Re-Evaluating Managed Care Revenue Opportunities

Re-Evaluating Your Managed Care
Revenue Improvement Opportunities
L E A D E R S H I P  P R O B L E M SO L V I N G  V A L U E C R E A T I O N

Connecticut HFMA Chapter
Christopher J. Kalkhof, FACHE
Director, Healthcare Industry Group
Alvarez & Marsal
January 26, 2009

Copyright 2009. Alvarez & Marsal. All Rights Reserved.

Presentation Agenda

Topic Area
I. MCO Contracting Trends and Hospital Financial Performance
in Connecticut

II. Revenue Optimization and Relevant Solutions

III. Preparing for MCO Negotiations
 Internal Assessment
 External Assessment
 Developing MCO Contracting Strategy
 Developing MCO Strategic Pricing

IV. MCO Contract Negotiations

V. Integration of MCO Agreements into Revenue
Management Operations

VI. Wrap-Up: Lessons Learned

Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (1)

Presentation Agenda

I. MCO Contracting Trends and Hospital Financial
Performance in Connecticut







Trends: Managed Care Issues Facing the Provider Industry
I. Strategic Revenue Improvement Opportunities: Game Changers

Managed Care is the Dominant Payment and Utilization
Management Business Model
 Managed Care Organizations (MCOs ) continue product expansion.
 MCO merger/acquisition industry consolidation continues.
 20+ states are exploring universal MCO coverage initiatives.
 Federal/state efforts to “reform” healthcare continue…
– In time… these industry changes can lead to over 80% of provider patient
care revenues coming from negotiated MCO contracts.
 The MCO business model changes service mix and patient volume and
represents multi-year contracts.
 To account for this market shift, all providers will need to reflect these
changes in their strategic financial planning process, service pricing
and contract negotiations with MCOs. 1
(1) The current state of the economy has resulted in significant financial and market share losses with the trend expected to
continue into 2009. This added financial pressure will impact provider budgets, resulting in more difficult contract negotiations.



Quality-Efficiency Ratings, Pay-For-Performance and
Tiered Provider Networks
 MCOs are profiling providers in their current networks.
 Providers determined to be more cost-effective/higher quality will be
designated as “quality network” providers.
 MCO “Tiered Network” products use a core participating provider
network of designated “quality network” providers.
 Customers will have the choice of buying benefit products which use
the full network or the quality rated network.
 Quality rated network products will be priced at a significant discount.
 Providers not in the quality network products are at risk of losing
significant patient volume.
 Both full network/product options will incorporate P-4-P criterion.
Price sensitive buyers will buy which network?


Provider Integrated Networks - Clinical Integration
Business Model

 2007 FTC ruling on Advocate Health can allow physicians and hospitals
to collaborate and align economic interests with community benefits…
when structured appropriately.
– This ruling has lead to a rebirth of the IDS model under a “clinical
integration” structure… offering provider networks the opportunity to
establish a more level playing field with large MCOs.
– CINs will be well positioned for MCO tiered network products.
 The most effective provider business models in the market will be those
provider networks which… can attract and retain patient lives,
operate under P-4-P reimbursement methodologies and which
provide cost-effective quality care with demonstrable quality
improvement outcomes.


Trends: Hospital REPORT OF THE COMMISSION ON THE FUTURE OF
HOSPITAL CARE IN CONNECTICUT (January 7, 2003)
Performance in CT?
I. Strategic Revenue Improvement Opportunities: Where Will You Get Increased Revenues?

 Wall Street is more optimistic about the future for hospitals nationally
 The Centers for Medicare and Medicaid Services’ financial forecast for
hospitals predicts that non-profit hospitals will recover from recent
revenue challenges.
 Bond investors predict revenue stability for non-profit hospitals
 Stability in government payment rates, especially Medicare, is key
 Hospitals are finding themselves in better negotiating positions as
managed care loosens some tight restrictions
 Traditionally government payers have paid below costs and private
payers have made up the difference. In 2000… in Connecticut…
– Medicare paid for 43.7% of hospital care… 96% of costs.
– Medicaid paid for 12.1% of hospital care… 76% of the costs.
– Private payers… managed care arrangements, constituted 36.7% of
hospital payments... the payment to cost ratio for private payers was 111%
for 2001, down from 120% in 1998.
– …hospitals with high Medicaid caseloads had lower margins… more likely
to be in distress…

Trends: Hospital Performance in CT?



 Economic outlook improving or decreasing for 2009 and 2010?
 Irrespective of your provider classification… e.g., hospital, physician,
nursing home, etc., will you be able to meet your margin needs from:
– Medicaid?
– Medicare?
– Other government programs?
– Uninsured?
– Managed care plans?

What does “managed care” truly represent for CT providers?
Their only significant opportunity to improve their net patient
revenues and offset underpayments/bad debt from
government payers and the uninsured.


Trends: Provider Performance In CT-Net Revenue Optimization

 Increased reimbursement from State Medicaid?
 Increased reimbursement from Medicare?
 Better collections from the uninsured?
 Revenue cycle “transformation?”
 Overall organizational performance improvement?
 Get paid what is perceived as “better than market” from
MCOs?


