Dean Rosen

2. Dean Rosen Partner, Mehlman Vogel Castagnetti, Inc. President & CEO, Breakaway Policy Strategies

3. Overview • Strong ongoing interest among payers, public and policymakers in better controlling health costs and providing higher value • Significant expansions under the Affordable Care Act (ACA) likely to lead to greater health system use/volume • ACA insurance reforms putting pressure on payers and, in turn, on innovators and providers • Efforts to move to more value-based, cost-effective health delivery system accelerated by ACA • Growth in alternative payment and delivery models, such as ACOs, PCMHs, and bundled payment • Significant increase in number of demonstration programs at the Centers for Medicare and Medicaid Innovation (CMMI) • Bipartisan, bicameral Medicare physician payment reform legislation underscores continuing interest in movement • Current health quality metrics do not always balance cost controls with access to innovative medicines, technologies and other treatments

4. Key Cost Trends

5. Federal Health Spending Outpacing Other Major Budget Categories and Programs % of Gross Domestic Product Source: Congressional Budget Office, Federal Spending Extended Baseline, September 2013

6. New ACA Subsidies Add To Growing Health Expenditures % of Gross Domestic Product Source: Congressional Budget Office, Federal Spending on Major Health Care Programs, by Category, under CBO’s Extended Baseline, September 2013

7. Affordable Care Act • Health Coverage • Delivery System Reform • Spending Reductions

8. Health Reform Happening In Real-Time Health Insurance Exchanges Operational Regulation Deadline • Final regulations issued for major insurance reforms • Final regulations on Medicaid and coverage provisions • States make determinations on health insurance exchanges and Medicaid expansions Insurance Market Reforms • Guaranteed issue & renewal • No preex for adults • Rate limitations at 3:1 • Limit deductibles & out-of-pockets • Essential benefit package • OPM public option plan • Requires individuals to obtain health insurance coverage or face financial penalty • Prohibits annual limits on coverage Medicare Reforms • ACOs & shared savings • Hospital readmissions • Hospital value-based purchasing • MA quality bonus payments • Decreases MA rebates Medicare Reforms • Donut hole coverage expanded federal subsidies • Bundled payment pilot Medicaid Reforms • Eight state bundled payment demo for integrated hospital & physician care (demo runs 4 years) Medicare Reforms • Value-based payment reforms • Medicare DSH payments reduced by 75% • Hospital acquired conditions • Independent Payment Advisory Board • Sets MLRs for MA Employer Requirements • Penalty for employers not offering coverage • Penalty for employers offering coverage Quality Reforms • Transparency of health care financial relationships Insurance Reforms • Caps FSA contributions at $2,500 Medicaid Reforms • PCPs receive higher reimbursement (provision effective 2 years) Major Medicaid Expansion • States cover parents & childless adults up to 133% FPL 2013 2014 2012 2015 2010

9. ACA Impact on Uninsured • Over 2014-2024, CBO projects ACA will reduce the number of uninsured Americans by almost half Source: Congressional Budget Office, April 2014, “Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act”

10. ACA Primarily Increases Coverage Through Insurance Exchanges and Medicaid/CHIP Source: Congressional Budget Office, April 2014, “Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act”

11. New Insurance Regulations Putting Pressure on Payers– And Providers/Innovators • Industry Regulations • Actuarial Value, MLR, Premium Tax Credit, Health Insurance Fee, Guaranteed Issue, Rating Bands, Preventive Coverage, Essential Health Benefits, etc. • Primary Impact: Increases transparency and cost pressures on insurers • Secondary Impact: Higher consumer cost sharing, narrower provider networks

12. One Example: Deductibles in Exchange Plans No Deductible for Rx Combined Deductible for Medical and Rx Separate Rx Deductible Source: Breakaway Policy Strategies *Combined deductible: Both medical and drug charges accumulate to a total plan-level deductible **Separate Rx deductible: Drug charges accumulate to a separate deductible applicable only to Rx

13. Second Example: Average Cost Sharing By Rx Tier 38% 32% 25% $80 16% $52 $29 $10 Silver Bronze Employer Average Source: Source: Breakaway Policy Strategies ; Kaiser Family Foundation, 2013, “Employer Health Benefits” *Cost sharing patterns may differ if service is subject to a deductible

14. Emerging Health Care Payment Models Focus on Value and Outcomes • Accountable Care Organizations • Medicare ACOs began in 2012 • Two Medicare models: Pioneer and Shared Savings Program • Providers accountable for costs and quality of care for defined patient population • Covers Part A and B, not yet D • 360+ Medicare ACOs currently serving over 4 million beneficiaries • Concerns include shifting patient ACO assignment, inadequacy of measures to account for innovation • Pay-for-Performance • Providers reimbursed based on whether they achieve set of quality measures • Quality measures include: process, outcome, patient experience, and structure measures • Most common type is a bonus payment • Bundled Payments • Payers compensate providers with single payment for episode of care • Medicare has several models, including Bundled Payments for Care Initiative (Jan 2013 start; results not yet available) • Goal is to improve coordination, limit unnecessary services, reduce variation not tied to outcomes & quality • Concerns include challenge of coordinating care across unaffiliated organizations and lack of incentives for preventive care • Medical Homes • Facilitates care coordination through primary care physicians • Emphasis on care coordination, use of HIT • Add-on payments are typical in addition to FFS payments to account for additional work done by docs, including investment in technology, increased patient communication • Several Medicare demos underway • Concerns include lack of provider capital/capacity to cover initial increased investments

15. Example of Changing Delivery System: Growth of Accountable Care Organizations (ACOs) ACOs by State, January 2014 Total ACOs, 2010-2013 Source: Leavitt Partners Center for Accountable Care Intelligence, January 2014

16. Contact Information Dean Rosen Partner, Mehlman Vogel Castagnetti, Inc. President & CEO, Breakaway Policy Strategies Dean@mvc-dc.com