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

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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

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© 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

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© 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

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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
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).

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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
Source: Kaiser Family Foundation analysis of Truven Health Analytics MarketScan Commercial Claims and
Encounters Database, 2005-2015

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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
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

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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
Source: Kaiser Family Foundation analysis of National Health Interview Survey

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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
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

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US Healthcare Market Segmentation (Population) - 2016
Population = Millions
Other = Fully-Insured,
Individual, Small
Group & Uninsured
Source: Kaiser Family Foundation
Contributing Factors:
Reimbursement Pressure

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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.

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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.

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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
Cost Variance

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Guess the Unit Price for the Common Items Below*
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

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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

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The United States has more opportunity to reduce cost than utilization.
Costs vs. Utilization

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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

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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

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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%

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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© 2014 - 2017 USI Insurance Services. All rights reserved.
Client RBR Case
Study

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.

UNDERWRITING
& ANALYTICS
CASE STUDY
CLIENT
BACKGROUND
A 675 ESOP headquartered in
Great Falls, Montana with 46
branch offices in Washington,
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

UNDERWRITING
& ANALYTICS
CASE STUDY
Illustration of RBR Administrative Cost Impact

UNDERWRITING
& ANALYTICS
CASE STUDY
CLIENT
BACKGROUND
A 675 ESOP headquartered in
Great Falls, Montana with 46
branch offices in Washington,
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
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
Claim Analysis
RESULTS:

| 38
Claim Analysis
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
Claim Analysis
RESULTS

| 40
Claim Analysis

| 41
Claim Analysis

| 42
Claim Analysis

| 43
Claim Analysis

| 44
Claim Analysis

| 45
Claim Analysis

| 46
Claim Analysis

| 47
Summary
“It's the Prices, Stupid”

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

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

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