HMO

1) Health Care Management Organization

Current Industry Status

Major pharmaceutical distribution companies are changing their portfolio putting more weights on Healthcare management

•US “BIG3” pharmaceutical distribution companies : Cardinal Health, Amerisourcebergen corporation, Mckesson corporation

•All three companies have somewhat similar market shares and potential in the distribution business: 33% for MCK; 30% for CAH; and 22% for ABC.

•They have attempt to further diversify their businesses over the past five yearsas drug distribution margins remain below 2%, and margins in other segments are frequently in the double digits.

-> Cardinal Health is the most enthusiastic one in the diversification.

The specific segments of business diversification in Healthcare management includes (Cardinal) :

Diversified Business Segements and Fierce Competition

McKesson Health's IT segment, Provider Technologies, currently its smaller diversification effort, is undergoing a restructuring effort. This includes an expansion of about 75-100 sales people in anticipation of growth in the IT technologies segment. This growth is expected because of increased government support and provider interest, due to IT's potential for cost cutting and improved patient safety.

While Cardinal Health and McKesson do compete with each other in medical and surgical manufacturing, their other diversified segments mainly compete with outside competitors. These competitors include: [[Owens & Minor (OMI)]] and [[Henry Schein (HSIC)]] in the manufacturing segment and [[Cerner (CERN)]] , [[Eclipsys (ECLP)]] , [[Allscripts Healthcare Solutions (MDRX)]] , and [[Computer Programs and Systems (CPSI)]] in information technologies. AmerisourceBergen is considered more of a "pure" player distributor, and its diversification is pretty minimal.

Business segments (in case of Mckesson corporation)

Distribution Solution Segments

•distributes drugs, medical-surgical supplies and equipment and health and beauty care products throughout North America.

•provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers,

•sells financial, operational and clinical solutions for pharmacies (retail, hospital, long-term care)

•provides consulting, outsourcing and other services.

Technology Solution Segments

•delivers enterprise-wide clinical, patient care, financial, supply chain, strategic management software solutions,

•delivers pharmacy automation for hospitals, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations.

•includes the Payor group of businesses, which includes InterQual® claims payment solutions, medical management software businesses and care management programs.

•The segment’s customers include hospitals, physicians, homecare providers, retail pharmacies and payors from North America, the United Kingdom,

Ireland, other European countries, Asia Pacific and Israel.

Net revenues for the segments for the last three years were as follows

Products and Services by customer groups( in a case of Mckesson Corporation)

Distribution solution

1. Retail National Accounts

• Central FillSM — Prescription refill service that enables pharmacies to more quickly refill prescriptions remotely, more accurately and at a lower cost, while reducing inventory levels and improving customer service.

• Redistribution Centers —provide the foundation for a two-tiered distribution network that supports best-in-class direct store delivery.

• EnterpriseRxSM —pharmacy management solution. centralizes data, reporting, pricing and drug updates, providing the operational control, visibility and support needed to reduce costs and streamline administrative tasks.

• RxPakSM — Bulk-to-bottle repackaging service to provide pharmaceuticals at reduced prices, help increase inventory turns and reduce working capital investment.

• Inventory Management –forecasting software and automated replenishment technologies that reduce inventory-carrying costs.

• McKesson OneStop Generics® — Generic pharmaceutical purchasing program that helps pharmacies maximize their cost savings with a broad selection of generic drugs, low pricing and one-stop shopping.

2. Independent Retail Pharmacies

• Health Mart® —is a comprehensive pharmacy franchise program and a national network of more than 2,500 independently-owned pharmacies

• AccessHealth® — Comprehensive managed care and reconciliation assistance services that help independent pharmacies save time, access competitive reimbursement rates and improve cash flow.

• McKesson Reimbursement AdvantageSM (“MRA”) —a comprehensive reimbursement optimization packages, comprising financial services, analytic services and customer care.

• Sunmark® —company’s own pharmaceutical brand.

• FrontEdge™ — Strategic planning, merchandising and price maintenance program that helps independent pharmacies maximize store profitability.

• McKesson Home Health Care — Comprehensive line of more than 1,800 home health care products,

3. Institutional Healthcare Providers

McKesson Pharmacy OptimizationSM — An experienced group of pharmacy professionals providing consulting services and pharmacy practice resources. help hospitals create and sustain financial, operational and clinical results.

Fulfill-RxSM — Ordering and inventory management system that integrates McKesson pharmaceutical distribution services with our automation solutions

Asset Management —inventory optimization and purchasing management program that helps to lower costs while ensuring product availability.

SKY Packaging — Blister-format packaging to provide cost-effective, uniform packaging.

McKesson OneStop Generics® — Generic pharmaceutical purchasing program that enables acute care pharmacies to capture the full potential of purchasing generic pharmaceuticals.

McKesson 340B Solution Suite —help providers manage, track and report on medication replenishment

High Performance PharmacySM — Framework that identifies hospital pharmacy best practices to help improve clinical outcomes and financial results.

Distribution Segments’ Products and Services are for

•increasing revenues and profitability in national account customer market.

•managed care contracting, branding and advertising, merchandising, purchasing, operational efficiency and automation that help independent pharmacists focus on patient care while improving profitability.

•Electronic ordering/purchasing and supply chain management systems that help customers improve financial performance, increase operational efficiencies and deliver better patient care.

Revenue Model

Revenue for Distribution Segment (mostly for Pharmaceutical) :

Sales The aggregate selling price to customers

(Cost) (the aggregate cost of products sold)

(net of manufacturer cash discount)

(branded manufacturer margin)

(generic manufacturer margin)

Gross Margin Gross Margin

Manufacturer cash discounts : price reductions that manufacturers may offer to us for prompt payment of purchased products.

