0 Ascendient The Maryland Model – Strategic Considerations for a Fixed Payment System September 30, 2015

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October 8, 2015 Webinar The Maryland Model – Strategic Considerations for a Fixed Payment System

3 Guide for Today’s Discussion Introductions History of Maryland Model Current Model Structure Initial Progress & Lessons Learned Implications & Near-term Considerations for NC

4 Our Firm: Health and Healthcare Focus

5 Our Firm: Locations National Harbor Maryland Quadrangle Office Park Chapel Hill

6 Today’s Presenters Brian Ackerman, MHA Principal National Harbor Office Daniel Carter, MBA Principal Chapel Hill Office

History of the Maryland Model

8 History...the Old Model Maryland - Only state where hospitals (and insurers) don’t decide how much to charge for care Health Services Cost Review Commission – Establishes hospital rates...all payors must pay the same rate 26 Percent – The amount Maryland hospitals were above the national average cost per discharge in 1976 Medicare waiver – Maryland hospitals “waived” from Federal Medicare payment models Criteria – Waiver to remain in place as long as:  The system remains “all-payor”  Inpatient payments per Medicare discharge grow at a rate less than the nation

9 The Old Model...Results Source: Maryland HSCRC

10 The Old Model...Results Source: Maryland HSCRC

11 The Old Model... Limitations for a Future Delivery System Inpatient Only Medicare Only Cost per Unit/ Hospital Stay

Current Model Structure

13 Current Waiver... Why it Should Matter to You

14 Current Waiver...Shifting Focus Old Model Waiver Modernization Inpatient Only Care Focus All Hospital Care Payor Focus Medicare Only All payers Metric Focus Cost per Unit/ Hospital Stay Total Cost of Hospital Care & Quality

15 Waiver Modernization: What it Means for Maryland Hospitals Global Payment Model linked to total hospital revenue received from all payors Ceiling (and floor) placed on a hospital’s total revenue based on recent top-line performance E.g. If your total revenue was $200M last year, it will be $200M next year...with some slight adjustments More volume does not create more revenue...only increased expenses and lower margins

16 Waiver Modernization: How Hospital Revenue is Calculated Base Year Revenue X Adjustments Allowed Revenue Global Payment Model Population growth Quality scores Shift to unregulated setting Service level changes (e.g. program closure) Market share changes

17 Waiver Modernization: Terms of Agreement with Medicare Must achieve $330M Medicare savings over five years Maryland’s all-payer per capita total hospital cost growth limited to 3.58%...10-year CAGR for per capita GDP Limit total Medicare spending in Maryland to no more than national growth Reduce Maryland readmission rate to national average within five years...currently ranked 49 of 51 in the U.S. Reduce hospital-acquired conditions by 30 percent within five years If Maryland fails during five-year performance period, hospitals will transition to national Medicare payment systems

Initial Progress & Lessons Learned

19 Waiver Modernization: Recent Performance Dashboard Source: Medicare savings to-date: Estimated at ~$100M

20 Waiver Modernization: Additional Performance Measures Operating profits $71M or 15% Operating margin 1% # of Hospitals w/ Losses 10 to 7 Hospital Admissions 4.1% Potentially Avoidable Admissions 6.0% ED Visits Flat

21 What’s Changed Increased use & availability of: Health coaches In-home post-discharge visits Social workers in the ED Transportation to primary care appts. Nurse hotlines Bedside prescription delivery Subsidized medications Priority on partnerships: Strengthened collaboration and coordination with primary care and SNFs Meaningful health coalitions Physician education Increased data sharing Population health focus: Additional wellness initiatives Expansion of mental health & substance abuse clinics Use of predictive analytics Additional mobile clinics

22 What’s Changed: Focus on Chronic Disease Management  Understanding of most at risk/costly patients  In-home visits after discharge, to connect people with needed support and resources  Free or reduced-cost clinics for underserved patients with chronic diseases (including mental health and substance abuse)  Tele-health monitoring for chronic disease management  Increased community health education

23 What’s Next for Maryland? Waiver expansion...to physicians, unregulated settings, post-acute providers

Implications and Near-Term Considerations for North Carolina

25 So... What Does it All Mean?

26 Reset Your Expectations... Discharges will Continue to Decline Growth in discharges Decline in discharges Source: Ascendient “Healthytown” predictive modeling based on DRG-specific data from Truven 20%- 25%

27 Reset Your Expectations: Healthytown 2025 A complete copy of the report can be found at: Healthytown, USA Transformation of Healthcare Delivery in a Statistically Average American Community 35% ED Visits 86% Primary Care Utilization 46% Primary Care Physician Demand

28 Rethink How/Where You Will Grow Although uncertainty around future payment methods still remains, we are clearly moving away from a system that rewards volume: Reduced Re-admissions Bundled Payment ACOs or “ACO-like” organizations What it Looks Like Volume Based Outcome Based Payment Method Key Implication: Most of today’s revenue centers will be tomorrow’s cost centers Fee-for- service

29 Redefine Traditional Definitions LEAN within our departments LEAN-mindset across the community Efficiency A nice thoughtA requirement Collabor- ation Of patients/volume Of covered lives Market Share As a consideration As a priorityFlexibility PastFuture

30 Learn to Accept Greater Risk...Quickly! Hospitals & Health Systems Commercial Payors, Federal & State Payors Risk Where to start? 1.Begin where you’re already at risk...employees, self-pay 2.Leverage pilot programs, where appropriate

31 Learn to Accept Greater Risk... CMS Comprehensive Care for Joint Replacement (CCJR) Medicare’s first mandatory bundled payment model Applies to hip and knee replacement patients Will hold hospitals accountable for the quality and cost of care through 90 days post-discharge Applies to hospitals within 18 NC counties At conclusion of transition period payment will be regionally based:  Within the South Atlantic, 69% of CCJR hospitals have episode spending above the regional average* Sources: *ww.avalere.com; ^Excerpt from Ascendient work plan Phases of Preparation^

32 So...What Should We Be Doing Today? 1.Enhance and expand collaborative efforts across the continuum 2.Know who your most at-risk patients are...establish proactive processes for intervention, follow-up, and monitoring 3.Build flexibility into new provider contracts 4.Start managing the health of those populations for which you are already at risk 5.Build your IT infrastructure: a)Can you track the cost/utilization of a patient across your system? b)Can you track the cost/utilization of a patient across your community? c)Are you collecting information necessary to support future predictive analytics efforts?

33 What Hospitals in NC Are Already Doing Developing profiles of all providers/facilities within the community and prioritizing those for collaboration Establishing structure to develop physician leaders... particularly within primary care Developing processes and structure to most fully leverage advanced care practitioners Piloting population health management initiatives on employees Centralizing services and/or reducing unnecessary duplication across the system Developing “Gap” assessment related to the competencies necessary for participation in a clinically integrated network

34 And in Conclusion... Always Remember

35 Thank You! Brian Ackerman Daniel Carter