Legislative Challenges on the Horizon

1. Legislative Challenges on the Horizon Brian D. Ballard Managing Partner, Smith & Ballard Robert Broadway Vice President, Corporate Strategy Bethesda Healthcare System

2. Outcome of 2010 Legislative Session Budget Overview • Legislature faced a $3 billion revenue shortfall leading up to the 2010 Session, including a $1.8 billion shortfall in the Medicaid program. • $70.4 billion state budget for FY 2010-2011 passed. • Included across the board spending cuts, federal stimulus funds, $400 million in Gaming Compact funding, and $600 million in Trust Fund sweeps. • $371 million vetoed by the Governor.

3. Medicaid Spending Approximately 26% of the state budget Approximately $20 billion appropriated for Medicaid services Caseload Growth Florida is facing close to 2.9 million people on Medicaid for FY 2010-2011 Additional 1.4 million people added to Medicaid program by 2014 under federal health care reform (Eligibility expanded to 133% federal poverty level)

4. Chart provided by Florida House Full Appropriations Council

5. Key Health Care Budget Items Hospital inpatient and outpatient cuts – 7%, except for free-standing, licensed Children’s hospitals and rural hospitals ($287 million reduction) Legislative authority to allow hospitals taking cuts to “buy back” reductions with the use of local tax money. Fully fund Medicaid eligibility for pregnant women to 185% of the federal poverty level. Medically Needy and MEDS AD programs fully funded through June 30, 2011 rather than partial year funding. Dept. of Health budget cuts included $4.9 million reduction to Area Health Education Networks; $3.4 million to Children’s Medical Services; and $$2.6 million to Healthy Start Coalitions. $9.4 million for creation of the Florida Health Information Exchange Infrastructure.

6. Low Income Pool Funding 6-Month Enhanced FMAP Funding Appropriates $1 billion for various LIP funded programs and includes the following key components: Allocation factor is set at 14.8% for IGT contributors. Appropriates funding for the LIP categories (e.g., Regular DSH, Safety Net Payment, Provider Access Payments, etc). Provides an additional $26 million for non-hospital primary care services. Requires AHCA to award grants to those programs most capable of reducing health spending and improving the health status of uninsured and underinsured persons. Allows AHCA to make LIP Medicaid payments to hospitals in an accelerated manner that is more frequent than on a quarterly basis.

7. 12-Month Enhanced FMAP Contingency Plan If the enhanced FMAP is extended until June 30, 2011 by the U.S. Congress during the upcoming fiscal year, the LIP distribution will be amended as follows: • Provides $30 million in nonrecurring general revenue, $25 million to be allocated for Jackson Memorial and $5 million for Shands Hospital. • Provides an additional $50 million for non-hospital primary care issues ($10 million in payments to primary care hospitals and $40 million for primary care issues). • Establishes a new Safety Net category with distributions based on Medicaid and charity care days, totaling $10.5 million. • Includes hold harmless payments for public and children’s hospitals of $7.3 million to maintain FY 2009-2010 level of LIP funding. • Includes buy back of historical rate reductions for trauma hospitals of $141 million. • Allocation factor of 14.6% due to FMAP change.

8. U.S. Congress approved H.R. 1586 (Public Law 111-226), which provides for a two quarter extension of the increase Federal Medical Assistance Percentage (FMAP). containing a six-month extension of an enhanced match for the Medicaid (FMAP) and Title IV-E programs. Provides states $16.1 billion through a “phased-down” enhanced match: 6.2% FMAP increase until December 2010 (included in current Appropriations Act FY 10/11) Phased-down enhanced match based on H.R. 1586: 3.1% FMAP increase for first calendar quarter of FY 2011 1.2% FMAP increase in the second calendar quarter Revised blended FMAP rate for the Medicaid program is 64.83% Current implementation approach under consideration is a proportional reduction to the LIP items funded with enhanced FMAP. Legislative Budget Commission meets on September 14 to take action on budget amendments incorporating the revised FMAP formula.

