NWX-HHS-AOA-1

Moderator: Lauren Solkowski

03-11-14/1:00 pm CT

Confirmation #4702868

Page 1

**NWX-HHS-AOA-1**

**Moderator: Lauren Solkowski**

### March 11, 2014

**1:00 pm CT**

Coordinator:Welcome and thank you for standing by. At this time all participants are in a listen only mode. After the presentation we will conduct a question and answer session. If you would like to ask a question, please press star 1.

Today’s conference is being recorded. If you have any objections you may disconnect at this time. I will now turn the call over to Lauren Solkowski. Thank you. You may begin.

Lauren Solkowski:Thank you so much. And good afternoon and thank you everyone for joining us today for the Administration for Community Living’s Targeted Technical Assistance Webinar. Our topic is legal issues related to network formation and business operations.

I am, as the operator mentioned, Lauren Solkowski. And I’m with ACL. And I work in the Office of Policy, Analysis and Development. And I will be facilitating our Webinar.

On today’s Webinar we will be hearing from Mark Regan and Todd Swanson from the Law Offices of Hooper Lundy & Bookman PC. Their practices dedicated to the representation of healthcare providers and suppliers.

On this topic of legal issues that can sometimes arise when forming network models or conducting business operations is something that pretty much all of our learning collaborative sites have mentioned as a concerned. So we’re thrilled to be hearing from them both today.

Before we do start with their presentation, I have a few housekeeping announcement that I’d like to run through. If you have not yet done so, please use the link included in your calendar appointment to get on to WebEx so that you cannot only follow along with the slides as we go through them, but you can also ask your question. And you have them through chat.

If you do not have access to the link that we emailed you, you can also go to www.webex.com, click on the attend a meeting button at the top of the page. And then enter the meeting number, which is 662605900. That was 662605900. If you have any problems getting into WebEx, please call the WebEx technical support at 1-866-569-3239, again that number is 1-866-569-3239.

As our operator mentioned, all of the participants are in a listen only mode. However, we do welcome your questions throughout the course of the Webinar. There are two ways that you can ask your questions.

The first is which - through the web, using the chat function in WebEx. You can enter your question and we will sort through all the questions and answer them as best we can when we take a break after the presentation has concluded.

In addition, after the speakers wrap up we will offer you a chance to ask your question through the audio line. When that time comes, the operator will give you instructions as - how to queue up to ask your question.

If there are any questions that we do not get queued during the course of the Webinar, we’ll be sure to follow up with you to get them answered. If you do you think of any questions after the Webinar, you can feel free to email them to me at lauren.solkowski@acl.hhs.gov.

As the operator mentioned, we also are recording the Webinar. We will post the recording, the slides and a transcript of the Webinar on the ACL web site, as well as inquiries, MLT, SS network web site.

And as you can see I’ve entered the ACL’s web site, the (inforay) we bsite address as well as my email address in the chat box on the WebEx for your reference.

So with that we can begin our presentation. I would like to first introduce June Simmons. June is a CEO and President of the Partners in Care Foundation. And as many of you know is also a member of ACL’s business acumen learning collaborative.

Excuse me. We invited June open our discussion, as she had kindly made at the connection to our speakers for today. So June I will turn it over to you.

June Simmons:Well thank you so much. We are one of the technical assistance sites. And we are the proud recipient of the John A Hartford Foundation funding that has made it possible for the ACL technical assistance sites to have the in person meetings. So we appreciated their tremendous leadership.

We are fortunate as partners in care, which is a California and not-for-profit, even though were called a foundation, were basically a community-based organization that works closely with our AAAs.

We enjoy leadership from the fine firm of Hooper Lundy & Bookman, Bob Lundy of Hooper Lundy. He is a past chairman on our board. And he was - (tee) and he and (David Hatchen) of the Los Angeles office have been guiding our organization and our collaborative efforts in the past. And have given us great guidance.

So I had asked if they could contribute their time and their tremendous expertise to all of us because as you know, this is a historic moment when we have an opportunity to really move our work and the strength in our systems forward as never before.

And it’s critically important that we succeed. And the minute we start to do that, especially through networks which is part of a concept that we certainly were early with and worked with Hooper Lundy on. We begin to see that there are infrastructures, business structures and legal requirements and even legal risks that we all need to be knowledgeable about.

And I was really thrilled that this elegance firm expanded in Los Angeles. But it’s a national firm now and has offices in LA, San Francisco, San Diego and Washington, DC and clients in 50 states. Their tremendous experts and they’re very value-based. You know, lawyers can get a bad rap. But these gentlemen bringing tremendous wisdom and balance and value to this.

So we were chatting just before. Mark Reagan was commenting that they actually really have a crafted that is founded on wanting healthcare to improve so it really works for people. So they are good friends and wonderful experts.

So the presenters are Mark Reagan who is the managing partner and head litigator for their San Francisco office. And he has an interesting background because he got his Bachelor’s in Economics and Communication at Stanford. So he brings up balance, and then of course one forward to get his law degree.

But he has represented a whole variety of health facilities and providers, long-term care facilities and particularly is close to what the hospital physician groups, home health agency, hospices, medical product suppliers, trade association, so whole wide view of the whole field of the hoops that we need to work with as we move forward.

And then his presentation will be followed by his colleague, Todd Swanson who got his degree in chemistry. So you can see their both men for all seasons who moved into the law. And he moved into transactional law and has been practicing health law and specializes in the business side, financing, transactions, bond financing and represents acute and long-term care facilities and other providers.

And pieces that we aren’t very experienced in, mergers and acquisitions and joint ventures and so on. So this whole sophisticated question we’re entering this new world, I know you’ll join me and be very excited that they are willing to share with us their expertise. And to kind of alert us to the kind of counsel we all need to have access to. So thank you both for being with us. I’m looking forward to hearing your talk.

