North Carolina Health Information Exchange Finance Work Group Date: February 9, 2011 Time: 10:00 am – 11:00 am Location: Conference Call ONLY Dial in: ; Participant Code: #

2 Roll Call O'Connor, Maureen - Co-ChairBCBSNC Tayloe, Dave - Co ChairGoldsboro Pediatrics, American Academy of Pediatrics Bell, MarkNorth Carolina Hospital Association Harris, BrianRural Health Group, Inc. Hughes, YvonneCoastal Carolinas Health Alliance Miller, MarkNovant Health Minnich, JohnComputer Sciences Corporation Owen, SteveDivision of Medical Assistance, NC DHHS Pilkington, PhredCabarrus County Health Department Sangvai, DevduttaNorth Carolina Medical Society

3 Agenda TopicLeadsTime WelcomeCo-Chairs10:00-10:10 Update on Statewide HIE Progress Discuss Relaunch of Work Group NC HIE CEO Co-Chairs 10:10-10:20 Approach to Statewide HIENC HIE CEO10:20-10:30 Financing Statewide HIECo-Chairs10:30-10:45 Next StepsCo-Chairs10:45-10:55 Public CommentN/A10:55-11:00

4 Recap and Relaunch

5 NC HIE Progress Since Submission of HIE Plans September: NC HIE supports collaboration on lab results delivery project Multiple stakeholders (North Carolina REC, State HIT Coordinator, NCHICA, LabCorp and other laboratories, providers, and EHR vendors) begin developing a project to reduce the cost and complexity of electronic laboratory data exchange October: ONC approves North Carolina HIE Strategic and Operational Plans North Carolina can now access $11.8 million for implementation December: Governor Perdue establishes NC HIE as “State Designated Entity” Via Executive Order, Governor Perdue designates NC HIE as the fiscal agent, replacing Health and Wellness Trust Fund January: NC HIE wins one of 10 federal HIE Challenge Awards ONC awards NC HIE a $1.7 million Challenge Grant to deploy medication management services

6 Finance Work Group...Charter and Deliverables to Date Charter...Purpose and Charge Forum for identifying and assessing key financing issues, building consensus, and advancing recommendations for Board consideration on Budget to support implementation of strategic plan Costs and ongoing funding streams (existing and potential) associated with statewide HIE Value, business case, ROI of investments at the state, regional, and institutional levels Financing strategies to support adoption of HIE Scope of Work...Deliverables DeliverableStatus Environmental data collection / provider landscapeComplete Financial model scenariosComplete Payment flow modelsComplete Finance section of NC HIE Operational PlanComplete  Workplan for ongoing sustainability effortIn-Progress

7 Statewide HIE in North Carolina

8 What We Are Building... Vision A secure, sustainable technology infrastructure to support the real time exchange of health information to improve medical decision-making and the coordination of care to improve health outcomes and control health care costs for all residents of North Carolina. Key Principles Utilize an open, inclusive and transparent collaborative process Maintain the focus on the goals of improved health Participation is on a voluntary basis Build in a cost-effective manner and deliver value

9 First Steps...The Imperative for Exchange and Need for Trust Fundamentally (either through incentives or what we know to be good practice of care) providers and hospitals will be exchanging more protected health information electronically with an expanding array of external entities. Participants will exchange data only if they can trust their trading partners. We are developing the policy mechanisms and technical infrastructure to create and maintain that foundation of trust

10 By the end of 2011, NC HIE will deploy core services that allow participating organizations to: Accurately identify authorized users Search and locate data Securely transport and deliver messages NC HIE offer access to a variety of value- added services through a single point of entry, thereby eliminating the need for stakeholders to maintain an ever expanding array of costly point-to-point connections and interfaces. Technical Infrastructure...Core and Value-added Services

11 Financing Statewide HIE

12 Board Action Since the Finance Work Group Last Met Board Decisions On September 23, Board directs staff to develop more detailed cost estimate and description and sequencing of HIE deployment. Board directs staff to address the following: 1.What will an effective policy and high-performing technical infrastructure cost to build and maintain? 2.What are the options for revenue and pricing? 3.What is the best approach to allocating funding most efficiently and effectively? On November 17, after review of materials submitted in response to its September request, Board directs staff to develop an option for “up front” revenue to support a state-of-the-art system, and to reach out individually to key stakeholders to assess their support. On December 16, Board supports the concept of up front financing option in which charges are allocated based on stakeholder categories. It directs staff: 1.Investigate alternative pricing for hospital-affiliated practices owing to their technical and business relationship with a hospital that may have paid for access to statewide HIE services 2.Expand the list of HIE participants and funders to include laboratories, pharmacies, etc 3.Consider additional value-added services (including administrative transactions) in light of the broader health reform efforts 4.Refine the proposed approach through the NC HIE Finance Work Group

13 Assessing Revenue Options: Approach and Findings Findings Most states relying on federal funding to support capital phase of deploying infrastructure As the NC HIE will be used on a voluntary basis, it must create value or it won’t be sustained Lessons from other HIEs suggest that success depends upon the ability to secure a critical mass of users by deploying the services of greatest value as quickly as possible Analysis suggests significant value in securing commitment of funding upfront Approach to Defining Revenue Options Reviewed and documented HIE financing and sustainability strategies in other states Developed alternative models and implications for up-front financing Vetted models with stakeholders for feedback Presented to Executive Committee and Board

