Understanding the Implications of Total Cost of Care in the Maryland Market

Understanding the Implications of Total Cost of Care in the Maryland Market January 29, 2016 Joshua Campbell Director KPMG LLP Matthew Beitman Sr. Associate KPMG LLP

The concept of total cost of care is an emerging and complex issue for Maryland healthcare providers One of the three financial tests in the All Payer demonstration model is for Maryland to control the rate of total payment growth for Maryland Medicare beneficiaries to the national average rate of growth or below Rate of growth control options include: HSCRC influence on hospital rates (i.e. update factor, global budget adjustments, etc.) Hospitals reduction in avoidable utilization Hospitals collaborate and align themselves with pre-admission and post-discharge providers rendering high quality at low cost The All Payer demonstration model may eventually shift to monitoring the total cost of care for all Maryland residents in the next two years, not just Medicare 1

What is Total Cost of Care ( TCC )? Total Cost of Care the inclusive claims payments for the comprehensive basket of health care services utilized by a patient or a population. - CMMI This trend is occurring nationally in the Medicare and commercial populations, and may soon be developed in Maryland This may lead to new regulations from DHMH and the HSCRC that will hold hospitals accountable for the total cost of care of patients and populations Insights from claims data analysis: The implications of claims data are broad and complex and cut across various components of a healthcare system Total cost of care analyses can provide a lens to providers on their value proposition to the market, allowing greater insight into care pathways, and to better understand opportunities for reducing avoidable utilization It can provide insight into the patient story, allowing hospitals and clinicians to enhance the patient experience and improve outcomes 2

What is Total Cost of Care ( TCC )? Total cost of care is a patient-centered view on provider utilization It is calculated using claims data across the continuum of care at a disease/procedure level for a patient or population Cost means cost to the payers or the Maryland healthcare system Components of Care Pathway Diagnosis & Evaluation Total Cost of Care Treatment Follow-up & Readmission Outpatient Drugs 3

Total cost of care (TCC) analysis gives you a different lens to view your comparative position and the opportunities it creates Market transparency Comparing your cost of care to the market for individual episodes and across the entire care continuum to provide you with leverage to drive market share in conversation with health plans and physicians Understanding the components of activity (CPT codes charged, revenue codes charged) within the local market to help you identify opportunities for market share growth and to develop strategies at a service line level Comparing operational and quality metrics to create a value proposition to health plans, physicians and consumers Internal transparency Comparison against peers in terms of operational / quality metrics that can be used as leverage to improve value propositions for service line growth e.g. reduce readmissions Identifying opportunities at a service line and treatment category level (e.g. Diagnosis and Evaluation phase of Neurosurgery MDC) to reduce operational costs in order to improve profitability or gain greater leverage with health plans

The implications of the data are broad and complex. They cut across various components of the organization Regulatory Ensure transparent pricing for patients Justify and validate community benefit reporting Financial Operations & Technology Strategy Clinical Increase revenue through increased market share on services within the continuum of care (not just the hospital) Reduce hospital costs by reducing variability in operations versus peers Model funds flow for partners within the care continuum Enhance operating model to demonstrate higher value to consumer and reduce inefficiencies Streamline supply chain around drugs and supplies that are the most effective Develop workforce and understand skills necessary to execute new models Define new markets for ambulatory services Define new markets for services to develop relationships with partners Develop relationships with employers Understand clinical protocols and test evidence-based practices Understand the impact of clinical quality on utilization and payer costs Align physician recruitment, clinical asset development and physical plant with population demand and needs 5

An Approach to Total Cost of Care Analyses Service Line Selection Clinical Validation Analyze Market Identify Variation Calculate Total Cost of Care Identify Cost Drivers 6

Develop an understanding of the market at a service line level from the patient point of view, beyond your current patients Analyzing patient volumes by geographical area: In-market leakage i.e. patients in your primary service area(s) going elsewhere for services Quantify $ value of lost activity and potential revenue gain from capturing this activity Analyze referral patterns to identify the sources of lost activity and specific opportunities to recapture Out-market migration i.e. patients outside your expected service area travelling to your hospital(s) for services Understand drivers of patient behavior and referral patterns; develop opportunities to build on this to grow market share in other service lines Analyzing market competitors: Hospital ABC Hospital YZ 107 172 Opportunities: Next steps: Break down the continuum of care to identify what type of activity you are delivering (or not) in each area e.g. inpatient treatment vs. follow-on Hospital VWX 72 ABC market share - DRG 26 Craniotomy & endovascular intracranial procedures w/cc ABC Hospital Competitors Hospital STU 63 100% Hospital PQR 14 50% EXAMPLE DATA Hospital MNO Hospital GHI Hospital DEF 10 8 7 0% Diagnosis & Evaluation Inpatient Treatment Follow-up & Readmission Outpatient Pharmacy Next step: compare total cost of care against competition to identify current efficiencies and/or opportunities for operational improvement

