1. © 2011 Blue Cross and Blue Shield of Minnesota. All rights reserved. The Role of Payment Reform in the Transformation of the HealthCare System Jim Eppel Chief Operating Officer Blue Cross and Blue Shield of Minnesota MN Health Action Group Community Dialogue November 29, 2012

2. Increasing desire to pay for value, not volume Need to decrease waste, duplication, inefficiency Provider/Payer/Purchaser “exhaustion” with the old model Desire of Integrated Delivery Systems to evolve into “Accountable Care Organizations” (ACO) The “Fear Factor” associated with “Reform” Increasing transparency FACTORS DRIVING THE CASE FOR CHANGE 2

3. What are purchasers/consumers regulators etc., asking for ? They are asking for the “HealthCare System” to truly behave like a system 3

4. 4 A universal recognition of the need for change has led to higher level of collaboration between providers of care and health plans than has previously existed. An example … Blue Cross Blue Shield’s “Aligned Incentive” relationship model:

5. Past Current/Future Short term contracts Dominated by negotiation of unit payment Multi-year contracts Focused on building relationships which lower cost and improve quality Fee-for-service Discount off charge as a measure of success “Value” derived payments Total cost of care and outcomes as measures of success Treating chronic and acute illness Preventing illness and maintaining “wellness” Limited transparencyFull transparency and sharing of claims and encounter data Negotiation “drives” the relationship Relationship “drives” the negotiation EVOLVING RELATIONSHIP MODEL 5

6. Historical Contract Aligned Incentive Contract Year 1 Year 2Year 3 Quality Provider At Risk Total Cost of Care Provider At Risk Quality Fee for Service Guaranteed Increase Fee for Service Guaranteed Increase ALIGNING INCENTIVES AROUND VALUE $TBD based on performance to cost of care target Savings are shared $ pool based on outcomes improvement Annual increase is ceiling for cost of care target 6

7. 7 ALIGNED INCENTIVE CONTRACTING MODEL Member attribution Assigned to care system based on majority of E&M visits by a PCP Retrospective Passive PMPM calculation Aggregate attributed member payments TCOC aggregates price, type and volume of services, regardless of setting, into PMPM cost, Providers share in savings from lowering the cost trend below an aggressive target. Quality incentives Payment “at risk” based on 17 quality metrics in 5 categories: chronic illness, prevention & wellness, care integration, safety and utilization Risk adjustment Adjust cost to reflect different illness burden and complexity of the patient population

8. QUALITY IMPROVEMENT CHRONIC ILLNESS Optimal diabetic care (composite measure) Optimal vascular care (composite measure) Hypertension control PREVENTION & WELLNESS Breast cancer screening Colorectal cancer screening Body mass index (measurement and referral) Tobacco cessation (measurement and referral) PATIENT CARE INTEGRATION Depression remission rate SAFETY Reduction of elective deliveries < 39 weeks Reduction in elective c-sections Hospital-associated deep vein thrombosis/ pulmonary embolus Pulmonary embolism for knee and hip replacement UTILIZATION Potentially preventable events: admissions, readmissions, complications Low back pain (MRI, CT, X-ray utilization) Advanced care directives 8

9. 9 CARE SYSTEMS ON ALIGNED INCENTIVE CONTRACT 10 care systems = 33% of Blue Cross’ total statewide volume 65% of metro volume

10. 10 Enable provider competition based upon performance via products which feature providers with low total cost of care and transparency tools for members. 1 Establish payment incentives tied to lowering the total cost of care and improving quality with appropriate shared risk and reward. 2 3 Provide actionable data, analytics, and tools to assist providers in lowering the total cost of care. 4 Generate provider buy-in on details of total cost of care measurement and quality outcomes. PROVIDER ENABLEMENT

11. EARLY RETURNS ON ALIGNED INCENTIVE CONTRACTS 11 Total cost of care First year preliminary data projects 75 percent of the aligned incentive care systems will receive shared savings payouts by bending their historical cost trends Successful care systems include both metro and non-metro health systems Quality Several care systems have made significant improvements in outcomes measured from 2010 to 2011

12. * Missed target CARE SYSTEM2010-2011 measures Care System A Diabetes care Vascular care Controlling hypertension 36.7% - 38.9% 40.0% - 44.5% 68.0% - 77.3% Care System B Breast cancer screening Colorectal cancer screening Reduction of elective deliveries Vascular care 74.9% - 80.8% 45.3% - 61.0% 10.3% - 3.0% 57.6% - 47.4%* Care System C Breast cancer screening Colorectal cancer screening Diabetes care Vascular care Controlling high blood pressure 83.0% - 87.1% 49.0% - 70.4% 27.0% - 32.2% 41.0% - 32.8%* 78.0% - 76.7%* QUALITY IMPROVEMENT EARLY RETURNS, 2010-11 12 ~600 additional BCBSMN members whose blood pressure is controlled ~5,000 additional BCBSMN members screened for colon cancer ~300 avoided elective deliveries for BCBSMN members Across 9 care systems, 2,000 additional BCBSMN members reached treatment goals for diabetes, vascular disease, and hypertension Across 9 care systems, quality payments for 2011 were approximately $32.7M (allocated $35.6M)

13. 13 Questions ?