HomeTown Critical Access Conference

1. HomeTown Critical Access Conference Issues Budget $2 billion more to cut in 2012 Half billion more to cut in 2011 Revenues down this year as much as 15%-20% HP Computer Conversion Unemployment still over 10% in most rural areas Self Pay soaring to 15%-20%

2. HomeTown Critical Access Conference Self Pay Higher Insurance Premiums driving industry from providing health care Obamacare has caused increase for small business to be at least 15% Higher deductibles Higher- Co-pays Essentially have created a class of insured self pays

3. HomeTown Critical Access Conference Payor Mix has amplified Self Pay to an overwhelming component of net revenue Next slide illustrates

4. HomeTown Critical Access Conference DSH Survey Get it in! Get Right! Make sure your ownership status is correct

5. HomeTown Critical Access Conference Subsidy Status UPL Awaiting CMS approval 2007, 2008, 2009 By mid November then IGT DSH Interim Dec 31 if DSH surveys complete Oct 31

6. HomeTown Critical Access Conference Provider Tax Status Language approved by CMS Will extract from PPS hospitals on September 30 CAH’s exempt!!!!!

7. HomeTown Critical Access Conference Medicaid Rate Increase Effective this pay cycle and next two weeks CAH’s exempt!!!

8. HomeTown Critical Access Conference Major Issue

9. HomeTown Critical Access Conference Positives for Critical Access Hospitals Exempt from Provider Tax Lower Medicaid without Baby delivery Paid at 101% of cost

10. HomeTown Critical Access Conference Negatives for Critical Access Hospitals In counties of highest unemployment Cannot support specialties like surgery Encumbered by cost to charge ratio Major subsidy dependent Demographics do not support surgeons or specialist except on part time basis

11. HomeTown Critical Access Conference Current Threats Vendors call payables – default notices Days Cash below 10 days Can’t recruit physicians Macs /Racs

12. Urban takeover of legislature HomeTown Critical Access Conference This election may tip the balance of power away from old sources ANALYSIS Posted: August 2, 2010 - 12:19am  |  Updated: August 2, 2010 - 3:19am By Walter C. Jones ATLANTA - The makeup of the ballot shows how unusual this election is and provides evidence of how much Georgia is changing. For one thing, it's already clear that South Georgia has lost much of its influence. The remaining candidates for U.S. Senate and governor are all from above the Gnat Line. Veteran politicians from below the line saw their careers and hopes sputter as the primary returns were counted July 20, including Democrats Dubose Porter and David Poythress from Middle Georgia and Republicans Eric Johnson and Jeff Chapman from the Coast. Another South Georgia giant fell in the Democratic primary for labor commissioner, former House Speaker Terry Coleman of Eastman to metro Atlantan Darryl Hicks, at least unless a challenge changes the decision. The only candidates from below the Fall Line remaining on the statewide ballot are Democrats Ken Hodges of Albany, the nominee for attorney general, and J.B. Powell of Blythe near Augusta, the nominee for agriculture commissioner.

13. Fmap loss Carter: Budget math hard to figure This new math is killing me! Seriously, how can 4.7 percent and 12.7 percent average out to be 1.3 percent? When it comes to the state of Georgia's budget, that's what a lot of financial gurus are saying actually has happened during the first two months of this fiscal year. In July of this year, revenues were up 4.7 percent from a year ago and in August they were up 12.7 percent from the same time last year. So that means that revenues are up 8.6 percent from where they were for the same two months last year, right? Not necessarily. After all, if we look closely at the numbers much of the gain in revenue this year is due to fewer individual income tax refunds being issued by the state than last year. Many will remember that overdue income tax refunds were processed and paid out in July and August of '09 and subtracted from that month's total tax collections. This year the state was timely in paying out the refunds in May and June. Couple this with the number and amount of tax refunds are down this year and the number comparisons are understandably inaccurate. Nevertheless, there is reason for celebration and optimism, albeit guarded. August marked the fourth month in a row for growth in tax collections after 17 straight months of declines. So, if we are trending in a positive manner and revenues are increasing, why has the governor ordered all state agencies except the Department of Education to brace for a 4 percent cut in this year's budget and prepare for up to a 10 percent cut next year? Remember is that the current fiscal year 2011 budget has a revenue growth of 5.09 percent built into it and if the actual growth thus far has only been 1.3 percent then we need to be prepared for a shortfall. The next few months should give us a clearer picture. Another reason is that Gov. Sonny Perdue is being conservative so that the next governor won't immediately have to order more cuts. But the overriding factor in the 4 percent cut is to cover the shortfall of $140 million in the federal Medicaid assistance funding percentages (FMAP) that Congress failed to approve late last month. Medicaid is the government's health insurance program for the poor that is primarily funded by federal matching funds drawn down with state dollars. It is the fastest growing entitlement program in government, as states have expanded eligibility and benefits. Unlike other states, Georgia has been fiscally responsible in managing Medicaid. We spend $6,000 per person in poverty on Medicaid. New York spends $18,000 per person. Only 18 percent of Georgians are on Medicaid as opposed to 26 percent in New York. Unfortunately, federal funding allows states that spend more on Medicaid to receive more matching funds, leaving states like Georgia holding the bag. For instance, while Georgia will receive about $240 million in FMAP from this latest approval, New York will receive $2.4 billion. The 10 percent budget cut preparation that Perdue has ordered for FY '12 is in anticipation of a $1.8 to $2 billion shortfall that is expected due to slow revenue growth as well as the loss of federal one-time stimulus funds. State Sen. Buddy Carter, R-Pooler, represents portions of C

