Thriving Among the New Realities of Pay/Risk Presented By:

1. Thriving Among the New Realities of Pay/Risk • Presented By: • DON SEYMOUR Executive Vice President & Practice Leader Governance and Leadership • WILLIAM F. JESSEE, M.D., FACMPE Chief Medical Officer and Senior Advisor • July 30, 2014

2. Don Seymour Don Seymour Executive Vice President & Practice Leader Governance and Leadership • Don Seymour is an Executive Vice President & Practice Leader for INTEGRATED Healthcare Strategies’ Strategy & Governance practice. Don has worked with healthcare organizations of all types and sizes on strategy, governance, and organization planning, as well as a broad range of performance and medical staff issues. • Don frequently presents on a variety of subjects related to senior leadership in healthcare organizations. In addition to being on the faculty of The Governance Institute he has made presentations to the American Hospital Association (AHA), Fortune 100 Companies, and a variety of other national, state and regional groups. He serves as lead faculty for the American College of Healthcare Executives seminars on Culture, Process & Outcomes-Where Strategy Begins and Strategic Growth In The Reform Era. His articles have been published in a number of journals including BoardRoom Press, E-Briefings, Hospitals & Health Networks, Trustee and Spectrum. He has served as Executive Editor for Futurescan™ (AHA’s annual healthcare trends publication) since 2004. • Prior to joining INTEGRATED, Don founded and led an independent consulting firm. Don is a past president of the Society for Healthcare Strategy & Market Development of the American Hospital Association, the New England Society for Healthcare Planning & Marketing and the Metropolitan Boston Society for Healthcare Planning & Marketing. He is also a past chair of the American Association of Healthcare Consultants. In 2008 he was the recipient of the SHSMD Award for Individual Professional Excellence.  • Professional Highlights • Board assessment for a major oncologic hospital & research organization • Developed a bottoms-up, physician led, clinical plan for a New York multi-hospital system. • Assisted a New England-based multihospital system (hubed around an academic medical center) in transitioning from a holding company model to an effective form of system governance. • Analyzed statewide strategic partnership opportunities for a mid-Atlantic, university affiliated medical center. • Board leadership retreat focused on community outreach/support in the wake of Katrina for a New Orleans Parish Hospital. • Facilitated a merger among three Massachusetts hospitals • He received his M.B.A. from the Johnson School at Cornell University and his Bachelors Degree from George Mason University. • Don Seymour will be based out of our Boston office and can be contacted at Don.Seymour@ihstrategies.com, or at 612-339-0919.

3. William F. Jessee MD, FACMPE • William F. Jessee, MD, FACMPE joined INTEGRATED Healthcare Strategies in October, 2011, after serving for more than 12 years as President and Chief Executive Officer of the Medical Group Management Association (MGMA). He also holds an academic appointment as Clinical Professor of Health Systems, Policy and Management at the University of Colorado School of Public Health. • Dr. Jessee is one of the nation’s leading experts on physician services management and hospital-physician integration. In particular, he is skilled in the development and implementation of strategies for creating aligned economic interests among physicians, hospitals and payers. He is also widely recognized as an expert on health policy issues, and the role of governance in quality improvement and patient safety. • Before joining MGMA, Dr. Jessee was Vice-President for Quality and Managed Care Standards at the American Medical Association. His experience also includes service as CEO of a regional integrated delivery system in Louisville, Kentucky; as a Vice President of the Joint Commission on Accreditation of Healthcare Organizations; and as corporate Vice President for Quality Management at Humana Inc. From 1980 -1986, Dr. Jessee was a full time academician as Associate Professor of Health Policy and Administration at the University of North Carolina, School of Public Health, Chapel Hill. • Professional Highlights • More than twelve years leading MGMA, a national association for managers of medical group practices. Extensive experience in all facets of the management of cost-effective, profitable, high quality medical groups, achieving high levels of patient and physician satisfaction. • Nine years as a board member of Exempla Healthcare, a three hospital system. Extensive experience in physician practice acquisition, strategic integration of physician services, and development and use of metrics for improving individual and organizational performance. • In-depth knowledge of hospital board, management, and clinical staff responsibilities for patient care quality and safety. • Extensive experience in developing strategic plans and initiatives for achieving the clinical and financial integration necessary to meet payer and purchaser demands for cost-effectiveness, quality, safety and patient satisfaction. • A nationally well-known educator on physician leadership, hospital and health system governance, and ACO development and implementation. • An honors graduate of Stanford University, Dr. Jessee received his medical degree at the University of California, San Diego School of Medicine. He took residency training in pediatrics at Indiana University Hospitals, Indianapolis, and completed his training in preventive medicine at the University of Maryland Hospital, Baltimore. • Dr. Jessee works out of the Minneapolis office and can be contacted at bill.jessee@ihstrategies.com, or at 612.339.0919. William F. Jessee MD, FACMPE Senior Vice President andSenior Advisor

4. What We Plan To Cover... • What are the forces driving reductions in provider revenues and increases in provider risk? • What are some effective strategies for not only coping, but thriving in this new environment? • Physician/hospital integration • Risk-bearing joint ventures • Hospital-owned health plans • Population health management • What are the roles of the board and management in the volume to value transition?

