Financial Strategies for LA Health Centers in a Changing Landscape

1. Strategic Considerations for LA CHC Boards January 21, 2017 Curt Degenfelder curt@degenfelderhealth.com 310-740-0960

2. Recent History • Patient Protection and Affordable Care Act passed in 2010. This legislation benefitted LA health centers by: • Expanding the Medi-Cal program to include most citizens at or under 138 of the Federal Poverty Guideline (previously the program covered mostly moms & kids). • Medicaid (Medi-Cal) expansion was scheduled to start January 1, 2014. In LA County, it started July 1, 2012, with the conversion of the County Public Private Partnership (PPP) program to Healthy Way LA Matched, which increased reimbursement from $94 per visit to the Medi-Cal rate. • New Access Point funding, which allowed for New Starts (organizations receiving 330 funding for the first time) and NAPs (additional grant funding for new sites for existing 330 grantees) • Expanded services funding to add providers/services • The net financial impact of these changes should have been very positive for the health center’s bottom line (profit) and top line (revenue and growth).

3. Current LA CHC Financial ProfileThe Virtuous Cycle Positive Cash Flow through Productivity & Payor Mix Investments in Infrastructure to Improve Quality & Efficiency Working Capital to Fund Expansion Increased Coverage of Base Administrative Costs More Sites, More Patients, More Revenue

4. Current LA CHC Financial ProfileThe Vicious Cycle Negative Cash Flow through Low Provider & Staff Productivity Lower Efficiency/ Inadequate Coverage of Fixed Costs No Investments in Infrastructure to Improve Quality & Efficiency High Turnover/ High Vacancy Rate Inadequate Pay/No Raises

5. Current LA CHC Financial Profile Federally Qualified Health Centers (FQHCs) are reimbursed under PPS (Prospective Payment System) which pays an enhanced per visit payment. CHCs also receive Section 330 grant funding. For health centers, cost control is often secondary to revenue generation. Revenue generation is dependent on payor mix, Medi-Cal rate, having a full provider complement, and provider productivity. Provider recruitment, retention, and productivity are huge issues for many health centers.

6. Current LA CHC Financial Profile Many LA County health centers have grown rapidly since the ACA/conversion of PPP to Medi-Cal. Today, it appears that the rich are getting richer, and smaller centers are running in place. There has been, and will continue to be, merger and acquisition activity by health centers. Doing well in the new environment requires substantial internal infrastructure and analytics. This infrastructure needs to include both people and technology.

7. The Triple Aim Total Cost of Care Improving Health of Populations Improving Patient Experience

8. How Are Payors Responding to the Triple Aim? HRSA (federal agency which administers the 330 grant) is basing a larger portion of payments on quality Various payors are starting to pay on pay-for-performance The Medicare program has stated goals on paying for quality and value Medi-Cal, in conjunction with the California Primary Care Association and the Public Hospital Association, are developing an alternative payment methodology (APM). The APM will be piloted starting in 2017, and will be expanded in 2020.

9. The Unified Theory The providers are saying... Primary care providers are difficult to recruit PCPs are difficult to retain PCPs have trouble reaching visit productivity targets PCPs don’t like doing non-provider work PCPs want more variety in their work day PCPs don’t like constant interruptions PRACTICE TRANSFORMATION Payors & market are saying... Payors want to pay on Triple Aim Payors want population health for assigned patients FQHC payment reform envisions payments per patient

10. Potential Changes at Federal Level • Repeal of Obamacare. Actually means eliminating portions of the ACA through • Budget reconciliations: Requires Congressional majorities and presidential signature. Can’t change the law, but can remove the funding • Executive order: Can only undo previous executive orders • Changing the legislation: Requires filibuster/cloture-proof majorities in both houses of Congress

11. Obamacare Repeal Elimination of the Medi-Cal expansion. More accurately, defunding of the federal portion of the Medi-Cal expansion. This figure is $18 billion annually, and the State could not afford to continue fund the expansion on its own Elimination of exchange (Covered California) subsidies. This will be bad for patients, financial impact on CHCs is unclear Block grants. May result in reduction in funding, or slowing growth in funding. Allows State’s flexibility, which could include giving them the right to waive the Prospective Payment System Per capita caps. Not clear what these mean, but they are intended to reduce payments/slow payment growth Elimination of the individual mandate Elimination of the medical device tax Elimination of the Cadillac plan tax Elimination of health center teaching program

12. Potential Changes at Federal Level (con’t.) • 330 funding cliff • 70% of 330 grant program is “mandatory” funding • This funding expired in 2015, and was extended for 2 years. Thus it needs to be reauthorized in 2017 • If funding is not extended, HRSA has indicated that each 330 funded health center will receive a 70% reduction in grant funds

13. Potential Changes at State Level • PPS Alternative Payment Methodology – Pays on a per patient, not per visit basis. Pilot program delayed until 1/1/2018 • SPA 17-001(FQHC PPS payments) • MFTs as billable providers (pushed out to 2018 because of budget) • New rate from change in scope delayed 12 months • Limitation on services performed outside of the 4 walls of FQHC • Codify 3 comparable clinic, productivity standard, 90 day rule • Administrative expense cap, salary cap • CHCs have to seem good support in the California Legislature. The attitude of administrative staff at DHCS seems hostile