1. Physicians and Hospitals Law Institute New Orleans, LA Presenters: Dinetia M. Newman, Esq. – Bradley Arant Boult Cummings, LLP David A. Williams CPA, MPH, FHFMA – Horne LLP 1

2. Smith, Charles Hugh “Is Fee-for-Service What Ails America's Health Care System”, Daily Finance (January 18, 2010). 2 DIAGRAM OF AN UNSUSTAINABLE MODEL

3. Book, Robert A., and Ramlet, Michael, “What is the Regional Impact of the Medicare Fee-For -Service and Medicare Advantage Payment Reductions?” 3 FOUR YEARS INTO ACA IMPLEMENTATION

4. 4 BUT, ALSO PROVISIONS IN ACA…

5. “President Obama Signs 2014 Budget Bill: What It Means for Hospitals” Bob Herman, Becker’s Hospital Review, December 27, 2013 “Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program – “Sequestration” The CMS Medicare FFS Provider e-News, March 8, 2013 “Obamacare and Medicare Provider Cuts: Jeopardizing Seniors’ Access” Robert E. Moffit, Ph.D., The Heritage Foundations, January 19, 2011 “Hospitals, Providers to Lose $11.1B From Medicare Sequestration Cuts” Bob Herman, Becker’s Hospital Review, September 14, 2012 THE REDUCTION SAGA CONTINUES… 5 Headlines “Will Obamacare Affect Medicare? Myths and Facts” Andrea Adelman, August 19, 2013

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7. Key Current Health System Medicare Reimbursement Drivers Mandated by ACA 7

8.  Precursor to Value-Based Purchasing Program - Hospital Inpatient Quality Reporting Program ◦ MMA 2003 – 0.4% payment reduction for failure to report ◦ Increased by Deficit Reduction Act of 2005 to 2.0% ◦ FY 2014 – reporting coordinated with EHR Incentive Program submission guidelines ◦ Quality measures used in other Medicare payment reduction programs 8

9. 9 MEDICARE DRG REDUCTION FACTORS *Reprinted with permission of Andy Ruskin from presentation by Jolee Bollinger, Jennifer Faerberg, Andy Ruskin, “HACs, Readmissions and VBP: Hospital Strategies for Turning Lemons into Lemonade”, Institute of Medicare and Medicaid Payment Issues, March 28-30, 2012.

10.  Effective October 1, 2012 (FY 2013)  Subsection (d) hospitals paid for meeting certain quality performance measures during “performance period”  VBP pool payments based on reduction per hospital discharge beginning FY 2013 ◦ FY 2013 – 1% increasing ¼ % annually per FFY to 2% on or after October 1, 2016 ◦ FY 2014 VBP pool - $1.1 billion  Incentive payments distributed in budget neutral manner  Low performing hospitals penalized despite meeting minimum quality threshold 10

11.  VBP Requirements ◦ Minimum number of qualifying cases:  FY 2013 – 10 cases per 4 Clinical Processes of Care Measures, 100 HCAHPS surveyed  FY 2014 – 10 additional cases for two outcomes measures ◦ Excluded hospitals  Those with insufficient numbers of qualifying cases  Those having deficiencies and posing immediate jeopardy to health and safety of patients ◦ Quality measures  FY 2013 – Two domains: Clinical Process of Care measures and Patient Satisfaction measure  FY 2014 – Third domain – patient outcomes  FY 2015 – Efficiency domain added 11

12.  Baseline and Performance Periods ◦ FY 2013: Baseline 7/1/09 to 3/31/10 and Performance 7/1/11 to 3/31/12 ◦ FY 2014:  Clinical Process and Care and HCAHPS – Baseline 7/1/09 to 6/30/10 and Performance 7/1/11 to 6/30/12  Outcomes – Baseline 4/1/10 to 12/31/10 and Performance 4/1/12 t0 12/31/12  Scoring - “Achievement” and “Improvement Score” ◦ Achievement – if performance falls between “threshold” and “benchmark” during baseline period ◦ Improvement – if performance falls between own performance during baseline period and threshold and benchmark (same as in calculating achievement score)  Domains ◦ FY2013 – Clinical Process of Care – 70% and HCAHPS – 30% ◦ FY 2014 – Outcomes 25%, Clinical Process of Care 45% and HCAHPS 30% 12

13.  FY 2013 Results ◦ 13,000 hospitals anticipated to break even ◦ 778 hospitals will see overall decrease in Medicare payments ◦ 630 hospitals will receive true bonus above reduction “payments” to VBP  FY 2014 IPPS Final Rule ◦ Adopts FY 2016 quality measures, baseline/performance periods, weighting, scoring methodology ◦ Adopts FYs 2017-2019 baseline/performance periods ◦ Adopts FY 2017 disaster/extraordinary circumstances exceptions process 13

14. ◦ ACA § 3008-Effective FY 2014 and subsequent years ◦ Definition of a HAC “A condition that an individual acquires during a hospital stay the Secretary designates to be subject to the inpatient PPS payment restriction (nonpayment for secondary diagnosis that results in a higher DRG), as well as other HACs specified by the Secretary.” ◦ Reduction: 1% of Medicare payments for All Hospital Discharges in top ¼ of hospitals as compared to national HAC rates  Only HACs subject to IPPS restrictions and “other HACs specified by the Secretary”  Hospitals in top quartile confidentially alerted prior to FY 2015 14

