a presentation for American Health Lawyers Association’s Annual Meeting July 1-2, 2013

1. Clinically Integrated Networks;The PHOs of the 21st Century? Do They Create the Kind of Value that Payors Want? a presentation for American Health Lawyers Association’s Annual Meeting July 1-2, 2013 San Diego, California Lisa Hathaway, Esq. Blue Cross Blue Shield of Florida, Inc. (904)905-7900 lisa.hathaway@bcbsfl.com Peter A. Pavarini, Esq. Squire Sanders (US) LLP (614) 365-2712 peter.pavarini@squiresanders.com Michael F. Schaff, Esq. Wilentz, Goldman & Spitzer, P.A. (732) 855-6047 mschaff@wilentz.com

2. Agenda Why Networks? Changing Plan Landscape? How CINs Differ From Other Models Organization and Governance Plan Requirements Antitrust Issues Contractual Concerns

3. Renewed Interest in Networks • Increased competition • Uncertainty about future reimbursement • Many integration models (e.g., hospital employment of physicians, co-management, joint ventures) are too narrow to provide necessary depth and breadth of coverage • Despite number of physicians seeking employment, private practice will not disappear • Hospitals are looking for a way to engage the “mixed medical staff” – both independents and employed

4. Why Hospitals Need a Network Strategy • Hospitals need the cooperation of physicians in controlling costs and improving quality • Hospitals need to be attractive to payers seeking to enter performance-based contracts • Without a network, hospitals may see their medical staffs join with others who have such contracts • The ACA makes it essential that hospitals and health systems have a vehicle for managing patient care and getting paid fairly

5. Why Doctors Need a Network Strategy • Fee-for-service payment acts as a disincentive to improving quality and cost-efficiency • Existing medical staff relationships provide inadequate incentives for improvement • Lack of capital and management expertise • Improved health information technology • Ability to deliver better care and get paid for it

6. Changing Plan and Payor Landscape Integration of hospitals and physicians is an opportunity for change Can be adverse due to market power Synergies and the care coordination is a plus for health plans (“Plans”) Clinical integration provides hospitals and physicians the experience needed to start improving the quality and efficiency of care. Precursor to ACO type arrangements. Ex. Advocate Health System in Illinois Similar to the proliferation of PHOs in the 1990s

7. Plan Environment Pressures to reduce costs, which includes the rate regulation and approvals; Network challenges due to the changing composition of providers and the mergers and integrations of providers; Demands for increased provider reimbursement due to government payments; Increased scrutiny by regulators (federal and state), employers (ASOs), and members; New Requirements from ACA and CMS; and New costs, taxes, rating for products, risk adjusted payments etc.

8. Why Many PHOs Failed to Achieve Their Objectives • PHOs rarely had the infrastructure to manage risk under MCO contracts • Health information technology was in its infancy, making essential data hard to come by • Non-risk bearing PHOs were challenged by regulators and payers because they were neither financially integrated nor clinically integrated • Although the hey-day of the PHO was brief, it some respects it set the stage for the introduction of ACOs

9. CINs and How They Differ From PHOs, Etc. CINs are arrangements (usually separate legal entities) sponsored by hospitals but led by physicians who assemble the resources required to manage care for defined patient populations Like PHOs, CINs are “membership” organizations requiring doctors to meet strict criteria Unlike PHOs, the are under-inclusive (think of the hospital’s “A” team) They may evolve into ACOs, but don’t need to

10. Joint Contracting by CINs • Ultimate Purpose of CIN: Allow providers to engage in joint contracting • The most effective networks require: • Every physician to participate in every contract • Adherence to common set of quality, safety, cost-effectiveness measures • Ability to share in incentive funds • Infrastructure (e.g., governance, IT, training) to support CIN objectives • Ability to achieve market recognition

11. Joint Contracting by CINs • Providers who are not economically integrated (such as independent physicians) may not engage in “single signature” third-party contracting unless they become clinically integrated (more on this later)

12. What Benefits Do CINs Provide to Payers and Patients? • Ability to deliver progressively improved quality outcomes from: • Incentives for positive results • Collaborative education for physicians and staff • Standardized practices and protocols • Specific disease clinics to support practitioners • On-line resources • Disease registries that track outcomes and recall patients when needed

