• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Re-Evaluating Your Managed Care Revenue Improvement Opportunities
 

Re-Evaluating Your Managed Care Revenue Improvement Opportunities

on

  • 1,499 views

Payer Contracting Strategy and Revenue Improvement

Payer Contracting Strategy and Revenue Improvement

Statistics

Views

Total Views
1,499
Views on SlideShare
1,498
Embed Views
1

Actions

Likes
0
Downloads
33
Comments
0

1 Embed 1

http://www.linkedin.com 1

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Re-Evaluating Your Managed Care Revenue Improvement Opportunities Re-Evaluating Your Managed Care Revenue Improvement Opportunities Presentation Transcript

    • 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.
    • Presentation Agenda Topic Area I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (1)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (2)
    • Trends: Managed Care Issues Facing the Provider IndustryI. Strategic Revenue Improvement Opportunities: Game Changers Managed Care is the Dominant Payment and Utilization Management 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 to continue 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)
    • 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 be designated as “quality network” providers.  MCO “Tiered Network” products use a core participating provider network of designated “quality network” providers.  Customers will have the choice of buying benefit products which use the 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 losing significant 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)
    • Trends: Managed Care Issues Facing the Provider IndustryI. Strategic Revenue Improvement Opportunities: Game Changers Provider Integrated Networks - Clinical Integration Business Model  2007 FTC ruling on Advocate Health can allow physicians and hospitals to collaborate and align economic interests with community benefits… when structured appropriately. – This ruling has lead to a rebirth of the IDS model under a “clinical integration” structure… offering provider networks the opportunity to establish 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 those provider networks which… can attract and retain patient lives, operate under P-4-P reimbursement methodologies and which provide cost-effective quality care with demonstrable quality improvement outcomes. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (5)
    • Trends: Hospital REPORT 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 distress… Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (6)
    • 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)
    • 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)
    • 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)
    • 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)
    • 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)
    • 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)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (13)
    • 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 by Total # I/P Payer Class Gains & % Full % Billed Total Needed = 5% Payer Class - Financial Payer Class ($500 Million and O/P Losses (Fully Loaded Costs Charges # Days Operating Performance Comments in Annual Net Revenues) Cases D&I Costs) Paid Paid Margin Medicare (1) 85,000 98,000 $ (7,000,000) 97.1% 40.9% 8.18% I/P Gains & O/P Losses Medicaid (1) 46,000 32,000 (14,140,000) 54.4% 25.4% 93.18% I/P and E/D main loss areas Self Pay 35,000 3,100 (8,750,000) 54.9% 26.5% 91.41% E/D & Other O/P main loss areas Workers Comp 2,700 1,560 3,888,000 157.0% 75.6% 0.00% I/P & Other O/P most profitable Other Government 760 900 (609,000) 73.5% 32.7% 42.81% I/P & Other O/P main loss areas Self-Insurance-Hospital 3,500 1,450 700,000 115.5% 50.1% 0.00% I/P main gain, minor BH loss Unspecified Commercial Plan Class Comm.-No Contract 16,200 2,100 3,200,000 141.1% 75.2% 0.00% (i.e., non-contracted insurers) Main losses on E/D, SDS, Selective MCO - HMO/PPO 86,900 60,300 7,500,000 108.6% 47.7% 0.00% High End DRGs MCO - Medicaid 33,000 11,000 (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 1,050 2,050 (600,000) 93.9% 38.8% 33.00% w/one profitable agreement MCO – Behav. Health 2,290 4,450 (3,250,000) 66.3% 44.3% 153.37% I/P & Other O/P main loss areas TOTALS 312,400 216,910 $ (29,661,000) 94.9% 44.1% 15.14% N/A Required 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 operational performance 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 government payment 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 is important 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)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: What “Market” Really Means MCO Reimbursement, Payment Rules and Contract Terms Result In… ??? Illustrative Variable MCO Negotiation Outcomes: Low & High Ranges (1) Provider Commercial Network Rental Medicare Classes Managed Medicaid HMO/POS/PPO PPOs Advantage Physicians 65% - 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 Surg 75% - 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 who accept 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)
    • 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 today’s discussion will focus on the “where’s” and “how’s” of improving net managed care revenues! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (16)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Actions Within Provider Span of Control Process, Revenue People & Are you Drivers Technology optimizing Reimbursement & Strategy & your managed Methodology Preparation care revenue Payment Rules Contracts & Negotiations opportunities? Physician Referrals E-2-E Revenue and Payer Mix Cycle (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)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue Optimization Reimbursement, 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)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue Optimization Physician Referral Management & MCO Service Mix Mgmt.  Physician high margin/low margin referral mix and MCO service 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)
    • 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/case management/charge capture-billing-collections processes (i.e., MCO contract 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 operations integration… underlying processes must be effective/efficient.  Relationship management process with key MCOs (i.e., improves net cash collections, reduces denials and error rates). Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (20)
    • 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)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas Clinical Quality End-To-End Revenue Reimbursement, Physician Referral Improvement Integration Cycle Process Payment Rules and Management and MCO with Financial Optimization and Contract Terms Service Mix Management Performance and Cost Management Reduction Initiatives Strategic A&M E.G., Opportunity Expected Rationale Metrics Areas EBIDA Contracting strategies and negotiations using Rate traditional market driven approaches yield the Increases & 5% - Pre-Post Net lowest rates and redefining cost + approaches Reimb. 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. Business Business models which can attract and retain Model / 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., Commercial HMO vs. Medicaid HMO), provider class and provider business model. | (2) Improvement opportunity variability tied to starting performance rates. | (3) Improvement opportunity is work stream specific. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (22)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas Strategic A&M E.G., Opportunity Expected Rationale Metrics Areas EBIDA Case & Integrating MCO contract performance Physician Procedure benchmarks with a physician marketing Referral & 5% - Volume strategy, can favorably change referral MCO Mix 10% (3) (per service volumes as well as service mix by MCO Management product. area) MCO underpayments are largely driven by interpretive and implementation related Underpay errors relative to the executed compensation, Recovery UM/CM, payment methodologies/rules Underpay 4% - contracts. To ensure minimal Dollars & % underpayments, revenue cycle processes Recoveries 14% (2, 3) Underpay need to align with contractual requirements Rate and payment compliance tools are necessary to track payment compliance and pursue recoveries. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (23)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas Strategic A&M E.G., Opportunity Expected Rationale Metrics Areas EBIDA Denial, 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)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas Strategic A&M E.G., Opportunity Expected Rationale Metrics Areas EBIDA MCO variability from a uniform contract Contracting Billing Error language and multiple administrative 5% - Standardi- Rates & FTE requirements, drives up the costs of MCO zation 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 and 5% - Clinical & (2, 3) bed management and also provides a Quality 30% Financial competitive strategic advantage w/MCO Improvement Metrics contracts. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (25)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements  Managed care provider revenue optimization from a provider industry “conventional wisdom” perspective often focuses on… – Strategic pricing/price transparency, “perceived market” reimbursement, A/R acceleration, charge capture, denials management and payment compliance 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 will not significantly modify their reimbursement methodology, payment rules or contract terms… Per year rate increases are limited to a single digits… Providers cannot effectively influence their payer mix… There is little operational impact outside of the revenue cycle/billing process… There is little long-term strategic impact on programs and services.  The CW approach still applies… however, it needs to expand its scope and evolve into a strategic financial planning approach to MCO revenue optimization. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (26)
