1

The Healthcare Economy in Transition/ An Overview of the Emerging ACO Imperative Erik Johnson Senior Vice President, Avalere Health 2

Contents The New Operating Environment An Uncertain and Ambiguous Path Forward

The New Operating Environment The intersection of business strategy and public policy

ACA’s Impact on Providers Will Come in Waves 2015 Reduction in Payments Increase in Transparency Transfer of Risk A Productivity Imperative …and yet to be successful, capabilities and infrastructure investments must be developed in advance © Avalere Health LLC Page 5 ACA: The Affordable Care Act which is the combination of the Patient Protection and Affordable Care Act (PPACA), P.L , enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (HCERA), P.L , enacted on March 30, 2010.

ACO Planning Drives Reminiscent Behaviors Employment of physicians and acquisition of practices Providers plan to assume financial risk through capitation or bundled payments Focus on addressing population health and utilization Is This a Repeat of Managed Care in the 90’s?

A Maturing Ecosystem with More Infrastructure Imperative / Provider-Based Risk Management Environmental Shift Implications for Risk Management Adoption of HIT in the clinical setting Payment alignment: pay for performance, value-based purchasing Dissemination of evidence-based guidelines 0  Risk identification  Greater analytical and longitudinal opportunities  Gaps in care partnerships  Alignment of incentives  Need for active payer-provider partnership  Delivery model redesign  Distribution and monitoring of compliance  Improved point-of-care decisions  Changes to clinical workflow © Avalere Health LLC Page 7 0 0

An Uncertain and Ambiguous Path Forward The intersection of business strategy and public policy

Demand for PAC and LTC Services Likely to Increase Source: Census Bureau, National Population Projections Released Projections of the Population by Age and Sex for the United States: 2010 to Projections of the Population by Selected Age Groups, (in thousands of individuals)

Per Capita Spending Driven by Functional Impairment, not Simply Chronic Disease Source: The SCAN Foundation (2011). DataBrief Number 22: Medicare Spending by Functional Impairment and Chronic Conditions. September 26, Accessed October 31 at: publications/databrief-no-22-medicare-spending-functional-impairment-and-chronic-conditiohttp:// publications/databrief-no-22-medicare-spending-functional-impairment-and-chronic-conditio 1 N = 22,104,694 with any chronic conditions and no functional impairment, N = 3,562,347 with any chronic conditions and functional impairment. Excludes beneficiaries who died during Seniors with functional impairment includes survey respondents who indicated that they received assistance or standby assistance with one or more Activities of Daily Living (ADLs) and/or three or more Independent Activities of Daily Living (IADLs).

Per Capita Spending often Higher in the Home than in Residential Care Source: The SCAN Foundation (2011). DataBrief Number 17: Differences in Medicare Spending by Disability and Residence. September 1, Accessed October 31 at: differences-medicare-spending-disability-and-residence-0http:// differences-medicare-spending-disability-and-residence-0 Total Per Capita Medicare Spending For Beneficiaries with Disabilities, by Residence Setting, 2006

The ACO as an Organizing Principle for High-Value Healthcare Voluntary Provider Participation Local Provider Accountability for Efficiency and Quality Payment Incentives to Improve Care and Slow Cost Growth Performance Measurement to Ensure Optimum Care Delivery Beneficiary Assignment, but Not Enrollment* An ACO is an entity and a related set of providers that agree jointly to be held accountable for the cost and quality of care delivered to a defined patient population. © Avalere Health LLC Page 12 *Private conceptions of ACOs may require beneficiary enrollment rather than assignment