Mark Reagan:Thank you June. So Lauren should we get started?

Lauren Solkowski:Yes, please feel free.

Mark Reagan:Okay. So I am looking at my slide and I see the first slide. Can we go to the overview on the outline slide? Thank you. And welcome everybody. This is Mark Reagan.

We are going to be mainly focusing during our hour and a half today on some brief issues associated with contracting. I’ll get back to that in a second. And more significantly network development for the fundamental, and as June said the transformational changes that we are at the precipice of and changing some of the basic financing of Medicaid services throughout the United States.

You will see that there are references in this slide to Appendices A and B. there are any number of slides that we have included as part of your slide deck that are more in depth, more intensive and not designed specifically to be addressed during our program. But are there as a resource both for strategies for contracting with health plans, as well as more in depth topics and discussions associated with the formation of networks.

The launching point of this discussion is that a number of programs being advanced as a result of the Affordable Care Act have appeared to have significantly increased the pace at which states are moving from Medicaid fee-for-service into managed care systems.

Some of those are driven by what some may be aware of as the duals demonstration program, which is a demonstration program operated by CMS and the Office of Innovation, seeking to coordinate and integrate the Medicare and Medicaid services for dually eligible beneficiaries, which seems to have at the same time driven state to increasingly use 11 15 waivers to move populations that have historically been fee-for-service into the managed care world, whether they are entire populations or whether they are portions of those populations.

And increasingly, and probably the biggest and most rapid trend is the movement of populations into managed the long-term supports and services. And we’ll be talking about that at the outset. And then moving into the issue of how to effectively conceptualize and implement network formation.

You will see as part of the program that we will use a case study associated with a community care network along those lines. And talk about some of the key business issues associated with network formation. Next slide please Lauren.

All right, as you probably have been following, a large handful of states have applied and entered into memoranda of understanding with their respective states in CMS to participate in this duals demonstration program.

There are variety of different structures that are being proposed in different states. Our home state, the state of California has a very robust and now approved program that in some counties is going to be rolling out as soon as April 1.

And as I said before, in a number of states that have been interested and are moving forward to participate in this particular demonstration. A key element of that demonstration is having a Medicaid managed care system driven by an 11 15 waiver that can move long-term supports and services into the managed care world.

And what that will effectively mean for any provider, any community-based organization, anybody who has historically served the Medicaid population is that there is a fundamental transformation going on in terms of how the system is financed and controlled.

And as you can well imagine, there are significant concerns associated with the extent to which a managed care system put up by health plans will be able to support existing systems that have historically done used in a number of states, and most states through the fee-for-service system.

There have been numerous efforts by the provider community in these programs, whether they be straight Medicaid managed care programs or they be part of the duals demo and at the Medicaid portion, to make sure that the concept and the approach of the program is one that is designed to better integrate and coordinate care. And not just attempt to save money in various ways.

And so as an example, some of the states that are participating in programs have had legislative, regulatory and other enactments that have essentially sought to protect existing rate payments through these systems. Whether or not those ultimately remain in place, and in some states they don’t exist at all and there’s just a pure free market contracting world.

There’s at least an attempt underway to try to get the focus not about trying to save money based upon rate or price, but ultimately to try to achieve the goals of improved coordination and integration, avoid unnecessary re-hospitalizations, and by doing so saving resources.

Other concerns expressed by the provider community have been really the ability to participate in networks because under the existing fee-for-service structure, assuming that a provider or any other type of a participating organization is qualified through certification, accreditation or other means, they been able to participate in serving Medicaid beneficiaries.

Now with a world that will be based not on certification, based upon the existence of contractual relationships, the ability to participate in health plan networks and some being a key source of not only being able to thrive in this environment, but to survive.

Some states have their body reacted in and established laws that essentially requires the plans to accept any willing provider for the variety of services that are recognized under their state Medicaid programs. All plans will seek to credential there providers, their service suppliers.

And all of them will need to meet various metrics associated with the underlying adequacy of their networks. A personal opinion is that those are not typically the most protected systems out there, and I think need improvement. But they still exist and they are used to measure from a governmental standpoint whether the health plan has sufficient network resources to be able to serve its population. And we’ll be talking about that in just a bit.

Enrollment is an enormous as well as you must be aware at this point for those of you in the state where the duals demo is rolling out, when you - anytime you have a transformational change and it involves changing coverage’s from Medicaid beneficiaries, and particularly those with chronic conditions, it can be a real challenge to do enrollment that recognizes the limitations and challenges of populations.

And there are issues associated with the way in which notices are crafted, disseminated and then ultimately and a lot of the duals demos what we’re singing is that if dual eligible beneficiaries don’t make affirmative choices, then they will be passively enrolled into a health plan.

And yet they retain their right to opt out of the Medicare portion of those plans. The extent to which they will make that particular active choice is a function obviously of their capabilities and who may be there to assist them in making good decisions that work for them. And, but this is a protection that CMS has built into the duals demos. Next slide please.

The transfer of the responsibility and at the risk associated with the Medicaid population is really at the core of the state trend towards moving patients into managed care systems. State legislatures, policymakers and regardless of the political divide, red state or blue state, there seems to be a strong desire across the United States to move the financial responsibility and cost certainty from the state (Fisk) to those of contracted health plans.

This is largely driven by fiscal concerns about the growth of the Medicaid population. And if state legislatures can put a line item in their state budget knowing that that’s the maximum amount of cost that their state is going to incur for the delivery of the Medicaid services, they have therefore, from a fiscal point of view contained their cost. And sought to transfer that cost and to participating health plans. That really, at least in our view, is fiscally what is going on. Next slide please.

