Session 64 Panel Discussion: Risk-Sharing Arrangements in ......This presentation is intended for...

Session 64PD, Risk-Sharing Arrangements in Medicare Advantage

Presenters: Adam J. Barnhart, FSA, MAAA

Hillary H. Millican, FSA, MAAA Simon J. Moody, FSA, MAAA

SOA Antitrust Disclaimer SOA Presentation Disclaimer

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26 JUNE 2018

Simon Moody, FSA, MAAAPrincipal and Consulting Actuary

Hillary Millican, FSA, MAAAConsulting Actuary

Adam Barnhart, FSA, MAAAConsulting Actuary

Session 64PD –Risk-Sharing Arrangements in Medicare Advantage

2

Caveats and Limitations

This presentation is intended for the sole benefit of the attendees of the 2018 SOA Health Meeting session entitled “Risk-Sharing Arrangements in Medicare Advantage” as presented on June 26, 2018, and should not be distributed, in whole or in part, to any external party without the prior written permission of Milliman. We do not intend this information to benefit or create a legal liability to any third party, even if we permit the distribution of this information to such third party.

This presentation is designed to discuss trends and considerations for risk-sharing arrangements in Medicare Advantage. This information may not be appropriate, and should not be used, for other purposes.

Simon Moody, Hillary Millican, and Adam Barnhart are members of the American Academy of Actuaries and meet the qualification standards for performing the analyses discussed in this presentation.

In preparing this information, we relied on information provided by CMS and accepted it without audit. Results and conclusions in this presentation may not be appropriate if this information is not accurate.

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Private Health PlanInsurer

Federal or StateGovernment

Healthcare Provider Consulting Firm Academia SOA Other

What best describes the area of the health industry you work in?

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Agenda

Introduction Provider Perspective Driving Forces for Risk Sharing in MA Provider Considerations for Deal Structures Percent of Premium Cost Target Setting Quality and Other Incentives

Part D in Risk Sharing Agreements Structure Options Challenges Health Plan and Provider Perspectives

Related Parties Recap

9

What are risk-sharing arrangements?

Provider has set metrics to achieve, and if they do so they get a financial reward Commonly, a financial target is set as a percentage of health plan revenue. The performance year’s actual costs for the population are compared to the target, to determine

the aggregate savings or losses. The “savings” (the difference between target and actual costs) accrued to the health plan is

shared with providers.

The Provider Perspective

Driving Forces

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Building on the Medicare ACO MomentumSignificant growth in Medicare ACOs

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

100

200

300

400

500

600

2013 2014 2015 2016 2017 2018

Medicare Shared Savings Program

Number of ACOs Assigned Beneficiaries (millions) 1 1+ 2 3 NextGen

13

Revenue EnhancementCommercial populations are shrinking; Medicare is growing

Volume play – the Medicare population is growing, and Medicare Advantage (MA) is growing faster than traditional Medicare Joint Ventures Own your own health plan Co-branded products Provider Specific Plans

Coding opportunity Don’t have to reduce utilization (revenue) to generate savings Many plans will support and contribute to coding improvement

initiatives

Many MA agreements include payments that are not at risk or have minimum risk Some quality performance or efficiency metrics are additional PMPM payments Contributions to care management and clinical integration

14

Push from Medicare Advantage Plans

Natural extension from commercial shared savings / shared risk reimbursement agreements for many carriers

Well-structured MA risk-based reimbursement contracts can provide significant competitive advantages for MA plans Improved Stars and quality metrics Risk score enhancement Utilization management and lower costs

Full risk capitation reduces risk based capital requirement

19%23%

56%

2%

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50%

60%

Yes, providers will be sure tochase that 5% bonus

No, providers do not liketaking risk

Not sure, could go either way What’s MACRA

Will MACRA incent more providers to take downside risk on MA?

17

MACRA and the Quality Payment ProgramAdvanced APM track has potential advantages over MIPS

18

MACRA and the QPP (cont.)Advanced APM track: Qualifying Participant Thresholds

MA is considered an ‘Other Payer’ in the current qualifying participant formula

Patient Count Method

Payment YearMedicare Option All-Payer Combination Option (must meet both Medicare FFS and all patients)

Medicare FFS (partial)

Medicare FFS (qualified)



All Patients (partial)

All Patients (qualified)

2019-20 10% 20% Medicare Option only in these years2021-22 25% 35% 10% 20% 25% 35%2023+ 35% 50% 10% 20% 35% 50%

Payment Amount Method

Payment YearMedicare Option All-Payer Combination Option (must meet both Medicare FFS and all patients)





All Patients (partial)

All Patients (qualified)

2019-20 20% 25% Medicare Option only in these years2021-22 40% 50% 20% 25% 40% 50%2023+ 50% 75% 20% 25% 50% 75%

Provider Considerations for Deal Structures

20

Special Medicare Advantage Considerations

Opportunity to increase premium revenues through enhanced risk scores and Star ratings has significant impacts on contract structures

High degree of regulation over MA bid process provides consistent platform for negotiations with different carriers

