WASHINGTON UPDATE:

AN OVERVIEW OF REGULATORY AND

MARKET EVENTS AND THEIR

IMPLICATIONS FOR HEALTH SYSTEMS

Chad Mulvany, FHFMA

Director, Healthcare Finance Policy, Strategy and Development

HFMA 1

Overview

• Political Environment

• Coverage

• Payment Cuts

• Value

• Final Thoughts

2

0 50 100

0 50 100 0 200 400

3

Mid-Term Elections

Political Environment

Senate

Current:

Next

Session:

Sources:

1) http://www.politico.com/2014-election/results/map/house/#.VHJWncknGWM /

2) http://www.politico.com/2014-election/results/map/senate/#.VHJYxsknGWM

0 200 400

House

Republican Independent Democrat

Overview

• Political Environment

• Coverage

• Payment Cuts

• Value

• Final Thoughts

4

5

New Medicaid Expansion

Medicaid

As of November 10.1 Million New Enrollees are Covered By Medicaid

Sources:

1) https://www.statereforum.org/Medicaid-Expansion-Decisions-Map

Status of State Medicaid Expansion

Location Matters

6

Self-Pay Decreases in All States, Medicaid Experiences Significant

Growth in Expansion States

Source: http://www.cha.com/Documents/CHA-Study/FINAL-CHA-Medicaid-Expansion-Study-Q2-Sept-2014.aspx

Medicaid

N = 450 hospitals, data set includes 13 expansion states, 12 non-expansion

0%

5%

10%

15%

20%

25%

Q2 2012 Q2 2013 Q2 2014

Self-Pay Medicaid

Expansion States

0%

4%

8%

12%

16%

Q2 2012 Q2 2013 Q2 2014

Self-Pay Medicaid

Non- Expansion States

%o

f To

tal H

osp

ital C

harg

es

∆+4.2%

∆-13.3%

∆+31.7%

∆-54.0%

7

The Supreme Court Agrees to Hear a Challenge to Subsidies in Federal

Exchanges Threatening Coverage for 4.7 M Enrollees

Legal Sticking Point

Exchanges

8

Exchange Enrollment

Exchanges

2014 Enrollment Initially Met CBO

Projections…

Sources:

1) http://aspe.hhs.gov/health/reports/2014/Targets/ib_Targets.pdf

2) http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-breakout-AppendixB.pdf

3) http://online.wsj.com/articles/u-s-again-overstates-health-care-enrollees-1416513555

0

2

4

6

8

10

12

14

CBO Estimate

April #s Nov #s CBO Estimate

Est. 2014 Renewals

Est. 2015 Total #s

ACA Health Insurance Exchange Plan Enrollees

Millions

2014 Enrollment 2015 Enrollment

…HHS Predicts 2015 Will Fall

Short of Initial Projections

9

Affordability Issues

Exchanges

Despite Generous Subsidies, 25 Percent of Those Who Remain

Uninsured Cite Affordability

Reasons Uninsured Expect to Get Covered or Remain Uninsured

10

Reaching Out

Outreach Strategies for Hospitals and Other Organizations Are Driven

by Local Factors

Exchanges

Source: 1) http://m.us.wsj.com/articles/SB10001424052702304337404579209952497733862?mobile=y

Catastrophic Bronze Silver

Gold Platnium

11

Product Enrollment and Actuarial

Value After Cost-Sharing Subsidies

Sources:

1) Final Exchange Data, Updating Our Coverage Expansion Est; Bank of America Merrill Lynch; May 2, 2014

2) http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/08/do-you-understand-health-insurance-most-people-dont

Despite A Low Levels of

Insurance Literacy…

11% 14%

0%

20%

40%

60%

80%

100%

Estimate Out of

Pocket Amt

Define Four Basic

Insurance Terms

Percentage of Primary Insured

Who Could Accurately:

