1. Medicaid Provider Taxes in a Medicaid Expansion Environment Allied Hospital Associations’ Accounting and Financial Specialists 2013 Spring Meeting Jim Frizzera, Principal Health Management Associates March 19, 2013

2. Hospital Tax Programs Hospital taxes have more than doubled from 2008 through 2012 - 19 States imposed hospital tax programs in 2008 - 40 States imposed hospital tax programs in 2012 Increased pressure on direction of hospital tax revenue - Medicaid program budget shortfalls - Medicaid managed care expansion April 28, 2015

3. Hospital Tax Programs – FY 2012 April 28, 2015 CA WI WA OR ID WY CO UT AZ NM NV TX MN IA MO OK NE KS SD NDMT MA AL LA FL TN MI IN OH IL PA AK WV VA KY NC SC GA AR MS NH VT HI DE ME NY MD CT NJ RI Has Hospital Provider Tax Exploring Hospital Provider Tax No Hospital Provider Tax DC

4. Hospital Tax Programs – Use of Revenue Hospital tax revenue finances: - Medicaid FFS hospital rates - Medicaid UPL payments - Medicaid DSH payments - Medicaid managed care rates (hospital services and physician services) and pass-through hospital payments - UC Pool hospital payments - “other” Medicaid provider payments - expanded Medicaid coverage – pre-ACA April 28, 2015

5. Medicaid Expansion Key Questions - How many States with hospital taxes will expand Medicaid? - Will expansion population enroll in Medicaid FFS or Medicaid managed care? - What portion of hospital tax funded Medicaid payments receive enhanced or 100% federal match? - How will the Medicaid DSH program be affected by expansion? April 28, 2015

6. Medicaid Expansion 19 of the 24 States expanding Medicaid impose a hospital tax 4 of the 5 States leaning toward expansion impose a hospital tax 11 of the 14 States not expanding Medicaid impose a hospital tax 1 of the 3 States leaning against expansion impose a hospital tax All 5 undecided States impose a hospital tax April 28, 2015

7. Medicaid Expansion Increased FMAP – Proposed regulation 8/17/11 - allows States to choose from 3 methodologies to determine “newly eligible” expenditures - did not address supplemental/UPL payments - response to public comments in final regulation should clarify federal policy April 28, 2015

8. Medicaid Expansion - FFS vs. Managed Care Medicaid Fee-For-Service - Expansion population would drive increased spending room within hospital upper payment limits - Eligible but not enrolled - greater growth in UPL - Supplemental/UPL payments can be allocated to expansion population - Enhanced Federal match on base Medicaid rates and Medicaid supplemental/UPL payments April 28, 2015

9. Medicaid Expansion - FFS vs. Managed Care Medicaid Fee-For-Service (cont.’) - CMS 2004/2005 financing initiative - ensures Medicaid supplemental/UPL payments will receive enhanced/100% Federal match - Supplemental payments considered component part of overall rate structure - Federal policy allowed CMS to challenge Medicaid supplemental/UPL financing under SPA reviews April 28, 2015

10. Medicaid Expansion - FFS vs. Managed Care Medicaid Fee-For-Service (cont.’) - Medicaid UPLs – prospective estimate based on most recently available data - CMS has 2 options regarding inclusion of expansion population in UPL 1. maintain prospective estimate based on reliable expansion population data (uninsured); or, 2. establish retrospective approach that requires reconciliation to actual experience April 28, 2015

11. Medicaid Expansion - FFS vs. Managed Care Medicaid Fee-For-Service (cont.’) Prospective UPL estimate - consistent with existing federal policy - requires reliable data that may not exist - DSH audit findings too old – 3-year look back - unlikely CMS will permit prospective approach April 28, 2015

12. Medicaid Expansion - FFS vs. Managed Care Medicaid Fee-For-Service (cont.’) Retrospective UPL approach - would ensure accuracy of utilization for expansion population - potential exposure on trend for existing populations - could take a year or more to adjust based on actual expansion population experience - would require State plan to authorize UPL reconciliation payments April 28, 2015

