Sg2 Special Report Accountable Care Organizations

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1 S2 Special Report Accountable Care Oranizations

2 The Bi Picture In the first months since the passae of health care reform leislation in March 2010, no topic has arnered more collective consideration and hand wrinin than the accountable care oranization (ACO). Based on many years of work at the Dartmouth Atlas on the failins of a volume-driven health care delivery system and a relatively recent report from the Medicare Payment Advisory Commission (MedPAC), the ACO concept has become a full-fleded movement to foster local accountability for health care quality, cost and access. Will ACOs succeed? It s too soon to tell. In the end, that may not even be the relevant question. Success durin the reform decade will stem not from a particular structural solution or payment model but rather from the manner in which you oranize health care in your community to meet the needs of specific types of patients. S2 s messae to health care providers is to develop the oranizational competencies that optimize Clinical Alinment and Resource Effectiveness (CARE) to build hih-performin Systems of CARE. In the next 3 years, it is imperative to assemble the buildin blocks that will improve health care value for all stakeholders, no matter how payment and insurance evolve.* Expect the term ACO to morph into a wide rane of shared savins models between hospitals, physicians, payers and employers. Some models will succeed some will not. Many commercial payers will move faster than Medicare. Evaluate partnership options with employers, payers, physician roups and hospitals that make sense for the communities you serve. Anticipate encounterin many economic, operational, clinical and cultural challenes in your journey toward a set of solutions that work in your market. Start now to do the hard work to prepare for a decade of increased accountability. A hih-performin System of CARE establishes the elements necessary to succeed in an ACO marketplace. Despite many complexities, challenes and linerin uncertainties, the competencies underpinnin ACOs are worthy of serious attention and steady work that must bein today. *For more detailed analysis of health care reform and its impact on care providers, please refer to the S2 Special Report: The Impact of Health Reform. 1 Confidential and Proprietary 2010 S2

3 Accountable Care Oranizations What Is an ACO? Broadly speakin, an ACO may be defined as a set of providers associated with a defined population of patients, accountable for the cost and quality of care delivered to that population. The Medicare SSP: The Patient Protection and Affordable Care Act (PPACA) of March 2010 authorized a Medicare Shared Savins Proram available to accountable care oranizations that meet a defined list of oranizational criteria. Participatin oranizations have the opportunity to share savins with Medicare for an assined population relative to a set of quality metrics and a total cost of care benchmark. The pilot beins in January of The Commercial Play: Providers, physician oranizations, payers and employers have beun to create a wide array of shared savins prorams that move beyond existin pay-for-performance initiatives. Models will vary in their size, structure, duration, economic approach and performance imperatives. Some will resemble full capitation models; others may taret specific disease cateories or plan types. Some oranizations will participate in the 3-year Medicare Shared Savins Proram (SSP) beinnin in In addition to adoptin some fundamental care delivery chanes, these oranizations should anticipate many challenes and frustrations with reulatory complexity, CMS patient assinment methodoloies and retrospective Medicare claims analysis. Many oranizations will enter nexteneration, pay-for-performance initiatives with local physician roups, payers and employers. These models will be challenin to set up but will allow for more precise patient taretin, easier monitorin of patient populations and flexibility to chane approaches over time. All oranizations must bein to prepare for payment models that require a reater level of accountability around specific cost and quality metrics. CMS = Centers for Medicare & Medicaid Services. Confidential and Proprietary 2010 S2 2

4 S2 Special Report What We Know And What We Don t What is an ACO? Beyond a handful of paes in reform leislation around shared savins, coordination of services, investment in infrastructure and redesined care processes, no clear definition yet exists. Over time, an ACO will comprise a wide array of approaches for assumin clinical risk, improvin quality and reducin the rate of expenditure rowth for defined populations of patients. Medicare s definition of an ACO will be clarified in late 2010 and may differ from commercial payment approaches. What will ACOs try to do? ACOs will try to improve quality and reduce the cost of care throuh different approaches to disease manaement, risk manaement, telephonic patient manaement, home monitorin, transitional case manaement, palliative and end-of-life care, quality improvement initiatives and care standardization. Specific tarets for cost reduction will be avoidable admissions, readmissions, overuse of dianostic tests and emerency department visits, as well as hih rates of certain elective surical procedures. Who can form an ACO? While provider systems have expressed the most interest thus far, ACOs will eventually include different combinations of health plans, physician roups, hospital systems, physician-hospital oranizations (PHOs) and independent practice associations (IPAs). Is this 1994 all over aain? Yes and no. Information technoloy (IT) has evolved, quality metrics have matured and physicians are more interested in participatin, but the oal of reducin utilization of hih-cost services remains the same. This time the models will focus more on the patient and quality and are more likely to succeed. Do ACOs already exist? Not exactly. Kaiser Permanente and health systems that own insurance plans possess the infrastructure and many of the competencies that will eventually define ACOs, but the best examples of ACOs are the physician roups that have participated in the Medicare Physician Group Practice Demonstration pilot. Their experiences in tryin to achieve savins tarets for Medicare provide the best uidance for any oranization interested in naviatin the ACO landscape. Who is best prepared to become an ACO today? Those oranizations with direct experience in commercial capitation plans, lare multispecialty physician oranizations, Medicaid and Medicare manaed care prorams and/or those providers operatin under Federal Trade Commission (FTC) approved clinical interation models will have a relatively easier time movin to an ACO model. Should my oranization become an ACO? You don t have to, and an ACO structure may not make sense for your oranization or market. Over time, however, all physicians and hospitals will work under a variety of pay-for-performance prorams that reward care coordination, clinically indicated utilization of health care services and exceptional quality. Your market share will depend upon your ability to manae hih-performance Systems of CARE. How will patients benefit from ACOs? Patients with chronic conditions may benefit from improved care, better care coordination and increased access, but many ACO structures may be invisible to patients and families. Some commercial ACOs may experiment with ways of sharin savins with enrollees; others may promise reduced insurance premiums. 3 Confidential and Proprietary 2010 S2

