.5%          62.9%        44.5%         52.2%        60.5%        55.2%
 Goal              80%        80%            80%              60%         90%           90%           90%            80%          90%           90%          70%         80%
                                                       Financial Updates
                                          Annual Associate Medical/RX costs
                             6000
                                                                 $5,256                $5,220                $5,220
                                     $4,764
                             5000
Annual Costs Per Associate
   (dollars in millions)




                             4000


                             3000                                                                                         2004
                                                                                                                          Actual
                                                                                                                          2005
                                                                                                                          Actual
                             2000                                                                                         2006
                                                                                                                          Actual
                                                                                                                          2007
                                                                                                                          Budgeted
                             1000


                               0
                                    2004 Actual             2005 Actual              2006 Actual          2007 Budgeted
                                                                     2004    2005       2006       2007
                                             % sales                 .77%    .91%       .80%       .77%
                                             Annual % Increase        -     +10.3%     <.7%>        -
                                             Accumulated              -     +10.3%     +4.3%       +1%
                                      Healthcare Savings
                               400                                                                               394


                                                                                                                  National Trend Projected
                                                                             313                                       (assumes 8% trend)
   Cost Per Member Per Month




                               300
                                       259                                       Projected additional dividend                   Trend     Trend
                                                                                                                                National   HBC
                                                                                        $109,000,000                 Actual      21%       13%
                                            Healthcare dividend to date                                            2003-2006
                                                                                                                    Projected    26%        0%
                                                   $82,000,000                                                     2007-2009
                               200
                                                                             186
                                                                                                                 186
                                         165                                                                       Forecast


                               100
                                     2003                                 2006                             2009
                                                        Hannaford Actual         National Average

                                                                                          Source: Medical Benefits - volume 24 - 1/15/07
*This was accomplished even with acquisition of Victory’s 20% higher cost
structure and 2005 aberrant catastrophic claim year.
                          Start of a Solution
Need to create a healthcare market with the following characteristics:

 – Informed and engaged consumers

 – Market Transparency
   • Treatment Options
   • Outcome and Quality Metrics
   • Cost

 – Aligned Incentives

 – Leverage National and Community Partnerships (medical, education, coalitions,
   public policy)
      Percent Variance in Inpatient & Outpatient
             Hospital Allowed Payments
                                                                                                                                       Dean
                                                                                                                                    Miles
                                                                                                                             St Andrews
                                                                                                                             Redington-Fairview
                                                                                                                       DownEAst
                                                                                                                 Maine Coast
                                                                                                            Mt. Desert
                                                                                                            Cary
                                                                                              Sebasticook
                                                                                            Houlton
                                                                                    T AMC
                                                                                    Waldo                                      Hospitals best
                                                                               Calais
                                                                             Blue Hill                                        medication safety
                                                                            Stephen's
                                                                          Franklin
                                                                                                                              practices reduce
                                                                          Central ME. Med                                    inpatient mortality
                                                                       Inland Hosptial
                                                                    St. Joseph                                              40% (Leapfrog, IOM)
                                                                    Maine General
                                                               Mayo
                                                               Eastern ME Med
                                        Penobscot Valley
                                               York                                                                                               Total
                                           Bridgton                                                                   Maine
                                           St. Mary
                                   Millinocket                                                                      Opportunity               Hannaford
                                     Rumford
                             Penobscot Bay
                                                                                                                         =                    Opportunity
                             No Maine Med                                                                          +$300,00 (5%)               $2,000,000
                              MidCoast
                           Parkview
                             Mercy
                           Goodall
                      ME Medical
      So. Maine Med

-30          -20               -10                         0                   10                      20                      30                 40
              Potential Solution Sets
                                                   Outcomes:
                                                  reduced costs
                                                     by 20%
                                                improved quality
                                                     by 20%
• Care Focused Purchasing                        * Pacific Care


• Bridges to Excellence

• Leapfrog

• Tiered Quality/Efficiency Networks (Aetna, Cigna, UHC, Pacific
  Care, Hummana). Coming in 2007 - Primary Care & Specialists -
  Providers of Distinction.
Care Focused Purchasing

                                                       CFP
                                                     Overview
                      Value Based Purchasing

   • National standardized reporting for quality and price transparency
   • 29 million live database
   • 1st public data release (9/2007)
Initial CFP Sponsoring Employers
The POD Goal is to…

 Identify and select physicians in
     specialties responsible for
 significant portions of health care
spending who deliver cost-effective
 care. POD selection is based on a
   balance of measures of clinical
    performance and efficiency.
           Specialties Currently Included in POD