Benefit Shock

…Plans with Higher Cost

Sharing Were Popular…

Exchanges

Diminishing Yields

12

Even at Higher Income Levels, Collection Yields on Balances After

Insurance Drop Precipitously as Balances Increase

Balance: $0 - $250 Balance: $250 - $500 Balance: > $500 FPL < 200% 200- 400% > 400%

FPL < 200% 200- 400% > 400%

FPL < 200% 200- 400% > 400%

60 Day 29.1% 38.0% 44.7% 22.9% 31.7% 38.9% 5.6% 9.6% 15.6%

120 Day 37.2% 46.7% 54.1% 30.4% 40.4% 49.0% 7.5% 12.5% 19.9%

180 Day 39.8% 49.2% 56.6% 33.9% 43.8% 52.6% 8.6% 14.0% 21.9%

360 Day 41.9% 51.4% 58.5% 37.5% 47.3% 56.2% 10.2% 16.0% 24.5%

75% Decline

Balance After Insurance - Balance Group Collection Rates by FPL

Source: David Franklin; Connance; Patient Pay Collectability Data Study Review; March 14, 2014

Exchanges

501r Final Rule

13

The IRS issued the Long Awaited IRS 501r Final Rule on 12/31/14

Overview

• Political Environment

• Coverage

• Payment Cuts

• Value

• Final Thoughts

14

Estimated Reductions

15

85% of Projected $460 B in Hospital Federal Cuts Are ACA Related

(80.00)

(70.00)

(60.00)

(50.00)

(40.00)

(30.00)

(20.00)

(10.00)

-

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Medicare Productivity Medicare DSH Medicaid DSH

Hospital Sequester ATRA Coding Adj Sources:

1) HFMA Analysis

2) https://www.cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf

3) 2-Year Budget and 3-Month Doc Fix Legislation, Bank of America, December 12, 2013

4) http://www.fas.org/sgp/crs/misc/R42865.pdf

5) http://www.chrt.org/assets/policy-papers/CHRT-Medicaid-and-Medicare-Disproportionate-Share-Hospital-Programs.pdf

6) www.aha.org/content/.../cumulative-cuts.pdf

Estimated Federal Payment Reductions: Hospitals

2014 - 2022

ACA Cuts =

$390B Over 10

16

A Significant Budget Deal Continues to Elude Congress

and the Administration

Temporary Stalemate

Anticipated Payment Cuts

17

On the Menu

The Most Recent Bowles-Simpson Plan Suggests $585 Billion in

Healthcare Savings

Hospitals:

• Medicaid Provider Tax - $65B

• Phase Out Bad Debts - $35B

• Reduce IME/GME - $20

• Reduce CAH - $10B

Delivery System:

• Penalties for complications

and readmits

• Payment bundling

• Increase transparency

• Strengthen IPAB

Beneficiaries:

• Reform cost sharing - $90B

• Increase eligibility age - $65B

• Income relate part B & D

deductible - $65B

10 Year Projected Healthcare Savings:

Bowles-Simpson Plan

Source:

1) A Bipartisan Path Forward to Securing America’s Future; April 2013

$60B

$130B

$190B

Anticipated Payment Cuts

Overview

• Political Environment

• Coverage

• Payment Cuts

• Value

• Final Thoughts

18

19

0%

50%

100%

150%

200%

250%

1999 2001 2003 2005 2007 2009 2011 2013

Health Insurance Premiums

Workers' Contribution to Premiums

Workers' Earnings

Overall Inflation

SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2013. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation

(April to April), 1999-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2013 (April to April).

