1. Managed Care Contracting: The New Normal
2016 ILMGMA Fall Financial Management Conference
Managed Care Contracting: The New Normal
Jim Watson, Partner, PBC Advisors, LLC

2. Visit us at: www.pbcgroup.com
About PBC Advisors, LLC
Oak Brook, Illinois-based company formed in 1986 as one of the first accounting and consulting firms focused on physician practices
Created 5 of the top ten independent medical groups in Chicago market
Manage medical groups from complete outsource to accounting, billing, payor contracting/strategy
Serve as Interim Executives in hospitals, medical groups, IPAs/PHOs, Provider Sponsored Health Plans
Leaders/early adopters in Clinical Integration, Bundled Payment, ACO, program formation with clients
Pioneering Value-Based Contracting (VBC) models with payors and providers
Visit us at:

3. Session Description
“Managed Care Contracting” has transformed rapidly over the past few years, driven by:
The evolution from Pay-For-Performance contract models to “Value Based Contracting” models
Migration of governmental health insurance to Managed Care products and networks
The emergence of ACA Exchange products and networks
Contract management requirements have also transformed, becoming increasing complex and demanding, from contract negotiations through “front end” and “back end” process requirements.
This session will provide insightful information on how historical health plan products and contracts are changing, and how to strategize, implement and manage these contracts as a health care provider.

4. Outline for Discussion
Industry Overview & Updates:
ACA and its impact
The Evolving Managed Care Landscape:
Commercial, Marketplace, Government contract models
Evolving product continuum
Managed Care Contracting:
Having a Managed Care Strategy
Assessment of Your Market Position
Network & Contract Affiliations
Contracting Approach
Health Care Reform & Managed Care Impact on Medical Practices
What’s Next & How Is Your Practice Positioning for Success
Open Discussion & Dialogue

5. Industry Overview & Updates

6. The Marketplace Today: Pillars of the New Era in Healthcare
Value-Based Purchasing: All payors are moving toward reimbursing providers based on their performance, not based on negotiating leverage or brand name (FKA: P4P). Performance is driven by use of Evidence-Based Medicine (EBM) and best practices. Care delivery is migrating to standarized clinical pathways and guidelines to deliver care, and payors are linking contracts, networks and reimbursement to “quality” and “outcomes” measures.
Integration & Alignment: Starting with “100,000 Lives” report, the evidence clearly points to fragmentation of care/unaligned incentives as the biggest problem in health care delivery in the U.S. Central to all reform concepts is integration of care, and the processes, people, workflows, and technologies that provide it, including funding and reimbursement.
Technology: The technology revolution will touch all transactions and workflows (clinical, administrative, business) within the operating platform of the U.S. healthcare system (inter-organizationally, business-to-business, provider-to-patient). It is expensive and time consuming.
Patient/Consumerism Someone else has always paid for our healthcare (Medicare, Medicaid, employer-sponsored coverage), so we’ve never had to shop for healthcare. With increased cost shift to consumers, and mandated individual insurance purchasing, we can anticipate “retail” shopping behaviors and tools to support it. Expanded coverage means more patients, enrolled in a variety of plan options. Increased focus on “wellness” and “patient engagement” models. And BTW, Bad Debt and Aged A/R is gonna skyrocket….

7. Industry Overview & Updates: ACA/Obamacare
Coverage: As of the end of open enrollment 2016 there was estimated to be as many as 12.7 million in the marketplace, and very roughly 20 million covered between the Marketplace, Medicaid expansion, young adults staying on their parents plan, and other coverage provisions. The uninsured rate was estimated to hit an all-time low of 9.1% according to a 2016 report.
Costs: A new June 2016 study by the Urban Institute shows the latest long term spending projections are $2.6 trillion lower than the original post-ACA baseline forecast through 2020 — a reduction in projected spending of almost 13%.
Uncompensated Care: Uncompensated care costs are estimated to be $7.4B = 21% LOWER in 2014 than they would have been in the absence of coverage expansions.