Must monitor impact of MA processes on plan’s revenues Reasonable to have upside only risk for two or three years at start of initial contract, with two

sided risk following the initial transition period Need to consider who is included and excluded e.g., SNPs, EGWPs, PDPs Reporting from carriers for MA agreements is typically significantly better than their reporting for

commercial agreements

21

Cost Target Methodology

Most common to use percentage of total premium as basis for cost targets Included services typically based on services included in bid Carve-outs are less common under these agreements and are often limited to Rx and / or

additional benefits not provided by most health systems (optometry, dental, OTC drugs, etc.) Carrier will often include certain administrative costs which may or may not qualify as “medical

costs” under Medical Loss Ratio (MLR) rules Providers will typically look to exclude other incentive payments from medical costs used as

basis for settlement

Percentage of Premium Cost Target Setting

23

Percent of Premium Considerations

Generally, providers have greater risk for factors which they cannot influence if percentage of premium cost targets are used

MA percentage of premium risk models have some mitigating factors which may make them more attractive

It is important to carefully review the adequacy of the percentage of premiums used to develop cost targets under these arrangements

It is also important to monitor annual changes which may affect the premium revenues Cost target developed for each product grouping based on contracted percentage of premium MA shared risk “MLR” targets usually range between 83% and 88% of premium revenues for

individual products (but increasingly seeing lower proposed targets)

24

Other Considerations

Risks for high cost members and uncontrollable, high cost events may be removed via reductions in PMPM revenues

Must structure agreement to ensure cut-off period includes all material CMS revenue adjustments (typically up to 12 months)

Must reduce risk of adverse adjustments to revenue resulting from actions of other providers identified by CMS or carrier audits

Quality and Other Incentives

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MA Quality Overview

MA quality measurements have significant differences from commercial quality structures. CMS provides additional revenue for higher quality via Star ratings Most MA plans use measures included by CMS as part of Star rating process as the basis for

their quality incentives Immediate and delayed impacts of quality improvements

27

Quality Adjustment Strategies

Strategies to ensure reasonable quality structures are generally the same as those used for similar commercial structures

Most negotiations focus on elements which determine the financial impact of quality performance Quality gate structure Surplus / deficit adjustments or separate PMPM bonus Magnitude of adjustment / payment Structure for determining amount of payment Ability to influence components established by CMS is usually limited Included measures Definitions and thresholds Weighting of measures

28

Other Potential Incentives and Payments

Infrastructure payments Fairly common to include some form of infrastructure support May have to meet limited performance criteria to qualify Payments typically range from $3.00 to $8.00 PMPM

Targeted utilization incentives Included to provide some focus on managing cost of care Typically based on 1-5 measures with limited financial incentives May include penalties if do not pass any of the measures

Other incentives include payments for annual wellness visits, health assessments, coding seminar attendance, and other mutually beneficial activities

Part D in Risk Sharing AgreementsStructure Options and Challenges

19% 19%21%

33%

8%

0%

5%

10%

15%

20%

25%

30%

35%

I don’t have a capitation agreement

Yes, my agreementincludes Part D

No, my agreement doesnot include Part D

I work with multipleagreements, some of

which include Part D andsome do not

I’m not sure

Does your capitation agreement include Part D?

3 Ways to Structure

1. Part C and D set to combined percentage of revenue Adjust both the Part C and Part D BPTs

Iterative DIR in bid

Actual experience will be “trued up” to the capitation during the Part D settlement

32

3 Ways to Structure

2. Part D set to percentage of revenue Iterative DIR in bid

Actual experience will be “trued up” to the capitation during the Part D settlement

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3 Ways to Structure

3. Part D capitation equal to percent of revenue reflected in Part D bid Part D capitation = Net drug costs less estimated direct and indirect remuneration

Part D at-risk revenue times Part D risk score

Target loss ratio “floats” each year

No adjustment in bid

“True up” the actual experience to the bid loss ratio during the Part D settlement

Recommended option because it’s administratively simple (“true up” only occurs once)

34

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Part D Challenges

Timing of Part D settlements CMS Risk Corridor DIR Estimation and Reporting Interactions with Part C Provider Perspective Health Plan Perspective

36

Timeline

In addition to containing many components, the Part D revenue stream also has a long and complex timeline, as illustrated in the following table:

37

Reinsurance, LICS, and CGDP Subsidies

“Pass through” items that are ultimately reconciled with CMS and the manufacturers. The plan sponsor is therefore not at risk for these revenue components. Arrangements should consider: Should these subsidies be included in the risk-sharing arrangement? If yes: How will the revenue and claims experience be allocated among the population subsets? For example, if a provider

group has a disproportionate share of claimants with high Part D costs, the results of the provider group-specific reinsurance settlement will be different from the settlement for the overall plan. How will these be estimated prior to the final settlement?

Given the complexities, most agreements do not include these items.

38

CMS Risk Corridor

Part D is already a risk-sharing arrangement between the plan sponsor and CMS The plan sponsor’s risk is already lessened via the risk

corridor.

This calculation is done at the benefit plan level A risk-sharing arrangement between a plan sponsor and

provider may include entire benefit plans or a subset of membership in one or more benefit plans.

Risk sharing on plan profit Admin and profit excluded Incentive to bid close to actual If receiving risk sharing from CMS, a closer bid could

have resulted in higher profit

39

CMS Risk Corridor

Impact of settlement by providers other than the providers with the risk contract? If the settlement is included, how does that impact the timing of the determination of shared

savings or losses? To what extent does the Part D risk sharing arrangement impact the plan sponsor’s CMS risk corridor settlement?