    • Revenue Optimization and Relevant SolutionsII. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements  Consider… if the majority of your patient revenues came from your MCO 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-Hospital Organizations, acquisitions of physician practices or hospital mergers/acquisitions? All of the above factors should be incorporated into your managed care contracting strategy. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (27)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (28)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: A&M’s Three Phase MCO Contracting Approach The MCO contracting process should be integrated with the organization’s strategic financial planning process to allow management to better determine their short-term/long-term financial targets, link financial targets to operational strategies and also align operational plans to financial targets. Develop Managed Care Negotiate Contracts Implement Contracts Contracting Strategy & • Initiate Contracting Strategy/Proposal • Prepare Work Plan to Ensure Accuracy Financial Planning Analyses Process with each MCO (new or prior of Contract Load, P-4-P and Care • Internal Assessment – MCO Contract to contract renewal) Management Program Implementation Performance, Modeling, Current • Collect Data on E-2-E Cash Issues • Integrate Contract into Revenue Cycle, Margin Gap, MCO EBIDA/EBITDA and Include in Negotiations Process HIM, Case Management & Other Ops Opportunity Assessment & Validation (i.e., for a concurrent resolution) • MCO Relationship Management • External Market Assessment – MCO • Counter Proposal Process and Rate • Revenue Recovery and Denial SWOT Analysis, Market Review, Sensitivity Modeling Analyses Management (ongoing process) Product Share, Physician Referrals, • Review and Finalize Contract/Rate Reimbursement Options • Integrate with MCO Portfolio and Amendment Physician Referral Management & • Develop Overall and MCO Specific • If no Acceptable Contract… Prepare Network Development Strategies Contracting/Pricing Strategies, Termination Disruption Analysis, Tactics, Goals and Objectives • Monitor MCO Contract Performance Patient Retention/External • Standardize Contracting Process, Communications Strategy and • Train Staff Pricing/Proposal Templates & Terminate Contract • Implement Outsourced Services (if Negotiations Management Team applicable) Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (29)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Four Phase MCO Contracting/Revenue Management Process4. Grow: Integrate MCO Revenue 1. Find: Diagnostic EBITDA/EBIDA Strategies with Overall Assessments, Identify and Organization Business Goals, Validate the Revenue Improvement Objectives and Strategies, Find The Opportunities, Develop Contract Physician Referral/Payer Mix Cash Portfolio Management and Management and Clinical Negotiating Strategies Resource Improvement Grow Increase Get The The Cash Cash Cash3. Manage: Integrate MCO 2. Get: Strategy and Tactics Manage Contracts into Revenue The Development/ Implementation, Management and Clinical Cash Execution of Strategic Pricing, Operations as well as Contract Negotiations and Market Marketing Plans Over a Multi- Positioning Initiatives Year Period… and Collect Cash Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (30)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence - Internal Assessment Managed Care  Review multi-year strategic goals and objectives Contracting  Interview key “managed care” stakeholders Strategy & Analysis  Assess physician and patient satisfaction with MCO(s)  Inventory managed care contracts and rank by Tier Internal Assessment  Compare Hospital contracts for content and balance  Model, Analyze and Rank Contracts: – By MCO Category and Size External Assessment – By Product Segment – By Profitability and revenue leakage in Revenue Cycle Develop MCO  Assess value of different contracting reimbursement Contracting Strategy approaches (e.g. per diems, DRGs, case rates, % of charges and other) Standardize  Conduct Hospital/MCO mix/payment analysis Contracting  Assess internal data accessibility and IT decision Processes & Mgmt. support capabilities  Assess Managed Care Dept./Div. capabilities and needs Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (31)
    • 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 By Total # of I/P Expected Total % Total MCO - Annual Net Total Allocated and O/P Total # Days Total Charges Net Paid Charges Total Gain/Loss % Net Income Revenues of $500 Expenses 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 $ 88,000,000 48.2% $ 6,000,000 6.38% MCO 2 13,400 8,300 63,000,000 33,000,000 30,000,000 52.4% 3,000,000 9.09% MCO 3 9,100 6,500 46,000,000 23,000,000 24,000,000 50.0% (1,000,000) -4.35% MCO 4 9,200 5,800 40,000,000 21,000,000 20,000,000 52.5% 1,000,000 4.76% MCO 5 8,000 5,600 39,000,000 18,000,000 18,000,000 46.2% - 0.00% MCO 6 5,000 3,600 28,000,000 14,000,000 17,000,000 50.0% (3,000,000) -21.43% MCO 7 - All Other 2,200 1,500 11,000,000 7,000,000 5,500,000 63.6% 1,500,000 21.43% TOTALS 86,900 60,300 $ 422,000,000 $ 210,000,000 $ 202,500,000 49.8% $ 7,500,000 3.57% Managed Medicaid and CHIP MCO 1 24,300 7,100 $ 33,000,000 $ 11,000,000 $ 16,500,000 33.3% $ (5,500,000) -50.00% MCO 8 3,900 1,600 7,000,000 2,200,000 4,000,000 31.4% (1,800,000) -81.82% MCO 3 2,300 1,300 7,000,000 1,500,000 3,200,000 21.4% (1,700,000) -113.33% MCO 9 - All Other 2,500 1,000 3,700,000 900,000 2,500,000 24.3% (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 10 350 550 $ 2,200,000 $ 1,000,000 $ 900,000 45.5% $ 100,000 10.00% MCO 11 500 1,000 7,000,000 2,600,000 3,000,000 37.1% (400,000) -15.38% MCO 12 - All 200 500 3,000,000 900,000 1,200,000 30.0% (300,000) -33.33% Other TOTALS 1,050 2,050 $ 12,200,000 $ 4,500,000 $ 5,100,000 36.9% $ (600,000) -13.33% Managed Care Behavioral Health MCO 13 1,300 2,400 $ 6,000,000 $ 2,500,000 $ 4,500,000 41.7% $ (2,000,000) -80.00% MCO 14 300 650 2,000,000 700,000 1,200,000 35.0% (500,000) -71.43% MCO 15 290 500 1,500,000 550,000 900,000 36.7% (350,000) -63.64% MCO 16 150 350 800,000 300,000 450,000 37.5% (150,000) -50.00% MCO 17 130 300 700,000 350,000 400,000 50.0% (50,000) -14.29% MCO 18 - All 120 250 600,000 200,000 400,000 33.3% (200,000) -100.00% Other TOTALS 2,290 4,450 $ 11,600,000 $ 4,600,000 $ 7,850,000 39.7% $ (3,250,000) -70.65% COMBINED TOTALS 123,240 77,800 $ 496,500,000 $ 234,700,000 $ 241,650,000 47.3% $ (6,950,000) -2.96% Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (32)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance Wtd. Wtd. Ave. Wtd. % Wtd. % Wtd. Paid Wtd. % Wtd. % Total Billed Actual Average I/P Case Rate Charges Payor Cases Charges Paid NPSR Gain/Loss Cost/ NPSR/ L.O.S. Denial/Slw Increase Charges Charges for 5% Case Paid for B. E. Case Pay Rate to B.Even Margin Medicaid HMO 1 7,396 $28,541,897 $5,522,580 ($4,989,364) $1,421 $747 2.65 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 diagnostic radiology; 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 process referenced 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; 180 days 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% of Services for Inpatient; evergreen contract; 90 days written notice for contract termination; contract dated and does not represent current United contracting approach of one facilities contract with separate product rate amendments. Medicare A & B F-F-S 5,996 $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-S 4,857 $20,982,566 $4,420,839 ($3,281,811) $1,586 $910 2.82 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 Dependence W/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)
    • 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 Group Reporting Period: Plan Name: Health Plan or PPO: Current Month Health Plan or PPO: Year-To-Date (start date xx-xx-xx) Mgd Medicare Mgd Medicare Prior FY Performance Measures HMO/POS PPO Medicaid Advantage Totals HMO/POS PPO Medicaid Advantage Totals Total Growth & Market Indicators Total I/P Cases Total I/P Days Total Births Total E/D Visits Total OBS Cases Total SDS Cases Total Other Cases/Visits Total Cases-All Cases Acute ALOS Acute Case Mix Index % of Admissions Through ED % Admissions: 3 Mile Radius % Admissions: 5 Mile Radius Reimbursement & Profitability Indicators ($$) Total Billed Charges Total Net Paid Revenues Total Direct Costs Total Indirect Costs Total Costs Total Net Gain/Loss Net Operating Margin % Total Cases Denied % Total Cases Downgrade Pay. Total Expected Pay $$ Total Actual Pay $$ Tot. Exp. Pay. vs. Actual Var. $$ Net Days In Accounts Receivable Total A/R $$ Over 90 Days Total $$ in Accounts Rec. % of Charges Paid to Tot. Billed Cost 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)
    • 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 Week Managed Managed Mgd Care Totals/ Wtd. Performance Measures Medicaid Medicare A Private Hospice VA/Other Medicare Medicaid Comm. AveragesVolume: Capacity & Utilization Facility Staffing Total Other Employed Staff FTEs Revenues---Total Licensed Beds Nursing--- Total Overtime FTEs Total Room & Board PPD * RN FTEs Total Temp FTEsTotal Beds Occupied Total Ancillary & Other Revenue PPD Total 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 PPD Total Nursing Payrollbeds) * Total RN FTEs Expenses--- Total Other Employed Staff PayrollTotal Bed Days Total RN Hours/Resident Day Total Room & Board Expense PPD Total Overtime PayrollTotal Census (No. Patients) * LPN FTEs Total Temp Fees/Payroll Total Ancillary & Other Expense PPDTotal Average Patients * LPN FTE Temps Total 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 Total Total Benefit Expenses Net Days in Accounts ReceivableAdj. Ave. Occupancy (less reserve beds) % Total LPN Hours/Resident Dayof Total Total 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 & Board Days Cash On Hand * Total CNA FTEs Total Ancillary & Other Revenue Accounts Payable ($$)% Admissions: Physician Referral Total CNA Hours/Resident Day Total Net Revenues Days in Accounts Payable% Admissions: Self or Elective TOTAL NURSING FTEs Total Operating Expenses-Routine% Admissions: Other TOTAL NURSING HRS/RESIDENT DAY Total Operating Expenses-AncillaryTotal Admissions Total Nursing Staff (employed) Terminations Total Operating Expenses - Volun. + Involuntary Total Property Related (Depreciation,Total Discharges Amortization, Rent and Interest)Net New Admissions Total Nursing Staff (employed) New Hires Total Expenses Total Profit/Loss Total Nursing Staff Turnover Rate % Cash Flow Margin Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Total EBITAR (35)
