Rethinking Healthcare As Usual

1. Rethinking Healthcare As Usual Arizona City/County Management Association February 3, 2012 Rethinking business as usual

2. Healthcare • Complex national problem • U. S. does not have the best, just some of the most expensive • Costs have been soaring for decades • 1980: 9% of GDP • 2001: 14.1% of GDP • 2012: 17.7% of GDP (estimated)

3. Healthcare Perspective • 45 million Americans without health insurance • Uninsured & poor often can only access the system through hospital ERs • No wellness or disease management • System a contrast of high technology on the treatment side little technology on the administrative side

4. Example: Handwritten Prescriptions

5. What Really Happened • Correct Drug: Metadate ER 10 mg tablets. Metadate is a drug used in the treatment of Attention Deficit Hyperactivity Disorder (ADHD). • Dispensed Drug: Methadone. A morphine based drug used to treat addicts.

6. Healthcare Perspective2000-2009 • According to United Nations report comparing international healthcare: • Male life expectancy slid from 18th to 24th • Female life expectancy slid from 28th to 35th • Birth to age 5 infant mortality is in the 30’s

7. Reform Efforts • Most everyone agrees the system must be changed • Many people involved have vested interests in keeping the status quo • Like many public policy designs, people in power make policy to solve problems they do not experience • Consumer Driven Healthcare

8. Local Government Perspective • Employee healthcare expenses are among the largest expenditures of employers • Growing out of control & we accept it • Reluctant to upset employees with changes • Don’t want workload to change • In our organizations we have employees who cannot afford our group health coverage or deductibles

9. Local Government Perspective • Easy to think • This is a national problem • We are too small to impact • Federal government will fix • Our costs are following national trends • There are things we can do to reduce costs without cutting quality

10. Traditional Approach • Hire benefit consultant • Often they work for “free” taking a commission • Each government entity designs their unique program • City/County seeks individual bids • Many confusing bids received, some too good to be true • They are too good to be true

11. Traditional Approach • If a vendor does not win the bid in one city/county, they have chance in another one • No one bid has enough significance to make a big difference on company bottom-line

12. Example—City of Carrollton • 775 Employees = 1686 insurable lives • Hired consultant for flat fee • Contractually restricted from taking commissions, fees, rebates, kick-backs, etc. • Many area cities used the “free” consultants • Modified benefits…but not too much • “We could save $600k but it would be a lot of work & disruptive. You don’t want that!”

13. Example—City of Carrollton • If bidder didn’t win our business they could get Plano’s, Frisco’s, Irving’s, etc. • Costs continued to escalate but they tracked national trends • Businesses understand how we think based on years of experience

14. Reality Check! THERE IS POWER IN NUMBERS!!

15. Quantity Buying Common • Arizona League of Cities—U.S. Communities • Arizona Risk Retention Pool: 74 members • Arizona Public Employees Health Pool: 19 Members

16. The Public Employee Benefits Alliance (PEBA) was created by a group of Texas Government leaders working together for over a year to develop strategies to manage the rising costs of healthcare benefits. • Their efforts have resulted in the creation of a purchasing alliance designed to provide political subdivisions the leverage required to effectively negotiate with benefit vendors and continue to be sensitive to the service requirements of public employees.

17. PEBA’s mission is to support the individual members by providing: • Negotiation services to manage the spiraling cost of healthcare and related benefits. • Working together through the alliance procurement model to purchase healthcare and related benefits at a competitive price. • The contractual negotiation will include vendor service accountability requirements. • Committed to negotiate affordable, high-quality healthcare & related benefits and services.

18. Administrative Fee Schedule

19. Post Sixty-five Medicare Advantage Plans • TML IEBP Pre Sixty-five • Wellness Benefit Option • Pharmacy Benefit Management • Clinical Results Drug Management • International Medicine • TASC Section 125, FMLA, COBRA, PayDirect • Life/LTD/STD & Dental • Employee Assistance Program

20. Pharmacy Benefit Manager (PBM) Services • Offered plans from two different vendors • Since first bid in 2006 costs reduced 15%+ • Oct. 2010—Sept. 2011 more than $3 million saved

21. Clinical Results Drug Management • Clinical formulary plan created to enhance PBMs for self-insured plans • Offers formulary model that focuses on Evidence-Based research & lowest net-cost calculations • Joint-Venture with the University of Arkansas for Medical Science & the College of Pharmacy • Provider call center staffed with physicians & pharmacists • Between 2004-08 saved over $100mm for state employees & Medicaid • Over 900,000 lives utilize service today • Savings average 10%-15% total pharmacy payout

22. Clinical Results Case StudyCarrollton, Texas

23. City of Carrollton Clinical Results Savings Projected Annual Savings: $328,456

24. International Medicine • Cost savings of 40%-80% over U.S. pricing • No PEPM premiums • Savings but not at the expense of Quality • Ultimate consumer-choice in health care • Responds to needs of culturally diverse workforce • Quality of care comparable to leading U.S. hospitals and their physicians • Non-covered procedures affordable for employees

