1. Rural Relevance Under Health Reform Research from the Hospital Strength Index Michael Topchik Senior Vice President mtopchik@ivantagehealth.com 207-518-6705

2. “$37 screws, a $7,622 coffee maker, $640 toilet seats; suppliers to our military just won't be oversold” Headlines of inefficiency from the past

3. Headlines of inefficiency from last year “Pay until it hurts”, “A Bitter Pill”, “How to bring price of healthcare into the open”

4. Headlines of inefficiency from last month “In 2012, hospitals charged more for every one of 98 common ailments that could be compared to the previous year. For all but seven, the increase in charges exceeded the nation’s 2 percent inflation rate for that year.” NYTimes June 2, 2014 “Federal data released Monday show an increase in the average price hospitals charge to treat common conditions, with vascular procedures and chest-pain treatment showing some of biggest upticks.The numbers from the Centers for Medicare and Medicaid Services include 2012 prices at 3,376 hospitals for the 100 most common inpatient stays by Medicare patients” Wall Street Journal June 2, 2014

5. Headlines of inefficiency from last week “Although U.S. hospitals account for the single largest chunk of the nation’s $2.7 trillion in health spending, few of them can say how much it actually costs them to care for every patient they admit.” Healthcare Finance News July 1, 2014 “…without understanding where inefficiencies, fat and waste are, hospitals under pressure to reduce spending may make the wrong cuts…” Healthcare Finance News July 1, 2014

6. A study of rural healthcare in America demonstrating rural vs. urban cost effectiveness, efficiency, patient perception and quality. Setting The Context For Rural Full study available at www.ivantagehealth.com/rural-relevance-under- healthcare-reform/

7. Delivering Value Study Area A - Medicare Costs and Charges What if non- CAHs charged a CAH per case rate? Critical Access Hospitals vs. Non-CAH Total Medicare Charges Of the 351 DRGs common to CAHs and non-CAHs $207 BILLION LESS CHARGE 63% Source: Rural Relevance Under Healthcare Reform 2014, Study Area A.

8. Delivering Value Study Area B - Shared Savings (Medicare beneficiaries) Less spending per beneficiary Apply the rural rate of spend to urban beneficiaries Total savings if all beneficiaries were treated at the rural equivalent? In Potential Medicare Savings * Approximate Totals Medicare spends less on rural beneficiaries than on urban beneficiaries Rural vs. Urban Spending $5.2 $1.5 $6.8 BILLION Source: Rural Relevance Under Healthcare Reform 2014, Study Area B.

9. Rural vs. Urban

10. Delivering Value Study Area C – Hospital Performance Quality Patient Safety Patient Outcomes Patient Satisfaction Price Time in the ED Data sources include CMS Process of Care, AHRQ PSI Indicators, CMS Outcomes, HCAHPS Inpatient/Patient Experience, MedPAR, HCRIS Source: Rural Relevance Under Healthcare Reform 2014, Study Area C. Rural Urban Who has the edge? Rural hospitals match Urban hospitals on performance at a lower price

11. Delivering Value Study Area D - Emergency Department 56 mins Faster than Urban 50% Of ED Visits are Low Acuity 9 to 5 >50% of Low Acuity Visits Occur Between 9 am and 5 pm Do rural patients have adequate access to primary care? 14% Utilization Increase Source: Rural Relevance Under Healthcare Reform 2014, Study Area D.

12. Hospital Strength Index Performance Summary

13. Hospital Strength Index Overall Composite Mid-South CAH Median9.3 All Mid-South Median33.15 All US CAH Median34.37

14. Hospital Strength Index Competitive Strength Index Competitive Intensity Idex Market Size & Growth IndexPopulation Risk Mid-South CAH Median33.2229.1121.5027.55 All Mid-South Median48.1145.0746.7827.23 All US CAH Median45.7934.1617.5065.86

15. Hospital Strength Index Quality IndexOutcomes Index Patient Perspective IndexCost IndexCharge Index Mid-South CAH Median15.1426.0349.2725.7963.83 All Mid-South Median40.8236.1049.2761.0443.69 All US CAH Median31.9742.7859.3824.9576.33

16. Hospital Strength Index Financial Stability Index Mid-South CAH Median21.82 All Mid-South Median41.47 All US CAH Median44.79

17. Rural vs. Urban

18. Mid-South Effects of Sequestration average total

19. Charge Rate

20. Direct Cost Rate

21. Total Cost Rate

22. Mid-South Comparison Summary Points: Rural hospitals in Mid-South states served around 8% of the region’s total Medicare inpatients in 2012. Medicare wage-adjusted charges for rural hospitals in Mid-South states were $2,361,939,094 accounting for around 4% of region’s Medicare wage-adjusted charges. Charges for all hospitals in the Mid-South region totaled $55,758,152,910. Medicare wage-adjusted total costs for rural hospitals in Mid-South states were $819,456,000 accounting for around 5% of the region’s wage- adjusted total costs. Total costs for all hospitals in the Mid-South region totaled $15,313,292,833. Medicare wage-adjusted direct costs for rural hospitals in Mid-South states were $400,427,089 accounting for around 4% of the region’s wage- adjusted direct costs. Direct costs for all hospitals in the Mid-South region totaled $8,980,935,596.

