1. Healthcare Cost and Performance Management Value Based Payment Reform: The Road Ahead

2. Average Annual Per Capita Growth Rates for National Health Expenditures and GDP
Source: Kaiser Family Foundation 2

3. National Health Expenditures per Capita $3.68 Trillion in 2018
NHE as a Share of GDP
6.9% % % % % % % % 17.4% % % % %
Source: CMS 3

4. 2018 Milliman Medical Index
Healthcare costs for American families have increased more than 80% in the past decade.
$28,166
$4,704
Out of
Pocket
$25,826
44%
$7,674
Employee
Contribution
$15,788
Employer
Contribution
56%
The Milliman Medical Index measures the total cost of healthcare
for a typical family of four covered by a PPO plan. 4

5. Total Health Expenditures per Capita - 2016
Purchasing power parity adjusted
Source: OECD Health Data 5

6. Distribution of Healthcare Expenses for the U.S. Population
Percent of U.S. Population
Ranked by Expenses
1977
1987
1997
2007
2012
2012 Mean Exp.
Top 1 Percent
27%
28%
23%
$97,960
Top 5 Percent
55%
56%
50%
$43,060
Bottom 50 Percent 3% 4%
< $400 6

7. American Medicine is Undergoing a Transformational Reengineering
FROM craft-based practice, in which individual physicians, organized around medical specialty or facility, create customized solutions for their patients based on their personal knowledge and ethical commitment to the patient
TO team-based practice, organized around patient needs or disease state, where providers are expected to execute coordinated care delivery processes using agreed upon clinical guidelines and disease management protocols.
This transformational change in the medical delivery model is being driven by payment reform, and is being accompanied by:
erosion of physician autonomy and hierarchy in favor of clinically integrated, team-based systems of care
greater physician accountability for healthcare costs and outcomes
a significantly higher level of provider financial risk 7

8. Healthcare Payment Reform8

9. A Half-Century of Government Efforts to Control Costs
Outpatient
PPS
Medicare &
Medicaid
Medicare
PPS
Affordable
Care Act
Physician
Fee Schedule
MACRA
HMO Act
1960s
1970s
1980s
1990s
2000s
2010s
Inpatient
PPS
Intro of
CABG Bundle
Medicare
Advantage
CMMI Value Based
Purchasing
Usual &
Customary
Physician
Group Practice
Demo 9

10. How Healthcare is Currently Purchased10

11. The Evolution of Value-Based Payment Models
Fee for Service
Episode-Based Payment
Population-Based Payment
Pay for Performance
Moderately High
Low
Very High
Required Level of Clinical Integration
Provider
Financial Risk
Payer
Financial Risk 11

12. Pay for Performance Providers receive a bonus for meeting pre-established quality metrics.
How it Works
Began with the introduction of the Physician Quality Reporting System in 2006
Fee-for-service, plus periodic performance-based bonus payments based upon adherence to payer-determined clinical protocols and patient satisfaction.
Clinical Organization and Delivery
providers still organized around medical specialty and hospital
hierarchal culture and high physician autonomy
disease focus, one patient at a time
low provider accountability for cost and quality of care
Results to Date
different payers have different performance standards
bonus payments are small, often less than the administrative costs of collecting the data
doesn’t eliminate incentive for overtreatment or unnecessary treatment
little evidence that it has improved either cost or patient outcomes 12

