© 2020 by The Segal Group, Inc.

City of Los Angeles JLMBC Meeting

March 5, 2020

Kaiser Permanente Presentation Overview

1

Observations

Total Claims

• Kaiser’s presentation reviews the 12-month experience period ending September 30, 2019

• The City’s Total Claims on a Per Member Per Month (PMPM) paid basis increased by 3.5%, compared to 6.6% for Kaiser’s Southern California Region

• The 2021 renewal is due April 10, 2020 pending:• Three additional months of claims experience (October 1 – December 31, 2019)• Finalization of Kaiser’s 2021 Renewal Factors (e.g., trend, incurred claims

adjustment, large claim pooling, wages, capital investments, etc.)

Inpatient Claims

• The City’s inpatient services decreased by 7.0% on a PMPM paid basis• A contributing factor was a reduction in the paid amounts of High Cost Claimants

(Members with claims of $700,000 or more)

Outpatient Claims

• Outpatient services increased by 12.1% on a PMPM paid basis• This is due to more complex procedures (e.g., joint replacements) being

performed on an outpatient basis, so this should not viewed as an unfavorable development.

PharmacyClaims

• Prescription drug costs decreased by 1.8% on a PMPM paid basis• This is due to a reduction in costs across all drug classes (i.e., generic,

brand, and specialty), and a positive generic substitution rate.

Presented By:Justin Cao, MPH – Senior Executive Account Manager, Strategic Accounts Public SectorMarcelo Fortunato – Senior Underwriting Consultant, Public Sector CaliforniaJonathan Doris, MD – Electrophysiologist, Assistant Area Medical Director, Area Physician Marketing Lead

City of Los Angeles3rd Quarter 2019 (October 2018 to September 2019) Utilization Update

AgendaTopic

1. Review the Objective & 2021 Renewal Considerations

2. Key Findings Summary

3. Review Utilization for Active Population• Overall Paid Claims Overview• Claims History• Total Claims Per Member Per Month (PMPM)• Inpatient (IP) Overview

• Inpatient (IP) Detail – Surgical• Outpatient (OP) Overview

• Outpatient (OP) Detail – Surgeries, Procedures and OP Facility

• High Cost Claimants• Pharmacy Overview & Detail

4. Questions

2

Objective & 2021 Renewal Considerations Objective:

The purpose of the following presentation is to provide the JLMBC with a preview of the most recent twelve (12) months of data reviewing the City of Los Angeles’ utilization ending September 30, 2019 (Q3’2019)

• This presentation compares this most recent experience period to the experience period used to calculate the 2020 renewal

2021 Renewal Considerations: This report includes nine (9) out of the twelve (12) months of Paid Claims data that will be

used to produce the 2021 renewal• Three (3) months of updated claims information are outstanding for the upcoming 2021

renewal The claims in this report only reflects paid claims on a Per Member Per Month (PMPM) basis.

This report does not incorporate other key elements of the renewal calculation such as pooling, trend, Incurred but not Reported (IBNR) amounts, retention, and ACA taxes/fees.

Some of the Rating Factors and Experience Adjustments for the 2021 Renewal will not be finalized until Spring 2020, which include:

• Pooling Credit/Charges• Conversion of Paid Claims to Incurred Claims• Demographic Changes, including changes occurring during open enrollment such as

Average Age, Average Contract Size, and Enrollment Mix.• Rating Trend• Retention• ACA Fees

3

Key Findings Summary

The average age for City of Los Angeles’ members is slightly higher than Kaiser Permanente’s Foundation Health Plan (KFHP) average, 35.0 years old versus 33.9 years old for KFHP KFHP is defined as all Kaiser members enrolled in the Southern California Region

The most recent total paid claims on a Per Member Per Month (PMPM) basis has increased by 3.5% as compared to the January 2018 to December 2018 experience period

