1. Healthcare Reform: What’s Ahead and What’s Your Plan? Blair Childs, Senior Vice President, Public Affairs March 15, 2011

2. 2,500 hospitals, 72,000 non-acute sites Nation’s largest clinical/operational/supply chain comparative databases $36 billion in annual spend Malcolm Baldrige National Quality Award Three time recipient of Ethisphere’s Most Ethical Companies award Award winning programs addressing environmentally sustainable sourcing Owners Affiliates Cost Reduction Quality Improvement Risk Mitigation Execution Engine The Premier performance improvement alliance Harnessing the power of collaboration Advocacy 1

3. Today’s discussion The environment : –“D, D & D” and the healthcare imperative The big power shift –Implications and priorities: 2011 – 2012 –Will healthcare reform be repealed? Health reform implementation –Timeline and general direction Where is this headed and what should you do? 2

4. The Environment: Worry ~9% unemployment 2010 - Federal spending 24% of GDP (highest since WWII) –Tax revenues 15% of GDP 2001 Debt = 33% of GDP; 2010 Debt = 62% of GDP If remain on current course: –Deficit remains high through decade and debt will increase to 90% of GDP by 2020 –2025 - all Federal revenues will only cover interest payments, Medicare, Medicaid, SS –2035 - debt will outstrip entire economy The big deficit driver is healthcare, even w/o reform 3

5. Debt as a percent of GDP: Deficit Commission 4

6. President’s National Commission on Fiscal Responsibility and Reform Final recommendations received at least 11 of 18 votes –$4 trillion in deficit reduction through 2020 –Limit federal health spending to GDP+1% after 2020  Exceeding the targets would trigger action by the President and Congress –Fix Medicare doc payments (SGR) and pay for it by:  Cutting payments to doctors, other health providers, and drug companies  Reduce excess payments to hospitals for GME  Cut Medicare payments for bad debts  Increasing cost-sharing in Medicare  Passing legal reform –Expand cost-containment demonstration and pilot projects by 2015 –Eliminate provider (hospital) carve-outs from IPAB 5

7. 6 Election implications 2012 Jobs and deficit Healthcare focus: costs –Transparency –Pay for value (not volume); Test and scale: Innovation Center –Medical malpractice reform Implementation, oversight & investigations Coverage expansion? Republicans well positioned, but could flip again –2012 Senate (23D/10R); Redistricting (195 R; 49 D;92 split;92 Comm), economy, jobs, Tea Party –Open seats: Bingaman (NM); Lieberman (CT), Conrad (ND), Kyl (AZ), Hutchinson (TX), Webb (VA); Akaka (HI) – (5Ds – 2Rs) We are not going back to the way things were. Best to proceed as though no change has occurred.

8. Partisan Control of Legislatures 2011 7

9. Presidential reelection and unemployment 8

10. Largest State Budget Shortfalls on Record 9 *Reported to date Source: Center on Budget and Policy Priorities survey, revised December 2010.

11. State Deficits for FY 2011 10 *California based on remaining 2010 shortfall and projected 2011 budget; Oregon has a two-year budget. Source: Center on Budget and Policy Priorities | cbpp.org

12. The overarching strategic umbrella of healthcare reform Cuts to Existing FFS System Market basket reductions DHS cuts Nonpayment for anything preventable or unnecessary Cuts to Existing FFS System Market basket reductions DHS cuts Nonpayment for anything preventable or unnecessary Disrupt Existing System Bundled Payments Innovation Center Demonstrations ACOs Disrupt Existing System Bundled Payments Innovation Center Demonstrations ACOs Track 1Track 2

14. Winners and losers Accountability & transparency People-centered primary care E-health and other innovations New focus on population health and social determinants Risk-based, value-driven reimbursement (P4P) Cost reductions Quality across the continuum and focus on transitions Smaller hospitals with more intensive care New roles of public and private sector (partnerships?) Future state Intensive care Non-Acute/ specialty care Primary & preventative care TODAY 1766 Intensive care Non-Acute/ specialty care Primary & preventative care TOMORROW