13. CMS Value-Based Payment Models
Accountable Care
Models designed to incentivize provider accountability for a patient population, and to redesign care processes to deliver higher quality, more cost efficient services.
Medicare Shared Savings Track 1
Medicare Shared Savings Track 1+
Medicare Shared Savings Track 2
Medicare Shared Savings Track 3
ACO Investment Model
Advance Payment ACO Model
Physician Group Practice Transition Demo
Pioneer ACO
Comprehensive ESRD Care Model
Medicare Health Quality Demo
Next Generation ACO
Vermont All-Payer ACO
Nursing Home Value Based Purchasing
Program Of All-Inclusive Care for the Elderly
Medicaid and CHIP Population Initiatives
Federally funded programs designed to improve the quality and cost effectiveness of Medicaid and CHIP services
Emergency Psychiatric Demonstration
Incentives for Prevention of Chronic Disease Model
Medicaid Innovation Accelerator Program
Pediatric Alternative Payment Model
Strong Start for Mothers & Newborns
Strong Start for Mothers & Newborns Phase Two
Financial Alignment for Medicare-Medicaid Enrollees Demo
Reduction of Avoidable Nursing Home Hospitalizations
Integrated Care for Kids Model
Episode-based Payments
Models designed to hold providers accountable for the cost and quality of care for a specified episode of care, beginning with a triggering event and extending for a limited time thereafter.
BPCI Model 1: Retrospective Acute Care Hospital Only
BPCI Model 2: Retrospective Acute and Post-Acute Care
BPCI Model 3: Retrospective Post-Acute Care Only
BPCI Model 4: Prospective Acute Care Hospital Only
BPCI Advanced
Comprehensive Care for Joint Replacement
Medicare Acute Care Episode (ACE) Demo
Medicare Hospital Gainsharing Demo
Oncology Care Model
Physician-Hospital Collaboration Demo
Specialty Practitioner Payment Model
Primary Care (Medical Home) Transformation
Medical home models, designed to incentivize a team-based approach to primary care emphasizing prevention, care coordination, and shared decision making.
Comprehensive Primary Care Initiative
Comprehensive Primary Care Plus
FQHC Advanced Primary Care
Frontier Extended Stay
Graduate Nurse Education Demo
Independence at Home Demo
Medicare Coordinated Care Demo
Multi-Payer Advanced Primary Care Demo
Transforming Clinical Practice Initiative 13

14. The Evolution of Value-Based Payment Models
Fee for Service
Pay for Performance
Population-Based Payment
Episode Based Payment
Moderately High
Low
Very High
Required Level of Clinical Integration
Provider
Financial Risk
Payer
Financial Risk 14

15. Episode Based Payment Model Group of providers receives a bundled price for some or all of the health services in a single episode of care.
How it Works
A single, pre-defined payment is made to a provider organization for all planned and unplanned diagnostic and treatment services provided to an individual patient during a defined episode of care.
Payment amount typically determined based on a discount below the average spending per patient under fee-for-service.
Payment can be prospective, or fee-for service with a “true-up” at the end.
Can be one sided or two sided risk, with adjustment for performance against quality metrics
Clinical Organization and Delivery
Physician-led care teams utilize standardized, evidence based care management protocols.
Patient care cost, quality and outcomes must be actively monitored and reported.
Quality control systems are required to reduce variation and minimize medical error.
Provider financial risk can be moderately high in two-sided risk model. 15

16. Bundled Payment for Inpatient Hospital Stay
FEE-FOR-SERVICE
BUNDLED PAYMENT
Hospital Staff and Services During Stay
Hospital Staff and Services During Stay
Separate Hospital Payment
Arrangement Among Health Care Providers for Coordinating Care and Dividing Payment
Single Payment for Hospital, Physician and
Home Care
Physician Services During Stay
Separate Physician Payment
Physician Services During Stay
Post-Discharge Services (e.g., Home Care)
Separate Home Care Payment
Post-Discharge Services (e.g., Home Care) 16

