Questions_for_Interested_Parties_and_Proposed_Changes.pdf

Questions for Interested Parties

1) Understanding that DHA is limited in its ability to alter legislative mandates such as the current fee-for-service provider reimbursement methodology, what incentives could be added to the MCS requirements that can increase focus on quality of care and a reduction in health care costs?

a) How can DHA better integrate MTF care into the MCSC’s overall approach to managing TRICARE beneficiaries’ healthcare?

b) How can DHA better engage TRICARE beneficiaries in wellness care?

c) Other than provider discount savings, what measures can be used to objectively identify whether the MCSC is successful at cutting healthcare expenditures?

2) DHA is considering whether to include a version of the T3 national trend incentive in the T17 contract, except for all underwritten beneficiaries rather than just network enrollees, and also with an adjustment that benefits the MCSC if MTF workload increases.

Please share any comments on the pros and cons of keeping such an incentive provision in the contract and having the incentive cover all underwritten beneficiaries and provide an incentive for MTF care. Are there any further revisions you would suggest? If so, please be very specific on details, source of any necessary data, etc.

PRV/PRAV proposed language for Section C and Section H

Section C

C.X.X. The contractor shall ensure that all operational areas and systems related to the seven key contract areas that are to be evaluated during Performance Readiness Validation (PRV) and Performance Readiness Assessment and Verification (PRAV) are staffed with qualified, trained personnel and functional prior to the start of health care delivery in accordance with the timelines and performance thresholds identified in TOM Chapter 1, Section 7. This will facilitate the evaluation of performance readiness in the following key contract areas: (1) provider networks; (2) enrollment; (3) customer service; (4) management; (5) referral management;

(6) claims processing; and (7) medical management. See Sections H.X.1 and H.X.2 for a description of the PRV/PRAV processes and requirements.

Section H

H.X.1. Performance Readiness Validation (PRV).

H.X.1.1. During contract transition, the contractor shall conduct validation reviews to assess the contractor’s performance readiness in seven key contract areas. This self-assessment process is called Performance Readiness Validation (PRV). The seven key contract areas that are subject to PRV reviews are: (1) provider networks; (2) enrollment; (3) customer service; (4) management; (5) referral management; (6) claims processing; and (7) medical management. Specific validation review activities, accuracy/timeliness thresholds, and processes are at the contractor’s discretion; however, they must meet or exceed the specific performance elements that will be assessed/verified by the Government during the PRAV as discussed in H.X.2. et seq. All PRV reviews must be completed no later than XX calendar days prior to the start of health care delivery. PRV activities and milestones shall be identified in the Integrated Master Plan/Integrated Master Schedule (IMP/IMS) and shall be reported to the Government via the Weekly Status Report.

H.X.1.2. Following the completion of the PRV, the contractor shall provide the Government transition team with a comprehensive briefing on the processes, results, and findings of all PRV reviews. This briefing should summarize the information that was reported to the Government via the Weekly Status Report. Results shall be briefed as validated performance against desired PRAV performance levels and contract standards and/or requirements. The briefing shall include a description of specific performance issues and/or risks identified by the contractor, any lessons learned, and a comprehensive discussion of the steps contemplated or taken by the contractor to ensure full performance readiness at the start of health care delivery. The briefing schedule should incorporate adequate time for Government questions and feedback regarding any aspect of the contractor’s performance management and performance readiness review activities. A revised IMP/IMS will be submitted if the contractor anticipates any significant deviation from any stated activities and milestones. The PRV briefing must occur at least XX calendar days prior to the start of the Performance Readiness Assessment and Verification (PRAV) process as described below.

H.X.2. Performance Readiness Assessment and Verification (PRAV).

H.X.2.1. The Government will conduct PRAV activities to assess and verify the contractor’s readiness to perform in the seven key contract areas identified in H.X.1.1. PRAV activities will be conducted by one or more Government transition teams via remote assessment, by telephone, by the direct evaluation of contract deliverables, and by onsite testing/inspection at one or more contractor locations as described below. Specific PRAV dates, locations, team structure, and inspection methods will be identified by the Government no later than XX calendar days prior to the start of health care delivery.

H.X.2.2. The contractor shall fully comply with the activities of the Government transition teams and shall provide adequate space, local and toll-free telephone support, IT support (Internet access, connection to contractor systems, and assistance with connectivity issues), and unrestricted access to contractor staff and information in order to assess and verify contractor performance readiness.