13. What Benefits Do CINs Provide to Payers and Patients? • Ability to make progressively greater use of health information technology: • Access test results and discharge data • Track patients with chronic disease • Fill prescriptions with prompts that identify opportunities for generic substitution • Generate report cards on physician performance • Electronic data interchange (EDI) to submit bills to payers and receive expedited payment

14. How Are CINs Organized and Governed? • Choice of Entity/ Organizational Structure • Separately organized entities, but form may vary • Essentially a membership organization, typically an LLC or non-profit corporation • Allow multiple classes of membership • For profit forms are available, but in most cases pass-through taxation to CIN’s members is desired • By themselves, CINs are unlikely to qualify for tax exemption; however, they may be positioned in an exempt system to promote population health and serve other charitable purposes

15. How Are CINs Organized and Governed? • Physician Membership • CINs must be more concerned about the quality of their physician membership than their size • Physicians must be committed to: • Compliance with credentialing standards • Sharing of clinical data electronically with the CIN and their peers • Active participation in the clinical improvement process • Submission to CIN’s authority within certain parameters • Participation in CIN’s managed care contracts once the CIN achieves clinical integration • Avoidance of conflicts of interest

16. How Are CINs Organized and Governed? • Physician Membership • CINs may require a participation fee but unlike other ventures they do not expect physicians to contribute substantial capital • Although the CIN may distinguish between employed and independent physicians, it is advisable to diminish the importance of who a doctor works for • Embracing a diverse physician membership supports the CINs clinical and business objectives

17. How Are CINs Organized and Governed? • Role of the Hospital or Health System • Typically the sponsor of the CIN, but physician-only examples do exist in some markets • Balancing hospital and physician interests is key • Hospitals bring capital, HIT and administrative support, but at a price – they expect certain reserved powers (especially if tax exempt) and a place “at the table” • That being said, most CIN boards are dominated by practicing physicians

18. How Are CINs Organized and Governed? • Boards, Committees and Officers • Multiple layers of governance are common • Board of directors (or equivalent) reflects the “balance of power” but is usually physician-led • Class voting, super-majority voting requirements and reserved powers are combined to forge a sustainable compact between the hospital and physicians • Boards set policy and make strategic decisions, but committees are where most work is done • Officer positions are shared among different interest groups, but usually tip in favor of physicians

19. Specific Plan Requirements Risk adjustment of payments - both ACA and Medicare Advantage Medical Loss Ratio Reporting Quality of Care requirements Requirement for Accreditation Mandatory Stars measures HEDIS measures

20. Risk Adjustment CMS payments to Medicare Advantage Organizations are risk adjusted. Acuity and health needs of the members from Plan data is used Higher payments for those who are institutionalized, have chronic conditions such as diabetes, COPD, heart conditions, and HIV/AIDS Metal plans under ACA will be “risk adjusted”. Plans will receive less payment for healthy members than for members with chronic conditions and higher acuity members. With this brings the burden of medical record documentation and Plan need to both access records & data.

21. ACA Risk Adjustment • Developed using commercial data; • Like MA, uses hierarchical condition categories (HCC) grouping logic, but refined for commercial population; • Risk adjustment models for the metal plans (bronze, silver, gold, platinum & catastrophic); • Adjusts payment transfers for plan metal levels, geographic rating areas, induced demand, & age rating, so reflects health risk; • Funds are transferred between Plans within a risk pool within a market in a State.

22. Medical Loss Ratios 85% for large group market 80% for small groups and individual market Incurred claims-claims for “medical services” Administrative services and profits are in the 15-20% amount left Refunds to members, and employers if MLRs are not met.

23. MLRs for MA Plans • In 2014, will now apply to MA Plans, both Parts C and D • If the MLR requirements are not met 3 consecutive years, MA Plans face a penalty of not enrolling new members for 1 calendar year. • If MLRs are not met for 5 consecutive years, CMS will terminate the MA Plan’s contract.