8. Industry Overview & Updates: ACA/Obamacare
A January 2015 report by the Commonwealth Fund showed that due to the ACA’s cost curbing provisions, health care spending in 2014 grew at the slowest rate on record (since 1960). Meanwhile, health care price inflation is at its lowest rate in 50 years.
8.2 million seniors have saved more than $11.5 billion on their prescription drugs since 2010 – an average of $1,407 per beneficiary.
The ACA’s provisions have helped save $19.2 billion in fraud – about a $10 million increase from the five years before that.
Preliminary data shows that between 2010 and 2013, due to new ACA provisions, about 1.3 million fewer events occurred that could cause hospital-acquired conditions such as pressure ulcers, central line associated infections, and falls and traumas. As a result it is likely that 50,000 fewer people lost their lives, and there was a $12 billion in cost savings.
Due to the ACA’s focus on quality over quantity, re-admissions among Medicare beneficiaries were driven down by 150,000.
BUT: The insurance industry is losing billions and is pulling out
AND: Brand name providers are getting kicked out of networks
NOT JUST BECAUSE of RATE DEMANDS; but because of ADVERSE SELECTION
So do we want equal healthcare for all in the USA or not?

9. Industry Overview & Updates: Spending Trends
PwC’s Health Research Institute projects the 2017 medical cost trend to be the same as the current year – a 6.5% growth rate.
There are signs that the decade’s slowing medical cost growth rate could tick back up as new healthcare access points increase utilization.
Healthcare organizations must increase access to consumer friendly services while decreasing unit cost.
Source: PWC Behind the Numbers 2017

10. 2017 Marketplace/Exchange
The Illinois players:
Celtic Insurance Company
CIGNA
Health Alliance Medical Plans, Inc. (“HAMP”)
Health Care Service Corporation, a Mutual Legal Reserve Company (“HCSC”, dba Blue Cross Blue Shield of Illinois)
Humana Health Plan, Inc.

11. Number of Plans by County (Individual, On Exchange)
Exited/exiting: Aetna, Coventry, United and Land of Lincoln Health are not offering plans on the Illinois Exchange in 2017.
Nationally, the Marketplaces are failing/shrinking

12. 2017 Illinois Marketplace Pricing
The Average Rate Increase Across All Rating Areas in Lowest Bronze Plans is 44%
The Average Rate Increase Across All Rating Areas in Lowest Silver Plans is 45%
The Average Rate Increase Across All Rating Areas in 2nd Lowest Silver Plans is 43%
The Average Rate Increase Across All Rating Areas in Lowest Gold Plans is 55%
Source: Oliver Wyman Report “2017 Preliminary Analysis of Illinois Exchange Plans 9/14/16

13. Managed Care Contracting

14. Value-Based Contract Continuum
The Movement to “Value-Based Contracting” (VBC)
Via Payor Contracts and “Accountable Care” Models
Different metrics, initiatives and contract models in Medicaid, Medicare Advantage, Commercial products
Fee
for
Service
Pay
for Performance
Medical Home Models
Accountable Care (ACO)
Shared Risk
Global Payment or
% Premium
Provider Accountability

15. Payment Reform in ACA Drives VBP/VBC
Reimbursement Highlights:
Paying More for Certain Services (preventive, primary care)
Paying Based on Quality of Services (process, outcome)
Combining Separate Services into a Single Payment (episodic treatment payments, global payments)
Making Payment Dependent on the Cost of Services Delivered by other Providers (resource use-based, shared savings/gain sharing)
Paying to Support Specific Provider Structures, Systems, Locations (HIT/EMR/registry/etc, care coordination systems, geographic shortages)
Payment Models in PPACA:
Payment changes to support Patient Centered Medical Home and Accountable Care models
Episode of care payments to improve quality and reduce the costs of major acute care
Comprehensive care or global payments to improve the quality and reduce the cost of the full range of healthcare services for a population of patients

