An Operational Vision for Care Delivery Reform in Alabama

1. An Operational Vision for Care Delivery Reform in Alabama Moving from extremely limited managed care to a fully capitated Medicaid model … in a couple of years!

2. Defining the Problem – Alabama Medicaid Needed Reform 1 Costs: Health costs – and the portion of the state budget dedicated to Medicaid – continue to rise rapidly. 2 Medicaid Financing: The state lacks a long term sustainable funding model. Current financing builds perverse incentives by basing program funding on utilization and costs. 3 Provider Reimbursement: The current model does not pay based on value and incentivizes utilization. 4 Care Delivery: The care delivery system is fragmented, with minimal incentives and infrastructure to coordinate care across providers.

3. Collaborative Approach Medicaid Agency director resigned and replaced with politically savvy and well-liked public health officer. Governor convened commission to explore various reform options and develop framework for reform. State leaders were careful to include all provider types, business and consumers on commission. Commission presented findings to governor, findings that formed the basis for initial legislation. Legislation wasn’t perfect, but structured to keep all parties in the boat and allow for community-led managed care.

4. Initial member thoughts …

5. What are RCOs?

6. Overview of RCOs

7. Regional Care Organizations Capitated Rate Regional Care Organization Governing Board Advisory Other Community Stakeholders Health Care Providers Consumers Employers Citizen’s Hospitals Services RCO Case Manager Quality Programs Provider Payments Clinical Integration Behavioral Health Clinics Nursing Homes Other Services Physicians Pharmaceuticals Beneficiary

8. Reform Principles The RCO must be able to implement effective care interventions to reduce utilization and improve outcomes. RCOs must have fiscal integrity and provide the state fiscal certainty. The RCO must be beneficiary-centric and community led.

9. The RCO Must be Beneficiary-Centric Care Management Team Primary Care Physician & Care Coordinator Data portals Patient • Tailored Care Planning • Coordination of Care • Improved Access • Improved Communication Behavioral Health • Aggregated Clinical Information • Event Notification • Alerts & Reminders • Chronic Disease Management Tools Specialist RCO Acute Sub-Acute RCOs should implement medical and health homes to coordinate care for beneficiaries.

10. RCOs must bend cost curve and provide fiscal certainty Alabama must bend the cost curve in order to leverage 1115 dollars. $ Savings

11. RCOs must have Lean Administrative Costs X Alabama’s administrative costs (and total spending per beneficiary) are already lower than the national average. In order to preserve provider payment rates, administrative costs must stay in the range of 5-7%. In order to achieve this goal, RCOs will need to limit certain administrative expenses and eliminate others entirely. • Sales and Marketing • Rating and Underwriting • Product Development / Market Research • Sales • Commissions (external) • Advertising and Promotion Average National Medicaid Administrative Costs 2011 Source: Sherlock Company, “MEDICAID PLANS’ ADMINISTRATIVE COSTS SURGE IN 2011,” Sept 2012. http://www.sherlockco.com/docs/navigator/Revised%20Late%20September%202012%20Navigator.pdf

12. RCO Implementation Timeline The following dates are “not later than.” The Medicaid Agency is permitted to certify RCOs prior to the dates identified below. CY 2013 CY 2014 CY 2015 CY 2016 • October 1, 2015 • RCOs must demonstrate they meet solvency and financial requirements • October 1, 2014 • RCOs establish governing board and structure, approval of which may result in “probationary certification” • October 1, 2013 • Medicaid Agency establishes RCO regions • October 1, 2016 • RCOs must demonstrate they are capable of providing services pursuant to a risk contract • RCOs must be in all regions of the State • April 1, 2015 • RCOs must demonstrate ability to establish an adequate provider network

13. Operationalizing the RCOs

14. Board Composition Appointment Authority Primary Care Physician Risk-Bearing Participant Risk-Bearing Participant Medical Association of the State of Alabama Primary Care Physician Risk-Bearing Participant Risk-Bearing Participant Primary Care Physician (FQHC) Risk-Bearing Participant Risk-Bearing Participant APHCA & Al Ch. NMA Optometrist Risk-Bearing Participant Risk-Bearing Participant AL Optometric Association Pharmacist Risk-Bearing Participant Risk-Bearing Participant AL Pharmacy Association Chair CAC Risk-Bearing Participant Risk-Bearing Participant Per Committee Rules CAC Member (AL Arise or Disabilities Leadership Coal. of AL) Elected by Committee Employer Nominated by Chamber of Commerce

15. Key Decision Points

16. Decision Points (continued)

18. Question for Hospitals: To Assume Risk or Not? • Definition of Risk Bearing: • A participant bears risk by: • Contributing cash, capital, or other assets to the RCO, • Contracting with the RCO to treat Medicaid beneficiaries at a capitated rate per beneficiary, • Contracting with the RCO to treat Medicaid beneficiaries even if the RCO does not reimburse the participant. • Open Questions: • What kinds of payment methodologies will be considered risk bearing for purposes of RCO Board membership? • Who should set the minimum amount of cash, capital, or other assets required to be considered risk-bearing – RCOs or the state? • What requirements should providers be required to meet if they choose to contract with the RCO to treat Medicaid beneficiaries even if they are not reimbursed?

