1

1

WelcomeMary Barker

Vice President, Publishing and Education

2

2

3

Staff

Anne McLeodSenior Vice President, Health Policy & InnovationCalifornia Hospital Association

Anne McLeod provides leadership in the development of CHA’s public policy objectives and develops innovative policy solutions for CHA’s members. Using her experience and extensive knowledge of federal and state health policies, Ms. McLeod represents hospitals’ interests and supports their future growth and success as they respond to the challenges they face going forward.

3

4

Speakers

With more than 20 years of health care experience, Todd Fitz has applied his expertise in finance, strategy, and operations to a variety of settings, including community hospitals, physician groups, academic medical centers, insurance organizations, government agencies, and medical device companies. His focus is on network development, physician integration and governance, and performance improvement. He is a frequent contributor to thought leadership publications and presents regularly to industry associations, medical staffs, organizational boards, and community groups.

Todd Fitz Senior Vice PresidentKaufman Hall

5

John Poziemski Vice PresidentKaufman Hall

A member of Kaufman Hall’s strategy practice and based in Los Angeles, John Poziemski focuses on integrated strategic and financial planning, strategic options evaluation, mergers and acquisitions, and value-based transformation initiatives, working primarily with provider organizations in the western region.Mr. Poziemski has also managed a variety of consulting engagements and business-development activities focused on clinical program development and physician integration strategy.Mr. Poziemski is a regular presenter at industry conferences and board retreats.

Speakers

4

6

Kalani Redmayne has more than 20 years of experience in the health care industry. Her responsibilities focus on payer-provider strategies, alternative reimbursement methodologies, health plan and service operations, health care reform, payer relations, and product development. Prior to joining Kaufman Hall, Ms. Redmayne was Vice President of Product Development and Management for UnitedHealthcare, Inc., where she focused on Medicare Advantage, Medicare Supplement, Prescription Drug Plans and UnitedHealthcare’s private exchange products.

Kalani Redmayne Assistant Vice PresidentKaufman Hall

Speakers

7

5

8

Polling Question #1

9

Introduction

Todd Fitz

6

10

11

• Physician and clinical alignment• Contracting strategy • Network optimization • Operational efficiency• Enabling infrastructure

Five Interrelated Business Imperatives Need to Be Addressed

7

12

Physician and Clinical Alignment

Todd Fitz

13

The Emerging Business Model Demands a Higher Degree of Physician Alignment

Physician alignment has always been important, but in managing population health, it will be essential.

• Transformation from volume to value

• An emphasis on coordination of care across the continuum

• Steady and increasing pressure on price

• Unpredictable utilization in medium term

• Improved IT connectivity between hospitals/doctors/patients

• Markets’ increasing preference for scale/essentiality

8

14

Realizing the promise of population health management will require the application of the most difficult integration mechanisms

Integration Models Vary Widely in Their Ability to Impact the Value Equation

15

9

16

17

Polling Question #2

10

18

Contracting Strategy

Kalani Redmayne

19

• Hospitals must: pursue value-based contracting strategies, face exclusion from key networks, or play the role of a discounted vendor

• Many hospitals will: need to form strategic partnerships to execute their value-based strategies or prevent network exclusion

The Pursuit of Value-Based Initiatives Will Be Critical for Long-Term Sustainability

Provider organizations able to manage defined populations across the continuum will be more attractive to payers,

employers and consumers.

11

20

Centers of Excellence

High Deductible

Reference Price

Direct Contract

Narrow Network

FFS P4P Bundled Payment

Full Risk

Shared Savings

Shared Risk

Service-Level ConsumerismLimited Networks

Shift Risk to Providers

Wholesale: “House Money, House Rules”

Public Exchange

Private Exchange

Retail: Shift Plan Choice

to Consumers

Shift to Exchanges

One Size Will Not Fit All – Purchasers Will Use Various Mechanisms to Achieve Greater Value from Providers

21

12

22

Moving Across the Continuum of Risk Contracting Will Present Unique Opportunities and Challenges