16. How is “Value” Defined and Measured?
Quality Components:
Process
Outcomes
Cost Efficiency
Patient Satisfaction IT
Examples:
PQRS
Core Measures
HEDIS Measures
Chronic Care Mgmt
Payor Initiatives
….and introducing…..
MACRA/MIPS

17. How are Payors/MCOs Defining “VBC”
AETNA: “AETNA’s value-based payment models aim to pay for value delivered, not services rendered”.
Models: ACOs, PCMHs, P4P (cost/quality metrics), Bundled Payments
Currently has 22% of spend running through VBCs touching 1.5M lives
AETNA’s innovative “Hospital Vertical” product aligns employee benefits and VBC contracting for healthsystems
BCBS: “Blue Cross Blue Shield Plans are Leading the Market in Developing and Executing VBC programs”.
Models: ACOs, PCMHs, P4P programs, Bundled Payment Programs
350 programs in 49 states, engaging 155,000 PCPs and 60,00 Specialists, covering more than 24 million BCBS enrollees
United Healthcare: “Value-based contracting models represent an evolution in clinical and payment methodologies that will create quality and cost outcomes, foster greater accountability, and take advantage of innovations in medical technology”.
Models: ACOs, PCMHs, Clinical Integration Payments, Premium Designations, Centers of Excellence Designations
Projecting 50-70% of enrollees to be touched by VBC initiatives by 2016

18. “Accountable Care” Models
Accountable Care Organizations (ACOs)
Clinically Integrated Networks (CINs)
Patient Centered Medical Homes (PCMHs)
Bundled Payments
Global Payments
Accountable Care Models are vertically integrating across Government and Commercial MCO products/contracts, and positioning underlying healthsystem sponsors for Narrow Network, Private Label and Provider Sponsored Health Plans

19. Common VBC Contract Initiatives
Targeted Areas of Utilization Reductions:
Increase Generic Prescription Rate
Decrease diagnostic imaging per thousand, shift volume from hospital-based imaging
Decrease in laboratory procedures per thousand, shift volume from hospital-based labs
Reduce E/R Visits per thousand
Quality Performance Measurement:
Preventive Medicine (HEDIS)
Comprehensive Diabetes Care (HEDIS)
Asthma (HEDIS)
Other Quality Metrics (HEDIS)
Ambulatory Sensitive (AHRQ)
Member Experience (CAHPS)

20. Commercial Payor ACO Models
Most commercial payors moving to:
Additional reimbursements for “Quality” (Quality, Cost, Admin Compliance, Patient Satisfaction)
Offering providers online access to data (claims data, patient registries)
Future rate increases dependent upon provider performance (cost, quality, service metrics)
Narrow networks
Global Risk
Expansion into Medicare, Medicaid, Individual/Insurance Exchange products
BCBS Accountable Care Contract:
Rules: Clinically Integrated, EMR-enabled, provide evening, weekend hours, utilize hospitalists, submit claims data for all patients, quarterly reporting
Total Episodic Care Management
Formulary compliance/e-prescribing
Referral re-direction (Blue Distinction, preferred OP Ancillary)
Utilize BCBSIL-provided reporting tool and/or other means to identify gaps in care
Conduct Patient Outreach for identified populations
Reward: If you manage trend you share in savings

21. Common VBC Contract Initiatives
Illinois Medicaid MCO Care Coordination examples: Receive the $2-12 PMPM
Annual well-visit rates at 84.95% (75th percentile of HEDIS)
Medication Reconciliation (provider attestation this occurs at each office visit)
Use of encrypted or text to communicate with members (provider attestation)
After-hours access for Assigned Members (provider attestation)
reaching a target of the 75th percentile of HEDIS on all of the following: Nephropathy monitoring for diabetic patients, Following up with non-behavioral health members within 14 days of IP discharge, Following up with behavioral health members within 7 days of IP discharge, IP readmission rate, ED Visit rate
Staff hired by the provider site working with MCO membership in coordination with MCOs care coordination and quality team. (i.e., outreach worker, social worker, nurse coordinator, other staff located at the provider site) Staff to member ratio 1:5,000 or FTE equivalent.
Conduct outreach and schedule PCP visits for enrollees without a Health Risk Survey or Health Risk Assessment identified in the HRS/HRA monthly no contact report. Report on the # of enrollees that have been reached and have a scheduled PCP appointment.
Conduct outreach to close gaps in care identified in the HEDIS Missing Services Report provided by MCO’s quality team.
In support of State required HEDIS reporting, report on the # of members that have a follow-up with any provider within 14 days following an Emergency Department visit or an inpatient discharge. Include date and reason for admission.
Complete and submit MCO OB notification report, documenting new diagnosis of pregnancy in MCO membership, to MCO contact on a monthly basis.
Medical Home Designation