Presentation Agenda

in Connecticut







Revenue Optimization and Relevant Solutions
II. Strategic Revenue Improvement Opportunities: Portfolio Contracting Approach

Hospital Payer Mix Portfolio Profit & Loss Analysis: Patient Net Operating Revenue By Major Payer Class
% Increase
Hospital Gains-Losses by Total # I/P Payer Class Gains & % Full % Billed
Total Needed = 5% Payer Class - Financial
Payer Class ($500 Million and O/P Losses (Fully Loaded Costs Charges
# Days Operating Performance Comments
in Annual Net Revenues) Cases D&I Costs) Paid Paid
Margin
Medicare (1) 85,000 98,000 $ (7,000,000) 97.1% 40.9% 8.18% I/P Gains & O/P Losses

Medicaid (1) 46,000 32,000 (14,140,000) 54.4% 25.4% 93.18% I/P and E/D main loss areas

Self Pay 35,000 3,100 (8,750,000) 54.9% 26.5% 91.41% E/D & Other O/P main loss areas

Workers Comp 2,700 1,560 3,888,000 157.0% 75.6% 0.00% I/P & Other O/P most profitable

Other Government 760 900 (609,000) 73.5% 32.7% 42.81% I/P & Other O/P main loss areas

Self-Insurance-Hospital 3,500 1,450 700,000 115.5% 50.1% 0.00% I/P main gain, minor BH loss
Unspecified Commercial Plan Class
Comm.-No Contract 16,200 2,100 3,200,000 141.1% 75.2% 0.00% (i.e., non-contracted insurers)
Main losses on E/D, SDS, Selective
MCO - HMO/PPO 86,900 60,300 7,500,000 108.6% 47.7% 0.00%
High End DRGs
MCO - Medicaid 33,000 11,000 (10,600,000) 65.5% 33.2% 76.35% I/P, E/D & SDS main loss areas
I/P, E/D & Other O/P main loss areas,
MCO - Medicare 1,050 2,050 (600,000) 93.9% 38.8% 33.00% w/one profitable agreement
MCO – Behav. Health 2,290 4,450 (3,250,000) 66.3% 44.3% 153.37% I/P & Other O/P main loss areas

TOTALS 312,400 216,910 $ (29,661,000) 94.9% 44.1% 15.14% N/A

Required Net Revenue Increase to Attain a 5% Overall Net Operating Margin Goal = $75.7 Million
Source: Teaching Hospital Contract Manager Application data. Actual data is rounded for illustration purposes.
(1) Does not include annual disproportionate share and bad debt charity back-end settlements and non-negotiable payment rates.
 MCO rate increases alone will not close the above margin gap. A comprehensive MCO contracting and pricing strategy, linked with other financial and operational
performance improvement initiatives, can provide a margin gap solution.
 When establishing target MCO pricing, hospitals need to consider their overall payer mix and the profit/loss in each payer category. Additionally, probable government
payment trends should be factored into MCO target pricing. If a hospital intends to justify to a MCO that it needs reimbursement in excess of fully loaded costs, then it is
important that they be able to explain actual hospital economics to the MCO as part of the negotiating process.
 Once the above payer modeling capabilities are developed, a drill down analysis should performed on each MCO/MCO product to determine necessary rate increases.


II. Strategic Revenue Improvement Opportunities: What “Market” Really Means

MCO Reimbursement, Payment Rules and Contract Terms Result In… ???
Illustrative Variable MCO Negotiation Outcomes: Low & High Ranges (1)
Provider Commercial Network Rental Medicare
Classes Managed Medicaid
HMO/POS/PPO PPOs Advantage
Physicians 65% - 150% (2) 90% - 200% (2) 70% - 110% (2) 35% - 100% (2)
(PCPs &
(% of 07’ Medicare) (% of 07’ Medicare) (% of 07’ Medicare) (% of 07’ Medicare)
Specialists)

Amb Surg 75% - 150% (3) 100% - 250% (3) 70% - 110% (3) 35% - 100% ( 3)
(Hospital based
(% of 07’ Medicare) (% of 07’ Medicare) (% of 07’ Medicare) (% of 07’ Medicare)
& Freestanding)

Hospitals
(Acute, Rehab 18% - 65% (2, 4) 40% - 85% (2, 4) 72% - 110% (2) 70% - 120% (2)
and Behavioral (% of Charges) (% of Charges) (% of Medicare F-F-S) (% of Medicaid F-F-S)
Health)

Source: A&M analysis and MCO reimbursement negotiations outcome experience. Low ranges are generally for providers who
accept MCO “market rates” with little question or negotiation on price.
1) Unless otherwise noted, reimbursement ranges are benchmarked against 2007 Medicare RVRBS reimbursement. Illustrated
reimbursement ranges are representative of urban market settings around the country.
2) Provider business model, capacity/demand/size/brand as well as network participation… are upper payment level factors.
3) Significant price variability in a single market between hospital based and freestanding ASCs… business model,
capacity/demand/size/brand as well as network participation all factor into the pricing strategy and negotiations outcomes.
4) Weighted average representative illustration on % of charges vs. each inpatient and/or outpatient billed/contracted service area
and does not account for CDM price indexing (charges) variances by provider and market.

II. Strategic Revenue Improvement Opportunities: Managed Care Revenue Optimization

 Can you improve your net managed care
revenues at your organization?
– By how much and how quickly?

 The rest of today’s discussion will focus on
the “where’s” and “how’s” of improving net
managed care revenues!


II. Strategic Revenue Improvement Opportunities: Actions Within Provider Span of Control

Process,
Revenue
People &
Are you Drivers
Technology
optimizing
Reimbursement & Strategy &
your managed Methodology Preparation

care revenue Payment Rules
Contracts &
Negotiations
opportunities?
Physician Referrals E-2-E Revenue
and Payer Mix Cycle
(Applies to all
Clinical Quality, Cost Reduction &
providers) Outcomes & P-4-P Resource Use

Other Revenue Management Factors


II. Strategic Revenue Improvement Opportunities: Four Pillars of MCO Revenue Optimization

Reimbursement, Payment Rules and Contract Terms

 Contracting strategy, pre-negotiation due diligence and
negotiations outcome.
 Strategic pricing relative to service delivery costs and margin
requirements.
 Payment rules, reimbursement methodology, risk/P-4-P and
contract terms.
 MCO contract administrative costs and relative standardization.
 P/L analysis and modeling capability by MCO and MCO product.
 Business/network model – relative ability to capture and retain
patient lives.



