Succeeding in the Reform Era

1. Succeeding in the Reform Era Jeff Moser, Vice President Sg2 August 2, 2012

2. Agenda What is this all about? How the industry is responding

3. 2012 Outlook: May You Live in Interesting Times • Market share is redefined and with it, intensified battles. • Tiered/narrowed networks move markets overnight. • Redesigned benefits = more bad debt • Cost cutting yields to margin management. • Patients expect Apple at Dollar General prices. • IT implementation breaks the bank and drives alliances. • New market entrants and technology enablement threaten incumbent dominance. • Policy, politics, budgets keep the C-suite up at night. IT = information technology.

4. At the Heart of Health Care Reform… Value 70% Waste30% “Estimates suggest that as much as $700 billion a year in health care costs do not improve health outcomes.” –Peter Orszag, Former Director of the Congressional Budget Office Source: Inskeep S. Budget chief: for health care, more is not better. National Public Radio. www.npr.org/templates/transcript/transcript.php?storyId=103153156. Published April 2009 on Morning Edition. Accessed June 2011.

5. Health Care Reform Accelerates the Need for Proving Performance Medicare Shared Savings Program Medicare readmission penalties Payment pilot programs • Health care reform highlights tension between increased access and cost control. • Payers are piloting new models that reward coordination, quality and efficiency. • Evidence-based multidisciplinary care that spans the care continuum is a required competency for programs. • Clinical practice research continues to uncover opportunities to improve care. • Focus on decreasing inpatient costs continues as hospitals try to control staffing, length of stay (LOS) and device costs. Hospital VBP Program PPACA passes Payment adjustment for HACs 2008 2010 2012 2014 2016 The Middle Game HAC = hospital-acquired condition; VBP = value-based purchasing; PPACA = Patient Protection and Affordable Care Act.

6. While Growth Across the IP Business Is Flat, OP Opportunities Abound Adult Inpatient ForecastUS Market, 2012−2022 Adult Outpatient ForecastUS Market, 2012−2022 Millions Billions 5 Year 10 Year 5 Year 10 Year +18% +28% +20% +9% +15% –1% –4% +7% 2022 2022 Sg2 IP ForecastPopulation-Based Forecast Sg2 OP Forecast Note: Forecast excludes ages 0–17, psychiatry and obstetrics service lines and the not assigned category. Sources: Impact of Change® v12.0; NIS; Pharmetrics; CMS; Sg2 Analysis, 2012.

7. What Does This Mean for a Typical Health System? • Focused on inpatient business • Strong physician referral channel • ED as the “front door” for majority of admissions • Excels at revenue cycle, LOS management • Few System of CARE linkages • Lots of inappropriate utilization and readmissions • CFO pushed 5% cost reduction over the past 3 years ED = emergency department; LOS = length of stay; CARE = Clinical Alignment and Resource Effectiveness.

8. Fast Forward 5 Years 2011 2016 • Hospital is a success! • Hospital is growing and profitable. • Physicians are happy. • System wins best employer award. • Weaker aspects of performance do not affect market or financial results. • CMS docks hospital 5% of revenues for PAAs, readmissions. • Hospital is excluded from private payers’ preferred tier networks. • Patients shop to manage their out-of-pocket liability. • PCPs redirect cases away to maximize their incentives/reduce penalty exposure. • Profitability and market share erode. CMS = Centers for Medicare & Medicaid Services; PCP = primary care physician; PAA = potentially avoidable admission.

9. Start By Asking New Questions Standard Thinking Value-Driven Thinking Grab share at all costs. How do I drive sustainable margin? What is our product? Readmits are revenue. Worry later. What is our value proposition? How do we perform? How do I optimize payer rates? What is appropriate future demand? Any volume is good. How can I backfill as readmissions drop? What is market share? MD? Has a pulse? Buy! How do we survive new payment models? What MDs do we want? The economy is getting better. Volumes will rebound How do we capture the System of CARE? Who are my real competitors?

