CMU Case Challenge 2012 - Final

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    2012 Deloitte Case Challenge at

    Carnegie Mellon UniversityCase Presentation Packet

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    1

    Agenda

    Friday, April 6th

    5:00pm 6:30pm Case Introduction Simon Auditorium

    6:30pm 7:00am Case Solution Development Break-out Rooms

    Saturday, April 7th

    7:00am Presentation Due!Send to [email protected],

    [email protected],[email protected]

    7:45am 8:30am Breakfast Simon/Cooper Auditoriums

    8:30am 9:05am Group A Presentations Presentation Rooms9:05am 9:40am Group B Presentations Presentation Rooms

    9:40am 10:15am Group C Presentations Presentation Rooms

    10:15am 10:50am Group D Presentations Presentation Rooms

    10:50am 11:25am Group E Presentations Presentation Rooms

    11:25am 12:00pm Judge Consensus Meeting TBD (presentation room 3)

    12:00pm 1:00pm Lunch/Finalists Announced Simon Auditorium

    12:30pm 2:00pm Finalist Preparation Break-out Rooms

    2:00pm 2:20pm Room 1 Finalist Presentation Simon Auditorium2:20pm 2:40pm Room 2 Finalist Presentation Simon Auditorium

    2:40pm 3:00pm Room 3 Finalist Presentation Simon Auditorium

    3:00pm 3:15pm Judge Deliberation Simon Auditorium

    3:15pm 3:45pm Winner Presentation Simon Auditorium

    3:45pm 4:30pm Networking Session Simon Auditorium

    mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
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    2

    Team Room Assignments

    Team Presentation Room Breakout Room

    Team 1 Simon Auditorium Posner Hall 151

    Team 2 Cooper Auditorium Posner Hall 152Team 3 MM 103 Baker Hall 237B

    Team 4 Simon Auditorium Porter Hall A18A

    Team 5 Cooper Auditorium Porter Hall A18B

    Team 6 MM 103 Porter Hall A19

    Team 7 Simon Auditorium Porter Hall A19A

    Team 8 Cooper Auditorium Porter Hall A20

    Team 9 MM 103 Porter Hall A21

    Team 10 Simon Auditorium Porter Hall A19C

    Team 11 Cooper Auditorium Porter Hall A19D

    Team 12 MM 103 Porter Hall A20A

    Team 13 Simon Auditorium Baker Hall 235A

    Team 14 Cooper Auditorium Baker Hall 255A

    Team 15 MM 103 Porter Hall 226B

    Competition Rules

    Participants may use any and all outside resources when developing a solution

    Teams may NOT communicate with each other regarding case related details prior to

    presenting

    Teams must create a final presentation of their solution using Microsoft PowerPoint

    Teams must submit Presentation decks by 7:00am, otherwise they will be disqualified

    Dress code for Saturday is Business Formal

    First round presentations must not exceed 20 minutes in length. Finalists will have 10

    minutes

    o Two warnings will be given to each team at 5 minutes remaining and 2 minutes

    remaining.

    o There will be 5-10 minutes of question and answer as a part of each round

    Teams will be judged on equally on solution development and overall presentation skills

    o Remember, your process and effective communication are more important than the

    answer

    All members of a team must actively participate during the presentation

    All members of a team must be present 15 minutes prior to their scheduled presentation

    time.

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    3

    Table of Contents

    Table of Contents ....................................................................................................................... 1

    Introduction ................................................................................................................................ 4Company ................................................................................................................................... 4

    Capabilities ............................................................................................................................. 4

    Culture.................................................................................................................................... 9

    Current Systems Overview ....................................................................................................11

    Options ..................................................................................................................................11

    Summary of Key Challenges for Ecclestone Plans ................................................................12

    Additional Industry Information ..................................................................................................13

    Health Care Industry Overview ..............................................................................................13Health Plan Capabilities Spending Forecast ..........................................................................14

    Mid-Market Plans ..................................................................................................................15

    Challenge ..................................................................................................................................15

    Directive ....................................................................................................................................16

    Ground Rules ............................................................................................................................17

    Supplemental Information .........................................................................................................18

    Ecclestone of Montana Mission Statement ............................................................................18

    Email Exchange 1 .................................................................................................................19

    Email Exchange 2 .................................................................................................................25

    Relevant Market Data ............................................................................................................30

    Glossary of Terms .....................................................................................................................33

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    4

    Introduction

    Ecclestone Health of Montana (EoM) is a health insurance plan based in Helena,

    Montana. The Ecclestone Association is a federation of 34 different health insurance

    organizations. They are all licensees of the same Ecclestone brand and while legally they are

    different entities they are tied together by the same brand and very similar corporate cultures

    and missions. In the case of Montana, Ecclestone is lagging behind many of the larger

    competitors in the market. They are falling flat with their Core Administrative Processing system

    (or Core Admin system) and are thus lagging in customer service, claims processing and other

    core business areas. With the advent of new industry requirements, Ecclestone of Montana is

    positioned in a way where changes are a necessity. Whether the motivation is EoMs own

    internal mandates or the upcoming ICD-10 standards, EoM is in need of a revitalization of their

    Core Administrative Processing Model to adhere to the new standards and conditions. EoM has

    engaged Deloitte to begin assessing the various strategies to best align them with the strategic

    objectives and goals of EoM in order to better position them in the marketplace from acapabilities standpoint, while adhering to the new mandates being imposed on them.

