Navigant Healthcare Presents:

1. Navigant Healthcare Presents: ACO, Healthcare Provider Alternatives and Strategies in Participating in Health Insurance Exchanges Moderator: Cheryl Duva May 02, 2013

2. Navigant Overview Who is Navigant Consulting? • A 30+ years Global Consulting Firm with 2,500 professionals located in over 45 U.S. / Global Based Offices • Navigant’s Healthcare Practice brings together a team of more than 600 seasoned consulting professionals and industry thought leaders. We help our clients design, develop and implement integrated, technology-enabled solutions that create high-performing healthcare organizations.

3. Provider Alternatives in Participating in Health Insurance Exchanges: • Provider Perspective: Casey Nolan, Managing Director • ACO Perspective: Cynthia Peters Arnold, Director

4. A HIGHLY VOLATILE AND COMPLEX INDUSTRY

5. The evolving healthcare environment If you prove it, they will come. If you buy it, they will come. If you build it, they will come. • Compete based on data to demonstrate value (low cost, high quality) • Optimize use of what you have • Increase connectivity • Purchase technology • Focus on process, service, facility design • Compete for contracts • Reduce investments • Reduce ALOS • Build capacity Wholesale Market1980s Managed Care1990s Technology Market2000s Accountable Era2010s

6. Lessons from the front lines Since the PPACA’s passing in 2010, Navigant has intentionally invested in assisting clients in Massachusetts, the nations’ laboratory of healthcare reform. Navigant has now completed over 250 post-reform engagements with a wide range of physicians, payors, health systems, and suppliers. Based on our experience, we believe reform has been the catalyst for the following market forces and trends which are reshaping the healthcare landscape. • #3. A New Reimbursement Paradigm is Emerging • Managed care contracts, offering incentives to use accountable care tools such as more generics, less high-end imaging and ED avoidance are being embraced by primary care physicians, triggering acceptance by specialists and hospitals • #1. Under the Shadow of Reform, Reconfiguration = Recapitalization • Thinly capitalized and distressed hospitals & physician groups increasingly will seek partnerships, resulting in some transactions that could not have been predicted two years ago • #2. Reimbursement Cuts are Requiring Improved Performance • Large federal and state budget deficits have exacerbated Medicare and Medicaid solvency issues, pressuring provider payment • The cuts are large enough to require an integrated performance improvement / strategy/ financial approach

7. The “two curve” challenge • Curve #2: VALUE-BASED PAYMENT • Achieving “Triple Aim” , as per IHI: • Better Care Experience for Individual • Better Health for Populations • Lower Per Capita Costs Hospital and physician providers must address how to optimize performance in the current environment while also preparing to “jump” from Curve #1 to Curve #2 Natural Trajectory Performance • Curve #1: FEE-FOR-SERVICE • All about volume • Reinforces work in silos • Little incentive for “real” integration How do you prepare for a future world that requires more clinical integration while the health care system still rewards a position of strength in the current FFS “foot race?” Time Source: futurist Ian Morrison; Institute for Health Improvement

8. Exchange (HIX) Reimbursement What is the anticipated reimbursement rate? • Price Signaling is Occurring Nationally • Although the common initial ask is “Medicaid, Medicare or a steep discount”….. • Tenet strategy – participate in narrow/tiered network @<10% discounts off of commercial rates • Large Regional BCBS Plan – getting 5-10% discounts off commercial rates (up to 20%) • CHI – Very modest discounts off of commercial rates • Be mindful of out of network provisions (emergency, non-emergency, authorized vs. non-authorized, PPO vs. HMO) • Many Hospital CFO’s are assuming HIX plans will reimburse hospitals at or slightly above Medicare rates Source: Wall Street Journal 3/1/13 “Another Big Step in Reshaping Healthcare”

9. ACO/Network Impact: What is likely to evolve in the exchange marketplace? Implications for ACO/Provider Networks: • Access and network design will include: • Mental health and substance abuse • Avoiding providers who invite adverse selection (3 R’s minimize concern a little) • Impact of state QHP requirements on network design • Preference for narrow network • Payers will be interested in reducing medical claims costs through numerous network strategies: • Narrowing to lowest cost providers • Leveraging for more discounts • Creating tiered networks • Payors with limited experience with risk arrangements, may want to set up ACO and Bundled Payment arrangements without sufficient experience in how to address risk adjustment and providing actionable data to providers

10. Potential payer mix shift (2012-2015) due to the implementation of the aca and Exchanges Driven by aging pop. 42% 3% 33% 6% 5% 6% 1.5% 1.5% Net net, the positivefinancial gain from shifting “uninsured/self-pay” volumes from “no pay” to “some pay” is unlikely to offset the negative impact of “Cadillac BCBS” insured patients shifting to Exchange plans. 2%

11. ACO Impact Cynthia Peters Arnold, Director, Navigant Healthcare

12. ACO / Network / Health Plan Implications Implications of Expanded Benefits and Coverage: • More coverage for mental health and chemical dependency services • It is assumed there will be a decrease in uncompensated care which will lead to more scrutiny of tax exempt status of provider organizations Implications for Care Management: • Continuity of care issues/challenges • Pent up demand for care • Chronic illness management • Mental health and substance abuse demands for service and volume of those needing it will increase Implications for Provider Reimbursement: • Plans will use “evergreen” contract clauses to continue current reimbursement without adjusting to accommodate potential increase in acuity at the provider level for “Exchange” population • Plans in Medicaid may try to apply the Medicaid fee schedules to move into individual and small group markets • Increase of risk transfer arrangement to providers, possibly without adequate data and risk adjustment because the population will be “new”

