1. North Carolina Health Information Exchange Finance Work Group Date: March 29, 2011 Time: 2:00 pm – 4:00 pm Location: NC Institute of Medicine Keystone Office Park, 630 Davis Drive, Morrisville, NC 27560 Dial in: 1-866-922-3257; Participant Code: 654 032 36#

2. 2 Roll Call O'Connor, Maureen - Co-ChairBCBSNC Tayloe, Dave - Co ChairGoldsboro Pediatrics, American Academy of Pediatrics Bell, MarkNorth Carolina Hospital Association Harris, BrianRural Health Group, Inc. Hughes, YvonneCoastal Carolinas Health Alliance Miller, MarkNovant Health Minnich, JohnComputer Sciences Corporation Owen, SteveDivision of Medical Assistance, NC DHHS Pilkington, PhredCabarrus County Health Department Sangvai, DevduttaNorth Carolina Medical Society

3. 3 Agenda TopicLeadsTime Welcome and Meeting ObjectivesCo-Chairs2:00 – 2:15 Upfront Financing DiscussionNC HIE Staff & Co-Chairs 2:15 – 3:45 Next StepsCo-chairs & Manatt 3:45-3:50 Public CommentCo-Chairs3:50 – 4:00

4. 4 Financing the NC HIE The NC HIE is a non-profit, public-private partnership. The NC HIE has been deemed by Executive Order as the State Designated Entity (SDE) for federal grant funds for the ARRA Statewide HIE Cooperative Agreement Program. The NC HIE Board of Directors authorized the continued efforts of four work groups to provide recommendations on aspects of the new organization’s business operations: - Finance - Clinical & Technical Operations - Governance - Legal and Policy The Board has agreed to: 1.the development of a robust set of statewide HIE services (which will require capital for technology and business operations), 2.work toward implementing an upfront financing option, and 3.the voluntary nature of both participation in and pre-funding of the statewide HIE. The board has tasked staff and the Finance Work Group with developing recommendations for an upfront funding model.

5. 5 NC HIE Board of Directors Board MemberRepresenting Atkinson, Bill, Ph.D.* NC Hospital Association Bridges, Thomas Local Health Directors Callaway, Hadley, M.D.* NC Medical Society Cansler, Lanier* NC DHHS Civello, Anthony Pharmacy Interests Cykert, Samuel, M.D. Area Health Education Centers Dobson, Allen, M.D.* Community Care of NC Frelix, Gloria, M.D.* Old North State Medical Society King, David Laboratory Interests Kitzmiller, Rebecca Nurses Association Money, Benjamin NC Community Health Centers Association Newton, Warren, M.D. NC Healthcare Quality Alliance Richter, John Nursing Home Industry Board MemberRepresenting Roper, Bill, M.D.Academic Medical Centers Sanders, Charles, M.D.Various Saunders, George, M.D.*NC Medical Board Spicer, Sam, M.D.NCHICA Stein, Josh, (Senator)NC Senate & Representative of Consumers Tayloe, Dave, M.D.American Academy of Pediatrics Tillis, Thom, (Speaker)NC House of Representatives Wilson, J. Bradley*Payers Ex Officio Members Cline, Steve, DDSState Health Information Technology Coordinator Fralick, JerryState CIO Gray, Craigan, MD, JDState Medicaid Director * Executive Committee Member

6. 6 Today’s Meeting Objectives Work Group members draw on their expertise and perspective from across industries sectors in support of the greater goal of a statewide resource for North Carolina. Work Group members seek to reach consensus on the best approach for NC HIE. As we consider financing models, it will understandably be challenging, but important to maintain a focus on the collective goals for NC HIE and seek consensus.

