Strategic Contracting
Getting the Business you Desire
with Desirable Trading Partners
Overview
Presented by
Patrick Gauthier, Director
Objectives
1. Explore the
Contracting
Environment
2. Review Options
3. Discuss
Strategy
4. Questions
The New Business Environment
Brief Review of Contracting
Environment
• Environmental Drivers:
– Parity
• Self-insured employers
• Large group insurance
• CHIP and Medicaid managed care plans
– Health Care Reform
• Medicaid expansion
• Health Insurance Exchange
• More managed care
– Block Grant
• Integrated application
• Addresses wrap-around and remaining uninsured
Big Pictures: Now & Then
Private
Insurance
Publicly-Funded
Treatment
DOI
Federal
Agencies
Employers
State
Agencies
Brokers
10% 25%
Counties
and Cities
75% 90%
Insurance
Managed
Care
Networks
Health
Insurance
Exchanges
Medicaid
Managed Care
Plans
32+ Million
Uninsured
Corrections &
Courts
Managed
Care
Prevention
Networks
Housing &
Jobs
Standards
& Science
Parity & Scope of Services
• MHPAEA does not stipulate what specific conditions, disorders or
diagnoses must be covered.
• Parity law does not mandate covered services except to say that
parity applies to all six categories of service if it applies to any
• Parity law does not mandate specific kinds of providers be covered
Deciding what conditions, services and providers are eligible for
coverage – until we see a Final Rule with clear direction – is left to
health plans and State regulators enforcing your State law and
regulations.
Take a Stand on Scope of Service
1.Covered Conditions
2.Covered Services
3.Covered Providers
4.Medical Necessity Guidelines
Where to take it
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Health plans
MCOs
MBHOs
Employers
PPOs and HMOs
Dept of Insurance
Medicaid
Attorney General
Governor
Legislators
Reform & ACOs
• Q: What is an “accountable care organization”?
• A: An Accountable Care Organization, also called an “ACO”
for short, is an organization of health care providers that
agrees to be accountable for the quality, cost, and overall care
of Medicare beneficiaries who are enrolled in the traditional
fee-for-service program who are assigned to it.
• For ACO purposes, “assigned” means those beneficiaries for
whom the professionals in the ACO provide the bulk of primary
care services. Assignment will be invisible to the beneficiary,
and will not affect their guaranteed benefits or choice of
doctor. A beneficiary may continue to seek services from the
physicians and other providers of their choice, whether or not
the physician or provider is a part of an ACO.
ACO
Structure, Governance and
Shared Savings
IT Infrastructure and
Data Management
Long-Term
Care
Home
Care
& Hospice
Public
Health
Population
Health Home
Rx & Lab
Primary
Care
Mental
Health
Substance
Use
Disorder
Hospital
& Rehab
Surgical
& Specialty
ACO Functions
Leadership
Business Operations
Compliance
Quality
Assurance
Enrollment
Customer
Service
Utilization
Mgmt
Managed
Care
Provider
Relations
Case Mgmt
Claims
Processing
IT & Data
Analysis
ACO Goals
• Promote development of new systems of care
• Change provider culture and incentives from fragmented
FFS
• Lower costs while improving population health
• Measure both quality and financial performance
• Hold provider systems accountable for both cost and
quality of care for assigned patient populations
ACO Innovations
Minimize “barriers to entry” for patients and providers:
• Patients attributed, not enrolled
• No benefit or network restrictions; no lock-in; no prior-auth
Flexibility for providers to form different kinds of ACOs
• Flexible payment model (e.g., can include bundling, Medical Homes)
• “Bonus only” shared savings
• “Symmetric risk” shared savings
• Partial capitation and shared savings
Receiving shared savings requires first achieving quality threshold
ACO Reimbursement
• Under the proposed rule, Medicare would
continue to pay individual providers and
suppliers for specific items and services as it
currently does under the fee-for-service payment
systems.
• The proposed rule would require CMS to develop
a benchmark for savings to be achieved by each
ACO if the ACO is to receive shared savings, or
be held liable for losses.
ACOs – Two Tracks
• To provide an entry point for organizations with varied
levels of experience with and willingness to take on risk,
the proposed rule would allow an ACO to choose one of
two program tracks.
• The first track would allow an ACO to operate on a
shared savings only track for the first two years, but
would then require the ACO to assume the risk for
shared losses in the third year.
• The second track would allow ACOs to share in savings
and risk liability for losses beginning in their first
performance year, in return for a higher share of any
savings it generates.
ACO
• Q: What forms of organizations may become an ACO?
• A: The statute specifies the following:
1. ACO professionals (i.e., physicians and hospitals meeting the
statutory definition) in group practice arrangements,
2. Networks of individual practices of ACO professionals,
3. Partnerships or joint ventures arrangements between
hospitals and ACO professionals, or
4. Hospitals employing ACO professionals.
5. Other Medicare providers and suppliers as determined by the
Secretary
ACO
• Q: What are the types of requirements that such an
organization will have to meet to participate?
