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CHRISTOPHER J. KALKHOF, MHA, FACHE
MANAGING DIRECTOR
HFMA FL Regional Education Event - Space Coast:
Managing Costs and Improving Outcomes
APRIL 19, 2018
Parrish Medical Center – Titusville FL
PAYER SPOTLIGHT: ACO’S AND
VALUE BASED PAYMENT
ARRANGEMENTS
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WHAT WE WILL COVER IN TODAY’S PRESENTATION
1 Market Dynamics Context for Revenue Model Strategic Repositioning
The Case for Provider-Payer Collaboration and Integration3
2 Key Strategic Questions Re: Your Revenue Model and Total Cost of Care: Preparing for Changes Under ACOs and Risk Sharing
Future Revenue Model, Risks and Value-Based Payments and Strategic Roadmap
4
Payer Spotlight: ACO’s and Value Based Payment Arrangements
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REVENUE SUSTAINABILITY AND INCREASING ORGANIZATIONAL VALUE: Three Things to Consider During Today’s Presentation...
"All organizations are perfectly designed to get the
results they are now getting. If we want different
results, we must change the way we do things.”
– Tom Northrup
"The future belongs to those who see possibilities before
they become obvious."
– John Sculley
“In times of change, learners inherit the earth, while the
learned find themselves beautifully equipped to deal with
a world that no longer exists.”
– Eric Hoffer
Market Dynamics Context for Revenue Model Strategic Repositioning
Our organizational model
in 2022 needs to
evolve/transform to what?
1
2
3
What are the possibilities
that you need to act on
today to prepare for
tomorrow?
How will you lead vs.
follow or react to market
changes?
1
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How will your margins be maintained
in the future... with a shifting (and often
deteriorating) revenue mix?
SIGNIFICANT ORGANIZATIONAL CHALLENGES FOR TODAY AND TOMORROW: What Will Your Roadmap be to a Long-Term Sustainable Enterprise Model?
• Revenue degradation across all three
major fiscal classes is rapidly
becoming the “new norm” across the
country.
• Key drivers of revenue degradation
include but are not limited to:
− Stagnant commercial payer
contract growth and enhanced
pricing pressure
− Growth in Medicaid utilization and
an aging population
− Reduced utilization and the IP to
OP to Amb. site of care shifts
− Expenses increasing faster than
net revenue increases
Your Revenue Model Sustainability Strategies and Tactics?
Market Dynamics Context for Revenue Model Strategic Repositioning 1
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PROVIDER ORGANIZATIONS, BUCA PAYERS AND LARGE REGIONAL PAYERS ARE FOCUSING ON THEIR RESPECTIVE TRANSFORMATIVE IMPERATIVES...
Market Dynamics Context for Revenue Model Strategic Repositioning
1Par Networks... Tier 1 and Tier 2 Networks... FFS
and Risk Sharing... Care Setting Appropriateness and Cost... Longer-Term Goal... Full Risk Capitation
Benefit Design... Tiered Benefits W/ +$ Cost
Sharing... Continued Cost Shift to Member In/Out of Network & Network Tier Cost Sharing... Group Market Margins Tight... Major Growth in Individual Markets... Commercial, MA and Medicaid
3
2PMPM Total Cost of Care... Reduce PMPM
Spend... Major Focus on Reducing Out-of-Network and Out-of-State PMPM Spends... Move Towards Maximum Allowance Only for OON Providers... Beginning Site Neutral Payments and Loss of HOPD
Driv
ing
To
wa
rds
Inte
gra
ted
Ca
re
an
d V
alu
e-B
as
ed
Pa
ym
en
t Mo
de
ls
HIX/Narrow Networks... Public HIX ??
Narrow Networks Accelerated... Narrow Networks Favor High Efficiency / Low TCOC Providers... Payer LOBs Shifting to Narrow Networks
4
Alignment of Imperatives? Economic Implications? Your Organization?
1
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Key Strategic Questions Re: Your Revenue Model and Total Cost of Care: Preparing for Changes Under ACOs and Risk Sharing
HOW WILL HEALTH PLANS PAY YOU IN YOUR MARKET? WILL YOU BE
READY FOR VALUE-BASED PAYMENT (“VBP”) MODELS AND ACO DEALS?
Which of the above payment methodologies illustrate the “most likely” trending alternative payment arrangements that will gain traction in your market between Calendar Years 2018 – 2022.
