1. Sonnenschein Sonnenschein Nath & Rosenthal LLP AHA CONFERENCE CALL SERIES Medicare Advantage Session 2: Payment Issues

2. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 2 Introduction MA payment methodology is complex for all. MMA broke with past methodology for setting MA plan capitation rates. –Prior to MMA, administrative pricing reflected Medicare fee- for-service rates. –After MMA, competitive bidding pricing mechanism. Risk adjustment payment rates continue to transition from exclusively demographic data to diagnostic and demographic data. How MA plans pay providers will vary depending on relationship between provider and MA plan (i.e., contract vs. non-contract provider), type of MA plan and specific contract terms (if any) Enrollee payment responsibilities (e.g., premiums, co-payments and deductibles) vary from plan to plan.

3. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 3 Introduction Provider payments –Vary depending on providers relationship to the MA plan, type of MA plan and specific contract terms (if any). –Contract providers Fewer providers accepting capitated payments. Most contracted providers paid on a fee-for-service (FFS) or per diem basis. Some providers able to negotiate 100%+ of Medicare FFS payment rates. –Reflects market issues, prominence of the provider, providers special services, etc. –Non-contracted providers generally paid at Medicare FFS rate Additional payments may be available to essential hospitals.

4. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 4 How MA Plans Are Paid: Competitive Bidding Competitive Bidding Methodology –Each year, MA plans must submit bids based on the projected cost of providing Parts A and B benefits, basic Part D benefits and supplemental benefits. –Bids will be compared to a benchmark set by CMS. Plans with bids above the benchmark are paid the benchmark amount and must charge a premium for the difference between the bid and the benchmark. Plans with bids below the benchmark will be paid the bid amount and will receive a rebate of 75% of the difference between the bid and the benchmark. Rebates must be used for: –Supplemental health care benefits, –Payment of premium for Part D drug coverage, and/or –Payment of premium for Part B coverage.

5. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 5 How MA Plans Are Paid: Risk Adjustment MA plan payments are adjusted to reflect the projected health status of each individual enrollee. –Risk adjustment continues to transition from demographic only to include diagnostic and demographic factors (e.g., sex and age). –Provider and physician diagnostic data will be used by MA plans to report each enrollees diagnoses to CMS. –MA plan payments are adjusted by CMS to reflect variation in enrollee health status and projected costs. –Data captured from: standard claims or encounter formats, physician super bill, and minimum data set. Plans may be asked to validate and certify data accuracy to CMS. –MA plans may include in contracts with providers requirements for data completeness and accuracy.

6. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 6 Special Payments for Regional PPOs The MMA authorizes payment adjustments between CMS and Regional Preferred Provider Organizations (PPOs) in 2006 and 2007 based on risk corridors. –Significant costs and significant savings will be shared between the Regional PPOs and CMS. –Intended to encourage development of Regional PPOs. Regional PPO Stabilization Fund –Between 2007 and 2013, $10 billion will be available to encourage entry of Regional PPOs in each region and the retention of Regional PPOs where MA penetration is less than the national average.

7. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 7 How Providers Are Paid Contracted providers –Payment amounts and timing are matters of negotiation and contracting. -The MMA expressly prohibits CMS from requiring an MA plan to contract with a particular provider or to require a particular price structure for payment in a contract between an MA plan and a provider. -Special rules apply for Private Fee-for-Service (PFFS) deemed contracted providers. Non-contracted providers -Generally, non-contracted providers are paid what they would have received under the original Medicare program (taking into account MA plan payments and enrollee cost-sharing). -Essential hospitals may be eligible for additional payments from CMS for Regional PPO enrollees. Providers may not seek payment from enrollees for MA plan obligations.

8. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 8 How Providers Are Paid GME, IME, DSH Payments –GME and IME payments will continue to be made by Medicare fiscal intermediaries to providers for all beneficiaries, including MA plan enrollees. –MA plans must pay non-contracted providers the Medicare fee-for-service amount – including add-ons, such as Disproportionate Share Hospital (DSH) payments. Prompt Payment –For contract providers, specific standards to be set by contract. –For non-contracted providers: 95% of clean claims must be paid within 30 days. Non-clean claims must be paid or denied within 60 days.

9. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 9 How Providers Are Paid Special payment rules apply to emergent, urgent and post-stabilization care –Emergency Care Definition: Acute symptoms of sufficient severity such that a prudent layperson could reasonably expect the absence of immediate medical attention to result in serious harm. MA plan responsible whether emergency services provided in or out of network. Prior authorization not required. Enrollee cost sharing not more than $50 for emergency care. –MA plan NOT responsible for non-emergency care rendered during an emergency (i.e., removal of lesions). –Urgently Needed Care Definition: Care provided when enrollee temporarily absent from MA plans service area and when services are medically necessary and immediately required due to unforeseen illness, injury or condition and not reasonable to obtain services through the MA plan. MA plan responsible for urgently needed care (as defined) No limit on beneficiary cost sharing.

10. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 10 How Providers Are Paid Post-stabilization Care –Definition: Covered services that relate to an emergency medical condition that are provided after an enrollee is stabilized. –MA plan responsible when care: pre-approved by MA provider or plan; Rendered to maintain stabilized condition within one hour of request of MA plan for pre-approval of further post- stabilization care; or When needed to maintain, improve or resolve stabilized condition if MA plan does not respond within one hour, cannot be contacted, or no agreement has been reached between MA plan and treating physician (and MA plan physician is not available).

11. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 11 How Providers Are Paid National Coverage Decisions (NCD) and Clinical Trials –NCDs must be followed by MA plans. –Costs must be assumed by MA plans, unless NCD issued after MA payment rates set and NCD cost is significant. –Coverage of qualified clinical trials set forth in NCDs. Local Coverage Decisions –LCDs must be followed by MA plans. If MA plan service area covers more than one local coverage policy area, MA plan may choose LCD most beneficial to enrollees and apply with CMS approval. –Regional PPOs have flexibility to select applicable coverage policy area and do not need CMS approval.

12. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 12 Special Payments for Essential Hospitals Essential Hospitals –Regional PPOs must meet network adequacy requirement. –Congress created essential hospital designation to counter potential monopoly power of hospitals needed to establish network adequacy. –MA Regional PPO may request that CMS designate a non- contracting hospital as an essential hospital where the following conditions are met: hospital is an acute care hospital, MA plan convinces CMS that hospital is needed to meet access requirements, MA plan made good faith effort to contract with hospital and hospital refused to contract with MA plan, MA plan demonstrates that there are no competing Medicare participating hospitals in area to which MA enrollees could reasonably be referred for inpatient care. –If criteria met, hospital is considered to be part of Regional PPOs network for adequacy purposes, and beneficiary may access services through essential hospital at in-network cost sharing levels.

13. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 13 Special Payments for Essential Hospitals –Essential hospital receives Medicare FFS amount from MA plan. –If essential hospital can convince CMS that the amount normally payable under Medicare FFS is less than the hospitals actual costs of providing care to the MA plans enrollees, hospital may seek additional payment from CMS. –CMS may pay up to 101% of actual costs less amount paid by the plan. Money distributed on a first come, first serve basis. –A critical access hospital is not eligible to be designated as an essential hospital.

14. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 14 Provider Payments Under Private Fee-for-Service Plans PFFS plan enrollees can receive care from any willing Medicare-certified provider. Providers may refuse to serve PFFS plan enrollees, but must comply with EMTALA. Payments by PFFS plans to providers depend on the providers relationship to the relevant plan. –Contract providers (including deemed contract providers) are paid pursuant to uniform terms and conditions of payment. –Providers can be deemed to be contract providers without the benefit of a written agreement if the provider: was aware that the beneficiary was enrolled in a PFFS plan, and knew or had an opportunity to know the plans terms and conditions of payment.

15. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 15 Provider Payments Under Private Fee-for-Service Plans Deeming does not occur where the enrollee requires emergency care and the provider is obligated by EMTALA to provide the care. Payments –For contracted providers - paid based on terms and conditions of payment that apply equally to contracted and deemed contracted providers. Payment may include the MA plan payment, enrollee cost sharing and balanced billing permitted under the PFFS plan. Payment may be less than the original Medicare PFFS payment rate, assuming that network adequacy requirements are met. –For Non-contracted providers – paid based on original Medicare FFS rate less enrollee cost-sharing. Access Requirements; Impact on Payment –Network adequacy requirements are met by (1) establishing a sufficient network of providers willing to accept the contracted terms and conditions or payment, or (b) offering the Medicare FFS payment rate. –Historically, PFFS plans have met the adequacy requirements by offering the Medicare FFS payment rate.

16. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 16 Medicare Secondary Payer Issues MA plans must annually identify payers that are primary to Medicare (i.e., group health plans, automobile insurance, workers compensation, etc.) for plan enrollees. CMS uses this information to adjust payment rates to MA plans. MA plans are required to: –identify the amounts payable by those payers, and –coordinate benefits with primary payers benefits. The MA plan, or authorized provider, can bill the primary payer for covered services. If the MA enrollee has been paid by the primary payer, the MA plan is authorized to bill the enrollee.

17. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 17 AHAs Medicare Advantage Teleconference Series Session 1: Background and Fundamentals –Tuesday, September 20, 4 pm EST –Thursday, September 22, 4 pm EST Session 2: Payment Issues for Providers –Wednesday, September 28, 4 pm EST –Monday, October 3, 4 pm EST Session 3: Regulatory Issues for Providers –Tuesday, October 11, 4 pm EST –Friday, October 14, 3 pm EST Special Session: Issues Unique to Small or Rural Providers –Friday, October 21, 3 pm EST –Monday, October 24, 2 pm EST

18. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 18 Contact info: Ellen Pryga, Director, Policy –American Hospital Association –202.626.2267 –epryga@aha.orgepryga@aha.org Bruce Merlin Fried, Esq. –Sonnenschein –202-408-9159 –bfried@sonnenschein.combfried@sonnenschein.com Janice Ziegler, Esq. –Sonnenschein –202-408-9158 –jziegler@sonnenschein.comjziegler@sonnenschein.com