As bottom lines shrink, payors and providers are beginning to see convergence, or vertical integration, as the path to growth, Panelists from Johns Hopkins Institutions, Buchanan Ingersoll & Rooney PC and Grant Thornton LLP share their experience and offer insight on the challenges and benefits of this strategy. Read the full paper at http://gt-us.co/1Cv6MRA

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.
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Author's note

3. What we'll discuss
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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
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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In health care, the traditional growth model is obsolete.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?
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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

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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
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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

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“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

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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.
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OPPORTUNITIES

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More than 100 ACOsnationwide
OPPORTUNITIES

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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
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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.
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“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.
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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.
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"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
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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.
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“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.
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LOOKING FORWARD

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CONTACT US
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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