The Financial Impact of Health Reform

1. OSHE Panel Discussion The Financial Impact of Health Reform Presented By: Dan Smith, FHFMA, CPA Vice President, Chief Financial Officer Samaritan Health Services

2. Top Concerns: • Formulating a financially viable Accountable Care strategy • Understanding the impact of up-coming payment reforms (e.g. Value Based Purchasing) • Risk-based contracting (e.g. bundled payment) Survey Of Finance Leaders Top Concerns* * Health Care Advisory Board: www.advisory.com

3. Steady Progression to Accountable Care The Challenge: How best to compete in the ACO era while protecting hospital profitability in the transition to total cost accountability Formulating a financially Viable ACO Strategy Provider Cost Accountability

4. Payment Reform is here Value-Based Purchasing (VBP) FINAL RULE ISSUED ON 4/29/2011 Mechanics: • Payment withheld each year on increasing scale over next five years • Applies to base operating DRG payment • Quality performance assessment • Will undergo quality measure assessment across two domains: • Process of care (12 measures) • Patient experience (8 measures) • Quality measures combined to form Total Performance Score (TPS) • Redistribution of payment • Payment directly proportional to TPS score • The bigger the TPS  bigger the incentive payment • Budget neutrality: ½ of hospitals earn back more than withhold, others earn back less

5. A 3-Domain Scoring System for Quality measurement Value-Based Purchasing (VBP) • Process of Care (70%) • 12 Measures • Acute Myocardial Infarction (2) • Pneumonia (2) • Heart Failure (1) • Surgical Care Improvement (7) • Experience of Care (30%) • 8 HCAHPS Survey Measures • Outcomes (FY 2014 Payment) • 13 Measures • Mortality Measures (3) • AHRQ Patient Safety Indicators(PSIs), Inpatient Quality Measures (IQIs) Composite Measures (2) • Hospital Acquired Condition Measures (8) Score based on Achievement OR Improvement Score based on Achievement OR Improvement AND Consistency

6. Key Dates for VBP Implementation Value-Based Purchasing (VBP) Still time available to prepare for performance periods! July 1, 2009–Mar 31, 2010 Clinical Process & Patient Experience Baseline period July 1, 2011–Mar 31, 2012 Clinical Process & Patient Experience Performance period July 1, 2011 – June 30, 2012 30-Day mortality measures for FY2014 VBP payments Performance period

7. Definition: • Provides a single global fee covering hospital & physician services for 1)discrete hospitalization or 2)care episode CMS- Acute Care Episode (ACE) 3-year demonstration under way • 5 hospitals participating • Bundles payment for cardiac & orthopedic DRGs • Likely to expand bundled payment through national pilot in 2013: EPISODIC BUNDLING A proactive Pursuit to Risk-Based Contracting BUNDLED PAYMENT

8. Key Dates for Bundled Payment Medicare will launch expanded Bundled Payment Pilot, a 3-year program expanding bundled payment across entire episode of care Medicare to expand Bundled Payment program if pilot successful before Jan. 1, 2016 5 participants selected by CMS to begin 3-Year Demonstration bundling hospital & physician payments for inpatient acute care

9. Key Dates for Bundled Payment Medicare will launch expanded Bundled Payment Pilot, a 3-year program expanding bundled payment across entire episode of care Medicare to expand Bundled Payment program if pilot successful before Jan. 1, 2016 5 participants selected by CMS to begin 3-Year Demonstration bundling hospital & physician payments for inpatient acute care Pre-Acute Care 3 Days Prior to inpatient stay Inpatient Acute Care 30 Days Post Acute Care 30 Day Readmissions Episode of Care

10. Risk-Based Contracting may have financial benefits if you currently have: • High implant & device costs • High length of stay • High variation in care processes • Weaker relationships with Specialists • Case Rate/DRG reimbursement for Commercial Patients (spill-over effect) A proactive Pursuit to Risk-Based Contracting BUNDLED PAYMENT

11. Key Factors Driving Bundled Payment Profitability A proactive Pursuit to Risk-Based Contracting BUNDLED PAYMENT Market Share Gains Spillover Effects Cost Reduction Physician Gainshare Hospital Gainshare Profits Price Discount Program Costs Losses

12. Medicare Margin Analysis Cost Accountability: Focus on the Care Process

13. Strategic Implications: • Persistent downward reimbursement pressure • Cost containment an ongoing imperative to balance reimbursement pressure • A new focus on productivity (not wages) to control cost • Manage patient mix with shift to greater percentage of Medicare patients Health Reform is Setting us on a new path

14. Focus on fundamentals Success under Reform will require: • Quality Improvement • Standardized Care Processes • Cost Control • Robust Reporting

15. Questions? Answers?