15. Payment reform across the payment silos 14

16. JanFebMarchAprilMayJuneJulyAugSepOctNovDec Hospital value-based purchasing (Proposed) 1/7/11 Program integrity - additional provider screening (Final) 1/21/11 Annual inpatient update + Readmission reduction program (Proposed ) Medicaid HACs (Proposed) Accountable care organizations (Proposed) Exchange (Proposed) Annual Inpatient update + Readmission reduction program (Final Transparency reports (PPSA) (Procedures) Target dates for release of proposed and final regulations in 2011 implementing provisions of the Affordable Care Act (these are fluid and likely to move) Long-term and CLASS Act (Proposed) Uniform explanation of benefits, coverage, definitions (Proposed) Accountable care organizations (Final) State Innovation – Review & approval process (Proposed) Regulations implementing reform: 2011 Hospital value-based purchasing (Final) Annual outpatient update (Proposed) Annual outpatient update (Final)

17. Proposed Inpatient Value-Based Purchasing Rule Rewards for achievement or improvement Budget neutral payment changes begin October 1, 2012 by reducing base operating payments for each discharge by –1% in FY 2013, –1.25% in FY 2014, –1.5% in FY 2015, –1.75% in FY 2016, and –2% in FY 2017. Quality measures from Hospital Compare measure set –25 measures (17 process/8 HCAHPS dimensions) in FY 13, and –Adds 20 measures (3 mortality, 8 HACs, and 9 IQI/PSIs) in FY 14 16

18. Simulated Impact of CMS VBP Proposed Rule Number of Hospitals Total Base Operating DRG Payments 2011 ($ millions) 1% Base Operating DRG Payments ($ millions) Net VBP Payment ($ millions) All 3,22286,4578650.0 Urban 2,30576,514765+0.7 Rural 9179,94399-0.7 Large Urban DSH 176361,741617-13.5 Major Teaching 24217,426174-6.5 Premier members: HQID 2017,96080+6.8 Non-HQID 98430,061301-19.8 QUEST members 1436,4243.2+3.5 non-QUEST members 99229,658297-15.9 17

19. Announcement of IC and Patient Safety Initiative Announcement anticipated early April Expected to lay out priorities and process for Innovation Center Public/private, HAC/readmissions reduction effort to help hospitals before 6% payment tied to these measures Pledge by hospitals, consumers, business, to support Unclear on measurement system and incentive program structure. $1.5B tied to program. Goal: 40% reduction in HACs by 2013 and 20% reduction in readmissions. Opportunity for organizations and hospitals to work with hospitals to improve performance. 18

20. Collaboratives drive top performance Process Improvement (Evidence-Based Care) Systematic improvement (Inpatient value) Population total value 2.0 19

21. A representative sample of U.S. hospitals QUEST charter members include urban/rural, large/small and teaching/non-teaching facilities across 31 states Bed size ranges: 22% - 150 beds or less 29% - 151-300 beds 25% - 301-450 beds 24% - 451 or more beds 70% Disproportionate share 33% Safety Net 38% teaching 14% rural

22. Year 118 MonthsYear 230 months Lives saved8,04314,64922,16425,235 Dollars saved$577M$1.036B$2.13B$2.85B Patients receiving EBC24,81841,13043,74163,094 QUEST collaborative driving improvements Year 1 – 30 month results 21

23. Payor Partners ► Insurers ► CMS ► Employers ► States ACO model: Six core components A group of providers willing and capable of accepting accountability for the total cost and quality of care for a defined population. Core Components People Centered Health Home High-Value Network Population Health ACO Leadership Payor Partnerships

24. Building accountability through collaboratives Implementation Collaborative Ready to begin implementing Executive sponsorship & participation Payer partner participation and transparency Physician network & sufficient population base (5,000 equivalent Medicare lives) Transparency and acceptance of common cost/quality metrics (QUEST, HEDIS, others) Population health data infrastructure (EHR, HIE, Payer) Participation in work groups and meetings ACO contracting vehicle (legal entity) Readiness Collaborative Willingness to implement in the future Participation in learning Webinars Gap analysis to pinpoint focus areas Participation in learning networks Participation in meetings with ACO Implementation Collaborative Preparation to collect population-based measures Milestones to keep on track to join the ACO Implementation Collaborative