Physician Referral Management & MCO Service Mix Mgmt.

 Physician high margin/low margin referral mix and MCO
service mix/patient volume.

 Service line offering and patient loyalty to provider.

 Market share growth and competitive positioning strategies.

 Delegated credentialing.

 Direct contracting.

 Business/network model.



E-2-E Revenue Cycle Process Optimization & Management

 Process efficiency/effectiveness in registration-care delivery/case
management/charge capture-billing-collections processes (i.e., MCO
contract integration into operations).
 Effective denial management and payment compliance programs.
 A/R management and cash collection processes (i.e., cash flow &
payment compliance).
 Skills, knowledge and abilities of billing/collections/case management/
nursing/HIM staff.
 Charge profiles and CDM indexing relative to local market.
 Revenue optimization technology tool deployment and operations
integration… underlying processes must be effective/efficient.
 Relationship management process with key MCOs (i.e., improves net
cash collections, reduces denials and error rates).


Clinical Quality Improvement Integration with Financial
Performance and Cost Reduction Initiatives

 Financial and clinical dashboard reports and ability to track key
organizational, MCO and individual physician performance
indicators.
 Improve management of care delivery processes and resource
consumption at service line level.
 Improved quality and outcomes with established evidence
based medicine (EBM) clinical care protocols.

What do MCOs want to buy from you?
 Effective, efficient, accessible, patient-centric, patient safe,
high quality, value-driven services!

II. Strategic Revenue Improvement Opportunities: Four Pillars MCO Revenues-EBITDA / EBIDA Opportunity Areas

Clinical Quality
End-To-End Revenue
Reimbursement, Physician Referral Improvement Integration
Cycle Process
Payment Rules and Management and MCO with Financial
Optimization and
Contract Terms Service Mix Management Performance and Cost
Management
Reduction Initiatives

Strategic A&M
E.G.,
Opportunity Expected Rationale
Metrics
Areas EBIDA
Contracting strategies and negotiations using
Rate traditional market driven approaches yield the
Increases & 5% - Pre-Post Net lowest rates and redefining cost + approaches
Reimb. 50% + Rate Change yield the highest rates. Ineffective revenue
(1, 2, 3))
Method. management processes, however, will result in
lower than expected rate benefit realization.
Business Business models which can attract and retain
Model / 5% - Pre-Post Net patient lives have more market leverage with
Network 40%+ Rate Change MCOs and are classified by MCOs into a
(1, 2, 3)
Configuration different reimbursement category.
Source: A&M analysis and experience | (1) Rate change upper limits are impacted by MCO product type (e.g., Commercial
HMO vs. Medicaid HMO), provider class and provider business model. | (2) Improvement opportunity variability tied to
starting performance rates. | (3) Improvement opportunity is work stream specific.



Strategic A&M
E.G.,
Metrics
Areas EBIDA
Case & Integrating MCO contract performance
Physician
Procedure benchmarks with a physician marketing
Referral & 5% -
Volume strategy, can favorably change referral
MCO Mix 10% (3) (per service volumes as well as service mix by MCO
Management product.
area)
MCO underpayments are largely driven by
interpretive and implementation related
Underpay errors relative to the executed compensation,
Recovery UM/CM, payment methodologies/rules
Underpay 4% - contracts. To ensure minimal
Dollars & % underpayments, revenue cycle processes
Recoveries 14% (2, 3) Underpay need to align with contractual requirements
Rate and payment compliance tools are
necessary to track payment compliance and
pursue recoveries.



Strategic A&M
E.G.,
Metrics
Areas EBIDA

Denial, Pre -Post The many payment rules and administrative
Downgrade & Billing Denial requirements associated with a MCO contract
5% -
Slow Pay Rates, Write- requires a realignment of revenue cycle
Process 30%+ (2,3) Offs and Net operational processes and the use of
Improve. Days A/R technology tools to minimize denials.

Front-Middle- 2% - 6% Managed care revenues can be reduced at
Multiple
Back (across End-To-End any point in the revenue cycle management
Revenue all payer Performance process as it crosses Finance, Patient Care,
Cycle classes) Charge Capture and Case Management
(2, 3) Metrics areas.
Improve.



Strategic A&M
E.G.,
Metrics
Areas EBIDA

MCO variability from a uniform contract
Contracting Billing Error language and multiple administrative
5% -
Standardi- Rates & FTE requirements, drives up the costs of MCO
zation 30% (3) Costs contract administration by as much as 50%
over F-F-S billing/collection costs.

LOS Mgmt., Operational, Improved quality results in less resource use
and lower cost, better patient outcomes and
EBM and 5% - Clinical &
(2, 3) bed management and also provides a
Quality 30% Financial competitive strategic advantage w/MCO
Improvement Metrics contracts.


II. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements

 Managed care provider revenue optimization from a provider industry
“conventional wisdom” perspective often focuses on…
– Strategic pricing/price transparency, “perceived market” reimbursement,
A/R acceleration, charge capture, denials management and payment
compliance considerations… important considerations, but incomplete.

 There is also a corresponding industry entrenched CW belief that…
– Efforts should largely focus on what key competitors are paid… MCOs will
not significantly modify their reimbursement methodology, payment rules or
contract terms… Per year rate increases are limited to a single digits…
Providers cannot effectively influence their payer mix… There is little
operational impact outside of the revenue cycle/billing process… There is
little long-term strategic impact on programs and services.

 The CW approach still applies… however, it needs to expand its
scope and evolve into a strategic financial planning approach to
MCO revenue optimization.


