Managed Care: Financial Reporting Richard Stebbins, Director Financial Reporting Medicaid CHIP Division April 29, 2016

Managed Care Business Model Full risk capitation Actuarially sound capitation rates Defined accounting principles HHSC-designed reporting Quarterly reporting Data validation and reconciliation Compare to encounters Compare to subcontracts

Managed Care Business Model Audited financials Annual Agreed-Upon-Procedures (“AUPs”) Risk Assessments Performance Audits HHSC-OIG oversight CMS oversight HHS-OIG oversight Excess profit recovery Experience Rebate Admin Cap

Managed Care Business Model HHSC Resources applied to Financial Oversight Director and 9 financial professionals Reconciliation team lead and 4 analysts (5) Audit lead (1) Encounter and special projects team (2) Finance manager – contract development (1)

Managed Care Business Model Other Resources applied to Financial Oversight HHSC Actuarial Analysis group Chief Actuary and 5 professionals External Independent Actuaries – Rudd and Wisdom External Quality Review Organization (EQRO) Institute for Child Health Policy Data Certification

Managed Care Business Model Public resources HHSC web site Part 1 of all Financial Statistical Reports (FSRs) Liquidated Damages Contracts Uniform Managed Care Contract Uniform Managed Care Manual Cost Principles Financial reporting templates Actuarial Reports (rate-setting documentation) Open Records process – complete FSRs

Managed Care Business Model Financial Summary Reports (FSRs) Income Statement Multi-tab Excel template Submitted quarterly Annual submission on Dec 31st for State Fiscal Year ending 9/30 (90 day FSR). Additional submission on August 31 (334 day FSR) – accounts for claims run out

Managed Care Business Model Experience Rebate Recovers portion of profits greater than 3% of revenue based on a tiered structure: Admin Cap Profits MCO Share HHSC Share ≤ 3% 100% 0% > 3% and ≤ 5% 80% 20% > 5% and ≤ 7% 60% 40% > 7% and ≤ 9% > 9% and ≤ 12% > 12%

Managed Care Business Model Current state of Managed Care Model is maturing since most regions, benefits and populations have been or will be carved-in Allowable administrative expenses are capped Quality Improvement costs (new CMS rule) will be allowable as Medical expense (remove from admin)

Managed Care Business Model Challenges Affiliate agreements Vertical integration MCO consolidation Cigna merger, Amerigroup merger…more? Evolution of new payment models Value-based purchasing Pay for Quality ACO model Innovative payment model – shared savings

Managed Care Business Model Sample FSR – part 1 Sample FSR – part 5 Incurred Months: HHSC Managed Care contract costs 1 Member Months 2 Average Monthly Member Months Revenues: 3 Medical Premiums 4 Delivery Supplemental Payments 5 Pharmacy Premiums 6 Investment Income 7 Health Insurance Providers Fee Reimbursement 8 Other Revenue 9 Total Gross Revenues 10 Health Insurance Providers Fee & Related Costs 11 Health Insurance Providers Fee (NAIP) 12 Premium Taxes 13 Maintenance Taxes 14 Net Revenues Medical Expenses: 15 Fee-For-Service 16 Capitated Services 17 Patient Centered Medical Home Services 18 Net Reinsurance cost 19 IBNR Accrual - Medical 20 Total Medical Expenses 21 Prescription Expenses (excluding PBM Admin) 22 Total Medical and Prescription Expenses 23 Administrative Expenses 24 Total Expenses 25 Net Income Before Taxes HHSC Managed Care contract costs 1 Physician Services: Primary Care 2 Physician Services: Specialist 3 Physician Services: Deliveries - Prof. Component 4 Non-Physician Professional Services 5 Emergency Room Services 6 Outpatient Facility Services 7 Inpatient Facility Svcs: Medical/Surgical 8 Inpatient Facility Svcs: Deliveries - Facility Component 9 Behavioral Health Services 10 Vision Services 11 Miscellaneous Other 12 Patient Centered Medical Home Services 13 Reinsurance Premiums 14 Reinsurance Recoveries 15 Incurred But Not Reported (IBNR) 16 Incentives or Network Risk Retention 17 Total Medical Expenses

Managed Care Business Model Sample FSR – Administrative Expenses HHSC Managed Care contract costs 1 Salaries, wages, and benefits (excl. bonuses) 2 Bonuses 3 Rent, Lease, or Mortgage Payment for Office Space 4 Utilities (if not incl. in rent), excl. Phone/Telecom 5 Phone / Telecom / Cell phones / T1 / Broadband 6 Equipment Lease or Rent, excl. Phone/Telecom 7 Computer hardware/Software purch., uncapitalized 8 Furniture, Fixtures, and other Equipment Purchased, uncapitalized 9 Maintenance, Repairs, Custodial, and Security 10 Supplies, Postage, Freight, Printing 11 Legal & Prof. Services, incl. External Audit, Tax, Consulting 12 Travel Expenses   13 Marketing, PR, and Outreach (excl. Salaries) 14 Taxes (excl. income taxes & premium taxes) & Licensing 15 Insurance 16 Depreciation & Amortization 17 Other Adminstrative Expenses 18 Subtotal (specified in-house services) 19 Outsourced services (Non-Capitated Arrangements) 20 Outsourced services (Capitated Arrangements) 21 PBM Admin Fees - Fees based on $PMPM 22 PBM Admin Fees - Fees based on transaction volume 23 PBM Fees - Other 24 Corporate Allocations 25 Total Administrative Expenses

Managed Care Business Model Important Links Uniform Managed Care Manual http://www.hhsc.state.tx.us/medicaid/managed-care/umcm/ Medicaid Home Page http://www.hhsc.state.tx.us/medicaid/index.shtml Medicaid/CHIP Contracts Page http://www.hhsc.state.tx.us/medicaid/managed-care/forms.shtml Rate Setting Page http://www.hhsc.state.tx.us/rad/managed-care/index.shtml

Managed Care Business Model Questions?

Managed Care Business Model Thanks for your attention Rich Stebbins, Director – Financial Reporting HHSC –Medicaid/CHIP Division