HFMA Legislative Update

1. HFMA Legislative Update Presented by Adam D. Romney

2. AGENDA • Federal Legislative Update • Health Care Reform • Key Federal Legislation • 2012 Election • California Bills of Interest

3. 2012 HFMA Legislative Update Federal Legislation

4. Supreme Court, Implementation, New Federal Legislation, and Election 2012 Health Care Reform

5. Supreme Court Decision • June 28, 2012 • 5 to 4 vote • Individual mandate upheld • Congress’s power to “lay and collect tax” • Not within scope of commerce clause • Medicaid expansion • Federal government cannot withhold federal Medicaid funding to states that do not expand their Medicaid programs • States can only lose new Medicaid funding • CHA estimates that PPACA will result in 2M additional Medicaid insureds

6. New Constitutional Challenges Filed • January 2012, Sec. Sebelius announced that as part of required “preventive health services” health insurance plans must cover contraceptives for women free of charge • Insurance plans must comply by Aug. 1, 2012 (church affiliated organizations given one additional year to comply) • May 21: 43 Catholic institutions initiate actions challenging the “Contraceptive Mandate” • Suits allege violations of Religious Freedom Restoration Act (RFRA), rights to free speech, exercise, and establishment clause rights under the First Amendment

7. Readmissions • Review of Readmissions Concept: • IPPS payment reductions if hospital experiences “excess readmissions” when compared to “expected” levels of readmissions based on a 30-day “episode of care” for specified conditions • Reductions: up to 1% for FY2013, 2% in 2014 and 3% in 2015 and after • Specified conditions are: • Heart attack/AMI (ICD-9 codes 410-410.91) • Heart failure (ICD-9 codes 402-404, plus 428) • Pneumonia (ICD-9 codes 480-88)

8. Readmissions • Implementation: • Applies to discharges as of October 1, 2012 • Readmission measures and data available on https://www.qualitynet.org • CMS has announced 30-day appeal period • What will be the impact? • CMS estimates hospitals will lose $300M • Approximately 34% of hospitals will avoid cut • 14% will suffer full reduction

9. Value-Based Purchasing • Review of VBP concept: • Set aside a pool from existing Medicare PPS dollars • Redistribute the pool among PPS hospitals based on performance as compared to: (1) other hospitals, and (2) each hospital’s prior performance • Creates incentives to improve quality • Should be budget-neutral in the aggregate

10. Value-Based Purchasing • Implementation: • Applies to discharges beginning October 1, 2012 • Estimated pool for FY2013: $850M • Hospitals notified of estimated incentive payment via QualityNet prior to Oct. 1, 2012 • Exact amount to be released on Nov. 1, 2012 (30-day review) • VBP payment amount entered Jan. 1, 2013 • According to CMS: • top 95th percentile hospitals will receive as much as 1.575% in VBP payment • 5th percentile hospitals will receive as little as 0.434% in VBP payment

11. Medicare Shared Savings Program • Review • Providers and suppliers (hospitals, physicians, others) work together in ACO structure to manage and coordinate care for Medicare FFS beneficiaries assigned to the ACO • Shared Savings • If the ACO reduces the cost of the care for those beneficiaries by more than a set amount, and if ACO meets all specified quality measures, then portion of the amount saved will be shared with ACO

12. Medicare Shared Savings Program • Where are we now? • Final Rule: 76 Fed. Reg. 67802 (Nov. 2, 2011) • For FY2013, NOI accepted until 6/29/12 • Application approval or denial decisions, Fall 2012 • July 1 HHS announced 89 new ACOs • Total ACOs now 154 (including 32 Pioneer ACOs) • 2.4M beneficiary lives now covered by ACOs

13. Bundled Payment for Care Improvement Initiative • Administered by CMMI • Four models: • Model 1: Acute Care Hospital Stay Only—all inpatient hospital services; all MS-DRGs • Model 2: Acute Care Hospital Stay plus Post-Acute Care—all inpatient hospital services, physician services, and post-acute care services; agreed-upon MS-DRGs only • Model 3: Post-Acute Care Only—all physician services and post-acute care services relating to an inpatient stay; agreed-upon MS-DRGs only • Model 4: Acute Care Hospital Stay Only—all inpatient hospital services and physician services furnished during an inpatient stay; agreed-upon MS-DRGs only

14. RAC Expansion to Medicare Part C • PPACA (Sec. 6411) expands RAC program to Medicare Part C (Medicare Advantage) • CMS has requested public comments on the development of the Part C RAC program • How to identify Part C under/overpayments? • Phased in approach? • What qualifications should Part C RAC contractors demonstrate? • Should there be a separate overview agency? • Limit number of Part C RACs to create uniformity? • No Part C final rule yet. . . .