19. Changes in Governance Requirements - Implications • Implications • In instances where a single entity is the only risk-bearing participant, that entity may hold a majority of the Board seats – providing those who are most at risk the most control • Hospitals that choose not to invest capital into the RCO may be considered risk-bearing if they accept a risk-based contract from the RCO • No single member of the Board has veto authority, which more fairly distributes power amongst Board members • To achieve diversity requirements, RCOs must coordinate across all appointing bodies, which may delay filling seats on the Board • RCOs governance structure may be less nimble since the executive committees powers are limited by the statute

20. The Legislation Included a Rate Development Methodology • The rate development methodology: • Required the state to set a minimum reimbursement rate for providers, which would be the prevailing Medicaid fee-for-service payment schedule unless the RCO and provider have a separate contract • Incorporated the minimum reimbursement rates into the actuarially sound rate development methodology for each RCO • Implications • RCO’s capitation rates will be adjusted based on the FFS rates • RCOs cannot mandate alternative payment methodologies with providers but may negotiate them • Risk-based contracts are one way for hospitals to be defined as a risk-bearing participants & be eligible for certain Board seats • Hospitals will be guaranteed, at least initially, the current Medicaid FFS rates. The amount of those rate may change as the Agency implements APR-DRGs

21. The Legislation Added a Provider Appeals Process… The Medicaid Agency was required to establish procedures for addressing contract grievances of providers. The appeals processes would include: RCO Review Board Providers may seek redress with a panel composed of an RCO representative, a similar type of provider, and a representative of the Citizen’s Advisory Board. 1 Medicaid Agency If the provider or RCO is dissatisfied with the redress, either may request a review by the Medicaid Agency. The agency must issues its decision, in writing, regarding the dispute within 10 days. 2 Contract Dispute Committee If the provider or RCO is dissatisfied with the decision of the Medicaid Agency, either may request a review, within 30 days of the agency’s decision, by way of the Contract Dispute Committee. The Committee will be required to issue a written ruling no more than 20 days after the dispute is submitted. 3 Circuit Court If provider or RCO is dissatisfied with the decision of the Contract Dispute Committee, they may file an appeal in the Montgomery County Circuit Court within 30 days of the decision. 4

22. Transition to New Delivery Model – 1115 waiver

23. Section 1115 Medicaid Waivers Refresher Section 1115 “Research & Demonstration Waiver” Delivery System Reforms New Money • States can use savings generated from delivery system reforms to make new money available to providers, e.g., payments for new populations, new services, or to offset state-only expenditures. • Savings are often generated through: • Transitioning to managed care or other care management models • Redirecting DSH payments • Modifying benefits/cost sharing • Waivers allow states to test new delivery system reforms, such: • Mandating managed care • Testing shared savings models • Covering new populations • Offering alternative benefit packages • Creating innovative financing models to expand coverage to low-income • Rationalizing payment schemes

24. Overview of Alabama’s Waiver • Risk bearing, provider-based RCOs • Medical home and health homes • Care coordination, including improved coordination of physical and behavioral health Delivery System Nearly all Medicaid populations will be enrolled in RCOs, with the exception of duals and individuals eligible for long term care services Beneficiaries RCOs are responsible for full scope of Medicaid benefits, including primary, acute, behavioral, maternal, pharmacy and post-acute services EXCEPT dental and long term care Benefits

25. Development of Quality Measures

26. Guiding Principles for RCO Quality Measures AlaHA initiated discussion of guiding principles to try and bring focus to the discussions: • Measures should be designed for RCOs, not providers within RCO • Measures should be well-defined, easy to collect and important to measure • Measures may need to be tweaked based on population of RCO and should measure things over which RCO has the ability to affect outcome • Initial measures should be used to establish baseline with performance measured later after gaining benchmark data • Performance should be measured on achievement, along with improvement

27. Financial Implications

28. Regional analysis - Population Breakout by Region - 2012 Membership % by Aid Category, CY 2012 *Excludes QMB, SLMB members included previously

29. Total Cost of Care per Enrollee Statewide Trend • Spending per RCO eligible member has decreased by 3% • This is appears to be due to an increase in eligible members for 2012 • 27% of which were Non-Users in 2012

30. Statewide Spend per Enrollee by Service Type Non Risk Adjusted Spend by Service Category, CY 2010,2011, 2012 • Professional, ER and RX spend per member are trending down while Inpatient and Outpatient spend per enrollee are increasing

31. Preventable ED Visits Complex and Simple Chronic Members Technical notes: • Technical notes: • Numbers in the table represent members attributed to each Patient Segment Data Source: ALAHA, 2012/01 – 2012/12

32. Preventable Inpatient Initial Admissions Complex and Simple Chronic Members Technical notes: Data Source: ALAHA, 2012/01 – 2012/12

33. Preventable Inpatient Readmissions Complex and Simple Chronic Members Technical notes: Data Source: ALAHA, 2012/01 – 2012/12

34. ALAHA Benchmark Comparison ALAHA utilization compared to Treo Medicaid Benchmark % Difference from Benchmark • Technical notes: • Age group 3-18 used for comparison • Total bar height represents % difference from Treo’s Medicaid Benchmark • Results are risk adjusted for the illness burden of ALAHA’s population Data Source: ALAHA, 2012/01 – 2012/12; Treo Medicaid Benchmark 2012/01-2012/12

35. Association Lessons Learned • Member communications is critical, even if it’s just restating the questions with no immediate answers. • Critical for leaders to be inclusive • While having a hospital tax is not ideal, it has definitely provided a seat at the table. • Constant evolution of learning for association staff and members that requires expert advice. • A per-diem payment system doesn’t result in good coding • Governance is first and foremost.

36. In the end … It’s about better population health … not heads in beds!