This is an overview used to inroduce providers and payers to Pay 4 Perfrormance concepts.

1. Headline Space Here Insert Headline Here P4P: IMPLICATIONS FOR YOUR ORGANIZATION AND WHAT YOU NEED TO DO TO PREPARE

2. P4P: IMPLICATIONS FOR YOUR ORGANIZATION AND WHAT YOU NEED TO DO TO PREPARE June 2008 Presented to the HFMA ANI DeMarco and Associates

8. Government spending on healthcare to double

9. Medicare’s Goals CMS is pursuing a vision to improve the quality of care by expanding the health information available through direct incentives to reward the delivery of superior care.

10. Performance On Medicare Quality Indicators: 2000-2001 Source: S.F. Jencks, E.D. Huff, and T. Cuerdon, “Change in the Quality of Care Delivered to Medicare Beneficiaries, 1998-1999 to 2000-2001, “ Journal of the American Medical Association, 289(3):305-12, Jan. 15, 2003. All Medicare beneficiaries have health coverage, yet the quality of care they receive differs significantly from state to state. Note: State ranking based on 22 Medicare performance measures First Third Fourth Second Quartile Rank DC

17. Three Health System Imperatives Broad Physician Foundation Challenge For hospitals, the biggest threat of lockout comes from physicians, not insurers; physicians in evolving markets are increasingly concentrating their inpatient business with fewer hospitals. With capitation, physicians’ single greatest concern is to secure hospital cooperation in cost reduction efforts. Even without capitation pay form performance demands less hospital relationships. Implication No hospital task is more urgent than replacing traditional ‘feel good’ physician bonding with true economic partnerships. Farsighted hospitals will secure physician loyalty by investing in aggressive efforts to jointly re-engineer care and to align hospital and physician financial incentives, build high performance panels and gain from cost reduction efforts through direct contracting with employers. New Retail Franchise Challenge With the return of broad physician and hospital panels, provider choice will increasingly devolve from insurers back to consumers. As a result, inclusion in HMO panels will become secondary to providers’ ability to meet consumer demand for superior quality, service and access Implication The best health systems will invest in the creation of a retail franchise. Key priority is renewed emphasis on consumer marketing - appealing directly to enrollees through concerted efforts at consumer enrollment, consumer retention and elevation of the provider as a brand. Burden of Breaking In Challenge Particularly in early managed care markets, providers faced a very real threat of exclusion from key managed care contracts. While the danger of contract lockout is lessening over time, it will never disappear altogether, even broad-panel plans are unlikely to include every hospital and physician. Smaller networks within networks are working in several markets. Implication Concerted effort to ensure inclusion in major contracts is a major priority for providers to avoid losing access to lives and revenues as managed care penetration increases. However, in a world of broadening panels and panels within panels, effective contracting alone is no guarantee of health system success.

23. Defining “Success” in a P4P World

33. The Future: Performance Based Contracting A new direction and opportunity for providers and Health Plans to collaborate

34. Performance Based Contracting (PBC) Medical Management Managed Care Private Payer Needs Informatics Disease Management Quality Improvement P4P Consumer

37. CDHP Accelerates Organizational Change CDHP Driving P4P New Product Driving Org Change Health Plans Driving CDHP P4P Driving New Infotech New Infotech Driving New Product

40. What employers are doing with this data Tiering hospital and physician services just like they did pharmacy services

41. Physician Performance Low Quality High Low Efficiency High

42. Estimated Savings From Redirection

43. Develop Tiered Networks Compare Risk Adjusted Cost PHDC Population Profiling System Provider Ranking - Total Dollars Redirect Patients Include Provider in Select Network

44. Tiered Network Example Tiers Participating Physicians Regular 100% Premium 75% Ultra 50%

46. Visualizing An Annual >>2.5% Gain In Cost Efficiency Source: Mercer US Health Care, Dr. Arnold Milstein, 2006.  2.5%/year 2.5%/year 50 th %ile 50 th %ile MD Quality Index (outcomes of % adherence to Q rules)  Lower Higher  Lower Longit. Efficiency/ Higher Total Cost Higher Longit. Efficiency/ Lower Total Cost Low Longit. Efficiency Low Quality (Worst) High Longit. Efficiency High Quality (Best) High Longit. Efficiency Low Quality Total Cost of Care Index for Seattle MDs (total cost per case mix-adjusted treatment episode) Low Longit. Efficiency High Quality

47. New Insights for Physicians and Hospitals Once employers and managed care understand that they can differentiate providers on quality, product, technology and price the market, as we once knew it, shifts and providers will need to look at risk differently

49. CAP Protocol Compliance Source: Intermountain Healthcare, Dr. Brent James, 2006. Proportion Compliant Baseline Implementation Month Relative to CPM Implementation Implementation Group – Loose Abx Compliance

50. CAP: Cost Vs. Reimbursement Source: Intermountain Healthcare, Dr. Brent James, 2006. Actual vs. Expected Reimbursement ($) Expected Cost projected from risk-adjusted history, controls Actual Cost as complication rate fell Actual Reimbursement Month Relative to Protocol Introduction

51. Impact On Net Income Source: Intermountain Healthcare, Dr. Brent James, 2006. (15%)    (0%)    (40%) (45%) Decrease # of Cases     Per Diem  Decrease LOS (# nursing hours)  Decrease other units per case  Decrease # Units per Case    Decrease Cost per Unit Shared Risk Per Case Discounted FFS Improvement to Cost Structure

52. Impact On Net Income Source: Intermountain Healthcare, Dr. Brent James, 2006. (15%) (0%) (40%) (45%)     Decrease # of Cases    Per Diem Payment Mechanism    Decrease LOS (# nursing hours)    Decrease other units per case Decrease # Units per Case    Decrease Cost per Unit Shared Risk Per Case Discounted FFS Improvement to Cost Structure

54. Identifying Profitable Service Lines Source: Health Leaders, March 2003. Tot Pay Avg Tot Cost Avg Tot Pay Avg Tot Cost Avg Tot Pay Avg Tot Cost Avg None Single CoC Multiple CoCs Cardio/Vascular/Thoracic Surgery Orthopedics General Surgery

55. Predicting Future Cost PHDC Population Profiling System Employer Ranking Risk - Adjusted Total Dollars Retrospective and Prospective ERG ™ s

64. FUTURE

66. Population Profiling System PMPM Average Dollars Specialty: Family Practice

67. Population Profiling System Provider Case Load By Complexity Level Specialty: Endocrinology Visits Services

68. Masked Employer Report Population Profiling System - Employer Ranking Total Dollars Paid for Covered Individuals

71. Case Studies Provider Profiling June 2008 William J. DeMarco, MA, CMC

88. For more information contact DeMarcoHealthcare.com

89. For more information PendulumHealth.com