9. Key Medicaid Proposals Medicaid Reform Legislature proposed significant changes to the current fee for service system with a complete transition into managed care. The Senate proposed shifting Medicaid recipients in 19 counties in 1 year using the existing 1115 Medicaid Reform Waiver. The Senate also approved seeking a federal Medicaid waiver to allow the state to manage the Medicaid program within an annually specified appropriation. The House proposed an overhaul of Medicaid with transition to managed care by 2013: The state is divided into 6 regions. HMOs and Provider Service Networks (PSNs) are approved to provide services through a competitive procurement with each plan approved by AHCA. Number of HMOs and PSN’s is limited in each region. HMOs and PSNs provide services in the entire region – not just specific county/counties in that region. Hospitals are required to participate in the managed care plans; reimbursement fees are set between 100% and 150% of Medicaid rate after the procurement process is complete.

10. Senate Bill 1484 Relating to Medicaid Makes changes to the statutes to conform to the funding decisions included in the General Appropriations Act for FY 2010-11. Key provisions include the following: • Directs AHCA to request an extension of the 1115 Medicaid Reform Waiver by July 1, 2010, and to preserve the LIP provisions of the waiver. • Directs AHCA to convene a workgroup of stakeholders to develop methodologies to maintain the use of intergovernmental transfers and certified public expenditures in a Medicaid managed care environment. Requires AHCA to issue a report by Jan. 1, 2011on the developed methodologies. • Creates the Medicaid and Public Assistance Fraud Strike Force with the Dept. of Financial Services to develop a statewide strategy and coordinate state and local efforts and resources to prevent, investigate and prosecute Medicaid and public assistance fraud. • Directs HMOs to adopt anti-fraud plans. Requires all Medicaid HMOs to report suspected instances of overpayment, fraud, abuse to the Office of Medicaid Program Integrity within 15 days

11. 2011 Session – What to Expect Budget Challenges • Slow Economic Recovery • Potential $2.5 billion budget gap • Uncertainty of the 1115 Medicaid Waiver Extension/LIP Funding • Deep Sea Horizon Oil Impact Medicaid Reform Hospital Issues • Alternative Managed Care Models Critical • PSN Expansion • Medical Homes • Adequate Rate Reimbursement levels • Preservation of LIP and Intergovernmental Transfers (IGTs)

12. HMO Issues • Increase transition of Medicaid recipients from fee-for-service to full risk-bearing managed are plans • Increase Nursing Home Diversion slots and require non-skilled nursing home patients to enter diversion • Additional enrollment in special needs plans Integrate long-term care services into managed care model Tort Reform • Medical Malpractice Reform for doctors who accept Medicaid patients • Sovereign Immunity for ER Physicians (proposals filed during the 2010 session)

13. Florida Politics 2010 General Election Landscape Governor’s Race Rick Scott (R) Alex Sink (D) Cabinet Races Attorney General: Pam Bondi (R) Dan Gelber (D) CFO: Jeff Atwater (R) Loranne Ausley (D) Ag Commissioner: Scott Maddox (D) Adam Putnam (R) Legislative Races 11 State Senate 26 State House 1 U.S. Senate 24 U.S. Representatives

14. Reapportionment on the Horizon Highlights • Every 10 years, after the federal Census, the boundaries of the state’s congressional, state House and state Senate districts are redrawn. • The Census Bureau completes delivery of redistricting data to states in April 2011. • Approximately Timeframes for Reapportionment Process: • July-November 2011- public testimony taken • January or February 2012- Reapportionment Session • March-April 2012-prepare new state legislative and congressional districts maps for submission to the Florida Supreme Court and U.S. Justice Department. • Joint Resolution on legislative redistricting not subject to veto by the Governor. • Congressional redistricting is enacted by the Legislature but subject to gubernatorial veto.

15. Get Involved in Government Relations Why? Hospital Representatives are vital to educating legislative candidates and lawmakers on the changing dynamics of the healthcare industry. How? Campaign Activities Local visits with legislators/educational briefings Capitol visits before and during Session When? Key Dates: Organizational Session – November 16, 2010 House & Senate Interim Committee meetings –December to February Regular Session- March 8, 2011

16. Q & A