24. MLRs and Provider Relationships Type and structure of the contractual relationship will matter. Capitation to a Physician Group- will be an incurred claim, even though a small amount will be administrative services Capitation to a vendor who contracts the network, credentials, claims payment, and provides UM activities- part of payment for medical services will be incurred claim, rest will count as administrative

25. Reporting Data • Administrative Services: • Credentialing • Contracting • Claims payment • Administering grievances and appeals • Administering prior authorization • Reporting: • Aggregate amount for medical services= incurred claims • Aggregate amount for administrative services • Activities that are for “quality”

26. Quality of Care Activities Improve health quality and outcomes, reduce health care disparities for specific populations, use of evidenced base medicine; Activities designed to improve health outcomes, reduce readmissions, activities focused on discharges Activities to improve safety, reduce medical errors, lower infections, mortality rates; and Activities to promote and increase wellness and health activities.

27. What Qualifies as a Quality Activity? • QUALITY: • Blood glucose monitoring • Medication adherence programs • Discharge planning • Case management-make appointments, verify attended appt. • CHAPS, and HEDIS reporting • Prospective prescription drug UR to ID potential drug abuse interactions; • Prevent hospital readmits & • ID & document clinical errors, and safety concerns. • NOT: • Pure Data collection • Updating processing systems • Marketing expenses • Provider credentialing • Negotiate, maintain and execute contracts • FWA detection (accept for recoveries) • Hotlines • Activities to control costs • Retrospective and concurrent reviews.

28. IPAs, PHOs, AND ACOs • Four Factor Test: • Contract with issuer to deliver, provide, or arrange for clinical services to enrollees; • At financial risk for delivery, provision or arrangement of specific clinical services; • Clinical services provided thru system of integrated care & provides for care coordination, sharing of clinical info, provider performance reviews, track clinical outcomes, evidence based guidelines uses etc. • Functions other than clinical services that are in the payment are reasonably related or incident to the clinical services and are performed by entity or behalf of entity’s providers.

29. Accreditation and Quality States and the feds (CMS & ACA) require accreditation Exchange plans must be accredited-NCQA Evaluation of the Plan’s QA plans and activities Assessment of availability of practitioners in network and meeting of member needs- PCPs, specialists, behavioral healthcare providers, geographic distribution Member satisfaction with Plan and care Complex case mgmt. & disease mgmt. Summary: Providers affect the accreditation and scores a Plan achieves.

30. HEDIS Precursor to Stars The Health Care Effectiveness Data and Information Set Plans use HEDIS to assess themselves, set goals, improve, part of accreditation measures (the scores) Now is central component of Stars

31. Star Measures Measures for enrollee experience, care provided, Plan structure and success, and enrollee outcomes CMS also expects it to drive Plans’ use of providers who will deliver high quality services. ACA and the CMS demo program (2012-14) have quality bonus payment (QBP) for at least 3 Star with demo and 4 Star with ACA. HEDIS measures used but weighted differently Stars focuses on: 1) improving beneficiary health; 2) enrollee experience and survey- CHAPS, complaint tracking by CMS, call center audit; & 3) CMS data and other data- ex. IRE data, CMS, Medicare plan finder, MARx

32. Stars Con’t 3 Star or above can receive additional payments, QPB for 4 Star and higher in 2014 Measures 2 years behind- 2011 for 2013 Over 50 measures Examples- breast and cholesterol screening, BMI assessment, blood sugar and cholesterol controlled, annual flu vaccine, improve or maintain mental health, osteoporosis mgmt. if hx fx, reduce risk falling, kidney disease monitoring, getting appts quickly, customer service, complaints about the Plan, those choosing to leave the Plan, timely appeals decisions, high risk med mgmt. , medication adherence for DM, high blood pressure, and hypertension

33. HEDIS & Stars Financial impact and accreditation impact to Plans Provider care and services will affect scoring Documentation- lack thereof or thoroughness will affect Plans Familiarity with measures or Plan’s use of metrics with providers will aid Plans’ scoring With Stars, high Stars measures bring increased reimbursement, will make up for reduced CMS reimbursement Use of EMRs can help with the documentation Importance of patient mgmt., readmission prevention, use of case mgmt., and handling of chronic patients all the more importance

34. Plan Issues and Considerations for CIE Clinical integration/meet FTC requirements Structure of CIE; who is in charge, day to day mgmt., set up of committees Physician involvement and participation, role, involvement in EBGs/metrics, contribution to participate How are providers/participants bound, i.e. contractual terms and their commitment to quality and cost reduction? What resources are placed into the CIE? Who is financing?