    Company

    With pressure coming from the ICD-10 deadline of October 1, 2013 as well as internal

    Ecclestone mandates, enhancement of EoMs Core Admin Processing Model is a necessary

    step. With much of their Capital Expenditures budget going towards improvements to adhere to

    new standards, not much is left for capabilities improvements.

    The Ecclestone Association has mandated that all of its associated plans operate within80 percent parity of their leading companies, that is, for each of eight capabilities the

    Association has determined gauging metrics and any Ecclestone company operating below 80

    percent of the top-performing company in any category will be audited by the Association and

    forced to comply.

    Capabilities

    National players have acquired leading capabilities due to their significant investments.

    Some Ecclestone plans do not have these capabilities.

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    5

    Figure 1: Large National Health Plan Capabilities

    Overall, EoMs current operating position is behind national competitors. Some of the

    capabilities above have been split into two rows in the table below to provide more specificity as

    to where EoM is leading and lagging.

    Capability Area(s) Functional AreaEoM Relative Position

    Against NationalCompetitors and Other

    Ecclestone PlansRationale/National Capabilities

    Sales Sales Force and BrokerDistribution Channel

    Leading

    New relationships with potentialcustomers

    EoM possess a strong internalsales force and brokerdistribution channel throughoutMontana; national competitorswould require significant time todevelop a competitive networkin the region

    EoM has a larger broker programfor regional sales

    EoMs internal sales force isdecentralized across theregions allowing for a localpresence among employergroups that has built goodrelationships

    G

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    Sales Sales, Marketing &UnderwritingOperations

    Trailing

    Lacking web-based brokerservices, including ability tocheck leads, review status, andobtain reports

    Lacking automated leadgeneration and trackingsystems and processes,

    including automated renewaltriggers Lacking automated end-to-end

    quote to case installationprocess with straight through,no-touch processing

    Limited Sales support tools tocompare products (i.e. basicshop and buy)

    Lacking automated commissioncalculation functionality

    Product

    Product

    Parity

    National health plans bring newproducts to market within 3-6months

    EoM has limited High Deductible

    integration and does not yetoffer consumer directedhealthcare options (Nationalplans have direct linkagesbetween medical benefits andsavings/reimbursementaccounts)

    Most national plans have table-driven systems, externalizedbusiness rules (end-userconfiguration)

    System limitations do not allowfor effective marketsegmentation at product-linelevels

    Currently cannot supportMember level benefits

    Enrollment &Billing

    Enrollment & Billing

    Lagging

    Lacking automated error-freeenrollment and case installationwith straight through, no-touchprocessing

    Lacking on-line bill viewing,reconciliation, and payment foremployer groups and individuals

    Lacking advanced web-basedenrollment tools

    ClaimsProcessing

    Claims Processing

    Lagging

    National health plans arecurrently deploying point of

    service capabilities and swipecards. EoM utilizes sophisticated skills-

    based routing and workflowmanagement applications forclaims

    Montanas core system containssignificant hard coded logic andwould require significantmodifications to scale to largervolumes

    Lacking real-time adjudication

    Y/R

    Y

    R

    R

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    7

    Customer &Provider Service

    Customer & ProviderService

    Lagging

    Lacking automated integratedsales and service processes

    National plans deploy a One anddone service model withintelligent call routing or skills-based routing

    Customer and provider

    segmentation withpersonalized serviceexperience or service tiers

    Intelligent scripting (cross-selling,product description)

    Targeted health content onspecific conditions or wellnessoptions available on-line and viamailings

    Option for on-line member healthchats with health advisors orcoaches

    NetworkManagement

    Provider Network

    Leading

    EoM possesses a strong providernetwork in Montana whichwould take time for a national

    health plan to develop EoM has leveraged its market

    share to develop strongrelationships and allegiancewith its providers. It would bedifficult for national health plansto develop similar relationships

    EoM has access to a nationalprovider network throughStoneCard which can competewith the national networkoffered by national health plans

    EoM does not have wide-rangenetworks includingnested/tiered networks and

    high performing networksNetworkManagement

    NetworkAdministration

    Lagging

    National health plans utilizeprovider data managementsystems to consolidate andmaintain demographic andcontract data

    National health plans utilize costand quality data to create highperformance networks andCenters of Excellence (COE)

    System and processes do notallow for multiple and industryleading reimbursementmethodologies without

    significant manual intervention

    InformationTechnology

    Ancillary Products

    Trailing

    National health plans integratepharmacy and medical claimsdata real-time and analyze toidentify future utilization trendsor trigger events; EoM hasimproved access to pharmacydata, but does not integratedental or other products

    National health plans offer more

    G

    R

    Y/R

    R

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    advanced web-basedcapabilities (education, productinformation, healthassessments) for all ancillaryproducts

    MedicalManagement

    Medical BenefitsManagement

    Parity

    EoM is lagging behind otherregional plays with niche

    markets in Medicalmanagement but is on par withnationals. National plans arepartnering with third partieswhich will rapidly increase theircapabilities, including: Integrated medical

    management desktop withintelligent call routing,workflow, scripting, andaccess to clinical protocols

    Integrated care managementdata that care managers canaccess on a real-time basis

    Self-service options for

    member enrollment into careprograms

    Real-time interventionsenabled by real-time triggers(predictive modeling)

    Two-way web monitoring ofhealth status and behavioralindicators

    InformationTechnology

    InformationTechnology

    Lagging

    EoM has made significantenhancements for clientreporting, but process is stillhighly manual and not scalable

    Nationals see differentiation ofdata and information vs.knowledge, insight, andforesight to utilize data andinformation

    Real-time data warehousingarchitecture

    Adverse event monitoring Data mining/OLAP tools to

    identify trends and patterns Population stratification using

    multiple types of data (lab,medical claims, Rx claims,demographic, case/UM data)

    Automated re-stratification on areal-time basis

    Figure 2: EoM Current Capabilities

    The information in the above table is not news to the Board of Directors at Ecclestone of

    Montana. In their meetings, they have discussed these as well as the Ecclestone Association

    mandates and have developed the timeline below.