+196%

+182%

+50%

+40%

Exponential Growth

$5,711

$15,581

Health Insurance Costs Have Grown at an Unsustainable Rate

and Eaten into Employee Wages

Value: Employers

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Single Family

Individual Employer

Cadillac Tax

20

Starting in 2018 the Cadillac Tax Will Impact Organizations with

High Cost Health Benefits…

Value: Employers

21

Cadillac Tax

However the Number of Organizations Providing “High Cost” Benefits

Rapidly Expands Unless Cost Growth Abates

Percentage of Employer Plans Impacted by the Cadillac Tax Under

Two Growth Scenarios

Value: Employers

22

Shifting Cost

HDHP Enrollment Has Grown an Average of 23 Percent Per Year

Percentage of Employees Enrolled Plans with A Deductible of $1,000 or More

Source:

1) http://kff.org/health-costs/issue-brief/snapshots-the-prevalence-and-cost-of-deductibles-in-employer-sponsored-insurance/

Value: Employers

Source:

1) http://www.towerswatson.com/en-US/Insights/IC-Types/Survey-Research-Results/2013/03/Towers-Watson-NBGH-Employer-Survey-on-Value-in-Purchasing-Health-Care

0%

10%

20%

30%

40%

Value Based Benefit Design

Lower CS For Use of High Performance

Network

Reference Pricing

Performance Based Pmts

Implement Episodic Pmts

Direct Contracting with MDs, Hospitals,

and/or ACO

2013 Planned for 2014

23

Driving Towards Value

Employers Are Using Multiple Strategies to Achieve Value

Percentage of Employers Pursuing Select Value-Based Plan Design Tactics

Value: Employers

Consumer Engagement Provider Contracting

24

Private Exchanges

Some Large Employer Have Already Started Shifting Their Early Retirees into

Private Exchanges and Could Migrate Current Employees

Sources:

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Are-You-Ready-Private-Health-Insurance-Exchanges-Are-Looming.pdf

Value: Employer Actions

Narrow Networks

25

Implications: Employer Actions

70% of Public Exchange Products Are

Narrow Network… …Selling at A Discount to Broad Plans…

Hospital Network Configuration

Broad:

Excludes <30%

of Top 20

Hospitals

Ultra-Narrow:

Excludes >70%

of Top 20

Hospitals

Narrow:

Excludes 30 -

69% of Top 20

Hospitals

Broad vs. Narrow Pricing

Broad Narrow

-26%

…Making Up the Majority of Lowest Price

Silver Products

Narrow or Ultra Narrow Broad Source: McKinsey Center for U.S. Health Reform; Hospital networks: Configurations on the

Exchanges and Their Impact on Premiums; December 2013

Changing Incentives

26

Re

du

ce

Pre

ve

nta

ble

Re

ad

mis

sio

ns

Va

lue

-Ba

se

d

Pu

rch

as

ing

Re

du

ce

Ho

sp

ital

Ac

qu

ired

Co

nd

ition

s

Bu

nd

led

Pa

ym

en

ts

Ac

co

un

tab

le C

are

Org

an

iza

tion

s

Improve Quality and Efficiency of Care Delivery

Increase Healthcare “Value”

Electronic Health Records Prerequisite

Tactics

The Goal

Implementation of Value-Based Payment Models Is Well Underway

Value: Public Payers

27

In 2015 the “Value-Modifer” Will Applies to Practices of 100 or More

Key Provisions of Value Modifier in 2015

• Includes MDs, PAs, NPs, CRNAs, certified midwifes, CSWs, clinical psychologists, dietitians, PT or OT, or audiologist or speech pathologist

• ACO or participants in similar Innovation Center programs excluded

• TIN used to ID eligible groups based on a query of the PECOS on 10/15/13

Eligible Professionals

• Uses measures collected in 2013 from one of the PQRS reporting options to develop the 2015 value modifier

• Not using a standard set of PQRS measures, instead allows physicians to report relevant measures.

• Includes outcome measures collected administratively

• Uses same attribution method to assign beneficiaries as MSSP

Measures

Physician Value-Based Payment

Value: Public Payers

28

Physician Value-Based Payment

While Participating in Payment Adjustment or “Quality Tiering” Is

Optional in 2015, It’s Mandatory in 2016

Groups w/ min

of 100 EP’s on

10/15/13

Didn’t satisfactorily

submit data

-1% Adj.

