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A Better Way To Measure Success

January 29, 2019

Risk-Based Reimbursement Strategies

CONFIDENTIAL

CONFIDENTIAL

About UsAbout Us

1DRAFT 0100.009\469534(pptx) WD 11-16-18

Provider Compensation Service Area

» ECG has a dedicated group of consultants who focus

exclusively on complex issues related to provider

compensation.

» Our highly specialized team manages over 25

enterprise-wide compensation planning engagements

each year at some of the nation’s largest employed

medical groups.

» Additionally, we collaborate closely with other ECG

service areas as our engagements necessitate.

» We have worked with many of the best academic and

community-based organizations across the industry.

Since 2000, we have worked with more than

300 clients on over 500 projects related to

provider compensation planning.

CONFIDENTIAL

Agenda

2DRAFT 0100.009\469534(pptx) WD 11-16-18

I.Risk-Based Managed Care

Contracting

II.Physician Compensation

Development

III. Risk-Based Performance Metrics

Questions and Discussion

Appendix

CONFIDENTIAL

The Value-Based EnterpriseValue and risk are focused on three key topics

30100.009\343003(pptx) DD 9-24-15

Success will be measured by an organization’s ability to achieve the “triple aim.”

COST

QUALITYOUTCOMES/

HEALTH

I.

CONFIDENTIAL

National Healthcare TrendsTransitioning to New Payment Models

» The federal government and many states are establishing programs to distribute a material

amount of payments through alternative models. MACRA is an example of the ongoing trend

of evolving reimbursement incentives.

» The Health Care Transformation Task Force announced a goal in 2015 to shift 75% of its

business to performance-based contracts.1

40100.009\471290(pptx)-E2 DD 12-12-18

20163

~30%

85%

2018

50%

90%

2014

~20%

>80%

2011

0%

68%

GoalHistorical Performance

All Medicare FFS

FFS Linked to

Quality

APMs

1 Modern Healthcare, January 28, 2015.2 Health Care Payment Learning and Action Network: https://innovation.cms.gov/initiatives/Health-Care-Payment-Learning-and-Action-Network/.3 CMS reached the 30% APM target as of March 2016.

Medicare Payment Evolution2

At a national level, since the ACA, we have seen a large transition to alternative

payment models (APMs) and fee-for-service (FFS) payments linked to quality.

I.

CONFIDENTIAL

Growth of ACO Contracts

50100.010\466037(pptx)-E2 DD 10-4-18

The growth of commercial ACOs has outpaced

Medicare and Medicaid, and most ACOs are located in

populous states.

3.9 Million

19.1 Million

9.4 Million

ACO Lives

(13,702 per

Contract)

(43,333 per

Contract)

(26,750 per

Contract)

0100200300400500600700800900

1,0001,1001,2001,3001,4001,500

AC

Os

Total Commercial Medicare Medicaid

2018

1,477

714

686

90

2011 2012 2013 2014 2015 2016 2017

Accountable Care Contracts

Source: Muhlestein, Sunders, Richards, McClellan. “Recent Progress In the Value Journey: Growth of ACOs and Value-Based Payment Models in 2018,” Health Affairs

Blog. August 14, 2018. Leavitt Partners’ ACO database analysis.

~32 Million

Lives

Approximately 10% of the country’s population is attributed to some type of

accountable care organization (ACO) structure.

I.

CONFIDENTIAL

Moving from FFS to Value Payment Models and Care Models

60100.009\471290(pptx)-E2 DD 12-12-18

Payment and Care Delivery Continuum

Shifting toward Risk- and Value-Based Models

FFSPMPM

Arrangements

Bundled

Payments

Total Cost

of Care

Shared

Risk

Full Global

CapitationP4P

Volume-Based

Care Delivery

Care

Management

and Coordination

Chronic Disease

Management

Risk for a Small

Population

Population

Health

Management

of Episodes

of Care

Organizations need to establish a strategy and roadmap to transition to value. This

includes the development of a robust payor strategy and a funds flow/payment

model plan that paces with the organization’s transformation.

Payment Models

IT Requirements

Care Models

I.