7. 7 Today’s Objectives Critical Juncture Over the past four months, we have: 1.conducted a comprehensive analysis of financing options 2.completed a comparative assessment of financing approaches in other states 3.engaged stakeholders for input and feedback on financing alternatives In order to secure the funds to design, build and manage a robust set of statewide HIE services, we need to finalize the finance plan in advance of negotiations with technology vendors (expected to occur in June). Today’s Focus Review goals and foundational assumptions for the finance model Get feedback on the key elements and next steps for the upfront and pay-as-you-go financing options Recommend key principles to the Board

8. 8 Upfront Financing

9. 9 Overall Approach and Foundational Assumptions Approach Create a financing model that is fair and equitable Maximize stakeholder participation Avoid overly complicated financing schemes that confuse stakeholders and create implementation challenges for both NC HIE and stakeholders Assumptions The statewide HIE will be designed and built to maximize value by offering a robust range of HIE services to participants. Participation in statewide HIE will be voluntary. Participation in statewide HIE will be through Qualified Organizations (or as part of the NC HIE’s desire to “leave no provider behind” in some instances potentially through an alternative mechanism, like a physician portal)

10. 10 Proposed Upfront Payment Model - Recap Goal: Develop a comprehensive statewide HIE infrastructure as quickly as possible. Current working estimate informed by analysis of other similar sized states of development and operations capital needed over four years is approximately $24.5 million. ONC funding is just under $12 million. NC HIE faces an estimated $12.5 million gap to deploy and operate a robust system.

11. 11 Proposed Upfront Model - Recap By raising the money upfront, NC HIE can: 1.deploy the full range of HIE services as soon as possible; 2.accelerate value realization; 3.encourage widespread participation by lowering barriers to entry; 4.maximize Meaningful Use participation; 5.lock in multi-year commitments from critical mass of constituents; and 6.reduce administrative burdens. To generate required initial capital, NC HIE is planning to create a voluntary upfront payment option for participation in the exchange.  Upfront payment amounts will be based on an agreed upon percentage allocation.  Entities that pay upfront won’t have to pay charges for a fixed period of time.  Entities that don’t pay upfront can still participate, but will be subject to higher annual payment rates.

12. 12 Agreeing to a Working Estimate Upfront financing for the NC HIE organization needs to cover both technology and operations We have established a working estimate – but at this stage, it is not possible to determine an exact number. In order to develop a model for upfront financing, the process must be paramount to the number. Current Cost and Revenue Model: Overview Costs Estimates Reviewed multiple vendor estimates for building and operating comparable set of statewide HIE services in two states. Vetted pricing with technology experts. Created an average of projected costs over four years for the cost of maintaining NC HIE administrative operations and developing and deploying core and value-added services. Revenue Projections Federal funds for ONC Cooperative Agreement Identified the projected shortfall between costs and revenue Current Cost and Revenue Model: Overview Costs Estimates Reviewed multiple vendor estimates for building and operating comparable set of statewide HIE services in two states. Vetted pricing with technology experts. Created an average of projected costs over four years for the cost of maintaining NC HIE administrative operations and developing and deploying core and value-added services. Revenue Projections Federal funds for ONC Cooperative Agreement Identified the projected shortfall between costs and revenue

13. 13 Cost20112012201320144 YR Total Admin & Operations$1,800,000 $7,200,000 Technology$7,259,500$4,851,170$3,558,573$1,580,407$17,249,650 Core Services (Hardware & software) 3,830,0001,120,000325,000 $5,600,000 Value-Added Services (Develop & deploy Phase 1 Services) 675,000225,00000$900,000 Value-Added Services (Develop & deploy Phase 2 Services) 250,0001,250,0001,400,00047,196$2,947,196 Building and testing connectivity to Qualified Organizations 1,802,5001,287,500772,50051,500$3,914,000 Ongoing maintenance 702,000968,6701,061,0731,156,711$3,888,454 Total Costs$9,059,500$6,651,170$5,358,573$3,380,407$24,449,650 Federal Funds20112012201320144 YR Total ONC Funding$7,963,044$2,005,656$1,774,567$235,000$11,978,267 Costs Funding  Administration & operations cover costs for NC HIE staff, organizational needs and collaborative process  Technical costs gradually decrease after 2012 when system is complete  Alternative pricing models (e.g., subscription service) could create alternative cost allocations  Funding calculation doesn’t include matching funds or the $1.0 M spent on planning in 2010 Cost and Revenue Model: Four Year Projections We need to raise $12.5 million to cover the gap in funding

