John D. Meerschaert, FSA, MAAA
Principal and Consulting Actuary
Milliman
Juliet M. Spector, FSA, MAAA
Consulting Actuary
Milliman
Jacqueline Kueser, Leader, Care Transformation Informatics
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At Risk Financing for Networks for
Children with Medical Complexity
Presented by:
John D. Meerschaert, FSA, MAAA
Principal and Consulting Actuary
Juliet M. Spector, FSA, MAAA
Consulting Actuary
January 12, 2015
Agenda
 Goals and Design Components for Payment Model(s)
 High Risk Medicaid Population Case Study
 Questions/Discussion
5
January 12, 2015
Goal: Align Payment Model with Care
Delivery Model
Care Delivery Model
Uncoordinated Care Delivery /
Unconstrained Cost of Care
Highly Coordinated Care Delivery / Better
Health Outcomes / Reduced Cost of Care
Aligned Payment Model Design
Volume Driven FFS Payment Model
6
January 12, 2015
Value Based Payment Model
Consider Impact on Hospital Finances if Care
Delivery Model is Successful
 Care management success generally results in lower inpatient
and emergency room volume for complex patients
 Impact on children’s hospital finances varies based on
– Relationship between Medicaid payment rates vs. cost
– Ability to back-fill lost Medicaid inpatient volume with higher paying
commercial patients (or other Medicaid patients)
– Reductions in variable cost compared to loss of revenue from
inpatient volume reductions
– Alignment with other hospital initiatives
 Can offset revenue loss in the hospital by capturing alternate
income through case management fees, shared savings
payments, and/or capitation revenue
7
January 12, 2015
Types of Population Payment Models
Shared
Savings
(Upside
Only)
PMPM Case
Management
Payments

8
January 12, 2015
Shared Risk
(Upside and
Downside)
Provider
Owned
Health Plan
Capitation
Risk Mitigation Important for All Models

Key Aspects of Population Payment Models
 Goal should be to provide a care management incentive – not to
simply transfer insurance risk to provider
 Payment model should be tailored to local conditions
 Recognize the resource investment children’s hospitals must
make to change the care delivery model for complex patients
 The magnitude and type of downside risk assumed by providers
can vary based on their circumstances and needs appropriate
safeguards
 Incentives may be tied to both a reduction in growth of spending
and improvement in quality and outcome measures
 Sharing of data and information between payers and providers
to identify opportunities to improve quality and reduce spending
9
January 12, 2015
Potential Attribution Methods
Member
Choice
Clinic
Prequalification
Geographic
Patient
Attribution
Methods
Retrospective
Visit Based
10 January 12, 2015
Prospective
Visit Based
Who Will Be Enrolled in the Payment Model?
 How will “Medically Complex Children” be defined?
 How will specific children be identified and enrolled?
 What conditions are likely to produce savings under care model?
 Potential payer partners
– Commercial insurers
– Medicaid fee-for-service system and/or managed care organizations
 Geographic area restrictions – local or regional?
 Will any diagnoses or events be excluded?
 Influence of owned or aligned physician network
 Building a credible population may require aggregating
membership across multiple payers
 When are members disenrolled from the payment model?
11 January 12, 2015
Setting the Cost Target
 Shared savings and capitation arrangements require the parties to
set a cost target for the population’s cost absent the intervention
 Set target based on recent data for attributed population
– Use multiple years of data to increase credibility for small populations
– Avoid annual rebasing so that care management investments have a
longer payback period
– Population cohorts to be determined based on data analysis
– Include cost of covered services based on contract
 Trend to measurement period based on expected cost increases
without intervention
 Use risk adjustment to account for changes in acuity
 Small complex populations may have highly variable
targets/results
12 January 12, 2015
Identify Realistic Savings Opportunities
 Use historical claims and clinical data to understand the
spending patterns of the enrolled population
 Identify services with high allowed charges and claim costs –
how could they be avoided in the future?
– Segregate the claim costs into services the hospital provides versus
services that other providers provide
– What services are unavoidable?
– Ability to shift physician practice
 Timing of savings – how long will it take to realize cost
reductions?