II. Strategic Revenue Improvement Opportunities: Strategic Implications of MCO Agreements

 Consider… if the majority of your patient revenues came from your
MCO payment agreements… how would this impact your…
– Short-term and long-term strategic planning? “Think
– Capital planning? Strategic
– Hospital-physician alignment strategies? Opportunity!”
– Collaboration or lack thereof with select MCOs?
– Business and service development and/or divestiture?
– Employee and medical staff recruitment and retention strategies,
procedures and policies?
– Information technology needs, planning and implementation?
– Formation of provider networks… e.g., Physician-Hospital
Organizations, acquisitions of physician practices or hospital
mergers/acquisitions?
All of the above factors should be incorporated
into your managed care contracting strategy.

Presentation Agenda

in Connecticut







Preparing for MCO Negotiations
III. Strategic Revenue Improvement Opportunities: A&M’s Three Phase MCO Contracting Approach

The MCO contracting process should be integrated with the organization’s
strategic financial planning process to allow management to better determine
their short-term/long-term financial targets, link financial targets to
operational strategies and also align operational plans to financial targets.

Develop Managed Care Negotiate Contracts Implement Contracts
Contracting Strategy & • Initiate Contracting Strategy/Proposal • Prepare Work Plan to Ensure Accuracy
Financial Planning Analyses Process with each MCO (new or prior of Contract Load, P-4-P and Care
• Internal Assessment – MCO Contract to contract renewal) Management Program Implementation
Performance, Modeling, Current • Collect Data on E-2-E Cash Issues • Integrate Contract into Revenue Cycle,
Margin Gap, MCO EBIDA/EBITDA and Include in Negotiations Process HIM, Case Management & Other Ops
Opportunity Assessment & Validation (i.e., for a concurrent resolution) • MCO Relationship Management
• External Market Assessment – MCO • Counter Proposal Process and Rate • Revenue Recovery and Denial
SWOT Analysis, Market Review, Sensitivity Modeling Analyses Management (ongoing process)
Product Share, Physician Referrals, • Review and Finalize Contract/Rate
Reimbursement Options • Integrate with MCO Portfolio and
Amendment Physician Referral Management &
• Develop Overall and MCO Specific • If no Acceptable Contract… Prepare Network Development Strategies
Contracting/Pricing Strategies, Termination Disruption Analysis,
Tactics, Goals and Objectives • Monitor MCO Contract Performance
Patient Retention/External
• Standardize Contracting Process, Communications Strategy and • Train Staff
Pricing/Proposal Templates & Terminate Contract • Implement Outsourced Services (if
Negotiations Management Team applicable)


III. Strategic Revenue Improvement Opportunities: Four Phase MCO Contracting/Revenue Management Process

4. Grow: Integrate MCO Revenue 1. Find: Diagnostic EBITDA/EBIDA
Strategies with Overall Assessments, Identify and
Organization Business Goals, Validate the Revenue Improvement
Objectives and Strategies, Find
The
Opportunities, Develop Contract
Physician Referral/Payer Mix Cash Portfolio Management and
Management and Clinical Negotiating Strategies
Resource Improvement

Grow Increase Get The
The
Cash Cash
Cash

3. Manage: Integrate MCO 2. Get: Strategy and Tactics
Manage
Contracts into Revenue The Development/ Implementation,
Management and Clinical Cash Execution of Strategic Pricing,
Operations as well as Contract Negotiations and Market
Marketing Plans Over a Multi- Positioning Initiatives
Year Period… and Collect Cash


III. Strategic Revenue Improvement Opportunities: MCO Due Diligence - Internal Assessment

Managed Care  Review multi-year strategic goals and objectives
Contracting  Interview key “managed care” stakeholders
Strategy & Analysis  Assess physician and patient satisfaction with MCO(s)
 Inventory managed care contracts and rank by Tier
Internal Assessment  Compare Hospital contracts for content and balance
 Model, Analyze and Rank Contracts:
– By MCO Category and Size
External Assessment – By Product Segment
– By Profitability and revenue leakage in Revenue
Cycle
Develop MCO  Assess value of different contracting reimbursement
Contracting Strategy approaches (e.g. per diems, DRGs, case rates, % of
charges and other)
Standardize  Conduct Hospital/MCO mix/payment analysis
Contracting  Assess internal data accessibility and IT decision
Processes & Mgmt.
support capabilities
 Assess Managed Care Dept./Div. capabilities and needs

III. Strategic Revenue Improvement Opportunities: Current MCO P&L By MCO/MCO Product
Teaching Hospital - MCO Annual Profit and Loss Performance Performance (Declining Performance)
Gains/ Losses By
Total # of I/P Expected Total % Total
MCO - Annual Net Total Allocated
and O/P Total # Days Total Charges Net Paid Charges Total Gain/Loss % Net Income
Revenues of $500 Expenses
Cases Revenues Paid
Million - All Payors
Commercial Managed Care (HMO, POS and PPO)
MCO 1 40,000 29,000 $ 195,000,000 $ 94,000,000 $ 88,000,000 48.2% $ 6,000,000 6.38%
MCO 2 13,400 8,300 63,000,000 33,000,000 30,000,000 52.4% 3,000,000 9.09%
MCO 3 9,100 6,500 46,000,000 23,000,000 24,000,000 50.0% (1,000,000) -4.35%
MCO 4 9,200 5,800 40,000,000 21,000,000 20,000,000 52.5% 1,000,000 4.76%
MCO 5 8,000 5,600 39,000,000 18,000,000 18,000,000 46.2% - 0.00%
MCO 6 5,000 3,600 28,000,000 14,000,000 17,000,000 50.0% (3,000,000) -21.43%
MCO 7 - All Other 2,200 1,500 11,000,000 7,000,000 5,500,000 63.6% 1,500,000 21.43%