    R

    Y

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    9

    Figure 3: Timeline for implementation mandates

    Culture

    Ecclestone of Montana has a long history as a successful insurance plan. They are seenas a great place to work in Helena and have consistently maintained a strong financial

    position. While the industry has experienced significant change over the last 5 years, EoM has

    experienced positive growth, and employees demonstrate a fierce pride and confidence based

    on their past success. However, there is an inherent internal resistance to change resulting from

    the organizations ability to be successful in a dynamic industry without having to undergo any

    significant, transformative change over their entire history.

    Critical decisions are typically made at higher levels within the organization and tenure is

    emphasized over other criteria when considering employees for promotion. This emphasis on

    tenure has created a noticeable entitlement mentality amongst many employees, particularly

    those who have been at EoM for a number of years. And, despite transitioning to a new matrixorganization model 5 years ago, many employees still reflect the pre-2007, siloed business

    mentality.

    The current observations do not support the existence of a culture ready for change.Though a number of key leaders and managers understand the sense of urgency, the broaderemployee population does not demonstrate an internalization of the change imperative.

    Additionally, several previous attempts to change were not followed through to completion. Thishas resulted in employees feeling that transformation strategies have become flavor of theweek at EoM and it is becoming increasingly difficult to gain buy-in from the stakeholders.

    Some final concerns with the organizational culture revolve around the leadership. One

    aspect is that overall; the organization is very non-confrontational, reflecting the leadershipapproach. If someone disagrees with a point made in a meeting, rather than express theirconcerns real-time, they remain silent but then gossip with their coworkers after the meetingabout the quality of the ideas. This behavior contributes to a complete inability for people toalign on opinions. A second concern with the leadership/organizational culture is that teams donot drive to alignment and decisions during their meetings, resulting in uncertainty and lack ofdirection. Additionally, the leadership team has a tendency to agree that transformation isneeded but never gets together on a time frame, resource or priority basis. When competingpriorities emerge, it usually results in significant risk and distraction. Finally, there is a strong

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    11

    Current Systems Overview

    Drivers

    Currently, the existing EoM system lacks capabilities and faces struggles with softwaremalfunctioning and an increasing brittleness, which makes future enhancements more difficult.

    With the emergence of ICD-10, EoM has identified that they need to shift spending from thesemandates to new capabilities, for which they do not have the Capital Expenditure budget.

    Completed Decisions/Activities

    To date, EoM has evaluated various options and taken steps to identify the most

    plausible course of action within each option. They have selected a potential third-party

    Commercial Off-the-shelf (COTS) vendor - MetaStat - they have explored the opportunity of

    operating in outsourced environment as well as visited various other health plans. EoM feels like

    they have collected the necessary data to make an informed decision but has asked Deloitte to

    assist in providing guidance, given our eminence in the marketplace and our strong relationshipwith them.

    Options

    Four key options exist for regional Ecclestone plans to bridge the gap in capabilities.

    1. RemediateCurrentSystems

    Continue to

    operate on a

    stand-alone basis

    without the

    support of an

    outsourcing

    vendor orstrategic partner

    2. ImplementPackage

    Continue to

    operate on a

    stand-alone basis

    leveraging a

    Commercial-Off-

    The-Shelf

    (COTS) package(MetaStat)

    3. FunctionalOutsourcing

    Outsource key

    areas like

    claims,

    customer

    service, medical

    management,

    and/or nationalaccounts

    4. Affiliation orMerger

    Affiliate or convert

    and merge with a

    mutual or for-profit

    health plan

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    Remediate Current Systems

    Remediation of current systems is the current method of choice at Ecclestone of

    Montana. This method is considered the easiest because it is all done in-house on an as-

    needed basis. The cost of this option is highly variable based on what mandates come through

    and how outdated particular parts of the system are but it has the advantage of a high level of

    control throughout the whole process since all changes would be made by the IT department at

    EoM. For a complete system remediation, this option could be very costly and time consuming.

    Implement Package

    The implementation of a COTS package is an option that is almost always considered.

    COTS solutions exist for virtually every requirement and can often provide an acutely

    customizable solution for particular situations. The cost of these is moderate to high in

    comparison with the other options being considered and the research has been done that

    establishes MetaStat as a good fit for EoMs requirements. Time to implement is on the order of

    months rather than years but the implementation of a COTS package often deteriorates the

    pride and sense of accomplishment of the individuals involved with the effort. Additionally, there

    are often concerns with companies such as EoM that they would be losing their identity by using

    a major, national product.

    Functional Outsourcing

    Functional outsourcing tends to be the cheapest option available but while maintaining a

    low cost it also turns control of the functions outsourced out of the hands of EoM. It also has the

    same local identity issue outlined above when implementing a COTS package. On the positive

    side, it is a good way to reduce costs and allow EoM to focus attention on other strategies.

    Affiliation or Merger

    The option of an affiliation or merger with another organization is one that should not be

    considered lightly. The advantages and disadvantages are numerous. Firstly, by partnering with

    another organization, a company does lose their sense of identity. It tends to break down the

    morale of the company and can be a timely process while integrating the two entities. On the

    other hand, by partnering one combines the advantages and competencies of both

    organizations and leverages the potential monetary added value of both.

