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A path to continued growth 
Provider/Payorconvergence:
This presentation summarizes “Provider/PayorConvergence: Regulatory, Governance and Operational Issues You Need to Consider,” the second of two webcasts covering the ins and outs of convergence for health care providers and payors. Panelists from Johns Hopkins Institutions, Buchanan Ingersoll & Rooney PC andGrant Thornton LLPshare their experience and offer insight. 
2 
Author's note
What we'll discuss 
3 
1.The current health care environment 
2.Payorsface regulatory scrutiny 
3.The changing landscape for providers 
4.The keys to successful convergence 
5.Looking forward
The current environment 
4 
INTRODUCTION 
In health care, the traditional growth model is obsolete. 
As bottom lines shrink, payorsand providers are beginning to see convergence as the route to growth. 
"It’s time to thoughtfully consider convergence as a long-term growth strategy.” 
-David Tyler, Grant Thornton Health Care Advisory Services principal
What are the challenges for payors? 
5 
PAYORS 
Adding provider operations to a payor’sstructure can create regulatory challenges. 
The combined entity transaction may fall under state statutes that regulate everything from investments andinvestment practices to market conduct, product review and approvalto the resolution of consumer complaints.
"Enterprise risk may be heightened in convergence transactions because risks inherent in the provider organization may have the potential to adversely impact the insurer.” 
-Ronald E. Chronister 
Specialist, Insurance 
Industry Consultant 
Buchanan Ingersoll & Rooney 6 
“As provider/payorconverged structures become common, expect an evolving push by state regulators for more authority, along with a broader interpretation of existing authority.” 
-Jack M. Stover, Shareholder, Buchanan Ingersoll & Rooney 
PAYORS
7 
Focus on governance 
Some state insurance regulators are concerned about exactly how actively engaged the board is in meaningful oversight in convergence transactions. 
PAYORS
The landscape for providers 
8 
Challenges: 
•The reimbursement market is changing rapidly due to capitation, quality and patient satisfaction-based rates, and incentives to reduce utilization. 
•Providers have also made huge capital investments at a time when there are many threats to inpatient-based services. 
PROVIDERS
9 
“We have a ‘health plan within a health system,’ meaning we serve primarily as a Medicaid MCOfor the State of Maryland that includes over 300,000 insured lives. The challenges for the health plan lie in rationalizing the cost of care (within the converged entity versus out-of-network) and issues within the converged entity over minor things like billing and denials.” 
-Francis X. Bossle, Executive Director, Office of Internal Audits, Johns Hopkins Institutions 
PROVIDERS
10 
What providers need to know: 
•Payorsseeking to get into the provider business will likely underestimate the complexity of providers. 
•There are many steps and handoffs, especially in a hospital environment, that impact the bills submitted to payors. 
•Operational complexity, and overriding safety and quality concerns, make it very difficult to streamline business operations. 
PROVIDERS
The keys to successful convergence 
Look to ACOs 
Accountable care organizations (ACOs) bridge the gap that has traditionally existed between payorsand providers. ACOsare generally created through a transaction, but creating a successfully combined entity through convergence is more complex. 
11 
OPPORTUNITIES
12 
More than 100 ACOsnationwide 
OPPORTUNITIES
13 
4. SELECTION 
How are they performing? Encouraging, yet cautionary report from 2012: 
OPPORTUNITIES 
Nearly 50% of ACOsreduced spending below their target 
25% of ACOsqualified for shared savings bonuses 
Top-performing ACOsearned $126min shared savings payments 
Overall, ACOsgenerated $128 million in net savings for CMS
Five focus areas for buyers and sellers 
1.Strategic risk 
2.Operational decisions 
3.Financial considerations 
4.Cultural concerns 
5.Talent 
14 
OPPORTUNITIES
Strategic risk 
It's important to understand the rationale for the transaction —it shouldn’t be “me too,” but rather a way to reduce costs, better serve consumers and strengthen your organization’s financial future. 
Match the opportunity to the market by carefully looking at timing and potential partners. 
15 
“Realize this is not a zero- sum game. Look at other payors, other providers and other reimbursement incentives.” 
-David Tyler, Grant Thornton Health Care Advisory Services principal 
OPPORTUNITIES
Operational decisions 
•Transactions often call for new skill sets, expanded (or consolidated) IT, management processes and a host of new regulatory compliance capabilities. 
•It's critical to review processes such as clinical capabilities versus actuarial capabilities and dual-sided analytics: Where synergy opportunities exist —the trick is to recognize the real opportunities. 
•Define revenue centers versus cost centers, how to physically locate the organizations together, and where to invest and where to cut costs. 
16 
OPPORTUNITIES
Financial considerations 
Financial system integration —EMR/ERP, claims platforms, cost accounting and business intelligence/analytics —must all work together. It’s a critical component to convergence success. 