15. RAC Expansion to Part D • PPACA (Sec. 6411) expands RAC program to Medicare Part D (Prescription Drug Benefit) • Model is similar to Medicare Parts A/B RAC to audit Part D sponsoring Organizations (sponsor) • Part D RACs paid on contingency • Examples given by CMS of improper Medicare Part D payments include: • Excluded prescribing provider • Duplicate payments • Direct and Indirect Remuneration (DIR)

16. RAC Expansion to Medicaid • PPACA (Sec. 6411) requires all states to implement RAC program to review Medicaid payments • States must amend their State Medicaid Plan • California’s SPA was approved 2/18/12 • States must contract with one or more eligible contractors to review Medicaid claims • DHCS awarded contract to Health Management Systems, Inc. (4/5/12) • Contingency-based payment (Capped at 12.5 percent) • Effective date of final rule was 1/1/12

17. RAC Expansion to Medicaid States have flexibility in establishing RAC programs, • Inclusion/exclusion of Medicaid managed care? • Appeals process for disputes with Medicaid RACs? • Application of Medicare “good cause” requirements? • Limits on the number and frequency of records that a Medicaid RAC contractor may request?

18. Insurance Reforms • Summary of Benefits and Coverage: Insurers must issue “clear” summary information to consumers, uniform definitions • 77 Fed. Reg. 8706 (Feb. 14, 2012) • Health Insurance Exchanges: Standards for states to establish exchanges creating competitive marketplace – will be operational by 1/1/14 • Proposed 76 Fed. Reg. 41866 (July 15, 2011), final 77 Fed. Reg. 18,310 (March 27, 2012); HHS guidance documents for states (May 16, 2012)

19. Middle Class Tax Relief and Job Creation Act of 2012 Federal legislation update

20. Middle Class Tax Relief and Job Creation Act of 2012 • Enacted Feb. 22, 2012 • HR 3630 • Part of larger bill to extend 2% Social Security payroll tax cut, extend unemployment benefits, expands FEMA, etc.

21. Sustainable Growth Rate (“SGR”) • 2012 MPFS contained a 27.4% reduction in physician payments based on the SGR, scheduled to take effect March 1, 2012. • The Act avoided the reduction, again (every year since 2003). • Medicare physician payment rates will now remain at their current levels through December 31, 2012. • CMS, along with other organizations, has indicated hope that Congress will implement a permanent solution to the SGR rate problem.

22. Extension of Medicare Work Geographic Adjustment Floor • Current law requires payment rates under the MPFS to be adjusted geographically to reflect area differences in the cost of practice. • However, Congress had boosted payments for the work component or wRVU of physician fees in areas where labor cost is lower than the national average. • The provision would extend the existing 1.0 floor on the “physician work” index through December 31, 2012.

23. Extension of Exceptions Process for Medicare Therapy Caps • Current law places annual per beneficiary payment limits on outpatient therapy services provided by non-hospital providers. • Beneficiaries can get an exception to the cap for medically necessary therapy services. • The Act also expands the cap on outpatient therapy services by applying both the cap and exceptions process to therapy services provided in hospital outpatient departments. • Both the exceptions process and expansion of the therapy caps to the outpatient setting expire at the end of 2012.

24. Other extensions under MCTRJCA • Ambulance add-on payments:12/31/12 • Outpatient hold harmless provision: 12/31/12 • Qualifying Individual (QI) program: 12/31/12 • Transitional Medical Assistance (TMA): 12/31/12

25. Reduction of Bad Debt Treated as an Allowable Cost • Reduces bad debt reimbursement for all providers for all populations to 65 percent. • Providers currently receiving 100 percent reimbursement for their bad debt would have a three-year transition of 88 percent, 76 percent, and 65 percent, respectively. • Providers currently reimbursed at 70 percent for their bad debt would be reduced to 65 percent. • The Act would not extend the existing accommodation for bad debt incurred by SNF providers on behalf of dual eligibles, which is currently reimbursed at 100 percent.

26. Rebasing Medicaid State DSH Allotments • PPACA reduced DSH payments, starting in 2014, to reflect the expected decrease in uncompensated care as reform increases the number of patients with insurance. • The Act extended the DSH payment reductions for an additional year, through fiscal year 2021. • Results in savings of $4.1B over 11 years.

