March 10, 2011

 Need to bend the cost curve  Increased attention to quality metrics  Reimbursement models that incent patients and providers to move toward both lower cost and higher quality

 Reduced payment per service, reduced trend/annual rate increases  More efficient use of medically necessary services  Elimination of unnecessary services  Fewer complications/higher cost services due to improved quality and more coordinated care

 Shared savings  Resources/support to initiate and maintain  Investment in the tools to accomplish  Ongoing monitoring and sharing of data  Added value to provider, payer and employer/patient

 Payers - ◦ Achieve a savings they can pass on to their customers, investors, providers ◦ Hit metrics they can market – utilization, quality, and cost metrics  Providers - ◦ Deliver the tools to better manage utilization ◦ Demonstrate willingness to invest in changes that will ultimately result in savings ◦ Share in savings

 Win-Win Structures ◦ Agreement on Goals that Benefit All  Lower cost BEFORE lower reimbursement  Improve quality BEFORE increasing reimbursement  Common set of metrics and attainable goals  Data everyone can trust/rely on  Meaningful shared savings – dollars significant enough to generate/maintain interest

 Pay for Performance/Gainsharing  Enhanced, data driven, primary care initiatives  Global risk, bundled payments and other alternative financial arrangements

 Simple Method to Align and Achieve Physician and Hospital (and Payer) Goals  Engages physicians, payments to docs within the year, collaboration/improvements begin immediately  Not complicated - data is readily available & accepted as valid  Flexible - adapt to special needs of hospital  Perfect tool for any start up ACO and other “risk” entities 8

 Many efforts underway aimed at efficiency and quality improvements - BUT ◦ Getting the attention and involvement needed from physicians? ◦ Physicians have a true understanding of their role in achieving the goals – how to hit the benchmarks? ◦ Providers getting the right kind of data, on a regular basis, that give direction on behavior changes? Usually Not…..

‣ 2006 Managed Care, 2008 Medicare demo ‣ Designed to compensate Physicians who improve quality and implement more efficient inpatient practice patterns ‣ Savings shared with physicians who move toward or hit benchmarks ‣ Upside bonus only, based on individual performance ‣ No change in current billing process or payment (and loss of income factor included in bonus)

CHP Pay for Performance Basic Framework CHP Pay for Performance Basic Framework  All cases severity adjusted to 4 levels using APR-DRGs to account for ‘sicker’ patients.  Benchmarks established using CHP actual experience – average cost of the top 25 th percentile (lowest cost) performers.  Monies to pay bonus come from hospital savings generated by improvements in efficiency. No savings - no bonuses paid out.  Payments withheld from physicians who do not meet quality standards (Core Measures, Infection indicators, Readmission rates, medical record completion, patient complaints etc)

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 Preliminary Results – Significant cost reductions and improved quality  Shrinking gap between bottom 75 th percentile and top 25 th percentile  Greater understanding of data and interest in clinical guidelines – moving toward standardization of care  Incentives more closely aligned

 Enhanced, comprehensive data distribution among providers  Primary care/patient focused medical home  Stratification of high risk patients with directed case management  Medical benefit redesign to incent greater compliance  Directing patients toward provider networks sharing data/managing patients