Panel Discussion: Physician Preference Contracting in Arizona February 1,2011

1. Panel Discussion: Physician Preference Contracting in ArizonaFebruary 1,2011 Doug Bowen, MBA, CMRP Vice President Supply Chain, Banner Health Dorance Dillon Director of Supply Chain Management, Yavapai Regional Medical Center Les Feka, MBA, CPM Director of Supply Chain Operations, Tucson Medical Center Mike Hildebrandt, CMRP Associate Vice President of Supply Chain, Scottsdale Healthcare Tam Tang B.S.E, MBA Analyst, Catholic Healthcare West

2. Agenda • Introductions • Facility Overview • Banner Health • Yavapai Regional Medical Center • Tucson Medical Center • Scottsdale Healthcare • Catholic Healthcare West • Panel Questions

3. Banner Health • Non-profit Secular Multi-State Health System, formed in 1999 • 23 Acute Care Hospitals • Long Term Care Units, Surgery Centers, Home Health, Clinics, Hospice, Behavioral Health, Home Medical Equipment • 3 Regions within Banner Health • 4,520 Licensed Beds • 35,300 Employees • >60 Physician Clinics • >550 Employed Physicians

4. Capped Pricing at Banner “I realized that my role at Banner Health was not to try to tell a physician which products to use. My real role was to try to manage the cost of the products coming in to Banner. The benefit of capped pricing is that you can allow as much physician choice as you want, and the hospital is going to pay the same price for the same product no matter who the vendor is.” Doug Bowen, Vice President, Material Management Banner Health “A Team Approach to Cost Containment” HFM Magazine, April 2008

5. Banner’s Contracting Strategy Banner is committed to an all-play physician-driven free market strategy • Surgeons are assured professional independence to use the implant that best meets their patients’ needs • All vendors will be asked to meet the fair price points in all implant sales to Banner Facilities (Non-contracted vendors will not be allowed to conduct business at Banner) • Reasonable control of implant costs consistent with current market and reimbursementlevels

6. Capped Pricing at Banner • 2003 – Cardiology • 2006 – Total Joints: Hips, Knees, Shoulders • 2007 – Spinal Implants • 2010 – Heart Valves

7. Hurdles that Banner encountered • Surgeon resistance • Surgeons had to be trained on use of new implant systems • Only 3 surgeons left BH hospitals due to not being able to use their preferred total joint vendor • “Special” circumstances at certain hospitals • Small, rural hospitals often have only one specialty surgeon; don’t want to alienate them • Assurance that correct pricing was billed by the vendor • Built Lawson item numbers for capped pricing • Created charge sheets that contain capped price and charge code info (we no longer accept vendor charge sheets on totals)

8. Banner’s Keys to Success • Communication • Inform and engage surgeons and administration • Use multiple means to communicate • Conference call w/live meeting • PowerPoint • Letters • Internal website • Data • Know your data • Research • Vendors • Benchmark pricing • Contracting programs at other facilities

9. Yavapai Regional Med Center • Formed in 1940 as not-for-profit, locally owned & locally operated, healthcare IDN. • 2 Great Hospitals…One caring Spirit: Prescott & Prescott Valley – Totaling 206 beds. 1800 Employees • Women’s center, Wound Care, Home Health, Hospice, Imaging Centers, etc. • 6 Physician clinics, with 17 physicians

10. Tucson Medical Center • TMC HealthCare is Southern Arizona's regional nonprofit hospital system with 642 adult, pediatric and behavioral health beds. The hospital serves more than 30,000 inpatients and 122,000 outpatients yearly. • TMC's campus also serves as home to the Tucson Orthopedic Institute, the Cancer Care Center of Southern Arizona and the Children's Clinics for Rehabilitative Services.

11. TMC’s Contracting Strategy • Value Analysis • Capped Pricing • Data Mining

12. Scottsdale Healthcare • Scottsdale Healthcare is a not-for-profit organization led by a volunteer board of directors comprised of leading local citizens. That means we answer to our community, rather than stockholders.  • A leader in medical innovation, talent and technology, Scottsdale Healthcare was founded in 1962. Today, we serve the entire Northeast Valley and beyond through two comprehensive medical centers and the first hospital north of the Loop 101.  • Scottsdale Healthcare also offers outpatient surgery centers, home health services, and a wide range of community health education and outreach services. Not to mention clinical and research services not typically found in community healthcare systems.  • Our compassionate staff members and expert physicians are dedicated to providing world-class patient care. Supporting Scottsdale Healthcare's staff in providing patient and family-centered care is a corps of  800 volunteers who donate more than 155,000 hours of service each year.