    Summary of Key Challenges for Ecclestone Plans

    National players have invested billions in new capabilities

    These investments have left small to medium sized plans behind in terms of capabilities

    Mandates and regulatory requirements are forecasted to be 3x current spend in the next 5

    to 10 years, challenging independent plans ability to compete with national plans

    National players are beginning to see efficiency gains from historical investments

    Many Ecclestone plans are well capitalized today, but:

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    o Capital positions are jeopardized as gap-closing investments occur

    o If a dip in the underwriting cycle occurs, the risk could increase dramatically

    Additional Industry Information

    Health Care Industry Overview

    The health care industry is a unique one in the United States. No other industry functions

    like it and there are very few industries in which almost everyone is forced to participate at some

    point in their lives.

    Figure 5: Health Care Industry Overview

    This chart is illustrative only and does not include many of the other players and

    stakeholders in the health care sphere, though it does give a good indication of how EoM and

    other insurers fit into the market and interact with other players. Some of the other stakeholders

    left out of this chart include brokers, vendors, disease management organizations, pharmacies,

    pharmaceutical companies, medical device manufacturers and others.

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    Health Plan Capabilities Spending Forecast

    Ecclestone association mandates and new product pressure will only increase the IT

    complexity and spending within the health plan industry.

    Figure 6: Upcoming Changes to Mandates and Federal Standards

    In addition to the new standards and mandates, large national players continue to invest

    billions of dollars towards new capabilities. Selected national health plans have invested $2.8BN

    and $1.4BN, in Capital Expenditure for new capabilities from 2003-2007. EoM, a middle-market

    player, does not have the necessary CapEx budget to compete with the larger health plans and

    is in danger is falling behind if they cannot improve their capabilities while adhering to new

    standards and mandates.

    Ecclestones

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    Mid-Market Plans

    Mid-Market plans are a crucial segment of Deloittes Health Plan practice. They have

    characteristics that differentiate them from the large, national plans including lower revenue

    (typically $1B-$5B) and lower membership (1M 3M members). Additional considerations for

    mid-market plans:

    They are typically more sensitive to the size and cost of engagements.

    These clients may be less experienced in how they work with consultants.

    They also may not view consultants as partners or understand cyclical use and long-

    term value of relationships.

    Boutique consulting firms and Single Shingle consultants abound in this market, acting

    as staffing augmentation.

    Challenge

    Ecclestone of Montana is functioning primarily with technology developed in the late

    1980s. The technology is outdated and sub-optimal. Further, excessive manual work is required

    in the system. For example, the claims processing functionality involved workers looking at

    information from a PDF on one page while manually entering the data on another screen

    increasing the likelihood of error and wasting valuable time. The system is also expensive and

    difficult to maintain and update and given all of the legislation regarding ICD-10 is going to

    require a lot of capital to update.

    Base functionality of the current Core Administrative System includes claims

    reimbursement, explanation of benefits, pre-population and printing of predetermination forms,data integration and migration for warehousing, and some limited business intelligence

    reporting.

    As you can imagine, their systems are frequently malfunctioning. In addition, Congress

    has mandated that all HIPAA Covered Entities make the switch to ICD-10 coding by October 1,

    2013. This would include adopting EDI standards for interfacing with hospitals and the Federal

    government.

    In addition to the mandated changes above, Ecclestone has outlined some strategic

    goals for their future. One of their goals is to shift spending away from mandates and towards

    new capabilities. For the last several decades of Ecclestones existence, most of thetransformative changes made to their technology and strategic planning have been mandated

    by various state or federal rules. The board of directors of the organization has outlined a desire

    to move more towards innovative change rather than reactive change.

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    16

    Directive

    You have been asked by the Director of Technology at Ecclestone of Montana to put

    together a presentation for the organizations leadership on how they might begin to respond to

    the previously outlined challenges.

    They have asked you to do the following in your presentation:

    Identify one (or a combination) of the solution options outlined above to

    relieve strain on their current systems.

    Develop a plan for implementing a new Core Administrative System with your

    chosen strategy. Your team should include details on the technological

    implementation and organizational change management strategy.

    Identify key stakeholders and an approach for gaining their buy-in.

    o Who are the stakeholders?

    o What are their concerns?

    o What role will they be required to play under your approach?

    Identify potential risks to your approach and your proposed risk mitigation

    strategies.

    In your presentations, you should be sure to include details on the following:

    An explanation of the approach you will be using

    Transformation strategy best practices

    Any assumptions your team has made

    Change management and communication how to involve employees and

    other stakeholders in a manner that promotes success

    Details on training employees on whatever new system you choose to

    implement moving forward.

    An implementation strategy and timeline for the change.

    Finally, your presentation should be in PowerPoint or a similar presentation

    format.

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    Ground Rules

    The first thing to remember is that there are no correct or incorrect solutions. Your

    solutions will be considered on their merit and feasibility in the context of the situation that has

    been presented. Additionally, the materials contained in this presentation, in addition to the

    reference materials provided by the facilitators of the case should provide the information

    necessary to develop your solutions. Outside research is not expressly prohibited, but it should

    be done only when strictly necessary to developing your solution. In other words, dont waste

    your time researching frivolous information.

    Teams will be judged on the following criteria:

    Soundness of the analysis and related recommendations

    Quality of the presentation

    Responses to the judges questions

    Your allotted time for the presentation is 30 minutes. The expectation is that you will

    have 20 minutes to present your recommendation and an additional 5-10 minutes to field any

    questions. The 15 teams will be divided into three panels. The top team from each panel will

    move on to the finals round. The format of the finals round will not be disclosed until after first

    round presentations are over.

