Financing Approach for Statewide HIE - Prepayment Plan

1. Date: June 22, 2011 Time: 2:00 pm – 4:00 pm NC Institute of Medicine, 630 Davis Drive, Morrisville, NC 27560 Dial in: 1-866-922-3257; Participant Code: 654 032 36#

2. Roll Call O'Connor, Maureen - Co-Chair BCBSNC Tayloe, Dave - Co Chair Goldsboro Pediatrics, American Academy of Pediatrics Bell, Mark North Carolina Hospital Association Harris, Brian Rural Health Group, Inc. Hughes, Yvonne Coastal Carolinas Health Alliance Miller, Mark Novant Health Minnich, John Computer Sciences Corporation Owen, Steve Division of Medical Assistance, NC DHHS Pilkington, Phred Cabarrus County Health Department Sangvai, Devdutta North Carolina Medical Society

3. Agenda 3

4. Financing Approach Progress to Date

5. Activities Since Last Workgroup Meeting Refined Prepayment Plan (April – May) • Developed details of prepayment mechanism and next steps • Presented prepayment plan to Executive Committee on May 13 Information Gathering (May – June) • NC HIE staff conducted meetings with multiple stakeholders • Capstrat launched interviews with hospitals Establishment of Business Terms for HIE Vendor (June) • Inclusion of revenue sharing • Reduction of near term cash flow concerns 5

6. Proposed Prepayment Approach Details Presented to Executive Committee

7. Financing Approach: Attributes agreed upon to date • Participation in the statewide HIE is voluntary. • Participants can pay through one of two mechanisms (“pay-as-you-go” or “prepay”). • NC HIE will  seek prepayments to fund the anticipated four year funding gap. • Goals for prepayment will be based on the following percentages per stakeholder category • Principles: • The upfront financing model must be structured in such a way that it rewards initial investors. • The NC HIE Board of Directors should adopt a pay-as-you-go pricing model for those who do not pay upfront that nets out to a higher price point than the upfront model. • The difference between the pricing for up front and pay-go options should be sufficient to gain investment, but not so large as to discourage future participation. • Medicaid (20%) approximately $2.5 million • Commercial Health Plans (35%) approximately $4.4 million Hospital Systems • Hospitals (35%) approximately $4.4 million • Providers (10%) approximately $1.2 million $ 4.4 M Note: Though the prepayment option will focus on the four stakeholder categories identified above, additional participants in the statewide HIE (e.g., laboratories, radiology centers, pharmacies, research organizations) will also be invited to participate in the prepay option as applicable and appropriate. $ 1.2 M Providers $ 4.4 M $ 2.5 M Payers NC Medicaid

8. NC Medicaid: Seeking approximately $2.5 million Key Considerations • Based on federal rules for drawing down Medicaid 90/10 Administrative funding in support of statewide HIE, NC Medicaid will not receive a single check for its proportional share/use of statewide HIE services. Instead, NC Medicaid will receive approval to draw down funds on a quarterly basis to cover its share of the costs as they are incurred. • Process for gaining approval from CMS to use 90/10 Administrative funds in support statewide HIE: Step 1. State Medicaid Agencies negotiate with CMS regarding: (1) which activities the Medicaid Agency wants to support, (2) what percentage of the activity will be covered, and (3) how long the Medicaid Agency will use 90/10 funds to support the activity (note: formal guidance from CMS to the states on the use of 90/10 funding is expected to be released by the end of May). Step 2: NC Medicaid develops and submits a formal request to use MU Administrative Funds to CMS in an Implementation Advanced Planning Document Update (IAPD-U); this document can take three to four weeks to develop and another four to six weeks for CMS to review and render a decision. Next Steps • Work with NC Medicaid to develop a commitment letter that acknowledges NC Medicaid’s intent to leverage 90/10 Administrative funds covering its fair share of statewide HIE services. • Work with NC Medicaid to develop an IAPD-U request to support the Statewide HIE Network.