H.X.2.3. Provider Network Readiness: The Government’s assessment/verification processes and minimum PRAV performance levels for Provider Network Readiness are as follows:

H.X.2.3.1. The Government team will assess the contractor’s performance readiness regarding provider networks via remote assessment and/or on-site assessment and verification at contractor facilities during the PRAV. The Government will evaluate XX- XXX provider agreements to confirm execution, compliance with licensure/certification and malpractice insurance requirements, and loading to all applicable contractor and subcontractor systems and DEERS. Sampled provider agreements will be compared to provider directory entries to verify accuracy and completeness of the provider directory. The evaluation will also include an assessment of the actual number of signed provider agreements (as of the start date of the PRAV) for XX-XX MTF or eMSM locations as compared to the network target for each service area. The same sample that is used to evaluate provider agreement and loading to the contractor’s system and DEERS will be used to assess provider directory accuracy.

H.X.2.3.2. For PRAV purposes, provider network readiness will be assessed against the following six elements: (1) execution of network provider agreements, (2) documentation of provider licensure/certification requirements, (3) loading of network provider agreements to all applicable contractor and subcontractor systems, (4) loading of network provider files into DEERS, (5) number of signed network agreements as compared to the contractor’s target in their Network Implementation Plan, and (6) online provider directory accuracy. Desired PRAV performance levels: (1) 90% of all sampled network provider agreements shall be executed (all information complete with appropriate signatures) , (2) 90% of all sampled network provider files shall contain evidence of current licensure/certification, (3) 90% of all sampled network provider agreements shall be loaded into the applicable contractor and subcontractor systems, (4) 90% of all sampled network provider files shall be loaded into DEERS, (5) actual number of signed network agreements for each sampled location is greater than or equal to 90% of the target identified in the contractor’s network implementation plan, and (6) 90% accuracy rate of provider directory information as compared to the contractor’s provider file and the provider agreement (required elements include provider or facility name, specialty or type of facility, subspecialty, gender, service area, work address, work fax number, work telephone number, any limitations of service, and whether the provider is accepting new TRICARE patients) . For PRAV purposes, a provider directory entry will be considered accurate if all of the required elements in the directory match the information in the contractor’s provider file and the provider agreement.

H.X.2.4. Enrollment: the Government’s assessment/verification processes and desired PRAV performance levels for enrollment systems connectivity and enrollment operational readiness are as follows:

H.X.2.4.1. Enrollment system connectivity will be evaluated to determine whether an effective interface with government systems has been accomplished following the installation/loading of applicable hardware and software. Enrollment operations will be evaluated for timely and accurate processing of enrollment and portability requests. Enrollment system connectivity will be evaluated via remote assessment or on-site verification by Government transition personnel no earlier than 60 calendar days prior to the start of health care delivery. Utilizing electronic, telephonic, or hard-copy enrollment scenarios to be provided by the Government, the contractor shall receive a sample of XXX-XXX enrollment/portability requests and perform the following actions: (1) demonstrate the availability of multiple methods for receiving enrollment enrollment/portability transfer requests from beneficiaries; (2) verify eligibility in DEERS; (3) apply appropriate enrollment guidelines for each applicable service area; and (4) complete the requested action in an accurate, timely manner.

H.X.2.4.2. For PRAV purposes, enrollment system connectivity and enrollment operational readiness will be evaluated against the following six elements: (1) successful installation/loading of all enrollment hardware/software; (2) demonstration of interface with government systems as they pertain to enrollments; (3) availability of multiple methods for requesting enrollment/portability transfer requests; (4) verification of eligibility in DEERS; (5) accurate application of enrollment guidelines for each service area; and (6) accurate completion of enrollment/portability actions in a timely manner. The Government will consider enrollment system connectivity to be achieved when the Government can verify, via remote assessment or on-site verification, that all enrollment hardware/software has been installed/loaded and that interface with Government systems has been achieved. The Government will consider an enrollment/portability action to be accurately processed if all four applicable elements were demonstrated or completed correctly. Desired PRAV performance levels: following the date of receipt, XX% of enrollment/portability transfer requests shall be processed accurately within X working days and XX% shall be processed accurately within X working days.

