driving the value of health care through...

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| © Kaiser Permanente 2010-2011. All Rights Reserved.February 13, 2012

Driving the value of health care through integration

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2 | © Kaiser Permanente 2010-2011. All Rights Reserved.February 13, 2012

Today’s agenda

How Kaiser Permanente is transforming care

How we’re updating our pricing to better reflect integrated care

How this provides greater transparency into the value of integrated care

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Typical care experience

Primary care provider

Nutritionist

Pharmacist

Radiologist

Specialist

Emergency room provider

With traditional fee-for-service care models:

Care is fragmented, inefficient, and ineffective

Each care provider is reimbursed based on the quantity of care and services they provide, not the quality

Patients are left to navigate the system on their own

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Kaiser Permanente

Health plan

Physicians Our ownfacilities

Health plan

Our ownfacilities

Physicians

With our integrated model of care:

Doctors, health plan, and facilities are integrated

Care and financial incentives are aligned around keeping members healthy

Members are supported by care providers and the health plan

Shared technology builds connections between the health plan, doctors, and members

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Integrated care delivers better value…

Traditional fee-for-service 21st century integrated care

Care components are fragmented Care providers are connected, enabling collaboration for constant improvement

Members left to navigate the system on their own Members at center of care delivery

Incentives exist to provide more careand services to generate more revenue

Incentives exist to provide the right care at the right time to keep members healthy

Utilization conflict between health plan and providers

Utilization goals aligned between health plan and providers

Diminished quality of care, higher total costs Higher quality of care, lower total costs

When compared side-by-side, you can see how traditional fee-for-service is poorly designed to optimize care and manage costs, and how our integrated care model provides advantages that result in better quality care at a lower cost.

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Office visits and

procedures

Surgeries

Pharmacy costs

…and better care, which leads to lower costs

Focus on prevention Lower overall costs

More of the right careat the right time Lower treatment costs

Chronic conditionmanagement

Wellness services

Rightmedications

Preventivescreenings

-23%

-50%

-39%

Better care at a lower cost is reflected in our utilization patterns*

More of the right care earlier—screenings, wellness visits, the right medications, and chronic condition management—prevents the need for more costly encounters and procedures later

_____* From MarketScan Research Database, a service from Thomson Reuters. Data compares 2009/2010 Kaiser Permanente Northern California Region utilization and costs to those of a Northern California PPO.

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Utilization data proves better value

Note: Kaiser Permanente Northern California Region data compared to California PPO data. MarketScan report covering period between July 2009 and June 2010. PMPM refers to per member per month.

* Pharmacy utilization for Kaiser Permanente experience was adjusted to equalize the drug volume supplied per script when compared with the market.

Services Other providers Kaiser Permanente Cost advantages

Preventive screenings

5,415 per 1,000 members per year @ $101 each

6,500 per 1,000 members per year @ $59 each

More preventive services at a lower cost

Prescriptions* 6.7 per member per year @ $127 each

12 per member per year @ $40 each

More prescriptions at a lower cost

Inpatient surgeries

18.2 admits per 1,000 members per year ($66.41 PMPM)

13 admits per 1,000 members per year ($52.93 PMPM)

Fewer procedures at a lower cost

Outpatient surgeries

114.5 per 1,000 members per year ($49.15 PMPM)

30.5 per 1,000 members per year ($23.96 PMPM)

Fewer procedures at a lower cost

Here you can see the MarketScan data in detail:

Our members receive more preventive screenings at significantly lower costs. This helps detect health problems sooner, when they’re easier and less expensive to treat.

Our members receive more prescriptions at a much lower overall cost. This means we’re managing conditions earlier and with greater adherence.

Our members received fewer inpatient surgeries at a significant price savings of $13.48 PMPM.

Our members received one-third fewer outpatient surgeries at less than half the cost of our competitors.

