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1. The Alphabet Soup of the ACA Elizabeth A. McGown, J.D. Senior Vice President, General Counsel Chamberlin Edmonds & Associates, Inc. www.chamberlinedmonds.com

2. PPACA – Affordable Care Act • The landmark health reform legislation provided in The Patient Protection and Affordable Care Act of 2010 (PPACA), as Amended by the Health Care and Education Reconciliation Act of 2010, will have a broad and sweeping impact on hospitals and health systems. • Signed by President Obama on March 23, 2010, PPACA is now known as the Affordable Care Act. • This presentation is focused on certain key provisions in the Act that will directly or indirectly impact hospitals and health systems.

3. PPACA – Affordable CareAct (continued) Amends the following Acts: • The Public Health Service Act. • The Fair Labor Standard Act. • The Social Security Act. • The Internal Revenue Code. • The Employee Retirement Income Security Act of 1974. • The Deficit Reduction Act of 2005. • In the months since ACA was enacted legions of lawyers, consultants and other advisors have inundated hospital, insurance and other health care providers with information analysis and advice about the new health care reform law. Rather than regurgitate the details of the law, this presentation attempts to corral related provisions and suggest proactive planning and evaluation that can be done by entities to take advantage of the opportunities of the new law and be prepared for the general direction of travel.

4. ACA’s Strategic Focus The ACA at Section 3011 directs the Secretary of HHS to establish a national strategy. The initial 2011 Plan delivered to Congress in March 2011 articulates the following priorities: • Making care safer by reducing harm caused in the delivery of care. • Ensuring that each person and family are engaged as partners in their care. • Promoting effective communication and coordination of care. • Promoting the most effective prevention and treatment practices for the leading causes of mortality, starting with cardiovascular disease. • Working with communities to promote wide use of best practices to enable healthy living. • Making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models. • These priorities can only be achieved with the active engagement of clinicians, patients, provider

5. The Heart of the Affordable Care Act • Insurance Reforms • Reimbursement and Eligibility • Employer Responsibilities • Health Information Technology (HIT) • Delivery System Realignment • Fraud and Abuse • Tax Exempt Status

6. Insurance Reforms The ACA significantly reforms the health insurance market by establishing new requirements related to underwriting, scope of benefits and rating requirements. Provisions include: • Medical Loss Ratio (MLR) requirements - requires health plans to report the proportion of premium dollars spent on clinical services, quality, and other costs and provide rebates to consumers if the share of the premium spent on clinical services and quality is less than 85% for plans in the large group market and 80% for plans in the individual and small group markets. Implementation: Requirement to report medical loss ratio effective for 2010; requirement to provide rebates effective beginning January 1, 2011.

7. Insurance Reforms(continued) • Coverage of Young Adults - expands coverage under a parent’s health insurance to include dependents up to age 26 for all individual and group policies. Implementation: September 23, 2010. [As of May 2011 over 600,000 young adults have enrolled for coverage under these provisions.] • Consumer Protections in Insurance - prohibits individual and group health plans from: - rescinding coverage except in cases of fraud - denying children (under age 19) coverage based on pre-existing medical conditions or including in policies pre-existing condition exclusions for children - restricts annual limits on the dollar value of coverage (and eliminates annual limits in 2014) - placing lifetime limits on the dollar value of coverage Implementation: September 23, 2010

8. Insurance Reforms (continued) • Insurance Plan Appeals Process requires new health plans to implement an effective process for allowing consumers to appeal health plan decisions and requires new plans to establish an external review process. Implementation: September 23, 2010. • Grandfathered Plans – Grandfathered plans are exempt from certain requirements so long as employers do not significantly lower their premium contributions to employee plans and plans do not increase people's cost-sharing requirements beyond certain limits or reduce benefits. For insurance plans that lose “grandfathered “ status, health plans must provide emergency services coverage without the need for prior authorization and the cost sharing must be the same for out-of-network and in-network.

9. Insurance Reforms(continued) • Review of Health Plan Premium Increases requires the federal government to create a process, in conjunction with states, where insurers have to justify unreasonable premium increases. Provides grants to states for reviewing premium increases. Implementation: Plan year 2010. Starting September 1, 2011 rate increases higher than 10 percent will be reviewed by states with rate review procedures meeting certain standards and by CMS for states that do not have such standards.  CMS will conduct rate review covering both the individual and small group markets in Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming.  It will conduct small-group market reviews in Iowa, Pennsylvania and Virginia. • Guaranteed Availability of Insurance requires guarantee issue and renewability of health insurance regardless of health status and allows rating variation based only on age (limited to a 3 to 1 ratio), geographic area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in the individual and the small group market and the Exchanges. Implementation: January 1, 2014.

