History and Future Outlooks for Hospital P4P Richard A. Norling President and CEO Premier Inc.

History and Future Outlooks for Hospital P4P

Richard A. Norling

President and CEO

Premier Inc.

Bringing Nationwide Knowledge to Improve Local Healthcare

Local healthcare

Owners

Affiliates

• Owned by 200 not-for-profit hospitals and health systems• Serving more than 2,100 hospitals and 54,000 other providers • Sharing of clinical, labor and supply chain data for benchmarking• $33 billion in group purchasing volume – largest in U.S.• Highest ethical standards - leading Code of Conduct• Diversity, safety and environmental programs• Recipient of 2006 Malcolm Baldrige National Quality Award

National alliance

Shared goals:

Better outcomes

Safely reducing cost

Overview of Premier/CMS P4P project

Premier is leading the first national CMS pay-for-performance demonstration for hospitals. More than 260 Premier hospitals participate voluntarily.

Findings• Financial incentives did focus hospital executive attention on measuring

and improving quality. • Hospitals performance has improved continuously over time.

Financial incentives / transparency improve hospital quality & performanceHypothesis

Hospital Quality Incentive Demonstration (HQID)Key Facts

• Three year demo (2003-2006); extended for three additional years through Oct. 2009

• 250 hospitals in 37 states

• Quality measures

– First 3 years: 33 nationally recognized measures in five clinical conditions:

• Heart attack (Acute myocardial infarction (AMI))• Heart bypass surgery (Coronary artery bypass graft (CABG))• Heart failure (HF)• Community acquired pneumonia (PN)• Hip and knee replacement surgery (Hip/Knee)

– Second three years: 41 nationally recognized measures in multiple clinical conditions

• Financial incentives

– First three years: Top 2 deciles in each condition rewarded; Penalties for hospitals still in the bottom 2 deciles in each condition (set in year 2)

– Second three years: Awards paid for threshold attainment, most improvement, and top performer; similar penalty methodology

More Patients Are Reliably Receiving Evidenced-based Care

Evidence-based Care ImprovementsAvg. improvement from

4Q03 to 2Q08 in all clinical areas(19 quarters)

55.05%

Clinical Area

Improvement(percentage points)

AMI 23.7%

CABG 66.5%

Pneumonia 65.1%

Heart Failure 54.9%

Hip & Knee 65.1%

Ap

pro

pri

ate

Ca

re S

co

re

CMS/Premier HQID Project Participants Appropriate Care Score:

Trend of Quarterly Median (5th Decile) by Clinical Focus AreaOctober 1, 2003 - June 30, 2008 (Year 1, 2, and 3 Final Data; Year 4 and 5 Preliminary)

70

.7%

30

.0%

22

.3%

34

.7%

27

.8%

72

.7%

34

.1%

28

.0%

43

.6%

34

.1%

75

.7%

45

.8%

34

.7%

50

.0%

41

.2%

80

.0%

48

.7%

39

.0%

53

.8%

53

.6%

80

.9%

68

.5%

43

.8%

58

.5%

63

.6%

80

.6%

77

.3%

44

.3%

62

.6%

72

.1%

85

.0%

82

.9%

50

.7%

64

.6%

78

.6%8

7.0

%

84

.2%

53

.8%

68

.0%

81

.3%87

.8%

86

.6%

60

.9%

72

.3%

85

.7%

88

.2%

91

.9%

62

.8%

75

.8%

85

.9%

89

.6%

93

.3%

67

.6%

78

.1%

89

.5%

88.6

%

91.7

%

70.3

%

78.3

%

87.1

%

90

.0%

91

.7%

82

.6%

79

.2%

90

.0%

90

.0%

93

.3%

82

.8%

82

.5%

86

.4%92

.1%

94.1

%

87.0

%

85.2

%

86.2

%92

.8%

95

.5%

87

.0%

86

.0%

87

.0%93

.5%

92.7

%

77.1

%

85.5

%

86.9

%

76.7

%

93.8

%

96.0

%

82.7

% 87.9

%

89.3

%

84.0

%

94.4

%

96.5

%

87.4

%

89.7

%

92.9

%

84.0

%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AMI CABG PN HF Hip and Knee SCIP