•   Cardiology               •   Obstetrics & gynecology
•   Cardiothoracic surgery   •   Orthopedic surgery
•   Gastroenterology         •   Otolaryngology
•   General surgery          •   Plastic surgery
•   Neurology                •   Urology
•   Neurosurgery             •   Vascular surgery
POD Selection Process


Four-Step Process
   Case Volume
   Clinical Performance
   Clinical Efficiency
Strategic Levers
                             Strategic Levers
                           Program Components
• On-site nurses every location                          • Engaging Consumers
     • Dedicated Aetna Health Promotion Nurse/Resource        • Education
                                                              • Incentives
•$20/week Healthy Behavior Credit                             • Transparency
     • Required HRA                                           •CDHP
     • Tobacco free                                           • Advocacy
     • Required disease management/health promotion      • Leverage Informatics
                                                              • Data warehousing
• Benefit Tiering for use “Providers of
                                                              • Data Analytics (mining)
Distinction”
                                                         • Leverage Provider Reimbursement System
     • Primary care
                                                              • Pay for health not units/service
     • 12 specialists
                                                         • Leverage Community
• Required Centers of Excellence                              • Employers
     • Transplants                                            • Physicians
     • Complex cancers                                        • Delivery systems
                                                              • Guiding Stars
                                                              • Maine Health / Hannaford Healthy Living Club
                2008 Initiative Review/Discussion
                                  Value Based Purchasing
                                      Strategic Levers
 Evidence Based                Leverage             Globalization              Community            Benefit Design
    Medicine                  Technology
Reducing co-pays/co-        Incentives to use PHR   Investigate off shoring   Care Management       Associate Discount
insurance for life saving                                                                           leverage (Assured
services (i.e., diabetic                                                                            Remitt)
medications)
Increasing associate cost   Home monitoring         Radiology/Imaging         “Ashville” like       Total Value
share of less essential                                                       projects                - Red Brick
services                                                                                              - Trusted 3rd party
                                                                                                      - Flat fee schedule
                                                                                                      - Incent patient
                                                                                                          compliance
Only paying for minimally   Leverage alternative    Specialist consults       Healthy Living Club   Carve out all lab
invasive procedures         communication                                                           services to Quest
                            channels
Incorporating incentives    Specialist visits       Medical procedures
based on Health Index
         Healthy Hannaford Leverage Points
                          Compensation & Wellness Increasing scope



Compensation   Wellness           Benefits              HBC          Providers   Community




                                       Associate
                                      Customer


                                         $$$$
                           Competitive Advantage
                          Projected Spend and Opportunities ( 2004 - 2013)
                                                                                                                  P
                                                                                                                  O
                                                                                                                  T
                                                                                                                  E
                                                                                                                  N
                                                                                                                      100+ stores
                         160
                                                                                                                  T
                                                                                                                  I
                                                                                                                  A
                         140                                                                                      L
                                                                                                     $74               1.2 billion
                                                                                                                  S      capital
in millions ($000,000)




                                                                                                                  A
                         120                                                                                          investment
                                                                                                                  V
                                                                                                                  I
                                                                                                                  N
                                                                                                 $248             G
                         100
                                                                                                                  S
                                                                                                 $319
                                                                                                                  O
                          80                                                                                      V     Status Quo
                                                                                                                  E
                                                                                                                  R     Reduced Risk of 1%
                          60                                                                                      S
                                                                                                                        Accerated savings over
                                                                                                                  T
                                                                                                                        first 5 years
                                                                                                                  A
                                                                                                                  T     Reduced risk of 5%
                          40                                                                                            per year
                                                                                                                  U
                               2003   2004   2005   2006   2007   2008   2009   2010   2011   2012         2013   S

                                                                                                                  Q
                                                                                                                  U
                                                                                                                  O
                        Lessons Learned
• Build a business case and translate it into “CEO” speak

• Develop a comprehensive holistic strategy

• Create cultural alignment

• Create metrics to measure success that resonate with the business
leaders

• Solutions should incorporate a community based initiative
• Change the paradigm that “health” is an expense to an “investment” in
human capital with a significant and measurable ROI
                  Benefits Roundtable Survey
                    Benefit Benchmarking
Survey of 25 Fortune 100 Companies (Union Pacific, AT&T, Chevron) of 20,000 employees

                                                                           Hannaford as
                                                                          compared to all
                                                                             others

                                                                               +7%
         Overall employee satisfaction with health benefits provided

                                                                              +40%
         Perception of quality of care received

                                                                              +10%
         Perception of customer service


         Perception of what benefits at HBC cost versus other companies       +24%

				
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