1999 CAS SEMINAR ON HEALTH AND MANAGED CARE Health Care Provider Excess Insurance

1
1999 CAS SEMINAR ON HEALTH AND MANAGED
CAREHealth Care Provider Excess Insurance

• This presentation will probably involve audience
  discussion, which will create action items. Use
  PowerPoint to keep track of these action items
  during your presentation
• In Slide Show, click on the right mouse button
• Select Meeting Minder
• Select the Action Items tab
• Type in action items as they come up
• Click OK to dismiss this box
• This will automatically create an Action Item
  slide at the end of your presentation with your
  points entered.

• Prepared By
• Milliman Robertson, Inc.
• Arthur L. Wilmes, FSA, MAAA

2
Prospective Trends in Healthcare

• Healthcare Providers Need to Consider Strategies
  That Increase Efficiency
• Forces in the Healthcare Market Will Make It Very
  Difficult for Status Quo Providers to Compete
  Effectively
• Healthcare Providers Will Need to Develop Their
  Patient Management Processes as if They Are Being
  Paid Under Capitation

3
Health Care Delivery Systems

• Independent Practice Associations (IPAs)
• Physician Practice Management Companies (PPMCs)
• Group Practice Without Walls
• Medical Group Practice
• Physician Hospital Organizations (PHOs)
• Medical Service Organization (MSOs)
• Foundation Model

4
Independent Practice Associations

• Umbrella Contracting Entity for Multi-Specialty
  or Single Specialty Physicians
• Individual Physicians Reimbursed by the IPA
• Composed of Independent Physicians With Only
  Central Contracting Being Common
• Not Necessarily a Lean Mean Fighting Machine
• Some States will Regulate Like MCOs

5
Physician Practice Management Companies

• Tend to Be Venture Capitalized Public Companies
• Last Two Years Have Not Been Kind to PPMCs
• Continue to Be a Force in Healthcare Market
• Approximately 27 Publicly Traded PPMCs
• Combined Equity Value Declined 49.3 During 1998
• Several High Profile Collapses

6
PPMCs Have Experienced Some Recent Equity
Improvement

• At the End of 1998, the Aggregate Stock Value of
  PPMCs is Up 12.8 Over the Last Six Months of
  1998.
• SP Rose 7.5 During the Same Period.
• Total Capitalization of PPMCs was Estimated at
  Approximately 4.8 Billion.
• Some of the Largest PPMCs Continue to Have
  Difficulties.
• Medpartners
• FPA Medical Management

7
Group Practice Without Walls

• Independent Physicians That Aggregate Their
  Practices Into a Single Legal Entity
• Legal Merging of All Assets of the Individual
  Physicians
• Individual Physician Incomes are Affected by the
  Performance of the GPWW as a Whole
• Independent Nature of Practices Within GPWW Means
  Independent Action
• Difficult to Align Incentives
• Weak Capitalization

8
Medical Group Practice Model

• Like the GPWW, but Physicians Become a Fully
  Integrated Medical Group
• No Multi-Site Independent Practice Groups
• Tends to be More Integrated Than a GPWW
• Be Wary of Top Heavy Groups

9
Physician Hospital Organizations

• Joint Hospital and Physician Entity That is
  Primarily a Negotiating Vehicle
• Integration Tends to Be Weak
• Trial Courtship Before a Serious Relationship
• Open vs. Closed PHOs
• MCOs tend to View PHOs as Ugly Cousins

10
Medical Service Organizations

• Service Bureau and Contracting Entity for
  Physicians
• Physicians Remain in Independent Practice
• MSO may purchase all or Some of the Physicians
  Assets
• Also Viewed as an Ugly Cousin by MCOs
• Purpose Tends to Be Centralized Common Services

11
Foundation Model

• Generally Created as a Not-For-Profit
  Organization Which Purchases Physicians
  Practices
• Must Provide a Substantial Community
  Value/Benefit
• Not Generally Formed With an Eye Towards Planned
  Resources
• Loose Control Over Physician Behavior

12
Physician Compensation

• Fee-For-Service
• Capitation
• Withholds and Risk/Bonus Provisions
• Carve-Outs
• PCP vs. Specialist vs. Hospital
• Individual vs. Pooled Risk
• Affecting Physician Behavior
• Product

13
Reimbursement is Key Underwriting Factor

• Usual and Customary Fees
• FFS and Discounts
• Relative Value Schedules (RVS)
• Capitation
• Diagnosis-Related Groups (DRGs)
• Per Diems (With and Without Outliers)
• Case Rates
• Ambulatory Patient Groups (APGs)

14
Example of Effect of Reimbursement on CPDs

• Prudential
• The Travelers
• NYL Care

15
Example of Effect of Reimbursement on CPDs

• Prudential
• The Travelers
• NYL Care

16
Case Study - Scope of Engagement

• Feasibility of Offering Stop-Loss Coverage to
  PCPs for Institutional Services
• 12 PCP Care Councils (Practice Groups)
• 100,000 Excess Maintained by MGA
• Care Councils Going to Full Risk, Want Lower
  Excess Limits

17
Historic Costs and Variability
18
Developing a Claims Probability Distribution

• Combined Individual Distributions of Historic
  Claims
• Trended Historic Costs by Assumed Incurred Trend
• Assumed a Piece-Wise Lognormal Distribution
  Developed by Minimum Distance Method

19
Empirical vs. Lognormal Distribution
20
Effect of Age and Gender
21
Effect of Group Size and Confidence Intervals
22
Putting it All Together