    • 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 $1,400 Same Comparative Analyses: SDS, E/R, High Cost Dx $1,400 0 23 1, 18 33 $1, 1 $ $1,100 $1, 0 $1, 2 83 5 $92 13 70 59 $1, 0 $1, 0 $1, 0 $800 Act. M/S Target M/S Commercial HMO Products Floor M/S Ceiling M/S $500 Pl Pl Pl Pl Pl Pl Pl Pl an an an an an an an an A B C E F G H I Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (36)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Hospital Maternity Rates Actual Commercial HMO-POS-PPO Insured - Maternity 200X Rate Comparison Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (37)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Historical Service Mix by Product MCO Analysis: HMO A Service Volume Changes Note: While some patient volume increased… it was largely existing patient business moving from better reimbursing MCOs! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (38)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO Referral Sources MCO Analyses: HMO A Patient Product Source And Zip Code Analysis Sum of CY XX CASES ADMISSION MH 07093 07047 PMC % DIRECT Grand Through BENCHMARK CLINIC ADMIT ED H N O P S TRANSFER Y Total EMER/R 20701 HMO A INDEMNITY 1 67 91 7 166 54.8% 20741 HMO A MEDICARE 25 34 59 57.6% 20810 HMO A HMO 1 153 147 40 341 43.1% 20942 HMO A PPO 157 141 30 1 329 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 the immediate 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence – External Analysis Managed Care  Identify trends in contracting strategies and Contracting reimbursement (regional/national). Strategy & Analysis  Identify threats to Hospital MCO reimbursements. Internal Assessment  Understand MCO medical claim loss ratios.  Understand role of hospital’s 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 Contracting Processes & Mgmt. views of MCOs vs. your organization. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 40
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current Admissions by Physician by MCO Product INSURANCE NUMBER OF % of TOT DR # DOCTORS NAME PLAN PLAN DESCRIPTION COMPANY ADMISSIONS ADM xx Doctor High Admitter AA YY HP A POS 7 0.044% xx Doctor High Admitter AA YY HP A Medicare Advantage 1 0.006% xx Doctor High Admitter AA YY HP A HMO 6 0.038% xx Doctor High Admitter AA YY HP A PPO 1 0.006% xx Doctor High Admitter AA YY HP B 1 0.006% xx Doctor High Admitter AA YY HP C 7 0.044% xx xx Doctor Doctor High High Admitter Admitter AA AA YY HP D YY HP E Med Adv 1 2 0.006% 0.013% Admissions by xx Doctor High Admitter AA YY HP E Managed Medicaid 26 0.164% xx Doctor High Admitter AA YY CHAR CARE 55 0.346% Physician/MCO Product xx Doctor High Admitter AA YY HP F PPO 1 0.006% xx Doctor High Admitter AA YY HP F POS 2 0.013% xx xx Doctor Doctor High High Admitter Admitter AA AA YY HP G HMO YY HP G PPO 15 1 0.094% 0.006% Knowing which medical xx Doctor High Admitter AA YY HP H Managed Medicaid 1 0.006% xx xx Doctor Doctor High High Admitter Admitter AA AA YY HP H Med Adv YY HP H POS 2 2 0.013% 0.013% staff members are the xx Doctor High Admitter AA YY HP I Indemnity 14 0.088% xx xx Doctor Doctor High High Admitter Admitter AA AA YY HP I Medicare Advantage YY HP I HMO 9 15 0.057% 0.094% highest admitters by xx Doctor High Admitter AA YY HP I PPO 20 0.126% xx Doctor High Admitter AA YY HP I Self Funded ASO 2 0.013% particular MCO and xx Doctor High Admitter AA YY HP I Managed Medicaid 11 0.069% xx xx Doctor Doctor High High Admitter Admitter AA AA YY HP J Self Funded ASO YY HP J PPO 6 8 0.038% 0.050% MCO product, factors xx Doctor High Admitter AA YY HP K Union Trust 1 0.006% xx xx Doctor Doctor High High Admitter Admitter AA AA YY MEDICAID FFS YY MEDICARE FFS 52 135 0.327% 0.849% into your overall xx Doctor High Admitter AA YY MEDICARE FFS 10 0.063% xx xx Doctor Doctor High High Admitter Admitter AA AA YY MEDICARE FFS YY HP L Union Trust 28 2 0.176% 0.013% strategy formulation for xx Doctor High Admitter AA YY HP M Commercial Insurer 1 0.006% xx Doctor High Admitter AA YY HP N Managed Medicaid 2 0.013% MCO negotiations. xx Doctor High Admitter AA YY HP O HMO 3 0.019% xx Doctor High Admitter AA YY HP O FEHBP 8 0.050% xx Doctor High Admitter AA YY HP O PPO 5 0.031% xx Doctor High Admitter AA YY HP P PPO 1 0.006% xx Doctor High Admitter AA YY HP Q Commercial Insurer 2 0.013% xx Doctor High Admitter AA YY HP R Self Funded ASO 1 0.006% xx Doctor High Admitter AA YY HP R HMO 4 0.025% xx Doctor High Admitter AA YY HP R POS 3 0.019% xx Doctor High Admitter AA YY HP R PPO 2 0.013% xx Doctor High Admitter AA YY US POSTAL SERVICE 2 0.013% 478 3.01% Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (41)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Baseline Determination of Medical Staff Alignment with MCOs To develop a physician referral and payer mix strategy, requires that you understand which MCOs your medical staff participates with, the pros and cons of each MCO from their perspective; and their MCO contract pre-auth and referral rules! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (42)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: Current MCO Market Share by MCO Product NYC Enrollments Commercial Commercial Commercial Direct Healthy Medicare Child Managed Family YE 06 Grand NYS Sept 07 By Health Plan HMO POS PPO Pay New York Advantage Health Plus Medicaid Health Plus NYC Totals Update Aetna Health Inc. 98,855 27,056 0 0 4,001 8,471 0 0 0 138,383 151,483 Affinity Health Plan Illustration 0of MCO By Product Enrollments –11,753 105,282 Market 0 0 0 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)113,731 0 0 0 0 1,160 1,333 95,417 15,821 113,914 AmeriGroup (Care Plus) 0 0 0 0 0 0 17,903 78,628 28,579 125,110 115,347 Atlantis Health Plan 0 9,350 0 42 1,698 0 0 0 0 11,090 15,720 Blue Choice (Excellus) 7 3 0 0 0 0 0 0 0 10 479,476 BSNENY 0 8 432 0 0 0 0 0 0 440 53,581 CDPHP 0 0 0 0 1 0 0 0 0 1 250,898 CenterCare (Fidelis) 0 0 0 0 0 0 4,105 55,619 9,951 69,675 0 CIGNA 17,484 29,578 0 1,408 1,787 0 0 0 0 50,257 17,938 Community Blue (HealthNow) 4 11 231 0 0 0 0 0 0 246 172,611 Community Choice 0 0 0 0 0 0 350 3,299 1,938 5,587 15,474 Community Premier Plus 0 0 0 0 0 0 3,061 65,484 8,506 77,051 29 Empire HealthChoice 100,913 19,734 0 8,148 10,711 25,080 25,989 0 0 190,575 561,747 Fidelis Care New York 0 0 0 0 0 0 7,181 80,431 42,772 130,384 286,356 GHI HMO (GHI-HIP) 3,215 13 0 13 649 5,918 1,058 9,291 6,443 26,600 59,058 Health Net 98,966 Which MCOs are active in your market 0 494 0 0 193 6,509 0 0 106,162 140,155 Health Plus 0 HealthFirst PHSP, Inc 106 area? How many lives do 0they really 0 0 0 0 0 0 0 0 0 28,847 18,718 187,257 244,141 44,050 69,148 260,154 332,113 895,099 415,657 HIP of New York (GHI-HIP) Managed Health Inc. 332,760 0 offer access0 to if you participate? 165,891 40,818 0 6,623 0 43,980 1,761 541 90,160 0 7,216 0 2,377 50,751 4 739,960 2,922 895,099 20,518 MDNY Healthcare Inc. 0 0 0 0 2 0 0 0 0 2 20,518 MetroPlus 1,608 0 0 0 0 0 18,395 190,920 37,257 248,180 272,676 MVP 53 21 0 0 0 0 0 0 0 74 251,389 Neighborhood Health Providers 0 0 0 0 0 0 8,165 75,427 16,438 100,030 90,055 NewYork Presbyterian CHP 0 0 0 0 0 0 3,492 46,565 11,308 61,365 103,185 Oxford Health Plan 84,838 191,246 0 0 5,993 68,680 0 0 0 350,757 410,532 UnitedHealthCare 6,673 39,439 0 0 0 4,845 610 31,806 25,413 108,786 102,983 Univera HealthCare (Excellus) 10 0 0 0 2 4 0 0 0 16 134,890 Upstate HMO (Excellus) 7 0 0 0 1 0 0 0 0 8 381,186 WellCare of New York 0 0 0 0 0 8,744 7,616 48,962 29,095 94,417 111,278 Total Enrollments 646,644 330,715 7,286 53,591 23,339 211,100 154,039 1,381,515 397,474 3,205,703 6,387,369 Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (43)
    • 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? 60,000 6,500 5,725 I/P Days Purchased by MCOs in an 6,000 Urban County vs. Hospital Days 50,000 5,500 48,004 County I/P Days Purchased 4,554 5,000 4,500 Hospital I/P Days 40,000 39,862 4,000 3,500 30,000 3,000 25,449 26,734 2,022 2,500 20,000 16,453 2,000 1,500 10,623 10,818 814 8,217 8,915 10,000 797 6,185 1,000 5,891 994 1,173 372 1,601 149 61 500 229 196 234 0 447 0 0 0 H H H H H H H H H H H H H H M M M M M M M M M M M M M M O O O O O O O O O O O O O O 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (44)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate Filings HP #1’s 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 State National (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 57.0 75.7 66.1 -24.6% -13.8% ALOS 4.17 3.91 3.93 6.6% 6.2% OP Encounters per 1000 7,586 10,726 9,738 -29.3% -22.1% Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (45)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate Filings Market 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Annual Reports and Rate Filings HP #1’s 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: Anthem HP #1 Anthem HP #1 Blue Pref Product 5B (2002 version) Primary A Blue Priority 5B (2002 version) Product B Claim Cost - Percent Claim Cost - Percent Filing Effective Date Cuyahoga County Client Change Medical Trend Rx Trend Filing Effective Date Cuyahoga County Client Change Medical Trend Rx Trend 1/1/2006 $ 284.81 11.9% 12.4% 18.7% 1/1/2006 $ 290.14 20.5% 12.2% 18.7% 1/1/2007 $ 323.88 13.7% 12.7% 17.1% 1/1/2007 $ 329.75 13.7% 12.7% 17.1% 1/1/2008 $ 373.32 15.3% 12.7% 16.1% 1/1/2008 $ 380.08 15.3% 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 Date Cuyahoga County Client Change Medical Trend Rx Trend Filing Effective Date Cuyahoga County Client Change Medical Trend Rx Trend 1/1/2006 $ 253.93 13.2% 12.4% 18.7% 1/1/2006 $ 258.68 12.8% 12.2% 18.7% 1/1/2007 $ 288.76 13.7% 12.7% 17.1% 1/1/2007 $ 293.99 13.7% 12.7% 17.1% 1/1/2008 $ 328.93 13.9% 12.7% 16.1% 1/1/2008 $ 334.89 13.9% 12.7% 16.1% UHC HP #2 Humana HP #3 HMO for Large Groups HMO for Large Groups Claim Cost - Percent Claim Cost - Percent Filing Effective Date Cleveland City Change Medical Trend Rx Trend Filing Effective Date Cleveland City Change Medical 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 $ 354.71 6.4% 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 #1’s 2007 Claim Costs in City of $288 to $330 for their four products range from 32% to 52% higher than the actual 2007 Incurred Claim PMPM of $217… i.e., their premium increases are significantly above their claim cost increases. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (47)