5 What We Know And What We Don t (Cont d) Accountable Care Oranizations How are ACOs different from bundled payment? Bundled payment refers to a packaed price for hospital and physician services for a defined care episode. Medicare is pilotin bundled payment for certain cardiac and orthopedic procedures throuh the ACE Demonstration project. Bundled pricin is one approach that ACOs may use to reduce costs. How is an ACO different from the medical home model? The medical home refers to a variety of patient-centered, team-based care coordination models that often focus on chronic disease populations. Many ACOs will use medical home approaches to achieve cost-savins tarets. The lessons learned from medical home pilots in patient trackin, performance measurement, reportin and communication will be invaluable to oranizations developin ACOs. As an ACO, will it be necessary for us to have our own health plan? No. ACOs are more about clinical risk (ie, reducin utilization and improvin quality) than insurance risk. Payers will have important roles to play in ACOs in manain claim streams, actuarial issues, enrollment and risk adjustment. How much is this oin to cost us? The answer will vary dramatically by oranization. On averae, participants in the Medicare Physician Group Practice Demonstration spent about $500K to initiate the pilot and over $1M on annual internal initiatives to administer the proram and deploy new care delivery models to support proram oals. Far hiher than these costs may be the cost of time invested across an oranization and the opportunity cost of not focusin on other priorities. What will the minimum scale be? An ACO must be of sufficient size to ensure actuarial stability. MedPAC suests no fewer than 50 physicians and 5,000 patients, but most pilots will be many times larer. Tyin financial incentives to cost and quality metrics will require a lare enouh patient base to minimize the unavoidable static in the data. Larer ACOs will have more stable patient risk pools and the capital to support the infrastructure, analytics and reportin requirements to manae to the tarets. Will the electronic medical record (EMR) system be enouh? Unfortunately, no. The inpatient and outpatient EMR is just the beinnin. A level of analytic capability and real-time responsiveness above current clinical documentation will be required. Tools to help with predictive modelin and risk stratification also will be important. Efficiently and leally sharin information across oranizations and care sites will be essential for care coordination, quality improvement and cost reduction. How do we do this without violatin leal concerns? Movin in this direction, especially with independent physicians, is rife with leal reulations, includin Stark law, fraud and abuse concerns, antitrust issues and potential challenes to tax-exempt status. CMS, OIG, IRS and a host of others still need to weih in on the leal hurdles. In the meantime, involve your leal team in even the early conversations to minimize these risks. What if the whole thin doesn t work? Good question. Cultivatin the qualities of a stron accountable care oranization will be needed anyway, whether you pilot an ACO in the near-term or ear up for the Medicare Shared Savins Proram. The principles underpinnin ACOs are worthy of early attention and action. ACE = Acute Care Episode; OIG = Office of Inspector General; IRS = Internal Revenue Service. Confidential and Proprietary 2010 S2 4

