1. Funding Adjustment Models How Do You Incentivize Value? Bob Opsut/Greg Atkinson OASD (HA) Health Budgets and Financial Policy

2. What is Value in Health Care? Volume (Activities, Episodes, Population) + Outcomes (Readiness, Population Health, Customer satisfaction) Resources (MilPers, appropriations, reimbursements) 2 How Much? How Well? At What Cost?

3. Background PPS initiated in 2005 to rationalize the direct care budget adjustments – Presidents Management Agenda – Budget to follow performance – Declining workload – Care shifting to PSC – Provide way to offset Efficiency Wedge – Budget could be stable if more work done – Provide funds for recapture – Way to move PSC funds to Direct Care 3

4. Background (cont.) Initially proposed as a capitated system Considered too risky and too large a leap Fee for service (FFS) system seen as simpler to implement and necessary to familiarize the staff with workload measures SMMAC decided to start as a Fee for Service system with capitation some time in the future Concern remains that MTFs would have difficulty managing under capitation However, higher growth in PMPM for MTF enrollees creates budget pressures to go to capitation 4

5. Transition In Both Payment & Delivery Systems Today Payment System Adapted From “From Volume To Value: Better Ways To Pay For Health Care”, Health Affairs, Sep/Oct 2009. Delivery System Transition Ideal? Fully Integrated Delivery System Volume-driven fragmented care Fee-for-service Medical Home Payments Full Population Prepayment Co-evolution of organization and payment Primary Care Sub-Capitation PCMH Level 2/3 Medical Homes 5

6. How Much? MechanismUnitsCoveragePotential Unintended Side Effect Fee for ServiceProcedures, MS- DRGs, Beddays EncounterChurning Upcoding Treatment over Prevention EpisodeProcedure plus associated care Churning Upcoding Treatment over Prevention Care Management Fee PopulationNo value added Sub-CapitationPopulationAll Primary CareShift to specialty care Denied access CapitationPopulationAll CareDenied access Under utilization Answering “How much” is not enough. Unintended side effects can reduce value.

7. How Well? Measure PreventionHEDIS Preventive Services Access3 rd Next Available TreatmentORYX Continuity% of visits seeing own PCM OutcomesHEDIS Outcome Measures Never Events Mortality Qualty Adjusted Life Years (QALYs) SatisfactionVisit Satisfaction Plan Satisfaction CostProductivity/efficiency ER Utilization PMPM

8. Three Examples Current PPS Navy Performance Planning Pilot Sites CMS Comprehensive Care Initiative

9. Current PPS – How Much? The Current Performance Based Funding Adjustment Value of MTF Workload Fee for Service rate for workload produced Rates based on price at which care can be purchased TMAC rates Not MTF costs Computed at MTF level but allocated to services Rolled up to Services 9

10. TMAC versus PPS Civilian Inpatient Institutional Hospital (MS-DRG) Including ancillaries, pharmacy Professional (RVU) Surgeon Anesthesiologist Rounds Consultants Outpatient Professional (RVU) Institutional (APC) Outpatient Ancillary (RVU/Fee Schedule) Direct Care PPS Inpatient (RWP, i.e. MS-DRG) All Institutional and Professional Hospital Including ancillaries, pharmacy Surgeon Anesthesiologist Internist Consultants Outpatient Professional (RVU) Institutional (APC) Outpatient Ancillary (Pass Thru) None 10

11. Current PPS Workload Inpatient – MEPRS A Workcenters Non-Mental Health – Severity Adjusted DRGs Relative Weighted Products (MS-RWPs) Mental Health - Bed Days Outpatient – MEPRS B Workcenters Provider Aggregate Relative Value Units (RVUs) Non-credentialed providers get appropriate Practice Expense RVU credit Ambulatory Payment Classification (APCs) Facility location now identified in CAPER records Consistent with TRICARE change for CY09 11