10. Insurance Reforms – New initiatives • Health Insurance Exchanges creates state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. Creates a mechanism for organizing the health insurance marketplace to help consumers and small businesses shop for coverage in a way that permits easy comparison of available plan options based on price, benefits and services, and quality. Exchanges will have a single form for applying for health programs, including coverage through the Exchanges and Medicaid and CHIP programs. Implementation: January 1, 2014. First Open Enrollment – Fall 2013. [Federal Regulations issued July 11, 2011 give States significant flexibility in structuring the Exchanges]

11. Insurance Reforms – New initiatives • High Risk Pools – The creation by states or the Secretary (HHS) of temporary high risk pools for people who have been uninsured for at least 6 months and have been denied coverage due to pre existing conditions. The federal high risk plan is called the Pre-Existing Condition Insurance Plan (PCIP). The federal plan is available in 23 States and in DC. Implementation: Enrollment into the federal plan began July 1, 2010; implementation dates for the state-operated plans vary. In 2010, people enrolled in the federally-administered PCIP program were offered one plan.  Beginning in 2011, enrollees in the federally administered PCIP program are able to choose between three plan options:  the Standard Plan ($2,000 medical deductible & $500 drug deductible), the Extended Plan ($1,000 medical deductible & $250 drug deductible) and the Health Savings Account eligible plan ($2,500 deductible eligible for favorable tax treatment when used with a HSA).  In addition, families will be able to enroll their eligible children in PCIP at child-only rates.

12. Action Items – Insurance Reforms • As quality, cost effectiveness and efficiency will be critical in the decisions of health plans and health care providers to contract with particular entities, evaluate current data collection methods and where appropriate upgrade systems that track quality and efficiency. • Prepare now for a future that will include Accountable Care Organizations and a movement away from fee-for-service toward bundled payments and value-based reimbursement. • As all players in the health care arena will be chasing quality and cost effectiveness, insurers may gravitate to a more select group of providers in order to better manage health care costs and satisfy the new MLR requirements.

13. Reimbursement and Eligibility • Independent Payment Advisory Board (IPAB) – establishes a 15 member board with significant authority with respect to Medicare payment rates. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions.  The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings. Subject to some limitations—hospitals, for example, would be exempt until 2020—the IPAB could recommend spending reductions affecting Medicare providers and suppliers, as well as Medicare Advantage and Prescription Drug Plans. Administrative funding available October 1, 2011 [Doctors, drug companies and some patients' groups are worried IPAB will recommend reductions in Medicare payments. There is Congressional action afoot to repeal this initiative. Some lawmakers believe the IPAB will have to much power.]

14. Reimbursement and Eligibility (continued) • Medicare Value-Based Purchasing establishes a hospital value-based purchasing program in Medicare to pay hospitals based on performance on quality measures and requires plans to be developed to implement value-based purchasing programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers. Implementation: October 1, 2012. • Changes in Medicare Provider Rates – Reduced annual market basket updates for inpatient and outpatient hospital services, long-term care hospitals, inpatient rehabilitation facilities, and psychiatric hospitals and units and adjusts payments for productivity. Implementation: Beginning fiscal year 2010; productivity adjustments added to market basket update in 2012.

15. Reimbursement and Eligibility (continued) • Medicare Advantage Incentive Payment – High quality Medicare Advantage health plans will be eligible for incentive payments. Implementation: 2012 (These Plans will be looking for providers who can demonstrate quality standards). [NOTE: Medicare Advantage plans will also be covered by the 85% MLR standard.] • Medicare Bundled Payment Pilot Program establishes a national Medicare pilot program to develop and evaluate making bundled payments for acute, inpatient hospital services, physician services, outpatient hospital services, and post-acute care services for an episode of care. Implementation: January 1, 2013.

16. Reimbursement and Eligibility(continued) • Hospital Readmissions Reduction Program - Hospitals with readmission rates that exceed their expected readmission rate will have their Medicare inpatient payments reduced by an amount approximately equal to the dollar value of the payments made for the excessive number of readmissions. Initially the readmission payment penalty policy will be based on readmissions related to three conditions: heart failure, heart attack, and pneumonia. Implementation: October 2013 • Optional Medicaid Coverage – States may begin to take advantage of Medicaid changes to cover childless individuals up to 133% of FPL (additional federal funding for this group is not available until 2014 when coverage of this group is mandatory). Implementation: Optional after April 1, 2010. [To date, Connecticut, Washington, Minnesota and the District of Columbia have opted to expand Medicaid to childless adults previously covered by 100% state funds.]