13. ACO / Network / Health PlanImplications Implications for Payor Operations that may impact ACO Networks/Providers: • Appeals and complaints requirements and processes - Collections might become an issue for hospitals/providers because of confusion over coverage and effective dates • Premium billing and collections challenges • Impact on uncompensated care for providers (payer contracts, tax exempt status, financial planning) • Expect accelerated tiered network products with any related provider costs and quality information reported on the exchange website: • Provider cost and quality variation will be shown on the web sites by a significant number of states and payers are likely to condition payment on this data/performance • Payers could narrow networks even further than tiering: • There are basic network adequacy requirements but still less pressure to provider broad geographic access to PCPs because its an individual and small group market • States must meet minimum federal network access requirements but can make QHP requirements more stringent than federal requirements

14. Increasing alignment of markets, delivery and Payment Aligning Markets With Provider Networks: Requires Alignment of Delivery Systems and Payment Mechanisms

15. Increasing alignment of markets, delivery and Payment Aligning Markets With Provider Networks: Requires Alignment of Delivery Systems and Payment Mechanisms

16. Consumer Operated and Oriented Plans (CO-OPs) Cristine Vogel, Associate Director, Navigant Healthcare

17. Co-ops: new & different competition in 24 states What are Consumer Operated and Oriented Plans – CO-OPs? • ACA included a loan program to finance the creation of CO-OPs and provided for federal start-up and solvency loans to qualified applicants • Nonprofit, member-governed, consumer driven health plan choice • Innovative care delivery and payment models to compete in the health insurance market • A clean slate - no constraining legacy business • No existing license, networks, operational capabilities, market intelligence, reputation

18. 24 CO-OPs in 24 states NOTE • CO-OPs located in: • Arizona • Colorado • Connecticut • Illinois • Iowa • Kentucky • Louisiana • Maine • Massachusetts • Maryland • Michigan • Montana • Nebraska • Nevada • New Jersey • New Mexico • New York • Ohio • Oregon • South Carolina • Tennessee • Utah • Vermont • Wisconsin

19. Co-ops and marketplaces • CO-OPs are required to sell two-thirds of their contracts in the newly created Marketplaces • Mostly targeting the individual and small group markets • Large employers can participate but limited to about one-thirds of the contracts *These states are not partners but willing to review QHP market rules

20. Co-ops: challenges • Difficulties creating a start-up health plan in the expedited timeframe • Hire management and staff • Obtain state licensure • Comply with the new ACA rules regarding benefit designs • Develop provider networks and provider directories • Contract for claims processing and payment systems • Contract for call center operations • Develop marketing strategies and create marketing materials • Interface systems with state and federal agencies • No name recognition and limited resources for marketing • No claims history data for product pricing

21. Co-op: opportunities • Brand new market rules effective January 2014 levels the playing field • New “kids on the block” may get additional attention • Not all competitors will participate inside the Marketplace leading to greater market share • Providers may be more willing to participate in the network due to nonprofit consumer governed organizational structure • Price competitive because lack of “legacy infrastructure”

22. Qualified health plans (QHPs) Cristine Vogel, Associate Director, Navigant Healthcare

23. Environmental Landscape • Insurers are cautious about the initial opportunity of the Marketplace • Participation in Marketplaces is likely to be less robust than originally envisioned • Insurers are assessing and evaluating on a state-by-state basis • Blues are likely to be the mainstays in the Marketplace • Narrow networks on the Marketplaces are expected • Provider rates are a big question mark – although starting to see some light on this topic • People will shift between the Marketplace and Medicaid – opportunity for Bridge products or Medicaid expansion on the Marketplace

24. The new health insurance market • In 2014, the ACA changes nearly all of the market rules • Essential Health Benefits & Actuarial Value requirements for the entire individual and small group markets • Guaranteed availability • Single risk pool for the individual and the small group markets for each issuer • Limits on cost sharing • Rating rules • Individuals will be required to have health insurance • Individuals with lower incomes will be eligible to receive federal premium tax credits and reduced cost sharing • Large employers (>50 FTEs) may pay a fee if the health coverage offered does not meet federal requirements

25. Qualified health plan Only health plans that become certified as Qualified Health Plans (QHPs) can be offered in the Marketplace

26. States by marketplace type • The timing for QHP certification varies by state and by Marketplace type: • QHPs in most SBMs will be certified by July 31st • QHPs in SPMs will have the State “recommend” to HHS those QHPs that should receive certification by July 31st, but HHS will officially certify QHPs in early September • QHPs in FFMs will be certified in early September

27. Marketplace rates? Although no Marketplace has approved any QHP rates at this time, we are getting a glimpse into the rate filings from some Marketplaces…

28. Next steps for QHPs? • The insurers who submitted their QHP applications and rate filings to the Marketplaces will begin to learn of their certification during July, August and September • Some SBMs will make the monthly premiums rates available to the public as soon as the QHP rates have been approved • The FFM and SPM will post the rates on October 1st when Open Enrollment begins • QHPs are developing their marketing strategies to identify who are the “newly eligible” and who will enroll • What are the market segments and how can you to attract a mix of segments • Profitable growth and satisfaction in a new market with much uncertainty • Different social, economical and cultural population than traditional commercial business

29. Frequently asked questions Q & A