1. Budget Neutrality Appeal Related to the Wage Index Rural Floor Presented By T.Giovanis & Company: Ted Giovanis Vinson & Elkins: Chris Keough March 2007 T. G IOVANIS & C OMPANY Health Policy and Regulatory Consultants

2. Who We Are:  Ted Giovanis  Started T. Giovanis & Co. (TGC) in 1990 – specializes in a wide variety of health policy, advocacy, and reimbursement services  Prior to 1990 - Director of Health and Industry Services for the firm Deloitte and Touché and was the Director of Regulatory Issues for the Healthcare Financial Management Association in Washington, D.C.  Chairman of the Maryland Community Services Reimbursement Rate Commission

3. Who We Are:  Chris Keough  Partner at Vinson & Elkins (V&E)  Vinson & Elkins’ health care law practice ranked fourth largest in the U.S. by Nightingale’s Healthcare News  Mr. Keough’s principal area of focus is on Medicare and Medicaid reimbursement  Regularly represents hospitals before the Provider Reimbursement Review Board and in the federal court

4. Background  Annually, CMS makes changes to the payment variables in the Medicare acute care PPS system  Some changes are required to be Budget Neutral  Estimated aggregate payments may not change from one year to the next because of policy changes

5. Background Continued  Budget Neutrality required for: DRG weights; reclassification of cases; and the Area Wage Index (AWI)  All are adjusted in a single factor  The annual budget neutrality factor is permanently included in the PPS rates  AWI budget neutrality adjustment includes the impact of the Rural Floor

6. The Issue  Rural Floor - no hospital in a State will have a wage index less than the statewide rural wage index  The number of hospitals subject to the Rural Floor has increased  More than half the states include at least some hospitals subject to the Rural Floor  A flaw has been discovered in the method and variables used to estimate the effect of the Rural Floor within the Budget Neutrality calculation

7. The Issue continued  The method and variables have a duplicating effect for years after the initial year of Rural Floor applicably  Based on this approach, the duplication has been occurring over a series of years  The issue is not the level of or eligibility for the Rural Floor but rather the associated cost of the Rural Floor being removed, through budget neutrality from the standardized rate

8. Approach  FY 2007 will be appealed in early 2007  Prior years would be appealed based on NPRs  If not resolved, future years will be appealed based on the Federal FY

9. Approach continued  Remedies - retrospective relief (for the years under appeal) and a prospective correction of the payment rates  Resolution - an increase in payments (for the period prior to correction) and prospectively (from the point of correction forward)

10. Deadline  There are a variety of publication dates  August 1 – CMS posting display version of the Federal Register on its web site  August 18 – Publish date of the Federal Register  September 29 – CMS posts Standard Rate and Wage Indexes to web site  October 11 – Publish date of the final Federal Register  The deadline date for submitting information to TGC is March 21

11. Fee Approach  There are potential payment gains in pursuing this issue  But the issue is legally and technically complex and will take considerable time, effort, and expense  The fee structure selected offers hospitals a 100% risk free approach

12. Fee Approach continued  The fee structure: a Performance Fee PLUS a Fixed Fee  Performance Fee - 25% of the increase in payment effect for all years under appeal; no prospective effect of the fee  Fixed Fee - $10,000 per hospital  Both the Performance Fee and Fixed Fee would only apply if the appeals were successful

13. Fee Approach continued  Approach allows: litigating the issue and protecting years prior to resolution  Without the risk related to a legally and technically complex and protracted PBBR and court effort

14. Issues You Should Consider  TGC discovered the issue and has direct evidence of the CMS error:  TGC has vetted the evidence within our firm, its advisors, and with multiple independent experts  Based on early knowledge of the issue, V&E has developed complex legal strategy that will utilize “expert” analysis of the issue  The risk free approach protects hospitals from extensive legal fees regardless of outcome and is based only on years under appeal

15. Next Steps  Contact Ted Giovanis at TNGiovanis@AOL.com or (301) 854-2496 for questions or expression of interest  Hospitals will be sent a Letter of Agreement and related Attachments

16. Next Steps  To Participate Hospitals must, by March 21:  Sign the letter of acceptance  Complete Attachment I - contact information  Sign representation letter - Attachment II  Edit information on Attachment III  Submit all documents to Ted Giovanis at TGC Ted Giovanis T. Giovanis & Co. 301-854-2496 tngiovanis@aol.com