CONFIDENTIAL

» ACOs

» CINs

» MSSP

» Value-based payments

» Risk contracts

» Establish a value-based

payor strategy

» Evaluate risk tolerance

» Determine value-based

metrics and financial

incentives

» Obtain data and monitor

performance

» Maintain traditional FFS

contracts

» Add performance metrics

» Add corresponding incentives

» Board and stakeholders

updates

» Internal staff

» Public relations

communication/outreach

» New contract

» Amended contract

» Separate term and termination

provision

» Set minimums and targets

» Vetting of possible outcomes and

payor responses

» Preparation strategy

Innovative

Network

Arrangements

Payor

Negotiations

with Desired

Outcomes

Professional Fees

Pricing Evaluation

Negotiation

Preparation

Term and

Termination

Strategies

System

Communication

Strategies

Managed Care

Strategy

Managed Care ContractingManaged Care Strategy Development – Key Components

2826.003\407493-E2 DD 11-6-17

Risk based contracts include many traditional managed care contract components but

with an emphasis on performance metrics, financial incentives and the level of risk.

7

I.

CONFIDENTIAL

Trending Towards Value Not as Fast As Expected

80100.009\471290(pptx)-E2 DD 12-12-18

While value-based incentives are continuing to grow in the market, the pacing has been slower than anticipated.

The Market: Every market is different (e.g., health plans, employers, providers,

innovation) and as a result the pathway to risk –based models needs to be

managed.

Do you want to be a market leader for risk-based arrangements?

FFS Continues: Hospitals and physician continue to be paid

predominantly under a fee-for-service model.

Experimenting and Participating in Value-Based

Incentives: Providers are continuing to evaluate opportunities

for participation, but on a smaller, more manageable scale.

The Future: Risk based arrangements will continue to

growth at a steady pace with CMS leading and

commercial payors adopting selectively.

I.

CONFIDENTIAL

» The care management

infrastructure is vital to

managing the population.

» Management of provider

“leakage” is critical to

improve performance.

» Risk contracts align the

interests of facilities,

physicians, patients, and

payors.

» Tactics should mitigate the

impact of declining facility

utilization (inpatient and

outpatient).

» The increase in health

benefit dollars to manage

requires the appropriate

infrastructure.

» More opportunities are

available to develop direct

arrangements with

employers (cut out the

middle man).

Practical Considerations to Risk Sharing

0100.010\466037(pptx)-E2 DD 10-4-18

Strategy Finance Operations

The development of risk-sharing arrangements requires an organization to consider

multiple perspectives in ways that FFS contracts do not.

9

I.

CONFIDENTIAL

Current State of CompensationImperatives for Change

10DRAFT 0100.009\469534(pptx) WD 11-16-18

There are three interconnected imperatives driving organizations to evaluate their

physician compensation arrangements:

Imperative One: Financial Sustainability

Imperative Two: Organizational Configuration and

Development

Imperative Three: Reimbursement Changes

Moving toward value-based arrangements, including

risk contracts.

ECG has assisted dozens of clients introduce

value-based elements to their models. The most

visionary organizations are moving to offer

physician risk-based compensation.

II.

CONFIDENTIAL

Value-Based Incentive

20%

11

Measures: Four

» Allocation: 1.25% per

measure

Measures: Two

» Allocation: 2.5% per

measure

Measures: Five

» Allocation: 1% per

measure

Measures: Four

» Chart Completion: 3%

» Conflict of Interest:

0.5%

» Flu Vaccine: 0.5%

» LEARN: 1%

Access

5%Service

5%

Quality

5%Citizenship

5%

-

2682.003\450150(pptx)-E2 DD 3-22-18

Typical Approach to ValueExample Framework

II.

Many organizations use quality metrics, not a

true value-based approach that incorporates

utilization risk.

CONFIDENTIAL

Specialty ConsiderationsValue in Action

12DRAFT 0100.009\469534(pptx) WD 11-16-18

Specialty Type Considerations

Primary Care » Relative to other specialty types, primary care value metrics tend to be the most

developed.

» Many models pay physicians for specific metrics.

» More groups are including pure risk-based components into the overall plan.

Coverage-Based Specialties » Coverage-based physicians often play a central role in managing the quality of care

delivered in an inpatient setting.

» As a result, value-based incentives may be closely tied to the overall quality performance

of a hospital.

» Coverage-based specialties often share in risk pool compensation because of their role in

reducing facility utilization.

Surgical or Procedural-Based

Specialties

» Value metrics within surgical specialties are often measured and reported through the use

of clinical registries.