• A: The statute specifies the following:
1) Have a formal legal structure to receive and distribute
shared savings
2) Have a sufficient number of primary care professionals
for the number of assigned beneficiaries (to be 5,000 at a
minimum)
3) Agree to participate in the program for not less than a 3year period
ACO – requirements cont’d
4) Have sufficient information regarding participating ACO
health care professionals as the Secretary determines
necessary to support beneficiary assignment and for the
determination of payments for shared savings.
5) Have a leadership and management structure that
includes clinical and administrative systems
6) Have defined processes to (a) promote evidenced-based
medicine, (b) report the necessary data to evaluate
quality and cost measures (this could incorporate
requirements of other programs, such as the Physician
Quality Reporting Initiative (PQRI), Electronic Prescribing
(eRx), and Electronic Health Records (EHR), and (c)
coordinate care
7) Demonstrate it meets patient-centeredness criteria, as
determined by the Secretary.
ACO
• Q: How would such an organization qualify for
shared savings?
• A: For each 12-month period, participating ACOs that
meet specified quality performance standards will be
eligible to receive a share of any savings if the actual per
capita expenditures of their assigned Medicare
beneficiaries are a sufficient percentage below their
specified benchmark amount. The benchmark for each
ACO will be based on the most recent available three
years of per-beneficiary expenditures for Parts A and B
services for Medicare fee-for-service beneficiaries
assigned to the ACO.
ACO
• Q: Will beneficiaries that receive services
from a health care professional or provider
that is a part of an ACO be required to receive
all his/her services from the ACO?
• A: No. Medicare beneficiaries will continue to be
able to choose their health care professionals
and other providers
ACO
• Q: When will this program begin?
• A: January 1, 2012. Agreements will begin for
performance periods, to be at least three years,
on or after that date.
Goals &
Objectives
Improve Inpatient
Care Efficiency
Use Lower Cost
Treatments
Hospitals &
Specialists
Primary Care
Reduce
Adverse Events
Reduce Preventable
Readmissions
Reduce Preventable
ER Visits &
Admissions
Reduce
Unnecessary
Testing & Referrals
Improve Practice
Efficiencies
Improve Prevention
& Early
Diagnosis
Improve
Management of
Complex Cases
Improve Health
Outcomes
Use Lowest-Cost
Settings and
Providers
Lower Total
Healthcare
Costs
Population Health Management
• ACOs must develop a process for identifying patients
who have complex needs (multiple chronic conditions) or
are at high risk of developing such needs and provide
them with wellness and prevention programs, disease
management, and complex case management, as
indicated
• ACOs must make available or support providers’ use of
electronic prescribing, electronic health records systems,
registries, and self-management tools
• MH/SUD providers must be prepared to work in this
environment and develop the necessary tools and
resources
Incentives to Participate in an ACO
• Identified population/market share
• Some administrative fees for administrative
duties
• Reliable referral sources within network
• Common values and objectives (coordination,
cooperation, collaboration)
• Shared information (whole health)
• Shared savings (financial incentives)
Block Grants
• SAMHSA's proposed changes to the FY
2012/2013 Block Grants seeks to get State
behavioral health systems ready for 2014 when
more people will be insured through Medicaid or
3rd party insurance. Under this new approach
States and territories will have the opportunity to
use block grant dollars for prevention, treatment,
recovery supports and other services that
supplement services covered by Medicaid,
Medicare and private insurance.
Multiple Chronic Conditions
• The proportion of Medicaid beneficiaries with disabilities who
are diagnosed with three or more chronic conditions
ranges between 35% and 45%.
• The frequency of psychiatric illness among Medicaid
beneficiaries with disabilities ranges from 29% to 49%.
• Psychiatric illness is represented in three of the top five
most prevalent pairs of diseases, or dyads, among the
highest-cost 5% of Medicaid beneficiaries.
The Cost of Health Care in America
2009
1999
17.6%
of GDP
13.8%
1989
11.8%
1979
8.6%
1969
6.7%
Source: CMS, Office of the Actuary, National Health Statistics Group
Reviewing Your Options
Options are a Function of Market
• Self-Insured Plans (ERISA)
• Traditional Indemnity (fully-insured)
– Open access, higher coinsurance
• Managed Care Plans
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MBHO (carve-out)
HMO (network-centric, referral-based)
PPO (wider network, medical necessity standards)
POS (combines HMO and PPO with coinsurance differentials)
• Consumer-Directed Health Plans
– High deductible, catastrophic claims
– Health Savings Accounts (HSA), Health Reimbursement
Accounts (HRA) and Flexible Spending Accounts (FSA)
Market Research
Sources of Valuable Information
• Health Plans and Managed Care
Organizations
– State Department of Insurance
– AHIP and State Associations of Health Insurance
Plans
• Self-Insured Employers
– National and Regional Business Group on Health
– Employers’ Health Coalitions
• Federal and State Agencies
– HRSA, SAMHSA, NIDA, DOL, CMS, DOJ web sites
Market Segments
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Commercial Insurance / Public Funding
Voluntary / Involuntary
Geographic Markets
Age
Gender
Specialty / Generalist / One-Stop Shop
Race / Culture / Language
Stand-Alone / Integrated / Joint Venture /
Partnership
• Faith-Based
Market Segmentation
• What kinds of markets appeal to your
organization?