9. Commercial Payers: Seeking approximately $4.4 million Key Considerations • There is no single, authoritative source on the combined number of insured and managed lives per payer for North Carolina. • Based on data on market share provided in the attachments, NC HIE estimates that BCBS NC is North Carolina’s largest insurer, with approximately 3 million members. Proposed Allocation Methodology • NC HIE seeks prepayment amounts from commercial payers based on the following step function: • Step 1 (for each member up to 500,000 members) .............................. $0.50 per member/per yr • Step 2 (for each member above 500,000 and up to 1 M members)..... $0.40 per member/per yr • Step 3 (for each member above 1 M) ................................................... $0.30 per member/per yr Next Steps • To refine the prepayment methodology, NC HIE needs authoritative data on insured and managed lives. • NC HIE will develop a pricing strategy that accounts for the different roles of commercial insurers, third party administrators, and self-insured employers.

10. Hospitals: Seeking approximately $4.4 million Key Considerations • Amount sought per hospital could be based on a number of criteria (e.g., licensed beds, annual discharges, gross operating revenue). • NC HIE believes gross operating revenue to be the fairest mechanism to calculate charges. • However, hospitals’ gross operating revenue on hospitals aren’t readily available, therefore for initial modeling purposes, we propose using inpatient discharges as our base. Proposed Allocation Methodology • Proposed tiers (based on 2009 inpatient discharges) and number of North Carolina hospitals in each tier: • Tier 1 (greater than 60,000 discharges).................. 5 systems • Tier 2 (between 37,000 and 60,000 discharges).... 6 systems • Tier 3 (less than 37,000 discharges)....................... 13 systems and 24 independent hospitals • Proposed amount sought per tier: • Tier 1 (greater than 60,000 discharges)........................$800,000 ($200,000 per system, per year) • Tier 2 (between 37,000 and 60,000 discharges).......... $450,000 ($112,000 per system, per year) • Tier 3 (less than 37,000 discharges)..............................$100,000 ($25,000 per system, per year) Note: NC HIE anticipates that there will need to be a 4th Tier consisting of the smallest hospitals located in distressed, underserved areas that will receive discounts for participation in the Statewide HIE Network. • If 50% of the hospitals in Tiers 1 & 2, and 30% of Tier 3 hospitals prepay, NC HIE will receive $4.75 million. • Tier 1 (3 organizations)...... $2.40 million • Tier 2 (3 organizations)...... $1.35 million • Tier 3 (10 organizations).... $1.00 million

11. Providers: Seeking approximately $1.2 million Key Considerations • The Finance Work Group has proposed that providers (whether employed, affiliated or independent) be treated consistently. • There is no authoritative source of data for number, size, or affiliation of practices in NC market. NC HIE’s working estimates: • NC Medical Society estimates there are approximately 22,000 physicians in North Carolina. • Public information on North Carolina’s hospitals and physicians suggest: • Carolinas Healthcare System employs 1,400 physicians. • Novant has 1,100 physicians in its “medical group.” • UNC employs 1,000 physicians on campus and 250 physicians in 25 practices off campus. • The determination of who pays will be based on the physician’s affiliation. • To account for economies of scale offered by larger institutions, NC HIE pricing will include both a connection charge and a use charge. The connection charge will be a fixed fee, independent of organizational size. Proposed Allocation Methodology • NC HIE will seek a minimum of $400 per physician for the prepayment option (on an annual basis, this equates to $100 per year per provider) • At $400 per physician, NC HIE would meet its prepayment goal if 3,100 physicians (14% of the total physician population) chose to prepay.

12. Next Steps for Prepayment Plan Adapt roll out strategy to reflect market stratification Recognize that prepayment will be difficult for smaller institutions Timing Mid-July, NC HIE will have definitive information on its projected cash flow In Aug-Sept, NC HIE will seek prepay commitments 12

13. Use of Prepayment Funds for An Incentive Pool

14. Creation of a Dedicated “Incentive Pool” Overview Percentage of prepayment from commercial payers will be a restricted grant to NC HIE which will be used to offset costs for hospitals in Tiers 2 and 3 Next Steps Determine percentage allocation of commercial payer prepayment to set aside Develop details for implementation 14

15. Next Steps for NC HIE Staff and Finance Work Group

16. Next Steps Tasks for NC HIE Staff Develop detailed cost projections Develop pricing models Tasks for Finance Work Group Provide input on strategic direction of NC HIE financing plan Serve as sounding board for pricing and revenue options Assist in the identification of additional revenue sources Review workgroup membership and focus in light of NC HIE’s transition into implementation phase 16

17. Public Comment

18. Attachments

19. Board Actions Related to Finance