Health Care Reform Update

1. Health Care Reform Update

2. Introduction On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (the “Act”). On March 30, 2010, The Health Care and Education Reconciliation Act of 2010 was signed. Collectively, these two Acts will be referred to as the Health Care Act and serve as the basis for what has been named “ObamaCare.”

3. Timeline of Implementation Many of the provisions of the Health Care Act will become effective over the next several years. In an effort to overcome the public opposition to and increase support for the Health Care Act, many of the tax-incentive provisions have earlier effective dates while many penalty provisions and revenue-raising provisions have been delayed.

4. Some Notable Changes We Will See With The Health Care Act The Act requires most individuals to have health insurance beginning in the year 2014. The Act allows individuals without access to affordable employer coverage to purchase insurance coverage through health insurance exchanges with premium and cost-sharing credits available on an economic-needs basis. Except for small employers, the Act requires employers to pay penalties for employees who receive tax credits for health insurance through the Exchange. The Act restricts health care plans from denying coverage based upon pre-existing conditions or health status. The Act expands Medicaid to 133 percent of the federal poverty level (for 2009, $14,404 for an individual and $29,327 for a family of four) and for all individuals under the age of sixty-five.

5. Notable 2010 Provisions All health insurance plans are required to maintain dependent coverage for children until they turn twenty-six, allowing young adults to remain on their parents’ policy up to their twenty-seventh birthday. Any lifetime limits on benefits and restrictive annual limits are now prohibited. Firms with up to twenty-five employees who provide health insurance and who averaged up to $50,000 in salary were eligible for tax credits to offset the cost of the insurance.

6. Notable 2011 Provisions • Medicare recipients in the prescription coverage gap were provided with a 50 percent discount on brand name drugs. • Taxes for health savings account withdrawals before age sixty-five for nonqualified medical expenses increased from 10 percent to 20 percent. • Employers were required to report the value of health care benefits on employees’ W-2 tax statements. • Informational only • Employees are not taxed on the value.

7. Notable 2012 Provisions • A Value Based Purchasing (“VBP”) Program was implemented as of October 1, 2012. • Other Medicare payment reforms such as accountable care organizations started. • Hospitals with high rates of preventable re-admissions began to be penalized with a reduction in Medicare payments. • As of September, 2012, all health plans have to use a standardized, consumer-friendly form.

8. Notable 2013 Provisions • Medical expense contributions to tax-sheltered flexible spending accounts (FSAs) will be limited to $2,500 a year, indexed for inflation. • The threshold for claiming an itemized tax deduction for medical expenses will increase from 7.5% of income to 10%. • People over sixty-five will continue to be able to deduct medical expenses above 7.5% of income through 2016. • In 2013 taxable Medicare wages paid in excess of $200,000 are subject to an extra 0.9% Medicare tax that will be withheld from employees’ wages. Employers will not pay the extra tax.

9. Notable 2013 Provisions Cont’d • In 2013, certain investment income will be subject to an additional 3.8% surtax. • A 2.3% sales tax will be imposed on medical devices excluding eyeglasses, contact lenses, hearing aids, and many everyday items purchased at the drug store. • Hospitals must complete a Community Health Needs Assessment at least once every 3 years.

10. Notable 2014 Provisions All individuals will be required to have health insurance, with some exceptions, beginning in 2014. Those who do not have coverage will be required to pay an annual financial penalty of the greater of $695 per person (up to a maximum of $2,085 per family), or 2.5 percent of household income. Health plans will no longer be able to limit coverage based on pre-existing conditions, or charge higher rates to those in poor health. Insurers will not be able to charge higher rates because of health status, gender, or other factors. Premiums can only vary by age (no more than three-to-one), place of residence, family size, and tobacco use. Medicaid will be expanded to cover low-income people up to 133 percent of the federal poverty line, about $29,300 for a family of four; and low-income childless adults will be covered for the first time.

11. Notable 2014 Provisions Cont’d • States, no later than 2014, must establish Small Business Health Option Programs (SHOPs) to enable small businesses to pool their resources to buy insurance. • Income-based tax credits will be provided for most consumers in the exchanges, substantially reducing costs for many. Sliding scale credits will be phased out completely for households above four times the federal poverty level, about $88,000 for a family of four. • Employers with more than fifty workers will be penalized if any of their workers get coverage through the exchange and receive a tax credit. The penalty is $2,000 times the total number of workers employed at the company. However, employers will be able to deduct the first thirty workers.