6 S2 Special Report Timeline of Reform A Decade of Medicare Reform and Shared Savins Prorams Fall 2010: CMS to release formal uidelines on Medicare Shared Savins Proram 2012: Initiation of Medicare Shared Savins Proram (January 1) Implications What the Law Says Additional ACO-Related Provisions : Extension of ainsharin demonstration project (2010) Medicaid lobal payment demonstration project (2010) Medicare pay-for-reportin via electronic reistries (2010) Center for Medicare and Medicaid Innovation beins testin new payment and delivery models (2011) Plans submitted for VBP proram for skilled nursin, home health, ASCs (2011) Center for Medicare and Medicaid Innovation reinforcin payment reform (2011) : The Prelude : Medicare VBP proram (2012) Initiation of pediatric ACO demonstration proram (2012) Payment reductions based on dischares for hospitals with an excess readmissions ratio (2012) Bundled payment demonstration proram for Medicaid patients (2012) Medicare bundled payment proram (2013) Providers move aressively to lock in a primary care base and compete aressively for market share in a slowin market. A rane of ACO models emere hospitals, physician roups and payers take immediate steps to secure the strateies, partners and infrastructure for ACO development in order to meet 2012 Medicare Shared Savins Proram deadlines and similar prorams for the private sector. Medicare ACO proram reulations undero several rounds of refinement throuh the pilot period. States bein experimentin more aressively with ACOs in their Medicaid prorams. Additional incentives emere for providers to coordinate with post-acute care providers. New care delivery models, like the patient-centered medical home, ain momentum amon commercial payers. Commercial payers bein to neotiate provider contracts more aressively and relaunch narrow network options. Network provider models reemere in some markets. Employers become more aressive in transitionin to hih-deductible plans with reat cost-sharin requirements. VBP = value-based purchasin; ASC = ambulatory surery center; HAC = hospital-acquired condition. Sources: PPACA, 2010; Hastins D. The timeline for accountable care: the rollout of the payment and delivery reform provisions in the Patient Protection and Affordable Care Act and the implications for accountable care oranizations. BNA Health Law Reporter March 2010; Kaiser Family Foundation. Health Reform Implementation Timeline. 2010; S2 Analysis, Confidential and Proprietary 2010 S2

7 Accountable Care Oranizations : Efficiency measures added to Medicare VBP proram (2014) Quality reportin mandates for lon-term care hospitals, rehab and hospice prorams; rate reductions for noncompliance (2014) 1% payment reductions for hospitals in the hihest HAC dischare quartile (2015) Medicare fee reductions for physicians who do not meet data submission requirements for quality measures (2015: 1.5%, then 2%) : Medicare bundled payment proram potentially extended (2018) MedPAC independently implements more aressive payment reform models Next-eneration payment pilots launched : Market Expansion : Reulation and Restructurin Rapid coverae expansion occurs: first steps are taken toward 32M additional Americans receivin coverae. State insurance exchanes include provider-specific benefit plans. Hospital and insurance payment rates flatten and become a matter of public record. Many markets achieve successful reduction in disease-specific utilization rates. Medicare ACO prorams and commercial models evolve into a portfolio of shared savins initiatives. Medicare physician payment reform phases in over multiple years and accelerates provider consolidation. Capacity constraints intensify in certain specialty areas in some markets, hihlihtin an increasinly tiered health care system. ACOs bein to span larer reions. ACO success metrics evolve from process based to outcome based. Hospitals become cost centers for ACOs. New proposed Medicare reulations create uncertainty for the next decade of health reform. Confidential and Proprietary 2010 S2 6

8 S2 Special Report Positionin for ACO Development What s in It for Each Player? Development of hih-performin Systems of CARE or formal ACOs requires a deep, local understandin of the current capabilities, perspectives, biases and incentives of each potential participant. Overcomin structural barriers, cultural resistance and infrastructure limitations will take a combination of time, a willinness to experiment, carefully calibrated incentive models and a clear strateic upside for each player. Employers Lare employers may see an opportunity to reduce overall employee benefit costs, particularly if their employee population includes a hih percentae of individuals with chronic illnesses or with unusually hih utilization rates for certain elective procedures. At the same time, employers may be reluctant to participate in any untested proram that requires them to release claims data or could raise concerns about employee health care confidentiality. Payers Established payers are already takin steps to prepare for the post-2014 marketplace. They may see an opportunity to increase market share by developin lower-cost, hiher-service insurance products for small roups and individuals. They may question providers willinness to work under a different rate structure or to share in the downside if promised savins do not materialize. Physicians Independent and alined physicians may be suspicious of any proram desined to reduce the cost of health care for payers and hospitals. In order to participate they must receive a fair share of the cost savins and/or receive individual monthly stipends for additional time spent coordinatin care for specific patients who visit their practices. In many markets, the physician may be the stakeholder who least understands the need or reason to undertake ACO initiatives. Extensive onoin education and data sharin will be required to encourae physicians to participate. Community Health Systems Health systems may see the ACO as a vehicle to cement or increase market share, a means to prepare for the economics of the decade ahead or an intellient way to address the health care needs of the populations they serve. Many oranizations may not see the upside of chanin their delivery models before volumebased incentives bein to sunset. Academic Medical Centers Academic medical centers (AMCs) will participate in ACOs in a variety of ways. In some markets AMCs may become the anchors and coordinators of larer reional ACOs or healthcare innovation zones (HIZs). In other markets AMCs may partner with one or more community health systems or physician oranizations to support secondary and tertiary services across the System of CARE. AMCs must also find different ways to participate in a market that will emphasize low-cost primary and secondary care. Patients In order for patients to be willin to participate in this movement, ACOs must either be invisible to them or promise a product that is superior in a combination of cost, quality and access on their terms. 7 Confidential and Proprietary 2010 S2

