1. Honesty, Integrity and Results…You Can Depend On! Wisconsin Hospital Association Wage Index Improvement Program & Occupational Mix PPS 28 (FY 2015 AWI) FYE between September 30, 2011 and August 31, 2012 Presented on Wednesday October 2, 2013

2. Honesty, Integrity and Results…You Can Depend On! Contact Information – WHA Brian Potter Senior Vice President, Finance Address:Wisconsin Hospital Association 5510 Research Park Drive Madison, WI 53711 Mailing Address:Wisconsin Hospital Association P.O. Box 259038 Madison, WI 53725-9038 Phone: (608) 274-1820 E-Mail: bpotter@wha.org

3. Honesty, Integrity and Results…You Can Depend On! Contact Information – RCHMS K. Michael Webdale, President Daniel Silver, Vice President Eric Webdale, Vice President David Hanak, Director, Sales & Marketing R-C Healthcare Management Services, Inc. 1538 East Maryland Avenue Phoenix, AZ 85014 Phone: (800) 862-5368 or (602) 995-9420 E-Mail: (Mike) mwebdale@rcmgmt.com (Dan) dsilver@rcmgmt.com (Eric) ewebdale@rcmgmt.com (Dave) dhanak@rcmgmt.com

4. Honesty, Integrity and Results…You Can Depend On! Agenda National Average Hourly Wage Wage Index – Wage Index for FY 2014 – Largest Changes in WI Wage Index Changes – Census – S-3 part IV – Commuter Based Wage Index Wage Index Improvement Process – Timetable

5. Honesty, Integrity and Results…You Can Depend On! Agenda (continued) Pension Costs Contracted Administrative & General - Line 28 Occupational Mix Survey –Dates –Calculation

6. Honesty, Integrity and Results…You Can Depend On! National Average Hourly Wage Change

7. Honesty, Integrity and Results…You Can Depend On! Wage Index for FY 2014 Rural Floor Budget Neutrality Adjustment –2013 is.991340 –2014 is.990150 The wage index history at www.wageindex.com updated on the release of each Public Use File in September, February, May and August

8. Honesty, Integrity and Results…You Can Depend On! History of Wisconsin Wage Index CBSA#CBSA Names FY 2011 FY 2012 FY 2013 FY 2012 to FY 2013FY 2014 11540Appleton0.93010.91150.9425 3.1.9375(.5) 20740Eau Claire0.95520.94530.9630 1.81.00083.7 22540Fond du Lac0.93390.93540.9425 0.7.9335(.9) 24580Green Bay0.93950.96010.9579 (0.2).9364(2.1) 27500Janesville0.96450.93940.9666 2.7.9269(3.9) 29100LaCrosse, WI-MN0.98150.96390.9979 3.41.01011.2 29404Lake Co.-Kenosha Co. IL-WI1.06831.01501.0425 2.81.0520.9 31540Madison1.12641.11371.1170 0.31.13031.3 33340 Milwaukee-Waukesha-West Allis1.01830.98930.9921 0.3.9827(.9) 36780Oshkosh-Neenah0.94660.91710.9425 2.5.9256(1.7) 39540Racine1.05980.89390.9425 4.9.8925(5.0) 43100Sheboygan0.92530.92690.9498 2.3.9175(3.2) 48140Wausau0.97490.90800.9425 3.5.8821(6.0) 52Rural WI0.92000.89390.9425 4.9.8821(6.0)

9. Honesty, Integrity and Results…You Can Depend On! Comparison of FY 2013 Standardized Amounts to the FY 2014 Standardized Amount with Full Update Full Update (1.7 percent); Wage Index is greater than 1.0000 FY 2013 Base RateLabor: $4,176.63 Nonlabor: $1,824.27 FY 2014 Update Factor1.017 FY 2014 DRG Recalibration and Wage Index Budget Neutrality Factor.997936 FY 2014 Reclassification Budget Neutrality Factor.990718 FY 2014 Rural Community Demonstration Budget Neutrality Factor.999415 FY 2014 Operating Outlier Factor.948995 Cost of Policy on Admission.998 Documentation and coding adjustments.9403 Final Rate for FY 2014Labor: $3,737.71 Nonlabor: $1,632.57

