Health Care Reform Update April 2010

1. Health Care Reform UpdateApril 2010

2. Road to Health Reform • Winter 2008 - IHS leadership and affiliate CEO’s form health care agenda including “Top 10” list • Address geographic disparity in Medicare reimbursement for Iowa hospitals. • Address geographic disparity in Medicare reimbursement for Iowa doctors. • Promote value based purchasing models. • Authorize new care models, specifically, accountable care organizations. • GME issues including  “foundation model fix” and ability to count time for didactic and scholarly activities • Value primary care with bonus payments for primary care/general surgery • Limit physician specialty hospital provisions • Authorize pilots for different payment models, such as bundling of payments • Prevention and wellness provisions • Healthcare workforce provisions

3. Road to Health Reform Winter 2009 Stimulus (includes funds for SCHIP, Medicaid, electronic health records, and “comparative effectiveness research”) Budget (includes reserve fund for health reform, provides some financing for but not details on specific proposals) Spring 2009 Hearings, reports, deal making, negotiation, missed deadlines Summer 2009 Senate HELP and H.R. 3200 released, “markups” Floor votes delayed, recess chaos Revised budget Fall/Winter 2009 House and Senate bills pass – both under $900 billion Winter 2010 –Scott Brown elected to congress

4. Road to Health Reform • House passes underlying Senate-passed reform bill • Plus a fix-it bill (agreed upon changes) • Plus a manager’s amendment (9 pages of technical changes – includes geographic variation agreement) • President signs Senate reform bill – health reform is law • Senate considers and passes, fix-it bill and manager’s amendment via budget reconciliation process

5. The Players and the Process Senate Health, Education, Labor & Pensions – HELP Chairman Harkin Finance Chairman Baucus Ranking Grassley House Ways & Means Chairman Rangel (Stark taking over) Subcommittee Chair Stark Energy & Commerce Chairman Waxman (Braley) Education & Labor Chairman Miller (Loebsack)

6. The Players and the Process Senate breakdown – 57 Ds, 41 Rs, 2 Is Need 60 votes to overcome filibuster House breakdown – 257 Dems, 178 Reps Blue Dogs – 52 moderate Dems White House Nancy Ann Deparle – Health reform quarterback Rahm Emanuel – Chief of Staff

7. High Level Content Health Reform Bill Co-ops and Exchange Insurance market reforms National vs. state exchanges Subsidies for coverage Mandates and penalties – individual/employers Medicaid expansions Delivery system reforms Limitations on Physician-owned hospitals Wellness/prevention Workforce / GME Provisions Comparative effectiveness Tax provisions and industry fees Enhanced fraud and abuse / transparency provisions

8. Increased Coverage for the UninsuredCoverage and Subsidies • Medicaid expansion up to 133% FPL • Provides tax credits to support purchase of insurance • Sliding scale credit amounts depending on income • Available to those between 133% and 400% FPL (Senate bill did not provide for credits to those above 200% FPL) • Creates Consumer Operated and Oriented Plan (CO-OP) program • Requires coverage of dependants under age 27 • Reinsurance for early retirees age 54-65, subsidy for employer to continue coverage • Subsidies • Provides tax credits to certain individuals and small businesses for affordability

9. Increased Coverage for the Uninsured Mandates • Individual Mandate • Minimum coverage required after 2013 and penalties imposed • Employer Mandate • Penalties for employers with more than 50 employees who do not offer coverage

10. Increased Coverage for the Uninsured  Exchanges / CO-OPs • Secretary awards planning and establishment grants to States within 1 year • States required to establish Exchanges by 2014 • Exchanges would facilitate purchase of “qualified health plans” and provide consumer protections • Secretary will set criteria for certification of qualified plans by the Exchanges • Regional or interstate exchanges permitted • Requires secretary to establish a Consumer Operated and Oriented Plan (CO-OP) to create qualified non-profit health insurance issuers

11. Delivery ReformsOverview • Address geographic disparity for Iowa • Readmissions – CMS will not pay for avoidable hospital readmissions • Accountable Care Organizations (national program) and Medical Homes • Bundling pilots – voluntary program to facilitate care coordination. • Secretary to select 10 conditions • Episode begins three days prior to admission and ends 30 days after discharge. • Value based purchasing – beings 2013 using measures from hospital reporting program. • Independent Payment Advisory Board • 15 members appointed by President for six year terms • Innovation Center – $10 billion of new authority and funding to CMS • Medical home and other chronic disease management • To test innovative methods to increase quality and efficiency and reduce costs

