ECG Management Consultants, Inc.

1. ECG Management Consultants, Inc. The Shift From Volume to Value: Emerging Reimbursement and Alignment Models August 22, 2014 Ms. Purvi B. Bhatt, Senior Manager Mr. Sean T. Hartzell, Senior Manager

2. Agenda I. Market Trends II. Alignment Models III. Innovative Payment Models IV. Case Studies V. Key Takeaways Appendix A – Alignment Model Examples 0100.015\313186(pptx)-E2

3. I. Market Trends 0100.015\313186(pptx)-E2

4. I. Market TrendsKey Issues • The burning platform is here. • Evidenced by significant federal, state, and commercial payor initiatives, strategic direction, and financial urgency (governmental). • Health systems focused on eliminating waste. • Strong physician partnerships critical to driving change and protecting market share. • Systems focused on efficiencies must restructure contracts to be rewarded for improved value. • The pacing of the movement to value-based care is critical. • Providers largely dependent on a productivity-based system and cannot simply “flip a switch.” • As utilization is taken out of the system (through focused medical/chronic disease/population management initiatives), hospital and specialist financial performance at risk if contracts not restructured. • Not all organizations can or should strive for the end-state model (in its totality). • Critical (no matter what provider type) to focus on efficiencies, measurement, and quality. • Essential to execute strategy that closely aligns organization with preferred care partners. 0100.015\313186(pptx)-E2

5. I. Market TrendsEnd-State Model The end-state model is a clinically integrated network (CIN) of providers who follow common clinical protocols, have aligned measures and incentives based on improved value, and obtain joint payor contracts. Independent Providers Independent Providers • Outcomes • Provider Organization • Management/Governance • Clinical Protocols • Disease Management • Wellness • IntegratedEHR • Performance Measurement • Reporting • DiseaseRegistry • Joint Payor Contracting • Employee Health Plan (EHP) • Funds Flow Design • Aligned Incentives Fragmented Delivery System • Home Health • SNF • Pharmacy • Other CIN • Home Health • SNF • Pharmacy • Other Employed Physicians Employed Physicians Hospital Hospital 0100.015\313186(pptx)-E2

6. I. Market TrendsA Time for New Alliances “The goals of population health management may be encouraging rampant consolidation across the healthcare industry, but some systems are pushing back and seeing whether they can achieve the same results with looser arrangements.” – Modern Healthcare, July 2013 georgia 23 Hospitals Form Care Alliance Philadelphia Three Leading Health Systems Form New Initiative Indianapolis Three Health Systems Create Accountable Care Consortium In Central and Southern Georgia, 23 hospitals form a not-for-profit LLC called Stratus Healthcare. This new network is a partnership allowing the member hospitals to collaborate while remaining independent. Three Philadelphia-area health systems form an alliance to work collaboratively to improve care and meet demands of health reform. The initial focus is to jointly manage the healthcare benefit plans of the systems' employees and their families. . This new alliance will bring together more than 30 facilities, including 6 of the 10 that make up Indiana's Suburban Health Organization. “Healthcare reform has required healthcare systems to think differently than in the past,”– Vincent Caponi, CEO. 0100.015\313186(pptx)-E2

7. I. Market TrendsThe Spectrum of Integration Independent/ Competitive Segmented Integration Clinical Integration Provider Network/ACO 0100.015\313186(pptx)-E2

8. II. Alignment Models 0100.015\313186(pptx)-E2

9. II. Alignment ModelsHow Physicians Are Organizing Physicians are choosing to organize themselves in response to changing payor dynamics. Service Line Management Single-Specialty Group Multispecialty Group Management Services Organization(MSO) IPA/PHO1 Equity JV Professional Services Agreement (PSA) Hospital Employment • More risk sharing. • Rewards for improved performance. • More integrated relationship. • Possible hospital financial support. • Loose; little interrelationship. • Difficult to realize economies of scale. • Shared services, lower cost. • Little negotiating power. Ultimately, group dynamics will play into the preferred relationship/tactic. 1 PHO = Physician Hospital Organization. 0100.015\313186(pptx)-E2