No risk

FFSIncentive-

Based FFS

P4P Case Rates

Partial Risk

Full Risk

Health Plan

• VBP• Shared

Savings• Bonuses• Withholds

• Episodic• Bundled

payments

• Limited scope

• ACOs

• Capitation• PMPM• Percent of

premium

• Full integration

• Health plan and delivery system

• Quality and cost target payments

• PQRS• PCMH

Small % of financial risk Medium % of financial risk Large % of financial risk

Limited Integration Moderate Integration Full Integration

• The largest upside (and downside) potential is realized when moving to the greater acceptance of risk

• Clinical and organizational integration will be a fundamental requirement for the greater acceptance of financial risk

23

Clinical and Organizational Integration Must Align with Contract Reimbursement Methodologies

Understanding and aligning the organizational and market readiness will be required for timing investments and implementing contracting strategies.

13

24

Delivery of Cost Savings to Purchasers is Only Part of the Equation for Successful Value-Based Arrangements

“Boeing [was] looking for an environment where the hassle factor of healthcare is gone … similar to the experience when you walk into a modern retailer, like Nordstrom … you’re immediately made comfortable.”

Dr. Joseph Gifford, CEO, Providence Health & Services’ ACO

Sources: Catalyst for Payment Reform; Evans, M.: “Washington Health Systems Contract Directly with Boeing.” Modern Healthcare, June 13, 2014.

High-Value Network

IT Sophistication

Transparency

Measurable Outcomes

Patient-Centered, Coordinated Care

Foster Competition

Access and Patient

Satisfaction

Provider Risk-Sharing

25

14

26

Network Optimization

John Poziemski

27

15

28

Providers Aiming to Achieve/Ensure Network Essentiality

System C

System B

System E

System A

System D

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

0 10,000 20,000 30,000 40,000 50,000

CM

I Ad

jus

ted

Co

st

Pe

r M

ed

ica

re D

isc

ha

rge

Membership Attribution

Attributed Lives vs. CMI Adjusted Cost per Discharge by Network Systems

Note: Bubble size denotes net patient service revenue.

29

Network Design to Include Continuum of Care

Public Health Resources• Community Health

Centers

Acute Care

Ambulatory Specialty Care

Infrastructure and Ancillary Services• Diagnostics• Pharmacies• Laboratory• Therapy

Tertiary/Quaternary

Short-Stay, Psych

Rehab and SNF

Long-Term Care

Home Care

Post-Acute and Transitional Care

Hospice/Palliative

Assisted Living

Patient Acuity Level

Longitudinal Care Episode

Primary Care (PCMH)

16

30

Statistic Hosp 1 Hosp 2 Hosp 3 Hosp 4 Total

Inte

rnal

U

tiliz

atio

n

Discharges 137 127 126 250 640

Days 1,297 1,136 1,196 1,886 5,515

Length of Stay 9.5 8.9 9.5 7.5 8.6

CMI 6.6 6.5 6.2 6.2 6.3

% Emergent Estimate* 60% 44% 33% 20% n/a

* % Emergent estimated using % treated in the ED for discharges in each hospital’s PSA, Q3 2012 – Q2 2013

Service Distribution Optimization –CABG Case Study

CABG Distribution Across the Regional Health System

31

Service Optimization Has Ability to Drive Network Performance

1.36

1.12

0.92

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Low Intermediate High

O/E

Mo

rtal

ity

Rat

io

Volume Tercile

Avg. CABG/Valve

Procedures in Volume Tercile

51 123 306

The meaning of an O/E ratio depends on the score.•Equal to 1.5. The hospital's mortality rate is higher than expected. •Equal to 1.0. The hospital's mortality rate is equal to what is expected. •Equal to 0.75. The hospital's mortality rate is 25 percent lower than expected. •Equal to 0.50. The hospital's mortality rate is 50 percent lower than expected.

O/E Ratio for All-Risk Adjusted CABG and Valve Procedures by Volume Tercile

Data from the Calif. Cardiac Surgery and Intervention Project suggest that hospitals in the higher volume tercile have lower observed-to-expected (O/E) mortality ratios than hospitals in the low volume tercile, suggesting that higher volume programs yield lower mortality ratios.

