ACO RISKS: The Changing Dynamic

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ACO RISKS

: The Changing Dynamic

September 19, 2014

Marsh HealthCare Practice Mark Karlson

Introduction

• Who we are: Marsh & McLennan Companies

- Fortune 250 Financial Services Company: Risk & Benefits Consulting - Mercer / Oliver Wyman: Human Resources and Benefits consulting - Guy Carpenter: Financial and Reinsurance capital solutions - Marsh: Risk Management and Insurance consulting

• Who I am: Mark Karlson

- Marsh National Practice Leader for HealthCare Management Liability - 28 Years of experience serving large health systems clients and

large health insurer clients

- National view of evolving HealthCare industry issues and risks - 17 of top 25 Health Insurers are clients

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MARSH September 16, 2014 2

Discussion Topics

Industry Trends Leading to ACO’s

– Timeline and Transition – Threats and Response

Defining Accountable Care Organizations (ACOs)

– Critical Elements of all ACOs

Business Risks and Strategies

– Establishing Provider Networks

– Managing the Shift - Developing Transitional Care Models – Payor Contracting

– Coordinating Care

Operational Risks and Risk Transfer Protections

– Structure

– Managed Care, Directors’ & Officers’ and Data Security/Privacy Liability – Provider Excess Loss and Medical Professional Liability

– Potential Claims and Litigation Scenarios – Risk Identification and Protection Process

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Industry Trends

Transition – Traditional Care Model

Hard to fit patients in schedule Lack resources to manage chronic illnesses Wait weeks to see doctor Too many patients, too little

time No focus on longer-term care plans Emotionally attached Byzantine billing More billing staff than nurses Hard to be ideal doc Professional frustration Missed appointments Problems go unnoticed No access to transportation Complicated referrals Multiple medications Expensive hospitalization Multiple specialists Conflicting

treatments No holistic _care Expensive co-pays No informed consent Redundant treatment Hard to find quality docs Costly acute and chronic care Risk of adverse selection death spiral Every patient touch equals revenue _Staff focused on costs, not prevention Small margin for sicker patients Confusing benefits and billing Confusing provider network Limited physician collaboration Disconnected and fragmented system with limited

accountability Emergency? call 911 Physicians Health Plan Patient Denial of coverage

Source: Oliver Wyman

Industry Trends

Transition - Building Towards an ACO Model (1) Wellness

(2) Acute Care

(3) Post Acute

Hospital

In-Patient Rehab

Skilled Nursing Facility

Out-Patient Rehab

Home Care Home (Preventive Care)

Wellness and Fitness Care

Retail Pharmacy

Physician Clinics

Diagnostic/Imaging Center

Urgent Care Center

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Defining ACOs

Defining an Accountable Care Organization (ACO) ACO can mean different things

• Strict HHS definition:

- Medicare population only

- Networks of Physicians working together to reduce costs

- Strict laws and Guidelines on structures, anti-trust exemptions, etc. - Must have a formal legal structure to distribute savings

- Leadership structure, Information structure, and population of 5,000+ • Broader HealthCare Community Definitions

– Alliances between various parties to reduce Healthcare costs - Health Plans and Physicians

- Hospitals and Physicians - Investors and Physicians – Stand alone legal entities

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ACO Objectives and Approaches

Common objectives, differing approaches

• Common General Objectives – Preventing Chronic Disease

– Improving coordination/transition among providers – Avoiding hospital re-admission

• Differing ACO Approaches – Providers in group practices – Providers in networks

– JV or partnership between hospital and providers – Hospital employing providers

– Insurers contracting with providers

• There is no “standard” ACO structure, only common goals

Critical Elements of ACOs

Formal legal structure to receive and distribute shared savings

Management and leadership structure for decision making

Include PCPs and a core group of specialists to cover care continuum

Development of payment models to align incentives across participants Key Elements

ACO-specific expenditure benchmarks established based on historical trends and adjustments for patient mix

Bonus payments based on risk-adjusted, per beneficiary spending levels below benchmark

Use of infrastructure to provide better population and treatment management

Sharing of data / information to equip providers to manage clinical risk

Risk-adjusted performance reports for providers, payers, and consumers Legal Organization and Local Accountability

Payment Incentives Shared Savings

Health Management Infrastructure and Capabilities Health Information Exchange

ACOs are still loosely defined but have a set of key elements that are centered around the concept of shared accountability for cost and quality.

