Medicare Payment Strategy

Data and Analytics Medicare Payment Strategy CMS Inpatient Pay For Performance Program Update Eric Fontana, Practice Manager, Data and Analytics Group analytics@advisory.com

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Data and Analytics Medicare Payment Strategy CMS Inpatient Pay For Performance Program Update Eric Fontana, Practice Manager, Data and Analytics Group analytics@advisory.com

9 Road Map 1 Pay For Performance Overview 2 Program Mechanics and Methodology 3 Question and Answer Session

10 Starting To Play Out A National Perspective on Quality-Based Medicare Reimbursement The Pay for Performance Map Access at www.advisory.com

11 Inpatient Medicare Margins Remain Under Pressure Key Forces Pose Challenges For Achieving Future Positive Margins Medicare Acute Inpatient PPS Margin 2002-2011 1 Four Forces Shaping Future Margins 6.6% Decelerating Price Growth Continuing Cost Pressure 2.4% -0.3% -0.5% -2.2% -3.7% -4.8% -2.3% -1.7% -0.4% Shifting Payer Mix Deteriorating Case Mix 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 The Medicare Breakeven Project www.advisory.com/medicarebreakeven Ongoing initiative to support margins in an era of increasing financial pressures Available to all Health Care Advisory Board members at no extra cost 1) Margins calculated as revenue minus cost divided by revenue. Data based on Medicare-allowable costs and exclude critical access hospitals. Includes services covered by the acute care inpatient PPS Source: Health Care Spending and the Medicare Program June 2012, MedPAC, Accessed 09-17-2013. http://www.medpac.gov/documents/jun13databookentirereport.pdf, Advisory Board Analysis

12 A New Addition to the Pay For Performance Family CMS Announces Details of New Hospital Acquired Conditions Program Comparing Major Pay For Performance Programs Discharge 30 day Readmit Maximum Penalty FY 2013 1% FY 2014 2% FY 2015 onward 3% 1% Penalty for top quartile of HACs from FY 2015 Hospital Readmissions Reduction Program Hospital Acquired Condition Program Hospital Inpatient Value Based Purchasing Program Payment Impact Begins: FY 2013 Payments (October 1, 2012) FY 2015 (October 1, 2014) FY 2013 Payments (October 1, 2012) Incentive Structure: Penalty only, 1% cap for FY 2013 Penalty only, 1% maximum for FY 2015 Bonus or penalty, depending on performance Payment Unit to be Modified: Base Operating DRG Payment Amount Revenue after adjustment for Readmissions and VBP programs Base Operating DRG Payment Amount Comment: Compares your facility to national average performance based on retrospective three year period Most program details finalized in FY 2014 IPPS Final Rule, specific payment adjustment methodology subject of future rule Budget neutral, creates winners vs. losers scenario

Reasons to Pay Attention: #1 13 Future Dollars on the Line CMS Presses Ahead With Data Collection for Future Years Performance Periods Currently In Progress For Fiscal Years (FY) 1 2014 2015 2016 2017 VBP 1 Readmissions 2 HAC Payment Adjustments Can No Longer be Inflected Data Collection In Progress Data Collection Not Yet Started 1) As of February 2014 2) Performance periods 3) Assumes readmissions performance judged on timeframe of July 1, 2011 June 31st, 2014

Reasons to Pay Attention: #2 14 More Measures in The Pipeline Organizations That Can Adapt Quickly Will Have Greatest Success 10 10 Measures Finalized for IQR FY 2005 FY 2016 55 57 59 59 57 44 45 30 27 21 Mortality Rates Stroke 30-day mortality rate COPD 30-day mortality rate Readmission Stroke 30-day risk standardized readmission COPD 30-day risk standardized readmission Cost Efficiency AMI payment per episode of care Measures to be Suspended (1) Finalized Changes to FY 2016 Measures Measures to be Added (5) Measures to be Removed (7) Acute Myocardial infarction AMI-2 aspirin prescribed at discharge AMI-10 statin prescribed at discharge Pneumonia PN-3b blood culture performed in the emergency department prior to first antibiotic received in hospital Heart Failure HF-1 discharge instructions HF-3 ACEI or ARB for LVSD Immunization IMM-1 immunization for pneumonia Surgical Care Improvement Project SCIP-Inf-10 surgery patients with perioperative temperature management Structural Measure Participation in a systematic clinical database registry for stroke care Finalized Refinements to Existing Measure Set in FY 2014 Incorporation of planned readmission algorithm for 30-Day readmission measures: AMI, HF, PN, THA,TKR, HWR Expansion of CLABSI and CAUTI measures to select non-icu locations in IPPS hospitals with infections on or after January 1, 2014 deferred to January 1, 2015 Updates to SCIP-Inf-4 (#0300) including NQF maintenance Spending Per Beneficiary measure to include Railroad Retirement Board (RRB) beneficiaries beginning FY 2014

