Aligning funds flow with population-based strategy and payment John Birkmeyer, MD October, 2015

Conflict Disclosure Founder & Director with financial interest in ArborMetrix, Inc. Relevance to today’s presentation None

Agenda Organizational and strategic context Funds flow Clinical funds flow and physician compensation Academic support—Aligning incentives with new payment models

Agenda Organizational strategy and context Clinical funds flow and physician compensation Academic funds flow Aligning incentives with new payment models

New operating model between medical school and health system

Historical “Church/State” Operating Model Dartmouth College/Geisel Dartmouth-Hitchcock $25m $25m Non-Clinical Departments & UME Clinical Departments, Centers, Service Lines, & GME Total medical research & education about $300m

Toward more conventional AMC model Dartmouth / Geisel Dartmouth-Hitchcock Cancer Center Other disciplines TBD Research Health policy & delivery science Data & analytics Clinical research & trials Non-Clinical Departments, Laboratory Science Joint Programs* Clinical Departments, Centers, & DH Research Programs Undergraduate Medical Education* Graduate Medical Education Education Graduate Programs *Reflects shared financial commitment and oversight, not necessarily operational responsibility

Preparation for population-based payment models

Commercial Risk Contracts DH Path to New Payment Models Capitation ACOs with two-sided risk (250K lives) Benevera Health Elevate Health (NH) One Care VT FFS with shared savings Pioneer (CMS) Risk Commercial Risk Contracts CMS Demo Project FFS Apr ’05 Jun ‘08 Jan ‘12 Jan ’13 Dec ’13 Jan ‘16

< < Integrated Research and Education > > IMPROVE POPULATION VALUE-BASED NEW PAYMENT HEALTH CARE MODELS STRATEGY Enterprise Strategy Design Population Health Integrated Delivery Enterprise Support Management System Services OPERATING MODEL

$9,300 $11,500 $12,750 $10,000

Health System Expansion & Integration

Dartmouth-Hitchcock Health—Hospital Relationships Dartmouth College Geisel School of Medicine D-H Health DHMC MHMH DHC New London Hospital eff. 10/1/13 VA Medical Center White River Jct., VT Mt. Ascutney Hospital eff. 7/1/14 Cheshire Medical Center eff. 3/1/15 NEAH 17 members 3 others Pending JOC w/ Elliot Health System 3 others Negotiation eff. 1/1/14

VT NH

Transition from Departments to Specialty Service Lines

Chairs, Med Directors, CEOs Decision Making, Reporting Lines & Budgeting Chairs, Med Directors, CEOs AMC CGP 1 CGP 2 CGP X AF 1 AF 2 AF X Spec 1 Spec 2 Spec 3 Spec 4 Spec 5 Spec 6 Spec 7 Spec 8 Spec 9 Spec 10 Spec 11 Spec 12 Spec 13 Spec 14 Spec 15 Dept of Surgery

Decision Making, Reporting Lines & Budgeting Service Line VP / SVPs SPEC 1 SPEC 2 SPEC 3 SPEC4 SPEC5 SPEC6 SPEC7 SPEC8 SPEC9 SPEC10 SPEC11 SPEC12 SPEC13 SPEC14 SPEC15 AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC AMC CGP 1 CGP 1 CGP 1 CGP 1 CGP 1 CGP 1 CGP 2 CGP 2 CGP 2 CGP 2 CGP 2 Sandra L. Wong, MD, MS Chair, Department of Surgery & Senior Vice President, Regional Surgical Service Line CGP X CGP X CGP X CGP X CGP X AF 1 AF 1 AF 1 AF 1 AF 1 AF 2 AF 2 AF 2 AF 2 AF 2 AF 2 AF X AF X AF X AF X AF X

Why Service Lines Strategic Objective Status quo Service lines Population health Idiosyncratic, skewed by financial incentives Right care at the right place (low cost, close to home) Value –based care Practice & quality varies by location “One DH” model of evidence-based care Success with new payment models High costs related to excess clinical workforce Closer match between workforce & population needs

Agenda Organizational and strategic context Funds flow Clinical funds flow and physician compensation Academic support—Aligning incentives with new payment models

Clinical funds flow Surgery Dept—10 specialty sections Traditional “clinic” model Clinical revenue and expenses managed centrally Section-level budgeting and accountability Section chiefs accountable to Chair for financial performance Physician compensation

Physician Comp for Section X Clinical Compensation (1) Non-Clinical Compensation (2) Total Compensation Value-adjusted (3) Dr. A $320, 000 $0 $320,000 $305,000 Dr. B $200,000 $60,000 $260,000 $270,000 Dr. C $240,000 $220,000 Dr. D $300,000 $50,000 $350,000 $375,000 Total $1,170,000 $1,170,000 (4) Based on specialty-specific benchmarks for $ per RVU. Higher rate for higher producers Includes administrative pay, supported research and education time Budget -neutral adjustment by chair, chief, or service line leader based on general and specialty-specific measures of value (e.g., patient satisfaction, quality, academic performance)

Current academic funds flow (Surgery, FY15) Funding Source Account Name Amount Allocation Criteria Medical school Subvention $1.17M Negotiated annually DH Academic Enhancement $173K N, MD FTEs N, Resident FTEs Departmental Incentive $155K Professional services margin Access measure Discretionary Fund $164K 0.125% of Net Professional Services Revenue Total $1.66M

Departments keep 20% of net improvement in contribution margin New model: Departments keep 20% of net improvement in contribution margin

New model (Surgery) Net prof & technical revenue Expenses (less overhead) Contribution margin Payment to Surgery Department FY15 $290m $320m $30m FY16 (expansion, no improvement) $340m $305m $35m $1.0m (expansion, expected improvement) $370m $50m $4.0m

Succeeding in both FFS and population payment models Strategy FFS Pop Revenue growth: Unacceptable “Churning” DH population + -- Acceptable Growing referrals from outside system Reducing “leakage” to non-DH surgeons Cost reduction Outsourcing selected services Spreading DH workforce—fewer, busier surgeons across region Telehealth for outreach, ED and hospital coverage System-wide protocols for practice and equipment

Succeeding in both FFS and population payment models Strategy FFS Pop Revenue growth: Unacceptable “Churning” DH population + -- Acceptable Growing referrals from outside system Reducing “leakage” to non-DH surgeons Cost reduction Outsourcing selected services Spreading DH workforce—fewer, busier surgeons across region Telehealth for outreach, ED and hospital coverage System-wide protocols for practice and equipment

Succeeding in both FFS and population payment models Strategy FFS Pop Revenue growth: Unacceptable “Churning” DH population + -- Acceptable Growing referrals from outside system Reducing “leakage” to non-DH surgeons Cost reduction Outsourcing selected services Spreading DH workforce—fewer, busier surgeons across region Telehealth for outreach, ED and hospital coverage System-wide protocols for practice and equipment

Challenges How do funds get used and distributed? To academic surgeons? Community surgeons? How to adapt the model to Departments with different economic realities? How does the model evolve over time?