The Managed Care Opportunity in California’s Rural Counties California Primary Care Association

The Managed Care Opportunity in California’s Rural CountiesCalifornia Primary Care Association

Friday, March 16, 2012

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Today’s Goal

The goal of today’s presentation is to introduce the opportunities that California Clinics have to shape how Managed Care Plans will operate in California’s rural counties.

• Discuss and evaluate options for participating in the formation of a new Plan.

• Evaluate the opportunities and risks that partnering to create a new Plan present to California Clinics operating in rural counties.

• Understand the “Business Relationship Principles” that will help define a potential partnership.

• Enable a conversation among Clinics about how to proceed.

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The Opportunity: Understanding the Concept

CPCA and its Members must evaluate the value that participating in a plan may bring in conjunction with

understanding the associated risks.

A new Medi-Cal Managed Care Plan would potentially operate statewide and participate in the GMC, 2-Plan, and Rural

Counties.

Participating in the creation of a new Medi-Cal Managed Care Plan offers CPCA and its members financial and strategic value.

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What Options Do Clinics Have For Engaging Managed Care?

There are several ways that Clinics and PCAs can engage Managed Care:

1. Working in conjunction with a Managed Care Plan to determine a strategy for keeping the population healthy.

2. Negotiating contracted payment terms that set rates and other factors.3. Providing services to the plan that extend beyond traditional medical

services.4. Participating in the governance of the Plan.5. Investing in the Plan.

We will evaluate each of these options. They are not mutually-exclusive.The PCA and Membership are evaluating these options.

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#1 Medical Management: Keeping Populations Healthy

Working with Managed Care to develop a “Medical Management” strategy typically includes:

• Determining how and where care coordination and other enabling services should be provided.

• Working to establish clinical guidelines and practices.• Agreeing on measures of clinical performance.• Determining quality-based or cost-based incentive models.• Developing data-sharing strategies that produce quality and cost

outcomes.• Identifying opportunities for quality improvement and cost-savings, and

creating joint implementation strategies.

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#2 Contracting: Setting Clinic Payment Terms

Negotiating contracted rates helps to ensure payment adequacy and preserve historical payment systems for Clinics:

• The following trends in Clinic / Managed Care contracting are emerging:– Preservation of “PPS”- style encounter rate payments.– Many include opportunities to earn upside payments tied to achievement of clinical

or financial outcomes.– Some also include monthly care-coordination payments.– Often, Plans may offer favorable “cash-flow” terms including payment of State

“wraps” up front.

• Since Clinics are more effective than other settings of care in helping Managed Care Plans manage to Total Cost of Care, it’s possible to negotiate these preferred terms.

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#3 New Services: Building Business Around a Plan

In conjunction with the Clinic infrastructure, including the Primary Care Association and the Regional Consortia, it may be possible to create new business lines. Here are examples from other arrangements:

• Data-warehousing• Quality improvement• Credentialing of providers• Outreach, enrollment, and education• Billing and coding technical assistance• New pharmacy capacity• Transportation• Infusion• Many others…

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#4 Governance: Setting Long Term Direction

There may be opportunities to steer the long-term direction of the plan by participating in the governance structure of the plan. This can take many forms:

• Participation in the Board provides opportunities to make decisions about Plan direction.

• Many Plans also maintain committees that make recommendations to the Board. Clinic staff can populate these committees. Here are examples:– Quality Improvement: Make recommendations about applying Plan resources.– Compensation: Surface issues tied to payment terms.– Network Development: Evaluate the adequacy of specialist and hospital networks.

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#5 Ownership: Investing in the Plan

Many Clinics and Clinic Associations have taken an equity position in Managed Care Plans. Typically, this is a minority stake in the Plan.

Doing so offers the following benefits:

• Increased decision-making in Plan governance.• Opportunity to participate in profit-sharing through payment of

dividends to Plan owners.• Participation in various “exit strategies” where an owner’s stake is

purchased. This can be lucrative.