10. Honesty, Integrity and Results…You Can Depend On! How the Wage Index is Calculated Total salaries and hours –Adjust for overhead departments –Adjust to a common period with an inflation factor –Adjust for Occupational Mix –Total salaries and hours at the CBSA level –Total salaries and hours nationally –Divide each CBSA’s AHW by the National AHW Each CBSA has a Rural Floor Budget Neutrality Factor.990150

11. Honesty, Integrity and Results…You Can Depend On! Importance of the Wage Index Labor portion of the DRG is:  62% if the wage index is less than or equal to 1  69.6% if the wage index is greater than 1 Highest wage index – –Santa Cruz-Watsonville, CA 1.7276 Lowest wage index – –Rural Alabama.7094

12. Honesty, Integrity and Results…You Can Depend On! 10 Largest Increases In Wage Index CBSA CodeState or Urban Area FY 2013 Wage Index FY 2014 Wage IndexPP Change 7Rural Connecticut1.17591.306213.03 35980Norwich-New London, CT1.17591.306213.03 25540Hartford-West Hartford, CT1.17591.306213.03 29Rural Nevada1.02561.145411.98 39900Reno-Sparks, NV1.02561.145411.98 16180Carson City, NV1.03731.145410.81 35300New Haven-Milford, CT1.20541.306210.08 40340Rochester, MN1.06251.15489.23 2Rural Alaska1.27271.35568.29 11260Anchorage, AK1.27271.35568.29

13. Honesty, Integrity and Results…You Can Depend On! 10 Largest Decreases In Wage Index CBSA CodeState or Urban Area FY 2013 Wage Index FY 2014 Wage IndexPP Change 37380Palm Coast, FL.9567.7980-15.87 46060Tucson, AZ1.0569.9133-14.36 3Rural AZ1.0569.9133-14.36 49740Yuma, AZ1.0569.9667-9.02 39140Prescott, AZ1.18041.0907-8.97 19060Cumberland, MD-WV.8763.7976-7.87 29420 Lake Havasu City-Kingman, AZ1.0569.9789-7.80 44220Springfield, OH.9155.8411-7.44 14500Boulder, CO1.0266.9563-7.03 17980 Columbus, GA-AL.8873.8171-7.02

14. Honesty, Integrity and Results…You Can Depend On! New Worksheet S-3, Part IV Part II, Line 17, Wage-related costs (core) = Part IV Line 24, Total Wage Related Cost Part IV should not include excluded unit or physician benefits We recommend a reconciliation between G/L benefits and total Wage Related Costs on S-3 Lines 17-25

15. Honesty, Integrity and Results…You Can Depend On! New Worksheet S-3, Part IV PART IV - WAGE RELATED COSTS Retirement Cost 1.00401k Employer Contributions 2.00Tax Sheltered Annuity (TSA) Employer Contribution 3.00Qualified and Non-Qualified Pension Plan Cost 4.00Prior Year Pension Service Cost Plan Administrative Costs (Paid to External Organization) 5.00401K/TSA Plan Administration fees 6.00Legal/Accounting/Management Fees-Pension Plan 7.00Employee Managed Care Program Administration Fees Health and Insurance Costs: 8.00Health Insurance (Purchased or Self-Funded) 9.00Prescription Drug Plan 10.00Dental, Hearing & Vision Plans 11.00Life Insurance (If employee is owner or beneficiary) 12.00Accident Ins. (If employee is owner or beneficiary) 13.00Disability Ins. (If employee is owner or beneficiary) 14.00Long-Term Care Ins. (If employee is owner or beneficiary) 15.00Workmen's Compensation Ins. 16.00 Retiree Health Care Cost Taxes 17.00FICA-Employers portion only 18.00Medicare Taxes-Employers Portion Only 19.00Unemployment Insurance 20.00State or Federal Unemployment Taxes Other 21.00Executive Deferred Compensation 22.00Day Care Cost and Allowances 23.00Tuition Reimbursement 24.00Total Wage Related cost (Sum lines 1 - 23) Part B - Other than Core Related Cost 25.00OTHER WAGE RELATED COSTS (SPECIFY)

16. Honesty, Integrity and Results…You Can Depend On! Wage Index Changes Secretary of HHS submitted a plan to reform the wage index to Congress on April 11, 2012 Commuter Based Wage Index –Report hospital data by zip code –Calculates an AHW by zip code –Each hospital accumulates employees by zip code Potential Issues –Collection of zip code data –Transparency –Exception process starting over

