FINANCING STRATEGIES
IN A HEALTH REFORM ENVIRONMENT
July 9, 2013
William J. TenHoor
AHP Healthcare Solutions
2
Objective
1. Gain a better understanding of financial
reimbursement approaches under Health Care
Reform
2. Gain a better understanding financing
strategies and opportunities as a business
development executive
3
Why the ACA Necessitates Action
• Payment models (financing) influence care
systems and drive the possible
• Service goes where the dollar flows
• ACA important departure from earlier health and
human service financing paradigms
• Great Society (public federal-local grants)(60’s)
• Block Grants (public federal-state grants with private
charities)(80’s)
• Universal Health Insurance Coverage (pubic and private health
insurance)(today)
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What the ACA Establishes
• Benefits for all Americans framed in 10 Titles
• Quality, Affordable Health Care for All Americans
• The Role of Public Programs
• Improving the Quality and Efficiency of Health Care
• The Prevention of Chronic Disease and Improving
Public Health
• More . . .
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What the ACA Has Already Done
• Benefits for all Americans
• 32 M to be newly covered under Medicaid +
Exchanges
• No denial for preexisting conditions
• Children 19+ now; adults in 2014
• Elimination of lifetime caps on coverage
• 20,000 people hit limits each year
• Insurance administrative costs < 80% of premium
• More preventive care free of charge
• Children on parent policies until age 26
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Critical Challenges for SUD Executives
1. Understand your environment
2. Integrate
3. Grow – consider networks, merger
4. Join ACOs
5. Become providers for all major insurers
6. Increase your financial IQ
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Financial Management Fundamentals
1.
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4.
5.
6.
Accounting and financial management are different functions.
Financial management plays a critical role in health services
organizations and enables or hinders positive growth and
longevity.
There are two basic types of ownership each with their
advantages and disadvantages when making financial
management decisions.
The goals of investor-owned and not-for-profit businesses
differ, but non-profits own for-profits and converted for-profits
leave behind public assets in perpetuity
Tax laws apply both to individuals and to healthcare
organizations and influence the behavior of the parties
Many more
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Understand Your Markets
• Good performance compels expertise
• Understanding markets, their payers, parity and reform
• The Markets
• Public Market: Federal MH and SUD Block Grants, State and Local
Government, Medicaid, Medicare, TriCare, HRSA
• Commercial Market:, Self Insured Employers (Large Group, Small
Group) Individual, MCO and Traditional Insurers, HMOs, MBHOs
• Self-Pay Market
• Markets versus Products (Health Plans)
• Recognize consolidation and merger acquisition activity
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Recent M&A Example
• FL “Aspire Health Partners” will begin operating July 1
• Is a merger of three SUD NFPs with none of the entities
•
•
•
•
buying the assets of the others
All three organizations split the legal costs of the merger
New board will consist of all the members of all three
existing boards
Existing chief executives take on new roles as 1 CEO, 2.
