Agenda

1. Agenda Health Care Reform The margin challenge Clinical documentation improvement (CDI) Interlude: No more secrets… The surgeons role Some outcomes

2. Supreme Court (mostly) Upholds Affordable Care Act (ACA)

3. What, in a nutshell, was the ACA? It really dealt with insurance — how are we as a society going to insure tens of million of uninsured people?

4. Coverage Expansion Proceeds—Perhaps Not as Originally Envisioned ACA’s Original Coverage Expansion Plan 32 Million Newly Covered Lives through Medicaid Expansion and Exchanges Health Insurance Exchanges Medicaid Expansion 17 M newly covered lives 15 M newly covered lives Percent of Federal Poverty Level 400% 133%

5. How will they pay for it? By a three pronged approach that will change the incentives that have driven the practice of medicine for years…the “shared savings” program.

6. Changing Incentives • ACA “requires” to establish shared savings program by January 1, 2012 • “This program is intended to encourage providersof services…to create a new type of health care entity…and ‘Accountable Care Organization (ACO)’ that agrees to be held accountablefor improving the health and experienceof care for individuals and improving the health of populations while reducing the rate of growth in health care spending. Studies have shown that better care often costs less [Dartmouth, others?] because coordinated carehelps to ensure that the patient receives the right care at the right time, with the goal of avoiding unnecessary duplication…” Medicare Fact Sheet, 3/31/11

7. The “whole bet” in the Accountable Care Act Source: Advisory Board

8. Bundled Pricing Source: Advisory Board

9. Fee - for - service Environment Bundled Payment Environment Individual Payments Reinforce Lump Sum Payments Drive Integration Siloed Care Delivery Through Shared Accountability Payer Payer $ $ $ $ $ $ $ $ Physician Hospital Post - Acute Physician Hospital Post - Acute Services Services Services Services Services Services Redefining the Acute Care Episode Bundled Payments Drive Delivery System Integration Source: Advisory Board

10. Shared Savings Source: Advisory Board

11. The ultimate purpose of shared savings… Last 200 years… Next 5-10 years?

12. Avoiding Cost as Well as Revenue Bonuses Need Only Outweigh Contribution Profit, Not Total Revenue Total expenses (to payer) for a given patient population compared to risk-adjusted benchmark; portion of any savings below benchmark returned to provider. Source: Advisory Board

13. Pay For Performance

14. Final Measures for FY 2013 Hospital VBP program

15. The Bottom Line… There will be less money • Shared Savings • Bundled payments We will be held ‘accountable’ • Pay-for-performance (P4P) • A move to absolute transparency • Convenient comparison to your peers

16. Agenda Health Care Reform The margin challenge Clinical documentation improvement (CDI) Interlude: No more secrets… The surgeons role Some outcomes

17. Four Forces Shaping Future Margins • Decelerating • Price Growth • Federal, state budget pressures constraining public payer price growth • Payments subject to quality, cost-based risks • Commercial cost shifting stretched to the limit • Continuing Cost • Pressure • No sign of slower cost growth ahead • Drivers of new cost growth largely non-accretive • Shifting • Payer Mix • Baby Boomers entering Medicare rolls • Coverage expansion boosting Medicaid eligibility • Most demand growth over the next decade comes from publicly insured patients • Deteriorating • Case Mix • Medical demand from aging population threatens to crowd out profitable procedures • Incidence of chronic disease, multiple comorbidities rising

18. 2021 Not So Pleasant Future State Untenable Without Major Change 4.0% • The 4.0% Margin Imperative • Significant long-term capital needs across the board • Tax-exempt debt unsuitable for financing IT, physician integration investments • Retained earnings required to fund greater portion of capital • Financial volatility demands higher margin to compensate for increased risk Projected Operating Margin 2.2% Goal Current Margin • Includes effects of: • Price growth trends • Cost growth trends • Payer mix shift • Case mix deterioration -16.9%

19. Achieving the New Performance Standard Inaction Not an Option Nine Imperatives for Achieving the New Performance Standard Maximize Revenue Capture Excel Under Performance Risk Bend Labor Cost Curves Standardize Clinical Care Pathways Redesign Inpatient Care Models Build Effective Capacity Reassess Supply of Less Profitable Services Deflect Demand of Less Profitable Services Secure Surgical Market Share