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    18

    Supplemental Information

    Ecclestone of Montana Mission Statement

    Ecclestone of Montana strives to

    provide health benefit services of

    great value to its members across

    Montana. We commit to offer a

    broad array of quality insurance

    plans, conduct business

    responsibly to ensure the plans

    long-term viability, and foster

    health systems integration and

    health care cost containment to

    benefit the people of Montana.

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    19

    Email Exchange 1

    From:Romana, ElizabethSent:Friday, March 16, 2012 8:44 AM

    To:Taylor, Jim

    Subject:RE: New Product Opportunity

    Jim:

    No worries about the quick succession of email. 200 emails a day is nothing! Let me address your pointsin order:

    1. Idaho does have a strong sense of identity, which may make it difficult to partner, even with

    another Ecclestone entity. From a tech perspective, they would love to, but Gabriele called melast night and informed me that after running it by her CEO, she got a little bit of pushback on

    that front. Something she feels that with the right training and communications, they can quell.Being pretty new here, my knowledge of our expertise in those areas is lacking a bit. Maybe youcan speak to that a little more?

    2. In regards to the functional outsourcing, it definitely has its pros and cons. You are spot on withthe cost v. quality factor, but Ive also heard some very positive reviews, especially from a firmcalled Technoglobe. They were just nominated for some big award in InformationWeek

    magazine. Lets not rule it out right away, thats for sure. If cost is what they are going for, this isit

    Dinner this weekend with the kids? Jamie has been dying to check out the new Chuck-E-Cheese and Im

    sure she would love to play with Larry (did he just have his 6thbirthday?). Remind me to bring his card,its on my island at home.

    Liz

    From:Taylor, JimSent:Thursday, March 15, 2012 7:31 PMTo:Romana, ElizabethSubject:RE: New Product Opportunity

    Liz

    Sorry that I didnt give you much time to respond, but another option we might consider: functionaloutsourcing. There have been some results around the field that are very encouraging, but my ownresearch into this does not have me jumping for joy. The costs are very low, respective to our otheroptions, but so is the quality... Give it some thought. My initial feelings are that if the board is mostconcerned about money, then this is a good option. But I know how important quality is, especially atthis point in the game as we try to maintain our customers and build our capabilities. Not to mention theCMMI Level 3 milestone we are trying to reach this year!!

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    Here is what I was thinking: we could take a handful of our core admin processes (billing, customerservice, etc) and outsource those functions and others, and take the savings to build up ourinfrastructure, which is currently lagging quite a bit. It will take a few years to get back to where we needto be if we want to be competitive from a tech standpoint, but maybe a good step in the process to get

    us rolling, while running some of our functions in-house.

    Jim

    From:Taylor, JimSent:Wednesday, March 14, 2012 1:31 PMTo:Romana, ElizabethSubject:RE: New Product Opportunity

    Liz

    I wanted to touch base with you regarding my recent conversations with Chris and Brian.

    Weve been looking a few different ideas and the thoughts around an acquisition dont seemvery positive. One reason for this is the companys strong sense of pride. Im honestly not

    sure how a partnership would play into that. While we are still maintaining our identity asEcclestone, we are bringing new players into the team. I know you have experience with

    these folks in Idaho. Can you, maybe, share your thoughts on their culture? Not really myforte, but I can definitely relay back to Chris about this.

    Jim

    From:Romana, ElizabethSent:Tuesday, March 13, 2012 3:21 PMTo:Taylor, Jim

    Subject:RE: New Product Opportunity

    Jim,

    More than happy to help. If youd like me to contribute to any discussions you may have relatedto MetaStat, Id be happy to advocate. By my reckoning, it truly is the best option we haveavailable. Please just reach out and Ill make time.

    Thanks,

    LR

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    From:Taylor, JimSent:Tuesday, March 13, 2012 3:31 PMTo:Romana, ElizabethSubject:RE: New Product Opportunity

    Liz

    Great minds think alike! It looks like Gabrieles concerns are directly on point with my own.Let me take these ideas back to Chris and see what he and Brian have to say on the matter.

    I am actually very excited about the idea of a partnership. Something Ecclestone has been

    pushing over the past few years is Best Practices. This would be a great opportunity toshare knowledge. We have had some success in the past with training efforts for newimplementations, and maybe that is an area that we can offer our expertise to Idaho to

    sweeten the pot. Thanks again for looking more into this and be sure to thank Gabriele for

    me. If the board decides to go the route of a partnership, we can have that discussion withGabriele.

    JT

    From:Romana, ElizabethSent:Tuesday, March 13, 2012 3:21 PMTo:Taylor, Jim

    Subject:RE: New Product Opportunity

    Jim,

    See Gabrieles email below. Those are all questions well have to discuss with ID in more detailbut he seems open to the idea of a partnership. Upon further consideration I stronglyrecommend that we go with the COTS solution. It has all of the functionality that we need andwe will not be beholden to or dependent on anyone else if things were to go south as Iunderstand they have in the past. Just my two cents

    -LR

    From:Rossi, GabrieleSent:Monday, March 12, 2012 9:19 PMTo:Romana, Elizabeth

    Subject:Partnership

    Liz,

    Good to hear from you again. Were missing you here.

