Carolinas HealthCare

1. Carolinas HealthCare Towards an Economics of Value Making a Case For Quality Eric Fontana, Practice Manager, Data and Analytics Group analytics@advisory.com

2. Toward an Economics of Value Adapting to New Rules of Competition Source: Physician Executive Council interviews and analysis.

3. Delivering Next-Generation Acute Care Evolution of Acute Care Performance Standards Next-Generation Acute Care Workshop of Choice Targeted Quality Improvement • Comprehensive infrastructure supporting evidence-based practice • Patient-centered care • Integration with cross-continuum care management • High-Performance OR and ED • Streamlined admission and discharge processes • Proactive, effective quality department • Productive hospitalist program • Top-tier performance on publicly reported metrics Emerging Priorities Baseline Expectations

4. EBP the Key to All Value-Based Payment Models Source: Advisory Board and Physician Executive Council interviews and analysis. Population Health Management • Focus: Utilization Management • Chronic Care Management • Disease Prevention Bundled Pricing • Focus: Efficiency • Throughput • Supply Management • Contract Negotiation Pay for Performance • Focus: Quality Improvement • Adherence to Evidence-Based Practice • Reduced Readmissions • Patient Experience Degree of Provider Cost Accountability

5. Real-World Consequences for Poor EBP Adoption Source: Paul R, Neuman MI, Monuteaux MC, Melendez E, “Adherence to PALS Sepsis Guidelines and Hospital Length of Stay,” 2012, Pediatrics; Los Angeles Times, http://articles.latimes.com/2011/jun/06/news/la-heb-heart-failure-06062011, June 6, 2011;CDCNCHS, National Hospital Discharge Survey, 2000-2010; Lisa Stoneking and Kurt Denninghoff, Sepsis Bundles and Compliance with Clinical Guidelines, 26, 3, Journal of Intensive Care Medicine, 2011; Physician Executive Council interviews and analysis. From 2000-2010. Sepsis Guidelines Effective, but Underutilized LA Times, 2011 Nearly 70,000 Americans die needlessly each year because they are not given optimal heart failure therapy 25% Mortality reduction with introduction of sepsis bundle Physicians have been slow to implement many of the procedures called for in the guidelines… 19% Physicians who follow pediatric sepsis guidelines 17% Increase in sepsis inpatient hospital death rates in the past decade1

6. Quality Based Payment Contributes to Price Deceleration Margins calculated as revenue minus cost divided by revenue. Data based on Medicare-allowable costs and exclude critical access hospitals. Includes services covered by the acute care inpatient PPS Source: “Health Care Spending and the Medicare Program” June 2012, MedPAC, Accessed 09-17-2013. http://www.medpac.gov/documents/Jun13DataBookEntireReport.pdf, Advisory Board Analysis Inpatient Medicare Margins Remain Under Pressure Four Forces Shaping Future Margins Medicare Acute Inpatient PPS Margin 2002-20111 DeceleratingPrice Growth Continuing Cost Pressure Deteriorating Case Mix Shifting Payer Mix The Medicare Breakeven Project • www.advisory.com/MedicareBreakeven • Ongoing initiative to support margins in an era of increasing financial pressures • Available to all Health Care Advisory Board members at no extra cost

7. Comparing Major Pay For Performance Programs Source: CMS, Advisory Board Analysis Financial Incentives Take More of a Stick Than Carrot Approach Three Programs You Need to Know 1% Penalty for top quartile of HACs from FY 2015 Discharge Maximum Penalty FY 2013 – 1% FY 2014 – 2% FY 2015 onward – 3% 30 day Readmit

8. Source: CMS, Advisory Board Analysis As of October 2013 Performance periods Assumes readmissions performance judged on timeframe of July 1, 2011 – June 31st, 2014 Performance Periods Currently In Progress For Fiscal Years (FY)1 What You’re Doing (Or Not Doing) Today Has Financial Ramifications 2014 2015 2016 Payment Adjustments Can No Longer be Inflected Data Collection In Progress VBP1 Readmissions2 HAC Data Collection Not Yet Started 2017 Future Dollars on the Line

9. HAC Program Mechanics 1% Penalty For Worst Performing Quartile on Defined HAC Measures Program #1: Hospital Acquired Conditions Source: CMS, Advisory Board Analysis Overview of HAC Program HAC Performance Assessment Penalty Allocated Who is Included? Penalty • Inclusion of all subsection (d) hospitals, HAC program will include Maryland hospitals • Excludes LTCH, Cancer Hospitals, Children’s Hospitals, IRFs, IPFs, Critical Access Hospitals, Hospitals in Puerto Rico or US Territories • Finalized methodology assesses HAC performance on two distinct domains • Patient Safety Measures • CDC NHSN Measures • Points assigned based on decile performance compared to other facilities, the higher the points the worse the performance. • Two domain system, individual domain scores weighted and combined to form overall HAC score. • Statutorily mandated penalty is a 1% cut to what “otherwise would be paid” for hospitals in top (worst) performing quartile. • Penalty would apply to payments after the readmissions and value based purchasing program adjustments have been made • Payment adjustment specifics TBD, likely in FY 2015 IPPS Proposed Rule