Other important financial components: financial process integration (e.g., budgeting and planning), shared services, cash flow impact and reporting. 
17 
"Not speaking a common financial language can easily lead to major issues down the road." 
-Mark Lastner, Director, Grant ThorntonBusiness AdvisoryServices 
OPPORTUNITIES
Cultural concerns 
A long-term change management approach is needed to address such items as physician relationship management, medical management,negotiations with other entities and accountabilityfor decisions on things like narrow networks and reimbursement premium levels 
18 
OPPORTUNITIES
Talent 
If your people aren't on board, there can be major issues with business continuity. The corporate culture can break down. A training plan is important for learning new or changed skills. A retention strategy is important, too, along with aligning incentives. 
19 
“Your people are a major asset and a valuable one, too — recruiting, hiring and training new employees is far more expensive than taking good care of the employees you already have.” 
-David Tyler, Grant Thornton Health Care Advisory Services principal 
OPPORTUNITIES
Convergence is more than a trend —it’s a moving train that you might be running alongside of, ready to jump aboard. It’s a complex undertaking, and we encourage you to fully investigate all that goes into a successful integration. 
20 
LOOKING FORWARD
21 
CONTACT US 
© 2014 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 
The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory membership organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. In the United States, visit Grant Thornton LLP at www.GrantThornton.com. 
Content in this publication is not intended to answer specific questions or suggest suitability of action in a particular case. For additional information about the issues discussed, consult a Grant Thornton LLP client service partner or another qualified professional. 
John Swanick 
Partner; Practice Leader, 
U.S. Insurance 
Grant Thornton LLP 
T +1 215 814 4070 
E john.swanick@us.gt.com 
David Tyler 
Principal, Health Care 
Advisory Services 
Grant Thornton LLP 
T +1 404 475 0180 
E david.tyler@us.gt.com 
Mark Lastner 
Director, Business 
Advisory Services 
Grant Thornton LLP 
T +1 215 814 1750 
E mark.lastner@us.gt.com 
Francis X. Bossle 
Executive Director 
Office of Internal Audits 
Johns Hopkins Institutions 
T +1 443 997 6394 
E fbossle@jhmi.edu 
Ronald E. Chronister 
Specialist, Insurance 
Industry Consultant 
Buchanan Ingersoll & Rooney PC 
T +1 717 237 4851 
E ronald.chronister@bipc.com 
Jack M. Stover 
Shareholder 
Buchanan Ingersoll & Rooney PC 
T +1 717 237 4837 
E jack.stover@bipc.com

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Provider/payor Convergence: A path to continued growth

  • 1. A path to continued growth Provider/Payorconvergence:
  • 2. This presentation summarizes “Provider/PayorConvergence: Regulatory, Governance and Operational Issues You Need to Consider,” the second of two webcasts covering the ins and outs of convergence for health care providers and payors. Panelists from Johns Hopkins Institutions, Buchanan Ingersoll & Rooney PC andGrant Thornton LLPshare their experience and offer insight. 2 Author's note
  • 3. What we'll discuss 3 1.The current health care environment 2.Payorsface regulatory scrutiny 3.The changing landscape for providers 4.The keys to successful convergence 5.Looking forward
  • 4. The current environment 4 INTRODUCTION In health care, the traditional growth model is obsolete. As bottom lines shrink, payorsand providers are beginning to see convergence as the route to growth. "It’s time to thoughtfully consider convergence as a long-term growth strategy.” -David Tyler, Grant Thornton Health Care Advisory Services principal
  • 5. What are the challenges for payors? 5 PAYORS Adding provider operations to a payor’sstructure can create regulatory challenges. The combined entity transaction may fall under state statutes that regulate everything from investments andinvestment practices to market conduct, product review and approvalto the resolution of consumer complaints.