Why managed care? There is clearly the fiscal issue with that I just described. One of the outgrowths of that choice is that there can be challenges at times for transparency in terms of overall outcome, individual performance. And as a result, there is a significant need for having oversight over plans participating in these systems having robust elements of the data accessible and the like.

One of the advantages however that comes from working within a managed care framework is increased flexibility towards the delivery of certain types of services. And one of the things that I think allows for the 11 15 waiver process used within a managed care structure is assuming that a health plan is going to be open to those flexibilities, then it can move towards more robust home and community-based solutions. And away from institutional care being sort of point.

And we’ve seen even outside of managed care that being the case in a number of states using 11 15 waivers. But within managed care systems, and assuming a progressivity of the health plans participating you can see more flexibility in the way in which access to care and services are actually delivered. Next slide please.

I spoke about the notion of states that have any willing provider laws that guarantee access to networks by providers that can meet fundamental credentialing requirements and are willing to accept rates of payments that are offered to all providers of a similar size and type and credential.

What I often times remark about those laws is that they don’t even of themselves guarantee any revenue or number of referrals. They just mean that you have a provider supplier who is on the network.

The degree to which that provider is going to be successful as part of the network in terms of the number of patients that they serve, in terms of the lives that the impact is going to be largely a function of their ability to work in a way with the plan that is going to meet mutual goals, goals of customer satisfaction and more effective and presumably efficient delivery of services. Next slide please.

In the absence of any willing provider law, the only backstop that providers or suppliers have are network adequacy requirements that are either established by state law and the Medicaid context, or by federal law that are really driven by type of provider. They’re driven by largely numerical metrics that have to do with the number of providers to enrollees, travel distance, travel time within particular environments.

And as I said, and I’ll give you a brief example about how I believe that that system needs improvement. But that’s the backstop. And we often times have folks who will reach out to us who are healthcare providers who have been shut out of networks. The networks have been quote on quote “closed.”

And it can be very difficult for folks in that place to get into networks that have decided to be closed. And the only way to really position that in the absence of in any willing provider law is through looking at the network adequacy of the individual plan in their capability of providing access to their enrollees. Next slide please.

You may have heard, and if you’re in the Northeast you probably have heard quite a bit about the United Healthcare termination of a number, scores of physicians across the United States. But 2000 of them in the state of Connecticut done sort of in a single flip of a switch. And strangely kind in the midst of the open enrollment period with respect to their Medicare Advantage Plan.

Two of the affected medical societies brought a legal action against United Healthcare. And a temporary restraining order and then a preliminary injunction was issued that precluded United Healthcare from continuing with those particular terminations.

And why bring the issue up here is that while at the same time these two societies brought an action against United to essentially stop the terminations from occurring the state attorney general reached out to CMS, along with others to get CMS to react to what was a very significant reduction of the provider network by this particular plan, particularly focused on the access to specialist care.

And surprisingly, and someone say shockingly CMS came back and said well, you know, we think that based upon our metrics that this network is just fine. And there were some fairly unique facts associated with the absence of heart specialists in a number of the counties covered in that area.

And it was really quite I think illustrative to see that in an instance where so many physicians were being terminated overnight that CMS in terms of applying the network inadequacy standards was unwilling to really look behind the network to see how active particular specialists still remaining on the network were in actuality, whether they were part-time, whether they were semi-retired.

And it gives one pause when one thinks that the network adequacy is the backstop of protecting people from smaller networks. And this ends up being significant because one of the trends that we’ve seen in the Affordable Care Act has been the use of more narrow networks.

More narrow networks means smaller numbers of providers. And the question will be is that being done really just to control costs? Or is there going to be sufficient access? The case and the injunction that was issued in the United Healthcare case is up on a PO before the Second Circuit. Next slide please.

So let’s move into the main topic that we are here to talk about. What are the opportunities that community-based organizations or similarly situated providers, suppliers of services can use to dance together? Because it just as you can imagine, the power of operating as a network is a much more, if it can be accomplished a much more viable way to market services to plans that are increasingly interested in doing as much as possible for one-stop shopping.

In the provider community we’ve seen a lot of consolidation in the aftermath of the passage of the Affordable Care Act. And that is sort of largely driven by the same principle that’s being in the position to have economies of scale and to be able to present a network of qualified organizations and suppliers can be extremely advantageous from a number of perspectives.

One way to look at network formation is that it allows for coordination between network providers. And can therefore improve the patient’s experience associated with care. It can improve quality, satisfaction and the like.

When you look at the goal of moving to managed care to achieve a greater coordination integration, it is founded upon the concept that if you have providers working together in a more integrated state, then outcomes can improve.

And that hopefully will not only improve the overall health of populations, but can also reduce the per capita cost of care by reducing the amount of unnecessary or redundant services. Next slide please.

So the single contracted entity is one that is going to be easier for payers to be able to do business with. As compared to having to approach hundreds or from a national point of view thousands of individual organizations, providers and suppliers.

It is easier to connect to one main entity rather than multiple entities. You have the ability also to have more uniformity across the operations of a network through common policies and procedures, common reporting and then also being able to leverage best practice models across a network of different types of providers and suppliers. Next slide please.

And then ultimately from an economic point of view, what would be expected as an outgrowth and a benefit of a network model is to be able to unify administrative and other business functions from a contracting, billing and credentialing standpoint such that you don’t have to replicate each one of those lines of service at each individual organization.

But you can take advantage of using a network to become a more efficient organization in that regard. And then that really empowers particular agencies, organizations to focus on a core business delivery which is to serve people who are part of these systems.

At this point I’m going to turn the program over to my partner, Todd Swanson who is going to spend time doing a deeper dive into network formation and the kinds of things that you should be thinking about as you move down that path, Todd.