35. CIE Con’t What services will be provided? Are there already established evidenced based guidelines, metrics, performance standards? Willingness to follow the Plan’s? Familiarity with HEDIS, Stars, CMS requirements, ACA requirements Use of EMRs, documentation standards Ability to provide reports- satisfaction, costs, MLR, care Payment schemes vary-FFS, shared savings, P4P, bundling, partial risk, capitation What Plan products will the contract apply to? Commercial only? Government? Mix?

36. How Do CINs Improve Clinical and Financial Outcomes? • Proper use of comprehensive physician performance data sets (e.g., EMRs, billing records, scheduling records, CMS core measures, co-management reports) • What these data sets tell us: • General performance (LOS, cost per case, patient volumes) • Hospital utilization (pharmacy, imaging, lab, supplies) • Quality outcomes (readmissions rates, complication rates, mortality rates) • Hospital charges vs. rates • Other performance measures (e.g., patient satisfaction, comparison with evidence-based medical protocols)

37. How Do CINs Improve Clinical and Financial Outcomes? • Establishing practice protocols, performance metrics and other standards • Physicians must collaborate and agree to protocols, etc. that minimize variation in care • Physicians need a better understanding of how their decisions impact care • The organizational structure of the CIN must empower those who conform with these evidence-based protocols • Physician training is critical to success

38. How Do CINs Improve Clinical and Financial Outcomes? • Developing effective performance-based incentives • Outcome-based compensation is about to become the norm • Even in a FFS environment, a CIN can use economic incentives to encourage best practices • The use of incentive funds remains the best way to overcome the deficiencies of the traditional FFS system • Outstanding questions (how much incentive; group v. individual; use of non-monetary incentives)

39. What Are the Major Regulatory Hurdles to CIN Development? ANTITRUST Generally Independent, competing providers’ joint negotiation of fees through a CIN may raise antitrust concerns. The Federal Trade Commission (“FTC”) has not identified specific criteria to provide a safeharbor for providers clinically integrating and engaging in joint contracting, but has provided some guidance through statements and advisory opinions.

40. Background on the Antitrust Laws • Basis is Section 1 of the Sherman Act • Two methods of analysis under Section 1 of the Sherman Act  • Per Se Rule: certain conduct, including agreements by horizontal competitors to fix prices and allocate markets, is deemed so egregious and lacking in redeeming value that it is per se illegal; and • Rule of Reason: conduct is subject to a fact-intensive analysis that takes into account the reason for the restraint and its effects on competition, both pro-competitive and anticompetitive, resulting in a balancing of the pro-competitive benefits of the arrangement against its anticompetitive results.

41. Background on the Antitrust Laws • If a court identifies a particular restraint on trade, the arrangement will automatically be declared unlawful. • Agreements to fix prices or divide up a market among competitors have been declared unlawful under the Per Se Rule. • Section 2 of the Sherman Act prohibits monopolization, attempts to monopolize and conspiracies to monopolize. • Section 7 of the Clayton Act prohibits acquisitions of stock or assets if their effect “may be substantially to lessen competition, or to tend to create a monopoly.”  • This has been construed to apply to the formation of joint ventures between actual or potential competitors.

42. How to Avoid Antitrust Liability When Participating in a Physicians Network - the Do’s and Don’t’s • DO exchange information which is reasonably necessary for the development or operation of the CIN • DO develop written agenda for every meeting and stick to it • DO keep good minutes of what was discussed and what was not discussed • DO use an outside third party to collect and manage competitive information • DO appoint a neutral facilitator to oversee meetings and to ensure that you are not engaging in illegal conduct • DO consult with legal counsel when in doubt • DO discuss the procompetitive reasons for the CIN: • How the Network will enhance patient care in the service area • How the CIN will create efficiencies that will make care more accessible and competitive • How healthcare is changing and how you want your medical community to be responsive to any changes

43. How to Avoid Antitrust Liability When Participating in a Physicians Network - the Do’s and Don’t’s • DON’T discuss or agree with a competitor to raise, lower, or otherwise fix a price (this includes talking about your current or expected prices or those of other providers) • DON’T share fee schedules or market share data (certain cost data may be shared but only after it has been reviewed by legal counsel) • DON’T discuss limiting the amount of care you provide to any individual or group • DON’T compare or otherwise discuss contract negotiations you’ve had with third parties or what you believe are the contract terms other providers have received • DON’T discuss ways to eliminate or reduce competition in your market, such as the exclusion of particular providers or health systems • DON’T refuse to deal with anyone (payors or providers) – you can always reject their offers, but you can’t systematically boycott them • DON’T discuss or agree to divide or allocate markets or patients

