AFFORDABILITY REVIEWMysteries of the Medical Loss Ratio
APRIL 2016
NANCY DJORDJEVIC
DIRECTOR, HEALTHCARE ANALYTICS
Copyright © 2016 Gorman Health Group, LLC
Government Programs
Leading enterprise of national consulting services and software solutions
for payers and providers.
Our Mission
Our mission, as the industry’s most active professional services consultancy and
provider of technology-based solutions, is to empower health plans and providers
to deliver higher quality care to beneficiaries at lower costs, while serving as
valued, trusted partners to government health agencies.
Washington, DC
Headquartered in Washington, DC, with more than 200 staff and contractors
nationwide with over 2,000 combined years of Government Programs experience.
Leadership
Deep payer and provider knowledge coupled with Centers for Medicare &
Medicaid Services (CMS) regulatory expertise.
Privately Owned
Founded in 1996
Gorman Health Group is the leading solutions and consulting firm
for government-sponsored health programs.
WHO IS GORMAN HEALTH GROUP?
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Our clients have one-stop access to expert advice, guidance, and support,
in every strategic and operational area for government-sponsored programs, across seven verticals.
CLINICALChanging how you approach Medical Management,
Quality and Stars.
PROVIDER INNOVATIONSSupporting network design and medical
cost control implementation.
OPERATIONSBringing excellence to every aspect of your
implementation from enrollment to claims payment.
COMPLIANCEOffering guidance and support in every strategic and
operational area to ensure alignment with CMS.
PHARMACYLeading experts in Part D, PBM, formulary
and pharmacy programs.
HEALTHCARE ANALYTICS & RISK
ADJUSTMENT SOLUTIONSImplementing cross-functional risk adjustment
programs for medical trend management and quality
improvement.
STRATEGY & GROWTHDriving profitable growth and member retention
through strategic marketing, sales, and product
development.
BROAD SERVICES
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Members Revenue
Claims Utilization
Claims Costs
DEMYSTIFY MEDICAL LOSS RATIO
No Room for Error Under ACA
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MEMBERSHIP
• Positive growth
• Improves dollars of
income and absorbs
fixed expenses
• Assumes operational
plans are in place
• Stagnant/stable growth
• Requires answers to
aging population
• Negative growth
• Potential death spiral
• Impact on risk score
Members Revenue
Claims Utilization
Claims Costs
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REVENUE
• Risk adjustment plays major role –
• Unknown impact of HCC on
new ICD-10
• Double-edged sword – timing of
payment is after claims are paid
Low scores
• If understated due to
bad coding, high
financial risk and missed
opportunity!
High scores
• If inaccurate, invites
audits!
• Star Ratings reflect membership
and impact revenue as well as
expected claims
Members Revenue
Claims Utilization
Claims Costs
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CLAIMS COSTS
Networks are the backbone of a health plan
• Must meet CMS requirements
• Must align with population needs
• Insufficient network can quickly
undermine the whole operation –
costs, member satisfaction,
medical management
• Place of service greatly impacts
cost of care
• Partnership for low-cost quality of
care
Members Revenue
Claims Utilization
Claims Costs
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UTILIZATION
• CMS tracks inpatient readmits
• Exceeding average
means penalties
• Star Ratings tracks quality
• bonuses or loss thereof
• Pressure on network adequacy
Members Revenue
Claims Utilization
Claims Costs
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GOAL: ALIGN OPERATIONS TO BALANCE REVENUE
AND CLAIMS (PLUS ADMINISTRATIVE EXPENSES)
Although maximizing revenue is an ongoing priority, claims review and
efficiency is still a big part of the picture and not to be overlooked.
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Revenue Claims
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WARNING SIGNS OF FINANCIAL HURDLES
• Variance to budget not easy to explain
o Future bids are based on historical claims – 18 mos. to 2-year gap in forecasting
trends (claims and revenue)
o One-time events that can mask trends
• Change in IBNR or reinsurance provisions
o Claims backlogs can impact IBNR and/or budgeting
• Reorganizations
o Change in organization and company personnel can overlook financial and
operational changes
o Allow gaps in reporting
• New systems – claims, vendors, etc.