10. II. Alignment ModelsAlignment Approaches and Their Characteristics There are a variety of approaches for pursuing alignment, yet the requirements for infrastructure and capabilities related to population management will vary. 0100.015\313186(pptx)-E2

11. II. Alignment ModelsRange of Provider/Payor Collaborations Providers are contemplating a range of payor collaborative models, a thoughtful network strategy, and models for building appropriate insurance capabilities. Range of Payor and Provider Collaborative Models JV Clinical Programs Infrastructure Research JV Financial Integration Clinical Integration ACO Traditional Contractual Relationship Single Organization/Ownership Merged Organization Incentive Arrangement Risk Contract Major ConsiderationsNetwork StrategyNeed for Premium Access Need for Insurance Capabilities Degree of Clinical/Financial Integration Level of Commitment Complexity and Financial Investment Potential Upside 0100.015\313186(pptx)-E2

12. II. Alignment ModelsNetwork Participation Tiers Network formation typically includes participation tiers, allowing organizations to choose the most appropriate level of their commitment and exclusivity related to clinical integration efforts. Typical Network Tiers Network Core • Ownership (if necessary). • Governance. • Risk sharing. • Surplus sharing. • Network Contractors • No governance or decision-making participation. • FFS only. • For example, radiology group. • Network Participants • No governance or decision-making participation. • FFS with shared savings. • For example, home health agency. • Network Affiliates • Participation in decision making. • Potential risk sharing. • For example, aligned independent medical group. Level of Commitment and Exclusivity A provider organization’s strategy must consider how it fits into the full continuum of care and its vision for future care delivery. 0100.015\313186(pptx)-E2

13. II. Alignment ModelsAlignment of Payment Models With Network Goals The funds flow is an important tool for creating alignment among the participating providers with both the immediate and longer-term goals of the network. Possible Transition Over Time Level of Risk 0100.015\313186(pptx)-E2

14. III. Innovative Payment Models 0100.015\313186(pptx)-E2

15. III. Innovative Payment ModelsClinically Integrated Models More Integrated Less Integrated Range of Clinical Integration Independent Contracting Decisions Potential Models of Integration P4P “Messenger” Model Clinical Integration Risk Sharing Financial Integration Third-Party Messenger Physician/Hospital Alignment “United Front” Coordinated Care Merger/ Acquisition • This model involves separate, independent, and unilateral contracting decisions. • Offers and counteroffers between individual providers and payors are conveyed by PHO messenger. • Objective information is communicated to providers regarding proposed contract terms. • Care is provided in accordance with quality targets. • The quality of care is reviewed and monitored. • There are provisions for adequate peer review if quality targets are not achieved. • Payments are based on historical activity to avoid referral incentives. • Providers share responsibility for cost or utilization and have a significant positive gain for achieving targets. • Members or owners share financial risk directly or through membership in another organization. • Members may not account for more than 30% of physicians in local market. • Patient-centered care focused on common understanding of desired outcomes. • Broad network of providers. • Integrated IT and efficient information exchange. • Compliance with utilization review and performance standards. • System-wide efficiencies across providers. • Centralized ownership. 0100.015\313186(pptx)-E2

16. III. Innovative Payment ModelsRange of Value-Based Payment Models As more risk is introduced into payment methodologies, providers are moving toward greater integration and scale to efficiently develop capabilities for value-based models. Risk Continuum Associated With Various Reimbursement Structures Global Payment With Performance Risk and P4P Payment for Episodes of Care Bundled Payment Medical Home1 Total Cost of Care/ Shared Savings Global Payment With Financial Risk P4P FFS Clinical and Financial Integration Complexity/Broader Capabilities Required Greater Risk/Potential Upside 1 Medical homes that receive extra dollars for patient management. Source: Healthcare Financial Management Association, “Accountable Care: The Journey Begins,”August 2010. 0100.015\313186(pptx)-E2