22. Group Health Coop/Puget Sound:
Patient Centered Medical Home (PCMH)
The Premise:
Care coordination/integration across all caregivers for chronic care management.
Patient communication, engagement, outreach essential.
Technology required to track patients, populations, e-prescribe, reporting, communication.
NCQA PCMH Standards:
Access & Communication
Patient Tracking & Registry Functions
Care Management
Patient Self-Management and Support
Electronic Prescribing
Test Tracking
Referral Tracking
Performance Reporting and Improvement
Advanced Electronic Communication
Sampling of Results
Geisinger:
14% reduction in admits
9% reduction in total costs
Group Health Coop/Puget Sound:
29% reduction in ER Visits
11% reduction in admits
Genesee Health Plan:
50% reduction in ER Visits
15% reduction in admissions
See for more 22

23. Payors Driving Consumerism and “Value” in Benefit Plans, Education
How are consumers defining value, and who teaches them?
Increased product offerings: More choices are related to plan design, access, costs (narrow networks, tiered co-pays)
“Transparency”: An effort to get patients to shop for services (costs/rates, quality metrics, administrative measures): Is the data any good? Is cost defined as rates, charges or some ill-defined hybrid?
Patients/consumers have varying (and ever changing) definitions of value: Is expensive high quality? Is low cost low quality? Are they able to understand these “metrics” and will they make decisions with little/potential inaccurate information?
When you do outreach to fill their “gaps in care”, is that perceived as quality or intrusive?

24. Payor Cost Estimator – MRI Lower Joint
Provider
Distance
Low Price Range
Most Likely Cost
High Price Range
Hospital A
9.45mi
$ 1,162
$ ,968
$ ,774
Hospital B
7.22mi
$ 1,750
$ ,921
$ ,092
Hospital C
4.5mi
$ 1,731
$ ,822
$ ,913
Hospital D
8.75mi
$ 1,476
$ ,687
$ ,898
Hospital E
9.44mi
$ 1,335
$ ,408
$ ,481
Hospital F
3.66mi
$ 1,148
$ ,248
$ ,364
Hospital G
2.82mi
$ 1,168
$ ,229
$ ,290
OP Ctr 1
9.1mi $
$ ,071
$ ,551
Hospital H
7.95mi $ $ $
OP Ctr 2
2.59mi $
$ ,011
Ortho Ctr 1
8.2mi $ $
Hospital I
6.08mi $ $ $
Ortho Ctr 2 $ $
OP Ctr 3
8.98mi $ $ $
OP Ctr 4
4.3mi $ $ $
OP Ctr 5
5.23mi
OP Ctr 6
8.12mi
OP Ctr 7
8.91mi
OP Ctr 8
9.48mi
OP Ctr 9
9.6mi
OP Ctr 10
9.86mi