3rd
Part
y
Payer
Medicare
E.G. “Managed Care” Value Based Payment Models
EOC Payments (Prospective and Retrospective)
Shared Savings(Prosp / Retro)
Shared Risk (Upside and Downside)
% of Premium Capitation
Str
ate
gy
Descri
pti
on • Value Based Payments
• BPCI and BPCI Advanced
• MSSP (Tracks 1 – 3)
• Next Gen ACO
• OCM
• New Pilots 2018 –2020
• Global payments for EOC
• Retrospective –Access payer par network, no downside
• Prospective - Your “network” and at risk payment
• Receive portion of savings by reducing TCOC
• Prosp. has a downside risk
• Retro. is upside only
• A mix of FFS and Risk (e.g., PMPM medical and FFS hospital)
• Direct to Employers
• A negotiated medical loss ratio (“MLR”) for at risk / attributed lives
• Payer average contracted rates and utilization
• Often includes a FFS discount w/ a LOB
• Capitation – Attrib. PMPM that covers all HC services
• Global – A Product specific global PMPM, not linked to an attributed pop
Pro
vid
er
Netw
ork PCPs and PAC; Specialist
and Subspecialists for Chronic Care Patients;
System CIN/ACO network
Applicable providers w/ian EoC... Vertical
operative/non-operative model, manage clinical variation across EOC
Full continuum of providers (e.g. System CIN)...
Early State VBPs
Care continuum(e.g. System CIN) +
IT/Ops + More Efficient TCOC
Care continuum+ IT/Ops + Clinical Redesign + 10%
> TCOC
Care continuum+ IT/Ops + Clinical
Redesign + 10% > TCOC
2
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WHAT ARE SOME OF THE KEY ACO/CIN ALTERNATE PAYMENT MODEL (“APM”) STRATEGIC QUESTIONS YOU SHOULD ADDRESS?
As Medicare and Medicaid APMs (programs and pilots)... and increasingly... Commercial payers shift
towards risk sharing payment arrangements... some of the key enterprise level and tactical strategic
questions to consider are...
• What are 3rd party payers doing with respect to FFS and APM / value-based payment models in your market?
− How fast will payment models evolve to value-based in your market by third party payer (i.e., Medicare,
Medicaid and managed care)?
• Are you price competitive today? Are you cost competitive today?
− How do you know the answers to the above?
• Do you have material “managed care” price-volume-product risks?
− If so... how much revenue is at risk and what are the drivers?
• Between 2018 and 2022... how will your revenue model and sources of revenue change?
• Our operational and network configuration readiness for value-based payment models and population
healthcare management?
• Opportunities to work under a collaboration model with key payers vs. a purely contractual model?
Key Strategic Questions Re: Your Revenue Model and Total Cost of Care: Preparing for Changes Under ACOs and Risk Sharing 2
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FFS VS. VALUE-BASED PAYMENT MODELS: LONG-TERM SUSTAINABILITY
Medical Cost Provider Profit Payer Profit
PMPM Premium Vs. Reimbursement Rates – The Imbalance Challenge
Total Cost of
Patient Care
Payers seek to decrease their medical loss ratio PMPM
costs and increase their profit margin by negotiating
lower unit price rates with providers coupled with
UM/CM to manage patient volume
Providers seek to increase their unit prices and profit
margin through higher FFS reimbursement ratesProvider Profit Margin
Payer Profit Margin
Reimbursement
Under current FFS payment models, neither party can truly
create, capture and deliver value without a confluence of
developments to integrate care delivery and financing models.
The Case for Collaboration and Integration: Under FFS... Payer and
Provider Incentives are Fundamentally at Odds With Each OtherCan you optimize
your future
revenue and
margin potentials
with only
contractual payer
relationships?
The Case for Provider-Payer Collaboration and Integration
How do you best
deliver value to
patients and 3rd
party payers?
3
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… BUT MANY HAVE FAILED TO RECOGNIZE AND ADJUST TO NEW MARKET REALITIES WHEN MAKING MULTI-MILLION INVESTMENTS
51%47%
32%
Year 1 Year 2 Year 3
ACOs Achieving Shared Savings
Physician Group
Hospital-Led
Integrated System
$(43,600)
$(127,800)
2006 2016
Divergent Strategies
Required to Pursue
Value-Based Care
There is a Linear and
Rapid Pathway to Risk
ORIGINAL ASSUMPTIONS
Consolidation and
More Investments Will
Produce Value
NEW MARKET REALITIES
• Foundational strategies
required for success in value-
based care will also help
maximize FFS economic
performance
• The future state will require
providers to operate in a
portfolio of old and new
economic models
simultaneously
• Continued consolidation and
investments will just add costs
if underlying clinical
integration and systemness
are not created
The Case for Provider-Payer Collaboration and Integration 3
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FIVE LEVELS OF STRATEGIC ALLIANCE PARTNERSHIP DEVELOPMENT
Stage 1
Why do we want to do this?