TOTALS 86,900 60,300 $ 422,000,000 $ 210,000,000 $ 202,500,000 49.8% $ 7,500,000 3.57%
Managed Medicaid and CHIP
MCO 1 24,300 7,100 $ 33,000,000 $ 11,000,000 $ 16,500,000 33.3% $ (5,500,000) -50.00%
MCO 8 3,900 1,600 7,000,000 2,200,000 4,000,000 31.4% (1,800,000) -81.82%
MCO 3 2,300 1,300 7,000,000 1,500,000 3,200,000 21.4% (1,700,000) -113.33%
MCO 9 - All Other 2,500 1,000 3,700,000 900,000 2,500,000 24.3% (1,600,000) -177.78%
TOTALS 33,000 11,000 $ 50,700,000 $ 15,600,000 $ 26,200,000 30.8% $ (10,600,000) -67.95%
Medicare Advantage (Note: MCO agreements do not typically use the same DSH and Bad Debt methodology used by Medicare)
MCO 10 350 550 $ 2,200,000 $ 1,000,000 $ 900,000 45.5% $ 100,000 10.00%
MCO 11 500 1,000 7,000,000 2,600,000 3,000,000 37.1% (400,000) -15.38%
MCO 12 - All
200 500 3,000,000 900,000 1,200,000 30.0% (300,000) -33.33%
Other
TOTALS 1,050 2,050 $ 12,200,000 $ 4,500,000 $ 5,100,000 36.9% $ (600,000) -13.33%
Managed Care Behavioral Health
MCO 13 1,300 2,400 $ 6,000,000 $ 2,500,000 $ 4,500,000 41.7% $ (2,000,000) -80.00%
MCO 14 300 650 2,000,000 700,000 1,200,000 35.0% (500,000) -71.43%
MCO 15 290 500 1,500,000 550,000 900,000 36.7% (350,000) -63.64%
MCO 16 150 350 800,000 300,000 450,000 37.5% (150,000) -50.00%

MCO 17 130 300 700,000 350,000 400,000 50.0% (50,000) -14.29%
MCO 18 - All
120 250 600,000 200,000 400,000 33.3% (200,000) -100.00%
Other
TOTALS 2,290 4,450 $ 11,600,000 $ 4,600,000 $ 7,850,000 39.7% $ (3,250,000) -70.65%

COMBINED TOTALS 123,240 77,800 $ 496,500,000 $ 234,700,000 $ 241,650,000 47.3% $ (6,950,000) -2.96%


III. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance

Wtd. Wtd. Ave. Wtd. % Wtd. %
Wtd. Paid Wtd. % Wtd. %
Total Billed Actual Average I/P Case Rate Charges
Payor Cases Charges
Paid NPSR Gain/Loss
Cost/
NPSR/
L.O.S. Denial/Slw Increase
Charges Charges
for 5%
Case Paid for B. E.
Case Pay Rate to B.Even Margin

Medicaid HMO 1 7,396 $28,541,897 $5,522,580 ($4,989,364) $1,421 $747 2.65 32.4% 90.3% 19.3% 36.8% 38.7%
Top 5 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 371-Norm. C-Section; 91-Simple Pneumonia/Pleurisy Age 0-17 & 98-Bronchitis & Asthma Age 0-17 (46.0%
Denial Rate on Top 5 DRGs. Note: Paid newborn data may be erroneous)
Contract Overview: Managed Medicaid and CHIP HMO Products w/ 41.4% of Services for Inpatient. Current MHP rate proposal increase of 2.5% on most services, no change on diagnostic
radiology; evergreen contract; 90 days written notice for contract termination; rates have only increased by 3.5% since March 2001 ; contract one-sided most hospital rights/due process
referenced to provider manual.

Comm HMO 2 1,047 $4,761,228 $1,093,809 ($571,019) $1,590 $1,045 3.75 6.1% 52.2% 23.0% 35.0% 36.7%
Top 5 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 89-Simple Pneumonia/Pleurisy Age>17 W/CC; 371-Norm. C-Section & 243-Medical Back Problems (4.4%
Denial Rate on Top 5 DRGs)
Contract Overview: Commercial HMO, PPO, POS & Indemnity Products w/ 20.9% of Services for Inpatient; Rate amendment on 10-26-04, no rate increase since; evergreen contract; 180
days written notice for contract termination w/o cause. Contract one-sided most hospital rights/due process referenced to provider manual.

Comm HMO 6 3,157 $26,242,276 $9,678,088 $747,767 $2,829 $3,066 7.02 3.2% N/A 36.9% 34.0% 35.7%
Top 5 DRG Admits - DRGs 209-major Joint and Limb Reattachment Procedures of Lower Extremities; 127-heart Failure & Shock; 294-Diabetes Age>35; 143-Chest Pain & 182-
Esophagitis Gasteroent Disorders Age>17 146.0% Denial Rate on Top 5 DRGs)
Contract Overview: Includes Med Adv (9-1-04), HMO (no agreement on file) and HMO 7 (3-1-05) HMO, PPO, POS & Indemnity Products (Medicaid, Medicare & Commercial) w/ 21.7% of
Services for Inpatient; evergreen contract; 90 days written notice for contract termination; contract dated and does not represent current United contracting approach of one facilities contract
with separate product rate amendments.

