C-Suite Transformation Management Training: VBP Financial Modeling

Transcription

1 C-Suite Transformation Management Training: VBP Financial Modeling Presented by: Peter R. Epp, CPA August 9, 2017 Overview Overview of TennCare s PCMH Initiative Rehash Key Drivers of Success in VBP Agreements Walkthrough of VBP Financial Model 2 1

2 All Payors Are Moving Towards an Evolving Definition of Value Value = Health Outcomes + Total Healthcare Spend + Access 3 VBP Arrangements The 3- Legged Stool VBP arrangements contain a hybrid of several different payment methodologies to incentivize and tie together desired behaviors The key components of VBP arrangements include: Base Compensation Models Fee-for-service Partial capitation Care Coordination Fee PMPM Quality Incentive Payments Global Payments/Budgets Surplus-sharing/Risk-sharing Global capitation Care Coordination Quality Incentive Payments Quality Modifiers! 4 2

3 TennCare s Patient Centered Medical Home Initiative Requirements for participation in TennCare s PCMH initiative include: At least 500 members with one MCO Maintain Level 2 or 3 NCQA PCMH accreditation or meet TennCare s specific activity requirements as work towards NCQA s 2017 accreditation Commit to the goals of VBP Increased care coordination Proactive management the patient panel Focus on quality and outcomes Integrated care across multidisciplinary provider teams Use the State s Care Coordination Tool Participate for 2 years in TennCare s practice transformation support program Participate in learning collaboratives and share best practices 5 TennCare s PCMH Recommended Activity Requirements Activity Patientcentered appointment access 24/7 Access to Clinical Advice The practice team Use data for population management Description The practice has a written process and defined standards for providing access to appointments, and regularly assesses its performance on the required factors Provide same-day appointments for routine and urgent care Provide routine and urgent care appointments outside regular business hours The practice has a written process and defined standards for providing access to clinical advice and continuity of medical record information at all times, and regularly assesses its performance on: Providing timely advice by telephone The practice uses a team to provide a range of patient care services by holding scheduled patient care team meetings or a structured communication process focused on individual patient care. At least annually the practice proactively identifies populations of patients and reminds them, or their families / caregivers, of needed care based on patient information, clinical data, health assessments and evidence-based guidelines including: At least three different chronic or acute care services Members not recently seen by the practice 6 3

4 TennCare s PCMH Recommended Activity Requirements Activity Implement evidencebased decision support Identify patients for care management Care planning and self-care support Referral tracking and follow-up Description The practice implements clinical decision support (e.g., point- of-care reminders) following evidence-based guidelines for: A mental health or substance use disorder A chronic medical condition An acute condition A condition related to unhealthy behaviors Considers the following in establishing a systematic process and criteria for identifying patients who may benefit from care management (practice must include at least three in its criteria): Behavioral health conditions. High cost/high utilization. Poorly controlled or complex conditions. Social determinants of health. Referrals by outside organizations (e.g., insurers, health system, ACO), practice staff or patient/family/caregiver. The care team and member / family / caregiver collaborate (at relevant visits) to develop and update an individual care plan that includes the following features for 75% of all members prioritized for care management [i.e., top 10% of members across various factors]: Incorporates member preferences and functional / lifestyle goals Identifies treatment goals Assesses and addresses potential barriers to meeting goals Includes a self-management plan Is provided in writing to the member / family / caregiver The practice will do the following: Track referrals until the consultant or specialist s report is available, flagging and following up on overdue reports 7 TennCare s PCMH Payment Model Base Compensation - Current fee-for-service payment for delivery of services remains Practice Support Payments - monthly payment, per member per month (PMPM), based on PCP assignment by MCO Practice Transformation Payment - $1 PMPM for first year only Activity Payment risk-adjusted $ PMPM for duration of program ($4 PMPM average) Outcome Payments - Total Cost of Care (TCOC) for PCMH practices with greater than 5,000 members Efficiency Metric Improvement for practices with fewer than 5,000 members (ability to pool providers in 2018) To receive either type of outcome payment, must earn a minimum # of quality stars and show improved efficiency ( Quality Gate ) 8 4

5 TennCare s PCMH Payment Model Practice Support Practice Support Payments 2 components: Practice transformation payment $1 PMPM for first year of participation Not risk-adjusted Activity payment Risk-adjusted paid throughout the duration of the program (average $4 PMPM) Support labor and time required to improve and support care delivery models Based on the average risk score of members at the MCO, set at the beginning of each year The higher the risk score, the higher the PMPM activity payment Starting in CY2019, a portion of the activity payment amount is placed at risk based on the PCMH s performance on the quality and efficiency stars for the prior year 9 TennCare s PCMH Payment Model Outcomes Outcome Payments Total Cost of Care (TCOC): For high volume panel PCMH practices (or pooled shared savings entities) with 5,000 or more members Shared savings on TCOC generated based on the actual riskadjusted TCOC relative to the benchmark TCOC In addition to generating savings, the practice must earn a minimum number of quality stars: 2 (out of possible 5) for pediatric and adult practices 4 (out of possible 10) for family practices Calculation of outcome payment: 10 5

