Patient Protection & Affordable Health Care – Implications on Payers, Providers and Businesses by Sutherland Global Services

Decoding the Patient Protection & Affordable Health Care – Implications on Payers, Providers and Businesses (Draft) August, 2012

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Table of Contents

Overview of Patient Protection and Affordable Care Act

Implications of PPACA on Payers

Implications of PPACA on Businesses

Implications of PPACA on Providers

www.sutherlandglobal.com January 29, 2013

Table of Contents

Overview of Patient Protection and Affordable Care Act

Implications of PPACA on Payers

Implications of PPACA on Businesses

Implications of PPACA on Providers

www.sutherlandglobal.com January 29, 2013

Patient Protection and Affordable Care Act - Overview The Act • The Patient Protection and Affordable Care Act of 2010 (informally referred to as Obamacare) significantly changed health care in the US, making insurance available to 32 million more Americans, representing a total of 95% of the legal population • Over the first 10 years, the program adds $940 billion to the Federal budget. However, a study by the Congressional Budget Office stated that the Affordable Care Act will lower the budget deficit by $143 billion over these same ten years by: – Lowering payments to hospitals – Increasing Medicare taxes on higher income households – Assessing penalties on employers who don't offer, and individuals who don't take, health care insurance – Assessing taxes on various health related activities – Reducing overhead by consolidating the higher education loan program with the Pell Grant program

The Patient Protection and Affordable Care Act contains nine titles, each addressing an essential component of reform Quality, affordable health care for all Americans

The role of public programs

Revenue provisions

Community living assistance services and supports

Improving the quality and efficiency of health care

Affordable Care Act

Improving access to innovative medical therapies

Prevention of chronic disease and improving public health Transparency and program integrity

Health care workforce

Source: News articles

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Table of Contents

Overview of Patient Protection and Affordable Care Act

Implications of PPACA on Payers

Implications of PPACA on Businesses

Implications of PPACA on Providers

www.sutherlandglobal.com January 29, 2013

The Act is being phased over the years till 2018 to have a complete effect on Payers Timeline for Payers

2013 2011

Six months after - enactment • Ban on pre-existing condition exclusions for children • Ban on lifetime limits and restrictions on annual limits • Prohibition on plan recissions • Temporary reinsurance program begins • Standard format for presenting information on coverage options (60 days after enactment) • Temporary high-risk insurance pool implemented (90 days after enactment • Medicare Part D drug discount

• Minimum Medical loss ratio (MLR) goes into effect • Medicare Advantage rates freeze until 2012

• CLASS insurance begin

2010 • Small business tax credits

• Plan administration simplification rules for eligibility and claims status go into effect • Flexible spending account (FSA) contribution limit $2,500 per year and then grows by cost-of-living adjustments

2012 • Medicare Advantage reimbursement cuts begin and bonus payments implemented • Comparative effectiveness research fee begins

2018 • Tax on high value employerprovided health insurance first applies

2014 • Health insurer industry fee begins • Guaranteed issue for individual plans, rating bands, risk adjustment requirements in effect • Individual and employer mandate begin • Health insurance state-based exchanges begin • All exchange plans required to offer essential benefits

Source: News articles, PWC

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Health insurance companies may benefit from more individuals with insurance through coverage expansions … Key Provisions included in the Act for Payers MLR requirements • Health insurance companies will have to report the amount they spend on medical services, known as MLRs • Beginning January 1, 2011, large group insurance companies must have a MLR of at least 85% and small group and individual market insurance companies must have a MLR of 80% Mandatory coverage of certain preventative services, primary care and emergency services • Companies must pay for immunizations as well as infant, child, and adolescent preventive services – Additionally, health plans must cover women’s preventive care and screenings • A plan enrollee must also be allowed to select their primary care provider from any available participating primary care provider Ban on lifetime limits and restrictions on annual limits • Companies can no longer put a lifetime dollar limit on the insurance benefits covered by a plan, if those services are deemed essential health benefits