17. III. Innovative Payment ModelsContracting Vehicles The economic reality of reform has caused enormous changes in the insurance industry; plans are differentiating themselves through the creation of innovative products. Commercial Health Exchanges Payor initiatives are putting downward pressure on provider reimbursement. Those providers positioned for a value-based system will emerge as market leaders. MA Narrow Networks Shared Savings P4P Patient-Centered Medical Home (PCMH) Disease Manage-ment Bundled Payments Shared/ Full Risk Managed Medicaid EHPs Dual Eligibles 0100.015\313186(pptx)-E2

18. III. Innovative Payment ModelsRange of Potential Risk Arrangements Global payment arrangements (total cost of care models) range from shared savings (e.g., gain sharing, “one sided” track) within an FFS environment to shared-risk and ultimately to global-risk (e.g., capitation) arrangements with quality bonuses. • Gain Sharing/One-Sided/ Asymmetric Model • “Two Sided”/ Symmetric/Shared-Risk Model • Global Risk/Partial Capitation Model Ideally, as a provider network matures, it will adopt payment models with increasingly more risk. With the increased risk should come the opportunity to earn a greater percentage of shared savings, because the network/entity will be more accountable for cost and quality. As organizations become more adept at managing risk and enhance their clinical integration through care process redesign and better health IT, they can transition from risk-free or one-sided risk models to two-sided risk models in which organizations suffer a loss if they spend more than their projected global medical spending amount. 0100.015\313186(pptx)-E2

19. III. Innovative Payment ModelsCritical Success Factors in Full-Risk Contracting Overall, there are major clinical, financial, operational, and strategic requirements that will drive successful population health management. Governance and Management Provider Composition/Practice • Sufficient primary care size for population management. • Clinical consideration for specialty management and/or involvement for patients with chronic conditions. • Hospital partnership. • Support of the transformation of the care process to a team approach. • Use of physician extenders. • Group visits, e-visits, or other forms of patient encounters. • Communication tools to facilitate integration of practice teams. • Patient satisfaction monitoring. • Patient attribution method in place. • Meeting of financial strength requirements to accept risk. • Legal structure in place to receive and distribute payments. • Broad base of clinical and administrative leadership. • Clear lines of authority and accountability among related entities. • Alignment of compensation/funds flow programs. • Adequate incentives for population. • Alignment of incentives. Source: Adapted from the AMGA Accountable Care Organization Readiness Assessment, 2010. 0100.015\313186(pptx)-E2

20. III. Innovative Payment ModelsCritical Success Factors in Full-Risk Contracting (continued) Care Management/Coordination Accountability/Reporting • Chronic care management processes. • PCMH practices. • Predictive analytical tools to identify high-risk patients. • Case managers assigned to high-risk patients. • Systems in place to manage transitions of patient care settings. • Medication reconciliation. • Behavioral health programs integrated into care management plans. • Home health and other extended care programs integrated into care management plans. • Patient communication established as standard practice. • Patient follow-up and reminder systems. • Follow-up visits and referrals scheduled at time of initial encounter. • Systems to manage population costs. • System-wide measures and performance tracking of quality and efficiency. • Episode-based resource-use metrics linked to quality metrics. • Public reporting on outcomes/costs. • Common EHR across providers. • Practice guidelines/clinical protocols embedded in EHR. • Appropriate alerts for clinical decision support. • Processes to improve coding. • Registries for chronic disease patients. • E-prescribing used by PCPs. • Formularies for generics. • Electronic patient communication. Source: Adapted from the AMGA Accountable Care Organization Readiness Assessment, 2010. 0100.015\313186(pptx)-E2

