kalkhof final va dc hfma strat mgd care and hc reform 9 28 12

STRATEGIC MANAGED CARE PRICING,

virginia-washington dc chapter

© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.

STRATEGIC MANAGED CARE PRICING,CONTRACTING AND THE IMPACT OF

HEALTHCARE REFORM ON BOTHSUMMER 2012 EDUCATION CONFERENCE

Hilton Virginia Beach Oceanfront – Virginia Beach, VA

September 28, 2012

Christopher J. Kalkhof, FACHEDirector, Healthcare Industry Group - Alvarez & Marsal, New York Office

TODAY’S PRESENTATION

I. ACA/Medicare/State Reform – Doing More

With Less?

II. Changing Managed Care Pricing Environment

and Payment Methodologies

III. Cost Shifting Among Payers and Impact on

Managed Care Pricing

© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.© Copyright 2012 Alvarez & Marsal Holdings, LLC. All rights reserved. ALVAREZ & MARSAL®,

® and A&M® are trademarks of Alvarez & Marsal Holdings, LLC.

Managed Care Pricing

IV. Strategic Managed Care Applied to Building

and Pricing Service Lines

V. Impact of Physician Integration on Different

Risk Models and Payer Contracting Strategy

VI. Appendix

Aligned Delivery Networks, Shared Savings Synergy

Areas and Presenter Bio

I. ACA/Medicare/State Reform:

Doing More With Less?

© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.© Copyright 2012 Alvarez & Marsal Holdings, LLC. All rights reserved. ALVAREZ & MARSAL®,

® and A&M® are trademarks of Alvarez & Marsal Holdings, LLC.

ACA Post-Supreme Court Ruling: What Has Changed?

From a provider’s perspective… not much…

There will be fewer uninsured individuals covered under

(some) state Medicaid programs.

Medicaid expansion costs will still shift to states.

Major health plans will still resist cost shifting.

I. ACA / MEDICARE / STATE REFORM – DOING MORE WITH LESS?

© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 3

Major health plans will still resist cost shifting.

You will still have to address how you will strategically

reposition your organization for leaner times ahead while

still delivering available, accessible, high quality, patient

and physician centric care across patient populations.

You will still be expected to do more with less!

ACA Post-Supreme Court Ruling: Uncertainty Remains


Plan for…

An increase in “insured” patients… payment levels will be… what?

Medicaid expansion and State and/or Federal HIEs.

Medicare and Medicaid to increase < CPI, freeze or cut payments.

Increased pressure to reduce the total cost of care/patient.

Emerging payment models across all major financial classes.


Emerging payment models across all major financial classes.

Non-traditional strategic alliances and collaborations.

Transformative changes to traditional care delivery models.

Significant capital and IT investments to support models of care.

Challenges in balancing physician alignment strategies with uncertain

reimbursement (e.g., S.G.R.) and increased physician shortages.

Increased uncertainty with respect to Congress and sequestration cuts,

what may/may not change post-November elections.


What are Health Plans Doing Re: Strategic Repositioning Post-ACA?

August 11, 2011

Anthem Blue Cross, provider group launch ACO in SiliconValleyFOSTER CITY, CA – Touting it as the f irst of its kind ACO in Northern California,Anthem Blue Cross and the Individual Practice Association Medical Group of SantaClara County (SCCIPA) have announced a contract to provide accountable care totens of thousands of Anthem PPO members in the Silicon Valley.

March 15, 2011

Anthem Blue Cross, Sharp HealthCare pilot San Diego-area

November 09, 2011

Highmark to Pay $300M in Loans toAcquire West Penn Allegheny inPittsburgh…Terms of the acquisition were recently revealedin the organizations' Form A f iling with the

Aetna And Inova Health SystemEstablish New Health Plan PartnershipIn Northern VirginiaFALLS CHURCH, Va., June 22, 2012 — Inova


Anthem Blue Cross, Sharp HealthCare pilot San Diego-areaACOSAN DIEGO – Anthem Blue Cross and two medical groups from SharpHealthCare will launch a pilot accountable care organization focused on servingAnthem’s San Diego-based group, small group and individual plan PPOmembers

in the organizations' Form A f iling with thePennsylvania Insurance Department. Highmark willpay $475 million in full to acquire the healthsystem…

Premier CEO says Highmark affiliation

will let it reach more people

Pittsburgh Post-Gazette

April 29, 2012

… Highmark won that battle early this

year when it acquired the 63-physician

multispecialty group, thus avoiding a

major setback for the insurer and its

partner-in-waiting, the West Penn

Allegheny Health System…

Aetna CEO: Health Insurers Face

ExtinctionFEB 21, 2012 10:11pm ET

…speaking at the HIMSS12 Conference in Las

Vegas,Aetna CEO, Chairman and President Mark

Bertolini, said… “The end of insurance companies,

the way we’ve run the business in the past, is

here.”…… So what will the health insurers look like in the

future? Bertolini offered a strong endorsement of the

accountable health organization model…

… “We need to move the system from underwriting

risk to managing populations,”…

American Medical News

Physicians wonder about United's IPA dealsSept. 22, 2011

…UnitedHealth Group subsidiary Optum istaking over the management of threeindependent practice associations in SouthernCalifornia, as health plans continue to findways to get into the clinical side of the healthcare business…

FALLS CHURCH, Va., June 22, 2012 — InovaHealth System and Aetna (NYSE: AET) todayannounced an exclusive partnership to establishInnovation Health Plans, a jointly owned healthplan serving Northern Virginia…


My Top Ten List: Big Picture - What to Expect Over Next Few Years?

Implications foryour strategic

Integrated care,coordinated acrosscare continuums,

care model

1) Perform or perish.

2) Reform favors… horizontal and vertical integration, distributed care

models across service lines and P-4-P reimbursement… be proactive.

3) Care setting focus is increasingly ambulatory / aligned w/Physicians.

4) Medicare / Medicaid cost shifting will increase.

5) More difficult payer contract negotiations… exclusion risks increase.


your strategicmanaged care

pricing andbusiness model?

care continuums,care model

redesign andphysician

alignment are atthe heart of reform

6

6) CMS and State budget challenges… more provider margin pressure.

