Presenter: Tom Simmer M.D. Chief Medical Officer

1. Blue Cross Blue Shield of Michigan Taming the Healthcare Beast: A Plan for Michigan Federal Reserve Bank Presenter: Tom Simmer M.D. Chief Medical Officer March 31, 2009

2. Overview • A few facts about health status, healthcare costs, and personal income in Michigan. • The Goal: Improve the competitive position of the state of Michigan for business while supporting access to needed medical services. • Provider Partnership Programs improve healthcare delivery through population based, collaborative initiatives, often connected with performance-based payment. • A quick look at results.

3. Michigan Personal Income Falling Relative to U.S. Michigan per Capita Income as a Percent of U.S. Per Capita Income 122% 93% 89% Source: Department of Treasury calculations from Bureau of Economic Analysis data

4. Source: “Michigan’s Health Care Safety Net: In Jeopardy,” A MHA Special Report

5. Older, fatter, smokier, sicker

6. Average Annual Cost to Employer Per Employee State: $8,812 Regional: $7,557 National: $7,327 2008 Michigan Health Plan Costs* Employer Share Employee Share State: $6,152 Regional: $4,904 National: $4,117 2008 health plan costs according to the annual United Benefit Advisors Health Plan Survey. The survey included 18,019 employers nationally, 5,283 in a four-state region and 828 in Michigan. United Benefits Advisors is a national alliance of independent insurance agencies that includes The Campbell Group in Grand Rapids, BenePro Inc. in Royal Oak, Pappas Financial in Farmington Hills, Saginaw Bay Underwriters in Saginaw and Employee Benefits Agency in Marquette. State: $2,660 Regional: $2,653 National: $3,210

7. Why haven’t we succeeded in healthcare? • Lack of Population focus – fee for service / third party payment system drives increased delivery of services. • Cottage industry: Physician practices lack capacity to build information infrastructure and implement lean processes that are key to improving performance. • Health plan, rather than delivery system,focus introduces process variation and re-work, not clinical process improvement. • Weak primary care foundation misses opportunities for care coordination and lower cost approaches. • BCBSM programs are unique in rewarding population-based improvements in care, strengthening primary care, investing in infrastructure through large physician organizations, and reducing variation through lean process improvement across the delivery systems and across payers.

8. Care Relationship Effective Providers • Basics • Precertification • Utilization Review BCBSM Members Support Wellness & Care Management Michigan BCBSM Clinical Programs

9. CQIs: Collaborative Quality Initiatives Michigan Surgical Quality Collaborative Michigan Bariatric Surgery Collaborative BMC2: BCBSM Cardiovascular Consortium Angioplasty Collaborative Quality Initiative Michigan Society of Thoracic Surgeons Cardiac Surgery Collaborative Quality Initiative Etc. Current Partnering for Value Programs Physicians Hospitals Hospital Incentive Program (in Participating Hospital Agreement) PGIP: Physician Group Incentive Program

10. PGIP Participants (June 2008) • 35 groups • 6,471 physicians • 1,700,000members Keweenaw Marquette County: Upper Peninsula Health Plan (176) Houghton Genesee County: Genesys Integrated Group Physicians(87), Hurley PHO (116), McLaren Medical Management (95) Ontonagon Baraga Luce Marquette Gogebic Chippewa Oakland County: Medical Network One (303), Oakland Physician Network Services (144), Oakland Southfield Physicians (204), Oncology Physician Resource (64), Quality Partners of MI (34), St. John Medical Group (223), United Physicians (560) Alger Schoolcraft Mackinac Iron Dickinson Delta Saginaw County: Primary Healthcare Partners (57) Menominee Emmet Presque Isle St. Clair County: Mercy~ Physician Community PHO (38), Physician Healthcare Network (26) Cheboygan Kent County: Advantage Health Physicians (146), Michigan Medical, PC (MMPC) (90), Regional Delivery Network of West MI (136),West Michigan Physicians Network (227) Charlevoix Alpena Otsego Antrim Montmorency Leelanau Macomb County: DMC Primary Care Physicians (115), St. John HealthPartners (417) Grand Traverse Kalkaska Oscoda Benzie Alcona Crawford Muskegon County: Hackley PHO (79) Missaukee Ogemaw Wexford Roscommon Iosco Manistee Arenac Wayne County: Henry Ford Medical Group (328), Olympia Medical Services (127), UOP, LLC (252) Mason Lake Osceola Clare Gladwin Ottawa County: Principal Health PHO (35) Huron Mecosta Midland Oceana Newaygo Isabella Bay Tuscola Sanilac Montcalm Saginaw Ingham County: Consortium of Independent Physician Associations (1,230), MSU Health Team (104), Sparrow Family Medical Services (45) Muskegon Gratiot Washtenaw County: Huron Valley Physicians Association (245), Integrated Health Associates (109), U-M Health System Faculty Group Practice (387) Genesee Lapeer St.Clair Ottawa Kent Clinton Shiawassee Ionia Macomb Ingham Oakland Eaton Calhoun County: Integrated Health Partners (69) Allegan Barry Livingston Wayne Calhoun Jackson Kalamazoo County: Bronson Medical Group (50) and ProMed Healthcare (83) Van Buren Washtenaw Kalamazoo Jackson County:Jackson Physician Alliance (70) Monroe Cass St. Joseph Hillsdale Branch Lenawee Berrien 10

