Health Care Reform Transformation or Chasing Unicorns

1. Health Care ReformTransformationorChasing Unicorns SSHCC May 2011

2. Sentara Healthcare Virginia North Carolina 123-year not-for-profit mission 9 hospitals; 2,300 beds 3,400 physicians on staff 10 long term care/assisted living centers Extended stay hospital 19 Physical Therapy Centers 4 Free Standing EDs 520-provider Sentara Medical Group 432,600-member health plan Sentara College of Health Sciences $3.3B total operating revenues $3.7B total assets 19,225 employees 2

3. Integrated Health System End-of-life Care Health Insurance Prevention & Early Detection Long-term Care Family & Community Services Continuum of Care Primary & Specialty Care Home Care Pharmacies Rehabilitation Hospital Care Mental Health Care Emergency Care Medical Transport 3

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5. Maxine Humor- 2010 Let me get this straight. We're going to be "gifted" with a health care plan we are forced to purchase and fined if we don't, written by a committee whose chairman says he doesn't understand it, passed by a Congress that hasn't read it,signed by a president who smokes,with funding administered by a treasury chief who didn't pay his taxes, to be overseen by a surgeon general who is obese,andfinanced by a country that's already in debt. What could possibly go wrong?

6. Health Care Reform March 22, 2010: President Obama signed the Patient Protection and Affordable Care Act (PPACA). All of the changes are scheduled to take effect by 2019. Massive regulatory/ implementation effort will be required Legislative corrections expected. Goals of the new law include: Expand Access to Coverage Control Health Care Costs Transform Health Care Delivery System Rein in Health Insurance practices (pre-existing conditions, caps, cancelation) Digitize Health Care Cost of the law is estimated to be $938 billion over 10 years 6

7. Reform started in 2010: Unmarried dependents may stay on parents’ health plans until age 26 Mandated benefit changes for insurers, including: Prohibition against denying coverage for children withpre-existing conditions Prohibition against rescinding coverage once enrollee iscovered by plan Eliminated annual and lifetime benefit caps Mandated changes added 3% to annual premiums Mandated medical expense ratios for insurers National high-risk pool for those with pre-existing conditions who have been denied coverage Tax credits for small business to offset premium costs Tax (10%) on indoor tanning – Approx. 25,000 Businesses 7

8. Expanding Coverage Access to 2014: Require most U.S. citizens and legal residents to have health insurance (2014) Create state-based American Health Benefit Exchange through which individuals and small employers can purchase coverage (2014) Provides premium subsidies to eligible individuals and families with incomes up to 400% of the poverty level ($43,300/individual or $88,200/family of 4) through the Exchanges Expand Medicaid to individuals under age 65 with income up to 133% of the FPL (2014)- In Virginia this adds 400,000 (45% people to Medicaid with no additional state funding) Virginia increase in cost of $1.5B to $2.2B in state funds between 2010 and 2022 (Virginia Medicaid pays less than 70¢ on $1 of Cost) Nationally- 32 million more people to be covered by health insurance under various plans 8

9. Estimated Health Insurance Coverage in 2019 Total Nonelderly Population = 282 Million SOURCE: Congressional Budget Office, March 20, 2010 9

10. Rate of Medicare Spending Projected to Slow Medicare Baseline Spending(in $ billions) Projected Savings $100 billion $50 billion Baseline Medicare Spending Medicare Spending AFTER Health Reform Congressional Budget Office Projections 10

11. Financing Health Reform, 2010-2019 Federal savings New revenues Total Cost = $938 Billion Savings to Federal Deficit = $124 Billion Source: Congressional Budget Office, 2010 11

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13. HEALTH REFORM: A DEEPER LOOK Health Reform:What does it mean for Me? 13

14. What Does it Mean for Me?Insured Employer Sponsored Most individuals with coverage through their employers should not see substantial changes The bill includes incentives for your employer to offer insurance Individual Coverage Eligible for coverage through the exchanges Qualify for tax credits to help you purchase coverage 14

15. What Does it Mean for Me? Individual and Small Business Premiums Generally speaking, young healthy people will see a huge increase and older, less healthy people will see a decrease. Impact 1:  this will discourage young healthy people from purchasing coverage, they would be better off just paying the penalty for not buying coverage. Impact 2:  with young healthy people opting out of the risk pool, older less healthy people will be more likely to get a premium increase than a decrease. Impact 3: if small business has lots of older workers, they may see a decrease in rates.  If they have more young workers, they may see a significant increase in rates. 15

16. What Does it Mean for Me?Medicare Beneficiaries Individuals with traditional Medicare coverage should not see substantial changes, but will receive some additional benefits. Free preventive screenings such as colonoscopies and mammograms. A free annual physical or “wellness” visit. Discounts for brand-name prescription drugs. A 50% discount on brand-name drugs while in the “doughnut-hole" coverage gap. Individuals with Medicare Advantage plans may see changes in their benefits depending on how their insurance company responds to reduced funding for this type of plan. 16

17. What Does it Mean for Me?Uninsured All U.S. citizens and legal residents must have coverage or pay a penalty (2014) Uninsured individuals will have access to coverage through insurance exchanges Subsidies will be available to help low-income individuals buy private health insurance Penalty for not having insurance: greater of $695 (up to $2085 for family) or 2.5% of family income Eligibility for Medicaid is expanded to low-income individuals Starting in 2010, a high-risk insurance pool will be available to individuals with pre-existing conditions and early retirees --those 55 or older but not yet eligible for Medicare Every state must set up an exchange by 2014 The high-risk pool expires in 2014 when exchanges and rules to prevent insurers from excluding individuals with pre-existing conditions are in place 17