• What suits your vision and mission?
• In what market segments do you have a
good reputation? Market
share/penetration?
• In what market segments do you/can you
make a reasonable profit?
Opportunity Matrix Tool
Market
Segments
and
Services
Service 1
Service 2
Service 3
Rank each according to:
Segment
1
Segment
2
Segment
3
1.
Market Maturity/Longevity
2.
Brand equity or reputation
3.
Revenue share (%)
4.
Share of profits
5.
Qualifications, skills, subject
matter expertise and
capacity to grow
6.
Weaknesses, competitors
and threats
7.
Cost of entry
8.
Legislative/regulatory
opportunities
New Conversations
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Hospitals
Health Plans and MCOs/MBHOs
Primary Care
Third-Party Administrators
Brokers
Networks
Employers
Other Medical Specialists
Others?
New Conversations
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Professional
Face-to-face
Expressing willingness and interest
Demonstrating big picture understanding and prospect of synergies
Eager to develop viable, marketable, attractive solutions
Promoting new services and potential new business model
Clear, distinct, customer value proposition
Potential collaborator? Investor? Partner? Buyer?
Benefits and advantages more important than features and
functions
10. Always Branding
Reimbursement and Fee Schedules
Variety of Approaches and Methodologies
• Usual, Customary and Reasonable (UCR)
• Diagnosis Related Grouping (DRG)
• Resource-Based Relative Value Scale (RBRVS)
• Innovations including:
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Sub-capitation
Bundled case rates and episode rates
Administrative fees for additional services like Case Management
Bonuses for performance
Shared savings
Global Payment
• Definition. Global payments are fixed-fee payments for
the care and services that patients might receive in a
given span of time such as a month, quarter or year.
Global Payments are akin to Case Rates and Episode
Rates. Global payments put providers at-risk financially
for the occurrence of conditions as well as the
management of those conditions.
• Purpose. Global payments are designed to contain
costs and reduce the incidence of unnecessary services,
promote integration and coordination of services. Global
payments can also feature incentives to improve the
quality of care.
Global Payment
• Potential Issues. Global payments might
induce providers to cut back on necessary care
and to admit/select less expensive patients into
their programs.
• Global payments involve significantly more
complex financial management, requiring
infrastructure and personnel to manage risk.
• Small providers may not be able to take on risk
due to this complexity and any state
regulations concerning financial solvency
where risk exists.
Contracting Imperatives
• Know your costs and cost structures
• Know your profit model. At what point
can a contract become profitable?
• Don’t contract at rates lower than your
costs if your model doesn’t absolutely
demonstrate a reasonable point in time
when you become profitable
Contracting Imperatives
• Review contracts from multiple
perspectives:
– Legal
– Financial
– Clinical
– Ethical
– Practical Operational
– Strategic
Strategic Concerns
What makes your decision to contract
“strategic?”
• The contract reflects your vision, your
image of what it is you’re becoming
• It supports your mission, how it is that
you will strive to realize your vision
• It helps you accomplish organizational
goals and objectives
Examples: Strategy
• New market segment
– Medicaid
– Self-insured employer
– Impaired professionals program
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Gains in % share of the market
Competitive advantage
Visibility and brand-image
New services in the same market
– Addition of IOP, for example
Examples: Strategy
• New location/geographic expansion
• New reimbursement methodology
• Secure funding (sub-capitation for defined
population, for example)
• Joint venture/revenue share
• Building credibility, loyalty, confidence in a
step-wise growth plan
• Goodwill in the community
Examples: Goals
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Increased overall revenues
Improved profit
Admissions
Bed-days
Transitions in care
Integration (vertical and horizontal)
Number of payers (diversification)
Sustainability of other programs
Factors and Variables
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Service mix (billing codes)
Bundling/unbundling services
Rate of reimbursement
Reimbursement methodology
Incentives/Pay-for-Performance
Shared Savings
Factors and Variables
• Utilization Management terms and
conditions
• Credentials
• Preferred Status/Exclusivity
Planning
1. Conduct Market Research
2. Conduct Strategic Planning
3. Gather Intelligence
4. Assess Market Conditions
5. Develop Customer Value Proposition
Planning
6. Develop clear sense of what you
a) desire, b) want, c) will accept, and
d) need
7. Practice concise pitch
8. Develop your allies
9. Talk to the right person
10. Approach with respect and
professionalism and tell them what’s in
it for them
Thank You! Questions?
Patrick Gauthier
Director
888-898-3280 ext. 802
pgauthier@ahpnet.com