October 19, 2016Accelerating Health Care Innovation in Pennsylvania

Pennsylvania Rural Health Transformation

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Today’s meeting

Objectives

▪ Provide background on the crisis facing rural communities and rural hospitals, both in Pennsylvania and around the country

▪ Review the PA Rural Health Transformation Model, an approach Pennsylvania is developing to address the crisis

▪ Describe the Rural Health Redesign Center, an organization that will be created to support the model and participating payers and hospitals

▪ Receive your input as model development continues

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Rural hospitals across the country are increasingly at risk for closure, reducing access to care in their communities

1,970 hospitals in the US are in rural areas (35% of all hospitals)

68 rural hospitals have closed in past 5 years, reducing patient access and jobs in communities

Rural hospitals provide important care and deliver critical social programs (e.g., substance abuse treatment) in the community

Rural hospital reimbursement model today is inpatient-focused and largely not aligned with prevention and chronic community care needs

Today, there are more than 670 rural hospitals (34% of total) at risk for closure (a 2.5x increase from 2015)

SOURCE: iVantage Health Analytics 2016

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National rural health crisis is also evident in Pennsylvania

SOURCE: Washington Post analysis of Centers for Disease Control and Prevention mortality data; Pennsylvania Health Care Cost Containment Council

Since 1990, rural health has drastically deteriorated nationally

Overall morbidity rates have:

– Increased by 40% for women living in rural areas, and decreased by 10% for those in urban areas

– Increased by 10% for men living in rural areas, and decreased by 30% for those in urban areas

Rural adult women have experienced:

– 5x increase in opioid and heroin overdoses

– 2x increase in suicides

– 3x increase in deaths due to cirrhosis of the liver, which is linked to alcohol abuse

Example: Heroin use and opioid abuse growth in Pennsylvania since 2000

Hospitalizations due to heroin overdoses have dramatically increased

‒ Rural areas experienced a 315% increase, compared to 143% for urban areas

Hospitalizations due to opioid overdoses have also increased significantly

‒ Rural areas experienced a 285% increase, compared to 208% for urban areas

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In Pennsylvania, 42 rural hospitals are on the front lines of responding to rural health crisis

Rural hospitalPA rural hospital locations

▪ ~1 of every 5 Pennsylvanians live in a rural area

▪ >27,000 jobs provided across all rural hospitals

▪ 55 of 67 counties are federally designated Health Profession Shortage Areas (HPSAs) or Medically Underserved Areas (MUAs)

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The majority of these Pennsylvania rural hospitals on the front lines report low and declining operating margins

▪ Nearly half of rural hospitals reported negative operating margins in 2015,with 70 percent reporting operative margins of 3 percent or less

▪ One in five hospitals reported negative operating margins for each of the last 3 years

SOURCE: Pennsylvania Health Care Cost Containment Council

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48

21

Rural hospitals operating margin breakdown: 2015

Rural hospitals median operating margin: 2013-2015

0-3>3

<0

0

-0.5

0

0.5

1.0

1.5

2.0

2.5

1

2014

2

20152013

Percent of hospitals Percentage

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Hospitals paid on a fee-for-service reimbursement basis from wide range of payers

Fee-for-service approach rewards greater service volume, particularly inpatient service volume and specialties not offered in rural areas

Payments are sensitive to natural fluctuations in patient volume, which can quickly impact ability to cover fixed costs

Urban hospital systems are growing, attracting new patients and physician supply

Underlying economic conditions

Hospitals unable to generate volume as population decreases and outmigration grows

Services kept online based on need for fee-for-service reimbursement

Unpredictable revenue and physician shortage means fewer resources available for community-specific health needs

Results for rural hospitals

Current payment structure contributes to financial challenges of rural hospitals and impacts their ability to serve rural communities

Absent intervention, these pressures will worsen as inpatient admissions decline, operating margins deteriorate, and rural community needs increase

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Pennsylvania’s response is focused on ensuring access to quality care and improving health outcomes in rural communities

▪ Utilize latest promising practices in meeting rural health community needs

▪ Engage communities, payers, providers, private sector, and national thought leaders to bring best solution forward

▪ Pursue models that are nationally scalable

▪ Ensure stability for rural communities and care providers through a public-private partnership

▪ Direct investments toward transformational solutions, including achieving a budget-neutral rural health care delivery system over time

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2

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Guiding principles in developing response

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5

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Our proposition: The PA Rural Health Transformation utilizes a global budget to promote transition to value-based care and hospital sustainability

▪ Primarily fee-for-service payments rewarding volume over value

▪ One multi-payer global budget for all hospital services

▪ Inpatient focused, with declining utilization

▪ Greater emphasis on outpatient services and fewer subscale inpatient services

▪ Little linkage between quality and payment

▪ Direct incentives to improve quality

▪ Significant operating margin pressure

▪ Hospital sustainability through predictable revenue and opportunity to share in value creation

From To

“A global budget for a hospital across all payers provides a guarantee of revenue in advance, no matter the volume of admissions and other hospital services. This financial model flips the traditional fee-for-service incentive structure and encourages hospitals to take steps to reduce preventable admissions by implementing strategies that improve health.”- Dr. Joshua Sharfstein, Associate Dean, Johns Hopkins School of Public Health

SOURCE: The Milbank Quarterly, 2016

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Our objectives: PA Rural Health Transformation Model will utilize a global budget to help hospitals address health outcomes in rural communities

Enable hospitals to move towards financial sustainability through a global budget model by stabilizing revenue so hospitals can focus on improving care delivery

B

Ensure each payer achieves budget neutrality across the portfolio of participating hospitals

C

Improve population health and quality of care by implementing an all-payer model that fully supports the delivery of community-appropriate services