14. 14 Key Question To what degree do we have confidence that these figures are accurate? Will additional analysis on costs provide meaningful additional insight at this time? Are the estimated costs and projected shortfall in revenue reasonable figures to use as the basis for the pricing and financing models? Key Question To what degree do we have confidence that these figures are accurate? Will additional analysis on costs provide meaningful additional insight at this time? Are the estimated costs and projected shortfall in revenue reasonable figures to use as the basis for the pricing and financing models? Cost and Revenue Model: Four Year Projections

15. 15 Working Draft for Discussion: Upfront Financing Principles Straw PrincipleAcceptModifyReject The NC HIE Board of Directors must establish a mechanism and adopt a policy for resolving any funding surpluses or deficits as a result of upfront financing efforts. Key Questions Is there any reason NOT to try to obtain upfront commitments for the entire four year funding gap? Should the Work Group recommend a preferred option or series of options such as refunding monies, using surplus funds to offer incentives for qualified organizations to establish connectivity with rural or underserved providers, establishing a grant pool to provide no-cost access to under- resourced or underserved providers, etc.? Key Questions Is there any reason NOT to try to obtain upfront commitments for the entire four year funding gap? Should the Work Group recommend a preferred option or series of options such as refunding monies, using surplus funds to offer incentives for qualified organizations to establish connectivity with rural or underserved providers, establishing a grant pool to provide no-cost access to under- resourced or underserved providers, etc.?

16. 16 Defining the Payment Options

17. 17 Working Assumptions: Upfront Payment and Pay-As-You-Go Upfront Payment Option Pay-as-you-go Option Pricing will be structured such that total 4 year cost will be lower than pay-as-you-go option Creates participation commitments and buy-in which will accelerate adoption, increase the amount of data available, and reduce per unit cost for participants. More efficient and cost-effective administration by eliminating the need to build and operate a per-use billing and collection system. Allows reasonable funding on hand to address key opportunities as they arise – federal funding is "reimbursement only" and federal rules are highly bureaucratic Pricing will be structured such that total 4 year cost will be higher than upfront payment option Provides an alternative for organizations that have difficulty raising capital and that will not be prepared to connect to the Statewide HIE in Jan 2012. Finance Work Group will identify principles for pay-as-you-go, including the potential for discounts to specific categories, etc.

18. 18 Working Draft for Discussion: Upfront Financing Principles Straw PrincipleAcceptModifyReject The upfront financing model must be structured such a way that it rewards initial investors. The NC HIE Board of Directors should adopt a pay-as-you-go pricing model for those who do not pay upfront that nets out to a higher price point than the upfront model. The difference between the pricing for up front and pay-go options should be sufficient to gain investment, but not so large as to discourage future participation.

19. 19 Upfront Financing: Percent Allocation Among Stakeholders Work Group members and NC stakeholders have indicated comfort with the following allocation of costs for initial upfront funding: –State Medicaid (20%) –Commercial Payers (35%) –Hospitals (35%) –Providers (10%) Hospital Systems NC Medicaid Providers Payers $ 4.4 M $ 1.2 M $ 2.5 M Key Question Does the Workgroup agree to the proposed allocation? Key Question Does the Workgroup agree to the proposed allocation? Note, the dollar figures above are based on $12.5 million as a working assumption.

20. 20 Key Questions - 10% Physician Contribution Key Questions Does the Workgroup agree to the principle that physicians as a major stakeholder group should be a part of the pre-funding effort? How do we account for physicians who are employed by hospitals? Do we recognize a difference between employed and affiliated physician groups? Key Questions Does the Workgroup agree to the principle that physicians as a major stakeholder group should be a part of the pre-funding effort? How do we account for physicians who are employed by hospitals? Do we recognize a difference between employed and affiliated physician groups?