5. WHAT ARE THE FORCES DRIVING DECREASED REVENUES AND INCREASED RISK?

6. National Overview • Everyone will be paid less per increment of service and challenged to assume greater risk • Acute care volume will shift from inpatient to ambulatory venues • Consumerism will grow (Boomers and newly insured) • Population management will be implemented … slowly; near term focus still needs to be on volume • Provider cultures will be challenged; everyone will have to: • Do more with less • Move away from hospital centric model • Embrace a patient centric approach

7. Surviving The Ordeal

8. Strategic Oversight MISSION How do we provide the greatest community benefit? EXTERNAL TRENDS VISION KSIS* IMPLEMENTATION What do we want to look like in 5 -10 years? What are the 5 most important things we willdo to supportthe Mission and Vision? Do we have a plan for each KSI? How will our world change? INTERNAL CAPABILITIES What do we have going for us? SOURCES AND USES Can we finance our plans? * KSIs: Key Strategic Issues

9. ACA Stops Short (For Now) • Three major problems: uninsured, cost and quality • The ACA primarily addresses the uninsured • The ACA does not ensure that care is effective, high-quality, and affordable for recipients or taxpayers NEJM -- Interview with Drs. Gail Wilensky and John McDonough

10. Private Payers & Employers Not Waiting • Narrow networks with performance “bonuses” • HDHP with savings option • Channeling: Wal-mart, Boeing & Darden

11. New Competitors/Collaborators • Wal-Mart & CVS • Apps • Top of license • Taxable hospital companies • Large multi-specialty groups (MSGs) Change comes from the outside!

12. STRATEGIES FOR RESPONDING TO THE NEW ENVIRONMENT

13. CAPPs Physician / Hospital Integration SPECTRUM OF INTEGRATION ACROSS AMERICA’S HEALTHCARE DELIVERY SYSTEM “Typical” Community Hospital Less Integrated or Organized Systems Single MDs Small Groups Single Hospitals Hospital Staffs; Some Academic / Faculty Practices IndependentPhysicians IPAs Single SpecialtyGroups Hospital Chains More Integrated or Organized Systems IntegratedDelivery Systems; Henry Ford Mayo Geisinger Ochsner Fully IntegratedSystems Kaiser Group HealthCo-op VA MultispecialtyGroups +/- Hospital Affiliations Marshfield Clinic Harvard Vanguard Vanderbilt U www.amga-capp.org/deliverysystem.html

14. Physician / Hospital Integration • Two distinct integration challenges • Structural integration • Clinical integration • Numerous approaches to structural integration • Physician employment • Professional services agreements • MSO services for independent physicians • PHO formation • ACO formation or participation • Various joint ventures • No “one size fits all” solution

15. Physician / Hospital Integration • Clinical integration more complex than structural • Will generally require significant new investment • Information systems • New personnel (care coordinators, nutritionists, home care specialists, etc.) • Patient-centered medical homes (PCMH) • For most physicians, it is a new way of providing care and will require new referral patterns, communication, follow-up, “tickler files”, patient reminders, etc. • Cuts across multiple sites including primary care and specialist offices, hospital, post-acute settings, home, etc.

16. Establish MSG* Member Criteria Provides high quality patient care as defined by best practices (not necessarily the MEC) Meets/exceeds patient expectations Operates in a financially responsible manner Respects clinical autonomy but adheres to best practices “Captures” appropriate referrals within the network Leverages information technology * Multi-Specialty Group

17. Physician / Hospital Integration • The up side: • Improved population health • Reduction in total costs of care • Improved results and patient satisfaction • Reduced risk in “at risk” payment schemes • The down side: • New expenses, both initial and ongoing • Requires cultural change • Reduces inpatient revenues • MAY reduce ambulatory revenues, as well • May or may not be rewarded by payers

18. Risk Bearing JV Options • JVs with insurers • Hospital owned private ACOs, with or without a PHO • Medicare ACOs

19. Risk Bearing JVs Challenges • One organization’s revenue is another’s expense • Providers know little about actuarial risk • Providers and insurers know little about population management • Reimbursement algorithms don’t support population management; neither do IT platforms • 80% of cost is related to six chronic diseases • Many chronic disease patients don’t have an HDHP; those that do will burn through the out-of-pocket incentives in a month • Many patients aren’t compliant

20. Hospital-owned Health Plans • A very high risk strategy... • ...but also one with high potential rewards • A Medicare Advantage plan receives $800-900 monthly for each enrollee -- for 10,000 enrollees, that translates to $96M to $108M per year • Many organizations starting with an ACO for their employees, then expanding to licensed health plan • IF you can manage care to produce safe, high quality, satisfying care within the capitated amounts, there is significant upside potential

21. Hospital-owned Health Plans • MANY caveats and potential pitfalls • Significant start up costs • Requires extensive expertise outside the traditional portfolio of hospital leaders • Expect losses for first several years • Size is essential---small doesn’t work • Beware of adverse selection • Extensive clinical integration also essential • Other payers will view you as a competitor • Data needs are extensive

22. Hospital-owned Health Plans • Extensive merged relational databases are essential... ...as are tools to extract reports you need on an almost real-time basis (“predictive analytics”) • Some examples: • What does it cost you to produce a total hip replacement? • How much variation is there in that cost among your orthopedists? • What does it cost to manage a diabetic for a year? • How much variation is there in that cost among your PCPs? • How much does one hospital admission change that cost? • How many diabetics should you expect?