• In comparison, claims for the KFHP have increased by 6.6% Outpatient Services’ recent claims experience has increased by 12.1%, and is the leading contributor to

the most recent minor increase in overall claims experience• In comparison, the KFHP has increased by 10.9%• Outpatient Surgeries, Procedures and OP Facility has increased by 16.8% (or $7.47 PMPM)• Within the Outpatient Surgeries, Procedures and OP Facility category, chronic kidney disease is

the main cost driver and has increased $3.57 PMPM in paid claims (or $410,000) Inpatient Services has decreased by 7.0%, in comparison to the KPHP which has increased by 3.0%

• Inpatient surgical has decreased by 16.6%• In the prior reporting period, there were two significant high cost claimants requiring life

support which totaled almost $3 million• During the October 2018 – September 2019 reporting period, the cost has decreased to

$641,000 Total Prescription Drug costs has decreased by 1.8% (or $0.70 PMPM)

• Both Brand and Formulary drug PMPM’s are trending lower than the five (5) year average

4

Overall Paid Claims Overview

5

Claims data for the City of Los Angeles was adjusted for pooling based on Kaiser Permanente’s standard underwriting methodology• Pooling is defined as an arrangement that employer groups participate to help curb fluctuations of claims by providing credits

for large claims exceeding a defined threshold For the latest projections, we are using for illustrative purposes only the same pooling threshold and charge as used during the

2020 renewal ($700K and $3.38 PMPM, respectively). The pooling level and pooling charges may change for 2021 Rate Setting Based on most recent claims data (October 2018 - September 2019), the KFHP regional average Per Member Per Month

(PMPM) claims cost has increased by 6.6% The City of Los Angeles’ estimated PMPM claims cost has increased by 3.5% (after the adjustment for pooling) during the

October 2018 – September 2019 claims experience period, which is 2.9% below the KFHP’s regional average The actual 2021 renewal will include an additional three (3) months of claims experience, October 2019 – December 2019, with

the three (3) months of October 2018 – December 2018 claims experience dropping off

2020 Renewal (PY)

3rd Quarter 2019

2020 Renewal (PY)

3rd Quarter 2019

Jan18 - Dec18 Oct18 - Sep19 $ Change % Change Jan18 - Dec18 Oct18 - Sep19 $ Change % ChangeInpatient $119.92 $111.47 ($8.45) (7.0%) Inpatient $104.11 $107.73 $3.62 3.5%Outpatient $173.85 $194.87 $21.02 12.1% Outpatient $164.46 $182.45 $17.99 10.9%Pharmacy $39.79 $39.09 ($0.70) (1.8%) Pharmacy $37.57 $37.22 ($0.35) (0.9%)Other $74.42 $76.64 $2.22 3.0% Other $68.16 $71.44 $3.28 4.8%Total $407.98 $422.07 $14.09 3.5%Pooling Charge

PMPM$3.38 $3.38

Pooling Credit PMPM

($2.25) ($2.20)

Paid Claims PMPM Net of Pooling Credit

$409.11 $423.25 $14.14 3.5% Total $374.30 $398.84 $24.54 6.6%

(2.9%)

CITY OF LOS ANGELES KAISER FOUNDATION HEALTH PLAN (KFHP)

Service Category

PY vs 3rd Quarter 2019 Service Category

PY vs 3rd Quarter 2019

Group to KFHP Differential

Claims History

6

• For the experience period of October 2018 – September 2019, paid claims for The City of Los Angeles has increased by 3.5%, as compared to an increase of 6.6% for the Kaiser Permanente Foundation Health Plan (KFHP) Regional Average during the same claims experience period

• The five (5) year average increase in paid claims for The City of Los Angeles has increased by 3.7% as compared to an increase of 4.6% for the KFHP Regional Average

Total Claims Per Member per Month (PMPM)

Inpatient ∆:City: (7.0%) / ($8.45)KFHP : +3.5% / $3.62

Outpatient ∆: City: +12.1% / $21.02KFHP : +10.9% / $17.99

Pharmacy ∆:City: (1.8%) / ($.0.70)KFHP : (0.9%) / ($0.35)