10. Future Payment Models Seek to Reward Coordinated, Quality Care Emerging Payment and Care Delivery Models • Objectives • Decrease premiums and slow spending growth • Reduce spending variation • Improve quality • Find efficiency • Improve care coordination ACOs Out-of-Pocket Bundled Payment CMMI Initiatives Medical Home Model

11. What New Economic Structures Will Enable Us to Redesign the Work? High Degree of Complexity Global capitation ACO Clinical integration program Disease-specific capitation Bundled episodes (pre- and post-care included) Bundled episodes (inpatient only) P4P/Value-based purchasing Inpatient case rates (DRGs) Fee for service Low Scope of Risk High

12. Providers Will Be Asked to Be More Accountable and Take on More “Risk”… What is the cost per patient to manage back pain? How many people have back pain? How many acute episodes do they have? Conservative management vs. surgical intervention Expensive implant or less-costly implant Cost = # Conditions × # Episodes × # Services × CostPerson Person Condition Episode Service Performance Risk Actuarial Risk Source: Network for Regional Healthcare Improvement. From Volume to Value: Transforming Health Care Payment and Delivery Systems to Improve Quality and Reduce Costs. November 17, 2008. Available at Robert Wood Johnson Foundation Web site. www.rwjf.org/newsroom/product.jsp?id=36217. Accessed October 2010.

13. The Private Market Will Lead Innovation Carilion Clinic, Roanoke, VA: 17,000 employees beginning July 1, leading to cobranded insurance product Advocate Health Care, BCBS, Chicago, IL: CI program evolved into ACO. CalPERS Pilot, Northern CA: 40,000 members, well-managed IPA Tucson Medical Center, Tucson, AZ: 50 to 60 PCPs Norton, Louisville, KY: Partnership with Humana Piedmont Physicians Group, Atlanta, GA: 100 physicians, about 10,000 CIGNA members CalPERS = California Public Employees’ Retirement System; BCBS = Blue Cross and Blue Shield; IPA = independent practice association; CI = clinical integration; PCP = primary care physician. Source: Sg2 Interviews, 2011.

14. Case Example: CalPERS ACO Pilot in Sacramento CalPERS Pilot (Northern CA) • Catholic Healthcare West, Hill Physicians, Blue Shield (CA) • 42,000 lives • “Virtual cooperation” model http://www.worldatlas.com/webimage/countrys/namerica/usstates/counties/ca.htm • Experienced physician participants • 3-way risk sharing and ongoing collaboration • Upside for all participants • “Teach back” program and daily rounds • Public validation from payer Initial Critical Success Factors Source: Sg2 Interview With CalPERS Pilot, July 2010.

15. Year 1: Significant Savings…Mostly Due to Reduced Hospital Utilization • Exceeded target of $15.5 M in savings for the 42,000 member pilot • 15% reduction in inpatient readmissions • 15% reduction in average length of stay for inpatient admissions • 14% reduction in inpatient days per thousand • 50% reduction in inpatient stays per thousand of 20 or more days “2010 was the easiest year that we’re going to have. After that, it will require real hardcore process re-engineering to be successful.” - Rosaleen Derington, Chief Medical Services Officer, Hill Physicians Medical Group Source: “A Community Model Case Study”, presented by Juan Davila and Rosaleen Derington at the America’s Health Insurance Plans Summit on Shared Accountability, Washington DC, October 2011.