6 TennCare s PCMH Payment Model Outcomes Outcome Payments Total Cost of Care (TCOC): Risk-adjusted TCOC savings amount - difference between the actual adjusted TCOC and the benchmark adjusted TCOC for each PCMH in a given performance year Reported on a PMPM basis for each MCO Benchmark TCOC Based on 3-years of historical claims experience (e.g used as baseline for 2017 performance period) Risk-adjusted Stop-loss thresholds applied to remove outliers Trended forwarded for inflation 11 TennCare s PCMH Payment Model - Outcomes Outcome Payments Total Cost of Care (TCOC): PCMH practices can earn from 0 100% of eligible savings based on quality and efficiency stars earned Efficiency stars 0 5 stars awarded based on TCOC performance against other PCMH practices More stars awarded to those practices whose actual TCOC outperforms (lower than) its peers 12 6

7 TennCare s PCMH Payment Model - Outcomes Outcome Payments Total Cost of Care (TCOC): Quality stars stars awarded for each quality metric that meets or outperforms the state threshold 5 quality stars, maximum, for pediatric only and adult only practices 10 quality stars, maximum, for family practices Outcome savings percentage Quality stars and TCOC efficiency stars are combined 5 quality stars and 5 efficiency stars for a total of 10 stars for adult only and pediatric only practices 10 quality stars and 5 efficiency stars for a total of 15 stars for family practices Each TCOC efficiency star earned by the PCMH practice contributes 10% to the outcome savings percentage. Each quality star earned by the PCMH practice contributes 10% to the outcome savings percentage for adult and pediatric practices and 5% for family practices 13 TennCare s PCMH Quality Metrics Pediatric Only and Adult Only Practices: 14 7

8 TennCare s PCMH Quality Metrics Family Practices: Adult BMI screening Antidepressant medicationmanagement Comprehensivediabetes care (composite 1) Diabetes eye exam Diabetes BP < 140/90 Diabetes nephropathy Comprehensivediabetes care (composite 2) Diabetes HbA1c testing Diabetes HbA1c poor control(>9%) Asthma medication management EPSDT screening rate (Composite for youngest kids) Well-child visits first15 months Well-child visits at 18, 24, & 30 months EPSDT:Well-child visits ages3-6 years EPSDT Screening(Compositefor older kids) Well-child visits ages 7-11 years Adolescent well-care visits age Weight assessment and nutritional counseling BMI percentile Counseling fornutrition lmmunization composite metric Childhood immunizations Immunizations for adolescents 15 TennCare s PCMH Payment Model - Outcomes Outcome Payments Total Cost of Care (TCOC): Example - outcome savings percentage, pediatric practice 16 8

9 TennCare s PCMH Payment Model - Outcomes Outcome Payments Efficiency Metric Improvement: For low volume panel PCMH practices with fewer than 5,000 members Practices may earn outcome payments for annual improvement on efficiency metrics In addition to showing improvement in efficiency metrics, the practice must earn a minimum number of quality stars: 2 (out of possible 5) for pediatric and adult practices 4 (out of possible 10) for family practices Calculation of outcome payment 17 TennCare s PCMH Payment Model - Outcomes Outcome Payments Efficiency Metric Improvement: A proxy for estimated savings is calculated by multiplying the following 2 factors: Average cost of care Efficiency improvement percentage Average cost of care The average total cost of care for members in primary care practices across all of TennCare For the 2017 performance period, this value is set at $234 Efficiency improvement percentage The average of improvement in each efficiency metric compared to the previous year s performance If the average efficiency improvement percentage results in a negative number, it will be set to 0 and if the average calculation exceeds 20% it will be capped at that value 18 9

10 TennCare s PCMH Payment Model - Outcomes Example of Efficiency Improvement Percentage: 19 TennCare s PCMH Payment Model - Outcomes Outcome Payments Efficiency Metric Improvement: PCMH practices can earn from 0 100% of imputed savings based on quality and efficiency stars earned Efficiency stars 0 5 stars awarded for each efficiency metric that meets or outperforms the state threshold 20 10