Other ∆:City: +3.0% / $2.22KFHP: +4.8% / $3.28

• The differential in paid claims between the City and the KP Regional Average is 5.8%. Historically, the City has been 10.7% above the Kaiser Foundation Health Plan (KFHP) Average, but has been improving over time

• Inpatient Claims account for 26.4% of total paid claims for the City, and 27.0% of total paid claims for the KFHP Regional Average

• Outpatient Claims account for 46.2% of total paid claims for the City, and 45.7% of total paid claims for the KFHP Regional Average

• Pharmacy Claims account for 9.3% of total paid claims for the City, and 9.3% of total paid claims for the KFHP Regional Average

7

City of LA City of LA City of LA City of LACity of LA

KP Avg. KP Avg. KP Avg. KP Avg.KP Avg.

Inpatient (IP) Overview

Inpatient Medical ∆:City : (2.0%) / ($0.87)KFHP : 3.5 / $1.37

Inpatient Surgical ∆:City : (16.6%) / ($9.95)KFHP : 1.5% / $0.69

Inpatient Maternity ∆:City : 15.2%/ $1.68KFHP : 7.1% /$1.11

IP MedicalOverview:• 5-year average decrease for the City

is 1.6%• Claims for the City in this category are

6.5% higher than KFHPDetails:• Admits/1,000: decreased by 3.2%• Average Length of Stay: decreased

by 4.3%

IP SurgicalOverview:• 5-year average decrease for the City is

5.1%• Claims for the City in this category are

6.7% higher than the KFHPDetails:• Admits/1,000: increased by 2.3%• Average Length of Stay: decreased by

23.9%

IP MaternityOverview:• 5-year average increase for the City is 3.2%• Claims for the City in this category are

23.4% lower than the KFHPDetails:• Admits/1,000 increased by 10.9%• Average Length of Stay increased by 3.5%

Total Inpatient ∆:City: (7.0%) / $(8.45)KFHP : 3.5% / $3.62

8

City of LA City of LA City of LA City of LA City of LAKP Avg.KP Avg. KP Avg. KP Avg. KP Avg.$127.76

$101.65

$126.29

$103.67

$119.34$103.70

$119.92$104.11 $111.47 $107.73

Not shown in the graph: claims for IP Mental Health; IP Substance Abuse; and IP Skilled Nursing Facility.

Inpatient (IP) Detail - Surgical

• The decrease in IP Surgical expense is associated with two (2) episodes requiring life support which occurred in the previous claims experience period and are no longer reflected in this most recent claims experience period

9

TOP 4 INPATIENT SURGICAL PROCEDURES COST DRIVERS

Jan18 - Dec18

Oct18 - Sep19 Diff %

Jan18 - Dec18

Oct18 - Sep19 Diff $

Jan18 - Dec18

Oct18 - Sep19 Diff %

ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R. 2 2 N/A $2,874,787 $641,955 -$2,232,832 $7.03 $1.53 $5.51

CRANIOTOMY & ENDOVASCULAR INTRACRANIAL PROCEDURES W MCC 3 4 33.3% $1,750,648 $848,699 -$901,949 $4.28 $2.02 $2.26

INFECTIOUS & PARASITIC DISEASES W O.R. PROCEDURE W MCC 14 5 -64.3% $1,319,390 $765,593 -$553,797 $3.23 $1.82 $1.41

REATTACHMENT OF LOWER EXTREMITY W/O MCC 19 13 -31.6% $937,537 $566,528 -$371,009 $2.29 $1.35 $0.95

OTHER 288 319 10.8% $17,576,162 $18,142,443 $566,281 $43.00 $43.16 -$0.17

Grand Total 326 343 5.2% $24,458,524 $20,965,218 -$3,493,306 $59.83 $49.88 -16.6%

