Our Transformational Perspective

1. Risk Capability and The Hard Work of Healthcare Transformation:“Connecting the Dots with Governance”SCHA tap ConferenceHilton Head, South CarolinaSeptember 18, 2014

2. Our Transformational Perspective

3. Industry Transformation • How do localmarket conditionsimpact timing considerations? • Can market-changing events create an urgent paradigm shift? • What is my step-change business model risk? • Do I have the financial tools to adequately analyze relevant states? PROVIDER NET REVENUE TIME

4. Payer Movement to Value-Based Payment Models A Survey of the Commercial Payer Community A Survey of the Commercial Payer Community Increasing Portion of Business Supported By Value-Based Models Which Service Lines Will You Focus On Over Next 12-18 Months Increasing Portion of Business Supported By Value-Based Models Percentage of Payer Community Percentage of Payer Community Source: Availity Research, April, 2013 Source: Availity Research, April 2013

6. Risk Capable…ACO Adoption http://ehrintelligence.com/2013/08/23/acos-doubled-during-past-year-medicare-outpaced-commercial/

7. The Risk Capable Healthcare Organization “Over-managed,” Portfolio, Multiple Models, Funds Distribution Populations, Utilization, Costs, Budgets, Monitoring Risk Capable Structure, Governance, Alignment, Value

8. Case Study Thumbnails Markets are changing….. • Alabama Medicaid reform – a market-changing event • Large orthopedics group – challenges around the corner • National not-for-profit – revenue portfolio transformation • National for-profit – preparing for changing markets • BPCI pilots exploding

9. LEGAL EXPOSURE ASSOCIATED WITH RISK-BASED CONTRACTING • Financial Impact and Consequences • Hospital executives, Board and physician leaders need to understand the scope of what is at risk and potential implications of assuming this risk. • Need to develop and implement into payor strategy for all payors: • Governmental • Commercial –Blue Cross, etc. • Employers –Direct Contract

10. LEGAL EXPOSURE ASSOCIATED WITH RISK- BASED CONTRACTING • Leadership must have proper resources and skill set to evaluate and implement risk based strategies. Boards must know how to evaluate these new types of strategies: • Does hospital have the IT system to manage the risk-based strategies? • Does hospital have clinical integration in place to assume risk?

11. LEGAL EXPOSURE ASSOCIATED WITH RISK- BASED CONTRACTING • Implications of Development of Clinically Integrated Network • Expectations Have Changed: • Payors will be expecting hospitals to behave in a different way. • Hospitals will be expecting physicians to behave in a different way. • Physicians and patients will be expected to be more engaged and informed and to work together more closely. • Population health management

12. LEGAL EXPOSURE ASSOCIATED WITH RISK-BASED CONTRACTING • Physician/Hospital Alignment • Hospitals who have financial relationship with physicians will be changed as the reimbursement methodologies change. • Volume-based methodologies will transition to more specific clinical and cost metrics • Value based purchasing • Reducing re-admissions • Reducing hospital acquired infections • These new methodologies will need to be documented in new contracts with hospitals and physicians • There will be growing pains

13. Physician Value Based Purchasing Medicare as Passive Payer Medicare as Active Purchaser

14. Who and When? 60% of Physicians

15. What Are the Standards? Physician Risk – Medicare Payment Quality Metrics Costs to Medicare Physician Practice Expense Number of Patients Malpractice Stark/Anti-kickback/CMP Coding Compliance and Accuracy Quality Metrics Costs to Medicare

16. Standards for Payment Adjustment Quality Cost Total Overall Costs (Medicare Parts A and B) Total Costs for patients with specific conditions COPD Heart Failure Coronary Artery Disease Diabetes • PQRS • Patient Safety • Patient Experience • Care Coordination • Clinical Care • Population Health • Efficiency • Outcome measures • Avoidable admissions for heart failure, COPD, diabetes • Avoidable admissions for UTI, dehydration, and pneumonia • All-cause hospital readmissions Gets to Post-Acute Care Spending Medicare Spending Per Beneficiary

17. LEGAL EXPOSURE ASSOCIATED WITH RISK-BASED CONTRACTING • Regulatory Requirements/Risk • Although the reimbursement/compensation methodologies may be changing, the regulatory framework for hospital/physician relationships are still in place. • Must still comply with: • Stark Law • Anti-kickback Statute • Antitrust Laws • Civil Monetary Penalty Rules • False Claims Act Laws • ACOs provide some potential limited waiver-protection regarding compliance with these laws but this is not enough. • Ultimately, may need changes in the regulatory framework to give providers the room they need to make transition to these new models.

18. LEGAL EXPOSURE ASSOCIATED WITH RISK-BASED CONTRACTING • Other Potential Legal Implications • Development of exclusive high performing or narrow networks. • Could a system be carved out of a certain service line within a market by a payor? • Return of Economic Credentialing? • What happens to physicians who do not perform well under these new risk-based methodologies? • Employment status • Medical staff membership status • Participating provider status in payor network

19. LEGAL EXPOSURE ASSOCIATED WITH RISK-BASED CONTRACTING • Other Potential Legal Implications • Executive Qualifications/Compensation • As these new reimbursement/compensation methodologies evolve, will a different type of executive leader be needed? • What will necessary skill sets be? • What will executive compensation look like? • Role of physician leaders will be critical

20. Key Considerations Achieving sustainable risk capability must consider: • Complexities in creating reliable forecasts and capital plans • Federal and state uncertainties – “stroke of the pen” risk • Operationalizing risk capability across multiple domains • Articulating and demonstrating ROI on major current investments • Compliance requirements across multiple providers • Alignment around measurable participation criteria: quality, certifications, clinical protocols, payment incentives • Accelerating transformation across the industry landscape • Identifying and deploying the “right” tools to monitor progress and changes • Continuous evaluation: measuring, reporting and adjusting

21. Barriers – Forbes insights 46% 50% Difficulty in fully engaging physicians Complexity and unpredictable impact of VBP contracts Decrease in profitability during transition Lack of information management infrastructure Lack of sufficient economic predictability 32% 32% 31%

22. A View on the Change Response Paralyzed by Confusion Embracing the Opportunities High RESILIENCY Low Resigned to Acceptance Existing in Denial Low UNDERSTANDING High

23. The Risk Capable Healthcare Organization Risk management in an efficient and profitable organization Maximize portfolio reimbursement to foster financial success Educated patients with accountability who utilize services appropriately Integrated provider network that enhances the continuum of care and creates value Incentivized providers that manage quality and costs Provider criteria with defined metrics to ensure compliance Best practices for patient-centered care

24. With You Today Bill Hannah Market Leader - CFO Advisory Services DHG Healthcare Bill.Hannah@dhgllp.com 404.575.8921 Matthew B. Roberts Member NexsenPruet, LLC mroberts@nexsenpruet.com 803.253.8286 Scott E. Hultstrand Special Counsel NexsenPruet, LLC scotth@nexsenpruet.com 803.540.2148