T he Law Will Stand… But Will It Work? Indiana Rural Health Association June 9, 2014

1. The Law Will Stand… But Will It Work?Indiana Rural Health Association June 9, 2014 Blair Childs, SVP, Public Affairs

2. Realities shaping our future Politics, policy and politics of healthcare Payment and delivery system reform Measurement and accountability State and local market forces It’s all about incentives!

3. Reality #1: Our fiscal health & economy are top political issue Federal debt held by the public, 1940 to 2020 • Slow growth economy: 6.3% unemployment; 217,000 new jobsin May • Lowest workforce participation since 1978 • Sequestration accounts for $1.1T spending reduction; would need to be replaced

4. D.C. consensus: Medicare must move from pay for volume to value • Medicare fee for service creates perverse incentives: • Micro-manages healthcare providers • Politicized • Creates competition between healthcare providers • Incents duplication of services • Stifles innovation

5. Rural Health Issues Rural Health Issue: Budgets • CBO options for addressing the budget shortfall • CBO option #24 for deficit reduction • Elimination of Critical Access Hospitals (CAHs), Medicare Dependent Hospitals, and Sole Community Hospitals • Projected savings over 10 years of $62.2B • President Obama’s budget proposal FY 2015 • FY 2015 - reduce CAH payments from 101% to 100% of reasonable costs. • FY 2015 - eliminates the CAH designation for hospitals that are less than 10 miles from the nearest hospital. • Administration estimates these rural proposals would save approximately $2.42 billion over 10 years. • Simpson Bowles Commission Report-April 19 • “Reducing enhanced payment for rural hospitals.”

6. Medicare Rural health extenders The following programs were extended in the most recent Medicare physician payment SGR patch(H.R. 4302). All of these programs are extended until March 31, 2015. • Medicare Dependent Hospital (MDH) hospital program • Low-volume hospital payment adjustments • Ambulance add-on payments • Outpatient therapy caps exceptions process. • Extension of Medicare Work Geographic Practice Cost Index (GPCI) Floor.

7. CAH 96 hour rule • CAHs must meet minimum health and safety standards to be able to participate in Medicare. • Imposes both a condition of participation (CoP) and payment on CAHs. Since the law was established in 1997, only CoP were enforced. • On Sep. 15, 2013, CMS announced it would more strictly enforce the condition of payment • The Critical Access Hospital Relief Act (H.R. 3991/ S. 2037) would remove the 96-hour physician certification requirement as a condition of payment. • Maintains CoP requirement • A physician would not be required to state that the patient will be charged or transferred in less than 96 hours in order for the CAH to receive payment

8. Telemedicine legislation in Congress • H.R. 3077, the Telemedicine for Medicare (TELE-MED) act by Rep. Devin Nunes (R-CA) • Allows Medicare providers to treat patients electronically across state lines without having to obtain multiple state licenses • Helps to address provider shortages in rural areas where access is impeded by lack of access to qualified providers • H.R. 3306, the Telehealth Enhancement Act of 2013 by Rep. Gregg Harper (R-MS) • Adjusts Medicare home health payments to account for remote patient monitoring and expands coverage to all CAHs and SCHs, regardless of metropolitan status • Covers home-based video services for hospice care, home dialysis, and homebound beneficiaries • States will have the option of setting up high-risk pregnancy networks within their Medicaid programs

9. Telemedicine legislation in Congress (continued) • S. 328, Strengthening Rural Access to Emergency Services Act by Sen. John Thune (R-SD) • Allows certain CAHs and SCHs to use interactive telecommunications systems to satisfy requirements for having a physician available to stabilize an individual with an emergency medical condition • S. 596, Fostering Independence Through Technology Act of 2013 by Sen. John Thune (R-SD) • Establishes pilot projects aimed at increasing the use of remote patient monitoring technology for patients in home health care settings and reducing unnecessary hospital readmissions or transfers of patients from their home to higher acuity care settings