Satisfactory

reporters

No Election

0.0% Adj.

Quality Tiering

+/- Adj. Based

on Score

Potential Financial Impacts Based on

Participation

Potential Bonus/Penalty Opportunities

from Selecting Quality Tiering

Low

Cost

Average

Cost

High

Cost

High Quality 2.0x 1.0x 0.0x

Average Quality 1.0x 0.0x -.5x

Low Quality 0.0x -0.5X -1.0x

Value: Public Payers

29

Physician Payments Patched Again

Even Though the House Passed a Comprehensive Physician Payment

Overall, Congress Has Struggled to Finalize Legislation

Source:

1) http://online.wsj.com/article/BT-CO-20140331-713803.html

Value: Public Payers

30

SNF Readmissions Penalty

Based on MedPAC and Other Recommendations the Latest SGR

Patch Includes an All-Cause SNF Readmission Penalty

Value: Public Payers

Source: http://www.nypsystem.org/pdf/Hebrew_Home.pdf

31

SNF Proactive Planning

SNFs Are Understanding Drivers of

Preventable Acute Admissions…

…Developing Protocols to Manage

These Issues In-House

Example: NHVBP Participant’s

Admission Driver Root Cause

Heart Failure

Res. Infection

Sepsis

Electrolyte

Imbalance

UTI

Anemia

EKG

IV’s

Labs

X-Ray

Transfusion

• All RNs IV certified

• Increased in-house lab hours to 6

days per week, on call for 7th day

• Established O/P transfusion

capabilities w/o hospitalization

• Purchased EKG machine

• Implemented clinical pathways for

high volume diagnosis

Areas Addressed for Reducing

Unnecessary Hospitalizations

Value: Public Payers

Overview

• Political Environment

• Coverage

• Payment Cuts

• Value

• Final Thoughts

32

33

Key Take Aways

1.

2.

3.

4.

Exchange plans and Employers Will Continue to Shift More

Cost to More Beneficiaries Via High Cost Sharing Products.

Exchange Plans and Employers Will Aggressively Use

Steerage Mechanisms (e.g. Narrow Networks, Benefit Design,

Reference Pricing) to Reduce Cost and Improve Outcomes.

The Amount of Revenue (both Public and Private) Exposed to

Value-Based Payment Will Continue to Grow.

Public and Private Payers Will Continue to Exert Downward

Pressure on Per Unit Payment Growth Rates.

34

Pressure on Per

Unit Pmt

Value-Based Pmt/

Steerage High Cost Sharing

•Reduce overhead

•Reduce cost of care

delivery

•Leverage economies

of scale to spread

fixed cost

•Reduce PMPM

•Improve quality/

satisfaction

•Demonstrate superior

outcomes

•Negotiate contracts

that support value

•Price Transparency

•Communicate with

Patients

•Upfront collections

•Prospective charity

screening

HFMA Value Project Patient Friendly

Billing

Many of the Focus Areas Are Mutually Reinforcing

Focus Areas

35

Opportunity Knocks Final Thoughts

We know we can do better. The U.S.

healthcare system wastes 30 cents on

every dollar spent. While troubling, it

represents opportunities for organizations

that can provide higher-value care.

Joseph J. Fifer, FHFMA, CPA

President and Chief Executive Officer, HFMA

36

Questions?

