The ROI of Partnering with ReInforced Care

Reducing readmissions through post-discharge patient support. The ROI of Partnering with ReInforced Care (revised April 2016) Introduction ReInforced Care, Inc., based in Raynham, Massachusetts, assists hospitals in their efforts to reduce avoidable readmissions, improve post-discharge care, improve patient outcomes and satisfaction, maximize efficiency and optimal use of nursing and allied health staff, and understand the plethora of data gathered from and about patients. We do this via our live-call-based, customizable communication platform. Through this we reach out to patients on a hospital s behalf, reinforce their discharge instructions, gather information on their postdischarge experience, and bring this valuable information back to the hospital. Being able to provide the hospital with the voice of the patient, in addition to extensive analyses, means we offer valuable insight that leads to effective change. Why This Paper? The benefits hospitals derive from partnering with ReInforced Care are often readily apparent. Even so, we believe it s a valuable exercise to specify their effect on the bottom line. The intricacies of the resulting calculations, and the complex chain of estimates and forecasts that they ve required, have led to the present paper in which we attempt to answer this question systematically. Each of the following six pages addresses one component of our clients return on investment (ROI). The final section uses a simulation to show how these components can work together in yielding a total ROI. Figures are based on an average US hospital, i.e., one with 7,250 discharges per year. In places we report separate results for hospitals operating under an accountable care organization (ACO) or other capitated environment. 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 1

1. Readmission Savings under ACOs and Other Capitated Plans For an average hospital, readmission reduction of 11% translates into $1,408,000 fewer inpatient charges accrued per year. A hospital that recoups 40% of this amount stands to save $563,000 per year. The average hospital partnering with ReInforced Care reduces readmissions by 11%. At per-year figures of 7,250 discharges, a 15% baseline readmission rate, and per-hospitalization charges accrued of $11,770 6, such a hospital would reduce inpatient charges accrued by 7,250 x $11,770 x (15% x 11%) = $1,408,000. Of this, hospitals operating under ACOs or capitated plans recoup as direct savings somewhere between 40% and 100%, depending on the specific arrangement. A conservative estimate is 40%, or $563,000. Average scenario: $563,000 per year. Best-case scenario: $1,126,000 per year. 6 http://www.hcup-us.ahrq.gov/reports/statbriefs/sb175-hospital-cost-utilization- Projections-2013.pdf 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 2

2. Savings on CMS Readmission Penalties Based on analysis of publicly available, national data, the average CMS penalty-category ( core-measure ) readmission translates to $6,000 in CMS penalties. Working with ReInforced Care has meant fewer penalty-category Medicare readmissions, which saves $72,000 annually in CMS penalties. The Centers for Medicare and Medicaid Services (CMS) have designated several patient categories for which readmission rates at each hospital are used to determine financial penalties. These categories are thus widely known to have quite a disproportionate effect on reimbursements for all Medicare-covered hospitalizations. But how much of an effect? CMS s formulas are so complex that they do not allow hospitals to calculate the penalty-related cost of each readmission. However, using publicly available, national data, we devised a study 1 to estimate this cost. Our original method used a specialized type of regression followed by a Monte Carlo simulation. For the penalty categories, the prevention of a single Medicare readmission was found to save the average hospital $6,000 for FY 2013 and FY 2014. Partnering with ReInforced Care, the average hospital has achieved a readmission reduction of 11%. Among the relatively small group of penalty-category readmissions (13% of the whole) for Medicare patients, this translates into 12 fewer per year. Average scenario: 12 x $6,000 = $72,000 per year. Best-case scenario: 40 x $6,000 = $240,000 per year. 1 www.reinforcedcare.com/financial-benefits 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 3

