Creating a High Performance System: Aligning the Payment Model April 4, 2014 Tom Simmer, MD Senior Vice President & Chief Medical Officer

A High Performance Healthcare System Addresses the root causes of low system performance Poorly aligned payment Payment structure must strongly support a pro-active, patient-centered care model and the population management infrastructure. Lack of population focus All-patient registries at the practice level, integrated registries at the ACO/ OSC level. Population performance measured and rewarded through tiered fee structure. Fragmented health care delivery Information sharing and process management connect participants in the care process. Weak primary care foundation Patient Centered Medical Home; Provider-Delivered Care Management Lack of focus on process excellence Collaborative Quality Initiatives Lean process redesign 2

3 It’s got to come out of course, but that doesn’t address the deeper problem.

BCBSM Strategy to Align Professional Payment with Performance measured at the Population Level. Two separate components: – Payments to Physician Organizations (PO’s) – Tiering of professional fees 4

BCBSM Strategy to Align Professional Payment and Population Management. Five percent of RVU-based professional service payment are paid to physician organizations (PO’s). The Physician Organization payment supports population management infrastructure and facilitation of care transformation, with some money to reward physicians. It is not the primary mechanism for rewarding professional providers. 2009, BCBSM began tiering some specialist fees, based on nomination by physician organizations, population-based performance measurement, or participation in specific improvement programs. Tiered fees is the primary method for rewarding professional providers. 5

The BCBSM Physician Payment Process For most services, the BCBSM fee is determined by multiplying the number of “Relative Value Units (RVU’s) times a conversion factor. The total BCBSM will pay for a service is called the “allowed amount.” BCBSM pays the lesser of the allowed amount or the “billed amount,” which is the amount “charged” by the practice. The allowed amount for each RVU-based service is divided into two components: the Physician Organization component (5%) and the practitioner component (95%). Both components are paid in full; there is no “withhold.” There is no expectation by BCBSM that PO’s should pay physicians from their PO component revenue. There is an expectation the PO’s will create the population management infrastructure and facilitate practice transformation. 6

The Physician Organization Component The Physician Organization component is expected to be “stable” at 5 percent, although small adjustments are likely. Physician Organizations will need to make progressively larger investments to meet the information sharing challenges and to support productive engagement by specialists in population management. BCBSM PO payments emphasize recognizing capabilities for information sharing, integrated registries, measuring performance, facilitating Patient Centered Medical Home (PCMH), Patient Centered Medical Neighborhood, Provider Delivered Care Management (PDCM) implementation, recruiting additional practitioners, and population measures related to cost and HEDIS quality performance. 7

Key Point Physician Organizations will have more physicians and less money available to distribute to physicians. The most important way a PO delivers value to its practitioners is to promote better results at the population level, resulting in higher fees to the physicians responsible for the care delivered to that population. 8

BCBSM Payment Tiers: 2014 BCBSM is implementing two models for tiering professional fees – Model One: tiers fees for evaluation and management (E & M) services only – Model Two: ties all RVU-based fees Each “tier” is a fixed percentage higher than the TRUST fee. BCBSM currently uses the first model for PCMH-designated practices and for selected specialties. BCBSM establishes fees for PCMH-designated practices that are a fixed percentage higher than TRUST, based on BCBSM criteria. The second model (as of February 2014) for specialties eligible for tiered fees, generally 5 or 10 percent higher than TRUST. 9

BCBSM Payment Tiers: 2015 BCBSM expects to apply the second model for tiering fees to all specialties (except anesthesia) by early Anesthesia fees are generally not RVU-based and BCBSM is not currently planning to apply the tiered-fee model to Anesthesia services. In order to be eligible for higher payment tiers, specialists must be nominated by the physician organization. Nomination occurs at the practice unit level. Nominated specialists are selected for higher payment tiers based on engagement with the PO’s with which they are affiliated and based on population-based performance measures. Population measures are based on the performance of ALL caregivers serving the population. 10