Reasons to Pay Attention: #3 15 Winning One Challenge Won t Grant You Immunity P4P Programs Can t Be Considered in a Vacuum FY 2013 Final Readmission Penalty and VBP Incentive Payment Net Revenue Change Readmissions Penalty Net Revenue Impact 1 Estimated Net Revenue Change VBP (-0.89%) Readmissions 0% Estimated Net Revenue Change VBP 0.70% Readmissions (1.00%) VBP Net Revenue Impact 1 1) Data points for each facility represents final FY13 readmissions penalty and final FY13 VBP incentive payment as provided at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps/fy-2013-ipps-final-rule-home-page.html

16 Improving Your Performance on P4P Introducing the Pay-For-Performance Toolkit From Performance Diagnostics To Measure-Specific Best Practices Customized Readmissions Penalty Estimator Customized Value Based Purchasing Impact Assessment HAC Penalty Estimator Quality Indicator Trender Also includes Program Summaries Hospital-specific measure trends by program 1 Hospital Acquired Conditions penalty estimator 1 Pay-for-Performance Crosswalk 1. Currently in development

18 Road Map 1 Pay For Performance Overview 2 Program Mechanics and Methodology 3 Question and Answer Session

Program #1: Readmissions Reduction Program 19 Readmissions Program Mechanics Capped Penalty to Hit 3% Maximum from FY 2015 Onwards Overview of Readmissions Program Who is Included? Readmissions Performance Assessment Penalty Allocated 2013 2014 2015-1% -2% -3% Inclusion of all subsection (d) hospitals Excludes LTCH, Cancer Hospitals, Children s Hospitals, IRFs, IPFs, Critical Access Hospitals, Hospitals in Puerto Rico or US Territories Maryland hospitals participation subject application for exemption. Top date exempted for FY 2013 and FY 2014. Assesses whether a hospital had excess readmissions on a set of NQF-endorsed, 30-day risk-standardized readmissions rates (RSRR), initially: Acute Myocardial Infarction Heart Failure Pneumonia Comparison to expected national average performance Being assessed as worse than expected in any one of the defined conditions will result in a financial penalty Payment adjustment will apply for all inpatient discharges, not just the associated patient populations Penalty capped at maximum levels in given fiscal year; 1% in FY 2013, 2% in FY 2014, 3% in FY 2015 onward. Unlike VBP, no opportunity for high performers to earn bonus payments

Program #1: Readmissions Reduction Program 20 Rolling Forward One Year at a Time Readmissions Timeframe of July 1, 2009- June 30, 2012 for FY 2014 Calculating Payment Penalties (Based on MedPAR Claims from July 1, 2009 June 30 th, 2012) 30-Day Standardized Readmission Measures Finalized Readmissions Period Assessed: July 1, 2009 - June 30, 2012 1 1 Determine Hospital Specific ERR 1 Adjusted number of readmission at specific hospital Number of readmits if an average hospital treated the same patients Data presented in Hospital Compare already risk adjusted If E.R.R is: >1 = Penalty 1 = No Penalty Acute Myocardial Infarction Pneumonia Heart Failure 2 Calculate Excess Payments Attributable to Readmissions 2% Maximum Penalty in FY 2014 3 Sum of: Base Operating DRG payments (for each condition) x (ERR-1) Compute Final Adjustment Factor (Penalty) Apply the greater of the ratio described in subparagraph (B) or the floor adjustment factor specified in paragraph (C) 1) CMS will not recalculate FY 2013 rate for payment purposes, Planned Readmissions Algorithm available at: http://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/hospitalqualityinits/measure-methodology.html 1 Payment for excess readmissions or Payment for all discharges 98% (FY 2014)