3. Operating Losses Prevented As part of the study referenced above, we used data files publicly available from CMS 2 and from the Agency for Healthcare Research and Quality 3 (AHRQ) to calculate the average operating gain or loss realized by US hospitals from caring for each type of Medicare patient. On average, each readmission for AMI, HF, PN, or COPD involves not just a CMS penalty but also a significant operating loss of $2,700. Preventing 9 such readmissions per year stands to save a hospital $24,000 in such costs. Costs and losses were often quite different for readmissions than for index admissions and also varied by diagnosis within each DRG. We obtained weighted averages within each DRG to inform our calculations. CMS provided 2011 data; we extrapolated to 2013 using AHRQ s figures on annual increases in health care costs 4 controlling for inflation and an inflation calculator 5 to account for increases due to inflation itself. Even when we limited these offsets to the estimated 70% portion that would relate to a hospital s variable costs, the average offset for readmissions turned out negative for all three penalty categories we studied: -$4,500 for AMI, -$2,200 for HF, -$2,500 for PN, and -$2,700 on weighted average. COPD we assume to be similar to PN, while THA/TKA costs are not known at this time. Excluding THA/TKA patients, Average scenario: 9 x $2,700 = $24,000 per year. Best-case scenario: 30 x $2,700 = $81,000 per year. 2 www.cms.gov/research-statistics-data-and-systems/statistics-trends-and- Reports/Medicare-Provider-Charge-Data/Inpatient.html 3 http://hcupnet.ahrq.gov/hcupnet.jsp 4 www.hcup-us.ahrq.gov/reports/statbriefs/sb146.pdf 5 www.usinflationcalculator.com/ 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 4

4. Additional Admissions (Beyond 30-Day Readmissions) By adding to patient satisfaction and loyalty we contribute to our client hospitals revenue via post-30- day admissions. Working with us helps hospitals meet requirements of Joint Commission Advanced Certification, which enhances prestige. By eliciting testimonials from satisfied patients we further support hospitals marketing efforts. Together these add to the bottom line by an estimated $42,000 per year. First, we conduct high-volume, compassionate outreach to patients post-discharge, informed by data and clinical direction from the hospital and supported by specialized telecommunications and data collection software. This work adds to new admissions beyond the 30-day window. Second, partnership with us can help achieve Joint Commission Advanced Disease-Specific Care Certification. This has many benefits 7, including increased prestige and quality of care. Below we take credit for a small portion of the expected additional admissions. Third, we obtain many testimonials to the excellence of our client hospitals care testimonials they use in marketing materials. These, too, contribute to new admissions. Result: For the average US hospital, annual discharges number about 7,250. Roughly 45% of patients will be hospitalized again within 1 year. 8 An estimated 2/3 of these readmissions will occur outside the 30-day window. About 25% of these (544) might ordinarily choose a different hospital, but suppose the three factors above, combined, reduced this leakage by 33% (180). With an average annual profit margin of 2%, and an average admission revenue of $11,770, these extra admissions would add a profit of 9, 10 180 x 2% x $11,770 = $42,000 per year. Average scenario: $42,000 per year. Best-case scenario: $70,000 per year. 7 http://www.jointcommission.org/assets/1/18/hap_value_accreditation.pdf 8 http://www.ncbi.nlm.nih.gov/pmc/articles/pmc2802376/ 9 http://www.beckershospitalreview.com 10 http://hcupnet.ahrq.gov/hcupnet.jsp 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 5

5. Additional Profits for Hospital-Owned Physician Practices Achieving a 10% increase in the fraction of patients attending outpatient appointments means an extra $29,000 per year in net margin for the hospital. The scripts we customize with hospitals to guide our telephone outreach usually include questions about follow-up outpatient appointments. We reinforce discharge instructions by encouraging patients to schedule such appointments and to attend them once they are scheduled. We also connect patients who need a PCP to an M.D. referral line. With the high volume of our calls, a likely result is an increase in attendance at M.D. appointments. Suppose this increase amounted to 10%. Many of these new visits (perhaps 50%) will go to physician practices owned by the hospital. With 7,250 discharges per year, and with each outpatient visit bringing in an estimated net margin of $80, this would create an additional profit of 7,250 x 10% x 50% x $80 = $35,000. Average scenario: $29,000 per year. Best-case scenario: $45,000 per year. 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 6

6. Reports and Analyses Hospitals place great value on the insights we provide concerning patient experiences, risk factors and outcomes. We estimate that this aspect of our service is worth $50,000 per year. ReInforced Care produces a variety of standard and customized reports for hospitals monthly, quarterly, or in real time. We present details on the alerts or other communications we make to hospital staff. We shed light on short-term patient outcomes such as success or failure in acquiring medications or equipment. We investigate longer-term outcomes such as 30-day readmission rates. Through in-depth statistical analyses we delve into the relationships between key outcomes and predictive factors. We respond to client-specific questions such as o Do certain home health agencies do a better job at making home visits within 48 hours of hospital discharge? o Does readmission vary by (patient neighborhood / day of week / attending physician / etc.)? o Are there seasonal patterns in readmission for certain diagnoses? We typically find that hospital analysts and database specialists are strapped for time and can only investigate a small fraction of the topics of interest to clinicians or leadership. In addition, few Quality or Case Management teams can take advantage of statistical software such as SPSS, SAS, or R. As such, clients often tell us that our reporting brings them considerable value. Average scenario: $50,000 per year. Best-case scenario: $70,000 per year. 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 7

