1. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium ACOs: Much Ado about Nothing (?)

2. Moderator: Douglass G. Hewitt, Esq., Partner, Kubasiak, Fylstra, Thorpe & Rotunno, P.C. Panelists: Bradford A. Buxton, President, BTB Associates, LLC Ciara Ryan Frost, Esq., Partner, Kerns, Frost & Pearlman, LLC Kristin D. McMahon, Esq., Chief Claims Officer, IronHealth

3. The Patient Protection and Affordable Care Act (“PPACA”) Public Law 111 -148, signed March 23, 2010

4. Overview of PPACA Sweeping 2,000+ page overhaul of U.S. health care system (not including the implementing regulations, some of which remain to be issued/finalized) Aims to reform health care: ♦ delivery ♦ financing ♦ insurance 4

5. Key PPACA Objectives Access to health care for all Americans Improve quality of health care Lower cost of health care 5

6. PPACA Timeline Staggered deadlines for implementation between 2010 and 2018 Myriad regulations issued since PPACA passage Judicial challenges to PPACA 6

7. Title III – Improving The Quality and Efficiency of Health Care Strives to transform the U.S. health care delivery system: ♦ links payment to quality outcomes under Medicare ♦ creates Center for Medicare and Medicaid Innovation (CMI) ♦ Accountable Care Organization (“ACO”) initiatives 7

8. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium ACOs 8 Three Letter Acronym of the Year Hot Topic in American Health Policy

9. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium ACOs Defined 9 A group of physicians, hospitals and other healthcare providers who assume responsibility for the quality and cost of healthcare for a defined population attributed to them on the basis of patients' use of healthcare services. If the ACO meets quality benchmarks and reduces per-beneficiary spending below what would otherwise have been expected, it will receive a share of the savings

10. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium Impetus for ACOs America’s Broken Health System US health expenditures -$2.6 trillion in 2010, over ten times the $256 billion spent in 1980 Health care accounts for 16% of the US GDP, the highest among the world’s industrialized nations without improved outcome Ineffective System for Paying Healthcare Providers Payment for volume on a fee for service basis rather than for value on a fee for outcome basis. 10

11. Impetus for ACOs (cont’d) “In the US, we hold no one accountable for our problems. Accountability is as fragmented as care, itself; each separate piece tries to craft excellence, but only within its own walls. Meanwhile, patients and carers wander among the fragments. No one manages their journey, and they are too often lost, forgotten, bewildered.” - Dr. Donald Berwick, former CMS Administrator Source: Donald M. Berwick, “A Transatlantic Review of the NHS at 60,” http://www.pnhp.org/news/2010/may/a-transatlantic- review-of-the-nhs-at-6-, July 1, 2008.http://www.pnhp.org/news/2010/may/a-transatlantic- review-of-the-nhs-at-6- 11

12. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium Source: Organization for Economic Co-operation and Development (2010), "OECD Health Data", OECD Health Statistics (database). doi: 10.1787/data-00350- en (Accessed on 14 February 2011).doi: 10.1787/data-00350- en Notes: Data from Australia and Japan are 2007 data. Figures for Belgium, Canada, Netherlands, Norway and Switzerland, are OECD estimates. Numbers are PPP adjusted. 12

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14. THE PURPOSE OF ACOs “The creation of ACOs is one of the first delivery-reform initiatives that will be implemented under the ACA. Its purpose is to foster change in patient care so as to accelerate progress towards a three part aim: better care for individuals, better health for populations, and slower growth in costs through improvement in care.” -Dr. Donald Berwick 14

15. Types of ACOs Medicare 1.Medicare Shared Savings Program (MSSP) 2.Advanced Payment Model Commercial (Private Insurers/Payors Health Systems) Pioneer – Hybrid Advanced Model 15

16. The Shared Savings Proposed Rule Issued March 31, 2011 65 Quality Measures 2 alternative tracks (one-sided, shifting to two-sided in year 3 and two-sided) 2% threshold above minimum savings rate of 2%-3.9% Maximum Shared Savings Cap: 7.5% or 10% 25% withhold by CMS for years 1 and 2 16

17. Response to the Medicare Shared Savings Proposed Rule 17

18. Medicare Shared Savings Program (MSSP) MSSP ACOs must meet HHS/CMS eligibility criteria, including: ♦ assume responsibility for Medicare patient population of 5000 or more beneficiaries for at least three years ♦ adequate primary care physician participation ♦ a formal legal structure for receipt/distribution of shared savings ♦ shared governance over clinical and administrative processes; and ♦ processes to promote evidence-based medicine, coordinated care and patient engagement 18

