HCAP, HOSPITAL FRANCHISE FEE AND MEDICAID reimbursement changes:

1. HCAP, HOSPITAL FRANCHISE FEE AND MEDICAID reimbursement changes: Brief updates October 16, 2013 OHA Annual Medicare & Medicaid Update

2. Presentation outline HCAP, HOSPITAL FRANCHISE FEE AND MEDICAID reimbursement changes HOSPITAL CARE ASSURANCE PROGRAM (HCAP) 2013 HCAP Update and Timeline Anticipated Changes in 2014-15 DSH Audit Impact OHA Reform Discussions HOSPITAL FRANCHISE FEE 2014-15 Policy Update Projected Outcomes Analysis Timeline SFY 2014-15 BIENNIAL STATE BUDGET Overview Hospital-Related Medicaid Provisions Other Medicaid Initiatives QUESTIONS/ANSWERS

3. Hcap 2013- changes & observations • Additional $21.5M in total funding in 2013 vs. 2012 • $10.5M federal, $11M assessments ($577.9M total funding) • Data source updated to use SFY 2012 Medicaid C.R. • CY 2011 data for most hospitals ($1.67B total OBRA cap) • Since June release of preliminary model: • CMS announced revised allocations: up $0.8M in ‘12; $0.4M in ’13 • Single CAH corrected overstated Medicaid volumes • Prevents overpayment • Changes SW High DSH Threshold to 25.04% • Revised model available online at: http://www.ohanet.org/wp-content/uploads/2013/08/2013HCAPModelRevisedAugust82313.xlsx

4. 2013 hcap process Timeline • Oct 15 • Nov 18 • By Jan 10 • By Jan 24 • By Feb 5 • By Feb 15 ODM Proposes HCAP Rule Public Hearing on HCAP Rule Assessment #1 (inc. 2012) Payment #1 (inc. 2012 catch-up) Assessment #2 Payment #2

5. What drives the distribution of each dollar in hcap2013? 5.2₵ 61.1₵ 17.9₵ 5.4₵ 7.9₵ 2.5₵ Peer Group Medicaid Losses HCAP Free Care Costs Medicaid Costs High DSH Uninsured UC Costs

6. DSH AUDIT – EXAMPLE OF POTENTIAL IMPACT IN 2011… Hospital A receives $10M HCAP payment based on its CY 2009 Medicaid C.R., which indicated OBRA cap costs of $25M IN 2014… Myers & Stauffer review CY 2010 and 2011 hospital log submissions, which only document $9M in OBRA cap costs. Hospital A must now cut a $1M check to ODM, which distributes the funds to other eligible hospitals with OBRA cap “room”

7. Forecast: dsh cuts impacting hcap 2013-2021

8. Hcap – projected federal funding 2011-2019

9. Medicaid expansion impact – hcap implications • Free care rule relevance • Transfer of uncompensated costs to Medicaid managed care enrollee hospital costs • Increase in payment from uninsured to Medicaid MCP levels • What would expansion do to hospital DSH limits? • What implications would it have on the current HCAP distribution policy? • Redistribution concerns if distribution is not reformed thanks to DSH Audits

10. Ohahcap reform discussions – an update • Discussions since June with OHA Finance Ctte., Task Force on Health Transformation, Board of Trustees • 2 Tracks: • DSH Cut Sustainability • Sustainability of Model w/Potential Medicaid Expansion • Finance Committee: No Changes based on DSH Cuts • If Medicaid Expands, recommendations from Finance/TF/Board in Q1 of 2014 • Goals: • Fairness & Equity • Avoid need for redistributions

11. Ffy 2014-15 hospital franchise fee/SFY 2014-15 UPL Update • Fee/UPL Payments/MCP Incentive Payments/Base Rate Support Reauthorized by state budget legislation (Am. Sub. H.B. 59) • New Inpatient & Outpatient Hospital Upper Payment Limit State Plan Amendments (SPAs) required to: • Update effective dates • Update base data used to calculate UPLs (CY 2009 -> 2011) • OHA Board recommended no changes to distribution model • CMS review process underway, but government shutdown impact still to be determined