» Metrics may focus on specific areas such as postoperative complications and

morbidity/mortality rates.

» Specialists are not typically compensated through risk pools.

Medical or Office-Based Specialties » Relative to primary care, value-based metrics for medical specialists are often immature

and may not be actively tracked by payors.

» However, certain specialties may be further along from a measurement/reporting

perspective.

» Fully integrated multi-specialty groups are the most successful at introducing risk

compensation to medical specialties.

Risk-based models must align with the specialty type or practice setting, to ensure

the model captures value components that are applicable to the providers function.

II.

CONFIDENTIAL

Integrating Value

13DRAFT 0100.009\469534(pptx) WD 11-16-18

Current

Plan

What many

proposed…

What many

did…

What

organizations

should do…

Productivity

Value

Care

Management/

Value

Infrastructure

Or even

better add…

II.

Balanced

Up- and

Down-side

All Upside All DownsideOr…

CONFIDENTIAL

Utilization-Based Metrics

» Primary care physician follow-up visits

after procedures

» Readmission rates

» ED visits per 1,000 patients

» Inpatient days per 1,000 patients

» Ambulatory care activity rates

» Post-acute care utilization rates

A-110100.010\466037(pptx)-E2 DD 10-4-18

Population Health–Based Metrics

» Social determinants of health review

» Home safety conditions

» Breast cancer screening

» Colorectal screening

» Diabetes: HbA1c control

» Diabetes: nephropathy monitoring

» Diabetes: diabetic eye exam

» Medication adherence: diabetes

» Medication adherence: RAS

antagonists

» Medication adherence: statins

» Generic prescription fill rate

» Adult body mass index assessment

» Hypertension: blood pressure control

Primary Care Leads the WayCommon Metrics

II.

CONFIDENTIAL

Market Challenges

150100.010\466037(pptx)-E2 DD 10-4-18

A critical success factor for organizations implementing risk-based contracts is to

appropriately and legally compensate providers for the value they bring to patient

care.

Relating Savings and

Compensation

What is this

relationship in the

market?

Measuring financial

and operational

performance

How are the best-

performing groups

doing under risk?

Overcoming

Regulatory Concerns

What are the

appropriate

benchmarks for this

work?

Challenge One Challenge Two Challenge Three

III.

CONFIDENTIAL

ECG Risk Compensation Survey

160100.010\466037(pptx)-E2 DD 10-4-18

Medical

Group

Risk

Revenue

Health Plan Expenses

» Administration

» Marketing

» Claims processing

» Reinsurance expense

Care Management Expenses

» Population management

» Reinsurance

» Discharge planning

Claim Expense

» Out-of-network facility

» Out-of-network professional

services

» In-network facility

» In-network post-acute care

» In-network professional services

Medical

Claims

Expense

Ratio

In-Network and

Out-of-Network

Medical Expenses

Health Plan

Expenses

PCP Risk

Compensation

(Capitation and

Shared Savings

Bonus)

Care Management

The ECG Risk compensation survey consists of individual physician compensation

data for over 400 physicians that receive risk-based compensation for over 60,000

members.

III.

CONFIDENTIAL

Survey ResultsRisk Payment Funds Flow

170100.010\466037(pptx)-E2 DD 10-4-18

Health Plan/

Government Payor

Physicians or

Practice Providers

Medical Group/

IPA

The survey’s focus is twofold: (1) risk-based contracts between the health plan and

the provider organization and (2) physician distribution models.

1. Risk-Based Contracts

2. Physician Distribution Models

The survey includes individual physician

compensation data for over 400 Primary Care

Physicians providing care for over 60,000 members.

III.

- Risk Revenue

- Risk Compensation

CONFIDENTIAL

Survey Results - Spend Rates

» Medical Claims Expense Ratio (MCER): Medical spend excluding anything paid

to the PCP

» Clinical Care Expense Ratio (CCER): Medical care plus the base capitation or

draw amount paid to the PCP.

» Total Provider Expense Ratio (TPER): Medical care plus everything paid to the

PCP

180100.010\466037(pptx)-E2 DD 10-4-18

To avoid confusion with the health plan use of Medical Loss Ratio (MLR) the survey

uses the following terms to describe the spend rates.

MLR is a regulatory term that adds

“improving health care quality expenses”

to the TPER

III.

