2013 WSHA Project Report Washington Wage Index Improvement Strategy Services January 28, 2014

Meeting Roadmap HFS Consultants | 2  Goal of the 2013 WIISS  Scope of Work  What has HFS been doing with WA hospitals the last 6 months?  Results of This Year’s Work  What does our work together mean for Washington?  Key Findings  Next Steps and Timeline  What can WA hospitals expect from HFS in the next few months?  Future Needs  What’s coming up in 2014?

2013 Project Goals HFS Consultants | 3  Increase Wage Index Reporting Compliance  Normalizing average hourly wage data  Improving Accuracy of Average Hourly Wage Data  Frequently findings mean positive adjustments to the average hourly wage  Knowledge Transfer  Transparency of average hourly wage findings  Best practices for future average hourly wage data reporting

Scope of Work – 9 Months of Collaboration HFS Consultants | 4  Discovery  Collection of the necessary wage and financial data from hospital staff  Analysis  HFS’s specialized analysis and “dig deeper” approach of the wage index data identifies items that do not meet CMS guidance and areas of opportunity to enhance average hourly wage reporting  Revision  HFS proposes revised wage index data, and with hospital approval, submits proposed revisions to MAC corresponding with its deadline  MAC Audits

HFS Worked in Multiple Geographic Areas HFS Consultants | 5  2013 Wage Index Improvement Strategy Services  Seattle-Bellevue-Everett CBSA  Tacoma CBSA  Spokane CBSA  Rural Washington CBSA  44 hospitals in Washington either participated or are impacted by the work

Who Participated in Seattle-Bellevue-Everett? HFS Consultants | 6  Providence Health & Services  University of Washington  Virginia Mason Medical Center  Overlake Hospital Medical Center  Central Washington Hospital  Evergreen Hospital Medical Center  Skagit Valley Hospital  Auburn Medical Center  Island Hospital  Cascade Valley Hospital  These participants represent 93% of the CBSA wages

Who Participated in Tacoma? HFS Consultants | 7  MultiCare Health System  Tacoma General Allenmore Hospital  Good Samaritan Hospital  MultiCare represent 55% of the CBSA wages  Franciscan Health System – St. Joseph Medical Center

Who Participated in Spokane? HFS Consultants | 8  Providence Health & Services  Providence Sacred Heart Medical Center  Providence Holy Family Hospital  These two hospitals represent 71% of the CBSA wages

Who Participated in Rural Washington? HFS Consultants | 9  PeaceHealth St. Joseph Medical Center  Gray’s Harbor Community Hospital  Providence St. Mary Medical Center  Providence Centralia Hospital  Samaritan Hospital  Walla Walla General Hospital  Wenatchee Valley Medical Center  Olympic Medical Center  These members represent 100% of the CBSA wages

Net Findings and Projected Impact HFS Consultants | 10 Core Based Statistical Area (CBSA) Findings to CBSA AHW Estimated Impact to Inpatient Medicare FFS Revenue Seattle-Bellevue-Everett, WA (Seattle)$0.39$5,041,000 Spokane, WA($0.30)($1,055,000) Tacoma, WA$0.06$393,000 Rural Washington($0.10)($91,000) Yakima, WA (Rural Floor Recipient)($0.10)($129,000) Kennewick-Pasco-Richland, WA (Rural Floor Recipient)($0.10)($113,000) Net Impact to Washington Hospitals$4,046,000

Key Findings HFS Consultants | 11

Summary of Findings HFS Consultants | 12 Key CBSA FindingsSeattleSpokaneTacomaRural WA Revision to Salaries($0.01)$0.04$0.00($0.01) Revisions to Physicians, Interns and Residents($0.09)$0.00 $0.02 Revisions to Patient Care and Overhead Contract Labor$0.15$0.11$0.01$0.13 Revisions to Home Office$0.01$0.00 ($0.01) Revisions to Hours Related to Paid Salaries$0.14($0.48)$0.00($0.12) Revisions to Hours Related to Paid Salaries – Severance$0.00($0.12)$0.00($0.12) Revisions to Wage Related Costs$0.12($0.01)$0.03($0.04) Revisions to Wage Related Costs – Pension$0.18$0.16$0.02$0.09 Improper AHW Reporting – Compliance($0.03)$0.00 ($0.04) Client Proposed Revisions($0.08)$0.00 Net Impact to CBSA AHW$0.39($0.30)$0.06($0.10)

Hours Related to Paid Salaries HFS Consultants | 13 The following hours should be removed from the payroll file for accurate wage index reporting:  Hours associated with accrued, not paid, salaries  Bonus hours  On-Call hours  Shift Differential hours  PTO paid out at employee termination  Buy/Sell back PTO  Paid hours associated with capitalized labor costs  Missed meal and missed break pay

Hours Related to Paid Salaries HFS Consultants | 14 The following hours should be removed from the payroll file for accurate wage index reporting (cont’d):  Unpaid Family Medical Leave  Unpaid Disability  Unpaid Leave of Absence  Baylor Plan  Example: Employees work 36 hours, but get paid for 40 hours – remove 4 hour difference  Seasonal Plan  Example: Employees work certain months of the year, but get paid for 52 weeks – remove the time not actually employed

