1 Self-Funding, Make America Great Again - The Election Hangover Edition -Presented By Tim Callender Lead PACE Counsel & Staff Attorney The Phia Group November 17, 2016

2 The Phia Group LEARN Various Legal & Consulting Services PLANPlan Document Services & Software SAVE Claims Recovery, Negotiation, Network Alternatives PROTECT Plan Administration Defense & Outsourcing Fiduciary Duties OUR MISSION: To reduce the cost of healthcare through innovative technologies, legal expertise, and focused, flexible customer service. We support employment based group health insurance and are confident that self-funded health plans lead the way.

3 Today’s Overview Self-Funding, 101 The Cost SolutionTop Three (well… four) Innovative Solutions Subrogation Reference Based Pricing Fiduciary Transfer Captive Risk Management Other Trends in Self-Funding, The Laundry List

4 Self-Funding, 101

5 Self-Funding, 101 Ingredients: (1) Employer, Plan SponsorPrivate/public employers; tribes; churches; governmental entities MEWA; VEBAs; Captives (2) Plan Administrator (outsourced TPA or ASO model) Some other vendors: stop-loss / MGU; networks (leased, none, direct contracting); UM/CM/DM; re-pricing; patient advocacy (3) Plan Document (4) Funding (sort of… you can be “unfunded”)

6 Self-Funding, 101 How are claims paid?Claims are paid out of the Plan Sponsor’s general assets or from a trust (participant contributions can help fund both models) Funded v. Unfunded (plan assets v. general assets) Risk transfer

7 ASO v. TPA ASO TPA Fixed Risk – “Premiums” Set It and Forget ItStandard Claims Administration No Balance Billing (but Limited Cost-Containment) No Stop-Loss Gaps (but No Options) Less Control Over Claims Dollars Discounts TPA A La Carte (“Unbundled”) Options for Stop-Loss, Networks, Negotiations, Etc. Strong Ability to Contain Costs Customized Approach to Handling Claims Ownership of Claims Data Control Over Plan Assets Loyalty to Plan and Members Make Up Discounts Through Cost-Containment

8 The Cost Solution

9 Healthcare Costs – Out of Control… Why?Lack of transparency Convoluted and confusing system The wrong incentives Payer, Provider and Plan Sponsor tolerance We’ve made this mess together – we can fix it together

10 Healthcare Costs – Out of Control… Why?Lack of Transparency $57 for a FRED (Fog Reduction Elimination Device: a 2 in. square gauze strip used to wipe moisture from lenses in the operating room) $200 for a bag of IV solution $985 pair of scissors $1,028 for a 1oz. container of contrast solution $11 for a mucous recovery system (a box of tissues) $350 for an IV kit

11 Healthcare Costs – Out of Control… Why?Some of the worst offenders: Air Ambulance Charges are typically 400%-500% of Medicare allowable rates Implantable Devices Devices typically marked up between 500% and 1,000% of cost Some providers get gouged on the procurement side as well Dialysis Dialysis facilities routinely charge 1,000% to 2,000% of Medicare allowable rates

12 A Bloody Toe & A Stuffy Nose

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15 Healthcare Costs – Out of Control – Why?The Wrong Incentives Current incentives are perverse at best Rx kickbacks Protectionism Praise for “curing” provider-created problems Over-treating Use the “big boys” and get a discount off of billed charges based on... ? Discount is ultimately higher than the market rate – if there were such a thing

16 Healthcare Costs – Out of Control… Why?Payer and Plan Sponsor Tolerance If you feed a dog steak when you bring him home, he’ll expect steak for every meal We have to work together and eat Tofu sometimes… or maybe just cheaper steak

17 What Can We Do? Work with best in class partners, like Echelon, to innovate and contain costs Regions like ours we have a unique advantage in being able to closely work with our health systems (there aren’t 7 systems and millions of belly buttons) Self-funding is the vehicle we can use to create and maintain savings while delivering healthcare and providing fair reimbursement to providers Educate, educate, educate Transparency & dialogue with all stakeholders Tim’s Top Three (well… four) things we can do, coming up next

18 Top Three (well… four) - Subrogation - - Reference Based Pricing – - Fiduciary Transfer – - Captive Risk Management -

19 Subrogation & Overpayment RecoveryRecover third-party dollars that belong to the Plan Keep the Plan solvent & healthy Your fiduciary duty Guarantee there are Plan dollars being left on the table Auto accidents, class actions, toxic torts, Rx & implant/product recalls Medicare COB and obtaining overpayment recovery from providers Group can set pursuit parameters VIPs?