Tiering Specialist Fees: Key Points Specialists must be represented through one of the PGIP groups, even though specialists may participate in more than one PO. Specialists must be nominated by the PO that represents them in PGIP and, if applicable, their “principal partner” PO, determined by source of their patients. PO’s nominate physicians based on written criteria available on the PO website and founded upon Patient Centered Medical Home Neighbor principles. The preponderance of measures used to select which specialist PUs receive higher fees are population-based and serve to reward specialists who serve patient populations with higher overall cost performance. 11

Specialties Eligible for Fee Uplifts Oncology Cardiology Oncology Cardiology Emergency Medicine Gastroenterology Nephrology Obstetrics/Gynecology Orthopedics Oncology Cardiology Emergency Medicine Gastroenterology Nephrology Obstetrics/Gynecology Orthopedics Allergy Chiropractic Critical Care Endocrinology Infectious Disease Neonatal Care Neurology Otolaryngology Pain Management Podiatry Psychiatry Psychology Pulmonology Physical Medicine Sports Medicine Rheumatology Urology Oncology Cardiology Emergency Medicine Gastroenterology Nephrology Obstetrics/Gynecology Orthopedics Allergy Chiropractic Critical Care Endocrinology Infectious Disease Neonatal Care Neurology Otolaryngology Pain Management Podiatry Psychiatry Psychology Pulmonology Physical Medicine Sports Medicine Rheumatology Urology PLUS: Most remaining specialties 12

How can specialists receive higher BCBSM fees? Join a PO and become an active participant. Learn and meet the PO’s criteria for nomination Actively work to support the PO in its work of creating a high performance system of care. Work with other clinicians to improve communication, share information, and improve the process of care. Examples: – ED use of imaging services – Improve performance on “Choosing Wisely” recommendations – Complex care patient whose doctors “aren’t talking to each other.” Understand areas of population management strengths and weaknesses and help the PO carry out its role more effectively. 13

Oncology Fee Uplift Metrics (Performance) 14 MetricDescriptionLevelTypeWeight PMPM Overall per member per month (PMPM) medical/surgical cost of care + pharmacy - actual cost for cancer population Population level Utilization50% Cancer sensitive severe events Cancer sensitive severe events related inpatient admissions or emergency department visits per 100 members per year Population level Utilization50%

Metrics for Emergency Medicine 2013 Uplift MetricDescriptionLevelType CAVE Weighted average episode cost relative to peer groupSub-POEfficiency PMPM Overall PMPM Med/Surg Cost of Care + Rx CostSub-POUtilization GDR Proportion of Rx scripts written for a generic drugPractice UnitEfficiency LBP Proportion of ED visits with a primary Diagnosis of Low Back Pain receiving an imaging studyPractice UnitQuality

Population Management Strategy: Align Facility and Professional Providers BCBSM ValuePartneship Strategy is to partner with Physician Organizations and Hospitals to create a High Performance Healthcare System in Michigan. BCBSM’s payment models for professional and facility providers are aligned to promote the development of “organized systems of care” and better clinical outcomes measured at the population level. BCBSM is creating commercial products that “steer” members to professional and facility providers though lower member cost-share. BCBSM typically contracts with a “health system” and their affiliated professional providers. 16

Medicare: Considering Tiered Fees CMS is encouraging accountability for population-level performance through Accountable Care Organizations (ACO’s) CMS is evaluating replacing the SGR (Sustainable Growth Rate) formula for physicians actively involved in an Accountable Care Organizations. This is likely to evolve into tiered fee structure---one for physicians not practicing within an ACO and a hier one for physicians participating in an ACO. 17

Summary BCBSM partners with Physician Organizations to achieve a high performance health care system in Michigan. The BCBSM payment model with two separate components: payments to Physician Organizations and tiering of fees to physicians based on population level performance. Physician fees will be tiered based on performance measured at the population level, encouraging physicians to partner with their Physician Organizations to improve population-level performance. BCBSM is aligning its hospital payment model to reward effective population management, encouraging physician-hospital partnership improve performance. 18