o Mapping of old to new systems distorts trends
• Comparison of claims to contract administration
o Constant oversight needed for revised contract or impact of mix of services
o Change in provider mix and provider performance
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• Significant changes in membership
o Increase, decrease, geographic shifts can impact revenue
• Complete and accurate medical diagnosis coding to ensure
adequate revenue
o Ongoing oversight of risk adjustment
o Should coincide with claims costs
o Requires strong collaboration with providers
• Different products – add or terminate plans and change product
designs
o Duals – little or no benefit from member cost share on utilization
o HMO vs. PPO – provider access within networks
o Competition
WARNING SIGNS OF FINANCIAL HURDLES
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OPERATIONAL CHANGES WILL
HAVE A FINANCIAL IMPACT Root causes come from internal system and procedural changes, member
driven claims, and diagnoses as well as CMS reimbursement.
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ANALYTICS
Budget Variances
Claims BacklogsNew Claims Systems
New Vendors, PBMNew benefits, products, territories
or membership
Mix of service changes
Member-driven claims and risk adjustment
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TO FIND A SOLUTION, FIRST YOU NEED
TO IDENTIFY THE PROBLEM
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INITIAL ASSESSMENT
*Management Interviews
*Financial Reviews
*Performance Reviews: IT Systems, Vendors, Providers
*Contract Reviews: Vendors, Providers
*Risk Adjustment Overview and History
*Medical Management review
*Product and membership growth
PHASE 1A IDENTIFY DRIVERS
*Develop trend reports by service and split by cost vs. utilization
*Identify trend drivers
*Identify high-volume providers and services
*Monitor risk adjustment accuracy and timing
PHASE 1B QUANTIFY OPPORTUNITIES
*Follow the money
*Quantify potential opportunities for improvement
PHASE 2
ACTION PLANS
*Customize implementation plans
*Set performance metrics and goals
*Develop oversight and monitoring as needed
*Ensure best practices for staffing, quality and performance
*Implement risk adjustment strategies
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ANALYTICS CAN LOOK ACROSS
DEPARTMENTAL SILOS
Sales/
Enrollment
Revenue
NetworksFinance
Medical Management
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Healthcare
Analytics
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LAKE WOBEGON HEALTH PLAN –
A NOT SO FICTIONAL TALECase Study
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LAKE WOBEGON HEALTH PLAN –
A NOT SO FICTIONAL TALE
Case Study
• Plan owned by health system
• Operating in Medicare Advantage (MA) for multiple years
• Multiple lines of business with matrix organization
• Whole suite of reporting capabilities
o Budget year views
o Meetings to review and ask questions frequently missed
• Past had been real good to them
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IDENTIFY THE PROBLEMDespite 18 months of financial losses, unable to identify root cause(s)
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• Membership below budgetSales
• Star Ratings bonus at risk at end of demonstration program
Revenue
• System-owned facilities
• Conflict of interestNetworks
• Not very aggressive
• Insufficient staffMedical Management
• Calendar year reports masking problemsFinance/Claims
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DETERMINING ROOT CAUSES
OF CLAIMS TREND
1. Review financials including membership trends
2. Gain insight into operations through in-depth interviews with
subject matter experts
3. Review existing reports and financial performance
o Analyze 3 calendar years or minimum rolling 24 months of FFS
claims data by product
o Generate reports, graphics, and analytics
o Compare membership by month with demographics
(age/gender/county) and risk score for each product
4. Identify trends in cost and utilization at aggregate or detailed
level – compare to provider contracts and industry standards
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DETERMINING ROOT CAUSES
OF CLAIMS TREND
5. Determine financial impact – “follow the money”
6. Present interim and final recommendations for “real” solutions
7. Customize action plans to current and future business
strategy
8. Isolate barriers to growth – providers, high-cost claimants,
geographic considerations, benefit design
9. Maximize provider network – align access and affordability to
membership needs
10. Monitor and manage to new objectives – this is an ONGOING
process
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DETERMINING ROOT CAUSES
OF CLAIMS TREND