Stage 2
Are there potential partners in the
market with a shared vision and
common guiding principles?
Stage 3
Alliance governance and organizational
structure, mutual business case template
Stage 4
LOI, operational, care delivery model, network,
market parameters, payment model mechanics
Stage 5
Execution of LOI and implementation plan
Source: Strategic Solutions, Navigant Consulting
Build a
PSHP
Buy a
Health
Plan
JV... Build
or Buy
Health
Plan
Other
Providers
Align w/
Health Plan
#1
#3
#4
#2
Addition of Health Plan
to Your Enterprise?
AND / OR...
The Case for Provider-Payer Collaboration and Integration 3
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PAYER AND PROVIDER PARTNERSHIP EXAMPLES AND KEY STRATEGIC
QUESTION FOR EACH INITIATIVE
PAYER AND HEALTH SYSTEM EXECUTE STRATEGIC PARTNERSHIP
Key Question: How do we reset the equilibrium for a new value-based transformative
partnership without financially disrupting existing economics?
01
THREE HEALTH SYSTEMS PURSUE A STRATEGIC ALLIANCE BETWEEN THEIR PSHPS
Key Question: How do we achieve accelerated / sustained growth to achieve our stated key
goals while solving for our operational / ownership complications to move forward?
02
PAYER AND HEALTH SYSTEM / ALLIANCE CIN EXCLUSIVE LOB STRATEGIC ALLIANCE
Key Question: How do we retain patient volumes / grow while also generating accretive value
from gain sharing arrangement?
03
MULTI-MARKET HOSPITAL / AFFILIATED PSHPS STRATEGIC ALLIANCE
Key Question: How do we align organizational interests in a manner which allows us to
present an integrated value proposition for Medicaid contract bid?
04
The Case for Provider-Payer Collaboration and Integration 3
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YOUR TRANSFORMATION / TRANSITION PLAN FROM VOLUME-TO-VALUE?Finance, IT/Analytics, Operations, Care Network, Patient Channels, Population Health and Risk/Reward
Your Strategic
Roadmap?
FFS Transaction-Based Care
Value-Based Care
Population-Based Care
• FFS Specialist Clinical Model...
Reliant on Referral and 2nd Opinion
Volumes
• Revenues Tied to Utilization and
Rates... but Margin Largely Tied to
Commercial Rates
• Focus on Individual Specialist
Providers and for Hospital OP...
Provider Based Reimbursement
• Commercial Rate Optimization
Strategies
• Pursuit of Excellence in Specialty
Medicine with Integrated Primary
Care Access Points
• Streamlining Patient Access to
Hospital Services Across Network
Model
• Coordinating Patient Care Across an
Entire Episode of Care Continuum,
While also Reducing the Total Cost
of Care
• FFS and Gainsharing Payment
Models w/Payers
• Care Model Transformation in
Process
• Integrated Delivery Model
• Promotes and Manages Population-
Based Specialist and Primary Care
Across a Network
• Combined FFS and “Premium-
Based” Rev.
• Effectively Manages Total Costs of
Care
• Member/Patient Centered and Value
Based Care
• Select Alliances w/Payer Partners
Future Revenue Model, Risks and Value-Based Payments and Strategic Roadmap
IMPACT ON FACILITIES, CAPITAL AND LONG-RANGE FINANCIAL PLANS
4
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TODAY’S PRESENTER
Christopher J. Kalkhof, MHA, FACHE, Managing Director, Value Transformation, Navigant Consulting
Chris is a senior healthcare executive with 30 years of provider and payer organization experience serving more than 200
hospitals, 20 + health plans and 30+ physician enterprises. Additionally, he leads Navigant’s Payment Transformation, New
Revenue Model, Pricing and Managed Care practice.
• HFMA Participation:
Chris is a past-President of the WNY HFMA Chapter, he has been a Yerger judge and has presented at ANI multiple
times. He is also the recipient of Muncie Gold, Reeves Silver and Follmer Bronze merit awards; is a frequent presenter at
HFMA chapters around the country and had two articles published in hfm magazine in 2017.
• Expertise includes:
Enterprise revenue model strategy and execution
New business development and diversification
strategy
FFS and value-based payment models
Enterprise pricing, contracting strategy and payer
negotiations
Provider-payer strategic alliances
CMS ACOs
• Over span of his career, Chris has been involved with over:
300 direct payer contract negotiations
1,000 payer contracts to assist clients to improve their payer
strategies / tactics and financial position
100 strategy / new business development projects
15 M&A and 10 financial / operational turnaround projects
Payer Spotlight: ACO’s and Value Based Payment Arrangements
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CHRISTOPHER KALKHOF, MHA, FACHE
Managing Director716.912.0309
navigant.com
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