Restrictions on ratings • Health insurance premiums in the individual and small group markets may vary only by family structure, geography, the actuarial value of the benefit, age (limited to a ratio of 3 to 1), and tobacco use (limited to a ratio of 1.5 to 1) Guaranteed issue and ban on pre-existing condition exclusions • Health insurance companies will be prohibited from excluding patients with pre-existing conditions from their health plans • Companies cannot bar customers from renewing plans and cannot rescind enrollee coverage because of a member’s health status Limits on executive compensation • Health insurance companies will only be able to deduct the first $500,000 of compensation to any officer, director, or employee of the health insurance provider, or to anyone who provides services for or on behalf of such covered health insurance provider Consumer coverage navigation assistance • Companies are required to develop and distribute a standard format to present coverage options, which will be uploaded by Government on a website

Conclusion • State and federal oversight of health plans will increase, and health insurance companies will have to act quickly to make sure that their plans are compliant with the new regulations • The Act creates intense pressure for payers to reduce or cut administrative costs and improve efficiency without diminishing service or member satisfaction

– Lost cost-sharing for some preventative services may add to this pressure, at least in the short run • One way to handle these new pressures would be to increase premiums, but the new premium review process could make that difficult • Some plans may simply exit certain markets and health insurance companies should review their expenses to make sure they are properly classified

Source: News articles, PWC

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… in the insurance exchanges and expansions of existing government programs, However … Implications of the Act on Payers Insurance Exchanges

Mandates will Increase Covered Lives

• The Act requires states to establish American Health Benefit Exchanges that facilitate the purchase of qualified health plans by 2014 – Individual enrollment in the insurance exchanges is expected to be 21 million • Companies would also have to offer a catastrophic plan that would cover essential health benefits and at least three primary care visits and require costs sharing up to the HAS out-of-pocket limits • Health insurance companies could continue to offer plans outside the exchanges but only current enrollees will be grandfathered in – The companies would have to comply with marketing, choice of providers, reasonableness of premium increases, and other quality criteria, while offering their plans • Congressional Budget Office (CBO) estimates that enrollment in individual plans outside of the exchange will decline by 5 million, below what would have been expected in 2016 and employer coverage will fall by 3 million

• Individual and employer mandates will introduce new consumers to the insurance market – By 2014, individuals will be required to maintain a minimum level of coverage for at least nine months of the year – The individual penalty is the greater of a flat dollar amount and a percentage of household income • The Act imposes penalties on employers that do not provide coverage for full-time employees, as well as on employers whose coverage is inadequate or unaffordable for low-paid employees, beginning in 2014 • Many of the newly insured will be among the “young invincible” market, or individuals of a younger age and fewer health issues who may have elected not to obtain insurance before because they could not afford it and were relatively healthy

Conclusion • Participating health insurance companies will have new state and federal regulations to deal with in the exchanges – This could incentivize companies to standardize their plans along the exchange’s four-tier structure and compete more on price and service rather than benefits

• Companies may need to carefully monitor member satisfaction as it may be easier for current customers to switch after 2014

Conclusion • Agility is needed to take advantage of the new consumer base, particularly in the individual and small group markets – Furthermore, payers may need to scale their IT capabilities, including web portals, to prepare for a larger volume of members and to maintain brand and trust with their current members • The annual cost-of-living and salary increases will have to keep up with healthcare inflation for these mandates to be effective in the long

Source: News articles, PWC

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… health insurance companies are almost immediately subject to new regulations on their products Implications of the Act on Payers Administrative Simplification

Industry Fees and Observation Taxes Begin in 2014

• The Act accelerates the timetable for HHS to adopt uniform standards and operating rules for electronic transactions between providers and payers governed by the Health Insurance Portability and Accountability Act (HIPAA) • Administrative simplification requirements for health insurance companies include – Adopting a single set of operating rules for claims status and eligibility verification – Electronic funds transfer for healthcare payment and remittance – Health claims and encounter information – Enrollment and disenrollment – Premium payments – Referral certification and authorization • Health insurance companies that are not able to document compliance may be fined up to $1 per covered life per day, as these requirements become effective between 2013 and 2016

