Signed Contracts_Apex Management GroupTHE CITY OF DubUgcie
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Du~ ~ AD-AmericaCtty
Masterpiece on the Mississippi
2007
TO: Michael C. Van Milligen, City Manager
FROM: Randy Peck, Personnel Manager
SUBJECT: Reimbursement Arrangements for Mercy and Finley Hospitals
DATE: March 4, 2009
The Health Care Committee believes that it may be advantageous to change our
reimbursement arrangement with Mercy and Finley Hospitals from a percentage
discount of billed charges to a fixed fee arrangement for in-patient and out-patient
services.
If we are to pursue a fixed fee arrangement with the hospitals, we will need to obtain
actuarial services in order to evaluate and establish such an arrangement. Bill
Robinson has received a quote from Apex Management Group, which is a division of
Gallagher Benefit Services, that specializes in actuarial, data management and claim
and eligibility auditing services.
I have attached a copy of the proposal presented by Apex Management Group. The
following is a breakdown of their proposed fees:
Service Price
Analysis of Current Payment Arrangement $3,000 per hospital
and Development of Target Pricing
Conducting Hospital Negotiations $7,500 per hospital
Implementation of the Payment $2,500 per hospital
Arrangements
The Health Care Committee recommends that we pursue a proposed fixed fee
arrangement with Mercy and Finley Hospitals and that we retain the services of Apex
Management Group to prepare the necessary information for a proposal.
The requested action is for the City Council to approve a motion accepting the attached
Proposal for Actuarial Services for the City of Dubuque prepared by Apex Management
Group and to authorize you to sign the Proposal. City Attorney Barry Lindahl has
reviewed the proposal letter and finds the terms acceptable.
RP:tlb
Attachment
cc: Health Care Committee
Jenny Larson, Budget Director
Apex Management Group
Proposal for Actuarial Services for City of Dubuque
Apea Management Group
Proposal for Actuarial Services for City of Dubuque
Background
The City of Dubuque {the City) provides health insurance to its employees through aself-
fundedprogram administered by Medical Associates Health Plans (HARP}. MAHP
maintains a provider network and negotiates reimbursement levels with participating
providers.
There are two primary hospitals that provide the bulk of hospital care for the City's
employees and their dependents. Currently, MAHP's agreements with both facilities
base payment on a % of billed charges. The City believes that reimbursement hased on
fixed per diem rates or case rates would result in lower hospital expenses under the health
plan today and would do a better j ob of controlling the annual growth in hospital claim
costs. The City has asked Gallagher Benefit Services {GBS) for support in negotiating
revised agreements with the local hospitals that would convert the hospital
reimbursement from a percentage discount to some forrn of fixed reimbursement for
inpatient services.
The Apex Management Group (Apex) is a division of GBS that specializes in actuarial,
data management, and claim and eligibility auditing services. Apex has expez~ience in
evaluating and negotiating provider contracts.
• Apex Management Group
Proposal for Actuarial Services for City of Dubuque
Scone of Services to Be Provided By Apex
Analysis of Current Payment Arrangement and Development of Target Pricing. We will
prepare a data request for MAHP tha# sets out the items needed to conduct the
negotiation. Once we receive the data, we will analyze the historical experience to
determine what the City is paying for inpatient services today under the percentage
discount arrangement. We will express prior hospital claim costs on both per admission
and per diem bases for each of the two local facilities. We will compare those net
effective rates with market rates based on our normative data and other publicly available
data sources such as Medicare. We will then present the results of our analysis to the
City along with recommendations for target pr7cing with the hospitals. The targets will
contain some combination of per diem rates, DRGs or other case rates, and potentially
"outliers" that might be priced at separate rates, including percentage discounts. It may
be necessary to have separate per diems depending on the Level of care (medical/surgical,
maternity, ICU, CCU, etc.), or separate DRG factors for different classes of DRGs. We
will have a better sense of this once we have reviewed the data, and eve will discuss this
with the City prior to commencing the negotiations. The intent will be to develop an
agreement that results in lower average costs to the City today and provides limits on the
rate at which future payments to the hospitals will increase. Once the City and Apex
agree on appropriate targets, or perhaps a range of acceptable outcomes, we will proceed
with the actual negotiations. At this point, it will be necessary to decide whether to
pursue negotiations with both hospitals, or to focus only on one facility. We will also
need to ensure that MAHP is capable of administering any arrangement that we are going
to pursue with the hospitals.
Conducting Hospital Negotiations. We will develop a proposal for each hospital (or just
for one hospital if the decision is made to limit the negotiations to one facility) based on
the targets identified above. We will make contact with the individual(s) responsible for
contracting with payers in each hospital and initiate the discussions with them. Hospital
negotiations typically take several iterations, depending on how aggressive the initial
proposal is and how receptive the market is to competitive pricing. We will keep the City
informed of our progress and will not agree to anything without the City's approval. It is
possible that neither hospital will accept any form of fixed rate reimbursement, or that
neither will accept rates that axe within the range that we have identified as our target. In
such case, we will work with the City to make sure than any opportunities for leveraging
the City's influence have been fully employed. .
.Implementing the PaymentArrangements. Once agreements are reached with the
hospitals, Apex will work as a liaison between MAHP and the hospitals to make sure the
azrangements are clearly understood and implemented. We will develop summary
reporting formats far MAHP, and we will review the summary claim reports for the first
6 months fallowing implementation to make sure that the actual payments made are
consisten# with our expectations based on the agreements reached. In the event we
identify any problems with the implementation, we will work with MAHP and the
hospitals to resolve them.
Apez Management Group
Proposal for Actuarial Services far City of Dubuque
Proposed Apex Fees
To recognize the possibility that the City may ui#imately elect to pursue negotiations with
both facilities, or with only one facility, we have developed the fee proposal based on the
number of hospitals that we are asked to negotiate with.
Analysis of Current Payment Arrangement and Development of Target Pricing, $3000
per hospital.
Conducting Hospital Negotiations. $7500 per hospital.
Implementing the Payment Arrangements (if requested). $2500 per hospital.
Apex Management Group
Proposal for Actaarial services for City of Dubuque
'T_ ~•~g
The project timing will depend on the responsiveness of MAHP and the hospitals, From
our initial correspondence with MAHP, we do not anticipate any piroblems getting the
required data in a timely manner. Once we have the data, we will prepare the initial '
recommended pricing targets within 2 weeks, We will allow an additional week to
review the targets with the City and get approval to go to the targeted hospitals. In total,
we expect that from the time we are asked to proceed with the project, it will take
approximately one month for us to be ready to approach the hospitals.
The negotiations themselves are moxe difficult to predict, as this will depend on many
things outside of our control. ~e would expect that at worst, however, we would either
reach an agreement or conclude there is ne. agreement to be had within two months of
frst approaching the hospitals.
The effective date of any pi7eing changes will be part of the agreement itself, so once the
agreement is reached, any remaining timelines will be known.
Proposal Accepted on Behalf of the City of Dubuque, IA:.
-_ % i/~
Michael C. Van Milligen, City Manager Date