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Defining an ACO:

Capitalization Requirements and Approaches drive Structure

• Capital Requirements – Infrastructure creation

– Reserves for higher than expected medical costs – State law requirements

– Cash flow needs

– Medicare savings reimbursements may lag inception by 2 years • Capital Sources and ACO Models

– Physician only – Non-profit tax exempt – For profit corporation – LLC model

– Hospital Division or Single Member LLC • Structure drives Liabilities and Risks

• Stand alone independent entity (For Profit / Non Profit) – No majority owner

– Potentially Multiple investors

– Board of Directors is ultimate authority and is indemnified only by the ACO – All legal liability attaches to this entity and its people

• Independent entities or Subsidiaries that are majority owned by another entity – Qualifies as a subsidiary under a larger parent company

– Parent capitalizes the subsidiary and is legally liable for its exposures and operations

– May have unique needs that differ from other sister entities or parent • Contractual relationships

– Different parties provide different services

– No ownership issues, capitalization need, or shared liability

– Liability attaches to each entity only for specific services provided by that entity

Defining an ACO:

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Business Risks and Strategies for ACOs

Key Risk Areas

Establishing The Financial Relationships (1) Wellness

(2) Acute Care

(3) Post Acute

Hospital

In-Patient Rehab

Skilled Nursing Facility

Out-Patient Rehab

Home Care Home (Preventive Care)

Wellness and Fitness Care

Retail Pharmacy

Physician Clinics

Diagnostic/Imaging Center

Urgent Care Center

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Key Risk Areas

The Timing Risk

Moving too fast you could…

• Outrun the change in payment models

• Outstrip your organization’s capacity for change • Get too far ahead of your physicians

• Cede short-term ground to competitors • Fail to make it past the middle game

But fast enough to…

• Shape emerging payment models

• Spark your organization’s capacity for change • Forge a new relationship with your physicians • Seize the market initiative from competitors • Build readiness for the endgame

When to make the

change?

Key Risk Areas

The Models of Risks

Emerging Payment Models Will Take Various Forms

D e g re e o f C o m p le x it y High High Low Scope of Risk Fee for service

Inpatient case rates (DRGs)

Bundled episodes (inpatient only)

Clinical integration program ACO

Bundled episodes (pre- and post-care included) Global capitation

P4P/value-based purchasing

Disease-specific capitation

ACO = accountable care organization; P4P = pay for performance; DRG = diagnosis-related group. Recovery Audit Contractors

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Key Risk Areas

Growth in At-Risk Contracting

2012 2013 2014 2015 2016 2017 2018 2019 2020 Medicare Medicaid Dual Eligible Commercial Self-Pay

Patients in Provider Risk Contracts

Source: Sg2

• Direct Medical Services • Coordination of care

• Review of medical necessity of treatments

• Warehousing and Sharing of electronic patient data

• Educational information to the population

• Formation of provider networks • Provider credentialing • Prescription medication coordination • Monetary systems • Data tracking • Corporate Governance • Employment of doctors • Employment of staff • Health Insurance Plans for

managed population

• Benefit plans for employed staff

Key Risk Areas

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Operational Risk and Risk Transfer Protections

ACO Structures

Defining Structures and Liabilities • Various ACO Structures Exist

– Physician only – Non-profit tax exempt – For-profit corporation – LLC model

– Hospital Division or Single Member LLC • Structure Impacts Liability and Risk Transfer

– Stand alone independent entity - No majority owner

- Potentially multiple investors

- Board of Directors is ultimate authority and is indemnified only by the ACO - All legal liability attaches to this entity and its people

– Independent entities or subsidiaries that are majority owned by another entity - Qualifies as a subsidiary under a larger parent company

- Parent capitalizes the subsidiary and is legally liable for its exposures and operations - May have unique needs that differ from other sister entities or parent

– Contractual relationships

- Different parties provide different services

- No ownership issues, capitalization need, or shared liability

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MARSH

ACO: What are my Operational Risks?