12. Valuing MHS Workload Fee for Service Rates FY12 Value per MS-RWP - $8,688 (MEPRS A codes) Average amount allowed Including institutional and professional fees Excluding Mental Health (MH)/Substance Abuse (SA) Adjusted for local Wage index and Indirect Medical Education Adjustment Value per Mental Health Bed Day - $803 (MEPRS A codes) Average amount allowed Including institutional and professional fees Adjusted for local Wage index and Indirect Medical Education Adjustment Value per RVU - $33.97 (MEPRS B codes) Standard Rate – like TMAC/CMS Adjusted for local geographic price index both Work and Practice Value per APC - $69.61 (Facility records) Standard Rate 12

13. How Well? - HEDIS Paying for additional performance beyond workload In past this has been adjustment if MHS had additional dollars available at Mid-year Method is really a performance based allocation of excess dollars Does not match external P4P programs where dollars are at risk 13

14. P4P HEDIS Values for standard set of measures 14 * Excludes Pilot Sites that are funded based on Service unique methods.

15. Current PPS Summary 15

16. Mid-year FY2012 Navy Pilots Performance Funding Adjustment 16

17. Performance Funding Items How Much? Care Management Fee Primary Care Sub-capitation Traditional FFS for care outside of Sub-Capitation How Well? HEDIS Quality adjustment Colorectal/Cervical/Mammogram/Diabetes Access/Continuity of care adjustment 3 rd Available Appointment Continuity of Care Satisfaction Not available, due to change in Survey instrument ER Utilization adjustment PMPM adjustment 17 Balanced Bonus Eligible Items

18. Care Management An increase in enrollment is awarded with $2.50 per increased enrollee per month. NCQA Level 2 Certified MTFs can earn $5 per increased enrollee. Pensacola earned $33,250 Quantico earned $75,860 Enrollees 2009 42,541 2011 43,095 Increase 554 Enrollees 2009 20,874 2011 22,138 Increase1,264 18

19. Traditional PPS compared to PPS + Primary Care Sub-Capitation MTF PPS Overall Funds (A) Everything outside of Primary Care Product Line (B) Primary Care Product Line (C) Team care for own Enrollee s (D) Same MTF Other than Team (ie ER Office Vst) (E) MCSC/ Other MTF 19 Primary Care Sub-Capitation

20. Funding of Primary Care Sub-Capitation Baseline MTF PPS Overall Funds (A 1 ) Everything outside of Primary Care Product Line (B 1 ) Primary Care Product Line (C 1 ) Team care for own Enrollee s (D 1 ) Same MTF Other than Team (ie ER Office Vst) (E 1 ) MCSC/ Other MTF Traditional PPS Earnings: MTF PPS (A 1 +B 1 +C 1 +D 1 ) Baseline Sub-capitation Value: (C 1 +D 1 +E 1 ) Capitation rate: (C 1 +D 1 +E 1 )/Eq Lives 1 20 Rolling 12MTF PPS Overall Funds (A 2 ) Everything outside of Primary Care Product Line (B 2 ) Primary Care Product Line (C 2 ) Team care for own Enrollees (D 2 ) Same MTF Other than Team (ie ER Office Vst) (E 2 ) MCSC/ Other MTF Team currently represents entire Primary Care Product Line for same MTF Enrollee. Revised Pilot PPS Earning Calculation Rolling 12 (A 2 +B 2 +D 2 ) + Net Sub-capitation Sub-Capitation Total value = (Capitation Rate x Eq Lives 2 ) Net Sub Capitation Earnings = Total value – (D 2 +E 2 )

21. Sub-Capitation Adjusted for Provider Aggregate RVUs Standardized across years to prevent weight changes causing utilization increases Using current Conversion factor without GPCIs Team concept currently based on Primary Care Product Line with adjustments for new PCMH clinics (BAZ/BDZ) Equivalent Lives Based on Age/Gender/Bencat Safe Harbor Between 25 th and 75 th Percentile No adjustment Above 75 th Percentile reduction of 0.5 RVUs per Eq Life Below 25 th Percentile growth permitted of 0.5 RVUs per Eq Life Base on number of Enrollees not Enrollment sites 21

