OPEN MINDS © 2014. All rights reserved. Monica E. Oss, Chief Executive Officer, OPEN MINDS Florida Conference on Substance Use Disorders and Mental Health

I. The Big Market Drivers Affecting Survival & Sustainability Of Provider Organizations II. Disruptive Innovation & New Roles For Stakeholders III. The Big Strategic Questions IV. Steps To Positioning For Success OPEN MINDS 2014. All rights reserved. 2

Disruptive Innovations Policy, Financing, Tech, Science Shift In Organizational Roles Value Chain Altered Competitive Advantage & Market Positioning Changing Models For Organizational Sustainability 7

Total implementation to be complete in 2019 80 provisions into effect between 2010 and 2014: Minimum medical loss ratio (MLR) for insurers Medicaid health homes Accountable care organizations in Medicare Medicare value-based purchasing Reduced Medicare payments for hospital readmissions Medicare disproportionate share hospital payments Expanded Medicaid coverage Essential health benefits 9

More managed care across all payers Blurring of role of payer and provider Payment reform: more value- based purchasing risk-based and P4P More competition with rise of mega providers Technology changing nature of service and of competition Payer preference for coordinated care medical, behavioral, and social 8 The policy focus is covering more people with the same total budget....

OPEN MINDS 2014. All rights reserved. 9 Increasing use of managed care financing and service delivery models Commercial Medicaid Medicare Dual eligible New populations Complex disabilities Long-term care

OPEN MINDS 2014. All rights reserved. U.S. Managed Care Enrollment Health Care Payer Type % Managed Care: 1995 % Managed Care: 2010 % Managed Care: 2012 Employer- sponsored insurance 73.0%99.0% Medicare 0.0%24.0%27.0% Medicaid 29.4%71.5%74.2% 10

Rates Administrative requirements authorization, documentation, billing Performance reporting requirements Performance-based contracting Gain sharing models Narrow networks OPEN MINDS 2014. All rights reserved. 11

Services to support chronic illnesses contribute to 75% of the $2 trillion in U.S. annual spending Patients with co-morbid chronic conditions costs 7x as much as patients with one chronic condition OPEN MINDS 2014. All rights reserved. Nine Highest-Cost Chronic Conditions 1.Arthritis 2.Cancer 3.Chronic pain 4.Dementia 5.Depression 6.Diabetes 7.Schizophrenia 8.Post traumatic conditions 9.Vision/hearing loss 13

Management via primary care within ACOs and medical homes Specialist role is secondary Focus on prevention and wellness Consumer self-care and consumer convenience is key Web presence (optimization, reputation, etc.) critical for consumer referrals Health information exchange a requirement Primary care relationships with clearly defined specialty service Consumer experience (and preference) critical Web presence key referral mechanism Health information exchange capabilities OPEN MINDS 2014. All rights reserved. Services for 95% of consumers via primary care-directed models 15

Coordination of medical, behavioral, and social service needs by specialty groups within larger system Specialty care management programs Specialty medical homes and health homes Waiver-based HCB programs PACE programs Vertical HMO models Assumption of performance risk (with or without financial risk) OPEN MINDS 2014. All rights reserved. 16 Cross-specialty and cross- system care coordination capability EHR system and HIE with real-time care management metrics Performance-based contracting and risk-based contracting capabilities Specialty coordinated care systems for high needs consumers the new carve out model

1. Increase transparency of performance Increase pressure for improvement Facilitate consumer-directed care 2. Link professional, service provider organization, and care manager reimbursement to desired performance Improved access to care Increase care integration and coordination Person-centered planning and recovery focus 3. Control costs of care Financial incentives to help consumers become and remain healthy for longer periods of time Increase lower-cost interventions for not yet seriously ill population Reduce unnecessary use of high-cost services OPEN MINDS 2014. All rights reserved. 17

OPEN MINDS 2014. All rights reserved. More Organizations Are Rating Performance In Health & Human Services CMS Quality Initiatives National Committee for Quality Assurance (NCQA) National Quality Forum (NQF) Substance Abuse and Mental Health Services Administration (SAMHSA) The Joint Commission Center For Excellence in Assisted Living Payer and care management organizations (states, counties, HMOs, MCOs, PPOs, ACOs, etc.) Consumer-driven open-source rating organizations 18