16. Considerations in Defining the Right Timing for Your Strategy Evolution Slower Organizational Issues ED-driven inpatient strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . Limited IT infrastructure . . . . . . . . . . . . . . . . . . . . . Market Issues Highly fragmented splitter market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dominant, conservative payers . . . . . . . . . . . . . . . . . . . . . . . . Regulatory Issues Game-changer 2012 election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictive insurance exchange . . . . . . . . . . . . . . . . . . . . . . . . System of CARE Issues Constrained, fragmented sub-acute capacity . . . . . . . . . . . . . . . . Poor integration, effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . Faster Diversified System of CARE strategy Well-integrated and pervasive EMR Regionally consolidated Competitive and/or innovative payers Stay-the-course election Flexible state regulatory environment Robust System of CARE capacity Strong integration and relationships

17. Agenda What is this all about? How the industry is responding

18. In the Short-term, Focus on Protocols, Coordination, Prevention Top Strategies to Improve Quality, According to Health Plan Leaders Score (Scale of 1–5) EHR = electronic health record. Sources: HealthLeaders Media Intelligence. Industry Survey: Health Plan Leaders. HealthLeaders Media, 2011; Sg2 Analysis, 2011.

19. Care Redesign Will Offer a Framework to Help Execute on Value-Driven Strategy Elements of Care Redesign • System Optimization • ClinicalRestructuring • UnnecessaryCare Reduction Value (Quality/Cost) • Variance and Cost Reduction Execution Risk

20. The Tried and True: Variance and Cost Reduction Variance and Cost Reduction: Improving operational efficiencies Value Risk ED = emergency department.

21. Reduce Variation in Rehabilitation Across Post-Acute Care Sites Sample Hospital TJR Rehab Cost per Patient, 2007–2009 Home Health HH & OP PT OP PT SNF Note: Postdischarge claims were filed after the date of discharge. Excludes episodes with cost >$46,000. TJR = total joint replacement; HH = home health; OP = outpatient; PT = physical therapy. Source: Sg2 Analysis, 2011.

22. Improve Access and Productivity Through Centralized Scheduling • WellSpan Health System, York, PA • Centralized call center was implemented to address patient and staff satisfaction. • 40 employees, 3 supervisors work shifts 7 am–8 pm weekdays and 8 am–4 pm Saturdays. • Goal is to answer 80% of calls within20 seconds. • One practice increased the number of visits from 1.9 to 2.1 per hour. • Noise reduction in practices also is increasing employee efficiency. Source: Sg2 Interview, 2011.

23. Prepare for Penalties and Tiered Networks by Reducing Unnecessary Care Unnecessary Care Reduction: Decreasing avoidable, unproductive and duplicative services Value Risk SNF = skilled nursing facility.

24. Standardize Radiology Ordering Process to Improve Diagnostic Utility Institute for Clinical Systems Improvement, Bloomington, MN • Innovation: Standardized Orders • Designed a clinical decision support system that grades the tests being ordered based on information and purpose • Decision support system approved by ACR, ACC and ACP. • System offers evidence-based alternatives. • Piloted by 5 medical groups completing more than 1 millionimaging tests per year between 2007 and 2010 • Results • Shorter radiology ordering and approval times • 10% improvement in diagnostic utility • Estimated savings of $84M • No increase in claims for imaging ACR = American College of Radiology; ACC = American College of Cardiology; ACP = American College of Physicians; M = million. Sources: Institute for Clinical Systems Improvement (ICSI). ICSI News November 3, 2010. Accessed June 2011; Sg2 Expert Insight: Transforming How Radiology Studies Are Ordered in Minnesota, February 2, 2011.

25. Accelerate Access for Unscheduled Visits • Sutter Medical Foundation—Sutter Health, Sacramento, CA • Operates 3 urgent care centers; 4 more are planned. • Integrated with retail care, occupational health and diagnostic centers • Future plans to collaborate with FQHCs to manage new Medicaid enrollees • Fast-track access for 10 diagnoses. ED = emergency department; UTI = urinary tract infection; IV = intravenous; FQHC = Federally Qualified Health Center.Source: Sg2 Analysis, 2011.

26. Encourage level of Care Optimization Through Clinical Restructuring Clinical Restructuring: Ensuring treatment occurs in the optimal setting with the most appropriate provider level Value Risk IP = inpatient; ICU = intensive care unit.