Admits Count Total Claims Cost PMPM Cost

Jan16 -Dec16

Jan17 -Dec17

Jan18 -Dec18

Oct18 -Sep19

% Change

Oct18 -Sep19

City vs KPHP

Admit/1,000 9.97 10.25 9.58 9.79 2.2% Admit/1,000 9.79 -9.2%Days/1,000 46.45 38.29 49.61 38.66 -22.1% Days/1,000 38.66 1.3%

ALOS 4.66 3.74 5.18 3.95 -23.7% ALOS 3.95 11.6%$/Admit $74,622.16 $60,483.39 $75,026.15 $61,123.08 -18.5% $/Admit $61,123.08 3.2%

City of Los Angeles - IP Surgical ProceduresKaiser Foundation Health Plan’s (KFHP)

Average - IP Surgical Procedures

Outpatient (OP) Overview

Outpatient Visits ∆:City : 5.9% / $3.81KFHP : 3.3% / $2.13

OP Visits include mental health and substance abuse visits

Emergency Room ∆:City : 3.7% / $1.07KFHP : 5.1% / $1.34

Outpatient Surgeries, Proc & OP Facility ∆:City : 16.8% / $7.47KFHP : 18.5% / $7.63

Outpatient VisitsOverview:• 5-year average increase for the City is 8.1%• Claims for the City in this category are 3.2%

higher than the KFHPDetails:• Visits/1,000: increased by 2.8%• Cost per Visit: increased by 2.9%

Emergency RoomOverview:• 5-year average increase for the City is

11.5%• Claims for the City in this category are

9.3% higher than the KFHPDetails:• Visits/1,000: increased by 1.5%• Cost per Visit: increased by 2.1%

Outpatient Surgeries, Procedures & OP Facility

Overview:• 5-year average increase for the City is 7.1%• Claims for the City in this category are 6.3%

higher than the KFHP

Total Outpatient ∆:City: 12.1% / $21.02KFHP: 10.9% / $17.99

10

Details:• Visits/1,000: increased by 3.8%• Cost per Visit: increased by 12.5%

City of LA City of LA City of LA City of LA City of LAKP Avg. KP Avg. KP Avg. KP Avg. KP Avg.

$141.85$126.73

$155.75$140.08

$167.57$156.14

$173.85$164.46

$194.87$182.45

11 | © 2011 Kaiser Foundation Health Plan, Inc. For internal use only.February 28, 2020

Outpatient (OP) Detail – Surgeries, Procedures & OP Facility

• Within the Outpatient Surgeries, Procedures & OP Facility category, chronic kidney disease is the main cost driver and increased $3.57 per member per month (PMPM) in paid claims (or $410,408) in this most recent claims experience period