• Health insurance companies will face new fees, based on their respective market shares, beginning in 2014 • The fees would not apply to companies with total net premiums written of $25 million or less and the Act also provides a limited exemption for certain not-for-profit health insurance companies

• Beginning in 2018, health insurance companies also would be assessed a 40% excise tax on high-cost self insured and group market insurance plans

Conclusion • As health insurance companies face pressure to reduce administrative cost, administrative simplification may be in their best interests – However, simplification may also require an initial large investment in health information technology at a time when there already is intensive pressure on the bottom line • Collaboration between industry and other stakeholders are required to drive administrative simplification

Conclusion • Industry fees cannot be avoided and to pay for industry fees while maintaining growth and keeping premiums steady, health insurance companies will face growing pressure to reduce cost by focusing on administrative expenses

Source: News articles, PWC

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Power is shifting to consumers in their choice of healthcare payers, … Competition will make it all the more important to turn good member experiences into loyal consumers, regardless of whether that consumer is an employer or the individual patient for healthcare payers The 5 core attributes of healthcare payer consumer experience

Attributes

Ease of accessing and using an offering

Ease with which a consumer can obtain product or service help pre and post purchase

Source: News articles, PWC

Consumer Pulse

Suggested Action

• Payers will be competing for a piece of the $60B health insurance exchange pie in 2014 • Consumers rank insurer brand as a top purchase driver nearly 5 times more often than convenience • 78% consumers willing to recommend a health payer after a good experience • Young consumers, about 6.9 million shopping via exchanges in 2014 would become best brand advocates – 3 times Gen Y more likely than baby Boomers to share via social media

Power is Shifting to Consumers – Make Them Brand Advocates • Create brand advocates, like other consumer driven industries • Companies should try to surpass competition by helping consumers advocate the brand to others • Companies can try to enable older segments to connect via video and message boards – Incent young generations to create buzz within personal networks

• The Young & Urban, comprising roughly 17 million members, are a healthy segment and will make up a valuable share of the exchange population – The Young & Urban would 2.5 times more likely to value health topic information and 1.4 times more likely to value digital wellness tools

Empower the Healthy to Stay Healthy • Companies can increase engagement via gaming mechanics such as consumer check-ins and tracking • Companies can also integrate virtual and physical worlds by linking online support groups with in- person events • Focus on word of mouth, as it has traditionally been ranked as one of the top 3 sources of marketing success

• 35% Young & Urban consumers value wellness program more than the relative to population

Note: The study measures the experiences of about 6,000 US consumers across 11 industries

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… making it important for healthcare payers to differentiate themselves … Attributes

Accuracy, speed, breadth and value of an offering

Aesthetics, arrangement and description of the offering

Consumer Pulse • Consumers are on the go, especially the Young & Urban and rank value convenience as #1 purchase driver, 3 times more than the rest – Young & Urban rank convenience over insurer reputation more than other segments and value access to expanded provider networks – Rest of population values reputation as #1 purchase driver, 1.2 times more than Young & Urban • With the advent of social networking in the digital age, younger generations are more willing to forgo privacy for convenience – Older generations shy away from digital convenience due to security and privacy concerns – 54% Baby Boomers (50+) prefer Paper EOBs to any combination of digital channels

Deliver Anytime, Anywhere Access • Companies can provide a tailored offering that provides prompt, non-specialty care through partnerships with alternative care facilities, rather than a single provider network – Customize touch-points by consumer segment to generate premium opportunities • Companies can pilot differentiated digital features, such as remote monitoring, telehealth and mobile health records

• Consumers don’t want to be caught in between insurers and providers – Most negative experience are caused by processing errors beyond the consumer’s control, followed by lack of transparency • Billing and claims inaccuracies pull-in consumers unnecessarily – 3 in 5 are willing to wait up to 2 weeks for claim fulfillment – People are also willing to pay a 7% incremental premium to ensure accurate billing, even at the cost of a slower billing cycle

Don’t Make Consumers the Middlemen • Companies should invest in processes and technology that minimize system related errors and strengthen provider line of communication, reducing the need for consumer involvement