7) State innovations… e.g., NYS Medicaid Redesign Team and CMS

waiver request… will increase once savings are demonstrated.

8) Increasing Medicare, Commercial and “Medicaid” ACO roll-outs and

provider/payer strategic alliances.

9) Access to Capital… continued credit market-working capital pressure.

10) Some providers will be unable to transition to a post-reform business

model… increase in M&As, strategic alliances and bankruptcies.

II. Changing Managed Care

Pricing Environment and

Payment Methodologies


II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES

Planning for an Uncertain Post-Reform Future?

STRATEGIC MANAGED CARE:

– Integrated payer/organizational planning

to strategically re-position the organization,

optimize net revenues, grow market share

and manage patient populations.


and manage patient populations.

– Pricing of services for post-ACA managed

care contracts requires a detailed

knowledge of your services, associated

costs and the competitiveness of your care

delivery business model.

F-F-S… rewards regardless ofquality/outcomes

What Does “Managed Care” Mean to My Care Delivery Model?

Yo

ur

Org

an

izatio

n?


Implicationsfor…

MULTI-YEAR

CONTRACTS

Risk oriented payments

Population management


quality/outcomes

Acute-centric model w/manynon-aligned interests

MCR-MCD F-F-S payments

Payers manage costs throughunit price, rules and access

Care decisions often made w/opatient understanding options

Providers incentivized to providehighest reimbursing services

Yo

ur

Org

an

izatio

n?

9

Population managementacross care continuums

MCR-MCD value-based pay

Chronic care management

Tiered provider networks

Srvc. disaggregation... facilityto non-facility to based care

Limited ability to shift costs…perform or perish

Few charge based payments

“Managed Care” Impact on Business Model Sustainability?

Short-term and long-term strategic and capital planning?


Implicationsfor…

MULTI-YEAR

CONTRACTS


Core service lines as well as staff and physician recruitment/retention?

Hospital-physician alignment strategies?

Collaboration or lack thereof with select payers?

Competitive market positioning and growth?

Information technology needs, planning and implementation?

Formation of aligned networks and new care delivery models… e.g.,

ACOs, PHOs, IPAs; physician employment; and hospital alliances?

Business model sustainability?

The underlying core strategy questions can be categorized into

three basic future planning assumptions:

1. Reimbursement will decrease and financial risk will increase.

2. Effective physician alignment and integration is the

cornerstone from which all future service mix and patient

Key Future Scenario Business Model Planning & Pricing Assumptions



cornerstone from which all future service mix and patient

strategies must be built and the core goal of “reform.”

3. The core care delivery model must account for the above two

pivotal factors.

11

Reimbursementand Financial Risk

Physician Alignmentand Integration

Care Delivery Model

Full GlobalCapitation

Fixed Paymentsw/Gain Sharing

Linked to Outcomes/

Episodes of Care &Gain Sharing

Provider

Acc

ountability

andShared

orFullFinan

cial

Risk

Fixed Paymentsw/Gain Sharing

High

Care Delivery and Financial Risk Continuum

Competitive Markets

HighLow

RequiredCare Delivery

Model?

3rd PartyPayer focus?

Payment Models will Impact Alignment Model and Strategies



Deg

reeofProvider

Acc

ountability

andShared

orFullFinan

cial

w/Gain Sharing

F-F-S w/RiskWithholds & P-4-P

Hospital PPS (IP/OP)

FFS Charges

Degree of Clinical integration

Blended F-F-Sw/Up-Down Gain

SharingEmerging Required

Care DeliveryModel?

Low

HighLow

LowCompetitive

Markets –Provider RiskUncommon

12

Managing Populations Under Financial Risk?

Risk Payments… e.g., health plan commercial contracts…

– Encompasses a complete range of hospital, physician, ancillary and Rx

drug services (e.g., global capitation or % of premium), a complete

episode of care (e.g., CMS ACE) or a blended P-4-P model.

– Full risk allows the “contract holder” to use funding to pay for services

necessary to manage population health vs. a covered benefit.



– Methodologies are linked to quality and financial performance metrics…

P&L focus is no longer on highest reimbursement setting.

– Shared risk aligns provider-payer clinical and business interests.

– Financial success requires an integrated provider network which…

Integrates and coordinates care around the needs of the patients

rather than service types or organizational structures while also

organizing “what” and “where” care settings around patient clinical

risk/complexity as well as patient and physician preference.

Non-Risk Payments… e.g., One-Sided CMS Shared Savings Model…

– F-F-S Medicare payments maintained… no risk for first 3 year contract…

renewal requires two-sided risk model. One-sided CMS model highlights:

Benchmark established with shared savings cap at 10%.

After CMS MSR, 50% of savings available for distribution.

Managing Populations Under Non-Financial Risk Arrangements?



Shared savings payments linked to 33 quality metrics, spread across

four quality metric domains.

FTC and OIG regulatory relief allows gain sharing and the ACO

determined distribution model can align hospital and physician

clinical/business interests.

– Upside only P-4-P and gain sharing models with commercial payers.

Financial success… the same integrated network as with risk payments.

Utilization Average Gross Deduc. Net

Category Of Service PMPY Cost PMPM or Copay PMPM

HOSPITAL

Inpatient 0.0860 7,664.40$ 54.93$ 0.00 54.93$

Ambulatory Surgery 0.0520 1,057.96 4.59 0.00 4.59

COMMERCIAL MEDICAL BUDGET -- AVE. COSTS 1-1-XW TO 12-31-XW

Hospital Financial Proposal Review - HMO/Capitation ProposalMedical Budget - IPA/Hospital - Joint Managed Care Product IPA/Hospital Network

10/1/20XY - Small Urban Market

Do you have thedata to price

Re-Emergence of Global Capitation



Ambulatory Surgery 0.0520 1,057.96 4.59 0.00 4.59

Emergency Room 0.1530 276.90 3.54 50.00 2.91

Outpatient Radiotherapy 0.0433 212.67 0.77 0.00 0.77

Hospital Outpatient 0.1537 595.73 7.64 0.00 7.64

SNF 0.0001 1,953.00 0.02 0.00 0.02

Ambulance 0.0170 612.56 0.87 0.00 0.87

Dialysis/Chemo/Private Nurse 0.0461 374.40 1.44 0.00 1.44

Home Care 0.0035 306.47 0.09 0.00 0.09

Home Care Supplies 0.0340 1,271.90 3.61 0.00 3.61

Surgery/Major 0.0060 2,755.96 1.38 0.00 1.38

Misc. Office Serv. 0.0335 348.41 0.98 0.00 0.98(HMO CoPay/COB adjust.

factors & above changes) 0.0052 400.00 0.18 10.00 0.18

TOTAL HOSPITAL 0.6282 1,527.49$ 80.04$ 0.63$ 79.41$

data to pricecorrectly?

