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NAVIGANT HEALTHCARE PRESENTS:ACO, HEALTHCARE PROVIDER ALTERNATIVES AND STRATEGIES IN PARTICIPATING IN HEALTH INSURANCE EXCHANGES

Moderator: Cheryl Duva

May 02, 2013

NAVIGANT OVERVIEW

Who is Navigant Consulting?» A 30+ years Global Consulting Firm with 2,500 professionals located in over 45 U.S. / Global Based Offices »Navigant’s Healthcare Practice brings together a team of more than 600 seasoned consulting professionals and industry thought leaders. We help our clients design, develop and implement integrated, technology- enabled solutions that create high-performing healthcare organizations.

PROVIDER ALTERNATIVES IN PARTICIPATING IN HEALTH INSURANCE EXCHANGES:

› Provider Perspective: Casey Nolan, Managing Director› ACO Perspective: Cynthia Peters Arnold, Director

A HIGHLY VOLATILE AND COMPLEX INDUSTRY

Key Trends Impacting Health Systems, Physicians and Others

Macro Economic Factors

1. Impact of demographic and disease burden trends2. Increasing health care as percent of GDP, and highest cost globally3. Global financial crisis, national debt crisis, state budget crisis4. Health care reform and changing payment models, flat NIH funding, scrutiny on costs and impact of research 5. Growing regulatory burden and increased transparency6. Natural disasters

Science and Technology

Trends

7. Growth in interdisciplinary and team science8. Growth of comparative effectiveness research and implementation science9. HIT adoption/proliferation, evolving into database/statistical science, digital revolution10. Blurring boundaries among academia, industry, government and funders

Workforce and Education

Trends

11. Generational shifts in leadership, faculty, staff, residents and students12. Physician/nurse shortages and resident work hours13. Team-based care and education/training14. Diversity shifts in patients, trainees and faculty/staff15. Evolution of maintenance of licensure and certification

Health Care Trends

16. Growing payer concentration17. Increased focus on outcomes, reliability, safety, cost and the patient experience18. Increasing emphasis on prevention and population health 19. Health system consolidation and physician acquisition20. Emergence of accountable care organizations to improve quality and reduce waste21. Migration to lower acuity/cost settings

THE EVOLVING HEALTHCARE ENVIRONMENT

Reduce ALOSBuild capacity

Compete for contractsReduce investments

Purchase technologyFocus on process, service, facility design

If you build it, they will come.

If you buy it, they will come.

Compete based on data to demonstrate value (low cost, high quality)Optimize use of what you haveIncrease connectivity

Technology Market 2000s

Managed Care 1990s

Wholesale Market 1980s

Accountable Era 2010s

If you prove it, they will come.

LESSONS FROM THE FRONT LINES

Since the PPACA’s passing in 2010, Navigant has intentionally invested in assisting clients in Massachusetts, the nations’ laboratory of healthcare reform. Navigant has now completed over 250 post-reform engagements with a wide range of physicians, payors, health systems, and suppliers. Based on our experience, we believe reform has been the catalyst for the following market forces and trends which are reshaping the healthcare landscape.

#1. Under the Shadow of Reform, Reconfiguration = Recapitalization

»Thinly capitalized and distressed hospitals & physician groups increasingly will seek partnerships, resulting in some transactions that could not have been predicted two years ago

#2. Reimbursement Cuts are Requiring Improved Performance

»Large federal and state budget deficits have exacerbated Medicare and Medicaid solvency issues, pressuring provider payment»The cuts are large enough to require an integrated performance improvement /

strategy/ financial approach

#3. A New Reimbursement Paradigm is Emerging

»Managed care contracts, offering incentives to use accountable care tools such as more generics, less high-end imaging and ED avoidance are being embraced by primary care physicians, triggering acceptance by specialists and hospitals

THE “TWO CURVE” CHALLENGE

Perfo

rman

ce

Time

Hospital and physician providers must address how to optimize performance in the current environment while also preparing to “jump” from Curve #1 to Curve #2

Natural Trajectory

Curve #1: FEE-FOR-SERVICEAll about volume

Reinforces work in silos

Little incentive for “real” integration

Curve #2: VALUE-BASED PAYMENTAchieving “Triple Aim” , as per IHI:

Better Care Experience for Individual

Better Health for Populations

Lower Per Capita Costs

How do you prepare for a future world that requires more clinical integration while the health care system still rewards a position of strength in the current FFS “foot race?”