9 Accountable Care Oranizations ACO Development: A Spectrum of Options The success of ACOs will be defined more by System of CARE competencies than by a specific structure. Fully interated health systems and lare multispecialty physician roups may have advantaes in their ability to initiate and manae pilots, but each ACO model will have its share of benefits and unique challenes. Spectrum of ACO Models Virtual Model Partially Interated Model Fully Interated Model Description Patients assined to ACO based on eoraphic proximity Providers may or may not have any formal structural ties Savins measured retrospectively from eoraphic population claims analysis One proposed approach to lon-term Medicare payment reform Benefits Requires little formal plannin May be an effective option for markets without lare physician oranizations Challenes Desin of shared savins model Limitations and constraints on manain utilization and quality Examples N/A: Awaitin Medicare Demonstration pilot Moderate risk-sharin arranement Collaboration between ACO partners throuh joint ventures, comanaement areements, PHOs, IPAs, clinical interation prorams Creates a deree of financial and clinical interation to move providers toward reater interation over time Capital to develop infrastructure Leadership and overnance structure required to support cultural transition Tucson Medical Center Memorial Hermann Healthcare System Washinton Co/TriState Health Partners Advocate Physician Partners Full risk-sharin collaboration of providers and payers Stron leal ties between parties Patient-centered medical home model Patients enrolled into the ACO Size and scale can be leveraed to invest in needed infrastructure Greater control over care delivery to control costs and improve quality Greater protection from laws and reulations overnin hospitalphysician relationships At full risk for the upside and downside of ACO performance Kaiser Permanente Geisiner Health System Next-eneration clinical interation models Confidential and Proprietary 2010 S2 8

10 S2 Special Report ACO Development: Shared Savins Proram Perhaps the reatest challene in naviatin the ACO environment will be workin under the Medicare Shared Savins Proram or desinin a local shared savins model for commercial pilots. How the Shared Savins Proram Works ACO establishes a spendin benchmark. If quality tarets are met within that spendin taret, shared savins from the payers are then distributed to participatin providers. Incentives are desined to support stroner coordination with outpatient wellness services in order to improve outcomes while meetin spendin tarets. How Do Shared Savins Models Work? Initial shared savins derived from spendin below benchmarks Spendin ACO Launch Time Projected Spendin Spendin Benchmark Shared Savins Actual Spendin Key Questions to Consider How frequently will the shared savins be distributed? What will the distribution percentae be to the parties involved? Will shared savins tarets shift annually? As the shared savins proram evolves, what will be the reasonable level of risk assumed on the downside? Desinin the Shared Savins Plan Locally Each oranization may deploy a slihtly different shared savins approach based on its structure, physician alinment models, accountin systems and cultural tolerance for risk. Potential Startin Places Consider options to enae physicians effectively at the outset, financially incentivize them for pioneerin this with you, and cover some of their costs (e, case manaers hired for a medical home). Incentive payments to physicians for meetin quality tarets Health plan willin to provide seed money to primary care practices for medical home models Example: Per-member-per month proram to ive the physician practices additional money up front for enaement around improvements in disease manaement (e, conestive heart failure, diabetes) Payment Models Will Advance Toward Greater Risk and Reward Simple Shared Savins ACO to continue to be paid on a fee-for-service basis Provides an easy, low-risk startin place for providers with little or no up-front resources required, thouh limited rewards Symmetrical At risk for spendin exceedin projections Offers the reatest rewards but also creates stron incentives for savins Partial Capitation Up-front payments, plus a share of the savins Prospective payments offer up-front resources, but reater risk involved will require stroner financial oversiht Sources: Brookins-Dartmouth ACO Learnin Network Webinar, September 3, 2009; Fisher E. Why accountable care? Core principles underlyin ACOs. The Dartmouth Institute for Health Policy and Clinical Practice: June Confidential and Proprietary 2010 S2

