1. Pursuing Economic Alignment through Value-Based Reimbursement Western Michigan HFMA Annual Reimbursement Update September 16, 2015 Richard P. O’Donnell AVP Provider Contracting and Reimbursement

2. The Goals of Value-Based Payment -To transition from fee-for-service/pay-for-volume models to sustainable financial models that: - support integrated care, - include elements of risk and reward, and - achieve the Triple Aim goals of: - improving population health - improving the patient experience of care and - lowering the per capita cost of health care. -To meet providers in their current state and move them towards increased clinical collaboration and economic alignment “It’s a journey, not a destination”

3. Why the current emphasis on “value-based” reimbursement? Is it a fad vs. a trend?

4. It’s as Simple as Connecting the Dots

5. Connecting the Dots: Consumerism Ever-increasing cost of health care resulting in Increasing personal responsibility for cost of health care resulting in Increasing consumerism in health care resulting in Demand for pricing and quality transparency Defined contribution vs. defined benefit

6. The Rise of Retail Health The markets for health insurance and health care services are moving towards a “Retail Model” resulting in Reduced demand for expansive provider networks resulting in Creation of narrow and tiered network products resulting in Steeper discounting in exchange for steerage/volume Health plans will no longer be all things to all providers

7. Connecting the Dots: Providerism Ever-increasing cost of health care resulting in Transferring financial risk from payer towards provider resulting in Provider integration along clinical and economic lines resulting in Consolidation within the industry Physician-Physician integration (Answer Health) Physician-Hospital integration (Holland Hospital PHO) Hospital-Hospital integration (Spectrum Health-Pennock) System-System joint ventures (Together Health Network)

8. Economic Alignment with Providers Total Cost of Care (Macro-strategy) Progressive gain and risk-sharing based on continuous cost improvement. Examples: Target percent of premium as basis for sharing gain/risk Improving on historical medical cost trend as basis for sharing gain/risk Enhanced Fee for Service (Micro-strategy) Market-based fee for service (FFS) payments enhanced to reward for clinical or service outcomes. Reimbursement will be based on a rational analysis of “fair market value” Direct Clinical Program Support (Micro-strategy) Reimburse incremental costs to start home- based primary care programs Cover direct labor costs of care managers dedicated to complex members Provide in-kind care management support to assist with risk assessments Outcomes-Based Incentive Payments (Micro-strategy) Retrospective payments linked to outcomes measured at the PCP, Hospital, ACN or Ancillary level. Examples include: Reaching target rates for preventive care Reaching target reductions in PCP treatable ER visits Payments to measure and improve patient satisfaction ratings Matching payment strategies with provider readiness

9. Enhanced Fee for Service Payments Defined: Fee schedules are market-based (i.e. fully competitive) and designed to match the intensity of the services provided. Reimbursement to providers is based on a rational analysis of what constitutes “fair market value” in each region of the state. Why: To provide a base of compensation that recognizes provider costs and resource consumption in delivering high quality health care.

10. Outcomes-Based Incentives Defined: An increasing percentage of the total compensation for professional services is based on clinical performance and effective care management. Incentives are embodied in our PIP program: Achieves company’s target of 15% of incentive-based physician compensation Aggressively promotes care management within the ACNs through application of incentive dollars Includes unique quality incentive programs for rural hospitals and physical therapy providers Why: To promote best clinical outcomes using industry standards of excellence

11. Direct Clinical Program Support Defined: Provide ACNs with the appropriate financial support for clinical care transformation to ensure the efficient and effective delivery of health care services. Key examples include: Home-based primary care: Infrastructure payments plus ffs Advanced health assessments Medication therapy management Direct financial and in-kind support for care management Why: To assist ACNs in building the infrastructure needed for the successful transformation of care.

12. Total Cost of Care Arrangements Defined: Moving integrated provider networks through a continuum from gain-sharing to risk-sharing Targets set based on continuous performance improvement with respect to total medical expense Payment of gains is dependent on successful achievement of mutually established quality objectives Gain/risk-sharing models are being used in 2015 with: Commercial HMO Medicare Advantage Medicaid Why: To achieve full clinical and economic alignment between the ACN and Priority Health

13. Haven’t We Tried This Before?  We are moving risk “upstream” from payer to provider, but…  We are placing the provider directly in the premium revenue stream.  Payers are willing to pass through the premium dollar minus administrative costs and a targeted operating margin.

14. What Is Different This Time Around?? Consumerism is irreversible—there is no going back

15. What Is Different This Time Around??

16. Questions, Comments, Kudos? Richard.odonnell@priorityhealth.com