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Claims: Billed, Allowed, Paid
Utilization
Inpatient
Admits
Days of Stay
Average Length of Stay
Outpatient/
Physician
Visits
Procedures
Average Costs/Mix
InpatientAdmits/DRG
Per Diem
Outpatient/ Physician
Visits
Procedures
Capitation
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• $7M trend is further aggravated by revenue shortfall (neither trend was
projected in the budget)
• Cost drivers dominate in Inpatient, Professional, and Pharmacy paid claims
• Allowed PMPM data is being worked on to isolate benefit and contracting
changes
• Multiple operating areas being reviewed for improvement
METRICS
(PMPM, UTILIZATION, UNIT COSTS)
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PMPM Impact Percent of Trend
Service CategoryPMPM
ChangeTrend
Utilization Change
Unit Cost Change
Utilization Change
Unit Cost Change
Trend Dollars
Inpatient +$21.43 5.8% $5.18 $16.25 24% 76% $2,856,065
Outpatient: Visit Based +$ 6.22 3.9% $7.19 -$0.97 116% -16% $828,285
Professional +$10.39 3.9% $3.29 $7.09 32% 68% $1,384,509
Pharmacy +$15.91 15.1% $0.96 $14.95 6% 94% $2,119,829
Total $53.94 5.7% $14.01 $39.93 26% 74% $7,188,688
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HISTORICAL PMPM BY CATEGORY
Inpatient
$330.42 $340.14 $349.43 $369.47 $385.08 $375.73 $366.55 $387.98 $334.22$300
$310
$320
$330
$340
$350
$360
$370
$380
$390
$400
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
Outpatient
$247.68 $252.58 $252.52 $255.75 $262.82 $258.02 $263.48 $273.87 $250.85$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
Physician
$247.68 $252.58 $252.52 $255.75 $262.82 $258.02 $263.48 $273.87 $250.85$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
Retail Pharmacy
$33.77 $74.95 $100.47 $106.65 $103.92 $106.58 $105.45 $121.36 $78.08$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
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INPATIENT SERVICE CATEGORY
Inpatient Paid PMPM
Owned Providers
$0
$50
$100
$150
$200
$250
$300
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
Inpatient LTC Inpatient Maternity Inpatient Medical
Inpatient MHSA Inpatient Non-Acute Inpatient Surgery
Inpatient Paid PMPM
Non Owned Providers
$0
$50
$100
$150
$200
$250
$300
2005 2006 2007 2008 2009 6/2009-
5/2010
6/2010-
5/2011
6/2011-
5/2012
Budget
Inpatient LTC Inpatient Maternity Inpatient Medical
Inpatient MHSA Inpatient Non-Acute Inpatient Surgery
0.900
1.000
1.100
1.200
1.300
0.750
1.750
2.750
3.750
Med
ical
CM
I
Surg
ery
CM
I
Case Mix Index
CMI Surgery CMI Medical
0.900
1.000
1.100
1.200
1.300
0.750
1.750
2.750
3.750M
edic
al C
MI
Surg
ical
CM
I
Case Mix Index
CMI Surgery CMI Medical
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Copyright © 2016 Gorman Health Group, LLC
• As a provider-owned health plan, need to recognize cost differences among
providers
• Review waivers of pre-auth to “preferred” providers – consider ongoing reviews
and health plan audits
• One teaching hospital outside of provider system is driving up costs – consider
redirection to system facilities
• Use hospitalists and plan case managers to expand discharge planning to
increase home health and decrease admissions
• Compare diagnoses for inpatient DRG payments to outpatient and professional
diagnoses and correlate to risk adjustment recovery
INPATIENT RECOMMENDATIONS
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Service Category
6/2010-
5/2011
6/2011-
5/2012 Change Trend
6/2010-
5/2011
6/2011-
5/2012 Change Trend
6/2010-
5/2011
6/2011-
5/2012 Change Trend
Change
Driver
Trend
Contribution
Inpatient LTC $68.74 $75.72 $6.99 10.2% 2,491.6 2,557.7 66.1 2.7% $331 $355 $24 7.3% Unit Cost $931,230 ▲
Inpatient Maternity $0.00 $0.00 $0.00 n/m 0.0 0.0 0.0 n/m n/m n/m n/m n/m Unit Cost $0
Inpatient Medical $136.20 $139.59 $3.39 2.5% 1,283.5 1,248.8 (34.7) (2.7%) $1,273 $1,341 $68 5.3% Unit Cost $451,361 ▲
Inpatient MHSA $4.12 $4.23 $0.11 2.8% 110.6 120.2 9.6 8.6% $447 $423 ($24) (5.4%) Utilization $15,237
Inpatient Non-Acute $0.03 $0.04 $0.01 33.2% 0.0 0.0 0.0 n/m n/m n/m n/m n/m Unit Cost $1,265
Inpatient Surgery $157.47 $168.40 $10.93 6.9% 738.1 761.1 23.0 3.1% $2,560 $2,655 $95 3.7% $1,456,973 ▲
Inpatient Total - Days $366.55 $387.98 $21.43 5.8% 4,623.8 4,687.7 63.9 1.4% $951 $993 $42 4.4% Unit Cost $2,856,065 ▲
Utilization / 1000 Paid Unit CostPaid PMPM
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$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
A B C D E F G H
System and Non System Owned Providersof Inpatient Acute
FACILITIES A-D OWNED BY PARENT
PROVIDER, FACILITIES E-H NON-OWNED
Costs (adjusted for severity) vary by facility, and “E” is a non-owned
teaching hospital, which suggests stricter authorizations and discharge
planning could control costs and utilization.