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Under the hood—integrated care services

Pharmacymanagement

Onlinepersonalhealth

management

Wellnessinformation

andcoaching

Medical/casemanagement

Telephonicclinical advice

Clinicalaccess

alternatives

Chroniccondition

management

Externalprovidernetwork

management

Integrated care refers to the entire care experience

It connects a broad range of services and activities that may not be offered by traditional fee-for-service providers

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Clinical access alternativesMarketplace Kaiser Permanente

Only 7–20% of providers offer secure email

Most health plans don’t reimburse providers for email, undermining motivation to use

The health plans that do offer email don’t have access to the patient’s clinical data, have limited features, and often charge patients for the service

Most health plans don’t reimburse for phone visits, so there is no incentive to offer them

Phone and electronic specialist consults often require preauthorization and result in separate bills

100% of our members can email their doctor’s office with nonurgent questions—saving time away from work and improving productivity

Scheduled phone visits with physicians and staff—also saving members time away from work

E-consults between primary care physicians and specialists—resolving questions and advance treatment for a more effective and efficient care experience

Phone specialist consults during primary care visits—expediting evaluation of the need for additional tests or specialist visits, saving time away from work

Specialist-to-primary care physician consults—specialists and primary care physicians share treatment notes in real time and on an ongoing basis via the patient’s electronic medical record for an accurate exchange of information, helping keep members healthier

Clinical access alternatives are alternatives to the traditional office visit or physician consultation. They save members time away from work—as well as an office visit copay—improving productivity. Other health plans charge for similar services—if they offer them at all. They include:

Secure email messaging between members and physicians

Scheduled phone visits with doctors and staff

E-consults between primary care physicians and specialists

Phone consults between caregivers, specialists, and members

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Chronic conditions managementMarketplace Kaiser Permanente Claims data, self-reported health risk assessment, and

worksite biometric testing from third-party vendors are used to identify potential program participants

Upon receiving a mailing/phone call from vendor, participation usually requires opt-in and health plan authorization

Primary care physician monitoring of chronic condition management depends on claims data with significant lag

Program success measured via claims data or incomplete clinical data

Variable HEDIS performance

Relatively low engagement

Telephone health coaching, self-care tools, and health education are disconnected from the care experience

Clinical data analysis—members are proactively identified from disease registries and automatically enrolled in disease management programs without opt-in or preauthorization

Coordinated care—doctors, specialists, pharmacists, health educators, techs, and care management team share the same clinical information and care protocols, leading to better outcomes

Creation and dissemination of information and alerts—clinical best practices are distributed electronically, quicklyproviding physicians with the latest information

Member outreach—phone calls and letters originate from the medical groups, not the health plan, based on clinical data

Outcomes tracking and employer reporting—electronic medical record system enables efficient, accurate progress tracking and generation of aggregate data reports

Market-leading outcomes with chronic conditions–related care metrics (HEDIS)

Online health coaching, self-care tools, and facility-based classes—tools are integrated into the care experience

Chronic condition management includes:

Disease registries

Award-winning Complete Care disease management programs

Outside of Kaiser Permanente, disease management programs are contracted and administered by third-party vendors who have little if any communication with care providers—they’re usually working from call centers and with claims data

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Pharmacy managementMarketplace Kaiser Permanente Contracted pharmacy networks managed by a third party

with virtually no connection between pharmacist and prescribing physician—health plan authorization may be required

Fragmented systems make it difficult to negotiate significant discounts

Pharma relationships lead to increase in higher brand-name prescribing rates and higher overall drug spend

Standard online/mail-order capabilities

Formularies developed and approved by health plan administrators

Medication compliance analysis limited to claims data such as refill records and predictive modeling

Management of high-risk anticoagulation patients performed in small volume by private practice physicians

Pharmacist consults for new and changed prescriptions inconsistent

Variable HEDIS performance

Health plan, physician, and pharmacist goals are aligned—there’s no preauthorization barrier for prescriptions

Our organizational purchasing power allows prescription price negotiations, reducing costs

High generic prescription rate means lower overall drug spend and lower member cost-sharing, which improves adherence

Member services save time and improve productivity: Online order refills 24/7, with home delivery at no additional cost Email reminders promote prescription adherence Secure email messaging with a Kaiser Permanente pharmacist Pharmacies conveniently located at our facilities, making it easier to

fill prescriptions the same day they’re prescribed

Evidence-based formulary developed and approved by doctors and pharmacists—not health plan administrators

Electronic medical record enables clinically based, fast, efficient medication analysis and sharing of best practices

World-class anticoagulation clinics reduce mortality risk

Face-to-face pharmacist consults for all new and changed medications improve safety and adherence

Market-leading HEDIS outcomes

Pharmacy management includes:

Formulary development, which is approved by doctors and pharmacists—not health plan administrators

