1. Managing Episode Performance Patient Placement Matters More than Ever Before September 2015

2. Agenda 1.Overview of CMS’s accelerated movement toward Value-Based Purchasing The Game Changer: Mandated CCJRs 2.Operational Imperatives to Managing Episodes 3.Developing an aligned Skilled Nursing Network Case Study of Beacon Health System 4.Questions/Discussion 2

3. Care Transformational Forces Unleashed The rewards and penalties are accelerating and motivating health systems and post acute providers to manage “episodes” of care. o CMS targeting at least 50% of all claims included in BPCI, ACO or like structures by 2018. o New Episode Bundles being introduced, e.g. Oncology over 6 month risk period. o Mandatory Participation of Comprehensive Care for Joint Replacement (CCJR) Payment Model expected to be effective January 2016 to impact 900 hospitals – A Game Changer. No Turning Back Page 3

4. 4 The Future Has Been Planned – Moving to DRGs for Bundles All Providers Need to Prepare for Model 5

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6. Mandatory Participation of Comprehensive Care for Joint Replacement (CCJR) Payment Model o MSA Affected: 75 geographic areas, excl. BPCI M1, M2, M4 participants Episode: Lower Extremity Joint Replacement (LEJR) o Primarily single-joint total hip and total knee replacement procedures o MS-DRG 469: Major joint replacement or reattachment of lower extremity with Major Complications or Comorbidities (MCC); or o MS-DRG 470: Major joint replacement or reattachment of lower extremity without MCC. Effective Date: January 1, 2016 Terms: 5 years The Game Changer: CCJR* * Subject to change pending Final Rule. 6

7. Managing the Cost and Quality of a Care Episode The Success Equation 7

8. “What really drives the differences in Medicare fee- for-service spending … is what happens to a patient after he or she leaves the hospital” Jonathan Blum Former Director of Centers for Medicare and Medicaid Services 8

9. 9 The Significance of Post Acute and Readmissions Medicare Average Spend/90 Day Episode Medicare Average % of total Spend/90 Day Episode 1 Medicare episodes for 48 BPCI episode families; PAC includes SNF, IRF, HH, and LTAC, 2013

10. Patient Placement Matters More Than Ever Before ROI on Coordinated Care Transitions: Reduced IP Length of stay/Higher Medicare profitability Lower “Episode” cost for success under bundled arrangements and VBP metrics, brought about by: o Pressure on SNFs to lower LOS and offset with more referrals to remain viable. o More SNF patients moving to Home Health o Reducing costly readmissions and penalties Increased revenue to owned PAC assets (e.g., Home Health) PAC strategic relationships which will be foundational to success under payment transformation (Medicare, Medicaid, private payor bundles) The Institute of Medicine concluded that variation in post- acute care spending is the single largest factor behind geographic variation in Medicare spending per beneficiary, and substantial savings may be achievable by directing patients to more cost- effective settings — home care rather than institutional care when appropriate, and higher- quality, more efficient facilities when institutional care is required. 10

11. Building Episode Management Competencies – The Success Equation Imperatives to Managing Episodes High Performing PAC Partners Readmission Mitigation Programs Evidence-Based Care Models/ Protocols Transformed Case Management Performance-Based Contracts: Outcomes Care Cost-Efficiency Collaboration Care Model Adoption Physician-Driven Evidence-based 90-Day Span (Acute/PAC) Risk Stratification PAC and Home Follow-up Interventions New accountability Patient Placement Protocols Retooled discharge script 11

12. Care Transitions and PAC Performance Improvement - Assessment 1 Episode Performance Analytics Quantitative understanding of baseline episode performance and components? Insights on the greatest opportunities to improve episode cost efficiency? 2 PAC Network Highest performing PAC providers identified? What criteria was used? Providers under an Aligned/ Performance contract? Readmission Mitigation Programs? Ongoing performance management structures? 3 Care Transition Effectiveness Culture, processes and standards to support “right time, right place”? Protocols followed for bundles/ACO cohorts? PAC Network Connectivity and Information Exchange? 4 Care Model Design Care models/ evidence-based practices spanning acute through post-acute for current at risk episodes (ACO/Bundles)? PACs following protocols toward reduced variation and performance monitored? 5 Optimization of Owned Post-Acute Assets Optimized revenue capture? Outmigration mitigation programs? Superior Performance (the carrot vs. the stick)? Home Health SNF IP Rehab Components: Will develop a plan to build on what you have …. 12

13. Case Study: Beacon Health System Building a High-Functioning PAC Network The “Carrots and Sticks” Approach The Lessons Learned 13

14. All Started with Episode Analytics Performance Variance Opportunities 14

15. Episode Components 15 What percentage of our episode costs are spent on post acute and readmissions? Where are the greatest opportunities to reduce cost of an episode? Memorial Hospital South Bend – 2013 % of Total Payments, 90 Day Fixed Episodes

16. Patient Episode Payment Variation Congestive Heart Failure 16 Memorial Hospital South Bend Episode Family: Congestive Heart Failure - DRGs 291-293 Biggest opportunity to reduce episode spend in CHF is lowering readmission rates and reducing SNF LOS.