    • 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.” Contracting Strategy & Analysis  Develop a portfolio approach to managed care contracting: – 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 MCO goals by MCO product and demographic segment. Contracting Strategy  Integrate patient service quality and referral strategies.  Coordination with physician group/FPP/IPA/PHO (if Standardize Contracting applicable) and development of physician referral Processes & Mgmt. management strategies by MCO.  Implement MCO specific strategies at start of MCO negotiations. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (48)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation  National For Profit Commercial Health Plans MCO contracts and par vs. – Commercial HMO, POS, PPO, Indemnity Products non-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 portfolios Providers should develop – Same general product mix as above specific 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 Products for each MCO product type,  Self-Funded Group Business – Direct Contracting along with supporting – National, Statewide and Multi-Regional Large Employers business case rationale and – Taft-Hartley Union Trusts specific 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
    • 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 product MCO product design market share at present, P-4-P TBD. impacts reimbursement,  HMO (traditional): – 2nd best buyer pricing, large par networks/heavy provider revenue cycle processes discounts, tight UM/CM protocols, in-network only, 2nd and 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Define Stakeholder Goals and Objectives:  Hospital’s? The same planning  MCO? process applies to other provider types such as  Medical Staff? SNF, Home Care, Amb Surg 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)
    • 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 MCO’s negotiating team… personalities, strengths and 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 MCO’s position on a contract with your organization?  Likely maximum rate increase the MCO will agree to and why?  Likely MCO negotiating position and strategies… your counters? – What is the MCO’s target and maximum rate increases? What are the deal breakers for the MCO? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (52)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Strategy, 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 your organization? – 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 and traditionally high margin services?  Who is the customer/patient/physician more loyal towards? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (53)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Strategy Formulation Strategy, 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 other MCO rate negotiations?  Accounts receivable, denials, slow pay issues to improve with Payer to be “fixed” as part of negotiations process?  Other Analyses… CDM, Pricing/Rate Sensitivity Models, Referral Source by Payer/Payer Product/Physician/Zip Code, Share of Payer 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)
    • 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 for your position? – How do you leverage your relationships with other key MCOs to shift market 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)
    • 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 net income? – 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… variable depending on payer product, market and outcome of negotiations. – Each payer’s contract with a provider has some unique aspects… leading to market confusion from a price transparency perspective. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (56)
    • 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 % charges… however… they are increasingly moving away from discounts to compete with health plan ASO arrangements. – Additionally, PPOs rarely represent Tier-1 patient and payment volumes. As such, they are only a partial pricing solution.  Other Payers…Some 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 full cost… on a cost+ basis? At the end of the day… you need to have a positive margin from your combined patient services. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (57)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Cost Shifting and the Shifting of Risk Continues…  Health Savings Accounts and high deductible plans.  Lots of “drama” about price transparency has created intense sensitivity among providers and confusion in the consumer marketplace.  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 positive margin from your combined patient services… or the next financial crisis in the U.S. will be the healthcare industry. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (58)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Provider Response to Pricing and Margin Pressures?  Improved registration, financial counseling and patient accounting/billing/collection processes, denial management, etc., E-2-E fixes… and hopefully… sustained PI.  Better alignment of prices with costs and quality and efforts to move towards EBM and clinical integration.  Communication of “organizational value” to marketplace and coordination with marketing efforts.  Linking the strategic financial planning process with pricing and multi-year payer agreements.  Increased hospital-physician alignment/collaboration.  New pricing and negotiation strategies. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (59)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Basic 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 which you contract… adjusting for denials and revenue gaps from governmental/non-resource payers?  Is your CDM current, accurate and priced in a defensible manner with respect to charge based reimbursements?  Can you administer the pricing arrangements and payment rules that are 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)
    • 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)
    • 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 and Pricing strategies?  Other? You need to be able to answer these questions! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (62)
    • 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 Primary Common/Preferred Payer Reimbursement Methodology Class Financial 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 the Points; General Sub-Acute Per Diem board 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 of often profitable HMO/PPO 0%-4% Other: Insured/ – Selectively, Financial Penalties if Hospital based MDs – Denials, Downgrades, Slow Pays and ASO are Non-Par (e.g., E/R) Underpayments as well as lack of Other: (1) Aggressive Concurrent and Retro Utilization specificity on payment rules Reviews, (2) One-Sided Contract Language – Unexpected change in Service Mix Network Rental PPOs: % charges discount and fixed – Limited Appeal Options reimbursements 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 Medicaid reimburse below Medicaid Managed – Global E/R Triage rate emphasis Other:Medicaid & – No I/P Outlier Payments and MCO payment rules – Same as above for CommercialChild Health Other: (1) Aggressive Concurrent Review, (2) Use of Plus – Non-Adherence to Medicaid Payment Rules "Optimal“ Medical Necessity Stds, (3) One-Sided – Medi-Medi dual eligible deductible not paid Contracts, (4) Capitation for PCPs & Fee Schedule for – MCO exempted services not billed to Specialists below Medicaid Medicaid Source: A&M analysis and MCO negotiations outcome experience. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (63)
    • 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 Class Reimbursement Methodology Financial Losses Occur? I/P: All Inclusive non-Severity Adj. per diems or MS DRGs at % below I/P and O/P: In many cases, I/P & Medicare O/P financial losses, as Medicare O/P: APCs, modified APCs and MCOs look to reimburse below Medicare Selectively Fee Schedules Medicare… full DSH not Advantage Products  Other: (1) Annual inflators at recognized… no allowance for back prevailing Medicare, (2) No Payments end settlements for I/P Outliers, (3) Aggressive Other: Same "Other Issues" as Concurrent Review, (4) One-Sided described above. Contracts I/P: Global Payments vs. pre-carve-out facility only payments Managed I/P & O/P: Often across the board O/P: (1) Case Rates and Fee Care Carve- financial losses for contracts Outs Schedules which are not adjusted associated 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)
    • 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 to increase reimbursement beyond their “budgeted and approved” range.  Providers are often viewed as “crying wolf.” Claim they need this, they need 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…  Prepare an overall pricing strategy and rate template with floor, target and ceiling prices as well as alternate reimbursement methodologies (i.e., a revenue neutral cross walk table). – Bucket your services and prices in a format which parallels a MCOs’ benefit plan structure… they understand this. – Capture all charges and expenses for each service bucket.  Seek to minimize the need for interpretation as to what reimbursement should be for a specific service… leave nothing out… otherwise this will create multiple points of revenue leakage in the revenue cycle.  Develop a detailed revenue code/procedure code specific rate template with corresponding pricing by MCO product type… a key consideration for ensuring payment compliance. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (66)