H.X.2.5. Customer Service: the Government’s assessment/verification processes and desired PRAV performance levels for Customer Service (Call Center Operations) readiness are as follows:

H.X.2.5.1. Beginning no earlier than 120 calendar days prior to the start of health care delivery, the Government transition team will conduct telephonic verification of the Customer Service operations (toll-free customer support) at unannounced times. Government evaluators will initiate a sample of XXX-XXX calls to contractor customer service personnel, asking for assistance or information regarding a wide variety of TRICARE issues or scenarios. The contractor is responsible for providing toll-free telephone number(s) for use by the Government team for this purpose.

H.X.2.5.2. For PRAV purposes, Customer Service operational readiness will be measured against the following elements: (1) blockage rates; (2) call abandonment rates; (3) average speed of answer; (4) total hold time per call; (5) first call resolution rate; and

(6) response accuracy. Desired PRAV performance levels: blockage rates less than 5%; call abandonment rates less than 5%; average speed of answer less than 45 seconds; “on hold” time for 95% of all calls shall not exceed 30 seconds during the entire telephone call;

85% of all inquiries shall be fully and completely answered during the initial telephone call; and 90% of all responses provided by Call Center staff shall be accurate and complete according to the terms of the contract and all applicable TRICARE programs and policies.

H.X.2.6. Management: the Government’s assessment/verification processes and desired PRAV performance levels for Management readiness are as follows:

H.X.2.6.1. The Government team will assess the contractor’s performance readiness regarding management by determining whether all required site visits to key government healthcare locations at enhanced multi-service market offices, intermediate Service Commands, Coast Guard leadership, and MTFs have been accomplished according to the timelines required by the contract.

H.X.2.6.2. For PRAV purposes, Management readiness will be evaluated by Government transition team verification that all required site visits have been completed in a timely manner (via telephone, e-mail, or review of contract deliverables). Desired PRAV performance levels: (1) 100% of all required visits to e-MSMs, intermediate Service Commands, and Coast Guard leadership are completed no later than 30 calendar days following the last day of the Transition Specification Meeting; and (2) 100% of all required visits to MTFs are completed no later than 100 calendar days following the last day of the Transition Specification Meeting.

H.X.2.7. Referral Management: the Government’s assessment/verification processes and desired PRAV performance levels for Referral Management readiness are as follows:

H.X.2.7.1. The Government team will conduct onsite verification of the contractor’s referral/authorization processes at one or more contractor facilities during the PRAV. Referral/authorization processing will be evaluated for timeliness and accuracy. Utilizing the Government’s Referral Management System (RMS) (or as an alternative, hard-copy referral scenarios to be provided by the Government), the contractor shall receive a sample of XXX-XXX referrals and perform the following actions: conduct eligibility and covered benefit reviews, perform Right of First Refusal (ROFR) actions, identify and return incomplete referrals and/or referrals for ineligible beneficiaries, perform health care finder services, and issue accurate authorizations for required services (when appropriate).

H.X.2.7.2. For PRAV purposes, referral/authorization processing readiness will be evaluated against the following six elements: (1) verification of eligibility in DEERS; (2) application of TRICARE medical benefit policies for covered benefit determinations; (3) completion of ROFR activities in accordance with MTF instructions; (4) disposition of referral (i.e., issue authorization or return referral without action due to missing information, ineligibility, or non-covered services); (5) identification of an appropriate provider/facility (health care finder service) based on the referral; and (6) issuance of an accurate authorization for requested services (when appropriate). For PRAV purposes, the Government will consider a referral to be accurately processed if all six applicable elements were completed correctly. Desired PRAV performance levels: following the date of receipt, 80% of referrals shall be processed within 2 working days and 90% shall be processed accurately within 3 working days with an overall accuracy rate of 95%.

H.X.2.8. Claims Processing: the Government’s assessment/verification processes and desired PRAV performance levels for claims processing readiness are as follows:

H.X.2.8.1. The Government team will conduct onsite assessment and verification of claims processing readiness at the contractor’s claims processing facility during the PRAV. Claims processing activities will be evaluated for timeliness and accuracy, utilizing a Government-provided sample of XXX-XXX claim scenarios designed to test a multitude of claim conditions. The evaluation will consist of 3-5 cycles or batches of claims. Each cycle may be submitted on consecutive days. Each cycle after the initial one will include new test claims, as well as claims not completed or completed with errors during preceeding cycles. At the Government’s discretion, any of the following aspects of claims processing may be tested: receiving and sending electronic transactions, provider file development and maintenance, eligibility verification, coding, TRICARE Encounter Data (TED) record submission, data entry, editing, pricing and payment methodologies, application of OHI and third party liability rules, data management, data linking, record building, and access control. The evaluation may be conducted on the contractor’s production system(s) or an identical copy of the production system (i.e., test system). Since certain external systems and files (e.g., DEERS) are an integral component of accurate claims processing, the contractor shall ensure that direct interface with any required external system is established and operational on the production or test system prior to the PRAV. Specific details regarding PRAV claims processing evaluation will be identified no later than 90 calendar days prior to the start of health care delivery.