21. IV. Case Studies 0100.015\313186(pptx)-E2

22. Background Considerations for the Future IV. Case StudiesExample #1 – Nonurban Hospital With Local Providers • 250-bed hospital, 40 miles outside of major metropolitan city. • Inpatient market share in the core market is high. • Payor market is consolidated, and the local Blue Cross plan is dominant. • The medical community is predominantly composed of small, independent, single-specialty physician practices. • A significant proportion of the primary care base, while generally loyal to the hospital, is economically aligned with a regional network of primary care practices. • The hospitalis preferred by affiliated physicians and patients. • Multiple clinical affiliations augment local expertise. • Quality, excellence, and continuous improvement are areas of ongoing emphasis for the organization. • Costs and utilization are lower compared to other area hospitals. • Limited experience with pilots for care management of specific patient populations. • Most of the covered lives cared for by the hospital and the medical community are “owned” by the regional primary care network. • Market share of covered lives will be a key measure of indispensability in the future, replacing today’s emphasis on market share of beds, discharges, and/or specialists. • Local PCPs have growing expertise to support the management of care for specific populations. • Most nearby competitors have achieved greater economic alignment with physicians and have a larger base of employed PCPs. • Hospital-centric mind-set means health system model is underdeveloped. • Despite pilot initiatives around care coordination, the care model remains fragmented, with generally uncoordinated care transitions. • Success in new care delivery models and under new payments models will require more than improved performance on traditional metrics. • Financial capacity to fund growth is limited. 0100.015\313186(pptx)-E2

23. IV. Case StudiesExample #1 – Nonurban Hospital With Local Providers (continued) The key to being relevant in the future is to strengthen existing relationships and establish new ones that add value, capture new markets, and accelerate the development of new competencies and capabilities. Secure an economically aligned referral base in order to be indispensable in the primary market. Build the competencies required to be successful as healthcare reform drives delivery and payment system changes. Enhance financial strength and market position to continue to operate as an independent hospital/health system. • Develop a system of community care that is no longer hospital-centric, reaches out proactively, and engages all providers and the patient. Shift focus from managing episodes of hospital-based care to managing the health of a population, thereby requiring clinical integration. 0100.015\313186(pptx)-E2

24. IV. Case StudiesExample #1 – Nonurban Hospital With Local Providers (continued) Transforming Care Delivery System • Economic alignment between PCPs and specialists. • Improved geographic access to primary care. • Health system model with stronger linkages across system of care. • Evidence-based protocols and care guidelines. • Coordinated care transitions using decision support tools and reporting capabilities. • Cost discipline maintenance. • Capitalizing on existing expertise. • Bundled payment initiatives. Financial incentives for high-quality, low-cost care to a large patient cohort. • Continuous quality improvement initiatives. • Pilots with EHP. Population health management tools and delivery of targeted, cost-effective care. • Platform for exchanging electronic health data. • PHO. Infrastructure that encourages and facilitates collaboration. • Strong physician/hospital relationships and shared decision making. Culture that supports physicians in delivering the best care. The previous investments and commitment by the physicians and the hospital in cultivating a strong partnership, implementing technology, and engaging in continuous improvement provide a strong foundation for the medical community to build upon. 0100.015\313186(pptx)-E2

25. IV. Case StudiesExample #2 – Nonurban CIN More than a dozen inpatient facilities and over 1,000 employed physicians formed a CIN focused on improving the quality and efficiency of care being delivered. The CIN members will collaborate and innovate to: Vision Deliver Value to the Populations the CIN Serves Improve Outcomes Gain Efficiencies Guiding Principles Support Local Autonomy and Independence Focus on Innovating to Create Value for Purchasers and Patients Engage Physicians Provide Options for Degree of Involvement Collaborate With Independent Providers Who Choose to Work Together 0100.015\313186(pptx)-E2

26. IV. Case StudiesExample #2 – Nonurban CIN (continued) Two main functional areas have been identified to provide benefit to members of the CIN: (1) payor contracting and (2) shared services. Shared Services Payor Contracting • Integrated IT. • Health information exchange. • Population health/utilization data warehousing. • Disease registries. • Utilization, medical management, and care design. • Utilization review. • Standard protocol development and compliance. • PCMH. • Standardized care transitions. • Care management and infrastructure. • Contracting. • Collective negotiations. • Risk-based contracting/shared risk. • Network formation and contract execution. • Funds flow design and planning. • Managed care administration • Risk management support. • Data analytics and reporting. • Surplus and deficit accounting and distribution. • Vendor contracts and pricing. • Supply chain. • Insurance. • Consulting. • Provider credentialing. • Best practices and education. • Evidence-based practice guidelines. • Quality improvement. • Staff “in-services.” • Industry trends. • Regulatory compliance. • Medical delivery support. • Telemedicine. • Physician staffing/rotations. • Medical transport. • Centralized corporate/other functions. • Human resources (HR)/benefits. • Revenue cycle. • IT. • Pharmacy. 0100.015\313186(pptx)-E2