Does the contract need to stipulate how to allocate settlement amounts in the risk corridor calculation for a subset population?

How is the gain/loss for a plan allocated across different at-risk populations?

40

Rebates and Other DIR

Rebates are not tracked at the member level Rebate revenue can vary dramatically by plan sponsor. Providers should consider the following questions regarding rebates: Have rebates been included in calculation of the target amount? Are they treated as claim offsets or as

revenue? If rebates are considered revenue, are rebates shared with providers at the same percentage as other

revenue or passed through to providers? Given that rebates are often paid in aggregate (across contracts or plans), how will rebates be allocated

to members covered in the risk-sharing arrangement? Rebates from both manufacturers and pharmacies can be subject to separate risk-sharing

arrangements (such as those based on volume or a generic dispensing rate). In what order are the various risk-sharing contracts settled, and do any of them present conflicting interests? For example, a manufacturer may give a higher rebate for a larger volume of a more expensive drug. Will the shared risk arrangement with the provider take into account these larger rebates?

How will the portion of rebates shared with the federal government be applied to the provider’s share of rebates?

41


Pharmacy DIR Payers may have separate risk sharing arrangements with pharmacies These arrangements may or may not align with provider arrangement Common arrangements include: Volume based GDR Adherence Quality

42


DIR Reporting Risk-sharing arrangements require significant additional administrative efforts for the plan sponsor’s

reporting to CMS. If payments to providers are expected to differ from the actual cost of providing the Part D benefit, then

the plan sponsor is required to report the difference as Direct and Indirect Remuneration (DIR) in their annual bid developments.

A plan does not retain the full gain or loss from the provider in the bid, but shares it with CMS. This creates challenges in the bid, particularly if the risk-sharing arrangement is based on a percentage of revenue.

Timing of the DIR reporting also presents administrative challenges.

37% 37%

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Yes No Unsure

Does a provider have enough control over Part D costs such that risk sharing on Part D makes sense?

45

Part D Interactions with Part C

Is it appropriate to use the same loss ratio target for Parts C and D? For example, populations may have high pharmacy costs but low medical costs, or vice versa.

Is the settlement of a risk-sharing contract done in aggregate for Part C and Part D combined, or are they settled separately?

If the contract is settled in aggregate, how is the settlement allocated between both parts? How does the allocation between Part C and D impact the existing Part D risk-sharing

mechanism with CMS?

46

Other Complexities Of Including Part D InRisk-sharing Arrangements How will sequestration be handled? Payments from CMS (including the Part C capitation, Part

D direct subsidy, and rebates allocated from Part C to buy down the Part D premium) are reduced for sequestration.

Will the Health Insurer Provider Fee be included as a revenue offset? On what year will the insurer fee be based?

How will multiple risk-sharing arrangements for different provider groups within the same plan interact and impact the financial target for each provider group?

47

Partial Capitation

Examples: Providers may only take risk on counties they serve Providers may only take risk on members they serve Providers only take risk on certain services

Increases complexity of bid calculations and settlement Many provider Part D considerations still remain

Part D in Risk Sharing AgreementsProvider and Health Plan Perspectives

49

Provider Perspective

Part D benefit design and high current generic use limits savings opportunity Formulary is outside of provider control, and typically designed to reduce unnecessary spend

=> further limits opportunity Increasing uncertainty in Part D e.g., pipeline drugs, utilization and inflation trends Rebates impact revenue, are outside of provider control, and are driven by total plan utilization

which is influenced by prescribing practices of other providers Data/information exchange difficult (e.g., PDE files, rebate information, settlements)

50

Health Plan Perspective

Lessens or eliminates risk corridor protection from CMS, particularly relevant if sharing risk with a provider owner (keeps the risk within the organization)

Bid development and settlement is more complicated Sharing risk with provider brings on greater potential of discussing provider settlements during

CMS audit If providers lose money, could damage health plan/provider relationship

51

Illustrative 2017 Part D Settlement Example

GDCB $11,000,000GDCA $5,000,000 2017 Part D Settlement Scenarios

No CapitationTrue Up to Capitation

A. Total Direct and Indirect Remuneration (DIR) $800,000 ($133,333)B. Adjusted DIR Dollars for Non-Covered Drugs $0 $0C. Adjusted DIR Dollars for Covered Drugs (DDIR) $800,000 ($133,333)D. Reinsurance Subsidy Revenue (Zero if Non-CY EGWP) $3,000,000 $3,000,000E. DIR Ratio 0.313 0.313F. Reinsurance DIR (Zero if Non-CY EGWP) $250,000 ($41,667)G. Allowable Reinsurance (Zero if Non-CY EGWP) $4,750,000 $5,041,667H. Reinsurance Subsidy $3,800,000 $4,033,333I. Reinsurance Settlement Received from or (Refunded to) CMS $800,000 $1,033,333J. Low Income Cost Subsidy (LICS) Revenue $800,000 $800,000K. Actual Member Cost Sharing Covered by CMS $850,000 $850,000L. LICS Settlement Received from or (Refunded to) CMS $50,000 $50,000