    Its an interesting idea. We both certainly have the same problem right now regarding the systemand it makes sense for us to work together rather than re-inventing the wheel. Im justconcerned about (and I apologize if Im being blunt about this) whats in it for Idaho. Perhaps we

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    can come to an agreement on who will host and support the system. Lets have a discussion with

    Jim sometime in the future and iron out something.

    Gabriele

    From:Taylor, JimSent:Monday, March 12, 2012 9:19 PMTo:Romana, ElizabethSubject:RE: New Product Opportunity

    Liz

    Im liking this option but am concerned with how we will operate in a partnership. From a

    system perspective, who will own and maintain the system? Where will the system reside?What can we offer Idaho that they will be willing to shell out some cash? It sounds like awin-win for us, Im just not sure about their stance. It sounds like you have a pretty

    positive relationship with Mr. Rossi. Can you please reach out and get some more details? Iwould like to set a meeting with the three of us to discuss this further once we understandareas where it can help them.

    Option 1 still seems feasible. We would have to do it low cost, though. It would take a littleto get it set up, initially, but over the long haul, would reduce costs immensely and allow usto focus our budget on capabilities, which is where we need to improve most.

    Lets plan to have some answers by the end of this week and I will take these options toChris, if we still think they can work for us.

    Jim

    From:Romana, ElizabethSent:Monday, March 12, 2012 9:11 PMTo:Taylor, JimSubject:Re: New Product Opportunity

    Jim,

    I hadn't thought of option 2 but in my time at Ecclestone-ID we came across more revenue thanexpected and they were in need of a similar revamp. Gabriele Rossi would be the IT director in

    Idaho. He'll have a better idea of what their capabilities are.

    Liz

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    From:Taylor, JimSent:Monday, March 12, 2012 9:11 PMTo:Romana, ElizabethSubject:Re: New Product Opportunity

    LR

    Still being in the planning stages, we have not explored all options yet. I am interested indiscussing outsourcing a little more. It actually sounds like you may be talking about twodifferent things here:

    1. Outsourcing pieces of our entire Core Admin Processing Model2. Partnering with another Ecclestone plan who may have more available capital

    Before bringing these to Chris, lets hash out some details a little bit. BTW, Chris is receptiveand wants to collect some ideas to bring to the board for next months meeting. Set upsome time on my calendar and we can discuss in person.

    Thanks,

    Jim Taylor

    From:Romana, Elizabeth

    Sent:Monday, March 12, 2012 8:46 PMTo:Taylor, JimSubject:Re: New Product Opportunity

    Sounds good Jim.

    Let me know what you hear from Chris. There are cheaper solutions out there but none of themmeet our requirements. If we don't have the financial capacity for MetaStat, we'd be better offwith another solution (have we as an organization discussed outsourcing?). Perhaps it would beworth reaching out to another Ecclestone company for information on their solutions.

    Best,

    Liz Romana

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    From:Taylor, JimSent:Monday, March 12, 2012 9:11 PMTo:Romana, ElizabethSubject:Re: New Product Opportunity

    Liz:

    Thanks for that information regarding MetaStat. You continue to impress me in your new

    role as Director of Product Development. Im so happy to have you working for me and Iknow that whatever choice we go with, you will have explored every opportunity for us. The

    option of picking up a COTS vendor for some of our functionality is definitely a step in theright direction. They give us the industry experience we are looking for and the stability to

    build a future around. I am a little concerned around the pricing, as we dont have theavailable CapEx budget to cover the numbers you quoted, but I am trying to work Chris

    over a bit to get a little more funding.

    Lets chat again next week once I have an update from Chris on the funding. Great work!

    Jim

    IT Director

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    Email Exchange 2

    From:Jameson, Chris

    Sent:Thursday, March 15, 2012 6:23 PM

    To:Taylor, Jim

    Subject:Re: We need this

    Jim:

    Some interesting thoughts. I am still interested in a partnership, but I may be more inclined to have

    those conversions if we had a better picture on what exactly wed look like after the fact. Im wary of

    partnerships because of the dependencies it builds from a management perspective. We would need to

    clearly define an organizational structure around who owns what, who pays for what, et al. I trust that

    you can handle the IT side of things, but Im sure you can understand my concerns as well. And Ive

    already voiced my opinion on the COTS vendor.

    A third option, perhaps, could be outsourcing. I attended a conference recently where some of the

    biggest industry players made enormous strides in capabilities improvements because of the capital saved

    from outsourcing certain functional components. Talk to Liz about that and get back to me. Another

    board meeting on Monday and Id like to be prepared to speak about each of these in detail.

    Chris

    From:Taylor, Jim

    Sent:Thursday, March 15, 2012 2:10 PM

    To:Jameson, Chris

    Subject:Re: We need this

    Chris

    Taking Brian off the thread. Liz and I are still conversing about the cost and resources needed for a COTS

    vendor as well as a partnership. It looks like we may have a good candidate with a partnership in

    Ecclestone of Idaho, who Liz has personal experience with. While she is still a fan of the COTS vendor, I

    personally feel that a partnership could give us the latitude to expand our infrastructure in ways we

    havent seen in decades (since this legacy system was first put in). We have the ability to offer them

    our services in the training department, something Ive worked very closely with Jermayn Williams on. He

    has provided some top notch training for some of our largest implementation. And given our recent

    award as Best-in-Breed IT Training for mid-market companies, Id say that is something that Idaho

    will be more than happy to accept. My feeling is still that they can help out with the capital and we could

    provide the training across both companies. That pretty well evens out.

    Thoughts?