A

Objectives in Pennsylvania The model is not…

▪ A subsidy for hospitals▪ An extraordinary source of

retained savings to payers and hospitals

▪ An approach which will substantially help hospitals unwilling or unable to transform

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Our approach: PA Rural Health Transformation model is driven by a hospital-led transformation plan and enabled by a global budget

Hospital-led transformation plan

Global budget

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Opportunity for hospitals to build on community health efforts and define path without FFS constraints

Anticipated hospital emphasis on improving population health outcomes, developing appropriate referrals, and engaging clinicians and partners

Hospitals will direct resources to support plan goals

Multi-payer participation Guaranteed, pre-determined payment over the

course of a year Based on historical net patient revenue Adjusted each year to account for transformation

plan changes and other market dynamics

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Transformation plans will require strategies to create value through addressing community health needs and increasing operational efficiency

Value drivers

Increasing operational efficiency

Example components

▪ Reduce avoidable admission to hospital

▪ Improve readmissions rateImproving care management

▪ Reduce ambulatory sensitive ED visits

▪ Reduce severity of inpatient cases based on better chronic care management

▪ Implementation of strategies which result in hospital unit cost reduction (e.g., labor productivity, patient flow, swing capacity, procurement)

Value drivers are enabled by patient engagement and community partnerships to address local health priorities

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A public-private partnership, the Rural Health Redesign Center, will be established to support hospitals in meeting their transformation plan goals

Support provided by the Rural Health Redesign Center

▪ Global budget administration, including calculation of budget amounts, adjustments, and payer contributions

▪ Model-specific data analytics and performance reporting

▪ Technical assistance for hospitals, including training, capacity building, and convening of communities of practice

▪ Engagement of community stakeholders through an advisory panel for input on overall program policy and outcomes

▪ Model oversight, including approval of global budgets and transformation plans

Responsibilities remaining with participating payers and hospitals

▪ Contracts that define legal relationship between payers and hospitals, amended to allow for model participation

▪ Existing quality goals and programs between payers and hospitals

▪ Claims submission and processing▪ Billing and payment processes ▪ Compliance with existing federal and

state mandates, unless waiver is granted ▪ Payer medical management and benefit

design capabilities

Rural Health Redesign Center support and accompanying materials will be designed for replication

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Guiding principles for RHRC

▪ Convenes and engages effectivelywith key stakeholders

▪ Performance-oriented with focus on continuation of the model beyond test period

▪ Able to adapt to ongoing innovation in health care delivery for rural communities

▪ Ensures diverse voices and stakeholder inputs are incorporated

▪ Recognizes unique needs of rural hospitals and communities

Representative body providing input to RHRC organization, reflecting health care and community voices in rural counties

AnalyticsHospital transformation

Transformation assistance, compliance, and training to hospitals

Provide board and CEO with rigorous academic evaluation of model’s progress against population health, quality of care, and cost targets

Performance reporting and global budget calculation

RHRC organization design

Board

Advisory Panel

Independent Outcome EvaluationGroup

Operations

▪ Appointments based on affiliation and skills, including innovation and care delivery experience

▪ Oversight of operational staff, evaulators, and advisory panel

▪ Approval of transformation plans▪ Delegates day-to-day operations to CEO

Board

The Rural Health Redesign Center will be established to administer the model and support hospitals in their care delivery transformation

Five year cost will be $50 million, with federal government anticipated to fund approximately $30 million

Governor, State Legislature

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Hospitals will lead transformation, supported by RHRC through field and forum technical assistance

Tech. assistance component

Example modules Timing Description of hospital-led activity

Transforming the organization

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▪ Managing change▪ Clinician engagement ▪ Performance management▪ Hospital finance (e.g. cost

accounting, asset allocation)▪ External stakeholder management

▪ 18 month period before global budget implementation

▪ Design plan to lead organization through substantial cultural and technical change

▪ Focus on positioning hospital for long-term success through building of capabilities in performance, finance, and external stakeholders

Creating value through addressing community health needs

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▪ Preventive care▪ Chronic condition management▪ Care coordination and referrals▪ Patient and community engagement▪ Emerging strategies for rural areas

(substance abuse, telehealth)

▪ Beginning in year before global implementation and extending into model period, depending on intensity of need

▪ Knowledge and strategy development to meet the specific health needs of rural communities and reduce potentially avoidable utilization

▪ Determine options for investments/ partnerships to increase access and promote appropriate utilization

Creating value through operational improvement

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▪ Patient flow▪ Safety and quality management▪ Cost optimization▪ Shared services

▪ Beginning in year before global implementation and extending into model period, depending on intensity of need

Defining the transform-ation journey

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▪ Organization communication▪ Current state diagnostic ▪ Transformation planning

▪ First six months of participation, to be complete approximately one year before global budget implementation

▪ Careful consideration of implications and opportunities of global budget and preparation for successful launch

▪ Definition and organizational alignment on five year transformation path

Ensuring success in the model

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▪ Communities of practice▪ Performance dialogues▪ Transformation plan compliance▪ Corrective action planning (as

needed)

▪ Regular intervals upon program commencement, ranging from quarterly to annual depending on the module

▪ Ongoing administration of the model, including communication between hospitals and the RHRC board and between participating hospitals

▪ Capturing efficiency opportunities identified in transformation plan

▪ Focus on processes and costs, with all value captured retained by hospital

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Timeline

2017 2020 202220192018 2021

6

18

30 30

6

12

12

30

12

12

30

Collaboratingin planning andbudgeting

3030

Receiving global budget payments

18

0

3030

Signedcontract andtransformationunderway

Number of rural hospitals participating in PA Rural Health Transformation

Hospital participation timeline Target of 30 hospitals, but may accept additional