How do you know ifit is correct and

actuarially valid?

15

OTHER OUTPATIENT

Other Hosp Outpatient 0.0020 151.64$ 0.03$ 0.00 0.03$

Radiotherapy 0.0010 483.87 0.05 5.00 0.05

DME 0.0430 296.48 1.07 0.00 1.07

Pharmacy 7.5300 72.60 45.56 15.00 36.15Ambulance 0.0010 697.15 0.06 50.00 0.06

COMMERCIAL MEDICAL BUDGET -- AVE. COSTS 1-1-XW TO 12-31-XW

Hospital Financial Proposal Review - HMO/Capitation ProposalMedical Budget - IPA/Hospital - Joint Managed Care Product IPA/Hospital Network

10/1/20XY - Small Urban Market

How will you manage and payfor patient care which goes

“out of network”?


Re-Emergence of Global Capitation


Ambulance 0.0010 697.15 0.06 50.00 0.06Home Visits 0.0010 135.23 0.02 20.00 0.02Home Health Supplies 0.0110 345.02 0.32 0.00 0.32

X-Ray 1.6060 162.78 21.79 0.00 21.79

High Risk Int. Care 0.0010 175.35 0.02 0.00 0.02

Optical Dispensing 0.0130 108.11 0.12 0.00 0.12

Alcohol Abuse 0.0730 142.36 0.87 0.00 0.87

Physical Therapy 0.1560 101.75 1.33 15.00 1.14

TOT. OTHER O/P 9.4380 90.50$ 71.24$ 9.60$ 61.64$

TOTAL MEDICAL COSTS 19.3087 1,739.39$ 244.83$ 16.86$ 227.97$

IPA Desired Medical Mgt. Fee For Physician Services @ 2% of Medical = 1.74$

TOTAL GLOBAL CAPITATION REQUIRED = 229.71$

Global Capitation – O/P & Ancillary Services

“out of network”?

Impact on Revenue Cycle?

Impact on contracting process?

WITH GLOBAL CAP… YOU CANNOT

GET IT WRONG GOING OUT THE GATE!

16

The Global Cap Model

Payment covers all services

P-4-P incentives based on

quality/safety metrics

– Up to 10% above global

payment

– Protection against

withholding needed care

Illustration – BCBS MA Alternative Quality Contract (Commercial)



Source: Blue Cross Blue Shield of Massachusetts - The Alternative Quality Contract

withholding needed care

Savings opportunities by

addressing underuse,

misuse and overuse within

global payment level:

– Inflation factor derived

from CPI

– At controlled and

predictable level

17


Illustration – NYS Medicaid Redesign Team

Where do the

claim dollars go?

≈ 17% of recipients

drive 60% of $$

NYS clinical


NYS clinicalrisk group

assignment(see 3M

“Clinical RiskGroup” product

for moreinformation)

18


Illustration – Episodes of Care Payment Methodology

Bundled payments have been

around for years in the form of

payments such as DRGs.

The difference with EoC

payment methodologies of the

future is what is included in the

EoC (e.g., all services across


The key challenge for providers will be their ability to align and integrate

community care standards, care coordination and referral management for

a specific EoC, while also providing clinical/operational support.

19

EoC (e.g., all services across

a specific disease condition, at

a set, fixed price).

EoCs are still in pilot mode.

Commercial Payer – ACO P-4-P Payment Model

50% of incentive based upon:

“ABC” Appropriate Care Measures (25%)

Hospital Acquired Infection Rates (25%)

30 Day Preventable Readmission Rates (50%)

Illustration - Large Health Plan Commercial ACO Contract



30 Day Preventable Readmission Rates (50%)

50% of incentive based upon:

Medical Cost Management vs. Baseline PMPM

Cost Savings Methodology Specific to Assigned Patient

Population/Risk

ACO Contract only available for Integratedand Aligned Hospital-Physician Networks

Commercial Payer – ACO P-4-P Payment Model

Performance measures linked to overall performance of

“integrated” provider network (e.g., a PHO, an IPA, etc.)

Specific to each Health Plan Benefit Product.

Illustration - Large Health Plan Commercial ACO Contract



Eligible P-4-P Providers are expected to have a legal

structure that supports provider integration/collaboration of

clinical care and be able to distribute gains/cost savings to

physicians within regulatory allowances.

PCPs may only participate in one health plan P-4-P

contract… specialists may participate with multiple

hospitals and associated P-4-P contracts.

How will emerging payment methodologies impactagreements between providers and payers?

– Providers & Payers will be entering into unchartered waters.

– Non-traditional strategic alliances will be formed.

– Capabilities needed to track and monitor performance data.


Changing Provider and Payer Contracting Processes


– Capabilities needed to track and monitor performance data.

– There will be multiple payment models emerging over the

next few years… global cap is one model that works.

– There will be winners and losers in the provider community.

– Some critical success factors?

Ability to manage patient populations (risk/non-risk).

Physician alignment and clinical integration.

Collaborative vs. adversarial relationships w/payers.22

III. Cost Shifting Among Payersand Impact on ManagedCare Pricing


Pre-Reform Pricing

Strategy… shift low

margin or negative

margin Medicare,

Medicaid & uninsured

payments to health plans.

Pre-Post Reform Low/Negative Margin Cost Shifting

III. COST SHIFTING AMONG PAYERS AND IMPACT ONMANAGED CARE PRICING

1.20

1.40

1.60

1.80

To

-Co

stR

atio

Ren

tal

PP

Os

&O

ther

Pre-Reform Strategy… ShiftNegative Financial Class

Margins to Commercial Payers

Breakeven – All Financial Classes

Large Teaching Hospital PayerMix and Payment-To-Cost Ratios


payments to health plans.