Total cost of care analysis can provide a lens to providers on their value proposition to the market Hypothesis 1 Costs for treatment are higher @ Hospital ABC but total cost of care is lower overall, due to lower costs for pre- and post-treatment phases Average Payment ($) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- $52,950 $48,220 $32,600 $26,900 $15,600 $6,150 $8,500 $8,370 $1,100 $1,950 Diagnosis and Evaluation Treatment Follow-up and Readmission Outpatient Pharmacy Total Hospital ABC Market Average $80,000 Hypothesis 2 TCC is significantly lower at every stage, $67,100 Average Payment ($) $7,100 $26,600 Hypothesis 3 Cost of care is higher @ Hospital ABC in every part of the care continuum; gives Hospital ABC a robust, detailed basis for performance improvement at a service line level Average Payment ($) $60,000 $40,000 $20,000 $- $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- $8,700 $35,500 $10,070 $15,000 $6,000 $7,900 $49,770 Diagnosis and Evaluation Treatment Follow-up and Readmission Outpatient Pharmacy Total $11,050 $9,500 $41,000 $34,000 $9,500 $5,070 $1,560 $1,300 $63,110 Diagnosis and Evaluation Treatment Follow-up and Readmission Outpatient Pharmacy Total $49,870 Hospital ABC Market Average Hospital ABC Market Average 8

Comparing the patient story allows providers to enhance the patient experience, and assess whether their protocols lead to better care Hospital ABC Average TCC $59,000 Emergency Room & Inpatient Admission ALOS 3.5 days Inpatient Discharge Services ICU EEG MRI ECG Continuous EEG monitor 30 days Physician Follow-up Patient typically schedules a followup appointment 30 days post discharge Readmission Readmission Outpatient drug costs vary depending on comorbidities of the patient Market Average TCC $40,100 Emergency Room & Inpatient Admission ALOS 2.5 days Typical patient presents in the ED Includes ambulance charges 30 days Inpatient Discharge Services ICU EEG MRI ECG Physician Follow-up Readmission Patients typically present in the ED and are readmitted 2 times 90 days post discharge 9

Lessons learned from working with claims data to perform these analyses Working with claims data to extract valuable insights for your organization is not a simple task. Claims data isn t often clean data Between different episodes, different members, and different structures of claims data from physicians, providers, and outpatient pharmacy, claims data can be difficult to attribute patient activity across the care continuum Tools and data are not enough, you have to be able to tell the patient story Average charges, readmission rates, even total cost of care are meaningless until you tell the story around your patients, the market s patients and why there may be variability in the care pathway. The data is your guide to discuss the clinical experience and should be validated by clinical teams The data tells a story from the patient and payer s perspective. It can vary significantly, but it identifies a pattern of approach by clinical teams. After understanding the story, it is then important to obtain clinical input to validate that story and understand the reasoning behind the patient s story. Providers don t need to create complex value-based arrangements to capture value There is inherent value in understanding your position compared to the market regardless of future payment models. Many conversations around total cost of care evolve into discussions about providers taking risk, but providers may start first with bundling payments with physicians from admission to discharge

There are two approaches leaders can take to respond to the emerging concept of total cost of care Proactive Monitor and React Understand the organization and the market since GBR Participate in industry and HSCRC forums Understand the variation in clinical pathways around service lines including pre- and post-discharge Initiate and solicit ideas from clinicians around total cost of care Pilot new financial models based on total cost of care methodologies with the HSCRC Attend or stay informed of current issues being discussed Educate the organization on potential changes Understand implications of regulations as they are developed and reposition the organization 11

CASE STUDY: ASSESSING TOTAL COST OF CARE FOR CRANIOTOMIES AT HOSPITAL ABC 12

Questions to Address Situation Hospital ABC believes they have cost inefficiencies and high readmissions related to craniotomies Approach Analyze market and Hospital total cost of care to identify variation and cost drivers in the care pathway Questions to Answer What is the typical care pathway for Hospital ABC and the market? Which components of the care pathway show cost variation?