12. Delivery Reforms  Geographic Disparity • Includes language on geographic disparity for hospitals (championed by Congressman Braley) • Provides $400 million for FY 2011-2012 for hospitals located in counties in the bottom 25% of spending per Medicare enrollee • Requires IOM studies on: • adjustment factors • volume and quality of care • Requires a National Summit on Geographic Variation to be convened this year (additional verbal commitments by Sebelius) • Physician provisions on geographic disparity include GPCI adjustment and addresses misvalued codes (championed by Senator Grassley)

13. Delivery Reforms Readmissions • Readmissions – reduces payments to hospitals for avoidable readmissions (CAH’s exempt). • Focus on heart attack, heart failure and pneumonia • All discharges reduced by adjustment factor that equals the greater of a hospital-specific readmissions adjustment factor based on the number of readmitted patients in excess of the hospital’s calculated expected readmission rate or 0.99 in FY2013, 0.98 in FY2014, 0.97 in FY2015. • Secretary can expand list of conditions starting FY 2015 • Community-based care transitions demo for those with highest readmission rates

14. Delivery Reforms ACOs • Accountable Care Organizations • Voluntary program (not a demo or pilot) • Begins 2012 • Accountability for care of FFS beneficiaries • Minimum of 3 year participation • Minimum of 5000 Medicare beneficiaries, assigned by CMS • Requires legal structure to distribute payments • Must meet quality thresholds • Secretary determines savings thresholds and breakdown • Benchmarks determined on most recent 3 year period, with growth against risk adjusted average expenditure growth for beneficiaries nationwide

15. Delivery Reforms • Bundling payment pilots – • Secretary to select 10 conditions • Episode begins three days prior to admission and ends 30 days after discharge • Value based purchasing – beings 2013 using measures from hospital reporting program. • Value based purchases required for long term care hospitals, hospice and home health agencies • Value based modifier for physician fee schedule and penalties for failure to comply with PQRI standards • Medical home demos • Other demos

16. Delivery Reforms • Independent Payment Advisory Board – to submit proposals to Congress on the solvency of Medicare. • 15 members appointed by President for six year terms • If health care costs exceed CPI, Board submits recommendations to reduce cost growth by .5 percent. If not acted on by Congress, automatically implemented. • Must reduce excess cost growth by increased amount each year. • Innovation Center • Medical home and other chronic disease management • To test innovative methods to increase quality and efficiency and reduce costs

17. Cost Containment MeasuresImpact on Providers Market basket reductions Productivity adjustments Limitations on physician owned hospitals – prohibits new facilities; grandfathers facilities with Medicare provider agreement before December 31, 2010 but limits future growth Home health cuts – rebasing and cuts amounting to over $40 billion Extension of PQRI By 2012, individualized reports on resource use Value-based payment modifier under the physician fee schedule – phase in beginning 2015 Independent Payment Advisory Board

18. Cost Containment Measures CostImpact on Physicians • Extension of work geographic index floor and revisions to practice expensive geographic adjustment factor under fee schedule • Extends PQRI and provides additional bonus payments on certain quality measures • Establishes a physician feedback program comparing resource use • Establishes a “Physician Compare” website • Value-based modifier for high quality care • 10% Medicare bonus payment for primary care physicians starting in 2011

19. Cost Containment MeasuresImpact on Hospitals • Scales back Medicaid DSH payment reductions from $18.1 billion to $14 billion, but implements the reduction one year earlier, in 2014. • Scales back Medicare DSH payment reductions from $25.1 billion to $22.1 billion, but implements the reduction one year earlier, in 2014. (a portion of the cut is returned to hospitals for uncompensated care, subject to a trigger tied to coverage) • The hospital market basket reductions increased: • In FY 2014: market basket (MB) minus 0.3 + productivity adjustment • In FYs 2015-2016: MB minus 0.2 + productivity adjustment • In FYs 2017-2019: MB minus 0.75 + productivity adjustment • Applies to all Prospective Payment System (PPS) hospitals