19. Medicare Shared Savings Program (MSSP) (cont’d) If the ACO’s costs are lower than the benchmark set by the MSSP, it receives (in addition to normal fee for service payment amounts) an additional payment that reflects a portion of the savings ♦ Track I Model: Shared Savings Only ♦ Track II Model: Shared Savings and Shared Losses By the end of 2012, at least 2,000,000 people are expected to be enrolled in MSSP ACOs 19

20. The Shared Program Final Issued October 20, 2011 33 quality measures 2 alternative tracks (one sided for all 3 years and two sided) No 2% threshold above minimum savings rate of 2 to 3.9% (i.e., First dollars savings) Increase in maximum sharing rate: 50-60% Maximum Shared Savings Cap: 10-15% No 25% withhold by CMS 20

21. Advanced Payment Model Part of the MSSP Provide additional support to physician-owned and rural providers who would benefit from added start-up capital to establish the needed infrastructure in the form of additional staff or information technology Upfront funding by CMS’ Innovation Center of $170M to support up to 50 ACOs Eligible participants must be: ♦ ACOs that do not include any inpatient facilities and have less than $50 million in total annual revenue; or ♦ ACOs in which inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals and have less than $80 million in total annual revenue 21

22. Commercially/Privately Sponsored Accountable Care Collaborations Private Payors including BCBS Plans, large for profit health insurance carriers (e.g., CIGNA, AETNA) and health care systems launching pilot programs across the country Radical departure from traditional fee for service approach CareFirst Blue Cross Blue Shield, dominant insurer in the Washington DC Advocate Health Care (Chicago based) and BCBS IL formed one of the nations largest ACOs, AdvocateCare 22

23. Pioneer ACO Model  CMS Innovation Center initiative  Eligibility-healthcare organizations experienced in providing coordinated, patient centered care to Medicare beneficiaries (a minimum of 15,000 Medicare Part A and B beneficiaries) in an ACO type environment  Approximately 32 organizations have been designated as Pioneer ACO Models including: Banner Health, Beth Israel Deaconess, Dartmouth Hitchcock, and Presbyterian Healthcare Services.  Differences between Pioneer ACO Model and MSSP: ♦ First two years of Pioneer are shared savings payment with higher levels of savings and risk than Shared Savings Program; ♦ By end of second year, Pioneer ACO must enter into similar payment contracts with insurers and health plans constituting 50% of ACO revenue. 23

24. Common Characteristics of Successful ACOs Broader patient access to care, including extended evening and weekend hours Case management and Disease management services Electronic Medical Records to better track medical history Embedded Care Coordinators Data Analytics Shared savings and in some cases losses with the Payor of medical services 24

25. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium 25 ACO Configurations Abound ACO Health System Medical Groups ACO Medical Groups Hospital Health Insurer

26. ACOs—Initial Barriers to Entry Antitrust concerns Start Up Costs—IT Technology Ability of specialists and primary care physicians to work together and accept a reallocation of healthcare dollars therein increasing the reimbursement levels of primary care physicians 26

27. Are ACOs Different Than HMOs? ACOs have quality metrics that were not part of the Managed Care model of the 1990s ACOs do not purport to limit patient choice of providers or act as gate keepers to prevent patients from specialist care Specialist care is encouraged; although will be more closely followed by the primary care physician 27

28. Sample ACO Organizational Components: Health System/Hospital Potential Partners Hospitals, Diagnostic/ Therapeutic Service Centers ACO ResourcesPhysician Organizations Alternate Health Service Organizations Health Information Communication Connectivity Network EHRs, Interfaces, Communication Hubs Patient Centric CDRs (Beneficiary) Population Health Data Warehouse Call Centers Care Coordinators Employed Groups PHO Physicians Aligned Physicians – Ind Physicians - Ind Specialists FQHC Safety Net FQHC Safety Net MS Not MS MS Potential Partners system Connections  PMS  EHR  Claims clearinghouse Information  Results  Reports  Orders  Scripts  Referrals  Eligibility  Claims  Appointments  CCRs  Other LTC SNF Home Health Hospice Clinical Pharma Home Based Care Rehab Center 28

29. Provider-Payor Challenges Current Market-Place What’s to Come in Reform Payment migration and Provider Accountability What it takes to win 29

30. Reform has sparked reform. But results won’t happen without reduction in costs. At its roots, the ACO model is about changing the reimbursement structure of the U.S. healthcare system toward one that pays for the quality of care delivered (and, by derivative, the outcomes achieved) versus the units of service provided. - Beyond ACOs: The Pending Risk Shift to Providers, William Blair Hospitals with strong market power and higher private-payor and other revenues have less pressure to constrain their costs. Thus, these hospitals have higher costs per unit of service, which can lead to losses on Medicare patients. Hospitals under more financial pressure—with less market share and less ability to charge higher private rates—often constrain costs and can generate profits on Medicare patients. - MedPac, Health Affairs, May 2010 Blue Shield of California gives $20M in ACO Help - Healthcare IT News, October 18, 2011 30