14 Upfront Financing Option...Benefits Benefits of Including an Option for Upfront Financing 1.Allows us to procure and deploy fuller range of HIE services more quickly, efficiently and at lower cost 2.Creates incentives for broad and sustainable participation because: (a) value is apparent sooner, (b) stakeholders are engaged from the outset, and (c) we avoid assessing fees based on transaction volume (in which the more you use the system, the higher your costs) 3.Broader participation means lower unit costs for all participants and more health information in the system, further increasing the value 4.More efficient and cost-effective administration and substantially reduced bureaucracy by reducing or eliminating the need to build and operate a per-use billing and collection system. Financing Model Proposed to Board NC HIE creates a voluntary “pre-pay” option for participation in the exchange. Entities that don’t pre-pay can still participate, but will be subject to higher payment rates. Engage in consultations with key stakeholders to find a fair balance among hospitals, physicians, insurers and other participants in the HIE.

15 Upfront Financing Option...Allocation Method Approach to Determining Payment Structure Division of payments will be based on stakeholders’ assessment of the fair percentage of contribution, reflecting the value from a fully operational system and the ability of stakeholders to move the process forward. The percentages below were derived from stakeholder conversations and are subject to adjustment. All payments are voluntary. Hospitals, providers and payers listed below were selected for projection purposes only. All others are encouraged to join. Other categories of stakeholders (e.g., labs, pharmacies) are also encouraged participate, in order to take advantage of lower rates for prepayment and to support the building of the system. Hospital Systems (cover 35% of needed funds)  Goal: Upfront payments from 6-10 largest systems Providers (cover 10% of needed funds)  Goal: Upfront payments from large practices of 100 or more (representing approx 21% of providers) Commercial Payers (cover 35% of needed funds)  Goal: Upfront payments from 2-3 largest payers NC Medicaid (cover 20% of needed funds)  Goal: Medicaid 90/10 funding to contribute Other...Labs, Pharmacies, Etc (additional funds) Hospital Systems NC Medicaid Providers Payers

16 Estimating Costs: Approach and Findings Methodology for Estimating Costs Defined the activities and resources that will need to be in place over the next 5 years. Collected information on administrative and technical costs from other states Presented estimates to stakeholders for feedback Revised estimates accordingly Findings Prices for HIE services are highly variable from state to state. Estimates for comparable technical services range from $1.25 million to nearly $7 million per year. Significant variation also exists between vendor estimates for capital vs. operating expenses. Based on information available as of Jan 26 th, the average cost is $3 million per year for the types of statewide HIE services identified in North Carolina’s approved HIE Operational Plan. With a large number of competent vendors offering services, buyers can negotiate aggressively.

17 Cost YR Total Admin & Operations$1,800,000 $7,200,000 Technology$7,259,500$4,851,170$3,558,573$1,580,407$17,249,650 Core Services (Hardware & software) 3,830,0001,120,000325,000 $5,600,000 Value-Added Services (Develop & deploy Phase 1 Services) 675,000225,00000$900,000 Value-Added Services (Develop & deploy Phase 2 Services) 250,0001,250,0001,400,00047,196$2,947,196 Building and testing connectivity to Qualified Organizations 1,802,5001,287,500772,50051,500$3,914,000 Ongoing maintenance 702,000968,6701,061,0731,156,711$3,888,454 Total Costs$9,059,500$6,651,170$5,358,573$3,380,407$24,449,650 Funding YR Total ONC Funding$7,835,637$2,005,656$1,774,567$235,000 $11,850,860 ONC Match Funding$476,426$645,510$670,610$78,333 $1,792,546 NC Medicaid 90/10 FundingTBD Total Funding:$8,312,063$2,651,166$2,445,177$313,333$13,643,406 Costs Funding  Administration & operations cover costs for NC HIE staff, organizational needs and collaborative process  Technical costs gradually decrease after 2012 when system is complete  Alternative pricing models (e.g., subscription service) offer a variety of cost allocations  Funding calculation only includes ONC funds for 2011 (doesn’t include the $1.1 M spent on planning in 2010) Estimated Costs vs. Available Federal Funding

18 Summary of Key Points Through a collaborative, open process, NC HIE is building the policy, legal, and technical infrastructure to support (with close oversight by the Executive Committee) the exchange of health information in North Carolina The statewide HIE technical infrastructure will be determined by decisions of the Clinical & Technical Operations Work Group, presented and approved by the Executive Committee and the full Board. In accordance with NC HIE’s principles, the statewide HIE will be: (1) designed by the participants to maximize value, (2) procured through an open, competitive process; and (3) overseen and maintained in a cost-effective manner Questions regarding financing will be addressed through NC HIE’s Finance Work Group and presented to the Executive Committee and Board. Full consultation with key stakeholders will occur at every stage. Strong controls will be in place to ensure a transparent rigorous commitment and expenditure process

19 Next Steps Develop and advance recommendations to the Board on the following: 1.The proposed percentage of stakeholder’s share of costs 2. Allocation of costs for other stakeholders 3. Strawman for pricing options for those who pay upfront vs. pay as they go 4. Process to address unexpected surplus of funds if revenue exceeds costs 5.Terms, conditions and collection timing of upfront payment option NC HIE Staff will provide additional information on: 1.Categories of additional costs for Qualified Organizations (beyond interface and ancillary connection costs) – such as labor, system configuration, etc. 2.Comparative pricing and revenue models in other states

20 Public Comment