12. Notable Later Provisions In 2018, all plans will be required to provide coverage for preventive services without co-pays. In 2020, the doughnut hole coverage gap in Medicare prescription benefits is phased out. Seniors will continue to pay the standard 25 percent of their drug costs until they reach the threshold for Medicare catastrophic coverage, when their copayments drop to 5 percent. In 2018, a potential 40 percent excise tax on so-called Cadillac health plans will be assessed to the excess aggregate value of health plans above a threshold of $8,500 for individual and $23,000 for family coverage

13. Additional Detail (CHNA, Exchanges, Physician-Owned Hospitals, Payment Reform)

14. Community Health Needs Assessment • At least once every three years. • Must include input from persons who represent the broad interests of the community and from persons having public health knowledge or expertise. • Must make assessment widely available to the public. • Must adopt a written implementation strategy to address identified community needs. • Failure to comply results in excise tax penalty of $50,000 per year.

15. Community Health Needs Assessment How is a CHNA Conducted? • Must identify health needs of the community served by the hospital. • May be conducted in collaboration with others – but each hospital presents own documentation. When is a CHNA Conducted? • During the current tax year or in either of the two immediately preceding taxable years, beginning March 23, 2012. • Considered “conducted” in the taxable year that the written assessment report is made publicly available.

16. Health Insurance Exchanges States have until 2014 to implement an insurance exchange before the federal government will step in and establish an exchange. Individuals and small business will be able to buy insurance plans that cover “essential health benefits.”

17. Health Insurance Exchanges Essential Health Benefits include: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services, including behavioral health treatment • Prescription drugs • Rehabilitative services and devices • Laboratory services • Preventive and wellness services and chronic disease management • Pediatric services, including oral and vision care

18. Health Insurance Exchanges The regulations pertaining to Exchanges are codified in 45 CFR parts 155 and 156. Part 155 outlines the proposed standards for states relative to the establishment of Exchanges and outlines the proposed standards required of Exchanges related to minimum functions. Part 156 outlines the proposed standards for health insurance issuers with respect to participation in an Exchange, including the minimum certification requirements for qualified health plans. States may establish an Exchange as a state agency or as a non-profit organization, and may choose to contract with other eligible entities to carry out various functions of the Exchange. A state may partner with another State to form a regional Exchange.

19. Health Insurance Exchanges • Each State Exchange must be approved by HHS no later than January 1, 2013 in order to begin offering Qualified Health Plans on January 1, 2014. • In order to participate in an Exchange, a health insurance issuer must have in effect a certification issued or recognized by the Exchange to demonstrate that each health plan it offers in the Exchange is a QHP.

20. Physician-Owned Hospitals Had to have physician owners on March 23, 2010 Had to have a Provider Agreement in effect no later than December 31, 2010. Hospitals are required (after final rules are promulgated) to submit an annual report to the Secretary containing a detailed description of the identity of each owner and the nature and extent of all ownership and investment interests in the hospital. The percentage of the total value of the ownership interest held in the hospital by physician owners in the aggregate cannot exceed such percentage as of March 23, 2010. Ownership interests cannot be offered on more favorable terms to physician investors.

21. Expansion of Physician-Owned Hospitals • Physician-Owned Hospitals cannot increase the aggregate number of operating rooms, procedure rooms, and beds for which the hospital is licensed, unless an exception is granted. • A hospital must qualify under one of two sets of criteria to qualify to apply for an exception: one for "applicable hospitals" and one for "high Medicaid facilities." • Both sets of criteria require a hospital to not discriminate against beneficiaries of Federal healthcare programs and not permit physicians practicing at the hospital to do so.

22. Update On Payment Reform

23. Payment Reform is Focused on Incentivizing Quality & Efficiency CMS adds Outpatient Data to Hospital Compare Website Jul 8, 2010 Physician Resource Use Reporting begins Medicare VBP begins ACOs Launched EHR Registration begins 2013 2013 CMS goal to have EHR interoperable 2012 Jan 3, 2011 HAC Expanded to Medicaid 2014 Jul 1, 2011 Health Care and Education Reconciliation Act of 2010 amends PPACA Public Reporting to begin of HACs where payment was denied Value Based Payment Modifier to Physician Fee Schedule Payment Reductions for Re-admissions begins Patient Protection and Affordable Care Act (PPACA) establishes and maintains quality-related initiatives EHR Meaningful Use must be achieved or Medicare Reimbursement Penalties Mar 30, 2010 Oct 2012 2014 Jan 2015 Mar 23, 2010 Jan 2015 2012 2015 2011 2014 2013 2010 CMS to launch Physician Compare Website Jan 3, 2011 CMS=Centers for Medicare & Medicaid Services; DRA=Deficit Reduction Act; IOM=Institute of Medicine; MMS=Medicare Prescription Drug, Improvement and Modernization Act; QI=Quality Improvement.