13. SHC Contracting Strategy • Capped Pricing whenever possible • Provide Physician Choice • 2010 – Spinal Implant Capitated Program • 2010 – Cardiology • 2011 – Total Joint Capitated Program • 2011 – Bone and Biologics • Partner with GPO to get Benchmark Pricing Data and Physician Utilization Information

14. SHC Physician Communication Process • Begins with senior administration, service line directors, supply chain, physician leaders and department managers • Develop physician compact agreements • Conduct physician surveys annually • Supply chain reports at medical staff and section meetings • Provide capital equipment support to physicians • Provide GPO physician practice purchasing cost savings and support • Work with physicians to improve quality process flows – (block times, start times, scheduling) • Gain physician support prior to any cost savings initiatives • Recognize physician's by name for success stories • Celebrate successes

15. Catholic Healthcare West • Fourth largest not-for-profit system in the U.S. • Consistent year-over-year operating performance • $10.9 billion in assets • Leader in quality and safety • Employing 53,000 people • Associated with more than 10,000 physicians • Offering care to a population of more than 22 million people • Serving growing communities • Helping to shape healthcare reform

16. CHW Contracting Strategy • 2000 - Cardiology • Facility market share & volume commitment for price tier • System market share aggregation to leverage price with preferred vendors • System aggregation and blended commitment to 2 preferred vendors • 2007 – Total Joints Implants • Cap pricing • Local and regional contracts • 2010 – Spine Implants • Price parity

17. CHW Contracting Strategy Phase 1 Detailed Survey & Analysis • Gather spend data and analysis • Total spend by surgeon and device • Margin gaps • Practice pattern variations • Sourcing approach (formulary or discount) • Savings and revenue opportunity • On-site observations / interviews • Surgeon – sales representative relationships • Price compliance in the market with surgeon consulting relationships

18. CHW Contracting Strategy Phase 2 Cardiology & Total Joints Strategy • Established Cardiovascular Operations Council • Service line VPs, Directors, Medical Directors • Appoint task force committee for select contracting projects • Surgeon Involvement • Make a case for change and improvement • Jointly develop the constructs / discount tactics • Sourcing • Customized constructs with definitions understandable by surgeons • Model price points with defined constructs • Coordinate with Board / Medical Executive Committee • Execute purchase agreements with vendors

19. CHW Contracting Strategy Phase 3 Manage Growth Reporting • Manage the implant formulary • 100% charge capture • 100% on contract • 100% maintenance of the implant log (ie, recalls, serial numbers) • 100% coding validation • Track contract compliance and utilization • Track/report implant cost per case and volume

20. CHW Contract Compliance Report By Facility Across all Contracts

21. CHW Hip chart Hip Implants: Average Implant Cost and Volume by Hospital (Q4F09) Significant Incremental Improvements Focus on These Facilities

22. CHW Knee chart Knee Implants: Average Implant Cost and Volume by Hospital Q2FY09 From Worst Performance to Best New Facilities for Focus

23. Drug Eluting Stent Utilization CHW Stent Utilization

24. Panel Question • In collecting data, what source do you utilize for • Internal benchmarks • Hospital to Hospital • Budgetary goals • Surgeons, volumes, cost per procedure • Vendor contract variation • External benchmarks • GPO • IMS Health Inc. • ECRI • AHRMM PPI Surveys when available • Reimbursement • DRG benchmarks • Third party reimbursement • Clinical evidence • SHC uses GPO data for external benchmarking plus the MIDAS system for internal clinical data

25. Panel Question • In your contracting process do you utilize a value analysis process and evidence based / peer reviewed data? • Yes, value-analysis process • Clinical data requested as available • Level of clinical involvement • Evidence based / peer reviewed data

26. Panel Question • Do your agreements include key contract clauses that address the following and if so what do they say? • Product exclusions • Statement No-Product exclusions • New technology • FDA 510k non-predicated device • Premium technology • Wasted products • Vendor waste • Surgeon waste • Lost Instruments • Consignment inventory • Expect vendors to provide

27. Panel Question • Are off contract vendors allowed to conduct business at your hospital? • No • Is there a lock-out period for non-participation? • Yes – 1, 2, or 3 years • Mandates that all vendors must comply with the contract terms. If the vendor is unable to comply, there is a lock-out period established

28. Panel Question • How do you address billing on capped agreements? • Price points for all components or one price • Single price for hips, knee, partial • Knees by type of procedure • Spine capped components • Ala-carte • Per level • Break cap price up through all components to meet construct price • Vendor vs. Hospital Charge Sheets • Hospital

29. Panel Question • How have you addressed surgeon resistance to contracting physician preference items? • Put the pressure back to the vendor • SHC seeks to obtain physician input and support prior to the implementation of capped programs. When surgeon resistance is established, SHC attempts to work collaboratively with the surgeon, service line leader, and chief medical officer.

30. Panel Question • Which items are considered outside of your cap? • Custom Cutting Blocks • Sawblades • Cement • Products or items that fall outside the caps are dealt with by a small task force which includes the service line leader, service line medical director, and chief medical officer if necessary.

31. Panel Question • Once the contract is in place what do you do to ensure you are receiving the contracted price? • As soon as case is done • Purchase/invoice processing • Monthly audit reports • Manual

32. Thank you!