27. Obama, Romney and Ryan Election 2012

28. Obama’s Health Care Proposals • Continue implementation of PPACA • FY2013 Budget Proposal • Reductions of appx. $303B in Medicare and $56B in Medicaid over next ten years • Voted down in Senate (99 to 0)

29. Obama’s Health Care Proposals • Key reductions in proposed 2013 budget • Reduce payment rates for IRFs, LTCHs, SNFs, and HHAs by 1.1% • Reduce Medicare coverage of bad debt to 25% • Reduce IME adjustment by 10% • Reduce IRF payments to SNF levels for services that could be provided in either facility • Reduce SNF payments for facilities with high rates of preventable readmissions • Reduce CAH payments from 101% to 100% of costs • Reduce advanced imaging reimbursement to account for higher levels of utilization • Some copayment and premium increases

30. Congressman Ryan’s Health Care Proposal • Medicaid: • Converts federal share of Medicaid spending into block grant • States design their own programs • Medicare: • 55 or older: Maintain current Medicare system • Under 55, beginning in 2023: • Seniors given voucher (aka “premium support”), amount varies with age and income • Seniors choose between private plans and Medicare. • Eligibility age raised to 67 by 2033 (2 months per year).

31. Congressman Ryan’s Health Care Proposal • Repeal portions of PPACA • Several insurance provisions: • Individual mandate • Health insurance exchanges • Medicaid expansion to 138% of federal poverty level • Penalties on employers if employees obtain coverage through exchanges • Tax credits for small employers that offer health insurance. • The CLASS Act • Independent Payment Advisory Board (IPAB) • The “doughnut hole” fix

32. Governor Romney’s Health Care Proposal From the Mitt Romney Campaign Website: Key Elements of Mitt’s Plan • Nothing changes for current seniors or those nearing retirement • Medicare is reformed as a premium support system, meaning that existing spending is repackaged as a fixed-amount benefit to each senior that he or she can use to purchase an insurance plan • All insurance plans must offer coverage at least comparable to what Medicare provides today • If seniors choose more expensive plans, they will have to pay the difference between the support amount and the premium price; if they choose less expensive plans, they can use any leftover support to pay other medical expenses like co-pays and deductibles • “Traditional” fee-for-service Medicare will be offered by the government as an insurance plan, meaning that seniors can purchase that form of coverage if they prefer it; however, if it costs the government more to provide that service than it costs private plans to offer their versions, then the premiums charged by the government will have to be higher and seniors will have to pay the difference to enroll in the traditional Medicare option • Lower income seniors will receive more generous support to ensure that they can afford coverage; wealthier seniors will receive less support • Competition among plans to provide high quality service while charging low premiums will hold costs down while also improving the quality of coverage enjoyed by seniors

33. Difference between Romney and Ryan Plans? • FAQ from Mitt Romney’s campaign website (http://www.mittromney.com/issues/medicare) How is this different from the Ryan Plan? Shortly after Mitt presented the proposal described here, Congressman Paul Ryan and Senator Ron Wyden introduced a bipartisan proposal that almost precisely mirrors Mitt’s ideas. Unsurprisingly, the Obama administration immediately rejected the proposal. Mitt has applauded the Ryan-Wyden effort and looks forward to working as president with leaders from both sides of the aisle to implement meaningful reforms that will preserve Medicare for future generations.

34. Difference between Romney and Ryan Plans? • Required benefit package • “All insurance plans must offer coverage at least comparable to what Medicare provides today” • Beneficiaries pay if Medicare costs are higher • “‘Traditional’ fee-for-service Medicare will be offered by the government as an insurance plan, meaning that seniors can purchase that form of coverage if they prefer it; however, if it costs the government more to provide that service than it costs private plans to offer their versions, then the premiums charged by the government will have to be higher and seniors will have to pay the difference to enroll in the traditional Medicare option.”

35. Physicians, Hospitals, Medi-Cal California update

36. AB 1742 – Assignment of Benefits • Would have required health plans to comply with a patient’s request to assign payment to any treating physician • Patients received checks from payors without explanation, physicians have to pursue payment from them • Most California health plans honor patients’ assignment request (not Blue Cross and Blue Shield for out of network physicians) • Status: Failed in Assembly Health Committee

37. AB 2064 – Vaccine Reimbursement • Plans and insurers that cover child and adolescent vaccines must fully reimburse physicians/groups an amount not less than the actual costsof acquiring the vaccine plus administration • As the number of recommended vaccines increases, physicians have had to bear more costs as carriers’ payments are often insufficient • Status: Held in Assembly Appropriations on suspense

38. SB 1416 – Physician Workforce • Lays the groundwork to create the Graduate Medical Education Trust Fund • Would administer grants to expand physician residency programs in California • Increase the number of students and residents receiving education and training in family practice and as primary care physicians assistants and primary care nurse practitioners • As currently drafted, funding for this program would be dependent on private donations; use of the state’s General Fund would be banned. • Status: Referred to Appropriations Committee, in suspense file

