Value Based Reimbursement: The New Reality

2. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Objectives  Definitions  Measures for 2015  Results  Challenges  MedPAC recommendations Discuss latest announcements on Value Based1 Status of CMS programs2 Preparation for VBP3

3. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential From 2015 Health leaders media industry survey Survey Results 10% 28% 33% 6% 11% 4% 3% 4% 0% 5% 10% 15% 20% 25% 30% 35% Not pursuing Investigating Pilot underway Pilot done, rollout not scheduled Pilot done, rollout scheduled Rollout nearly done Full rollout Do not know Organization Status on Value Based Payment N=580 http://www.healthleadersmedia.com/slideshow.cfm?cont ent_id=312213&pg=2© 2015 Health Leaders Media

4. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential 4 Kaufman Hall Survey Update April 2015 Announcements 22% 42% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Aug 14 Feb 15 7% 22% 0% 5% 10% 15% 20% 25% Aug 14 Feb 15 Hospitals Currently >10% Value Based Hospitals Expectation Within 24 months >50% Value Based Source: Kaufman, Hall & Associates, LLC, Media release, April 2015

5. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Announcements CMS in January 30 percent of payments will be tied to alternative payment models (ACOs or bundled payment arrangements) by the end of 2016. Payments related to these models will increase to 50 percent by the end of 2018. 85 percent of all traditional Medicare payments will be tied to quality or value by 2016 and 90 percent by 2018 through programs such as Hospital Value Based Purchasing and Hospital Readmissions Reduction. Commercial in January The Health Care Transitional Task Force stated that 75 percent of their respective businesses will be operating under value-based payments by 2020. 5

6. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential CMS current state Currently, the nation is at about 50% for value-based spending, and 20% in bundles, episodes, or ACOs. "We have about 30% of Medicare beneficiaries in Medicare Advantage, 20% in alternative payment models like ACOs, and growing. The minority of Medicare patients, right now, are in traditional-fee for-service," Patrick Conway, MD, CMS acting principal deputy administrator 6

7. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Announcements Congress in April 2015 SGR (Sustainable Growth Rate), Repealed and Revamped with Value Based Purchasing “Mayo Clinic is pleased with today’s bipartisan action,” President and CEO John Noseworthy, MD. “Mayo has actively supported the repeal and replacement of the SGR for years. This ends 17 years of uncertainty for hospitals and physicians and moves Medicare towards paying for quality and efficiency. This is important for patients, taxpayers and long-term solvency of Medicare. The road to value-based payment will be challenging. We believe the next step must be to develop performance measures that accurately differentiate levels of care and complexity of patients.” 7

8. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Improve health and save money Bruce Broussard, Humana President and CEO Key to change 8 New paradigm Take my company. At Humana, results for more than 1 million Medicare Advantage members in pay-for-value agreements reflected better quality, outcomes and costs: better HEDIS [Healthcare Effectiveness Data and Information Set] scores and Star ratings, fewer trips to the emergency department among our members, and a 19 percent cost reduction.

9. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Poll Question #2 Which would be your preferred payment system for your organization? 352 respondents  Fee for service – 23%  Bundled payment – 20%  Accountable care organization – 43%  None of the above – 15% 9

10. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential 10 MedPAC Medicare Payment Advisory Commission  Policy formulation  Recommendations to congress (March 2015) Complex and fragmented system, multiple coverage, payments and different rules for each setting Payment Reform  Implement more broadly  Coordinate across settings-rate determined by most efficient setting to deliver care Delivery system reforms  Monitor performance  Adopt on broader scale

11. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Fun Facts 11,000 Baby Boomers are aging into Medicare daily. The U.S. population is about 320 million, which makes 2015 "the first year healthcare spending will reach $10,000 per person," according to a Forbes report. 11 Source: Your Favorite Seuss written and illustrated by Dr. Seuss, Random House, 2014

12. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Measure 12 WSJ: How should quality in health care be measured and are we looking at the right things? Scott Wallace, visiting profession at Dartmouth. The quality programs grew out of two realizations: Health care is unsafe and outcomes are poor. But there is no single measure of a doctor’s or hospital’s quality that will fix those problems. Instead, we’re measuring processes. Of the 123 different metrics in the government’s Hospital Compare website, 102 measure processes. That’s important, but it has become too burdensome for the benefit it delivers.

13. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Core Goals for NQF 13  Align quality measures among all payers  Identify more actionable, meaningful measures  Achieve greater consistency and rigor with consumer information  Leverage new technology and big data to identify and assess quality metrics  Make sure measure reflect actual clinical quality, not factors like socioeconomic status that are out of health systems' control  Attribute results to specific providers  Improve consumer engagement Christine Cassel, MD, President and CEO of National Quality Forum

14. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Models 14 Payment Methodology Quality Cost Cost low low Fee for Service low medium Per case / outpatient grouping low medium % of charges low low Add quality metrics medium medium Shared savings (+, +/-) medium/high medium/high Bundled payment low medium/high Add quality metrics medium/high high Shared savings (+, +/-) medium/high high Capitation medium/high high Add quality metrics high high Shared savings (+, +/-) high high Incentive for Improvement

15. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Fee for Service 15 Definition: Payment received for each “necessary” service, generally prospective in nature, rates set for each case or grouping History: Hospital DRGs initiated in 1983 by CMS for cost control Inpatient MSDRG Outpatient APC Professional Fee schedule

16. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Fee for Service 16 Incentive: Little for quality, ability to keep surplus if payment above cost 1 23 4 Success factors Know your costs Document severity Work with providers within facility Analytical capabilities

17. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Medicare FFS payments by venue 2008 to 2012 17 OutpatientClinic Care Inpatient SNF Home Hlth Hospice $ 152 Billion 11.8% 372 Billion 28.7% 447 Billion 34.5% $ 133 Billion 10.3% $ 90 Billion 6.9% $ 48 Billion 3.7% LTCH/IRF $ 53 Billion 4.1% Clinic Care Outpatient Inpatient SNF LTCH/IRF Home Health Hospice 75%

18. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Hospital Medicare Margins 18 -20% -15% -10% -5% 0% 5% 10% 15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Hospital Medicare Margins IP OP OverallSource: MedPAC report March 2015

19. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Performance of hospitals 19 Relatively Efficient (268) Other (1,846) Relatively Efficent… Other (1,846) Number and Share of Hospitals 13% 87% 2% 8% 6% -6% 8% 5% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Overall Medicare margin, 2013 NonMedicare margin, 2013 Total margin, 2013 Relativity Efficient Other Margin Performance Metrics 2013 Risk Adjusted 84% 97% 90% 102% 101% 102% 0% 20% 40% 60% 80% 100% 120% Composite 30 day mortality Readmission rates Standardized Mediare cost per disharge Relatively Efficient Other There are hospitals with positive Medicare margins and high quality results.

23. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Inpatient vs Outpatient 23 -20% -10% 0% 10% 20% 30% 40% 2006 2007 2008 2009 2010 2011 2012 2013 Medicare Per Beneficiary OP Services per Beneficiary IP Discharges per Beneficiary

24. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Physician Payment in 2013 MedPAC Concerns 24 876,000 Providers 573,000 Physicians Undervalue primary care Preserve access Repeal SGR (Sustainable Growth Rate) Increase shared savings opportunities

25. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential MedPAC survey results 25 0% 10% 20% 30% 40% 50% 60% 70% 80% Very Satisfied Some Satisfied Some Dissatisfied Very Dissatisfied Medicare (>65) Private Insurance (50-64) Satisfaction with quality of healthcare in 2014 Excludes don’t know, no healthcare in past 12 months Source: MedPAC telephone survey 2014

26. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential SGR Dead, Value Based Plan 2015 to 2019 annual .5% increase 2019 5% bonus for participation in innovate care delivery model. At least 25% (this threshold increases over time) of the Medicare revenue from alternative payment models like patient-centered medical homes and accountable care organizations. Streamline the quality report requirements for various programs like EHR Incentive Programs and Physician Quality Reporting System(PQRS). 26

27. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Patient Centered Medical Home 27 Demonstrate 6 standards for NCQA Enhance access and continuity Identify and manage patient population Plan and manage care Provide self-care and community support Track and coordinate care Measure and Improve care

28. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Affordable Care Act - 5 years old Number of new payment models that move the needle further toward paying health care providers for the quality of the care they give patients, instead of the quantity of care. In these alternative payment models, providers have a financial incentive to coordinate care for their patients and get the right care to the right patient the first time. Progress More than 400 Medicare ACOs participating in the Shared Savings Program and the Pioneer ACO Model have generated a combined $417 million in savings for Medicare. Improve the quality of health care, contributing to 50,000 fewer patient deaths in hospitals due to avoidable harms, like an infection or medication error, and 150,000 fewer preventable Medicare hospital readmissions. 28

29. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Hospital Programs- Readmission 29 • Third year of program, 3% maximum penalty • Conditions: Heart failure, AMI, pneumonia, hip/knees, COPD, CABG (2017) • Proposed to expand definition of pneumonia 39 71 428 2,100 840 0 500 1000 1500 2000 2500 -3% -2 to -2.99% -1 to -1.99% -.01 to -.99% 0% 2015 Readmit Penalty

30. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Results Touting encouraging progress toward improving quality and lowering healthcare costs, the Centers for Medicare & Medicaid Services' chief medical officer attributed a 2% decline in admissions and emergency department visits. 30

31. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Reduced Heart Failure Readmissions 31 29% reduction in 30-day readmits 14% reduction in 90-day readmits 120% increase in f/u appointments 78% increase in med reconciliation 87% increase in f/u phone calls 84% increase in teach back

32. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Value Based Purchasing Budget Neutral Program 1.75% At risk/Bonus for 2016 32 160 1,541 1,381 7 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 >1% .01 to .99% .0 to -.99% >-1% 2015 Value Based Purchasing

33. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential VBP Clinical Measures 33 Active Inactive Key: FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival Going away AMI-8a Primary Percutaneous Coronary Intervention (PCI) Received Within 90 Minutes of Hospital Arrival HF-1 Discharge Instructions IMM-2 Influenza Immunization Going away PN-3b Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital PN-6 Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in Immunocompetent Patient SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time SCIP-Inf-4 Cardiac Surgery Patients with Controlled 6:00 a.m. Postoperative Serum Glucose SCIP-Card- 2 Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period SCIP-VTE-1 Surgery Patients with Recommended Venous Thromboembolism (VTE) Prophylaxis Ordered SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery SCIP-Inf-9 Postoperative urinary catheter removal on postoperative day 1 or2 PC-01 Elective Delivery Prior to 39 Completed Weeks Gestation .

34. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential VBP- continued 34 Outcome Measures FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Mort-30-AMI AMI 30 day mortality rate Mort-30-HF HF 30 day mortality rate Mort-30-PN Pneumonia 30 day mortality rate AHRQ PSI compositeComposite for patient safety CLABSI Cental line blood associated infection CAUTI Catheter-Associated Urinary Tract Infection SSI Surgical site infection- colon and abdominal hysterectomy Efficiency Measures FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 MSPB-1 Medicare spending per beneficiary Patient experience of care measure FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS) Communication with nurses Communication with physicians Responsiveness of Hospital Staff Pain Management Communication about Medicine Cleanliness and Quietness of Hospital Environment Discharge Information Overall rating of hospital Propose adding care coordination in 2017

35. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Metric weights by year Value Based Purchasing 35 70% 45% 20% 10% 10% 30% 30% 30% 25% 25% 25% 30% 40% 40% 20% 25% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Clinical Process Patient Experience Outcome Measures Efficiency Measures Achievement My hospital compared to all hospitals Improvement My hospital compared to my baseline performance Hospital National Measure Baseline Performance Benchmark Threshold Achieve Improve Points SCIP-1 -prophylactic ABX received w/n 1 hr prior to surgical incision 98.55 99.22 99.98 97.35 7 4 7 Proposed update for 2016 Safety 20% Efficiency 25% Clinical process 30% Patient experience 25%

36. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Hospital Acquired Conditions 36 FY 2014 Final Inpatient PPS Rule Creates HAC Reduction Program with two Domain measurements that overlaps in its entirety with existing HAC program and VBP. 2015 723 Hospitals received 1% penalty 2016 1% Penalty Proposed –reweight domain, add more measures to PSI-90, add more measures to domain 2

37. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Study at Adventist Health, FL Researchers found that a patient who suffers temporary harm during a hospital stay costs the provider $2,187. If the patient suffers a greater harm, the cost to the hospital is $4,617. The Adventist study followed more than 21,000 patients treated by its 24 hospitals between 2009 and 2012. By increasing patient safety and reducing harm incidents, it was able to save $108 million in total costs and $18 million in negative contributions to its margins. Journal of Patient Safety, March 23, 2015 37

38. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Growing Dollars At Risk- Hospital 38 Source: CMS website 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 2013 2014 2015 2016 2017 Medicare $ At Risk HAC Readmit VBP MU

39. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential PQRS 39 The Physician Quality Reporting System (PQRS) has been using incentive payments, and will begin to use payment adjustments in 2015, to encourage eligible health care professionals (EPs) to report on specific quality measures. EPs who do not participate in 2013 and receive a payment adjustment will be paid 1.5% less than the Medicare PFS(Physician Fee Schedule) amount for services provided in 2015. Increases to 2% in 2016.

40. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Value Based Modifier Matrix for payments 40 Low cost Average cost High cost High quality +2X* +1X* 0 Medium quality +1X* 0 -0.5% Low quality 0 -0.5% -1.0% *Eligible for additional payments X value depends on negative adjustments

41. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential California Program for Physicians 41 P4P  Began in 2003, public report, common measures  10 Health Plans, 200 Physician Groups, 9M members  Focus on measure/improve quality, costs continue to rise  2013 Transition to Value Based, Shared savings program for quality and resource use (cost).

43. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential American Academy of Orthopaedic Surgeons (AAOS) 43 Across the various meetings, one message rings loud: there is an increasing need to achieve and demonstrate value in orthopedics. The transition from a fee-for-service model towards value-based care increasingly ties financial reimbursement to a physician’s performance. As a result, physicians are calling on their colleagues to play a greater role in value-based care by employing evidence- based practices and tracking quality outcomes. Source: Service Line Strategy Advisor

44. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Bundled Payment 44 Definition: Single comprehensive rate for entire episode of care generally within defines time limits and includes all providers of care. Provider takes accountability for episode. History: Demonstration projects in 90’s and early 2000’s  Popular with employers  CMS started in 2013

45. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Bundled Payment 45 Incentive: Quality relates to readmissions, ability coordinate care For example, the Lewin Group recently released the first analysis of the Medicare bundled payment program. The conclusion was decidedly inconclusive: “We are limited in our ability to draw conclusions about the effects of (the Bundled Payments for Care Improvement program) because of the small sample sizes and short time-frames.” Know your costs, team includes clinical and financial Know the conditions and your population Work with providers to see big picture of care May be good starting point Success factors:

46. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Bundled Payment 46 Acute Acute/Post Post Acute Payment Retrospective Retrospective Retrospective Prospective Participants 3 44 14 37 Organizations 12 2180 4727 17 Episode All acute patients, all DRGs Selected DRGs, hospital plus post-acute period Selected DRGs, post-acute period only Selected DRGs, hospital plus readmissions Services included in the bundle All Part A services paid as part of the MS-DRG payment All non-hospice Part A and B services during the initial inpatient stay, post-acute period and readmissions All non-hospice Part A and B services during the post- acute period and readmits. All Part non-hospice A and B services (including the hospital and physician) during initial inpatient stay and readmissions 48 Bundled Payment Groupings Major joint upper extremity 483 Major joint and limb reattachment procedure of upper extremity with complication or comorbidity or major complication or comorbidity

47. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Spine 47 Bundled Payment Covers preoperative to post operative Results: ALOS 6 to 4.89 Readmit down 14% IP Rehab 41% to 29%

48. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential New programs and payment Medicare continues to pay the “old” way and do a reconciliation at the end for ACO/Bundled Payment- Retrospective Hospital paid based on IP MSDRG and OP APC, fee schedules. Physician paid on fee schedule. 48 Cost Trend Benchmark Actual Potential savings

50. © 2015 Health Catalyst www.healthcatalyst.com Proprietary and Confidential Capitation 50 Definition: Specific amount paid in advance for all health care services of a population. Usually paid on a per member per month (PMPM) basis. Provider

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