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					Is the California HMO Delegated Model at Risk?
       What is the Future? HMO or PPO?

          Provider Engagement & Contracting
                   September 14, 2009
          Nidhi Jagani, Regional Vice President
Health Care Spend
What America Spends on Health Care

• 2007 health care spending reached $2.2
  trillion dollars, nationally.
   • $7,421.00 per person
   • This represents more than 16% of the GDP
• If left unchecked, it is projected to grow up to
  20.3% of the GDP by 2018.

Health Care Spend
How California Spends on Health Care

•   6.5 million Californians uninsured (more than any other state in
    the nation)

•   More than 60 emergency rooms in California closed over the
    past decade because they were unable to keep treating people
    without insurance.
    “Unpaid medical bills mean billions of dollars in hidden taxes
    because those services all have to be paid for. That means we pay
    higher deductibles, higher costs for treatment, premiums and co-
    pays. Companies stop offering coverage, which leads to more
    people without insurance and the whole cycle keeps repeating. We
    have to aim high and attack the entire system from top to bottom
    and create a model the rest of the nation can follow.” - Governor
    Arnold Schwarzenegger

California Product Environment
HMO Enrollment is steadily declining

       5,000,000                                                                                 Aetna Health of
                                                                                                 California, Inc.

                                                                                                 Blue Cross of
                                                                                                 Blue Shield of
                                                                                                 California (California
                                                                                                 Physicians Service)
                                                                                                 Cigna HealthCare of

                                                                                                 Kaiser Foundation
                                                                                                 Health Plan, Inc.

                                                                                                 PacifiCare of
       2,000,000                                                                                 California

                                                                                                 Health Net of
                                                                                                 California, Inc.


                   2004   2005   2006   2007   2008 Q1   2008 Q2   2008 Q3   2008 Q4   2009 Q1

Department of Managed Health Care
California Product Environment (cont’d)

California Product Environment (cont’d)

Purchaser/Employer Perspective
• Healthcare costs too much - so much, that a
  growing number of employers cannot afford it
  as it is currently financed and delivered.

• HMO products are no longer a value

• HMO products are becoming less attractive as
  premium gaps between HMO and PPO are

Health Plan Perspective

• A highly regulated environment with oversight
  from the Department of Managed Health Care
  (DMHC) for HMO products make them difficult
  and costly for plans to administer.

• PPO products are regulated by the
  Department of Insurance (DOI), which allows
  for more flexibility in benefit design and cost
  shifting to the member who can be more
  engaged in healthcare decisions.

Provider Perspective

•   PMGs and IPAs are experiencing steady erosion of
    HMO membership
•   Increasing threat of Kaiser
•   Increasing threat of Consumer Directed High
    Deductible PPO Products (HSAs, HRAs, etc.)
•   Staff-model groups believe that they are not
    adequately compensated for value-added services to
    their PPO patients
•   IPA physicians believe they are not adequately
    compensated (especially primary care doctors who
    often get below Medicare rates) for PPO patients

What’s Coming?

• Medical Home

• Accountable Care Organizations (ACOs)

• Clinically Integrated PPO Model / Virtual
  Kaiser Model

• Global/Bundled Payments

Medical Home

•   Patient-centered care model with focus on the whole
    patient and disease prevention

•   Assignment of PPO patients to a primary care doctor
    who acts as a “gate keeper” and coordinates all
    aspects of member/patient care

•   Patient and family get coordinated, clinically efficient
    care, self-monitoring and educational tools and other
    resources that promote self-management of care
    resulting in higher patient engagement and compliance

Medical Home (cont’d)
• Primary care doctor gets paid up front (case
  rate) to provide clinical coordination and may
  earn bonus if certain benchmarks are achieved

• CMS demonstration project is underway

• All the major health plans, large employers (i.e.,
  IBM and GM) and providers are talking about it

• Medical Home is a “buzz” phrase in the Obama
  Administration’s Health Care Reform plans

Accountable Care Organization

• This concept is based on three (3) principles:

   1. To overcome the current system’s
      perverse incentives and fragmentation
   2. To hold providers accountable for overall
      costs and quality while ensuring
      appropriate incomes for providers
   3. To create meaningful P4P for both, quality
      and cost

Accountable Care Organization (cont’d)

•   ACO focuses on the integration and coordination
    between the hospital and its extended medical staff in
    the delivery system as a focus of accountability

•   Who can be a successful ACO in the 21st century:
    • Doctors?
    • Hospitals?
    • Either?
    • Both?

Accountable Care Organization (cont’d)
•   Current payment system (physicians with capitation
    and hospitals with per diem or fee-for-schedule)
    promotes direct competition between Physicians and
    Hospitals, making it challenging to create an ACO

•   Cultural barriers
     • a high degree of professional autonomy
     • a culture of individual responsibility reinforced by
       current medical school training
     • professional malpractice and liability programs

Accountable Care Organization (cont’d)

• Legal obstacles
   • Anti-Trust
   • physician self-referral regulations

• Variability in degrees of alignment between
  Hospital and Medical Staff

• Participating provider behavior change is
  absolutely a must for this concept to be

Accountable Care Organization (cont’d)

  • Political and social challenges
    • balance the benefits of integration against the
      dangers of monopoly

  • Long-term fiscal impact of the program is

  • Shared savings approach to deliver high
    quality, low cost care
    • Create a design to overcome legal and
      regulatory barriers

Clinically Integrated PPO Model

• Suggest two models (there may be more)
   • create a clinically integrated PPO model which has
     real value
   • capitalize on the Medical Home, which is what
     most delegated staff model groups do anyway

• Most delegated HMO groups in California have
  the ability to offer this model
   • Sharp, HCP, Facey, Bristol Park, etc.

Clinically Integrated PPO Model Cont’d

• Focus on the coordination of care of a PPO
  patient (traditionally unmanaged) using
  existing tools and programs being utilized to
  manage current HMO population

• Effectively implemented, this can be the model
  for future cost containment and achieving
  quality benchmarks, as well as, performance


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