24. Payment Penalties for Poor Quality Rack Up Total: Over 6% of total Medicare payments at risk !!!

25. Medicare Value-Based Purchasing • Section 3001 adds a new subsection (o) to section 1886 of the Social Security Act (“Act”) establishing a “hospital value-based purchasing program” in which providers are given “incentive payments” for performing well on quality measures adopted by the Secretary. • By way of overview, under the VBP program, the base operating DRG payment amount will be reduced for all participating subsection (d) hospitals for each discharge beginning on October 1, 2012. The reduction starts at 1%, and increases a quarter of a percent per federal fiscal year until it reaches the maximum reduction of 2% for discharges after October 1, 2016. The savings from these across-the-board reductions in payment (approximately $850 million in 2013) will then be used, in a budget neutral manner, to make “incentive” payments to hospitals that perform well on, or show improvement in, certain quality measures. The FFY 2013 performance period started on July 1, 2011 and ends on March 31, 2012. • Because the statue requires that the VBP program be budget neutral and for the best performing hospitals to be paid more than other hospitals, if follows that the worst performing hospitals will necessarily be penalized, whether or not they meet minimum quality thresholds. In other words, the VBP program goes beyond encouraging hospitals to meet minimum quality standards and instead creates a “race to the top” where the necessarily will be winners and losers.

26. Medicare Value-Based Purchasing On May 6, 2011, Medicare issued a final rule implementing VBP, and subsequent IPPS and OPPS Final Rules expand upon it. Under the VBP program, hospitals will received incentive payments based on how well they perform on 12 clinical measure and 8 patient experience measures or how much performance improving relative to a baseline performance. Each hospital may earn 2 scores on each measure – one for achievement and one for improvement. The score that is awarded to a hospital for each measure is the higher of these 2 scores.

27. Medicare Value-Based Purchasing The VBP Program will reduce current DRG payments for the lowest-scoring hospitals but can result in an increase in DRG payment for the highest scoring hospitals Performance period for FY 2013 was from July 1, 2011 to March 31, 2012 Under the VBP Program, CMS will score each hospital on measures in up to four “domains” based on: The hospital’s achievement based on national measures and The hospital’s improvement as against the hospital’s own baseline performance The higher of its achievement score or its improvement score during the performance period will be used in calculating a hospital’s total performance score

28. Medicare Value-Based Purchasing In FY 2013, the VBP Program focused on: 12 Clinical Process Measures (Clinical Process of Care Domain) Acute Myocardial Infarction Heart Failure Pneumonia Health Care Associated Infections Surgical Care Improvement Project 8 HCAHPS Measures (Patient Experience Domain)

29. Medicare Value-Based Purchasing, cont. • If a hospital meets or exceeds the performance standards established by the Secretary for a particular fiscal year, the Secretary must “increase the base operating DRG payment amount” (which was previously reduced for all participating hospitals) by the “value-based incentive payment amount,” which is percentage add-on to each DRG weight. Again, the incentive payment must be calculated to reward better performing hospitals more, though any increase (or decrease) is limited to the specific fiscal year at issue.

30. Readmissions Total Medicare payments reduced to hospitals for higher than expected readmission rates beginning October 2012 2013 – 1% max reduction 2014 – 2% max reduction 2015 and beyond -- 3% max reduction 30-day risk adjusted readmission rates. The ACA initially focuses on 3 conditions. In fiscal year 2015, will expand to other conditions. Heart failure Heart attack Pneumonia (same measures as are now reported for IQR program) CMS authorized to develop additional conditions. CMS is currently focused on: Chronic obstructive lung disease Coronary artery bypass grafting Percutaneous coronary intervention Vascular procedures

31. Readmissions Payments will be reduced by an “adjustment factor” based on excess readmissions during baseline period. Based on 3 years of discharge data (For FY 2013, July 1, 2008 – June 30, 2011). Includes most readmissions within 30 days of a discharge from an initial hospitalization (“index hospitalization”).

32. Health Reform and New Delivery Models

33. Payment Model Drives Change

34. New Delivery Models Patient Centered (Medical home demonstration) Bundled payments (demonstration) One payment for an episode of care Promotes integrated and collaborative care Shared decision making Shared savings (ACO) HHS waives regulatory laws (Anti-kickback statute, CMPL, etc.) Antitrust and IRS waivers as well Must meet quality and patient satisfaction Care management – hospital and ambulatory

35. New Delivery Models: WHY? • Current system • Incentivizes volume • Misaligned incentives leads to • Fragmented care • Adversarial relationships • New Model • Incentivizes quality, efficiency and access • Aligned incentives leads to • Integration • Coordination • Team work • Goal: Breakdown “silos” of Part A & Part B

36. Future Depends on Development and Implementation of New Competencies • As FFS erodes, Hospitals and Physicians will be paid for new and different activities • Ability to work together differently • Implement Evidenced Based Protocols • Care Coordination • Managing the Total Cost of Care • Quality Control • HIT • Patient-Centered Care • Population Health and Wellness • Bundled Services • Patient Engagement However, Hospital Utilization DECLINES!!!