11 Accountable Care Oranizations ACO Development: Performance and Growth Analyses Avoidin the same pitfalls of the 1990s will require ACO partners to maintain the riht focus: performance improvement across the continuum of care and smart rowth. Performance and Growth Analyses Preparin to become an ACO can bein with askin, How well are our disease-specific Systems of CARE doin currently? This requires analyses beyond the inpatient settin to measure and improve performance in the community-based and rehab/recovery care sements as well. Concise yet proressive metrics will be essential. Use Metrics to Gaue Performance Across the System of CARE Community-Based Care Acute Care Recovery and Rehab Care Avoidable Admissions Potentially avoidable admissions Avoidable visits Lenth of Stay Lenth of stay and associated cost per case Readmission 30-day readmissions Multiple readmissions Key Considerations Bein by establishin common disease-specific quality metrics across all sites and providers of care. Develop the capability to compare quality by site of care and by physician. Build momentum with sustainable chane at the disease level, then implement larer-scale efforts toward the formation of an ACO. Performance and Growth Indices The S2 Value Index is a scorin system desined to help hospitals set performance improvement oals that will brin about measurable chane. Scores are derived usin key metrics that span the care continuum, includin potentially avoidable admissions, LOS, cost per case and 30-day readmissions. Monthly updates and 24-month trendin analysis track the effectiveness of performance initiatives and provide comparisons aainst leadin practices and peer hospitals in the S2 database. The S2 Growth Index profiles your existin patient mix and illustrates how it influences your oranization s ability to achieve profitable and sustainable rowth. It examines your oranization s rate of potentially avoidable admissions and 30-day readmissions to determine whether you have the necessary primary care infrastructure and care coordination processes to capture appropriate rowth and lessen financial risk. As such, the S2 Growth Index serves as an impetus for discussin opportunities for investment, partnerin and buildin to create your optimal System of CARE. For more information, see paes and visit Confidential and Proprietary 2010 S2 10

12 S2 Special Report ACO Development: Readiness Assessment A careful and balanced assessment of ACO readiness will hihliht existin strenths and potential aps impactin early development plans. Vision, Leadership and Culture c Clear vision of what you are tryin to achieve throuh the Prelude period of reform c Deep leadership team with stron physician and nursin executives c Cultural readiness and incentive structure to work under different accountability and incentive models Cost and Quality Performance c Wae index and case mix adjusted cost per case c Lenth of stay c Utilization rates for specific elective procedures c Current operatin marins relative to Medicare rates c 30-day readmission rate c PQI rate (potentially avoidable admissions) c Patient satisfaction and loyalty c S2 Value Index* c Physician-level quality and cost data c Disease-specific quality metrics Existin Strenths c Cohesive, closely alined primary care base c Experience with Medicare Advantae c History of workin under capitation c Existin durable physician oranizational structures: PHOs, PSAs, IPAs, MSOs c Own a health plan c Can identify a willin payer for collaboration efforts c Pilot in proress for medical home c Pilot in proress for bundled payment c Lare employed medical roup c Potential partners: lare multispecialty roup, AMC, community hospital in adjacent market c Participation in ACO collaboratives: Brookins- Dartmouth, Premier, AMGA or reional c FTC-approved clinical interation proram Market Strenth c Disease-specific operatin scope and scale c Market share in primary and secondary service area c Physician loyalty relative to competition c Smart Growth position (inpatient and outpatient; S2 Growth Index* defines smart rowth as appropriate, profitable and sustainable) c Market share reach and penetration c Stron balance sheet and cash flow position c Strateic partnerships across the continuum Essential System of CARE Competencies c IT system deployed across the care continuum c Ability to use data and analytics to measure and monitor performance c Experience in creatin strateic partnerships across the continuum c Success in reducin unnecessary admissions by taretin hih-risk patient populations c Capability to track patient care and ensure follow-up c Robust resources for patient education and selfmanaement c Leadership skills to plan, oranize and deliver clinically interated care c Adept at acceleratin implementation timelines for performance initiatives *See appendix, pae 17, for more information on S2 analytics. See pae 16 for more details. PQI = Prevention Quality Indicator; PSA = professional services areement; MSO = manaement services oranization; AMGA = American Medical Group Association. Sources: Miller HD. Pathways for Physician Success Under Healthcare Payment and Delivery Reforms. AMA and Center for Healthcare Quality and Payment Reform: June 2010; S2 Analysis, Confidential and Proprietary 2010 S2