22. Provider Aggregate RVU per Primary Care Equivalent Life 7.19 8.54 22 Range based on Total Enrollees

23. Provider Aggregate RVU per Primary Care Equivalent Life 7.19 8.54 Quantico Pensacola Safe Harbor Upper Safe Harbor Lower 23 Baseline Target

24. Primary Care Sub-Capitation Pensacola (C 1 ) Team care for own Enrollees 309,291 RVUs $10,506,613 (D 1 ) Same MTF Other than Team (ie ER Office Vst) 10,465 RVUs $355,480 (E 1 ) MCSC/ Other MTF 36,688 RVUs $1,246,302 Baseline Sub-capitation Value: (C 1 +D 1 +E 1 ) Capitation rate: (C 1 +D 1 +E 1 )/Eq Lives 1 Capitation Value = $12,108,395 Capitation Rate = $12,108,395/41,961 Eq Lives $289/Eq Life 24 (D 2 ) Same MTF Other than Team (ie ER Office Vst) 12,796 RVUs $434,672 (E 2 ) MCSC/ Other MTF 35,740 RVUs $1,214,088 Team currently represents entire Primary Care Product Line for same MTF Enrollee. Net Sub-capitation Sub-Capitation Total value = (Capitation Rate x Eq Lives 2 ) Net Sub Capitation Earnings = Total value – (D 2 +E 2 ) Sub-Capitation Total Value = ($289 x 42,807 Eq Lives) = $12,352,476 Net Sub Capitation Earnings $12,352,476 – $1,648,760 = $ 10,703,716 Net Sub-Capitation Earning change: $10,703,716-$10,506,613 = $197,103 (On a per Eq Life basis MTF earnings decreased from $250.39/Eq Life to $250.05/Eq Life) (C 2 ) Team care for own Enrollees 326,658 RVUs PPS $11,096,576 8.49 RVUs/ Eq Life 8.76 RVUs/ Eq Life

25. Primary Care Sub-Capitation Quantico (C 1 ) Team care for own Enrollees 138,613 RVUs $4,708,675 (D 1 ) Same MTF Other than Team (ie ER Office Vst) 1,452 RVUs $49,328 (E 1 ) MCSC/ Other MTF 23,846 RVUs $810,055 Baseline Sub-capitation Value: (C 1 +D 1 +E 1 ) Capitation rate: (C 1 +D 1 +E 1 )/Eq Lives 1 Capitation Value = $5,568,059 Capitation Rate = $5,568,059/20,241 Eq Lives $275/Eq Life 25 (D 2 ) Same MTF Other than Team (ie ER Office Vst) 4,243 RVUs $144,125 (E 2 ) MCSC/ Other MTF 30,882 RVUs $1,049,064 Team currently represents entire Primary Care Product Line for same MTF Enrollee. Net Sub-capitation Sub-Capitation Total value = (Capitation Rate x Eq Lives 2 ) Net Sub Capitation Earnings = Total value – (D 2 +E 2 ) Sub-Capitation Total Value = ($275 x 22,256 Eq Lives) = $6,122,542 Net Sub Capitation Earnings $ 6,122,542 – $1,193,189 = $4,929,353 Net Sub-Capitation Earning change: $4,929,353-$4,708,675 = $220,103 (On a per Eq Life basis MTF earnings decreased from $232.64/Eq Life to $221.48/Eq Life) (C 2 ) Team care for own Enrollees 134,163 RVUs PPS $4,557,512 8.10 RVUs/ Eq Life 7.61 RVUs/ Eq Life

26. How Well - HEDIS Eligibles determined by measure, valued on a sliding scale – $10.00/properly managed enrollee if enrollment site manages to meet the 90 th percentile – $5.00/properly managed enrollee at 50 th percentile – $2.50/properly managed enrollee below the 50 th percentile Performance Period (Rolling 12 months) – FY11 FM4 to FY12 FM3 – FY10 Q4 months inferred Baseline – FY09 26