    • 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 care contracts results in better outcomes from negotiations. – I/P should pay for I/P and O/P should pay for O/P… service mix changes with MCO contracts as does patient volume, neither generally in favor of the provider nor are changes predictable. – Pricing approaches that worked in the past may not work in the future… MCOs are changing how they contract to enhance their position… you have too much revenue at stake to maintain the status quo. – Understand that MCOs use their own internal and external data sources to develop their reimbursement ranges… be prepared to counter and demonstrate why your analysis is more correct and accurate.  MCOs do not really know what it costs to deliver healthcare… what they do know is what you are willing to accept as payment-in-full. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (67)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…Floor, Target and Ceiling (F-T-C) MCO prices: Determine what the indirect and direct cost of providing the above services 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 claims denials and a modest profit margin. – Understand that your target rates may differ significantly from your 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…  Ceiling rates are prices at which your competitiveness from a MCOs point of view, is reaching an upper threshold. All markets have a rate ceiling… above these rates… non-par status.  The above pricing guidelines and rates should be developed for your Tier 1 MCOs (the largest MCOs in market) and the Tier 2 MCOs (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 for Medicare Advantage, Managed Medicaid, CHIP and Workers Comp (only subscriber) managed care agreements. – Note: You can obtain reimbursements higher than FFS with some MCOs, with respect to the above products. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (69)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…  For Commercial, Medicare and Medicaid Managed Care Products… 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 certain strategic considerations may have to be made for some MCOs. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (70)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing 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 considerations into your pricing for Medicare Advantage and Managed Medicaid. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (71)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…  Inpatient Per Diem Rates… Based on estimated current year fully loaded costs per day. This applies to acute & alternate/step-down rates, 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 rate based 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 neutral DRGs (CMS SIWs are preferable)… specify DRG grouper used by both parties as MCOs use groupers built into their claims systems. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (72)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing and Managed Care Contracting Considerations…  Emergency Room… Estimated fully loaded cost. Avoid triage rates, however, when appropriate seek urgent care rates and avoid global rates… can also do levels of care or blended rates.  Observation Rates… From 80% to 100% of the medical/surgical per diem rate (varies by type of OBS care (e.g., false labor or rule out MI).  Ambulatory Surgery… Estimated fully loaded costs benchmarked against Medicare APC or CMS Grouper (pre-APC) reimbursement methodology for reasonableness and a modest margin. Avoid blended rates unless SDS mix volume is in Level 1 – 3 groupers… resist expanded 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 SDS rates or… negotiate higher SDS rates. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (73)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development Pricing 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 care delivery costs from Medicare Cost Reports, Ingenix, AHD & Others.  P-4-P… Be prepared for it… if you move towards clinical integration models such as PHOs and IPAs, P-4-P will be necessary. – Consider your business model and its ability to attract and retain patient lives. Tiered network products will have a big impact.  Other Delivery Models… MCOs and government payers are looking for lower cost/quality care delivery in a non-inpatient setting. How will you compete? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (75)
    • Preparing for MCO Negotiations COMMUNIT Y HOSPIT ALIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCOHOSPIT AL RAT ES Applicable Rate Codes (Revenue, Payment COMMUNIT Y Pricing Development (Facility Only) CPT4, ICD-9 & DRG) Methodology Floor Target Ceiling INPAT IENT PER DIEMS Note: I/ Rates Assume T hat DRG Carve-Outs Are Allowed. Otherwise goal rates to offset risk would be "T arget" rates. PAIDS DRGs 701-716 PER DIEM $1,370 $1,650 $1,930Intermediate Care (Step Down and Telemetry) Rev Codes 206, 214 PER 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 Target Ceiling 122, 130, 131, 132, 140, 141, 142, 150, 151, 152, INPATIENT PER DIEMS73.99, & DRG Codes 160, 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 Mix Case Mix Neutral DRG AIDS DRGs 488-490 Final 2006 Grouper Neutral Rate Per Neutral Rate Per Neutral Rate Per 59409, 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$3,800 Applicable $4,450 DRG x Applicable DRG x Applicable 72.1, 72.2, Down and Telemetry) 72.31, 72.39, 206, 214 Intermediate Care (Step 72.21, 72.29, 72.3, Rev Codes 72.4, projected profit of 25% Service Intensity Weights Weights Weights 72.5, 72.51, 72.52, 72.53, 72.54, 72.6, 72.7, 72.71, Weights; Excludes and a CMN DRG of 72.79, 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, Orthotics Med/Surg 129 - 133, 137, 139 - 142, 143, 147, 149 - 153, 157, $7,500 results in a 73.21, 73.22, 73.3, 73.4, 73.5, 73.51, 73.59, 73.6, & Prosthetics; 159 - 169 projected profit of 18% 73.8, 73.9, 73.91, 73.92, 73.93, 73.94, 73.99 Transplants, ICU/CICU/SICU Rev Codes 200 - 202, 209, 210 - 212, 219 Behavioral 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 Diem commercial 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, 160 122, 130, 131, Points and for 59612, and ICD9 Codes: 72, 72.0, 72.1, 72.2, 72.21, 59409, 59610, 59612 And And 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 $1,760 72.2, 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, 73.99 Revenue 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 CASE And 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, for Vaginal With Sterilization 59620, 59622 72.2, 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, 73.99 73.91, 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, 160 Copyright 2009. Alvarez & Marsal Holdings, LLC. CPT4 Codes: 59400, 59409, 59610, 59612 And And All Rights Reserved. (76)Detained Baby/Routine Nursery/Newborn Rev Codes 170, 171, 179 PER DIEM $540 $650 $760 Maternity - Vaginal Delivery With/Without DRG 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,
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development INPATIENT DRGCARVEOUTS NYSM D A ED GM TH D LO Y E IC R R E O O G 1 C A IO M EO R N TO YAG VER17WCC PERC SE A $26,740 $32,220 $37,700 2 C A IO M EO R N TO YAG VER17W C /OC PERC SE A $16,480 $19,852 $23,230 6 C PALTU N ELE AR N ELR ASE PERC SE A $3,340 $4,030 $4,720 P IPH&C A IALN VE&O ERN V ER RN ER TH ER 7 SYSTPR CWC O C PERC SE A $14,630 $17,632 $20,630 P IPH&C A IALN VE&O ERN V ER RN ER TH ER 8 SYSTPR CW C O /0C PERC SE A $7,240 $8,727 $10,210 O 9T PA T IE N T U S ALD R E S&IN R PIN ISO D R JU IES PERC SE A $8,390 $10,105 $11,820 10 Note: O/P surgical procedures do not include VO SSYSTEMN PLASM NER U EO SWCC PERC SE A $11,450 $13,793 $16,140 PER CASE im plants, etc. 11 N VO SSYSTEMN PLASM /OC ER U EO SW C PERC SE A $6,650 $8,009 $9,370 Rev 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 ER PER CASE $1,410 $1,600 $1,870 12 or PERC SE A $7,970 $9,604 $11,240 Note: Pre-APC CM S Groupers for Am b/Surg ISO D S D R Rev Codes 360, 369, 490, 499 and appropriate CPT abd ER PER CASE do not include implants or HCPCS Codes Am b/Surg - Group 1 13 M LTIPLESC O U LER SIS&C E ER BELLARATA IA X Medicare pre-APC, CMS Groupers PERC SE A PER CASE $5,830 $840 $7,021 $950 $8,210 $1,110 Am b/Surg - Group 2 Medicare pre-APC, CMS Groupers PER CASE $1,200 $1,365 $1,600 Am b/Surg - Group 3 Medicare pre-APC, CMS Groupers PER CASE $1,460 $1,655 $1,940 Am b/Surg - Group 4 Medicare pre-APC, CMS Groupers PER CASE $1,940 $2,200 $2,570 Am b/Surg - Group 5 Medicare pre-APC, CMS Groupers PER CASE $2,110 $2,400 $2,810 Am b/Surg - Group 6 Pricing Template Illustration Medicare pre-APC, CMS Groupers PER CASE $1,980 $2,250 $2,630 Am b/Surg - Group 7 Medicare pre-APC, CMS Groupers PER CASE $3,040 $3,450 $4,040 Am b/Surg - Group 8 Medicare pre-APC, CMS Groupers PER CASE $2,310 $2,630 $3,080 Am b/Surg - Group 9 Medicare pre-APC, CMS Groupers PER CASE $1,560 $1,775 $2,080 Am b/Surg - All Other-Default Rate All surgical procedures not otherwise identified PER CASE $1,230 $1,400 $1,640 Rev 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 $1,050 43258, 44360-44397, 45300-45387, 46600-46614, 31231-31294, 50951-50980, 52000-52355, 52400