10. The political gift that keeps on giving! • HOAP — the “House Obamacare Accountability Project” • Insurance rate shock • Coverage expansion shortfall • Cost: subsidies and expanded Medicaid • Exchange malfunctions & security • Plan cancelations • System abuses/Fraud • Employers dropping coverage • ER crowding • Florida race: David Jolly wins

11. Senate political outlook

12. Election implications • If Rs take the Senate • Opportunity for “grand (mini-) bargain” returns • More likely SGR reform will use structural entitlement reforms as “pay fors” • Possible rewrite of SGR policy • Lots of political posturing which will increase as approach 2016 • If Ds hold the Senate • SGR pay-fors more complicated • We are living the future • Either way, no major changes to ACA until 2017

13. Outlook Hospital Reductions Since 10/12 • ACA implementation ASAP, but expect delays • 2% sequestration likely to remain for next 2 years • “Doc fix” in Lame Duck or 2015 • Prepare for long-term state and federal budget cuts • Bi-partisan agreement that need to move from fee-for-service

14. Reality #2: Payment and delivery reform is happening Track 1 Post-Acute Care Episode Bundling Track 2 Acute and Post-Acute Care Episode Bundling Acute Care Bundling Medical Home

15. Track 1 FFS Payment at risk or being cut OCT2011 OCT2013 OCT 2012 OCT2014 OCT2015 OCT2016 OCT2017 OCT2018 OCT2019 OCT2020 Value-Based Purchasing (VBP) 1.25% 1.0% 1.5% 1.75% 2.0% 30-day Readmissions Caps 2.0% 3.0% 1.0% 1.0% Hospital-acquired conditions Market basket reductions 0.1% 0.1% 0.3% 0.2% 0.2% 0.75% Multifactor Productivity cut* 0.7% 0.5% 0.7% 0.4% 0.4% 1.0% 0.7% 0.5% 0.4% 0.3% Documentation and Coding Adjustment** 3.6% 1.6% 0.8% 4.9% 1.9% 2.4% 2.0% Sequestration *** 0.2% Other Adjustments 9.7% 9.5% 8.5% 6.0% 10.7% 5.7% 7.1% 12.8% 9.2% 8.7% TOTAL IMPACT 10% *The Multifactor Productivity Adjustment is an estimate generated by the CMS Office of the Actuary **DCA, also known as the behavioral offset. Estimates FY 2015-FY 2017 impact of the American Taxpayer Relief Act of 2012*** Sequestration (across the board cuts to reduce the federal budget deficit) will stay in place unless otherwise reversed by Congress

16. Impact of Healthcare Reform and Related Legislation Hospital-Specific Financial Impact in FFYs 2014-2019 (Medicare fee-for-service payments) Premier Medical Center • No Medicare discharge growth rate applied here

18. Push/pull to population health (in X years?) Track 1 - Push Track 2 - Pull • Disrupt Existing System • MSSP • Pioneer • Flexible design; retro & prospective attribution • State/Federal duals demo • State partnership; eased enrolling • Medical home demo; new CMMI Primary Care Initiative • Reducing readmissions from nursing homes demo • Bundled payment demos • Cuts to Medicare FFS System • 30 day readmissions penalty • Penalty = 5x readmissions payment • Value based purchasing • FY-15 - Efficiency measure: total spending 3 days prior/30 days post • Care coordination measures • Private Payors and Medicaid • Bundled payment: 2016? 18

19. “Doc Fix” (SGR) repeal and reform timelineBicameral, bipartisan legislation 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Track 1 Sunset of existing quality value penalties under PQRS, VBM, EHR 12/31/2017 Permanent repeal of SGR 0.5% update in physician payments (2014-2018) 0% update in physician base payments (2019-2023) 2021 -9%/+27% Merit-Based Incentive Payment System (MIPS) adjustments Track 2 APM participating providers exempt from MIPS; receive annual 5% bonus (2018-2023) 2020 7% 2022 & beyond: 9% 2019 5% 2018 4% • CBO estimate of bipartisan, bicameral bill (H.R. 4015, S. 2000): $122B/10 years • Medicare extenders will add another $24B to cost of bill