– It is possible that some of the interventions could increase costs for
some patients or in aggregate before savings are realized
13 January 12, 2015
Commercial Population Variation by CRG
Distribution of Annual Cost per Person by Clinical Risk Grop (CRG)
Percentile
5b
6
7
8
9
Total
Average
$8,335
$14,811
$44,718
$51,205
$38,532
$12,917
25th
$2,401
$3,323
$10,113
$7,545
$6,020
$2,855
50th
$5,039
$6,448
$18,052
$25,187
$18,104
$5,816
75th
$9,112
$13,378
$38,229
$64,052
$43,216
$11,294
90th
$15,023
$29,730
$88,937
$133,804
$87,328
$24,187
95th
$22,126
$50,796
$179,760
$194,046
$132,719
$42,686
99th
$53,724
$147,947
$490,196
$342,576
$329,135
$134,085
Source: Milliman Report for CHA, “Actuarial Costs of a Commercial Pediatric Population (October 18, 2012)
• Longitudinal study of 2008 – 2010 commercial claims data
• Understates 0-1 and 16-18 population due to 3 year enrollment requirement
14 January 12, 2015
Risk Mitigation Techniques
 Critical to incorporate ways to reduce the risk of random
variation
–
–
–
–
–
–
Setting reasonable cost targets for proper population cohorts
Risk adjustment
Excluding patients with high variance diagnoses or events
Stop loss / reinsurance
Cap payouts and losses
Aggregate membership across multiple payers
 Medically complex children will have variable cost
– Provider and payer may need to accept more year-to-year
fluctuation in financial results compared to a broader population
15 January 12, 2015
Impact of Quality Measures
 Shared savings or other bonus payment distribution to providers
is often conditioned on meeting quality benchmarks
 Quality measurement should be based on a reasonable and
credible structure
– Negotiate meaningful measures for the Medically Complex Children
target population
– Establish baseline at the current level of quality performance (not an
unattainable goal)
– Ensure measures are statistically credible for the size of the target
population
16 January 12, 2015
Other Payment Model Design Issues
 Use of PMPM care management fees
 Population credibility
 Savings distribution between providers and payers
 Internal gain/loss distribution models
– Hospitals
– PCPs
– Specialists
17 January 12, 2015
Case Study – Major Elements
 Population: Disenfranchised populations, including people who
are homeless, poor, HIV positive, mentally ill, addicted, and
immigrants or refugees
 Payment Model: Care coordination fee and a shared savings
component with a move to capitation in 3 years
 Payer: Fee For Service State Medicaid
 Claims Data: Fee for Service State Medicaid
18 January 12, 2015
The Important Populations for the State and
the Care Coordination Entity (CCE)
 Priority Population (State):
– Seniors and Adults with disabilities
– Long term care populations
– Serious Mental Illness
– HCBS Waiver populations
– Dual eligible
19 January 12, 2015

‒
‒
‒
‒
‒
‒
‒
Target Population (CCE):
A mental health condition
A substance abuse disorder
Asthma/COPD/bronchitis
Diabetes
Heart disease
HIV/Aids
Gastro-intestinal disorders
The Acuity of the Population
Priority Population Groups (Target and Non-Target)
Target Group for Special
Care
Group
1
2
3
4
5
6
7
8
9
10
Eligibility
Status
Non-Dual
Dual
Non-Dual
Dual
Non-Dual
Dual
Non-Dual
Dual
Non-Dual
Dual
Target
Population
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Mental
Health
Yes
Yes
Yes
Yes
No
No
No
No
All
All
Source: State Medicaid Data analyzed by Milliman
20 January 12, 2015
LTC
Yes
Yes
No
No
Yes
Yes
No
No
All
All
Claim Costs
$5,968
$3,194
$1,918
$901
$7,924
$3,474
$1,420
$530
$255
$357
Model Assumptions
Illustrative Care Coordination Savings, Aggressively Achievable
Illustrative Care Coordination Savings
Aggressively Achievable
Service
Type
Hospital Inpatient
Other Facilities
Hospital Outpatient
Professional
Prescription
Other
HCBS Services
Savings Achieved
25.0%
5.0%
15.0%
10.0%
15.0%
15.0%
10.0%
Care coordination savings are rarely instantaneously achieved. In reality, these savings occur gradually. As a
result we assumed it would be achieved by quarter six.
21 January 12, 2015
Model Assumptions
Illustrative Trend
Quarterly Medical Cost Trend Assumed
Non-Prescription Utilization Trend
Non-Prescription Charge Trend
Prescription Utilization Trend
Prescription Charge Trend
22 January 12, 2015
0.50%
0.13%
0.50%
1.35%
Performance Risk
Illustrative Withholds and Incentives
Care Coordination Fee
Withhold Percentages
23 January 12, 2015
Q1 2013 and Q2 2013
0%
Q3 2013 and Q4 2013
.5%*5=2.5%
2014
.75%*5=3.75%
2015
1.0%*5=5%
Shared Savings Design
 With respect to shared savings, if the State determines that there
are savings in a given year, provider will have the opportunity to
share in these savings. Provider will receive a base amount of 10
percent of calculated savings annually and may earn up to
another 40 percent of savings.