Clinical Focus Area

4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

1Q08 2Q08

Dramatic and Sustained Improvement

HQ

ID C

om

po

sit

e Q

ua

lity

Sc

ore

Avg. improvement across all 5 clinical

areas for median CQS (19 quarters)

18.66%

Clinical Area

Improvement (percentage points)

AMI 8.9%

CABG 14.1%

Pneumonia 25.9%

Heart Failure 31.4%

Hip & Knee 13.0%

CMS HQID Composite Quality Score

CMS/Premier HQID Project Participants Composite Quality Score:

Trend of Quarterly Median (5th Decile) by Clinical Focus AreaOctober 1, 2003 - June 30, 2008 (Years 1, 2, & 3 Final Data; Years 4 and 5 Preliminary Data)

89

.6%

85

.1%

70

.0%

64

.0%

85

.1%

90

.0%

85

.9%

73

.1%

68

.1%

86

.7%

91

.5%

89

.4%

78

.1%

73

.1%

88

.7%

92

.5%

90

.6%

80

.0%

76

.1%

90

.9%93

.5%

93

.7%

82

.5%

78

.2%

91

.6%

93

.4%

94

.9%

82

.7%

81

.6%

93

.4%

95

.1%

96

.2%

84

.8%

83

.0%

95

.2%

95

.77

%

97

.01

%

86

.30

%

84

.38

%

95

.92

%

96

.0%

96

.8%

88

.5%

86

.7%

96

.6%

96

.1% 98

.3%

89

.3%

88

.8%

97

.1%

96

.8%

98

.4%

90

.1%

90

.0%

97

.8%

96

.8%

98

.4%

91

.4%

89

.9%

97

.9%

97% 98

%

92%

90%

98%

97.0

%

97.7

%

92.4

%

91.6

%

97.9

%

97.6

%

97.8

%

93.5

%

93.2

%

98.0

%

97.5

%

98.4

%

93.4

%

93.4

%

98.1

%

98.3

%

98.5

%

94.2

%

94.2

% 97.4

%

92.3

%

98.2

7%

99.0

1%

94.8

5%

94.9

0% 97.4

6%

94.1

1%

98.5

4%

99.1

9%

95.9

0%

95.3

8% 98.1

6%

95.2

7%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

AMI CABG Pneumonia Heart Failure Hip and Knee SCIP

Clinical Focus Area

4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

1Q08 2Q08

A composite of 19 measures shared in common between HQID and Hospital Compare shows P4P hospitals performing above the nation as a whole

In Broader Comparison, HQID Hospitals Excel

National Leaders in Quality Performance

• HQID participants avg. 6.5% higher than Non-Participants

• Avg. improvement for HQID participants = 7.8%

• Avg. improvement for Non-participants = 5.6%

New England Journal of Medicine publication by Lindenauer et al. (February 2007) found that hospitals engaged in P4P achieved quality scores 2.6 to 4.1 percentage points above other hospitals due solely to the impact of P4P incentives.

HQID hospitals have higher quality ratings* than national hospitals overall *CMS process score

Premier Performance Pays Research

Hospital Costs for Pneumonia Patients

6,000

8,000

10,000

0 to 50% 51 to 99% 100%

Ave

rage

Hos

pita

l Cos

ts

Premier’s Performance Pays study demonstrated that when evidence-based care is reliably delivered, quality is higher and costs are lower.

The recently updated study using all payors and three years of data(over 1.1 million patients), confirms this result.

