The Patient Protection and Affordable Care Act 4 Trends that Could Affect Your Business Eric Welsh Gross, Esq. Associate In-House Counsel St. Joseph’s Healthcare System

2 2 Major Forces Causing Changes in the Healthcare Industry 1. Dramatic Increase in Healthcare Costs  In 2010, premiums for New Jersey small employers inreased between 20 and 30 percent from the year before at Horizon, Aetna Health, United Healthcare and Health Net, which collectively cover about 85 percent of the market, according to the New Jersey State Department of Banking and Insurance  Medicare Advisory Commission indicated that since 1980, Medicare spending has increased by 15 times, from $37 Billion to $565 Billion Dollars in 2011  The 2012 Medicare Trustees Report projects that the Hospital Insurance (Part A) Trust Fund will become insolvent in 2024 (5 years earlier than estimated in the 2010 report) 2. Increase in Implementation of Healthcare Technology

3 Trend # 1: Value Based Purchasing  Moving Away from Fee for Service Towards Value Based Purchasing (VBP)  VBP is a Methodology that Rewards Quality of Care Through Payment Incentives and Transparency –Improve clinical quality –Address problems of underuse, overuse, and misuse of services –Reduce adverse events and improve patient safety –Avoid unnecessary costs in the delivery of care –Make performance results transparent to and useable by consumers

4  Move to VBP will cause provider and health systems to become more integrated –Money made by providers on back end by demonstrating superior outcomes for care  Bundled Payments and Payments based on diagnosis, not LOS  Employers looking to collaborate directly with the best quality providers to care for their employees –Bundled payments –Lowes and Cleveland Clinic: Lowes waives employees’ usual $500 deductible and other out-of-pocket costs and pays for their airfare, hotel and living expenses while getting treatment Trend # 1: Value Based Purchasing

5 Trend # 2: Consolidation Amongst Providers  VBP and reduction in reimbursement are causing many providers to join hospitals and mergers between healthcare systems -VBP is expensive to implement -Costs must be reduced through economies of scale  Larger groups/systems provide more leverage with payers  Larger groups/systems can better manage health of population  Example: Hackensack University Medical Center (Mountainside, Pascack Valley, Hackettstown?)

6 Trend # 3: Private Insurance Exchanges and Employee Choice Model  Cost of insuring employees is rising dramatically –According to Kaiser Family and Health Foundation and Health Research Educational Trust, US employers and workers spend $15,475 for family coverage –On average 28% of the premium is paid by the employee  Darden Restaurants and Sears - January 1, 2013 –Both self-insured –Details of programs not publicized  Provide Employees with fixed sum of money and allow them to choose their medical coverage and insurer from a private on-line marketplace –If employee chooses a less expensive plan, can keep the difference –If the plan is more expensive than the stipend, he or she must pay the difference –Hope is that insurers will compete more vigorously to get workers to sign up –Parallels the transition from pensions to 401(k)

7 Trend # 4: Strategic Structuring of Workforce  Only a “large employer” may be subject to penalties regarding employer-sponsored health insurance  A “large employer” is an employer with more than 50 full-time equivalent employees during the preceding calendar year – Full-time employee is 30 hours per week – $2000 penalty per FTE if insurance not offered (first 30 FTEs excluded) – Part-time employees counted for purposes of “large employer” determination – However, a large employer will not pay a penalty for part-time employees – Incentive to replace full-time employees with part-timers and contract out work to other firms or individuals – Be careful how you classify independent contractors