15. ◦ Secretary determines applicable performance period and must apply appropriate risk adjustment methodology ◦ Public reporting and posting on Hospital Compare ◦ Current HAC measures adopted in Hospital Inpatient Quality Reporting program ◦ HAC rates calculated on CMS billing data for Medicare FFS only 15

16.  ACA § 3025 – Effective October 1, 2012 (FY 2013)  Reduction in all base DRG payment amounts for hospitals with excess readmissions ◦ Excludes IME, DSH, outlier payments  Readmission means admission to subsection (d) hospital within 30 days of discharge from same or another subsection (d) hospital  Reductions based on ratio of actual to expected risk–adjusted readmissions 16

17.  Applicable conditions: ◦ FY 2013 – Heart attack, heart failure and pneumonia ◦ FY 2015 – 4 additional conditions added – COPD, CABG, PTCA, Other Vascular  25 cases minimum per measure required ◦ Evaluated against applicable measure in three years’ discharge data  Penalties: ◦ FY 2013: up to 1% of base Medicare payment ◦ FY 2014: up to 2% of base Medicare payment ◦ FY 2015: up to 3% of base Medicare payment  Exclusions: ◦ Planned readmissions ◦ Those unrelated to the original admission or a transfer to another hospital 17

18.  ACA § 3133 - beginning FY 2014  Payment Amounts (reductions): ◦ 25% of the amount that otherwise would have been paid under existing statutory formula ◦ 75% of remaining amount that otherwise would have been paid  Additional payment after reductions for changes in % of uninsured individuals (Uncompensated Care Pool payment) ◦ FY 2014 Uncompensated Care Pool:  $9.033 billion ◦ Anticipated trend that large regional hospitals’ DSH funds will be sizably reduced with reverse true for smaller counterparts 18

19.  Annual state allotments to fund Medicaid DSH reduced – effective FY 2014 - FY 2020 - DSH Health Reform Methodology (DHRM)  DHRM methodology: ◦ Imposes smaller % reduction on low DSH states ◦ Imposes larger % reduction on states with lowest percentages of uninsured individuals ◦ Imposes larger % reduction on states not targeting DSH payments to hospitals with high Medicaid volume ◦ Imposes larger % reductions on states not targeting hospitals with high levels of uncompensated care ◦ Takes into account extent that DSH allotment was included in states budget neutrality calculation for expanding Medicaid prior to July 31, 2009  Estimated savings:$18.1 billion from FY 2014 to FY 2020  Medicaid DSH reductions intended to offset cost of Medicaid expansion *Bipartisan Budget Act of 2013 delayed Medicaid DSH payment reductions to FY 2016 (October 1, 2015). 19

20.  ACA § 2702 incorporates Medicare HAC provisions into Medicaid payment  Regulations dated June 6, 2011 define HAC similarly to Medicare  States have flexibility to make payment adjustments but must seek CMS approval  HACs must be reported and contain minimum set of conditions  Regulations effective July 1, 2011 but compliance delayed until July 1, 2012 20

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23. *29 were from the State of New Jersey 32* 193 166 76 23

24. Robert Mechanic & Stuart Altman (Health Affairs -2009) 24

25. Bundled Payments 25

26. Arkansas Payment Improvement Initiative 26

27. Arkansas Payment Improvement Initiative 27

28.  Designed to meet key objectives historically ◦ Health Care Needs, Economic Driver, Access  Designed to meet key objectives of the future ◦ Excellence in an efficient and effective manner  Status quo is not a strategy 28

29.  Reducing waste in health care is key to affordable, high quality health care.  Nearly half of consumed resources represent potentially recoverable waste in hospitals (44%) 29

30.  Inefficiency waste is the use of resources for no (or little) benefit, or a failure to use resources on clearly beneficial activities. ◦ Technical –using more inputs than required ◦ Economic –using mix of inputs other than cost minimizing mix 30

31.  Allocative (care design waste) –producing with the wrong bundle of goods and services ◦ Quality waste is when a step in a clinical process fails, some proportion of those process failures lead to outcome failures (rework or scrap) 31

32. Financial / admin model clinical process model “Clinicians and hospitals working together to improve quality and reduce costs.”  Shared vision and culture  Key process analysis  Integrated MIS (data)  Integrated clinical / operations structure  Aligned incentives Key Concept 32

33.  Reducing variation in compliance with evidence- based guidelines. ◦ Care Process Models (CPMs)are narrative documents that aim at representing state-of-the-art medical knowledge. ◦ Clinical Decision Support (CDS) tools can include all ways in which health care knowledge is represented in health information systems. 33

34. .. 34

35.  Way work is organized (process centered)  Efficiency of individuals carrying out their role (staff-person centered)  Defects that require extra processing (rework) 35

36. Y Axis = Grouped by APR DRG - Severity Score X axis = costs/provider 36

37. 37 Better care access Better health outcomes Lower costs of care Triple Aim 37