Source: Mayo Clinic, California Cardiac Surgery and Intervention Project Data

17

32

Narrow Network Plans Favor High Performers

Source: Haeder, S.F., Weimer, D.L., Mukamel, D.B.: “California Hospital Networks Are Narrower in Marketplace Than in Commercial Plans, But Access and Quality Are Similar.” Health Affairs 34(5): 741-748, May 2015.

Red line indicates equal quality between commercial and marketplace plans.

33

Network Regulations: Marketplace Plans Increasingly Subject to Common Standards

Source: Giovannelli, J., Lucia, K.W., Corlette, S.: “Implementing the Affordable Care Act: State Regulation of Marketplace Plan Provider Networks.” The Commonwealth Fund, May 2015

States with Marketplace Plans Subject to One or More Quantitative Standards for Network Adequacy (January 2014)

18

34

Network Assembly: Employers

Future Network Growth Requires Appealing to a Variety of Consumers

Network Selection: Individual

Enrollment

Provider Steerage: Physician Referral

Network Growth

35

19

36

Operational Efficiency

Todd Fitz

37

As the Sphere of Influence Widens, Focus Shifts to Total Cost Management

Acute Care

Emergent Care Ambulatory

Care

Prevention

Physician Clinic

Wellness

Post-Acute Care

Home Care

Chronic CareDiagnostics

Urgent Care

Retail

Traditional Focus

Population Health Focus

Mental Health

20

38

Affecting the Total Cost of Care Requires a New Way of Thinking

Tota

l Co

st o

f C

are

Marginal Cost Improvements

Transformational Cost Improvement

Time

Traditional Payment

Model

Value-Based Payment

Model

39

Reducing Total Cost Demands a New Scope of Initiatives

Required cost focus areas under all business models

Required additional cost focus areas for value based

Margin Improvement Business (Re)Configuration Clinical Effectiveness

Clinical labor productivity Corporate/market scale Care processes

Nonclinical labor productivity Geographic footprint(s) Clinical variation

Overhead Service offerings Care utilization

Supply chain Service line distribution Care management

Revenue cyclePhysician alignment and optimization strategy Clinical integration

Facility planning/maintenance New contracting/pricing models Care transitions

Capital allocation Consumer and retail strategy End-of-life care

Nonoperating assets/liabilities Innovation strategy Patient education

Corporate risk management Community investment strategy Public health and wellness

Hard Harder Hardest

21

40

A Long-Term Roadmap for Cost Transformation is Required

41

Multiple Views of Potential Cost Savings are Needed

22

42

Polling Question #3

43

Enabling Infrastructure

John Poziemski

23

44

The Enabling PHM Infrastructure is Critical to Success• Management/governance structures that include a high level of physician

involvement and cover contracting, risk assessment, clinical/operational decision making

• Delivery network of sufficient size and scope

• IT systems to support care management, common electronic health record systems, clinical/predictive analytics, payment receipt/distribution

• Care management tools and protocols tied to enterprise-wide decision support and reporting functions

• Contracting and risk assessment and management capabilities, including actuarial skills if assuming full risk for a population

• Patient engagement programs to build loyalty to the organization

45

24

46

Risk Management

• Strategic and operational risk • Actuarial or insurance risk • Financial asset and liability risk

47

Managing the Business Impact of the PHM

Transition

John Poziemski

25

48

Cornerstones of Integrated Strategic Financial Planning• Link the organization’s strategic mission and vision to measurable financial

objectives

• Identify whether strategies are financially supportable

• Quantify future financial risk, consider alternative scenarios, and specify responses

• Monitor and update plan as strategies are implemented and markets shift

49

26

50

Operational Execution

Financial Modeling

Managing the Transition to PHM

Strategic Plan Development

51

Polling Question #4

27

52

Concluding Comments

John Poziemski

53

28

54

55

29

56

57

30

58

California PhysicianLeadership ProgramA customized program developed by and for physician leaders and medical executives

September 2015 – April 2016

This program brings together USC’s top-rated Marshall School of Business faculty, in partnership with health policy experts, to deliver curriculum on effective leadership strategies, the ever-changing health care delivery system, and core business principles. Designed to improve patient care by enhancing hospital-physician alignment, the program is specific to California and the unique environment in which we operate.

59

31

60