23. Rural vs. Urban For the purposes of cost and charge analysis iVantage examined 507 DRGs that are common to both rural hospitals in Mid-South states and the Mid- South Region’s PPS hospitals. DRGs with less than 5 total cases were excluded. The average charge per case for rural hospitals in Mid-South states ($19,629) is 47% less than the average charge per case for Mid-South PPS hospitals ($37,321). The average total cost per case for rural hospitals in Mid-South states ($6,826) is 32% less than the average total cost per case for Mid-South PPS hospitals ($10,076). The average direct cost per case for rural hospitals in Mid-South states ($3,332) is 43% less than the average direct cost per case for Mid-South PPS hospitals ($5,882). If Mid-South PPS hospitals charged the same rate as rural hospitals in Mid- South states there would be $6,180,801,460 less in Medicare charges.

24. Rural vs. Urban iVantage examined 507 DRGs that are common to both rural hospitals in Mid-South states and all US hospitals. DRGs with less than 5 total cases were excluded. The average charge per case for rural hospitals in Mid-South states ($19,629) is 52% less than the average charge per case for all US hospitals ($41,003). The average total cost per case for rural hospitals in Mid-South states ($6,826) is 40% less than the average total cost per case for all US hospitals ($11,417). The average direct cost per case for rural hospitals in Mid-South states ($3,332) is 48% less than the average direct cost per case for all US hospitals ($6,358). If all US hospitals charged the same rate as rural hospitals in Mid-South states there would be $113,636,026,778 less in Medicare charges.

25. A Call To Action 27 th Annual Rural Health Care Leadership Conference Keys for Community Hospital Survival “… the new healthcare market tends to favor large systems that aggressively pursue transparency, cost efficiency and high quality …” “… there are severe and growing downward pressures on hospital revenues, prices, and utilization exacerbated by employers shifting costs to individuals who are more careful with their healthcare spending…” Hospitals MUST reduce your cost structure by 20-40% and Target 6-10% improvements per year” James E. Orlikoff

26. Financial and Operational Performance: Managed Care Rates

28. Data Exploration by Region – All Service Lines

29. Data Exploration by Region - Orthopedics

30. Data Exploration by Region (hospital drill) - Orthopedics

31. 31 Overall Functional Cost Performance Internal system comparisons reveal cost variation Hospital 1 1 2345 6 7 Hospital 2Hospital 3 Hospital 4 Hospital 5Hospital 6Hospital 7

32. 32 Intermountain Rural – External Performance External comparison against a national database provide insight and direction for cost improvement 12 12 3 456 34567

33. 33 Cost v. Quality The value compass of healthcare is improved quality at decreased cost

34. 34 Intermountain RR - Major Findings What were the major findings for rural hospitals? Trends/patterns – IT, Benefits, Supplies consistent among all facilities Challenging of Assumptions? Expected labor hours to be highest areas of opportunity.

35. Quality - Crossridge Community Hospital, AR - Reeves Memorial Hospital, LA - Union General Hospital, LA - Field Memorial Community Hospital, MS Patient Perspectives - St. Elizabeth Grant, KY - Morgan County ARH Hospital, KY - Saint Joseph Martin, KY - Marcum And Wallace Memorial, KY - Richland Parish Hospital, LA - Lady Of The Sea General Hospital, LA - Lawrence County Hospital, MS - Pearl River County Hospital, MS - Trousdale Medical Center, TN 35 2014 Top Quartile Performances  Finance - Chicot Memorial Medical Center, AR - Dallas County Medical Center, AR - Lady Of The Sea General Hospital, LA - Richland Parish Memorial – Delhi, LA - Reeves Memorial Medical Center, LA - Union General Hospital, LA - Camden General Hospital, TN

36. Quality - Union General Hospital, LA - Reeves Memorial Medical Center, LA Patient Perspectives - Morgan County ARH Hospital, KY - St. Elizabeth Grant, KY - Richland Parish Hospital, LA 36 2014 Top 100 All CAH  Finance - Chicot Memorial Medical Center, AR - Lady Of The Sea General Hospital, LA