18. What Does it Mean for Me?Employers Large Employers ( > 50 employees) Receive federal dollars for premiums Fined if employees purchase health care coverage through the exchange Small Employers Eligible for subsidies to offer insurance and have access to the exchanges Employers with 10 or fewer employees who earn, on average, less than $25,000 a year can get a 50% tax credit for providing health insurance Employers with 25 or fewer employees who earn, on average, less than $50,000 can receive a partial tax credit. 18

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20. Politics of ReformPublic Opinion of Health Reform Law As you may know, a new health reform bill was signed into law earlier this year. Given what you know about the new health reform law, do you have a generally favorable or generally unfavorable opinion of it? Very favorable Total Somewhat favorable Somewhat unfavorable Democrats Very unfavorable Independents Republicans Note: Don’t know/Refused answers not shown. Source: Kaiser Family Foundation Health Tracking Poll (conducted October 5-10, 2010) 20

21. Politics of Reform-In 11 states, Republicans replaced Democrats as governor Health Care Lawsuits States that have Filed a Federal Lawsuit in Response to the Affordable Care Act, 2010 Kaiser Family Foundation, Jan. 2011 21

22. So- What will Stick???? “If we focus on quality, as we’ve always done, success will follow” (Dave Bernd- CEO Sentara Healthcare)

23. Health Care Reform: Quality New policies to encourage hospitals and physicians to focus on quality… Hospital Value-Based Purchasing – beginning 2013, redistributes Medicare payments based on hospital quality. Value-Based Purchasing for MDs • Budget neutral program to redistribute payments based on quality. • Publishes measures by 2012 • Phased in adjustment in 2015-2017

24. Proposed Timeline

25. CMS Proposed Regulation Medicare payment reduced to all hospitals • 1.0% in FY 2013 • 1.25% in FY 2014 • 1.5% in FY 2015 • 1.75% in FY 2016 • 2.0% in FY 2017 and beyond • Budget neutral program; tournament model

26. Program Highlights • FY 2013 • 17 clinical quality measures (70% of score) • 8 HCAHPS customer satisfaction measures (30% of score)

29. HCAHPS Patient Experience Measures(Hospital Consumer Assessment of Healthcare Providers and Systems) • Communication with nurses • Communication with doctors • Responsiveness of hospital staff • Pain management • Communication about medicines • Cleanliness and quietness of hospital environment • Discharge information • Overall rating of hospital

30. Proposed Scoring • Scores based on level of performance or improvement from baseline • Minimum score set at national median • Benchmark set at national top 10% • Eliminated several “topped out” measures • Baseline period: 7/1/09 – 3/31/10 • Performance period: 7/1/11 – 3/31/12 • Determines payment beginning 10/1/12 • Incentives apply for one year only without carry over

32. Transformation of Care Two Buzz Words: • Accountable Care Organization (ACO) • Medical Home Model

33. Accountable Care Organization • March 31, 2011: CMS proposed rule released on ACO’s • An ACO is theoretically similar to the capitated closed network HMO’s of the 1990’s only with more sophisticated IT and the ability to measure quality • Groups of physicians, hospitals, extended care facilities working together to better manage the clinical effectiveness, quality and cost of care for a cohort of Medicare patients • If cost savings occur- providers get to share in that savings

34. Accountable Care Organization Top 10 Things to Know about the Proposed ACO Regulations: • $1,755,251- estimated cost to start one. Requires an EMR, separate legal entity with specific Tax ID# • Must sign a minimum of a 3 year agreement with CMS • 5,000 covered life minimum- set minimum savings rate (2% estimate) and ACO gets to keep 50% to 60% of the savings- but only if you score well enough on 65 quality indicators • Patient Assignment- guess what? You won’t know what Medicare patients are in your ACO because they will be assigned retrospectively. • Patient Rights- Medicare patients must be informed that the medical care they receive is tied to an ACO and they may opt out- but whose going to tell them when the provider’s don’t know who they are? (Conflicts with #4)

35. Accountable Care Organization Top 10 Things to Know about the Proposed ACO Regulations (Con’t): 6) Quality- 65 metrics to include domains of customer experience/satisfaction, care coordination, safety, preventative health and at risk populations/frail elderly 7) Exclusivity- Primary Care physicians can only be in one ACO but hospitals and MD specialists can participate in multiple ACO’s. Participation is also tied to a set of anti-trust and market power standards- translation- you’ll need a lot of attorneys to start an ACO. See #1. • Waivers- Relief from anti-kickback regulations, self referral laws and how to receive waivers of the Civil Monetary Penalty statutes- translation- you’ll need a lot of attorneys. See #1. • ACO Growth- it appears you can’t add physician providers to your ACO once implemented, but you can drop them. So how do you handle mergers, physicians joining health systems, new MD employees, etc? • IRS has not yet engaged to comment on tax exempt not for profit organizations participating in the Shared Savings Program

36. Medical Home Model Primary Care Physician practice initiative to fundamentally re-design the primary care delivery model • We don’t have enough primary care MD’s in the US to take care of all the newly insured patients • Without significant redesign, lack of access will force insured and entitled patients into hospital ED’s and Urgent Care Centers • Concerns of the cost of care going up instead of down if we don’t fundamentally re-design primary care

37. Medical Home Model • Care team approach- teams up NP’s, PA’s, RN patient navigators and medical assistants with physicians to better coordinate care • Assures the right skill level is assigned to the right work (example- studies show nurses spend up to 70% of the time hunting and gathering and 30% of their time doing nursing critical thinking tasks • Pull vs Push- Utilizes EMR technology to track and trigger navigator follow up contacts • Home tele-monitoring for chronic conditions such as CHF, Diabetes

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39. Kurt Hofelich, MPT President Sentara Obici Hospital Sentara Rehab Network kthofeli@sentara.com