25. Collaborative participants

26. Bundled payment for single episode of care Bundled payment for chronic care Clinically integrated PHO Employed and independent physicians Employed physicians only Varying degrees of integration Less integratedMore integrated

27. Payor partners Employers IBM Caterpillar UNITE HERE Local 54 representing: Trump Entertainment Resorts, Inc. Harrah’s Entertainment Hilton Hotels Corp. MGM Mirage Provider-Sponsored Plans Private Plans Anthem/WellPoint Cigna Blue Cross Plans Coventry HealthSpring/Bravo Medica United Aetna BCBS MT HMSA Horizon BCBS New West BCBS MA Government Payors Geisinger Presbyterian New Mexico Baystate Summa Billings Clinic CMS State Medicaid plans S-CHIP plans VA

28. Components and Capabilities People Centered Foundation A. Involve People in Decisions that Affect their Health Care B. Provide People with Easy Access to Health Care C. Activate Individuals to Take Responsibility for their Own Health D. Regularly Assess and Address Individuals' and Population's Needs E. Measure and Improve the Experience of People within the ACO Population Health Home A. Deliver People Centered Primary Care B. Optimize Chronic, Acute and Preventative Care C. Manage Population Segments to Optimize Health Status D. Coordinate Care Across Continuum E. Health Home Value Care Systems F. Drive Continuous Improvement in Practice Population Outcomes G. Develop New Care Models to Improve Specific Clinical Conditions Across the Spectrum of Care High Value Network A. Deliver High Value Specialist Care B. Deliver High Value Outpatient Facility Services C. Deliver High Value Inpatient Services D. Deliver High Value Post- Acute Care E. Integrate and Coordinate Care Across the Spectrum F. Drive Continuous Improvement in ACO Population Outcomes G. Develop New Care Models to Improve Specific Clinical Conditions Across the Spectrum of Care Population Health Data Management A. Capture and Analyze Data from Multiple Sources B. Applications and Systems that Enable Population Health Management C. Information Exchanges and Communication Pathways for ACO Patients & Participants ACO Leadership A. Use Reimbursement to Align ACO Participants with ACO Objectives B. Provide ACO Wide Results Reports to all Participants C. Communicate Consistently and Routinely to all Participants D. Provide Strategic Management of ACO Entity E. Manage ACO as a Combined Physician Hospital Entity F. Provide Centralized Medical Management Functions G. Report on and Facilitate Management of Total Medical Cost H. Manage Intra-ACO Transfer Prices / Costs I. Manage Financial Performance of ACO J. Oversee Triple Aim Outcomes for Entire Population K. Effectively Manage the Operational Transitions Required to Create an ACO L. Develop an Organizational Culture Consistent with an ACO System M. Train Physicians and Other Leaders in Leadership Development in Order to Foster Effective Leadership in a New ACO System N. Enable ACO Contracting O. Evaluate, Analyze, Establish Appropriate Legal Structure P. Educate and Appropriately Manage Interactions Across and Between ACO Parties Q. Impact and Monitor ACO Regulatory and Legislative Environment Payor Partnership A. Negotiate and Manage ACO Contract with Payer Partners B. Design aligning incentive systems for ACO members that may be administered by Payer Partner C. Collaborate with Payer Partners to Manage Population Experience

29. Where is this all headed? Federal budget will continue to pressure healthcare cost reduction –Keeping healthcare spending at the center of the political debate Reform in some form is here to stay –But, there will be 10 years of fixes and adjustments Reforms will reduce hospital volume & make winners and losers –Readmission and HAC penalties, efficiency measures, bundled payment, ACOs, demos 2013 - watershed year; 2011 unclear ACOs and IC will remain priority and grow in importance 1.ACOs will roll out on at least two tracks 2.Rule design will be critical State issues and focus provides an opportunity and could be future

30. Planning imperatives Maximize efficiency and through-put Align with physicians Evidence based decision-making –Where you stand on elements of reform –Comparative effectiveness research –Quality and outcomes measures Embrace transparency Look to national comparisons Increased federal regulatory burden Continual changes 29