1. Independence Plan Update February 26, 2009

2. © 2009 Harvard Pilgrim Health Care2 Key Points  Independence Plan introduced in 2005 –Tiered copayment product for GIC based on Clinical Performance Improvement (CPI) Initiative criteria –Selected MA specialists evaluated Efficiency measurement based on relative resource utilization using ETG methodology Mercer determined specialty designations using information collected from all participating plans Specialists measured at individual level  Independence Plan 2009/2010 – What’s New –Three-tier hospital copayment structure initiated –New physician quality measures & revised methodology –Several specialties measured solely on cost efficiency –Pulmonary disease added to measured MA specialties

3. © 2009 Harvard Pilgrim Health Care3 Acute Care Hospital Quality Evaluation  Source data –Quality evaluation based on publicly-available data Health Compare (CMS) performance data Leapfrog Group patient safety measures Patients’ hospital experiences based on Hospital Consumer Assessment of Healthcare Providers & Systems (HCAHPS) survey  Quality threshold –Performance over 75th percentile in 2 of 6 Hospital Quality Report categories passed quality gate Heart Attack Heart Failure Pneumonia Surgical Care Patient Safety/Leapfrog Patients’ Hospital Experience

4. © 2009 Harvard Pilgrim Health Care4 Acute Care Hospital Cost-Efficiency  Cost-efficiency based on HPHC inpatient cost data –Hospitals were ranked from lowest to highest based on their case mix adjusted cost per admission  Cost-efficiency ranking –Approximately 20% of all hospitals were ranked low cost –Approximately 60% of all hospitals were ranked middle cost –Approximately 20% of all hospitals were ranked high cost  Non-ranked Hospitals –Specialized hospitals were not ranked –Hospitals with insufficient data were not ranked

5. © 2009 Harvard Pilgrim Health Care5 Hospital Inpatient Admission Copays  Tier 1 level copay $250 –Hospitals that passed quality and had low cost ranking  Tier 2 level copay$500 –Hospitals that had middle cost ranking –Hospitals that had low cost ranking but did not pass quality –Hospitals that were not ranked due to insufficient data –Specialized hospitals  Tier 3 level copay $750 –Hospitals that had high cost ranking  Copay amounts effective July 1, 2009 – June 30, 2010

6. © 2009 Harvard Pilgrim Health Care6 Revised Specialist Quality Methodology  Source data –CPI Initiative identified specialties with adequate quality measures Measures based on established clinical guidelines Measures reviewed by CPI Initiative Physician Advisory Committee –Mercer provided all-payer data for quality measurement  Methodology adjusted for key sources of variation –Patient compliance –Difficulty of measures –Number of opportunities and number of patients –Probability of a given physician having a particular score

7. © 2009 Harvard Pilgrim Health Care7 Revised Specialist Quality Methodology, cont.  CPI Initiative established probability distributions –Determined distribution of quality scores for each specialty –Determined the lower third, middle third, and upper third ranking for all peer scores –Calculated the statistical likelihood that a given specialist’s score fell into one of the rankings, taking into account the key sources of variation  If a specialist had a 75% chance of falling within a given third of the overall distribution, he or she was assigned that rank: i.e., upper (A), middle (B), or lower (C) rank  If a specialist did not meet the 75% threshold for any one rank, he or she defaulted to the middle (B) rank

8. © 2009 Harvard Pilgrim Health Care8 Physician Quality Score Probability Distribution Sample

9. © 2009 Harvard Pilgrim Health Care9 Specialists Measured on Quality & Cost  Specialties with adequate quality measures to evaluate CardiologistsOtolaryngologists Endocrinologists Pulmonary Disease Specialists NeurologistsRheumatologists Obstetrician/Gynecologists  Number of quality observations needed –At least 30 observations Neurologist 10 observations  Specialists who met the quality threshold (A or B) were then evaluated for cost efficiency  Specialists who did not meet quality threshold (C) were placed in Tier 3

10. © 2009 Harvard Pilgrim Health Care10 Specialists Measured on Cost Only  Specialties with insufficient quality data available Allergists/ImmunologistsGeneral Surgeons DermatologistsOrthopedic Surgeons GastroenterologistsOphthalmology  Specialists in above six specialties did not receive a quality score and were tiered only on cost efficiency

11. © 2009 Harvard Pilgrim Health Care11 Efficiency Methodology  Mercer, in partnership with GIC –Created aggregated data set using all-payer specialist claims (1/1/2005 – 12/31/2007) –Applied Episode Treatment Group (ETG) methodology to the data set All episodes containing catastrophic diagnosis codes were excluded Calculations were at ETG/sub ETG level Low-cost and high-cost outliers were excluded Recent episodes weighted higher than older episodes Specialists need to engage in the direct evaluation, management or treatment of a patient and account for at least 25% of the total cost, to have the episode attributed to them. –At least 30 episodes of treatment were required for a specialist to be tiered

12. © 2009 Harvard Pilgrim Health Care12 Performance Index Calculation –Expected cost is the peer average within an ETG –Efficiency score is the ratio of actual to expected (peer) costs

13. © 2009 Harvard Pilgrim Health Care13 HPHC Re-pricing & Ranking  HPHC re-priced Mercer’s all-payer efficiency scores to reflect actual HPHC contracted rates paid for services  Re-priced efficiency scores were then rank-ordered to create thresholds for tier assignment  Some scores were adjusted upward –Specialists with scores very close to upper thresholds were moved to the next highest tier –Specialists who had top quality ratings and were near the top of Tier 2 efficiency were moved to Tier 1

14. © 2009 Harvard Pilgrim Health Care14 Tier Distribution  Specialists with sufficient data to be scored –20% scored in Tier 1 (excellent) –65% scored in Tier 2 (good) –15% scored in Tier 3 (standard)  Specialists with insufficient data to be scored were assigned to Tier 2

15. © 2009 Harvard Pilgrim Health Care15 2009/2010 Office Visit Copays  Tier 1 level copay$15 –Tiered MA specialists who exceeded measurement thresholds –Non-tiered primary care providers, behavioral health providers  Tier 2 level copay$30 –Tiered MA specialists who met measurement thresholds –MA specialists in tiered specialties who were not tiered due to insufficient scoring data –Specialists in non-tiered specialties  Tier 3 level copay$40 –Measured MA specialists not meeting measurement thresholds  Copay amounts effective July 1, 2009 – June 30, 2010  Copay amounts are applicable to all office visit services

16. © 2009 Harvard Pilgrim Health Care16 Provider Summary Report Sample Copayment Tier Page 1 Page 2 Mercer Specialty Designation Quality Result Composite Performance Rate Top 5 Conditions

17. © 2009 Harvard Pilgrim Health Care17 Review Process  E-mail independence_plan@harvardpilgrim.org to receive detailed physician data  If significant data discrepancies are found, physician may request HPHC review of tier assignment –Send completed Review Request form with supporting documentation to HPHC –Requests accepted no later than15 calendar days following receipt of the notification letter  HPHC will respond with final determination within 20 calendar days

18. © 2009 Harvard Pilgrim Health Care18 Key Dates  February 20, 2009Tier notification to providers - e-mail Medical Director & Business Leader announcement about access to rosters/tier results - Mail measured MA Specialist letters & reports - Mail Hospital Administrator letters  February 23, 2009Independence Plan tiering information/resources available at www.harvardpilgrim.org/providers  Up to 15 calendar Review request period days after receipt of notification letter  April 10, 2009On-line Provider Directory published – refreshed weekly  April/May 2009GIC open enrollment period  July 1, 2009Independence Plan 2009/2010 effective date