25. Payor “Star” Program Example – United Healthcare

26. Quality Efficiency Example- Shoulder
Body Part
Condition/ Procedure
Severity Level
Measure Description
# Patients
# Opportunities
Specialty Results
Expected Results
Difference from Expected
% of Expected
Difference from Opportunities
% of Opportunities
Shoulder
Arthroscopic Decompression (Shoulder) 1 
Procedure at less than 30 Days:  Measures whether patients had selected surgical procedures 30 days or less from initial diagnosis. 10 8
8.83
(0.83)
90.60%
(2.00)
80.00%
Pre-Surgery Complex Imaging: Measures whether patients received at least one appropriate complex imaging procedure within 180 days prior to selected surgical procedures. 6 4
4.30
(0.30)
93.02%
66.67%
7 to 12 Month Redo: Measures whether patients had a redo procedure between 181 and 365 days after surgery. 
3.91
0.09
102.30%
0.00
100.00%
9 to 12 Month Physical Therapy: Measures whether patients received no physical therapy between 270 and 365 days after surgery. 
3.88
0.12
103.09%
6 Month Redo: Measures whether patients had a redo procedure within 6 months after surgery
7.68
0.32
104.17%
3 Month Physical Therapy: Measures whether patients received at least one physical therapy session within 3 months after selected surgeries. 12 9
8.60
0.40
104.65%
(3.00)
75.00%
Pre-Surgery Injection or Physical Therapy:  Measures whether patients received physical therapy and/or therapeutic injection within 180 days prior to selected surgical procedures.  7
6.28
0.72
111.46%
70.00%
Arthroscopic Removal of Foreign Body/Debridement (Shoulder) 47 33
36.20
(3.20)
91.16%
(14.00)
70.21% 24 21
23.19
(2.19)
90.56%
87.50%

27. How will the ACA, VBC, Consumerism Affect Medicine?
Practice workflow/processes to support metrics: PQRS, Core Measures, CI, ACO, MACRA/MIPS
Alignment of care givers, technology, care pathways, payor/provider initiatives
Different “Accountable Care” models (government, commercial models) at least for awhile
Changing Physician and Patient Communication paradigms
Building Infrastructure needs (and funding them)
“We’re gonna need a bigger boat…..”

28. Narrow Networks, Tiered Networks and Custom Networks
Removes “high cost” (translation= high rates) providers, lowers premium (also can facilitate exit of high cost members who seek to stay with their providers via other MCOs)
“Traditional” Narrow Network products: Blue Advantage HMO, Blue Choice PPO, UHC Compass
“New” Narrow Network models: Aligns CINs (best care model) with products; examples: Blue Direct (Advocate), UHC Charter (Advocate)
Tiered Networks:
Allow access to higher cost/rate providers (Tier2), but incentivizes members to use lower cost “Tier 1” providers (rates paid are the same, patient out of pocket expense differentials can be dramatic)
Custom Networks:
Employer Specific networks

29. BCBSIL Networks and Benefit Products

30. BCBSIL Networks and Benefit Products cont’d
*Advocate Health Care is an independently contracted provider.

31. BCBSIL Networks and Benefit Products cont’d

32. BCBSIL Networks and Benefit Products cont’d

33. Managed Care Contract Strategy
 Understand your practice Competitive Position in the Market:
This will drive your ability to negotiate agreements and assess your attractiveness to payors and networks
Know how your MCO contract affiliations are held (directly or via an IPA/PHO/CIN)
Effectively manage your MCO Contract Portfolio
Network & Contract Affiliations:
Knowing your options and how to maximize contract rates
Considerations in IPA, PHO, CIN, ACO participation
Align with a CIN whenever possible:
CINs have the best contracts and are evolving quickly
Are often the core of Narrow Networks
Are quickly evolving into Provider Sponsored Health Plans (PSHPs)
Being outside the CIN means being outside the referral streams
Healthsystem CINs are aligning with healthsystem-based ACOs (CMS, Commercial)