13 Accountable Care Oranizations ACO Development: Private Sector Examples Leadin Practice: CalPERS Pilot, Northern California Backround CalPERS Pilot includes several elements and buildin blocks of an ACO, althouh the proram is not explicitly referred to as an ACO. Partners include Catholic Healthcare West (CHW) hospitals, Hill Physicians IPA and Blue Shield CA. Initial discussions bean in 2008 with an official launch in January ,000 CalPERS members are included in the pilot. A separate entity was not formed; the model is a virtual corporation between the 3 parties. Current focus is on the commercial HMO product. Structure Objective: to reduce the cost of health care and improve quality and service for CalPERS members at lower premiums. CalPERS members are financially motivated to select NetValue Providers. In CY 2010, Blue Shield NetValue had lower employee out-of-pocket contributions compared to the previous year. Blue Shield provides some level of risk adjustment. Early areas of focus are utilization and cost reduction opportunities in hips, knees, spine, ynecoloic surery and bariatric surery. A 3-way risk-sharin areement across 6 service cateories, tracked monthly, allows parties to share in the upside and downside of financial performance within the quality parameters. Challenes Cultural obstacles in coordinatin the payer, hospital and physician perspectives Enain members directly to provide information and incentivize desired behavior chanes Desinin an effective population manaement system Creatin efficient, reulatory compliant and effective information sharin across the 3 parties to support real-time access to the inpatient clinical record and patient manaement across the continuum Critical Success Factors 40,000 members: sufficient size to create meaninful data A well-manaed IPA Stron utilization manaement strateies: Shared information throuh the EMR system Teach back proram: patients are asked to repeat back to the nurse prior to dischare why the follow-up visit with their primary care physician is necessary Daily rounds to directly enae careivers in reviewin the patient s clinical pathway, identifyin posthospital needs and securin authorizations for dischare Prior authorization to enforce evidence-based medicine Focus on clinical pathways Preventin non-chw admissions and readmissions Public validation of the pilot from CalPERS Early emphasis on and enforcement of collaboration by senior manaement to build a necessary level of trust and relinquish historical turf to allow for information sharin Addressin the many leal issues impactin information sharin Alinin financial incentives across stakeholders CalPERS = California Public Employees Retirement System; HMO = health maintenance oranization. Source: S2 Interview With CHW, July 19, Confidential and Proprietary 2010 S2 12

14 S2 Special Report ACO Development: Private Sector Examples (Cont d) Leadin Practice: Tucson (AZ) Medical Center (TMC) Backround Initial discussions in 2007 focused on structures for buildin stroner alinment with primary care physicians (PCPs) and specialists throuh 2 comanaement areements (cardiovascular, orthopedics/neurosurery). TMC operates in a hihly competitive market. The majority of physicians on the Tucson medical staff are independent. TMC has 1 small employed medical roup. Stron support for developin an ACO came from UnitedHealthcare of Arizona. Structure United Healthcare started 7 patient-centered medical home pilots in Arizona: 4 are in Tucson (1 with TMC s employed physician roup); the other 3 are with independent physician roups. In September 2009 TMC was named 1 of the 3 Brookins-Dartmouth pilots, alon with Norton Healthcare in Louisville, KY, and Carilion Clinic in Roanoke, VA. A steerin roup of physicians has been formed to lead the ACO development process. Members were already participatin in patient-centered medical homes and were specifically selected to be part of the ACO development. Approximately 50 to 60 primary care physicians will participate in the ACO. The shared savins plan is in the development phase, led by the physician steerin roup. On June 1, 2010, the plan went live on EPIC. An MSO will provide traditional manaement support for the ACO and the medical home models, alon with billin services. There are plans to develop an LLC structure with TMC as a minority partner, structured similarly to the current comanaement LLCs in place. Next steps include: contracts with UnitedHealthcare; preparin for the Medicare Shared Savins Proram; developin the infrastructure for information sharin across parties; and creatin the quality metrics and reportin processes. Challenes Internal concerns reardin the impact to the hospital had to be addressed. The hospital and UnitedHealthcare are tryin to determine how the pilot will affect utilization that favors the hospital today. Lessons Learned and Critical Success Factors Creatin a collaborative model that was physician driven rather than hospital centric was critical. Initiatin strateies 3 years before implementation helped to develop stroner physician relationships. Developin comanaement areements increased trust to support a new level of dialoue. Stron support from UnitedHealthcare of Arizona has been essential. Source: S2 Interview With Tucson Medical Center, May 21, Confidential and Proprietary 2010 S2

