November 1, 2013 APPROACHES TO MANAGING HOSPITAL CAPITAL SPENDING UNDER THE NEW HOSPITAL PAYMENT MODEL

Where has CON been? Proactive in setting expectations for hospitals: capacity limitations, program standards, viability standards, and impact standards – State Health Plan Not proactive in using spending targets or systems level analysis of spending impact or value Largely reactive in addressing the pace of capital spending – isolated capital project review The process does not provide a path for formal consideration and use of prioritization of project need or urgency as a decision-making tool 2

Where is the new payment model going? Budgeted spending limits replacing charge per case Bending the demand curve and disincentivizing increased production as a means for boosting revenue Sustainable growth in spending (pegged to growth in state economy in application to CMS) Paying for value (high performance/efficient use of hospital resources) instead of volume 3

Where should CON go? Proactive use of capital spending limits to establish a sustainable pace of development and redevelopment of hospital resources This will require incorporation of longer range facility needs assessment and a fair process for prioritizing facility needs to achieve effectiveness and equity – historic individual capital project review will not serve MHCC may need to proactively work to achieve systems contraction and rationalization 4

Where should CON go in the short-term? Five hospital projects in review today – two are docketed but stymied by the new payment model- three are in completeness review – over $1 billion in proposed spending The new applicants have been asked to respond directly to the new payment model – utilization and volume assumptions supporting their project viability and volume/revenue assumptions – do they fit the new model? Can MHCC use its lawful collaboration with HSCRC in reviewing these projects and reaching an outcome that supports success of the new model? Can the process be adjusted short-term to achieve this result? 5

Where should CON go in the mid-term? Comprehensive assessment of hospital physical plant needs and routine capital spending needs statewide – use in developing capital spending targets consistent with new payment model Statutory and regulatory changes to create CON regulation within capital spending limits  Phase 1 – identify priorities among planned projects – five year plan  Phase 2 – review and approve planned projects endorsed in Phase 1  Phase 3 – revisit five year plan and priorities – adjust as necessary  Repeat 6

Where should CON go in the mid-term? Update SHP to reflect CON regulation within spending limits environment  less focus on need, impact and cost-effectiveness (should be addressed in Phase 1 review)  more focus on performance criteria (HAC, ARRA, etc.) consistent with new payment model and viability 7

Where should CON go long-term? Can scope of hospital CON regulation be reduced in a spending limits environment?  Can most individual hospital changes (bed and service capacity) be left to discretion of hospital management under the budget cap imposed by HSCRC? Would some Phase 1-like process be needed to set system priorities but then hospitals could proceed to succeed or fail with the money allocated?  Hospital CON regulation could be limited to establishing new hospitals, relocating hospitals, introducing selected services (e.g., cardiac surgery) and maintaining performance (e.g., the new regulatory model for PCI) 8

QUESTIONS & DISCUSSION