The Role of Payment Reform in the Transformation of the HealthCare System

1. The Role of Payment Reform in the Transformation of the HealthCare System Jim Eppel Chief Operating OfficerBlue Cross and Blue Shield of Minnesota MN Health Action Group Community DialogueNovember 29, 2012

2. Increasing desire to pay for value, not volume Need to decrease waste, duplication, inefficiency Provider/Payer/Purchaser “exhaustion” with the old model Desire of Integrated Delivery Systems to evolve into “Accountable Care Organizations” (ACO) The “Fear Factor” associated with “Reform” Increasing transparency FACTORS DRIVING THE CASE FOR CHANGE

3. What are purchasers/consumers regulators etc., asking for ? They are asking for the “HealthCare System” to truly behave like a system

4. A universal recognition of the need for change has led to higher level of collaboration between providers of care and health plans than has previously existed. An example … Blue Cross Blue Shield’s “Aligned Incentive” relationship model:

5. EVOLVING RELATIONSHIP MODEL

6. ALIGNING INCENTIVES AROUND VALUE Historical Contract Aligned Incentive Contract Quality Total Cost of Care Provider At Risk $TBD based on performance to cost of care target Savings are shared Quality Provider At Risk Fee for Service Guaranteed Increase $ pool based on outcomes improvement Fee for Service Guaranteed Increase Annual increase is ceiling for cost of care target Year 1 Year 2 Year 3 Year 1 6

7. ALIGNED INCENTIVE CONTRACTING MODEL Member attribution Assigned to care system based on majority of E&M visits by a PCP Retrospective Passive PMPM calculation Aggregate attributed member payments TCOC aggregates price, type and volume of services, regardless of setting, into PMPM cost, Providers share in savings from lowering the cost trend below an aggressive target. Risk adjustment • Adjust cost to reflect different illness burden and complexity of the patient population Quality incentives • Payment “at risk” based on 17 quality metrics in 5 categories: chronic illness, prevention & wellness, care integration, safety and utilization 7

8. QUALITY IMPROVEMENT 8

9. CARE SYSTEMS ON ALIGNED INCENTIVE CONTRACT 10 care systems = 33% of Blue Cross’ total statewide volume 65% of metro volume 9

10. PROVIDER ENABLEMENT Generate provider buy-in on details of total cost of care measurement and quality outcomes. 1 2 Establish payment incentives tied to lowering the total cost of care and improving quality with appropriate shared risk and reward. Enable provider competition based upon performance via products which feature providers with low total cost of care and transparency tools for members. 3 4 Provide actionable data, analytics, and tools to assist providers in lowering the total cost of care. 10 10

11. EARLY RETURNS ON ALIGNED INCENTIVE CONTRACTS 11 Total cost of care First year preliminary data projects 75 percent of the aligned incentive care systems will receive shared savings payouts by bending their historical cost trends Successful care systems include both metro and non-metro health systems Quality Several care systems have made significant improvements in outcomes measured from 2010 to 2011

12. Across 9 care systems, 2,000 additional BCBSMN members reached treatment goals for diabetes, vascular disease, and hypertension QUALITY IMPROVEMENTEARLY RETURNS, 2010-11 ~600 additional BCBSMN members whose blood pressure is controlled ~5,000 additional BCBSMN members screened for colon cancer ~300 avoided elective deliveries for BCBSMN members Across 9 care systems, quality payments for 2011 were approximately $32.7M (allocated $35.6M) * Missed target 12

13. Questions ?