Source: futurist Ian Morrison; Institute for Health Improvement

EXCHANGE (HIX) REIMBURSEMENT

» Price Signaling is Occurring Nationally› Although the common initial ask is “Medicaid, Medicare or a steep discount”…..› Tenet strategy – participate in narrow/tiered network @<10% discounts off of commercial rates› Large Regional BCBS Plan – getting 5-10% discounts off commercial rates (up to 20%)› CHI – Very modest discounts off of commercial rates› Be mindful of out of network provisions (emergency, non-emergency, authorized vs. non-authorized, PPO

vs. HMO)› Many Hospital CFO’s are assuming HIX plans will reimburse hospitals at or slightly above Medicare rates

What is the anticipated reimbursement rate?

Source: Wall Street Journal 3/1/13 “Another Big Step in Reshaping Healthcare”

ACO/NETWORK IMPACT: WHAT IS LIKELY TO EVOLVE IN THE EXCHANGE MARKETPLACE?

Implications for ACO/Provider Networks:»Access and network design will include:

› Mental health and substance abuse› Avoiding providers who invite adverse selection (3 R’s minimize concern a little)› Impact of state QHP requirements on network design› Preference for narrow network

»Payers will be interested in reducing medical claims costs through numerous network strategies:

› Narrowing to lowest cost providers› Leveraging for more discounts› Creating tiered networks› Payors with limited experience with risk arrangements, may want to set up ACO and Bundled Payment

arrangements without sufficient experience in how to address risk adjustment and providing actionable data to providers

POTENTIAL PAYER MIX SHIFT (2012-2015) DUE TO THE IMPLEMENTATION OF THE ACA AND EXCHANGES

2012 Payer Landscape

2012 Sample Payer Mix

Medicare FFS 42%

HMO / PPO (predominantly BCBS) 42%

Medicaid FFS 11%

Self-Pay & Other Unclassified 5%

Total 100%

Net net, the positive financial gain from shifting “uninsured/self-pay” volumes from “no pay” to “some pay” is unlikely to offset the negative impact of “Cadillac BCBS” insured patients

shifting to Exchange plans.

Potential 2015 Sample Payer Mix

Anticipated 2015 Payer Landscape

45.0% Medicare FFS and/or HMO/ACO

33.0%

HMO / PPO (predominantly BCBS)

Commercial ACO / “Narrow Network”

6.0% Medicaid FFS

6.5% Medicaid HMO/ACO

7.5% Exchange (Gold, Silver, Bronze)

2.0% Self-Pay & Other Unclassified

100% Total

2%

1.5%

5% 6%

1.5%

42%

Driven by aging pop.

33%

6%

3%

ACO IMPACT

Cynthia Peters Arnold, Director, Navigant Healthcare

ACO / NETWORK / HEALTH PLAN IMPLICATIONS

Implications of Expanded Benefits and Coverage:»More coverage for mental health and chemical dependency services»It is assumed there will be a decrease in uncompensated care which will lead to more scrutiny of tax exempt status of provider organizations

Implications for Care Management:»Continuity of care issues/challenges

› Pent up demand for care› Chronic illness management› Mental health and substance abuse demands for service and volume of those needing it will increase

Implications for Provider Reimbursement:»Plans will use “evergreen” contract clauses to continue current reimbursement without adjusting to accommodate potential increase in acuity at the provider level for “Exchange” population»Plans in Medicaid may try to apply the Medicaid fee schedules to move into individual and small group markets»Increase of risk transfer arrangement to providers, possibly without adequate data and risk adjustment because the population will be “new”