Post-Reform Pricing

Strategy… P-4-P value &

outcome based.

Threshold level on cost

shifting to health plans in

your market? What

actions will they take?

24

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0.20

0.00

0.40

0.60

0.80

1.00

Med

icare

FF

S

Co

mm

erc

ial

Man

ag

ed

Care

% of Total I/P and O/P Case Volume

Act

ual

Pay

men

t-T

o-

Med

icaid

FF

S

Self

-Pay

Mg

d.M

ed

icaid

Oth

erC

om

m.–

Ren

tal

PP

Os

&O

ther

All

Oth

er

+M

ed

.Ad

van

tag

e

Breakeven Gap= $29.6 Million

Patientshift to ACOs?

AnnualizedFY XY

Gross Charges

Gross Charges

Total Gross Charges

Net Revenue

Net Professional

Revenue

Total Net Revenue

ExpensesPhysician Salaries -

Clinical

Support Salaries

Physician Incentives

Health System

Managed Care Model - Physician

Organization


Cost Shifting Across Financial Classes - How To Make Margin?

Payer Financial Class

Total IP/OP

Cases

Total

Charges

Net

Payments

Net

Income

Net

Margin

% of Tot.

Net Income

% of

Charges Paid

Change Required

for 3% Net Margin

Medicare 137,658 922,349,016$ 262,028,726$ 4,829,477$ 1.8% 29% 28.4% 1.2%

Medicaid and Medicaid Pending 30,818 271,702,345 75,578,829 (12,918,085) -17.1% -78% 27.8% 20.1%

Commercial Managed Care 476,180 1,733,321,217 528,521,141 57,036,776 10.8% 343% 30.5% -7.8%

Exhibit 3 - Health System: Contracted Payer Analysis

FYXX - System Wide Hospital Revenue (Hospitals Only)

Asking for higher rate increases


Physician Incentives

Benefits

Professional Fees and

Purchased Services

System Wide Services

Patient Care Supplies

Drugs and Blood

Non Patient Care Supplies

Leases

Other General Expenses

Utilities

Insurance

Depreciation and

Amortization

Provision for Bad Debts

Interest Expense

Total Operating

Expenses -$

Incremental MD Incentives -$

Operating Income -$Phys Org Operating

Margin(117,076,846)$>($100 mm)

25

Financially distressed health system, $1+ BB of totalpatient revenues from Managed Care contracts…acute centric model of care… large % Medicare

Commercial Managed Care 476,180 1,733,321,217 528,521,141 57,036,776 10.8% 343% 30.5% -7.8%

Medicare Advantage 216,103 1,158,906,455 287,568,903 (25,575,184) -8.9% -154% 24.8% 11.9%

Managed Medicaid 35,214 114,427,894 23,286,889 (8,976,904) -38.5% -54% 20.4% 41.5%

Workers Comp 15,640 63,509,719 23,367,455 5,056,136 21.6% 30% 36.8% -18.6%

Other Payers 34,536 138,309,917 37,959,755 2,194,827 5.8% 13% 27.4% -2.8%

Self-Pay 52,087 67,486,843 23,000,944 (5,023,370) -21.8% -30% 34.1% 24.8%

Totals 998,236 4,470,013,406$ 1,261,312,642$ 16,623,673$ 1.3% 100% 28.2% 1.7%

Asking for higher rate increasesalone will not be enough… thebusiness model must change?

The most likely futurepayment environment

in your primary

How flexible/adaptable is your current managed care strategic

pricing approach to account for alternate and future payment

methodologies?

Can you accurately price your services across a care

continuum to achieve an overall net patient margin targets?

– IDNs, ACOs, Clinical Integration and other network models?


Post ACA Strategic Pricing and Business Strategy Considerations


in your primarycompetitive market

area will require you toprepare for… WHAT?

– IDNs, ACOs, Clinical Integration and other network models?

– Strategic alliances?

– P-4-P and other risk models?

– Build in support costs (e.g., patient navigation, Case Mgt.)?

How/where will you obtain the data that you need for modeling

across a care continuum?

How will you price in-network/out-of-network care?

26

IV. Strategic Managed CareApplied to Building andPricing Service Lines


Lack of a Reliable Measure of Success... e.g., Patients do not “buy”

a "med/surg" bed yet we contract for med/surg per diems.

Inability to see the “Big Picture”... Many hospital organizational

structures consist of care delivery/management “silos” of activity.

“Hospital-Centric” focus… concentrates on providing services to

patients… without addressing how to bring patients to the

Limitations in Traditional Hospital Services Pricing Approach

IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES


patients… without addressing how to bring patients to the

hospital to begin with or whether the services can be delivered

closer to home… whom is responsible for growing the business?

Focus on Cost Management and Benchmarks vs. Growth, Improving

Quality or Maintaining a Flexible Care Delivery Model...

– Too much focus on cost cutting can paralyze an organization to a

level of inaction and can result in “in-fighting” for resources.

28

TRADITIONAL VS. SERVICE LINE APPROACH AT YOUR ORGANIZATION?

Matrix Organization (e.g., organized around Depts.,

Service Line and Dept. Manager dual management)

Modified Service Line Division (e.g., self contained

service line, focus on growth, shared resource conflicts)

Divisional Structure (e.g., complete divisional focus,

Common Service Line Organizational Models



Divisional Structure (e.g., complete divisional focus,

across entire care continuum, hospital is focused factory)

Business model focus… “growth” or “protection” of

market share strategy?

29

ORGANIZATIONAL APPROACH SETS THE STAGE FOR DEFINING

SERVICES TO BE INCORPORATED WITHIN A SERVICE LINE AS

WELL AS THE HUMAN AND CAPITAL RESOURCES REQUIRED…

WHICH WILL IMPACT SERVICE LINE PRICING FRAMEWORK

What patient populations do we serve?

What are the core service needs of these patients relative to

the services that we provide?

What is the associated care continuum relative to our service

capabilities and capacity (I/P, O/P & off-campus ambulatory)

and what does that vertically integrated care continuum look like

Basic Service Line Planning and Pricing Questions



and what does that vertically integrated care continuum look like

at a procedural level (i.e., all the diseases and conditions to be

treated within a service line, regardless of setting)?

