1. © 2006, CareVariance Information as Waste Treatment Physician Practice Efficiency Mark C. Rattray, MD President CareVariance Presentation to the Consumer-Purchaser Disclosure Project September 29, 2006

2. © 2006, CareVariance 2 A Chilling but Accurate Quote “ There are some patients that we cannot help; there are none that we cannot harm.” Attributed to Arthur L. Bloomfield, MD, ca 1933 by Michael Millenson, in “Demanding Medical Excellence; Doctors and Accountability in the Information Age.”

3. © 2006, CareVariance 3 Inefficiency is Harmful Unneeded care carries risks Unneeded care leads to more unneeded care Unneeded care creates family and societal distress Waste impacts affordability Waste in health care resources – misuse and overuse Waste in health care administration resources – manual vs. automated

4. © 2006, CareVariance 4 Why now? Terabytes are much cheaper Processor speed increased Analytical tools improved The outcry over high costs, errors and lackluster quality is getting louder and broader in representation Other industries routinely measure performance in order to improve Our industry, with direct impact on human lives, is late to the party (although proposed in 1914)

5. © 2006, CareVariance 5 And the point is… Information as Waste Treatment

6. © 2006, CareVariance 6 Each Point on This Graph Represents a Physician Which Ones Would You Prefer to See? Rattray MC, Andrianos J, Stam DT. Used with the permission of The Regence Group, Copyright 2006. All rights reserved.

7. © 2006, CareVariance 7 From Units of Care to Episodes of Care Unit Resource Management Unit cost and frequency Goal: reduce unit cost and frequency – “utilization management” Less care is better Episodic Resource Management Recognizes that resource use mix unique to condition Goal: optimize mix of resources for most effective care The right amount of care is better

8. © 2006, CareVariance 8 How is the Episode Information Captured?

9. © 2006, CareVariance 9 Through the Data Required for Payment NDC Number Each listed drug product listed is assigned a unique 10-digit, 3-segment number. This number, known as the NDC, identifies the labeler, product, and trade package size. The first segment, the labeler code, is assigned by the FDA. A labeler is any firm that manufactures (including repackers or relabelers), or distributes (under its own name) the drug. The second segment, the product code, identifies a specific strength, dosage form, and formulation for a particular firm. The third segment, the package code, identifies package sizes and types. Both the product and package codes are assigned by the firm. The NDC will be in one of the following configurations: 4-4-2, 5-3-2, or 5-4-1.

10. © 2006, CareVariance 10 ICD-9 Codes for Diagnosis

11. © 2006, CareVariance 11 CPT ® and Revenue Codes for Services Revenue Code Description 111Room and Board – Private, Medical/Surgical/Gynecological 112Room and Board – Private, OB 113Room and Board – Private, Pediatric 114 *Room and Board – Private, Psychiatric 117Room and Board – Private, Oncology 118Room and Board – Private, Rehabilitation 119Room and Board – Private, Other 121Room and Board – Semiprivate 2 Bed, Medical/Surgical/Gynecological 122Room and Board – Semiprivate 2 Bed, Obstetric 123Room and Board – Semiprivate 2 Bed, Pediatric 124 *Room and Board – Semiprivate 2 Bed, Psychiatric 127Room and Board – Semiprivate 2 Bed, Oncology 128Room and Board – Semiprivate 2 Bed, Rehabilitation 129Room and Board – Semiprivate, 2 Beds, Other 131Room and Board – Semiprivate 3 or 4 Bed, Medical/Surgical/Gynecological CPT is a trademark of the American Medical Association

12. © 2006, CareVariance 12 HCPCS for Injectables and Supplies

13. © 2006, CareVariance 13 NDC Codes for Medications What are the NDC Number and the National Drug Code Directory? The Drug Listing Act of 1972 requires registered drug establishments to provide the Food and Drug Administration (FDA) with a current list of all drugs manufactured, prepared, propagated, compounded, or processed by it for commercial distribution. (See Section 510 of the Federal Food, Drug, and Cosmetic Act (Act) (21 U.S.C. § 360)). Drug products are identified and reported using a unique, three-segment number, called the National Drug Code (NDC), which is a universal product identifier for human drugs. FDA inputs the full NDC number and the information submitted as part of the listing process into a database known as the Drug Registration and Listing System (DRL). Several times a year, FDA extracts some of the information from the DRLS data base (currently, properly listed marketed prescription drug products and insulin) and publishes that information in the NDC Directory.

14. © 2006, CareVariance 14 Terabytes of Data Can Be Translated Into Lives Saved, Disease Reduced, and Improved Affordability of Health Care! NDC Number Each listed drug product listed is assigned a unique 10-digit, 3-segment number. This number, known as the NDC, identifies the labeler, product, and trade package size. The first segment, the labeler code, is assigned by the FDA. A labeler is any firm that manufactures (including repackers or relabelers), or distributes (under its own name) the drug. The second segment, the product code, identifies a specific strength, dosage form, and formulation for a particular firm. The third segment, the package code, identifies package sizes and types. Both the product and package codes are assigned by the firm. The NDC will be in one of the following configurations: 4-4-2, 5-3-2, or 5-4-1. Data Warehouse

15. © 2006, CareVariance 15 An Episode of Care

16. © 2006, CareVariance 16 An Episode of Care by Cost “Buckets”

17. © 2006, CareVariance 17 Physician Compared to Peers

18. © 2006, CareVariance 18 Actionable Information for Physicians Family Practice Physician: Net Variation from Peers Over a Two-year Period

19. © 2006, CareVariance 19 Source: http://www.symmetry-health.com An Example of Episode Analysis

20. © 2006, CareVariance 20 Episode Efficiency Measurement and Reporting Data Warehouse Data Extraction Grouper Software and Data Expert Physician and Analyst Review of Grouper Results Physician Provided with Performance Reports

21. © 2006, CareVariance 21 Physician Engagement and Practice Improvement Physician Engagement and Improvement Physician Report Support and Continuous Measurement Improvement Appeal to Professionalism “Primum non nocere” Required Participation Required Collaboration Better Informed Decisions Care Improves Consumer Transparency Incentives (P4P)

22. © 2006, CareVariance 22 All ETG Applications Are Unique Data, Data prep ETG Processing Customized settings Post Processing Reporting Very, very complicated Easy to make calculation error Lack of deep clinical and analytical domain expertise Not a black box; more like an elaborate maze, each one different Not originally designed for the rigorous demands of transparency

23. © 2006, CareVariance 23 Groupers are Promising Episodic measurement makes sense Massive time and monetary investments have gotten us where we are Groupers aren’t going to go away Excellent tool for engaging physicians in practice variation discussions; learning from peers

24. © 2006, CareVariance 24 Groupers are Worrisome Are patient and disease variables adjusted for adequately so the output reflects performance? Are physician practices homogenous enough to create an acceptable peer group? Tendency to overreach the science to “tier” more physicians – inadequate sample size an example Most measuring entities under invest in provider education, collaboration, and clinical review of results before transparency occurs

25. © 2006, CareVariance 25 What Consumers Should Do? Support and advocate credible, sound, standardized, independently validated measurement Insist on “upward transparency” from the measurers – a full depiction of how measurement occurs and extent of third party validation Beware of glitzy health plan marketing, it’s the science that counts here Support electronic data initiatives. Measurement improves when the available amount of relevant electronic data increases

26. © 2006, CareVariance 26 Information as Waste Treatment Thank you