MAKING THE TRANSITION TO POPULATION HEALTH MANAGEMENT

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1 MAKING THE TRANSITION TO POPULATION HEALTH MANAGEMENT H O W T O E F F E C T I V E L Y N E G O T I A T E V A L U E - B A S E D C O N T R A C T S I N T H E N E W R E T A I L M A R K E T P I O N E E R I N G S T R AT E G I E S W I T H P R A C T I C A L A P P R O A C H E S F O R C O N S T R U C T I V E C H A N G E

2 OBJECTIVES LEARNING TO SWIM UPSTREAM Goals of Effective Value-Based Contracting Pros and Cons of Key Arrangements What s Required to Make the Transition Successful Implementation Factors How to Define Risk for Your Organization Incorporating the Right Safeguards to Mitigate Contract Risk 2

3 ABOUT MICRO MATIC GOALS OF EFFECTIVE VALUE-BASED CONTRACTING

4 GOALS OF EFFECTIVE VALUE-BASED CONTRACTING NEW FOCUS ON LONGITUDINAL PERFORMANCE OF THE CARE PLAN Patient Health Pop Health Lower Costs The Triple Aim Reduce costs, Increase access & Improve continuum 4

5 GOALS OF EFFECTIVE VALUE-BASED CONTRACTING (CONT D) NEW FOCUS ON FINANCIAL TERMS OF THE PROVIDER CONTRACT Exclusivity Product Quality Metrics Integrated Delivery System Partial Risk Hospital P4P Base Contract Value Based Approach Addendum Hospital Gain Share Physician Group P4P Physician Gain Share 5

6 GOALS OF EFFECTIVE VALUE-BASED CONTRACTING (CONT D) THE SWEET SPOT BALANCING INCREASED UTILIZATION AND DECREASED COST Reduce Cost through Population Management Increase Utilization through Provider- Payer Alignment 6

7 Value-Based Contracting GOALS OF EFFECTIVE VALUE-BASED CONTRACTING (CONT D) THE SWEET SPOT BALANCING VALUE CREATION AND FINANCIAL RISK Costs Exceed Payments Value Creation Realized by Payer Only Population Health Management 7

8 Payments Based on The range of potential risk-sharing arrangements is large, but only a few are utilized extensively. Population (Coverage) Primary Care Capitation Specialty Capitation Hospital Capitation Total Prof Capitation Prof Cap + Hosp Risk Pools Shared Savings Programs Sub-Pop Capitation (e.g., kids) Global Capitation Disease / Condition PCMH Payments Chronic Care Prof Capitation Chronic Care Total Capitation (e.g., ESRD) Hospice / Palliative Care Capitation Performance ( P4P ) MD Quality Bonuses Hospital Quality Bonuses MD Performance Bonuses Hospital + MD Performance Bonuses Episodes of Care Acute Care DRGs O/P APCs DRGs + Post-Discharge Services Specialty Contact Capitation Hosp-MD Packaged Prices (Acute Care) Hosp-MD Bundled Payments Narrow Broad Breadth of Bundled Services

9 Without thoughtful design and careful planning, risk contracts will have negative effects on health system revenues. Market Forces - Impact to on Cedars Hospital High Priority - Actively Manage High Priority - Watch & Manage Highly Probable Elements Impact to Reimbursement High 1-3 Years 3+ Years Negative Impact on to Cedars Hospital Minimal Impact to on Cedars Hospital Positive Impact on to Cedars Hospital Low Impact on to Hospital Cedars Commercial Volume Reimbursement (Unit Cost) Public Exchange Private Exchange/Defined Benefit Provider Sponsored Health Plans High Deductible Health Plans > $5K Benefit Redirection/Network Steerage Shared Risk/Cap/Medical Group ACO (Not MSSP) Narrow Networks Reference Pricing Transparency - Government Regulation Transparency - Pricing Tool Adoption Network Affiliations Direct Employer Contracts N/A Source: BDC Advisors Client analysis (redacted)

10 ABOUT MICRO MATIC PROS AND CONS OF KEY ARRANGEMENTS

11 PROS AND CONS OF KEY ARRANGEMENTS As providers and payers come together to embrace value-based contacting and improve quality, there is a continuum of shared risk to be considered. Value-Based Contracts with Payer Partner with Payer Vertically Integrate Fee-for- Service (FFS) Contract Pay for Performance (P4P) Contract Shared Savings Contract Capitation / Global Budget Contract Private-Label Ownership / Product Joint Venture Value Creation Realized by Payer Only Goals of Effective Value-Based Contracting Lower Risk / Reward Tradeoffs Higher Increased Capture of the Premium Dollar 11

