1. HCAP, HOSPITAL FRANCHISE FEE AND MEDICAID REIMBURSEMENT CHANGES: BRIEF UPDATES OHA Annual Medicare & Medicaid Update October 16, 2013

2. PRESENTATION OUTLINE HOSPITAL CARE ASSURANCE PROGRAM (HCAP) 2013 HCAP Update and Timeline Anticipated Changes in 2014-15 DSH Audit Impact OHA Reform Discussions HOSPITAL FRANCHISE FEE 2014-15 Policy Update Projected Outcomes Analysis Timeline SFY 2014-15 BIENNIAL STATE BUDGET Overview Hospital-Related Medicaid Provisions Other Medicaid Initiatives QUESTIONS/ANSWERS HCAP, HOSPITAL FRANCHISE FEE AND MEDICAID REIMBURSEMENT CHANGES

3. HCAP 2013- CHANGES & OBSERVATIONS Additional $21.5M in total funding in 2013 vs. 2012 –$10.5M federal, $11M assessments ($577.9M total funding) Data source updated to use SFY 2012 Medicaid C.R. –CY 2011 data for most hospitals ($1.67B total OBRA cap) Since June release of preliminary model: –CMS announced revised allocations: up $0.8M in ‘12; $0.4M in ’13 –Single CAH corrected overstated Medicaid volumes Prevents overpayment Changes SW High DSH Threshold to 25.04% –Revised model available online at: http://www.ohanet.org/wp- content/uploads/2013/08/2013HCAPModelRevisedAugust82313.xl sxhttp://www.ohanet.org/wp- content/uploads/2013/08/2013HCAPModelRevisedAugust82313.xl sx 3

4. 2013 HCAP PROCESS TIMELINE ODM Proposes HCAP Rule Public Hearing on HCAP Rule Assessment #1 (inc. 2012) Payment #1 (inc. 2012 catch-up) Assessment #2 Payment #2 Oct 15 Nov 18 By Jan 10 By Jan 24 By Feb 5 By Feb 15 4

5. WHAT DRIVES THE DISTRIBUTION OF EACH DOLLAR IN HCAP 2013? 5 HCAP Free Care CostsMedicaid Costs High DSH Peer Group Uninsured UC Costs Medicaid Losses 61.1 17.9 7.9 5.2 2.5 5.4

6. DSH AUDIT – EXAMPLE OF POTENTIAL IMPACT 6 IN 2011… Hospital A receives $10M HCAP payment based on its CY 2009 Medicaid C.R., which indicated OBRA cap costs of $25M IN 2014… Myers & Stauffer review CY 2010 and 2011 hospital log submissions, which only document $9M in OBRA cap costs. Hospital A must now cut a $1M check to ODM, which distributes the funds to other eligible hospitals with OBRA cap “room”

7. FORECAST: DSH CUTS IMPACTING HCAP 2013-2021 7 Federal Fiscal Year Proj. Annual DSH Cut Proj. Cumulative DSH Cut 2013$0- 2014($23,409,393) 2015($26,593,670)($50,003,063) 2016($23,484,407)($73,487,470) 2017($75,148,136)($148,635,606) 2018($197,637,663)($346,273,269) 2019($229,316,278)($575,589,547) 2020($151,067,472)($726,657,019) 2021($150,420,040)($877,077,059)

8. HCAP – PROJECTED FEDERAL FUNDING 2011-2019 8

9. MEDICAID EXPANSION IMPACT – HCAP IMPLICATIONS Free care rule relevance Transfer of uncompensated costs to Medicaid managed care enrollee hospital costs Increase in payment from uninsured to Medicaid MCP levels What would expansion do to hospital DSH limits? What implications would it have on the current HCAP distribution policy? Redistribution concerns if distribution is not reformed thanks to DSH Audits 9

10. OHA HCAP REFORM DISCUSSIONS – AN UPDATE 10 Discussions since June with OHA Finance Ctte., Task Force on Health Transformation, Board of Trustees 2 Tracks: –DSH Cut Sustainability –Sustainability of Model w/Potential Medicaid Expansion Finance Committee: No Changes based on DSH Cuts If Medicaid Expands, recommendations from Finance/TF/Board in Q1 of 2014 Goals: –Fairness & Equity –Avoid need for redistributions

11. FFY 2014-15 HOSPITAL FRANCHISE FEE/SFY 2014-15 UPL UPDATE 11 Fee/UPL Payments/MCP Incentive Payments/Base Rate Support Reauthorized by state budget legislation (Am. Sub. H.B. 59) New Inpatient & Outpatient Hospital Upper Payment Limit State Plan Amendments (SPAs) required to: –Update effective dates –Update base data used to calculate UPLs (CY 2009 -> 2011) OHA Board recommended no changes to distribution model CMS review process underway, but government shutdown impact still to be determined