17. Reimbursement and Eligibility (continued) • Medicaid Payments for Hospital-Acquired Infections - prohibits federal payments to states for Medicaid services related to certain hospital-acquired infections and “reasonably preventable” conditions. Implementation: July 1, 2011. [Federal regulations governing this provision were published in June 2011 and most state Medicaid programs have issued guidelines. The minimum Medicaid list of what is preventable mirrors the Medicare list – in place since 2008.] • Expanded Medicaid Coverage - expands Medicaid to all individuals not eligible for Medicare under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL and provides enhanced federal matching payments for new eligibles. Medicaid enrollment is projected to increase by 15.9 million by 2019. About 95% of all new spending would be by the federal government. Spending in 2014 is expected to be relatively small, particularly for States because enrollment is being phased‐in and the federal matching rate for new eligibles is 100%. Implementation: January 1, 2014.

18. Action Items – Reimbursement and Eligibility • Assess Medicare quality measurement reporting and performance. • Develop reporting and performance improvement plans in advance of the implementation of a Medicare value-based purchasing program. • Have a solid reporting system that can be tweaked as regulatory guidance becomes available. • Evaluate policies and procedures to minimize readmissions. Compare readmission rates to peer benchmarks. Model reimbursement implications of readmission rates if Medicare reimbursement methodologies change to bundled payments or value based methodologies. Revise policies and procedures as necessary. [Federal Regulations are anticipated in August 2011]

19. Action Items – Reimbursement and Eligibility(continued) • Evaluate hospital acquired condition statistics. Revise policies and procedures to minimize these occurrences. • If the hospital systems includes other provider entities or has relationships with other provider types (e.g. Skilled nursing facilities, Ambulatory Surgery Centers) evaluate their quality reporting systems and integrate their quality measurement systems into the hospital or health system reporting capacity. • If the hospital employs physicians, evaluate the quality measures utilized and assure that the reporting system is compatible with the hospital system.

20. Action Items – Reimbursement and Eligibility(continued) • In anticipation of additional Medicaid eligibles – certainly by 2014, evaluate Emergency Department capacity and specialized services (e.g. mental health) that may be more prevalent among the newly eligible childless adult population. • In anticipation of newly Medicaid eligible influx, evaluate intake and enrollment capacities. • As baby boomers reach retirement age, intake and enrollment capacities will need to respond to additional individuals who maybe eligible for both Medicare and Medicaid.

21. Health Information Technology (HIT) • There are more than 12 sections of the ACA that reference various aspects of health information technology infrastructure. The criticality of HIT cannot be understated. HIT will support the coordination of care, quality measurement and reporting and new payment models. Financial incentives are available under the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act. • The Medicare Electronic Health Record (EHR) or Electronic Medical Record Incentive Program of the HITECH Act will provide incentive payments to eligible professionals, eligible hospitals, and critical access hospitals (CAHs)that demonstrate “meaningful use” of certified EHR technology. • Participation can begin as early as 2011. • Eligible professionals can receive up to $44,000 over five years under the Medicare EHR Incentive Program. • To get the maximum incentive payment, Medicare eligible professionals must begin participation by 2012. • Incentive payments for eligible hospitals and CAHs may begin as early as 2011 and are based on a number of factors, beginning with a $2 million base payment. • For 2015 and later, Medicare eligible professionals, eligible hospitals, and CAHs that do not successfully demonstrate meaningful use will have a payment adjustment in their Medicare reimbursement. • There are also incentive funds available through State Medicaid programs.

22. Action Items – HIT • Evaluate capacity of the hospital's HIT infrastructure to support analytics, quality measures, reporting and ability to integrate with other providers. • Assure that Electronic Health Record (EHR) implementation is proceeding in both the acute and ambulatory care settings. • Assure that the EHR implementation complies with the “meaningful use” regulations promulgated in July 2010. • Take necessary steps to access incentive payments for EHR implementation.

23. Employer Responsibilities Hospitals and health systems besides serving the health care needs of the community are significant employers. As such, hospitals and health systems must be prepared to respond to the changes impacting employers which include: • Implement Consumer Protections/ Insurance Reforms including creations of an appeals process and enrollee communications regarding young adult enrollment. • Reinsurance Program for Retiree Coverage creates a temporary reinsurance program for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare. Implementation: Current through January 1, 2014. [In April 2011, CMS closed enrollment in this popular program after 1,300 health plan sponsors signed up exhausting the $1.8B in available funding.]