17. Treatment of Stage II-III Colon Cancer
Activity
Person(s)
Counseling on Need for Colonoscopy
Primary Care Provider
Sedation for Colonoscopy
Anesthesiologist, Gastroenterologist
Colonoscopy
Gastroenterologist
Biopsy and Review
Pathologist and Gastroenterologist
Consultation with Surgeon
Surgeon
Schedule Surgery
Hospital, Surgeon
Surgery and Hospital Stay (3-5 days)
Hospital, Surgeon, Anesthesiologist and Hospital Staff
Consultation with Medical Oncologist
Medical Oncologist
Order Imaging and Laboratory Testing
Medical Oncologist, Surgeon, Lab
Follow-Up Regarding Imaging and Laboratory Testing
Medical Oncologist, Surgeon
Review Data for Stage III Disease
Counseling (ongoing)
Social Worker
Chemo Instruction
Chemotherapy Nurse
Determine Drug Therapy
Lab for Pre-Chemo, CBC, CMP, Liver, CEA
Lab
Meet with Clinical Trial Staff Regarding Protocol
Trial Staff
Chemotherapy and Follow-Up Visit Every Two Weeks (24 Visits)
Medical Oncologist, Chemo Nurse
Evaluate and Treat Potential Problems (Nausea, Diarrhea, etc.)
One Month Post Therapy, Review Drug Therapy and Survivorship Likelihood
Follow -Up Visits every 3 months (4 Visits)
Follow-Up Laboratory Testing and Imaging
Ongoing Disease and Case Management
Medical Oncologist and/or PCP 17
Based on National Comprehensive Cancer Network’s practice guidelines

18. Bundled Payment Options
Type of Case
Trigger
Time Window
Examples
Chronic Medical
Outpatient
Professional Visit
9-12 months from trigger
Diabetes, CHF, COPD Asthma, CAD, HTN
Acute
Medical
Inpatient
Admission
30-90 days post-discharge
AMI, Stroke, Pneumonia
Procedural
days post-discharge
Hip/Knee Replacement, Bariatric Surgery, CABG
Outpatient Professional Visit
days post-procedure
PCI, Hernia, Knee Repair, Ligaments 18

19. The Evolution of Value-Based Payment Models
Fee for Service
Episode-Based Payment
Population-Based Payment
Pay for Performance
Moderately High
Low
Very High
Required Level of Clinical Integration
Provider
Financial Risk
Payer
Financial Risk 19

20. Population Based Payment Model An integrated care organization agrees to provide all or a subset of all the needed medical care required by a defined population for fixed term at a pre-determined price.
How it Works
Services typically include physician, hospital and post-acute care services, and may include additional services such as prescription drugs.
Payment can be prospective or fee-for service with a “true-up” at the end.
Providers can be exposed to upside only or both upside and downside risk, with two-sided risk rapidly becoming the standard.
Full payment is typically conditional upon meeting pre-specified quality metrics.
Exposes providers to insurance risk.
Clinical Organization and Delivery
High level of clinical integration and physician-hospital alignment; providers organized around population needs and patient disease states.
System-wide acceptance and adherence to provider defined, evidenced base care protocols.
Patient data collected from multiple sources for advanced health risk modeling and early intervention
Patient care cost, quality and outcomes actively monitored, managed and reported.
Provider financial risk can be very high under two-sided risk. 20

21. Population Health Competencies
Management Competencies
Information Technology & Data Analytics
Care Delivery Roles Team Management & Development
Measurement & Performance Management
Provider Network Design
Clinical Integration Management
Clinical Competencies
Revenue Cycle & Financial Structure
Population Management
Transition / Readmission Management
Patient-Centered Delivery Model
Care Variation & Quality Management
Longitudinal Health Management
Clinic/ Outpatient
Home/ Community
Hospital
Post-Acute Care

22. Relative Determinants of Population Health
Medical Care
10%
Behaviors
50% 22
Source: “The Relative Contribution of Multiple Determinants to health Outcomes,” Health Affairs, August 2014.

23. United States Income Statement FY 2018 ($ Billions)
FY2018 Revenue
$3.34 Trillion
FY2018 Spending
$4.17 Trillion
Other Net
$184
Excise Taxes
$109
Net Interest
$310
Individual
Income Tax
$1,660
Corporate
Income Tax
$218
Other Discretionary
$548
Social Security
$992 3% 7% 9%
14%
24%
48%
National Defense
$643
15%
35%
Social
Insurance Tax
$1,170
28%
12%
Healthcare
$1,182
Welfare
$498 23
Source: Office of Management and Budget

24. Fee for Service Breakeven
Revenue $
Profit
Total Costs
Fixed Costs
Breakeven
Service Volume 24

25. Value-Based Payment Breakeven$
Total Costs
Revenue
Profit
Fixed Costs
Breakeven
Service Volume 25