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    Jim

    From:Jameson, Chris

    Sent:Monday, March 12, 2012 8:40 PM

    To:Taylor, Jim; Wooster, Brian

    Subject:Re: We need this

    Jim and Brian,

    Its good to know we have some ideas percolating on this front already. Its obvious to me now

    that this is a change that more than just the IT folks have been thinking about so I think we can

    commit to making a transformative change of some kind. Well have to discuss the options more

    but here are just some initial thoughts.

    As far as an M&A situation is concerned, Im hesitant. While it is true that we are in a bit of a

    pickle in some aspects, Ecclestone of Montana is not really in a place where it needs to bediscussing merger yet in my opinion; although maybe the board thinks differently. I dont need to

    tell you that an M&A situation would be taxing for the entire company and have drastic

    ramifications through all verticals of our business not just Technology. Perhaps its an option

    we should consider, but not simply to affect IT transformation it would have to fit into our

    strategic objectives of the whole company.

    As you know, Ecclestone has a strong sense of pride. Fielding such a thought as an acquisition

    would, quite simply, crush the morale of our team. We know they are hesitant to change, given

    our recent past, and something of that magnitude would derail all of our efforts to maintain pride

    in our name.

    With that in mind, COTS concerns me because of the cost, and our failed attempts previously.

    Im not exactly brimming with confidence after the events of a few years back.

    Partnership is a possibility, but we would need to discern a partner and really make sure that the

    relationship is symbiotic, not just one sided. Perhaps another Ecclestone plan would be a better

    idea than a larger industry player.

    Lets talk over lunch when I get back from Brazil next week. I look forward to discussing.

    Chris Jameson

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    From:Taylor, Jim

    Sent:Tuesday, March 13, 2012 4:10 PM

    To:Wooster, Brian; Jameson, Chris

    Subject:RE: We need this

    Brian

    Thanks for your thoughts. To answer your question, we will have to have those

    conversations with our selected COTS vendor as well as our potential partner to gauge

    exactly how this would be accomplished from an IT perspective. By choosing a COTS

    vendor, we might be able to reduce the assistance needed from a consulting firm, which

    might be good given our past experience as you mentioned. The joint venture would likely

    be the most effective from a cost perspective, but would require more outside resources and

    would take longer to iron out the details and get implemented.

    Thanks again for your thoughts. Chris, do you think we can set up lunch late this week to

    talk about these options? I will gather more details on potential implementation plans and

    costs to give you a better picture.

    Jim

    From:Wooster, Brian

    Sent:Tuesday, March 13, 2012 4:03 PM

    To:Taylor, Jim; Jameson, Chris

    Subject:RE: We need this

    Chris and Jim,

    We have strived for years now to grow both our business and culture within. I cant stress

    enough how a merger or acquisition would devalue our own stake in the market, demoralize

    our employees, and cause the loss of confidence our investors have given to us in recent

    years. This might sound dramatic, but the plan for the company has been internal, organic

    growth with a focus on our employees and the quality of our services. Giving up those

    decisions to another company will not align with this plan.

    That being said, obviously we face a serious issue in our outdated administrative system.

    While I would love to push to make the best product possible I also urge to look at our

    modest account available for IT expenditures. Maintenance costs of the current system have

    put us back considerably and we need a solution quick and within our realm. Considering

    the economy, the increasingly strict standards and lower margins across the board, we

    simply cannot stretch ourselves thin with this project right now without facing some

    financial repercussions. That goes for both our cash on hand and resources. So while a

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    merger or acquisition might go against the plan, a little help in a joint venture backed with

    considerable resources and expertise might be our best option. If we can get expertise for

    cheap this way it would go a long way, I know we all still have a bitter taste from the failed

    implementation of our billing system a few years back using a COTS product with

    inexperienced consultants.

    Jim, of course you know your department, what would it take to get this done in house

    versus COTS? Could we implement either ourselves or would we need to pay for

    professional services? Need a bit more information to judge this completely.

    -Brian, Director or Business Development

    From:Taylor, Jim

    Sent:Tuesday, March 13, 2012 2:49 PM

    To:Jameson, Chris

    Cc:Wooster, Brian

    Subject:RE: We need this

    Chris

    I was speaking to Liz today, and she has identified an excellent COTS product that we may

    be able to utilize, MetaStat. They have an outstanding track record throughout the industry

    and would greatly enhance our current functionality. I understand the obligations we have

    in terms of adhering to our budget, but this is an excellent opportunity to invest in our

    future.

    Another option I have been considering, although havent given it much thought, is to talk

    to a larger, national plan. They can provide the capital to make those infrastructure changes

    that we need to make, or even provide the services themselves. Being so large, they have

    already established many of the areas we want to develop. Could we outsource certain

    modules over to them for a small fee? That way we can capitalize on their capabilities

    without having to implement new infrastructure to take on those future changes. Maybe we

    bring in Brian, who I believe you just promoted to Director of Business Development and

    has handled these types of M&A situations in the past.

    Brian let us know your thoughts and if there is any way we can leverage a larger plan for

    this process

    Jim

    From:Jameson, Chris

    Sent:Monday, March 12, 2012 8:40 PM

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    To:Taylor, Jim

    Subject:Re: We need this

    Hi Jim,

    You've come to me about this before so it's clear you're serious about making this change. We

    don't have the capacity for an in-house redesign so what are we talking about here? Give me

    some options to think about and start to think about presenting to the board at next month's

    meeting.

    Chris Jameson

    CEO, Ecclestone Health of Montana.