23. Population Health Management • Regardless of how much risk you choose (or are forced) to take, the capacity to manage the health of a defined population will be essential • The metrics are those of accountable care: • Safety • Quality (process and outcomes) • Satisfaction • Efficiency • Timing is everything -- developing capacity early is good, but premature implementation can be fatal

24. Population Health Management • Multiple tools are available • Chronic disease management • 25.6% of Medicare patients have diabetes; they account for 41.2% of ALL Medicare spending • Six chronic diseases (diabetes, congestive heart failure, coronary artery disease, asthma, depression and obesity) account for about 80% of total healthcare costs • Patient-Centered Medical Homes (PCMH)---expanded primary care patient management, with decreased use of specialists and hospitals • In-home care management • Referral management

25. Population Health Management • All of these tactics require • Interoperable electronic health records • Extensive data from multiple sources • New types of personnel • New patterns of care management • Extensive communication among providers and with patients • A new culture

26. LEADING THE VOLUME TO VALUE TRANSITION: Additional Considerations

27. Virtual IDN Control VirtualIDN Contract VirtualMSG Public & Private Agencies Independent Hospitals Independent Physicians HOSPITAL SYSTEM Post Acute Ambulatory Employed Physicians* KEY: * Note: All references to physicians include appropriate utilization of mid-level practitioners.

28. Compelling Motivation • Successful affiliations begin with a clear identification of the single most important driver(s), for example: • Capital • Cost Reduction • Referrals • Physician Integration • Risk Contracting (Acute Care) • Population Management • Other …

29. Cultural Fit Howard Buffett [a farmer] will become Chairman of Berkshire Hathaway when I retire. He may not understand investments but he does understand the values and culture of this company. - Warren Buffett / Chairman Berkshire Hathaway 60 Minutes / January 5, 2014

30. Case Example Physician discontentment and cultural differences appear to have ended the six-month merger talks between Henry Ford Health System and Beaumont Health System. Modern Healthcare May 21, 2013

31. System Goals & Operating Objectives • Goals • Improve acute care performance • Develop scale to access capital at preferable rates • Begin the journey to managing the care of a defined population • Operating Objectives • Foster collaboration in order to reduce fragmentation of care • Standardize care in order to improve outcomes • Centralize control in order to achieve the benefits of systemness

32. Reality Interferes Too often these [System] governing bodies are assembled without sufficient attention to the original purpose of the consolidation resulting in the creation of a system that has compromised its own effectiveness and, in some cases, rendered itself virtually ungovernable and unmanageable. BoardRoom Press February 2013 - Don SeymourTransitioning To Effective System Governance BALANCING ACT • Centralization of decision making • Relinquishing local control and autonomy

33. Consumerism 2.0 EMPLOYER BASED INSURANCE * Conventional plans refer to traditional indemnity plans. ** Point-of-service plans not separately identified in 1988. *** In 2006, the survey began asking about HDHP/SO, high deductible health plans with a savings option. A-14

34. Can’t Make This Up Holy Family Memorial, Manitowoc, WI

35. Or Else What?!

36. Low Socioeconomic Patients Prefer ED • It’s more affordable • It’s more accessible • Transportation • “Same-Day Appointment” • One-Stop Shopping • Clinically Superior • “The hospital is where you go when you are sick or in • pain at all, and the primary is just for checkups.” Health Affairs, July 2013

37. Your IPhone Will See You Now DIABETES… have developed … the most badass blood test … a tiny tattoo packed with a glucose-sensing dye that, when hit with a special light from your handy iPhone attachment, reveals your blood-sugar status. Fast Company / February 2012

38. Implications For Providers • Confront the “brutal facts” re your outcomes • Become patient-centered…really • Focus marketing efforts on consumer decision points • Assess your external communications on the Flesch-Kincaid Reading Index • Dissect a major service line from the patient/family/friends perspective

39. Questions??

40. Locations and Contact • Contact • Don Seymour William F. Jessee, MD, FACMPE • Don.Seymour@IHStrategies.comBill.Jessee@IHStrategies.com • 612-339-0919 612-339-0919 • Company • 1.800.327.9335 | info@ihstrategies.comwww.INTEGRATEDHealthcareStrategies.com • Locations • Boston │Dallas | Kansas City | Minneapolis • Connect 