24. Employer Responsibilities • Closing the Medicare Drug Coverage Gap requires pharmaceutical manufacturers to provide a 50% discount on brand-name prescriptions filled in the Medicare Part D coverage gap beginning in 2011 and begins phasing-in federal subsidies for generic prescriptions filled in the Medicare Part D coverage gap. Implementation: January 1, 2011. [Through May 2011, 271,000 people have used the discounts to save an average of $613 for a total of $166 million. These savings will continue to grow.  Most people who reach the donut hole do so later in the year.  The savings for U.S. seniors who participate in the Medicare Part D prescription drug plan may extend far beyond the cost of medications, a new study indicates "That effect of Part D was mostly explained by reduced spending on hospital and shorter-term nursing home stays that follow hospitalization," said Dr. J. Michael McWilliams in the July 2011 issue of the Journal of the American Medical Association.”]

25. Action Items – Employer Responsibilities • Analyze whether to maintain health plan status as a grandfathered plan and what impact that decision will have on the employer’s future ability to make changes to plan design, change insurance carriers or implement new cost sharing features (e.g. co-payments, coinsurance, out-of-pocket maximums and premium increases). • Update plan documents and make required plan participant disclosures. • If the system provides retiree benefits, participate in the early Retiree Reinsurance Program. As appropriate engage vendors to assist with claiming process to HHS. • As the “doughnut hole” in Medicare Part D begins to close, evaluate whether to continue to maintain a retiree prescription drug program. • Amend health care flexible spending account plans and notify employees of new limitations.

26. Delivery System Realignment • The Act imposes significant Medicare and Medicaid cuts and authorizes initiatives designed to shift the payment system from traditional fee-for-service to budgeted (e.g. bundled payments based on episodes of care, shared savings or capitation) or value-based (e.g. pay for performance [quality and cost effectiveness]). • The formation of Accountable Care Organizations (ACOs) are the core of this realignment effort. • ACO are intended to integrate hospitals and physicians into a single health care delivery system that will be held clinically and financially accountable for the continuum of care provided to Medicare beneficiaries.

27. Delivery System Realignment(continued) • What is an Accountable Care Organization? • An ACO must have defined processes to promote evidence-based medicine, report on quality and cost measures, and coordinate care. • An ACO will enter into at least a three year agreement with HHS and have at least 5,000 Medicare beneficiaries, without engaging in risk selection. • An ACO must demonstrate that it meets defined criteria for “patient-centeredness”, including use of individualized care plans and patient/caregiver assessments. • An ACO will be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to the ACO.

28. Action Items – Delivery System Realignment • Conduct and analysis of the hospital's readiness to become an ACO to include the following: • Clinical – does your system include the necessary clinical components of a continuum of care (e.g. hospital, physician, home care, long term care)? • Infrastructure – does your system include necessary infrastructure components (e.g. interoperable HIT and EMRs)? • Financial – can your system provide the financial support necessary to fund the above? • Reporting, data capture and analytics– can your system capture, analyze and report performance metrics, including quality measurements, evidence based medicine protocols, chronic disease management and patient satisfaction? • Physicians– does your system employ physicians or have the governance and management infrastructure to create a co-equal component capable of working effectively to provide clinically integrated accountable care? • If your system does not have one or more of the aforementioned capacities, can the system acquire these capacities by contract, affiliation or purchase?

29. Action Items – Delivery System Realignment • While the ACA drives the Medicare model not private insurance methodologies, many non-governmental insurers are likely to follow in the footsteps of Medicare financing and delivery changes. [NOTE: In 2000, Medicare provided coverage to 43.3 million seniors. By 2030, the baby boomer retirees will cause this number to almost double to 78 million covered beneficiaries.]

30. Fraud and Abuse • Fraud and Abuse Prevention establishes procedures for screening, oversight, and reporting for providers and suppliers that participate in Medicare, Medicaid, and CHIP; requires additional entities to register under Medicare. Implementation: January 1, 2012. • Transparencyrequires drug, device, biological and medical supply manufacturers to report to the Secretary transfers of value (value in excess of $100 per calendar year) made to a physician, physician medical practice, a physician group practice, and/or teaching hospital, as well as information on any physician ownership or investment interest in the manufacturer. This provisions is also known as the Physician Payment Sunshine Provision. Implementation: Reporting starts March 31, 2013

31. Fraud and Abuse(continued) • Provides that a person need not have actual knowledge of the prohibition against health care fraud nor specific intent to violate it in order to commit health care fraud. • Expands the scope of violations constituting a federal health care offense. • Requires that overpayments be reported and returned within 60 days from the date the overpayment was identified or by the date a corresponding cost report was due, whichever is later. Failure to do so gives rise to False Claims Act liabilities including civil monetary penalties (3x claim amount).