12 PROS AND CONS OF KEY ARRANGEMENTS (CONT D) THE PAY FOR PERFORMANCE (P4P) CONTRACT P4P contracts offer retrospective provider incentives centered around quality and cost of care initiatives. Measures of performance can include HEDIS scores, risk coding, readmissions, etc. Pros Good starting point for provider-payer engagement Provides financial resources for investment in care model / infrastructure Low member threshold Can be implemented quickly Risk is usually upside only Cons Establishing right measures Payer data / reporting capabilities May have low overall impact on healthcare costs Used in conjunction with other payment models, including FFS, bundled, or capitated. Somewhat effective, but limited; requires large patient panel and large enough incentive for significant provider engagement. 12

13 PROS AND CONS OF KEY ARRANGEMENTS (CONT D) THE SHARED SAVINGS CONTRACT Shared Savings contracts can incorporate any chosen metrics that are evaluated to reduce the cost of a particular service, with savings shared by both payer and provider. Pros Aligns incentives for providers to reduce cost of care Catastrophic protection for providers Provider control of member experience Attractive to payers Cons Payers get half the benefit for none of the outlays Payer data / reporting capabilities High membership threshold Timing of reconciliation Diminishing returns over time Used in conjunction with other payment models, including FFS, bundled, or capitated. Effectively engages providers. 13

14 PROS AND CONS OF KEY ARRANGEMENTS (CONT D) THE CAPITATION / GLOBAL BUDGET CONTRACT Capitation contracts are prospective in nature and set a flat Per Member Per Month (PMPM) for a given set of services. A partial capitation contract sets a flat PMPM for certain services by certain providers. A full capitation contract sets a flat PMPM for total cost of care/all healthcare delivery services by all providers. Pros Upside risk for providers Improves cost predictability Improves provider-payer engagement Provider control of member experience Cons Downside risk for providers Payer data / reporting capabilities High membership threshold Timing of reconciliation Effectively engages providers. Full capitation usually used with large provider systems. 14

15 PROS AND CONS OF KEY ARRANGEMENTS (CONT D) PRIVATE-LABEL PRODUCT Private-label products require a competitive combination of price, benefits, and network configuration to attract customers to the provider system. Pros Reduces risk of market uncertainty Eliminates need for capital investment in infrastructure Provides recognized brand Cons Downside risk to providers Payer data / reporting capabilities High membership threshold Timing of reconciliation 15

16 Lives / Complexity PROS AND CONS OF KEY ARRANGEMENTS (CONT D) PRIVATE-LABEL PRODUCT Private-label products require a competitive combination of price, benefits, and network configuration to attract customers to the provider system. Small Group Individual Exchange Medicare / Medicaid Product Direct to Employer / Administrative Services Only Employee Health Plan Considerations Payer likely to require unit cost concessions and be protective of current margins Payer likely to require unit cost concessions; reduces risk of market uncertainty while providing brand recognition Reduces risk, but erodes earnings potential / Allows early market entry while building expertise Reduces potential savings driven by providers / Provides strong national discounts needed to compete Reduces potential savings driven by providers Risk 16

17 WHAT S REQUIRED TO MAKE THE TRANSITION? LEARN TO SWIM UPSTREAM WITH THE RIGHT SKILLS SUPERIOR CARE MANAGEMENT Prevention / wellness Utilization Case Chronic disease Segmented analytics RIGOROUS PHYSICIAN ALIGNMENT Network design Governance Best-practices Operational excellence System support PROFICIENT FINANCIAL MANAGEMENT Segmented analytics Predictive modeling Contracting CMS compliance Capital / reserves ENHANCED CONSUMER EPERIENCE Customized communication Tools and transparency Self-management Excellent service 17

18 SUCCESSFUL IMPLEMENTATION FACTORS LEARN TO SWIM UPSTREAM WITH THE RIGHT CULTURE Leaders must be willing to rapidly embrace the change Clinical integration of physicians must be solid to support collective contract negotiations Metrics must be identified, supported, and managed with robust data analytics Provider-payer dialog focused on engagement to drive quality are most productive Being a first mover or fast follower depends on market position and financial strength Access to capital helps! 18

19 HOW TO DEFINE RISK OF YOUR ORGANIZATION LEARN TO SWIM UPSTREAM AND LIMIT SURPRISES op alth Understand the provider-payer value creation and control conflict PROVIDER Pricing Asset employment Patient mix Procedure selection VALUE CREATION & CONTROL PAYER Reimbursement rates Utilization rates Product design Understand the need for a differentiated value proposition and innovation Understand the cost of people, processes and systems 19

20 SUCCESSFUL IMPLEMENTATION FACTORS LEARN TO SWIM UPSTREAM AND STAY ABOVE WATER Focus on the right products Incorporate anti-steerage language in the contract to protect against volume shifts Avoid the relationship strain of trying to match discounts on existing contracts Have a clear data and analytics plan Don t underestimate the time required to move the needle on utilization Always have an out! 20

21 PIONEERING STRATEGIES WITH PRACTICAL APPROACHES FOR CONSTRUCTIVE CHANGE. Bill Eggbeer Managing Director Jackie Macias Senior Advisor Diesel Boston Chicago Exhaust Houston Los Fluid Angeles Miami Dispensing San Francisco Washington, Systems DC I0112

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