17. Honesty, Integrity and Results…You Can Depend On! FY 2015 Hospital Wage Index Development Timetable September 13, 2013 – Release of the first Public Use File, which will include the original, unaudited S- 3s and occupational mix survey November 21, 2013 – Deadline to submit any wage data and occupational mix revisions February 20, 2014 – Release of the next Public Use File, which will include the revisions submitted in December

18. Honesty, Integrity and Results…You Can Depend On! FY 2015 Hospital Wage Index Development Timetable May 2, 2014 – Release of the final Public Use File August 1, 2014 – Approximate date of publication of the FY 2015 Final Rule. The wage index includes the final wage index data corrections October 1, 2014 – Effective date of the FY 2015 wage index

19. Honesty, Integrity and Results…You Can Depend On! Wage Index Improvement Process R-C Healthcare Management analyzes HCRIS and September PUF data RCHMS contacts the hospital staff regarding any out-of-standard line items Hospital coordinator and RCHMS determine if any revisions are necessary, and RCHMS prepares the revision letter

20. Honesty, Integrity and Results…You Can Depend On! Wage Index Improvement Process (continued) Revisions are due November 21, 2013 RCHMS assists the hospitals to defend the revisions during the FI’s audits in December 2013 and January 2014 RCHMS verifies that the revisions are included in all PUFs and provides any necessary follow-up

21. Honesty, Integrity and Results…You Can Depend On! Worksheet S-3 Questions to Ask Is Line 1 greater than in the prior year’s filing? Do salaried & contract physician lines seem reasonable? Are wage-related costs comparable to prior year’s filing? Have A&G costs been included on Line 28?

22. Honesty, Integrity and Results…You Can Depend On! Hours Issues Eliminate on-call and standby hours Get the salaries and hours by pay code to eliminate differential hours Eliminate the hours associated with bonuses (Bonus pay includes award pay and pay in lieu of time off)

23. Honesty, Integrity and Results…You Can Depend On! Hours Issues (continued) Eliminate the overtime hours if they were recorded at 1.5 times the regular pay hours Analyze the credits to payroll accounts to ensure that the related hours were also removed Check to ensure that there were only 26 pay periods and not 27

24. Honesty, Integrity and Results…You Can Depend On! Pension Costs Defined benefit pension costs were formerly reported according to GAAP CMS required pension costs to be funded within 12 months, and only current expenses were allowable “Pension Cost Calculations for Medicare Reporting” worksheet used the IRS Schedule SB, Form 5500 data

25. Honesty, Integrity and Results…You Can Depend On! Pension Costs Currently When pension plans were over-funded, the worksheet reduced the allowable pension costs –Any reductions are being amortized over 10 years (eight years remaining) CMS will now use three year average of cash contributions – cash paid in fiscal year

26. Honesty, Integrity and Results…You Can Depend On! Pension Costs (continued) Defined Benefit Pension Calculator Provider Fiscal Year Wage Index Year BeginningEndingTotal Defined Benefit Pension Cash Contributions Allowed (per audit) Wage Index Pension Cost 2009 1/1/2005 12/31/2005 1,300,000 800,000# 2010 1/1/200612/31/20062,700,000 3,000,000# 20111/1/2007 12/31/2007 4,100,000 3,600,000# 20121/1/200812/31/20083,000,000 200,000 # 20131/1/2009 12/31/2009 1,000,000 20141/1/201012/31/20103,000,000* 20151/1/201112/31/20112,000,000* 20161/1/201212/31/20121,000,000* 3 Year Average of Funded Amounts 2,000,000* 10 Year Amortization Amount 350,000# Pension Cost Allowed on Wage Index for 12/31/2010 2,350,000

27. Honesty, Integrity and Results…You Can Depend On! Contracted Administrative & General (Line 28) The contracted A&G costs increased the national AHW by $.14 More hospitals are understanding the importance of this data and are including these costs

28. Honesty, Integrity and Results…You Can Depend On! Contracted Administrative & General (Line 28) National FY 2012, 60%, $1.6B, with an AHW of $80.66 FY 2013, 66%, $1.8B, with an AHW of $91.42 FY 2014, 68%, $2.0B, with an AHW of $97.50 Wisconsin FY 2012, 66% (43 of 65), $25M, AHW of $109.32 FY 2013, 68% (43 of 63), $24M, AHW of $123.65 FY 2014, 63% (40 of 64), $17M, AHW of $96.93