    • 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 nation’s 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)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development I/P Rate Illustration INPATIENT PER-DIEM Mental Health - Adult Rev Codes 124, 134 PER DIEM Mental Health - Pediatric Rev Codes 113,123,133 PER DIEM Detox Rev Codes 126, 136 PER DIEM Substance Abuse Rehab Rev Codes 128, 138 PER DIEM ECT (excludes anesthesia services) Rev Code 901 PER DIEM All other I/P services not specified All I/P services not otherwise identified % CHARGES Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (79)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development HOSPITAL NAME HOSPITAL NAME Applicable Rate Codes (Revenue, Payment 1/1/09 - 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 DRG I/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 (excludes HIV/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 Code transplants and HIV PrimaryCare Clinic (Subject to change whenICU/CICU/SICU/NICU/PICU Rev Codes 200 - 203, 209, 210 - 213, 219, 174 515)… Counsel & Testing, Post Test Counseling DRG Carve- January or July rates every year become available. Outs)….easier to (Pos.), Post Test Counseling (Neg.), Initial PER VISIT Visits can be identified by rate codes as provided inNursery Level I Rev Codes 170, 171 administer if seek Comprehensive, Drug and Immunotherapy, Disease to avoid UB-92) Monitoring, Counseling-No-Test) inlier/outlierNursery Level II & III SKILLED NURSING Rev Codes 172, 173 scenarios... for a Skilled Nursing Medicare product, PER DIEM between 95% -Nursery Level IV Sub-Acute Care Rev Code 174 PER DIEM Sub-Acute Rehabilitation Primary Care Physician and Specialty Care Physician Payment Rates 100% of Medicare PER DIEM HIV/AIDS Care Medicaid - PCP Revenue Codes: 100, 101, 110, 111, 112, 120, 121, PER DIEM Ventilator Care 122, 130, 131, 132, 140, 141, 142, 150, 151, 152, PER DIEM ADC/HR M & F < 6 Months N/A PMPM HOME HEALTH 160, with ICD9 Codes 72 - 73.99, & DRG Codes 372, 373, 374, 375, 652 and CPT4 Codes:59400, RN and Pre-Post Newborn (per visit) ADC/HR Female 6 Months - 14 Years N/A N/A PMPM 59409, 59610, 59612, and ICD9 Codes:72, 72.0,Maternity - Vaginal (Mom only for 3 day stay) IV Therapy RN (per diem) 72.1, 72.2, ADC/HR Male 72.3, 72.31, 72.39, 72.4, 72.21, 72.29, 6 Months - 14 Years N/A N/A PMPM 72.5, 72.51, 72.52, 72.53, 72.54, 72.6, 72.7, 72.71, DRGs 701-716, Rev Codes: 100, 101, 110, 111, Home Health Aide (per hour) N/A 72.79, 72.8, 72.9, 73, 73.0, 73.01, 73.09, 73.1, 73.2, Gamma Knife (Trim Point 2 Days) N/A 113, 117, 119, 120, 121, 123, 127, 129, 130, ADC/HR Female 15 - 20 Years PMPM LPN (per hour) 73.21, 73.22, 73.3, 73.4, 73.5, 73.51, 73.59, 73.6, N/A 131, 133, 137, 139, 140, 141, 143, 147, 149, 73.8, 73.9, ADC/HR M & F73.93,64 Years 73.91, 73.92, 21 - 73.94, 73.99 N/A 150, 151, 153, 157, 159, 160, 164, 167, 169 PMPM PT/OT/ST/SW (per visit) N/A HOSPICE HR M & F 21 - 29 Years N/A PMPM Routine Home Care PER DIEM Revenue Codes: & F 30+ Years 111, 112, 120, 121, HR M 100, 101, 110, N/A PMPM Continuous Care 122, 130, 131, 132, 140, 141, 142, 150, 151, 152, PER DIEM 160, and CPT4 Codes: 59400, 59409, 59610, 59612, DIEM Medicaid Specialty Physician Services N/A PER VISIT Inpatient Care Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. PER (80) and ICD9 Codes: 72, 72.0, 72.1, 72.2, 72.21, 72.29, Inpatient Respite CareMaternity - Vaginal (Mom only, days 4-999 stay) 72.3, 72.31, 72.39, 72.4, 72.5, 72.51, 72.52, 72.53, PER DIEM
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - MCO Pricing Development O/P Rate Illustration Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (81)
    • Preparing for MCO NegotiationsIII. Strategic Revenue Improvement Opportunities: MCO Due Diligence Analysis - Standardize Contracting Processes  Create value maps and work flow chart defining the Managed Care structure of the managed care/payer relations Contracting department and interdependency with other areas. Strategy & Analysis  Standardize internal controls, policies and procedures for MCO contract, rate amendment and payment rules Internal Assessment review and approval process as well as single case agreements and revenue cycle administratability.  Standardize pricing/rate proposal templates by MCO External Assessment product type and tier classification, inclusive of crosswalk variable reimbursements and floor, target Develop MCO and ceiling pricing. Contracting Strategy  Standardize/develop provider version of a balanced MCO contract. Standardize  Establish MCO negotiating team and roles. Contracting Processes & Mgmt.  Determine all open denial, underpay, overdue A/R.  Utilize IT/analytical tools to support revenue mgmt. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (82)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (83)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview  Prepare new or renewal rate proposal with Negotiate Contracts specifics and supporting rationale for rates being requested.  Initiate proposal discussion process with MCO Initial Proposal (first meeting, in person, is best).  During initial meeting address rates, Data Collection: rationale/business case, A/R, denials, E-2-E and Other MCO Issues underpayments, etc. (all issues impacting provider revenue through MCO relationship on table). Multiple Counter-  Use earlier developed MCO P&L models, modified Proposals & Negotiations to serve as rate sensitivity financial analysis models and/or contract manager application if available and fully populated (may need Excel Review & Finalize model for out years). Agreements  Assess administratability of MCO proposed payment methodology and payment terms. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (84)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview  Execute specific contracting strategies and tactics. Negotiate  Analyze rate proposals with respect to meeting pricing Contracts targets using provider rate sensitivity model.  Prepare counter rate proposals, payment rules and contract term counters (usually from 2 to 4 with a focus Initial Proposal on fairness, balance and administratibility).  Negotiate on a rate-by-rate, rev code and procedure Data Collection: E-2-E code grouping basis (leave little to nothing to and Other MCO Issues interpretation on reimbursement and payment rules).  Review and evaluate opportunities for MCO Multiple Counter- collaborations and alliances. Proposals &  Prepare disruption analyses related to contract Negotiations discontinuance (if at impasse with unacceptable terms). If a contract moves towards termination: Review & Finalize – Execute MCO termination/patient retention strategies. Agreements – Prepare communications strategies and present MCO planned termination to key internal stakeholder groups. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (85)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Hospital Illustration) Traditional Market Driven Pros  Easy to implement  Does not require specialized managed care skills  Patient oriented “give” when MCO $$ are a low % of total Net Revenues  Few technology investments required  No disruption or termination risk Cons  No link to provider/pricing strategy  Tied to MCO defined “market”  No annual increases (w/some MCOs)  No aligned incentives w/physicians  One-sided MCO oriented agreements  Revenues are not optimized * Note: Network Business Model Limits or Expands Contracting Strategies Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (86)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Hospital Illustration) Enhanced Market Driven Pros  More targeted negotiations with better reimbursement yields  More balanced contracts and better payment rules/terms… maybe  Relationships created with MCOs  Moderate negotiation cycle required  + MCO net revenues  Limited disruption Cons  Partial link to provider/pricing strategy  More unique rates… still market norm  COLA + % increases  Some/No alignment w/physicians  Contracts still one-sided  Revenues are not optimized  New technology investments needed  Termination risk… if MCO hard line Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (87)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Hospital Illustration) Modified Cost + Strategy Pros  Rebasing on reimbursement floor w/significant increases sought  Strategy drives negotiations… better payment rules/terms  Relationships enhanced with MCOs  + Patient volume and physician linkage opportunities  ++ MCO net revenues Cons  Specialized “Managed Care” management skills needed  Longer negotiations cycle  Trades on contract terms for rates  Potentially significant technology investments, clinical integration, etc.  Potentially disruptive to Hospital relationships and cash flow  Revenues are not fully optimized  Moderate-high termination risk Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (88)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Hospital Illustration) Redefining Cost + Strategy Pros  Focus on achieving target MCO rates  Changed market paradigm… provider repositioned with MCO  Strategy drives negotiations and decisions on MCOs  More Balanced relationships w/MCOs  ++ Patient volume and physician linkage opportunities  Better reimbursement than competitors Cons  Requires special “Managed Care” skills  Strained MCO Relationships  Longer negotiations cycle  Potentially significant technology investments, clinical integration, etc.  Potentially disruptive to physician relationships and potential short-term cash flow/patient volume declines  High termination risk Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (89)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Practice Illustration)  How does the practice’s relationship  How are the practice’s top line services with each key MCO relate to its overall impacted by its MCO contracts? business goals and objectives?  How are the practice’s competitors  Does the practice’s business goals and using MCO Plans to their competitive: objectives with key MCOs drive its Advantage? Disadvantage? pricing and negotiating strategy?  What is the practice’s patient services  Is the practice making or losing money market share by MCO product? on its key MCO contracts? How does the practice know?  How do the practice’s contracts impact operational/capital planning? – Can the practice improve its net revenues?  How will the practice’s decisions on key  Does the practice’s relationships with MCO contracts impact patient referrals MCOs help the practice to be more to/from practice? competitive in the marketplace?  What staffing and technology  Patient loyalty is to… the practice or the capabilities does the practice require to MCO? optimize its MCO revenues?  What will happen to some MCO  What is the practice’s compelling value reimbursements if Gov. cuts MCO Plan proposition for MCO Plans? payments… are fee schedules linked? Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (90)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Practice Illustration)  What is the reimbursement relative to  Is the agreement an evergreen agreement practice charges, cost and to Medicare? and what are the term/termination  What are the administrative requirements provisions? under the MCO contract? What pre-  What is the annual inflation factor? authorizations are required for what  How and where has the MCO modified specific services, and how will they impact the reimbursement fee schedule from current referral patterns? traditional Medicare?  