20 Subrogation & Overpayment RecoveryThe current recovery landscape Montanile = That million dollar settlement… you should probably go spend it on narcotics and a vacation to Cabo… Dirty rotten Plaintiff’s Lawyer

21 Reference Based PricingWhat is it: utilizing a “reference point” to establish a fair reimbursement rate for provider billed charges Medicare+ (“we will pay all out-of-network claims at 150% of Medicare”) Can be done across the entire plan – no network Can be utilized as a compliment to your PPO to simply cover out-of-network claims Can be utilized as a carve-out & applied to particularly troublesome benefits like dialysis How is this accomplished: (1) Plan document language, EOB language, full transparency (2) Reconcile with your networks – bolt RBP with your PPO (3) Member education (4) Medicare pricing vendor (5) Balance billing / patient advocacy support program (6) Direct contracting with the health system (utilization & prompt pay incentives)

22 Reference Based PricingWhat is it: utilizing a “reference point” to establish a fair reimbursement rate for provider billed charges Usual, Reasonable & Customary (“We will pay you based on the usual, reasonable and/or customary reimbursement rates prevalent in this region.”) Similar process as Medicare+ but can be a bit more difficult (depending on who you ask)

23 Reference Based PricingIs it working…? Yes, but differently across various regions Threats: Relationship damage between Plans & Health Systems Providers balance billing your members = noise Threats of lawsuits = noise Solutions: Direct contracting w/ providers (utilization guarantees & prompt payment guarantees) Approach RBP with a “partnership” and “goodwill” attitude – no scorched earth tactics Maintain a strong patient advocacy & claims negotiation program

24 Fiduciary Transfer Fully-insured v. ASO self-insured v. “pure” TPA self-insured In a fully insured model, the carrier is the fiduciary In an ASO model, the carrier is the fiduciary… sort of… In a “pure” TPA self-insured model, the Plan is typically the fiduciary, fence to fence Very large barrier to “pure” self-insurance has become fiduciary concerns Solution: transfer that fiduciary liability to a third party Some examples of fiduciary concerns

25 Fiduciary Transfer Johnson & Towers v. Corporate Synergies GroupWidowed spouse amendment – broker “forgot” to give this to stop-loss when underwritten Claim came in for that spouse but the carrier denied Broker held as fiduciary in placing the stop-loss Hartfield, Titus & Donnelly LLC v. Loomis Co. TPA held liable as fiduciary for making overpayments caused by erroneous claims processing

26 Fiduciary Transfer Mason v. FedEx Corp (D. Alaska 2016)TPA & plan sponsor sued by plan member for breach of fiduciary duty over appeals process, asserting TPA had a financial interest in returning appeals determinations that denied benefits Holding: TPA and plan sponsor had a conflict of interest in how the appeals process was setup Dragu v. Motion Picture Ind. Health Plan (N.D. Cal. 2015) Plan member sues plan sponsor for breach of fiduciary duty over a misapplication of plan terms Holding: Plan Sponsor misconstrued the terms of its plan which equaled a fiduciary breach

27 Fiduciary Transfer Pac. Shores Hosp. v. United Behavioral Health (9th Cir. 2014) TPA & plan sponsor sued by provider for breach of fiduciary duty under an assignment of benefits for refusal to pay inpatient benefits Holding: plan sponsor failed to adequately review benefit determinations and breached its fiduciary duty Connt. Gen. Life Ins. v. Humble Surgical Hosp. (S.D. Tex. 2016) TPA & broker sued by provider for breach of fiduciary duty over out-of-network payment issues and overpayment collection efforts Holding: $2.3 million award to the provider under a finding of breach of fiduciary duty

28 Fiduciary Transfer Keeps costs down through:Objective & accurate interpretation of your plan document Stop paying claims you should not be paying Alternatively, avoid denying claims you should not be denying Incentives from your vendor partners (stop-loss; captives)

29 Captive Risk ManagementWhat is a captive: group of self-funded, employer-sponsored Plans (typically small to midsized) sharing risk – managing their own “insurance” Allows smaller employers to self-fund, when the financial risk might otherwise be a barrier to entry Typically share an industry tie or regional tie How does it work: A handful of employer groups form a captive – everyone pays in Each employer group covers its own “smaller” claims – below a particular threshold The Captive (shared risk pool) covers claim above a certain threshold Each employer group has its own stop-loss policy as well (membership in the captive is attractive to carriers on the individual policies – lowers their risk) At the end of the year, the captive members share in the “Delta”

30 Captive Risk ManagementThe three players in a Captive arrangement:

31 Other Trends in Self-Funding

32 Education & IncentivesLunch & Learn? Open enrollment meetings? Loop in providers! Choice of hospitals – patients pay lower or no coinsurance at lower-cost hospitals Certain hospitals can be paid at no OOP and even cash rewards Maternity care: diapers, baby wipes, gift card Percent of savings for finding errors and finding alternatives Ex. Nebulizer: $300 with 30% discount…or on Amazon for $118 Medical tourism & family vacations – give them the difference Wellness goals – throw a party

33 Disrupt The “Market” Some proven ideas – some crazy ideasClaims negotiation – with sign off (coupled with patient advocacy) Revocation of the assignment of benefits 501(c)(3) non-profit Report as self-pay Remember “The Bloody Toe” – what if Tim walked in and said, “hi, I don’t have insurance…” Car insurance…

34 THANK YOU [email protected] [email protected] Text “PHIA” to to join our mailing list Join Us for Our Next Free Webinar: Check out our podcast: thephiagroup.podomatic.com