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@) Uniteatteattheare endo Fan omar Community Plan November 18, 2016 Mikki Stier lowa Medicaid Director 1100 Army Post Road Des Moines, 14 50315 Re: Program Performance ~ October 2016 Dear Miki UnitedHealthcare’s Community Plan of lowa (UHC) shares the State of lowa's goal of improving the health of lowans while reducing the overall costs of the Medicaid program. We look forward to our continued partnership to meet the objectives of a successful and sustainable program. UHC appreciates the adsitional information provided on October 27", as well as the opportunity to speak with DHS and Milliman on Novernber 15" and 16". The new information provided has been helpful in understanding how Milliman intends to combine the variety of different rating adjustments, and UHC. appreciates being able to have a discussion with Milliman regarding the development of the latest update for ‘emerging trends. UHC wants to stress that it remains committed in partnering with DHS to help build a sustainable program to the benefit ofall lowans. ‘Quarter 2 Incurred Dates Highlights April experience has remained consistent with UHC's previous experience updates provided since mid ‘August. Below we have expanded the table provided previously to include all experience from 2" Quarter service dates. The tables have also been updated to incorporate the latest rate guidance regarding LTSS Rebalancing, LTSS Risk Adjustment, Acute Risk Adjustment, and the April and July Program Changes. The LTSS Rebalancing amounts have resulted in some favorable development for UHC compared to the performance updates UHC has been providing over the past few months to DHS, but overall the program remains dastically underfunded. ‘As shown in Table 4a: net revenue paid to UHC for 2" Quarter service dates including accruals based on the latest guidance total $260.6M, UHC has paid medical and pharmacy claims for 2" Quarter incurred dates totaling $273,8M as of Novernber 9°, and currently maintains an approximate additional $2.6M in reserve dollars for this time period. The Milliman stated expected release of reserves as it relates to the first few ‘months of the program has yet to be justified as clalms for April through June continue to be paid in accordance with reserve expectations. Not only have medical claims exceeded the premium rates, but deficits reported do not include the administrative costs of managing the ICH! program, which are above and beyond what was included in the rates. ‘Actual experience demonstrates that Milliman’s pricing has severely underestimated medical costs, as total 2° Quarter revenue is already insufficient to cover medical expenses (Tables 12 & 1b). When considering the approximate 6.5% Included for administrative services and additional 0.5% for risk margin, Milliman’s medical projection is understated by roughly 11% for the full quarter following the LTSS Rebalancing, this assumes the full 26 Quality Withhold will be returned and current reserve assumptions hold. AS The information contained in this document is confidential and proprietary financial information which belongs to UnitedHealthcare and Its affiliates that is exempt from disclosure under the lowa Open Records Law pursuant to §22.7.3 and §22. Confidential and Proprietary Financial Information* demonstrated in Table 1a and 1b, Miliman’s aggressive savings assumptions will not cover this discrepancy ‘even after they are fully realized. While UHC appreciates the State’s adjustment to rebalance the LTSS rates, this adjustment and an adjustment to Rx alone will not be enough ta support long term sustainability of the program. fable da: High Level Experience for Gz incurred Date {Total Claims Paid lEstimated Medical Reserve? [fotal Anticipated Claims Revenue Paid (net of passthroughs) $260.6M. Total Revenue w/Full Quality $265.9M. | 105.1% Milliman Non-Benefit Costs [Total Costs as Percent of Total Revenue™ ‘paid through November 9 with no health service raciass expenses Ultimate Paid estimated based on claims paid thru October 21” “assumes Milliman's 7% Non-Benefit Costs load is adequate ‘Table 1h: High Level Experience for Q2 Incurred Dates Total Cost Shortfall as $M $ 29.4 ere zt Siig Ha eeEia INon-Re Shortfall 3 166 Risk: Ad Medical Rese ‘Administrative Cost _| ‘SOM- $6M. \Total non-Rx Risks $23M - S46M. Managed Care Savings $18M - $22.5M_ ‘Managed Care Savings cannot cover remaining shortfall Pharmacy Actual pharmacy costs continue to be a key driver ofthe discrepancy between claims casts and program funding. Experience to date continues to be 43% higher than Milliman projections (Table 3). *The information contained in this document is confidential and proprietary financial Information which belongs to UnitadHealthcare and its affiliates that is exempt from disclosure under the lowa Open Records Law pursuant to §22.7.3 and §22. 