Mortality Rate for CABG Patients (%)

0%

2%

4%

6%

0 to 49% 50 to 74% 75-100%

Mor

talit

y R

ate

(%)

Patient Process Measure Patient Process Measure

Study finds higher reliable care yields lower mortality rates for heart bypass surgery patients

Study finds higher reliable care yields lower hospital costs for patients with pneumonia

Improvement and Savings Over Three Years

Avg. cost improvement per patient across all clinical areas

$1,063

If all hospitals in the nation were to achieve this improvement, the estimated cost savings would be greater than $4.5 billion annually with estimated 70,000 lives saved per year

Avg. improvement in mortality across four clinical areas

1.87%

Clinical Area Improvement

Heart Attack $1,599

Heart Bypass Surgery

$1,579

Pneumonia $811

Heart Failure $1,181

Hip Replacement $744

Knee Replacement $463

Clinical Area Starting Score

Ending Score

Improve-

ment

Heart Attack 8.86% 6.59% 2.27%

Heart Bypass Surgery

2.51% 1.55% 0.95%

Pneumonia 9.28% 6.89% 2.39%

Heart Failure 4.84% 2.99% 1.86%

International Portability of P4P

UK North West “Advancing Quality” Program

England’s largest health authority using Premier/Medicare P4P project as a model for improving patient care

– 40 hospitals across the NW region– Measured in five clinical areas– Program initiated on Oct 1– Expected savings = £17M each year in

reduced LOS, re-admissions

Overview of Advancing Quality

• Value creation is the objective• Measurement is systematic• Measurement supports the objective• Sound logic underlies each performance measure• Selection of measures unambiguous• A measurement culture exists• Clear rationale for incentive compensation• Management encourages open communication of results• Measurement system is simple to use• Measures processes (inputs) and outcomes

Next-Generation of P4P is QUEST: A Focus on Quality, Efficiency, Safety, with Transparency

• A collaborative of more than 160 hospitals treating approximately 2.3 million patients annually, QUEST is designed to help springboard hospitals to a new level of performance.

• QUEST is not theory and rhetoric. It’s about benchmarking, implementing, measuring and scaling innovative solutions to the complex task of caring for patients.

• QUEST’s multidimensional approach is unlike any other attempted.

• QUEST represents a promise for measurable improvements in quality, safety and cost of care for patients and shared results to benefit all in healthcare.

Optimizing Quality, Efficiency and Safety: Moving to High Performance Healthcare Delivery

14

QUEST Advisory Panel

• Agency for Healthcare Research and Quality (AHRQ)

• Alliance for Nursing Informatics, University of Minnesota

• American Board of Internal Medicine • American College of Surgeons • American Health Information

Management Association • American Heart Association• American Hospital Association • American Society for Healthcare Risk

Management (ASHRM) • Blue Cross Blue Shield Association

(BCBSA) • Centers for Disease Control and

Prevention (CDC)• Centers for Medicare & Medicaid

Services (CMS)

• Institute for Healthcare Improvement (IHI)

• International Center for Nursing Leadership University of Minnesota

• John D. Stoeckle Center for Primary Care Innovation, Massachusetts General Hospital

• National Business Coalition on Health • National Patient Safety Foundation

(NPSF) • National Quality Forum • Office of the National Coordinator for

Health Information Technology • The Commonwealth Fund • The Joint Commission• The Rand Corporation

Aggressive, Three-Year Improvement Goals

• Save Lives – Achieve a mortality rate that is 17 percent less than expected.

• Improve efficiency – Reduce inpatient costs below the mid point among participating hospitals.

• Deliver the most reliable and effective care – Deliver every recommended evidence-based care measure for each patient.

• Improve patient safety (year 2 measure) – Prevent incidents of harm in more than 20 categories, including healthcare-acquired infections and birth injuries.

• Increase Satisfaction (year 2 measure) – Dramatically improve the patient care experience.

QUEST Analysis

• If all QUEST hospitals attained the project’s quality goals over the three-year period:

– Patient mortality could be reduced by 17 percent, or 8,628 lives saved a year;

– Reliability of care could improve by nearly 13 percent, or 22,364 more patients receiving all evidence-based appropriate care a year.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

-10 -8 -6 -4 -2 0 2 4 6 8 10

*This Distribution Graph shows the range of variation for the Mortality Ratio of the QUEST charter members. Each dot represents one hospital. The plotted values are based on rounded values.