Program #1: Readmissions Reduction Program 21 New Measures Finalized For FY 2015 Penalty PPACA Mandated Expansion Sees Two High Cost Conditions Added Finalized New Measures for Readmissions Program in FY 2015 Reason for inclusion Chronic Obstructive Pulmonary Disease (COPD) One of 7 high cost readmissions identified in MedPAC 2007 report to congress. Total Hip Arthroplasty/Total Knee Arthroplasty (THA/TKA) Largest procedural cost in Medicare budget with significant readmissions variation Year adopted into IQR FY 2014 FY 2015 Median RSRR 1 22.0% (range:18.33%-25.03%) 5.7% (range:3.2%-9.9%) Measure Methodology For COPD ICD-9 definition please click here For THA/TKA ICD-9 readmissions definition please click here More Measures to Be Added in FY 2016? CMS discussed PCI and CABG in the Rule, however have ultimately decided not to propose/finalize them for inclusion in FY 2015. CMS will monitor these measures for potential inclusion in future years 1) Risk standardized readmissions ratio

Program #1: Readmissions Reduction Program 22 What s Included and What s Excluded Planned Readmissions a Significant Methodological Change ICD-9 Definitions Finalized For Eligible Conditions in FY 2014 Acute Myocardial Infarction 410.00, 410.01, 410.10, 410.11, 410.20, 410.21, 410.30, 410.31, 410.40, 410.41, 410.50, 410.51, 410.60, 410.61, 410.70, 410.71, 410.80, 410.81, 410.90, 410.91) Heart Failure 402.01, 402.11, 402.91, 404.01, 404.03, 404.11, 404.13, 404.91, 404.93, 428.xx Pneumonia 480.0, 480.1, 480.2, 480.3, 480.8, 480.9, 481, 482.0, 482.1, 482.2, 482.30, 482.31, 482.32, 482.39, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, 482.89, 482.9, 483.0, 483.1, 483.8, 485, 486, 487.0, 488.11 Exclusion Criteria In-hospital deaths Patients discharged against medical advice Transfers to other acute care facilities Patients under 65 years of age Patients enrolled in Medicare Part C Admit and discharge on same day Less than 25 discharges per case Planned Readmissions Patients w/o Part A and B enrollment 12 months prior to index admission Patients w/o 30 days post-discharge Medicare enrolment! Planned Readmissions Don t Count Exclude: Planned readmits, Any 30 day unplanned readmission subsequent to planned readmit planned Discharge unplanned Count: All 30 day readmissions unrelated to planned readmission Hypothetical Impact of Revised Planned Readmissions Criteria on FY 2013 Rates 1 AMI HF PN Included 19.2 24.6 18.5 Excluded 18.2 23.1 17.8 Change (1.0) (1.5) (0.7) Source: CMS Measure Methodology, available at: http://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/hospital QualityInits/Measure-Methodology.html, accessed 8/8/13, CMS, Advisory Board Analysis

Program #1: Readmissions Reduction Program Doubling Up on Readmissions Penalty in FY 2014 23 Small Group of Hospitals To Receive Sizable Revenue Hit FY 2013 Final Rule Adjustment Factors Reflecting June 2008-July 2011 1 n=3,490 FY 2014 Final Rule Adjustment Factors Reflecting June 2009-July 2012 2 n=3,357 3.81% 0.77% 10% 6% 8% No penalty (-0.001%) to (-0.24%) 13% 0.54% No Penalty (-0.001%) to (-0.49%) 14% 37% (-0.25%) to (-0.49%) (-0.50%) to (-0.74%) 47% 34% (-.50%) to (-0.99%) (-1.00%) to (-1.49%) (-0.75%) to (-0.99%) (-1.50%) to (-1.99%) 26% (-1.00%) Maximum (-2.00%) Maximum 1) Based on analysis of FY 2013 final hospital readmissions rate impact file, excludes Maryland and PR facilities, updated August 2013 2) Final readmissions adjustment factors are based on excess readmission ratios and claims data from July 1, 2009 to June 30, 2012 and includes the application of the planned readmission algorithm.