• Most of the people surveyed preferred 3 times more the value of improved accuracy over speed Source: News articles, PWC

Suggested Action

• Companies should focus investment on claims management capabilities that improve productivity and eliminate errors to address consumer concerns, but be mindful of payment impact to providers

Note: The study measures the experiences of about 6,000 US consumers across 11 industries

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… and to work harder for market share and loyalty by better understanding what consumers value Attributes

Personalization of Consumer relationships via staff and partners

Consumer Pulse

Suggested Action

• With more than 40% annual churn in the individual market, keeping consumers happy makes business sense – Unfriendly attitudes drive many negative consumer experiences – Nearly half of disgruntled consumers don’t even receive an apology for their frustration • Customer service representatives that listen to consumers with claims issues and follow up create a positive consumer experience – 3 in 4 want to feel that their claim was fairly considered, with a typical consumer willing to pay an additional 12% • Consumers also want insurers to hold their hand through rough times, as 66% of consumers prefer that their insurer go above and beyond

Show Consumers That Their Concerns are Your Concerns • Companies should train staff to be empathetic and acknowledge frustrating situations to turn upset consumers into happy ones • Companies should create a proactive outreach process via consumer advocate specialists to show that they care

What Payers are Thinking? • The survey conducted by HealthEdge shows that the payer industry understands that business as usual is no longer a viable strategy – Companies should move to new business models that increase member involvement, reduce unnecessary costs, and increase the overall quality of care • Huge opportunities are available to payers who can adapt to the rapidly changing healthcare marketplace and execute better than their peers

76% of payers are considering adoption of an ACO model

61% of payers believe they will be ready to meet the new ICD-10 compliance deadline

Note: The survey is based on responses from more than 100 leaders of payer organizations across the country Source: News articles, PWC

80% of payers are evaluating emerging individual exchange opportunities

52% of payers report that any ICD-10 delay will have limited financial impact on their businesses

Note: The study measures the experiences of about 6,000 US consumers across 11 industries

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Healthcare payers needs to better understand consumer segments, behavior and attitudes to tap the potential market Challenges for Payer Issues

Potential Recommendations

Strategy • Low consumer retention • Optimize emerging channels • Manage increasing medical costs

• Revise go-to-market strategy • Simulate consumer response to changes prior to investment • Develop channel strategy

Sales & Marketing • Ineffective consumer targeting • Low consumer engagement • High product mix complexity

• Create needs based segmentation • Develop consumer engagement strategy • Simplify product mix

Technology & Operations • Inability to customize experiences • Lack of sales force effectiveness • Increasing servicing costs

• Deploy personalization capabilities • Create digital tools to track consumer behavior • Develop digital sales force strategy and servicing strategy

Analytics • Inability to uncover consumer issues • Multiple and disparate views of the consumer

• Develop Voice of the Customer program to uncover product, customer servicing and marketing insights • Centralize customer information into single view

Organization • Disjoint consumer experience • Misaligned staff behavior with experience goals • Ineffective post sales support

• Redesign organization to support experience goals • Develop metrics and incentives structure aligned with experience goals • Ensure goals accountability

Source: News articles, PWC

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Table of Contents

Overview of Patient Protection and Affordable Care Act

Implications of PPACA on Payers

Implications of PPACA on Businesses

Implications of PPACA on Providers

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Many employers are likely to take a “wait and see” approach before making wholesale changes to their plans … Key Provisions included in the Act and their Implications on Small Businesses Creation of Insurance Exchanges • Small businesses will have the option to purchase insurance through a new market, called the Small Business Health Options Program (SHOP Exchange)

Penalties for Not Providing Affordable Coverage

– After 2016, all businesses with 100 or fewer FTE employees will be able to purchase insurance through the SHOP exchange