37

Chad Mulvany

Director, Healthcare Finance Policy,

Strategy and Development

HFMA

1825 K St NW

Suite 900

Washington, DC 20006

Office: 202.238.3453

Email: dmulvany@hfma.org

Appendix – Additional Slides

VBP Results

39

In 2015 VBP Will Reallocate Approximately $1.4 B in Medicare

Inpatient Revenue

-0.21%

0.23%

-0.26%

0.24% 0.28%

-0.50%

0.00%

0.50%

Penalty Bonus

2013 2014 2015

-.031%

Avg VBP Payment Impact

2013 Through 2015

VBP Adjustment Spread

2013 Through 2015

Sources:

1) Table 16 – 2015 (final), 2014 (final), and 2013 (final) CMS IPPS Rules

2) HFMA Analysis

Value: Public Payers

0

400

800

1,200

1,600

< -.50% -.50% to -.01%

0% .01% to .50%

> .50%

2013 2014 2015

40

2016 Hospital Value-Based Purchasing

In 2016 the VBP Program Will Penalize Providers Up to 1.75% of

MS-DRG Payments

Domain Weight Baseline Performance Other

Clinical Process 10% 01/01/12 – 12/31/12 01/01/14 – 12/31/14

Patient Experience 25% 01/01/12 – 12/31/12 01/01/14 – 12/31/14

Outcomes

•Mortality

•PSI-90

•CLABSI

•CAUTI

•SSI

40%

•10/01/10 – 06/30/11

•10/15/10 – 06/30/11

•01/01/12 – 12/31/12

•01/01/12 – 12/31/12

•01/01/12 – 12/31/12

•10/01/12 – 06/30/14

•10/15/13 – 06/30/14

•01/01/14 – 12/31/14

•01/01/14 – 12/31/14

•01/01/14 – 12/31/14

Efficiency 25% 01/01/12 – 12/31/12 01/01/14 – 12/31/14 •Includes all 30

Medicare Part A & B

spending

Overview of Final 2016 VBP Program

Value: Public Payers

Readmissions Penalty

41

In 2015 Over 2,600 Hospitals Were Penalized and the Average

Payment Reduction Increased

0

500

1,000

1,500

2,000

no

ne

-.0

1 t

o -

0.5

%

-.5

1%

to

-1

%

-1.0

1%

to -

2%

-2.0

1%

to 3

%

2013

2014

2015

Readmissions Penalty Distribution

Sources:

1) http://www.kaiserhealthnews.org/stories/2013/august/02/readmission-penalties-medicare-hospitals-year-two.aspx

