PAYER SPOTLIGHT: ACO’S AND · 1 / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED CHRISTOPHER J. KALKHOF, MHA, FACHE MANAGING DIRECTOR HFMA FL Regional Education Event - Space

/ ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1

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

/ ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2

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


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


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


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


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


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


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


… 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


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...



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



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


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

/ ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED14

CHRISTOPHER KALKHOF, MHA, FACHE

Managing Director716.912.0309

[email protected]

navigant.com

NAVIGANT PRESENTER CONTACT INFORMATION

www.navigant.com/capabilities/industries/healthcare

NAVIGANT HEALTHCARE WEBSITE

Documents

PAYER SPOTLIGHT: ACO’S AND · 1 / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED CHRISTOPHER J. KALKHOF, MHA, FACHE MANAGING DIRECTOR HFMA FL Regional Education Event - Space