Making the business case for hospital RPM / Care Coordination programs

1. Making the business case for hospital RPM / Care Coordination programs MATRC Telehealth Summit March 2013

2. Agenda • Who We Are/Our Approach • Remote Patient Monitoring for Care Coordination: Value Drivers • Readmissions and the Value of Avoided Penalties • Costing an RPM/CC Solution • Making the Business Case

3. Who We Are • Virginia-based Telehealth Services firm providing Care Coordination Services via Remote Patient Monitoring • Lower patient readmissions • Improve outcomes for key patient populations • Position health systems strategically for new environments (ACO, shared risk, etc) • Enhance and better leverage data analytics • Founders are serial entrepreneurs with significant experience in: • Design and operation of secure networks and operation centers for health care and defense • Public/Private Partnerships • Health care market research and analytics • Key Clients • Commonwealth of Virginia • University of Virginia • University of Virginia Medical Center • New College Institute – Southside Telehealth Training Academy and Resource Center (STAR) • Virginia Tobacco Commission – Special Projects

4. Our Approach to Hospital-Based RPM Patient Risk Stratification and Selection Coordination w/ Hospital Discharge Transition to Home: “Activation” and Daily Monitoring Provider Coordination via Clinical Review Software and Reporting Primary Care Physician EHR Home Health Nurse Case Manager Hospital-based Clinic Alert intervention Biometric/symptom data Regular reporting • Key Transition Activities: • Hub/device home install • Patient training • Med reconciliation/PCP appt • Connection established with RN monitor Heart Failure AMI Pneumonia COPD CABG PTCA Other vascular Over time: Highest-Risk Frequent Readmits Referral to Care Coordination Center Care Coordination Center • Outcomes Reporting: • Readmissions • Population health • Costs • Satisfaction Patient targeting/best practices

5. Evidence for RPM Efficacy • Centura Health (Colorado): Centura Health at Home program reduced 30-day readmission rates for patients with target conditions CHF, COPD, and diabetes by 62% in 2010/11 one-year pilot • 200 patients enrolled, generating cost savings of $1,000-1,500 total cost per patient • Partners HealthCare (Boston): Connected Cardiac Care Program has consistently reduced CHF-related readmission rates by ~50% and non-related readmission rates by 44% • 1,200 patients enrolled since 2006, generating cost savings of more than $10m • (Chronic Disease Management) Veterans Health Administration: Care Coordination/Home Telehealth program decreased total healthcare resource utilization (hospital days of stay) by ~25% for both single/multiple diagnoses across 8 target conditions between 2004-07 • Currently more than 70,000 enrollees Commonwealth Fund RPM Case Studies: January 2013 Source: Commonwealth Fund publications 1654-1657, Jan 2013

6. Why RPM for Hospitals? • Financial: Lower patient readmissions and avoid penalties (Short-term ROI) • Quality: Improve health outcomes and satisfaction for key patient populations • Efficiency: Enhance and better leverage information and analytics between providers to provide more effective care • Strategic: Position health systems for new environments (ACO, shared risk, etc) Value Drivers

7. Hospital Readmissions Context • CMS Hospital Readmission Reduction Program (HRRP) penalties effective as of October 1, 2012 • 30-day readmission measures for three key conditions (AMI, HF, Pneumonia) • ~70% of U.S. hospitals penalized • Average FY13 penalty: 0.3% of aggregate inpatient payments • CMS penalties expected to grow meaningfully • New conditions added • Penalty caps increased • Higher hurdles for “expected” readmission rates • Other payers expected to follow CMS in assessing penalties

8. Readmissions Penalties in MATRC Region • 3 MATRC states and D.C. in highest penalty quartile nationally for CMS 30-day readmissions, and all except Delaware in the top half FY13 HRRP Penalty Percentage Map First Quartile (highest penalty rates) Second Quartile Third Quartile Fourth Quartile (lowest penalty rates) Note: Maryland does not participate in HRRP program due to CMS allowance of its state-based program Source: CMS; Kaiser Health News

9. Key Insights for Penalty Estimation • Future penalties are being “accrued” based on recent/current lack of action on readmission reduction • No action now = a deeper hole • The penalty “stick” is roughly 5x greater than than Medicare payments for the readmissions themselves • Excess readmissions ratio (actual rate ÷expected rate) drives penalty • CMS-measured 30-day readmission rates often higher than hospital-measured “raw” rates • Due to “all cause” readmission methodology and readmits to other acute care hospitals • Excess readmission rates characterized as “No Different from the U.S. National Rate” per Hospital Compare (confidence intervals) are still penalized