34. MCO Contract Portfolio Assessment: Payor Mix Report

35. MCO Contract Portfolio Assessment Fee Schedule & EOB Analysis

36. MCO Portfolio Assessment: CPT Drivers and Proposal Modeling
Description
Sum of Units
Sum of Total Charges
2003 Loc 16 NF
2003 Loc 16 F
Current FS
2003 Loc 16 weighted NF
Current weighted
2015 Medicare Loc16 NF
2015 Medicare Loc16 F
Payor 2nd proposal
2nd proposal weighted
% change
99255
INITIAL CONSULT IC-5 (HOSP)
481
$ ,350 $ $
$ ,654
Not Found $
$ 104,079
-12%
93886 26
TRANSCRANIAL DOPPLER INTRACRANIAL ARTER
502
$ ,300 $ $
$ ,168
$ ,806 $ $
$ 24,929
-24%
99245
OFFICE/OUTPT CONSULT OC-5 (NEW/ESTAB PT)
573
$ ,610 $ $ $
$ ,877 $
$ 139,617
-13%
99238
DISCHARGE DAY CARE D/C
755
$ ,375 $ $
$ ,523
$ ,044 $
$ 78.58
$ 59,328
95819
EEG-SLEEP-PC PROFESSIONAL COMPONENT
795
$ ,250 $ $
$ ,576
$ ,863 $
$ 61.38
$48,797
-18%
99213
RETURN VISIT RV-3 (OFFICE/OUTPATIENT)
893
$ ,107 $ $ $
$ ,151
$ ,349 $ $
$ 77.02
$ 68,779
16%
99205
INITIAL VISIT IV-5 (OFFICE/OUTPATIENT)
1,001
$ ,858 $ $ $
$ ,981
$ ,534 $ $ $
$ 224,184 3%
99223
IHC-3 INITIAL HOSP. CARE
2,088
$ ,660 $ $
$ ,128
$ ,083 $ $
$ 459,548
13%
99215
RETURN VISIT RV-5 (OFFICE/OUTPATIENT)
2,541
$ ,700 $ $ $
$ ,616
$ ,729 $ $
$155.68
$ 395,583
99233
SHC-3 SUBSEQUENT HOSP CARE
4,968
$ ,590 $ $
$ ,886
$ ,107 $ $
$ 558,503
14%
99214
RETURN VISIT RV-4 (OFFICE/OUTPATIENT)
5,407
$ ,315 $ $ $
$ ,947
$ ,009 $ $ $
$ 620,345
11%
99232
SHC-2 SUBSEQUENT HOSP. CARE
8,474
$ ,905 $ $
$ ,814
$ ,621 $ $
$658,854
12%
Totals
42,986
$ 7,728,300
$ 3,230,075
$ 4,678,693
$ 4,851,189 4%

37. Contracting Tips for Today’s VBC Models
Know your contract affiliation options and maximize those affiliations
Understand the rules/requirements of the IPA/PHO/CIN affiliations
Know what products are tied to what rates
In Tiered Networks, know what “tier” you are in and why
Importance of Aligning with your Referral Base
Know your Cost, Quality and Service Metrics through the eyes of the MCOs. Understand the metrics that are most relevant to your practice and the network contract that you participate through– don’t be an outlier, don’t be a slacker
Understand any “attribution” methodologies that affect you or the upstream contract you are affiliated with
Stay on top of any Quality Incentive Reports sent to you that affect your Incentive Payment and/or how your “scores” are publically reported
Know your numbers and do the math! Look at denials, etc., that affect your contract “yield”. Model proposals! MCO math and Provider math often differ because of underlying data sets, timeframes, systems and methodologies (not dishonesty)
Managed Care Contracting is not a siloed function anymore: Engage Leadership, RCM, Clinical Operations, IT, in addition to Finance and Legal

38. Health Care Reform & Managed Care Impact on Medical Practices

39. Impact on Medical Practices: Revenue Cycle Management
With a majority of patients coming in via contracted arrangement, administrative complexity, costs and time has skyrocketed

40. Impact on Medical Practices: Revenue Cycle Management
End Registration to avoid Back End Denials
Front End Collections to avoid Back End Bad Debt
Creation of MCO Contract Grids to summarize products, administrative requirements; push to Registration areas
Data & Quality Reporting to earn VBC/P4P Incentives
Managing MCO Referral requirements
CIN/ACO-type operational considerations (registries/etc)
Documentation
Denial Management
The MCO Contract Grid for a large multi-site MD group in Chicago NW suburbs has 109 products across 23 network affiliations!