Distribution of QUEST Hospitals on Observed vs. Expected Mortality RatioBaseline Period: July 1, 2006 through June 30, 2007

QUEST Mortality Goal: Move Hospitals over the Top Performance Threshold (O/E = 0.82)

Top Performance Threshold: 0.82

Our Mortality Measure and Potential Components

QUEST Baseline Performance ResultEvidence-Based Care (TPT 84%)

30%

40%

50%

60%

70%

80%

90%

100%

Top Performance Threshold: 84%

Distribution of QUEST Hospitals on Evidence-Based Care RatesAll-or-None Composite Score

Our Evidence Based Care Performance Measure: “All or Nothing Score”

> 375 Beds + < 375 Beds -

TEACHING

NONTEACHING

> 175 Beds + < 175 Beds -

QUEST Baseline: Distribution of Hospitals on Total Inpatient Cost per Case Mix Adjusted Discharge

Baseline Period: July 1, 2006 through June 30, 2007

Distribution of QUEST Hospitals on Total Inpatient Cost per Case Mix Adjusted Discharge Teaching and 375 beds or more

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

-10 -8 -6 -4 -2 0 2 4 6 8 10

Distribution of QUEST Hospitals on Total Inpatient Cost per Case Mix Adjusted Discharge Teaching and less than 375 beds

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

-10 -8 -6 -4 -2 0 2 4 6 8 10

Distribution of QUEST Hospitals on Total Inpatient Cost per Case Mix Adjusted Discharge Non-teaching and 175 beds or more

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

-10 -8 -6 -4 -2 0 2 4 6 8 10Distribution of QUEST Hospitals on Total Inpatient Cost per Case Mix Adjusted Discharge

Non-teaching and less than 175 beds

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

-10 -8 -6 -4 -2 0 2 4 6 8 10

Top Performance Threshold: $5,460

Top Performance Threshold: $5,570

Top Performance Threshold: $6,520

Top Performance Threshold: $5,550

Our Efficiency Measure (Cost of Care) and Components

Our Harm Measure and Potential Components

Patient Experience: Global Measure Composite Score

Distribution of HCAHPS Top Box Global Measures Composite ScoreQUEST Hospital Compare Facilities

3Q06 - 2Q07

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

-10 -8 -6 -4 -2 0 2 4 6 8 10

Top QuartileThreshold: 72%Mean: 68%Std. Dev: 6.2%N = 124

Our Patient Experience Measure and Potential Components

QUEST Participants Show Improvement Through Second Quarter 2008 (Preliminary Results)

• 7.98% increase in avg EBC Rate of participants from baseline to preliminary 1q08-2q08 data

• 0.11 reduction in the avg Observed to Expected Mortality Ratio among participants from baseline to preliminary 1q08-2q08 data

• $297 decrease in the avg Cost of Care for participants from baseline to preliminary 1q08-2q08 data

Trend of Average Evidence Based Care Rate

for QUEST ParticipantsBaseline and 1q08 Final Data; 2q08 Preliminary Data

77.57% 83.81% 85.55%

0%

20%

40%

60%

80%

100%

Baseline (N=153) Final 1q08 (N=158) Preliminary 1q08-2q08 (N=149 )

Evi

denc

e B

ased

Car

e R

ate

(%)

Trend of Average Observed to Expected Mortality

Ratio for QUEST ParticipantsBaseline and 1q08 Final Data; 2q08 Preliminary Data

0.99 0.93 0.88

0.00

0.25

0.50

0.75

1.00

1.25

1.50

Baseline (N=160) Preliminary 1q08 (N=158) Preliminary 1q08-2q08 (N= 157)

Obs

erve

d to

Exp

ecte

d M

orta

lity

Rat

io

Trend of Average Cost of Care

for QUEST ParticipantsBaseline and 1q08 Final Data; 2q08 Preliminary Data

$5,831$5,585 $5,534

$4,000

$4,500

$5,000

$5,500

$6,000

Baseline (N=162) Preliminary 1q08 (N=155) Preliminary 1q08-2q08 (N=139 )