CONFIDENTIAL

Survey Results –

MCER by Compensation Model

190100.010\466037(pptx)-E2 DD 10-4-18

Physicians compensated under net income models had the lowest MCERs, while

those compensated under quality bonus models had the highest.

III.

0

5

10

15

20

25

30

35

40

45

50

Below32%

37% 48% 58% 68% 78% 88% 98% 108% 118% Above124%

Nu

mb

er

of

Ph

ysic

ian

s

MCER

Net Income Model Net Revenue Model Quality Bonus Model

MCER by Compensation Model

CONFIDENTIAL

Survey Results – MCER by Panel Size

200100.010\466037(pptx)-E2 DD 10-4-18

On average, physicians with larger risk-based panels were able to achieve lower MCERs.

III.

0%

20%

40%

60%

80%

100%

120%

140%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

MC

ER

Member Months

Panel Size Tier 1 Panel Size Tier 2 Panel Size Tier 3

Panel Size Tier 4 Panel Size Tier 5 Panel Size Tier 6

MCER versus Risk Panel Size

CONFIDENTIAL

Survey Results – Risk Revenue PMPM

210100.010\466037(pptx)-E2 DD 10-4-18

Reductions in MCER directly increase shared savings and result in higher risk

revenue PMPM. Some groups are protected by floor or base PMPM rates.

III.

$(100.00)

$-

$100.00

$200.00

$300.00

$400.00

$500.00

30% 40% 50% 60% 70% 80% 90% 100% 110% 120%

Rev

en

ue P

MP

M

MCER

MCER Tier 1 MCER Tier 2 MCER Tier 3 MCER Tier 4 MCER Tier 5 MCER Tier 6

Risk Revenue PMPM versus MCER

CONFIDENTIAL

0100.010\466037(pptx)-E2 DD 10-4-18

Observations

» Shared savings performance is highly correlated with the

physician’s compensation model.

» Physicians with larger risk-based panels generally perform better.

» Risk-based revenues are driven by lower MCERs and bear little

relation to traditional volume-based measures.

» Physician performance typically improves over time, with the

largest improvements coming from the worst performers.

However, high performers are actually the most consistent and

stable group.

Conclusion

Physician compensation models are most effective when they

are tied to risk-based revenues and reward physicians for

investing in value-based care.

Survey Results – Implications: Part One

22

III.

CONFIDENTIAL

Survey Results -

Risk Compensation PMPM

230100.010\466037(pptx)-E2 DD 10-4-18

Physicians with better MCER performance generate higher risk-based revenues,

which translates into higher risk compensation PMPM.

III.

$0.00

$50.00

$100.00

$150.00

$200.00

30% 40% 50% 60% 70% 80% 90% 100% 110% 120%

Co

mp

en

sati

on

PM

PM

MCER

MCER Tier 1 MCER Tier 2 MCER Tier 3 MCER Tier 4 MCER Tier 5 MCER Tier 6

Risk Compensation PMPM versus MCER

CONFIDENTIAL

Survey Results -

Total Cash Compensation

240100.010\466037(pptx)-E2 DD 10-4-18

Physicians with the largest risk panels received the highest cash compensation

levels observed in this survey and surpassed benchmarks from the standard ECG

survey.

III.

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

TC

C

Member Months

Panel Size Tier 1 Panel Size Tier 2 Panel Size Tier 3 Panel Size Tier 4 Panel Size Tier 5 Panel Size Tier 6

90th Percentile

Median

CONFIDENTIAL

0100.010\466037(pptx)-E2 DD 10-4-18

Performance

Experienced physicians and provider organizations that invest in delivering

value-based care are able to generate substantial shared savings on

managed populations.

Effect

Risk-based contracts with health plans enable these provider organizations

to earn substantially higher revenues in comparison to traditional contracts.

Conclusion

Physician compensation plans need to adequately incentivize physicians and

should be aligned with the size and shared savings performance of risk-

based panels.

Survey Results - Implications: Part Two

25

III.

CONFIDENTIAL

Critical Success Factors

26DRAFT 0100.009\469534(pptx) WD 11-16-18

Care Management

Open-Ended Incentives

Clinical Autonomy

Performance under risk-sharing contracts can vary, but the best-performing

groups from the 2018 Risk-Based Compensation Survey are aligned with three

common attributes.

» Emphasize care management, including transitions of care and health maintenance.

» Support providers by providing services and personnel to assist patients in making lifestyle changes.

