1. Re-Evaluating Your Managed Care Revenue Improvement Opportunities L E A D E R S H I P P R O B L E M SO L V I N G V A L U E C R E A T I O N Connecticut HFMA Chapter Christopher J. Kalkhof, FACHE Director, Healthcare Industry Group Alvarez & Marsal January 26, 2009Copyright 2009. Alvarez & Marsal. All Rights Reserved.

2. Presentation Agenda Topic Area I. MCO Contracting Trends and Hospital Financial Performancein Connecticut II. Revenue Optimization and Relevant Solutions III. Preparing for MCO Negotiations Internal Assessment External Assessment Developing MCO Contracting Strategy Developing MCO Strategic Pricing IV. MCO Contract NegotiationsV. Integration of MCO Agreements into Revenue Management OperationsVI. Wrap-Up: Lessons LearnedCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (1) 3. Presentation Agenda I. MCO Contracting Trends and Hospital FinancialPerformance in Connecticut II. Revenue Optimization and Relevant Solutions III. Preparing for MCO Negotiations Internal Assessment External Assessment Developing MCO Contracting Strategy Developing MCO Strategic Pricing IV. MCO Contract NegotiationsV. Integration of MCO Agreements into Revenue Management OperationsVI. Wrap-Up: Lessons LearnedCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (2) 4. Trends: Managed Care Issues Facing the Provider IndustryI. Strategic Revenue Improvement Opportunities: Game ChangersManaged Care is the Dominant Payment and UtilizationManagement Business Model Managed Care Organizations (MCOs ) continue product expansion. MCO merger/acquisition industry consolidation continues. 20+ states are exploring universal MCO coverage initiatives. Federal/state efforts to reform healthcare continue In time these industry changes can lead to over 80% of provider patient care revenues coming from negotiated MCO contracts. The MCO business model changes service mix and patient volume and represents multi-year contracts. To account for this market shift, all providers will need to reflect these changes in their strategic financial planning process, service pricing and contract negotiations with MCOs. 1(1) The current state of the economy has resulted in significant financial and market share losses with the trend expected tocontinue into 2009. This added financial pressure will impact provider budgets, resulting in more difficult contract negotiations.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (3) 5. Trends: Managed Care Issues Facing the Provider IndustryI. Strategic Revenue Improvement Opportunities: Game Changers Quality-Efficiency Ratings, Pay-For-Performance and Tiered Provider Networks MCOs are profiling providers in their current networks. Providers determined to be more cost-effective/higher quality will bedesignated as quality network providers. MCO Tiered Network products use a core participating providernetwork of designated quality network providers. Customers will have the choice of buying benefit products which usethe full network or the quality rated network. Quality rated network products will be priced at a significant discount. Providers not in the quality network products are at risk of losingsignificant patient volume. Both full network/product options will incorporate P-4-P criterion. Price sensitive buyers will buy which network?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (4) 6. Trends: Managed Care Issues Facing the Provider IndustryI. Strategic Revenue Improvement Opportunities: Game ChangersProvider Integrated Networks - Clinical IntegrationBusiness Model 2007 FTC ruling on Advocate Health can allow physicians and hospitalsto collaborate and align economic interests with community benefitswhen structured appropriately. This ruling has lead to a rebirth of the IDS model under a clinicalintegration structure offering provider networks the opportunity toestablish a more level playing field with large MCOs. CINs will be well positioned for MCO tiered network products. The most effective provider business models in the market will be thoseprovider networks which can attract and retain patient lives,operate under P-4-P reimbursement methodologies and whichprovide cost-effective quality care with demonstrable qualityimprovement outcomes.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (5) 7. Trends: HospitalREPORT OF THE COMMISSION ON THE FUTURE OF HOSPITAL CARE IN CONNECTICUT (January 7, 2003) Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues? Wall Street is more optimistic about the future for hospitals nationally The Centers for Medicare and Medicaid Services financial forecast for hospitals predicts that non-profit hospitals will recover from recent revenue challenges. Bond investors predict revenue stability for non-profit hospitals Stability in government payment rates, especially Medicare, is key Hospitals are finding themselves in better negotiating positions as managed care loosens some tight restrictions Traditionally government payers have paid below costs and private payers have made up the difference. In 2000 in Connecticut Medicare paid for 43.7% of hospital care 96% of costs. Medicaid paid for 12.1% of hospital care 76% of the costs. Private payers managed care arrangements, constituted 36.7% of hospital payments... the payment to cost ratio for private payers was 111% for 2001, down from 120% in 1998. hospitals with high Medicaid caseloads had lower margins more likely to be in distressCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(6) 8. Trends: Hospital Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (7) 9. Trends: Hospital Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (8) 10. Trends: Hospital Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (9) 11. Trends: Hospital Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (10) 12. Trends: Hospital Performance in CT?I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues? Economic outlook improving or decreasing for 2009 and 2010? Irrespective of your provider classification e.g., hospital, physician, nursing home, etc., will you be able to meet your margin needs from: Medicaid? Medicare? Other government programs? Uninsured? Managed care plans? What does managed care truly represent for CT providers? Their only significant opportunity to improve their net patient revenues and offset underpayments/bad debt from government payers and the uninsured.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (11) 13. Trends: Provider Performance In CT-Net Revenue OptimizationI. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues? Increased reimbursement from State Medicaid? Increased reimbursement from Medicare? Better collections from the uninsured? Revenue cycle transformation? Overall organizational performance improvement? Get paid what is perceived as better than market from MCOs?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (12) 14. Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performancein Connecticut II. Revenue Optimization and Relevant Solutions III. Preparing for MCO Negotiations Internal Assessment External Assessment Developing MCO Contracting Strategy Developing MCO Strategic Pricing IV. MCO Contract NegotiationsV. Integration of MCO Agreements into Revenue Management OperationsVI. Wrap-Up: Lessons LearnedCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (13) 15. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Portfolio Contracting Approach Hospital Payer Mix Portfolio Profit & Loss Analysis: Patient Net Operating Revenue By Major Payer Class% Increase Hospital Gains-Losses byTotal # I/PPayer Class Gains &% Full % Billed Total Needed = 5% Payer Class - Financial Payer Class ($500 Millionand O/P Losses (Fully Loaded CostsCharges# DaysOperatingPerformance Comments in Annual Net Revenues) CasesD&I Costs) PaidPaid Margin Medicare (1)85,00098,000 $ (7,000,000)97.1% 40.9% 8.18% I/P Gains & O/P Losses Medicaid (1)46,00032,000 (14,140,000) 54.4% 25.4% 93.18%I/P and E/D main loss areas Self Pay35,0003,100(8,750,000)54.9% 26.5% 91.41%E/D & Other O/P main loss areas Workers Comp 2,7001,5603,888,000157.0%75.6% 0.00% I/P & Other O/P most profitable Other Government760900(609,000) 73.5% 32.7% 42.81%I/P & Other O/P main loss areas Self-Insurance-Hospital3,5001,450 700,000 115.5%50.1% 0.00% I/P main gain, minor BH loss Unspecified Commercial Plan Class Comm.-No Contract 16,2002,1003,200,000141.1%75.2% 0.00% (i.e., non-contracted insurers) Main losses on E/D, SDS, Selective MCO - HMO/PPO 86,90060,300 7,500,000108.6%47.7% 0.00% High End DRGs MCO - Medicaid33,00011,000 (10,600,000) 65.5% 33.2% 76.35%I/P, E/D & SDS main loss areas I/P, E/D & Other O/P main loss areas, MCO - Medicare 1,0502,050 (600,000) 93.9% 38.8% 33.00%w/one profitable agreement MCO Behav. Health2,2904,450(3,250,000)66.3% 44.3%153.37%I/P & Other O/P main loss areasTOTALS 312,400 216,910$ (29,661,000) 94.9% 44.1% 15.14% N/ARequired Net Revenue Increase to Attain a 5% Overall Net Operating Margin Goal = $75.7 Million Source: Teaching Hospital Contract Manager Application data. Actual data is rounded for illustration purposes. (1) Does not include annual disproportionate share and bad debt charity back-end settlements and non-negotiable payment rates. MCO rate increases alone will not close the above margin gap. A comprehensive MCO contracting and pricing strategy, linked with other financial and operationalperformance improvement initiatives, can provide a margin gap solution. When establishing target MCO pricing, hospitals need to consider their overall payer mix and the profit/loss in each payer category. Additionally, probable governmentpayment trends should be factored into MCO target pricing. If a hospital intends to justify to a MCO that it needs reimbursement in excess of fully loaded costs, then it isimportant that they be able to explain actual hospital economics to the MCO as part of the negotiating process. Once the above payer modeling capabilities are developed, a drill down analysis should performed on each MCO/MCO product to determine necessary rate increases.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (14) 16. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: What Market Really Means MCO Reimbursement, Payment Rules and Contract Terms Result In ???IllustrativeVariable MCO Negotiation Outcomes: Low & High Ranges (1)ProviderCommercialNetwork RentalMedicareClassesManaged Medicaid HMO/POS/PPOPPOs Advantage Physicians65% - 150% (2)90% - 200% (2)70% - 110% (2)35% - 100% (2)(PCPs & (% of 07 Medicare)(% of 07 Medicare) (% of 07 Medicare) (% of 07 Medicare) Specialists) Amb Surg75% - 150% (3)100% - 250% (3) 70% - 110% (3)35% - 100% ( 3) (Hospital based (% of 07 Medicare)(% of 07 Medicare) (% of 07 Medicare) (% of 07 Medicare) & Freestanding) Hospitals (Acute, Rehab 18% - 65% (2, 4)40% - 85% (2, 4)72% - 110% (2)70% - 120% (2) and Behavioral(% of Charges) (% of Charges) (% of Medicare F-F-S) (% of Medicaid F-F-S)Health)Source: A&M analysis and MCO reimbursement negotiations outcome experience. Low ranges are generally for providers whoaccept MCO market rates with little question or negotiation on price.1) Unless otherwise noted, reimbursement ranges are benchmarked against 2007 Medicare RVRBS reimbursement. Illustrated reimbursement ranges are representative of urban market settings around the country.2) Provider business model, capacity/demand/size/brand as well as network participation are upper payment level factors.3) Significant price variability in a single market between hospital based and freestanding ASCs business model, capacity/demand/size/brand as well as network participation all factor into the pricing strategy and negotiations outcomes.4) Weighted average representative illustration on % of charges vs. each inpatient and/or outpatient billed/contracted service area and does not account for CDM price indexing (charges) variances by provider and market.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (15) 17. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Managed Care Revenue Optimization Can you improve your net managed care revenues at your organization? By how much and how quickly? The rest of todays discussion will focus on the wheres and hows of improving net managed care revenues!Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (16) 18. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Actions Within Provider Span of Control Process, Revenue People & Are you DriversTechnologyoptimizingReimbursement & Strategy &your managedMethodology Preparation care revenue Payment RulesContracts &Negotiationsopportunities?Physician ReferralsE-2-E Revenueand Payer MixCycle (Applies to all Clinical Quality,Cost Reduction & providers) Outcomes & P-4-P Resource Use Other Revenue Management Factors Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(17) 19. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue OptimizationReimbursement, Payment Rules and Contract Terms Contracting strategy, pre-negotiation due diligence and negotiations outcome. Strategic pricing relative to service delivery costs and margin requirements. Payment rules, reimbursement methodology, risk/P-4-P and contract terms. MCO contract administrative costs and relative standardization. P/L analysis and modeling capability by MCO and MCO product. Business/network model relative ability to capture and retain patient lives. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (18) 20. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue OptimizationPhysician Referral Management & MCO Service Mix Mgmt. Physician high margin/low margin referral mix and MCOservice mix/patient volume. Service line offering and patient loyalty to provider. Market share growth and competitive positioning strategies. Delegated credentialing. Direct contracting. Business/network model. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (19) 21. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue Optimization E-2-E Revenue Cycle Process Optimization & Management Process efficiency/effectiveness in registration-care delivery/casemanagement/charge capture-billing-collections processes (i.e., MCOcontract integration into operations). Effective denial management and payment compliance programs. A/R management and cash collection processes (i.e., cash flow &payment compliance). Skills, knowledge and abilities of billing/collections/case management/nursing/HIM staff. Charge profiles and CDM indexing relative to local market. Revenue optimization technology tool deployment and operationsintegration underlying processes must be effective/efficient. Relationship management process with key MCOs (i.e., improves netcash collections, reduces denials and error rates). Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (20) 22. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue Optimization Clinical Quality Improvement Integration with Financial Performance and Cost Reduction Initiatives Financial and clinical dashboard reports and ability to track key organizational, MCO and individual physician performance indicators. Improve management of care delivery processes and resource consumption at service line level. Improved quality and outcomes with established evidence based medicine (EBM) clinical care protocols. What do MCOs want to buy from you? Effective, efficient, accessible, patient-centric, patient safe, high quality, value-driven services! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (21) 23. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity AreasClinical QualityEnd-To-End RevenueReimbursement, Physician Referral Improvement Integration Cycle Process Payment Rules and Management and MCOwith FinancialOptimization andContract TermsService Mix Management Performance and Cost ManagementReduction Initiatives StrategicA&M E.G.,Opportunity Expected RationaleMetricsAreasEBIDA Contracting strategies and negotiations usingRate traditional market driven approaches yield theIncreases & 5% -Pre-Post Net lowest rates and redefining cost + approachesReimb. 50% +Rate Change yield the highest rates. Ineffective revenue (1, 2, 3))Method.management processes, however, will result in lower than expected rate benefit realization. BusinessBusiness models which can attract and retainModel /5% - Pre-Post Net patient lives have more market leverage with Network 40%+ Rate Change MCOs and are classified by MCOs into a(1, 2, 3) Configuration different reimbursement category.Source: A&M analysis and experience | (1) Rate change upper limits are impacted by MCO product type (e.g., CommercialHMO vs. Medicaid HMO), provider class and provider business model. | (2) Improvement opportunity variability tied tostarting performance rates. | (3) Improvement opportunity is work stream specific. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (22) 24. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity AreasStrategicA&M E.G., Opportunity ExpectedRationaleMetrics AreasEBIDACase & Integrating MCO contract performance Physician Procedure benchmarks with a physician marketing Referral &5% -Volume strategy, can favorably change referral MCO Mix10% (3) (per service volumes as well as service mix by MCOManagement product. area)MCO underpayments are largely driven byinterpretive and implementation related Underpay errors relative to the executed compensation, Recovery UM/CM, payment methodologies/rules Underpay4% - contracts. To ensure minimalDollars & % underpayments, revenue cycle processes Recoveries 14% (2, 3) Underpay need to align with contractual requirements Rate and payment compliance tools arenecessary to track payment compliance andpursue recoveries.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (23) 25. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas StrategicA&ME.G.,Opportunity Expected Rationale MetricsAreasEBIDADenial, Pre -Post The many payment rules and administrative Downgrade &Billing Denial requirements associated with a MCO contract 5% - Slow Pay Rates, Write- requires a realignment of revenue cycle Process 30%+ (2,3) Offs and Net operational processes and the use of Improve. Days A/R technology tools to minimize denials. Front-Middle- 2% - 6% Managed care revenues can be reduced at Multiple Back(across End-To-End any point in the revenue cycle management Revenue all payer Performance process as it crosses Finance, Patient Care, Cycle classes)Charge Capture and Case Management(2, 3) Metrics areas. Improve.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(24) 26. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas StrategicA&ME.G.,Opportunity Expected Rationale MetricsAreasEBIDAMCO variability from a uniform contractContracting Billing Error language and multiple administrative5% -Standardi-Rates & FTE requirements, drives up the costs of MCOzation 30% (3)Costs contract administration by as much as 50%over F-F-S billing/collection costs.LOS Mgmt.,Operational, Improved quality results in less resource use and lower cost, better patient outcomes and EBM and5% - Clinical & (2, 3)bed management and also provides aQuality30% Financial competitive strategic advantage w/MCO ImprovementMetricscontracts.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(25) 27. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements Managed care provider revenue optimization from a provider industryconventional wisdom perspective often focuses on Strategic pricing/price transparency, perceived market reimbursement,A/R acceleration, charge capture, denials management and paymentcompliance considerations important considerations, but incomplete. There is also a corresponding industry entrenched CW belief that Efforts should largely focus on what key competitors are paid MCOs willnot significantly modify their reimbursement methodology, payment rules orcontract terms Per year rate increases are limited to a single digitsProviders cannot effectively influence their payer mix There is littleoperational impact outside of the revenue cycle/billing process There islittle long-term strategic impact on programs and services. The CW approach still applies however, it needs to expand itsscope and evolve into a strategic financial planning approach toMCO revenue optimization. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (26) 28. Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements Consider if the majority of your patient revenues came from yourMCO payment agreements how would this impact your Short-term and long-term strategic planning? Think Capital planning?Strategic Hospital-physician alignment strategies? Opportunity! Collaboration or lack thereof with select MCOs? Business and service development and/or divestiture? Employee and medical staff recruitment and retention strategies,procedures and policies? Information technology needs, planning and implementation? Formation of provider networks e.g., Physician-HospitalOrganizations, acquisitions of physician practices or hospitalmergers/acquisitions? All of the above factors should be incorporatedinto your managed care contracting strategy. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (27) 29. Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performancein Connecticut II. Revenue Optimization and Relevant Solutions III. Preparing for MCO Negotiations Internal Assessment External Assessment Developing MCO Contracting Strategy Developing MCO Strategic Pricing IV. MCO Contract NegotiationsV. Integration of MCO Agreements into Revenue Management OperationsVI. Wrap-Up: Lessons LearnedCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (28) 30. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: A&Ms Three Phase MCO Contracting ApproachThe MCO contracting process should be integrated with the organizationsstrategic financial planning process to allow management to better determinetheir short-term/long-term financial targets, link financial targets tooperational strategies and also align operational plans to financial targets.Develop Managed CareNegotiate ContractsImplement ContractsContracting Strategy & Initiate Contracting Strategy/Proposal Prepare Work Plan to Ensure Accuracy Financial Planning Analyses Process with each MCO (new or priorof Contract Load, P-4-P and Care Internal Assessment MCO Contract to contract renewal) Management Program ImplementationPerformance, Modeling, Current Collect Data on E-2-E Cash Issues Integrate Contract into Revenue Cycle,Margin Gap, MCO EBIDA/EBITDA and Include in Negotiations ProcessHIM, Case Management & Other OpsOpportunity Assessment & Validation(i.e., for a concurrent resolution) MCO Relationship Management External Market Assessment MCO Counter Proposal Process and Rate Revenue Recovery and DenialSWOT Analysis, Market Review,Sensitivity Modeling AnalysesManagement (ongoing process)Product Share, Physician Referrals, Review and Finalize Contract/RateReimbursement Options Integrate with MCO Portfolio and AmendmentPhysician Referral Management & Develop Overall and MCO Specific If no Acceptable Contract Prepare Network Development StrategiesContracting/Pricing Strategies,Termination Disruption Analysis,Tactics, Goals and Objectives Monitor MCO Contract Performance Patient Retention/External Standardize Contracting Process, Communications Strategy and Train StaffPricing/Proposal Templates & Terminate Contract Implement Outsourced Services (ifNegotiations Management Teamapplicable)Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (29) 31. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Four Phase MCO Contracting/Revenue Management Process4. Grow: Integrate MCO Revenue1. Find: Diagnostic EBITDA/EBIDA Strategies with Overall Assessments, Identify and Organization Business Goals,Validate the Revenue Improvement Objectives and Strategies, FindThe Opportunities, Develop Contract Physician Referral/Payer Mix Cash Portfolio Management and Management and Clinical Negotiating Strategies Resource ImprovementGrow IncreaseGet The The Cash CashCash3. Manage: Integrate MCO 2. Get: Strategy and Tactics Manage Contracts into Revenue The Development/ Implementation, Management and ClinicalCashExecution of Strategic Pricing, Operations as well asContract Negotiations and Market Marketing Plans Over a Multi-Positioning Initiatives Year Period and Collect CashCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(30) 32. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence - Internal Assessment Managed CareReview multi-year strategic goals and objectivesContractingInterview key managed care stakeholdersStrategy & AnalysisAssess physician and patient satisfaction with MCO(s) Inventory managed care contracts and rank by TierInternal AssessmentCompare Hospital contracts for content and balance Model, Analyze and Rank Contracts: By MCO Category and SizeExternal Assessment By Product Segment By Profitability and revenue leakage in RevenueCycleDevelop MCOAssess value of different contracting reimbursement Contracting Strategy approaches (e.g. per diems, DRGs, case rates, % ofcharges and other) Standardize Conduct Hospital/MCO mix/payment analysis Contracting Assess internal data accessibility and IT decisionProcesses & Mgmt.support capabilities Assess Managed Care Dept./Div. capabilities and needs Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (31) 33. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L By MCO/MCO Product Teaching Hospital - MCO Annual Profit and Loss Performance Performance (Declining Performance) Gains/ Losses ByTotal # of I/P Expected Total% Total MCO - Annual NetTotal Allocatedand O/PTotal # Days Total Charges Net Paid Charges Total Gain/Loss % Net Income Revenues of $500Expenses Cases Revenues Paid Million - All Payors Commercial Managed Care (HMO, POS and PPO) MCO 1 40,000 29,000$ 195,000,000$94,000,000 $ 88,000,00048.2% $6,000,000 6.38% MCO 2 13,400 8,30063,000,00033,000,00030,000,00052.4%3,000,000 9.09% MCO 3 9,1006,50046,000,00023,000,00024,000,00050.0% (1,000,000) -4.35% MCO 4 9,2005,80040,000,00021,000,00020,000,00052.5%1,000,000 4.76% MCO 5 8,0005,60039,000,00018,000,00018,000,00046.2%- 0.00% MCO 6 5,0003,60028,000,00014,000,00017,000,00050.0% (3,000,000)-21.43% MCO 7 - All Other 2,2001,50011,000,0007,000,0005,500,00063.6%1,500,00021.43% TOTALS 86,900 60,300 $ 422,000,000$210,000,000$202,500,00049.8% $7,500,0003.57% Managed Medicaid and CHIP MCO 1 24,300 7,100 $ 33,000,000 $11,000,000 $ 16,500,00033.3% $ (5,500,000)-50.00% MCO 8 3,9001,6007,000,000 2,200,0004,000,00031.4% (1,800,000)-81.82% MCO 3 2,3001,3007,000,000 1,500,0003,200,00021.4% (1,700,000)-113.33% MCO 9 - All Other 2,5001,0003,700,000 900,0002,500,00024.3% (1,600,000)-177.78% TOTALS 33,000 11,000 $ 50,700,000 $15,600,000 $26,200,000 30.8% $ (10,600,000) -67.95%Medicare Advantage(Note: MCO agreements do not typically use the same DSH and Bad Debt methodology used by Medicare) MCO 10350 550$2,200,000 $ 1,000,000 $900,00045.5% $ 100,000 10.00% MCO 115001,0007,000,000 2,600,0003,000,00037.1%(400,000) -15.38% MCO 12 - All 200 500 3,000,000 900,0001,200,00030.0%(300,000) -33.33% Other TOTALS 1,0502,050$ 12,200,000 $4,500,000$ 5,100,000 36.9% $(600,000) -13.33% Managed Care Behavioral Health MCO 131,3002,400 $6,000,000 $ 2,500,000 $4,500,00041.7% $ (2,000,000)-80.00% MCO 14300 650 2,000,000 700,0001,200,00035.0%(500,000) -71.43% MCO 15290 500 1,500,000 550,000900,00036.7%(350,000) -63.64% MCO 16150 350800,000300,000450,00037.5%(150,000) -50.00% MCO 17130 300700,000350,000400,00050.0% (50,000) -14.29% MCO 18 - All 120 250600,000200,000400,00033.3%(200,000) -100.00% Other TOTALS 2,2904,450$ 11,600,000 $4,600,000$ 7,850,000 39.7% $ (3,250,000)-70.65%COMBINED TOTALS 123,24077,800 $ 496,500,000$234,700,000$241,650,00047.3% $ (6,950,000) -2.96%Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (32) 34. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L PerformanceWtd. Wtd. Ave.Wtd. %Wtd. %Wtd. PaidWtd. % Wtd. %Total Billed Actual AverageI/P CaseRateChargesPayor CasesCharges Paid NPSRGain/Loss Cost/ NPSR/ L.O.S. Denial/Slw Increase Charges Chargesfor 5% Case Paid for B. E. CasePay Rateto B.EvenMarginMedicaid HMO 17,396$28,541,897 $5,522,580 ($4,989,364) $1,421 $7472.65 32.4%90.3%19.3%36.8% 38.7%Top 5 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 371-Norm. C-Section; 91-Simple Pneumonia/Pleurisy Age 0-17 & 98-Bronchitis & Asthma Age 0-17 (46.0%Denial Rate on Top 5 DRGs. Note: Paid newborn data may be erroneous)Contract Overview: Managed Medicaid and CHIP HMO Products w/ 41.4% of Services for Inpatient. Current MHP rate proposal increase of 2.5% on most services, no change on diagnosticradiology; evergreen contract; 90 days written notice for contract termination; rates have only increased by 3.5% since March 2001 ; contract one-sided most hospital rights/due processreferenced to provider manual. Comm HMO 2 1,047$4,761,228$1,093,809 ($571,019) $1,590$1,045 3.75 6.1% 52.2%23.0%35.0% 36.7%Top 5 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 89-Simple Pneumonia/Pleurisy Age>17 W/CC; 371-Norm. C-Section & 243-Medical Back Problems (4.4%Denial Rate on Top 5 DRGs)Contract Overview: Commercial HMO, PPO, POS & Indemnity Products w/ 20.9% of Services for Inpatient; Rate amendment on 10-26-04, no rate increase since; evergreen contract; 180days written notice for contract termination w/o cause. Contract one-sided most hospital rights/due process referenced to provider manual. Comm HMO 6 3,157$26,242,276 $9,678,088$747,767$2,829$3,066 7.02 3.2%N/A 36.9%34.0% 35.7%Top 5 DRG Admits - DRGs 209-major Joint and Limb Reattachment Procedures of Lower Extremities; 127-heart Failure & Shock; 294-Diabetes Age>35; 143-Chest Pain & 182-Esophagitis Gasteroent Disorders Age>17 146.0% Denial Rate on Top 5 DRGs)Contract Overview: Includes Med Adv (9-1-04), HMO (no agreement on file) and HMO 7 (3-1-05) HMO, PPO, POS & Indemnity Products (Medicaid, Medicare & Commercial) w/ 21.7% ofServices for Inpatient; evergreen contract; 90 days written notice for contract termination; contract dated and does not represent current United contracting approach of one facilities contractwith separate product rate amendments.Medicare A & B F-F-S5,996$52,605,598 $17,235,346 ($1,083,324)$3,055$2,874 4.98 0.7% 6.3% 32.8%34.8% 36.6%Top 10 DRG Admits - DRGs 127-Heart Failure/Shock; 89-Simple Pneumonia/Pleurisy Age >17; 88-COPD; 182-Esophagitis Gasteroent Disorders Age>17; 416-Septicima Age>17; 294-Diabetes Age>35; 320-Kidney & Urinary Tract Infections Age >17; 174-G.I. Hemorrhage W/CC; 277-Celluitis Age>17 W/CC & 296-Nutritional & Misc. Metabolic Disorders Age>17 (6.0%Denial Rate on Top 10 DRGs on 847 I/P Cases; Wtd. Ave. Cost/Case = $7,108 and Per Day = $1,434, ALOS = 4.96). Provided For Comparison Purposes Only.State Medicaid F-F-S4,857$20,982,566 $4,420,839 ($3,281,811) $1,586 $9102.82 3.7% 74.3%21.1%36.7% 38.5%Top 10 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 371-Norm. C-Section; 390-Neonate W/Other Sign. Problems; 523-Alcohol/Drug Abuse or Dependence W/Rehab;383-Other Antepartum Dx W/Medical Comp.; 370-C-Section W/CC; 98-Bronchitis & Asthma Age 0-17; 91-Simple Pneumonia/Pleurisy Age 0-17 & 521-Alcohol/Drug Abuse or DependenceW/CC (1.7% Denial Rate on Top 10 DRGs on 1,310 I/P Cases; Wtd. Ave. Cost/Case = $2,066 ($3,022 excluding DRG 391) and Per Day = $1,013 ($1,305 excluding DRG 391), ALOS =2.78). Provided For Comparison Purposes Only.