Accountable Care Organization (ACO) Health System Provider Insurer

Risks Enhanced / Created by ACO Transition Risks Enhanced / Created by ACO Transition Risks Enhanced / Created by ACO Transition Risks Enhanced / Created by ACO Transition

Data Privacy Stop Loss Billing Errors & Omissions Medical Profession al Liability Medical Errors & Omissions Director s &

Officers Employment _Practices

Liability

Managed Care Errors and Omissions Liability

• Needed if:

– Entity engages in care coordination, health/wellness education, claims processing or handling, utilization review, credentialing, establishment of networks, sharing of costs/reimbursements, etc

– There is no Managed Care E&O coverage available for these services from a related entity or parent entity

• Provides Coverage for:

– Claims brought against the entity for professional services performed for customers, or providers

– Claims brought against the entity by customers, competitors, regulators for errors in the provision of professional (non-medical) services.

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• Key risk areas that are covered – Network formation

– Care coordination – Utilization review – Credentialing

– Vicarious liability for medical malpractice – Health Benefit claims handling

– Operation of health insurance plans

• Claims and Liability Scenarios

– Lawsuit alleging restraint of trade or unfair business practices brought by excluded physician

– Lawsuit alleging failure to provide required medical services brought by a patient who was not directed to receive a specific treatment

– Lawsuit alleging self interest of the ACO for withholding a medical treatment to obtain a financial benefit for the ACO

– Lawsuit alleging that the ACO is liable for the medical errors of a physician

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Directors and Officers Liability

• Needed if:

– Board of Directors exists for this entity – Indemnification comes from this entity only – No parental D&O coverage available

– Legal entity does not meet the definition of “Subsidiary” under a parent’s D&O policy

– Claims brought against individuals for the (mis)management of the entity – Claims brought against the entity by customers, competitors, regulators

relative to the management of the entity

– Employment Practices Liability related to employment issues of employees who work for the entity

Directors and Officers Liability

• Key risk areas that are covered

– Strategic decisions around the structure of the ACO

– Strategic decisions around the counterparty relationships of the ACO – Financial structures of the ACO

– Corporate Governance failures of senior leadership – Any act or error in the management of the ACO

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Directors and officers Liability

– Lawsuit alleging that ACO profit sharing was not distributed amongst partners correctly

– Lawsuit alleging that ACO structure was unfairly created to benefit one party at the expense of all others

– Lawsuit alleging unfair business practices by competitors

– Lawsuit alleging failure of due diligence process in an M&A transaction – Lawsuit alleging that the financial structure of the ACO injured one of the

ACO partner entities

– Lawsuit alleging that an ACO Board member was acting in the best interest of her full time employer rather than in the best interest of the ACO

Cyber Security / Data Privacy Coverage

• Needed if:

– Entity will handle PHI, Social Security Numbers, Credit Information, or other forms of private data

– Data/computer systems in use are owned or leased by the ACO – Even if systems in use are already covered via coverage purchased by

the owner, the ACO needs to cover its own exposure

– Claims brought by ACO subscribers whose personal data was lost by the ACO or who allege that the ACO simply did not protect the privacy of their information

– Claims relating to cyber breaches or hacking events that cause a loss to any party to whom the ACO is liable (subscriber, provider, hospital, employer group, BAA, etc.)

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MARSH September 16, 2014 28 • Key risk areas that are covered

– Loss of PHI

– Network Breach and resultant los of secure information – Network breach and resultant system downtime

– Infection by a computer virus transmitted across a network – Failure to secure credit card or social security information – Disclosure of confidential medical information

– Breach Notifications

Cyber Security / Data Privacy Coverage

– Lawsuit alleging that network systems created to share information with ACO partners allowed patient PHI to be exposed to the public

– Lawsuit alleging that patient information files were cross contaminated by a systems error

– Lawsuit alleging patient medical files were left unprotected – Lawsuit alleging that customer information was not secures

- A few stories

- A file cabinet of patient information - A lost hard drive

- A cell phone camera - A missing thumb drive - A stolen unencrypted laptop

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Potential Insurance Coverage Needed: Stop Loss / Provider Excess

• Needed if:

– Entity is taking on financial risk excess of payment caps

– Entity could suffer financial loss if unexpectedly high medical costs arise within the serviced population