» Offer providers an upside incentive that is CR and has a high ceiling.

» Limit barriers to achievement and avoid slicing the incentive into too many parts, which could

complicate or dilute the opportunity for providers.

» Allow physicians to make the best decisions for patients within the context of protocols and other

clinical indications.

III.

CONFIDENTIAL

Regulatory Considerations

» Risk Exception - The risk exception to the Stark law has less rigid requirements

than the FMV exception which can provide more flexibility when developing

compensation models.

» Commercial Reasonableness - Appraisal of risk compensation should be

accompanied by a commercial reasonableness opinion.

» Market Information - There is limited information regarding risk-sharing

arrangements in the market.

› Agreement terms are inconsistent and often unavailable.

› Physician disbursement data is often unavailable or only represents a small

portion of a physician’s total compensation.

› Capitation arrangements and other value-based incentives do not have a long

history of benchmarking in the market.

27DRAFT 0100.009\469534(pptx) WD 11-16-18

Risk-based arrangements offer some regulatory advantages but also have several

aspects that make them challenging to appraise.

Reduce regulatory risk by working with an organization

experienced in developing these arrangements and a

trusted history of appraising these models.

III.

CONFIDENTIAL

Key Take-Aways

» Managed Care contracting

› Structure and terms (e.g., reporting requirements) are supportable by your

team

› Ceilings and floors in place to manage the risk profile of the arrangement

» Compensation Planning

› Physician participation throughout optimizes adoption of the plan

› Alignment with reimbursement funds flow ensures sufficient funding

» Compensation Model

› Basing compensation and bonuses on a per member basis eliminates the need

to focus on WRVU production

› Tying the compensation model more closely to the risk pool results in the

largest behavior changes

» Regulatory Compliance

› Rates and total compensation meet FMV

› Structure and terms are commercially reasonable

28DRAFT 0100.009\469534(pptx) WD 11-16-18

III.

CONFIDENTIAL29DRAFT 0100.009\469534(pptx) WD 11-16-18

Questions & Discussion

CONFIDENTIAL30

Appendix

DRAFT 0100.009\469534(pptx) WD 11-16-18

CONFIDENTIAL

CR Framework: Key Questions

0100.010\466037(pptx)-E2 DD 10-4-18

Financial

RiskDo the physicians bear financial risk under the arrangement?

Funding

Alignment

» Is the risk pool from which distributions are calculated based on

actual savings/loss using accurate allocations?

» If not, is the proxy calculation highly likely to coincide with the true

savings/loss?

ProportionalityIs each party’s share of the risk pool reasonably related to its respective

downside risks and/or efforts and investments toward the generation of

a surplus?

Performance

DrivenIs physician distribution contingent on meaningful measures of effective

population health management?

Windfall

ProtectionIs there reasonable protection against windfalls to the doctors,

particularly when financial downside is limited?

31

ECG tests five key areas when specifically assessing the CR of a risk-sharing

agreement.

CONFIDENTIAL

Risk-Based Contract Terminology

» Net Premiums: Total premiums paid for health plan enrollees

» Member Month: One member being enrolled for one month

» Shared Savings or Surplus: Total funds available after payment of all medical expenses and the health

plan administrative allocation

» Risk-Based Revenues: Total payments from the health plan to the physician organization, which is

determined by the shared savings net of all contract terms, including shared savings percentages,

capitation rates, and floor values

» Risk-Share Percentage: The percentage of the shared savings distributed to the physician organization

» Capitation Draw: A PMPM rate paid to the physician organization that is netted out of the shared savings

at the end of the year

» Capitation Rate: A guaranteed PMPM rate paid to the physician organization that counts as an expense

to the shared savings

» Capitation Floor: A floor value applied to the shared savings on a PMPM basis

» Expense Ratios: Expense Ratios defined in this survey

› Medical Claims Expense Ratio: This sums all medical spend except the amount paid to the primary

care organization under the risk contract with the health plan and compares it to net premiums.

› Clinical Care Expense Ratio: This sums all medical spend, including capitation payments/draws to

PCPs, except the shared savings paid to the primary care organization and compares it to net

premiums.

› Total Provider Expense Ratio: This sums all medical spending paid to providers, including shared

savings payments, and compares it to net premiums.

320100.010\466037(pptx)-E2 DD 10-4-18