2) https://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=102

3) Table 15, FY 2015 IPPS Final Rule, HFMA Analysis

Average

Penalty

-.42%

-.38%

-.62%

Value: Public Payers

42

Impacting Lives - Readmissions

Source: http://innovation.cms.gov/Files/reports/patient-safety-results.pdf

Between Jan 2012 and Dec 2013 CMS Estimates All Cause

Readmissions Were Reduced by 150,000

Medicare FFS All Cause, 30 Day Readmission Rate

Value: Public Payers

No Surprise: Patient SES Matters

43 Source: http://www.medpac.gov/transcripts/readmissions%20Sept%2012%20presentation.pdf

Share of Beneficiaries

on SSI

HF Readmissions Rate

as A Share of National

Avg Median Penalty Share w/ No Penalty

1 - 2% 0.92 0.00% 57%

2 - 4 0.92 0.02 46

4 - 5 0.94 0.07 43

5 - 6 0.95 0.09 41

6 - 7 0.97 0.13 36

7 - 9 0.99 0.14 35

9 - 10 1.03 0.29 26

10 - 13 1.04 0.32 24

13 - 18 1.06 0.42 21

Over 19 1.12 0.33 25

MedPAC Data Shows Hospitals with More Economically

Challenged Patients Have Higher Readmission Rates

Heart Failure Readmission Rates By SSI Percentage

Value: Public Payers

44

Reimbursement Impact: High Rate of HACs

412-Bed Hospital with $98M in I/P Medicare Payments

95

96

97

98

99

100

74th Percentile

and Below

75th Percentile

and Above

Hospital-Acquired Conditions

In 2015 the Legislation Reduces Medicare Reimbursement for Providers with High

Rates of HACs Saving $1.5 Billion Over 10 Years

$ M

illio

ns

Reductions Will Be Applied to Current Year Payments Based on

Prior Period Performance

Reduces payments by

$980k annually

Value: Public Payers

45

Impacting Lives - HACs

Source: http://innovation.cms.gov/Files/reports/patient-safety-results.pdf

From 2010 to 2012 CMS Estimates A Cumulative Reduction of 560,000

HACS Saving $4.1B

HACs Per 1,000 Medicare Beneficiaries

Value: Public Payers

46

Primary

Care

Physicians

Specialty

Care

Physicians

Outpatient

Hospital

Care and

ASCs

Inpatient

Hospital

Acute

Care

Long Term

Acute

Hospital

Care

Inpatient

Rehab

Hospital

Care

Skilled

Nursing

Facility Care

Home Health

Care

Model 1: All

MS-DRGs 1%

Discount

Model 4: Prospective Acute Bundling

Part A & B Discount: “ACE DRGs” -3.25%

All Others – 3%

Model 2: Acute Care Episode with PAC Bundling

Part A & B Discount: 30 and 60 Day Episodes – 3%, 90 Days – 2%

Model 3: Post Acute Care (PAC) Episode Bundling

Part A & B Discount: 3% Regardless of Length

The Performance/Risk Bearing Period for the CMMI Bundled

Payment Models Has Begun

Bundles of Options

Value: Public Payers

47

41 65 81

97

138 148

208

334 356

458

479 489

606

0

100

200

300

400

500

600

700

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

~ 6% of the.

Population Is Currently

Attributed to an ACO

The Number of ACOs Has Grown Rapidly, with Wide Variety in

Organizing Entity and Payers Involvement

ACOs

Public

Private

Both

None

Payer Participant

MD Group

Insurer

Hospital

Other

ACO Organizer # of ACOs Over Time

Source: Leavitt Partners Center for Accountable Care Intelligence, Feb 2014

Value: Public Payers

48

Early Results

In 2012, the First MSSP Cohort Generated $254M in Savings

114

54

29

Total Participants Generated Savings Shared Savings

First Cohort 2012 MSSP Results

Saved $254M - $128M

to Trust Fund or $80

Per Beneficiary

Shared $126M or

~$4M Per ACO

Source:

1) CMS discloses first round of Medicare ACO success; mixed results, Leavitt Partners C-Brief, 1/31/14

Value: Public Payers

Savings Source

49

Average Savings Per Beneficiary/Year in Medicare’s Physician Group Practice Demo

2005 - 2009

Dual savings average

$532 compared to $114

for all beneficiaries

1

For both groups almost

all savings resulted from

reduced hospital stays

2

Value: Public Payers

Most of the Savings from the Precursor to CMS ACOs Came from

Reduced Acute Utilization…

Source:

1) http://www.kaiserhealthnews.org/Stories/2013/July/24/IOM-report-on-geographic-variations-in-health-care-spending.aspx

Variation Driver

50

IOM Report: Proportion of Variance Attributable to Each Medicare Service Category

Value: Public Payers

The Real Opportunity For Efficiency May Be in Post-Acute Care

51

Accountable Care Organizations Have Specific Requirements of

Potential Post-Acute Partners

Network Criteria

Source:

1) http://www.hhnmag.com/hhnmag/jsp/articledisplay.jsp?dcrpath=HHNMAG/Article/da

ta/01JAN2013/0113HHN_Feature_strategy&domain=HHNMAG

Example SNF Requirements for ACO Network Participation

• Compliance with state and federal

regulations

• Meets or exceeds median for federal

quality standards

• 30-day readmission rate at or below

the national average

• Patient satisfaction ratings at or

better than state median

• Use of data and tools to support

patient and family engagement

• Attending SNF physicians include

primary care physicians and

extenders that are part of the health

systems physician network

• RNs in the SNF 24/7

• Appropriate nursing hours per patient

day for sub-acute care (4.25)

• Average LOS for Medicare patients

at or less than the national average

(<30 days)

• Discharge at least 60 percent to the

community following sub-acute care

Implication: Choose Your Partners Wisely