Transforming Healthcare Together: Sustaining Integration, Innovation, and Transformation for Healthcare Reform

1. Sustaining Healthcare Reform: A Culture of Integration, Innovation and Transformation Susan DeVore, President and CEO, Premier, Inc. January 12, 2010Harvard Business School Club of Charlotte

2. Premier alliance: Uniting a fragmented healthcare system • 2,200+ not-for-profit hospitals united to rapidly improve the quality, safety and affordability of care • Create collaboratives to improve quality and safely reduce costs • Nation’s largest clinical comparative databases • Aggregate $33+ billion in purchasing among hospitals and other providers • “Gold standard” ethical code of conduct; winner of Ethisphere’s Most Ethical Companies award in 2008 and 2009 • 2006 recipient of Malcolm Baldrige National Quality Award

3. The current model is in need of change Healthcare spending is unsustainable Clinical information gaps are common Projection Percent of GDP Source: JAMA, Feb. 2005 Source: Congressional Budget Office Missing information affects care Overuse is common Source: JAMA, Feb 2005 Source: RAND Corporation 2

4. 25 Projection Actual Differential of: 2.5 Percentage Points 20 1 Percentage Point Zero 15 10 5 0 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 2050 Unsustainable government healthcare spending Total Federal Spending for Medicare and Medicaid Under Assumptions About the Health Cost Growth Differential Percent of GDP Tax rates 2050: 10% 26% 25% 66% 35% 92%

5. Investors’ Stake in Healthcare • Automaker bankruptcies pale compared to public investments in healthcare • Capital and equity markets are essential to healthcare provider operations and expansion • Debt and equity are supported by cash flow of current business models

6. Medicare cost variation by state

7. The goals of health reform • Harm reduction • Infection prevention • Mortality rates • Evidence-based care • Improved satisfaction • Better, earlier, preventivecare Improved Quality • Total medical costs • Total Rx costs • Admissions/1000 • Readmission rate • Efficiency measures • Reduced waste, duplication Healthcare Reform • Coverage expansion • Improved coordination • Delivery system integration • More accountability Reduced Costs Improved Access 6

8. The debate on health reform • Areas of Consensus • Value based purchasing • Bundled payment • Readmissions • Accountable Care Organizations (ACOs) • Medical home & primary care • Transparency initiatives • Evidence based care • Waste, fraud and abuse Contentious Proposals • Coverage options: Public vs. private • “Cadillac” health plan tax • “Deals” with industry • Comparative effectiveness and care “rationing” • End of life care • Total cost of reform • Independent Medicare Commission

9. Public vs. private, or hybrid? “The debate as it is being portrayed right now by the media—as a battle between a government-run system on one hand and a private-run system on the other—is compelling, but wrong.” Tom Strauss, CEO, Summa Health System (Akron, OH)

10. Value Based Purchasing “If we are going to drive true value, we need to act anew. It’s no longer enough to simply measure costs – we need to measure quality. It’s no longer enough to simply measure process – we need to measure outcomes. The only way America’s health care system is going to become more efficient is if we put patients first and drive the system toward value-based competition based on results.” Delos M. Cosgrove, M.D., CEO and President, The Cleveland Clinic

11. Value Based PurchasingUnderlying Premise and Overall Goals Underlying Premise: CMS (“Medicare”) must transform itself from a passive payer of services to an active purchaser of care. Goals of VBP: • Improve clinical quality • Address overuse, misuse and underuse of services • Encourage patient centered care • Reduce adverse events and improve patient safety • Avoid unnecessary costs in the delivery of care • Invest in structural components of care and the re-engineering of care system wide • Make performance results transparent to and usable by consumers • Avoid creating new and eliminate existing disparities in care Source: U.S. Department of Health and Human Services Report to Congress: Plan to Implement a Medicare Hospital Value-Based Purchasing Program; November 21, 2007

12. The journey to high value healthcare Accountable Care Organizations HQID Transforming Healthcare Together Systemic Improvement Process Improvement

13. Overview of Premier/CMS P4P project Premier is leading the first national CMS pay-for-performance demonstration for hospitals. More than 260 Premier hospitals participate voluntarily. Hypothesis Financial incentives / transparency improve hospital quality & performance Findings • Financial incentives did focus hospital executive attention on measuring and improving quality. • Hospitals performance has improved continuously over time.

14. CMS/Premier Hospital Quality Incentive Demonstration (HQID)Key Facts Three year demo (2003-2006); extended for three additional years through Oct. 2009 250 hospitals in 37 states Quality measures First 3 years: 33 nationally-recognized measures in five clinical conditions: Heart attack (Acute myocardial infarction (AMI)) Heart bypass surgery (Coronary artery bypass graft (CABG)) Heart failure (HF) Community acquired pneumonia (PN) Hip and knee replacement surgery (Hip/Knee) Second three years: 41 nationally-recognized measures in multiple clinical conditions 13

15. More Patients are Reliably Receiving Evidenced-based Care Evidence-based Care Improvements Avg. improvement from 4Q03 to 1Q09 in all clinical areas (22 quarters) 53.5% Appropriate Care Score

16. Framework for High-Value Healthcare Defining value in healthcare.

17. QUEST participants compared to non-participants: Mortality trends 16

18. QUEST Participants Compared to Non-Participants: Evidence Based Care Trends 17

19. QUEST Participants Compared to Non-Participants: Cost of Care Trends 18

20. ACOs bring all the pieces together ACO Management • Builds patient centric systems of care • Improves quality and cost for delivery system components • Coordinates care across participating providers • Uses IT, Data and reimbursement to optimize results • Builds payer partnerships & accepts accountability for the total cost of care • Assesses and manages population health risk • Reimbursed based on savings & quality – value Reimbursement Specialists Pharmacy Population IT and data management Health home Home Care Other/Non Traditional Patients Ancillary Providers Health home Hospitals Population IT and data management LongTerm Care Hospice Reimbursement ACO Management 19