10. Two Domain Quality Structure Finalized Program #1: Hospital Acquired Conditions Targeting Patient Safety and Infection Measures Source: CMS, Advisory Board Analysis PSI-90 Composite Metric Two Domain Structure for HAC Reduction Program Domain 1: Patient Safety Measures Domain 2: CDC/NHSN Surveillance Measures + ü ü ü 35% 65% ü ü ü ü ü CY2012 & CY2013 July 1, 2011 - June 30, 2013 ü ü ü ü Including component indicators: • PSI #3 Pressure Ulcer Rate • PSI #6 Iatrogenic Pneumothorax Rate • PSI #7 Central Venous CRBSI Rate • PSI #8 Postoperative Hip Fracture Rate • PSI #12 Perioperative PE DVT Rate • PSI #13 Postoperative Sepsis Rate • PSI #14 Postoperative Wound Dehiscence Rate • PSI #15 Accidental Puncture or Laceration Rate

11. Readmissions Program Mechanics Capped Penalty to Hit 3% Maximum from FY 2015 Onwards Program #2: Hospital Readmissions Reduction Source: CMS, Advisory Board Analysis Overview of Readmissions Program Readmissions Performance Assessment Penalty Allocated Who is Included? • Assesses whether hospital had excess readmissions compared to national performance on a set of NQF-endorsed, 30-day risk-standardized readmissions rates: • Acute Myocardial Infarction • Heart Failure • Pneumonia • COPD (from FY 2015) • THR/TKR (from FY 2015) • Being assessed as worse than expected in any one of the defined conditions will result in a financial penalty • Inclusion of all subsection (d) hospitals • Excludes LTCH, Cancer Hospitals, Children’s Hospitals, IRFs, IPFs, Critical Access Hospitals, Hospitals in Puerto Rico or US Territories • Maryland hospitals participation subject application for exemption. Top date exempted for FY 2013 and FY 2014. • Payment adjustment will apply for all inpatient discharges, not just the associated patient populations • Penalty capped at maximum levels in given fiscal year; 1% in FY 2013, 2% in FY 2014, 3% in FY 2015 onward. • Unlike VBP, no opportunity for high performers to earn bonus payments

12. Improvement in Readmissions Year 2 Estimated Readmissions Penalties - Carolinas HealthCare Program #2: Hospital Readmissions Reduction

13. VBP Program Mechanics Program #3: Hospital Inpatient Value Based Purchasing Incentive Payment Based on Quality Performance Source: CMS, Advisory Board Analysis Quality Performance Assessment Payment Withhold Redistribution of Payment • Payment withhold applies to base operating DRG payment • Withhold applies only to roughly 3,000 hospitals meeting VBP inclusion criteria • Assesses performance on quality measures including (FY started in parenthesis): • Clinical process of care (2013) • Patient experience of care (2013) • Outcomes (2014) • Efficiency (2015) • Scored on achievement relative to national benchmarks and improvement compared to historical baseline • Quality measure scores combined to form single figure Total Performance Score (TPS) • Payment directly proportional to TPS score • Budget neutrality results in “winners vs. losers” roughly half of hospitals earn back more than withhold, others earn back less

14. Overall a Positive VBP Result Projected for FY 2015 Valdese Hospital had insufficient case volume to calculate VBP score using current most recent Hospital Compare data Program #3: Hospital Inpatient Value Based Purchasing Estimated Value Based Purchasing Incentive Payment

15. Final Performance Periods For FY 2016 Mortality and Patient Safety Measures Finalized in Previous Rules Program #3: Hospital Inpatient Value Based Purchasing Source: CMS, Advisory Board Analysis 2014 2012 2013 Jan 1 Dec 31 Clinical Process of Care Jan 1 Dec 31 Patient Experience of Care Jan 1 Dec 31 Efficiency Finalized Measures Jan 1 Dec 31 Outcome: CAUTI/CLABSI/SSI Proposed Measures Oct 1 June 30 Mortality Oct 15 June 30 AHRQ We are here: November 1, 2013 Domain Weights Under Four Domain Structure Outcomes measures proposed in CY 2014 HOPPS Proposed Rule, not yet final

16. Finalized Performance Periods FY 2017- FY 2019 October 1 Kickoff for FY 2017 and FY 2018 Performance Periods Program #3: Hospital Inpatient Value Based Purchasing Source: CMS, Advisory Board Analysis 2013 2014 2015 2016 2017 October 1 June 30 FY 2017 - Mortality June 30 October 1 FY 2017 – AHRQ PSI October 1 June 30 FY 2018 - Mortality July 1 June 30 FY 2018 – AHRQ PSI July 1 June 30 FY 2019 - Mortality July 1 June 30 FY 2019 – AHRQ PSI (Not Finalized) All finalized baseline periods are already completed and are of the same duration as the performance periods