11 TennCare s PCMH Payment Model - Outcomes Outcome Payments Efficiency Metric Improvement: Quality stars stars awarded similar to TCOC model Outcome savings percentage calculated similar to TCOC model although the earning of efficiency starts differ Example outcome savings percentage, family practice: Maximum share of savings set at 25% (versus 50% in TCOC model) 21 VBP Arrangements Preparation for VBP requires an understanding of the key metrics that drives each payment methodology Quality and risk-adjusting embedded through-out Payment Model Base Compensation Care Coordination Quality Incentive Payments Global Budgets/Payment Key Metric Move from per visit to per patient (capitation) New core competencies and cost Measuring performance metrics Monitoring the total health care spend (and quality) 22 11

12 VBP Quality Metrics Value-inspired metrics, of late, revolve around the following areas: measures Patient quality measures Process measures Population health metrics Patient satisfaction measures Access Efficiency Measurement and payment thresholds include - Event based Population based Maintenance Improvement 23 VBP Quality Metrics Understand metrics being measured Discussion of metrics selected Calculation of the metric (including data elements) Identify benchmarks Evaluate current performance and anticipated future performance Project revenue based on anticipated performance and benchmarks Fixed payment per measure for improvement Fixed payment per measure for maintenance Incremental bonus based on movement of metric Composite scoring across multiple metrics Amount of surplus-sharing/risk-sharing payments earned 24 12

13 VBP Quality Metrics Example of composite scoring formula Analysis of metric Measure Comprehensive Diabetes Care (#1) Current Actual Year One Year Two Improve % Metric Improve % Metric 40.00% 25% 50.00% 15% 57.50% Comparison to benchmark (1 point for meeting benchmark) Measure Comprehensive Diabetes Care (#1) Projected Score Benchmark (Threshold) Year One Year Two 50% VBP Quality Metrics Example of composite scoring formula (continued) Composite scoring and amount of payment Year One Year Two Total Actual Points all measures 3 5 Total Available Points (10 metrics) % of Total Attained 30% 50% Maximum QIP Pool Available $ 500,000 $ 500,000 Total Projected QIP Payment $ 125,000 $ 250,000 Some payors may set a minimum score before QIP payments will be made Quality scores may also impact potential surplus-sharing distributions 26 13

14 VBP Surplus/Risk-Sharing Revenue projection complicated and various assumptions Targeted Spend/Benchmark Use of historic claims versus Medical Loss Ratio (MLR) Projection of actual spend Surplus-sharing and risk-sharing %s Impact of quality scores on distribution amount Timing of payments 27 VBP Surplus/Risk-Sharing Example revenue projection $ PMPM # of Member Months Total Amount Targeted Spend/Benchmark $ ,000 $50,000,000 Actual Spend (Projected) $ ,000 $47,500,000 Projected Surplus (Deficit) $25.00 $2,500,000 Surplus Sharing % 50% Amount Available for Distribution $1,250,000 Quality Score 75% Adjusted Distribution for Quality Score $937,

15 Budget/Benchmark Setting Differs based on Health Condition of Patient Setting a Budget Target (using historical claims data): Service Description Expected Utilization Unit Cost Cost Per Patient Per Year Inpatient Care 1 $3,000 per discharge $ 3,000 Emergency Room 5 $300 per visit 1,500 Specialty Care 2 $250 per visit 500 Primary Care 2 $100 per visit 200 Behavioral Health Care 1 $100 per visit 100 Laboratory 8 $25 per lab test 200 Radiology 2 $100 per xray 200 Pharmacy 12 $25 per script 300 TOTAL Per Member per Year $6,000 PMPY TOTAL Per Member per Month ($6,000 / 12 months) $500 PMPM What factors can be impacted to reduce the Total Cost of Care? 29 Case Study: MCO Surplus Sharing Baseline (Target) Calculation (1/1/ /31/2015) Type of Service Admits/ Visits A/V per 1000 Amount Paid Cost per A/V PMPM Inpatient $2,817,435 $7,826 $ O/P Facility ED 2,381 1,117 $494,354 $208 $19.33 O/P Facility Surgery $145,548 $1,842 $5.69 O/P Facility Other 5,599 2,628 $1,104,074 $197 $43.18 O/P Facility Subtotal 8,059 3,782 $1,743,976 $216 $68.20 Professional Primary Care 4,423 2,076 $55,774 $13 $2.18 Professional Specialty Care 15,346 7,202 $1,606,835 $105 $62.84 Dental 1, $0 $0 $0.00 Vision $0 $0 $0.00 Prescription 31,233 14,658 $2,264,304 $72.50 $88.50 Other Services (e.g., Home Health) $0 $0 $0.00 Grand Total 62,321 29,247 $8,488,323 $

