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American Accounting Association 2011 Government and Nonprofit Section Health Care Reform: Implications for One Academic Medical Center John Faulstich CFO.

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Presentation on theme: "American Accounting Association 2011 Government and Nonprofit Section Health Care Reform: Implications for One Academic Medical Center John Faulstich CFO."— Presentation transcript:

1 American Accounting Association 2011 Government and Nonprofit Section Health Care Reform: Implications for One Academic Medical Center John Faulstich CFO UAB Health System March 18, 2011

2 Page 2 Agenda I. Background on UA System and UAB II. Reform Drivers III. Health Care Reform – key issues IV. Most likely changes to bills V. Rating agency predictions for industry VI. Implications for industry a.IT b.Opportunity c.Becoming the Preferred AMC of the 21 st Century VII. Accounting issues and challenges

3 Page 3 University of Alabama Fact Sheet

4 Page 4 UAB Academic Medical Center Facts I.School of Medicine: a.Entering class in 2010 = 176 medical students; total enrollment = 749 b.Full time faculty – approximately 1200 c.Resident(s) = 814 d.Graduate trainees = 350 e.Postdoctorial scholars and fellows = 380 II.Research: a.Total research $ = more than $400M annually b.Ranks in the top 25 nationally in National Institutes for Health funding

5 Page 5 UAB Academic Medical Center Facts III.Facilities: a.1128 Bed University Hospital b.Callahan Eye Foundation Hospital, 106 licensed bed specialty eye hospital c.The Kirklin Clinic, 430,000 square feet; I.M. Pei designed building housing 700 physicians in 35 specialties d.Affiliated Health Care Authorities: i.Baptist Health, 3 hospitals in Montgomery/Prattville totaling 689 beds ii.Medical West, 300 bed hospital in Bessemer

6 Page 6 North Pavilion

7 Page 7 Women and Infants Center

8 Page 8 Reform Drivers Exponential growth in healthcare expenditures Substantial opportunities to improve quality of care and patient outcomes No correlation between spending and quality Economic downturn

9 Page 9 National Health Expenditures

10 Page 10 Challenges: Healthcare Reform – What We Know GOAL Insurance coverage for 50 million Americans currently without insurance SOLUTION Health Care Exchange Mandate individual coverage Employer coverage mandate HOW TO FUND Medicare payment adjustments – market basket reductions, readmission and bundling payments, pay for performance Assessments on pharmaceuticals, medical device manufactures and health insurers Reduction in Disproportionate Share Payments Tax employer benefits What is not addressed: Physician shortage Cost-containment & Utilization

11 Page 11 Key Reforms and Implementation Dates FFY:20102011201220132014 & After High Risk Pools Dependents Covered to 26 yrs Small Business Tax Credits Ends Rescissions & Coverage Limits MBU Productivity Reductions Begin NFP Requirements Begin Community Health Center Funding Report HC Benefit Value on W-2 No Fed Matching for Caid HACs Penalties for High Readmission Rates ACO Pilot Co-Ops Established Administrative Simplification Bundled Payment Pilot Increased Caid Pmt for PCP Medicaid Expansion Exchanges and Affordability Credits Guaranteed Issue Individual and Business Mandates Medicare & Medicaid DSH Cuts Independent Pmt Advisory Board Reduced Pmt for High Levels of HAC Boxes with diagonal bars indicate reforms that will impact hospitals as insurance providers.

12 Page 12 Deep DSH Cuts Medicare and Medicaid DSH Reimbursement Will Be Reduced By $36.1B Over the Next 10 Years Note: For 2012 and 2013, changes in DSH payments are projected at 0.5 billion to - 0.5 billion. Source: Congressional Budget Office and the staff of the Joint Committee on Taxation. Table 2. Estimate of changes in direct spending and revenue effects of the reconciliation proposal combined with H.R. 3590 (as enacted).

13 Page 13 Key State Implementation Responsibilities Setting up insurance exchanges Enforcing insurance reforms Overseeing Medicaid expansion Outreach and enrollment of new populations Integration of Medicaid with exchanges Application of new income eligibility standards

14 Page 14 New Requirements for Tax-Exempt Hospitals Conduct a community health needs survey and develop a plan to address needs Adopt, implement, and widely publicize a financial assistance policy Bill patients who qualify for assistance no more than the amount billed to insured patients Use extraordinary collection methods only after reasonable attempts to determine eligibility for financial assistance and collect Penalty for noncompliance: $50,000 per year Deadline: Community needs assessment must be completed in the providers tax year that starts after 3/23/12; other provisions take effect in the providers first tax year that starts after 3/23/10

15 Page 15 Value-Based Purchasing A Value-Based Purchasing Program Reduces MS-DRG Payments Overall, But Provides Bonuses for High-Quality Providers MS-DRG Payment Reduction Under Value-Based Purchasing Plan Withholds would continue at 2% of all MS-DRG payments after 2017