Medicare A & B F-F-S 5,996 $52,605,598 $17,235,346 ($1,083,324) $3,055 $2,874 4.98 0.7% 6.3% 32.8% 34.8% 36.6%

Top 10 DRG Admits - DRGs 127-Heart Failure/Shock; 89-Simple Pneumonia/Pleurisy Age >17; 88-COPD; 182-Esophagitis Gasteroent Disorders Age>17; 416-Septicima Age>17; 294-
Diabetes Age>35; 320-Kidney & Urinary Tract Infections Age >17; 174-G.I. Hemorrhage W/CC; 277-Celluitis Age>17 W/CC & 296-Nutritional & Misc. Metabolic Disorders Age>17 (6.0%
Denial Rate on Top 10 DRGs on 847 I/P Cases; Wtd. Ave. Cost/Case = $7,108 and Per Day = $1,434, ALOS = 4.96). Provided For Comparison Purposes Only.

State Medicaid F-F-S 4,857 $20,982,566 $4,420,839 ($3,281,811) $1,586 $910 2.82 3.7% 74.3% 21.1% 36.7% 38.5%
Top 10 DRG Admits - DRGs 391-Normal Newborn; 373-Norm Vag Deliv; 371-Norm. C-Section; 390-Neonate W/Other Sign. Problems; 523-Alcohol/Drug Abuse or Dependence W/Rehab;
383-Other Antepartum Dx W/Medical Comp.; 370-C-Section W/CC; 98-Bronchitis & Asthma Age 0-17; 91-Simple Pneumonia/Pleurisy Age 0-17 & 521-Alcohol/Drug Abuse or Dependence
W/CC (1.7% Denial Rate on Top 10 DRGs on 1,310 I/P Cases; Wtd. Ave. Cost/Case = $2,066 ($3,022 excluding DRG 391) and Per Day = $1,013 ($1,305 excluding DRG 391), ALOS =
2.78). Provided For Comparison Purposes Only.


III. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Key Hospital Performance Indicators
Community Hospital - Managed Care Contract: Key Performance Indicator Report - Leadership Group Reporting Period:
Plan Name: Health Plan or PPO: Current Month Health Plan or PPO: Year-To-Date (start date xx-xx-xx)
Mgd Medicare Mgd Medicare Prior FY
Performance Measures HMO/POS PPO
Medicaid Advantage
Totals HMO/POS PPO
Medicaid Advantage
Totals
Total
Growth & Market Indicators
Total I/P Cases
Total I/P Days
Total Births
Total E/D Visits
Total OBS Cases
Total SDS Cases
Total Other Cases/Visits
Total Cases-All Cases
Acute ALOS
Acute Case Mix Index
% of Admissions Through ED
% Admissions: 3 Mile Radius
% Admissions: 5 Mile Radius
Reimbursement &
Profitability Indicators ($$)
Total Billed Charges
Total Net Paid Revenues
Total Direct Costs
Total Indirect Costs
Total Costs
Total Net Gain/Loss
Net Operating Margin
% Total Cases Denied
% Total Cases Downgrade Pay.
Total Expected Pay $$
Total Actual Pay $$
Tot. Exp. Pay. vs. Actual Var. $$
Net Days In Accounts Receivable
Total A/R $$ Over 90 Days
Total $$ in Accounts Rec.
% of Charges Paid to Tot. Billed
Cost Per I/P Case-Wtd Ave $$
Payment Per I/P Case-Wtd Ave $$
Cost Per I/P Day-Wtd Ave $$
Payment Per I/P Day-Wtd Ave $$
Total Ratio Cost: Charges


III. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Key LTC Performance Indicators
Individual SNF Facility Operational Performance Dashboard Report - Management
Facility Name:
Performance Indicators: Current Week
Managed Managed Mgd Care Totals/ Wtd.
Performance Measures Medicaid Medicare A Private Hospice VA/Other
Medicare Medicaid Comm. Averages
Volume: Capacity & Utilization Facility Staffing Total Other Employed Staff FTEs
Revenues---
Total Licensed Beds Nursing--- Total Overtime FTEs
Total Room & Board PPD
* RN FTEs Total Temp FTEs
Total Beds Occupied
Total Ancillary & Other Revenue PPD
Total Contracted FTEs (e.g., MD, PT, OT)
Total Reserve Beds * RN FTE Temps
Total Revenue/Patient Day (PPD)
Total Facility FTEs
Total Adjusted Beds Occupied (less reserve * RN FTE Pool Total EBITAR PPD
Total Nursing Payroll
beds) * Total RN FTEs Expenses---
Total Other Employed Staff Payroll
Total Bed Days Total RN Hours/Resident Day Total Room & Board Expense PPD
Total Overtime Payroll
Total Census (No. Patients) * LPN FTEs Total Temp Fees/Payroll Total Ancillary & Other Expense PPD

Total Average Patients * LPN FTE Temps Total Contracted Fees (e.g., MD, PT, OT) Total Property Related Expense PPD

Payor Mix Distribution % * LPN FTE Pool Total Facility Staffing Payroll/Fees Total Expenses PPD

* Total LPN FTEs Total Facility "Wages" as % Op Exp. Total Profit/Loss PPD
Average Occupancy % of Total
Total Benefit Expenses Net Days in Accounts Receivable
Adj. Ave. Occupancy (less reserve beds) % Total LPN Hours/Resident Day
of Total Total Ben. Expenses as % of Oper Exp. Total Billed Accounts Receivable ($$)
* CNA FTEs
Revenues, Expenses & % of A/R Accounts > 90 Days
Admissions and Discharges * CNA FTE Temps
Profitability Total Cash ($$)
% of Admissions Hospital Referral * CNA FTE Pool
Total Room & Board Days Cash On Hand
* Total CNA FTEs
Total Ancillary & Other Revenue Accounts Payable ($$)
% Admissions: Physician Referral Total CNA Hours/Resident Day Total Net Revenues Days in Accounts Payable
% Admissions: Self or Elective TOTAL NURSING FTEs Total Operating Expenses-Routine