16 Case Study: MCO Surplus Sharing Actual Spend(1/1/ /31/2016) Change from Baseline experience Type of Service Admits/ Visits A/V per 1000 Amount Paid Cost per A/V PMPM Inpatient $2,057,460 $8,296 $83.64 O/P Facility ED 1, $429,540 $222 $17.46 O/P Facility Surgery $83,045 $1,661 $3.38 O/P Facility Other 6,904 3,368 $955,824 $138 $38.85 O/P Facility Subtotal 8,888 4,336 $1,468,209 $165 $59.69 Professional Primary Care 3,246 1,583 $39,256 $12 $1.60 Professional Specialty Care 14,962 7,299 $1,307,260 $87 $53.14 Dental 1, $0 $0 $0.00 Vision $0 $0 $0.00 Prescription 30,928 15,087 $1,932,026 $62 $78.54 Other Services (e.g., Home Health) 0 0 $0 $0 $0.00 Grand Total $6,804,411 $ Using Third-Party Claims Data Analyze the high cost and high utilizing members Combine Claims data files Determine the Total Cost of Care by patient and PMPM Determine Total Cost of Care for patients with like conditions (e.g., all diabetic patients regardless of comorbidities) Stratify the high cost/high utilizing members and develop plans to better manage care and reduce the Total Spend Clinical interventions to manage utilization Outreach efforts/patient engagement Specialty referral practices and high cost specialists Link to EHR/PMS, ED Use and High Risk Member Reports Analyze systemic anomalies Physician practice patterns cost and outcomes Specialty referral practices and high cost/low quality specialists Care locations 32 16

17 VBP New Core Competencies Improved coding and clinical documentation Traditional coding (claims) Enhanced coding and documentation (EHR) Social determinants of health Managing patient centered care (per patient) Data analytics (including business intelligence) Care management/delivery HIT/HIE Partnerships and collaboration MCO contracting Financial management systems 33 Care Coordination Fees One of the foundational elements of most, if not all, VBP arrangements is the need for effective care coordination and management Third party payors are sometimes including care coordination fees in their VBP arrangements, however health centers need to sell the value of the care coordination proposal TennCare s PCMH initiative includes Practice Support Payments to satisfy this need! Development of a proposed care coordination fee: What services are required? What services should be provided at the health center sites versus reside at the ACO/IPA level? How to cost-out care coordination services? 34 17

18 Exercise Given what you have just learned about the requirements for participation in TennCare s PCMH initiative and the skills/expertise required to be financially successful in a VBP arrangement, what new resources (e.g. staff, technology, other) do you feel your Center will require to successfully participate in a VBP arrangement? 35 Care Coordination Services What care coordination/management services are required to be successful under VBP? Service Type Health Center ACO/IPA Care Managers Care Management Central Support and Technology Data Analytics Technology and * Support Health Informatics * Quality Improvement Others?????? * May be provided by the ACO/IPA 36 18

19 Why Form an ACO/IPA? Share infrastructure and realize cost efficiencies Quality improvements through sharing of best practices Pool resources to attract talent Expansion of geographic reach/market share Pool members to spread insurance risk in VBP arrangements and improve bargaining position with third party payors Expansion of service offerings and improve care coordination Improved access to capital resources (e.g. DSRIP) 37 Care Coordination Costs Health Center Costs must be assigned to care coordination services identified Example - care managers Care manager capacity (productivity) Patient utilization Capacity: Patient Utilization: # of service units/fte # of service units/patient/year (e.g. 2,800/FTE) (e.g. 4/patient/year) Average Panel Size = 700 patients/fte Number of care managers required = # of patients average panel size Panel sizes may be impacted based on risk-stratification of patients 38 19

20 Care Coordination Costs Health Center Example calculation of cost of care coordination services Total cost and PMPM Service Type Costing Methodology Cost Estimate Care Managers 4.00 FTE X $60,000 $ 240,000 Quality Improvement 1.00 FTE X $75,000 75,000 Health Informatics 1.00 FTE X $75,000 75,000 Support Staff 1.00 FTE X $30,000 30,000 Care Management/Data Analytics Technology Solutions Covered by ACO/IPA (charged to the center?) Others TBD??? TOTAL ANNUAL COSTS $ 420,000 Number of Member Months 10,000 members X 12 mos. 120,000 COST PMPM $ 3.50??? 39 Care Coordination/Management Fees Case Study ABC MCO is looking to construct a VBP arrangement with A-CHC ABC MCO has not historically paid providers for care management/coordination services A-CHC is looking to negotiate a care coordination fee PMPM with ABC MCO A-CHC has compiled the following data to assist with developing a cost estimate for the provision of these services Task Calculate the following items: # of care management sessions required for A-CHC members in ABC MCO Total annual cost and cost PMPM of care management services 40 20