14. Hospital success is a function of demographics in a service area • Proper Physician to demographic and physician to specialist ratio • It takes 4350 captured population to support one Family Practitioner • It takes 4920 captured population to support one Internal Medicine Physician • It takes 8 Family Practitioners (IM’s) producing over $1,000,000 net revenue to the hospital annually to support one surgeon • Thus it takes 8*4600 average pop = 36,800 population to support one surgeon if there is very little out migration and  with more typical out migration it will take an additional 25% population minimum or 46,000 service area • While it only takes 11,000 population to support the position of surgery it takes the full 8 FP referral component to accomplish the surgeon support. • Experience has proven over an again that less than 8 fully producing FP’s will strain the surgeons ability to achieve a suitable income and either the surgeon will • leave or • the hospital will have to incentivize in some from or employ him/her • Surgeons are best  NOT employed by a hospital due to being referral dependent • Surgeons work best in pairs of either two surgeons or one surgeon and a PA • Part time general surgery does not appear to work due to inconsistent referrals • Orthopedics takes 17,900 captured population to support one orthopedic surgeon and they work best in pairs as two orthopods or one orthopod an one PA which in turn takes 35,800 population to support two • OB Deliveries as a function of demographics • Given that there about 15 deliveries per thousand population in rural Georgia and that calculations indicate that 350 baby deliveries are necessary in order to produce a financial viable OB delivery program, then • Assuming at best a 50% out migration of ob deliveries to surrounding competitive hospitals usually larger then a service area population of 46,000 is required to produce a 350 deliveries annually to a local hospital with the other 350 going out of service area • While this is an emotionally tearing consideration for a community to consider dropping OB, it has proven to be an unforgiving major financial liability when deliveries drop below 300 annually. Much of the reason is that the OB delivery mom then brings much more family Medicaid business to the hospital and it only pays at 85.6% of cost. Hospitals delivering babies typically have 8% more Medicaid than non-delivery hospitals, i.e., 22% Medicaid as per cent net revenue versus 14% Medicaid without deliveries. Hospitals who continue to deliver at numbers less than 300 impute a higher subsidy on themselves to survive. • There is the question about whether a hospital will lose ICTF by not delivering babies. Hospitals have dropped delivery and do receive DSH money. Resources are available to help you with this decision as well. • 32 of 34 Critical Access Hospitals have dropped OB and about half dozen PPS hospitals either do not deliver or have recently dropped OB due to insufficient numbers of deliveries. • Based on work with Representative Mickey Channell conclusions have been reached that it takes a population base of about 45,000 service area in order to have enough industry and population to support the specialty services that will produce a 33% commercial payer mix line item

15. HomeTown Critical Access Conference What to do Then? Recruit and hire docs to employment where possible Geriatric Psych Affiliate with large hospital for cost allocation benefits Control Expenses relative to cost to charge ratio If not already nTelagent Health Trust Purchasing Quadax

16. Adhering strictly to proven operations benchmarks • Performance Benchmarking • $103,000/FTE • SWB <43% • Supplies % Net Rev <10% • Bad Debt % Net Revenue <8-10% • CAH >30% Net Revenue Commercial-Self Pay <12% Net Revenue • PPS >33% Net Revenue Commercial – Self Pay <12% Net Revenue • Baby deliveries must exceed 350 annually otherwise drop due to Medicaid pull along loss • 46,000 population required or if out migration can be controlled population required can drop to about 30,000 but not likely