41. Impact on Medical Practice: Develop Dashboards & KPIs

42. Impact on Medical Practice: Develop Dashboards & KPIs

43. Impact on Medical Practice: Develop Dashboards & KPIs

44. Impact on Medical Practices: Hospital Employment and Practice Mergers  
Hospital Ownership:
From July July 2015 the percent of hospital-employed physicians increased by almost 50%, with increases in each six-month time period measured over these 3 years (46,000 physicians).
The most rapid growth, and the highest percentage of hospital-employed physicians, is in the Midwest.
Independent Physician Practice Mergers:
In Illinois there has been rapid consolidation and creation of larger medical groups in the past 10 years: DuPage Medical Group, Illinois Bone & Joint Institute, Midwest Center for Women’s Healthcare, UroPartners, Illinois Gastro Group, Illinois Dermatology Institute
Larger independent groups provide a vehicle to remain independent, “scale up” to meet the changing demands of the U.S. healthcare industry, and create new revenue and expense levers to increase physician compensation, and most importantly, leave physicians in control.

45. Impact on Medical Practices: Consolidation
Medical practices need to get larger:
The business of medicine is increasingly complex
Regulations keep increasing
Technology and integrations are expensive
Changes are here (Bundled Payments, ACOs, Reimbursement Models, MACRA/MIPS)
Creates economies of scale and better managed expenses:
Fixed costs are less on a per doctor basis if spread over more doctors
Opportunities for savings include insurance, retirement, group purchasing and others
Enhanced leverage enables increased control
Need to provide new services that are valuable to consumers/purchasers
Attractive alternative to status quo and other arrangements:
Maintains Physician leadership
Avoids hospital employment
Positions physicians well in the future healthcare system

46. Impact on Medical Practices: Consolidation
Newco
Entity
Practice 1
Practice 2
Practice 3
Ancillary
Division
Each existing practice would become a Strategic Business Unit (“SBU”);
Governance is similar in many ways to our Government – Federal vs. State issues
Centralized Services – those that are required by regulation and common business practices. After that, whatever is agreed upon.
In practice, this can be a very decentralized model (much of the control remains with the state government)
Goal of ancillary service – new for all participants and of such size that can fund ongoing Corporate expenses so there’s no ongoing “tax” associated with belonging to the larger practice.

47. Impact on Medical Practices: Consolidation
Merger Process:
Financial Integration: Common Tax ID Number, Fee Schedule, Consolidated Accounting & Legal Services, Financials, Tax Return, Banking
Economies of Scale: One Business Insurance Policy, Malpractice Policy, Group Purchasing, Better Negotiating Position (Managed Care Contracting, Recruitment)
Human Resources: One Payroll Vendor, Health Insurance Policy, Common Retirement Plan, Developed Common Time Off Policies, Employee Manual and Policies and Procedures
Consolidated Billing: Regulatory Requirement, Enhanced Consistency, Enhanced Reporting, Data for Payor Trends, More Affordable Technology;
Branding: Newco, Logo, Letterhead, Development of Website
Strategic Planning & Positioning for the Future: (Externally, Internally)
What Stays the Same:
Clinical autonomy and control
Utilize existing practice name (for now)
Office operations, practice management & office staff
Overhead structure & compensation plans
Locations and hospitals
Flow of funds

48. Where is this all headed? Regional and National Health Systems
Health reform encourages integration and scale:
Vertical integration, including as payers
Partnerships with payers
Employment of physicians (especially primary care) captures revenue streams and ties to healthsystems who in turn take ownership of upstream payor contracts
Four options emerging:
Form a system
Partner in a collaborative network
Merge into a system
Prepare to shrink in isolation
Examples:
In Illinois: Advocate/Northshore; Northwestern/Centegra/Cadence
Elsewhere: Meridian/Hackensack (NY/NJ), Baylor/Temple (Texas), Beaumont/Oakwood/Butsford (Detroit), CHE/Trinity (National)