27. Improve Quality of Care While Managing Costs Source: California HealthCare Foundation, February 2010.

28. Use OP Palliative Care to Reduce Utilization While Improving Outcomes Everett Clinic, Everett, WA • Background • Multispecialty practice with 11 locations • Challenge • High use of hospital services for end-of-life patients • Solution: Outpatient Palliative Care Program • Patients are referred to palliative program by physicians. • Program is run by nurses and assistants. Nurse provides ongoing care management and filters appointments and medications. • Nurses proactively call all 250 patients once per month. • Results • 47% vs 62% hospital admit rate for patients who received palliative care vs those who did not • Palliative care patients’ ALOS was 0.5 days fewer than nonpalliative patients. • Reduced ED care and inpatient care utilization Selection criteria based on this question posed to physicians: “Would you be surprised if this patient died in the next 1 to 2 years?” ALOS = average length of stay. Source: Szabo J. High-quality palliative care programs bring comfort to terminally ill patients. AHA News September 6, 2010. American Hospital Association.

29. Use Telehealth and Home Health to Redesign Acute Care Delivery Sentara Healthcare, Northern Virginia • Goals • Improve compliance, bed capacity and patient satisfaction • Reduce readmission, LOS and HAC • Innovation: Telehealth and Home Health • Pilot project to identify and evaluate acute care patients appropriate for early discharge with enhanced home health and telehealth services • HF, pneumonia, COPD, SOB, respiratory failure, atrial fibrillation and MI patients qualify. • Admission criteria meet Medicare homebound criteria: cognitively intact, home electrical and telephone services. • Patients are referred by nurse and hospital case manager; discussed with patient and hospitalist. • Patients seen by home care on day of discharge; telehealth monitoring begins on admission visit. • PCP notified of patient’s admission to home care for follow-up orders and plan of care. • Results • Treated 83 patients under pilot project • Decreased LOS by 0.49 days at one hospital and 1.14 days at a second hospital • Decreased readmission rates for same diagnoses to 3.6% SOB = shortness of breath. Source: Sg2 Interviews, 2011.

30. Manage Population Risk Through Integration and Prevention Strategies • System Optimization: Shifting focus to upstream, preventive care through clinical integration and population health management Value Risk

31. Patients Are Coming From Mars, Physicians Are Leaving for Venus The Complicated Universe of Ambulatory Care Your blood pressure is high, and I am worried that you cannot walk up a flight of stairs. Let’s have you come back next week to talk about your knee. Dr Jones, I’m having knee pain. I can’t keep up with my child anymore. I hope she doesn’t tell me I am fat. How could they schedule this man for a 15-minute visit? I should schedule him for a treadmill in case he has silent ischemia with his diabetes. My wife is really unhappy that I lost my job.

32. MDs Challenged With Aligning Patients’ Clinical Needs While Lowering Costs Care Customization Priority Delivery Ambulatory ICU Social ICU Simple Visit MLP = midlevel provider.

33. Preliminary Results From Boeing Ambulatory ICU Pilot Boeing Intensive Outpatient Care Program (IOCP), Puget Sound, WA • Partnered with 3 clinics, incentivized through per-patient-per-month fee • Focused on employees contributing to highest health care costs • Care teams included RN care manager, IOCP physician, current PCP • Patient involved in development of personalized care plan • Care team proactive outreach • Education in disease self-management • Team huddles to assess patient status, discuss follow-up plan • Improved functional status, depression scores, patient and provider satisfaction • Met clinical quality metrics for diabetes care, high blood pressure, high cholesterol • Reduced per capita spending by 20% Source: Milstein A and Kothari P. Are higher-value care models replicable? Health Affairs Blog. http://healthaffairs.org/blog/2009/10/20/are-higher-value-care-models-replicable. Accessed October 2011.

