v2: Federal Issues Impacting Hospitals

1. v2: Federal Issues Impacting Hospitals Promedica Health System Fall Symposium October 31, 2011

2. Presentation Overview • Some guiding principles • Affordable Care Act (ACA) 101 • National debate about the deficit and the “Super Committee” • AHA’s strategy • What you can do to help

3. AHA’s Mission “…advance the health of individuals and communities…[through] organizations that are accountable to the community and committed to health improvement.”

4. 32 million more people with health coverage • Shared responsibility • Insurance reforms • Medicaid expansions • Tax credits • $12.9 billion prevention fund • Increases coverage of preventive services • No cost sharing for • recommended preventive • services • Annual Medicare wellness visits • Grants for workplace • wellness programs • Creates a national public health council with advisory • groups • HIT Medicare/ Medicaid Incentive programs • Expansion of broadband technology • Funding for HIT infrastructure • Pilot programs on payment bundling • Accountable Care Organizations • Center for Medicare and Medicaid Innovation (CMI) • Independent Payment Advisory Board (IPAB) • Administrative Simplification • Comparative effectiveness • Hospital Value-Based Purchasing (VBP) • Enhanced public reporting • Numerous provisions to reduce health disparities • National quality center

5. Health Reform What’s Missing? • Clinical Integration • Ethics in Patient Referral Act – Stark Laws • Anti-Kickback Law • Civil Monetary Penalty • Antitrust – Sherman Act • IRS Tax-Exempt Laws • Medical Liability Reform • Controlling/Reducing Costs • Comparative Effectiveness • Addressing Utilization • Physician self-referral • Patient/public demand • Physician Supply… primary care, residency slots • Wellness, prevention

6. Cost of Chronic Diseases Expected to Climb… 51% of spending for 45-64 is for chronic conditions; 56% for 65+. Source: Conway, P., Goodrich, K., Machlin, S., Sasse, B. and Cohen, J. , Patient-Centered Care Categorization of U.S. Health Care Expenditures. Health Services Research, no. doi: 10.1111/j.1475-6773.2010.01212.x

7. Accountable Care Organizations Existing Models of Service Primary Care Physicians Specialty Care Physicians Outpatient Hospital Care and ASCs Inpatient Hospital Acute Care Long Term Acute Hospital Care Inpatient Rehab Hospital Care Skilled Nursing Facility Care Home Health Care Post Acute Care Episode Bundling Acute Care Episode with PAC Bundling Acute Care Bundling Medical Home

8. Once you have made up your mind, facts are but a mere annoyance. - Unknown Historical Perspective… “Once you have made up your mind, facts are but a mere annoyance”. – Unknown “Take from the altars of the past the fire - not the ashes”. ~Jean Jaures, 20th century French politician

9. Projected Budget DeficitSOURCE: White House Office of Management and Budget; GRAPHIC: Wilson Andrews, Jacqueline Kazil, Laura Stanton, Karen Yourish - The Washington Post

10. Budget Control Act (BCA) Stage I • Immediate budget reductions of $917 billion...extends debt limit by $900 billion to February/March • No cuts in Medicare, Medicaid and Social Security (except fraud and abuse initiative) • No new revenues

11. Budget Control Act Stage II • Special bipartisan congressional committee to make additional $1.5 trillion in deficit reduction recommendations by Thanksgiving • Guaranteed up-or-down vote (and no filibuster) on recommendations if majority of panel support recommendations by Christmas • Enforcement process…debt limit extended by another $1.5 trillion thru 2012 IF: • Recommendations of special committee adopted with resolution of disapproval; OR • Congress passes a Balanced Budget Amendment; OR • Automatic across-the-board cuts…sequesterof $1.2 trillion

12. Budget Control Act Potential Sequester Impact:$1.2 trillion • No revenues • Defense $ 492 billion • Total non-defense $ 492 billion • Medicare $ 123 billion • No cuts in benefits • Provider and insurer cuts limited to 2 percent ($43 billion from hospitals including CAHs) • Medicaid exempt • Net interest savings $ 216 billionTOTAL $ 1,200 billion = $43 billion

13. At the same time… Demands for INCREASED Spending • “Jobs” initiative…$447 billion • Expiring “Extenders” • Unemployment compensation • Taxes: • Alternative minimum tax patch • R&D tax credits • Accelerated depreciation • Medicare • Moratorium on Medicarephysician reductions • Or will these be dealt with at the end of the year?