20. Cost Containment MeasuresImpact on Hospitals • Provides extra assistance for the federal share for all state Medicaid programs • Includes Federal Medicaid Assistance Program (FMAP) increase for states that have already expanded their coverage for childless adults

21. Cost Containment MeasuresImpact on Hospice • Reduces payment by $7.1 billion • Reduces market basket update by 0.5% in 2013-2019 (contingent on reductions in uninsured) • Productivity adjustment beginning in FY 2013 • Requires HHS to collect additional data to revise payment for hospice Quality reporting programs • Medicare Hospice Concurrent Care Demonstration program

22. Cost Containment Measures Impact on Inpatient Rehabilitation Services • Senate Reform Bill • Reduces payment by $5.4 billion • Reduces market basket update by 0.25% for FY 2010 and 2011, 0.3% for FY 2014; 0.2 percent for FY 2015 thru 2016 and 0.75% for FY’s 2017-2019 • Productivity adjustment effective FY 2012. • Quality report program effective FY 2014 (2.0% penalty)

23. Cost Containment MeasuresImpact on Home Health • Senate Reform Bill • Reduces payment by $39.4 billion • Cap on outlier payments • Reduce market basket by 1% in 2011, 2012, and 2013 • Rebase payment system in 2014

24. Workforce National Health Workforce Commission Grants to states and localities Loan repayment programs Geriatric training, family medicine, general medicine, general pediatrics, physician assistantship Training in dentistry Mental and behavioral health training and education grants Advanced nursing education grants Nurse faculty loan program Primary care extension program focused on evidence-based therapies, health promotion, disease management, preventive medicine.

25. Workforce GME • Flexibility for jointly operated residency training program - Allows IME and direct graduate medical education (GME) funding for residents who train in non-provider settings (including foundation model) • Redistribution of unused residency positions • Hospitals can request up to 75 slots • Priority given to hospitals in states with resident-to-population ratios in the lowest quartile; and 30% of positions to hospitals in rural areas and hospitals located in top 10 states of population living in HPSA • Counting time for didactic and scholarly activities • Teaching health centers development grants to develop/expand primary care residency.

26. Fraud and Abuse Transparency • Substantial new investment in fighting fraud and abuse, including: • Requires provider screening and disclosures • Creates a Integrated Data Repository at CMS to integrate data and expand data sharing • Enhances penalties and creates new sanctions • CMS-IRS data match to identify fraudulent providers • $250 million increase for Health Care Fraud and Abuse Control Fund

27. Fraud and Abuse Transparency • Requires hospitals to publicize costs of common procedures a list of standard charges for items and services provided by the hospitals including DRG’s • Requires non-profit hospitals to conduct a community needs assessment and imposes penalties for failure to do so. • Limits the amount that can be charged for emergent or medically necessary services to individuals eligible for financial assistance. • Direct Secretary of Treasury to review community benefit activities of hospitals at least once every three years.

28. Revenue Generators Excise Tax on High Cost Health Plans – Cadillac Tax Under reconciliation, implementation delayed to 2018 Increase in Medicare (HI) Payroll Tax Increase to 2.35% on all income earners over $200,000 Various Industry Fees and Taxes Device Health plans Cuts in Medicare reimbursement to healthcare providers (market basket value based purchasing) “Independent Payment Advisory Board” Will make proposals to Congress on ways to reduce Medicare spending over time; not allowed to proposed payment cuts to providers until 2018 Scales back Medicare Advantage Program

29. Considerations for Providers Downward pressure on reimbursement A larger insured population (but will put stress on providers and will add complexity) Insurance exchange – potentially more competition Delivery and payment reforms can provide opportunities such as pilots, demos and various grant opportunities Increased involvement in regulatory process will be necessary over the next 5 years

30. “Top 10” List - Accomplishments • Address geographic disparity in Medicare reimbursement for Iowa hospitals. • Address geographic disparity in Medicare reimbursement for Iowa doctors. • Promote value based purchasing models. • Authorize new care models, specifically, accountable care organizations. • GME issues including  “foundation model fix” and ability to count time for didactic and scholarly activities • Value primary care with bonus payments for primary care/general surgery • Limit physician specialty hospital provisions • Authorize pilots for different payment models, such as bundling of payments • Prevention and wellness provisions • Healthcare workforce provisions