27. IV. Case StudiesExample #2 – Nonurban CIN (continued) The ultimate goal is to evolve the CIN through the management of a series of phased-in populations. Ultimate Goal Second Generation First Generation • Commercial contracts. • New Medicare or Medicaid programs. • State health exchange. • Direct-to-employer contracting. • CIN. • EHP. • MA. A single EHP network will be developed by year-end 2014 aimed at improving the health of employees through clinical integration and reducing the total cost of care. The CIN will begin with consistent measurements and the development/refinement of programs for major chronic conditions, using the EHP as a starting point. The CIN will evaluate payor contracting opportunities to expand population management capabilities to additional patient populations. As a first step in this process, it will evaluate MA. 0100.015\313186(pptx)-E2

28. V. Key Takeaways 0100.015\313186(pptx)-E2

29. V. Key TakeawaysSo What Does It All Mean? Comprehensive Care CoordinatedCare Patient Engagement and Communication Access New demands from patients and payors are forcing care delivery changes in hospitals and physician practices. New Demands for Care • Schedules with same-day open access and/or extended hours. • New delivery model (PCMH). • New patient encounter types (e-visits, e-mail). • Stratification of patient panel at start of visit to off-load physician schedule. • Dedicated care managers or disease management PCMHs. • Coordination with dentists, pharmacists, and nutritionists for preventive care. • Provision of services at schools, employers, etc. • Evidence-based practices. • PCP collaboration with specialists to set expectations for referral coordination. • Standards for information sharing (e.g., patient discharge notes, medication reconciliation). • Organization-wide standard protocols for patient follow-up. • Patient portals, chat rooms, e-visits. • Group visits. • Education champions in each practice. • Online scheduling. • In-office resource centers. • Telephone calls for patient follow-up. Practice Responses Organizations can leverage the new care model and position themselves in the competitive healthcare market as a high-quality, high-value provider. 0100.015\313186(pptx)-E2

30. Q uestions & A nswers 0100.015\313186(pptx)-E2

31. Presenter Biographies Ms. Purvi B. Bhatt, Senior Manager, ECG Management Consultants, Inc. • Ms. Bhatt works with providers and health systems as they transition from volume- to value-based delivery systems, analyzing quality and financial data; facilitating stakeholder discussions regarding a culture of collaboration, creativity, and accountability; and developing ACO/delivery-based strategies. • She has master’s degrees in business administration and health services administration from the University of Houston and a bachelor of arts degree in psychology from the University of Texas at Austin. • Ms. Bhatt can be reached at 703-522-8450 or pbhatt@ecgmc.com. Mr. Sean T. Hartzell, Senior Manager, ECG Management Consultants, Inc. • Mr. Hartzell is the co-leader of the firm’s transaction advisory service line, which focuses on developing and disseminating the firm’s thought leadership in the areas of transaction planning, facilitation, and implementation, and he has published thought leadership pieces and spoken nationally on these topics. • He received a master of business administration degree from the Darden Graduate School of Business at the University of Virginia and a bachelor of science degree in operations research and industrial engineering from Cornell University. • Mr. Hartzell can be reached at 703-522-8450 or shartzell@ecgmc.com. 0100.015\313186(pptx)-E2

32. Appendix AAlignment Model Examples 0100.015\313186(pptx)-E2

33. Appendix AAlignment Model Examples1 1 Source: Oregon’s Office for Health Policy and Research, Alternative Payment Methodologies. 0100.015\313186(pptx)-E2

34. Appendix AAlignment Model Examples1(continued) 1Source: Oregon’s Office for Health Policy and Research, Alternative Payment Methodologies. 2Source: Deloitte report on Texas Medicaid reform. 0100.015\313186(pptx)-E2

35. Appendix AAlignment Model Examples1(continued) 1 Source: Oregon’s Office for Health Policy and Research, Alternative Payment Methodologies. 0100.015\313186(pptx)-E2