Program #2: Hospital Acquired Condition 24 HAC Program Mechanics 1% Penalty For Worst Performing Quartile on Defined HAC Measures Overview of HAC Program Who is Included? HAC Performance Assessment Penalty Allocated Penalty Inclusion of all subsection (d) hospitals, HAC program will include Maryland hospitals Excludes LTCH, Cancer Hospitals, Children s Hospitals, IRFs, IPFs, Critical Access Hospitals, Hospitals in Puerto Rico or US Territories Finalized methodology assesses HAC performance on two distinct domains Patient Safety Measures CDC NHSN Measures Points assigned based on decile performance compared to other facilities, the higher the points the worse the performance. Two domain system, individual domain scores weighted and combined to form overall HAC score. Statutorily mandated penalty is a 1% cut to what otherwise would be paid for hospitals in top (worst) performing quartile. Penalty would apply to payments after the readmissions and value based purchasing program adjustments have been made Payment adjustment specifics TBD, likely in FY 2015 IPPS Proposed Rule

Program #2: Hospital Acquired Condition 25 Two Domain Quality Structure Finalized CMS Spurns Preferred Domain 1 Option and Weighting After Feedback Domain 1: Patient Safety Measures Two Domain Structure for HAC Reduction Program 35% + 65% July 1, 2011 - June 30, 2013 Domain 2: CDC/NHSN Surveillance Measures CY2012 & CY2013 PSI-90 Composite Metric Metric FY 2015 FY 2016 FY 2017 CLABSI Including component indicators: PSI #3 Pressure Ulcer Rate PSI #6 Iatrogenic Pneumothorax Rate PSI #7 Central Venous CRBSI Rate PSI #8 Postoperative Hip Fracture Rate PSI #12 Perioperative PE DVT Rate PSI #13 Postoperative Sepsis Rate PSI #14 Postoperative Wound Dehiscence Rate PSI #15 Accidental Puncture or Laceration Rate CAUTI SSI Colon SSI Abdominal Hysterectomy MRSA C. Difficile

Program #2: Hospital Acquired Condition 26 Points Allocated at Individual Measure Level Points Allocated on Percentile Bands, Not Just For Worst Performers Finalized Score Allocates Points Based on Decile Ranking For Each Measure Points 1 2 3 4 5 6 7 8 9 10 %ile 0 10 th 20 th 30 th 40 th 50 th 60 th 70 th 80 th 90 th 100 th The maximum point total for each measure is 10 points Example: CLABSI 0 0.471 0.638 50th 1.244 90th Points 1 2 3 4 5 6 7 8 9 10 %ile 0 10 th 20 th 30 th 40 th 50 th 60 th 70 th 80 th 90 th 100 th 1) For domain 2 CMS will average the point total of the two measures before calculating the domain score

Program #2: Hospital Acquired Condition 27 One Domain Is Sufficient For HAC Score CMS Can Reweight Domains For Insufficient Cases or ICU Waiver Yes Use Domain 1 only Has complete data to calculate PSI-90 Ratio? HAC Score Domain Exclusion Decision Tree No Hospital Has ICU Waiver? Yes No HAC Score Domain 1+ Domain 2 Sufficient cases to calculate PSI- 90 Ratio? Yes No Yes No Enough cases to calculate SIR? Use Domain 2 only Yes Reported CDC NHSN data? No Use Domain 1 only No Max points for Domain 2 allocated 1 Minimum Requirements for Domain Score Domain 1: three or more eligible discharges for at least one component indicator Domain 2: >1 predicted HAI event Point Allocation 10 point maximum for each measure in the program A Rare Double Whammy Failure to report without a waiver would incur 2% IQR penalty in addition to maximum HAC points 1) Under this scenario HAC score = Domain 1+ Domain 2

Program #2: Hospital Acquired Condition 28 Who Are the Likely Recipients of HAC Penalties? Non Teaching, DSH and Urban Hospitals Most Likely to be Penalized Distribution of 1% Penalty By DSH Status 830 hospitals Distribution of 1% Penalty By Teaching Status 830 hospitals 24.10% Non-DSH 22.41% 17.47% 17.95% DSH Q1 DSH Q2 DSH Q3 DSH Q4 18.07% 82% 16% 2% Non-Teaching Teaching Unknown Status Total DSH hospitals = 82% 1) DSH Quartile 1 represents lowest disadvantaged