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(33) 35. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Key Hospital Performance Indicators Community Hospital - Managed Care Contract: Key Performance Indicator Report - Leadership GroupReporting Period: Plan Name: Health Plan or PPO: Current MonthHealth Plan or PPO: Year-To-Date (start date xx-xx-xx) Mgd MedicareMgd MedicarePrior FY Performance Measures HMO/POS PPO Medicaid AdvantageTotals HMO/POS PPO Medicaid AdvantageTotalsTotal Growth & Market IndicatorsTotal I/P CasesTotal I/P DaysTotal BirthsTotal E/D VisitsTotal OBS CasesTotal SDS CasesTotal Other Cases/VisitsTotal Cases-All CasesAcute ALOSAcute Case Mix Index% of Admissions Through ED% Admissions: 3 Mile Radius% Admissions: 5 Mile Radius Reimbursement & Profitability Indicators ($$)Total Billed ChargesTotal Net Paid RevenuesTotal Direct CostsTotal Indirect CostsTotal Costs Total Net Gain/LossNet Operating Margin% Total Cases Denied% Total Cases Downgrade Pay.Total Expected Pay $$Total Actual Pay $$Tot. Exp. Pay. vs. Actual Var. $$Net Days In Accounts ReceivableTotal A/R $$ Over 90 DaysTotal $$ in Accounts Rec.% of Charges Paid to Tot. BilledCost Per I/P Case-Wtd Ave $$Payment Per I/P Case-Wtd Ave $$Cost Per I/P Day-Wtd Ave $$Payment Per I/P Day-Wtd Ave $$Total Ratio Cost: Charges Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (34) 36. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Key LTC Performance Indicators Individual SNF Facility Operational Performance Dashboard Report - Management Facility Name: Performance Indicators: Current WeekManagedManagedMgd CareTotals/ Wtd.Performance MeasuresMedicaid Medicare APrivate HospiceVA/OtherMedicare Medicaid Comm.AveragesVolume: Capacity & Utilization Facility StaffingTotal Other Employed Staff FTEs Revenues---Total Licensed BedsNursing--- Total Overtime FTEs Total Room & Board PPD * RN FTEsTotal Temp FTEsTotal Beds Occupied Total Ancillary & Other Revenue PPDTotal Contracted FTEs (e.g., MD, PT, OT)Total Reserve Beds * RN FTE Temps Total Revenue/Patient Day (PPD)Total Facility FTEsTotal Adjusted Beds Occupied (less reserve * RN FTE Pool Total EBITAR PPDTotal Nursing Payrollbeds)* Total RN FTEs Expenses---Total Other Employed Staff PayrollTotal Bed Days Total RN Hours/Resident Day Total Room & Board Expense PPDTotal Overtime PayrollTotal Census (No. Patients)* LPN FTEs Total Temp Fees/PayrollTotal Ancillary & Other Expense PPDTotal Average Patients * LPN FTE TempsTotal Contracted Fees (e.g., MD, PT, OT) Total Property Related Expense PPDPayor Mix Distribution % * LPN FTE Pool Total Facility Staffing Payroll/Fees Total Expenses PPD * Total LPN FTEs Total Facility "Wages" as % Op Exp.Total Profit/Loss PPDAverage Occupancy % of TotalTotal Benefit Expenses Net Days in Accounts ReceivableAdj. Ave. Occupancy (less reserve beds) %Total LPN Hours/Resident Dayof TotalTotal Ben. Expenses as % of Oper Exp.Total Billed Accounts Receivable ($$) * CNA FTEs Revenues, Expenses &% of A/R Accounts > 90 DaysAdmissions and Discharges* CNA FTE Temps Profitability Total Cash ($$)% of Admissions Hospital Referral* CNA FTE Pool Total Room & BoardDays Cash On Hand * Total CNA FTEs Total Ancillary & Other Revenue Accounts Payable ($$)% Admissions: Physician Referral Total CNA Hours/Resident DayTotal Net RevenuesDays in Accounts Payable% Admissions: Self or Elective TOTAL NURSING FTEsTotal Operating Expenses-Routine% Admissions: OtherTOTAL NURSING HRS/RESIDENT DAYTotal Operating Expenses-AncillaryTotal Admissions Total Nursing Staff (employed) Terminations Total Operating Expenses - Volun. + InvoluntaryTotal Property Related (Depreciation,Total Discharges Amortization, Rent and Interest)Net New Admissions Total Nursing Staff (employed) New HiresTotal Expenses Total Profit/Loss Total Nursing Staff Turnover Rate % Cash Flow MarginCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Total EBITAR(35) 37. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Hospital Per Diem Rates MCO Analyses: Current Med/Surg Rates Vs. F, T, C Rates Tier 1 HMOs $2,300$2,069 $2,000$1,731 $1,700 $1,400Same Comparative Analyses: SDS, E/R, High Cost Dx $1,4000 23 1, 18 33 $1, 1 $ $1,100 $1, 0 $1, 2 83 5 $9213 7059 $1, 0$1, 0 $1, 0$800 Act. M/S Target M/SCommercial HMO Products Floor M/SCeiling M/S$500 Pl PlPlPl Pl PlPlPlan ananan an ananan ABCEFG H I Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (36) 38. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Hospital Maternity RatesActual Commercial HMO-POS-PPO Insured - Maternity 200X Rate Comparison Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(37) 39. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Historical Service Mix by ProductMCO Analysis: HMO A Service Volume Changes Note: Whilesome patientvolume increasedit was largely existingpatient businessmoving from better reimbursingMCOs! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (38) 40. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO Referral SourcesMCO Analyses: HMO A Patient Product Source And Zip Code Analysis Sum of CY XX CASES ADMISSION MH 07093 07047PMC % DIRECTGrand Through BENCHMARKCLINIC ADMITED HN O P S TRANSFER Y Total EMER/R 20701 HMO A INDEMNITY 167 91 7166 54.8% 20741 HMO A MEDICARE 25 34 59 57.6% 20810 HMO A HMO 1 153147 40 341 43.1% 20942 HMO A PPO 157141 301329 42.9%Patient Cases By Zip (85.5%) xxxxx Comm. 1 1,496 (18%) Patient volume from the MCO through the E/R? xxxxx Comm. 2 1,338 (16%) xxxxx Comm. 3 1,305 (16%) Does your MCO patient volume come from theimmediate community or a further distance, xxxxx Comm. 4 820 (10%)crossing several competitor service areas? xxxxx Comm. 5 637 (8%) xxxxx Comm. 6 477 (6%) Will your medical staff, area employers and xxxxx Comm. 7 338 (4%)your patients support you? xxxxx Comm. 8 231 (3%) Who has the moral high ground? xxxxx Comm. 9 221 (3%) Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(39) 41. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence External Analysis Managed Care Identify trends in contracting strategies andContractingreimbursement (regional/national).Strategy & Analysis Identify threats to Hospital MCO reimbursements. Internal Assessment Understand MCO medical claim loss ratios. Understand role of hospitals medical staff. External Assessment Understand referring physician hospital service needs.Develop MCO Contracting Strategy Identify potential opportunities for collaboration with MCOs. Standardize Understand employer community support and ContractingProcesses & Mgmt.views of MCOs vs. your organization. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.40 42. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current Admissions by Physician by MCO Product INSURANCENUMBER OF % of TOT DR # DOCTORS NAMEPLAN PLAN DESCRIPTIONCOMPANY ADMISSIONSADMxxDoctor High Admitter AA YY HP A POS70.044%xxDoctor High Admitter AA YY HP A Medicare Advantage 10.006%xxDoctor High Admitter AA YY HP A HMO60.038%xxDoctor High Admitter AA YY HP A PPO10.006%xxDoctor High Admitter AA YY HP B10.006%xxDoctor High Admitter AA YY HP C70.044%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY HP DYY HP E Med Adv 1 20.006%0.013% Admissions byxxDoctor High Admitter AA YY HP E Managed Medicaid260.164%xxDoctor High Admitter AA YY CHAR CARE550.346% Physician/MCO ProductxxDoctor High Admitter AA YY HP F PPO10.006%xxDoctor High Admitter AA YY HP F POS20.013%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY HP G HMOYY HP G PPO15 10.094%0.006% Knowing which medicalxxDoctor High Admitter AA YY HP H Managed Medicaid 10.006%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY HP H Med AdvYY HP H POS 2 20.013%0.013%staff members are thexxDoctor High Admitter AA YY HP I Indemnity 140.088%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY HP I Medicare AdvantageYY HP I HMO 9150.057%0.094% highest admitters byxxDoctor High Admitter AA YY HP I PPO 200.126%xxDoctor High Admitter AA YY HP I Self Funded ASO20.013% particular MCO andxxDoctor High Admitter AA YY HP I Managed Medicaid110.069%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY HP J Self Funded ASOYY HP J PPO 6 80.038%0.050%MCO product, factorsxxDoctor High Admitter AA YY HP K Union Trust10.006%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY MEDICAID FFSYY MEDICARE FFS52 1350.327%0.849% into your overallxxDoctor High Admitter AA YY MEDICARE FFS 100.063%xxxxDoctorDoctor High HighAdmitterAdmitter AA AAYY MEDICARE FFSYY HP L Union Trust28 20.176%0.013% strategy formulation forxxDoctor High Admitter AA YY HP M Commercial Insurer 10.006%xxDoctor High Admitter AA YY HP N Managed Medicaid 20.013%MCO negotiations.xxDoctor High Admitter AA YY HP O HMO30.019%xxDoctor High Admitter AA YY HP O FEHBP80.050%xxDoctor High Admitter AA YY HP O PPO50.031%xxDoctor High Admitter AA YY HP P PPO10.006%xxDoctor High Admitter AA YY HP Q Commercial Insurer 20.013%xxDoctor High Admitter AA YY HP R Self Funded ASO10.006%xxDoctor High Admitter AA YY HP R HMO40.025%xxDoctor High Admitter AA YY HP R POS30.019%xxDoctor High Admitter AA YY HP R PPO20.013%xxDoctor High Admitter AA YY US POSTAL SERVICE 20.013% 4783.01% Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(41) 43. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Baseline Determination of Medical Staff Alignment with MCOsTo develop a physicianreferral and payer mixstrategy, requires thatyou understand whichMCOs your medicalstaff participates with, the pros and cons of each MCO from theirperspective; and theirMCO contract pre-auth and referral rules! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(42) 44. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO Market Share by MCO ProductNYC EnrollmentsCommercial Commercial Commercial Direct Healthy MedicareChild ManagedFamilyYE 06 Grand NYS Sept 07 By Health PlanHMO POSPPOPayNew YorkAdvantageHealth Plus Medicaid Health Plus NYC TotalsUpdate Aetna Health Inc. 98,855 27,056004,0018,471 000138,383 151,483 Affinity Health Plan Illustration 0of MCO By Product Enrollments 11,753 105,282 Market 000 0 0 12/06 NYC 42,929 159,964 208,601 AmeriChoice (United HC)(NYC 12/06 YE Data, No Data 0on Non-Health Plan Managed Care or Rental PPOs)113,7310 00 01,1601,33395,417 15,821 113,914 AmeriGroup (Care Plus) 00000 0 17,903 78,62828,579 125,110 115,347 Atlantis Health Plan 0 9,350 042 1,698 0000 11,09015,720 Blue Choice (Excellus) 73000 000010479,476 BSNENY 08 432 00 0000 440 53,581 CDPHP00001 00001 250,898 CenterCare (Fidelis) 00000 04,105 55,619 9,95169,675 0 CIGNA 17,484 29,57801,4081,787 0000 50,25717,938 Community Blue (HealthNow) 4 11 231 00 0000 246172,611 Community Choice 00000 03503,299 1,938 5,58715,474 Community Premier Plus 00000 03,061 65,484 8,50677,051 29 Empire HealthChoice100,913 19,73408,148 10,711 25,08025,98900190,575561,747 Fidelis Care New York00000 07,181 80,43142,772 130,384286,356 GHI HMO (GHI-HIP)3,215 13013 6495,918 1,0589,291 6,44326,600 59,058 Health Net98,966Which MCOs are active in your market 0494001936,5090 0106,162140,155 Health Plus0 HealthFirst PHSP, Inc106area? How many lives do 0they really00 0 000 0 0028,84718,718 187,257 244,141 44,050 69,148260,154332,113 895,099 415,657 HIP of New York (GHI-HIP) Managed Health Inc.332,7600offer access0 to if you participate? 165,891 40,8180 6,623 0 43,9801,761 541 90,1600 7,216 0 2,377 50,751 4739,9602,922 895,09920,518 MDNY Healthcare Inc. 00002 00002 20,518 MetroPlus1,6080000 0 18,395 190,920 37,257 248,180272,676 MVP 53 21000 000074 251,389 Neighborhood Health Providers00000 08,165 75,42716,438 100,030 90,055 NewYork Presbyterian CHP 00000 03,492 46,56511,30861,365103,185 Oxford Health Plan84,838191,246005,993 68,680 000350,757410,532 UnitedHealthCare 6,673 39,4390004,845 610 31,80625,413 108,786102,983 Univera HealthCare (Excellus) 100002 400016 134,890 Upstate HMO (Excellus) 70001 00008381,186 WellCare of New York 000008,744 7,616 48,96229,09594,417111,278 Total Enrollments646,644330,7157,28653,59123,339 211,100 154,0391,381,515 397,4743,205,703 6,387,369Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (43) 45. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Assess Hospital Share of Admissions vs. Total Admissions Whom needs whom the most? // Will ER admissions change if the Hospital stops participating? // Who are patients the most loyal to? 60,0006,5005,725I/P Days Purchased by MCOs in an6,000 Urban County vs. Hospital Days 50,0005,500 48,004 County I/P Days Purchased4,5545,000 4,500 Hospital I/P Days 40,00039,862 4,000 3,500 30,000 3,000 25,44926,734 2,022 2,500 20,000 16,453 2,000 1,50010,623 10,818 8148,217 8,915 10,0007976,1851,0005,891 9941,1733721,601 149 61500229 196234 04470 0 0H H HHH HH H H HHHHH M M MMM MM M M MMMMMO O OOO OO O O OOOOO1 2 345 67 8 9 10 11 12 13 14Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (44) 46. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate Filings HP #1s Claims Experience Vs. Benchmarks Incurred Claims experience has been more favorable than comparable benchmarks. Incurred Claims PMPMs are approximately 25%-30% less than benchmarks. Number of I/P Admits are approximately 15%-20% less than the comparable benchmarks ALOS is about 6%-7% longer. Likely to respond to costs, and addressing population needs around cardiology disorders Comparison with 2006% Diff% Diff Benchmark Data HP #1 StateNational(State) (USA) Incurred Claims PMPM $196.33 $288.88 $260.41 -32.0% -24.6% IP Days per 1000 237.7 296.0 259.6 -19.7%-8.4% IP Admits per 1000 57.075.766.1-24.6% -13.8% ALOS 4.173.913.936.6% 6.2% OP Encounters per 1000 7,586 10,7269,738 -29.3% -22.1% Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (45) 47. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate FilingsMarket Assessment of MDC by City Allowed Claim Cost Analysis performed to assess the prevalence of various Diagnostic Conditions. Allowed Cost PMPM, Admits per 1,000, and Cost per Admit for 25 MDCs The Diagnostic Categories are sorted by the Allowed Cost PMPM in City. City tends to have a lower cost per Admit. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(46) 48. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate FilingsHP #1s Large Group Premium Rate Filings Versus Competitors HP #1 Large Group rate filing experience from the past three years is compared with HP#2 Healthcare and HP #3: AnthemHP #1 Anthem HP #1Blue Pref Product 5B (2002 version)Primary ABlue Priority 5B (2002 version)Product B Claim Cost - Percent Claim Cost - Percent Filing Effective DateCuyahoga County Client Change Medical TrendRx TrendFiling Effective Date Cuyahoga CountyClient ChangeMedical Trend Rx Trend 1/1/2006$284.81 11.9% 12.4%18.7% 1/1/2006$ 290.1420.5%12.2% 18.7% 1/1/2007$323.88 13.7% 12.7%17.1% 1/1/2007$ 329.7513.7%12.7% 17.1% 1/1/2008$373.32 15.3% 12.7%16.1% 1/1/2008$ 380.0815.3%12.7% 16.1% Blue Pref Primary 5GC version) Product (3.0 Blue Priority 5G D version) Product (3.0 Claim Cost - Percent Claim Cost - Percent Filing Effective DateCuyahoga County Client Change Medical TrendRx TrendFiling Effective Date Cuyahoga County ClientChangeMedical Trend Rx Trend 1/1/2006$253.93 13.2% 12.4%18.7% 1/1/2006$ 258.6812.8%12.2% 18.7% 1/1/2007$288.76 13.7% 12.7%17.1% 1/1/2007$ 293.9913.7%12.7% 17.1% 1/1/2008$328.93 13.9% 12.7%16.1% 1/1/2008$ 334.8913.9%12.7% 16.1% UHC HP #2 HumanaHP #3HMO for Large Groups HMO for Large Groups Claim Cost - Percent Claim Cost - Percent Filing Effective DateCleveland City Change Medical TrendRx TrendFiling Effective DateClevelandCity ChangeMedical Trend Rx Trend 1/1/2006$266.00 13.2% 13.3%16.8% 1/1/2006$168.13 0.0% 12.13% 16.00% 7/1/2007$338.43 17.5% 13.0%13.0% 1/1/2007$143.51-14.7%12.80% 14.00% 4/1/2008$354.716.4% 12.0%13.0% 1/1/2008$273.85 90.9%11.10% 13.50% Medical trends are roughly similar among all three payers. HP #1s 2007 Claim Costs in City of $288 to $330 for their four products range from 32% to52% higher than the actual 2007 Incurred Claim PMPM of $217 i.e., their premiumincreases are significantly above their claim cost increases. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (47) 49. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Develop overall managed care contracting and pricing Managed Care strategy think investment portfolio.ContractingStrategy & Analysis Develop a portfolio approach to managed carecontracting: Integrate internal and external data/MCO analyses. Internal Assessment Review internal assessment minimum requirements for discounts/participation. External Assessment Develop MCO mix and contract/product exit/patient retention strategies. Develop managed care contracting strategies and Develop MCOgoals by MCO product and demographic segment.Contracting Strategy Integrate patient service quality and referral strategies. Coordination with physician group/FPP/IPA/PHO (if Standardize Contractingapplicable) and development of physician referralProcesses & Mgmt. management strategies by MCO. Implement MCO specific strategies at start of MCOnegotiations. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (48) 50. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation National For Profit Commercial Health PlansMCO contracts and par vs. Commercial HMO, POS, PPO, Indemnity Productsnon-par status have Carve-Out Benefit as well as Centers of Excellence several pros and cons, which Medicare Advantage HMO, PPO and PFFS Products providers should identify and Managed Medicaid, CHIP, Family Health (or similar) Universal Coverage Products (2007 2012)address before pursuing a National and Regional Blue Cross & Blue Shield Plans specific MCO contract. Same product mix as above Regional HMOs and related product portfoliosProviders should develop Same general product mix as abovespecific pricing for Tier-1 and National and Regional PPOs Tier-2 MCOs at Floor, Re-Pricing and Network Rental models Target, and Ceiling rates Out-Of-Network Wrap Productsfor each MCO product type, Self-Funded Group Business Direct Contracting along with supporting National, Statewide and Multi-Regional Large Employersbusiness case rationale and Taft-Hartley Union Trustsspecific contracting and Healthcare Purchasing Coalitions & Labor/Mgmt. Alliances Re-Insurers, Self-Pay and Transactional (e.g., single case) negotiating strategies. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 49 51. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Tiered HMO Networks: Best buyer pricing, quality/efficiency profiled providers, restrictive UM/CM protocols, in-network only, low productMCO product design market share at present, P-4-P TBD.impacts reimbursement, HMO (traditional): 2nd best buyer pricing, large par networks/heavy providerrevenue cycle processes discounts, tight UM/CM protocols, in-network only, 2ndand patient relationships largest product market share, P-4-P increasing. POS:Indemnity 3rd best buyer pricing, large par networks/provider discounts often same as HMO, HMO type UM/CM protocols, in-out network benefits, 4th largest product market share, P-4-P increasing. PPO: Traditional and network rental models; 4th best buyer pricing; differential on discounts from HMO/POS, HMO type UM/CM, in-out network benefits, the largest product market share, P-4-P increasing. Indemnity: Highest cost to buyers, open network and rental network designs, often no UM/CM, smallest product share. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (50) 52. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy FormulationDefine Stakeholder Goals and Objectives: Hospitals?The same planning MCO?process applies to other provider types such as Medical Staff? SNF, Home Care, AmbSurg Centers and PHO/IPA/FPP (if applicable)?Physician Practices. Patients? Employers and Unions in community? State Regulators/Agencies? Key Competitor Hospitals? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(51) 53. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Major Payer Competitive Intelligence Past market behavior in dealing with your organization? Current market behavior with other hospital contract negotiations? Likely composition of MCOs negotiating team personalities, strengthsand weaknesses behind each member authority? Who makes the final decision on a new agreement? Who needs whom the most and why? Patient steerage ability of MCO? External stakeholders that influence the MCOs position on a contractwith your organization? Likely maximum rate increase the MCO will agree to and why? Likely MCO negotiating position and strategies your counters? What is the MCOs target and maximum rate increases? What are the deal breakers for the MCO? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (52) 54. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy FormulationStrategy, Tactics and Resources Composition of your negotiating team? Timing and negotiating approach to pursue with MCO? Most favorable I/P and O/P reimbursement methodologies for yourorganization? Business rationale for making your reimbursement case? Why should the MCO increase rates for you over their budget? Your position on contract terms/language? How will you ensure favorable reimbursements for high volume andtraditionally high margin services? Who is the customer/patient/physician more loyal towards? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (53) 55. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy FormulationStrategy, Tactics and Resources Defined rate crosswalk tables and pricing goals? Service carve-out and/or alliance opportunities with MCO? What impact will the MCO negotiations outcome have on otherMCO rate negotiations? Accounts receivable, denials, slow pay issues to improve withPayer to be fixed as part of negotiations process? Other Analyses CDM, Pricing/Rate Sensitivity Models, ReferralSource by Payer/Payer Product/Physician/Zip Code, Share ofPayer Business and Disruption. Required resources for a successful negotiations outcome? Agenda items for initial MCO meeting? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (54) 56. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Contingency Plans for Negotiations Impasse What are the minimum reimbursement increases and deal breakers? Are you willing to walk away from the contract if the reimbursement terms do not meet minimum goals/objectives? If a decision is made to terminate What is the patient volume and financial impact? How do you retain your patients? What will you need to do to gain employer/union/consumer support foryour position? How do you leverage your relationships with other key MCOs to shiftmarket share? Physician referral management plan? Other referral mgmt. plans? Disruption analysis to patient volume and cash? Communications plan for internal and external stakeholders? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (55) 57. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Cost Shifting Among Payers Provider Pricing Options Medicare and Medicaid fixed price reimbursements Traditional F-F-S increasingly moving towards managed care Freezes, reductions, changes in methodologies = less provider netincome? All providers are pretty much in the same boat with gov. payers. Managed Care Commercial, Medicare, Medicaid, Workers Comp & Other Payer contracts Multiple payment methodologies and payment rules variabledepending on payer product, market and outcome of negotiations. Each payers contract with a provider has some unique aspectsleading to market confusion from a price transparency perspective.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (56) 58. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Cost Shifting Among Payers Provider Pricing Options Rental, Re-Pricing and Out-of-Network Wrap PPOs Many PPOs still reimburse hospitals at a discounted % chargeshowever they are increasingly moving away from discounts tocompete with health plan ASO arrangements. Additionally, PPOs rarely represent Tier-1 patient and paymentvolumes. As such, they are only a partial pricing solution. Other PayersSome remaining commercial FFS Self-pay increasing numbers/dollars with CDHPs.. TBD with State/Federal reform initiatives.Which of the above payers reimburse you below cost at fullcost on a cost+ basis? At the end of the day you need tohave a positive margin from your combined patient services.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (57) 59. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentCost Shifting and the Shifting of Risk Continues Health Savings Accounts and high deductible plans. Lots of drama about price transparency has created intensesensitivity among providers and confusion in the consumermarketplace. Tiered health networks and linked benefit plans. Federal government push for Medicare Advantage. State government push for mandatory managed Medicaid. Uninsured initiatives largely stalled due to economic crisis. P-4-P, Value Based Purchasing and Never Events. Provider quality and efficiency ratings. At the end-of-the-day you still need to have a positivemargin from your combined patient services or the nextfinancial crisis in the U.S. will be the healthcare industry.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (58) 60. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentProvider Response to Pricing and Margin Pressures? Improved registration, financial counseling and patientaccounting/billing/collection processes, denial management, etc.,E-2-E fixes and hopefully sustained PI. Better alignment of prices with costs and quality and efforts tomove towards EBM and clinical integration. Communication of organizational value to marketplace andcoordination with marketing efforts. Linking the strategic financial planning process with pricing andmulti-year payer agreements. Increased hospital-physician alignment/collaboration. New pricing and negotiation strategies.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (59) 61. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentBasic Managed Care Pricing Questions What are your goals, objectives and pricing strategy? What does it actually cost you to deliver care for each service for whichyou contract adjusting for denials and revenue gaps fromgovernmental/non-resource payers? Is your CDM current, accurate and priced in a defensible manner withrespect to charge based reimbursements? Can you administer the pricing arrangements and payment rules thatare in your MCO agreements? How do you manage your MCO mix? How much do market rates matter in negotiations? Ask yourself Do large MCO discounts actually lead to additional patient volume, thereby making money on the margin for your organization? How do you know? Do MCOs accept 20% to 30% of premium charges as payment from their employer groups? How are they making money?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (60) 62. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development What Drives MCO Profit and Loss at Your Organization? MCO agreements rates? MCO agreement payment rules, claims and appeal requirements? MCO reimbursement methodology? Underpayments from contracted rates? Specific MCO products/product design and their market share? Revenue cycle management processes: End-to-End? Specific provider programs and services? Physician practice and referral behavior? Physician practice administrator behavior? Care management and case management processes?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (61) 63. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development What Drives MCO Profit and Loss at Your Organization? Slow pays and A/R build-up? Denials and payment downgrades? Billiables covered outside capitation and not billed? Stop-loss, carve-outs, outliers, Medi-Medi dual eligibles and P-4-P/Quality Incentive Programs? Lost self-pay conversion opportunities? Referral management? LOS management and resource consumption? How do all of the above impact your MCO goals, objectives andPricing strategies? Other? You need to be able to answer these questions!Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (62) 64. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Payer Preferred Hospital Reimbursement Methodologies By Major Payer Class and Hospital Financial Risk Payer Where Do PrimaryCommon/Preferred Payer Reimbursement Methodology ClassFinancial Losses Occur? I/P: All inclusive Per Diems w/o Severity Adjustments;Case Rates for Maternity (Mother & Child) w/o Trim I/P and O/P: In many cases, across thePoints; General Sub-Acute Per Diemboard financial losses if Payer preferred O/P: All inclusive Case Rates, APCs and Fee Schedules payment methodology applies NR PPOsCommercial Selective Services at % of Charges with a CDM Cap ofoften profitable HMO/PPO0%-4%Other:Insured/ Selectively, Financial Penalties if Hospital based MDs Denials, Downgrades, Slow Pays andASO are Non-Par (e.g., E/R) Underpayments as well as lack of Other: (1) Aggressive Concurrent and Retro Utilizationspecificity on payment rulesReviews, (2) One-Sided Contract Language Unexpected change in Service Mix Network Rental PPOs: % charges discount and fixed Limited Appeal Optionsreimbursements I/P and O/P: In many cases, across the I/P & O/P: Essentially same as for Commercial, except:board losses as Medicaid MCOs look to No Annual Inflators and/or tied to Prevailing Medicaidreimburse below Medicaid Managed Global E/R Triage rate emphasisOther:Medicaid & No I/P Outlier Payments and MCO payment rules Same as above for CommercialChild Health Other: (1) Aggressive Concurrent Review, (2) Use ofPlus Non-Adherence to Medicaid Payment Rules"Optimal Medical Necessity Stds, (3) One-Sided Medi-Medi dual eligible deductible not paidContracts, (4) Capitation for PCPs & Fee Schedule for MCO exempted services not billed toSpecialists below MedicaidMedicaid Source: A&M analysis and MCO negotiations outcome experience. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (63) 65. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Payer Preferred Hospital Reimbursement Methodologies By Major Payer Class and Hospital Financial Risk Payer Common/Preferred Payer Where Do Primary ClassReimbursement MethodologyFinancial Losses Occur? I/P: All Inclusive non-Severity Adj. perdiems or MS DRGs at % belowI/P and O/P: In many cases, I/P &MedicareO/P financial losses, as Medicare O/P: APCs, modified APCs andMCOs look to reimburse below MedicareSelectively Fee Schedules Medicare full DSH notAdvantage Products Other: (1) Annual inflators at recognized no allowance for backprevailing Medicare, (2) No Paymentsend settlementsfor I/P Outliers, (3) Aggressive Other: Same "Other Issues" asConcurrent Review, (4) One-Sideddescribed above.ContractsI/P: Global Payments vs. pre-carve-out facility only payments Managed I/P & O/P: Often across the boardO/P: (1) Case Rates and FeeCare Carve- financial losses for contracts OutsSchedules which are not adjustedassociated with Carve-Out Benefits annually, (2) Fixed, lower payments vs. % of Charges pre-Carve-Out Source: A&M analysis and MCO negotiations outcome experience.