31. Market Environment | Health Reform 2012 Highlights  Encouraging Integrated Health Systems  Linking payment to quality outcomes  Reducing avoidable hospital readmissions 2013 Highlights  Improving preventative health coverage  Encouraging provider collaboration  Increasing Medicaid for primary care  Fee for patient-centered outcomes research Health care organizations can expect to see impacts to their customers, products, markets, and margins. 31

32. ACOs require a shift in provider accountability and a migration from focus on revenue cycle management to cost management Source: Healthways 2010 Revenue Cycle ManagementCost Management/liability 32

33. The current system cannot sustain itself without a focus on cost management and lowering the total cost of care Hospitals and Specialists  Improved Patient Care Efficiency  Use of Lower-Cost Treatments  Reduction in Adverse Events  Reduction in Preventable Readmissions Hospitals and Specialists  Improved Patient Care Efficiency  Use of Lower-Cost Treatments  Reduction in Adverse Events  Reduction in Preventable Readmissions Primary Care Practices  Improved Prevention & Early Diagnosis  Improved Practice Efficiency  Reduction in Unnecessary Testing and Referrals  Reduction in Preventable ER Visits and Admissions Primary Care Practices  Improved Prevention & Early Diagnosis  Improved Practice Efficiency  Reduction in Unnecessary Testing and Referrals  Reduction in Preventable ER Visits and Admissions $ $ Lower Total Health Care Cost All Providers  Improved Management of Complex Patients  Use of Lower Cost Settings & Providers All Providers  Improved Management of Complex Patients  Use of Lower Cost Settings & Providers 33

34. Requirements for Success As provider risk expands, requirements for risk management become more complex: Reimbursement and Network Management: ♦ Multiple risk sharing arrangements from global rates to percent of premium, network contracting and management Care/Population Management: ♦ HIS, PCMH, IOP, Data Integration (EMR), Nurse Managers Administration ♦ MSO Services (claims, eligibility, etc.) Financial/Risk Management ♦ Risk based capital, actuarial, underwriting, financial reporting, compliance and auditing Regulatory/Legal 34

35. Requirements for Success | Lessons from the 1980s In the 1980s when payors shared risk there were multiple provider failures and liability concerns. What level of risk assumed? When moving from fee for service to risk, what is impact on cost delivery structure? Does the Integrated Health System cover all services necessary to assume risk? Do patient coverage policies outline expectations for members re: coverage and delivery expectations? Role of insurance company versus delivery system in risk arrangement (reinsurance/liability/coverage)? Role of Partners (administrative, ownership, risk, etc.) 35

36. The landscape is complex and choosing partners requires understanding oneself and the target partner. Three types of partners meet different sets of needs. Vertical: ♦ Knowledge and tools for managing care (administrative services) Horizontal: ♦ Partners include other hospital systems, organized physician entities, and community organizations within target service areas or clinical specialties Global: ♦ Global Partners are entities who bring attributes of both horizontal and vertical partners 36

37. Structure + High Value Efficiencies = Ability to Take Risk and Increase Margin Providers and payors require a structure in the new, transformed state Leadership must determine how broad they want to provide their integrated health system services Determine organization (i.e. physician vs. strategic partnership) Providers must consider the balance between geography and provider services offered Evaluate services, people, contractual status (risk/no risk) by geographical regions 37

38. Structure + High Value Efficiencies = Ability to Take Risk and Increase Margin Providers must inventory what tools, skills and capabilities they have today, determine the gaps in current systems and how to fill those gaps ♦ Understand what is required and how to fulfill need in technology, people and organization (buy, build, partner) Understand best partnership options in order to build a effective and efficient risk taking network ♦ Also define who owns lives today to help access network and partnership options. Is it realistic to have a competitor also be a partner? 38

39. ACO Liability Exposures Vary, depending on the: ♦ Activities/services of the ACO and its constituent participants ♦ ACO’s organization/legal structure, and ♦ Applicable state law 39

40. ACO Liability Exposures Similar to historical MCO liability exposures in many respects, except: ♦ patients may obtain care from providers outside the ACO without any cost or coverage penalty, ♦ financial incentives are tied to quality performance metrics 40

41. ACO Liability Exposures Some heightened exposure based upon ACO’s: ♦ ‘accountability’ for quality of care ♦ increased involvement in coordination of care ♦ increased control over ACO participants 41

42. Activities/Services Most Likely to Give Rise to Claims Against ACOs Medical treatment Coordination of care/case management Medical necessity or other coverage determinations Utilization review (if applicable) Provider selection / contracting / termination / payment Claims processing/payment (if applicable) Billing Employment practices Compliance with state and federal laws, including HIPAA, HITECH and PPACA 42