Bulk purchasing and high generic prescription rate for lower costs

Patient education for all new and changed prescriptions, which improves adherence

Online refills that save members time and money

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Highest customer satisfaction—pharmacy

“Highest in Customer Satisfaction with Mail-Order Pharmacies, Three Years in a Row”

J.D. Power and Associates2011 National Pharmacy StudySM

Note: Kaiser Permanente Pharmacy received the highest numerical score among mail-order pharmacies in the proprietary J.D. Power and Associates 2009–2011 National Pharmacy StudiesSM. 2011 study based on 12,360 total responses, and measures 12 mail-order pharmacies. Proprietary study results are based on experiences and perceptions of consumers surveyed June–July 2011. Your experiences may vary. Visit jdpower.com.

Here’s proof that our pharmacy services are also driving high member satisfaction.

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* Richard Dell et al., “Osteoporosis Disease Management: The Role of the Orthopaedic Surgeon,” Journal of Bone and Joint Surgery, November 12, 2008.

An example: Healthy Bones program

Results:

Reduced hip fracture rates by an average of 37.2%*

1 Creation and management of our clinical database

2 Mining the database to identify at-risk members and generate outreach lists

3 Phone and mail outreach to schedule bone density test

4 Bone density test

5 Program care manager reviews test results with patient immediately after; no follow-up visit required

6 If osteoporosis is diagnosed, the member receives a health education consult to help prevent future falls and encourage medication compliance

7 Additional lab work completed, if necessary

8 Immediate post-visit outreach to ensure prescription and lab test compliance

9 Follow-up phone outreach (1 month later) by program care manager to answer questions and ensure care compliance

Healthy Bones, developed by our Southern California Region to reduce the number of bone fractures associated with osteoporosis, is an example of how our integrated care services work together to enable superior outcomes

Hip fractures were reduced dramatically, savings totaled more than $35 million in care costs in 2008 alone, and an estimated 233 lives were saved

The success of this program is possible because the care experience is seamless, member-focused, and supported at every phase by our electronic medical record system

Fragmented, fee-for-service models are encounter-based, often leave patients to manage their own care, and have varying levels of health information technology—resulting in an inefficient, inconsistent, and costly care experience

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Codable(member fees)Not codable(ICM fees)

Key services can’t be singled out and “coded”1 Creation and management of our clinical database

2 Mining the database to identify at-risk members and generate outreach lists

3 Phone and mail outreach to schedule bone density test

4 Bone density test

5 Program care manager reviews test results with patient immediately after; no follow-up visit required

6 If osteoporosis is diagnosed, the member receives a health education consult to prevent future falls and encourage medication compliance

7 Additional lab work completed, if necessary

8 Immediate post-visit outreach to ensure prescription and lab test compliance

9 Follow-up phone outreach (1 month later) by program care manager to answer questions and ensure care compliance

Because of our integrated approach to care, many of the services that are vital to our superior results can’t be singled out and individually coded according to standard industry billing practices.

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The dilemma: How do we account for uncodable services?

Pharmacymanagement

Telephonicclinical advice

Onlinepersonal

healthmanagement

Clinicalaccess

alternatives

Wellnessinformation

andcoaching

Chroniccondition

management

Medical/casemanagement

Externalprovidernetwork

management

Member fees

Current ICM

In the past, services that can’t be easily coded and billed were accounted for under a fixed integrated care management (ICM) fee or under member-allowed fees

This resulted in member fees that were too high compared to the marketplace and an ICM fee that didn’t accurately represent the value of our integrated care services

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The solution: Aligning fees to better represent care delivery

Member-allowed fees (traditional codable services) will decrease to

reduce barriers to care

Member-allowed fees

ICM fee will increase to better represent the care we provide

Fixed ICM fee Variable ICM fee

Here’s what we’re doing to better align overall fees with our integrated care delivery model:

Member-allowed fees, which cover traditional codable services, will decrease to better align with the marketplace and further reduce barriers to care so members can get the care they need

The integrated care management fee will include two components:

– A fixed component, which will decrease

– A variable component, which will more accurately reflect your group’s utilization and the value of our integrated care services

The ICM fee changes will result in a largely cost-neutral net impact for most employers.