What care is needed that we do not provide today and how do

we incorporate those services into our service line and our “in-

network” care management capabilities?

How do we price all of the above for our own organization and

on a F-F-S or global capitation basis?

30

Service Line Administrative Support and Accountability:

Credible, meaningful, accurate, reliable, timely and actionable

information… financial, statistical and clinical metrics.

– A hospital needs to accurately track resources… in effect,

create a service line financial statement.

Basic Service Line Planning and Pricing Analyses



create a service line financial statement.

– Metrics also serve as the basis for establishing cost

allocations, which in turn will impact managed care pricing.

Before you can accomplish the above… you need to first

define what your service line care continuum will be… at a

procedural and revenue code level… as well as what services

will be considered “in-network” vs. “out-of-network.”

31

I/P Care component of Oncology Service Line, “current state” care continuumand associated clinical code groupings/descriptions

I/P range of services as defined by oncology related MS-DRGs (V-28)

I/P range of services as defined by ICD-9 codes for neoplasms (e.g., 140 - 239)

MS-DRGs and ICD-9 codes linked to inpatient services provided by either anOncologist or an Oncologist Surgeon (e.g., non-cancer specific DRGs with

Illustrative Example – Oncology Service Line Analyses and Pricing



Oncologist or an Oncologist Surgeon (e.g., non-cancer specific DRGs withpatients discharged by an Oncologist Surgeon such as: MS-DRG 003 TRACH WMV 96+ HRS OR PDX EXC FACE, MOUTH, & NECK DX W/MA)

MS-DRGs and ICD-9 codes linked to cancer related inpatient services provided by"Other Specialists" (e.g., ortho surgeon, ENT, thoracic surgeon, radiologist, etc.)

Other not captured in above coding, to span the cancer care continuum: inclusiveof screening, history, and other V-codes (regardless of physician or location)

Extract from data warehouse, the above clinical code groupings as separaterevenue and usage data, applied across financial classes

Inpatient Hosp. Facility

Outpatient Hosp. Facility Billed

Billed

Revenue

Code

Rev Code

Description

Rev CodePayer Product (e.g., Internal Billing Primary

Payer Product (e.g.,

commercial, Medicare

Adv., Managed Medicaid)Top 10 Payer Name

MDCMS-DRG

(V-28)MS_DRG Description

Internal Billing

System Payer

Plan Code


Revenue and Usage Data (UB-04 Data Fields) – Facility Analyses:



Outpatient Hosp. Facility

Top 10 Payer Name

Billed

Revenue

Code

Rev Code

DescriptionCPT/HCPCS Code Description



Adv., Managed Medicaid)

Internal Billing

System Payer

Plan Code

Primary

CPT/HCPCS

Code

Total Charges

Billed

Total

Expected

Payments

Total

Expected

Payments

CY or FY

From: To

Time Period

Total No. of

CPT Visits/

Cases

CPT

Visits/Cases %

Share of Total

Total Net

Payments

Primary ICD-9

Code

Primary ICD-9

CodePrimary ICD-9 Description

Total Net

Payments

CY or FY

From: To

Time Period

Facility

Discharges

DRG % share

of Dicharges

Total

Patient

Days

Total

Charges

Billed

Primary ICD-9 Description

“Outpatient”

“Inpatient”

33

Cases Visits ChargesContract

Revenue

Net

Revenue

Total

Direct

Indirect

Variable

Contrib

Margin

Indirect

Fixed

Net

Income

RC 0333 Cyber Knife (CPTs G0339 and G0340)

Profit & Loss MC Payer Data Format (Illustrative Data Field Format Template)

O/P Rev or CPT

CodesTOTAL ALL OUTPATIENTS

O/P Care component of Oncology Service Line, current state care continuum andassociated clinical code groupings and code descriptions, billed by hospital(irrespective of hospital O/P campus or freestanding ambulatory facility)

O/P range of services as defined by oncology related Hospital Revenue Codes,ICD-9 and CPT Codes for diag., procedural and therapeutic related services

Hospital O/P services provided by either an Oncologist or an Oncologist Surgeon




RC 0333

RC 0333

RC 0331-0332, 0335

RC 0260, 0269

RC 0280, 0289

RC 0320-0324, 0329

RC 0330, 0333, 0339

RC 0404

IV Therapy

Oncology Treatment

Other Diagnostic Radiology

Radiation Therapy (without CPT Codes 6179-61800, 63620-63621, 77371, G0173, G0251, G0339-G0340)

PET Scans

Particle Beam, Gamma Ray or Linerar Accelerator Stereotactic Radiosurgery (CPT Codes 61796-61800, 63620-63621, 77371, G0173, G0251)

Cyber Knife (CPTs G0339 and G0340)

Chemotherapy Administration (Chair Fee + Chemo Drug Admin.)

Hospital O/P services provided by either an Oncologist or an Oncologist Surgeon(e.g., such as chemo and non-cancer specific outpatient services )

Hospital O/P Revenue, CPT & ICD-9 codes linked to cancer related O/P servicesprovided by "Other Specialists" (e.g., gynecologist, urologist, radiologist, etc.)

Other services not captured in above coding, to span the care continuum: inclusiveof screening, history, and other V-codes (regardless of physician or location)

Extract from data warehouse, the above clinical code groupings as a separaterevenue and usage data, applied across financial classes

34


Revenue and Usage Data (UB-04 Data Fields) – Professional Analyses:

Data/Report Run 2 is for the most current calendar or fiscal year YTD (e.g., through end of ]Date])

Revenue & Usage Data Format (Illustrative Data Field Format Template)

Data/Report Run 1 is for the most recent full calendar or fiscal year in which all service dates have been fully accounted for

in the paid claims data (NOTE: Data should be retrievable from CMS 1500 Claim Form Fields, Billed to Each Managed Care Payer)



Data/Report Run 2 is for the most current calendar or fiscal year YTD (e.g., through end of ]Date])

Professional Fees

Top 10 Payer NameCPT/HCPCS Code Description



Adv., Managed Medicaid)

Internal Billing

System Payer

Plan Code

CPT/HCPCS

Codes (Box

24, CMS 1500)