% Admissions: Other TOTAL NURSING HRS/RESIDENT DAY Total Operating Expenses-Ancillary

Total Admissions Total Nursing Staff (employed) Terminations Total Operating Expenses
- Volun. + Involuntary Total Property Related (Depreciation,
Total Discharges Amortization, Rent and Interest)
Net New Admissions Total Nursing Staff (employed) New Hires Total Expenses
Total Profit/Loss
Total Nursing Staff Turnover Rate %
Cash Flow Margin
Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Total EBITAR (35)

III. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Hospital Per Diem Rates

MCO Analyses: Current Med/Surg Rates Vs. F, T, C Rates – Tier 1 HMOs
$2,300
$2,069
$2,000
$1,731
$1,700

$1,400 Same Comparative Analyses: SDS, E/R, High Cost Dx
$1,400
0
23 1, 18
33 $1, 1 $
$1,100 $1, 0 $1, 2
83
5
$92
13 70 59
$1, 0 $1, 0 $1, 0
$800
Act. M/S Target M/S
Commercial HMO Products
Floor M/S Ceiling M/S
$500
Pl Pl Pl Pl Pl Pl Pl Pl
an an an an an an an an
A B C E F G H I


III. Strategic Revenue Improvement Opportunities: Current MCO P&L Performance - Hospital Maternity Rates

Actual Commercial HMO-POS-PPO Insured - Maternity 200X Rate Comparison


III. Strategic Revenue Improvement Opportunities: MCO Historical Service Mix by Product

MCO Analysis: HMO A Service Volume Changes

Note: While
some patient
volume
increased…
it was largely
existing
patient
business
moving from
better
reimbursing
MCOs!

III. Strategic Revenue Improvement Opportunities: Current MCO Referral Sources

MCO Analyses: HMO A Patient Product Source And Zip Code Analysis
Sum of CY XX CASES ADMISSION
MH 07093 07047
PMC %
DIRECT Grand Through
BENCHMARK CLINIC ADMIT ED H N O P S TRANSFER Y Total EMER/R

20701 HMO A INDEMNITY 1 67 91 7 166 54.8%
20741 HMO A MEDICARE 25 34 59 57.6%
20810 HMO A HMO 1 153 147 40 341 43.1%
20942 HMO A PPO 157 141 30 1 329 42.9%

Patient Cases By Zip (85.5%)
 xxxxx – Comm. 1 – 1,496 (18%)  Patient volume from the MCO through the E/R?
 xxxxx – Comm. 2 – 1,338 (16%)
 xxxxx – Comm. 3 – 1,305 (16%)
 Does your MCO patient volume come from the
immediate community or a further distance,
 xxxxx – Comm. 4 – 820 (10%)
crossing several competitor service areas?
 xxxxx – Comm. 5 – 637 (8%)
 xxxxx – Comm. 6 – 477 (6%)  Will your medical staff, area employers and
 xxxxx – Comm. 7 – 338 (4%) your patients support you?
 xxxxx – Comm. 8 – 231 (3%)  Who has the moral high ground?
 xxxxx – Comm. 9 – 221 (3%)


III. Strategic Revenue Improvement Opportunities: MCO Due Diligence – External Analysis

Managed Care  Identify trends in contracting strategies and
Contracting reimbursement (regional/national).
Strategy & Analysis
 Identify threats to Hospital MCO
reimbursements.
Internal Assessment
 Understand MCO medical claim loss ratios.
 Understand role of hospital’s medical staff.
External Assessment
 Understand referring physician hospital
service needs.
Develop MCO
Contracting Strategy  Identify potential opportunities for
collaboration with MCOs.
Standardize  Understand employer community support and
Contracting
Processes & Mgmt. views of MCOs vs. your organization.

Copyright 2009. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 40

III. Strategic Revenue Improvement Opportunities: Current Admissions by Physician by MCO Product
INSURANCE NUMBER OF % of TOT
DR # DOCTOR'S NAME PLAN PLAN DESCRIPTION
COMPANY ADMISSIONS ADM
xx Doctor High Admitter AA YY HP A POS 7 0.044%
xx Doctor High Admitter AA YY HP A Medicare Advantage 1 0.006%
xx Doctor High Admitter AA YY HP A HMO 6 0.038%
xx Doctor High Admitter AA YY HP A PPO 1 0.006%
xx Doctor High Admitter AA YY HP B 1 0.006%
xx Doctor High Admitter AA YY HP C 7 0.044%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY HP D
YY HP E Med Adv
1
2
0.006%
0.013%
Admissions by
xx Doctor High Admitter AA YY HP E Managed Medicaid 26 0.164%
xx Doctor High Admitter AA YY CHAR CARE 55 0.346% Physician/MCO Product
xx Doctor High Admitter AA YY HP F PPO 1 0.006%
xx Doctor High Admitter AA YY HP F POS 2 0.013%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY HP G HMO
YY HP G PPO
15
1
0.094%
0.006%
Knowing which medical
xx Doctor High Admitter AA YY HP H Managed Medicaid 1 0.006%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY HP H Med Adv
YY HP H POS
2
2
0.013%
0.013%
staff members are the
xx Doctor High Admitter AA YY HP I Indemnity 14 0.088%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY HP I Medicare Advantage
YY HP I HMO
9
15
0.057%
0.094%
highest admitters by
xx Doctor High Admitter AA YY HP I PPO 20 0.126%
xx Doctor High Admitter AA YY HP I Self Funded ASO 2 0.013% particular MCO and
xx Doctor High Admitter AA YY HP I Managed Medicaid 11 0.069%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY HP J Self Funded ASO
YY HP J PPO
6
8
0.038%
0.050%
MCO product, factors
xx Doctor High Admitter AA YY HP K Union Trust 1 0.006%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY MEDICAID FFS
YY MEDICARE FFS
52
135
0.327%
0.849%
into your overall
xx Doctor High Admitter AA YY MEDICARE FFS 10 0.063%
xx
xx
Doctor
Doctor
High
High
Admitter
Admitter
AA
AA
YY MEDICARE FFS
YY HP L Union Trust
28
2
0.176%
0.013%
strategy formulation for
xx Doctor High Admitter AA YY HP M Commercial Insurer 1 0.006%
xx Doctor High Admitter AA YY HP N Managed Medicaid 2 0.013% MCO negotiations.
xx Doctor High Admitter AA YY HP O HMO 3 0.019%
xx Doctor High Admitter AA YY HP O FEHBP 8 0.050%
xx Doctor High Admitter AA YY HP O PPO 5 0.031%
xx Doctor High Admitter AA YY HP P PPO 1 0.006%
xx Doctor High Admitter AA YY HP Q Commercial Insurer 2 0.013%
xx Doctor High Admitter AA YY HP R Self Funded ASO 1 0.006%
xx Doctor High Admitter AA YY HP R HMO 4 0.025%
xx Doctor High Admitter AA YY HP R POS 3 0.019%
xx Doctor High Admitter AA YY HP R PPO 2 0.013%
xx Doctor High Admitter AA YY US POSTAL SERVICE 2 0.013%
478 3.01%

