D I S P U T E S & I N V E S T I G A T I O N S • E C O N O M I C S • F I N A N C I A L A D V I S O R Y • M A N A G E M E N T C O N S U L T I N G

ACO Proposed Regulations: Implications for Payers & ProvidersClient Confidential Briefing Webinar April 27, 2011

Table of Contents

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Section 1 » ACO Regulations: The Basics

Section 2 » Top 10 Questions You Are Asking About the Regulations

Section 3 » Preview of Reform Readiness Initiatives – Introduction

Section 4 » Next Up in the Navigant Solution Series

Section 5 » Contact Information

ACO Regulations: The Basics

ACO Proposed Regulations – The Basics

» CMS issued proposed rules for Medicare ACOs on 3/31/11 and is actively soliciting comments until June 6th

» ACO refers to a group of providers and suppliers of services (e.g., hospitals, physicians, suppliers) that will work together to coordinate care for Medicare Part A & B patients

» Implementation goal is January 1, 2012 (phase 1) and potentially July 1, 2012 (phase 2)

» Provider participation is voluntary; 5,000 patients minimum; 3-year contract between ACO & CMS; beneficiaries do not enroll in an ACO per se

» CMS still reimburses FFS; CMS also develops benchmark against which ACO performance is measured to assess whether ACO qualifies for additional shared savings or is accountable for shared losses; 2 possible risk arrangement tracks

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ACO Proposed Regulations – The Basics (continued)

» Extensive patient-centered criteria to demonstrate (examples)› Data reporting capabilities in place› Patient on the governing board › Systems to identify high-risk individuals › Processes for individualized care plans › Mechanisms for coordination of care (e.g., care coordinators)› Electronic exchange, summary of care in care transitions

» AMGA & HFMA provide a thorough summary of nuts & bolts› AMGA: http://www.amga.org/Education/Webinars/index_webinars.asp› HFMA: http://www.hfma.org/Templates/InteriorMaster.aspx?id=25964

Today’s Focus: Answers to the questions we hear you asking and examples of how providers are approaching the reform environment

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Top 10 QuestionsYou Are Asking

Top 10 Questions You are Asking

Most Common Reactions to Date

1. Should we pursue an ACO with CMS for January 2012?2. Which physicians should we invite to participate?3. Which patients should we target?4. Where is CMS setting the performance bar over time?5. The application process and overall administration seems like a lot of

paperwork. Is it worth it now, or should we wait?6. What are the major infrastructure investments/gaps?7. What about the legal provisions?8. What’s the ROI?9. What should we focus on, ACO or not? 10. How do I get started?

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1. Should We Pursue an ACO for January 2012?

» Several assessment tools exist to determine your readiness

» Critical areas of readiness assessment:› Current and anticipated financial position Potential for payer

alignment› Degree of physician alignment Health management

model› Leadership and culture IT capabilities

» For many providers, competition pre-empts reform› First mover?› Fast follower?

» Consider a wide variety of ACO ‘alternatives’› Medicare Advantage› Medicaid managed care› Commercial ACOs› Other Pilots (e.g., bundled readmission grants, PGP2, etc.)

» CMS predicts 75-150 ACOs will participate in the shared savings arrangement. How ready are you to assume more financial risk?Page 8

2. Which Physicians Should Participate?

» Eligible entities include physician practices, hospitals, suppliers

» Pursue physicians who are committed to doing the following:› Implement a beneficiary experience of care survey › Include patients on the governing board› Perform evaluations of health needs of the population› Implement systems to identify high risk individuals› Develop individualized care plans› Invest in care coordinators› Participate in electronic exchange› Communicate clinical information to beneficiaries

» PCP and multispecialty group practices with strong patient-centric cultures and success with capitation are best positioned to succeed

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3. Which Patients Should We Target?

» Patients will not sign up for an ACO per se

» Rather, patients will be assigned, retrospectively, based on where they get the plurality of their primary care services

» Many practices report this retrospective attribution will be problematic

» Important, because expenditure targets are derived from specific patients’ claims data

» Once notified of being assigned to an ACO, the patient may choose to receive services from the provider or opt out and seek care from another provider that is not part of the ACO

» Sanctions can be imposed if an ACO engages in “cherry-picking” the “well seniors” to avoid the more complex and expensive high risk seniors

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4. Where’s the Performance Bar Set: Quality?