21 Care Coordination/Management Fees Case Study (Assumptions) A-CHC projects average ABC MCO covered lives = 10,000 A-CHC has identified 3 risk-categories of its patients and required level of case management services Condition A 8,500 members, 1 session per member per year Condition B 1,000 members, 6 sessions per member per year Condition C 500 members, 12 sessions per member per year Average capacity per care manager FTE = 2,000 sessions Support staff ratios: 1.00 FTE care management coordinator 1.00 FTE support staff for every 5.00 FTE care managers Personnel costs: Care management coordinator = $75,000/FTE Care managers = $50,000/FTE Support staff = $20,000/FTE Care management technology outsourced through an MSO for $1.00 PMPM Overhead calculated at 10% excluding the cost of MSO services 41 The VBP Dilemma The timing of potential new revenue streams under VBP are not aligned with the costs for successful participation in VBP Payment Model Base Compensation Facility Support Payments Outcome Payments (with Quality Gates and Modifiers) One-time, Upfront Timing of Cost On-going, Operational Timing of Revenue Through-out the year as services are provided Through-out the year as services are provided 6-9 months after the end of the performance period 42 21

22 VBP Financial and Operational Considerations What is this going to cost? Identify new resources/services to be provided Evaluate whether to go this alone versus join forces Develop a 3-year financial model, including cash flow Quantify a range of capital requirements Identify outside funding sources to offset capital needs and reserves What is the return on investment Understand financial requirements of participation in VBP arrangements Develop sound assumptions based on available data Utilize financial model to inform MCO negotiations 43 VBP Financial Model Develop a financial model Prepare 3-year financial model, including cash flow Decide on the services required to be provided for success under VBP In-house (personnel) versus outsourced (ACO/IPA vs. MSO) On-going versus one-time Develop a cost projection based on services required Project potential revenues under VBP arrangements Understand and develop best estimates for key assumptions Utilize financial model to inform VBP negotiations Project opportunities under DSRIP, if applicable Estimate potential capital requirements Evaluate other funding sources (e.g. Foundations; HRSA QI awards, reserves/existing operating surpluses) 44 22

23 WARNING! WARNING! THE CONTENTS OF THE FOLLOWING FINANCIAL MODEL ARE BASED ON GROSS ASSUMPTIONS AND INTENDED TO PROVIDE PARTICIPANTS WITH AN UNDERSTANDING OF THE KEY DRIVERS OF FINANCIAL PERFORMANCE UNDER VBP AND COULD BE HARMFUL TO YOUR HEALTH! THE FINANCIAL MODEL AND ITS RESULTS WILL CHANGE AS FQHCs DECIDE ON THEIR INFRASTRUCTURE NEEDS AND ACO/MCO ARRANGEMENTS NEGOTIATED. ACTUAL RESULTS WILL VARY SIGNIFICANTLY! 45 Services to be Provided under VBP Services Decide on the services required to be provided for success under VBP Care coordination (transitions in care) Care management (complex/chronic conditions) Clinical protocols Quality improvement Clinical/Data analytics HIT/HIE Utilization management (inpatient/procedures) Disease management VBP contract compliance/reporting In-house (personnel) versus outsourced (ACO/IPA vs. MSO) On-going versus one-time 46 23

24 Basic Assumptions in the Example Financial Model Amounts are hypothetical and included to demonstrate the flow of the financial model and highlight the key drivers of performance Patients The number of patients served is projected flat over the 3-year period (25,000 patients) and by month, pro-rated Used for staffing 50% (12,500 patients) are considered participating in the VBP program Used for payment Payments from TennCare under the PCMH initiative $4-5 PMPM for care coordination/management services Surplus-sharing distributions available based on Year One performance 47 Staffing Assumptions Assess the need for oversight and technical support Assess the need for care management/ coordination staff Staffing ratios differ by: Populations served Risk stratification of patients Staff type VBP Oversight and Technical Support: Position FTE Salary QI Coordinator ,000 Data Analyst ,000 Care Coordination/Care Management Function: CM Ratios: Population Total Pop Low Risk Medium Risk High Risk General Population 25, % TBD TBD Special Population Health Homes TOTAL 25,000 25,000 TBD TBD FTE Calculation: Salary Ratios 12,500 TBD TBD RN CMs ,000 Ratios 10,000 TBD TBD CHWs ,000 Ratios 25,000 TBD TBD LCSWs ,000 Projected Annual Salary Increases: Year Two 3.00% Year Three 3.00% Please note that the above staffing ratios do not reflect actual data but are purely included as an example. These ratios need to be developed! 48 24