49. The Emergence of Regional and National Health Systems
Large financial investments are required for transforming operations, including developing scale and various capabilities:
Primary care
Clinical informatics
Risk-bearing vehicles
Population health management
Medical homes
Chronic disease management
Transitions of care tools and processes
Clinically integrated physician networks and other physician group practice approaches support the system concept

50. The Emergence of Regional and National Health Systems
Importance of Effective Operations Management: To deliver high quality clinical care at a competitive cost in a changing reimbursement environment, imperatives include:
Developing sufficient expertise to support new payment models
Clinical documentation
Revenue cycle operations
Advanced analytics
Controlling/reducing costs
Supply chain
Achieving scale to produce operating advantage

51. Future State Core Competencies
Summary & Conclusion:
Future State Core Competencies
Build or Buy Now: Scale, Brand, Physician Leadership, Strategy
Payor Contracting and Relationship Management (including the ability to contract for services provided on a performance basis (quality, cost; process/outcome)
Patient-centric and population-based care management (vertical and horizontal care management)
Ability to track and report outcomes and quality (and hold your own against insurers who have different data)
Direct to consumer marketing and enrollment
Capital requirements (including insurer risk reserve requirements)
Strong yet adaptable infrastructure
Connectivity via technology
Physician Engagement
Patient Engagement 51

52. Summary & Conclusion: Positioning for Success
Know what types of networks/health systems and payor contracts initiatives that are out there that affect your organization. Understand how your organization can participate in these initiatives to support all of the above (across all flavors of “Population Health”-preventive, chronic care, surgical care, gaps in care)
Know your metrics and how your organizations tracks and reports (process, outcome, quality, cost, patient satisfaction) or how someone else tracks/reports your performance (payors, consumer websites)
Know/manage your payor contracts and your referral relationships
What kind of infrastructure do you need to to manage this environment? (i.e., Patient Registries, MAs, additional admin staff)
Project the additional potential revenues and expenses your organization has or will incur as a result of marketplace activities, opportunities and threats
Assess how your organization works with referring physicians and affiliated hospitals to improve quality and lower cost (i.e., Clinical Integration Programs, ACOs, ACEs, “Medical Home” models); your performance can affect their performance and reimbursement/incentives
Think about how payors and health insurance options are changing how you engage your patient population in population health management (i.e., outreach/gaps in care, preventive, follow-up)

53. Summary & Conclusion: Have A Strategy
Strategy: What is the market going to demand of you and how are you going to get there? Understand the world we are entering as partly ACA and partly the Wild West. We understand some of each, and some of it makes no sense. Plan accordingly.
Networks: Participate in payor and provider networks aligned with your referral base. Know that sometimes what is important to you is not important to your referral base, and vice versa (i.e., Medicaid, Exchange patients).
Infrastructure: Invest in the infrastructure to be able to manage a rapidly growing and diverse Payor Contract Portfolio and Patient Base, driven by VBP and Consumerism.
Volumes: Assume an influx of new patients to the system; but utilization of services will likely drop. Assume less payment per service, with a greater portion of revenue will come from patients (not payors).
Communication: Go above and beyond to communicate to referring physicians and your entire patient base. This drives the Patient Satisfaction scores the most.
Go Big: Assess opportunities to create a bigger organization to leverage expense base, technology, revenue levers and market share. 53

54. Things to Ponder Until Next Time….
What’s next with ACA? Repeal or Restructure
Who wants to insure sick people? Neither insurers nor providers
Who wants hospitals and physician practices with bad payor mix? Neither health systems nor payors
Will narrow networks be successful? In geographically isolated areas
Will PSHPs take off? Only if insurers bite (and there’s a sucker born every minute)
Can providers take insurance risk? Do I as a patient/consumer want my doctor at financial risk for my health care? No and No
How will commercial MCOs move to the MACRA/MIPS-type VBC model that CMS is encouraging them to do? Stay tuned

55. Questions & Open Discussion
Thank you ILMGMA for
hosting a great program today!
Jim Watson
Partner, PBC Advisors, LLC
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