16 Page 16 Reducing Readmissions Almost twenty percent of Medicare patients are readmitted within 30 days… Average Medicare 30-Day Readmission Rate …resulting in $15B in cost to the program… 2005 Medicare Payments Related to Readmits Potentially Avoidable Readmits: $12B Unavoidable Readmits: $3B …leading Congress to reduce payments for preventable readmissions beginning in FY 2013. Key Attributes of Readmit Policy Will begin with three conditions and be expanded in 2015 at the discretion of the HHS secretary Payments reduced on all MS-DRG payments for facilities with higher-than-average readmissions Targeted hospitals will receive bonus payments to improve transitional care services Minimum Payment Withhold For All MS-DRGs Over the Threshold

17 Page 17 Implementation Issues Bill references that the Secretary shall… more than 1,000 times CMS reportedly asked for about $1.8 billion for implementation, received $1.0 billion Many key positions not filled – new ones being established Timetable is very aggressive

18 Page 18 Most Likely Pruning Reporting Business Payment on 1099 Form Individual Mandate Limited Enrollment Public Option Stiffer Employer Mandate Independent Payment Advisory Board

19 Page 19 Health Care Flexible Spending Accounts Repeal Over The Counter restriction If cant raise $2500 limit then let $ roll over CLASS Act (for care at home) Worry is it will become entitlement Reduce Taxes on Insurers Restructure formula so that insurers with lower premiums would not be penalized as much as others. Most Likely Pruning

20 Page 20 Moodys Assessment: Challenges Outweigh Benefits Market basket payment reductions Disproportionate-share hospital payment cuts (partly offset by decline in charity care and bad debts) Higher internal auditing costs related to increased federal oversight and reporting requirements More difficult negotiations with payers Increase costs for medical devices and pharmaceuticals... and many other provisions expected to have mixed effects Source: Moodys Investors Service, Long-Term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals, April 2010. The ultimate credit effect of the recently passed federal healthcare reform for the not-for-profit hospital sector will be negative …

21 Page 21 Healthcare Reform Implications for Planning Community and Patient Engagement Outreach and education Health status and improvement initiatives Patient Access Coverage vs. Access - capacity strain Alternative outlets of care / Alternative care models PCP supply and demand Care Delivery Innovations Coordination of care Patient Centered Medical Home Accountable Care Organizations

22 Page 22 Healthcare Reform Implications for Planning New Payment Models Readmission penalty / Bundled payments Value Based Purchasing Acquired conditions Reduction to DSH Reduction to market basket updates ~ 3.0% Compression of commercial rates Quality Reporting Public disclosure of quality performance– Hospital Compare VBP and PQRI reporting Enhanced Information Technology

23 Page 23 UAB Response: IT Preparations for Health Care Reform Electronic Health Records – Cerner for Hospital and Clinics Meaningful Use Health Information Exchange – active in support state effort Data Support for Quality, Research and Finance Cerner – Power Insight Informatics Division

24 Page 24 From Chaos and Change Comes Opportunity Increased Demand & Patient Volume 135,000 newly insured in MSA Geographically dispersed, aging, with complex disease New Clinical Care Paradigms ACOs Medical Homes Populations not episodes Virtual networks and telemedicine New Reimbursement Models Readmissions Bundled Payments VBP Integration of physicians and hospitals Alignment & Integration Coordinated Patient Care Target Markets & Access Effectiveness and Efficiency

25 Page 25 Gain consensus on the Vision for the Preferred AMC of 21 st Century and for Key Themes, Teams, and Timelines for Sustaining and Disruptive innovations Developing the UAB Health System as the Preferred AMC of the 21 st Century 4 Sustaining Innovation Teams represent key strategic themes Develop strategic recommendations around Healthcare Reform and market analysis Build on core service line strategy Month 1Month 3Month 5Month Disruptive Innovation Develop structure for Disruptive Innovation Center and processes needed Recommend disruptive innovations in identified strategic areas of focus Month Service line updates Market assessment and setting strategic directions Health care Reform panel discussion Setting the framework for AMC of 21 st century Disruptive Innovation Next Steps Task Force For Preferred AMC Vision and Focus Areas of Innovation Healthcare Planning Oversight Group : Oversees, coordinates and provides feedback to teams and task force Idea Generation 2 3 7 1 Organizational Readiness – Design Teams Finance & Capital Plan Approval and Implementation 6 Team 1 Team 2 Team 3 Team 1 Team 2 Clinical Chairs Key Stakeholder Group Advisory Group Patient Stakeholders Organizational Readiness - Diagnose UABHS Board Innovation Teams 5

26 Page 26 Future What Can We Do? 1. Reduce overhead 2. Increase efficiency and effectiveness 3. Better economic alignment of hospital and physician practices 4. Increase innovation: Scope and speed 5. Questions and Discussion

27 Page 27 Accounting Issues and Challenges under Health Care Reform and Increased Regulatory Oversight I. Accounting for Electronic Health Record Incentive Payments under the American Recovery and Reimbursement Act (ARRA) of 2009 to eligible hospitals and eligible providers. II.Increase number and type of regulatory audits: a.Medicare: Recovery Audit Contractors (RACs) b.Medicaid: Medicaid Integrity Contractor (MIC) reviews c.Medicare Advantage: Medicare Part (?) C Risk Adjustment Validation Audit (RADV) d.Ongoing Other Medicare, Medicaid, and other governmental audits e.Blue Cross and other insurers audit f.Establishing appropriate reserves for audits

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