David Lansky, PhD President & CEO

1. David Lansky, PhD President & CEO Value Purchasing and the Evolving Healthcare MarketHoag Forum on Healthcare 2012October 15, 2012

2. PBGH Members

3. Rising health care costs Eat away at wage growth Threaten profitability Cause employers to reconsider providing health benefits

4. Employer concerns Costs continue to rise Quality of care is variable, with little transparency Cost of care is unrelated to quality, with wide variations Current tools – Consumer directed health plans, Pay for performance, quality measurement – having little impact Hope for health plans to fix the problem has faded Hope that managed care will lead to cost reduction has faded Most delivery systems and health plans show little motivation to seek efficiencies, improve quality, reduce waste Health reform is unlikely to slow cost increases Consolidation of health plans and provider systems is likely to lead to increased prices Time for fundamental re-evaluation

5. Likelihood of Employer “Exit”

6. Is it important to keep employers in the game? Benefits of keeping employers engaged: • closer to workers and their families • able to link wellness to medical strategies • able to identify high risk patients and offer support and interventions • seen as more trusted source of information than health plans • able to shape benefit design and influence consumer behavior • closer to local delivery systems – able to collaborate • “active purchasing” • able to pool lives to create market pressure on providers • able to apply political pressure on “demand” side . . . and drawbacks: • only cover about one-half of the population • highly fragmented • mixed motives – both perceived and real • varied levels of sophistication • lack of continuity over time • job lock and retiree cliff

7. Inside look at PBGH Members’ Minds

8. Our Spin on “Value Purchasing” Payer and provider consolidation limits purchaser power Employers’ (and public sector) fear of “disruption” limits willingness to act Employers’ perceived need for large networks, essential providers limits willingness to purchase selectively Patient and consumer beliefs about health care limit employer willingness to challenge behaviors Need multi-faceted strategy: • Consumer engagement: incentives and information • Paying for value: prompt health plans to change payment models towards incentive models that reward providers for outcome-based results • Care redesign: work directly with providers to change care processes and move towards risk-based delivery system configuration • Policy change: align with federal payors and key health reform proposals

9. Elements of Consumer Engagement Goals: • Get more patients into the hands of high quality, efficient providers • Improve lifestyle behaviors and self-care • Participate in care plans and in decision-making Narrow and tiered networks Value based benefit design Reference pricing Quality transparency at provider level Cost transparency Prevention and health promotion

10. CalPERS: applying the concept to hip/knee replacements Price varies from $15,000 to $110,000 (commercial PPO population) Anthem Blue Cross and CalPERS have established a threshold of $30,000 – reference price – for a standard inpatient hip/knee replacement procedure. Increased volume of procedures at low-cost hospitals by ~7% Amount paid per surgery ~26% lower in pilot

11. Reference Pricing Reference pricing for colonoscopy Reference price = $1500

12. Elements of Paying for Value Goal: incent providers to utilize evidence-based medicine, increase clinical data sharing and collaboration across care continuum. • Shift towards global payment – episodes, ACOs • Primary care medical homes • Advanced medical homes –intensive outpatient care program • Catalyst for Payment Reform – contract language for plans • Pay for performance • Registries to document value • Reducing effects of market consolidation

13. Shifting payment to reward value

15. Elements of Redesigning Care Goal: assist providers in system redesign to optimize outcomes • California Quality Collaborative • Intensive Outpatient Care Program (IOCP) • Support for clinical decision support systems (MU2) • Support for Appropriate Use Criteria • Addressing Scope of practice, regulatory barriers • Disruptive models: onsite clinics, retail points of service, medical tourism

16. Care Coordination: a Powerful Tool

17. Appropriate or Inappropriate?

18. Cockpit of strategies to increase appropriate care

19. Better information to support consumer and purchaser decisions California Joint Replacement Registry California Maternal Data Center • 1. Identify higher value specialists and encourage their use through: • pay for performance • episode payment • reference pricing • tiered networks • value based benefit design • 2. Increase selection of cost-effective technology (implants) • 3. Increase patient engagement in cost-conscious decisions – choice of hospital, surgeon, treatment

20. A Policy Agenda to Drive Value Measurement of health system performance / information infrastructure • Quality measurement: outcomes, care coordination, patient experience • Meaningful use of Health Information Technooogy • Health information exchange among providers Transparency and public reporting • Hospital Compare, Physician Compare • Price transparency Payment reform • Medicare Hospital Value Based Purchasing, Physician Value-based Modifier, bundled payments Delivery system reform • Accountable Care Organizations, Primary care medical homes Other key value-promoting policies • Exchanges • Addressing market concentration Alignment of private and public sector purchasing strategies

21. Provider System Consolidation Can Increase Prices

22. What can regional employers do? • Set expectations with your health plans • Contract language for payment changes • Choose tiered or narrow products • Evaluate your benefit plan for value-based benefit design • Insist on meaningful quality metrics • Insist on price transparency • Get access to cost calculator tools • Get your data, and contribute to California Healthcare Performance Initiative • From the third-party vendor market • Explore cost calculator tools • Explore wellness and incentive vendors • Working directly with providers • Consider direct contracting • Consider on-site clinics and services

23. For more information please visit: • Learn more about the Pacific Business Group on Health and our effort to improve the quality of health care while moderating costs at www.pbgh.org • Learn more about our work to bring employers, consumers and labor organizations together to improve access to publicly reported health care performance information at www.healthcaredisclosure.org • Learn more about our efforts to reform payment at www.catalyzepaymentreform.org