Cos

t of C

are

($)

Observations on Collaborative Execution

• Transparency and Healthy Competition is Key– Everyone likes being held up as a best performer; no one wants to see

their institution at the bottom of the list

• Trust in each other and in a partner are critical– Data must be credible – not perfect– Since the group is entirely open with results, both good and bad, there

needs to be a trust that information won’t be misused

• Focusing on a “higher purpose” can excite and motivate and makes competitive concerns less important– By constantly focusing on the improved health of the patient and the

community, the group engages in true collaboration

• All change is local but some problems are universal– We have found a small number of “usual suspects” account for many of the

avoidable deaths in the population– Finding best performers in these problem areas can uncover success

strategies that can be shared among all participants

What to Expect From Washington in 2009and Beyond

Blair Childs

Senior Vice President,

Public Affairs

Premier Inc.

2007

2007 and 2008 are additional “building” years for quality: continuing past work

1990s 2000 2001 2002 2003 2004 2005 2006

Pharmacy Quality Alliance launched

Hospital Quality Alliance launched

Ambulatory Quality Alliance launched

Creation of The Leapfrog Group

Creation of Bridges to Excellence

Deficit Reduction Act mandates expansion of measurement and sets precedent for lack of add-on payment for errors

Medicare Modernization Act ties hospital market basket updates to quality reporting for 10 measures

IOM ReportPerformance

Measurement Accelerating

Improvement IOM ReportCrossing the Quality Chasm • Focused on a redesign of

health care delivery • Called for creation of

performance-based payment

IOM ReportTo Err is Human: Building a Safer Health System

JCAHO launches the core measures initiative

National Quality Forum constituted

CMS Roadmap to Quality launched

CMS Nursing Home Compare launched

CMS Home Health Compare launched

AQA - HQA Steering Committee Formed

AHIC Quality Workgroup Approved

Executive Order Issued on Promoting Quality

Alliance for Pediatric Quality launched

Hospital Compare expanded to payment and volume information and HCAHPS patientexperience data

JCAHO launches the ORYX Initiative

Value-Based PurchasingReport to Congress on the Plan to Implement a Medicare Hospital VBP Program

2008

Premier Hospital Quality Incentive Demo launched

Hospital Compare launched

CMS Preventable Events

Value-Based Purchasing

• Twin tools:

– Transparency to facilitate patient awareness and choice, as well as performance improvement by providers; and

– Differential payment to further incentivize providers to change practices, and reduce healthcare spending.

More Quality Measurement

• To get full market basket update for FY 2010:– (1) Surgical Care Improvement Project (SCIP) – (1) Hospital readmissions – (5) Patient Safety Indicators (AHRQ)– (4) Inpatient Quality Indicators (AHRQ) – (1) Cardiac surgery measure (STS)

• Retires pneumonia oxygenation assessment • Total of 43 quality measures

– AMI 30-Day Risk Standardized Readmission Measure (Medicare patients)– Pneumonia 30-Day Risk Standardized Readmission Measure (Medicare

patients)

• AMI 30-Day Risk Standardized Readmission & Pneumonia 30-Day Risk Standardized Readmission Measure (Medicare patients) in Final Outpatient Rule

Pride or Prejudice,Payers Driving Transparency

• May 21 ad to promote the Hospital Compare Web site

• CMS ads in 58 major dailies

• Featured hospitals in each market and their performance on two measures (clinical process measure and HCAHPS measure)

CMS Publicly Reporting Risk-standardized, 30-day Mortality Measures for AMI, HF and PN

• The August 20, 2008 posting of mortality measures to Hospital Compare is the second annual posting for AMI and HF mortality and the first public reporting for PN mortality.

• All three measures will be refreshed annually, and hospital-specific reports will be distributed to all participating hospitals for each annual preview period.

• CMS is contemplating additional changes for displaying 30-day mortality measures.