Hours Related to Paid Salaries HFS Consultants | 15  Severance Hours  General Rule: If severance is booked a "salary" expense then include hours; if severance is booked as a non-salary expense than do not include hours  Disability Hours  General Rule: If disability hours are reduced on the payroll report they need to gross up to 100%  Holiday Pay for Nurses  Example: May be paid regular pay + holiday pay + overtime; ensure that hours are not being double- counted

Contract Labor HFS Consultants | 16 Patient Care  Remove wages and hours from excluded and non-allowable cost centers  Remove non-patient care wages and hours related to:  Non-professional fees (i.e. travel, miscellaneous overhead)  Non-patient care and overhead services (i.e. transcription)  Report additional amounts related to:  Dialysis  Perfusion  Other temporary patient care staff not reported as “Registry”  Patient care staff reported from the home office

Contract Labor HFS Consultants | 17 Overhead Contract Labor  Report additional Administrative & General (A&G, e.g. legal and consulting services), dietary, and housekeeping contract labor identified from a thorough review of trial balance and accounts payable detail  Report additional A&G contract labor from the corporate and regional home office  Remove non-allowable overhead amounts (i.e. security).

Wage Related Costs HFS Consultants | 18 Defined Benefit Pension Plans  For wage index purposes, allowable pension costs will be calculated as the average cash contributions paid over a 3-year period  The 3-year period used is the current cost report period and the periods immediately preceding and following it  CMS states that the 3-year average is allowable even if it exceeds the current period contribution  There is no requirement to demonstrate that the amount satisfies a liability under ERISA or any other actuarial basis

Wage Related Costs HFS Consultants | 19 For Defined Benefit Pension Plans, hospitals will need to:  Obtain contribution data from the pension trustee, insurance carrier, Schedule B or SB of IRS Form 5500 and, if applicable, from accounting records documenting allocations among providers  Retain and make available support for the 3-year average, the prefunding balance and the prefunding installment, where applicable  High scrutiny from MAC auditors

2013 WIISS Next Steps HFS Consultants | 20  HFS monitors and supports the wage index revisions through MAC audit and Final Rule  January – August 2014  Review February 2014 PUF to ensure revisions are accepted and properly reflected in HCRIS data  HFS will provide a final report in March with final impact estimates

Future Wage Reporting Issues HFS Consultants | 21

What does HFS see in Your Future? HFS Consultants | Occupational Mix Survey (OMS)  CMS estimates it takes about 400 hours to complete  Similar to wage index reporting, the OMS is deceptively complex and difficult to report accurately  OMS has a material impact on wage index and Medicare reimbursement  OMS can reduce the AHW of a hospital and CBSA significantly reducing Medicare reimbursement  Due by July 1, 2014  Short turn around and infrequency of the survey can make it difficult to complete the survey accurately

Purpose of the Occupational Mix Adjustment HFS Consultants | 23  Control the effect of hospitals’ employment choices on the wage index  Hospitals may choose to employ different combinations of nursing personnel  The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor Using the CMS methodology, we can measure the impact of the most recent OMS (CY10) on hospitals in Washington

How does Occupational Mix work? HFS Consultants | 24

How does Occupational Mix work? HFS Consultants | 25

Impact of the OMS on Washington HFS Consultants | 26 OMS Impact – Calendar Year out of 11 CBSAs in WA were negatively impacted CBSA NameImpact of Occ Mix to AHW Estimated Impact to IP Medicare Revenue* Olympia, WA ($2.39)($3,716,000) Bellingham, WA ($0.80)($711,000) Kennewick-Pasco-Richland, WA ($0.72)($817,000) Rural Washington ($0.50)($734,000) Yakima, WA ($0.42)($547,000) Mount Vernon-Anacortes, WA ($0.34)($210,000) Wenatchee-East Wenatchee, WA ($0.33)($286,000) Spokane, WA ($0.27)($945,000) Seattle-Bellevue-Everett, WA ($0.17)($1,980,000) Bremerton-Silverdale, WA ($0.05)($59,000) Tacoma, WA $0.62$2,309,000 Total Net Impact to Washington Hospitals($7,696,000)

Tips for Preparing the OMS HFS Consultants | 27 Review Payroll and Contract Labor Records Identify all possible core nursing personnel Remaining personnel is denoted as “all other” Research the Job Descriptions of Core Nursing Personnel Sort by job code Account for personnel with the same job code and varying responsibilities Record Paid Wages and Hours for Core Nursing and All Other Personnel Account for WS A-6 Reclassifications Apply Excluded Unit Overhead Calculation

Knowledge Sharing HFS Consultants | 28 Knowledge Sharing and Future Wage Index Support  Carry findings forward into FFY 2016  FYE 2012/2013 cost reports likely contain the same wage index corrections that were revised during this year’s work FYE 2011/2012FYE 2012/2013FYE 2013/2014

Knowledge Sharing HFS Consultants | 29 Knowledge Sharing and Future Wage Index Support  Further study to correct compliance findings from this year’s work HFS recommends targeted studies in Washington to address specific recommendations found during the 2013 work

Thank You – WSHA and HFS Contacts HFS Consultants | 30 Eric Schulz – ManagerRyan Sader – Senior Consultant HFS – Government Programs (503) (714) Katie HolmesClaudia Sanders Senior VP, Operations and MembershipSenior VP, Policy Development (206) (206)

Questions / Discussion HFS Consultants |