President, and 3 COO
Aspire has a three-year plan
• Integrate the organizations
• Emphasize and incorporate best practices
• Transitioning to new leaders as existing 3 CEOs nearing retirement
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Paradigm Shift: Insurance Vs. Grants
• CURRENT SYSTEM
• FUTURE SYSTEM
• Grant (versus contract)
• Insurance Contract
• Broad purposes couched
• Specific purposes, terms,
within broad legislation
• Relationship among
Parties
conditions
• Relationship among
parties
• State, clients, provider
• Insurer, insured, provider
• Loosely bound, unspecified
• Tightly contracted
• Billed monthly
• More proforma
• Billed daily
• Heavy admin. Overlay (UM,
clean claim, CMS 1500 form)
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Insurance: Framework & Characteristics
Characteristics
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1. Pooling of losses
2. Payment for
random losses
3. Risk transfer
2
3
4. Indemnification for
illness
Insurer charges individual $250. to cover the risk of
extreme illness and/or potential bankruptcy
(Anticipated care cost + risk & overhead charge =
premium)
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Basic Reimbursement Schemes
Provider
Risk Low
• Fee for Service
• Cost based – paid on allowable costs
• Positives – assures provider costs are paid
• Charge based – billed charges are paid based on
“charge-master”
• Paid based on negotiated or discounted charges
• Prospective
• Per procedure, diagnosis or per diem
• Per episode
Provider
High Risk
• Capitation
• Full vs. Partial
• Old capitation (‘74 HMO Act) vs. New HR Capitation
Limits of Traditional Payment Models
• Fee For Service
• A financial model rewarding
providers for increased
quantity and complexity of
services
• Incentivizing volume rather
than value
• Capitation
• Lacked incentives or controls
to mitigate the risk of undertreatment
• Transferred utilization risk but
also many other risks
(catastrophe)
• Dis-incentivized care of
chronically ill patients
• Initially-successful providers
punished with lower out-year
rates
Related Payment Model & Limits
• Pay for Performance
• Also incents desired
behaviors
• Can improve process (eg.,
care coordination) and
outcomes
• Limited incentive
• based on physician fees and
not total care costs
• Global or bundled (episode
or case based) payments
• Achieves results by focusing
on and limiting payment for
higher-cost episodes
• CMS’s 4 models
• Retrospective & prospective
hospital stay
• Non-comprehensive
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Risk Arrangements
• Rate setting only for what you can control
• Rate fairness - using actuaries, accountants
• Payment calculation basis – changes to
• Assignment/enrollment procedure
• Sufficient numbers and adverse selection
• MCO Withholds
• Rationale
• Lower is better
• Method and timing of distribution
• Stop loss insurance
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Primary Care Integration Strategy
Source; SAMHSA/HRSA Center for Integrated Health Solutions
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Exchanges & Qualified Health Plan Pricing
• California and Oregon have already published the premium
rates that health insurers want to charge for plans to be sold
through their health exchanges. Consumers hoping for official
quotes on how much they might have to pay for health plans
sold on Minnesota's health insurance exchange, dubbed
MNsure, are going to have to wait.
• “Two weeks ago, Oregon released health plans’ proposed rates
for the health insurance exchange. This was, as the
Oregonian’s Nick Budnick reported, when the insurers had their
rates directly compared with one another online.
• The price disparity was wide. “One health insurer wants to
charge $169 a month next year to cover a 40-year-old
Portland-area non-smoker,” Budnick wrote. “Another wants
$422 a month for the same standard plan. “
• http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/20/oregon-
may-be-the-white-houses-favorite-health-exchange/
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ACO Development Process
• Already 252 ACOS have been created (Bloomberg)
• The Centers for Medicare & Medicaid Services has
confirmed that nine of the 32 Pioneer accountable care
organizations may walk away from the experiment, which
is designed to change the way medical providers are paid
to manage care for patients with chronic diseases,
Bloomberg reports
ACO-Provider Payment Models
Exhibit taken from The Commonwealth Fund July 2011 “Promising
Payment Reform : Risk Sharing with Accountable Care Organizations”
Key AQC Goal – Decreased Spending Trend
PRE AQC Expenditure Trend
• Per-Capita Health Expenditure
Growth Rate = 8.8%
• GDP Annual Growth Rate =
6.1%
POST AQC Expenditure Tread Anticipated
Financial Features of the AQC
• Provider group has responsibility for cost and quality of all
•
•
•
•
•
•
services
Initial global budget for all services (in, out, pharmacy,
behavioral, etc.) based on cost history
Annual adjustments for health status/severity and inflation
Groups negotiate risk sharing levels (50%-100%) based
on risk tolerance with stop-loss and other controls
available
Group savings if costs go down – intergroup, upside and
downside risks are always equal
Performance incentives of up to 10% of global budget
Interim payments are made on a FFS basis with global
budget reconciliation at year end
Comorbidity & Chronic Condition Costs
Source: Wyatt Matas, 2013
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Questions & Discussion
Bill TenHoor
bill@tenhoor.com
© 2012 by Advocates for Human Potential –
Healthcare Solutions. All rights reserved. No part of
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