 In this case, the State asked to keep the first 4% of savings
 Provider was asked to choose their own quality measures
 Shared savings from the State was never approved by CMS and
savings are not currently being distributed to the CCE from the
State
24 January 12, 2015
The resource investment the CCE must make
to change the care delivery model for
complex patients
Examples of Operational Expenses:
 Personnel expenses
 Office costs
 Staff costs
 Equipment and software
 Occupancy costs
 Client services
 Professional services
 Etc.
25 January 12, 2015
Insurance Risk
 Membership (The more members the less volatility)
– Expected membership 5005,000
– Actual membership, roughly 1,500
 Acuity differences/High Cost Versus Average
Group
Expected
Distribution
1
2
3
4
5
6
7
8
9
10
Composite
7.7%
4.2%
55.5%
12.5%
0.2%
0.2%
12.6%
7.0%
0.0%
0.0%
100.0%
Source: State Data analyzed by Milliman
26 January 12, 2015
Claim
Costs
$5,968
$3,194
$1,918
$901
$7,924
$3,474
$1,420
$530
$255
$357
$2,009
Actual
Claim
Costs
7% $3,804
0%
44% $1,498
0%
2% $3,012
0%
29%
$717
0%
18%
$141
0%
100% $1,224
Actual
Distribution
A:E
58%
67%
33%
41%
52%
53%
The impact of finances
Payment Model should be priced
appropriately.
Gain for the CCE =
Gain for the State =
Provider Revenue –
Benchmark Costs –
Service Costs –
Provider Revenue
Operating expenses
For purposes of quantifying net gain on a present value basis over the
given time frame, we assume a 3.5% annual discount rate
27 January 12, 2015
Results, Illustrative Care Coordination Fees
Priority Populations
SMI Non
Duals
NonSMI Non
Duals
SMI
Duals
NonSMI
Duals
Year 1
$139
$97
$180
$112
Year 2
$143
$100
$185
$115
Year 3
$147
$103
$191
$118
28 January 12, 2015
Capital Requirements for a Managed Care
Community Network (MCCN)
Minimum Net Worth (Surplus) and Solvency to Maintain
For a large county
MCCN Contracting
Period 
Initial
First 6
months
Second 6
months
Net Worth
(Surplus)
$500,000
$500,000
$750,000 $1,000,000
Solvency
$250,000
$250,000
$375,000
The maximum net worth that needs to be held is 1.5 million
Source: 89 Ill. Code 143 (for a large county)
29 January 12, 2015
Year 2+
$750,000
Case Study, CCE Now Operational
 The CCE cannot treat duals.
 The acuity level of the groups is much lower than originally assumed by
the CCE.
 The CCE is receiving members that are not in their target population
and thus have a lower acuity level and claim costs than they originally
anticipated.
 The CCE is receiving less members.
 The State moves to a managed care environment and expects the
CCE to compete with MCOs and other organizations for members.
 The value proposition of taking care of the disenfranchised population
has been diluted by the State. The CCE now is competing to care for
the average Medicaid members.
30 January 12, 2015
CAVEATS AND LIMITATIONS ON USE
31
January 12, 2015
Caveats and Limitations on Use
 This information was provided to Children’s Hospital Association
and is intended to facilitate development of a general
understanding of typical information included in payment model
structure alternatives. It should not be used for other purposes.
 Substantial additional modification and refinement of the
conceptual models described in this presentation will likely be
required to achieve objectives in any specific setting.
32
January 12, 2015
Caveats and Limitations on Use
 This presentation was prepared solely for the internal use and
benefit of Children’s Hospital Association and its members. It
should not be distributed, in whole or in part, to any external party
without the prior written permission of Milliman. Milliman does not
intend to benefit or create a legal duty to any third party recipient of
its work.
 The terms of Milliman’s Consulting Services Agreement with
Children’s Hospital Association effective May 7, 2012 apply to this
information and its use.
33
January 12, 2015
Thank You
John Meerschaert, FSA, MAAA
[email protected]
262-796-3434
Juliet Spector, FSA, MAAA
[email protected]
312-499-5661