Total Charges Billed(Box 24 F, CMS 1500)

Total Net

Payments

ICD-9 Code(Box 21, CMS

1500)

Primary ICD-9 Description

CY or FY

From:To

Time Period

Total No. of

Units (Box 24

G, CMS 1500)

CPT/HCPCS %

Share of Total

Total

Expected

Payments

Professional Services component of Oncology Service line, current state carecontinuum and associated clinical code groupings/code descriptions (for employedphysicians/mid-level practitioners eligible for payment)

I/P and O/P range of services as defined by related MS-DRG, Revenue Codes,ICD-9 and CPT Codes for diag., procedural and therapeutic related services

Hospital I/P & O/P services (cancer clinical groupings) provided by Oncologists or




Hospital I/P & O/P services (cancer clinical groupings) provided by Oncologists oran Oncologist Surgeons (e.g., cancer/non-cancer specific services)

Hospital I/P and O/P MS-DRG, Revenue, CPT and ICD-9 codes linked to cancerrelated services provided by "Other Specialists" (e.g., gynecologist, orthopedicsurgeon, urologist, ENT, radiologist, etc.)

“Other” not captured in above cancer care continuum, e.g., radioactive seedsand Pharmacy J/Q-codes (regardless of physician or location)

Extract from data warehouse, the above clinical code groupings as a separaterevenue and usage data, applied across financial classes

Oncology Service Line Care Setting Decision Criteria Clinical Risk

Frequency ofAccess?

Frequency of demand (cancer surgery vsweekly chemo or radiation therapy)

Care settingsorting

criterionrelative to

need for I/P,

InvasiveNoninvasive?

Anatomic invasiveness, sedation, vascularaccess, potential for complications

Likelihood ofAdmission?

Disease/injury w/high potential for admission

Illustrative E.G. – Oncology Service Line: Care Settings & Access Gaps



need for I/P,O/P (on

campus) vs.freestandingambulatory

care setting…info used forboth strategicplanning &

budgetpreparation

Admission?Disease/injury w/high potential for admission

Clinical Pathways?Facilitates physician and patient compliancewith clinical pathways

Capital Intensity? Tech requiring capital or high level support

Market Demand?Large fixed resources placed near statisticalmedian areas of demand

OperationalEfficiency?

Reduces variability/improves quality of care

Cost Reduction? Reduces hospital costs vs. shifts costs

Physician Alliance? Aligned vs. misaligned incentives

Ambulatory, direct careproviders, medical home

Ambulatory, morespecialized focus

O/P Facility or Compre.

Patient-Centric Population Management Model

Service Line Care Continuum – How to Price?

Tier 1 – Primary Care Physicians

Tier 2 – Specialists, Home Care,

Allied Health and Telemedicine

Tier 3 – Single and Multi-Service

EH

R-P

ati

en

tC

are

Ma

na

ge

me

nt

Lin

ka

ge

s

De

ma

nd

Vo

lum

e

Su

pp

ort

ive

Ho

us

ing

Re

ferr

al

Co

ord

ina

tio

n



Regional I/P Facility,High Acuity/ComplexChronic Care

I/P Facility On/Off AcuteCampus

O/P Facility or Compre.Amb. Care Center

38

Goals: Clinical Integration… High Efficiency…

Optimized Revenues by Care Setting

Tier 3 – Single and Multi-Service

Ambulatory Care Centers

Tier 4 – Community Hospital, Sub-

acute and Skilled Nursing

Va

lue

Ne

two

rkH

IE-E

HR

Na

vig

ati

on

/C

are

Ma

na

ge

me

nt

Lin

ka

ge

s

De

ma

nd

Vo

lum

eA

cu

ity

/C

lin

ica

lRis

k

Tier 5 – Tertiary/Quaternary Trauma,

Acute, LTAC and IRF

Su

pp

ort

ive

Ho

us

ing

“In

-Ne

two

rk”

Re

ferr

al

Co

ord

ina

tio

n

Illustrative E.G. – Oncology Service Line: Admin/Tech/Support Costs

Service Line – Identifiable Direct Expenses

Clinical and Administrative Human Resources

Network Infrastructure (IT and Clinically Related Medical Equipment)

Community Outreach and Service Line Promotion

Facility Requirements (consider demand, capacity & location factors)

Certifications, Accreditations, and Memberships



Certifications, Accreditations, and Memberships

Service Line – Indirect Expenses

Cost Accounting System:

– Extract patient level detail across the revenue and usage data

evaluated in defining current state service line capacity.

No Cost Accounting System:

– Allocate indirect expenses based on cost report RCCs adjusting

for patient level revenue/usage by department cost center to

develop a hybrid cost allocation methodology for the service line.

Incorporate service line care continuums into overall pricingstrategy with floor (full costs+ adjustments), target (full costs +

target profit margin) and ceiling (maximum pricing at which cost

exceeds value) prices as well as alternate reimbursement

methodologies (i.e., a revenue neutral cross walk table).

– Use a “pay me right” vs. “pay me more” strategy in

Pricing and Managed Care Contracting



– Use a “pay me right” vs. “pay me more” strategy innegotiations.

Seek to minimize the need for interpretation on reimbursement

for a specific service… leave nothing out to avoid multiple

points of revenue leakage.

Develop a detailed revenue code/procedure code specific ratetemplate with corresponding pricing by payer product type… a

key consideration for ensuring payment compliance.

40

V. Impact of Physician Integration

on Different Risk Models and

Payer Contracting Strategy


V. IMPACT OF PHYSICIAN INTEGRATION ON RISK MODELS

Emerging Physician Alignment Models Post-ACA

PhysicianIntegrationContinuum


Cooperation• Medical Directorships• On-Call Coverage

Employment• Employment• Independent

Contractors

Purchase• Asset Purchase• Non-Competes• Employment

JointVenture• PHO/IPA/PO• MSO/PSO• Surgery, Urgent &

Imaging Centers• Hospital

Syndication &Ownership

• Patient CenteredMedical Home

• Accountable CareOrganization

• Strategic Alliances

42

Why Is Physician Alignment and Integration Important for Hospitals?

Physician alignment is critical for…

– Better managing the care delivery process and essential in thedevelopment of innovative care delivery models to respond toemerging payment methodologies.