• Some smaller businesses (with more than 50 employees) will have to pay a penalty if they do not offer affordable coverage – Businesses with 50 or fewer FTE employees are exempt from these penalties – Businesses with 51 or more FTE employees will be fined $2,000 per employee (excluding the first 30 employees) if they do not offer coverage for employees who average 30 or more hours per week • To avoid penalties, employers must offer insurance that covers at least 60% of the actuarial value of the cost of benefits • The coverage also must be affordable to employees, meaning an individual employee’s premium cannot exceed 9.5% of their household income – If the coverage offered does not meet the affordability standard, employees may receive tax credits to purchase insurance on their own through the exchange

Conclusion

– The exchange will be designed to offer individuals and small employers an easier way to compare and purchase plans • Employers may continue to purchase insurance through the market outside of the exchange, and the insurance reforms above will apply throughout both markets • Each state is required to create an exchange by 2014, otherwise the federal government will run one in the state – Until 2016, states will have the option to define small businesses as either 1-50 employees or 1-100 Full-Time Equivalent (FTE)

• The non-partisan Congressional Budget Office (CBO) estimates that approximately 2.6 million small business employees will get coverage through the exchanges in their first year (2014) – It is expected to increase to approximately 3.7 million employees receiving coverage through the exchanges in 2017 • Small business owners will be joining a much bigger risk pool through these exchanges, they will no longer be vulnerable to sharp swings in their rates based on the health of a few employees

• Companies could pay the fines, passing the costs on to the workers through lower wages – If a firm has very low-income workers who qualify for premium and cost-sharing subsidies in the exchange in excess of $2,000, this firm and its employees may decide to incur the fine because the benefit of participating in the exchange is greater

Source: News articles

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… and economic conditions in 2014 will also have an impact on employer decisions about coverage for their employees Key Provisions included in the Act and their Implications on Small Businesses Tax Credits to Assist in the Cost of Health Insurance • Small businesses with fewer than 25 FTE employees may be eligible for tax credits to assist in the cost of health insurance • To qualify, such businesses must have average annual wages below $50,000 and must pay at least half of the cost of their employee’s health insurance. There are two phases to the tax credit: Phase 1 (2010-2013) – Eligible employers receive a tax credit of up to 35% of the employer’s contribution toward insurance premiums, calculated on a sliding scale basis tied to average wages and number of employees – Small businesses with tax-exempt status meeting the requirements above may receive 25% of the employer’s contribution in the form of tax credits Phase 2: (2014 and onward) – Eligible employers that purchase insurance through the SHOP exchange may receive a tax credit of up to 50% of the employer’s contribution toward insurance premiums. These employers may take the tax credit for up to two years – Tax-exempt small businesses meeting the requirements above may receive 35% of their contribution in the form of tax credits. The exact amount each small business receives in tax credits will depend on the number of employees and average wages Grants for Wellness Programs • Small businesses (with fewer than 100 employees who work 25 or more hours per week on average) that did not have a workplace wellness program in effect at as of March 2010 are eligible for grants to start such programs

Conclusion • It has been estimated that only about 18% of low-wage firms with fewer than 10 employees offer health insurance to their workers • • There is mixed reaction, on whether small firms that do not currently offer health insurance will do so when subsidies are offered – Studies and surveys suggest that even when half of the cost of coverage is subsidized, small firms are reluctant to offer health insurance – Small employers also say that the cost would have to be reduced quite

substantially for them to offer health insurance Low-wage small firms will face a dilemma, whether to drop coverage, explicitly choosing between utilizing the new employer subsidy or taking advantage of the subsidies their workers may get in the exchange – The workers in these low-wage firms may see wages increase because of the exchange and the subsidies available there, more so than because of the small employer health insurance tax credit

Source: News articles

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Small-business owners and CEOs are still confused about the Act and its effect on their businesses A survey conducted by The Wall Street Journal and Vistage International, found that small-business owners and CEOs are struggling to understand how one of the key elements of the Obama administration's health-care legislation affects their companies Half of all firms plan to increase the total number on their payrolls in the year ahead. Some 58% of firms in the West anticipate expanding their staffs, compared with 44% in the Northeast Two-thirds of small business CEOs aren’t certain about whether their businesses qualified for the health care tax credit

small businesses are very optimistic about their own sales revenue. Some 67% said they anticipate rising sales and only 8% expect a decrease