29. Honesty, Integrity and Results…You Can Depend On! Contracted Administrative & General (Line 28) Include amounts for A&G services under contract Personnel costs from Worksheet A, line 5 and subscripts, column 2 Types of services: Legal, tax preparation, cost report preparation, consulting, wage index Need to verify the hours

30. Honesty, Integrity and Results…You Can Depend On! Impact of the Patient Protection and Affordable Care Act (PPACA) Budget neutrality was returned to national level from the state level Urban Hospital in AZ changed where they reclassify and Rural AZ WI decreased 14 percentage points MA – One Rural hospital determines Wage Index for Massachusetts CT – One Rural hospital

31. Honesty, Integrity and Results…You Can Depend On! Occupational Mix Survey For pay periods ending between January 1, 2013 and December 31, 2013 Due July 1, 2014 Affects hospitals for 3 years beginning in FY 2016 (October 1, 2015)

32. Honesty, Integrity and Results…You Can Depend On! Cost Centers to be Used for Occupational Categories – from Worksheet A Medicare Reimbursement Experts Since 1990

33. Honesty, Integrity and Results…You Can Depend On! What is Not Included Employees in areas excluded from IPPS –Skilled-nursing facilities, psychiatric, or rehabilitation units Worksheet S-3, Part II, Lines 9 and 10 –Part A Teaching Physician, Physician Part B, and CRNAs Worksheet S-3, Part II, Lines 3, 4.01, 5, & 6 –Interns and Residents Worksheet S-3, Part II, Lines 7 Medicare Reimbursement Experts Since 1990

34. Honesty, Integrity and Results…You Can Depend On! Occupational Mix Survey The most important factor was RN hours to total nursing hours. National percent was 72.3% –If RN percentage was greater than that, you received a negative Occupational Mix Adjustment. –If it was less than 72.3%, then the adjustment was positive

35. Honesty, Integrity and Results…You Can Depend On! Impact of the Occupational Mix Survey 100% of Wisconsin (64 of 64) Hospitals submitted 93% Nationally submitted Currently no Penalty

36. Honesty, Integrity and Results…You Can Depend On! Occupational Mix Impact on Wisconsin Wage Index CBSA#CBSA Names Percentage Point Change due to Occupational Mix 11540Appleton.23 20740Eau Claire.05 22540Fond du Lac (.49) 24580Green Bay (1.29) 27500Janesville 2.86 29100LaCrosse, WI-MN (.05) 29404Lake Co.-Kenosha Co. IL-WI (.28) 31540Madison.001 33340Milwaukee-Waukesha-West Allis.68 36780Oshkosh-Neenah (.50) 39540Racine 1.10 43100Sheboygan.62 48140Wausau.48 52Rural WI.04

37. Honesty, Integrity and Results…You Can Depend On! Occupational Mix Adjustment Factor CMS calculator at: –www.cms.gov/AcuteInpatientPPS/WIFN/list.asp –Click on the FY 2013 Wage Index Home Page –Then look for FY 2013 Final Rule AHW Calculator CMS has not posted new calculator yet Medicare Reimbursement Experts Since 1990

38. Honesty, Integrity and Results…You Can Depend On! Positive Occupational Mix Adjustment Medicare Reimbursement Experts Since 1990 Spreadsheet for Final FY 2013 Calculation of Provider Occupational Mix AHW You Must Fill Out the AHW Calculator Tab Before Filling Out the Occupational Mix Calculator Fields in PINK are filled in by the provider from the provider's occupational mix spreadsheet Fields in GREEN are filled in from IPPS wage index Web Site or Federal Registers Fields in BOLD and/or Blue are calculated fields--DO NOT ENTER any information here Provider Information Provider Number FI # Occ Mix Begin Date1/1/2009 Occ Mix End Date12/31/2009 step 1step 2step 3step 5step 6in step 7 Provider Occ Mix Hours Provider Occ Mix Salaries Provider % by Subcategory FY 2011 Final National AHWs by Subcategory Provider Adjusted AHW Final FY 2011 National Adjusted Nurse AHW Nurse Occ Mix Adjustment Factor Provider % by Total RN2,500,00074,000,00067.92%$37.43580626225.425025 LPN and Surgical Technicians169,0003,200,0004.59%$21.7797451920.9999394 National Nurse Aides, Orderlies, and Attendants1,000,00014,000,00027.17%$15.3343639844.1658147 Medical Assistants12,000150,0000.33%$17.2325236080.0561777 Total Nurse Hours and Salaries3,681,00091,350,000 30.646956 $31.8525742841.039347.74% ALLOTHER4,500,000100,000,000 step 4 52.26% TOTAL8,181,000191,350,000 Wage Data from Cost Report Wages (From S-3, Parts II and III)$146,433,337(These are inflated wages, from cell B99 from AHW calculator). Hours (From S-3, Parts II and III)3,125,000(Revised hours from cell B100 from AHW calculator). Unadjusted AHW46.85866784(Should match AHW in cell B103 from AHW calculator). Nurse Occ Mix Wages$72,656,961step 7 All Other Unadjusted Occ Mix Wages$76,526,437step 7 Total Occ Mix Wages$149,183,398step 8 Final Occ Mix Adjusted AHW47.73868738step 8 Occupational Mix Adjustment1.9%

