Successful Financing Strategies to Capitalize RHIOs 28 June 2005

Agenda General Concept Process Overview Capital Requirements Financing Models

Raising Capital: General Concept Sell people something they want to buy Not what you want to sell Determine who benefits from you program and how Express this in financial terms Express the value in simple clear language Mother-in-Law Test Focus on Benefits not features Credibility

Capital Requirements Depend On What the Plan Is Potential Goals Improve quality of care Reduce cost of healthcare Increase efficiency Improve the value of healthcare Implement health information technology Create a health information exchange Create an electronic medical record for every citizen Install an electronic medical record in every physician office Improve people’s health Eliminate adverse drug events Eliminate medical errors Achieve interoperability Increase transparency Make money Get a grant! Potential Strategies Consumer directed healthcare Benefit plan design Single payer Quality improvement Reimbursement structure changes Health information technology Transparency Change reimbursement rates Change service utilization Gatekeepers Pre-authorization

Purchaser’s Evaluation Basis $ Credibility of the Plan Participants Commitment Risk Skin Assumptions Strategy

Value of Various Uses of HIT from Purchaser’s Perspective Potential High Value Uses E-Prescribing Radiology Lab Disease Management Futile Care Defensive Medicine Evidence-based Medicine Probable Low Value Uses E-mail Clinical Messaging Surveillance Public Health Bio-terror Post-market Preventive Medicine Care Coordination

Agenda General Concept Process Overview Capital Requirements Financing Models

Process for Getting Connected Convening Planning Financing Development Operations

Agenda General Concept Process Overview Capital Requirements Financing Models

Use of Capital Use of Capital Commercial Seed Start-up Revenue Planning Seed Development Capital Expenditures Operating Expenses Start-up Ongoing Operations Revenue

Capital Requirements Planning $1 M - $2 M Development Capital Expenditures $3 M - $5 M Operating Expenses $3 M - $5 M Ongoing Operations Variable Capital Requirements depend on the role

Aggregate Certain Functions at State or Regional Level Regional Health Information Organization (RHIO) Financing Information Technology Clinical Process Improvement Incentives Fixed High risk Variable Low risk Variable Low risk

Relative Return on Investment

Physicians who purchase and implement systems, changing the way they practice medicine, hoping for an incentive payment in an atmosphere of mistrust? Purchasers who provide technology subsidies and performance incentives without guaranteed financial benefit in an atmosphere of mistrust?

Agenda General Concept Process Overview Capital Requirements Financing Models

Financing Models Public Sector Mandates Voluntary Taxes Contributions Assessments Bonds Mandates Voluntary Contributions Grants Fees Patient Enrollment Data access Data producer Data mining

Financing Models SBCCDE Grant CHCF THINC Grants Data Producer Fees Project Mechanism Source SBCCDE Grant CHCF THINC Grants Data Producer Fees User Fees Enrollment Fees Physicians Hospitals, Labs Foundations Purchasers INPCN Contributions Hospitals NEHEN Data Access Fees Payers Maryland Assessment

Financing Mechanisms: Public Sector & Mandates Ongoing Operations Financing Mechanisms Pros Cons Taxes Broad allocation of costs Conceptually simple Political barriers Less flexible Assessments Bonds Unfunded Mandate Rapid MD adoption MD dissatisfaction Narrow allocation of costs

Financing Mechanisms: Voluntary Ongoing Operations Financing Mechanisms Pros Cons Contributions No repayment or quid pro quo Not sustainable Unpredictable timing Grants Debt Repaid out of future revenue Shifts risk to a third party

Financing Mechanisms: Voluntary Fees Ongoing Operations Financing Mechanisms Stakeholder Pros Cons Patient Allocates costs to significant beneficiary Broad allocation Political barriers Enrollment Insurers, Self-insured employers Dependent on participation of a small group of organizations Data user MDs, Insurers, Self-insured employers Allocates costs to those that realize efficiency benefits Narrow applications Data producer Labs, Rx, Rad, Hosp Data mining Pharmaceutical Co’s Pharmaceutical companies have significant resources

Summary Several different financing mechanisms available Role defines capital requirements Capital requirements are achievable

Successful Financing Strategies to Capitalize RHIOs 28 June 2005