Who determines medical necessity and – Is the fee schedule provided? how is it defined?  How are non-par referrals/coverages  What are the specific eligibility handled? determination requirements and how are  What P-4-P incentives are involved and retroactive terminations handled? what are the specific mechanics to  What are your appeal rights, how many obtain? Realistic? Meaningful? levels of internal and external appeals are  If capitation payments are involved, what allowed and how are disputes resolved? is allowed as a billable service outside the  How are underpayments and capitation? Risk adjustments? overpayments to be handled?  How are new services/new technology  Is the practice required to accept the MCO added and reimbursed? contract under an overall “all payer” contract with the MCO?  What are the payment timelines? Know the answers before signing a MCO contract Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (91)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Approaches (Hospital Illustration) Deal with Rates, A/R, Denials, Underpays, Appeals, etc. issues… during the negotiations process… address all business issues. MCOs can be friend and potential collaborator… or foe! Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (92)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview - Negotiating Outcome Applied MCO Revenue Optimization Process Outcome PreN-M/S Target M/S Y1-M/S $3,200 Y2-M/S Y3-M/S Floor M/S $3,061 $2,900 $2,871 7 Commercial 0 HMO Only $2,514 $2,600 2,5 $ $2,300 $2,000 1 , 70 $1 $1,731 $1,700 $1,475 $1,400 $1,400 18 74 ,0 $1, 1 $1,100 $1 $1 $1 ,2 $1 $1 $1 ,2 83 $1 ,1 $1 13 ,0 ,0 80 $800 ,0 ,0 70 $9 59 33 13 25 $500 Pl a Pl a Pl a Pl a Pl a Pl a Pl a Pl a n A n B n D n E n F n G n H n I Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (93)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview Net Managed Care Improvements: Reimbursement Changes Only Cummulative Projected Provider Type Run Rate Realization 3,000+ Bed System 24 months $ 142,822,894 320 Bed Hospital 24 months 12,821,516 160 Bed Hospital 24 months 11,155,400 285 Bed Hospital 24 months 10,535,019 TOTALS N/A $ 177,334,829 Note: Millions of dollars in ancillary benefits realized through related improvements: denials, A/R, MCO/patient service mix, LOS, revenue recoveries and case mix. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (94)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview When Negotiations Fail!  You will know as negotiations progress… never term as a 1st step.  Contract termination can/will be a major patient/organization business decision with long reaching implications and it will be disruptive.  Do the analytics and scenario analyses necessary to know what the financial/market impact will be on your organization, if you cancel.  Assess all outstanding A/R issues, continuity of care requirements, hold harmless requirements, the impact on your patients, medical staff and employees; while also developing: billing/collection, patient retention, referring physician communications plans… should the contract end.  Inform all key internal stakeholders/decision makers and have an external communications plan ready.  Do not bluff with MCOs… only term if you intend to follow through.  If you cancel… there are no guarantees on a favorable outcome. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (95)
    • MCO Contract NegotiationsIV. Strategic Revenue Improvement Opportunities: Process Overview Termination Disruption Analysis: Net Change In Total Revenues $850,000 (Variable % Case Volume Decline 50% < Vol. From Actual + 80% Charges 60% < Vol. Collected From payer/Patient) $650,000 70%< Vol. $450,000 $250,000 $50,000 P P La N N N PO PO at at at rg io io io -$150,000 e 1 2 na na na R l l l eg 1 2 3 . -$350,000 P & L By MCO – Regional ($571,019) | Nat 1 ($433,383) | Nat 2 ($255,934) | Nat 3 ($427,618) | PPO 1 ($16,878) | PPO 2 ($3,946) Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (96)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (97)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Process Overview  Process redesign to integrate contract payment rules Implement Contracts and reimbursement methodologies into day-to-day revenue management operations.  Contract interpretation and loading into contract Existing Contract - manager application, billing system and staff training. Renewals  Execute payer mix/physician referral management strategies to obtain more profitable service volume. Existing Contract –  Develop/execute structure for provider-MCO joint New Product & Rates operating committees to improve cash flow, reduce denials and underpayments and enhance collaborative working relationships. Existing Contract – New Service & Rates  Develop/execute MCO dashboard reports.  Execute length of stay/bed management programs.  Execute MCO collaboration/alliance opportunities. New Contract – New Product(s) & Rates  Develop/execute hospital-physician alignment and network strategies.  Pursue underpayment recoveries.  Other performance improvement changes. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (98)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: E-2-E Revenue Management Process Overview • Demographics • Medical Necessity/Setting • DNFB & Late Charges • Insurances • Care Planning & Coverage • Bill to Payment Match/payment rules • Provider Credentials • Charge Capture • Clean Claim Scrub & Timely Filing • Eligibility • Disease Mgt. + P-4-P • Secondary Billing • Pre-Authorizations • LOS Mgmt./CM/UM • Credit Balances & Self Pay • Denial Prevention • Denial Prevention • Denial/Downgrade Prevention Post Care Billing & Collections Scheduling and Registration Care and HIM Payment and Revenue Pre-Registration Management Compliance Recovery • Re-Validate Eligibility, • HIM, Documentation, • Billing/Remittance Match Coverage & Insurances Coding, Charge Capture & • Cash Collection and • Authorizations CDM Pricing Acceleration • POS Cash Collections • Payment Rules • A/R Management • Financial Counseling & • Denial Prevention • 3rd Party Payer Appeals ABNs (for all payers) • Payment Compliance & • Denial Prevention Revenue Recovery Front-End Accuracy and Denial Prevention Focused + Effective Collection and Payment Compliance Medical Staff & Payer Contract Case Management Operational Payer Affiliated Medical Management Staff Departments Relationships Practices Sustainable revenue management occurs when work flow relationships both within and outside of traditional hospital revenue cycle processes are optimized. Added benefits can be realized whenproviders integrate lean sigma principles (i.e., focusing on customer expectations relative to outcomes, access, cost and service) with six sigma principles (i.e., improving quality of value added steps). Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (99)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Stopping Revenue Leakage in E-2-E Revenue Management Processes BILLING & CARE HIM-MEDICAL PAYMENT COLLECTIONS REVENUE SCHEDULING REGISTRATION MANAGEMENT POST CARE RECORDS COMPLIANCE & NPSR RECOVERY • Eligibility • Eligibility Re- • Medical  Nurse Charge • Coding Errors • Timely • Posting Errors • $0 Balance Verification Verification Necessity Processing • Late Charts Submission • Remittance Accounts • “Clean Claims” and COB • Patient O-O-P • Retro-Eligibility • Pre-Auths &  Charge • Medical • Single Level Terminations • Appeal Times Errors • Dual Changes in Capture Necessity Appeals Care w/o Rev. • DNFB • In-Appropriate Eligibilities • Contract Terms  CDM Pricing • MCO Contractual • Payment Pre-Auth • Under- • Physician • Care Setting  Medical Payment Payments Allowances Compliance Credentials • Benefits • Charge Necessity Rules • Incorrect • Medi-Medi Violations • Retroactive Coverage Capture  Discharged Compliance Payments Deductibles • Lost & Late Eligibility • CDM Accuracy Not Final by Product • Denials • Appeal Limits Charges • Service Carve- • Service Outs • Case & LOS Billed (DNFB) • P-4-P • Downgrades • Recoups • Billing Errors Carve-Outs) • Dual Eligibles Management  Other • Other • Invoice Cost • CDM Charge & Edits • Stop-loss, Cap Offsets • Other • Physician • Step Down • Incorrect Rates • Non-Admin. • No Interest on Behavior Late Pay Payment Payment Conversions • Pre- • Short Stay Arrangements, • Never Events Authorizations Denials • Service Carve- • P-4-P • Arbitrary • Par Status • Appeal Limits Outs, • Other Denials • MCO ABN • P-4-P, Patient • Outliers • Other Transfers • Unbilled • Patient O-O-P Services • Never Events • Other • No Rate • Other Changes • Other Successful MCO contract term and payment rule integration into day-to-day provider revenuemanagement operations minimizes MCO revenue losses and maximizes cash collections. The majority ofrevenue cycle management challenges associated with MCO contracts relates directly to what is or is not in the payer-provider contract and how both parties implement the contract terms/rates. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (100)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Denial Prevention Denial Prevention (Hospital Illustration)  Negotiate provisions which impact denials into your MCO contract… when possible, avoid being relegated to provider manual.  Know your practices, their practice managers and their patients… get registration correct for MCO and MCO product , follow all pre- authorization rules… fix front end of E-2-E.  Have staff well trained in both internal and MCO rules… utilize system edits and work flow automation to identify.  Know your doctors – don’t schedule patients with docs who are not enrolled in patient MCO coverage or have closed their panels… before service is rendered.  Follow specific contract/rate implementation processes and verify correct loads at provider as well as at MCO.  Joint Operating Committees with Key MCOs. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (101)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Payment Compliance Why the Underpayment Problem? MCO Issues Provider Issues Poor internal controls for monitoring payment compliance Complexities of today’s agreements are difficult to administer Inadequate information technology and process flow Par & non-par doctors within the same practice resulting in false positives Registration errors resulting in false positives Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (102)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Payment Compliance What You Can Do About It? Management & Leadership Daily Operations  Joint Operating Committees…  Revenue Recovery Unit…create focused on monitoring “bad and proactively pursue recoveries behavior” and driving resolution and provide data driven feedback during contracting and at on registration issues resulting in executive level with MCO false positives  Provider Management – MCO  Set $$ threshold for individual Account Liaisons… routine claim level recovery efforts… meetings to review manage low dollar recoveries in reimbursement trends bulk… use tech tools/fix process  Initiate legal action when  Engage External Specialty Firm to appropriate Collect… paid on a % of dollars collected contingency basis Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (103)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Hospital – Managed Medicaid Plan Alliance Implementing a Hospital-MCO Alliance Actual marketing alliance implementation with a Medicaid MCO. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (104)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Hospital – Managed Medicaid Plan Alliance Actual Alliance Meeting Agenda Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (105)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Hospital – Managed Medicaid Plan Alliance Actual Alliance Meeting Agenda Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (106)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Hospital – Managed Medicaid Plan Alliance Alliance Medicaid MCO Contact Sheet Relationship goal was to convert as many eligible self-pays to Managed Medicaid as possible. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (107)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Payer Mix and Referral Management Referral Management Strategies - Physician Centric  Referral Chain Mapping: Create understanding of volume origins.  Referral Chain Database: Determine which physicians to focus on for referral management initiatives.  Referral Agreements: Reduce wait times, hard – wire procedures, facilitate coordination.  Referral Reference Guide and Directory: Keep referrals in – network, as appropriate.  Market Services to Physician Community: Increase PCP – SCP communication.  Physician Liaison: Build loyalty… physicians are customers as well.  Medical Staff Development: Intense competition for high quality and effective physicians.  Physician Par Contracts: Know which MCOs physicians participate with, which they do not and why they do not par with certain MCOs. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (108)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Provider Business Models Most Effective For Attracting/Retaining Lives and Improved Revenue  Physician-Hospital integrated model with financial and clinical integration (contracted or owned relationships).  Large multi-site primary care group practice.  Large multi-site, multi-specialty group practice.  Vertically integrated health system with strong primary care base of hospitalists and owned practices.  Primary care dominated IPA/PHO/FPP, inclusive of key high volume specialties. MCO Preferred Payment Arrangements  Assumes elements of… Financial Risk, P-4-P, Fixed Cost, Clinical Integration & EBM/Disease Management, Cost Effective/Efficient, with a Strong Focus on Service Quality, Clinical Quality & Patient Safety. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (109)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Provider Business Models Least Effective For Attracting/Retaining Lives and Improved Revenue  Stand alone Community Hospital/independent medical staff.  Specialty dominated PHO or IPA.  Solo Practitioner/Small Group… primary care or specialist.  Public Safety Net Hospitals and Academic Medical Centers with a sub- specialist focus serving Medicaid, Medicare and Uninsured populations (exceptions for Medicaid/Medicare MCOs). MCO Typical Payment Arrangements  Lowest tiered fixed reimbursements… “street rates” for practices, bottom tier rates for hospitals… at present… most common with large MCOs. NOTE: Increasingly, IDS’s, health systems/chains and affiliated health networks are moving towards “most effective” organizational models and “preferred” MCO payment arrangements. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (110)
    • Implementation/Integration of MCO AgreementsV. Strategic Revenue Improvement Opportunities: Provider Business Models – PHO Value Proposition  IPA-PHO as a vehicle for improved clinical integration  Create value-added opportunities for Members, e.g.: – MCO contracting and reimbursement. – Improve medical management and less MCO oversight. – Quality/Outcomes based financial incentives. – Hospital/System wide credentialing, information exchange and marketing. – Improved “in-system” referrals (if multiple hospitals). – Specialized resources for physicians (e.g., MSO services which reduce costs, improve margins). Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (111)
    • Presentation Agenda I. MCO Contracting Trends and Hospital Financial Performance 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 Negotiations V. Integration of MCO Agreements into Revenue Management Operations VI. Wrap-Up: Lessons Learned Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (112)
    • Wrap-Up: Lessons LearnedVI. Strategic Revenue Improvement Opportunities: Managed Care Revenue Optimization  Your business strategy/capital needs should drive MCO pricing and negotiation strategies… stick to your strategy.  Senior level officer involvement and commitment is required.  Do all the necessary the upfront analytics… build and use a consistent pricing strategy.  Know your market, the range MCOs reimburse competitors and your costs at a detailed level… be prepared to validate and justify yours.  Only agree to pricing and payment rules that you can administer.  Quantify your business case…don’t focus on competitors.  Understand your value proposition to MCOs and how the market would react to whether or not you are a par provider with a specific MCO. Look for alliance opportunities when possible.  Engage area employers /brokers… be more than a cost. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (113)
    • Wrap-Up: Lessons LearnedVI. Strategic Revenue Improvement Opportunities: Managed Care Revenue Optimization  Be prepared to walk away from negotiations… retain patients.  Take the time to create and validate cross walk, detailed pricing tables using different reimbursement methodologies… know your target rates for each type of MCO product… F-T-C rates.  Develop a physician referral management program to increase patient volume and service volume on high margin services… a passive approach does not benefit you.  Integrate with revenue cycle and clinical operations… favorable reimbursement does you no good if not realized.  For Medicare and Medicaid products, be sure to do a same store comparison between MCO reimbursements and traditional FFS.  Almost everything is negotiable… allow sufficient time for negotiations and creation of re-basing relationship with MCOs. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (114)
    • Today’s PresenterContact Information and Presenter Background Christopher ▲ Chris Kalkhof, a Director with Alvarez & Marsal’s Healthcare Industry Group based out of New York, brings Kalkhof, FACHE more that 24 years of diverse healthcare managed care, operations, finance, business development and strategic planning experience to the firm. Director ▲ Mr. Kalkhof specializes in managed care strategy development and payer contract negotiations; payer Office contract implementation and integration with revenue cycle and clinical operations; provider-payer collaborations; revenue cycle/management improvement; strategic planning and new product/new business (347) 254-2433 development; and provider process and customer service performance improvement. Mobile ▲ Over the last several years, Mr. Kalkhof has spent much of his time assisting provider clients to optimize their (716) 912-0309 net managed care revenue potential, resulting in net rate increases and revenue improvements in excess of E-Mail $425 million. Over the span of his career, Mr. Kalkhof has gained managed care related work experience in over 20 states. ckalkhof@ ▲ Prior to joining A&M, Mr. Kalkhof was as a Director in Deloitte Consulting’s provider revenue cycle consultingalvarezandmarsal.com practice and also served as their national managed care lead. Before joining Deloitte he served in a number Website of interim management and consulting roles with hospitals, and has also held other management positions inwww.alvarezandmarsal a practice management firm, a statewide health insurer, a regional HMO and a skilled nursing facility. .com ▲ Specific interim management roles that Mr. Kalkhof has served in include: Senior Vice President of Delivery Systems and Payer Relations for Saint Vincent Catholic Medical Centers of New York; Vice President of Managed Care for Christ Hospital (Jersey City, NJ) and a Consultant/ Functional Director of Managed Care, Doctors Hospital (Houston, TX). In each of these interim management engagements, Mr. Kalkhof was either an active member of or lead revenue cycle performance improvement groups and formed multiple provider- payer joint operating committees to improve provider cash flow and reduce payer denials. ▲ Mr. Kalkhof received his Master of Health Administration degree from Tulane University and his Bachelor of Science, degree from Allegheny College. He is a Fellow in the American College of Healthcare Executives and a frequent presenter on managed care revenue improvement topics for the HFMA, ACHE, MGMA and other professional groups . In 2008, Mr. Kalkhof served as a member of the New York State Office of Medicaid Inspector General’s Medicaid Managed Care Compliance Program Guidance Advisory Committee. Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (115)
    • www.alvarezandmarsal.comCopyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 116 116