Todd Swanson:Hello. I also would like to welcome everyone this afternoon. The remainder of the presentation, I’ll be kind of building on the reasons that Mark has set forth for consideration of community care providers to come together, form a network or other models of cooperation or integration or accessing plans adapting to the requirements of where the marketplace seems to be going.

And in many cases, at least with managed care, Medicare or the dual eligible type products, spreading and managing the risks that would be required to access those plans.

So in going through that obviously much of this is it may be new to the community care provider community. But the need to address these types of issues and to create these types of models is certainly not new in other sectors, particularly the physicians with their IPAs and PPOs and all that we’ve seen in those areas.

So what’s all the first be doing is touching on some of the antitrust law, which is the main legal technical issues that inform and really create the need to navigate how these models are developed, if and when they’re developed. And then talk about this continuum of models, which really vary from one another based on their financial or clinical integration.

And then I’ll finish with a section dealing with, you know, this hypothetical community care network. And really more of a nuts and bolts review of how is it formed, what are the considerations, the governance ownership issues and things of that nature that would need to be considered and implemented if one or more of these models is sought to be developed by participating community care network providers. Next slide.

And I’ll start by way of a product it because the - with the antitrust laws because the antitrust laws really drive so much of the - of how these different networks have to be structured. At its highest level the antitrust laws, and there’s several of them, basically prohibit agreements among competitors that results in unreasonable restraint of trade.

Those of you who kind of our familiar with this realize that then the sub-categories are horizontal restraints and vertical restraints. The horizontal restraints involved agreements between actual or potential competitors to restrain competition in some way.

And this really is the most common area of analysis for networks, IPAs and things of that nature where you are bringing potential or actual competitors together, and jointly contracting to get access to plans or networks. Jointly coming together for other clinical integration.

Vertical restraints are out there and are - come up more often. Technically it’s agreements between suppliers and customers that restrain competition. A typical area of focus in the healthcare area of antitrust scrutiny is agreements between say physicians and hospitals or physicians and other ancillary providers that may be referred business by those physicians. Next slide.

And then within the analysis and antitrust area there are violations that are called per se violations. These are arrangements that the regulators would deem to be presumed illegal, with no need it to actually show a competitive harm by virtue of that arrangement.

A key in this area is price fixing. That is something that we will deal with as we go through the different models. But it is a common role of some of these networks to collectively negotiate with a plan, particularly HMOs. In doing so unless you fit within - unless you have circumstances of integration, which will touch upon, that get you outside the per se violation mold would be deemed illegal without much more to be shown by the regulators.

Another area is market allocations, which can be a legal which is an agreement among competitors to assign sale territories over to split customers to do things that would interrupt the normal kind of capital markets for negotiating on these.

Again, we seen that in some other healthcare sectors where you may get people - various providers come together and it would seek exclusive rights under the umbrella of the network to provide services within subcategories. And that can be (violative) independent of price-fixing as an impermissible market allocation.

Two other key per se violation areas are boycotts and tie in arrangements. And while those can come up in the healthcare arena as well, it’s really first and foremost price-fixing that is of concern in structuring possible models and networks, and then secondarily market allocations. Next slide please.

Okay so because of the need to navigate the antitrust requirements, obviously any network that we would want to develop any joint ventures that constitute a development of that network where the wants to get outside of the per se rule.

And as a just mentioned integration is the key because basically what the regulators rationale is if you have integration, either financial risk integration or clinical integration, both of which will touch on more, then there can be procompetitive ends through efficiencies, through improved to quality of care and other deemed beneficial results.

And if those results are substantial enough to justify even some anticompetitive results, then in doing that balance that they can conclude that it can be permissible. But again the key in healthcare joint ventures will be risk and more pointedly financial risk. Next slide please.

So we’re talking about networks and we’re talking about joint ventures. They’re really one in the same. This slide simply touches upon the concept of joint ventures, which is legally a very broad concepts, a very broadly defined term. It could be any cooperative or concerted action among independent competitors or independent participants, may or may not be competitors.

I should note while I’m thinking of it that the assumption in all these antitrust concerns is that a network that would it be brought together would include competitors. If for some reason a network, and it could be developed, that has different sectors reflected, different providers that they do not really compete with each other, then the needed to navigate these antitrust issues are really eliminated.

But in most cases in order to get access to plans, in order to get some sufficient critical mass, you do have competitors or potential competitors involved in it. So you can form joint ventures. If it’s a legitimate joint venture that serves procompetitive reasons, including possibly economic integration then it can be supported even under the constraints of antitrust.

And integration can take the form of capital shared risk, consolidated business functions. It could also take the flip side where more in the ACL model where the participants would share in shared savings or in upside other financial incentives, not just financial risk, can help underpin a permissible joint venture under the antitrust laws. Next slide.

As I mentioned at the outset, for 20 years of these network issues, these antitrust issues that informed the permissibility of various network models such as IPAs and PPOs have been around. Have been experimented with them by various players. And have been challenged in many cases by antitrust authorities we’re there isn’t proper integration. Where they are seeing or alleged to be simply direct or indirect efforts to fix prices predominantly where they aren’t insufficiently integrated.

And therefore would be per se illegal and have been challenged and have been shut down. And it really is the fact that you may form a joint venture that is the agents for all of the participating providers one level down doesn’t protect this analysis certainly if that network or that agents is contracting for the various competitors in a way that sets a single price for them. It can still be seen as price-fixing. Albeit that the actual providers are indirectly involved under the umbrella method. Next slide.

We talked briefly about the safety zone therefore certain physician networks. Those are things we can build off of in going forward with models of networks in other areas, such as community care providers. And a key will be sharing substantial risk.