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» 5 domains, 65 quality measures, including:› Patient and caregiver experience› Care coordination – transitions› Care coordination – IT › Patient safety› Improved health› Population-specific metrics

» Miss the performance thresholds, don’t get the shared savings

» ACOs merely need to report their scores in 2012; performance is scored in subsequent years

» Many providers believe these metrics will not be a “slam-dunk”

4. Where’s the Performance Bar Set: Shared Savings?

» Shared savings bonus is payable if ACO meets quality performance standards and savings against a “target” expenditure

» CMS will develop target expenditure. The shared savings or loss equals actual – target expenditure

» CMS will withhold 25% of ACO’s shared savings payment to ensure ACO can payback future losses if any

» One-sided risk model (with downside risk year 3) must exceed 2% savings threshold and share savings with CMS 50/50

» Two sided has 3 years of downside risk; 1st dollar savings; 60/40 Medicare

» Many organizations are wary of these terms, as we explore later

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5. Are Application and Administration Requirements Worth It?

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» The application requirements are significant:› Comprehensive design of legal, operational, organizational and capitalization

structures› Definition of policy for distributing and reinvesting shared savings› Evidence of ACO’s ability to repay Medicare for costs above target

» The on-going administrative burden includes:› Managed by executive appointed/removed by ACO governing body › Leadership team with demonstrated ability to direct clinical practice to improve

efficiency and outcomes› Clinical management by senior-level medical director › Physician-directed quality assurance/process improvement committee › Processes to promote and monitor clinical improvements based on evidence-based

practice or clinical guidelines › Infrastructure to collect evaluate data/provide feedback to providers

6. What are the Major Infrastructure Investments/Gaps?

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» Tools to reduce avoidable costs and sustain low operating costs › Strong clinical integration model› Optimal care coordination between primary care, first line specialists (cardiologists,

pulmonologists, neurologists, others), and a hospital› Availability of an integrated clinical and financial information system

» At least 50 percent of an ACO's primary care physicians must be meaningful EHR users

» Care coordination goals will require IT capabilities such as:› Predictive modeling› Telemedicine› Comparative benchmarking› Transitional care data exchange

7. What About the Legal Provisions?

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» Special anti-trust provisions are somewhat relaxed for the ACO IF it has less than 30 percent market share and is appropriately clinically integrated.

» If an ACO’s market share is between 30 and 50 percent, it is subject to review by the U.S. Department of Justice (DOJ), and if above 50 percent, automatic review.

» Feedback is specifically being solicited about anti-trust provisions in order to encourage more program participation. Therefore, there may be a good chance the Stark/anti-kickback waiver will be expanded in future iterations of the rules.

8. What’s the ROI?

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» Many systems are displeased with what appears to be very limited ROI

» Investment› ~3% of savings› CMS estimates an average of $1.75M startup & operating expenses year 1› Would require a 20 percent margin to break even during the three-year performance

period (Haywood NEJM 4/7/11)

» Return:› Capped at 7.5 to 10% of savings› First 2% of which is shared with CMS› Remainder of savings shared 50/50

9. Where to Focus and Invest Regardless of ACO?

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Q: What does it mean to be an ACO? What are the requirements?

Q: What are the capabilities required to pursue an ACO strategy?

Q: What is the business plan for successful ACO development?

ACO Education

ACO Assessment and Strategy

ACO Building BlocksMargin

ImprovementPhysician Alignment

Infrastructure Requirements: Technology, Accountability Systems,Human Resource Management, Transformation Infrastructure

Q : How should the initiatives be prioritized? How do we implement? What is required?

Q : What can/should we do in support of our ACO strategy?

ACO Implementation Support

ACO Design and Business Planning

Payer Alignment

HealthManagement

Org.Design

9. Where to Focus and Invest Regardless of ACO?

ACO Building Blocks

Margin Improvement

Physician Alignment

Payer Alignment

HealthManagement

OrganizationDesign

» Cost Management» Labor Productivity» Supply Chain» Revenue Management» Patient Throughput» Physician Practice

Management» Revenue Growth

» Physician Integration» Governance, Structure &

Culture» PHO & PO Development» Compensation» Staff Alignment

» Rate Setting & Contracting

» Pricing » Bundling» Outcomes-Based

Reimbursement

» Care Redesign» Clinical Resource

Management» ProvenCare®» Service Line Planning /

Management» Quality Improvement» Medical Home,

Disease Mgmt

» Operating Model» Organization Structure» Leadership & Culture

Infrastructure Requirements: Technology, Accountability Systems,Human Resource Management, Transformation Infrastructure

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10. How Do I Get Started?