Program #3: Hospital Inpatient Value Based Purchasing 29 VBP Program Mechanics Incentive Payment Based on Quality Performance Payment Withhold Quality Performance Assessment Redistribution of Payment FY13 FY14 FY15 FY16 FY17-1.0% -1.25% -1.5% -1.75% -2.00% Payment withhold applies to base operating DRG payment Assesses performance on quality measures including (FY started in parenthesis): Payment directly proportional to TPS score Withhold applies only to roughly 3,000 hospitals meeting VBP inclusion criteria Clinical process of care (2013) Patient experience of care (2013) Outcomes (2014) Efficiency (2015) Budget neutrality results in winners vs. losers roughly half of hospitals earn back more than withhold, others earn back less Scored on achievement relative to national benchmarks and improvement compared to historical baseline Quality measure scores combined to form single figure Total Performance Score (TPS)

Excluded Included Program #3: Hospital Inpatient Value Based Purchasing 30 VBP Program Includes Roughly 3,000 Hospitals Participation in VBP Not Optional, However Some Exclusions Apply Value Based Purchasing Program Inclusion Criteria Hospital Types Quality Compliance Reporting Requirements Hospitals in 50 states, District of Columbia Hospitals satisfying CMS inpatient reporting requirements and receiving the full market basket update as a result Organizations that meet the minimum case reporting requirements and minimum required number of domain scores to earn a TPS Psychiatric, rehabilitation, long term care, children s and cancer hospitals Hospitals in PR, US territories Maryland hospitals granted FY 2014 exemption Received CMS deficiency notifications during the performance period Hospitals failing quality data chart validation process Any hospital that fails to meet minimum case and measure requirements required to earn a TPS

Program #3: Hospital Inpatient Value Based Purchasing 31 Domain and Measure Score Requirements Domain FY 2014 FY 2015/16 Clinical Process of Care Patient Experience of Care Measure: 10 cases Domain: Minimum 4 (of 13) measures reported Domain: 100 completed HCAHPS surveys Measure: 10 cases Domain: Minimum 4 (of 12) measures reported Domain: 100 completed HCAHPS surveys Outcomes of Care Domain: 2 mortality measures Domain: 2 outcomes measures Mortality Measure: Minimum 10 cases Measure: Minimum 25 cases CLABSI PSI-90 Not Included Not Included Measure: Will be calculated if hospital has 1 predicted infection Measure: Minimum of three cases for any underlying indicator Efficiency of Care Not Included Measure: Minimum 25 cases

Program #3: Hospital Inpatient Value Based Purchasing 32 Tracking VBP Measures Across Time Domain Description FY 2013 FY 2014 FY 2015 FY 2016 Clinical Process AMI-7a Fibrinolytic therapy received within 30 minutes of hospital arrival X X X X AMI-8a Primary PCI received within 90 minutes of hospital arrival X X X - HF-1 Discharge instructions X X X - IMM-2 Influenza Immunization - - - X PN-3b Blood cultures performed in the ED prior to initial antibiotic received in hospital X X X - PN-6 Initial antibiotic selection for CAP in immunocompetent patient X X X X SCIP-Inf-1 Prophylactic antibiotic received within one hour prior to surgical incision X X X - SCIP-Inf-2 Prophylactic antibiotic selection for surgical patients X X X X SCIP-Inf-3 Prophylactic antibiotics discontinued within 24 hours after surgery end time X X X X SCIP-Inf-4 Cardiac surgery patients with controlled 6am postoperative serum glucose X X X - SCIP-Inf-9 Urinary catheter removed on postoperative day 1 or postoperative day 2 - X X X SCIP-Card-2 Surgery patients on prior ß-blocker receive ß-blocker during perioperative period X X X X SCIP-VTE-1 Surgery patients with recommended venous thromboembolism prophylaxis ordered X X - - SCIP-VTE-2 Patients receiving appropriate VTE prophylaxis 24 hours prior to and after surgery X X X X Patient Experience HCAHPS 1 Patient Satisfaction Measures X X X X Outcomes MORT-30-AMI Acute myocardial infarction 30-day mortality rate - X X X MORT-30-HF Heart failure 30-day mortality rate - X X X MORT-30-PN Pneumonia 30-day mortality rate - X X X PSI-90 Complication/patient safety for selected indicators (composite) - - X X CAUTI Catheter-Associated Urinary Tract Infection - - - X CLABSI Central line associated blood stream infection - - X X SSI - Colon Colon Surgical Site Infections - - - X SSI Abdo Hyst Abdominal Hysterectomy Surgical Site Infections - - - X Efficiency MSPB_1 Medicare spending per beneficiary - - X X 1. Comprised of: Communication with nurses, Communication with doctors, Responsiveness of hospital staff, Pain management, Communication about medicines, Cleanliness and quietness of hospital environment, Discharge information, Overall rating of hospital