Strategic Advantage & Market Positioning Strategic Advantage & Market Positioning Payer Performance Expectations Consumer Performance Expectations Contract Performance Accreditation & Licensure Performance Metrics-Based Management Strategic Management & Business Process Management Metrics-Based Management Strategic Management & Business Process Management Strategy Evolution Operational Execution Strategy Development Market Intelligence Customer, Competitor, Regulatory, Legal Market Intelligence Customer, Competitor, Regulatory, Legal OPEN MINDS 2014. All rights reserved. 20

New science changes treatment Pharmaceuticals, neurotech devices, computer-based cognitive retraining, etc. What Use of technology to connect consumer to professional E-health and remote monitoring make place less critical to service delivery How Big Data and decision support Determines when professionals should do something and when consumers are likely to choose something When OPEN MINDS 2014. All rights reserved. 21

The empowered consumer and empowered front- line worker the next frontier in competing on analytics embedding decision support in customer-facing services with tools for consumers and front-line staff Decision support tools Consumer health tracking tools Consumer rating, ranking, and networking tools Consumer-driven therapy and service tools OPEN MINDS 2014. All rights reserved. 22

New Technologies Allow Greater (& More Effective) Integration & Coordination Of Care Telehealth and virtual consultation changing geographic market boundaries Interoperable electronic recordkeeping systems capture health information Smartphone and other technologies for inexpensive consumer-directed disease management Participation in health information exchange programs provides cross- organization data exchange OPEN MINDS 2014. All rights reserved. 30

Use of technological substitution for services Risk-based contracting with providers Backward integration by adding service delivery capabilities OPEN MINDS 2014. All rights reserved. Disintermediation concerns 31

CA AZ MO GA RI MA FL WI States with formal performance-based agreements TX CT WA NY States with performance- based agreements planned for 2014 PA NJ AL LA TN OR NV UT Based on current path, performance- based contracts will account for 20% of spend by end of 2014 NC Optum Provider P4P Nearly 10% of our total spending on inpatient network-based health care services across all Optums behavioral lines of business is tied to performance-based incentive contracts that reward providers for increased collaboration, outcome-based results, and improved cost-efficiencies. OPEN MINDS 2014. All rights reserved. 33

Collaboration with facility providers to increase quality, improve efficiencies and lower the overall cost of care by engaging them in a transparent relationship built upon timely, accurate and actionable data about the facilities provision of quality care TIER 1 TIER 2 TIER 3 "PREFERRED PARTNER IN CARE" "PARTNER IN CARE" "EARLY ENGAGEMENT" PROFILE TIER SCORECARD QUALITY BENCHMARKS INCENTIVES -Regional Centers of Excellence -Assume more risk for overall patient care including costs -Facility improving and maintaining improvement -As quality increases touch points decrease -Facility is new to program -More touch points/management Magellan Incentive Program OPEN MINDS 2014. All rights reserved. 34

1. Psychiatry and neurology more closely aligned 2. Tech-enabled professional services 3. Specialist knowledge delivery changing via expert decision support systems and telehealth 4. Health care management by consumer type, rather than by specialist services 5. Behavioral health integrated in overall health status management via science and telehealth 6. Personalized medicine comes to behavioral and cognitive disorders 7. Political acceptance (and stakeholder competition) for pay-for-value reimbursement 8. End of the 'safety net' as we know it OPEN MINDS 2014. All rights reserved. 37

OPEN MINDS 2014. All rights reserved. 38 What Is Happening? Disruptive Innovations In Health & Human Services The Decentralization Of Expertise Complexity of diagnosis and treatment Outpatient clinics and focused-care centers Hospital and intensive residential services In-home care Consumer self-care Time Performance that consumers want or need Disruptive innovation brings crisis to established institutions - market leaders before a period of innovation are rarely the market leaders afterward Disruption of professionals less skilled professionals and consumers provide more Disruption of institutions service delivery in less intensive settings

Insuring organizations and health plans Behavioral care management organizations Health care product manufacturers Service provider organizations Clinical professionals Consumers OPEN MINDS 2014. All rights reserved. Value chain the relative roles of organizations in delivering economic value in a system 40

OPEN MINDS 2014. All rights reserved. 41 Shift from carve-out by specialty to carve-out by consumer type the vertical HMO Moving care coordination and population management role to provider organizations often with gain sharing relationship that shifts many traditional system roles Acquiring care delivery capacity Population health management Medical necessity and clinical appropriateness criteria with preferred treatment protocols Decision on specific service provider and professionals in system Professional and provider organization performance standards Payment models and rates for services, drugs, and devices Traditional System Roles Expanding System Roles