The types of financial risk that we typically have seen is particularly physician joint ventures or other provider joint ventures in the healthcare arena. Our capitation which is probably the most common at least in areas like California. And with heavier managed care penetration, a similar risk concept would be payments to the network and Internet the network providers may sign a percentage of premium. Again, it’s still a fixed number that’s tied to the population that’s being covered or for which care is being committed.

Alternatively we’ve seen situations where a withhold is done. It may not be - there may be fee-for-service flowing between the plan and the network itself. But the network couldn’t withhold certain amounts that will then be distributed to the participating providers to the extent they meet legitimate goals. And to the extent there are surpluses, those goals could be tied to efficiencies, efficacies, patient satisfaction, meeting clinical integration reporting requirements. A whole host of criteria can go into how that withhold would be used to incentivize participating providers to meet common goals of the network.

And then finally another way in which risk can manifest itself in these types of networks is through an all-inclusive case rate for fixed services. If the patient population that is covered by the providers and up costing more for a given case, that risk is assumed and swallowed by the providers as they get to simply the fixed case rate by case. Next slide please.

So continuing on the joint venture concepts before we get into the specific models. We touched upon the two ways of the stool for integration are really financial and clinical. Financial is seen as more important to the regulators than clinical integration. But they both can serve to protect a joint venture or a network, even if you don’t have significant financial integration or clinical integration.

If it’s significant enough and if it results in significant enough of benefits to the patient, pro-competitive benefits you can still be protected. You can still have that arrangement that would have centralized contracting and pricing. But you would - you have the higher burden on the clinical side as showing deep integration through things like shared electronic clinical information, shared and enforce clinical practice protocols, quality issues, benchmarks, sanctions for noncompliance and sharing of savings and the like.

Next slide please. So moving from that kind of legal predicate or legal background for development of joint ventures or network models, I’m going to move next to look at some of the different types of models that are based upon those that are out there like I said in other sectors.

And I’ve organized them largely on this continuum where you move from the more integrated to less integrated. From an antitrust standpoint the more integrated ones certainly are less problematic and a bit easier to do.

As you move towards the less integrated side there is many more concerns and the areas which you have to be careful that you don’t trip over the requirements. But obviously in all cases, as you bring different network providers together there may be or may not be an appetite for or an ability to buy into or capitalize one model or the other. So I’ll go through them, each model in its own.

The first model, the primary provider model is on the next slide. It’s actually not what I would normally call a network model. This is more what you might think of as the staff model in IPA or physician situations where the primary contracting party basically takes full risk. Agrees to provide a list of services for a given price, whether it’s fee-for- service or risk and provides of the need of care.

In a substantial (part low) can sub-contract or parts as well. But in substantial part under its own umbrella through its own employees, its own caregivers. And then it’s in turn can in some cases subcontract. Certainly this then would include both full financial responsibility for the care to begin, but it also would have a very high levels of clinical integration.

The downside really is that it’s not really a network. It’s a more narrow provider. It doesn’t provide as available an opportunity to bring independent network providers together who may not want to fully merge with or fully dedicates themselves through one contracted party. But I put it there. It certainly is a model. It is the most integrated model and presents really the least challenges from an antitrust standpoint. Next slide.

This is simply a, kind of an org chart version of the primary provider model. It shows that there can be subcontractors, although primarily if you look at the main box it reflects really internal provision of these services for the most part. Next slide please.

Moving down the continuum from the primary provider model, we go to financial integrated networks. In this really is very common in other areas. Under these - the joint venture or the sponsor of the network would typically directly contracts with the plan on a risk basis under one of those models that we touched on earlier where there’s capitation, percentage of premium or the like.

In addition to - and then it would spread that risk to the panel or participating providers who would either themselves be sub capitated or in some cases for significant procedures may be on the sub fee-for-service basis. But overall, the risk comes to the joint venture, the risk bearing model. And then is spread it down to the network providers, which is an important, really one of the distinguishing factors needed for navigating the antitrust issues we talked about.

On top of the risk, usually the joint venture or this model, the sponsored organization would also be the one to centralized and process some of the clinical requirements, particularly those related to risk, whether it’s authorization and validation of coverage, quality assurance and utilization review, you know, the gate keeping functions and things of that nature that may or may not be part of the typical managed care plan typically are centralized and implemented through the risk bearing model. The joint venture would be the umbrella for it.

So it also has clinical integration. And therefore is on the continuum of risk. From an antitrust standpoint, this financially integrated network model along with additional clinical integration is - can fit in the safety zone. And can be very manageable from an antitrust risk standpoint.

Of course it requires that there be the ability to take the risk. And I think it is also conversely one of the important reasons that you see IPAs and other risk organizations of the providers being formed. It allows the individual providers who may not themselves be able to assume true risk contracting that the plans want. And allows them to come together and share that risk in a fashion that otherwise may not allow them to get access to the managed care market at all.

Lastly on this slide, if for some reason you don’t fully get into the safety zone under this risk bearing model, it doesn’t mean it’s a legal. It means it’s now subject to a much more factually based analysis that the recent analysis under antitrust law, which really essentially ways the procompetitive versus the anticompetitive effect.

And it determines whether your anti-competitive steps are only so far as needed to being the procompetitive impacts. So it becomes a much fuzzier fact dependent analysis if you get into that. So certainly the preference is if possible to stay within the safety zone. Next slide.

And this again is just an org chart of the risk bearing model. You’ll see that the - in this case we have a dual eligible plan box as an example. It might be another managed care HMO plan that could be filling that box. But essentially the risk bearing model, which is the grayed box that that joint venture would it directly take full risk for the, whatever the scope of services are that are ultimately provided by its independent but coordinated providers, which are the boxes at the bottom.

And again, it’s important that in some fashion or another generally the risk is passed down. And that the parties take steps to manage that risk through clinical integration of the types of items noted in that box. Next slide.