– Gaining added resource efficiencies.

– Expanding profitable patient service volume and service lines.

V. IMPACT OF PHYSICIAN INTEGRATION ON RISK MODELS


– Improving bed management turnover and ALOS.

– Optimizing managed/contracted care net revenue potential whichis becoming the principal source of revenues.

– Sustaining I/P services and on-campus O/P programs.

– Developing a sustainable competitive advantage.

– Widening the ambulatory funnel which leads to facility referrals.

– MANAGING FINANCIAL RISK.

– A financially sustainable business model post 2014.43

Thank You

Your business strategy/capital needs should drive payer pricing and

negotiation strategies… stick to your strategy.

Senior level officer involvement and commitment is required.

Do all the necessary upfront analytics… build and use a

consistent pricing strategy… quantify your business case.

Know your market, the range payers reimburse competitors and your

PRESENTATION CLOSE

Lessons Learned


Thank You Know your market, the range payers reimburse competitors and your

costs at a detailed level… be prepared to validate/justify yours.

Only agree to pricing and payment rules that you can administer.

Understand your value proposition to payers.

Look for payers with which to collaborate and align services.

Engage area employers/brokers… be more than a cost.

Your core service lines must be financially sustainable.

44

APPENDIX

Examples – Physician Alignment Business

Models and Aligned Delivery Networks

Where Will the “Savings” in Shared


Where Will the “Savings” in Shared

Savings P-4-P Come From?

Presenter Bio

AcuteHospital

Pa

tie

ntS

erv

ice

Inte

ns

ity

an

dC

os

to

fC

are

HIGH

SNFs

LTCHsIRFs

Future Care Models –Ambulatory-IntensiveTherapy Alternative toSub-Acute I/P Setting

Range of Acute and Post-Acute Services forSeniors with Varying Degrees of Care Complexity

CMS SHARED SAVINGS ACO – FUTURE ACUTE /POST-ACUTE CARE NETWORK

E.G., Clinical Services Integration and Care Continuum for Seniors inACO Model – Repurposing and Realigning Services

Multi-Hospital /Multi-County ACO

Network Model

Full Medicare Part A& B with Chronic

Care Emphasis Focus

APPENDIX: ALIGNED DELIVERY SYSTEM BUSINESS MODEL


Patient Severity/Complexity

Pa

tie

ntS

erv

ice

Inte

ns

ity

an

dC

os

to

fC

are

HIGH

LOW

LOW

SNFs[Rehab

included]

AdultDayC

O/P &CORF

Asst.Living

HospiceHomeHealth Future Care Models – Specialty

Neuro-Spine Rehab Services…may become SNF/IRF substitute

Future Care Models –An Expanded Severity/

Complexity Role

Sub-Acute I/P Setting

Future Care Models –Community Integrated

& Transitional Living

Future Care Models –Only Complex/High

Risk I/P

Future Care Models –Medical Home Component

Physician and ProfessionalServices Integration

Aging Well ServicesIntegration

Community AgingServices Integration

Pa

tie

ntS

erv

ice

Inte

ns

ity

an

dC

os

to

fC

are

HIGH

Ambulatory-EmergentCare, D&T, IntensiveTherapy Alternative toSub-Acute I/P Setting,Co-located/Shared

Proposed System Acute, Post-Acute, Supportive Housing and Ambulatory Services forHigher Risk/More Complex Care Medicare and Medicaid Patients – PACE Hybrid Model

SNFs

IRFs

AcuteHospitals

E.G., Health System Proposed Hybrid PACE Model: ACO/PACEInnovation Demonstration Pilot – Repurposing/Realigning Services

Multi-Hospital /Single County

Hybrid PACE/ACONetwork Model

Medi-Medi DualEligible Focus



PatientSeverity/Complexity

Pa

tie

ntS

erv

ice

Inte

ns

ity

an

dC

os

to

fC

are

HIGH

LOW

LOW

AdultDay HC

Compre.Amb CareCenters

Hospice

HomeHealth

Structured to allowIRF/LTAC/Acute services to

transition to more communityintegrated setting

An ExpandedSeverity/

Complexity Role

Co-located/SharedService Practices Complex/High Risk I/P

and Higher Risk O/P

Independence at Home, MedicalHome & ADHC Medical Models

Support.Housing

Asst.Living

Program

SNFs(Rehab

included)

CommunityIntegrated &

Transitional Living

Physician and ProfessionalServices Integration

Aging Well ServicesIntegration

Community AgingServices Integration

Eligible Focus

Community-Based Care& Ambulatory Clusters

General Acute Care &Tertiary/Quaternary Care

Outpatient Services &Senior Supportive Housing

E.G., Paradigm Shift: Creating an Integrated Care Continuum forSeniors – Repurposing/Realigning Services

Physician Comprehensive

Med Ctr

Strategic Re-Purposing: Integrated Comprehensive Ambulatory Care, SupportiveHousing, Acute Care and Post Acute Care Continuum and Physician Alignment

ComprehensiveAmbulatoryCare Center

PhysicianPractices

PhysicianPractices

Pharmacies

DEF

ABC Other

ComprehensiveAmbulatory Transfers from Medical Center

Acute BedConversion



PhysicianPractices

ComprehensiveAmbulatoryCare Center

O/P Emergent Care,Diagnostic, Proceduresand Therapeutic Services

Small Short Stay/Observation Unit

Assisted Living

Senior Housing

Medical Office Building

Practices

PhysicianPractices

Independent Physician Practices aligned with Med Ctr. and System

Med Ctr Employed PCPs in Comprehensive ACCs which have leasedspace to specialists and operate as medical home model of care

– Includes a service mix appropriate range diagnostic, therapeutic,procedural and rehab services targeted for chronic care patients

– Incorporated E/D Level 1 – 3 (stabilization/transfer protocols) andpossible observation beds

– Possible medical adult day care

After/before hours urgent care network across affiliated PCPpractices

Patient care coordination, navigation, transfers and referrals managedacross the System-Med Ctr continuum of care network

AmbulatoryCare Center

Other Post-Acute& Rehab Care

Home Care Service providers Rehab Care at Medical Home

Practices and Comprehensive ACCs Rehab/Stroke/Other service Inpatient

transfers from Med Ctr to facilities inthe System or other post-acuteproviders as medically appropriate

Coordinate community reintegration

Transfers from Medical CenterE/D and Observation Unit forAcute and Post-Acute Care needs

Ind. Homes Senior Housing Indept. Living NORCs

Value Network - EnablingHIE/EHR/communicationstechnology linkages forpatient care coordination/navigation/clinical integration

SchafferECC

SystemRehab-Sub-

Acute-SNF

Facility

Where Will the “Savings” in Shared Savings P-4-P Come From?