21. 21 Physician Allocation Methodology Original Proposed Methodology:  Per-provider commitments over four years from large practices only (over 100 docs).  Upfront payments from 3,951 providers in large practices of 100 or more (represents approx 21% of providers in state)  Each practice would pay ~$55 per provider per year over four years Key Questions Should there be tiered pricing? –Large (More than 100 providers representing 21% of all providers) –Medium (21-100 providers, representing 26% of all providers) –Small (1-20 providers, representing 53% of all providers) Should funding requests be limited to large provider groups? Should funding request be per-provider or per-practice? Key Questions Should there be tiered pricing? –Large (More than 100 providers representing 21% of all providers) –Medium (21-100 providers, representing 26% of all providers) –Small (1-20 providers, representing 53% of all providers) Should funding requests be limited to large provider groups? Should funding request be per-provider or per-practice?

22. 22 Key Questions – 35% Hospital Percentage Original Proposed Breakdown: Upfront commitments over four years from 6-10 largest systems. Key Question Are the questions below the right questions to address in negotiations with hospitals who elect to pre-fund in participation? –What methodology should be employed to determine share? Methodologies to allocate could include: Each system would commit to ~$50-$75 per bed per year Even split of 35% share Allocated based on tier (large, mid, small, etc.) Other? –Should there be tiered pricing? Key Question Are the questions below the right questions to address in negotiations with hospitals who elect to pre-fund in participation? –What methodology should be employed to determine share? Methodologies to allocate could include: Each system would commit to ~$50-$75 per bed per year Even split of 35% share Allocated based on tier (large, mid, small, etc.) Other? –Should there be tiered pricing?

23. 23 System Name # of Hospitals Total Licensed Beds 2009 IP Discharges Carolinas HealthCare System244,152175,916 Novant Health, Inc.102,442119,202 Duke University Health System31,54465,723 University Health Systems of Eastern Carolina81,39364,415 UNC Health Care System31,14672,775 Moses Cone Health System51,05753,057 Wake Forest395534,173 WakeMed Health and Hospitals792154,755 Mission Health and Hospitals491948,018 New Hanover Health Network285539,789 Cape Fear Valley Health System367437,572 Key Questions – 35% Hospital Percentage

24. 24 Key Question - Qualified Organizations Key Questions Should RHIOs or other Qualified Organizations be factored into pre-funding commitments? Key Questions Should RHIOs or other Qualified Organizations be factored into pre-funding commitments?

25. 25 Key Question - Commitment Versus Payment Key Questions Should upfront funds be collected in installments (as has been discussed, but not expressly adopted)? If so, what percentage of the committed funds would be due upon signing? Key Questions Should upfront funds be collected in installments (as has been discussed, but not expressly adopted)? If so, what percentage of the committed funds would be due upon signing?

26. 26 Next Steps

27. 27 Developing the Upfront Funding Term Sheet A term sheet is an agreement (may be binding or non-binding) setting forth the basic terms and conditions under which an investment will be made. Term sheets are similar to “letters of intent” and are meant to record two or more parties' intentions to enter into a future agreement based on specified (but preliminary or incomplete) terms. To indicate commitment to funding participation upfront, organizations would be asked to agree to a term sheet, which would outline agreed financing amount, duration, and access to services among other provisions. A straw term sheet will be reviewed at April 20 Work Group meeting.

28. 28 Public Comment

29. 29 Attachments

30. 30 Board Actions Related to Finance Board Decisions On September 23, Board directs staff to develop more detailed cost estimate and description and sequencing of HIE deployment. Board directs staff to address the following: 1.What will an effective policy and high-performing technical infrastructure cost to build and maintain? 2.What are the options for revenue and pricing? 3.What is the best approach to allocating funding most efficiently and effectively? On November 17, after review of materials submitted in response to its September request, Board directs staff to develop an option for “up front” revenue to support a state-of-the-art system, and to reach out individually to key stakeholders to assess their support. On December 16, Board supports the concept of up front financing option in which charges are allocated based on stakeholder categories. It directs staff: 1.Investigate alternative pricing for hospital-affiliated practices owing to their technical and business relationship with a hospital that may have paid for access to statewide HIE services 2.Expand the list of HIE participants and funders to include laboratories, pharmacies, etc 3.Consider additional value-added services (including administrative transactions) in light of the broader health reform efforts 4.Refine the proposed approach through the NC HIE Finance Work Group