Source: CMS Presentation Barry Straube 6/4/2008; Quality Net http://www.qualitynet.org/dcs/ContentServer?cid=1163010398556&pagename=QnetPublic%2FPage%2FQnetTier2&c= Page; Hospital Compare; Booz Allen Analysis

Display of risk-adjusted hospital 30-day mortality rates The number of

eligible cases for each hospital

An estimate of the rate’s certainty (also known as the interval estimate)

Hammer: Hospital-acquired Conditions

• As of October 1, hospitals will not receive higher payment for:

1. Object left in during surgery (acute reaction to foreign substance);

2. Air embolism;

3. Blood incompatibility;

4. Catheter-associated urinary tract infections;

5. Pressure ulcers (Stages III/IV);

6. Surgical site infections, e.g., Vascular catheter-associated infections;

7. Mediastinitis after coronary artery bypass graft;

8. Hospital-acquired falls leading to injuries (including fractures, dislocations, intracranial injury, crushing injury and burns).

9. Venous Thromboembolism after hip and knee replacement*;

10.Poor Glycemic control (Ketoacidosis & Coma- hypoglycemic & hyporosmolar); and

Hidden Agenda: Government spending on healthcare is unsustainable – Impact???

Percent of GDP

1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 2050

0

5

10

15

20

25Actual Projection

2.5 Percentage Points

1 Percentage Point

Zero

Differential of:Tax rates 2050:10% 26%25% 66%35% 92%

Total Federal Spending for Medicare and Medicaid Under Assumptions About the Health Cost Growth Differential

Healthcare spending as a portion of GDP is projected to take the largest one year climb ever from16.6% in 2008 to 17.6% in 2009. CMS Actuaries, 2/27/09

Obama FY 2010 Budget proposalMore details in the Spring

• 10-year $1.7 trillion healthcare budget blueprint with few details – $630 B “reserve fund” to jump-start health reform efforts

– Difference of $1 trillion to fund (more $?; more savings?: deficit?; more taxes?)

• Savings include hospital payment reform (10-yr savings):– Hospital P4P programs ($12 billion)

– Bundled payments for inpatient stay and 30-day post-acute care ($17.6B)

– Reduce payments to hospitals with high readmission rates ($8.4B)

• Other proposals contained in the budget:– Reform of Medicare physician payment formula, including performance-based

payments for coordinated care

– Address financial conflicts of interest in physician-owned specialty hospitals

– Increase CMS budget to attack fraud, waste and abuse

– Increase Medicaid drug rebate for brand-name drugs from 15.1% to 22.1% of AMP

– Prohibit anticompetitive agreements between brand and generic manufacturers

– $330MM for healthcare providers in medically underserved areas

Rep. Altmire VBP bill – Quality FIRST Act

• Rep. Altmire (D-PA) introduced Quality FIRST Act 9/25/08 (expected to reintroduce in 111th Congress)

• Incentive payments based on hospitals’ performance on evidence-driven, consensus-based quality measures– AMI, HF, PN, SCIP (clinical areas to be expanded in subsequent years)

• Hospitals rewarded for attainment of threshold announced 2 years in advance, as well as for improvement

• Establishes reasonable thresholds based on what all hospitals can achieve in a realistic timeframe

• Hospitals receive separate scores—and are rewarded—for each clinical area, rather than one single score for all measures

• Budget neutral, with up to 2% of hospital payments at stake

Baucus-Grassley VBP Bill Discussion Draft

• Senate Finance Committee Chairman Baucus & Ranking Member Grassley released discussion draft of VBP legislation 11/19/08

• Phased in over 5 yrs, beginning in FY 2012 • Incentive payments based on hospitals’ performance on evidence-

driven, consensus-based quality measures– AMI, HF, PN, SCIP, overall patient satisfaction (clinical areas to be

expanded in subsequent years)

• Hospitals rewarded for attainment of threshold, as well as for improvement

• HHS to develop methodology of determining performance score that results in appropriate distribution to all hospitals

• Incentive payment applied to all DRGs after 3-yr transition period• Budget neutral, with 2% of hospital payments at stake, once fully

phased-in

Thank youQuestions? Comments?

www.premierinc.com