12. Ffy 2014-15 hospital franchise fee/SFY 2014-15 UPL Update

13. FY 14-15 Biennium Model Update • Estimated UPLs using new Medicaid and Medicare cost report data (CY 2011) • Included the cost of fee-for-service budget cuts to reimbursement • Readmissions, outpatient fee schedule, DRG exempt • Estimated $55.9 M annual fee-for-service cuts • Additional $64.4 M annual managed care cuts not included in UPL • Ohio Department of Medicaid (ODM) provided breakdown of cut impact between FFS and managed care • Further adjustments: • APR-DRG implementation • Medicare payment increases • Medicaid utilization estimates • Estimated net outcome using draft ODM 2014 fee base

14. FY 14-15 UPL Spending Room – pending cms approval

15. Medicaid managed care inpatient incentive program • Five Medicaid MCPs agree to continue program as long as authorized by budget legislation • Continues at $162M per year for contracted inpatient care delivered to managed care beneficiaries • New hospital-plan contract amendment process required

16. Ohio hospital franchise fee vs. offsets sfy 2010-2015 proj. SFY 2014-15 projections are DRAFT based on final SFY 2012 Medicaid cost report data. Amounts are subject to change pending further refinement.

17. Net Outcome Characteristics • UPL payments must be based on Medicaid FFS utilization • Losing hospitals average 0.9 Medicaid FFS discharges per bed annually • Statewide average: 2.0 • Top 10% of net gain hospitals: 4.1 • 61% of previous net negatively impacted hospitals have losses reduced in new model • Of 39% that lose more, majority saw significant decreases (33% - 71%) in inpatient Medicaid volumes • Several CAHs among small net negatively impacted facilities • Lack of inpatient Medicaid volumes • Rural/CAH payments mixed and based on inpatient FFS Medicaid • Majority of top 10% of net losers either State psych hospital or belong to a system • Options presented by HMA largely ineffective in reducing losses among independent hospitals

18. Hospital-specific estimates • OHA awaiting potential Controlling Board action on Medicaid expansion • If expansion approved, OHA to request opportunity to revise SPAs based on increased Medicaid utilization • Cuts associated with expansion could resurface and impact UPLs • Potential 100% federally funded supplemental payments based on expansion…wait and see • If expansion not approved, OHA will immediately begin process of sending out hospital-specific sheets to member hospitals • Assessment rate will be set at proposed rate of 2.579425% of hospital Modified, Adjusted Total Facility Costs (HCAP tax base less Medicare expenses) • Collection schedule: 25% due on March 3, March 31 & 50% on May 5

19. Sfy 2014-15 ohio state budget – in brief Understanding H.B. 59 from a general perspective Local Government Changes - Continues cuts to local governments, rolls back state support of local property taxes Health Care Changes - No Medicaid expansion - Simplifies Medicaid eligibility standards - Authorizes ACA-mandated PCP rates - Unifies Medicaid budget and creates ODM - Increases quality accountability for MCPs and NFs Overall - $121.1B in total biennial spending, up $14.8B from ‘12-13 Tax/Revenue Changes - Phased-in 10% cut in personal income tax rates, 50% cut for small businesses - 0.25% increase in state sales tax rate Education Changes - K-12: Increased funding over ‘12-13 by over $800M - Higher Ed: Formula based on graduation vs. enrollment; increased by $238M

20. State spending 1975-2015 (state funding only)

21. Ohio hospitals at-a-glance RECENT INCREASES IN MEDICAID VOLUMES

22. PROPOSED HOSPITAL BUDGET PROVISIONS Expand Medicaid to 138% FPL $1.08B Eliminate 5% Base Rate Support $260M Continue OHA-Designed HFF Programs $657M Reduce Hospital Readmissions $103M Reduce Payment to DRG-Exempt $12M Cut OP Reimbursement $67M Cut Capital rates to 85% of Medicaid Cost $58M

23. Enacted HOSPITAL BUDGET PROVISIONS Continue OHA-Designed HFF Programs $657M Reduce Hospital Readmissions $103M Reduce Payment to DRG-Exempt $12M Cut OP Reimbursement $67M

24. Oha peer group analysis: current vs. new apr pay/cost

25. Episodic payment development • State Innovations Model (SIM) Planning Grant • Testing Grant Application in process • Built on McKinsey & Co. work in Arkansas, Tennessee • Goal: 80-90% of Ohio pop. in some value-based payment model within 5 years (PCMH & Episodes) • Initial Episode selection: Asthma, COPD, Perinatal, PCI, Hip/Knee Replacements • Define Principal Accountable Provider (PAP) or “quarterback” • PAP at-risk based on adjusted cost per episode performance upon retrospective review • Gain Sharing • Risk Sharing

26. Questions?