15 Accountable Care Oranizations ACO Development: Private Sector Examples (Cont d) Leadin Practice: Sentara Healthcare, Norfolk, VA Backround Sentara has an inpatient and outpatient EMR system; 7 of the 8 hospitals are on the inpatient system, and nearly all of the employed physicians are on the ambulatory EMR. A 400+ employed medical roup focuses mainly on primary care. Sentara s health plan (Optima) has 400,000 covered lives; 20,000 members are in an ACO readiness pilot initiative. Structure Objective: Assess the infrastructure needs of an ACO by January 1, Focus was on manain select chronic disease patients within the Optima membership. The ACO pilot identified 5 employed primary care practices. Optima patients represent 20% to 25% of the practices. ACO efforts are part of the Sentara Healthcare Transformation of Care Strateic Imperative, led by Sentara CEO, Howard Kern. Development is timed to assess value of participation in the Medicare Shared Savins Proram, while utilizin the pilot to facilitate accountable relationships between the Optima member and the PCP, the PCP and specialists, and the PCP and the hospital and other post-acute providers. As more information is athered, enaement of other commercial payers concernin Sentara s capabilities and the payers objectives will be more meaninful and actionable. The CEOs of the health plan and the medical roup are the cosponsors of the Alinment and Accountability Initiative, which includes ACO development and bundled payment plannin focused on total care payments and total cost of providin care across a continuum of services. PHO, clinical interation and foundation models are bein discussed as potential structures for independent PCPs to manae assets and distribute savins. An MSO, developed usin health plan capabilities but offered as a separate product of the health system, is a potential means to offer provider and insurer contractin and a payment adjudication structure for the Sentara ACO and other ACOs. A development team will consist of physician providers (independent and employed), facility executives and health system executive leadership, as well as Optima health plan representatives. Specialists are initially reimbursed for their time spent desinin standardized care processes, or throuh reinvestment in clinical proram development. The desired endame is a risk-bearin oranization assumin the total cost of care. Challenes Financial modelin and creatin the value proposition, especially for the hospital, iven the sinificant impact expected Forecastin how expected chanes will impact components of the delivery system and riht-sizin future services, from scope of services to location, to better use of existin investments Forecastin expenditures, with concerns over the accuracy of forecastin total cost of care based on past expenditures Manain internal preconceived notions of what an ACO is and articulatin the important differences between current models and those of the 1990s Determinin how to share savins with independent physicians, especially savins from the production of care Plannin for and enain physicians in an endame without awareness of all the rules and based on rules that will likely chane Lessons Learned and Critical Success Factors Start small and row involvement radually. Small pilots to ain experience, to achieve results and to expand upon are beneficial. Support existed from senior manaement from the outset. Enain the physicians and payers early on in the development process was essential. After a challenin history with an IPA in the 1990s, successful enaement required focusin on the value of clinical interation (e, patient care, better outcomes) to build trust. Sentara remains focused on their oals of excellence in patient care, across a full continuum of services, and excellence measured in terms of quality, costs and service (form follows function). Sources: S2 Interview With Sentara, July 21, 2010; S2 ACO Roundtable Sessions, July 22, 2010; Brookins-Dartmouth ACO Learnin Network Webinar, September 3, Confidential and Proprietary 2010 S2 14

16 S2 Special Report Next Steps: Naviatin the Transition Decidin whether or not to bein the ACO journey requires a focused process involvin key participants and an honest assessment of readiness, capabilities, barriers to success and opportunity costs Develop a shared vision. Determine your specific ACO approach leader or fast-follower workin on essential SoC competencies. Hospital leadership, key physician leaders, board members and payers must work toether to desin a vision of accountable care for the market. Find the riht startin place. Which providers, physician roups, employers and payers will serve as the best partners? Assess the market and competitive landscape. Complete a comprehensive readiness and risk assessment. Perform an S2 Value Index analysis (see pae 17). Address potential barriers. HIPAA/privacy issues Federal and state law FTC approval processes Fraud and abuse statute, anti-kickback statute Competitive/market dynamics Assess infrastructure needs and associated costs. IT system, EMR, reistries, predictive modelin Leal entity Time: leadership, manaement, overnance Analytics Define leadership and overnance structures. Physician-led structures Board of directors roles and responsibilities Manaement team competencies manain risk Reportin value Flexibility to allow for chanes in participation and structure as the ACO evolves Establish shared savins oals. Refine the metrics and define the savins allocation model. Finalize reportin requirements. Model expenditure scenarios. Move toward implementation. Focus your oranization s resources and talent on buildin disease-based Systems of CARE Differentiate your services by demonstratin your ability to Create Value for patients and payers. HIPAA = Health Insurance Portability and Accountability Act; SoC = System of CARE. 15 Confidential and Proprietary 2010 S2

17 Accountable Care Oranizations Appendix Essential System of CARE Competencies Reardless of whether your oranization chooses to take on an ACO pilot or not, you will need to bein the hard work today to develop the competencies and infrastructure necessary to compete in the reform era. Today s Strateies for Improvin Performance to Create Value Deploy an IT system across the care continuum. Use data and analytics to measure and monitor performance. Use subsidies to accelerate physician EMR adoption. Implement robust IT systems to improve clinical appropriateness. Add tools at the disease level. Quantify value to measure proress. Capture financial opportunities throuh performance improvement. Become proficient at predictive modelin and risk stratification. Create strateic partnerships across the continuum. Reduce unnecessary admissions by taretin hih-risk patient populations. Enhance strateic partnerships to improve care coordination. Explore clinical interation to create performance differentiation. Use performance measures to clinically interate employed and independent physicians. Address care coordination needs across the oranization. Analyze potentially avoidable admissions to taret improvements in communitybased care. Use electronic health records and reistries to initiate preventive care. Develop the capability to track patient care and ensure follow-up. Build resources for patient education and self-manaement. Develop leadership skills to plan, oranize and deliver clinically interated care. Improve performance and efficiency with e-visits. Utilize e-care to ensure continuous patient connectivity. Improve performance with care coordinators. Consider an interated patient portal to improve quality of care. Keep clinical and administrative leaders focused alon common oals. Enable effective system decision makin with distributed leadership. Accelerate an implementation timeline for performance initiatives. Focus on performance metrics that close the ap between value and stratey. Prioritize implementation of performance improvement strateies. Confidential and Proprietary 2010 S2 16