Branded manufacturer margin : compensation amounts under distribution service agreements with manufacturers and to pharmaceutical price appreciation. Compensation under the distribution service agreements may be a fee based on volume with or without pharmaceutical price appreciation. A manufacturer may increase its published price for a product after we have purchased that product for inventory. Our contract price for branded pharmaceutical products to customers is based on the manufacturer’s published price at the time of sale. As such, inventory sold following a manufacturer price increase will be based on the higher manufacturer price.

Generic manufacturer margin : price discounts, rebates and other incentives we receive from manufacturers of generic pharmaceuticals. Our earnings on

generic pharmaceuticals generally are highest during the period immediately following the initial launch ofa generic product because generic pharmaceutical selling prices tend to decline over time, although this may vary.

Products and Services by customer groups( in a case of Mckesson Corporation)

Technology solution

Clinical management:

Horizon Clinicals® : application to facilitate integration and enable modular system deployment.

•includes a clinical data repository, health care planning, physician order entry, laboratory, radiology, pharmacy, surgical management, an emergency department solution and ambulatory EHR system.

•solutions to facilitate physician access to patient information

•includes a comprehensive solution for homecare, including telehealth and hospice.

Enterprise imaging: medical imaging and information management systems

• includes a picture archiving communications system, a radiology information system and a comprehensive cardiovascular information system.

Financial management: Revenue management solutions

•includes online patient billing, contract management, electronic claims processing and coding compliance checking.

•helps organizations to forecast financial responsibility for all constituents before and during care.

•streamlines financial processes to allow providers to collect their reimbursement more quickly and at a lower cost.

•Resource management: enhance an organization’s ability to plan and optimize quality care delivery.

•intelligence that enables providers to manage capacity, outcomes, productivity and patient flow.

•workforce management solutions assist caregivers with staffing and maintaining labor rule continuity

•A comprehensive supply chain management solution integrates enterprise resource planning applications, including financials, materials, Human Resources/Payroll, with scheduling, point of use, surgical services and enterprise-wide analytics.

Automation: technologies that help hospitals re-engineer and improve their medication use processes.

•includes centralized pharmacy automation for dispensing unit-dose medications, unit-based cabinet technologies for secure

medication storage and rapid retrieval and an anesthesia cart for dispensing of medications in the operating room.

Physician practice solutions: software, revenue cycle outsourcing and connectivity services.

•Software solutions include practice management and EHR software for physicians of every size and specialty.

•services that connect physicians with their patients, hospitals, retail pharmacies and payors.

•Revenue cycle outsourcing which includes clinical data collection, data input, medical coding, billing, contract management, cash collections, accounts receivable management and extensive reporting of metrics related to the physician practice.

Connectivity:

•health information exchange and revenue cycle management solutions that streamline clinical, financial and

administrative communication between patients, providers, payors, pharmacies, manufacturers, government and

financial institutions.

HMO

2) Health Maintenance Organization

HMO Health Maintenance Organization•Provides a form of health care coverage in the United States that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract.

•The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options if the employer offers traditional healthcare options.

•Unlike traditional indemnity insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers.

Operation HMOs require members to select a primary care physician(PCP),

•PCP : a doctor who acts as a "gatekeeper" to direct access to medical services.

•Except a medical emergency, patients need a referral from the PCP in order to see a specialist or other doctor unless it’s an Open Access HMO

Conduct utilization review

•monitor doctors to see if they are performing more services for their patients than other doctors, or fewer.

Provide preventive care for a lower copayment or for free,

•in order to keep members from developing a preventable condition that would require a great deal of medical services.

•Some services, such as outpatient mental health care, are limited, and more costly forms of care, diagnosis, or treatment may not be covered. Experimental treatments and elective services that are not medically necessary (such as elective plastic surgery) are almost never covered.

Conduct case management (patients with catastrophic cases are identified) and disease management (patients with certain chronic diseases)

-> the HMO assigns a case manager to the patient or a group of patients to ensure that no two providers provide overlapping care,

and to ensure that the patient is receiving appropriate treatment, so that the condition does not worsen beyond what can be helped.

CompanysAetna, CIGNA, Kaiser Permanente, Humana, Health Net, Wellpoint

Business Segments and Offerings

Product & Service

For individuals and Families

•Medical insurance ( Dental, Health Expense, Medicare, Disability, Life, Mental, Vision, Student Health, Pet)

•Health Plans (Pharmacy plans)

Employers and Organizations

- Provide customized services according to the size of the organization

•Medical insurance (Dental, Disability, Life, Mental, Vision, Pet)

•Health Plans (Consumer-Directed, Pharmacy, ): personalized information delivered in a timely manner suite of integrated health and productivity solutions. disease management or case management programs

Health Care Professionals

•Online transactions

•Communications, policy information, forms

•Office staff training

Technology

•Since 2005, Aetna has invested more than $1.8 billion in tools and health information technology solutions toward these efforts.

Employer Health Care Information System in mid and large organizations

•Major HMOs such as Aetna run subsidiary healthcare management organizations like Active Health Management.

• They aid physicians by providing information technology through the use of electronic medical records from management organization so its office is able to quickly and easily track patient records, tests and procedures.

Specialty performance network technologies and services.

•Technologies give members information so they can better understand how costs play into their health care

•and help employers lower health care costs while their employees achieve better health outcomes

•designed to help improve their employees’ health and productivity while lowering employees’ health risks and benefits costs.