27. How Well - Third Available Acute Pensacola earned $30,250. Quantico lost $34,568 Earnings are calculated monthly. By crossing above 60%, Pensacola began earning $0.50/enrollee month versus $0.25 prior to crossing 60%. Conversely, Quantico dropped to $0.25/enrollee in most months, causing a significant earnings decline from 2009. Raw EarningsPerformancePopulation 2009 $ 101,65257% 42,541 2011 $ 131,90362% 43,095 Raw EarningsPerformancePopulation 2009 $ 66,84162% 20,874 2011 $ 32,27349% 22,138 27

28. How Well - Third Available Routine Pensacola lost $228,522. Quantico earned $36,097 Earnings are calculated monthly. In 2011, Pensacola decreased in raw performance from 92% to 84% Additionally, they also dropped below 80% in some of the months of 2011, which caused them to earn an additional dollar less per enrollee ($1.50 - $0.50) in those months. In the months that the performance dipped below 80%, earnings fell almost 33%. By passing above 60%, Quantico began earning $0.50 per enrollee per month instead of only $0.25. Raw EarningsPerformancePopulation 2009 $ 721,57892% 42,541 2011 $ 493,05684% 43,095 Raw EarningsPerformancePopulation 2009 $ 55,11457% 20,874 2011 $ 91,21160% 22,138 2011 2012 8 9 10 11 12 1 2 3 %$%$%$%$%$%$%$%$ 78% $ 25,49079% $ 25,76580% $ 25,55981% $ 77,67686% $ 82,79392% $ 88,06592% $ 87,95883% $ 79,751 28

29. How Well - Continuity Pensacola earned $79,067 Quantico earned $163,090 Earnings are calculated monthly. Pensacola increased performance but was also able to cross the 50% threshold in some months, earning $10 per PCM appointment. Quantico increased performance and was also able to earn $20 per PCM appointment by crossing above the 60% threshold. Raw EarningsPerformanceAppointments 2009 $ 378,65343% 75,185 2011 $ 457,72051% 118,940 Raw EarningsPerformanceAppointments 2009 $ 261,80049% 40,104 2011 $ 424,89065% 50,185 29

30. How Well - ER Visits / 100 ER roughly calculates the difference in PPS earnings based on utilization that would be expected and then disperses a portion of the savings (or costs). ((Enrollees 2011 * ER 2009 ) – (Enrollees 2011 * ER 2011 )) * 300 * X % Where X % is based on the performance year ER Rate – < 30.0, 20% – < 35.0, 10% – >35.0, 5% – Increase above baseline -5% 30

31. ER Continued Pensacola increased their expected visits by approximately 82. 43,095*(.4774-.4755) 82 visits * 300 * 5% = ~$1,237 decrease Quantico increased their expected visits by approximately 1,011 22,138 * (.3861-.3404) 1,011 * 300 * 5% = ~$15,172 decrease $ (1,237) %Population 2009 47.55 42,541 2011 47.74 43,095 $ (15,172) %Population 2009 34.04 20,874 2011 38.61 22,138 31

32. How Well - PMPM PMPM earnings are based on the savings (or cost) from the MHS target. The 2 year target from 2009 to 2011 is a 9.38% increase. Anything within +/- 2% of that falls into the safe zone. 10% of the savings (or cost) is awarded to those that beat the target by 2% or more. 20% of the savings (or cost) is awarded to those that beat the target by 4% or more. 32

33. PMPM Continued Pensacola fell within the safe zone and was neither awarded nor penalized financially. Quantico increased by well over 4% of the target and thusly was penalized 20% of the increased cost. Enrollees 2011 * ((PMPM 2011 – PMPM Target ) * 12) * 20% 22,138 * ((347-311)*12) * 20% = $1.9million PerformancePopulation 2009 301.47 42,541 2011 329.85 43,095 % Increase9.4% Target 329.74 PerformancePopulation 2009 284.40 20,874 2011 346.96 22,138 % Increase22.0% Target 311.08 33

34. Summary for Sites 34 Both sites had a negative Non-Workload Performance Sub-Total, so there is no Balanced Bonus. Balanced Bonus is only applied if Performance results are positive.