10. CMS Penalty Formulas • Estimated penalties depend on: • Excessive readmissions in each key condition • How “costly” the condition is Excessive payments for each condition are calculated as: CMS Medicare Penalty: Calculation Methodology Hospital’s Actual Rate Base DRG payment for each condition Discharges in each condition • Notes: • Actual Rate calculated over trailing 3-year period (currently FY2009-11) • Actual Rates are “risk-adjusted” • Expected Rate = U.S. national rate over same period X X 1 Hospital’s Expected Rate Calculate the sum of excessive payments for all conditions (currently: AMI, HF, Pneumonia) Sum of excessive payments Excess readmissions penalty rate Aggregate payments for all discharges • Penalty rates imposed for each year: • FY13: the lower of 1% or the penalty rate • FY14: the lower of 2% or the penalty rate • FY15: the lower of 3% or the penalty rate

11. Projected CMS Penalty Calculation: Illustrative Hospital Case (Current) • Hospital Facts: • Medium-sized MATRC-region hospital with ~350 beds • Higher 30-day readmit rate than National Rate in all three conditions; AMI a particular problem Excess Readmission Ratio Calculations Projected Penalty Calculations Average Penalty per Patient: $468 = ÷

12. Projected CMS Penalty Calculation: 10% Decline in “Expected Rate” • Key Assumptions: • National Average rate improves and/or CMS imposes more stringent “expected” rate hurdles so that expected rates decline by 10% • Hospital does not take sufficient action to reduce readmissions in key conditions Excess Readmission Ratio Calculations Projected Penalty Calculations Average Penalty per Patient: $1,536 = ÷

13. Value of Penalty Avoidance Often Underestimated • The “Accrual Effect”: penalties being paid now are lower than penalties actually being accrued, if no improvement is made • Penalty estimates with Hospital Compare based on 3-year look back, so penalties paid now based on actions not taken in FY09-11 • What hospitals do now has a delayed impact on penalty avoidance but is critical to avoid “deeper hole” • “Expected” Readmissions rate will continue to fall • As other hospitals improve, reducing raw national rate • If CMS unilaterally sets more aggressive target rates • New conditions will be added • Four new conditions (COPD, PTCA, CABG, other vascular) included in FY15 penalty • Assume same 3-year look-back methodology • Penalty caps will be increased each year • 1% currently • 2% in FY14 • 3% in FY15

14. “Costing” an RPM/CC Solution: Components • Staff-related monitoring costs: • Patient : staff monitor ratios – from 75:1 to 150:1 depending on type of solution, 30-day readmissions vs. chronic disease management • Use of RNs vs. health coaches/social workers • Hours of center operation • Staff-related field costs: • Installation/refurbishment • Depends on population targeted – 30-day readmits vs. chronic disease management (i.e .shorter monitoring periods mean higher amount of patient “churn”) • Depends on region covered (i.e. location of monitoring center relative to patients) • Technology-related costs: • Hardware and software typically bundled, peripherals can vary • Leasing more common than owning • EMR Integration extra • Other costs: • Project management • Integration with key provider departments (case management, clinical, home health)

15. Costing a Turnkey Solution: Illustrative • Primary cost drivers are in centralized monitoring and field support staff • Don’t forget PCP and departmental interfaces, as well as program management • Technology only 10-15% of total cost bar • Estimated cost of $700-$1,100 per patient – some scale required 50% of costs in monitoring/ field staff

16. Making the Business Case: MATRC Hospital Illustrative Case Value of avoided penalties (per patient) Estimated cost of RPM solution (per patient) > At 10% lower “expected” 30-day readmit rates: ~$1,500 ~$900 At 5% lower “expected” 30-day readmit rates”: ~ $975

17. Making the Business Case:Positioned for the Future • Quality: Improve health outcomes and satisfaction for key patient populations • Efficiency: Enhance and better leverage information and analytics between providers to enhance collaboration and provide more effective care • Strategic: Position health systems for emerging environments (ACO, shared risk, etc)

18. 455 Second St SE Charlottesville, VA 22902 Kirby Farrell kfarrell@broadaxepartners.com Andy Archer aarcher@broadaxepartners.com MATRC Telehealth Summit March 2013