1. Payment Reform and …Bundles of Bundles Mark Zenger, MHA, MBA Senior Director

2. SOURCE: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Average annual growth rate of health care spending per capita 70s-90s Annual change in actual health spending 2000-2013 + projected Root Causes? Recession = Slow economic recovery Insurance Changes Shift to higher patient out-of-pocket (high deductible plans) Shifts away from employer sponsored coverage Changes to provider reimbursement policies (Medicare/caid) Increased efficiency of providers Root Causes? Recession = Slow economic recovery Insurance Changes Shift to higher patient out-of-pocket (high deductible plans) Shifts away from employer sponsored coverage Changes to provider reimbursement policies (Medicare/caid) Increased efficiency of providers

3. SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2014. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2014; Cumulative Increases in Premiums and Earnings; 1999-2014

5. Payment Reform = increasing shift accountability/risk for the costs & outcomes from payer to provider Treatment-Based Episode-Based Population-Based T RANSFORMATION OF THE H EALTHCARE E CONOMIC M ODEL : Fee For Service (FFS) Pay for Performance Bundled Payments Bundled Payments Global Payment for Discrete Populations Global Payment for Discrete Populations “Own” the Lives D IABETES

6. Payment Reform = increasing shift accountability/risk for the costs & outcomes from payer to provider Treatment-Based Episode-Based Population-Based T RANSFORMATION OF THE H EALTHCARE E CONOMIC M ODEL : Fee For Service (FFS) Pay for Performance Bundled Payments Bundled Payments Global Payment for Discrete Populations Global Payment for Discrete Populations “Own” the Lives WHAT % OF PAYMENTS ARE IN EACH BUCKET TODAY? 97% 2.3%0.3% 0%0.1%* * Source: Catalyst for Payment Reform. 2014 National Scorecard. Commercial In Network Payments ** Source: Avalere Health analysis of Medicare BPCI program. www.avalerehealth.net 9% ** BPCI Phase 2 1,350 Providers 181 Acute Hospitals 197 Physician Grp 896 Skilled Nursing 73 Home Health 3 IP Rehab

7. Payment Reform = increasing shift accountability/risk for the costs & outcomes from payer to provider Treatment-Based Episode-Based Population-Based T RANSFORMATION OF THE H EALTHCARE E CONOMIC M ODEL : Fee For Service (FFS) Pay for Performance Bundled Payments Bundled Payments Global Payment for Discrete Populations Global Payment for Discrete Populations “Own” the Lives WHAT DOES CMS WANT? ( BY 2018) 50% OF CMS $ TIED TO APMs 90% of FFS Payments linked to Quality

8. Risk? What Risk? Performance Risk Technical Risk Insurance Risk

9. Risk? What Risk? Delivery of Care Org Alignment, Practice patterns, Standardization, Care / Cost efficiency Appropriate Contract Structure Cost targets, Reconciliation, Baseline (static or rebased), RISK ADJUSTMENT!! Random Variation Change in acuity level and population dynamics

10. Single payment to ALL providers (hospitals, specialists, primary care physicians, post acute, ancillary, etc) involved in delivering all the care the patient needs during a defined episode. Bundled Payments Bundled Payments What is a Bundled Payment?

11. The Fee-For-Service Funds Flow Today Specialists / Surgeon Drugs Imaging / Ancillary Hospital / Post Acute Providers Supplies / Anesthesia Primary Care Benefit Plan

12. In Theory: Single Payment for a Defined Episode Benefit Plan

13. In Practice: Subject to “Defined Episode” DRG TRANSPLANTS OB DELIVERY BPCI Model 2 BPCI Model 3 (Bundle of Joy not included)

14. In Practice: Most Are Retrospective or “Virtual” Benefit Plan RECONCILIATION

15. In Practice: Billing isn't Bundled Benefit Plan RECONCILIATION

16. Bundled Payment for Care Improvement (BPCI) How does it work? (Model 2) Pick from 48 Episodes (1+) Each MS-DRG will have its own target price Based off 2009-2012 historical FFS baseline Depends on episode length post discharge(30,60,90 days) Includes acute care hospital and all related part A and B services during the episode Required to apply applicable discount per CMS requirement Providers get paid FFS and reconcile to the target Upside and downside risk to provider Episode triggered by admission to the hospital and DRG assignment – inherent problem with this

17. Performance Period Q3 2015 (7/1/15 – 9/31/15) Q4 2015 (10/1/15 – 12/31/15) Q1 2016 (1/1/16 – 3-31-16) Reconciliation 4/1/16 7/1/16 10/1/16 1/1/17 7/1/16 10/1/16 1/1/17 4/1/17 10/1/16 1/1/17 4/1/17 7/1/17 17 Retrospective Reconciliation Wont know our official “Target Price” until this date

18. Our Data Curve – Total Joint of Lower Extremity

19. Our Data Curve (ZOOM in 1 QTR)

20. Comprehensive Care for Joint Replacement (CCJR) Bundled Payments Bundled Payments Required for 75 MSAs Ogden-Clearfield Provo-Orem Ogden-Clearfield Provo-Orem Source: https://innovation.cms.gov/ Started with 388 MSAs Eliminated MSAs based on LEJR volume and BPCI LEJR market saturation Stratification 1.MSA average wage-adjusted historic LEJR episode payments 2.MSA population size

21. Obstacle: The Patients view Consumer Share of Car Price Price $18,000 Price $320,000 $1000 Co-pay$1,000 20% Coinsurance w/ $2500 OOP Max $2,500 $6000 Deductible$6,000 Patients are “attributed” or don’t know they are in a bundle WIFM? Negotiated or Imposed, patient is held harmless

22. Obstacle: Some things doctors can’t control Treating preventable disease caused by unhealthy habits costs $1.5 Trillion annually!

23. Obstacle: Provider Costs in Payment Reform are not Static Not every provider system is well equipped, and not without need for $ and FTE investment o NYU Langone Medical Center – spent $3 Mil to get ready and $1.5 Mil/year to manage o EMR systems not set up to handle – very manual operation o Even payer systems have a hard time processing single payments with multiple bills coming in o One of our biggest hurdles is internal Hospital vs Physician operations

24. Opportunity: BIG DATA!

25. Opportunity: Understanding the entire episode, including PAC Represents 40-60% of total episode costs Clear lack of clinical benefit Highest rates of complications, infections, readmissions with SNF/Rehab Potential selection bias, but trend holds when look at 75% of pts going that don’t need to go Action Plan: Decrease utilization. Help patients prepare for home sooner post discharge. Set the expectation. Partner with PAC providers (lesser priority if do the above)

26. Emergency Department 10:54am IMCU 6:59pm SICU Surgical ICU 2:16am SSTU Surgical Specialty & Trans. Unit 3:25pm 10:54am - Day 1Day 2Day 3Day 4 – 1:45pm IMCU Intermediate Care Unit 1:30pm OR 9:46 to 10:48 Emergency Department Labor Supplies Imaging Pharmacy Lab Other Services Operating Room Labor Supplies Other Services Surgical ICU Labor Supplies Pharmacy Lab Step down and Floor Units Labor Supplies Other Services Total Cost of Providing Patient Care = Example: Emergency Appendectomy, 3.12 LOS Opportunity: Understanding Costs

27. Opportunity: Understanding Costs - VDO

28. When is a Bundle likely to work?  Size of volume matters! o Hard to be successful with small n o Randomness is the biggest threat  Bundles are less about price, and are more about: …developing standardized care plans …reducing variation …stress test for risk and managing a specific population …understanding what you can and cannot influence

29. Becoming a Value Driven Organization