1. Houston-Baytown-Sugar Land, TX CBSA Wage Index Group Medicare Wage Index Improvement Program PPS 24 (FFY 2011 AWI) October 19, 2009 and October 27, 2009 Integrity. Honesty. Results.

2. Contact Information – RCHMS K. Michael Webdale, Vice President Eric Webdale, Vice President Alan Arellano, Sales/Marketing Director R-C Healthcare Management Services, Inc. 2226 West Northern Avenue, Suite C-100 Phoenix, AZ 85021-4969 Phone: (800) 862-5368 E-Mail: (Mike) mwebdale@rcmgmt.com (Eric) ewebdale@rcmgmt.com (Alan) aarellano@rcmgmt.com Integrity. Honesty. Results.

3. National Average Hourly Wage Change Integrity. Honesty. Results.

4. MedPac Recommendation to Use the Bureau of Labor Statistics Data Acumen Study  One-third of hospitals currently reclass. If BLS data is used, there is no guarantee that just as many exceptions will not develop.  BLS data is not available by industry, and it does not include fringe benefits, part-time workers or contract labor.  Despite the limitations, the Acumen study still recommends using the BLS data. The initial study is here: http://www.acumenllc.com/reports/cms. The final study was to be released after the FY 2010 August Federal Register and will show how the BLS wage index would be calculated. Integrity. Honesty. Results.

5. Pension Costs Pension costs were formerly reported according to GAAP. Pension costs now must be fully funded, and only current expenses are allowable. Work with your actuary to get the allowable amount. Some court cases have been filed, but none have yet been decided. Integrity. Honesty. Results.

6.  Need to verify the hours from invoices or contracts.  Nationally 42% of hospitals included salaries and hours with an AHW of $67.00.  In Houston, 50% (24 of 48) hospitals included salaries and hours with an AHW of $51.25. Contracted Administrative & General (Line 22.01) Integrity. Honesty. Results.

7.  The Houston wage index was minimally impacted by the contracted A&G costs. If all Houston hospitals had included A&G at the same AHW, the wage index would be.1 percentage points higher.  Contracted A&G costs increased the national AHW by $.05.  Eventually, all hospitals will realize the importance of including these costs, so the early adopters will benefit until that occurs. Contracted Administrative & General (Line 22.01) Integrity. Honesty. Results.

8. Rural Floor Budget Neutrality No CBSA can receive a wage index lower than the rural rate in that state.  The money for increases in those hospitals’ wage indexes was funded from the national pool. Beginning on 10/1/08, CMS began shifting that burden to individual states. Integrity. Honesty. Results.

9. Largest Decrease In Wage Index by State Connecticut.97887 New Jersey.98437 Colorado.99413 California.99415 New Mexico.99576 30 states had no CBSAs with the Rural Floor, so next year they will not be decreased by this adjustment. Integrity. Honesty. Results.

10. Impact of the Rural Floor Adjustment Upon Texas Hospitals No Texas CBSAs receive the rural Texas wage index. Texas Rural Floor Budget Neutrality Factor: October 1, 2009.99835 October 1, 20101.00000 Integrity. Honesty. Results.

11. Proposed Worksheet S-3 Revisions  CMS released new cost report data  For Worksheet S-3, Parts II and III, CMS made several revisions, including the removal of all subscripted lines.  Comments had to be submitted by August 13, 2009.  Create some confusion regarding Teaching Physicians  Could cause problems with wage-related costs which are allocated to salaried physicians and excluded units. Integrity. Honesty. Results.

14. Proposed Worksheet S-3 Revisions  New Worksheet S-3, Part IV – Hospital Wage-Related Costs  Instructions do not clarify the removal of excluded units.  Will cause confusion as to where total wage-related costs are to be reported.  New Worksheet S-3, Part V – Hospital Contract Labor and Benefit Costs  Collects contract labor and fringe benefits for excluded units.  Why is CMS is collecting this data? Integrity. Honesty. Results.

17. Occupational Mix Adjustment  The most recent occupational mix survey was conducted from 7/1/07 to 6/30/08. Data will not be collected again until 2011. Revisions can still be made to 2008 survey data.  The most important factor is RN hours to total nursing hours. The national percent was 71.4%, so if your RN percentage was greater than that, you received a negative occ mix adjustment. If it was less than 71.4%, then the adjustment was positive. On CMS’s website, http://www.cms.hhs.gov/acuteinpatientpps/wifn/ list.asp#topofpage, this file will show you the impact of the occupational mix adjustment upon your hospital: FY 2009 Proposed Occupational Mix Adjusted and Unadjusted Average Hourly Wage by Provider. Integrity. Honesty. Results.

