1. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. Pay for Performance: Have Expectations Exceeded Outcomes? A Review of National Trends and Future Directions Geof Baker, Principal Venture Advisory Services

2. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. Agenda National Context Lessons Learned Release 3.0 National Context 2

3. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 3 Growth in P4P Programs by Sponsor Type (2003 -2009E) Source: Med-Vantage-Leapfrog 2006 National Survey with 2007 Market Updates Note: For “Other” in 2007, included disease management programs and vendors with P4P incentives under the primary program sponsor (Medicaid) and 10 projected implementations. P4P Market Adoption Has Matured

4. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 4 P4P Incentives Extend to All Providers Source: Med-Vantage-Leapfrog 2006 National Survey with 2007 Market Updates

5. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 5 1 st Generation (1996-2004) 3rd Generation (2008-2010) 2nd Generation (2005-2007) Policy National AttentionMeasure LeadershipPerformance Measurement & Evidence Stewardship Growth & Sponsors Early Adopters - Early Majority (Plans – HMO Product) Late Majority (Plans, CMS, Employers) Laggards – Mature Broad Market Adoption (CMS, Medicaid) ROI “Next Wave”, Anecdotal ROI. Focus on UM measures and Rx generic substitution to save $$. “Not a Panacea.” Signs of progress: positive clinical improvement with diminishing returns. Mixed results from evaluative studies (RWJ, CMS). Confounding factors. Cost increases initially for deferred preventative care. Achieve dramatic reductions in misuse, overuse, underuse and preventable errors. Broad adoption of Erx, generic substitution @70% Additional ROI Studies. Adoption of other payment models that complement P4P. No #, Type of KPIs ≈ 25 measures: PCP HEDIS, utilization, hospital chart, patient experience. ≈ 100 measures: specialty focus, process, structure, safety, HIT adoption, patient experience. ≈ 200 measures composite, outcome, & process measures. HIT adoption, risk adjust, health disparities, multi-disease states. The P4P Evolution Roadmap

6. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 6 1 st Generation (1996-2004) 3rd Generation (2008-2010) 2nd Generation (2005-2007) Data Source Claims, chart (hosp)Claims, some lab, Chart (hosp)Enhanced data collection (PQRI, PHR, EHR) + admin data. Data Aggregation MinimalBurdensome data collection, some aggregation Multi-payor, single platforms. clinical data exchanges (HIE). Medical practice integration using IT. Payment Method and Amounts Withhold or Bonus based payouts Threshold & ranking based performance.5-1% Hospital payout 2-5% PCP payout Differential fee schedules & bonus. Threshold based & relative improvement performance 1-2% Hospital payout 2-15% MD payout Differential fee schedules, value based payments. Relative improvement, exception reviews ≥ 10% Hospital & MD payout Integration with other Initiatives Stand alonePublic reporting, Tiered Networks, HIT adoption Programs complementing P4P, patient /member incentives & engagement Reporting Annual retrospectiveQuarterly retrospectivePoint-of-care interventions (alerts, reminders) The P4P Evolution Roadmap

7. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. Pay for Performance Standards Interoperability Data Aggregation Tiered Networks Payment reform Value Based Benefit Design HIT Adoption - HIE, Erx, EHR Pay-for-Reporting Pay-for-Process - Data Quality Integrated Care Management Public Reporting Transparency Recognition Medical Home Provider Engagement Best Practices P4P Complements Other Initiatives 7

8. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 8 Reasons for Implementing P4P Programs Using a scale from 1-5, where 1 equals NOT important and 5 equals VERY important Criteria for Implementing P4P Mean 2006 (n=62) Mean 2005 (n=60) Mean 2004 (n=50) Improve patients’ clinical outcomes4.634.364.60 Improve member experience (e.g., patient satisfaction) 4.00N/A Differentiate in the market, convey positive image 4.003.623.64 Drive standardization of performance measures 3.93N/A Align with other initiatives (e.g., disease management, high performance networks, consumer-directed benefit designs, consumer-directed provider report cards) 3.753.574.02 Reduce medical errors/improve patient safety 3.633.33.68 Improve bottom line, lower cost3.533.243.28 Improve data collection and reporting from providers 3.532.993.44 Respond to employer pressures3.142.742.87 Source: 2007 Med-Vantage/Leapfrog P4P Survey

9. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. National Context Lessons Learned Release 3.0 Findings & Lessons Learned

10. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 10 Inherent Limitations ….But Here to Stay Rewards Integrated with Other Initiatives Band-Aid P4P payments > 10%, frequency to reinforce change Insufficient Motivation All payer & aggregated data, uniform platforms with regional exchanges to increase sample size Critical Mass Outcomes/composite measures, opportunity areas, CQI culture, engage MDs, assisted interventions Diminishing Returns Exception reporting, risk adjustment Gaming Some +gains, few wind-ups, requires iterations & reengineering, cost of care/outcome measures ROI Unknown

11. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 11 Many Use P4P as a Strategy to Achieve Change Informed Understanding Access to Timely, Actionable Information Data Integrity & Quality Public Accountability Transparency Equity Multi-stakeholder Participation Legitimacy Evaluation and Continuous Quality Improvement Improving Quality of Care

12. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 12 Inherent Limitations ….But Here to Stay Relative improvement payout models Bias Demographic adjustment required Health Disparities Value based benefit design, patient health rewards Quarterly reporting, point-of-care interventions Patient Accountability Data integrity, patient attribution, standards, clinical data exchanges, direct data submission, chart data Latency Single Source of Truth Uniform measure sets, coordinated programs, HIT Burdensome

13. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 13 Direct data submission (supplement claims with collection of clinical values from registries or EHRs, lab) Multiple submission methods (secure sign-on, electronic) Standardized data field definitions All payer aggregation of admin data (claims, rx) Immediate validation / integrity checks Auditing and QA (correct coding) Help desk and training support, Models: IHA, MHQP, BTE, MN, BQI / Charter Value Exchange Multiple attribution models - what are the intended purposes? Data Submission & Integrity

14. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. National Context Lessons Learned Release 3.0 Next Generation Release 3.0

15. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 15 Changes anticipated in next 2 years to P4P Program 2006 Percent (n=46) 2005 Percent (n=82) Expand program to include other products (e.g. PPO, ASO, CDH) 20%40% Expand program to include specialists if not doing so now33%40% Expand program to include additional specialties26%35% Expand program to include hospitals if not doing so now24%27% Expand the scope or number of measures used70%N/A Change the performance domains or relative weighting39%67% Develop a public performance report33%43% Tie the P4P program more closely to disease management, tiered networks, or benefit design initiatives 33%N/A Discontinue the program0%N/A Other 27%21% Data Aggregation – Participation in state-wide, collaborative quality initiatives Data Aggregation – Participation in state-wide, collaborative quality initiatives Anticipated Changes in P4P Programs Source: Med-Vantage-Leapfrog, 2006 National Survey with 2007 Market Updates

16. Venture Advisory Services © 2008 Venture Advisory Services, All Rights Reserved. 16 CMS is now in business, More $ to incent sustained change Strategy to achieve change and sustain CQI Going beyond process measures with diminishing returns - Clinical measure impact must be demonstrable and focused Integration with other initiatives - HIT adoption (ERx), Medical Home, Cost of Care (Are we reducing trends yet?), Health Rewards Methodology: full disclosure & open standards (nyrxreport.ncqa.org) Physicians acting upon “actionable information” at point-of-care Data aggregation, clinical exchange, clinical values, enhanced collection Strong push for transparency Road Ahead: Key Trends for P4P