43. 43 Common Sources of ACO Liability (Claimants) ACO Competitors Regulators Employees Other (e.g., payor, vendor) Patients Providers

44. Patient Claims Against ACOs Medical negligence (direct or vicarious liability) Negligence or misconduct in: ♦ utilization review ♦ case management/coordination of care ♦ selection/peer review/credentialing of participating providers ♦ medical necessity or coverage determination Breach of contract Breach of fiduciary duty (including failure to disclose financial incentives) Breach of privacy Other (including statutory violations) 44

45. Provider Claims Against ACOs Breach of provider contract Negligence or other misconduct related to: ♦ provider selection/contracting ♦ provider deselection/termination ♦ provider compensation, including bonus or incentive payments Cross-claims for indemnification 45

46. Regulator Claims Against ACOs Violations of: ♦ PPACA (Note PPACA penalty provisions) ♦ False Claims Act or other federal fraud and abuse laws ♦ Federal or state antitrust laws ♦ HIPAA, HITECH or other federal or state privacy laws ♦ State licensure, solvency or other laws 46

47. Employee Claims Against ACOs (including Claims by employed providers) Wrongful termination Discrimination Breach of contract Misrepresentation Whistleblower claims alleging False Claims Act violations 47

48. Competitor Claims Against ACOs Violation of federal or state antitrust laws (Note, Final ACO Antitrust Policy Statement provides for an Antitrust Safety Zone) Unfair competition Tortious interference with contractual or business relations 48

49. New or Heightened Exposures Après PPACA Violation of PPACA or implementing regulations: ♦ MLR rebate obligations ♦ Penalties for non-compliance with claims processing and appeals regulations ♦ Other Compliance is key 49

50. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium 50 ERISA Preemption in the Wake of PPACA? Increase in Population Insured Under Individual Health Policies ERISA Preemption Defense

51. Relationship Between PPACA, ERISA And Other Federal and State Laws? Interplay between PPACA and other federal and state laws unclear in many respects PPACA preserves ERISA preemption, but ERISA does not apply to individual health insurance markets PPACA preempts state laws that would “prevent the application of” Title I ♦ Sets a “floor” for state regulation ♦ Does not preempt state licensure, solvency and other ‘health-insurance laws’ Full employment for lawyers 51

52. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium 52 Newton’s Law of Motion For every action, there is an equal and opposition reaction.

53. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium 53 Increase in Integration of and Coordination by Providers Liability for medical and managed care mishaps Antitrust Exposure

54. Chicago - March 29-30, 2012 2012 PLUS Medical PL Symposium 54 Effects of PPACA on Health Insurance Market PPACA Litigation Traditional Managed Care Litigation Regulatory Activity

55. Litigation Over Historically Controversial Health Insurer Practices Should Decline As PPACA Eliminates Or Regulates Those Practices Lifetime and annual limits Rescission (post claims underwriting) Explanations of coverage, including disclosures of cost-sharing, common benefit scenarios, provider payment methodologies (“usual customary and reasonable rates”) 55

56. Insurance Coverage & ACOs Types of Exposures Presented ♦ D&O ♦ E&O ♦ Professional Liability ♦ Third and First Party Privacy Protection ♦ General Liability ♦ EPL ♦ Fiduciary Critical to understand the ACO’s corporate structure 56

57. Insurance Coverage & ACOs  Necessary to perform GAP analysis to determine whether existing healthcare entity’s Insurance Program provides seamless coverage to the ACO activities  Policy exclusions could vitiate coverage if an insured provider files suit against the ACO challenging compensation or bonus structure (e.g., Insured v. Insured)  Consider purchase of separate stand alone product to expressly cover ACO Services and corresponding liability exposures 57

58. US Supreme Court to Rule on Two Major PPACA Provisions 58 Individual Mandate The Medicaid Expansion

59. Douglass G. HewittCiara Ryan Frost, Esq. Kubasiak, Fylstra, Thorpe & Rotund, P.C.Kerns, Frost & Pearlman, LLC 20 S. Clark Street, 29 th Floor70 West Madison, Suite 5350 Chicago, IL 60603Chicago, IL 60602 (312) 630-9600(312) 261-4553 dhewitt@kftrlaw.comcfrost@kfplegal.com Bradford BuxtonKristin D. McMahon, Esq. BTB Associates, LLCChief Claims Officer 594 North Woodland LaneIronHealth Northfield, IL 60093175 Powder Forest Drive (847) 400-7450Simsbury, CT 06089 bbuxton743@comcast.netbbuxton743@comcast.net(860) 408-7812 Kristin.McMahon@ironshore.com 59