39. Honesty, Integrity and Results…You Can Depend On! Negative Occupational Mix Adjustment Medicare Reimbursement Experts Since 1990 Spreadsheet for Final FY 2013 Calculation of Provider Occupational Mix AHW You Must Fill Out the AHW Calculator Tab Before Filling Out the Occupational Mix Calculator Fields in PINK are filled in by the provider from the provider's occupational mix spreadsheet Fields in GREEN are filled in from IPPS wage index Web Site or Federal Registers Fields in BOLD and/or Blue are calculated fields--DO NOT ENTER any information here Provider Information Provider Number FI # Occ Mix Begin Date1/1/2009 Occ Mix End Date12/31/2009 step 1step 2step 3step 5step 6in step 7 Provider Occ Mix Hours Provider Occ Mix Salaries Provider % by Subcategory FY 2011 Final National AHWs by Subcategory Provider Adjusted AHW Final FY 2011 National Adjusted Nurse AHW Nurse Occ Mix Adjustment Factor Provider % by Total RN1,000,00035,000,00084.46%$37.43580626231.61808 LPN and Surgical Technicians170,0003,000,00014.36%$21.7797451923.1271594 National Nurse Aides, Orderlies, and Attendants14,000200,0001.18%$15.3343639840.1813185 Medical Assistants000.00%$17.2325236080 Total Nurse Hours and Salaries1,184,00038,200,000 34.926557 $31.8525742840.912032.59% ALLOTHER3,800,00079,000,000 step 4 67.41% TOTAL4,984,000117,200,000 Wage Data from Cost Report Wages (From S-3, Parts II and III)$146,433,337(These are inflated wages, from cell B99 from AHW calculator). Hours (From S-3, Parts II and III)3,125,000(Revised hours from cell B100 from AHW calculator). Unadjusted AHW46.85866784(Should match AHW in cell B103 from AHW calculator). Nurse Occ Mix Wages$43,527,574step 7 All Other Unadjusted Occ Mix Wages$98,705,065step 7 Total Occ Mix Wages$142,232,639step 8 Final Occ Mix Adjusted AHW45.51444461step 8 -2.9%

40. Honesty, Integrity and Results…You Can Depend On! What’s Next? Plan ahead – Data required is this calendar year –Who is preparing the form? Collecting your data –Pay Periods ending between January 1, 2013 – December 31, 2013 No Accruals –Contract labor hours –Home office –Related organization Medicare Reimbursement Experts Since 1990

41. Honesty, Integrity and Results…You Can Depend On! Resources R-C Healthcare Management Resources: http://www.rcmgmt.com/wisconsin/ –Wage Index History –Wisconsin Average Hourly Wage Comparisons –FY 2015 Hospital Wage Index Development Timetable –Worksheet S-3, Parts II and III Instructions –Pension - 3 Year Average Worksheet –Copy of your S-3 with comparison to prior year

42. Honesty, Integrity and Results…You Can Depend On! Resources CMS Website to access Public Use Files: http://www.cms.hhs.gov/acuteinpatientpps/wifn/ list.asp#topofpage Federal Register: http://www.gpoaccess.gov/fr/index.html Wage Index History and Estimate: http://www.wageindex.com

43. Honesty, Integrity and Results…You Can Depend On! ??? QUESTIONS ??? R-C Healthcare Management Services, Inc. 1538 E. Maryland Avenue Phoenix, AZ 85014 Phone: (800) 862-5368 or (602) 995-9420 www.rcmgmt.com Contacts: K. Michael Webdale – President Daniel Silver – Vice President Eric Webdale – Vice President David Hanak – Director, Sales & Marketing