1. From Theory to Reality A Manufacturer’s View of Health Reform SEPAC March 2012

2. Accountable Care Act  Three Aims Expand Coverage Improve Quality Lower Costs  CMS Theme Move from a “Volume” payer to a “Value” payer

4. Where Are We in 2012?  Expanded Coverage Cover pre-existing conditions, extend dependent coverage to 26  Delivery System and Payment Reforms Value Based Purchasing ACOs Bundled payments Physicians report quality measures, invest in IT  Legal Challenge Supreme court to rule on individual mandate

5. Massachusetts Experiment 2006 model for Obamacare  Coverage increased from 88% to 96%  But… ER visits did not decrease Premiums soared  Still… Letting states experiment with reforms is a powerful tool

6. Hospital Margins Under Pressure  Price Pressure Public payer growth, quality-based payment,  Payer Mix Medicare and Medicaid demand implications  Case Mix Aging population is sicker costlier, surgery moving to ambulatory setting

7. Payment Risk for Hospitals Provision Percent Reduction in DRG Payment by Provision 2010201120122013201420152016201720182019 Hospital Update Reduction 0.25% 0.10% 0.30%0.20% 0.75% Value-Based Purchasing 1.00%1.25%1.50%1.75%2.00% Hospital Acquired Conditions 1.00% Hospital Readmissions 1.00%2.00%3.00% Total At Risk 0.25% 0.10%2.10%3.55%5.70%5.95%6.75%

8. Can’t Repeal Aging

9. Or the Poor 40 States have filed to cut hospital reimbursement rates in 2012

10. Medicare and Medicaid Spending to Double

11. How Much Cost-Shifting Left? Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

12. Discharges by Payer 20112021 2011 The Advisory Board Company 40% 37% 5% Commercial Medicaid Medicare Self Pay

13. Medical and Surgical Case Mix 61% 73% 76% 39% 73% 27% 24%

14. Full Beds, Wrong Patients

15. Health Reform Task Force  Review implications of reform law for customers and identify opportunities to align Bard products/processes  Conducted primary research with customers  Validate assumptions with outside experts

16. Findings  No end in sight to cost pressure  ACOs are not for everybody (32 to date)  Payment penalties a secondary worry  Need data to prove value of new products  Suppliers need to share risk  Aligning with physicians, other systems and payers  Growth of exchanges alter relations with insurers

17. Trends to Watch DC gridlock and regulatory uncertainty −Taxes −FDA user fees Enormous effort to reduce fraud and waste Insurers buying hospitals and physician groups Highmark - West Penn Allegheny Supreme court decision and election year politicking

18. Thanks Glenn!