H.X.2.8.2. For PRAV purposes, the Government will assess/verify the contractor’s readiness to process claims accurately by comparing the contractor’s actual performance as compared to the Government’s predetermined solutions for each test scenario.

Accuracy will be measured for each scenario as either acceptable or non-acceptable. For PRAV purposes, the Government will assess/verify the contractor’s readiness to process claims in a timely manner by evaluating the contractor’s actual performance in processing test claims within one business day of receipt. The date of receipt will not be counted in this assessment. Claims that process with errors will be resubmitted to the contractor for correction in a subsequent cycle; however, these claims will be excluded from PRAV performance level calculations. Desired PRAV performance levels: 80% of test claims (excluding resubmissions) will be processed accurately within one business day of receipt, and 90% of test claims (excluding resubmissions) will be processed accurately by the conclusion of the PRAV.

H.X.2.9. Medical Management: the Government’s assessment/verification processes and desired PRAV performance levels for Medical Management readiness are as follows:

H.X.2.9.1. The Government team will conduct assessment and verification of the contractor’s readiness to perform medical management activities by (1) sampling and evaluating XX-XXX beneficiary case files for beneficiaries under case management or disease management to determine that the information was were appropriately transferred from the outgoing contractor to the incoming contractor; and (2) by determining whether the contractor has established a viable business process for honoring outstanding prior authorizations and referrals issued by the outgoing contractor, covering care through 60 days after the start of health care delivery under the instant contract.

H.X.2.9.2. For PRAV purposes, the Government will assess/verify the contractor’s readiness to perform medical management activities by (1) comparing the contractor’s in-house beneficiary case files to the Government’s samples for beneficiaries under case management or disease management under the outgoing contract; and (2) by remote assessment or on-site verification of the contractor’s process for honoring outstanding prior authorizations and referrals issued by the outgoing contractor for a period of 60 days following the start of health care delivery. Desired PRAV performance levels: 95% of sampled beneficiary case files for case management and disease management shall contain accurate information to facilitate seamless continuity of services to those beneficiaries, and a technically-sound process has been established by the contractor to facilitate the honoring of outstanding prior authorizations and referrals issued by the outgoing contractor (evaluated on an acceptable/not-acceptable basis).

H.X.2.10. Following the completion of all PRAV activities, the Government shall provide a summary outbriefing to the contractor on the processes, results, and findings of all PRAV activities. Results will be briefed as assessed or verified performance against desired PRAV performance levels and contract standards and/or requirements. At the Government’s discretion, this briefing will be conducted onsite at one of the contractor’s facilities on the final day of the PRAV, or via teleconference within 10 working days following the conclusion of the PRAV. If the Government chooses to provide an onsite briefing, the contractor shall provide toll-free teleconference support to allow participation by all Government transition team members regardless of their location. The outbriefing schedule will incorporate adequate time for contractor questions and feedback regarding any aspect of the PRAV.

H.X.2.11. If the Government determines that corrective actions are required (based on any PRV/PRAV activity, contract deliverable, or briefing), the CO will notify the contractor in writing of the performance readiness issues to be resolved prior to the start of health care delivery. Corrective actions that must be taken by the contractor to correct performance readiness issues and reduce risk, resulting from contractor actions, are the responsibility of the contractor. This provision does not limit the Government’s right to take other contractual actions as appropriate to ensure the continued delivery of managed care support contract services to TRICARE-eligible beneficiaries in the fifty United States and the District of Columbia.

