L E O N A R D M A R T I N

C A R R O L L T O N C I T Y M A N A G E R O C T O B E R 2 5 , 2 0 1 3

GOVERNMENT FINANCE OFFICERS ASSOCIATION OF TEXAS

REDUCING HEALTHCARE

IMPACTS BY WORKING TOGETHER

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HOW HEALTHCARE NETWORKS FUNCTION

• Companies take large numbers of lives into the market to negotiate discounts from “UCR”—Usual Customary & Reasonable Charge • Much like retailers post the “Manufacturer Suggested

Retail Price” & “Your Price” • Why discount? Get more people in the door.

• Discounts may be more than 50% • Medicare & Medicaid accounted for 56% of

hospital business in 2010 • Complain about under-payments by government

• As much as 25% of billings written-off as uncollectable

• Providers remain highly profitable 4

HOW DO PROVIDERS MAKE MONEY?

• Actual cost for Procedure A: $1,000 • Less network discount • Less Medicare/Medicaid write-downs • Less no-pays

• Actual revenue for Procedure A: $ 400 • Loss on Procedure A: $ 600 • Adjusted cost for Procedure A: $1,600 • Actual income: $1,000

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CURRENT STATE OF HEALTHCARE

• Symptoms treated not the person • Mimics the auto repair industry—Fee For Service

• The more work done they higher the income • Incentive to “over-repair” & “over-diagnose”

• Ever had your mechanic charge you $75-100 to hook up their computer to “see what might be wrong”

• No logic behind costs charged & costs of service delivery

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PRICING EXTREMES

• Don’t you normally find a McDonald’s Quarter Pounder w/ Cheese costs the same at two McDonalds within a few miles of one another? • Overhead basically the same • Raw materials from same provider • Labor market costs similar • Utilities costs similar

• So this logic applies to healthcare delivery for the same “Quarter Pounder” delivered within close proximity?

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PROVIDER COST TRANSPARENCY/COST ESTIMATOR

• Austin Newspaper Report • Treating heart failure with complications, $18,033

at Seton Smithville (paid $5,492); $43,335 Seton Kyle (paid $7,603)

• Major joint ranged from low end $32,015 at Westlake Medical Center to a high of $101,093 at Seton Williamson County

• Treating chest - Paid $16,445 at St David’s Medical Center to $24,487 South Austin Medical Center

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PROVIDER COST TRANSPARENCY/ COST ESTIMATOR

• Ft. Worth Star Telegram • Joint Replacement

• ADA Oklahoma - $5,000 • Monterey California - $220,000

• Pneumonia • Plaza Medical Center Fort Worth - $38,514 • Baylor All Saints Medical Center - $14,106

• Chest Pains and Diabetics • Medical Center of Arlington - $37,751 • Texas Health Harris Methodist Hospital Fort Worth - $17,039

• Pacemaker • Baylor all Saints Medical Center - $123,663 • Medicare Average Bill is $46,638

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Medical CityDallas

Hospital

DoctorsHospital

ParklandHealth and

HospitalSystem

MethodistCharltonMedicalCenter

UTSouthwestern

UniversityHospital

Texas HealthPresbyterian

Hospital

BaylorUniversityMedicalCenter

MethodistDallas

MedicalCenter

Major Bowel Procedure, with Complications

Source: DallasObserver.com, May 2013

MEDICAL CITY DALLAS MOST EXPENSIVE HOSPITAL

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Kidney Failure, with Complications

Source: DallasObserver.com, May 2013

MEDICAL CITY DALLAS MOST EXPENSIVE HOSPITAL

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Medical City DallasHospital

Methodist CharltonMedical Center

Parkland Health andHospital System

Texas HealthPresbyterian Hospital

Baylor UniversityMedical Center

Drug Overdose

Source: DallasObserver.com, May 2013

MEDICAL CITY DALLAS MOST EXPENSIVE HOSPITAL

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NEGOTIATED PRICE VARIATIONS ACROSS IN-NETWORK PROVIDERS

• Networks and providers focus on the average discount, disregarding the base rate

• Result: individual prices vary significantly

• PCP and patient make decisions without pricing transparency

CT Scan

GI Scan

Knee Surgery 13

Leveraging Purchasing Power of Political Entities for

Cost Effective Employee Benefits

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• Opened for business 2006 • Formed by representatives from:

• Cities • Texas Municipal League-Intergovernmental Employees

Benefits Pool (TML-IEBP) • Texas Association of Counties (TAC) • Texas Association of School Boards (TASB)

• Merging the various cultures was a CHALLENGE!