18 S2 Special Report Appendix S2 ACO Readiness Analytics Payment reform and reimbursement chanes will increasinly shift care to the outpatient settin while refocusin incentives on value, quality and performance. To succeed in the lon-term, it is imperative that oranizations look beyond the walls of the hospital to identify and prioritize vital performance indicators across the full care continuum. Financial Opportunities Exist if Performance Can Be Improved The S2 Value Index is a scorin system desined to help hospitals set performance improvement oals that will brin about measurable chane. Scores are derived usin key metrics that span the care continuum, includin potentially avoidable admissions, lenth of stay, cost per case and 30-day readmissions. The Value Index also can be used to assess an oranization s readiness to become an ACO. Monthly updates and 24-month trendin analyses track the effectiveness of performance initiatives and provide comparisons aainst leadin practices and peer hospitals in the S2 database. S2 Value Index Summary for Sample Hospital A: Enterprise 31.7 Annual S2 Value Index Potentially Avoidable Admissions Adjusted Direct Cost/Case LOS Index Distressed Performer Lain Performer Standard Performer Stron Performer Top Performer 36.8% 35.2% 32.0% 26.9% 25.5% $4,798 $4,431 $4,116 $3,721 $3, Day Readmissions 13.4% 11.9% 10.8% 9.3% 8.7% S2 Value Index Metric Contribution Impact if a Top Performer PAA $858,509 Adjusted* Cost LOS Index $32.8M $4.4M 30-Day Readmission $316,829 *Wae-adjusted, mix-adjusted direct cost. Source: S2 INSIGHT Database, Key Characteristics of the S2 Value Index Provides a bond ratin for clinical performance Captures effectiveness of System of CARE performance Drives performance to meet today and tomorrow s needs (ACO, reform ready) Interates clinical/operational/financial performance metrics into 1 score Enables action based on relevant peer comparisons Foundationally driven by disease-based analytics Grounded in leadin-practice results criteria, includin performance levels, trends, relative comparisons and interated metrics 17 Confidential and Proprietary 2010 S2

19 Accountable Care Oranizations Appendix Create a Growth Index to Monitor Performance Creatin a Growth Index provides you with a sinle score to measure smart rowth across the care continuum. Over time, you can track how well you are capturin smart rowth throuhout your system and determine which smart rowth areas to focus on. Your Growth Index will increase as you initiate prorams to enhance rowth across the enterprise. Monthly updates allow you to track proress and 12-month trendin. Growth Index Scores Help Answer: Are We Growin the Riht Thins? The S2 Growth Index profiles your existin patient mix and illustrates how it influences your oranization s ability to achieve profitable and sustainable rowth. It examines your oranization s rate of potentially avoidable admissions and 30-day readmissions to determine whether you have the necessary primary care infrastructure and care coordination processes to capture appropriate rowth and lessen financial risk. As such, the S2 Growth Index serves as an impetus for discussin opportunities for investment, partnerin and buildin to create your optimal System of CARE. S2 Growth Index Methodoloy S2 Growth Index is calculated at the enterprise and service line levels to prioritize key areas of opportunity. Sample Hospital Growth Index 67.2 Growth Index = Smart Growth Dischares Total Dischares A score of 67.2 means that 67.2% of the hospital s dischares meet the followin criteria: Non potentially avoidable. Non potentially avoidable cases treated in the acute care settin. Potentially avoidable admissions are defined as inpatient hospitalizations that may be avoided throuh clinician dianosis, education and treatment in the outpatient settin. Non 30-day readmission. Cases not readmitted to the hospital within 30 days of dischare. Positive contribution marin. Cases that enerated a contribution marin (total net revenue minus total direct costs) reater than zero. Calibrate Your Growth Index Score Monthly Health care oranizations are bein challened to row in a manner that is not only profitable, but also clinically appropriate and supported by local community needs. When interpretin and calibratin your Growth Index, consider your current environment. For some hospitals, a Growth Index of 100 may be unattainable due to payer mix, the mission of the oranization and the needs of the community. For others, a score close to 100 may be possible. Growth Index Monthly Breakdown Growth Index Jun 09 July 09 Au 09 Sept 09 Oct 09 Nov 09 Dec Jan 10 Feb 10 Mar 10 Apr 10 May Mo Note: Analysis excludes mom-baby, psychiatric and rehab patients. Confidential and Proprietary 2010 S2 18

20 Anticipate the Impact of Chane S2 s analytics-based health care expertise helps hospitals and health systems interate, prioritize and drive rowth and performance across the continuum of care. Over 1,200 oranizations around the world rely on S2 s analytics, intellience, consultin and educational services Old Orchard Road Skokie, Illinois S2.com

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