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READMITS ON THE RISE
Need to manage readmits with better discharge planning, including
goals for home health
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Service Category
6/2010-
5/2011
6/2011-
5/2012 Change Trend
6/2010-
5/2011
6/2011-
5/2012 Change Trend
6/2010-
5/2011
6/2011-
5/2012 Change Trend
Change
Driver
Trend
Contribution
Outpatient Diagnostic $8.57 $8.56 ($0.01) (0.1%) 373.5 393.9 20.4 5.5% $275 $261 ($14) (5.2%) Unit Cost ($698)
Outpatient ER $24.51 $28.22 $3.71 15.2% 460.3 506.2 46.0 10.0% $639 $669 $30 4.7% Utilization $495,017 ▲
Outpatient MHSA $0.96 $1.05 $0.09 9.0% 39.0 43.4 4.4 11.2% $295 $289 ($6) (2.0%) Utilization $11,510
Outpatient Other $47.22 $43.74 ($3.48) (7.4%) 2,685.1 2,430.4 (254.7) (9.5%) $211 $216 $5 2.3% Utilization ($463,200) ▼
Outpatient Pharmacy $13.53 $15.46 $1.93 14.3% 728.4 795.7 67.2 9.2% $223 $233 $10 4.6% Utilization $257,408 ▲
Outpatient Supplies and Devices $0.11 $0.07 ($0.04) (36.0%) 263.8 319.3 55.5 21.0% $5 $3 ($2) (47.1%) Unit Cost ($5,428)
Outpatient Surgery $55.89 $53.34 ($2.56) (4.6%) 494.6 458.4 (36.3) (7.3%) $1,356 $1,396 $40 3.0% Utilization ($340,911) ▼
Outpatient Therapy $9.92 $16.62 $6.71 67.6% 1,447.5 1,881.1 433.5 30.0% $82 $106 $24 29.0% $893,689 ▲
Outpatient Lab $18.39 $18.98 $0.58 3.2% 3,950.7 4,050.8 100.1 2.5% $56 $56 $0 0.6% Utilization $77,728 ▲
Outpatient Rad $27.03 $26.30 ($0.73) (2.7%) 1,298.7 1,272.8 (25.9) (2.0%) $250 $248 ($2) (0.7%) Utilization ($96,829) ▼
Outpatient - Visit-based $206.13 $212.34 $6.22 3.0% 11,741.8 12,152.0 410.2 3.5% $211 $210 ($1) (0.5%) Utilization $828,285
Utilization / 1000 Paid Unit CostPaid PMPM
OUTPATIENT RECOMMENDATIONS
• Utilization up 10% in Emergency Room – need for frequent flyer report and
review of copays to manage ER utilization. Engage PCPs to avoid ER
utilization by improved access to care in office settings.
• Pharmacy includes injectables with 20% coinsurance, but claims system
needs auditing – no difference in paid vs. allowed costs.
• Outpatient therapy up 30% for utilization and 29% for costs – review pre-
authorization requirements and implement quantity limits.
• Other includes dialysis opportunities for combined savings.
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20% COINSURANCE
NOT BEING COLLECTED Audit Claims System Configuration
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FINANCIAL IMPACT OF ACTION PLANS
1. More focused Quality
Improvement (QI) and Star
Ratings program with specific
action plans
2. Work with PCPs on specific
coding initiatives
3. Enhanced focus on risk
adjustment program with
optimal mix of retrospective and
prospective targets
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REVENUE
$5.75 M
to
$8.75 M
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FINANCIAL IMPACT OF ACTION PLANS
1. Reduce inpatient admits and
readmissions through multiple
mechanisms
2. Part B coinsurance on specialty
drugs
3. OP cost drivers
4. IP cost drivers
5. OP utilization drivers
• $1.3 M
• $1.06 M
• $0.74 M
• $0.65 M
• $0.20 M
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COST REDUCTION
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Accomplishments
• Translate best practices from Medallion
Issues / Risks
• Work the frequent flyer list and include medication cost and utilization
• Steerage of non-emergent diagnoses to alternate place of care• Engage PCPs and BH vendor for follow up to ER- assign clerk to
contact PCPs. Coordinate with Provider Relations.• Develop provider profiles - gaps in network, access to specialists
– identify best practices within PCP offices• Partner with shelters and public health centers• Explore member education and engagement through community
events and health fairs, etc.• Develop case manager reports with combined medical and
pharmacy spend by member. Better utilize auth and Rx data for fast track reports.
Upcoming Events & Work in Progress
Dependencies
• Coordinate with disease management• Incorporate student nurses and pharmacy students for outreach• Leverage nurse line, transportation and CAHM services• Coordinate with Magellan for BH services• Member and provider education• Leverage VA data exchange
Track Milestones Status Delivery Date Comments/Updates
Develop high-cost hospitals
report
Develop high-cost members
report
Develop action plans
Develop tracking reports
Major Milestones Target Date Overall
Overall Track
Develop ER utilization metric to produce target savings
Develop enhanced reports and generate action plans regarding ER
billing practices, member engagement, coordination with disease
management and PCPs
Develop tracking reports
Engage PCPs and vendors as needed
REDUCE ER VISITS/1000 PROJECT DASHBOARD
= $400,000 TARGET OVER FY 2015
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RESOURCE OPTIMIZATION
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Risk Adjustment
Return on Investment
Pro
ba
bili
ty o
f S
ucce
ss Medical Mgmt
Network Structure
Star Rating Mgmt
Claims System
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RECAP: BEST PRACTICES AND
VIGILANCE ARE HERE TO STAYOn average, an MA HMO needs 12-15% savings from better
contracting and medical management just to break even.
• Continued downward pressure from CMS on revenue through tighter
risk adjustment methodology and projected trend rates
• CMS still phasing in new county rates for ACA
• Ongoing impact of benefit designs and changing demographics on
future costs
• Ongoing vigilance of provider reimbursement strategies, including,
but not limited to, contract changes
• Ongoing review and audit of clinical best practices to achieve Star
Ratings
Even PPOs, ACOs, and non-HMO models require cost controls through
benefit design and provider access
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OPERATIONAL EXCELLENCE
CAN NEVER STOP
• Set goals for providers and
performance benchmarks
• Constant monitoring of
financial and operational
performance
• MLR performance is more
than a budget variance report
– need both to survive
changing regulatory and
clinical dynamics
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Copyright © 2016 Gorman Health Group, LLC
Gorman Health Group, LLC (GHG) is a leading consulting and software solutions firm specializing in government health
programs, including Medicare managed care, Medicaid and Health Insurance Marketplace opportunities. For nearly 20 years,
our unparalleled teams of subject-matter experts, former health plan executives and seasoned healthcare regulators have
been providing strategic, operational, financial, and clinical services to the industry, across a full spectrum of business needs.
Further, our software solutions have continued to place efficient and compliant operations within our client’s reach.
GHG offers software to solve problems not addressed by enterprise systems. Our Valencia™ software reconciles membership
of more than 10 million members in Medicare, Medicaid and the Health Insurance Marketplace. Over 3,000 compliance
professionals use the Online Monitoring Tool™ (OMT), our complete Medicare Advantage and Part D compliance toolkit, while
more than 33,000 brokers and sales agents are certified and credentialed using Sales Sentinel™. In addition, hundreds of
health care professionals are trained each year using Gorman University™ training courses.
We are your partner in government-sponsored health programs
T
E
NANCY DJORDJEVIC
Director, Healthcare Analytics
202.355.3841
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