– Capital adequacy could be undermined by unanticipated medical costs

– Financial loss if the entity incurs medical expenses in excess of anticipated levels

• Key Risks Covered – Overutilization

– High cost individual cases (premature babies, transplants, extreme cost treatment cases)

– Unexpected financial outcomes based on population uncertainty – This is a financial loss tool, not an operational loss tool

– Consider use of this financial tool in early years of managing an uncertain population with downside risk contracts

Potential Insurance Coverage Needed: Stop Loss / Provider Excess

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Medical Professional Liability

• Needed if:

– Organization/Employed Providers are directly providing health care/ medical services

– Contracted/Employer/Participating physicians and other providers not purchasing their own medical professional liability coverage

– There is no parent or related organization that is able to provide medical professional liability

• Structures to Consider

– Extended Reporting (ERP)/tail coverage available through existing physician policies

– Stand-alone commercial ERP/tail policies

– Separate group commercial insurance program (Loading Zone Program) – Cover under entities retained and risk transfer insurance program

- Captives and Risk Retention Groups

Potential Insurance Coverage Needed: General Liability / Auto Liability / Umbrella

• Needed if:

– Entity has physical locations where it interacts with the general population

– Entity has owned or hired automobiles

– Entity is physically operating in owned or leased space/offices

– Entity does not have access to coverage under the coverage of a parent or related entity

– Bodily injury, property damage, or personal injury caused to a non-employed person (not medical malpractice arising out of medical services)

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Potential Insurance Coverage Needed: Workers’ Compensation Coverage

• Needed if:

– Entity has employees

– Entity cannot be consolidated under the workers compensation program of a parent entity

– Physical injuries suffered by employees while at work

Potential Insurance Coverage Needed: Property Coverage

• Needed if:

– Entity owns or leases real property (buildings, office furnishings, IT infrastructure and equipment, etc)

– No property coverage is available from a parent or related entity

– Damage to physical property that is owned by the entity or for which the entity is legally liable pursuant to a lease or other legal agreement

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Operational Risk: Allegation and Coverage

Identification

ACO Activities that Create Exposures

D&O EPL MCE&O Medical Privacy

Peer review X X X

Credentialing X X X

Risk sharing & allocation X

Claims services X

Access and sharing of records X

Market share concentration X X

Provider contracting X X

HIPPA X X X

Case Management X

Data sharing X X

Employing staff / physicians X

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ACO Activities that Create Exposures

Professional staff shortages X X

Setting protocols X X

Mergers and acquisitions X X

Disease management X X

Coordination of care X X

Physician integration X

Entering into payor contracts X

Regulations X X X

Treatment / care decisions X X

Failure to follow EBM pathways X X

Development of provider networks X X X

Liabilities of an ACO

Where Allegations Could be covered

Antitrust X X

Claims from the government X X X X

Bodily injury X X Vicarious liability X X Discrimination X X X Failure to treat X X Privacy breach X X X Breach of contract X X X

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ACO Risks – Entering into Payor Contracts

ACO

Responsibilities

Key Risk Area Components Exposure Possible

Treatment (1) Entering into

Payor Contracts

Payor Strategy Participation in contract choices, competition, developing and meeting established targets; Preparation for payment reform (Value Based Purchasing/Bundled Payments/Total Cost Of Care/Capitation); assessing revenue, productivity, and costs to measure performance, outcomes, patient satisfaction; Pricing of Services - market competitive pricing and contract negotiation maximization. Contract negotiations, (mis) management Directors and Officers Coverage; Managed Care Errors & Omissions Coverage Financial Risks associated with Cost of Care / Pricing of Services

Manage cost of production; utilization management; cost per visit or cost per episode; staff productivity; asset maximization; cost per care setting.