III. Strategic Revenue Improvement Opportunities: Baseline Determination of Medical Staff Alignment with MCOs

To develop a physician
referral and payer mix
strategy, requires that
you understand which
MCOs your medical
staff participates with,
the pros and cons of
each MCO from their
perspective; and their
MCO contract pre-auth
and referral rules!


III. Strategic Revenue Improvement Opportunities: Current MCO Market Share by MCO Product

NYC Enrollments Commercial Commercial Commercial Direct Healthy Medicare Child Managed Family YE 06 Grand NYS Sept 07
By Health Plan HMO POS PPO Pay New York Advantage Health Plus Medicaid Health Plus NYC Totals Update
Aetna Health Inc. 98,855 27,056 0 0 4,001 8,471 0 0 0 138,383 151,483
Affinity Health Plan Illustration 0of MCO By Product Enrollments –11,753 105,282 Market
0 0 0 0 0 12/06 NYC 42,929 159,964 208,601
AmeriChoice (United HC)(NYC 12/06 YE Data, No Data 0on Non-Health Plan Managed Care or Rental PPOs)113,731
0 0 0 0 1,160 1,333 95,417 15,821 113,914
AmeriGroup (Care Plus) 0 0 0 0 0 0 17,903 78,628 28,579 125,110 115,347
Atlantis Health Plan 0 9,350 0 42 1,698 0 0 0 0 11,090 15,720
Blue Choice (Excellus) 7 3 0 0 0 0 0 0 0 10 479,476
BSNENY 0 8 432 0 0 0 0 0 0 440 53,581
CDPHP 0 0 0 0 1 0 0 0 0 1 250,898
CenterCare (Fidelis) 0 0 0 0 0 0 4,105 55,619 9,951 69,675 0
CIGNA 17,484 29,578 0 1,408 1,787 0 0 0 0 50,257 17,938
Community Blue (HealthNow) 4 11 231 0 0 0 0 0 0 246 172,611
Community Choice 0 0 0 0 0 0 350 3,299 1,938 5,587 15,474
Community Premier Plus 0 0 0 0 0 0 3,061 65,484 8,506 77,051 29
Empire HealthChoice 100,913 19,734 0 8,148 10,711 25,080 25,989 0 0 190,575 561,747
Fidelis Care New York 0 0 0 0 0 0 7,181 80,431 42,772 130,384 286,356
GHI HMO (GHI-HIP) 3,215 13 0 13 649 5,918 1,058 9,291 6,443 26,600 59,058
Health Net 98,966 Which MCOs are active in your market 0
494 0 0 193 6,509 0 0 106,162 140,155
Health Plus 0
HealthFirst PHSP, Inc 106
area? How many lives do 0they really
0
0
0
0
0
0
0
0 0
28,847
18,718
187,257
244,141
44,050
69,148
260,154
332,113
895,099
415,657
HIP of New York (GHI-HIP)
Managed Health Inc.
332,760
0
offer access0 to if you participate? 165,891
40,818
0
6,623
0
43,980 1,761
541
90,160
0
7,216
0 2,377
50,751
4
739,960
2,922
895,099
20,518
MDNY Healthcare Inc. 0 0 0 0 2 0 0 0 0 2 20,518
MetroPlus 1,608 0 0 0 0 0 18,395 190,920 37,257 248,180 272,676
MVP 53 21 0 0 0 0 0 0 0 74 251,389
Neighborhood Health Providers 0 0 0 0 0 0 8,165 75,427 16,438 100,030 90,055
NewYork Presbyterian CHP 0 0 0 0 0 0 3,492 46,565 11,308 61,365 103,185
Oxford Health Plan 84,838 191,246 0 0 5,993 68,680 0 0 0 350,757 410,532
UnitedHealthCare 6,673 39,439 0 0 0 4,845 610 31,806 25,413 108,786 102,983
Univera HealthCare (Excellus) 10 0 0 0 2 4 0 0 0 16 134,890
Upstate HMO (Excellus) 7 0 0 0 1 0 0 0 0 8 381,186
WellCare of New York 0 0 0 0 0 8,744 7,616 48,962 29,095 94,417 111,278
Total Enrollments 646,644 330,715 7,286 53,591 23,339 211,100 154,039 1,381,515 397,474 3,205,703 6,387,369


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