25 Salary Projections Salaries for participation in VBP should include: Direct care services Oversight and technical support Salaries should be projected to link to changes in patients utilizing appropriate staffing ratios Additional staff may be required for DSRIP projects, if applicable Year One: Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals Salaries and wages: QI Coordinator FTE Salary 5,417 5,417 5,417 5,417 5,417 5,417 5,417 5,417 5,417 5,417 5,417 5,417 65,000 RN Case Managers FTE Salary 14,167 14,167 14,167 14,167 14,167 14,167 14,167 14,167 14,167 14,167 14,167 14, ,000 Community Health Workers FTE Salary 7,292 7,292 7,292 7,292 7,292 7,292 7,292 7,292 7,292 7,292 7,292 7,292 87,500 LCSWs FTE Salary 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 55,000 Data Analyst FTE Salary 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 45,000 Total salaries and wages 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35, , Other Expense Projections Fringe benefits should be projected at the health centers historical fringe rate (e.g. 25%) Contracted Services MSO services services to be provided relative to populations health management platform and data analytics One-time implementation cost - $50,000 On-going services - $1.50 PMPM EHR/HIE connectivity including registries One-time connectivity fees - $5,000 On-going services - $25 per MD per month (25 MDs) Program Administration/Overhead budgeted at 10% of direct costs, excluding contracted services Other??? 50 25

26 3-Year Expense Projections Year One Year Two Year Three Description Amount PMPM Amount PMPM Amount PMPM TennCare PCMH 150, , ,000 TOTAL MEMBER MONTHS 150, , ,000 Operating Expenses Total salaries and wages 422,500 $ ,175 $ ,230 $2.99 Fringe 25% 105,625 $ ,794 $ ,058 $0.75 Contracted services MSO/HIT One time costs 55,000 $0.37 $0.00 $0.00 MSO on going services 225,000 $ ,000 $ ,000 $1.50 HIE connectivity 7,500 $0.05 7,500 $0.05 7,500 $0.05 Program 10% 52,813 $ ,397 $ ,029 $0.37 TOTAL OPERATING EXPENSES 868,438 $ ,866 $ ,817 $ VBP Revenue Projections Practice support payments PMPM Model assumes a $1 PMPM practice transformation payment for Year One Risk-adjusted activity payment projected at $4 PMPM for all 3 years Outcome payments MCO projected to make surplus distributions 9 months after completion of the performance year Outcome payment metrics Amount available for distribution differs between high- and low-volume PCMH practices Quality star scoring similar in both models Efficiency star scoring differs between high- and low-volume practices 52 26

27 Revenue Projections - Other DSRIP Projected to cover DSRIP projected expenses This may not be the case as DSRIP funding is often earned based on performance and meeting metrics To be received 3 months after each 6-month reporting period Other Revenue (not projected) Potential additional patient service revenue to be generated from new care team members (RN Care Managers, LCSWs) Depends on services provided Whether payors will reimburse for care management services (e.g. Medicare) HRSA Quality Improvement awards This same team and its objectives are aligned with HRSA s quality measures and their efforts could result in additional grant funding 53 Revenue Projection Outcome Payments Projecting quality stars Quality Metrics Actual and Projected Measurement Period > Base Year One Projected Stars Quality Measure Actual Improve % Score Benchmark Year One Adult BMI Screening 45.00% 15.00% 51.75% 60.00% 0 Antidepressant Medication Management 35.00% 15.00% 40.25% 55.00% 0 Comprehensive Diabetes Care (composite 1) 45.00% 5.00% 47.25% 40.00% 1 Comprehensive Diabetes Care (composite 2) 65.00% 15.00% 74.75% 85.00% 0 Asthma Medicaid Management 40.00% 10.00% 44.00% 30.00% 1 Immunization composite 60.00% 10.00% 66.00% 45.00% 1 EPSDT Screening Rate (composite for younger kids) 30.00% 10.00% 33.00% 45.00% 0 EPSDT Screening Rate: Well child Visits (3 6 yrs) 30.00% 10.00% 33.00% 65.00% 0 EPSDT Screening Rate (composite for older kids) 45.00% 10.00% 49.50% 55.00% 0 Weight Assessment and Counseling for Children 35.00% 5.00% 36.75% 30.00% 1 Total Quality Stars Earned 4 Outcome savings % per star 5% Quality Score % 20% Multiple individual metrics roll up > 54 27

