1. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Aftermath of the Fiscal Cliff What Happened, What it Means, and Where Things are Headed

2. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Introduction Washington Strategic Consulting (WSC) Full Service Federal Government Relations Grants Management & Procurement Public Policy Analysis Legislative Advocacy

3. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Introduction Our Team Mark Birdwhistell, Senior Advisor Diane H. Leonard, Development Consultant Kyle Mulroy, Founder Spencer Perlman, President Matthew Trant, Senior Advisor Jessica Wilson, Grants Director

4. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Introduction How to Reach Us Web: www.wscdc.com Phone:(202) 207-3655 Twitter:@WashingtonStrat Email:info@wscdc.com

5. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Background Tax Policies – 2001 & 2003 Bush Tax Cuts – ARRA Tax Policies – Alternative Minimum Tax (AMT) – Payroll Tax Cut – Tax Extenders – ACA Taxes on High-Earners Spending Cuts – Sequestration – Unemployment Insurance – Medicare Physician Payments Review: What Was the Fiscal Cliff?

6. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Background Sequestration – Medicare (2%)* – Non-Defense Discretionary (8.2%)^ – Defense (10.1%)^ Unemployment Insurance Medicare Physician Reimbursement (SGR) (26.5%) *2% cut to aggregate expenditures annually, FY 2013 – FY 2021 ^Percentage cut from FY 2013 levels -- changed in ATRA Review: Fiscal Cliff Spending Policies

7. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Background Review: What Happened? American Taxpayer Relief Act of 2012 (P.L. 112-240) I.Taxes II.SGR / Medicare Cuts III.Sequestration Delay

8. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Bush Tax Cuts Made Permanent (except for high-earners … $400K/$450K) – Top Rate: 35% to 39.6% – Top Capital Gains & Dividends: 15% to 20% – Phase Out of Exemptions & Deductions ($250K/$300K) – Top Estate Tax: 35% to 40% ARRA Tax Cuts Extended for 5 Years AMT Indexed to Inflation Tax Extenders – Individual, Business, and Energy – One Year Extension Taxes

9. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA “Doc Fix” for One Year: 0% Rather than -26.5% “Pay Fors” (a.k.a., PROVIDER CUTS) – Document & Coding Adjustment ($10.5B) – Therapy Multiple Payment Reduction ($1.8B) – Medicaid DSH Rebasing ($4.2B) – ESRD Rebasing ($4.9B) – Other Provider Cuts (~$2B) SGR / Medicare

10. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Extensions – Work Geographic Adjustment – Payment for Outpatient Therapy Services – Ambulance Add-On – Rural Provider Programs Beneficiaries – Extends Qualifying Individual Program for Medicaid – Extends Transitional Medical Assistance Program – Continues Family-to-Family Health Information Centers ACA – Repeals Community Living Assistance Services and Supports (CLASS) program – Rescinds funding for Consumer Operated and Oriented Plans Other Medicare / Health

11. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Delayed until March 1, 2013 Paid For: – $12B from FY 2013 & FY 2014 Discretionary Caps Defense: $6B Non-Defense: $6B – $12B via IRA Adjustments Reduced FY 13 Cuts (nominally): – Defense: 10.1% → 7.8% – Non-Defense: 8.2% → 5.0% Sequestration Delay

12. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Entitlement Reform – ATRA provider cuts intended to pay for “doc fix” - not deficit reduction Permanent Doc Fix Raising the Debt Limit Alternative to Sequestration Not Included

13. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Check List Taxes Bush Tax Cuts ARRA Tax Cuts (5-yr ext.) AMT Patch Tax Extenders (1-yr ext.) X Payroll Tax Cut X ACA Taxes X Tax Reform Spending Sequester (2-month delay) Unemployment Ins. (1-yr ext.) SGR “Doc Fix” (1-year patch) Provider Cuts X Entitlement Reform X Social Security X Medicaid X Alternative to Sequestration X Permanent SGR Fix X Debt Ceiling X Long-term Deficit Reduction

14. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Three major deadlines faced Congress: 1.Debt Ceiling (February 15th – March 1st) 2.Sequestration (March 1st) 3.Continuing Resolution (March 27th) Lawmakers worked to address each … with varying degrees of success Immediate Aftermath

15. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Debt Ceiling House GOP Changed Tactics – No more $-for-$ deficit reduction demands – Two Aims: Remove threat of default / downgrade (and GOP blame) Put spotlight on budget resolutions (and Senate Dems failure to pass since 2009) “No Budget, No Pay Act of 2013” (P.L. 113-3) – No enforcement of debt ceiling thru May 18 – On May 19, raise ceiling to meet actual obligations – Treasure can use extraordinary measures (until August or later) – Requires Budget Resolutions by April 15 or Member pay held in escrow White House and Senate Democrats grudgingly accept – Passed House 285-144 – Passed Senate 64-34 – Signed by President Obama on February 4

16. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Congress & President made half-hearted attempt to implement a fix: – Senate Dem Plan: Delay sequestration until March 2, 2014 Cut DOD funding in FY 2015 – FY 2021 End direct payments to farmers Buffet Tax (minimum 30% rate on income > $1M) – Senate GOP Plan Kept sequestration in place in FY 2013 Provided new authority for Administration to permit “reprogramming” of funds to ease the burden on DOD – House GOP Plan Took no action … waited for Senate to act first Demanded cuts to entitlement programs and welfare programs – Obama Plan Undefined “balanced” approach Hosted Congressional leaders at W.H. on day of sequestration All Efforts Failed Sequestration

17. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Sequestration went into effect on March 1 $85.3 Billion in cuts to FY 13 spending: – Medicare (2.0%) – Non-Defense Discretionary (5.0%)* – Defense (7.8%)^ *Actual cuts closer to 9% b/c of 7 month implementation period ^Actual cuts closer to 13% b/c of 7 month implementation period Sequestration

18. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Medicare Cuts – Applied to provider payments beginning on April 1 – All providers impacted Hospitals – Inpatient – Outpatient Physicians Post-Acute Providers – LTCH – SNF – IRF – HHA Other Sequestration

19. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath DOD & NDD* Cuts – Occur on a program-by-program basis – Managers must right-size programs to adhere to new lower budget authority caps Furloughs of government and contract employees Cuts to services Contract delays or cancellations Fewer grants competed & less funding available *Non-Defense Discretionary includes NIH, CDC, HRSA, SAMHSA, etc. Sequestration

20. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Sequestration remains in place through September 30, 2021 Unless Congress passes legislation to do away with sequestration, $109.3 Billion in cuts will be applied annually from FY 2014 – FY 2021 – Medicare: 2.0% cut to provider payments in FY14-FY21 – NDD: ~8.0% cut in FY 14 – DOD: ~10.0% cut in FY 14 Sequestration

21. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Congress succeeded in passing legislation to keep the government operating through the end of FY 2013 (September 30, 2013) Consolidated and Further Continuing Appropriations Act of 2013 (P.L. 113- 6) – Maintained FY 13 spending caps from BCA – Did not reverse sequestration, but provided authority to mitigate impact on some programs Passed House 267-151 Passed Senate 73-26 House agreed to Senate version by vote of 318-109 Signed by President Obama on March 26 CR

22. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath CR CR funded 5 of 12 spending bills via new legislation: Agriculture, Rural Development, and FDA Commerce – Justice – Science (NSF, NASA) Defense Homeland Security Military Construction and Veterans Affairs CR Funded 7 of 12 spending bills via a continuation of FY12: Energy & Water Development Financial Services Interior-Environment Labor, Health & Human Services, and Education Legislative Branch State and Foreign Operations Transportation and Housing & Urban Development

23. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath CR Impact on health-related programs: – Sequestration remains in place in FY 2013 – The seven measures with FY 12 language have less discretion to mitigate effects of the sequester – Senate rejected Harkin Amendment to provide Labor-HHS-Education greater discretion Secured 54 votes in favor Needed 60 votes to succeed No Republicans supported the Amendment

24. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM ATRA Aftermath Debt Ceiling Sequestration Deficit Reduction – Social Security – Medicare – Medicaid – Other Mandatory – Discretionary – Tax Reform Still Unfinished

25. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Budget Proposals President ObamaHouse Republicans (assumes sequester remains for non-defense spending) Senate Democrats Medicare Savings $371 billion$355 billion$265 billion Medicaid Savings $22 billion$1.4 trillion$10 billion Social Security Savings $230 billion00 Revenue Raisers $1.3 trillion0$923 billion Discretionary$950 billion (Defense) $282 billion (Non-Defense) $133 billion (Defense) $1 trillion (Non-Defense) $626 billion (Defense) $41 billion (Non-Defense) Opening Bids for Grand Bargain

26. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Grand Bargain Proposals Medicare Savings/Reforms President Obama House Republicans (assumes sequester for non- defense spending) Senate Democrats  Drug rebates from pharmaceutical companies  Beneficiaries changes to premiums, deductibles and co-pays  Provider Cuts o Bad Debt o GME o Critical Access Hospitals o SNFs, LTCHs and IRFs o Revert back to 75% Rule o Bundled Payments for Post-Acute Care o Clinical Labs  Transform guaranteed coverage to premium- support voucher program  Repeal ACA benefit improvements  Raise eligibility age and premiums  Reduce medical malpractice litigation Instructs Senate Finance Committee to find savings and offers options:  Expand bundled payments  Expand value-based purchasing  Expand readmissions adjustments  Reduce waste and fraud  Eliminates sequestration

27. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Grand Bargain Proposals Medicaid Savings/Reforms President ObamaHouse RepublicansSenate Democrats  Drug rebates from pharmaceutical companies  DME  Fraud and Abuse  Repeal ACA Medicaid Expansion  Retain ACA cuts to hospitals  Convert Medicaid to Block Grant Program  Instructs Senate Finance Committee to find savings in state matching funds without cuts to beneficiaries.

28. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Grand Bargain Proposals Tax Increases President ObamaHouse RepublicansSenate Democrats  30% tax rate for incomes above $1 million  caps on itemized deductions on incomes starting at $250,000  No increases (lowers corporate tax and reduces number of tax brackets)  Increases taxes on corporations and high income households

29. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Grand Bargain Proposals Discretionary Spending Cuts President ObamaHouse RepublicansSenate Democrats  Repeals sequester  Reduces discretionary spending by $200 billion below current budget caps (cuts would begin in 2017 and would be evenly split between defense and non- defense programs)  Repeals sequester for defense  Maintains sequester for non-defense and implements additional $700 billion in additional cuts  Repeals sequester  $150 billion in non- defense spending cuts below current spending caps  $240 in defense cuts

30. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Year Ahead Physician Payment Reform Wage Index Reform Tax Code Reform Other Important Items on the Agenda

31. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Year Ahead – Bipartisan support in House and Senate for long-term fix this year Cost estimate for 10-year fix recently cut in half – House committees moving quickly on new proposal to repeal SGR and replace with base rate with variable payments tied to performance Plan to send an approved bill to Senate by summer recess Both chambers interested in stand-alone bill Biggest question – Will other health providers pay the $138 billion cost? Physician Payment Reform

32. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Year Ahead – Bipartisan support to overhaul wage index system for providers House will go first – Ways & Means Committee working on legislation Less Enthusiasm in Senate – IOM to issue final report – Momentum building in House and Senate to repeal Massachusetts wage index policy Wage Index Reform

33. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Year Ahead Bipartisan support for overhauling tax code Tax committee chairman publish joint-op-ed committing to principles for progressive and simpler system, closing loopholes and lowering rates on small-business Senate Finance Committee – Holding private meetings with experts and stakeholders House Ways & Means Committee – 11 working groups compiling reform ideas – Plans to pass legislation by end of the year Lack of consensus on tax rates may doom legislation Tax Code Reform

34. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM The Year Ahead – Pharmaceutical Supply Chain – Ryan White Reauthorization – Reform of Compounding Pharmacy Industry Other Items of Note

35. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Concluding Thoughts Dems and GOP far apart on entitlement reform, taxes and discretionary spending Obama unwavering on tax increases as part of deal House GOP unwavering opposition to tax increases Obama losing leverage on sequestration Obama charm offensive has opened door (slightly) to possible deal with Senate GOP Bottom-Line Window for deal will close in coming months as Members prepare for mid- term elections Senate will need to go first Spending levels already capped by 2011 Budget Control Act; sequestration remains the big question House GOP will not accept tax increases to avoid sequestration defense cuts Short-term deal may be possible Political Landscape

36. COPYRIGHT © 2013 WASHINGTON STRATEGIC CONSULTING, ALL RIGHTS RESERVED | WSCDC.COM Thank You! Questions? Washington Strategic Consulting (202) 207-3655 kmulroy@wscdc.com sperlman@wscdc.com