39. SB 923 – Workers Compensation Fee Schedule • Would require state to adopt Medicare RBRVS reimbursement system for services covered under workers compensation • Would result in multiple reimbursement reductions for physicians • Status: Inactive

40. AB 415 - Telehealth • Replaces existing “telemedicine” statute, B&P §2290.5 • Intent is to “create a parity of telehealth with other health care delivery modes.” • Promote telehealth to preserve, augment and enhance “provider-patient relationship” through the use of telehealth “as a tool to be integrated into practices.” • Pared-down consent requirement – verbal only, to be documented in the medical record • Removes various requirements imposed by health care service plans, health insurers, and Medi-Cal for patients to receive health care services through telehealth. • Status: Approved by Governor in October 2011

41. SB 335 – Hospital Fee Program • Imposes a Quality Assurance Fee (QAF) • Imposed on specified hospitals for 30 months (from June 30, 2011 until December 31, 2013) • Expected to provide hospitals with an overall net benefit of $5.2 billion over 30 months • Provides $85 million per quarter for children’s health coverage until December 31, 2013 • Establishes a mechanism to make increased payments for out-of-network emergency care provided to Low Income Health Program (LIHP) patients. • Status: Signed by Governor in September 2011

42. SB 1081 – Medi-Cal Demonstration Projects • Wouldallow a District Hospital to become a Low Income Health Program (LIHP) contractor, in a County lacking a County hospital or a County which chooses to not become a Low Income Health Program contractor • Currently, district hospitals are the only public health care entities excluded from becoming LIHP contractors • Status: Passed out of Assembly Committees

43. AB 678 – Supplemental Provider Reimbursement for Emergency Services • Allows ground emergency medical transportation service providers owned by public entities (public ground emergency medical transportation providers) to receive supplemental Medi-Cal reimbursement, in addition to the rate of payment that these providers would otherwise receive for Medi-Cal ground emergency medical transportation services, up to actual costs. • The nonfederal share of the supplemental reimbursement would be paid with funds from specified governmental entities through certified public expenditures. • STATUS: Approved by Governor

44. AB 1297 – Mental Health • Requires provider reimbursement amounts to be consistent with federal Medicaid requirements for calculating federal upper payment limits. • Requires claims for reimbursement for service to be submitted within longer timeframes required by federal Medicaid requirements and the approved Medicaid State Plan and waivers, instead of shorter timeframes in state regulation. • Status: Approved by Governor

45. AB 1728 – Provider Reimbursement Rates • Currently, provider rates of payment for services under the following programs must be identical to the rates of payment for the same service performed by the same provider type pursuant to the Medi-Cal program: • California Children’s Services Program, • Genetically Handicapped Person’s Program, • Breast and Cervical Cancer Early Detection Program, • State-Only Family Planning Program, • Family Planning, Access, Care, and Treatment (Family PACT) Program, • Healthy Families Program, and • Access for Infants and Mothers Program • This bill would provide an exception requiring hospital inpatient rates of payment for these programs to be 90% of the Medi-Cal hospital interim rates of payment. • Status: Held under submission in committee

46. AB 2206 – Dual Eligibles • This bill would authorize persons who are enrolled in a PACE plan to continue to receive their Medi-Cal and Medicare benefits through the PACE plan without having to reselect the plan • Authorize persons who are eligible for PACE to disenroll from a managed care health plan and enroll in a PACE plan at any time to receive their benefits • Would require managed care plans to identify, in their assessments of enrollees, and notify, certain beneficiaries of their potential eligibility for PACE • Status: Ordered to special consent calendar

47. AB 574 – Program of All-Inclusive Care for the Elderly • Adds PACE as a Medi-Cal benefit • Increases the maximum number of allowable contracts between DHCS and PACE from 10 to 15 • There are currently five PACE sites operating in the state • Status: Approved by Governor 9/30/11

48. AB 52 – Rate Approval • Existing Law: • Notification of changes in premium rates or coverage must be made to contract holder or policyholder • Insurers or plans must file rate information with DMHC • Changes to premium, copayment, deductible or coinsurance amounts may not be made during certain periods • AB 52 would: • Require insurers and plans to file with DMHC or DOI a rate application for any proposed rate change. • DMHC/DOI would deny rate changes found to be excessive, inadequate or unfairly discriminatory • Civil penalties would be imposed on insurers and plans for violation of these provisions • Status: Passed house, ordered inactive in Senate

49. About Davis Wright Tremaine LLP • National business and litigation law firm representing clients located in the United States and around the world • Over 500 attorneys covering a variety of practice areas including Health Care, Technology, and Life Sciences • DWT Offices: