The Managed Care Opportunity in California’s Rural Counties California Primary Care Association Friday, March 16, 2012

2 Today’s Goal The goal of today’s presentation is to introduce the opportunities that California Clinics have to shape how Managed Care Plans will operate in California’s rural counties. Discuss and evaluate options for participating in the formation of a new Plan. Evaluate the opportunities and risks that partnering to create a new Plan present to California Clinics operating in rural counties. Understand the “Business Relationship Principles” that will help define a potential partnership. Enable a conversation among Clinics about how to proceed.

3 The Opportunity: Understanding the Concept CPCA and its Members must evaluate the value that participating in a plan may bring in conjunction with understanding the associated risks. A new Medi-Cal Managed Care Plan would potentially operate statewide and participate in the GMC, 2-Plan, and Rural Counties. Participating in the creation of a new Medi-Cal Managed Care Plan offers CPCA and its members financial and strategic value.

4 What Options Do Clinics Have For Engaging Managed Care? There are several ways that Clinics and PCAs can engage Managed Care: 1.Working in conjunction with a Managed Care Plan to determine a strategy for keeping the population healthy. 2.Negotiating contracted payment terms that set rates and other factors. 3.Providing services to the plan that extend beyond traditional medical services. 4.Participating in the governance of the Plan. 5.Investing in the Plan. We will evaluate each of these options. They are not mutually-exclusive. The PCA and Membership are evaluating these options.

5 #1 Medical Management: Keeping Populations Healthy Working with Managed Care to develop a “Medical Management” strategy typically includes: Determining how and where care coordination and other enabling services should be provided. Working to establish clinical guidelines and practices. Agreeing on measures of clinical performance. Determining quality-based or cost-based incentive models. Developing data-sharing strategies that produce quality and cost outcomes. Identifying opportunities for quality improvement and cost-savings, and creating joint implementation strategies.

6 #2 Contracting: Setting Clinic Payment Terms Negotiating contracted rates helps to ensure payment adequacy and preserve historical payment systems for Clinics: The following trends in Clinic / Managed Care contracting are emerging: – Preservation of “PPS”- style encounter rate payments. – Many include opportunities to earn upside payments tied to achievement of clinical or financial outcomes. – Some also include monthly care-coordination payments. – Often, Plans may offer favorable “cash-flow” terms including payment of State “wraps” up front. Since Clinics are more effective than other settings of care in helping Managed Care Plans manage to Total Cost of Care, it’s possible to negotiate these preferred terms.

7 #3 New Services: Building Business Around a Plan In conjunction with the Clinic infrastructure, including the Primary Care Association and the Regional Consortia, it may be possible to create new business lines. Here are examples from other arrangements: Data-warehousing Quality improvement Credentialing of providers Outreach, enrollment, and education Billing and coding technical assistance New pharmacy capacity Transportation Infusion Many others…

8 #4 Governance: Setting Long Term Direction There may be opportunities to steer the long-term direction of the plan by participating in the governance structure of the plan. This can take many forms: Participation in the Board provides opportunities to make decisions about Plan direction. Many Plans also maintain committees that make recommendations to the Board. Clinic staff can populate these committees. Here are examples: – Quality Improvement: Make recommendations about applying Plan resources. – Compensation: Surface issues tied to payment terms. – Network Development: Evaluate the adequacy of specialist and hospital networks.

9 #5 Ownership: Investing in the Plan Many Clinics and Clinic Associations have taken an equity position in Managed Care Plans. Typically, this is a minority stake in the Plan. Doing so offers the following benefits: Increased decision-making in Plan governance. Opportunity to participate in profit-sharing through payment of dividends to Plan owners. Participation in various “exit strategies” where an owner’s stake is purchased. This can be lucrative.

10 The Opportunity: Value, Defined FINANCIAL VALUE Ownership stake in plan for PCA and Members creates new, diverse source of revenue (DIVIDENDS) Ownership stake can be lucrative if plan is sold or exists (EQUITY) Owners will have considerable say in developing Clinic reimbursement methodology (CONTRACTING) PCA, Consortia, and Clinics can provide needed services to the plan (NEW BUSINESS LINES) Plan will make investments in existing initiatives, where there is alignment. For example, branding (CO-INVESTMENT) FINANCIAL VALUE Ownership stake in plan for PCA and Members creates new, diverse source of revenue (DIVIDENDS) Ownership stake can be lucrative if plan is sold or exists (EQUITY) Owners will have considerable say in developing Clinic reimbursement methodology (CONTRACTING) PCA, Consortia, and Clinics can provide needed services to the plan (NEW BUSINESS LINES) Plan will make investments in existing initiatives, where there is alignment. For example, branding (CO-INVESTMENT) STRATEGIC POSITIONING Exercise control over reimbursement methodologies adopted for Clinics (PAYMENT REFORM) Participate in decision making about where and how Plan operates geographically (PRESERVE RELATIONSHIPS) Establish “Clinic First” patient assignment rules and HBE participation that preserve and expand Clinic patient-base (MARKET SHARE) Strengthen relationships with specialists and hospitals where appropriate (NETWORK DEVELOPMENT) Align Plan and Member interests to establish a new, supportive, and politically influential entity (PARTNERSHIP) STRATEGIC POSITIONING Exercise control over reimbursement methodologies adopted for Clinics (PAYMENT REFORM) Participate in decision making about where and how Plan operates geographically (PRESERVE RELATIONSHIPS) Establish “Clinic First” patient assignment rules and HBE participation that preserve and expand Clinic patient-base (MARKET SHARE) Strengthen relationships with specialists and hospitals where appropriate (NETWORK DEVELOPMENT) Align Plan and Member interests to establish a new, supportive, and politically influential entity (PARTNERSHIP)

11 The Opportunity: Maximizing Reimbursement Developing a Managed Care plan will create opportunities to develop a reimbursement model to more effectively spend the $1.22B of project “Medical Loss” to achieve better outcomes. Why a “Clinic-led” Health Plan makes sense: – Comprehensive primary care is effective in minimizing “Total Medical Expense” – The plan could adopt Clinic payment terms that are adequate to sustain and grow Clinics, while supporting new models of care: Care coordination fees to support PCMH programs and enabling services Fair “PPS-style” payments for patient encounters Shared-savings programs to incent performance and achievement

12 The Opportunity: Maximizing Reimbursement Here is how a group of Clinics can potentially impact cost in populations of Medi-Cal patients when the payment methodology is designed in this way. Medical Loss Categories% of Premiums Spent on Each Category Net Savings to = = $1.13B Primary and Preventive Care23%25%$24.3M Inpatient Services38%33%($60.8M) Prescription Drugs14%13%($12.2M) Hospital Outpatient (ED)5% ---- Skilled Nursing6%5%($12.2M) Home Health5%4%($12.2M) Hospice3%2%($12.2M) Other6% ---- ($85.1M)

13 The Opportunity: Maximizing Reimbursement Here is how a group of Clinics can potentially impact cost in populations of Medi-Cal patients when the payment methodology is designed in this way. Medical Loss Categories% of Premiums Spent on Each Category Net Savings to = = $1.13B Primary and Preventive Care23%25%$24.3M Inpatient Services38%33%($60.8M) Prescription Drugs14%13%($12.2M) Hospital Outpatient (ED)5% ---- Skilled Nursing6%5%($12.2M) Home Health5%4%($12.2M) Hospice3%2%($12.2M) Other6% ---- ($85.1M) Spending an extra 2% on Primary Care would create a PMPM care coordination budget of $5PMPM.

14 The Opportunity: Maximizing Reimbursement Here is how a group of Clinics can potentially impact cost in populations of Medi-Cal patients when the payment methodology is designed in this way. Medical Loss Categories% of Premiums Spent on Each Category Net Savings to = = $1.13B Primary and Preventive Care23%25%$24.3M Inpatient Services38%33%($60.8M) Prescription Drugs14%13%($12.2M) Hospital Outpatient (ED)5% ---- Skilled Nursing6%5%($12.2M) Home Health5%4%($12.2M) Hospice3%2%($12.2M) Other6% ---- ($85.1M) The Clinics would work with the plan to target the areas that are most likely to produce clinical and financial results.

15 The Opportunity: Maximizing Reimbursement Here is how a group of Clinics can potentially impact cost in populations of Medi-Cal patients when the payment methodology is designed in this way. Medical Loss Categories% of Premiums Spent on Each Category Net Savings to = = $1.13B Primary and Preventive Care23%25%$24.3M Inpatient Services38%33%($60.8M) Prescription Drugs14%13%($12.2M) Hospital Outpatient (ED)5% ---- Skilled Nursing6%5%($12.2M) Home Health5%4%($12.2M) Hospice3%2%($12.2M) Other6% ---- ($85.1M) If successful, an incentives budget of $8PMPM. *This assumes 50% of savings paid in incentives, common in these models **This is on top of traditional payments for care If successful, an incentives budget of $8PMPM. *This assumes 50% of savings paid in incentives, common in these models **This is on top of traditional payments for care

16 The Risks: Overview Applying for and implementing a Medi-Cal Managed Care plan will carry significant financial and other risks Here is a summary. – The cost of participating in RFP/RFA processes can be very expensive – this investment is lost if a plan is not awarded. – Managed Care plans have significant regulatory requirements which must be navigated carefully – Knox-Keene laws, in particular, are tricky. – Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives. – A Plan has significant capital requirements, specifically funding an increasing reserve fund. Failure to keep pace means slow growth and/or fiscal instability. – Entering into the insurance business has the potential to change the current dynamic with existing Managed Care plans.

17 The Risks: Mitigating Financial Risk Applying for and implementing a Medi-Cal Managed Care plan will carry significant financial and other risks Here is a summary. – The cost of participating in RFP/RFA processes can be very expensive – this investment is lost of a plan is not awarded. – Managed Care plans have significant regulatory requirements which must be navigated carefully – Knox-Keene laws, in particular, are tricky. – Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives – A Plan has significant capital requirements, specifically funding an increasing reserve fund. Failure to keep pace means slow growth and/or fiscal instability. – Entering into the insurance business has the potential to change the current dynamic with existing Managed Care plans. These first four risks are best mitigated by working with an experienced partner that can bring: Capital Experience navigating regulatory / legal issues RFP/RFA technical expertise An established administration infrastructure

18 The Risks: Mitigating Political Risk Applying for and implementing a Medi-Cal Managed Care plan will carry significant financial and other risks Here is a summary. – The cost of participating in RFP/RFA processes can be very expensive – this investment is lost of a plan is not awarded. – Managed Care plans have significant regulatory requirements which must be navigated carefully – Knox-Keene laws, in particular, are tricky. – Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives – A Plan has significant capital requirements, specifically funding an increasing reserve fund. Failure to keep pace means slow growth and/or fiscal instability. – Entering into the insurance business has the potential to change the current dynamic with existing Managed Care plans. But, the partner must also be flexible and open to working with the Members to address the primary non-financial risk.

19 The Partnership: Key Business Relationship Principles Partial ownership of the plan (Equity) Favorable contract terms for CHCs Control over where the plan operates geographically Participation in governance – Plan Board representation – Committee representation Funding to initiate the relationship Marketing and branding Network development A care management model that aligns with CHC competencies Access to data

20 The Partnership: Key Business Relationship Principles Handout

21 Q&A and Discussion