TOP 10 PROCEDURES BY COST

Jan18 - Dec18

Oct18 - Sep19 Diff %

Jan18 - Dec18

Oct18 - Sep19 Diff %

Jan18 - Dec18

Oct18 - Sep19 Diff %

CHRONIC KIDNEY DISEASE (CKD) 217 348 60.4% 6.37 9.94 56.0% $656,443 $1,066,851 62.5%

LEIOMYOMA OF UTERUS 41 47 14.6% 1.20 1.34 11.5% $731,288 $965,900 32.1%

CHOLELITHIASIS 44 59 34.1% 1.29 1.68 30.4% $595,101 $777,407 30.6%

DISLOCATION AND SPRAIN OF JOINTS AND LIGAMENTS OF KNEE 31 41 32.3% 0.91 1.17 28.6% $337,426 $567,304 68.1%

OSTEOARTHRITIS OF HIP 20 22 10.0% 0.59 0.63 7.0% $458,765 $523,511 14.1%

OSTEOARTHRITIS OF KNEE 24 24 0.0% 0.70 0.69 -2.7% $368,773 $364,930 -1.0%

INGUINAL HERNIA 34 28 -17.6% 1.00 0.80 -19.9% $437,549 $359,681 -17.8%

SHOULDER LESIONS 10 23 130.0% 0.29 0.66 123.7% $122,362 $358,674 193.1%

TYPE 2 DIABETES MELLITUS 41 38 -7.3% 1.20 1.08 -9.9% $358,750 $350,494 -2.3%

OTHER AND UNSPECIFIED DISORDERS OF NOSE AND NASAL 19 25 31.6% 0.56 0.71 28.0% $229,570 $317,437 38.3%

OTHER OP SURGERY PROCEDURES 4,228 4,373 3.4% 124.11 124.85 0.6% $13,892,967 $16,189,668 16.5%

Grand Total 4,709 5,028 6.8% 138.23 143.55 3.8% $18,188,993 $21,841,857 20.1%

OP Surgery Count OP Surgery per 1,000 Paid Claim Total

High Cost Claimants

12

Large Claims Threshold: $400,000Paid Period: October 2018 through September 2019Projected Pooling Point: $700,000

Claimant Status Primary Diagnosis Paid Claims% Claims Paid

During Last 90 DaysHighest Paid

Month

1 ActiveI5023 - ACUTE ON CHRONIC SYSTOLIC (CONGESTIVE) HEART FAILURE

$1,204,215.29 99.4% July-19

2 ActiveZ3801 - SINGLE LIVEBORN INFANT; DELIVERED BY CESAREAN

$908,126.62 100.0% August-19

3 Active J1289 - OTHER VIRAL PNEUMONIA $895,618.63 94.6% August-194 Active A4151 - SEPSIS DUE TO ESCHERICHIA COLI [E. COLI] $718,391.27 22.5% June-19

City of Los AngelesPooling Point

Pooling PMPMTotal Pooled Charge

Pooling Charge PMPMPooling Difference PMPM

1 The pooling point, pooling charge, and number of claims above the pooling threshold will not be known until the renewal for 2021 is calculated.

2017 Renewal 2018 Renewal 2019 Renewal 2020$650,000 $650,000 $675,000 $700,000

Total Pooled Claims ($896,428) ($4,424,798) ($3,013,190) ($920,008)

($2.37) ($11.45) ($7.61) ($2.25)$1,381,717

$3.22 $3.22 $3.38 $3.38 ($8.23) ($4.23) $1.13

Number of Claims Above Pooling

5 8 2 4

$3.38 $1.18

4

$0.85

As Of 2019 Q3 1

$700,000

($926,352)

($2.20)$1,420,655 $1,217,189 $1,244,353 $1,338,003

Pharmacy Overview

Brand Formulary ∆:City : (1.1%) / ($0.21)KFHP: (7.7%% / ($1.34)

Generic Formulary ∆:City: (3.3%) / ($0.30)KFHP: (3.9%) / ($0.36)

Specialty Formulary ∆:City: (8.8)% / ($1.04)KFHP: 5.8% / $0.63

Generic FormularyBrand Formulary Specialty Formulary

Overview:• 5-year average increase for the City is 7.2%• Claims for the City in this category are

15.3% higher than the KFHPDetails:• Number of Scripts Per Member Per Year

(PMPY): decreased by 4.7%• Cost per Script: increased by 3.7%

Overview:• 5-year average decrease for the City is 6.3%• Claims for the City in this category are the

same as than the KFHPDetails:• Number of Scripts PMPY: decreased by

4.1%• Cost per Script: increased by 0.9%

Overview:• 5-year average decrease for the City is 5.5%• Claims for the City in this category are 6.5%

higher than the KFHPDetails:• Number of Scripts PMPY: decreased by

8.1%• Cost per Script: decreased by 0.7%

Total Pharmacy ∆:City: (1.8%) / ($0.70)KFHP: (0.9%) / ($0.35)

13

$39.55$36.93

$41.03

$36.73 $38.00$35.61

$39.79$37.57 $39.09

$37.22

City of LA KP Avg.City of LA KP Avg.City of LA KP Avg.City of LA KP Avg.City of LA KP Avg.