M. Basic Member Premium and Direct Subsidy Revenue $6,000,000 $6,000,000N. Administration Load and Profit Margin in Premium 15.00% 15.00%O. Target Amount $5,100,000 $5,100,000P. Unadjusted Risk Corridor Costs (URCC) $9,000,000 $9,000,000Q. Induced Utilization Ratio 1.000 1.000 R. Adjusted Allowable Risk Corridor Costs (AARCC) $4,400,000 $5,100,000S. Profit / (Loss) Amount Used for Risk Sharing Calculation $700,000 $0T. Profit / (Loss) Amount as a Percent of Target Amount 13.73% 0.00%U. Loss Sharing Received from or (Profit Sharing Refunded to) CMS ($279,500) $0V. Total 2016 Settlements Received from or (Refunded to) CMS $570,500 $1,083,333

Revenue $6,000,000 $6,000,000Net Claims $4,400,000 $5,100,000Loss Ratio 73.3% 85.0%

Target Loss Ratio N/A 85.0%

Change in Settlement Gain (Loss) $512,833

Exhibit X

Purpose: Illustrate impact of Part D cap

Source: 2016 Part D Settlement tab of client summariesP:\PHI_Data\IUH-PHI\2018 Medicare Bids\Work Files\PEST\2017-04-20\PEST v2018.3 - Client Summaries - No Reclass.xlsb

Prepared by: Millican

Checked by: Kroening

Date checked: 5/4/17

Exhibit X

Indiana Health Plan

Illustrative 2016 Part D Settlement Scenarios

H7220-003

GDCB$15,605,1212016 Part D Settlement Scenarios

GDCA$9,107,588Scenario 1Scenario 2Scenario 32016 Bid values

Actual Experience Actual Experience Lower Than TargetActual Experience Higher Than TargetCheck

Hillary Millican: Hillary Millican:Values will only be zero if you paste the values in the table to the right into the Settlement Inputs tabSupplemental Premium(2)Target Amount Adjustment(2)Rebate (% of Allowed)Induced Util(3)

A.Total Direct and Indirect Remuneration (DIR)$1,194,488$793,743

Hillary Millican: Hillary Millican:Goal seeked row 43 to be target loss ratio in row 45 by changing row 18$5,255,691

Hillary Millican: Hillary Millican:Goal seeked row 43 to be target loss ratio in row 45 by changing row 18

Hillary Millican: Hillary Millican:Values will only be zero if you paste the values in the table to the right into the Settlement Inputs tabEstimated as 100% of rebates and Capitation "True Up"($288,275)H7220-003$18.200.81634.8%1.055

B.Adjusted DIR Dollars for Non-Covered Drugs$0$0$0A x (Gross "E" Costs / (Gross "E" Costs + GDCB + GDCA))$0H7220-004$26.800.79676.0%1.067

C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,194,488$793,743$5,255,691A - B($288,275)

D.Reinsurance Subsidy Revenue (Zero if Non-CY EGWP)$7,971,422$7,971,422$7,971,422Part D reinsurance subsidy amount from MMR files$0

E.DIR Ratio0.3690.3690.369GDCA/(GDCA + GDCB)$0

F.Reinsurance DIR (Zero if Non-CY EGWP)$440,169$292,494$1,936,722E x C($106,229)

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,667,419$8,815,094$7,170,866GDCA - F$106,229

H.Reinsurance Subsidy$6,933,936$7,052,075$5,736,693G x 80%$84,983

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,037,486)($919,347)($2,234,729)H - D$84,983

J.Low Income Cost Subsidy (LICS) Revenue$2,915,646$2,915,646$2,915,646Part D LICS amount from MMR files$0

K.Actual Member Cost Sharing Covered by CMS$2,563,553$2,563,553$2,563,553LICS$0

L.LICS Settlement Received from or (Refunded to) CMS($352,093)($352,093)($352,093)K - J$0

M.Basic Member Premium and Direct Subsidy Revenue$9,159,829$9,159,829$9,159,829Basic Part D premium and direct subsidy from MMR files$0

N.Administration Load and Profit Margin in Premium18.37%18.37%18.37%Administration and profit load from Bid$0

O.Target Amount$7,477,168$7,477,168$7,477,168M x (1 - N)($766,678)

P.Unadjusted Risk Corridor Costs (URCC)$15,732,827$15,732,827$18,879,392CPP$0

Q.Induced Utilization Ratio1.0551.0551.055Induced Utilization Ratio from Bid$0

R.Adjusted Allowable Risk Corridor Costs (AARCC)$7,206,599$7,474,420$7,474,420(P - H - C) / Q($194,513)

S.Profit / (Loss) Amount Used for Risk Sharing Calculation$270,569$2,748$2,748O - R($572,165)

T.Profit / (Loss) Amount as a Percent of Target Amount3.62%0.04%0.04%S / O($0)

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$0$0$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.$220,776

V.Total 2016 Settlements Received from or (Refunded to) CMS($1,389,579)($1,271,440)($2,586,822)I + L + U$305,759

Revenue$9,159,829$9,159,829$9,159,829M

Net Claims$7,206,599$7,474,420$7,474,420R

Loss Ratio78.7%81.6%81.6%R/M

Assume Claims are 20% higher

Target Loss RatioN/A81.6%81.6%Assume 81.6%

DIR + Settlement($195,091)($477,696)$2,668,869A+V

Change in DIR + Settlement$282,605($2,863,960)

&DMilliman

Exhibit 1a

Exhibit 1a

Health Forum Presentation


Example


GDCA$9,000,000Scenario 1Scenario 22016 Bid values

Experience; No CapitationExperience True Up to CapitationSupplemental Premium(2)Target Amount Adjustment(2)Rebate (% of Allowed)Induced Util(3)