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Determining ICM fees

Fixed PMPM

$18 PMPM

Covers care infrastructure

expenses that benefit all members

+Pharmacy

PMPM adjusted by Rx age/gender

factor

Medical services

9% of incurred claims and other medical services (OMS) for other ICM categories

Variable PMPM

Here’s some detail around how the new ICM fees will be determined in 2012:

The fixed component will decrease to $18 per member per month (PMPM) and covers care infrastructure expenses that benefit all members

The variable component will cover pharmacy and medical services and will reflect your group’s utilization

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Overall costs expected to remain the same

Direct medical expenses Direct medical expenses

Fixed ICM

Current Future

$

Fixed ICM

Variable ICM (group specific)

Fixed ICMAdministration Administration

The overall effect of the fee alignment is expected to be largely cost-neutral

The impact of these changes may differ on a case-by-case basis, but will amount to a +/- 0–2% variation in costs

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15% greater cost-

efficiency

126% better quality

National average

Kaiser Permanente

Clinical quality

Kaiser Permanente

National average

Cost efficiency2011 Aon Hewitt Health Value Initiative™ Benchmarking Study—Kaiser Foundation Health Plan, Inc., March 2011. To get a copy of the Hewitt Health Value Initiative report for your region, contact your account manager.

Integration = greater value for your health care dollars

The cost-neutral effect of the fee alignment means we’ll continue to deliver the best value for your health care dollars now and in the future

As Aon Hewitt has reported, for five years in a row, our integrated care model has produced superior quality of care and greater cost-efficiency than other health plans

The Hewitt Health Value Initiative™ (HHVI) collects and summarizes information to improve the understanding of health plan cost and value among major employers. Now in its 11th year, the HHVI database has expanded to more than 350 employers and more than 6 million employees. Results are reported for more than 2,000 health plans in 139 market areas across the United States. The Kaiser Permanente markets included in this study include data for 332 employers and 1.12 million employees.

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New reports, better transparency

As part of this effort, we’re developing new reports that will provide:

Greater transparency into the services your employees are using

Metrics that more closely connect outcomes to specific integrated care services

Estimates on some of the costs that are avoided as the result of members’ use of the integrated care services

To support the fee alignment, we’re developing data and reporting that demonstrate the superior value of our integrated care model. The new reports will provide you with:

Greater transparency into the integrated care services your employees are using

Metrics that will help you understand how integrated care services drive quality outcomes

Insight into how integrated care services help reduce costs

Where appropriate, benchmarks to provide meaningful comparisons between Kaiser Permanente and the marketplace

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Sample Group ABC Integrated Care Management (ICM) Overview

Group Demographics Chronic Conditions Management Clinical Access Alternatives Pharmacy Management

Online Personal Health Management

Telephonic Clinical Advice

Here’s a preview of some of the reporting metrics that show how our integrated care can help you avoid costs and increase workforce productivity. This is the kind of data that you can expect from us and should demand of our competition.

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22 | © Kaiser Permanente 2010-2011. All Rights Reserved.February 13, 201222 | © Kaiser Permanente 2010-2011. All Rights Reserved.February 13, 2012

Use of secure messaging

Estimated productivity savings

Care setting

Clinical Access Alternatives

Here’s a closer look at clinical access alternatives metrics and how they reveal cost and productivity savings:

You can see how many email messages your employees sent to their doctors. This alternative to traditional, encounter-based care gives your employees the benefits of an office visit without a copay or having to leave work.

We can then estimate how many office visits your employees were able to avoid and calculate the net productivity gain for your business.

You’ll also see trend data that shows how your employees are managing their health care over time through access alternatives.

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Implementation during 2012

Groups won’t see the full effect of changes until there is a complete year of experience with the new fee schedule.

2012

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV

2011 data stack

3/11through

2/12datastack

4/11through

3/12datastack

5/11through

4/12datastack

Renewal prior to 6/1:No impact on renewal

Renewal on or after 6/1:Some impact,

depending on renewal month

Here’s a timeline of the fee alignment implementation:

Groups receiving a renewal prior to June 1 won’t see any rate impact until their 2014 renewal

Groups receiving a renewal on or after June 1 will see some impact, depending on the renewal month

Groups will see the full effect after one complete year of experience with the new few schedule

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Questions?

Integrated care is transforming care to provide better care and manage costs

We’re updating our pricing to better represent our integrated care delivery and value

Reporting data will provide examples of superior care and avoided costs (outcomes, utilization, and cost-savings metrics)

driving the value of health care through...

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