28 Revenue Projection Outcome Payments Projecting efficiency stars High-Volume: Projected TCOC Benchmarks: Efficiency Metrics Projected TCOC by Star Category Measurement Period > Base Year One Year Two Year Three Efficiency Measure TCOC PMPM Improve % Score Improve % Score Improve % Score No star % % % star % % % star % % % star % % % Star % % % Star % % % Projected Efficiency Score %s: Year Actual Historic TCOC Projected Savings % Projected Actual TCOC Total Efficiency Stars Earned Outcome Savings % per Star Efficiency Score % Yr. 3 $ Yr. 2 $ Yr. 1 $ Yr. 1 2% $ % 30% Yr. 2 3% $ % 30% YR. 3 2% $ % 30% 55 Sample Outcome Payment (High Volume) Number of Estimated Year One Description Note PCMH Members Start Date PMPM Amount 12,500 1/1/ % Benchmark TCOC (a) $ ,676,375 Projected Actual TCOC (a) $ ,750,000 Projected Surplus 4,926,375 Maximum share of savings (b) 50% 2,463,188 Projected Distribution (c) Quality Modifier 50% 1,231,594 Opportunity Cost 1,231,594 Notes: (a) Benchmark and actual TCOC based on average of prior 3 years trended forward plus projected savings %s: Year Actual TCOC Projected Savings % Benchmark PMPM Trend Factor Yr. 3 $ % Yr. 2 $ Yr. 1 $ Yr. 1 $ % $ Yr. 2 $ % $ YR. 3 $ % $ (b) Maximum share of savings per TennCare PCMH payment model 50% (c) Quality Modifier (Outcome Savings Percentage) based on quality and efficiency star scoring system contained in PCM Calculation of Quality Modifier: Quality stars % earned 20% Efficiency stars % earned 30% Total Outcome Savings Percentage 50% 56 28

29 Monthly Financial Projection Year One (High Volume) Year One: Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals TennCare PCMH 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12, ,000 TOTAL MEMBERS 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12, ,000 Operating Revenue: Practice Support Payments (PMPM) 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62, ,000 Surplus/Risk sharing Other TOTAL OPERATING REVENUE 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62,500 62, ,000 Operating Expenses Salaries and wages 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35,208 35, ,500 Fringe 25% 8,802 8,802 8,802 8,802 8,802 8,802 8,802 8,802 8,802 8,802 8,802 8, ,625 Total Personnel Costs 44,010 44,010 44,010 44,010 44,010 44,010 44,010 44,010 44,010 44,010 44,010 44, ,125 Contracted services MSO/HIT One time costs 55,000 55,000 MSO on going services 18,750 18,750 18,750 18,750 18,750 18,750 18,750 18,750 18,750 18,750 18,750 18, ,000 HIE connectivity ,500 Total Contracted Services 74,375 19,375 19,375 19,375 19,375 19,375 19,375 19,375 19,375 19,375 19,375 19, ,500 Prog 10% 4,401 4,401 4,401 4,401 4,401 4,401 4,401 4,401 4,401 4,401 4,401 4,401 52,813 TOTAL OPERATING EXPENSES 122,786 67,786 67,786 67,786 67,786 67,786 67,786 67,786 67,786 67,786 67,786 67, ,438 SURPLUS (LOSS) (60,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (5,286) (118,438) Cumulative Surplus (Loss) (60,286) (65,573) (70,859) (76,146) (81,432) (86,719) (92,005) (97,292) (102,578) (107,865) (113,151) (118,438) The VBP/QI department should be viewed as its own profit center! 57 Annual Cash Flows Years One through Three (High Volume) Year One Year Two Year Three Description Amount PMPM Amount PMPM Amount PMPM TennCare PCMH 150, , ,000 TOTAL MEMBER MONTHS 150, , ,000 Operating Revenue: Practice Support Payments (PMPM) 750,000 $ ,000 $ ,000 $4.00 Surplus/Risk sharing $0.00 1,231,594 $8.21 1,132,250 $7.55 Other $0.00 $0.00 $0.00 TOTAL OPERATING REVENUE 750,000 $5.00 1,831,594 $ ,732,250 $11.55 Operating Expenses Total salaries and wages 422,500 $ ,175 $ ,230 $2.99 Fringe 25% 105,625 $ ,794 $ ,058 $0.75 Contracted services MSO/HIT One time costs 55,000 $0.37 $0.00 $0.00 MSO on going services 225,000 $ ,000 $ ,000 $1.50 HIE connectivity 7,500 $0.05 7,500 $0.05 7,500 $0.05 Program 10% 52,813 $ ,397 $ ,029 $0.37 TOTAL OPERATING EXPENSES 868,438 $ ,866 $ ,817 $5.66 SURPLUS (LOSS) (118,438) ($0.79) 1,000,728 $ ,433 $