    From:Taylor, Jim

    Sent:Monday, March 12, 2012 8:40 PM

    To:Jameson, Chris

    Subject:Re: We need this

    Chris

    As CEO, I know you understand the importance of staying competitive in the marketplace. I

    am concerned that we are putting too many of our resources into mandates and not enoughinto improving our own capabilities. If we want to keep competing as a middle market plan,

    we need to do this. It may cost a little more money for us up front, but this is a necessity if

    we are to survive this round of mandatory regulation updates.

    We have been remediating the existing system for some time now, and it does not have

    flexibility to do what we need to do in terms of capabilities. I know its easier to just update

    what we have, but I believe it is time to invest in our future, rather than live in the past.

    Please share your thoughts,

    Jim

    IT Director

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    Relevant Market Data

    Managed Market Survey National Profile

    United States (January 2010)

    National Population 312,643,223Commercial Enrollment 162,707,206

    PPO Commercial (Fully Insured) 40,300,203HMO Commerical (Fully Insured) 25,200,300Point of Service (POS) (Fully Insured) 9,353,100Employer Sponsered/Self Insured/ASO 87,853,603

    Medicaid Beneficiaries(1) 56,233,308

    MCO Managed Medicaid 30,230,004State Medicaid (Fee for Service / PCCM) 26,003,304Medicare Eligibles(2) 46,990,338

    Fee for Service (Parts A/B) 34,988,304Medicare Advantage (MA-PDP) 12,002,034Dual Eligible Population 6,203,402Estimated Total With Coverage(3) 259,727,450Uninsured 52,915,773Table 1: National Plan Data

    (1) Total Medicaid Medical Beneficiaries including Dual Eligibles(2) Total Medicare Beneficiaries including Dual Eligibles(3) Calculated: Commercial + Medicare + Medicaid - Dual Eligibles

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    Figure 1: Nation Population Distribution for Medical Coverage

    Figure 2: Enrolled Medical Lives Breakdown by Company

    Company A

    Company B

    Company C

    Company D

    Company E

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    Company Name OverallLives

    Total FullyInsured

    TotalFullyInsuredMarketShare

    CommercialFully Insured

    CommercialFully InsuredMarket Share

    CommercialSelf Insured

    IndemnityProducts

    Company A 24,677,216 12,552,548 12.2% 7,532,515 12.2% 11,634,158 933,243

    Company B 22,353,235 11,555,342 10.1% 10,111,329 13.3% 10,123,553 2,340,5521

    Company C 15,324,023 5,220,093 4.8% 4,883,204 6.5% 9,234,993 900,223

    Company D 11,540,033 3,882,340 3.3% 3,822,203 5.2% 7,999,234 688,234Company E 10,353,203 2,000,324 1.6% 1,834,234 2.5% 9,232,111 243,234

    Company F 8,328,952 8,223,059 7.2% 7,232,212 9.7% 102,123 1,002

    Ecclestone ofMontana

    601,220 220,250 0.2% 220,250 0.3% 332,304 134

    Ecclestone of Idaho 220,603 120,025 0.1% 123,023 0.2% 0 102,203

    Table 2: Detailed Coverage By Company

    Note: Names of some companies have been removed for propriety purposes. Companies A-F are considered large, national plans.

    System/Solution Expenditures (OpEx) -Post Implementation

    Estimated CapitalInvestment

    Estimated ExternalOperationalExpenditures

    EstimatedImplementationTimeframe

    Current System

    (baseline)

    $30,000,000 - - -

    Remediation $30,000,000 $2,000,000 $0 3-6 months

    COTS Vendor $27,500,000 $10,000,000 $0 12-18 months

    FunctionalOutsourcing

    $20,000,000 $5,000,000 $5,000,000 8-12 months

    Acquisition $0 $0 $0 18-24 months

    Table 3: Annual Financial Metrics (estimated)

    Note: Capital Investment for remediating the existing system will occur annually.

    2010 2011 2012 2013 2014

    Operating Cost $30,000,000 $32,000,000 $34,000,000 $36,000,000 $38,000,000

    Total OrganizationalCapability Investment

    $17,000,000 $17,000,000 $17,000,000 $17,000,000 $17,000,000

    Table 4: Current System Projected Expenses

    Note: The above table indicates the projected increase in operating costs if the current system is maintained.

    Transaction Operating Cost Covered Lives Transaction Value

    Company G $45,000,000 1000000 $144,385,026.74

    Compan H $52,000,000 1300000 $131,092,436.97

    Company I $24,000,000 415000 $68,311,195.45

    Company J $33,000,000 600000 $78,696,343.40

    Table 5: Health Plan valuations based on the acquisition of the listed companies

    Note: Names of companies have been removed for propriety purposes.

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    Glossary of Terms

    CMS - The Centers for Medicare & Medicaid Services. A federal agency responsible for

    administering the Medicare program and partnering with state governments to administer

    Medicaid and other state sponsored programs.

    COTS Commercial off-the-shelf. Any product sold as a non-developmental item, which

    usually requires some level of customization.

    EDI Electronic Data Interface

    EoM Ecclestone of Montana

    HHS US Department of Health and Human Services. It is the department responsible for

    protecting the health of Americans by providing the essential human services.

    HIPAA - The Health Insurance Portability and Accountability Act of 1996. The two main facetsare protection of health insurance coverage for workers and their families, as well as the

    establishment of national standards for electronic health care transactions, particularly related to

    securing medical records.

    ICD-10- The International Statistical Classification of Diseases and Related Health Problems,

    10th Revision (known as "ICD-10"). A coding standard designed to bring standardization across

    the industry, and is maintained by the World Health Organization (WHO)..

    Provider One who delivers health services (i.e. a doctor).