18. Houston Occupational Mix Adjustment Houston AHW  Before Occupational Mix Adjustment $31.7474  After Occupational Mix Adjustment $31.9906  Increase due to Occupational Mix Adj. 7.66% Integrity. Honesty. Results.

19. How the Wage Index Is Calculated  Total salaries and hours Adjust for overhead departments. Adjust to a common period with an inflation factor. Total salaries and hours at the CBSA level. Total salaries and hours nationally. Divide each CBSA’s AHW by the national AHW.  Each hospital has an Occupational Mix Adjustment, and each CBSA has a Rural Floor Budget Neutrality Factor. Integrity. Honesty. Results.

20. Impact of the Wage Index  Labor portion of the DRG is: - 62% if the wage index is less than or equal to 1 - 67% if the wage index is greater than 1  Previously, it was 62% if the wage index was less than or equal to 1, and 69.17% if the wage index was greater than 1.  Highest wage index – Santa Cruz-Watsonville, CA 1.6191 = reimbursement of $9,436.75  Lowest wage index – Rural Alabama.7389 = reimbursement of $5,587.84 Difference of $3,848.91 Integrity. Honesty. Results.

21. Cooperative Effort at a Regional Level All hospitals within each Core-Based Statistical Area are dependent upon each other’s wage data. If one hospital has an error, the entire CBSA is impacted. Integrity. Honesty. Results.

22. New Reclassification Requirements  3-year Average Hourly Wage  Individual Urban – 108% of original area and 88% of new area  Individual Rural – 106% of original area and 86% of new area  Group – 88% of the CBSA into which it wishes to reclassify Integrity. Honesty. Results.

23. Process R-C Healthcare Management analyzes the hospital’s original Worksheet S-3 and 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. Revisions must be submitted by the hospital to its FI no later than December 7, 2009. RCHMS assists the hospital in defending its revisions during the FI audits. Integrity. Honesty. Results.

24. Timetable Important Dates:  October 5, 2009 – Release of the first Public Use File, which will include the original, unaudited S-3s  December 7, 2009 – Deadline to submit any wage data revisions  February 22, 2010 – Release of the next Public Use File, which will include the revisions submitted in December Integrity. Honesty. Results.

25. Timetable Important Dates:  May 7, 2010 – Release of the final Public Use File  August 1, 2010 – Approximate date of publication of the FY 2011 Final Rule. The wage index includes the final wage index data corrections.  October 1, 2010 – Effective date of the FY 2011 wage index Integrity. Honesty. Results.

26. Hours Issues  Eliminate on-call and stand-by hours.  Eliminate the hours associated with bonuses. (Bonus pay includes award pay and pay in lieu of time off.)  Get the salaries and hours by pay code to eliminate differential hours. Integrity. Honesty. Results.

27. Hours Issues  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. Integrity. Honesty. Results.

28. Wage-Related Costs  Make sure to include all wage-related costs for all departments.  Allocate health insurance costs based upon hours (FTEs) and not salaries. Integrity. Honesty. Results.

29. Worksheet S-3 Questions to Ask  Is Line 1 greater than in the prior year’s filing?  Do salaried physician lines compare to those in the prior year’s filing?  Do contract labor and physician AHWs seem reasonable?  Are wage-related costs greater than in the prior year’s filing?  Have applicable A&G costs been included on Line 22.01? Integrity. Honesty. Results.

30. Wage Index for FFY 2010 Based upon the August 27, 2009 Federal Register:  The Houston wage index is.9934, an increase of.44 percentage points from the prior year’s wage index of.9890.  A 3-year wage index history for all CBSAs and rural areas in the United States is provided at www.wageindex.com.  The wage index history is updated upon the release of each Public Use File in October 2009, February 2010 and May 2010. Integrity. Honesty. Results.

31. 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 Integrity. Honesty. Results.

32. ??? QUESTIONS ??? R-C Healthcare Management Services, Inc. 2226 W. Northern Avenue, Suite C-100 Phoenix, AZ 85021-4969 Phone: (800) 862-5368 www.rcmgmt.com Presented by: K. Michael Webdale – Vice President Eric Webdale – Vice President Alan Arellano – Sales/Marketing Director Integrity. Honesty. Results.