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The Opportunity: Value, Defined

VALUE

FINANCIAL VALUE

• Ownership stake in plan for PCA and Members creates new, diverse source of revenue (DIVIDENDS)

• Ownership stake can be lucrative if plan is sold or exists (EQUITY)

• Owners will have considerable say in developing Clinic reimbursement methodology (CONTRACTING)

• PCA, Consortia, and Clinics can provide needed services to the plan (NEW BUSINESS LINES)

• Plan will make investments in existing initiatives, where there is alignment. For example, branding (CO-INVESTMENT)

STRATEGIC POSITIONING

• Exercise control over reimbursement methodologies adopted for Clinics (PAYMENT REFORM)

• Participate in decision making about where and how Plan operates geographically (PRESERVE RELATIONSHIPS)

• Establish “Clinic First” patient assignment rules and HBE participation that preserve and expand Clinic patient-base (MARKET SHARE)

• Strengthen relationships with specialists and hospitals where appropriate (NETWORK DEVELOPMENT)

• Align Plan and Member interests to establish a new, supportive, and politically influential entity (PARTNERSHIP)

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The Opportunity: Maximizing Reimbursement

Developing a Managed Care plan will create opportunities to develop a reimbursement model to more effectively spend the $1.22B of project “Medical Loss” to achieve better outcomes.

Why a “Clinic-led” Health Plan makes sense:– Comprehensive primary care is effective in minimizing “Total

Medical Expense”– The plan could adopt Clinic payment terms that are adequate

to sustain and grow Clinics, while supporting new models of care:• Care coordination fees to support PCMH programs and enabling

services• Fair “PPS-style” payments for patient encounters• Shared-savings programs to incent performance and achievement

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Here is how a group of Clinics can potentially impact cost in populations of Medi-Cal patients when the payment methodology is designed in this way.

Medical Loss Categories % of Premiums Spent on Each Category

Net Savings to Plan

@86.5% = $1.22B @80.5% = $1.13B

Primary and Preventive Care 23% 25% $24.3M

Inpatient Services 38% 33% ($60.8M)

Prescription Drugs 14% 13% ($12.2M)

Hospital Outpatient (ED) 5% 5% ----

Skilled Nursing 6% 5% ($12.2M)

Home Health 5% 4% ($12.2M)

Hospice 3% 2% ($12.2M)

Other 6% 6% ----

($85.1M)

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Net Savings to Plan

@86.5% = $1.22B @80.5% = $1.13B







Hospice 3% 2% ($12.2M)

Other 6% 6% ----

($85.1M)

Spending an extra 2% on Primary Care would create a PMPM care coordination

budget of $5PMPM.

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Net Savings to Plan

@86.5% = $1.22B @80.5% = $1.13B







Hospice 3% 2% ($12.2M)

Other 6% 6% ----

($85.1M)

The Clinics would work with the plan to target the areas that are most likely to produce clinical and financial results.

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Net Savings to Plan

@86.5% = $1.22B @80.5% = $1.13B







Hospice 3% 2% ($12.2M)

Other 6% 6% ----

($85.1M)

If successful, an incentives budget of $8PMPM.

*This assumes 50% of savings paid in incentives, common in these models

**This is on top of traditional payments for care

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The Risks: Overview

Applying for and implementing a Medi-Cal Managed Care plan will carry significant financial and other risks Here is a summary.

– The cost of participating in RFP/RFA processes can be very expensive – this investment is lost if a plan is not awarded.

– Managed Care plans have significant regulatory requirements which must be navigated carefully – Knox-Keene laws, in particular, are tricky.

– Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives.

– A Plan has significant capital requirements, specifically funding an increasing reserve fund. Failure to keep pace means slow growth and/or fiscal instability.

– Entering into the insurance business has the potential to change the current dynamic with existing Managed Care plans.

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The Risks: Mitigating Financial Risk


– The cost of participating in RFP/RFA processes can be very expensive – this investment is lost of a plan is not awarded.


– Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives



These first four risks are best mitigated by working with an experienced partner that can bring:

• Capital• Experience navigating regulatory / legal issues

• RFP/RFA technical expertise• An established administration infrastructure

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The Risks: Mitigating Political Risk


– The cost of participating in RFP/RFA processes can be very expensive – this investment is lost of a plan is not awarded.


– Administering a plan requires a lot of infrastructure, which comes with a lot of cost. Overruns in administration eat into profits and incentives



But, the partner must also be flexible and open to working with the Members to address the primary

non-financial risk.

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The Partnership: Key Business Relationship Principles

• Partial ownership of the plan (Equity)• Favorable contract terms for CHCs• Control over where the plan operates geographically• Participation in governance

– Plan Board representation– Committee representation

• Funding to initiate the relationship• Marketing and branding• Network development• A care management model that aligns with CHC competencies• Access to data

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The Partnership: Key Business Relationship Principles

Handout

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Q&A and Discussion

Documents

The Managed Care Opportunity in California’s Rural Counties California Primary Care Association