35. Centers for Medicare and Medicaid Innovation Comprehensive Primary Care Initiative

36. Tests two models simultaneously Practice redesign Targeting 5 key primary care functions (does not equal PCMH specific model) Payment redesign – 2 key components of program PMPM care management fee Shared savings First program to focus on reduction of overall cost of beneficiary Better use of data Ongoing, regular reports to providers Practice and Payment Redesign Through the CPCI – Overview 36

37. Reasons/Purpose for MHS Participation 1. Test new model of care for MCSC enrollees 2. Investing in PC providers may --> increase in network (Oregon state reps highlighted especially) 3. Partnering with CMS 4. Partnering with state 5. Establishing roadmap for future such US-wide demonstrations with other federal partners 6. Helps inform future TRICARE contracts. Does this payment mechanism reduce overall cost per beneficiary? One of goals of CPCI is to build a medical neighborhood with providers and payers 37

38. MHS Selection Criteria: Population MHS Criteria: populations eligible for demonstration – Prime enrollees to MCSC (does not include standard care)  Care for non-enrolled beneficiaries (standard patients) potentially acquired at multiple providers  Demonstration is testing management of enrollee care to PCMs – Active duty family members, retiree and retiree family members  Potential geographic relocations of ADFMs may impact significance of results – Outside a prism and catchment area – If in a prism or catchment area, referrals to MTFs would occur – Cost of care in MTFs highly variable and presents problem with study review 38

39. MHS Selection Criteria: Regions 7 regions selected by CMMI 4 with population too small for MHS participation Arkansas, Oregon (whole state); Oklahoma (only Tulsa area) ― Allows for testing model in rural and metropolitan areas 39 CPCI Markets TRICARE Region % Purchased Care Total Enrollees Enrollees Meeting MHS Criteria for Participation Arkansas South 95% 18,829 11,732 Oregon West 95% 6,161 Oklahoma (Tulsa)South95% 13,819 Colorado Population too small for MHS participation New Jersey New York (Albany) Ohio (Cincinnati, Dayton)

40. How Much? Management Fee – Risk adjust using Medicare model; revise in future as MHS- specific model evolves – Average year 1 & 2 estimates ADFM - ~$7 per enrollee per month Retirees, NADFM - ~$9 per enrollee per month – Potential liability first year of 31,712 eligibles, assuming 20% participation: 6,343 enrollees = $652,150 Fee for Service for any care provided 40

41. How well? Quality measures throughout initiative Core set of measures “ Not later than year 2” shared savings as performance bonus, with reduction in care management fee Calculated at total area level (state for Arkansas & Oregon; Tulsa region for Oklahoma) Calculation – Actual risk-adjusted PMPM (including management fee) compared to – Projected risk-adjusted PMPM (based on baseline inflated) Catastrophic individuals excluded Shared saving for distribution – 50% 41

42. Shared Savings: Distribution As performance bonuses Based on individual practice performance Calculated on quality & utilization metrics – formula TBD 42

43. Tentative Timeline Commitment finalized with CMMI – May 31, 2012 Start of demonstration for MHS: September 1, 2013 Major mileposts from June 1, 2012 – August 31, 2013 to develop TRICARE specific requirements. No later than ― June 2012: Prepare Decision Memorandum for Director, TMA to establish approval to for the TRICARE demonstration project ― May 1, 2013: Develop and Publish Federal Register Notice of Demonstration ― July 1, 2013: Develop and issue contract modification to TMA contractors by July 15, 2012 to ensure implementation by September 1, 2013 43

44. So… Has FFS PPS outlived its usefulness? Concern that FFS induces: Over-utilization Upcoding Treatment over prevention Considerable discussion each year on mid-year adjustments Competition/rancor between services MTFs strong focus only on PPS earning areas Qulaity has ot been focus of performance adjustments Only used to distribute excess funds 44

45. FFS with Performance Bonus? Primary Care Sub-capitation with Specialty FFS? Full capitation with Shared Savings? Stay Tuned 45 Future PPS?? (Performance Payment system)