Financial loss for medical expenses in excess of anticipated levels Provider Excess Loss - Stop Loss

ACO Risks – Establishing Provider Network

ACO

Treatment (1) Establishing Provider Network Establishment of Continuum of Care Partnerships, Credentialing Risks, Technical network and claims processing

Selecting partners across the continuum of care – JV’s, Contracted affiliates, physician relationships and developing a network across the entire continuum of care; meeting targeted goals for the ACO; antitrust when waivers don't apply

Anti trust; vicarious liability; contractual liability; suits by customers, competitors, regulators for errors in provision of nonmedical professional services Directors and Officers Coverage; Managed Care Errors & Omissions Coverage Economic Alignment of ACO members

Organizational incentive alignment; Correlation of physician and hospital financial returns; Distribution of shared savings/losses; Physician coding documentation, expense control, maximize performance based reimbursement; Compensation models – integration of Fair Market Value productivity and physician

Clinical Case Management; Managed Care E&O

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ACO Risks – Offering Coordinated Care to Enrollees

ACO

Treatment (1) Offering Coordinated Care to Enrollees Care Management

Individual patient care management, disease management with clinical standards, care navigators across key clinical specialties; triage processes for pre patients and patient needs; pharmacy management integrated into care management. Errors in delivery of medical services Clinical Risk Management; Health Care Professional Liability; Data Security / Privacy Coverage Patient Experience/ Engagement

Patient experience – focus on satisfaction drivers; patient engagement - shared decision making; patients taking better care of themselves through prevention strategies; patients helping ACO become better providers of care. Developing relationships with patients and families to support health and outcomes.

ACO Risks – Technical Support

ACO

Treatment (1) Technical Support through Enterprise Risk Management and Health Information Exchange Measurement Infrastructure

Data collection, measurement analysis, reporting structures, data warehouse, defined components on quality and cost of care reports; expanding IT needs for ACO; data reliance, reliability, operationalizing the network Reliance, breach, business continuity, Data Security/ Privacy Coverage; Managed Care E&O Regulatory Compliance

HIPAA, OIG, Joint Ventures, AG Inquiries, STARK; tax issues; CMS - ACO regulations and billing FDA requirements; NCQA requirements; legal and financial accountabilities; state and federal law discrepancies

Compliance Consulting; Case Management; Government Billings Cover; Managed Care E&O

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ACO Risks – Developing Transitional Care Delivery Models

ACO

Treatment (1) Developing Transitional Care Delivery Models Quality, Risk and Safety Standards Alignment

Involving organizational resources and providers to achieve quality goals and maximize performance based reimbursement for defined quality outcomes Errors in delivery of medical services Medical Professional Liability; Clinical best practices consulting Clinical Excellence

Coordination of patient care including flow, handoffs; Reduction in variation of practice; Development of system wide care processes; Clinical Service Line defined practices; Consolidation of activity pertaining to diagnosis and treatment of patients Effective

Primary Care Model

Full scope of primary care clinicians to provide primary care services from prevention to end of life; New models of care delivery - e.g. team care; medical home; Staffing models to meet new models of care delivery.

ACO Risks – Coordinating Management Services

ACO

Key Risk Area Components Exposure Possible

Treatment (1)

Coordinating Management Services

Integration Consistent compliant processes for credentialing, peer review, claims processing/handling, utilization review, support; ICD 10 conversion, electronic medical records deployment/training;

employment/labor issues of member parties that impact ACO service delivery

Liability for errors in provider review/ management Medical Professional and General Liability; Cyber Liability;

• 1. The "Possible Treatments" are referenced in terms of how these risks would be treated through traditional

commercial placements. Of course an integrated approach combining some or all of these coverages is possible through the commercial market. Additionally, ACO’s captive could be utilized to provide these coverages separately or as an integrated program as well.

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MARSH

Understanding Risk and Insurance Marketplace: Managed Care

• Managed Care Exposures

– Historical exposure of health insurers - Credentialing

- Network formation - Utilization review - Benefit claim processing - Education to plan members

• Managed Care Errors & Omissions Insurance – Structure

- Claims Made, Annual Aggregate, Annual Renewals – Marketplace

- 6 to 8 potential primary markets, Plentiful capacity – Coverage

- Designed to cover all health insurer type activities

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September 16, 2014

MARSH

Understanding Risk and Insurance Marketplace: Directors and Officers Liability

• D&O Exposures

– Liability arising out of management and strategic decision making

- Investor Claims - Competitor Claims

- Governmental Claims - Employment related claims

• D&O Insurance – Structure

- Claims Made, Annual Aggregate, Annual Renewals – Marketplace

- 15 potential primary markets, Plentiful capacity – Coverage

- Designed to cover all management related exposures

- Does not cover exposures related to the providing of services to members of the served population