34. Utilization and Behavioral Patterns Help Identify Social ICU Patients Jeffrey Brenner, MD, Camden, NJ • Used medical billing data to explore health trends: • 1% of Camden’s patients accounted for 30% of costs • Identified 2 most expensive blocks: a large nursing home and a low-income housing tower • Camden Coalition of Healthcare Providers formed to provide a medical home for “super-utilizers” • Rely on home visits, phone calls, urgent call number to reach patients • Results • 40% reduction in ED visits • 56% reduction in hospital bills “The people with the highest medical costs—the people cycling in and out of the hospital—were usually the people receiving the worst care.” ED = emergency department. Source: Gawande A. The hot spotters. The New Yorker January 24, 2011. www.newyorker.com/reporting/2011/01/24/110124fa_fact_gawande. Accessed June 2011.

35. Increase Retention and Improve Patient Outcomes With Care Coordination Advocate Health Care, Oak Brook, IL • Background • 12-hospital system, including 2 children’s hospitals and a medical group • Care Coordination: AdvocateCare Program Focused on • 5 Aspects to Improve Care • Enterprise care management • Enhance ED case management and OP care coordination • Improved access • Expand PCP/clinic hours • Build retail clinic relationship • Market share • Target splitter docs and unassigned patients in the ED • Data analytics • OP care management system • Prospective risk analysis • Post-acute care providers • Preferred networks of providers • Transition coaches • SNF management with “SNFists” Advocate…“could serve as a model for a new kind of accountable care organization, by demonstrating how to organize physicians into partnerships with hospitals to improve care, cut costs and be held accountable for the results.” –Health Affairs January 2011 Source: Shields MC et al. Health Aff (Millwood) 2011;30:161–172.

36. Extend Outreach to Capture Downstream Revenue Direct Mail Phone Calls Web Presence Printed with permission of ThedaCare. Printed with permission of ThedaCare. • ThedaCare, Appleton, WI • Results During 2.5-Month Campaign • 10% of targeted patients scheduled and completed a colonoscopy. • 28% increase in the average number of colonoscopies performed. • ThedaCare is preparing to roll program out to other clinics and service areas. • Overall Increase in Screening Rate • 21% increase to 73% between 2005 and 2010 (also due to disease management efforts) Source: Sg2 Interview, 2011.

37. Where is the Venture Capital Going • CareHubs(Beaverton, OR) is a healthcare enterprise social platform that offers dynamic, innovative tools to help patients and healthcare providers better connect, coordinate and engage. • CareWire(Minneapolis, MN) is a patient engagement solution that utilizes automated patient text messaging to increase billable appointment yield, visualize patient satisfaction in near-real-time and improve provider performance. • DermLink(Atherton, CA) is a cloud-based, HIPAA compliant application that enables remote diagnosis of dermatology cases, dramatically reducing wait times for patients while driving increased revenue and flexibility for providers. • Iconic Data (Norcross, GA) delivers a cloud-based patient list manager solution that provides physicians access to near-real-time snapshots of clinical care episodes across disparate, non-integrated facilities, resulting in increased charge capture and reduced inefficiencies. • UnitedPreference(Princeton, NJ) offers a Tailored Spend™ payments network that improves member participation in preventative health initiatives via nationally accepted prepaid cards that can only be used to purchase goods and services pre-determined by health plans and employers. Sample Of HealthBox 2012 Class

38. Successful Strategy Requires Management and Engagement Care Managers Pt. Profiling Acuity Hospital Acute Care Community-Based Care Ambulatory Procedure Center IP Rehab Retail Pharmacy Information Systems Data Analytics Physician Clinics SNF Preventive Care Post-Acute Care OP Rehab Urgent Care Center Diagnostic/ Imaging Center Home Care Wellness and Fitness Center Home Technology Disease Mgmt CARE = Clinical Alignment and Resource Effectiveness; IP = inpatient; OP = outpatient; SNF = skilled nursing facility.

39. Sg2 provides business analytics for health care. Our data-driven systems, business intelligence and educational programs deliver growth and performance improvement solutions across the care continuum. Chicago London www.sg2.com + 1 847 779 5300