Recommended National Trend Incentive Language for Section H

H.2.5. External Cost Trend Incentive. The purpose of this incentive is to motivate cost-control efforts by the contractor for Contractor Network Prime enrollees and MTF Prime enrollees, by comparing the observed annual trend in the underwritten costs of all underwritten Prime enrollees in the contract region as a whole to an external national standard. The observed trend will be adjusted for changes in the percentage of care provided in the civilian community under purchased care (herafter referred to as the “civilian share”) versus at Military Treatment Facilities (MTFs), for changes in enrollment levels, and for change orders affecting underwritten health care costs for underwritten Prime enrollees. This incentive calculation is described below, and a detailed hypothetical example is presented in Attachment 7.

H.2.5.1. For this incentive, the national external trend used as a standard of comparison will be a sub-set of the National Health Expenditures (NHE) trends reported annually by the Office of the Actuary, Centers for Medicare and Medicaid Services (CMS).

Specifically, the national external trend standard will be the portion of the NHE trend for Personal Health Care Costs Per Capita represented by Hospital Care, Professional Services (for Physician and Clinical Services and for Other Professional Services only), and Durable Medical Equipment. Other categories of Personal Health Care Costs are excluded from the national external trend standard either because they are not representative of the underwritten care under this contract (such as dental care and most prescription drugs) or because they are disproportionately represented in the NHE projections relative to the underwritten costs of this contract (such as home health care and nursing home care). The per capita NHE national trend data are the basis of the external national trend standard for the following reasons:

a) the NHE data reflect the broad national health care sector (employer health plans, Medicare, etc.), rather than a small sample of health plans;

b) the data are collected and reported by a Government entity;

c) the NHE trends are widely cited;

d) the NHE data are readily available by the categories and sub-categories described above; and

e) CMS provides both projections of the NHE trends and subsequent actual trends.

Further information on the NHE data can be found at http://www.cms.hhs.gov/NationalHealthExpendData

H.2.5.1.1 The NHE data are reported on a calendar year basis. For purposes of this incentive, the trend for the calendar year that overlaps the first 9 months of a given option period will be used as the comparison trend for that option period (e.g., the CY17 CMS NHE trend will be used as the standard for the incentive result for the option period that begins in April of 2017).

H.2.5.1.2 The actual CMS NHE data for a given calendar year are available approximately 12 months after the end of that calendar year (e.g., actual data for CY13 were released in December 2014). The Government will perform the calculation of this incentive result after the actual data are available. For the incentive calculation to be performed approximately 12 months after the end of each option period, the actual NHE trend reported by CMS for the relevant calendar year will be used, based on the NHE data available at the time the final incentive calculation is performed.

H.2.5.2 Prior to comparing the observed trend experienced for the underwritten cost for all underwritten Prime enrollees to the national external standard (the NHE per capita trend described above), the actual underwritten cost trend for the region will be adjusted for the approximate effects of three potential factors: 1) changes in the civilian share of MHS workload for this population, 2) changes in the number of underwritten Prime enrollees, and 3) change orders.

H.2.5.2.1 To adjust for changes in the civilian share of MHS workload, the Government will calculate, retrospectively, the civilian-purchased-care and MTF percentages of MHS workload for underwritten Prime enrollees in the option period being measured and in the preceding option period. TEDs data will be used to tabulate the number of all underwritten Prime inpatient admissions and evaluative outpatient visits; MTF Standard Inpatient Data Records (SIDRs) will be used to tabulate the number of MTF inpatient dispositions; and MTF Standard Ambulatory Data Records (SADRs) will be used to tabulate the number of MTF evaluative visits.1 The trend in the civilian share of MHS workload, per underwritten Prime enrollee, will be calculated as the ratio of the civilian share of care in the option period being measured to the corresponding percentage in the preceding option period and will be netted from the overall trend in underwritten cost per underwritten Prime enrollee. More details and an example of this calculation are provided in Attachment 7.

H.2.5.2.2 The actual trend can also be affected by a change in the share of Active Duty Dependents (ADDs) or Non-Active Duty Dependents (NADDs) in the underwritten Prime population. To normalize the observed trend in TRICARE underwritten health care costs for changes in the number of ADFM and/or NADFM underwritten Prime enrollees, relative to the prior year, the cost trend per enrollee, after being normalized for changes in the civilian share of workload, will be multiplied by the prior year's underwritten costs, separately for Active Duty Family Members (ADFMs) and Non-Active Duty Family Members (NADFMs). More details and an example of this calculation are provided in Attachment 7.