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MARSH

Understanding Risk and Insurance Marketplace: Medical Services and General Liability

• Medical Malpractice and General Liability Exposures – Liability relating to interactions with the population

- Medical Malpractice - General Liability

• Med Mal / GL Insurance – Structure

- Typically Captive and Excess for large entities – Marketplace

- Very competitive marketplace - Coverage

- Designed to cover medical services exposures and general liability exposures

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September 16, 2014

Risk Analysis:

Suggested Review Process

1. Review Legal status and ownership

2. Review Scope of Services within the new structure

3. Evaluate Roles and Responsibilities of involved parties

4. Determine if current insurance programs purchased by the involved

parties address all of the new risks created by the new structure

5. Modify existing insurance placements if possible

6. Create new insurance structures to address risks that cannot be handled

within pre-existing insurance programs

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MARSH

Evaluating Roles and Responsibilities Stand Alone

Entity

New Subsidiary Party A Party B Third Party

Legal Structure Ownership Percentage Board Governance responsibility Senior Management representation Provider Network creation Provider credentialing Case Management Utilization Review Employment of doctors Employment of clinical staff Employment of administrative and operational staff

Financial Operations Data and technology services

MARSH

Evaluating Roles and Responsibilities Stand Alone

Entity

Contract Negotiation with Health Plans Contract Negotiation with doctors Medical Malpractice Liability Owner of physical locations and property Source of indemnification to Board Members

Source of financial capital Responsible for financial allocations Responsible for Health Plan sales and claims

Governmental filings Debt offerring entity Access / control of patient records

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MARSH

Evaluating Roles and Responsibilities

Stand Alone Entity

Case Management Utilization Review Disease Management Coordination of Care

Negotiation and contracting with Payors

Treatment and Care Decisions Development of Provider Networks AntiTrust Exposure Governmental claims exposure Bodily Injury exposure

Vicarious Liability for Medical Malpractice exposure

Privacy Breach Exposure Breach of contract exposure

Managed Care E&O In Depth Review

• Macro Level Overview of Managed Care E&O • Claims Examples • Policy Mechanics – Grant of Coverage – Definitions – Exclusions – Conditions

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MARSH

Overview

• Managed Care Errors and Omissions Insurance has historically been purchased by Managed Care insurers to cover their liabilities that arise out of: – Establishing networks of providers,

– Providing benefit plans to customers, and handling benefit determinations – Vicarious medical malpractice exposure relating to the medical services

provided by a credentialed in network physician.

• Managed Care E&O claims can come from several sources:

– Claim from customers regarding benefit determinations or other service related issues

– Claim from providers regarding contracting, payment, or network related issues

– Claim from governmental bodies or regulators regarding the overall operation of the plan, anti-trust issues, or other business practice issues • Managed Care E&O insurance is increasingly being purchased by Health

Systems and providers as they venture into health benefits insurance and other non-medical related services

MARSH

Claims Examples

• Individual or class action claim by plan member(s) for wrongful denial of benefits (ie autism treatments)

• Individual or class action claim from provide not allowed in to a network • Individual or class action claim from provider regarding contract/payment • Claim by regulators regarding antitrust issues

• Claim by regulators regarding monopolistic business practices • Claim by competitors regarding unfair business practices

• Claim by plan member(s) regarding financial disclosure practices • Claim by plan members arising out of adverse medical outcome of

services performed by a credentialed in network physician

• Restraint of trade claim by medical provider denied participation in network • Privacy / data security claim by a plan member whose PHI or other

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Discussion Topics

Industry Trends Leading to ACO’s

– Timeline and Transition – Threats and Response

Defining Accountable Care Organizations (ACOs)

– Critical Elements of all ACOs

Business Risks and Strategies

– Establishing Provider Networks

– Managing the Shift - Developing Transitional Care Models – New Metrics - Technical Infrastructure Support

– Payor Contracting – Coordinating Care

Operational Risks and Risk Transfer Protections

– Structure

– Managed Care, Directors’ & Officers’ and Data Security/Privacy Liability – Provider Excess Loss

– Medical Professional Liability

Contacts

Mark Karlson, CPCU, ARM

Marsh Managed Care Practice Leader 860.723.5660

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