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(64) 66. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Your Business Case for Beyond Budget Rate Changes? MCOs in general are skeptical about any provider data designed toincrease reimbursement beyond their budgeted and approved range. Providers are often viewed as crying wolf. Claim they need this, theyneed that, but do not provide credible, quantifiable justification. Most MCOs do not intend to reimburse providers below actual costs.There is a widespread view among many MCOs however, that They are being asked to subsidize provider inefficiencies due to bad management decisions, inability to control LOS, etc. Their customers should not have to bear the costs of below cost payment from government payers, the uninsured, etc. Reimbursement agreements which place them at a price competitive disadvantage among their MCO peer group, will result in lost market share. Providers seeking non-budgeted rate increases after their provider budget dollars have been approved is a non-starter. How would you address the above?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (65) 67. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Prepare an overall pricing strategy and rate template with floor,target and ceiling prices as well as alternate reimbursementmethodologies (i.e., a revenue neutral cross walk table). Bucket your services and prices in a format which parallels a MCOsbenefit plan structure they understand this. Capture all charges and expenses for each service bucket. Seek to minimize the need for interpretation as to whatreimbursement should be for a specific service leave nothingout otherwise this will create multiple points of revenue leakage inthe revenue cycle. Develop a detailed revenue code/procedure code specific ratetemplate with corresponding pricing by MCO product type a keyconsideration for ensuring payment compliance.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (66) 68. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations A full-cost plus quantitative approach to pricing your managed carecontracts results in better outcomes from negotiations. I/P should pay for I/P and O/P should pay for O/P service mixchanges with MCO contracts as does patient volume, neithergenerally in favor of the provider nor are changes predictable. Pricing approaches that worked in the past may not work in the futureMCOs are changing how they contract to enhance their position youhave too much revenue at stake to maintain the status quo. Understand that MCOs use their own internal and external data sourcesto develop their reimbursement ranges be prepared to counter anddemonstrate why your analysis is more correct and accurate. MCOs do not really know what it costs to deliver healthcare whatthey do know is what you are willing to accept as payment-in-full.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (67) 69. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting ConsiderationsFloor, Target and Ceiling (F-T-C) MCO prices: Determine what the indirect and direct cost of providing the aboveservices are. Full costs are generally your Floor Rates. Target rates are the ideal rates that you want to obtain from MCOs.These rates would cover full costs, losses associated with claimsdenials and a modest profit margin. Understand that your target rates may differ significantly fromyour current reimbursement rates from specific MCOs. MCOs also look for product rate differentials at your expense. For many hospitals, these target rates need to be 1.2 to 1.3 times full costs for commercial products.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (68) 70. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Ceiling rates are prices at which your competitiveness from aMCOs point of view, is reaching an upper threshold. All marketshave a rate ceiling above these rates non-par status. The above pricing guidelines and rates should be developed foryour Tier 1 MCOs (the largest MCOs in market) and the Tier 2MCOs (typically regional health plans and the national PPOs). Avoid large price gaps between Tier 1 and Tier 2 MCOs. The same F-T-C pricing ranges also need to be established forMedicare Advantage, Managed Medicaid, CHIP and WorkersComp (only subscriber) managed care agreements. Note: You can obtain reimbursements higher than FFS withsome MCOs, with respect to the above products.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (69) 71. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations For Commercial, Medicare and Medicaid Managed CareProducts Establish a consistent rate methodology/measurement system across your organization. Invest in/use the necessary technology, ensure thorough staff training; maintain the technology and make sure the underlying processes are correct technology by itself is not a solution. Be mindful of which reimbursement methodologies are best for your organization and your medical management capabilities. Build cross walk reimbursement tables. Incorporate pricing considerations for carve-outs and stop-loss. Consider payment rules and administrative capabilities. No Go Rates Rates below floor rates recognizing that certainstrategic considerations may have to be made for some MCOs.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (70) 72. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations F-T-C Rates Reviewed and updated annually ensure that senior management knows what F-T-C rates should be at any given time period and how MCO contracts impact programs, services and financial planning for the overall business enterprise. F-T-C price/contracting guidelines can vary between T1-T3 payers. Tier-1 and Tier-2 payers Are increasingly moving towards an APC- based reimbursement methodology for Commercial product outpatient services. Medicare Advantage contracts use old and new. 2009 and beyond M-S DRGs. Be wary of MCOs which look to flip payment methodologies on you during the term of your agreement get all necessary specifics in your agreement. Incorporate DSH and other backend reimbursement considerationsinto your pricing for Medicare Advantage and Managed Medicaid.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (71) 73. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Inpatient Per Diem Rates Based on estimated current year fullyloaded costs per day. This applies to acute & alternate/step-downrates, behavioral health, and skilled nursing per diems.Have implants, etc., as a separate billable item. Get stop-loss as well. DRG Carve-Out Rates If a MCO will not agree to a full case ratebased payment methodology, ensure that the appropriate DRG Carve-Outs are obtained.The Case Management Department/Medical Director can assist you in this area on high resource DRGs.E.G., depending upon carved out DRG effective per diems for carve-outs can be $4,000 to $5,000. Inpatient Case Rates Current year fully loaded case mix neutralDRGs (CMS SIWs are preferable) specify DRG grouper used byboth parties as MCOs use groupers built into their claims systems.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (72) 74. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Emergency Room Estimated fully loaded cost. Avoid triage rates,however, when appropriate seek urgent care rates and avoid globalrates can also do levels of care or blended rates. Observation Rates From 80% to 100% of the medical/surgical perdiem rate (varies by type of OBS care (e.g., false labor or rule out MI). Ambulatory Surgery Estimated fully loaded costs benchmarkedagainst Medicare APC or CMS Grouper (pre-APC) reimbursementmethodology for reasonableness and a modest margin. Avoid blendedrates unless SDS mix volume is in Level 1 3 groupers resistexpanded grouper versions e.g., 14 groupers. Ensure allowances are made for multiple surgical procedures at 100%, 50%and 25% (CMS definition). Avoid having implants, lithotripsy or cardiac catherizations included in SDSrates or negotiate higher SDS rates.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (73) 75. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Diagnostic Services Case rates, % + of Medicare RVRBS and where there is no Medicare fee, % of billed charges if APCs, validate conversion adjustments for commercial population. All Other Outpatient % of billed charges, avoid charge cap thresholds when possible account for trend moving towards APCs. Carve-Outs: Chemo Drugs, High Cost Drugs, Orthotics, Prosthetics & Implants Price at a % of charges. As an alternate for high cost drugs and chemotherapy, %+ of Medicare RVRBS with % of charges where there is no Medicare payment. Avoid invoice cost arrangements expect audit requirements from MCOs. Behavioral Health be mindful of how MCOs price these services. CDM Price charges appropriately for market, avoid artificial charge increases on MCOs this backfires caps common.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (74) 76. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentPricing and Managed Care Contracting Considerations Administration Make sure you can load and follow payment rules. RCIG Your revenue management team actively involve in F-T-C pricing,contract strategy and integration into revenue cycle and clinical operations. Medical Staff Ensure physician input current and future services. MCO Price Information Be prepared to counter MCO views of your caredelivery costs from Medicare Cost Reports, Ingenix, AHD & Others. P-4-P Be prepared for it if you move towards clinical integration modelssuch as PHOs and IPAs, P-4-P will be necessary. Consider your business model and its ability to attract and retain patientlives. Tiered network products will have a big impact. Other Delivery Models MCOs and government payers are looking for lowercost/quality care delivery in a non-inpatient setting. How will you compete?Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (75) 77. Preparing for MCO Negotiations COMMUNIT Y HOSPIT ALIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCOHOSPIT AL RAT ESApplicable Rate Codes (Revenue, PaymentCOMMUNIT Y Pricing Development(Facility Only)CPT4, ICD-9 & DRG)MethodologyFloorTarget Ceiling INPAT IENT PER DIEMSNote: I/ Rates Assume T hat DRG Carve-Outs Are Allowed. Otherwise goal rates to offset risk would be "T arget" rates. PAIDS DRGs 701-716PER DIEM $1,370$1,650$1,930Intermediate Care (Step Down and Telemetry)Rev Codes 206, 214PER DIEM $1,290$1,550$1,810 Rev codes 100, 101, 110 - 113, 117, 119 - 123, 127,Med/Surg 129 - 133, 137, 139 - 142, 143, 147, 149 - 153, 157,PER DIEM $1,250$1,500$1,760 159 - 169ICU/CICU/SICU/NICU(Level 4)/PICU Rev Codes 200 - 203, 209, 210 - 213, 219, 174 PER DIEM $1,370$1,650$1,930 Community HOSPITAL Applicable Rate Codes (Revenue, CPT4,Payment Community HOSPITAL RATES 2008 Cost + (Facility Only)ICD-9 & DRG) Revenue Codes: 100, 101, 110, 111, 112, 120, 121,Methodology Floor TargetCeiling122, 130, 131, 132, 140, 141, 142, 150, 151, 152, INPATIENT PER DIEMS73.99, & DRG Codes160, with ICD9 Codes 72 -372, 373, 374, 375, 652 and CPT4 Codes:59400,PER CASE, CMS$7,500 Case Mix$8,400 Case Mix$10,000 Case MixCase Mix Neutral DRGAIDSDRGs 488-490 Final 2006 Grouper Neutral Rate Per Neutral Rate PerNeutral Rate Per59409, 59610, 59612, and ICD9 Codes:72, 72.0,of $8,400, results in aMaternity - Vaginal (Mom only for 3 day stay)PER CASE$3,150 23 Methodology and DRG x$3,800Applicable $4,450 DRG x Applicable DRG x Applicable72.1, 72.2, Down and Telemetry) 72.31, 72.39, 206, 214Intermediate Care (Step72.21, 72.29, 72.3,Rev Codes 72.4,projected profit of 25%Service Intensity WeightsWeightsWeights72.5, 72.51, 72.52, 72.53, 72.54, 72.6, 72.7, 72.71, Weights; Excludesand a CMN DRG of72.79, 72.8, 72.9, 73, 73.0, 73.01, 73.09, 73.1, 73.2,110 - 113, 117, 119 - 123, 127, Rev codes 100, 101,Implants, OrthoticsMed/Surg 129 - 133, 137, 139 - 142, 143, 147, 149 - 153, 157, $7,500 results in a73.21, 73.22, 73.3, 73.4, 73.5, 73.51, 73.59, 73.6,& Prosthetics; 159 - 169projected profit of 18%73.8, 73.9, 73.91, 73.92, 73.93, 73.94, 73.99 Transplants, ICU/CICU/SICURev Codes 200 - 202, 209, 210 - 212, 219Behavioral Health, over 2008 overall SNF and DRG weighted average Cardiac Surgery - Inpatient Cardiac Cath Rev Code 481 (Included in Applicable DRG)Carve-Outs) Add- costs across all Revenue Codes: 100, 101, 110, 111, 112, 120, 121,Ons For Per Diemcommercial health Payments beyond 122, 130, 131, 132, 140, 141, 142, 150, 151, 152, 101, 110, 111, 112, 120, 121,Revenue Codes:100, plans. Maternity Trim 160, and CPT4 Codes: 59400, 59409, 59610, 132, 140, 141, 142, 150, 151, 152, 160122, 130, 131, Points and for 59612, and ICD9 Codes: 72, 72.0, 72.1, 72.2, 72.21, 59409, 59610, 59612 AndAnd CPT4 Codes: 59400, Outlier Payments.DRG Codes 372 - 373, And ICD9 Codes:72, 72.0, 72.1,Maternity - Vaginal (Mom only, days 4-999 stay)Maternity -72.29, 72.3, 72.31, 72.39, 72.4, 72.5, 72.51, 72.52, Vaginal Without Sterilization (Mom Only, PER DIEM $1,250 $1,500$1,76072.2, 72.21, 72.29, 72.3, 72.31, 72.39, 72.4, 72.5, 72.53, 72.54, 72.6, 72.7, 72.71, 72.79, 72.8, 72.9, 72.54, 72.6, 72.7, 72.71, 72.79,for 2 day stay)72.51, 72.52, 72.53, 73, 73.0, 73.01, 73.09, 73.1, 73.2, 73.21, 73.22,72.8, 72.9, 73, 73.0, 73.01, 73.09, 73.1, 73.2, 73.21, 73.3, 73.4, 73.5, 73.51, 73.59, 73.6, 73.8, 73.9, 73.5, 73.51, 73.59, 73.6, 73.8, 73.9,73.22, 73.3, 73.4, Pricing Template Illustration 73.91, 73.92, 73.93, 73.94, 73.99 73.91, 73.92, 73.93, 73.94, 73.99Revenue Codes:100, 101, 110, 111, 112, 120, 121, Rev Codes 110- 169 with ICD9 Codes:74, 74.0,122, 130, 131, 132, 140, 141, 142, 150, 151, 152, 160 74.1, 74.2, 74.3, 74.4, 74.9, 74.91, 74.99 & DRGMaternity - C-Section (Mom only for 4 day stay)PER CASEAnd CPT4 Codes: 59400, 59409, 59610, 59612 And$3,740$4,500$5,270 Codes 370, 371, 650, 651 and CPT4 Codes: 59510, And ICD9 Codes:72, 72.0, 72.1,DRG Codes 374 - 375,Maternity -59514, 59515, 59618,(Mom Only, forVaginal With Sterilization 59620, 5962272.2, 72.21, 72.29, 72.3, 72.31, 72.39, 72.4, 72.5, 2 day stay)72.51, 72.52, 72.53, 72.54, 72.6, 72.7, 72.71, 72.79,72.8, 72.9, 73, 73.0, 73.01, 73.09, 73.1, 73.2, 73.21, Revenue Codes: 100, 101, 110, 111, 112, 120, 121, 73.51, 73.59, 73.6, 73.8, 73.9,73.22, 73.3, 73.4, 73.5, 122, 130, 131, 132, 140, 141, 142, 150, 151, 152, 73.94, 73.9973.91, 73.92, 73.93,Maternity - C-Section (Mom only days 5-999)160, and CPT4 Codes: 59510, 59514, 59515, PER DIEM $1,250$1,500$1,760 59618, 59620, 59622 or ICD9 Codes:74, 74.0, 74.1, 74.2, 74.3, 74.4, 74.9, 74.91, 74.99 Revenue Codes:100, 101, 110, 111, 112, 120, 121,122, 130, 131, 132, 140, 141, 142, 150, 151, 152, 160Copyright 2009. Alvarez & Marsal Holdings, LLC. CPT4 Codes: 59400, 59409, 59610, 59612 AndAnd All Rights Reserved.(76)Detained Baby/Routine Nursery/NewbornRev Codes 170, 171, 179 PER DIEM$540$650$760 Maternity - Vaginal Delivery With/WithoutDRG Codes 372 - 375, And ICD9 Codes:72, 72.0, 72.1,(76)72.2, 72.21, 72.29, 72.3, 72.31, 72.39, 72.4, 72.5, 78. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentINPATIENT DRGCARVEOUTS NYSM D A ED GM TH D LO Y E IC R R E O O G 1 C A IO M EOR N TO YAG VER17WCC PERC SEA$26,740 $32,220$37,700 2 C A IO M EOR N TO YAG VER17W C /OCPERC SEA$16,480 $19,852$23,230 6 C PALTU N ELEAR N ELR ASEPERC SEA$3,340$4,030 $4,720 P IPH&C A IALN VE&O ERN VER RNERTH ER 7 SYSTPR CWC OCPERC SEA$14,630 $17,632$20,630 P IPH&C A IALN VE&O ERN VER RNERTH ER 8 SYSTPR CW C O /0CPERC SEA$7,240$8,727 $10,210 O 9T PA T IE N T U S ALD R E S&IN RPIN ISO D R JU IESPERC SEA$8,390$10,105$11,82010 Note: O/P surgical procedures do not include VO SSYSTEMN PLASMNER UEOSWCC PERC SEA$11,450 $13,793$16,140PER CASEim plants, etc.11 N VO SSYSTEMN PLASM /OCER UEOSW CPERC SEA$6,650$8,009 $9,370Rev Codes 360, 369, 490, 499 and appropriate CPT Am bulartory/Sam e Day Surgery * (Blended Rate) EG ER D EN HCPCS CodesU YSTEM ATIVEN VO SS ERPER CASE $1,410 $1,600 $1,87012orPERC SE A$7,970 $9,604 $11,240Note: Pre-APC CM S Groupers for Am b/Surg ISO D SD R Rev Codes 360, 369, 490, 499 and appropriate CPTabd ERPER CASE do not include implantsor HCPCS Codes Am b/Surg - Group 113 M LTIPLESC OULER SIS&C EER BELLARATA IAXMedicare pre-APC, CMS GroupersPERC SEAPER CASE $5,830$840 $7,021 $950$8,210$1,110 Am b/Surg - Group 2Medicare pre-APC, CMS GroupersPER CASE$1,200 $1,365 $1,600 Am b/Surg - Group 3Medicare pre-APC, CMS GroupersPER CASE$1,460 $1,655 $1,940 Am b/Surg - Group 4Medicare pre-APC, CMS GroupersPER CASE$1,940 $2,200 $2,570 Am b/Surg - Group 5Medicare pre-APC, CMS GroupersPER CASE$2,110 $2,400 $2,810 Am b/Surg - Group 6Pricing Template IllustrationMedicare pre-APC, CMS GroupersPER CASE$1,980 $2,250 $2,630 Am b/Surg - Group 7Medicare pre-APC, CMS GroupersPER CASE$3,040 $3,450 $4,040 Am b/Surg - Group 8Medicare pre-APC, CMS GroupersPER CASE$2,310 $2,630 $3,080 Am b/Surg - Group 9Medicare pre-APC, CMS GroupersPER CASE$1,560 $1,775 $2,080 Am b/Surg - All Other-Default Rate All surgical procedures not otherwise identifiedPER CASE$1,230 $1,400 $1,640Rev Code 750 and CPT-4 Codes: 31505-31515,Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 43234- 31525-31579, 31615-31656, 43200-43232,(77) Endoscopy *PER CASE$790 $900 $1,05043258, 44360-44397, 45300-45387, 46600-46614,31231-31294, 50951-50980, 52000-52355, 52400 79. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Building Your Rate Templates (Hospital Illustration) Your rate templates are extensions of your MCO pricing templates. Set Tier-1 & Tier-2 MCO pricing between Target and Ceiling prices. Post-negotiation outcomes rate parity within each tier class. Avoid most favored nations agreements. Set a target net revenue threshold for each tier class. If and when a Tier 2 MCO hits/exceeds that threshold, consider changes at next renewal. Use your preferred reimbursement methodology format be prepared to counter with alternate methodologies (i.e., your cross walk table). Detail detail detail by rev code, by procedure code for all services under contract validate all w/PFS before sending to MCO. Know payment rules that you can abide by and incorporate. Use a balanced contract guide avoid having many provisions which cause revenue leakage relegated to the MCO provider manual.Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (78) 80. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development I/P Rate IllustrationINPATIENT PER-DIEMMental Health - AdultRev Codes 124, 134PER DIEMMental Health - PediatricRev Codes 113,123,133 PER DIEMDetoxRev Codes 126, 136PER DIEMSubstance Abuse RehabRev Codes 128, 138PER DIEMECT (excludes anesthesia services) Rev Code 901PER DIEMAll other I/P services not specified All I/P services not otherwise identified % CHARGESCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved.(79) 81. Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing DevelopmentHOSPITAL NAMEHOSPITAL NAME Applicable Rate Codes (Revenue, Payment1/1/09 - 12/31/09 1/1/10 - 12/31/10 1/1/11 - 12/31/11 CPT4, ICD-9 & DRG)Methodology INPATIENT PER DIEMS NOTE: ONLY CHOOSE RATE CELLS/SERVICES AND METHODOLOGY SPECIFIC TO AN INDIVIDUAL HOSPITAL Base Rate Rev Codes 100, 101, 110, 111, 113, 117, 119, 120,$_________AIDS 121, 123, 127, 129, 130, 131, 133, 137, 139, 140, 141, 143, 147, 149, 150, 151, 153, 157, 159, 160, Times Applicable CMS/State DRGI/P-O/P Rate Illustration 164, 167, 169 and DRGs 701-716 Weight - IncludesIntermediate Care (Step Down and Telemetry)Rev Codes 206, 214 Prosthetics, Orthotics and Rev codes 100, 101, 110 - 113, 117, 119 - 123, 127, Implants (excludesHIV/AIDS Clinic & PhysicianServices (Note: Specialized Infectious Disease Rates Are Much Higher Than RoutinMed/Surg 129 - 133, 137, 139 - 142, 143, 147, 149 - 153, 157, behavioral health, 159 - 169 SNF care,Internal Med (Rev Code 517), Pediatrics (Rev Codetransplants and HIV PrimaryCare Clinic (Subject to change whenICU/CICU/SICU/NICU/PICURev Codes 200 - 203, 209, 210 - 213, 219, 174515) Counsel & Testing, Post Test CounselingDRG Carve-January or July rates every year become available. Outs).easier to (Pos.), Post Test Counseling (Neg.), InitialPER VISITVisits can be identified by rate codes as provided