30 Monthly Cumulative Cash Position Years One through Three (High Volume) Year One Year Two Year Three Jan (60,286) (137,676) 861,556 Feb (65,573) (156,915) 840,821 Mar (70,859) (176,154) 820,086 Apr (76,146) (195,393) 799,352 May (81,432) (214,632) 778,617 Jun (86,719) (233,870) 757,882 Jul (92,005) (253,109) 737,148 Aug (97,292) (272,348) 716,413 Sep (102,578) (291,587) 695,678 Oct (107,865) 920,768 1,807,193 Nov (113,151) 901,529 1,786,459 Dec (118,438) 882,291 1,765,724 The VBP Dilemma Need for upfront capital and maintain a reserve! 59 Revenue Projection Outcome Payments Projecting efficiency stars Low Volume: Efficiency Metrics Actual?Projected (per 1,000) Measurement Period > Base Year One Benchmark Projected Stars Efficiency Measure Actual Improve % Score Per 1,000 MMs Year One All Cause Hospital Readmissions % ED Visits % Inpatient Admissions % Mental Health Inpatient Utilization % Avoidable ED Visits (Ambulatory % Total Efficiency Stars Earned 2 Outcome savings % per star 10% Efficiency Score % 20% Performance Year Year One Efficiency Improve Efficiency Measure Baseline All Cause Hospital Readmissions % ED Visits % Inpatient Admissions % Mental Health Inpatient Utilization % Avoidable ED Visits (Ambulatory Sensitive) % Average Efficiency Improve % 12.00% 60 30

31 Sample Outcome Payment (Low Volume) Number of Year One Description Note PCMH Members PMPM Amount 12,500 25% Benchmark TCOC (a) $ ,100,000 Projected Actual TCOC (a) $ ,888,000 Imputed Savings 4,212,000 Maximum share of savings (b) 25% 1,053,000 Projected Distribution (c) Quality Modifier 40% 421,200 Opportunity Cost 631,800 Notes: (a) VBP arrangements assume the following for TCOC: TCOC benchmark initially set at $234 per PCMH Provider Operating Manual and reduced in futu Baseline Average TCOC per TennCare Baseline $ Adjustment Efficiency Improvement % Year One 12.00% $ Year Two 9.00% $ Year Three 9.00% $ (b) Maximum share of savings per TennCare PCMH payment model 25% (c) Quality Modifier (Outcome Savings Percentage) based on quality and efficiency star scoring syste Calculation of Quality Modifier: Quality stars % earned 20% Efficiency stars % earned 20% Total Outcome Savings Percentage 40% 61 Annual Cash Flows Years One through Three (Low Volume) Year One Year Two Year Three Description Amount PMPM Amount PMPM Amount PMPM TennCare PCMH 150, , ,000 TOTAL MEMBER MONTHS 150, , ,000 Operating Revenue: Practice Support Payments (PMPM) 750,000 $ ,000 $ ,000 $4.00 Surplus/Risk sharing $ ,200 $ ,490 $2.32 Other $0.00 $0.00 $0.00 TOTAL OPERATING REVENUE 750,000 $5.00 1,021,200 $ ,490 $6.32 Operating Expenses Total salaries and wages 422,500 $ ,175 $ ,230 $2.99 Fringe 25% 105,625 $ ,794 $ ,058 $0.75 Contracted services MSO/HIT One time costs 55,000 $0.37 $0.00 $0.00 MSO on going services 225,000 $ ,000 $ ,000 $1.50 HIE connectivity 7,500 $0.05 7,500 $0.05 7,500 $0.05 Program 10% 52,813 $ ,397 $ ,029 $0.37 TOTAL OPERATING EXPENSES 868,438 $ ,866 $ ,817 $5.66 SURPLUS (LOSS) (118,438) ($0.79) 190,334 $ ,673 $

32 Monthly Cumulative Cash Position Years One through Three (Low Volume) Year One Year Two Year Three Jan (60,286) (137,676) 51,162 Feb (65,573) (156,915) 30,427 Mar (70,859) (176,154) 9,693 Apr (76,146) (195,393) (11,042) May (81,432) (214,632) (31,777) Jun (86,719) (233,870) (52,511) Jul (92,005) (253,109) (73,246) Aug (97,292) (272,348) (93,981) Sep (102,578) (291,587) (114,716) Oct (107,865) 110, ,040 Nov (113,151) 91, ,305 Dec (118,438) 71, ,570 The VBP Dilemma Need for upfront capital and maintain a reserve! 63 Financial & Operational Key Considerations Key assumptions in financial model to refine Services provided by FQHC versus ACO/IPA Populations served (risk stratification) Staff required and staffing ratios DSRIP projects cost versus revenue Care coordination/management revenue PMPM Outcome payments Benchmarks Projected improvement in quality and efficiency stars Projected reduction in TCOC Other revenue opportunities Opportunities for working capital 64 32

33 Financial Management Systems Current financial health and positive operating performance Reserves Strong financial systems and internal controls Financial modeling What are the new services and infrastructure required? What will it cost upfront versus ongoing? What resources are available to fund these costs? What potential revenue streams are available? What are the key assumptions that drive success? What are the working capital needs? What is the ROI? Utilize the financial model to inform VBP negotiations! 65 Questions 66 33

34 Contact Information Peter R. Epp, CPA, Partner Practice Leader Community Health Centers CohnReznick LLP