HOW TO GET PAID: GET READY FOR 2013 PAYMENT CHANGES

1. RELIANCE CONSULTING GROUP HOW TO GET PAID: GET READY FOR 2013 PAYMENT CHANGES Presented by: John P. Schmitt, Ph.D. - RCG Managing Director 6-19-12

2. “It’s complicated…” -Anonymous Teenager

3. AGENDA • PART I: What’s coming in Payer Reimbursement? • PART II: How will it impact your practice? • PART III: What should be done & how to get ready?

4. PART I: WHAT’S COMING IN PAYER REIMBURSEMENT?

5. WHAT’S COMING WHAT’S COMING TRIPLE AIM GOAL “The Centers for Medicare & Medicaid Services (CMS) is committed to achieving the three-part aimof better carefor individuals, better health for populations, and reduced expenditures for Medicare, Medicaid, and Children’s Health Insurance Program beneficiaries. One potential mechanism for achieving this goal is for CMS to partner with groups of healthcare providers in an Accountable Care Organization (ACO) who accept joint responsibility for the cost and quality of care outcomes for a specified group of patients. CMS will pursue such partnerships through two complementary efforts- The Medicare Shared Savings Program and initiatives undertaken by the Center for Medicare & Medicaid Innovation (CMMI, Innovation Center) within CMS.” Source: Pioneer Accountable Care Organization (ACO) Model Request for Application, May 2011

6. WHAT’S COMING WHAT’S COMING PAYMENT REFORM • Payment Reform Timeline Physician Value-based Modifier Global Payment Capitation Bundled Payments & Narrow Networks Payment via P4P Initiatives PPACA Gain Sharing – ACO’s PCMH Criteria EHR Meaningful Use 2015+ 2012 2011 2010 2013 Volume Based Value Based (No Risk) (Complete Risk)

7. DEFINITIONS WHAT’S COMING PAYMENT SYSTEM DEFINITIONS • Fee for Service (FFS): Providers are reimbursed for each service performed at pre-negotiated rates or the provider’s billable charges. • Pay for Performance (P4P): Providers are paid when they meet defined criteria involving quality, efficiency, and other targets related to patient outcomes. • Accountable Care Organization (ACO): A system comprised of doctors, practices, hospitals and other healthcare providers that create partnerships with the goal of lowering patient costs and focusing on the quality of care delivered. • Patient Centered Medical Home (PCMH): A delivery model with a population health management focus that uses coordinated care programs, integrated care delivery systems and medical teams led by a primary care physician.

8. DEFINITIONS WHAT’S COMING PAYMENT SYSTEM DEFINITIONS • Bundled (Episode-based) Payment: Providers are paid a single price for all of the healthcare services needed by patients for an entire episode of care with the amount largely determined by the length of time of the episode and the range of providers and services included. • Value-based Payment Modifier: Beginning in 2015, HHS will implement a modifier to adjust Medicare Part B payments to certain physicians based on quality and cost of care delivered. All providers will be impacted by the modifier by 2017. • Global Payment: Providers accept a fixed payment per patient similar to capitation payments. Source: MGMA Connexion Supplement, May/June 2012, pp 8-13

9. COMMERCIAL PAYER NEWS WHAT’S COMING COMMERCIAL PAYER NEWS • Commercial Payer Changes • CIGNA expanded its ACO program in 2012 with 10 new initiatives in 7 states: CO, ME, NY, NC, TN, TX, VA • UHC is changing contracts to include value-based incentives which will affect 70% of its members by 2015 • Aetna launched its first orthopaedic bundled payment pilot in California in 2012 • The Blues are launching payment pilots in various states

10. COMMERCIAL PAYER NEWS WHAT’S COMING BUNDLED PAYMENT DEVELOPMENTS • Blue Cross Announces Bundled Payment Agreements with Leading Orthopedic Groups in Tennessee MAY 22, 2012 • BCBS-TN “has reached agreements with four respected orthopedic practices for a new bundled payment system that focuses on patient care, quality and outcomes for total knee and hip replacements.” • Participating Practices: • Vanderbilt Medical Group (Nashville) • Tennessee Orthopaedic Alliance (Nashville) • Campbell Clinic (Memphis) • Knoxville Orthopaedic Center (Knoxville) • “This system is generally considered a new payment methodology, but make no mistake, this is a collaborative tool we can use to improve health outcomes and the patient experience” – Dr. Tom Lundquist, Vice President of Performance Measurement and Improvement of Healthcare Services • Source: www.BCBST.com

11. PART II: HOW WILL IT IMPACT YOUR PRACTICE?

12. THE IMPACT ON YOUR PRACTICE Practice Revenue Changes Since 2010 Source: Medscape Physician Compensation Report: 2012 Results

13. THE IMPACT ON YOUR PRACTICE Physician Compensation In 2011 Source: Medscape Physician Compensation Report: 2012 Results

14. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE MEDICARE COST SHIFTS “According to [MGMA 2011 Survey], total operating cost per full-time equivalent physician has increased by 51% since 2001, while Medicare physician payments have remained relatively stagnant during that same time period, with a sharp decrease forecasted in 2012. This widening gap is becoming insurmountable for many physician practices” -MGMA Comments to CMS on 2012 Medicare Fee Schedule

15. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE EXAMPLE COST SHIFT IMPACT 2011 Commercial Minimum 2011 Cost 2001 Commercial Minimum 2001 Cost

16. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY LOSS

17. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • 2013 Impact: FFS & P4P • Low Downside Risk • Small Reporting Cost R VC BE LOSS FC

18. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • FFS & P4P Payment Systems • Solution • Payer contracting (proactive) • Investment(Cost) • Pre-negotiation preparation & analytics • Negotiation process • Return • All marginal (bottom-line) gain • Increased ROI

19. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • Accountable Care Organizations (ACOs) • Not later than Jan. 1, 2012, the Secretary shall establish a shared savings program that promotes accountability for a patient population and coordinates items and services under parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery. Under such program: • Groups of providers of services and suppliers meeting criteria specified by the Secretary may work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an accountable care organization (ACO). • ACO’s that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings • Source: Section 302 Medicare Shared Savings Program

20. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • 2013 Impact: ACO & PCMH • ACO: Shared Administrative Cost • PCMH: Infrastructure Cost R VC BE LOSS FC

21. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • ACO & PCMH Payment Systems • Solution: • ACO Assessment (reactive) • PCMH Certification (reactive) • Investment(Cost) • ACO: legal, administrative, & time • Care coordination • Return • Shared savings: small & delayed • PCMH Incentive Payments (if available)

22. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY Net Revenue 2013 Impact: Bundled Payment & Narrow Networks R VC BE LOSS FC

23. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE PRACTICE FINANCIAL X-RAY • Bundled Payment & Narrow Networks • Solution: • BP Assessment (proactive) • NN Contracting (proactive) • Investment(Cost) • Claims analysis • Cost/Risk management • Return • Patient volume • New revenue

24. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE BUNDLED PAYMENT OVERVIEW • CMS Bundled Payment: Key Components & Risks • Key Components • Types of Services in Bundle • Physician Services • IP hospital • Ancillary providers (Therapeutic Services) • Quality Measures • To be developed by participants • Readmission reductions • Upside Risks • Professional services included in the episode will be processed as “no pay’ claims. • The participating providers must accept a single bundled payment for each episode of care as payment in full • Shared Savings: 60-70% capped at 15% of PMPM savings • Downside Risks (if any) • Minimum discount to payer e.g. CMS: 3% or more depending on condition proposed • If spending exceeds the risk threshold, providers must pay CMS for the excess

25. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE BUNDLED PAYMENT OVERVIEW • Steps to Implementing Bundled Payments • Identify conditions for a bundled payment • Define the providers and services in the bundle • Quantify cost savings opportunity • Define a price point • Develop clinical pathways • Develop the metrics to monitor performance • Evaluate Performance using analytics • Continuous correction and improvement

26. COMMERCIAL PAYER NEWS THE IMPACT ON YOUR PRACTICE BUNDLED PAYMENT OVERVIEW • Top 10 Questions Financial Executives Are Asking • Should we pursue a bundled payment strategy? • What’s the upside opportunity? • What’s the downside risk? • How do bundled payments integrate with my physician practice strategy • How will bundled target prices be determined? • Why should I provide Medicare a discount if I’m already losing money on Medicare patients? • How will payments be distributed between hospitals and physicians? • How will claims be processed (to preclude double payments)? • How many payments will be made (e.g. prospective payment, quality payment, shared savings payment)? • How do I ensure my organization succeeds under bundled payments?

27. PART III: WHAT SHOULD BE DONE/HOW TO GET READY?

28. COMMERCIAL PAYER NEWS WHAT SHOULD BE DONE MGMA SURVEY – David N. Gans, VP of MGMA-FACPE Innovation and Research

29. COMMERCIAL PAYER NEWS WHAT SHOULD BE DONE FORBES Barriers to Value Based Payment 50% Difficulty in fully engaging physicians Complexity and unpredictable impact of VBP contracts 46% Decrease in profitability during transition 32% Lack of information management infrastructure 32% Lack of sufficient economic predictability 31% Source: Forbes Insights 2012, pg. 11

30. COMMERCIAL PAYER NEWS WHAT SHOULD BE DONE SUMMARY RECOMMENDATIONS • FFS & P4P: Proactive Payer Contracting • Low cost to high ROI (FFS) • Additional marginal revenue (FFS) • Additional reporting cost (P4P) • Additional supplemental payments (P4P) • ACO & PCMH: Assessment & Analysis • Development cost (ACO & PCMH) • Untested models (Advanced Payment ACO) • Delayed returns (ACO) • Payer supplements (PCMH) • BP & NN: Proactive Positioning & Analytic Analyses • Emerging pilot opportunities (BP) • Additional analytic & consulting cost (BP) • Potential volume (revenue) gain (BP & NN)

31. COMMERCIAL PAYER NEWS HOW TO GET READY RESOURCING DECISIONS • Determine internal capabilities & resources • Time commitment • Internal expertise • Data resources • What can be outsourced? • Contracting analytics • Payer negotiations • Payer relationship management • What must be outsourced? • Legal services • Claims/Actuarial analyses • Integrated organizational negotiations

32. “It’s complicated…” -Anonymous Teenager

33. RELIANCE CONSULTING GROUP Reliance offers Free Payer Contracting webinars: • Limited to 30 minutes plus Q&A • Tailored around practice-provided data • Scheduled at practice’s convenience Visit our website: www.RelianceCG.com Click on the Webinar Request Formtab

34. RELIANCE CONSULTING GROUP Q&A For more information about Reliance Consulting Group, visit: www.RelianceCG.com Or Contact John Schmitt directly: jschmitt@reliancecg.com