Moving then down the continuum from financially integrated models. Another model is the clinically integrated model. This sort of (definitionally) is not necessarily a model that shares substantial financial risk. But it still is a similar model where you would bring independent providers together. They remain independent. There really coming together under a joint venture as contractual participants.

The key here in lieu of financial, sharing the financial risk or financial integration will be that under the umbrella of the clinically integrated network that individual providers will have significant clinical integration that results in efficiencies, increases in quality, meets other goals that are deemed to be, you know, proper goals for coming together. Next slide.

So this is a chart of a typical clinical integration model. This might be viewed as the ACL model. For those of you who have been following accountable care organizations who are, you know, clearly sponsored under ACA by Medicare. But also in some markets you’ll see commercial payers supporting an ACL like model.

It may still have a financial components, as this chart shows. More typically though it would be structured as shared savings through the cooperation and successful implementation by the participating providers in the clinically integrated operational and other provider level standards.

For example it would do credentialing of providers. It can still do the contracting to some extent. But really may be more for purposes of shared savings in the ACL model than direct contracting of the fee-for-service or other payment for the services themselves.

Certainly in this type of clinically integrated model you would find the parties agreeing to common policies and protocols for purposes of quality and efficiency, evidence-based programs of various types. And ultimately because reporting on the progress and the compliance most of the things become important. It often involves the requirements at that the participants in some fashion or another integrate their health IT network and communication abilities. Next slide.

Then we moved to the super messenger model, which is also often viewed as the PPO model, in at least the physician world. This network approach would bring competitors together and to act as an agent for each of the participating providers and negotiating contracts with the plans. Although the key distinction of this model is because there is not sufficient clinical and/or financial integration the agent, the joint venture or this network would not jointly negotiate price and other economic terms because it would not have the protection of the integration.

And it would then be subjected to claims of being essentially collusion to fix prices. So the super messenger model has been developed over the years. It has been challenged in many cases when it’s not implemented in a really pure fashion.

The keys to this would be that the pricing and the price terms are set by each provider. They are not shared between the providers. And that - the name comes from the fact that the network will just act as a messenger for each participating provider of the terms that it is willing to accept from the plans without sharing those terms with other providers. And without influencing board directing what those pricing terms would be. So that it really isn’t a - it’s not subject to the claim that this is competitors coming together in a cooperative manner to set prices.

And then the other significant aspect is the payments that that result from this, these contracted terms are really contracts with and payments directly to the participating providers. It does not flow through this model. It doesn’t flow through this joint venture. So it really is in many ways like a management service organization that includes acting as a messenger to the plans and prices that the participating providers are willing to accept. Next slide please.

So this is - this chart simply reflects what I was just talking about. If you look at the lines, there may be a network of maintenance fee. Although that is really to pay the super messenger model or the joint venture for potentially plan delegated services. So it certainly can act and include clinically - some clinical integration. And it typically would. But it’s less so than the other models to the left on the continuum.

The other line that bypasses the big gray box reflects that the ultimate provider service contracts are directly with the participating providers. And the payments under those contracts go directly to those providers and bypass this super messenger joint venture. Next slide please.

So finally this is just kind of recaps considerations for the super messenger model. The key, I guess the key issues to be repeated here is for this to work legally the key will be that there can be no pricing or rate sharing. And that no geographic division of markets.

Along the same lines some of these have gotten in trouble where there isn’t extensively price or rate sharing. But that the managers involved in the super messenger model may coordinates or influence the rates that are nonetheless offered by the providers.

If you get into that situation you can be opened up to claims of collusion nonetheless, albeit indirectly to address or fix rates. So if a super messenger model is used, a great degree of care needs to be paid to making sure there’s truly siloing or independent avenues for negotiating with the plans on price and economic terms. Next slide please.

The remainder of the presentation will be talking about regardless of the model that you may choose, although we highlight here parenthetically it’s a super messenger model for this hypothetical discussion. But really the remaining presentation is talking more about nuts and bolts of how you would put together a joint venture or a sponsoring entity, whether it be under the super messenger model or under a more of a risk model. Which of course will be driven by really what the plans are looking for and what’s needed to access the ultimate contracts.

And so it would be a collaborative effort. It will vary depending on which model is selected and what model can be supported by the participating community care providers. Ultimately the network or the joint venture would administer whatever that network is. Next slide please.

And of course as with any venture, any initiative the most fundamental issue is how would it be capitalized because certainly particularly if the goal is to choose a model that takes a risk. Then there will be important requirements to have - to show the viability to the plans or to the regulators in some case, even if your entity isn’t deemed to be an HMO or a (North King) entity in California they will often have to show financial liability to take risk for their given population.

So certainly while taking risk is - makes a lot of sense and it may be a preferred way to access some plans, particularly in managed care and Medicaid plans, you know, it will require raising capital. Typically that capital is initially has to be contributed by the founders.

You may - you also can help finance it more on a working capital bases through maintenance fees for the plans. As we touched on before, often the plans will delegate credentialing and other administrative issues that otherwise the plan would have to do to the network, to the joint venture and will pay them for those efforts.

And then finally the participating members, depending on the model, if it were more of a PPO or super messenger model or an MSO model, which is a close cousin to that, but maybe without the contracting assistance. You also - the joint venture can also get ongoing working capital through management fees of the participants.

But ultimately capitalization will be, under any of these models, an important practical consideration from the outset and on an ongoing working capital basis. Next slide please.

Again the separate entity, the things that I’ve been referring to as the joint venture or more generically to as the network typically is a separate entity. It is a separate entity composed of the participating providers. Limited Liability Company is a somewhat favorite approach, although it could be a corporation. It could be a limited partnership. There could be other means for structuring it as far as the available legal models.

