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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
I. ACA / MEDICARE / STATE REFORM – DOING MORE WITH LESS?
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.
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 4
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.
I. ACA / MEDICARE / STATE REFORM – DOING MORE WITH LESS?
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 5
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…
I. ACA / MEDICARE / STATE REFORM – DOING MORE WITH LESS?
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.
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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.
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 8
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?
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
Implicationsfor…
MULTI-YEAR
CONTRACTS
Risk oriented payments
Population management
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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?
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
Implicationsfor…
MULTI-YEAR
CONTRACTS
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 10
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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.
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 13
– 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?
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 14
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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”?
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
Re-Emergence of Global Capitation
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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)
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
Illustration – NYS Medicaid Redesign Team
Where do the
claim dollars go?
≈ 17% of recipients
drive 60% of $$
NYS clinical
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
NYS clinicalrisk group
assignment(see 3M
“Clinical RiskGroup” product
for moreinformation)
18
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 20
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
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 21
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.
II. CHANGING MANAGED CARE PRICING ENVIRONMENTAND PAYMENT METHODOLOGIES
Changing Provider and Payer Contracting Processes
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
– 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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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= $29.6 Million
Patientshift to ACOs?
AnnualizedFY XY
Gross Charges
Gross Charges
Total Gross Charges
Net Revenue
Net Professional
Revenue
Total Net Revenue
ExpensesPhysician Salaries -
Clinical
Support Salaries
Physician Incentives
Health System
Managed Care Model - Physician
Organization
III. COST SHIFTING AMONG PAYERS AND IMPACT ONMANAGED CARE PRICING
Cost Shifting Across Financial Classes - How To Make Margin?
Payer Financial Class
Total IP/OP
Cases
Total
Charges
Net
Payments
Net
Income
Net
Margin
% of Tot.
Net Income
% of
Charges Paid
Change Required
for 3% Net Margin
Medicare 137,658 922,349,016$ 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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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?
III. COST SHIFTING AMONG PAYERS AND IMPACT ONMANAGED CARE PRICING
Post ACA Strategic Pricing and Business Strategy Considerations
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
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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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 32
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
Illustrative Example – Oncology Service Line Analyses and Pricing
Revenue and Usage Data (UB-04 Data Fields) – Facility Analyses:
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
Outpatient Hosp. Facility
Top 10 Payer Name
Billed
Revenue
Code
Rev Code
DescriptionCPT/HCPCS Code Description
Payer Product (e.g.,
commercial, Medicare
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
Illustrative Example – Oncology Service Line Analyses and Pricing
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
Illustrative Example – Oncology Service Line Analyses and Pricing
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)
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 35
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
Payer Product (e.g.,
commercial, Medicare
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
Illustrative Example – Oncology Service Line Analyses and Pricing
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 36
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 37
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 39
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
IV. STRATEGIC MANAGED CARE APPLIED TO BUILDINGAND PRICING SERVICE LINES
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
– 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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
V. IMPACT OF PHYSICIAN INTEGRATION ON RISK MODELS
Emerging Physician Alignment Models Post-ACA
PhysicianIntegrationContinuum
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
– 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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 46
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
APPENDIX: ALIGNED DELIVERY SYSTEM BUSINESS MODEL
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 47
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
APPENDIX: ALIGNED DELIVERY SYSTEM BUSINESS MODEL
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 48
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
Reduced I/P admissions anddays as well as associatedancillary & physician services
APPENDIX: SHARED SAVINGS SYNERGY AREAS
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 49
reintegration can avoid admits ancillary & physician services
Preference SensitiveAdmissions (PSAS)
I/P surgical treatment vs. O/Pmedical treatment preferences aswell as patient/physician prefer.
Reduced I/P admissions anddays as well as associatedancillary & physician services
Short Stay Admissions One-day medical admissions that
do not meet medical necessity
Reduced I/P admissions anddays as well as associatedancillary & physician services
Alternatives vs.Med/Surg/Rehab
Admissions
Admissions to acute and post-acute settings that are more socialin nature (e.g., no supportivehousing for seniors)
Reduced I/P admissions anddays as well as associatedancillary & physician services
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
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 50
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
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.
© Copyright 2012. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 51
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.
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