Leadership State of the Alliance

Healthcare Reform Update June, 2010

Today’s presentation: Patient Protection and Affordable Care Act (PPACA) Implications for our members 10 years of change Huge and mounting financial pressures Massive regulatory requirement Implications for our work together: can we succeed? Comparative effectiveness and transparency Device tax Competition v. price controls

Payment cuts to hospitals: $157B Hospital Payment Cuts in Public Law No: 111-148 - Patient Protection and Affordable Care Act CBO/JTC Estimate, CMS Actuary Estimate 2010 - 2019 (in billions) Total Cuts for Hospitals: ~$156.6 billion

Realities for hospitals

Health reform’s hidden agenda Total Federal Spending for Medicare and Medicaid Under Assumptions About the Health Cost Growth Differential Percent of GDP 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 2050 5 10 15 20 25 Actual Projection 2.5 Percentage Points 1 Percentage Point Zero Differential of: Tax rates 2050: 10% 26% 25% 66% 35% 92% Tax Rates (pictures on the right of the graph): The Congressional Budget Office found that if federal income tax rates are adjusted to allow the government to continue its current level of activity and balance its budget: The lowest marginal income tax rate of 10 percent would have to rise to 26 percent. The 25 percent marginal tax rate would increase to 66 percent. The current highest marginal tax rate (35 percent) would rise to 92 percent!

Transparency & evidenced-base care Healthcare reform provisions Disclosure of industry payments to physicians and teaching hospitals (beginning 2013) Creation of Patient-Centered Outcomes Research Institute (comparative effectiveness research) National priorities for quality measurement development Transparency Disclosure of standard hospital charges Requires each hospital operating within the U.S., for each year, to establish (and update) and make public (in accordance with guidelines developed by the Secretary) a list of the hospital's standard charges for items and services provided by the hospital, including for Medicare diagnosis related groups (DRGs). Sunshine on industry payments to physicians (beginning 2013) Beginning March 31, 2013, drug, device, biologics or medical supply manufacturers are required to publicly report all payments of value to physicians and teaching hospitals (exception for a transfer of value under $10, unless the aggregate amount transferred during the calendar year exceeds $100) Requires manufacturers or group purchasing organizations to disclose ownership or investment interest (other than a publicly traded security and mutual fund) held by a physician Prohibition on Medicare participation by physician-owned hospitals (grandfathered to December 31, 2010) Failure to report holds civil monetary penalties of not less than $1,000 and not more than $10,000 for each violation. Prohibits physician-owned hospitals that do not have a provider agreement prior to December 31, 2010, from participating in Medicare. Hospitals that have a provider agreement prior to December 31, 2010 may continue to participate in Medicare subject to certain reporting requirements relating to conflict of interest, bona fide investments, and patient safety issues, and expansion limitations. Hospitals information relating to physician ownership and investment will be available to the public. The Secretary shall establish policies and procedures to ensure compliance with these provisions. This may include unannounced site reviews of hospitals. Not later than May 1, 2012, HHS will conduct audits to determine if hospitals are in violation of these provisions.   Allows high Medicaid facilities to apply for an exception from the prohibition. High Medicaid facilities are defined as hospitals that, for the most recent 3 years for which data is available, treat the highest percentage of Medicaid patients in their county (and are not a sole community hospital). Imposes new standards for the tax exemption of nonprofit hospitals (Effective for taxable years beginning after the Act’s enactment except with the respect to the community health needs assessment, which will apply 2 years after the Act’s enactment).  Requires that a hospital complete a community needs assessment once every three years Requires hospitals to adopt and publicize a financial assistance policy Limits the amount that can be charged by a charitable hospital for emergency or medically necessary to individuals eligible for assistance to the amount generally billed for such care Prohibits a hospital from taking extraordinary collection actions if the hospital has not made reasonable efforts to notify patients of its financial assistance policy Imposes an excise tax of $50,000 on a hospital organization that fails to meet the requirements for any taxable year.  Directs the Secretary of the Treasury to review at least once every 3 years the community benefit activities of each hospital Focus on evidenced-based care Creation of Patient-Centered Outcomes Research Institute (comparative effectiveness research) Establishes a private, non-profit corporation to assist providers, payers, and policy makers in making informed health decisions National priorities for quality measurement development Authorizes $75 million over 5 years for the development of quality measures at AHRQ and CMS. Quality measures developed under this section will be consistent with the National Strategy HHS must identify, not less than triennially, gaps where no quality measures exist, or where existing measures need improvement consistent with the National Strategy and priorities and develop measures that would fill identified gaps by contracting with a qualified consensus-based entity Requires the Secretary to develop and update (not less than every 3 years) provider-level outcome measures for hospitals and physicians. Funding for measurement development entity Provides $20 million to support the endorsement and use of endorsed measures by the HHS Secretary for use in Medicare, reporting performance information to the public, and in health care programs HHS establishes a pre-rulemaking process to obtain input from the consensus-based entity and multi-stakeholder group on the selection of quality and efficiency measures By no later than December 1 each year, starting in 2011, HHS will make public a list of measures being considered for selection with respect to Medicare reporting and payment systems. By no later than February 1, the consensus-based entity must give HHS recommendations regarding the proposed measures. The entity would convene the stakeholder group to consult on the recommendations. Availability of Medicare Data for Performance Measurement Effective January 1, 2012, authorizes the release and use of standardized extracts of Medicare Parts A, B and D claims data to qualified entities to measure the performance of providers and suppliers. Requires the Secretary to take necessary actions to protect beneficiaries’ identity Requires qualified entities to pay a fee equal to the cost of making the data available, which would be deposited

Today’s presentation: Patient Protection and Affordable Care Act (PPACA) Implications for our members 10 years of change Huge and mounting financial pressures Massive regulatory requirements Implications for our work together: can we succeed? Comparative effectiveness and transparency Device tax Competition v. price controls Can we succeed? Our mutual goal: create a truly competitive, transparent and functional market

Reform Readiness: Innovative strategies Widen the competitive pricing advantage Refine sourcing strategies to meet members’ evolving needs Integrate clinical benchmarking data/value analysis Expand offerings specific to non-acute settings (ACO)

Panelists Susan DeVore, President & CEO Mike Alkire, President, Premier Purchasing Partners Blair Childs, Sr. VP, Public Affairs John Biggers, Group VP, Sourcing and Contracts Bryant Mangum, VP, Pharmacy Services Joan Ralph, VP, Continuum of Care Services Andy Brailo, VP, Strategic Accounts Emcee: Dave Edwards, VP, Business Development & Supplier Relations