Hillary Millican: Hillary Millican:Goal seeked row 36 to be target loss ratio in row 38 by changing row 11Estimated as 100% of rebates and Capitation "True Up"Example$20.000.85005.0%1.000

B.Adjusted DIR Dollars for Non-Covered Drugs$0$0A x (Gross "E" Costs / (Gross "E" Costs + GDCB + GDCA))

C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,200,000$428,571A - B

D.Reinsurance Subsidy Revenue (Zero if Non-CY EGWP)$8,000,000$8,000,000Part D reinsurance subsidy amount from MMR files

E.DIR Ratio0.3750.375GDCA/(GDCA + GDCB)

F.Reinsurance DIR (Zero if Non-CY EGWP)$450,000$160,714E x C$289,286Less rebates, share less with CMS

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,550,000$8,839,286GDCA - F($289,286)

H.Reinsurance Subsidy$6,840,000$7,071,429G x 80%($231,429)Less rebates, more claims subject to reinsurance, higher reinsurance subsidy

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,160,000)($928,571)H - D($231,429)Higher reinsurance payment, lower reins settlement

J.Low Income Cost Subsidy (LICS) Revenue$3,000,000$3,000,000Part D LICS amount from MMR files

K.Actual Member Cost Sharing Covered by CMS$2,800,000$2,800,000LICS

L.LICS Settlement Received from or (Refunded to) CMS($200,000)($200,000)K - J

M.Basic Member Premium and Direct Subsidy Revenue$10,000,000$10,000,000Basic Part D premium and direct subsidy from MMR files

N.Administration Load and Profit Margin in Premium15.00%15.00%Administration and profit load from Bid

O.Target Amount$8,500,000$8,500,000M x (1 - N)

P.Unadjusted Risk Corridor Costs (URCC)$16,000,000$16,000,000CPP

Q.Induced Utilization Ratio1.0001.000Induced Utilization Ratio from Bid

R.Adjusted Allowable Risk Corridor Costs (AARCC)$7,960,000$8,500,000(P - H - C) / Q

S.Profit / (Loss) Amount Used for Risk Sharing Calculation$540,000$0O - R

T.Profit / (Loss) Amount as a Percent of Target Amount6.35%0.00%S / O

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS($57,500)$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.

V.Total 2016 Settlements Received from or (Refunded to) CMS($1,417,500)($1,128,571)I + L + U

Revenue$10,000,000$10,000,000M

Net Claims$7,960,000$8,500,000R

Loss Ratio79.6%85.0%R/MLoss ratio too low, will need to be raised. Rebates lowered.

Target Loss RatioN/A85.0%

Change in Settlement Gain (Loss)$288,929

&DMilliman

Exhibit 1b

Exhibit 1b



Example



Assume Claims are 10% Higher and no capitationAssume Claims are 10% Higher; True up to capitationCheck


A.Total Direct and Indirect Remuneration (DIR)$1,200,000$2,714,286


Hillary Millican: Hillary Millican:Values will only be zero if you paste the values in the table to the right into the Settlement Inputs tabEstimated as 100% of rebates and Capitation "True Up"$0Example$20.000.85005.0%1.000

B.Adjusted DIR Dollars for Non-Covered Drugs$0$0A x (Gross "E" Costs / (Gross "E" Costs + GDCB + GDCA))$0

C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,200,000$2,714,286A - B$0

D.Reinsurance Subsidy Revenue (Zero if Non-CY EGWP)$8,000,000$8,000,000Part D reinsurance subsidy amount from MMR files$0

E.DIR Ratio0.3750.375GDCA/(GDCA + GDCB)$0

F.Reinsurance DIR (Zero if Non-CY EGWP)$450,000$1,017,857E x C$0

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,550,000$7,982,143GDCA - F$0

H.Reinsurance Subsidy$6,840,000$6,385,714G x 80%$0

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,160,000)($1,614,286)H - D$0

J.Low Income Cost Subsidy (LICS) Revenue$3,000,000$3,000,000Part D LICS amount from MMR files$0

K.Actual Member Cost Sharing Covered by CMS$2,800,000$2,800,000LICS$0

L.LICS Settlement Received from or (Refunded to) CMS($200,000)($200,000)K - J$0

M.Basic Member Premium and Direct Subsidy Revenue$10,000,000$10,000,000Basic Part D premium and direct subsidy from MMR files$0

N.Administration Load and Profit Margin in Premium15.00%15.00%Administration and profit load from Bid$0

O.Target Amount$8,500,000$8,500,000M x (1 - N)$0

P.Unadjusted Risk Corridor Costs (URCC)$17,600,000$17,600,000CPP$0

Q.Induced Utilization Ratio1.0001.000Induced Utilization Ratio from Bid$0

R.Adjusted Allowable Risk Corridor Costs (AARCC)$9,560,000$8,500,000(P - H - C) / Q$0

S.Profit / (Loss) Amount Used for Risk Sharing Calculation($1,060,000)$0O - R$0

T.Profit / (Loss) Amount as a Percent of Target Amount-12.47%0.00%S / O$0

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$380,500$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.$0

V.Total 2016 Settlements Received from or (Refunded to) CMS($979,500)($1,814,286)I + L + U$0

Revenue$10,000,000$10,000,000M

Net Claims$9,560,000$8,500,000R

Loss Ratio95.6%85.0%R/MLoss ratio too high, will need to be lowered. Rebates raised.