And (LSE) has a lot of advantages because it provides for a lots of flexibility and how management is structured. How you deal with government obligations and the like. It also gives you the ability to choose to be a pass through partnership treatment tax entity, like a Sub S would be for corporations, which can be beneficial as issues of double taxation could otherwise arise.

And the purpose of that (new co) or that joint venture entity would be limited - will be limited or broader depending on really the model of the network that you choose. Next slide please.

The ownership of these types of network entities typically are made up of participants. Although in many cases you will find participating providers that are not necessarily all owners. Not uncommon in these when they start to be reflective of a fairly egalitarian model so that all participants are given an equal opportunity to invest and an equal opportunity to get the same share of ownership.

But I’ve also seen various scenarios where there are some better capitalized leaders in this initiative that may end up giving disproportionate capital. And of course resulting in disproportionate ownership and sometimes disproportionate governance rights. If there are some key investors they for example will sometimes be given a board on - a designated seat on the management board. Next slide please.

Which takes me to governance on the next slide, LLCs, using them as an example of the form of entity you may use. Can be managed by either the membership, the ownership directly or in this type of more sophisticated business, more typically by a managing board which is much more akin to a board of directors in the corporate model.

And that managing board is elected typically by the members, just as a board of directors would be elected by the shareholders. Although again, with certain key owners at times I’ve seen where they may have designated seat. Or you could, depending on the goals and the public policy, situation you may want other community representation or the like on the board or other expertise on that board. Next slide please.

Typically the members have certain reserved rights, even though the day to day management would be by the management board, unless again it’s a member managed entity. But even where you do have a board, you would typically because of the importance of the network to the participating providers.

Things like sales vol or (substanting) all of the assets of the (new co), steps to encumber the assets, hiring and firing of key personnel including the CEO or other expertise, key third-party contracts, MSO contracts, things of that nature would all be subject to member approval.

Likewise, approving new members can be and often is a member approval process. And certainly annual budgets, amending organizational documents and decisions about additional capital contributions are typical reserve the right that the members all have a say in. Next slide please.

This simply reflects that when you do have the membership and you do have reserved rights, you will have regular meetings more so than some more passive ownership scenarios because of the importance of this network. Although again, if you’re in a PPO model or a super messenger model those meetings have to be done with special care. They can’t be an avenue or an opportunity for the individual members who are also competing providers to share or talk about pricing information.

And really if they did that they would undercut the whole attempts to rely on the four corners of a super messenger model to avoid allegations in price fixing. Next slide. Can you go one slide back? Thank you.

This just - this slide just simply reflects the fact although I’ve been focusing on participation of providers in the network entity. They also participate as participating providers. So you typically would have both ownership and provider service agreements with those providers. And they would wear the hat of both the contracted provider as well as owners.

And in that agreement, dealing with the provider services side you would deal with more contractual type arrangements for purposes of a provider’s term and termination. It is in those agreements where the specifics of policies and procedures and clinical integration requirements would be set forth in that provider services agreement.

It can’t be dealt with in the governing organizational documents themselves. But typically it’s in the services agreement because it’s really germane to that. And it’s also where compensation, if it flows through the (new co) or through the joint venture would be dealt with in the terms of a provider services agreement.

There are times where surpluses that after the - after all the participating providers are paid at what they are owed under their participating provider services agreement, if there is surplus it may then be distributed out to participating providers as members or as owners as equity distributions.

But I think first and foremost these tend - these incentives, these compensation policies and requirements tend to be reflected in the services provider agreements.

And more mundane issues like requirements for insurance and other really credentialing and similar requirements are reflected in the participating provider services agreement as well. All right, next slide.

This just touches on who might be other customers for these networks. How else might these networks be used to access the payers? And it may be directly through the plans. It may be in jurisdictions that have it, we have in California limited license plans which are still HMOs, but they’re really wholesale plans that in turn market just to the retail HMOs.

And they are often reflective of physician groups or physician leaders. Or hospitals will sometimes do it. So either through the plans, you may also contract with or through accountable care organizations to participate mainly in that case in the clinical integration in some fashion and sharing and shared savings.

You don’t typically - you would not be expected to contract through accountable care organizations directly as you would with an IPA. Obviously through health systems, through medical homes, large employers, IPAs, other risk bearing organizations that may be a level or two down from the plans are all access points for these networks to potentially contract once they have a network.

That may not be a one stop for all needed services, but may need a lot of the network needs within a given scope of community care for either the plans or the downstream contractors with those plans. Next slide.

And then this last slide we don’t, obviously within the scope of this presentation, have time to go into many of the other legal issues and considerations that do present themselves in developing a network.

But certainly fraud and abuse issues and requirements can inform how these things are structured under federal estate. And kickback statutes we have to be careful not to have these be essentially a means for (munerating) other referral sources for their referrals, absent following within certain protective exceptions or safe harbors.

If physicians are involved in any of these arrangements a down, or kind of the or chart then you also have to deal with the Federal Stark law or possible California or other states corollaries that restricted the referral by physicians entities with which they have a financial or ownership interest.

There are restrictions on getting sharing or other financial incentives that may create a disincentive to provide care to patients, which the patient’s really need. So there’s a good degree of subtlety and sophistication that has to be brought to bear with these economic incentives because some of them are perfectly appropriate and encouraged. Others can cross the line and me lead to civil monetary penalty exposure.

And with that, I believe that’s the end of the - my part of the presentation. And I guess we then go to questions and answers.

Lauren Solkowski:Excellent. Thank you both so much for such a comprehensive presentation. We will now open it up for Q and A. Operator if you could please provide instructions for asking a question through the audio line.

Coordinator:Yes thank you. If you would like to ask a question, please press star 1 on your phone and record your first and last name. Again, if you would like to ask a question please press star 1 on your phone and record your first and last name. One moment for your first question.