13. Medicaid Expansion - FFS vs. Managed Care UPDATE 3/18/13 – All State Medicaid Director’s Letter - Federal and State oversight of Medicaid expenditures - requires annual s submission of IP, OP, and NF UPL beginning FY 2013 - other provider UPLs beginning FY 2014 (clinic, physician, RTC, and IMD) - MACPRO – electronic SPA process April 28, 2015

14. Medicaid Expansion - FFS vs. Managed Care Medicaid Managed Care - no supplemental/UPL payments - enhanced Federal match on PMPMs - some hospital taxes fund increases to PMPMs for hospital services – health plans should not be able to retain equivalent increases to PMPMs for expanded population - should be distributed for hospital services consistent with existing practices April 28, 2015

15. Medicaid Expansion – Hospital Impact Increase to net revenue gain - enhanced/100% Federal match for services previously unreimbursed or subsidized by hospital tax-funded DSH Greater net gain opportunity under FFS expansion - direct payment authority Increase to hospital revenue tax base - tax liability will grow over time April 28, 2015

16. Medicaid Expansion – Use of Hospital Tax Revenue Use of hospital tax revenue to fund expansion - redirection of and/or increase to existing hospital tax revenue - new hospital tax program Arizona – “Expansion State” - previously covered childless adults with full benefits prior to enactment of ACA - receives “enhanced” Federal match, but not 100% - funding the non-federal share of the new expansion and portions of prior expansion with a new hospital tax program April 28, 2015

17. Medicaid DSH The ACA requires the Secretary to establish a methodology that applies the largest percentage DSH reductions on the States that— - have the lowest percentages of uninsured individuals (determined on the basis of data from the Bureau of the Census, audited hospital cost reports, and other information likely to yield accurate data) during the most recent year for which such data are available; or - do not target their DSH payments on hospitals with high volumes of Medicaid inpatients hospitals that have high levels of uncompensated care (excluding bad debt). April 28, 2015

18. Medicaid DSH The ACA also requires the Secretary to: - apply a smaller percentage reduction on low DSH States Alaska, Arkansas, Delaware, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Wisconsin, and Wyoming - take into account the extent to which the DSH allotment for a State was included in the budget neutrality calculation for a coverage expansion approved under section 1115 as of July 31, 2009 April 28, 2015

19. Medicaid DSH The Secretary must issue the Medicaid DSH reduction methodologies in proposed regulations and solicit public comment The Medicaid DSH reductions cannot take effect until a final regulation is issued No regulatory guidance has been issued to date. Medicaid DSH audit clarification issued in proposed form on 1/18/12 – no final rule published to date April 28, 2015

20. Medicaid DSH ACA phases down Medicaid DSH according to the following schedule beginning October 1, 2013: 2014 -- $500 million 2015 -- $600 million 2016 -- $600 million 2017 -- $1.8 billion 2018 -- $5 billion 2019 -- $5.6 billion 2020 -- $4.0 billion April 28, 2015

21. Medicaid DSH Federal 2011 Medicaid DSH allotments totaled $11,288,052,532 Annual percentage reduction: 2014 -- $500 million – (4.43%) 2015 -- $600 million – (5.32%) 2016 -- $600 million – (5.32%) 2017 -- $1.8 billion – (15.95%) 2018 -- $5 billion – (44.29%) 2019 -- $5.6 billion – (49.61%) 2020 -- $4.0 billion – (35.44%) April 28, 2015

22. Other Hospital Tax Program Issues President’s 2012 and 2013 Budget – Provider Tax Phase-Down Medicare Provider Tax Cost Policy Medicaid DSH in net patient revenue tax base. New IP and OP rate methodologies causing variance in payment distribution April 28, 2015

23. Sources: 1.Kaiser Commission on Medicaid and the Uninsured: Moving Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage and Policy Trends. Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2011 and 2012, October 2011. 2.Medicaid Presentation for Allied Hospital Associations’ Accounting and Financial Specialists Spring 2013 Meeting: Laura Tobler, National Conference of State Legislatures. April 28, 2015