Program #3: Hospital Inpatient Value Based Purchasing 33 Splitting the Outcome CMS Expands, Rebrands, Reweights Domains in FY 2017 2016 Domain and Weighting 2017 Domain and Weighting 10% Clinical Process of Care Clinical Care Process 10% 25% Patient Experience of Care Patient and Caregiver Centered Exp. / Coordination 25% 25% Efficiency Efficiency and Cost 25% 40% Outcomes Clinical Care Outcomes 25% Safety 15%

Program #3: Hospital Inpatient Value Based Purchasing 34 FY 2015 Performance Periods Are Closed All Domains Completed, Performance Can No Longer Be Inflected 2012 2013 Jan 1 Jan 1 Clinical Process of Care Patient Experience of Care Dec 31 Dec 31 Oct 1 Oct 15 Outcomes: Mortality Measures Outcomes: Patient Safety Composite June 30 June 30 Feb 1 Outcomes: Central Line Infection Dec 31 Finalized Measures Proposed Measures May 1 Efficiency: Spend Per Beneficiary Dec 31

Program #3: Hospital Inpatient Value Based Purchasing 35 Final Performance Periods For FY 2016 Mortality and Patient Safety Measures Finalized in Previous Rules 2012 2013 2014 Jan 1 Jan 1 Clinical Process of Care Patient Experience of Care Dec 31 Dec 31 Oct 1 Oct 15 Mortality AHRQ Jan 1 Jan 1 Efficiency Dec 31 Outcome: CAUTI/CLABSI/SSI Dec 31 June 30 June 30 Finalized Measures Proposed Measures We are here: March 17, 2014 Domain Weights Under Four Domain Structure Domain FY 2013 FY 2014 FY 2015 FY 2016 Clinical Process of Care 70% 45% 20% 10% Patient Experience of Care 30% 30% 30% 25% Outcomes of Care - 25% 30% 40% Efficiency - - 20% 25%

Program #3: Hospital Inpatient Value Based Purchasing 36 Finalized Performance Periods FY 2017- FY 2019 October First Kickoff for FY 2017 and FY 2018 Performance Periods 2013 2014 2015 2016 2017 October 1 October 1 FY 2017 - Mortality FY 2017 AHRQ PSI June 30 June 30 October 1 FY 2018 - Mortality June 30 July 1 July 1 FY 2018 AHRQ PSI June 30 FY 2019 - Mortality June 30 All finalized baseline periods are already completed and are of the same duration as the performance periods

Program #3: Hospital Inpatient Value Based Purchasing 37 Three Types of Points Can Be Earned Points awarded for performance relative to achievement threshold and benchmark Achievement Points Achievement Threshold National Benchmark Used for all process, experience, mortality and efficiency measures 0 Points 1-9 Points 10 Points Points awarded for performance relative to baseline score Baseline (Improvement Threshold) Improvement Points National Benchmark Used for all process, experience, mortality and efficiency measures 0 Points 1-9 Points Points awarded based on lowest dimension score relative to median baseline score Consistency Points 50th Percentile Used for experience of care domain only 0-19 Points 20 Points

Program #3: Hospital Inpatient Value Based Purchasing 38 Earning Points for Achievement or Improvement Achievement Score Methodology Example: Scoring PN-6 Antibiotic Selection For CAP Achievement points awarded for exceeding threshold Performance Range Achievement Threshold 0.9446 50 th Percentile 0.98 Benchmark 1.0 1 2 3 4 5 6 7 8 9 10 Achievement 6 Points Improvement Score Methodology Improvement points awarded for exceeding baseline 0.93 0.98 Benchmark 1.0 Improvement 7 Points Baseline Improvement Range 1 2 3 4 5 6 7 8 9 Higher score used, so measure awarded 7 points Source: CMS, Advisory Board analysis

Appendix 39 Finalized FY 2016 Performance Standards Clinical Process of Care Efficiency Measure Achievement Threshold Benchmark Measure Achievement Threshold Benchmark AMI-7a 0.91154 1.00000 IMM-2 0.90607 0.98875 PN-6 0.96552 1.00000 SCIP Card-2 0.97727 1.00000 SCIP-Inf-2 0.99074 1.00000 MSPB-1 Median Medicare Spending per Beneficiary ratio across all hospitals during the performance period Mean of the lowest decile of Medicare spending per beneficiary ratios across all hospital during the performance period SCIP-Inf-3 0.98086 1.00000 SCIP-Inf-9 0.97059 1.00000 SCIP-VTE-2 0.98225 1.00000 Measure Patient Experience of Care Floor Achievement Threshold Benchmark Outcomes MORT-30-AMI 1 0.847472 0.862371 MORT-30-HF 1 0.881510 0.900315 MORT-30-PN 1 0.882651 0.904181 PSI-90 1 0.622879 0.451792 CAUTI 0.801 0.000 CLABSI 0.465 0.000 SSI Colon 0.668 0.000 Abdominal 0.752 0.000 1. Finalized prior to FY 2014 Final Rule Communication with Nurses 53.99 77.67 86.07 Communication with Doctors 57.01 80.4 88.56 Responsiveness of Hospital Staff 38.21 64.71 79.76 Pain Management 48.96 70.18 78.16 Communication About Medicines Cleanliness and Quietness of Hospital Environment 34.61 62.33 72.77 43.08 64.95 79.1 Discharge Information 61.36 84.7 90.39 Overall Rating of Hospital 34.95 69.32 83.97

Program #3: Hospital Inpatient Value Based Purchasing 40 VBP Performance Captured in a Single Number Domain Scores Combine to Form Total Performance Score (TPS) Patient Experience HCAHPS Outcomes TPS Process Mortality, HAC, Patient Safety Spend Per Beneficiary Core Measures Part A and B spending per episode

Program #3: Hospital Inpatient Value Based Purchasing 41 Incentive Payments Proportional to TPS Estimated FY 2015 Total Performance Score vs. VBP Incentive Payment 4.0% Highest Performer: TPS 97.1 3.0% Lowest Performer: TPS 0.0 2.0% 1.0% Breakeven TPS ~38.3 0.0% 0 20 40 60 80 100 Linear Exchange Formula employed; for mathematical conversion of TPS to incentive payment, exact scale to be determined by CMS Actual incentive payment directly proportional to quality performance relative to peers Estimated incentive payment range of 0.0%-3.91% for FY 2015 (based on January 2013 Hospital Compare) Tool in Brief: Customized Medicare VBP Impact Assessment Calculates provider-specific TPS Displays TPS ranking relative to peers, including individual domain performance Estimates resulting net revenue change using FY 2012 Medicare discharges and payments Continually updated as new Hospital Compare (and financial) data is released Source: Advisory Board Analysis

Program #3: Hospital Inpatient Value Based Purchasing 42 It s Getting Tougher to Break Away From the Pack A Bigger Upside Awaits High Performers Estimated VBP Breakeven, 90 th Percentile, Max Incentive Payment FY 2013 FY 2016 Year (FY) Breakeven TPS 90 th Percentile TPS Max Incentive (%) 1 2013 53.50 73.73 1.95% 2014 47.10 60.95 2.25% 2015 38.30 53.70 3.92% 2016 34.05 50.07 5.04% 1. Incentive percentage does not consider withhold, net revenue impact would consider both withhold and incentive payment. Source: Advisory Board Analysis

43 Road Map 1 Pay For Performance Overview 2 Program Mechanics and Methodology 3 Question and Answer Session

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