44. Provider Network Statements, Analysis and Advisory Opinions • 1996 Joint United States Department of Justice and FTC Statements of Antitrust Enforcement Policy in Health Care – Statements 8 and 9 (the “Statements”)  • Clinical integration of physician or multi-provider networks could lead to significant enough efficiencies to obtain Rule of Reason treatment, despite the absence of sufficient financial risk sharing. • Risk-sharing networks and clinically integrated networks are automatically evaluated under the Rule of Reason. 44

45. Provider Network Statements, Analysis and Advisory Opinions • Substantial financial risk sharing factors include • Capitated contracts between the network and health plans; • Where the network creates significant financial incentives for its providers to meet cost containment goals; • Where provider reimbursement is based on a percentage of health plan premiums or revenues; • Where overall cost or utilization goals are established and subsequent financial rewards or penalties apply to those goals; and • Where the network has global or all inclusive case rates. 45

46. Provider Network Statements, Analysis and Advisory Opinions • Substantial clinical integration factors: • Establishing mechanisms to manage utilization and to control costs and ensure quality; • Selectively choosing network participants who are likely to further efficiency objectives; and • Investments in resources needed to realize the network’s efficiencies. 46

47. Provider Network Statements, Analysis and Advisory Opinions MedSouth Independent Practice Association (“IPA”) Advisory Opinion: although the participating physicians constituted over 50% of the physicians with admitting privileges at the hospitals in the service area, the FTC concluded that the network would be unlikely to raise antitrust concerns due to the non-exclusive nature of the network and the presence of other efficiencies.  • 3 goals of MedSouth IPA:  • Coordinate its participants’ delivery of care services; • Implement a clinical resource management program with clinical information sharing, development and implementation of clinical protocols, and oversight and monitoring of performance against pre-established benchmarks; and • Negotiate with payors as a network of collaborating physicians to improve quality and integrate physician services and efficiency tools. • Tools • A web-based clinical data record system; • Create, adopt, implement and monitor clinical practice protocols; • Impose performance goals on participants relating to service quality and utilization. Each physician would be required to  • Contracting: Negotiate fee-for-service rates with commercial managed care payers on a non-exclusive basis. 47

48. Provider Network Statements, Analysis and Advisory Opinions Greater Rochester IPA Advisory Opinion: the FTC concluded that the proposed IPA would involve substantial integration among the physician participants that had the potential to produce significant efficiencies and that joint contracting, even if it resulted in higher rates, was reasonably related to the IPA’s planned integration and efficiencies. • Implemented practice guidelines and quality benchmarks. • Monitored individual and collective performance in applying the guidelines and achieving benchmarks. • Used an electronic clinical-information system through which participants would share clinical information related to their common patients, order prescriptions and lab tests electronically, and access patient information from hospitals and ancillary providers throughout the community. 48

49. Provider Network Statements, Analysis and Advisory Opinions TriState Health Partners Advisory Opinion: the FTC approved a clinical integration program established by a physician-hospital organization.  • Although participation was generally very open to physicians, the number of requirements imposed on participants appeared to be designed to limit participation to those who would be fully committed to the network. • Substantial investment of time and effort and some, although modest, financial investment in the network by participants was present. • Infrastructure was put into place to foster increased interaction and cooperation among participants to achieve efficiencies including a health information technology system, clinical practice guidelines, monitoring of physician performance targets and policies and procedures related to utilization management, case management and disease management. • Measurement and evaluation of physician performance was deemed important, although the FTC noted that the network’s systems for doing so had yet to be fully developed. 49

50. Provider Network Statements, Analysis and Advisory Opinions Norman Physician Hospital Organization Advisory Opinion: on February 13, 2013, the FTC approved a multiprovider network consisting of hospitals and physicians engaging in joint contracting with third-party payors. • Participating physicians will integrate their clinical services by: • They will use 1 form of EHR • Unique physician governance structure for all physicians • Network-wide practice guidelines • Primary goal: increase efficiency and reduce cost • No restriction on individual providers to contract directly with payers that don’t contract with Norman PHO