H.2.5.2.3 Benefit changes unique to TRICARE can also affect the actual trend in cost per underwritten Prime enrollee. The impact of change orders on underwritten costs for underwritten Prime enrollees will also be netted from the underwritten cost trend prior to comparison to the CMS NHE standard. More details and an example of this calculation are provided in Attachment 7.

H.2.5.3 Once the underwritten cost trend per underwritten Prime enrollee has been normalized for these three factors, the normalized trend will be compared to the NHE cost trend described above. The normalized underwritten trend will be subtracted from the NHE trend, and the contractor's incentive result will be 30% of the difference between the two trends. If the underwritten trend is lower than the NHE trend described above, there will be a positive trend differential and the contractor will receive a positive incentive result. If the underwritten trend is higher than the NHE trend, there will be a negative trend differential and the contractor will receive a negative incentive result. For example, if the normalized underwritten trend is 7.0% and the NHE trend is 6.0%, the contractor will

1 See the TED and CAPER data documentation accompanying the RFP for further description of evaluative visits.

receive a negative 0.30% incentive result. If the normalized underwritten trend is 5.0% and the NHE trend is 6.0%, the contractor will receive a positive incentive of 0.30%. To convert the incentive result into a dollar amount, the percentage result will be multiplied by the normalized underwritten cost for underwritten Prime enrollees that is calculated in Step 7 of this trend methodology (see Attachment 7 for the detailed steps in calculating this incentive).

H.2.5.4 This incentive will be calculated for each option period of the contract. For the Option Period 1 calculation, the prior year’s data used as part of the calculation will reflect the data from the last year of the succeeded contract. Thus, the incoming contractor's incentive result for Option Period 1 will reflect the trend in underwritten costs for all underwritten Prime enrollees from the last year of the succeeded contract to the first option period of this contract, subject to the adjustments and external trend comparison described above.

H.2.5.5 For purposes of this incentive calculation, the underwritten costs tabulated from TED data will not be adjusted for the results of the allowable cost audits, for three reasons. First, this simplifies administration of this incentive. Second, not adjusting for the audit in this trend measurement gives the contractor an additional incentive to improve claims processing accuracy. Third, the audit results will not be stratified specific to underwritten Prime enrollee claims.

Attachment 7

Hypothetical Example of the External Trend Incentive Calculation

(Reference Section H, H.2)

Assume for this example that the incentive result is being calculated for Option Period 3 (OP3). Values below are rounded for simplicity in this example. See Table 1 below for a high-level summary of this example.

Step 1. Divide OP2 and OP3 underwritten civilian purchased-care and MTF workload for all underwritten Prime enrollees into four categories: inpatient ADFM, inpatient NADFM, outpatient ADFM, and outpatient NADFM. The civilian purchased-care inpatient workload will reflect admissions tabulated from TRICARE Encounter Data (TED) records. The MTF inpatient workload will reflect dispositions tabulated from MTF Standard Inpatient Data Records (SIDRs). The civilian purchased-care outpatient workload will reflect outpatient evaluative visits tabulated from TED records. The MTF outpatient workload will reflect outpatient evaluative visits tabulated from MTF Standard Ambulatory Data Records (SADRs), excluding telephone consults.

Step 2. For each of the four categories from Step 1, for both OP2 and OP3, calculate the civilian purchased-care workload per underwritten Prime enrollee and the MTF workload per underwritten Prime enrollee. The underwritten Prime enrollee counts for the denominators in this step will be the average of 12 monthly "snapshot" counts tabulated from monthly DEERS data files (the DEERS Point In Time Extract, or PITE, files). Then, for each of the four categories, for both OP2 and OP3, calculate the percentage share for civilian purchased care workload per underwritten Prime enrollee relative to civilian purchased-care plus MTF workload per underwritten Prime enrollee (the “civilian share.”).

Step 3. For each of the four categories, using the civilian shares calculated in Step 2, calculate the trend in the civilian share from OP2 to OP3. For example, for inpatient ADFMs, if the contractor civilian share per underwritten Prime enrollee was 88% in OP2 and 90% in OP3, then the OP3 trend in the civilian share for this category would be 1.023 (90/88). This would be interpreted as an increase of

2.3 percent in the civilian purchased-care underwritten cost trend per underwritten Prime enrollee for inpatient care for ADFMs due to the increase in the civilian share in this category.

