Driving the value of health care through integration. Kaiser Permanente All Rights Reserved.

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1 Driving the value of health care through integration February 13, 2012 Kaiser Permanente All Rights Reserved. 1

2 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 2 February 13, 2012 Kaiser Permanente All Rights Reserved. 2

3 Typical care experience Primary care provider Radiologist Specialist Pharmacist Nutritionist Emergency room provider 3 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 3

4 Kaiser Permanente Health plan Health plan Physicians Physicians Our own Our own facilities facilities 4 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 4

5 Integrated care delivers better value Traditional fee-for-service Care components are fragmented Members left to navigate the system on their own Incentives exist to provide more care and services to generate more revenue Utilization conflict between health plan and providers Diminished quality of care, higher total costs 21st century integrated care Care providers are connected, enabling collaboration for constant improvement Members at center of care delivery Incentives exist to provide the right care at the right time to keep members healthy Utilization goals aligned between health plan and providers Higher quality of care, lower total costs 5 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 5

6 and better care, which leads to lower costs More of the right care at the right time Chronic condition management Wellness services Right medications Lower treatment costs Office visits and procedures Pharmacy costs -23% -50% Preventive screenings Surgeries -39% Focus on prevention Lower overall costs 6 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 6

7 Utilization data proves better value Services Other providers Kaiser Permanente Cost advantages Preventive screenings Prescriptions * Inpatient surgeries Outpatient surgeries 5,415 per 1,000 members per $101 each 6.7 per member per $127 each 18.2 admits per 1,000 members per year ($66.41 PMPM) per 1,000 members per year ($49.15 PMPM) 6,500 per 1,000 members per $59 each 12 per member per $40 each 13 admits per 1,000 members per year ($52.93 PMPM) 30.5 per 1,000 members per year ($23.96 PMPM) More preventive services at a lower cost More prescriptions at a lower cost Fewer procedures at a lower cost Fewer procedures at a lower cost Note: Kaiser Permanente Northern California Region data compared to California PPO data. MarketScan report covering period between July 2009 and June 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. 7 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 7

8 Under the hood integrated care services Pharmacy management Telephonic clinical advice Online personal health management Clinical access alternatives Wellness information and coaching Chronic condition management Medical/case management External provider network management 8 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 8

9 Clinical access alternatives Marketplace Only 7 20% of providers offer secure Most health plans don t reimburse providers for , undermining motivation to use The health plans that do offer 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 Kaiser Permanente 100% of our members can 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 9 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 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 9

10 Chronic conditions management Marketplace 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 Kaiser Permanente 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, quickly providing 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 10 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 10

11 Pharmacy management Marketplace 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 brandname 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 Kaiser Permanente 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 reminders promote prescription adherence Secure 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 11 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 11

12 Highest customer satisfaction pharmacy Highest in Customer Satisfaction with Mail-Order Pharmacies, Three Years in a Row J.D. Power and Associates 2011 National Pharmacy Study SM Note: Kaiser Permanente Pharmacy received the highest numerical score among mail-order pharmacies in the proprietary J.D. Power and Associates National Pharmacy Studies SM 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 Your experiences may vary. Visit jdpower.com. 12 February 13, 2012 Kaiser Permanente All Rights Reserved. Here s proof that our pharmacy services are also driving high member satisfaction. 12

13 An example: Healthy Bones program 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 Results: Reduced hip fracture rates by an average of 37.2% * * Richard Dell et al., Osteoporosis Disease Management: The Role of the Orthopaedic Surgeon, Journal of Bone and Joint Surgery, November 12, February 13, 2012 Kaiser Permanente All Rights Reserved. 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 13

14 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 Codable (member fees) Not codable (ICM fees) 14 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 14

15 The dilemma: How do we account for uncodable services? Pharmacy management Telephonic clinical advice Online personal health management Wellness information and coaching Clinical access alternatives Chronic condition management Member fees Medical/case management External provider network management Current ICM 15 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 15

16 The solution: Aligning fees to better represent care delivery Member-allowed fees Member-allowed fees (traditional codable services) will decrease to reduce barriers to care Fixed ICM fee Variable ICM fee ICM fee will increase to better represent the care we provide 16 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 16

17 Determining ICM fees Fixed PMPM Variable PMPM Pharmacy Medical services $18 PMPM Covers care infrastructure expenses that benefit all members + PMPM adjusted by Rx age/gender factor 9% of incurred claims and other medical services (OMS) for other ICM categories 17 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 17

18 Overall costs expected to remain the same $ Direct medical expenses Direct medical expenses Fixed ICM Administration Current Variable ICM (group specific) Fixed ICM Administration Future 18 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 18

19 Integration = greater value for your health care dollars 126% better quality 15% greater costefficiency National average Kaiser Permanente Clinical quality National average Kaiser Permanente Cost efficiency 2011 Aon Hewitt Health Value Initiative Benchmarking Study Kaiser Foundation Health Plan, Inc., March To get a copy of the Hewitt Health Value Initiative report for your region, contact your account manager. 19 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 19

20 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 20 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 20

21 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 21 February 13, 2012 Kaiser Permanente All Rights Reserved. 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. 21

22 Clinical Access Alternatives Use of secure messaging Estimated productivity savings Care setting 22 February 13, 2012 Kaiser Permanente All Rights Reserved. Here s a closer look at clinical access alternatives metrics and how they reveal cost and productivity savings: You can see how many 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. 22

23 Implementation during JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV 2011 data stack Renewal prior to 6/1: No impact on renewal 3/11 through 2/12 data stack 4/11 through 3/12 data stack 5/11 through 4/12 data stack Renewal on or after 6/1: Some impact, depending on renewal month Groups won t see the full effect of changes until there is a complete year of experience with the new fee schedule. 23 February 13, 2012 Kaiser Permanente All Rights Reserved. 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 23

24 Questions? 24 February 13, 2012 Kaiser Permanente All Rights Reserved. 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) 24