11. Next-Generation PPO • Stronger role for primary care • (medical home, not gatekeeper) • Strong link between performance and payment Partnering for Value Foundation for Future Short- Term Value • Build effective physician organizations. • Care commitment to a defined population • Facilitated practice improvement and technology dissemination. • Substantial improvement in healthcare delivery Preparations Incremental Savings and Improvement ValuePartnerships: Leveraging Provider Relationships and Market Share to transform healthcare delivery. Current State

12. Programs to Improve Hospital Care: MHA Keystone: Hospital-Associated Infection (HAI) The Challenge: • 5-10% of hospital inpatients develop infections each year, resulting in 90,000 deaths nationally • $5 billion to $6 billion in national health care costs The Response: • Launched in 2007 to eliminate Hospital Associated Infections • Hand hygiene compliance nearly 80% (U.S. average is 40%) • Eliminating nonessential catheters • 112 participating hospitals in MHA Keystone: HAI

13. Keystone Results in Michigan • Lives Saved – 1,729* • Patient Days Saved – in excess of127,000* • Dollars Saved – 0ver $246 Million* • Culture of Safety improved 28% • Teamwork improved 15% * Based on the Johns Hopkins Opportunity Calculator

14. Improving Cardiac Interventions – Participating Centers – 2009

15. 20 2002 2008 15 40% Percent 10 22% 1.5% 5 18% 25% 26% 0 Death Kidney Failure Transfusion Vascular All CABG Revasc Complications Comparison of Outcomes for 2002-2008*

16. Improving Performance to the Population: Evidence Based Care Measures 2008 Measures (scored in 2008) Diabetes Comprehensive Diabetes Care - HbA1c Testing Comprehensive Diabetes Care - LDL-C Screening Comprehensive Diabetes Care - Monitoring Nephropathy Lipid Lowering Drug Rate Statin Therapy for Persons with Diabetes ACE/ARB Use with Comorbidity CHF ACE/ARB Use with Comorbidity Nephropathy ACE/ARB Use with Comorbidity Hypertension Asthma Use of Appropriate Medications for People with Asthma – Combined Congestive Heart Failure (CHF) LDL-C Screening Beta Blocker Prescription over Last 12 Months Rate of ACE/ARB Coronary Artery Disease (CAD) Beta Blocker Treatment After a Heart Attack Cholesterol Management for Patients with Cardiovascular Conditions - Screening Lipid Lowering Drug Rate Statin Use Additional Measures Appropriate Treatment for Children with an Upper Respiratory Infection Avoidance of Antibiotic Treatment in Adults with Acute Bronchitis New Measures for 2008 (scored in 2009) Adult Prevention Breast Cancer Screening Cervical Cancer Screening Child/Adolescent Prevention/Treatment Adolescent Well Care Visit Adolescent Immunization Status – Combo 2 Childhood Immunization Status – Combo 3 Well Child Visits in First 15 Months of Life Well Child Visits in 3, 4, 5, 6 Years of Life Chronic Obstructive Pulmonary Disease (COPD) Use of Spirometry in Assessment and Diagnosis Congestive Heart Failure (CHF) ACE/ARB Continuation/Persistence Coronary Artery Disease (CAD) Persistence of Beta Blocker Treatment After AMI Low Back Pain Imaging Studies for Low Back Pain 16

17. EBCR Performance Trend

18. 1Q 2008 EBCR Performance

19. Increasing Generic Use

20. PMPM by Year Final Difference=$21.08 Savings=$16.24 PMPM Initial PMPM Difference= $4.84

21. Improving Primary Care Performance • Performance assessment is based on attributed population rates. • PC-MH practice characteristics, based on national criteria • Performance on Quality metrics – “Evidence-Based Care Report” • Resource management • Generic dispensing rate • High tech imaging • Low tech imaging • Rate of use of ER for non-emergent care

22. Building the Primary Care Foundation: Patient Centered Medical Home PGIP Phys Org B PCP PC-MH PGIP Phys Org A PCP PCP PCP PCP PCP PCP PCP PCP PC-MH Nominee PCP PCP PC-MH PCP PCP PCP PCP PCP PCP PCP PCP PCP PCP PGIP Phys Org C PCP PC-MH “Control Group” PCP PC-MH Nominee PCP PCP PCP PCP PC-MH Nominee PCP PCP PCP PCP PCP PCP PCP PCP PCP PCP PCP PCP PCP

23. Summary • Michigan has unfavorable health status and medical costs compared to regional and national benchmarks. • BCBSM is working to make Michigan a more competitive state to attract business and job growth, while improving medical care. • Health Plan-based Wellness and Care Management programs are cost-effective and act as a safety net for failure of the primary clinical process, but they do not change healthcare delivery and do not significantly affect health benefit costs. • Population-based collaborative programs improve key clinical processes and achieve substantial savings. • PCP’s are actively transforming their practices by implementing the Patient-Centered Medical Home model, creating a lower cost model of care.