  • 6. "Enterprise risk may be heightened in convergence transactions because risks inherent in the provider organization may have the potential to adversely impact the insurer.” -Ronald E. Chronister Specialist, Insurance Industry Consultant Buchanan Ingersoll & Rooney 6 “As provider/payorconverged structures become common, expect an evolving push by state regulators for more authority, along with a broader interpretation of existing authority.” -Jack M. Stover, Shareholder, Buchanan Ingersoll & Rooney PAYORS
  • 7. 7 Focus on governance Some state insurance regulators are concerned about exactly how actively engaged the board is in meaningful oversight in convergence transactions. PAYORS
  • 8. The landscape for providers 8 Challenges: •The reimbursement market is changing rapidly due to capitation, quality and patient satisfaction-based rates, and incentives to reduce utilization. •Providers have also made huge capital investments at a time when there are many threats to inpatient-based services. PROVIDERS
  • 9. 9 “We have a ‘health plan within a health system,’ meaning we serve primarily as a Medicaid MCOfor the State of Maryland that includes over 300,000 insured lives. The challenges for the health plan lie in rationalizing the cost of care (within the converged entity versus out-of-network) and issues within the converged entity over minor things like billing and denials.” -Francis X. Bossle, Executive Director, Office of Internal Audits, Johns Hopkins Institutions PROVIDERS
  • 10. 10 What providers need to know: •Payorsseeking to get into the provider business will likely underestimate the complexity of providers. •There are many steps and handoffs, especially in a hospital environment, that impact the bills submitted to payors. •Operational complexity, and overriding safety and quality concerns, make it very difficult to streamline business operations. PROVIDERS
  • 11. The keys to successful convergence Look to ACOs Accountable care organizations (ACOs) bridge the gap that has traditionally existed between payorsand providers. ACOsare generally created through a transaction, but creating a successfully combined entity through convergence is more complex. 11 OPPORTUNITIES
  • 12. 12 More than 100 ACOsnationwide OPPORTUNITIES
  • 13. 13 4. SELECTION How are they performing? Encouraging, yet cautionary report from 2012: OPPORTUNITIES Nearly 50% of ACOsreduced spending below their target 25% of ACOsqualified for shared savings bonuses Top-performing ACOsearned $126min shared savings payments Overall, ACOsgenerated $128 million in net savings for CMS
  • 14. Five focus areas for buyers and sellers 1.Strategic risk 2.Operational decisions 3.Financial considerations 4.Cultural concerns 5.Talent 14 OPPORTUNITIES
  • 15. Strategic risk It's important to understand the rationale for the transaction —it shouldn’t be “me too,” but rather a way to reduce costs, better serve consumers and strengthen your organization’s financial future. Match the opportunity to the market by carefully looking at timing and potential partners. 15 “Realize this is not a zero- sum game. Look at other payors, other providers and other reimbursement incentives.” -David Tyler, Grant Thornton Health Care Advisory Services principal OPPORTUNITIES
  • 16. Operational decisions •Transactions often call for new skill sets, expanded (or consolidated) IT, management processes and a host of new regulatory compliance capabilities. •It's critical to review processes such as clinical capabilities versus actuarial capabilities and dual-sided analytics: Where synergy opportunities exist —the trick is to recognize the real opportunities. •Define revenue centers versus cost centers, how to physically locate the organizations together, and where to invest and where to cut costs. 16 OPPORTUNITIES
  • 17. Financial considerations Financial system integration —EMR/ERP, claims platforms, cost accounting and business intelligence/analytics —must all work together. It’s a critical component to convergence success. Other important financial components: financial process integration (e.g., budgeting and planning), shared services, cash flow impact and reporting. 17 "Not speaking a common financial language can easily lead to major issues down the road." -Mark Lastner, Director, Grant ThorntonBusiness AdvisoryServices OPPORTUNITIES
  • 18. Cultural concerns A long-term change management approach is needed to address such items as physician relationship management, medical management,negotiations with other entities and accountabilityfor decisions on things like narrow networks and reimbursement premium levels 18 OPPORTUNITIES
  • 19. Talent If your people aren't on board, there can be major issues with business continuity. The corporate culture can break down. A training plan is important for learning new or changed skills. A retention strategy is important, too, along with aligning incentives. 19 “Your people are a major asset and a valuable one, too — recruiting, hiring and training new employees is far more expensive than taking good care of the employees you already have.” -David Tyler, Grant Thornton Health Care Advisory Services principal OPPORTUNITIES
  • 20. Convergence is more than a trend —it’s a moving train that you might be running alongside of, ready to jump aboard. It’s a complex undertaking, and we encourage you to fully investigate all that goes into a successful integration. 20 LOOKING FORWARD
  • 21. 21 CONTACT US © 2014 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory membership organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. In the United States, visit Grant Thornton LLP at www.GrantThornton.com. Content in this publication is not intended to answer specific questions or suggest suitability of action in a particular case. For additional information about the issues discussed, consult a Grant Thornton LLP client service partner or another qualified professional. John Swanick Partner; Practice Leader, U.S. Insurance Grant Thornton LLP T +1 215 814 4070 E john.swanick@us.gt.com David Tyler Principal, Health Care Advisory Services Grant Thornton LLP T +1 404 475 0180 E david.tyler@us.gt.com Mark Lastner Director, Business Advisory Services Grant Thornton LLP T +1 215 814 1750 E mark.lastner@us.gt.com Francis X. Bossle Executive Director Office of Internal Audits Johns Hopkins Institutions T +1 443 997 6394 E fbossle@jhmi.edu Ronald E. Chronister Specialist, Insurance Industry Consultant Buchanan Ingersoll & Rooney PC T +1 717 237 4851 E ronald.chronister@bipc.com Jack M. Stover Shareholder Buchanan Ingersoll & Rooney PC T +1 717 237 4837 E jack.stover@bipc.com