ACO / NETWORK / HEALTH PLAN IMPLICATIONS

Implications for Payor Operations that may impact ACO Networks/Providers:»Appeals and complaints requirements and processes - Collections might become an issue for hospitals/providers because of confusion over coverage and effective dates»Premium billing and collections challenges»Impact on uncompensated care for providers (payer contracts, tax exempt status, financial planning)»Expect accelerated tiered network products with any related provider costs and quality information reported on the exchange website:

› Provider cost and quality variation will be shown on the web sites by a significant number of states and payers are likely to condition payment on this data/performance

»Payers could narrow networks even further than tiering:› There are basic network adequacy requirements but still less pressure to provider broad geographic

access to PCPs because its an individual and small group market › States must meet minimum federal network access requirements but can make QHP requirements

more stringent than federal requirements

INCREASING ALIGNMENT OF MARKETS, DELIVERY AND PAYMENT

Journey Toward Value-based Payment System

Current System Cost–Based, Market–Based System Milestones

Value-Based Payment System Milestones

• "Pay me more" versus "pay you less" rhetoric

• Major cross subsidies and cross shifts

• Payment success equal contractual loopholes plus negotiation power

• Limited if any relationship between price, cost, quality, value

• Awareness of cross subsidies, irrational unit reimbursement, over/miss/underuse of services

• Establishment of a method that basis prices on incremental costs and market competitors, and qualitative indicators of value

• Customer First• Payer and providers agree to a

"pay me right" method• Managers spend "unit

reimbursement, utilization, and mix) strategically

• New payment mechanisms such as hospital/physician bundling, 30 day episodic payments, guarantees, and peak pricing that clarify who is accountable to maximize patient value for the incremental dollar

Aligning Markets With Provider Networks: Requires Alignment of Delivery Systems and Payment Mechanisms

INCREASING ALIGNMENT OF MARKETS, DELIVERY AND PAYMENT

Provider Cross Subsidy Matrix

Results Hospital Cross Subsidy in Action Physician Cross Subsidy in Action

• Margin Makers • Radiology• Laboratory• Supplies• Drugs• High-end Cardiac Procedures

• Lab• Injections• Radiology• Crowns• Other Ancillaries

• Margin Losers • Emergency Care• General Medicine

• Evaluation And Management Codes

• Procedures• Unintended Consequences • Over investment In High-end,

Acute, Specialty Services• Under investment In Access To

Primary Care, Prevention, etc.

• Over invest in the Proliferation of Commodity Services

• Under invest in Access to Primary Care, Prevention, etc.

Aligning Markets With Provider Networks: Requires Alignment of Delivery Systems and Payment Mechanisms

CO-OPS / QHPS

Presenter: David Jacobson, Associate Director, Navigant Healthcare

ENVIRONMENTAL LANDSCAPE: CURRENT INSURERS ARE CAUTIOUS

» Insurers are cautious about the initial opportunity of the Exchange» Potential for greater CO-OP market share» Blues are likely to be the mainstays in the Exchange marketplace» Participation in Exchanges is likely to be less robust than originally envisioned» Insurers are assessing and evaluating on a state-by-state basis» Will require effective marketing to build consumer awareness of subsidies and eligibility» Define and target consumer segments» Narrow networks on Exchanges are expected» Provider rates are a big question mark» People will shift between Exchanges and Medicaid – opportunity for Bridge products or Medicaid

expansion on the Exchange» New Kids on the Block: CO-OPs and the Potential for greater CO-OP market share

CO-OPS: NEW & DIFFERENT COMPETITION IN 23 STATES

What are Consumer Operated and Oriented Plans?»A Qualified Health Plan»Consumer and mission driven»Innovative alternative to generate “more choice and great competition”»Start-up and solvency loans – excludes marketing funds»A clean slate - no constraining legacy business»No existing license, networks, operational capabilities, market intelligence, reputation

»Successful practice carriers will arise, change markets and generate new best practices

24 CO-OPS IN 23 STATES NOTE

Innovative plans including:•CoOpportunity•Land of Lincoln•Evergreen•Minuteman Health•New Mexico Health Connections•Consumer’s Choice•Aarches Community Healthcare•Common Ground