Change in Settlement Gain (Loss)($834,786)

&DMilliman

Exhibit 2a

Exhibit 2a



Example

GDCB$11,000,000

GDCA$5,000,0002017 Part D Settlement Scenarios

Scenario 1Scenario 22016 Bid values

No CapitationTrue Up to CapitationSupplemental Premium(2)Target Amount Adjustment(2)Rebate (% of Allowed)Induced Util(3)

A.Total Direct and Indirect Remuneration (DIR)$800,000($133,333)



C.Adjusted DIR Dollars for Covered Drugs (DDIR)$800,000($133,333)A - B



F.Reinsurance DIR (Zero if Non-CY EGWP)$250,000($41,667)E x C

G.Allowable Reinsurance (Zero if Non-CY EGWP)$4,750,000$5,041,667GDCA - F

H.Reinsurance Subsidy$3,800,000$4,033,333G x 80%

I.Reinsurance Settlement Received from or (Refunded to) CMS$800,000$1,033,333H - D

J.Low Income Cost Subsidy (LICS) Revenue$800,000$800,000Part D LICS amount from MMR files

K.Actual Member Cost Sharing Covered by CMS$850,000$850,000LICS

L.LICS Settlement Received from or (Refunded to) CMS$50,000$50,000K - J










V.Total 2016 Settlements Received from or (Refunded to) CMS$570,500$1,083,333I + L + U

Revenue$6,000,000$6,000,000

Net Claims$4,400,000$5,100,000

Loss Ratio73.3%85.0%Loss ratio too high, will need to be lowered. Rebates raised.

need to pay provider more to reach loss ratio, so get larger settlement

Target Loss RatioN/A85.0%don't have to pay loss sharing


&DMilliman

Exhibit 2b

Exhibit 2b



Example

GDCB$11,000,000




A.Total Direct and Indirect Remuneration (DIR)$800,000$2,266,667



C.Adjusted DIR Dollars for Covered Drugs (DDIR)$800,000$2,266,667A - B



F.Reinsurance DIR (Zero if Non-CY EGWP)$250,000$708,333E x C



I.Reinsurance Settlement Received from or (Refunded to) CMS$800,000$433,333H - D










S.Profit / (Loss) Amount Used for Risk Sharing Calculation($1,100,000)$0O - R

T.Profit / (Loss) Amount as a Percent of Target Amount-21.57%0.00%S / O

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$599,500$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.

V.Total 2016 Settlements Received from or (Refunded to) CMS$1,449,500$483,333I + L + U

Revenue$6,000,000$6,000,000

Net Claims$6,200,000$5,100,000


pay provider more to reach loss ratio, so get smaller settlement

Target Loss RatioN/A85.0%Lose loss sharing received


&DMilliman

52


GDCB $11,000,000GDCA $5,000,000 2017 Part D Settlement Scenarios

No CapitationTrue Up to Capitation

A. Total Direct and Indirect Remuneration (DIR) $800,000 $2,266,667B. Adjusted DIR Dollars for Non-Covered Drugs $0 $0C. Adjusted DIR Dollars for Covered Drugs (DDIR) $800,000 $2,266,667D. Reinsurance Subsidy Revenue (Zero if Non-CY EGWP) $3,000,000 $3,000,000E. DIR Ratio 0.313 0.313F. Reinsurance DIR (Zero if Non-CY EGWP) $250,000 $708,333G. Allowable Reinsurance (Zero if Non-CY EGWP) $4,750,000 $4,291,667H. Reinsurance Subsidy $3,800,000 $3,433,333I. Reinsurance Settlement Received from or (Refunded to) CMS $800,000 $433,333J. Low Income Cost Subsidy (LICS) Revenue $800,000 $800,000K. Actual Member Cost Sharing Covered by CMS $850,000 $850,000L. LICS Settlement Received from or (Refunded to) CMS $50,000 $50,000

M. Basic Member Premium and Direct Subsidy Revenue $6,000,000 $6,000,000N. Administration Load and Profit Margin in Premium 15.00% 15.00%O. Target Amount $5,100,000 $5,100,000P. Unadjusted Risk Corridor Costs (URCC) $10,800,000 $10,800,000Q. Induced Utilization Ratio 1.000 1.000 R. Adjusted Allowable Risk Corridor Costs (AARCC) $6,200,000 $5,100,000S. Profit / (Loss) Amount Used for Risk Sharing Calculation ($1,100,000) $0T. Profit / (Loss) Amount as a Percent of Target Amount -21.57% 0.00%U. Loss Sharing Received from or (Profit Sharing Refunded to) CMS $599,500 $0V. Total 2016 Settlements Received from or (Refunded to) CMS $1,449,500 $483,333

Revenue $6,000,000 $6,000,000Net Claims $6,200,000 $5,100,000Loss Ratio 103.3% 85.0%

Target Loss Ratio N/A 85.0%

Change in Settlement Gain (Loss) ($966,167)

Exhibit X

Purpose: Illustrate impact of Part D cap

Source: 2016 Part D Settlement tab of client summariesP:\PHI_Data\IUH-PHI\2018 Medicare Bids\Work Files\PEST\2017-04-20\PEST v2018.3 - Client Summaries - No Reclass.xlsb