OPEN MINDS 2014. All rights reserved. 42 Expanding their role in the value chain through a number of value added vehicles Packaging their product with wraparound services Packaging their products with analytic tools and other technology Change to gainsharing or value-based financing Development, manufacture, and delivery of pharmaceuticals, devices, and health care technologies Traditional System Roles Expanding System Roles

OPEN MINDS 2014. All rights reserved. 43 Assuming care coordination and population management role often with gain sharing relationship Addition of many population management functions traditionally provided by health plans Acquisition by health plans Delivery of consumer treatment Traditional System Roles Expanding System Roles

Margin squeeze due to medical loss ratio requirements Repositioning as marketing, technology, and analytics organizations Driven by the payer search for value Shift from providers as vendors to providers as partners The narrow network phenomenon OPEN MINDS 2014. All rights reserved. 44

Struggling for relevance of a one size fits all model in a bifurcated world Basic business model dependent on cost shifting to other systems less possible under expansion Rethinking market positioning Total services for specific populations Disease statement management Boutique services and populations Specialty service network OPEN MINDS 2014. All rights reserved. 45

Longer life expectancy but marginal increase in non-disability years The infomated consumer Paying more of total health care bill which will result in more control of selection of treatment options OPEN MINDS 2014. All rights reserved. 46

E-health eliminates geographic boundaries to market competition Artificial intelligence provides technological substitution for knowledge Grappling with the consumer preference for the tech-enabled clinician Private practice poor fit for emerging systems From expert to advisor OPEN MINDS 2014. All rights reserved. 47

Preference for risk-based contracts with provider organizations create narrow network by default Technology requirements (of P4P, of compliance, of consumer preference) increases need for economies of scale for investment Megascale production of frugal innovation an unexplored disruption OPEN MINDS 2014. All rights reserved. 48

Can an organization provide consumer convenience in health care without virtual delivery components? 50

51 If primary care is defined by diagnosing, prescribing, and referral, which of these functions can be done by expert systems? Which can be done remotely? What will primary care delivery look like in the future?

What is the future role of a specialist? How will specialist knowledge be delivered? In this new future role, do we have enough specialists? 52

Can most service provider organizations effectively manage population health? Or is super- specialist or one- stop-shop the positioning of the future? 53

The competition for control of patient care coordination Patient coordination = control of patient referrals Patient coordination by consumer type, not service type (the new carve-out) Patient coordination goes to organizations accepting value-based reimbursement OPEN MINDS 2014. All rights reserved. 55 Fewer roles in the emerging system

Structural Positioning OptionsReimbursement Options ACO/MCO Partner (FFS P4P Or Risk-based) FFS, FFS with P4P, Case Rate, Episodic/Bundled Payment, Capitation Specialty ACO/MCO Provider Or Partner FFS, FFS with P4P, Case Rate, Episodic/Bundled Payment, Capitation Medical/Health Home ProviderFFS, FFS with P4P, Case Rate, Capitation Medical/Health Home PartnerFFS, FFS with P4P Case Rate-Reimbursed Specialty Program (By Population) Case Rate, Episodic/Bundled Payment, High-Performing Network Provider And/Or Center Of Excellence FFS, FFS with P4P, Case Rate, Episodic/Bundled Payment, Network ProviderFFS OPEN MINDS 2014. All rights reserved. 56

Characteristics Of The Next Generation Deploy new neurotech advances - for better outcomes and improved consumer preference Embrace consumer self-service technology - to reduce costs and improve consumer engagement Incorporate e-health and remote monitoring - to lower labor costs and improve consumer preference Use analytics-based decision making to optimize organizational planning, consumer care management, and financial management Demonstrate better outcomes and reduced resource use to support competitive value proposition and marketing Plug into patient care coordination initiatives to increase reimbursable consumer population Accept value-based reimbursement: risk-based and/or P4P to attract payer OPEN MINDS 2014. All rights reserved. 57

Sustainability in current environment Surviving the turbulence of change Planning for a sustainable future The executive of the future will be rated by his ability to anticipate his problems rather than to meet them as they come. -- Howard Coonley We cant cross a bridge until we come to it, but I always like to lay down a pontoon ahead of time. -- Bernard M. Baruch OPEN MINDS 2014. All rights reserved. 58

The market intelligence to navigate. The management expertise to succeed. www.openminds.com 163 York Street, Gettysburg, PA 17325 Phone: 717-334-1329 - Email: [email protected]

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OPEN MINDS © 2014. All rights reserved. Monica E. Oss, Chief Executive Officer, OPEN MINDS Florida Conference on Substance Use Disorders and Mental Health