26. Savings to Plan Sponsor *Price Includes:

27. Quality Assurance Program • All acute care hospitals are Joint Commission International (JCI) accredited and must meet established U.S. standards of excellence • Many hospitals have affiliations with Harvard Medical, Johns Hopkins, Cleveland Clinic and others • Physicians speak English and have demonstrated competency in their specialty and their specific procedure • No deductibles; all expenses paid from take-off to return • Expenses for companion covered

30. Procedures • Weight Loss/Bariatric • Gastric Bypass • Lap Band • Gastric Sleeve • Women/Men • Hysterectomy • Prostatectomy • Plastic/Cosmetic • Dental • Other Procedures - 55 • Cardiac • CABG • Valve Replacement • Pacemaker • Defibrillator • Cardiac Ablation • Orthopedic • Hip Replacement • Hip Resurfacing • Knee Replacement, Partial • Knee Replacement, Total • Shoulder Replacement • Spine • Cervical Discectomy w/ Fusion • Lumbar Laminectomy • Lumbar Laminectomy w/Fusion

31. Employee On-Site Health Clinic • This was a strategic goal of the City Council • Process took approximately 2 years – reviewed every possible model • Received 7 proposals-Interviewed 4 • Conducted multiple site visits (Tulsa, OK & Humble, TX)

32. Our Model • Selected a management company • Rented a building in a shopping center – across the street from City Hall • 1696 covered lives, including dependents • The clinic is open for 23 hours per week • 1 Doctor & 2 Medical Assistants • Pay per hour and direct pass through on supply, utilities, rent, etc., costs • Partnership with QuikTrip convenience stores

33. CareATC • Focus on wellness and preventive care • Chronic disease management • Pharmaceutical – generics and antibiotics • Personal Health Assessments– follow up by physicians • Increased utilization • Decreased sick leave and lost productivity – employee and dependent care • Lower long-term health plan costs for the City and the employees

34. Cost • Average cost of visit to primary care Physician vs. Average cost of Health Clinic Visit • Cost of giving free generics vs. filling prescriptions – increase utilization of generics • Number of visits • Flu shots • Lab costs • Retention & recruitment • Time away from work • Employees receive 4 hours of “clinic” time in addition to sick leave • The immeasurable – a big catch

35. $$$$$$$$$$$ • $500 per hour/ $156 per visit • 3.2—3.5 visits per hour • Includes • Staff • All supplies, including generic drugs • Personal Health Assessment • Laboratory work • Rent, utilities, equipment

36. Dr. Patricia Lesczynski, M.D. " Working in the Carrollton Clinic setting allows the doctor to take time during office visits for focusing solely on patient care and prevention of disease versus the traditional clinic setting where physicians at times struggle with balancing good healthcare while still meeting the demands of insurance companies. I believe that this environment encourages a more consistent follow-up that in turn helps maximize the overall health of patients."

37. Best Advice & Lessons Learned • This is a big commitment, it would be very hard to take away! • Pick a management company with a Medical Director, or get a medical degree • Company has two Medical Directors • Be prepared to actually hear “thank you” from employees • But, still be prepared for a bit of “entitlement” mentality • Administrative Directives – sick leave policy needs to be reviewed • Use of generic drugs increased 9.5% FIRST YEAR

38. Clinic Outcomes • Explored options never explored • Fire Fighter & employee physicals • Partner with local business, it doesn’t have to be a public sector partnership (QuikTrip Convenience Stores) • If you have a diverse employee population, give serious consideration to a bilingual Physician or staff members • Compliment a Clinic with a Wellness Program • Greatly reduced time away from work for doctor visits • Disease management improved substantially • Diagnosed brain tumor, stroke & other illnesses early

39. Fee For Service vs. Negotiated Price Per Procedure • Traditional Model: Fee For Service • Networks negotiate discount off UCR • Reverse incentive to control costs • No guarantee for work done • Auto mechanic pokes hole in seat they pay • Surgeon pokes hole in innards you pay

40. Fee For Service vs. Negotiated Price Per Procedure • Negotiated fee for procure incentivizes provider to do it right the first time-CHEAP • Readmissions within X days are at the expense of the provider • If the provider makes a mistake they eat the extra cost • Much cheaper than fee for service

41. Negotiated Price Variations Across In-Network Providers • Networks and providers focus on the average discount, disregarding the base rate • Result: individual prices vary significantly • PCP and patient make decisions without pricing transparency CT Scan GI Scan Knee Surgery

42. Price + Process Variation Results in Significant Episode Cost Variation

43. Health Insurance Dependent Audit • Required employees with dependent coverage to prove dependent eligibility • Results • One employee admitted their “spouse” was not their “spouse” • 2 employees removed ex-spouses • 2 removed children who were no longer dependent • 10 employees did not respond; coverage dropped

44. Questions? Leonard Martin City Manager, Carrollton, Texas CEO, Martin Management Carrollton, Texas Leonard@MartinMgmt.com 214-783=2783 Rethinking business as usual