17. 17 Patient Episode Payment Variation Stroke Memorial Hospital South Bend Episode Group: Stroke - DRGs 061-066 46% of MHSB’s stroke episodes utilized SNF or IP Rehab (or both) within 90 days of discharge from MHSB, accounting for 50% of stroke episode spending overall ($2.16 M)

18. Patient Episode Payment Variation Major Joint Replacement 18 Memorial Hospital South Bend Payments per Episode by Claim Source Episode Family: Major Joint Replacement - DRG 469 & 470 Greater than average utilization of HHA for MJR episodes at MHSB

19. Optimize transitions to Home Health Versus SNF Episodes utilizing Home Health as the first PAC setting cost Medicare half than what it costs when SNF is used for recovery post discharge. Is there an opportunity to care for higher acuity patients safely via use of highest quality home health providers? Avg. Episode Cost by First PAC Setting Total episode costs for the same DRGs were almost $17,000 higher when SNF was the first post-anchor setting compared to HHA.

20. Profile Individual SNF Performance in Each Market 20 We needed to know the answers to these critical questions? o How many SNFs do you discharge to today, and who are your top volume 10 SNF destinations? o Do your physician/case management referral patterns reflect the quality and cost efficiency of those providers? *Source: Based on analysis of 100% Medicare Standard Analytic Files SNF Provider Episodes to SNFPayments to SNFReadmissions ALOS Total% to TotalAvg% of TotalTotalReadmit Rate National Benchmark 1 $15,29416.6 %29.8 Indiana Benchmark 1 $17,70016.6 %35.0 SNF 115811.2%$20,73712.6%3220.3%48.9 SNF 215410.9%$20,30912.0%3623.4%41.1 SNF 31097.7%$13,4835.6%76.4%31.9 SNF 4856.0%$17,2235.6%1416.5%34.9 SNF 5785.5%$16,6935.0%1316.7%33.5 SNF 6745.2%$15,8414.5%1317.6%33.1 SNF 7715.0%$18,5405.1%1216.9%44.0 All Other Average68448.4%$18,84949.5%14120.6%39.3 Total when SNF is the 1st PAC1,331$19,55026820.1%43.1 2013-Q2 2014 Memorial Hospital South Bend Episodes where SNF is the 1 st PAC

21. 21 Same DRGs but significant variation. Business practices drive variation more than clinical need. Avg. Episode Payment to SNF Providers Highest Volume DRGs and Highest Total Volume SNF Providers SNF Cost-Efficiency Variance by Episode

22. Revenue and Patient Relationships Going to Competitors 22 HH Provider Episodes to HHPayments to HHDirect Readmissions Total% to TotalTotal PaymentsAvgTotalDirect Readmit Rate State Average*$2,93119.9% National Average*$2,85116.1% Hospital Owned HH60651%$1,809,898$2,98710217% Hospital Owned HH867%$222,698$2,5901821% HH 115213%$437,211$2,8762013% HH 2514%$134,675$2,6411835% HH 3474%$174,707$3,71749% HH 4313%$88,614$2,859619% HH 5282%$111,628$3,987518% 42 providers with less than 25 episodes 17715%550715.73$3,1853620% Grand Total1,178100%$3,530,147$3,03820918% 2013 Memorial Hospital South Bend Hospital Referrals to Home Health How much Home Health business goes to competitors post discharge? How much Home Health business goes to competitors when they leave the SNF? Are discharge planning processes set up to support utilization of our owned PAC assets?

23. Moving From Assessment to Implementation 23

24. Post Acute Network Development Approach 24 1.Convened Post Acute Summit to announce initiative to select PAC community 2.Identified PAC partners (cost-efficiency/quality/collaborative IQ) 3.Gained agreement on PAC conditions of participation and Scorecard Measures 4.Worked toward execution of performance-based Alignment Agreements (with teeth). 5.Developed Care Models for high volume/at risk episodes and enforce adoption by PAC partners (the “new” relationship). 6.Educated and gained Case Management buy-in to adjust discharge planning consultation and patient choice letter/script 7.Implemented PAC Network ongoing performance measurement, feedback mechanisms and management structure 8.Implementing IT solutions/connectivity for automated exchange of patient information 9.Developing the ROI and implement evidence-based readmission mitigation programs and LOS monitoring (NP rounding, telemedicine solutions) 10.Monitoring economic value of shifting referral patterns and elevated quality (BPCI, ACO, Patient retention metrics) The Roadmap

25. The Early Returns 1.Bundled Care Model development drove standardization and collaboration between Beacon hospitals 2.Care Model development increased care standardization and reduced variation among post-acute care providers 3.Improved patient discharge placement – Right Time. Right Place. 4.Increased utilization of Home Care 5.Non-aligned providers working to improve performance Assess Design Implement 25

26. Lessons Learned 1.Communication during process is essential 2.Have key stakeholders in process 3.Data, Data, Data 4.Develop and adhere to agreed-upon selection criteria and process 5.Be prepared for shift in physician interest 6.Supporting infrastructure is essential 7. Insure Executive support in place for inevitable reaction from those adversely impacted by the change Assess Design Implement 26

27. Questions? 27