32. Action Items – Fraud and Abuse • Establish policies limiting relationships that physicians or entities may have with drug and device companies. • Assure that policies governing annual and periodic reporting of financial interests in drug and device companies. • Confer with drug and device vendors to become familiar with the form and content that vendors plan to use to report payments to assure that that form and content can be conformed with internal hospital, physician or entity records. An inability to reconcile internal records with publicly reported data may raise doubts as to accuracy and increase the risk of enforcement scrutiny.

33. Action Items – Fraud and Abuse(continued) • Adopt new or revised policies requiring prompt reporting and repayment of Medicare and Medicaid overpayments. • Review hospital – physician relationships that may have been established when the “Hanlester” standard may have guided legal opinions (Hanlester established the principal that actual knowledge was required to commit a violation of the Anti-Kickback Law). ACA effectively overrules that standard meaning that a person need not have actual knowledge or intent to commit a violation of the Anti-Kickback Law.

34. Tax Exempt Hospitals • New Requirements on Non-profit Hospitalsrequires tax-exempt charitable hospitals to: (1) conduct a community health needs assessment every two years; (2) adopt a written financial assistance policy for patients who require financial assistance for hospital care; and (3) refrain from taking extraordinary collection actions against a patient until the hospital has made reasonable efforts to determine whether the patient is eligible for financial assistance and imposes a tax of $50,000 per year for failure to meet these requirements. Implementation: March 23, 2010. • Congressional Reportingrequires the Secretary of the Treasury to report to Congress on information with respect to private tax-exempt, taxable, and government-owned hospitals regarding levels of charity care provided, bad debt expenses, unreimbursed costs, and costs for community benefit activities.

35. Action Items – Tax Exempt Hospitals • Identify all entities required to be licensed as a hospital and review the existing financial assistance policies – revise as needed for consistency and practicality. • Determine the means to make financial policies “widely available”, such as posting on a web site. • Review the manner in which charges are determined for emergency and other medically necessary services provided to patients who qualify under the hospitals financial assistance policy. (See IRC Section 501(r) (1)(C)) • Review billing and collection arrangements and procedures for consistency with the new requirements that “reasonable efforts” be made to determine if an individual is eligible for assistance under the hospitals financial assistance policy. (The “reasonable efforts" standard is not defined in ACA.)

36. What about the Court challenges? There are numerous court cases pending challenging all or part of the new law. There are three (3) cases at the US Circuit Court of Appeals level. One or more of these will be appealed to the Supreme Court of the United States. Current litigation status is as follows: • Michigan litigation – 6th Circuit Court of Appeals finds the individual mandate constitutional – June 2011. • Florida multi-state litigation – on appeal to the 11th Circuit Court of Appeals. In January 2011 the District Court found the individual mandate unconstitutional and voided the whole law as the Court found that the individual mandate was not severable from the law. • Virginia litigation – In two separate cases two District Courts reached opposite conclusions one court found the individual mandate constitutional and the other found it unconstitutional but limited the unconstitutionality to the individual mandate and did not invalidate the whole law. These cases have been consolidated and appealed to the 4th Circuit Court of Appeals.

37. Political Headwinds: There have been/will be attempts to repeal and/or modify sections of the law. • The House voted to repeal the ACA January 19, 2011 – the Senate defeated that measure February 2, 2011. • The 1099 provision, which would have raised $19 billion to help pay for health reform, would have required business owners to file a tax reporting document for all vendors from which they buy $600 worth of goods or services within a year has been repealed. In April 2011, the House and Senate voted to repeal this provision and President Obama signed the bill. • The Community Living Assistance Services and Supports (CLASS) program (a component of the health reform law that establishes a national, voluntary insurance program for purchasing community living services and supports that is designed to expand options for people who become functionally disabled and require long-term help) may be repealed as a deficit reduction measure. No action yet, but active discussion

38. Broaden the grandfathered plan provisions to allow employers that offer coverage to continue to offer it without changes. • Loosen the standards for plans in the Exchange. • There is legislation pending to repeal the limitations on the use of Flexible Spending Accounts (FSAs)/Health Savings Accounts (HSAs), but there has not been movement on the matter. [Under the ACA effective January 1, 2011 there are changes to tax free savings accounts including –excluding the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a Health Reimbursement Account or Health Flexible Spending Account and from being reimbursed on a tax-free basis through a Health Savings Account and increasing the tax on distributions from a health savings account (MSA) that are not used for qualified medical expenses to 20% of the amount used.] • Increased state flexibility - Expanded state waiver process. • Domicile-based regulation of insurance to permit interstate sale.