Primary Opportunity Areas to Reduce Costs and Increase Shared Savings

Target Area Description Type of Savings

Amb. Care SensitiveAdmissions (ACSA)

Conditions for which goodambulatory care can potentiallyprevent the need for admission

Reduced I/P admissions anddays as well as associatedancillary & physician services

Readmissions Better I/P care management,

transitional care and communityreintegration can avoid admits


APPENDIX: SHARED SAVINGS SYNERGY AREAS


reintegration can avoid admits ancillary & physician services

Preference SensitiveAdmissions (PSAS)

I/P surgical treatment vs. O/Pmedical treatment preferences aswell as patient/physician prefer.


Short Stay Admissions One-day medical admissions that

do not meet medical necessity


Alternatives vs.Med/Surg/Rehab

Admissions

Admissions to acute and post-acute settings that are more socialin nature (e.g., no supportivehousing for seniors)


High priorities for Medicare, Medicaid and Commercial Payer ACO Models

Primary Opportunity Areas to Reduce Costs and Increase Shared Savings

Target Area Description Type of Savings

Tiered Networks(High Quality/Low Cost = Tier 1,High Quality/High Cost = Tier 2)

Through incentives, payer seeks toinfluence physician and patientdecisions to use lower costproviders (e.g., CH vs. AMC)

Reduced unit costs forsame/similar services from lowercost providers

Focused Factory COE Specialization vs. generalization…improved efficiencies and

Reduced unit costs, I/P days,associated ancillary and

Your ambulatory strategy for care continuum integration?

Where Will the “Savings” in Shared Savings P-4-P Come From?

APPENDIX: SHARED SAVINGS SYNERGY AREAS


Focused Factory COEvs. General Acute

improved efficiencies andoutcomes vs. “we’ll get there”

associated ancillary andphysician services

Emergency RoomVisits

Reduce E/R visits for non-emergent treatments (e.g., Level 1and Level 2)

Reduced E/R costs and shortstay I/P admissions

O/P Diag., Proced. andTherapies

Hospital outpatient servicesubstitution for freestandingambulatory care centers/sites

Reduced O/P unit costs andvolume in higher cost caresettings

Care FragmentationReduction

HIE/EHR linked patient care, avoidduplicated services, druginteractions, etc.

Reduce duplicative andunnecessary care irrespective ofcare setting

Varied priorities among Medicare, Medicaid and Commercial Payer ACO Models

Christopher Kalkhof,MHA, FACHE

Director, HealthcareIndustry Group

600 Lexington Avenue, 6th Floor

New York, NY 10022

Office: (347) 254-2433

Mobile: (716) 912-0309

[email protected]

www.alvarezandmarsal.com

Mr. Kalkhof is a Director with Alvarez & Marsal’s Healthcare Industry Group in New York. He has more than 27 years of diverse healthcare managementexperience and he specializes in strategic re-positioning and revenue improvement. Specific expertise includes managed care strategy development andcontract negotiations; contract implementation and integration with revenue cycle/case management processes; provider-payer collaborations; physicianalignment and integration; strategic planning and new product development.

– During the last several years, Mr. Kalkhof has spent much of his time assisting clients optimize their net revenue potential, resulting in direct netrevenue improvements of nearly $500 million per annum. Over the span of his career he has gained work experience in over 20 states and has beeninvolved with over 100 strategic repositioning/new business development initiatives.

Representative current or recent strategic-repositioning and revenue improvement experience includes:

– Serving in both advisory and interim managed care executive management roles with both distressed and bankrupt hospitals.– As part of a pre-close integration planning process between a multi-billion academic health system and a teaching hospital acquisition target which

also employed over 500 practitioners; facilitated major commercial payer claims and preauthorization operations integration for a Day 1 contractassignment operational environment which required billing under a single TIN, with two separate payment arrangements and billing systems.


assignment operational environment which required billing under a single TIN, with two separate payment arrangements and billing systems.– Assisting a large teaching hospital to restructure their major payer contracting strategy as well as develop a contract termination and patient retention

strategy for payer relationships which were becoming increasingly contentious.– Working with a multi-hospital system to assist in the preparation its Medicare Shared Savings Accountable Care Organization application, associated

operational budgets, policies and procedures as well as the design the overall hospital-physician alignment and patient care delivery strategy.– Conducting a multi-market competitive pricing analysis and recommended overall managed care pricing strategy for an academic health system to

address market positioning considerations in a post-Affordable Care Act business environment.– Conducting M&A managed care revenue improvement as well as “clean team” due diligence assessments of multiple community hospitals, medical

group practices and a $1 billion+ health system.– Payer contract strategy development, developing contract pricing targets and renegotiating agreements for multiple clients in multiple states.– Working with a clinically integrated, multi-hospital system to develop an ambulatory services strategy to support the health system’s core service

lines, close access gaps, create new care access points and prepare the health system for full risk payer contracts. Also addressed the best re-purposed use for existing ambulatory services capacity and how ambulatory services strategies could strengthen physician alignment.

Prior to joining A&M, Mr. Kalkhof was: Director/National Managed Care Lead for a Big 4 firm’s provider consulting practice; Interim SVP of DeliverySystems/Payer Relations for a nine hospital health system; Interim VP Managed Care for community hospital; Director of Managed Care for a physicianowned hospital through the bankruptcy and post-bankruptcy emergence.

Mr. Kalkhof received his Master of Health Administration degree from Tulane University and his Bachelor of Science, degree from Allegheny College.He is also a Fellow in the American College of Healthcare Executives and a frequent presenter on revenue improvement and strategic re-positioning.

kalkhof final va dc hfma strat mgd care and hc reform 9 28 12

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