12. FFY 2014-15 HOSPITAL FRANCHISE FEE/SFY 2014-15 UPL UPDATE 12

13. FY 14-15 BIENNIUM MODEL UPDATE Estimated UPLs using new Medicaid and Medicare cost report data (CY 2011) Included the cost of fee-for-service budget cuts to reimbursement –Readmissions, outpatient fee schedule, DRG exempt –Estimated $55.9 M annual fee-for-service cuts –Additional $64.4 M annual managed care cuts not included in UPL –Ohio Department of Medicaid (ODM) provided breakdown of cut impact between FFS and managed care Further adjustments: –APR-DRG implementation –Medicare payment increases –Medicaid utilization estimates Estimated net outcome using draft ODM 2014 fee base 13

14. FY 14-15 UPL SPENDING ROOM – PENDING CMS APPROVAL 14

15. MEDICAID MANAGED CARE INPATIENT INCENTIVE PROGRAM 15 Five Medicaid MCPs agree to continue program as long as authorized by budget legislation Continues at $162M per year for contracted inpatient care delivered to managed care beneficiaries New hospital-plan contract amendment process required Contract Reporting Date Anticipated Payment Date 11/15/1312/7/13 1/15/142/7/14 3/14/144/7/14 5/15/146/7/14 11/14/1412/7/14 1/15/152/7/15 3/16/154/7/15 5/15/156/7/15 6/15/157/7/15

16. 16 OHIO HOSPITAL FRANCHISE FEE VS. OFFSETS SFY 2010-2015 PROJ. SFY 2014-15 projections are DRAFT based on final SFY 2012 Medicaid cost report data. Amounts are subject to change pending further refinement.

17. NET OUTCOME CHARACTERISTICS UPL payments must be based on Medicaid FFS utilization –Losing hospitals average 0.9 Medicaid FFS discharges per bed annually Statewide average: 2.0 Top 10% of net gain hospitals: 4.1 61% of previous net negatively impacted hospitals have losses reduced in new model –Of 39% that lose more, majority saw significant decreases (33% - 71%) in inpatient Medicaid volumes Several CAHs among small net negatively impacted facilities –Lack of inpatient Medicaid volumes –Rural/CAH payments mixed and based on inpatient FFS Medicaid Majority of top 10% of net losers either State psych hospital or belong to a system Options presented by HMA largely ineffective in reducing losses among independent hospitals 17

18. HOSPITAL-SPECIFIC ESTIMATES 18 OHA awaiting potential Controlling Board action on Medicaid expansion –If expansion approved, OHA to request opportunity to revise SPAs based on increased Medicaid utilization Cuts associated with expansion could resurface and impact UPLs Potential 100% federally funded supplemental payments based on expansion…wait and see –If expansion not approved, OHA will immediately begin process of sending out hospital-specific sheets to member hospitals Assessment rate will be set at proposed rate of 2.579425% of hospital Modified, Adjusted Total Facility Costs (HCAP tax base less Medicare expenses) Collection schedule: 25% due on March 3, March 31 & 50% on May 5

19. Overall - $121.1B in total biennial spending, up $14.8B from ‘12-13 Tax/Revenue Changes - Phased-in 10% cut in personal income tax rates, 50% cut for small businesses - 0.25% increase in state sales tax rate Education Changes - K-12: Increased funding over ‘12- 13 by over $800M - Higher Ed: Formula based on graduation vs. enrollment; increased by $238M SFY 2014-15 OHIO STATE BUDGET – IN BRIEF Understanding H.B. 59 from a general perspective 19 Local Government Changes - Continues cuts to local governments, rolls back state support of local property taxes Health Care Changes - No Medicaid expansion - Simplifies Medicaid eligibility standards - Authorizes ACA-mandated PCP rates - Unifies Medicaid budget and creates ODM - Increases quality accountability for MCPs and NFs

20. STATE SPENDING 1975-2015 (STATE FUNDING ONLY) 20

21. OHIO HOSPITALS AT-A-GLANCE RECENT INCREASES IN MEDICAID VOLUMES 21

22. PROPOSED HOSPITAL BUDGET PROVISIONS 22 Expand Medicaid to 138% FPL $1.08B Reduce Hospital Readmissions $103M Eliminate 5% Base Rate Support $260M Reduce Payment to DRG-Exempt $12M Continue OHA- Designed HFF Programs $657M Cut OP Reimbursement $67M Cut Capital rates to 85% of Medicaid Cost $58M

23. ENACTED HOSPITAL BUDGET PROVISIONS 23 Reduce Hospital Readmissions $103M Reduce Payment to DRG-Exempt $12M Continue OHA- Designed HFF Programs $657M Cut OP Reimbursement $67M

24. 24 OHA PEER GROUP ANALYSIS: CURRENT VS. NEW APR PAY/COST

25. EPISODIC PAYMENT DEVELOPMENT State Innovations Model (SIM) Planning Grant –Testing Grant Application in process –Built on McKinsey & Co. work in Arkansas, Tennessee Goal: 80-90% of Ohio pop. in some value-based payment model within 5 years (PCMH & Episodes) Initial Episode selection: Asthma, COPD, Perinatal, PCI, Hip/Knee Replacements –Define Principal Accountable Provider (PAP) or “quarterback” PAP at-risk based on adjusted cost per episode performance upon retrospective review –Gain Sharing –Risk Sharing 25

26. QUESTIONS?