2 Confidential and Proprietary Financial information aaa rary aE [TANE 1.60] § 37.22 118.5% Expansion, $47.81] 11375 ivsi| 238.1% [cup $28.19] $ 2396 3287 | 111.59 ssiwo $263.00] $ Soot 26.29 113.7% ssiw $3.87] § 276 160 169 43.895 ire 369.05] $ 3278, BSL 941%) [Total PMPMS $05.53] § 5.70) $ ear eas7 | 143.4%) ‘This under-funding averages $4M per month for the first seven months ofthe INQH! program for UHC. As previously mentioned, tiliman’s pricing ls inconsistent with market trends, in adltion to having major discrepancies between pricing assumptions and contractual requirements between DHS and the MCOs, \illiman assumed 3.035 ~ 6.0% trends on Pharmacy expenses and 6,9% - 16.7% Managed Care Cost Savings. Nationally, pharmacy Medicaid trends have exceeded 1035 over this same tire period. Additionally, contract amendments severely limit MCOs ability to marge the pharmacy benefit and achieve Milliman’s assumed savings targets by requiring MCOs to contract at lowe AAC with @ UBC maximum and dictating an $43.73 dispensing fee forall pharmacles, including national chains. UHC has more competitive agreements with national pharmacy chains that are currently being limited by the state contract amendment, In previous months’ performance updates UHC hes suggested the possibility of removing dispensing fee and Ingredient cost stipulations from the contract as a budget neutral method for the State to help MCOs reduce expenses. Following meetings with Milliman and DHS on August 30" and September 21°, it was mentioned ‘that UHC’s experience is not in line with expectations regarding the payment of both dispensing fees and ingredient costs, UHC has reviewed the examples provided by the state on 10/6/16 and the configuration ‘of pharmacy clalms and has confirmed that UHC pharmacy claims are paying appropriately. UHC once more requests the State to consider removing the contract language presented in Amendment 1 requiring an $11.73 dispensing fee and contracting at JA AAC for all pharmacies. The removel of the requirements will allow MCOs an opportunity to achieve the aggressive savings targets built in its rates, and help the State of iowa in achieving its goals of reducing the overall costs of the Medicald program. Health & Wellness ‘The MLR Reporting documents submitted by the NCOs updated with 03 experience highlight the funding challenges within the Health & Wellness population. Asa whole, the Health & Wellness population is running ata 135% MLR, which is drastically higher than the 89.5% MILR Milian had these populations priced and «alls for immediate action for right sizing of rates for this population, Milliman utilized a base period of G-months experience to price the Health & Wellness population projecting an overall population size of about 88K members, while the current statewide population size of 242k members heavily suggests the base period was not a full representation of this population, Additionally, Milliman stated ina letter to DHS dated October 30", 2015 that the Health & Wellness expenses were to be reduced by 6.8% or $14.44 annually, and with the current FMIAP percentage Milliman projected this cut in rates would result in a mere $0.5!M in savings for the State, The larger than projected population size for the Health & Weliness product will result in an even larger discrepancy between program cuts and State budget *The information contained in this document is confidential and proprietary financial information which belongs to Unitedtlealthcare and its affiliates that is exempt from disclosure under the lowa Open Records Law pursuant to §22,7.3 and §22. 3 Confidential and Proprietary Financial information* savings than the $13.9M that Milliman projected in October of last yeer. These program cuts are detrimental tothe Health & Wellness program while falling to help the State achieve its goal of budget reductions. UHC recommends adjusting the Heath & Wellness population rates to better correspond to actual ‘expetierice the MCOs have been observing since program launch utilizing 2 Quarter Encounter data. The 40% miss.on Health & Weliness claims projections by Milliman for this population suggests there were material flaws in the data utilized for the rating projection. Due to the high FMAP percentage for the Health & Wellness population, correcting the Health & Wellness rates will be a relatively low cost method for the State to provide some financial stability into the program. We look forward to continued rates discussions, and always welcome any additional meetings to review this information and answer any questions you have regarding our experience to date. We are committed to out partnership with you and the State of lowa to reach our common goals of improving healthcare quality and ‘outcomes, while increasing efficiency and reducing the overall costs of the Medicaid program to the State, Kimberly . Foltz, CEO UnitedHealthcare Community Plan of lowa Sincerely, *The information contained in this document is confidential and proprietary financial information which belongs to UnitedHealthcare and its affiliates that is exempt from disclosure under the lowa Open Records Law pursuant to §22.7.3 and §22, 4