37. Accountable Care Organizations Section 3022 of ACA allows ACOs to receive “shared savings” payment NOT a pilot/demonstration Goal Break down silos between Part A and Part B payments. Improve quality, improve patient experience and decrease cost for DEFINED POPULATION

38. KEY ACO Requirements • ACO Legal Structure – shared governance and shared savings distribution mechanism • Authority • Receive and distribute shared savings • Repay shared losses • Establish and ensure compliance with quality and other program requirements • Perform other ACO functions • Shared governance for all ACO participants, with authority to define evidence-based medicine processes • Governing body responsibility for oversight and strategic direction of ACO; holding ACO management accountable • Governing body must include Medicare beneficiary • 75% control of governing body by ACO participants • Conflict of interest policy • Management by executive officer appointed/removed by governing body • Clinical management by senior level medical director

39. Sufficient PCP for assigned Medicare beneficiaries (at least 5,000) Qualified professional responsible for quality assurance/improvement program with defined processes Compliance plan 3 year term (varying start dates) Two Payment Tracks: Track 1 – Asymmetrical one-sided model which allows ACOs to share in savings (up to 50%) without downside risk Track 2 – Symmetrical two-sided model which allows ACOs to share in larger % of savings (60%), but the ACO must also share in downside risk Notify beneficiaries at the point of care of participation in Shared Savings Program with opportunity to opt out of data sharing CMS will assign beneficiaries retrospectively following the performance year, but will notify ACOs of preliminary assignment Key ACO Requirements, cont.

40. Key Takeaways • Physician/Hospital collaboration is a must • Align medical staff with hospital to achieve quality and efficiency of care • Must integrate employed/non-employed and primary care/specialists to achieve success • Without physician buy-in, hospitals face significant reimbursement losses: • Value Based Purchasing • HAC Reductions • Readmission Penalties • Loss of P4P $$

41. Physician Alignment

42. Physician and Hospital Alignment Hospitalsneed to enlist physician support to meet quality targets and earn quality related incentive payments It is often difficult to enlist physician support by simply coaxing, cajoling, scolding, etc. Particularly true if you do not (or cannot) employ physicians Physicians need to enlist hospitals to help with systems to drive quality across the continuum of care CMS recognizes need for new delivery models to reach goals of quality and efficiencies

43. Physician and Hospital Alignment (cont.) Independent medical staff structure is not conducive to drive quality under new paradigm because peer review/quality management is retrospective and often incident-based no mechanism to standardize care processes or require evidenced-based medicine Structures are emerging to align medical staff with hospital to achieve quality of care Focus on primary care (again!) and specialists

44. What’s Different About the Goals for Physician and Hospital Alignment Strategies Today? Must allow for coordination of care across continuum Requires broad medical staff participation (both employed and independent) Pay-for-performance payor contracting Must drive quality and efficiency to maximizing reimbursement under health reform Better aligned and engaged physician (only?) Eliminate waste and reduce costs Patient-centeredness Manage patient health, not just episodic patient care

45. Other Alignment Options Professional Services Agreement Model Employment Model Tax Exempt Affiliated Practice Model (employed or contracted) “Pay for Quality” Model Gain-sharing Model Service Line Co-Management Model

46. Professional Services Agreement Hospital contracts with physician/physician group to provide professional services to hospital owned practice Benefits: Attractive to Physicians, Physicians maintain autonomy Can mirror an employment type structure Features: Must meet Stark Law requirements (i.e. compensation set in advance, written, signed agreement) But can compensate based on productivity and performance metrics Hospital contracts with payors, and collects and bills for physician services If provider-based, physician can independently bill/collect for professional services Three Day Payment Window applies

47. Professional Services Agreement Payors Services FMV $ $$$

48. Gain-sharing Model Physician Group Physician Group Other Physicians Independent Valuation Expert Identifies cost savings opportunities, sets thresholds based on national benchmarks, monitors quality of care Implement cost savings initiatives Shared cost savings from meeting initiatives Cost savings initiatives may be product standardization, product substitution, “open as needed,” and others but cannot withhold or limit care.

49. Service Line Co-Management Model Paying company owned by relevant department medical staff members to assist hospital in improving the quality and efficiency of the service line Company enters into Co-management Agreement with hospital Co-Management Agreement: Creates and sets ground rules for service line operating committee or leadership council Company assists management in operating Service Line Includes quality/efficiency performance measures – process and outcomes

50. Service Line Co-Management – Financial Terms Base compensation for Service Line Operating Committee work, management activities and participation in meetings Hourly; or Flat, periodic fee Base fee may be at risk for failure to meet floor quality/efficiency targets Incentive compensation for hospital achieving quality and efficiency targets Pool divided across quality and efficiency targets Tiered targets with tiered increases in payment Subject to independent, third-party valuation New OIG Advisory Opinion provides helpful guidance