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ACCOUNTABLE CARE GAME BOARDTM

Physicians Hospitals Other Providers

Ancillaries

Care Delivery Clinical Integration Investments Medicare Patients

Health Insurance Products & Benefit Designs Medicaid Patients

Information Technology & Other Infrastructure Commercial

Organizational Design Investments Self Insured

New Payment Models, Contracts

Data Analysis, Benchmarks

Year 1 Year 2 Year 3 Year 4

Summary

» To date, reaction to the proposed regulations is mixed› Concern about patient attribution method and administrative burden› Skepticism about magnitude of shared savings and potentially thin ROI› Debate about value of pursuing alternatives› Uncertainty about readiness and timing

» CMS is actively seeking feedback until early June

» Regardless of ACO strategy, the industry is shifting rapidly to a pay for performance environment in which all providers must demonstrate critical capabilities in:› Cost and quality› Metrics tracking and reporting› Cross-continuum care integration and management› Bundling and outcomes-driven reimbursement

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Preview of Navigant Accountable Care Solutions & Webinar Series

Navigant Accountable Care Solutions & Webinar Series: PREVIEW

» Today’s snapshot from our strategic partner:Geisinger Health System’s Medical Home strategy› ProvenHealth Navigator®: A Patient Centered Medical Home Model

by Bruce H. Hamory, M.D., FACP

» You will be invited to participate in our on-line Navigant Accountable Care Solutions & Webinar Series in which we will highlight how our clients (providers and payers) optimize performance during this time of dramatic change.

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Design of Primary Care for Basic Medical Home

» Continuity of care

» Clinical information systems = EHR

» Decision support: › EBM protocols for chronic/acute disease

» Delivery system design:› Open access model

» Patient/Family engagement

» Coordination of care

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PHN Model has Five Core Components

Patient-centered primary care

» Patient and family engagement & education» Enhanced access and scope of services» Team-based care» Chronic disease and preventive care optimized with HIT

Integrated population management

» GHP employed in-office care managers» Patient-specific intervention plans» Population profiling & segmentation - predictive modeling

Value care systems» Micro-delivery referral systems» 360°care systems – SNF, ED, hospitals, HH, etc

Quality outcomes» Patient satisfaction» HEDIS and bundled chronic disease metrics» Preventive services metrics

Value-based reimbursement

» Fee-for-service with P4P payments for quality outcomes» Physician and practice transformation stipends» Value-based incentive payments» Payments distributed on Quality Performance

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Embedded Case Managers are Key to Success

» Embedded Case Manager (per 700-800 Medicare pts)› High risk patient case load 15 - 20% (125 - 150 pts)› NOT disease education – focus those at most risk and what is driving issue

with the care› First steps for case identification – Predictive modeling and post-discharge

» Personal patient link› Comprehensive care review – medical, social support› Transitions follow up (acute/SNF discharges, ER visits)› Direct line access – questions, exacerbation protocols› Family support contact

» Recognized site team member› Regular follow ups high risk patients› Facilitate access – PCP, specialist, ancillary › Facilitate special arrangements (emergency home care, hospice care)

» Linked to remote tele-monitoring for specific populations

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Positive Results in Our First Two Years*

Health status Diabetes bundle

Coronary disease bundle

Preventive care bundle

Readmissions

Admissions

Member/Provider satisfaction

Total Medical Cost *All results are measured across the entire population of patients, not just chronic disease patients

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Savings From ProvenHealth Navigator®

-12%

-10%

-8%

-6%

-4%

-2%

0%Q

1 20

05

Q3

2005

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

95% Confidence Interval

Median Estimate

95% Confidence Interval

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Lessons Learned Along the Way

It is possible to improve patients’ health while reducing costs.» Requires change in primary care delivery model; the change is not easy:

› Needs active, engaged providers› Needs active, empowered team – “Top of the License”› Access for acute care and post discharge transitions

» Transitions of care create specific gaps and opportunities

» Patients with very complex conditions need very close follow-up through every system of care

» Critical to have case manager embedded in primary care site

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Next Up in the Navigant Solution Series

Solution Series: PREVIEW

Navigant Accountable Care Solutions & Webinar Series

» Upcoming Navigant Accountable Care Solutions & Webinar Series› Commercial payer approaches to ACOs› IPA/PHO approaches to ACOs› Readmission bundling and transitions of care program development

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» Navigant Survey› Participate in our survey and receive a complimentary copy of our

book, Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation.

Contact

Contact Information

Marc A. Bard, M.D.781.514.1901marc.bard@navigant.com

Danielle A. Dyer413.822.0510danielle.dyer@navigant.com

Martin E. Hickey, M.D.402.290.2825martin.hickey@navigant.com

Michael Nugent312.583.4153mnugent@navigant.com

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