Step 4. For each of the four categories from Step 1, for OP2 and OP3, tabulate the civilian purchased-care underwritten cost per underwritten Prime enrollee. The numerator would be tabulated from the Government costs on TED records for underwritten care for underwritten Prime enrollees and the denominator would be the same average enrollment counts from Step 2. Assume, for example, that for inpatient care for ADFMs, that the OP2 underwritten cost is $500 and the OP3 underwritten cost is $550. Then calculate the trend in underwritten cost per enrollee. In this example, this OP3 trend, for inpatient care for ADFMs, would be 1.10 (550/500).

Step 5. For each of the four categories, divide the cost trend per enrollee from Step 4 by the trend in the civilian share per enrollee from Step 3. In this example, the 1.10 trend from Step 4 would be divided by the 1.023 trend from Step 3, yielding a trend, normalized for civilian-share changes, of 1.075 for inpatient care for ADFMs.

Step 6. For each of the four categories, multiply the civilian-share-normalized trend factors from Step 5 by the prior year underwritten cost for underwritten Prime enrollees to calculate the MTF-normalized cost for the year being measured. For example, assume the OP2 (prior year) underwritten cost for ADFM inpatient care for underwritten Prime enrollees was $500 million. Multiplying $500 million by the 1.075 trend factor from Step 5 yields a civilian-share-normalized cost for OP3 of $537.5 million. By applying this cost trend per enrollee to the prior year's aggregate costs for this category of care, this step also normalizes the civilian purchased-care cost trend for any changes in the number of ADFM or NADFM underwritten Prime enrollees. Sum the MTF-normalized costs for all four categories of underwritten care. For example, assume this sum amounts to $2.50 billion for OP3.

Step 7. Subtract the net increase in OP3 underwritten health care costs (if any), relative to OP2, associated with contract change orders that have been negotiated by the Government and the contractor (e.g., benefit changes that affect underwritten costs for underwritten Prime enrollees). For example, assume change orders increased the OP3 underwritten costs for all underwritten Prime enrollees by an estimated $10 million, relative to the OP2 level of costs. In this example, the OP3 cost, after normalizing for change orders, would be $2.490 billion (the $2.50 billion from Step 6 minus $10 million).

Step 8. Calculate the overall trend from the OP2 underwritten cost for underwritten Prime enrollees (tabulated in Step 4) to the normalized OP3 cost from Step 7. Assume the actual OP2 underwritten cost for underwritten Prime enrollees was $2.29 billion. In this example, then, the normalized OP3 trend would be 1.0873 (2.490/2.29).

Step 9. Compare the overall normalized cost trend from Step 8 to the CMS NHE trend standard (i.e., the portion of the CMS National Health Expenditures per capita trend described in Section H.2.5.1). Assume for this example that the relevant NHE trend is 6.0%, or a trend factor of 1.060. Then the contractor's normalized cost trend for all underwritten Prime enrollees of 1.0873 is 2.73 percentage points higher than the CMS NHE trend standard (1.0873 - 1.060).

Step 10. Calculate the contractor's incentive result in percentage terms. The contractor's incentive result would be 30% of the trend differential from Step 9, or -0.819% (0.0273 x 30%). The incentive result is negative because the contractor's normalized cost trend was higher than the external standard; if the contractor's normalized trend had been lower than the external standard, a positive incentive would have resulted.

Step 11. The percentage incentive result from Step 10 would be multiplied by the normalized cost for OP 3 from Step 7 to calculate the dollar value of the incentive result. In this example, with the OP3 normalized cost of $2.49 billion and an incentive result of negative 0.819%, the dollar value of the incentive result would be a negative incentive payment of $20.4 million ($2.49 billion multiplied by -0.819%).

Table 1. High-Level Example of the External Trend Incentive

Actual underwritten cost trend per underwritten Prime enrollee, before normalizing (overall trend shown here for simplicity, actual calculation starts with separate trends for each of the 4 categories)

1.112

Actual underwritten cost trend per underwritten Prime enrollee, after normalizing for civilian share of workload, ADFM/NADFM enrollment levels, and change orders (aggregated from the four categories)

1.0873

External trend standard (from CMS National Health Expenditures data)

1.0600

External trend minus normalized underwritten trend -0.0273

Contractor's incentive share 30%

Incentive result, to be applied to the normalized underwritten cost for all underwritten Prime enrollees

-0.819%

Normalized underwritten cost for all underwritten Prime enrollees $2.49 billion

Incentive result, in dollars -$20.4 million