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• Purpose was to change how benefits are purchased by aggregating lives to obtain volume discounts • No pooling of risks

• Goal was to reduce costs, not add another layer of costs

• First 3 years of operation administrative costs totaled $30,000

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• First product was Pharmacy Benefit Management services

• Bid was 6% reduction • Subsequent bids have resulted in reductions of

about 20% over 2005 costs • Since start-up now have more than 15 benefit

products to offer

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• How can I access benefits: • TML-IEBP members • TML-IEBP Affiliated Service Organizations (ASOs) • Pay membership dues:

• Less than 100 lives= $150 ($250 Non-Texas) • More than 25,000 lives = $1,750 ($3,500 Non-Texas)

• Can participate in bids without being obligated to take the product—completely voluntary a la carte menu of products

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• HMS provides health plan dependent eligibility audits.

• If they do not find 6-8% ineligible they don’t get paid • They always get paid

• Carrollton did our own about 5 years ago & found about 20 ineligible lives impacting the plan

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• Who do they find on plans? • Ex-spouses • Friends • Lovers • Neighbors • Step-children not legally required • 1 HORSE

• Most a result of ignorance; some fraud

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• Texas example audits: • Flower Mound (756 lives)

• Cost $13k • Lives removed 46 (6.1% • Savings $138,000 annual (928% return)

• La Porte (659 lives) • Cost $11k • Lives removed 76 (11.5%) • Savings $228,000 annual (2,189% return)

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• Example audits continued: • Corpus Christi (3,367 lives) • Cost: $43k • Lives removed: 668 (10.9%) • Savings: $1,100,000 annually (2455% return)

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©2012 RxResultsSM

RxResults

Pharmacy Benefit Risk Management

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EVIDENCE VS. MARKETING

Traditional influence on drug selection • Detail physicians

• Direct to consumer advertising

• Point of sale copay coupons

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RXRESULTS EVIDENCE BASED PHARMACOLOGY

University of Arkansas College of Pharmacy – Evidence-Based Medicine • Independent / Unbiased

• On-Going Clinical Research

• Proof of Concept since 2004

• Savings for Plan Sponsor & Member

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$57.87

$60.05

$66.64

$61.67

$67.39

$61.50

$57.53

$70.22

$38.08

$45.02

$51.79

$45.57

$52.50

$47.36

$42.51

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

City of Carrollton, Texas – PMPM Costs

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HOW RXRESULTS WORKS

• Developed a formulary of high cost commonly prescribed drugs that do not have generic form but have equivalent

• Purchase the brand name co-pay is $120 per prescription

• Get the non-brand equivalent for free • Example:

• Nexium to Omeprazole

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EXAMPLE OF FORMULARY

$120 Co-Pay

• Antifungal—Pedipriox-4 • Gastro—Nexium,

Prevacid, Prilosec • Relaxant—Lorzone

Free

• Ciclopirox • Omeprazole, Prevacid

OTC, Prilosec OTC • Chlorzoxazone

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2010 2011

Total number of Nexium rx’s filled 201 44 Number of unique patients who filled a Nexium rx 54 19

Total $’s paid by plan for Nexium

Basic Plan: $5,374.81 $1,720.23

Advantage Plan: $55,090.59 $7,811.78

-In the first year, plan savings for referenced pricing within Nexium class was $55,933 or 84.23% savings.

-There were 157 fewer Nexium prescriptions and 35 fewer Nexium patients. -Similar savings on other drugs for which effective alternatives exist resulted in

saving $350,000 last year

AMAZING RESULTS IN ONE YEAR & ONE DRUG

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TOTAL SAVINGS FIRST YEAR WITH RXRESULTS

$350,000 AND GROWING!!!!

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INTERNATIONAL MEDICINE

–Cost savings of 40%-80% over U.S. pricing –No PEPM premiums –Savings but not at the expense of Quality –Ultimate consumer-choice in health care –Responds to needs of culturally diverse

workforce –Quality of care comparable to leading U.S.

hospitals and their physicians –Non-covered procedures affordable for

employees

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International Centers of Excellence

- Quality healthcare - Hospitals meet or

exceed US standards 40-80% Savings on

74 Surgical Procedures; Saving

6% on Annual Medical Spend

- Single bill in USD - All-inclusive

- Fixed price case rates

100% Medical Benefit for Employees

- No deductibles, co-pay or co-insurance - No out-of-pocket medical expenses - Other incentives

available Easy to Implement

- No network access fee - Satori manages full

implementation & employee

communication process

$50,000 Stop Loss Program Included

- Limits financial responsibility

24/7 High-Touch Customer Service - Caters to patients healthcare & travel

needs - Includes all

companion costs

Satori Value Proposition

Medical Travel Service &

Global Healthcare

Network

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All Hospital & Physician Fees

17-day stay at Intercontinental Hotel for Patient

& Companion

Airfare for Patient & Companion

In Country Transportation

for Patient & Companion

Personal Accident Policy, Related to Medical Travel &

Procedure & Stop Loss Policy

Satori Overhead &

Profit

SAVINGS TO PLAN SPONSOR

*Price Includes:

Hip Replacement

United States (includes M.D. & Hospital) $60,000

Satori Global Network* $20,000

Gross Savings $40,000

Patient Share for U.S hospitalization (co-pay) $5,000

Net Savings to Plan Sponsor

$35,000

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Satori Global Network Hospitals

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Satori Global Network Hospitals

QUALITY ASSURANCE PROGRAM

• All acute care hospitals are Joint Commission International (JCI) accredited and must meet established U.S. standards of excellence

• Many hospitals have affiliations with Harvard Medical, Johns Hopkins, Cleveland Clinic and others

• Physicians speak English and have demonstrated competency in their specialty and their specific procedure

• No deductibles; all expenses paid from take-off to return • Expenses for companion covered

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PROCEDURES

• Cardiac – CABG – Valve Replacement – Pacemaker – Defibrillator

– Cardiac Ablation • Orthopedic

– Hip Replacement – Hip Resurfacing – Knee Replacement, Partial – Knee Replacement, Total – Shoulder Replacement

• Spine ― Cervical Discectomy w/ Fusion ― Lumbar Laminectomy ― Lumbar Laminectomy w/Fusion

• Weight Loss/Bariatric

― Gastric Bypass ― Lap Band ― Gastric Sleeve

• Women/Men – Hysterectomy – Prostatectomy

• Plastic/Cosmetic • Dental • Other Procedures - 55

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The problem is comprehensive. The solution must be too.

The Oxford Health Alliance’s 3-4-50 Model:

Morbidity and mortality are aligned with lifestyle and chronic diseases.

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Value of Population Health Risk Management

Specialty referral rate ⬇ 20%

ER/UC utilization ⬇ 20%

Hospitalization rate ⬇ 5%-10%

Rx spend ⬇ 5%-7%

Population: 1,000

Condition Specific Excess Cost Per Year

Savings

Risk Factor/Disease StatePrevalence

Rate¹Predicted

Cases Edington²ICHSIS/

Symmetry³ < 5% < 7.5% < 10%Hypertension 30.7% 307 3,732$ 3,864$ 57,286$ 85,929$ 114,572$ Hyperlipidemia 16.6% 166 2,276$ 3,252$ 18,891$ 28,336$ 37,782$ Obesity 31.3% 313 2,633$ n/a 41,206$ 61,810$ 82,413$ Diabetes 10.2% 102 4,669$ 5,400$ 23,812$ 35,718$ 47,624$ Coronary Artery Disease 6.2% 62 8,299$ 7,404$ 25,727$ 38,590$ 51,454$ Asthma 6.8% 68 n/a 2,964$ 10,078$ 15,116$ 20,155$ COPD 5.2% 52 n/a 5,076$ 13,198$ 19,796$ 26,395$ Smoking 20.8% 208 2,290$ n/a 23,816$ 35,724$ 47,632$ Stress (anxiety, depression 24.9% 249 2,571$ n/a 32,009$ 48,013$ 64,018$

Total Savings 246,022$ 369,034$ 492,045$

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Year 3 Performance Guarantees City of Plantation - Year 3 Performance Plan Reconcilation

Pay for Performance Plan Data Source Data Resolution Amount at Risk Penalty (if Any)

Overall Employee Satisfaction 22,104$ -$ < 90% but > 85% Survey < 85% but > 80% Survey < 81% but > 75% Survey < 74% Survey

Overall Employer Satisfaction 22,104$ -$ < 90% but > 85% Survey < 85% but > 80% Survey < 81% but > 75% Survey < 74% Survey

Outcomes and Quality Obesity: reduce weight by 5% for BMI > 30 EMR 12.33% reduction $ 38,683 Tobacco Use: 5% reduction in prevalence EMR 23.33% reduction Pre-hypertension: 5% reduction in prevalence EMR 37.60% reduction High cholesterol: 5% reduction in prevalence EMR 35.97% reduction Diabetes HbA1c testing > 85% EMR 61.54% value recorded Diabetes HbA1c < 9%, >75% EMR 87.50% w/A1c < 9% Persistent asthmatics: inhaled corticosteroid >85% EMR 100.00% Compliance CAD patients: use of anti-platelet therapy >85% EMR 66.67% Compliance Chronic HTN: 5% reduction in prevalence EMR 58.46% reduction

Bonus Earned -$ Total at Risk Earned 82,892$ -$

5 or > Category 1 or Category II measures

realized = no penalty/ no reward

$ -

full credit

94.8% Achieved

full credit

>100% Achieved

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FOR MORE INFORMATION:

Leonard Martin City Manager

Carrollton, Texas lmartin@cityofcarrollton.com

972-466-3001

Nickie Bischoff TML-IEBP

Nickie.Bischoff@tmliebp.org

512-719-6768

OR