Lauren Solkowski:Great. So we’re waiting for the questions to come in on the phone. I will check through the chat for a question. Again as a reminder, you can ask your question also in the chat box on the right-hand side of your screen or under the Q and A box as well.

We do have a question. Could you talk a little bit about how CBOs or networks can go about choosing the model that is right for them?

Todd Swanson:Well I’ll take a first crack. And Mark if you want to weigh in, obviously do so. I think what we’ve seen as far as what model is right is a driven by a few different measures.

Obviously it’s what might be needed to access and maybe retain continued access to the marketplace. So if any given jurisdiction they do dual eligible program or there is a strong movement towards managed Medi-Cal or Medicaid in other jurisdictions.

Then the ability to take risk and to manage and spread the risk really pushes one towards a model of a more financially integrated model. End up with that to be successful, frankly comes with the need to address clinical integration and other policies and protocols, UR and QA and the rest to be successful in taking on that risk.

Another - apart from the needed to access managed care plans or providers or manage Medi-Cal, you know, another challenge is the, frankly the willingness and that the ease in recruiting and bringing together a broad network. Certainly the broader the more comprehensive the network.

And the more the participating network providers are willing to integrate their practices clinically and otherwise, the better the collector will be able to market their network to plans.

The problem is the more you’re asking of participating providers to integrate, to take financial risk, certainly that involves more of a challenge and a burden on their part. It’s a challenge to - may be seen as a challenge to their independence.

So it’s a tougher sell in other words to get that level of participation, at least initially. And depending on what market conditions are driving the need. So you will see in some cases it may be that there’s just not yet an appetite for - in a given market for a more integrated approach.

So it may be that’s, you know, that drives one to the conclusion that maybe initially you just bring together a super messenger model, or even a variation of that, kind of the management services organization model where the independent practices may use that MSO.

They made jointly help finance it. And use it as really a clearinghouse or a cooperative where you can develop some of the support policies. Develop some of the expertise and things that - get some of the legal advice that is needed because of the sophistication and the landmines in these areas.

And kind of share those costs through an MSO. And maybe that’s the best buy in you can get initially at one point. And then it may be that that model grows or morphs over time.

Mark Reagan:This is Mark. I completely agree with Todd because I think that this world may be a fairly new world for a lot of community-based organizations. And taking a first step is probably, given everything that’s going on probably the most achievable in the near-term.

And then I agree with Todd that that probably looks like a messenger model or an MSO model because issues of financial integration raise yet another sort of whole specter of issues, not so much from the perspective of a the law per se, though there’s plenty of those. But more from a business standpoint.

And so it may be the kind of thing that you for those who, you know, want to go down this road, there’s a first step. And then beyond that you could see other types of models being used.

But it’s an awful lot to sort of bite off in the first instance about going straight to financial integration, given sort of historically where community-based organizations have been in serving these particular populations.

Lauren Solkowski:Thank you. Operator are you showing any questions on the audio line?

Coordinator:Yes we do have one question in queue coming from (Holly Hegler). Your line is open.

(Holly Hegler):Hi. I’m calling from Southern California. And the question I have is, is it reasonable to think that community-based organizations may be able to approach say an existing MSO or a super network that may not be doing the kinds of services we do?

But we would go to the and say could you take us on as a more expedient way of getting into that kind of a structure.

Todd Swanson:I’ll let Mark weight in also. The simple answer is yes. And that actually is a good approach because many of - although they may be new to this sector, and this sector may be new to some of these issues, a lot of the expertise that needs to be developed in an MSO has already been developed, you know, as I’ve indicated through these models in the physicians and other sectors.

So there are already MSOs out there that have that expertise. The, you know, and you can structure those MSO agreements, you know, the key will then be to structure those MSO agreements with an existing MSO with the types of retained rights and protections and things that you would otherwise built in more organically in developing your own MSO.

Mark Reagan:Let me see if I can go at it also from a different, slightly different standpoint. One of the things that you may want to look at is when you look at existing MSOs, how are they using their networks to serve the Medicaid population.

And I say that because there are some organizations that will be (delagees). That they will take on risk, largely some of the IPAs and the groups, for in your instance in the Southern California duals demo counties. There, some of those IPAs and groups that may have an affiliated MSO may be taking risk for the Medicaid population. And some may not be.

Understanding how the MSO deals with the delivery to Medicaid, obviously Medi-Cal beneficiaries is a first sort of question about whether there’s really a viable business opportunity there I think.

So exploring sort of their lines of service and that being key. But I do agree that if you find it the right partner using an existing infrastructure is again another possible good and achievable first step.

Todd Swanson:And I guess I would add, and a variation on that theme could be still the formation of an MSO by and, you know, supported by the participating community providers. But it could certainly also subcontract with MSOs for certain developed specialty areas without necessarily turning over wholesale the responsibility.

(Holly Hegler):Great thank you.

Lauren Solkowski:Operator are you showing any other questions?

Coordinator:There are no further questions at this time.

Lauren Solkowski:Okay well, it actually brings us just about right to the end of our time anyways. So that was perfect timing.

And I would like to thank, well actually a big thank you to both Mark and Todd for your presentations today. Excellent, very comprehensive, thank you again.

If anyone has any additional questions that you think of after the Webinar, again please feel free to email me at lauren.solkowski@acl.hhs.gov.

And then before we go, for those that are on, we have scheduled our next Webinar for the collaborative. It is scheduled for Wednesday, April 2 from 2 to 3:30 Eastern Time on the topic of CBO impact on quality and performance measures.

So with that, thank you everyone and have a wonderful afternoon.

Todd Swanson:Thank you.

June Simmons:Thank you.

Mark Reagan:Thank you. Bye.

Coordinator:Thank you. This concludes today’s conference. Participants you may disconnect at this time.

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