Assessing the Market for MS DRG 27- Craniotomies w/o MCC Patient volume appears to be consolidated around the Washington DC and Baltimore metropolitan areas: Top Providers of DRG 27 in the Market: Hospital ABC 172 Hospital YZ 107 Hospital VWX Hospital STU 72 63 Hospital PQR Hospital MNO Hospital GHI Hospital DEF 14 10 8 7

Comparison of Cost of Care by Care Pathway Component CY 2013 CY 2014 Total Cost Care for Hospital ABC & the Market Hospital ABC Market $123,050 Average Payments $74,803 $54,192 $41,590 $88,587 $6,657 $12,055 $22,340 Diagnosis & Evaluation Treatment Follow up and Readmission Total Average Preadmission Payments by Provider Type Average Treatment Payments by Provider Type Average Follow-Up Payments by Provider Type $7,846 $4,478 $10,138 $14,140 $2,586 $7,577 $66,957 $44,054 $27,450 $8,530 $4,071 $13,810 Hospital ABC Market Average Hospital ABC Market Average Hosptial ABC Market Average Facility Professional Facility Professional Facility Professional

Craniotomies: Drivers of Cost Variances Drivers of Cost in the Clinical Pathway Diagnosis and Evaluation Treatment Follow-up and Readmission Outpatient Pharmacy Drivers of Significant Cost Variation Diagnostic testing procedures MRI scans Use of anesthesia Craniectomy procedure Use of MRI scans Frequency of office visits Medications for brain cancer Pain medication Anesthesia Frequency of office visits Admittance to emergency room Use of continuous intraoperative neurophysiological monitoring Need for rehabilitative care after the procedure

Craniotomies: The Timeline of Encounters in the Clinical Pathway Hospital A $123,050 90 days Pre Admission ALOS 8 days 90 days Post Discharge Emergency room visit or Other Inpatient Admission* Office visits MRI CT X-rays Admission ICU CT Scan Supplies Drugs Physical Therapy Discharge Readmission* Follow-up Office visit Market Average TCC $88,587 90 days Pre Admission ALOS 6 days 90 days Post Discharge Preadmission Preadmission Emergency room visit or Other Inpatient Admission* Office visits MRI CT X-rays Admission Med/Surg Bed CT Scan Physical Therapy Discharge Inpatient Rehabilitation Follow-up Office visit

Diagnosis and Evaluation Procedure to surgically remove part of the bone from the skull to expose the brain. Patients could receive six types of services related to the diagnosis and evaluation of need for the procedure: Cerebral arteriogram CT Scan EEG MRI PET Scan X-Ray The procedure can be used for various diagnoses such as: Brain tumor Aneurysm Traumatic Injury/Stroke Seizure Craniotomies: Clinical Pathway Treatment The hospital stay is typically between 3-7 days. During the patients time at the hospital they are taken to the neurological nursing unit where they are frequently monitored for neurological checks (following basic commands to move arms and legs, pupil dilation, assess orientation i.e. name, date location). Follow-up Care Depending on post-op status, may go to a rehab unit for several days after hospital stay. Appointment for suture/staple removal approx. 10-14 days post-surgery. Appointment 6-8 weeks post-surgery to discuss progress, medications, further treatment and imaging plans. Readmissions Highly dependent on the initial diagnosis resulting in need for a craniotomy and variables such as: Severity of traumatic brain injury Pathology of tumor Location of injury or mass in the brain According to a study done by the Journal of Neurosurgery, about 13% of patients discharged after craniotomy for malignant tumors were readmitted within 30 days. Most common reasons for readmission were: New onset seizure and convulsive disorder Surgical infection of the central nervous system New onset of motor deficit Sources: Guide to the Care of the Patient with Craniotomy Post-Brain Tumor Resection American Association Neurosciences Nurses Standard of Care: Craniotomy Brigham and Women s Hospital The Brain Tumor Center Johns Hopkins Medicine and Neurology and Neurosurgery Incidence and predictors of 30-day readmission for patients discharged home after craniotomy for malignant supratentorial tumors The Journal of Neurosurgery

Total Cost of Care Closing Thoughts Under the current waiver agreement, the HSCRC and CMMI agreed to a Medicare Total Cost of Care growth rate limitation There are incentives now under global budgets to reduce excess utilization and drive down cost of care To succeed under global budgets and to prepare for future waiver modifications, hospitals need to better understand the care continuum and associated costs Using claims data to perform Total Cost of Care analyses can provide market intelligence, cost improvement opportunities, and enhance patience experience