14. The Super Committee • House • Republicans (Speaker Boehner) • Dave Camp (MI) • Jeb Hensarling (TX) • Fred Upton (MI) • Democrats (Minority Leader Pelosi) • Xavier Becerra (CA) • James Clyburn (SC) • Chris Van Hollen (MD) • Senate • Democrats (Majority Leader Reid) • Max Baucus (MT) • John Kerry (MA) • Patty Murray (WA) • Republicans (Minority Leader McConnell) • Jon Kyl (AZ) • Rob Portman (OH) • Pat Toomey (PA)

15. The Super Committee Big Questions • First, impact of markets on prospect of Super Committee reaching agreement…or going further on a “big deal.” • Second—if the market and political environment do not change the dynamics-- is failure (or sequestration) preferable? • AARP…Medicare beneficiaries • Anti-tax lobby • Hospital community perspectives • Other sectors of health care community • Pharma • Physicians • Defense industry

16. The Super Committee Important Dates • August 16: co-chairs and members of the committee must be appointedwithin 14 calendar days of enactment • September: the committee held its organizing meeting 9/16…first public hearing Sept. 13 • October 14: recommendations by regular House and Senate committees to committee • November 23: committee required to vote on recommendations in the form of legislative language scored by CBO • December 23: House and Senate must voteup-or-down on committee recommendations

17. Joint Select Committee on Deficit Reduction Proposed Options • Medicaid ($100 billion nationally) • Provider taxes/assessments • Blending rates/FMAP • Impact on OH?

18. Joint Select Committee on Deficit Reduction Ohio’s Medicaid Provider Tax Program • In 2011, OH’s hospitals contribute nearly $1.01 B over the biennium in 4 installments beginning 11/11 • This franchise fee brings about $1.8 billion in federal match • Total Medicaid funding pool (hospitals’ assessment plus federal match) = $2.81 B • Of this total, the state retains over $1.2 B • Over $1.6 B is returned to hospitals for a net return to hospitals of $596.7 M over the biennium.  But not all hospitals will get back their assessment.

19. Joint Select Committee on Deficit Reduction Proposed Options • Medicare (national figures) • IME ($15 billion) • Bad debt ($15-30 billion) • IPPS retrospective coding offsets ($5 billion) • Rural adjustment cuts ($14-16+ billion) • Post acute care services ($50 billion) • Expansion of IPAB

20. Joint Select Committee on Deficit Reduction Options to Raise Revenues • Increase retirement age ($125 billion) • Means-testing Medicare ($38 billion) • Reform and increase copayments for Part A & B ($110 billion) • Medigap restrictions ($53 billion) • Home health copayments ($40 billion) • SNF copayments ($50 billion)

21. Federal cuts mean state cuts • FY 2011 • 43 states have taken action to cut Medicaid • Provider cuts in 24 states • FY 2012 • 46 Governors proposed Medicaid cuts • Provider cuts in 33 states • Benefit restrictions in 25 states • Increased beneficiary cost sharing in 21 states

22. Our message The Impact • Access to services and longer-waits • Inability to invest • Upgrading facilities • New technology • Research and education • Performance improvement initiatives • Jobs…impact on hospitalemployment

23. Our message Enough is Enough • Hospitals already absorbing $155 billion in reductions…on top of: • Federal regulatory actions(Medicare IPPS coding offset) • State cuts • Protect the safety net (Medicaid) • Federal programs already underpay hospitals

24. Be prepared for pushback • Asking beneficiaries to contribute • AARP and senior groups • Democrats • Suggesting that revenues be part of the solution • Republicans

25. Our strategy • Must “work” the committee • Messages • Enough is enough • Cuts to providers = potential harm to beneficiaries • Alternatives…reforms vs. ratcheting • Membership engagement • Legislative Action ALERT • Super Committee CEO Advisory Group • Super Committee Grassroots Network

26. Coalition Advertising

27. ADJUSTMENT PROPOSED FINAL • Inflation rate (hospital market-basket) + 2.8% + 3.0% • Prospective coding adjustment - 3.15% - 2.0% • Rural floor lawsuit (Cape Cod) + 1.1% + 1.1% • PPACA reduction - 0.1% - 0.1% • PPACA productivity adjustment - 1.2% - 1.0% • NET UPDATE FACTOR -0.55% +1.1% Example of Advocacy Success: IPPS Update • ADJUSTMENT PROPOSED • Inflation rate (hospital market-basket) + 2.8% • Prospective coding adjustment - 3.15% • Rural floor lawsuit (Cape Cod) + 1.1% • PPACA reduction - 0.1% • PPACA productivity adjustment - 1.2% • NET UPDATE FACTOR -0.55% DOLLAR IMPACT - $498 M +$1.2 B (as compared to FY 2011 levels)

28. Bottom line for hospitals? Challenges…Vulnerabilities • Next year…2012 • If sequester kicks in…deficit reduction package alternative before January 2013 • Expiration of Bush-Obama tax cuts • 2013 • “Boehner rule”…for future debt limit extensions

29. The Big Issue Beyond 2012 • Fundamental questions: • What will Medicare and Social Security look like? • How big will the military be? • How much will the wealthy pay in taxes? • How will the country care for the sick and vulnerable (Medicaid)? • Payment reform…hospital role • Specific policy options

30. v2: Federal Issues Impacting Hospitals Promedica Health System Fall Symposium October 31, 2011 Kim Byas, Sr. Regional Executive kbyas@aha.org