20. ACO development accelerating nationwide • 606 public and private ACOs in every state • 5.3 million Medicare lives are covered • 360+ Medicare-specific ACOs: • 32 CMMI “Pioneer” participants, program began 1/1/2012; 9 dropped out with 7 converting to MSSP 1/1/2013 • Medicare Shared Savings Program • 4/1/2012: 27 ACOs added • 7/1/2012: 89 ACOs added • 1/1/2013: 106 ACOs added • 1/1/2014: 123 ACOs added Number of ACOs Percent of population covered by an ACO Composition of ACOs Source: http://healthaffairs.org/blog/2014/01/29/accountable-care-growth-in-2014-a-look-ahead/

21. Indiana regional delivery system reform participants = MSSP = BPCI = FQHC Advanced Primary Care Practice = Healthcare innovation awards = Pioneer ACO = Advanced payment ACO = Community-based care transitions program

22. Reality #3: Payment, HIT and measurement joined Significant federal investment in measure development Will be measured through surveys, EHR and claims • Future provider measures: • Safety/HACs • Person- and Caregiver-Centered Experience and Outcomes • Care Coordination • Clinical Care • Community/Population Health • Efficiency and Cost Reduction Movement to patient reported health & experience, and cost measures

23. VBP: movement toward outcomes and efficiency Hospitals’ VBP payment will increasingly be based on their performance on outcomes/efficiency Active Performance Period FY 2013 FY 2014 FY 2015 Clinical process Patient experience Outcomes Efficiency

24. Reality #4: Coverage expansion and new market force

25. Exchange implications 26M will join exchanges Employers with unskilled labor may “dump” to exchanges • Many individuals will purchase “Bronze” plan • Influence consumer behavior • Impact on potential for bad debt • New competitive environment and marketing by insurers • Drive narrow networks • Greater pricing pressure • Legal fights between insurers and providers Greater consumer demand for price & quality information Expandable to new populations (Medicare/Medicaid) Large employers moving toward reference pricing?

26. Impact of consumer directed health plans

27. Private exchanges with large employers = similar implications

28. Movement to retail insurance market

29. Retail health insurance marketplace • Defined contribution approach by employers • Increased consumer engagement • Gravitation to higher deductible plans • Greater personal responsibility related to health • Increased use of personal healthcare applications • Increasingly empowered patients

30. Our alliance’s strategy to win under reform Value-based purchasing: HACs, quality, efficiency, cuts Bundled payment Global payment HAC & readmissions penalties Shared savings FEE-FOR-SERVICE MOVING to integrated care, new payment models & risk • Population Management • Population analytics • Care management • Financial modeling and management • Legal • Physician integration • High Performing Hospitals • Most efficient supply chain • Best outcomes in quality, safety • Waste elimination • Satisfied patients • High Value Episodes • DRG and episode targeting • Care models and gainsharing • Data analytics • Cost management

31. QUEST Charter and 2009 Members FY 2014 VBP Performance • QUEST members out performed matched sample

32. Delivering results: Medicare Shared Savings Program • Of the 114 MSSP ACOs that started in 2012, during performance year 1*: • 29 MSSP participants received shared savings totaling $126 million • 54 had expenditures lower than their benchmark • MSSP ACOs generated Medicare $128 million in net savings All MSSP ACOs Year 1 Interim Results Year 1 Interim Results *= PY1 for 04/2012 is 21 months, and for 07/2012 is 18 months - **= based on estimates from PACT members Source: http://www.hhs.gov/news/press/2014pres/01/20140130a.html

33. Implications for you? • State and Federal payment levels constrained • Engage on important pending policy decisions; but not politics • Traditional Medicare & Medicaid leveraged to drive change • Coverage expansion (revenue relief) uneven. Greatest area of ACA change is coverage expansion • Know where you stand on performance and trends • Value-based payment reforms, population health and market transformation is happening -- this time! • Greater insurer competition and consumer demands with individuals, large and small employers • Providers are well positioned in this environment, but • Provider-led transformation will require policy change, de-regulation, scale and smart decisions

34. Questions? www.premierinc.com Blair_Childs@premierinc.com