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Scott Haas USI Alternative Reimbursement Case Study Dropping Medical Spend over 50%

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Pacific Steel is a Great Falls, Montana based employer (ESOP) with approximately 700 employees in 9 states and over 40 locations.

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Scott Haas USI Alternative Reimbursement Case Study Dropping Medical Spend over 50%

  1. 1. CONFIDENTIAL AND PROPRIETARY: This presentation and the information contained herein is confidential and proprietary information of USI Insurance Services, LLC ("USI"). Recipient agrees not to copy, reproduce or distribute this document, in whole or in part, without the prior written consent of USI. Estimates are illustrative given data limitation, may not be cumulative and are subject to change based on carrier underwriting. © 2017 USI Insurance Services. All rights reserved. www.usi.com February16, 2019 USI Operational Risk Consulting PARTNERSHIP FOR HEALTH AND WELFARE BENEFITS MANAGEMENT ALTERNATIVE REIMBURSEMENT CASE STUDY Case study details begin on Slide 30
  2. 2. | 2 © 2014 - 2017 USI Insurance Services. All rights reserved. “It's the Prices, Stupid” Why The United States Is So Different From Other Countries Uwe Reinhardt - Health Affairs. 2003
  3. 3. | 3 © 2014-2017 USI Insurance Services. All rights reserved. Hospitals, Physicians & Clinics, Dental, Other Professional Services, Prescription Drug Spending by All Sources of Funds, 1960 - 2016 Hospitals, Physicians & Clinics, Dental, Other Professional Services, Prescription Drug by All Sources of Funds (U.S. $ Billions) Soaring Cost of Healthcare Source: Kaiser Family Foundation
  4. 4. | 4 © 2014-2017 USI Insurance Services. All rights reserved. Deductible cost shifting has risen while copayment spending has fallen Cumulative increases in health costs, amounts paid by insurance, amounts paid for cost sharing and workers wages, 2005-2015 Soaring Cost of Healthcare Source: Kaiser Family Foundation analysis of Truven Health Analytics MarketScan Commercial Claims and Encounters Database, 2005-2015; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 2005-2015 (April to April).
  5. 5. | 5 © 2014-2017 USI Insurance Services. All rights reserved. Distribution of cost-sharing payments by type, 2005-2015 Deductibles account for less than a quarter of cost-sharing payments in 2005, but almost half in 2015 Soaring Cost of Healthcare Source: Kaiser Family Foundation analysis of Truven Health Analytics MarketScan Commercial Claims and Encounters Database, 2005-2015
  6. 6. | 6 © 2014-2017 USI Insurance Services. All rights reserved. Plan Design Cost Shifting to Employees has resulted in drastic increases to the per capita out of pocket exposure to employees and their families Per capita out-of- pocket expenditures, 1970-2016 Soaring Cost of Healthcare Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group
  7. 7. | 7 © 2014-2017 USI Insurance Services. All rights reserved. Adults in worse health report much higher rates of delayed or forgone medical care due to out of pocket cost Percent of adults who report delaying and/or going without medical care due to costs, by type of care, 2016 Soaring Cost of Healthcare Source: Kaiser Family Foundation analysis of National Health Interview Survey
  8. 8. | 8 © 2014-2017 USI Insurance Services. All rights reserved. Adults in worse health report much higher cost due to delayed or forgone medical care due to out of pocket cost Average out-of- pocket spending per person based on diagnosis status, in U.S. Dollars, 2013 Soaring Cost of Healthcare Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group
  9. 9. | 9 © 2014-2017 USI Insurance Services. All rights reserved. US Healthcare Market Segmentation (Population) - 2016 Population = Millions Other = Fully-Insured, Individual, Small Group & Uninsured Source: Kaiser Family Foundation Contributing Factors: Reimbursement Pressure
  10. 10. | 10 © 2014-2017 USI Insurance Services. All rights reserved. Contributing Factors: Reimbursement Pressure Government reimbursements has forced hospitals to consolidate, broadening their negotiating leverage with carriers therefore increasing reimbursements. However, the majority of hospitals in the US make a profit at Medicare Reimbursement levels and realized windfall profits with the ACA Medicaid expansion.
  11. 11. | 11 © 2014-2017 USI Insurance Services. All rights reserved. Contributing Factor: Uninsured vs. Underinsured Source: Health Forum, AHA Survey Data, 1990-2015 However: “The growth in health system uncollectable accounts receivable attributable to cost shifting now exceeds the amount of uncompensated care prior to the Medicaid expansion.” —CFO of large integrated delivery system Shifting costs to the individual insured, while having an effect on the demand side of services, doesn’t affect the supply side of services. For that side, a combination of new payment models (referred to as alternative payment models) and transparency in price and quality are generally accepted as the right solution mix.
  12. 12. | 12 © 2014-2017 USI Insurance Services. All rights reserved. Healthcare is the only item or service that Americans purchase without consideration to price or quality. ▪ High tech imaging negotiated rates can range greatly between stand-alone centers and hospital based facilities ▪ Surgical rates regularly vary by 100% without a direct correlation to quality Contributing Factor: Cost Variance
  13. 13. | 13 © 2014-2017 USI Insurance Services. All rights reserved. Guess the Unit Price for the Common Items Below* Contributing Factor: Exorbitant Prices Procedure/Item Unit PriceKnown As Oral Cleansing Device Toothbrush Acetaminophen Tablet $1,050 Cranial Support System Neck Support Pillow $450 Mucus Recovery System Tylenol $75Tissues $513 *Actual findings during a bill review/audit process
  14. 14. | 14 © 2014-2017 USI Insurance Services. All rights reserved. PPO networks negotiate discounts to be taken from billed charges, so it is in the provider’s best interest to inflate billed charges for maximum reimbursement. ▪ Carriers apply contracted discount off billed services with little regard for the appropriateness of the billed charge. ▪ PPO payments after discount vary widely depending on market leverage of the network, and can range from 100% - 1,300%+ of Medicare. How are Claims Costs Determined? Procedure: MRI Facility 1 Facility 2 Billed Charges $1,500 $6,000 Charge Master (published “cost”) $400 $650 Medicare $450 $450 ~50% PPO Discount $750 $3,000
  15. 15. | 15 © 2014-2017 USI Insurance Services. All rights reserved. The United States has more opportunity to reduce cost than utilization. Costs vs. Utilization
  16. 16. | 16 © 2014-2017 USI Insurance Services. All rights reserved. Reference Based Reimbursement (RBR) $25,000 $0 $50,000 $75,000 RBR Price: $22,250 PPO Price: $37,500 Plan Savings: $15,250 Medicare Reimbursement Rate: $15,893 Top-Down Pricing The hospital sets the price and the plan has a PPO contract for ~50% discount off of hospital’s price Bottom-Up Pricing RBR health plan pays the hospital a percentage above the Medicare reimbursement (140% in this example) Top-Down Pricing (e.g., PPO) Bottom-Up Pricing
  17. 17. | 17 © 2014-2017 USI Insurance Services. All rights reserved. Plan designs that move away from PPO networks that focus more on comprehensive strategies to reduce payments in-network to a Medicare or cost-based model. ▪ Cost Plus or Medicare Plus for facility (hospital) providers ▪ Cost Plus or Medicare Plus for all charges ▪ Hybrid Cost Plus or Medicare Plus or other multiple definitions of Maximum Allowable Charge ▪ Eliminate all reference of Usual and Customary or Reasonable and Customary ▪ Focus is on the discount—not the cost of care ▪ Total Cost of Care (Blue Cross Focus) ▪ Narrow networks ▪ Procedure specific in-network caps on reimbursement rates ▪ Accountable Care Organizations (ACO) Reimbursement Strategies Network-Based Models Medicare or Cost-Based Models
  18. 18. | 18 © 2014-2017 USI Insurance Services. All rights reserved. Most RBR vendors utilize a percentage of either Medicare or cost in order to determine cost. Alternate Reimbursement Strategy 2: Percentage of Cost Alternate Reimbursement Strategy 1: Percentage of Medicare Rate Reference Price Procedure: MRI Facility A Billed $1,500 Average PPO Discount (50%) $750 Medicare $450 120% of Medicare $540 150% of Medicare $675 Savings Range 10% - 28% Procedure: MRI Facility A Billed $1,500 Average PPO Discount (50%) $750 112% of Charge Master (Published Cost) $450 40% of Billed $600 Savings Range 20% - 40%
  19. 19. | 19 © 2014-2017 USI Insurance Services. All rights reserved. A high volume of hospitals in the US make money at Medicare Fact Medicare cost reporting lags 18 months but hospitals cost/charge structure does not Reimbursement for Medicare is set on “costs” established 18 months ago and current cost could have gone up Efficient hospitals control these costs and can operate in the black even with this reimbursement lag with Medicare. One thing for certain, hospitals would shut their doors without Medicare paying for the fixed cost of their facilities Fiction "Medicare pays less than cost" Reference Price
  20. 20. | 20 © 2014-2017 USI Insurance Services. All rights reserved. RBR seeks to address the cost of services by setting a price that is affordable and provides a margin of profit for the provider. ▪ Employers transitioning to RBR should consider lowering deductibles and coinsurance as it provides additional leverage to negotiate since the provider will have a reduced or no accounts receivable due to member out of pocket requirements. ▪ Hospitals and facilities with local competition are more likely to accept negotiated payment ▪ RBR vendors may start negotiations at 100% of Medicare and negotiate up to 200% either across all claims or on a case by case basis ▪ RBR vendors provide prompt payment to providers in exchange for favorable pricing Setting the Reference Price
  21. 21. | 21 © 2014-2017 USI Insurance Services. All rights reserved. RBR seeks to address the cost of services by setting a price that is affordable and provides a margin of profit for the provider. Setting the Reference Price
  22. 22. | 22 © 2014-2017 USI Insurance Services. All rights reserved. Employer Changes 1. Pre-certify and explain reimbursements to member prior to claims when feasible 2. Audit, adjudicate and give advice to pay all facility and hospital claims per the terms in the plan document 3. Act as the co-fiduciary and manage all claims appeals on behalf of the employer/plan 4. Provide support to members with instances of balance billing or collection inquiries 1. Modify or eliminate use of PPO network 2. Modify plan document to include definitions for Cost Plus and Medicare Plus reimbursements 3. Establish a co-fiduciary relationship for claim appeals and negotiation of balance billing disputes 4. Communicate the new plan design to employees RBR Implementation RBR Vendor Responsibilities
  23. 23. | 23 © 2014-2017 USI Insurance Services. All rights reserved. RBR strategies drastically improve consumer awareness and may subject members to additional claims processing interactions. ▪ Unlike a PPO environment, facilities may balance bill beyond the reimbursed amount ▪ Members will be required to work with RBR vendor to eliminate the balance bill ▪ RBR may subject employers to potential ACA and ERISA violations if the program is not designed or managed appropriately ▪ In today’s PPO environment, nearly 1 in 4 Americans has medical debt primarily due to high cost share* ▪ RBR reduces total charges and employee cost share ▪ RBR vendors are more aggressive in assisting members in alternate settings of care offering reduced cost How Does RBR Impact Employees? *Source: Karpman, M., & Caswell, K. J. (2017, March 1). Past-Due Medical Debt among Nonelderly Adults, 2012-15. Retrieved June 7, 2017, from http://www.urban.org/sites/default/files/publication/88586/past_due_medical_debt.pdf Upsides Concerns
  24. 24. | 24 © 2014-2017 USI Insurance Services. All rights reserved. There are various compliance issues surrounding RBR and employers must understand the potential risks associated with these programs. USI White Paper▪ Affordable Care Act (ACA) Compliance Risk: − Member exposure beyond Maximum Out-Of-Pocket (MOOP) − Failure to provide preventive care at 100% − Failure to provide Minimum Value Benefit ▪ ERISA Compliance Risk ▪ Plan rights versus beneficiary rights RBR Compliance Risk
  25. 25. | 25 © 2014-2017 USI Insurance Services. All rights reserved. Member balancing billing is a potential by-product of RBR that can be minimized by establishing more reasonable Maximum Allowable Charge (MAC) by specific types of service. RBR Implementation Strategy: ▪ Plan design is structured to protect members fiscal exposure to be no greater than the ACA MOOP ▪ RBR MAC set by type of service significantly reduces or eliminates member exposure to balance billing USI Compliance Concerns: ▪ Plan documents and Administrative Service Agreements must be written in a manner that supports Plan Sponsor rights ▪ The DOL will review the plan documents for compliance, not necessarily only look for employees who are harmed Compliance Risk: ▪ Individual risk: Members who experience out of pocket costs above the ACA MOOP may file a claim against the employer (low risk) ▪ Institutional risk: Department of Labor (DOL) investigation may determine that the plan is out of compliance due to lack of stated MOOP regardless of actual harm to employee (low risk) Concern: Balance Billing
  26. 26. | 26 © 2014-2017 USI Insurance Services. All rights reserved. The ACA requires that preventive care be covered at 100%, when a network is present it may be limited to 100% in-network only. Typical RBR Vendor Response: ▪ Plans will cover 100% of allowed reimbursement which is “reasonable” reimbursement USI Compliance Concern: ▪ Facilities may fail to accept lower charge because they know the plan has to cover 100% regardless, resulting in higher costs Compliance Risk: ▪ Preventive care includes facility based procedures ▪ Mammography ▪ Colonoscopy ▪ RBR plans do not offer a facility network, so all preventive claims must be covered at 100% regardless of cost Concern: Preventive Care
  27. 27. | 27 © 2014-2017 USI Insurance Services. All rights reserved. ERISA requires that fiduciaries act in the best interest of participants and beneficiaries. Alternate Response: ▪ Employers who fail to ensure that plan assets are being spent appropriately are not acting in the best interest of participants – Is a $1,000 toothbrush an appropriate expense under the plan? – Correlates to the 401(k) fiduciary responsibilities where plan sponsors must ensure expenses are appropriate. Compliance Risk: ▪ Paying to establish a co-fiduciary does not eliminate a plan sponsor’s fiduciary responsibility ▪ Designing a plan that exposes members to very large balance bills may not be perceived in the best interest of participants Concern: Fiduciary Responsibility
  28. 28. | 28 © 2014-2017 USI Insurance Services. All rights reserved. At a minimum, Plan sponsors have the following fiduciary obligations: ▪ Fiduciaries may not engage in transactions on behalf of the plan that harm, or are a detriment to, plan participants and related parties ▪ Fiduciaries may be personally liable to: ▪ Restore losses to the plan ▪ Restore profits made through improper use of plan assets ▪ Courts may act against fiduciaries that breach their duties ▪ Operate and maintain the plan in the best interest of the participants ▪ Administer the plan solely in the interest of participants and beneficiaries ▪ Exclusive purpose: providing benefits and paying plan expenses ▪ Plan sponsors, including sponsors of self- funded plans, are subject to those fiduciary obligations ▪ Plan sponsor (usually the employer) is the covered entity and the ERISA plan fiduciary for the self-funded plan (and individuals responsible for its management) are directly liable to its participant Concern: Fiduciary Responsibility
  29. 29. | 29 © 2014-2017 USI Insurance Services. All rights reserved. A succinct explanation for why Medicare is a useful price benchmark: ▪ Medicare is the world’s largest single payor. ▪ Rates are set based on costs for fair compensation and not based on market forces. ▪ Rates include geographic, periodic, provider specific, and outlier considerations. ▪ The supporting data and methodologies are public. ▪ Medicare Rate comparisons are widely used in respected studies ▪ Private plans use Medicare multiples to set benefit levels. ▪ The goal of implementing an RBR strategy is to achieve direct contracts with physicians, hospitals and health systems that provide adequate access to quality providers at price points that reduce and maintain the total overall cost of healthcare. ▪ Plans that employ an RBR strategy are doing so to redefine the allowable amount their health plan will pay for goods and services as they no longer have faith that the traditional managed care and/or PPO network contractual allowed amounts provide true fiscal value. The Ultimate Goal of RBR
  30. 30. | 30 © 2014 - 2017 USI Insurance Services. All rights reserved. Client RBR Case Study
  31. 31. Alternative Reimbursement Strategies UNDERWRITING & ANALYTICS CASE STUDY CLIENT BACKGROUND A 675 employee ESOP headquartered in Montana with 46 branch offices in Washington, Nevada, Idaho, Utah, Wyoming, South Dakota, North Dakota, Colorado, Montana and Alberta, Canada. KEY CHALLENGES The Company was self-insured and experiencing double digit trend year over year. Continual cost shifting to employees was no longer a viable strategy. As an ESOP, every dollar spent on healthcare is a dollar not spent on contribution to employee equity and wages. A death spiral was beginning as healthy employees were dropping off of the plan due to its lack of affordability. USI SOLUTIONS OFFERED QUANTIFIABLE BENEFIT TO THE COMPANY ▪ Implementation of the USI designed platform solution resulted in a fixed cost reduction of $735,000 in year one beginning January 1, 2018 ▪ Claim cost is projected to reduce an additional 15% from the current RBR claim levels ▪ Over 3,500 direct contracts with providers have been established to accommodate access to quality providers eliminating the potential of balance billing ▪ Four direct contracts have been established with key health systems using the RBR methodology as the basis of negotiations. ▪ Case rate and bundled payment arrangements have been established to accommodate elective surgeries throughout the intermountain west. ▪ USI took over the consulting responsibilities from another broker due to their overall lack of competence in managing the complexities of the RBR environment and a lack of operational performance by the RBR services providers that was causing extreme member disruption. ▪ USI Operational Risk Consulting obtained client data from the TPA and began to study the fiscal and operational challenges being experienced. ▪ Upon identification of key issues, USI Operational Risk Consulting created a “second generation” RBR solution that is designed to reduce or eliminate member disruption while maintaining the fiscal integrity of the health plan. ▪ Plan Fiduciary exposure was also reduced by a complete re-write of all plan documents and administrative service agreements that harmonize to the stop loss contract.
  32. 32. Alternative Reimbursement Strategies UNDERWRITING & ANALYTICS CASE STUDY CLIENT BACKGROUND A 675 ESOP headquartered in Great Falls, Montana with 46 branch offices in Washington, Nevada, Idaho, Utah, Wyoming, South Dakota, North Dakota, Colorado, Montana and Alberta, Canada. KEY CHALLENGES The Company was self-insured and experiencing double digit trend year over year. Continual cost shifting to employees was no longer a viable strategy. As an ESOP, every dollar spent on healthcare is a dollar not spent on contribution to employee equity and wages. A death spiral was beginning as healthy employees were dropping off of the plan due to its lack of affordability. Illustration of RBR Claim Cost Impact – Per Employee Per Month Trend Medical Claim Cost reduction of 46.1% Update: Overall spending dropped from $8M to <$4M
  33. 33. Alternative Reimbursement Strategies UNDERWRITING & ANALYTICS CASE STUDY Illustration of RBR Administrative Cost Impact
  34. 34. Alternative Reimbursement Strategies UNDERWRITING & ANALYTICS CASE STUDY CLIENT BACKGROUND A 675 ESOP headquartered in Great Falls, Montana with 46 branch offices in Washington, Nevada, Idaho, Utah, Wyoming, South Dakota, North Dakota, Colorado, Montana and Alberta, Canada. KEY CHALLENGES The PBM program was being managed by a PBM that was allowed to utilize Average Wholesale Pricing for generic drugs. USI Pharmacy Consulting re-engineered the PBM contract terms and pricing to a unit cost basis effective January 1, 2016 • Revised PBM contract reduced the overall cost to the plan in excess of $200,000 • Generic Utilization is 87.8% • Specialty utilization continues to drive overall cost Illustration of Rx Claim Cost Impact – Per Employee Per Month Trend Implementation of Unit Cost Pricing Structure
  35. 35. Alternative Reimbursement Strategies UNDERWRITING & ANALYTICS CASE STUDY CLIENT BACKGROUND A 675 ESOP headquartered in Great Falls, Montana with 46 branch offices in Washington, Nevada, Idaho, Utah, Wyoming, South Dakota, North Dakota, Colorado, Montana and Alberta, Canada. KEY CHALLENGES The PBM program was being managed by a PBM that was allowed to utilize Average Wholesale Pricing for generic drugs. USI Pharmacy Consulting re-engineered the PBM contract terms and pricing to a unit cost basis effective January 1, 2016 • Revised PBM contract reduced the overall cost to the plan in excess of $200,000 • Generic Utilization is 87.8% • Specialty utilization continues to drive overall cost Illustration of Rx Claim Cost Impact – Per Employee Per Month Trend Implementation of Unit Cost Pricing Structure
  36. 36. | 36 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis ▪ USI Operational Risk Consulting warehouses data received from TPA monthly ▪ USI Operational Risk Consulting evaluates historical network pricing performance and model the potential fiscal impact of a Reference Based Reimbursement (RBR) strategy Historical Claim Data from July 1, 2013 –December 31,2017 was Evaluated
  37. 37. | 37 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis Historical Claim Data from July 1, 2013 –December 31,2017 was Evaluated RESULTS:
  38. 38. | 38 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis Historical Claim Data from July 1, 2013 –December 31,2017 was Evaluated RESULTS Billed Charges FCH Allowed Potential RBR MCR100 Rate Allowable Charges $27,221,266 $21,676,266 $13,278,328 $9,085,617 Discount $5,545,000 $13,942,938 $18,135,649 Effective Discount 20.37% 51.22% 66.62% Additional Savings with New Rate: $8,397,938 Percent Savings with New Rate: 30.85% Medicare % 300% 239% 146% 100%
  39. 39. | 39 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis Historical Claim Data from July 1, 2013 –December 31,2017 was Evaluated RESULTS
  40. 40. | 40 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  41. 41. | 41 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  42. 42. | 42 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  43. 43. | 43 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  44. 44. | 44 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  45. 45. | 45 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  46. 46. | 46 © 2014-2017 USI Insurance Services. All rights reserved. Claim Analysis
  47. 47. | 47 © 2014-2017 USI Insurance Services. All rights reserved. Summary “It's the Prices, Stupid”

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