Half of all firms plan to increase the total number on their payrolls in the year ahead

About a third of business owners expect overall economic conditions to improve, while 46% expect them to stay the same and 18% expect them to worsen

Note: The Wall Street Journal/Vistage Small Business CEO Survey analyzes the results of an online survey of small business CEOs (annual revenues $1 million- $20 million

The 2012 Towers Watson/National Business Group on ‘Health Employer Survey on Purchasing Value in Health Care’, provides many strategic insights into the actions and plans of leading US employers. Employers have confirm their commitment to providing health care benefits for active employees, but longterm confidence declines sharply

Employers are looking for success by improving vendor transparency and accountability

Insurance Exchange openings will have a strong impact on retiree medical plans

Expansion of employee incentives to improve health continues, with nearly one-third of employers plan to adopt or expand the use of financial incentives to encourage healthy behaviors as a main focus of their organizational health strategy Four out of 10 employers view subsidizing health care benefits for retirees of no importance to their employee value proposition

Source: News articles, Deloitte

Note: Survey included leading US employers (512 participants) with a collective $87 billion in total 2011 health expenditures

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Table of Contents

Overview of Patient Protection and Affordable Care Act

Implications of PPACA on Payers

Implications of PPACA on Businesses

Implications of PPACA on Providers

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The Act is being phased over the years till 2015 to have a complete effect on Providers Timeline for Providers

2010 • Physician-owned hospital Medicare provider agreements must be in effect prior to December 31 • Tax-exempt hospitals must conduct community needs assessment and have certain charity care policies in place

2014

2012 • Accountable Care Organizations (ACO) demonstrations begin • Medicare readmission reductions • Medicare Value-based Purchasing (VBP) program begins • Medicaid bundled payment demonstration projects begin

• Independent Payment Advisory Board (IPAB) submits first recommendation on reducing Medicare spending growth • Medicare DSH payments reduced by 75% and then modified based on uninsured and uncompensated care • Expand Medicaid to 133% FPL • Reduction in states’ Medicaid DSH allotment

2011

2013

2015

• Demonstration grants for medical malpractice reform begin • 10% Medicare bonus for primary care and general surgeons in a health professional shortage area • Innovation Center for CMS established • Prohibits federal Medicaid payments to states for services related to hospital-acquired conditions • Federal funding of Medicaid medical home program • New funding for community health centers, school based clinics, and trauma center program

• Medicare bundled payment demonstration project begins • Medicaid primary care payment must be at least 100% of Medicare payment • Financial relationship disclosure required between providers and drug manufacturers and suppliers

• Reduce Medicare payments for hospital-acquired conditions by 1%

Source: News articles, PWC

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Providers will benefit from more patients with insurance through … Key Provisions of the Act and their Implications on Providers Expansion in Insurance Coverage • An estimated 32 million uninsured Americans will gain coverage under the Act and half of those will be covered under government insurance programs, such as Medicaid and CHIP, according to CBO • The Act expands Medicaid to all US citizens and legal residents less than 65 years of age who earn less than 133% of the federal poverty level (FPL) based on modified adjusted gross income

– The newly covered are guaranteed a benchmark benefit package that provides essential benefits to be defined by the US Secretary of Health and Human Services (HHS) • States must maintain their eligibility levels for children in Medicaid and children’s health insurance programs (CHIP) or lose all federal matching funds for Medicaid

Potential Changes to Provider Reimbursement • The Act includes multiple pilots, demonstrations and programs to change the way care is delivered and reimbursed – Certain pilots and programs allow providers to share in cost savings and efficiencies they achieve with the Medicare and Medicaid programs • Accountable care organizations (ACO) – Providers can organize as an ACO if they are accountable to a patient’s overall care, have adequate primary physician care participation, implement evidenced-based medicine guidelines and report on cost and quality • Medicaid medical home program – Under this program, a designated provider or team of health professionals provide comprehensive care management, referrals, patient and family support and the use of health information technology • Medicare and Medicaid bundled payment pilot project • Medicare Independent Payment Advisory Board and CMS Innovation Center