POPULATION SEGMENTS AND THE UNINSURED

Over 77% of the uninsured respondents in our study fall into two segmentsHealthy and Young, Sick Active and Worried

Source: Office of Communications Centers for Medicare & Medicaid Services

Percentage of the Uninsured (aged 18-64)

COMPREHENSIVE ESSENTIAL HEALTH BENEFITS

» Covered benefits will increase versus traditional Individual and small group plans» Premiums could increase by an average of 30 percent for higher-income people who are now insured and

do not qualify for federal insurance subsidies» Average total cost of care estimated to increase 20 percent - with new limits on out-of-pocket costs» Low-income people would see significant reductions in their premiums and out-of-pocket costs, in part

because of income tax credits and other subsidies» Increased benefits require enhanced care coordination

Essential health benefit categories:

1. Ambulatory patient services2. Emergency services3. Hospitalizations4. Maternity and newborn care5. Mental health and substance use disorder services, including behavioral health

6. Prescription drugs7. Rehabilitative and habilitative services and devices 8. Laboratory services9. Preventive and wellness services and chronic disease management10. Preventive and wellness services and chronic disease management

Source for premiums and cost increases: Society of Actuaries, March, 2013

PRODUCT DESIGN AND PRICING

» Metallic plans are based on Actuarial Value» Standard benefits and metallic levels limit product differentiation» Price is the most important differentiator for most consumers» Plans will target market segments to attract diversified risk mix - healthy to chronically ill» Cost share subsidies are for Silver plans & 100%- 250% FPL - a big impact on costs» Some plans are expected to offer zero premium Bronze plans» Many enrollees will never reach the maximum benefits

• Silver plan is lowest out of pocket plan (OOP) for people < 300% FPL with moderate utilization• Bronze plan is lowest total OOP for healthy people, especially those > 300% FPL• Platinum and Gold plans are expected to be attracted to high utilizers

Individual A Individual B Individual C Individual D Family of 4Plan / Scenario FPL 150% 250% 300% 400% 250%

Annual Income 17,235$ 28,725$ 34,470$ 45,960$ 58,875$ Gold Plan Annual Net Premium * 1,689 3,312 4,275 5,366 6,739

Annual Cost Share ** 6,400 6,400 6,400 6,400 12,800 Annual Deductible 1,500 1,500 1,500 1,500 3,000

Total Annual OOP Max 8,089 9,712 10,675 11,766 19,539

Silver Plan 1 Annual Net Premium * 689 2,312 3,275 4,366 4,739 SLCSP Annual Cost Share ** 2,250 5,200 6,400 6,400 10,400

Annual Deductible 2,000 2,000 2,000 2,000 4,000


Silver Plan 2 Annual Net Premium * 189 1,812 2,775 3,866 2,739 Annual Cost Share ** 2,250 5,200 6,400 6,400 10,400 Annual Deductible 2,500 2,500 2,500 2,500 5,000


Bronze Plan Annual Net Premium * ‐ 1,312 2,275 3,366 739 Annual Cost Share ** 6,400 6,400 6,400 6,400 12,800 Annual Deductible 4,000 4,000 4,000 4,000 8,000


*The out‐of‐pocket amount that the individual pays for annual premiums**The total amount that the individual potentially would be liable to pay for qualifying out‐of‐pocket expenses

PREMIUM TAX CREDIT AND COST SHARE ASSISTANCE: SUMMARY OF EXAMPLES

WHAT TO THINK ABOUT

» Who are the “newly eligible” and who will enroll – take-up rate» What service will they need and how much – medical utilization and risk selection» What are the market segments and how can you to attract a mix of segments» What are competitive and profitable price points – product positioning» Decide on network breadth and reimbursement – product positioning» Include essential health providers – ACA requirement and key setting for some segments» Provide care and disease management – for pre-existing conditions, pent-up demand and

chronic care» Profitable growth and satisfaction in a new market with much uncertainty

› Different social, economical and cultural population than traditional commercial business› Operating an Exchange – eligibility, enrollment, administration, “3Rs”, interfaces› New regulatory space

FREQUENTLY ASKED QUESTIONS

Q & A

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