Unquantifiables. Some benefits are more difficult to capture in monetary terms. None of these are included in the calculations presented in this paper, but they are worth keeping in mind nonetheless. These benefits include: Enabling more efficient use of nursing staff. Our outreach to patients frees up nurses from the details of telephone contacts and record-keeping so they can perform the kind of work for which they are uniquely trained. Supporting patient wellbeing in the hospital s name, which may indirectly encourage additional patient donations. Prevention of litigation, both through offering patients a sympathetic ear and through communicating with the hospital to head off possible difficulties. Giving the hospital an additional way to fulfill its community service obligations. Hospitals can take advantage of our service to reach a large number of patients with public service announcements. Providing a consistent, structured, multidisciplinary platform by which staff can organize their work in addressing issues raised by patients post-discharge. Simulation Rationale Monetary benefits have been quantified above using average and best-case scenarios. But how are these different ROI components likely to add up? Simply to combine the average for each component yields a single number which may be plausible but which says little about the likelihood of different possibilities. Best-case numbers can be added as well, of course, but one wonders just how often all six components would turn out optimally for the same hospital. Monte Carlo simulation is used in cases like this to gain a more realistic picture showing how likely different aggregate results are to occur, given some uncertainty about specific components. Running a simulation allows each benefit, in each trial of the simulation, to randomly take one of the possible values in its allotted range. (Ranges tend to go from a worst case of zero to the best case we ve identified.) The resulting dollar values are combined to yield a total, and this process is repeated for many such trials. This repeated It is the mark of an instructed mind to rest satisfied with the degree of precision which the nature of the subject admits and not to seek an exactness when only an approximation of the truth is possible. Aristotle process of sampling and combining is designed to smooth out the effect of imprecision for any individual estimate. In current practice, with computing power so great, analysts routinely conduct simulations using 10,000 trials or more. However, to further acknowledge the fact that we are dealing in rough approximations, and to avoid a level of granularity which probably isn t justified, we limit the number of trials to 100. 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 8

Simulation Results Below we show, based solely on the inputs quantified above, all 100 ROI figures as generated by the 100 trials of our simulation. The graph reflects the contributions of the six components of an ROI after accounting for a typical per-year program cost of $160,000. We include in our simulation four types of US hospitals, characterized by the percent of revenue they earn under ACOs or capitated plans as opposed to fee-for-service arrangements. The four groups were assigned percentages of ACO or capitated revenue equal to 80%, 60%, 40%, and 20%, with an average of 50%. 1 The graph shows that the most likely per-year return on investment for an average-sized US hospital is about 210%: an average hospital that invests $160,000 is expected to recoup that and to realize additional benefits worth $341,000. In 78% of trials the ROI exceeds 100%, indicating that a hospital would recoup more than double what it invested. 1 These revenues amount to an estimated 50% of hospital payments in 2016. The non-profit Catalyst for Payment Reform found this fraction to be 11% in 2013, but this ballooned to 38% for 2014 and was expected to continue to increase. 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 9

Summary We have attempted to describe and quantify some of the benefits hospitals obtain when partnering with ReInforced Care. Through research, estimation, calculation, and Monte Carlo simulation, we show a reasonable expectation of the more easily quantifiable portion of the ROI for an average US hospital. After we subtract the typical per-year investment, the average expected ROI amounts to 213% of the original investment, or a $341,000 gain. This benefit is about 78% likely to exceed a 100% gain, or $160,000. This means in 78% of cases a hospital would more than double its outlay. We welcome input into our methods and findings. For More Information ReInforced Care, Inc. 90 New State Highway Raynham, MA 02767 www.reinforcedcare.com info@reinforcedcare.com (508) 532-7400 Roland B. Stark Chief Research Officer rstark@reinforcedcare.com Laurie Courtney, MSN, RN Vice President lcourtney@reinforcedcare.com 2016 ReInforced Care, Inc. All rights reserved. April 2016 Page 10