Pharmacy Detail

14

• Specialty drugs to treat Hepatitis C were introduced to the market in 2015• Over the past five (5) years, claims for brand name drugs have increased while the number of

prescriptions have decreased• Over the past five (5) years, claims and the number of prescriptions for generic drugs have decreased• Claims for specialty drugs experienced a slight cost decrease as compared to last year with the

amount paid ($) per prescription has remained flat

Total PMPM Cost $31.90 $39.55 $41.03 $38.00 $39.79 $39.09% Increase 24.0% 3.7% -7.4% 4.7% -1.8%

Pharmacy Detail (continued)

15

TOP 10 SPECIALTY DRUGS COST

Primary TreatmentJan18 - Dec18

Oct18 - Sep19 Diff %

Jan18 - Dec18

Oct18 - Sep19 Diff %

HUMIRA PEN 40MG/0.8 ML PNKT 155 157 1.3% $1.69 $1.74 3.0% ArthritisCOSENTYX PEN (2 PENS) 150MG/ML PNIJ 53 72 35.8% $0.50 $0.86 72.0% Severe plaque psoriasisENBREL SURECLICK 50MG/ML (1 ML) PNIJ 86 84 -2.3% $0.91 $0.85 -6.6% ArthritisOTEZLA 30MG TAB 67 89 32.8% $0.48 $0.64 33.3% ArthritisENBREL 50MG/ML (1 ML) SYRG 56 48 -14.3% $0.59 $0.49 -16.9% ArthritisPOMALYST 2MG CAP 10 8 -20.0% $0.43 $0.35 -18.6% Multiple myelomaSUTENT 50MG CAP 7 8 14.3% $0.29 $0.34 17.2% Cancer (including kidney cancer)JAKAFI 10MG TAB 12 10 -16.7% $0.39 $0.34 -12.8% Treat myelofibrosisIMBRUVICA 140MG CAP 7 10 42.9% $0.19 $0.31 63.2% Cancers (mantle cell lymphoma)HUMIRA 40MG/0.8 ML SYKT 35 28 -20.0% $0.34 $0.28 -17.6% ArthritisOTHER 377 324 -14.1% $6.00 $4.57 -23.8%

Grand Total 865 838 -3.1% $11.81 $10.77 -8.8%

TOP 10 BRAND DRUGS COST

Primary TreatmentJan18 - Dec18

Oct18 - Sep19 Diff %

Jan18 - Dec18

Oct18 - Sep19 Diff %

TRUVADA 200-300MG TAB 175 192 9.7% $1.72 $1.93 12.2% HIV-1GENVOYA 150-150-200-10MG TAB 124 114 -8.1% $1.78 $1.75 -1.7% HIV-1REVLIMID 10MG CAP 25 36 44.0% $0.98 $1.31 33.7% Multiple myelomaHEMOFIL M HIGH 801-1,500UNIT SOLR 8 9 12.5% $0.82 $0.88 7.3% Factor VIIITRIUMEQ 600-50-300MG TAB 51 49 -3.9% $0.73 $0.80 9.6% HIV-1ODEFSEY 200-25-25MG TAB 35 39 11.4% $0.44 $0.52 18.2% HIV-1BIKTARVY 50-200-25MG TAB 23 32 39.1% $0.24 $0.49 104.2% HIV-1DUPIXENT 300MG/2 ML SYRG 20 61 205.0% $0.15 $0.44 193.3% Chronic sinusitis.LANTUS U-100 INSULIN 100UNIT/ML SOLN 293 313 6.8% $0.43 $0.42 -2.3% DiabetesTRADJENTA 5MG TAB 295 249 -15.6% $0.45 $0.40 -11.1% DiabetesOTHER 7,415 7,382 -0.4% $11.08 $9.66 -12.8%

Grand Total 8,464 8,476 0.1% $18.82 $18.60 -1.2%

Sum of Scripts PMPM

Sum of Scripts PMPM