Conclusion • Providers will need to consider several strategies in this new environment – The newly insured will have more options seeking coverage and may not continue to seek care at traditional safety net hospitals and clinics • Government reimbursement rates will have an increasing influence on a provider’s payer mix so they should align operational costs with these payments

Conclusion • Providers should review all of the new offerings to see which ones may work for their organizations and to be ready to respond if the effort is mandated for all providers – Hospitals that can align interests with physicians will be rewarded under these new programs

Source: News articles, PWC

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… coverage expansions in the insurance exchanges and … Key Provisions of the Act and their Implications on Providers Direct Changes to Provider Reimbursement

Indirect Changes to Provider Reimbursement

• The Act will implement several changes in Medicare and Medicaid reimbursement rates that could lower reimbursement over time including: • Decreases in the inflation update paid to hospitals by Medicare – Rates used by Medicare to fund healthcare providers is reduced each year beginning in 2014 • Reduction in Medicare and Medicaid (DSH) payments to hospitals – Hospitals that care for disproportionately high numbers of uninsured and Medicaid patients currently receive extra funding from Medicare and Medicaid, this funding would be reduced in 2014 • Increases in Medicaid and Medicare rates paid to primary care physicians – The Act requires Medicaid primary care payments for primary care services be 100% of Medicare primary care payments, and the federal government will pay states the difference in rates – In addition, Medicare rates to primary care physicians will be increased through a 10% physician bonus payment from 2011 through 2015

• The Act will implement several changes in in which changes are more selective, dependent on actions, outcomes, and the quality of provider services including: • Medicare hospital readmission payment reductions – Medicare will no longer pay for certain hospital readmissions and will begin to publish hospital readmission rates • Medicare and Medicaid hospital acquired conditions payment reductions – Medicare will reduce payment by 1% for certain hospitals and health systems for select hospital-acquired conditions such as infections • Medicare value-based purchasing program – Medicare value based purchasing program (VBP) will begin to measure hospitals on efficiency, patient satisfaction and the quality of care

Conclusion • Government reimbursement will be reduced as more uninsured get subsidies through the insurance exchanges or enroll in Medicaid programs – These effects may not be equal, and some hospitals may lose more than they gain • In addition, higher payments to primary care physicians could attract more physicians to that field, but access problems are likely, especially in certain geographies

Conclusion • The Government is moving from being a passive payer to a more active purchaser, which means that hospitals will increasingly earn reimbursement based on outcomes, quality and patient satisfaction • Medicare also will be experimenting with episodic and global payments

Source: News articles, PWC

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… expansions of existing government programs Key Provisions of the Act and their Implications on Providers Focus on Fraud and Abuse • The Act enhances existing programs and creates new powers and programs to reduce waste, fraud, and abuse, such as: – Durable medical equipment (DME) – State Medicaid focus – Federal and state database sharing and use of a national provider identifier – Increased penalties and funding

Other issues • The Act includes a number of other important issues: – The Act contains four new specific requirements that hospitals must meet to qualify for tax-exempt status including Community health needs assessment, Financial assistance policy, Limitations on charges and Billing and collections – Medical malpractice - States can apply for five-year demonstration grants to develop alternatives to litigation and increase access to liability insurance – Financial disclosure - Providers and drug manufacturers and suppliers must report on financial relationships with each other – Workforce - Grants are available for training programs for nurses and for primary care physicians, medical homes, and for diversity – Community health - New funding is available for community health centers and school-based clinics

Conclusion • The increased focus on fraud and abuse is further bolstered by new funding allocations for US Department of Health and Human Services (HHS) and its Office of Inspector General, the FBI, Medicare and Medicaid Integrity Programs, and the Department of Justice – These combined with the expansion of RAC audits means, providers will have more compliance and oversight issues to manage

Conclusion • The new requirements to qualify as a section 501(c)(3) organization will make information and reporting more publicly available – Annual reporting will allow more hospital-to-hospital comparisons of community benefit efforts • Conducting community needs assessments will require hospitals to maintain close connections and collaborations with community and public health organizations

Source: News articles, PWC

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