Prepared by: Millican

Checked by: Kroening

Date checked: 5/4/17

Exhibit X

Indiana Health Plan


H7220-003


GDCA$9,107,588Scenario 1Scenario 2Scenario 32016 Bid values

Actual Experience Actual Experience Lower Than TargetActual Experience Higher Than TargetCheck



Hillary Millican: Hillary Millican:Goal seeked row 43 to be target loss ratio in row 45 by changing row 18$5,255,691


Hillary Millican: Hillary Millican:Values will only be zero if you paste the values in the table to the right into the Settlement Inputs tabEstimated as 100% of rebates and Capitation "True Up"($288,275)H7220-003$18.200.81634.8%1.055

B.Adjusted DIR Dollars for Non-Covered Drugs$0$0$0A x (Gross "E" Costs / (Gross "E" Costs + GDCB + GDCA))$0H7220-004$26.800.79676.0%1.067

C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,194,488$793,743$5,255,691A - B($288,275)

D.Reinsurance Subsidy Revenue (Zero if Non-CY EGWP)$7,971,422$7,971,422$7,971,422Part D reinsurance subsidy amount from MMR files$0

E.DIR Ratio0.3690.3690.369GDCA/(GDCA + GDCB)$0

F.Reinsurance DIR (Zero if Non-CY EGWP)$440,169$292,494$1,936,722E x C($106,229)

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,667,419$8,815,094$7,170,866GDCA - F$106,229

H.Reinsurance Subsidy$6,933,936$7,052,075$5,736,693G x 80%$84,983

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,037,486)($919,347)($2,234,729)H - D$84,983

J.Low Income Cost Subsidy (LICS) Revenue$2,915,646$2,915,646$2,915,646Part D LICS amount from MMR files$0

K.Actual Member Cost Sharing Covered by CMS$2,563,553$2,563,553$2,563,553LICS$0

L.LICS Settlement Received from or (Refunded to) CMS($352,093)($352,093)($352,093)K - J$0

M.Basic Member Premium and Direct Subsidy Revenue$9,159,829$9,159,829$9,159,829Basic Part D premium and direct subsidy from MMR files$0

N.Administration Load and Profit Margin in Premium18.37%18.37%18.37%Administration and profit load from Bid$0

O.Target Amount$7,477,168$7,477,168$7,477,168M x (1 - N)($766,678)

P.Unadjusted Risk Corridor Costs (URCC)$15,732,827$15,732,827$18,879,392CPP$0

Q.Induced Utilization Ratio1.0551.0551.055Induced Utilization Ratio from Bid$0

R.Adjusted Allowable Risk Corridor Costs (AARCC)$7,206,599$7,474,420$7,474,420(P - H - C) / Q($194,513)

S.Profit / (Loss) Amount Used for Risk Sharing Calculation$270,569$2,748$2,748O - R($572,165)

T.Profit / (Loss) Amount as a Percent of Target Amount3.62%0.04%0.04%S / O($0)

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$0$0$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.$220,776

V.Total 2016 Settlements Received from or (Refunded to) CMS($1,389,579)($1,271,440)($2,586,822)I + L + U$305,759

Revenue$9,159,829$9,159,829$9,159,829M

Net Claims$7,206,599$7,474,420$7,474,420R

Loss Ratio78.7%81.6%81.6%R/M

Assume Claims are 20% higher

Target Loss RatioN/A81.6%81.6%Assume 81.6%

DIR + Settlement($195,091)($477,696)$2,668,869A+V

Change in DIR + Settlement$282,605($2,863,960)

&DMilliman

Exhibit 1a

Exhibit 1a



Example



Experience; No CapitationExperience True Up to CapitationSupplemental Premium(2)Target Amount Adjustment(2)Rebate (% of Allowed)Induced Util(3)




C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,200,000$428,571A - B



F.Reinsurance DIR (Zero if Non-CY EGWP)$450,000$160,714E x C$289,286Less rebates, share less with CMS

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,550,000$8,839,286GDCA - F($289,286)

H.Reinsurance Subsidy$6,840,000$7,071,429G x 80%($231,429)Less rebates, more claims subject to reinsurance, higher reinsurance subsidy

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,160,000)($928,571)H - D($231,429)Higher reinsurance payment, lower reins settlement

J.Low Income Cost Subsidy (LICS) Revenue$3,000,000$3,000,000Part D LICS amount from MMR files

K.Actual Member Cost Sharing Covered by CMS$2,800,000$2,800,000LICS

L.LICS Settlement Received from or (Refunded to) CMS($200,000)($200,000)K - J










V.Total 2016 Settlements Received from or (Refunded to) CMS($1,417,500)($1,128,571)I + L + U

Revenue$10,000,000$10,000,000M

Net Claims$7,960,000$8,500,000R

Loss Ratio79.6%85.0%R/MLoss ratio too low, will need to be raised. Rebates lowered.



&DMilliman

Exhibit 1b

Exhibit 1b



Example



Assume Claims are 10% Higher and no capitationAssume Claims are 10% Higher; True up to capitationCheck


A.Total Direct and Indirect Remuneration (DIR)$1,200,000$2,714,286


Hillary Millican: Hillary Millican:Values will only be zero if you paste the values in the table to the right into the Settlement Inputs tabEstimated as 100% of rebates and Capitation "True Up"$0Example$20.000.85005.0%1.000

B.Adjusted DIR Dollars for Non-Covered Drugs$0$0A x (Gross "E" Costs / (Gross "E" Costs + GDCB + GDCA))$0

C.Adjusted DIR Dollars for Covered Drugs (DDIR)$1,200,000$2,714,286A - B$0

D.Reinsurance Subsidy Revenue (Zero if Non-CY EGWP)$8,000,000$8,000,000Part D reinsurance subsidy amount from MMR files$0

E.DIR Ratio0.3750.375GDCA/(GDCA + GDCB)$0

F.Reinsurance DIR (Zero if Non-CY EGWP)$450,000$1,017,857E x C$0

G.Allowable Reinsurance (Zero if Non-CY EGWP)$8,550,000$7,982,143GDCA - F$0

H.Reinsurance Subsidy$6,840,000$6,385,714G x 80%$0

I.Reinsurance Settlement Received from or (Refunded to) CMS($1,160,000)($1,614,286)H - D$0

J.Low Income Cost Subsidy (LICS) Revenue$3,000,000$3,000,000Part D LICS amount from MMR files$0

K.Actual Member Cost Sharing Covered by CMS$2,800,000$2,800,000LICS$0

L.LICS Settlement Received from or (Refunded to) CMS($200,000)($200,000)K - J$0

M.Basic Member Premium and Direct Subsidy Revenue$10,000,000$10,000,000Basic Part D premium and direct subsidy from MMR files$0

N.Administration Load and Profit Margin in Premium15.00%15.00%Administration and profit load from Bid$0

O.Target Amount$8,500,000$8,500,000M x (1 - N)$0

P.Unadjusted Risk Corridor Costs (URCC)$17,600,000$17,600,000CPP$0

Q.Induced Utilization Ratio1.0001.000Induced Utilization Ratio from Bid$0

R.Adjusted Allowable Risk Corridor Costs (AARCC)$9,560,000$8,500,000(P - H - C) / Q$0

S.Profit / (Loss) Amount Used for Risk Sharing Calculation($1,060,000)$0O - R$0

T.Profit / (Loss) Amount as a Percent of Target Amount-12.47%0.00%S / O$0

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$380,500$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.$0

V.Total 2016 Settlements Received from or (Refunded to) CMS($979,500)($1,814,286)I + L + U$0

Revenue$10,000,000$10,000,000M

Net Claims$9,560,000$8,500,000R

Loss Ratio95.6%85.0%R/MLoss ratio too high, will need to be lowered. Rebates raised.



&DMilliman

Exhibit 2a

Exhibit 2a



Example

GDCB$11,000,000




A.Total Direct and Indirect Remuneration (DIR)$800,000($133,333)



C.Adjusted DIR Dollars for Covered Drugs (DDIR)$800,000($133,333)A - B



F.Reinsurance DIR (Zero if Non-CY EGWP)$250,000($41,667)E x C



I.Reinsurance Settlement Received from or (Refunded to) CMS$800,000$1,033,333H - D













V.Total 2016 Settlements Received from or (Refunded to) CMS$570,500$1,083,333I + L + U

Revenue$6,000,000$6,000,000

Net Claims$4,400,000$5,100,000


need to pay provider more to reach loss ratio, so get larger settlement

Target Loss RatioN/A85.0%don't have to pay loss sharing


&DMilliman

Exhibit 2b

Exhibit 2b



Example

GDCB$11,000,000




A.Total Direct and Indirect Remuneration (DIR)$800,000$2,266,667



C.Adjusted DIR Dollars for Covered Drugs (DDIR)$800,000$2,266,667A - B



F.Reinsurance DIR (Zero if Non-CY EGWP)$250,000$708,333E x C



I.Reinsurance Settlement Received from or (Refunded to) CMS$800,000$433,333H - D










S.Profit / (Loss) Amount Used for Risk Sharing Calculation($1,100,000)$0O - R

T.Profit / (Loss) Amount as a Percent of Target Amount-21.57%0.00%S / O

U.Loss Sharing Received from or (Profit Sharing Refunded to) CMS$599,500$0Plan retains 100% of 1st 5%, 50% from 5% to 10%, and 20% in excess of 10%.

V.Total 2016 Settlements Received from or (Refunded to) CMS$1,449,500$483,333I + L + U

Revenue$6,000,000$6,000,000

Net Claims$6,200,000$5,100,000


pay provider more to reach loss ratio, so get smaller settlement

Target Loss RatioN/A85.0%Lose loss sharing received


&DMilliman

Related Parties

19%

45%

33%

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

I don’t have a capitation agreement

Yes, my agreement includes arelated party

No, my agreement does notinclude a related party

What’s a related party

Does your capitation agreement include a related party?

56

Related Parties

For providers where the health plan and the provider share common ownership, need to consider related party requirements for medical service arrangements

57

Recap

Risk arrangements are growing and here to stay More two-sided risk arrangements More emphasis on quality Commonly percentage of premium Care on increasing revenue EGWPs/PPOs often excluded Joint venture / cobranded products Expertise, star rating, and membership Narrow network as long as meet adequacy

Including Part D more common, but has challenges

Simon [email protected]

Hillary [email protected]

Adam [email protected]

Thank you

Cover pageBarnhart, Millican, Moody

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