1. Deborah Bachrach, JD Bachrach Health Strategies LLC DBachrach@BHSStrategies.com November 11, 2010

2. Medicaid covers more enrollees than Medicare 25 million more expected to enroll by 2014 16 million more expected to enroll after 2014 By 2016, Medicaid will spend more than Medicare Medicaid and education are the largest items in state budgets 26 state Medicaid programs would be on the Fortune 500 list Medicaid is a major payer for obstetrics, pediatrics, behavioral health and long term care 11/11/10Bachrach Health Strategies LLC

3. Section 1902(a)(30)(A) of the Social Security Act requires states to adopt payment methods that: 1. Safeguard against unnecessary utilization of care and services; 2. Assure that payments are consistent with efficiency, economy and quality of care; and 3. Are sufficient to enlist enough providers so that care and services are available to Medicaid beneficiaries at least to the extent that such care and services are available to the general population in the geographic area. 11/11/10Bachrach Health Strategies LLC

4. Transparent to all stakeholders Government knows what its buying Providers can respond to built in incentives Key to accountability Encourage efficiency Facilitate measurement of quality Accommodate patient acuity Key to assuring access for sicker patients Collect accurate clinical data Align with other payers Support payment innovations 11/11/10Bachrach Health Strategies LLC

5. 80% of Medicaid care is still paid FFS FFS payment methods and levels can drive efficiency and access or the lack thereof: Cost-based rates discourage efficiency and encourage higher charges Fee schedules and per diem/per hour rates incentivize volume Both absolute and relative payment levels influence access 11/11/10Bachrach Health Strategies LLC

6. FFS hospital payments exceed $84 billion Largest item in state Medicaid budgets Medicaid (including Medicaid managed care) pays for 1 in 5 hospital inpatients Medicaid pays for almost 50% of all maternity and pediatric care and a large percentage of behavioral health care Hospital clinics are an important source of primary and specialty care in some states/communities But sound payment policies are equally important in LTC and managed care 11/11/10Bachrach Health Strategies LLC

7. Step 1: Analyze current payment methods/amounts Inpatient Rates in 2007 Inpatient payments exceeded costs Used a 1981 cost base; inflated annually Multiple rate add-ons Limited differences for patient acuity Complicated and opaque Outpatient Rates in 2007 Rates frozen for over a decade; well-below costs Paid same amount for every visit Physician fees – lowest in nation 11/11/10Bachrach Health Strategies LLC

8. Step 2: Analyze impact of current rate structure New York led the nation in inpatient spending, but lagged on outpatient spending Medicaid paying for more care in inpatient settings; other payers using less-costly outpatient settings New York performed poorly on national quality scorecards Ranked 50 th on avoidable hospitalizations according to the Commonwealth Fund Ranked average or weak on the vast majority of AHRQ quality factors 11/11/10Bachrach Health Strategies LLC

9. Step 3: Rationalize inpatient and outpatient payment methods and levels Inpatient Rate Reform (2008/09) Established multi-stakeholder advisory committee Reduced rates by $600 million; established transition pool Adopted new payment method (APR-DRGs) Outpatient Rate Reform (2008/09) Invested $600 million Adopted intensity based payment system (APGs) Incents efficiency Reflects patient burden of disease 11/11/10Bachrach Health Strategies LLC

10. Expand covered outpatient services Smoking cessation Asthma and diabetes education Implement statewide medical home initiative Initiate multi payer demonstration in upstate NY Implement potentially preventable readmissions policy Reform DSH (indigent care) payment formula Positioned for federal reform Alternatives to across-the-board rate cuts 11/11/10Bachrach Health Strategies LLC

11. Support proposals with data and facts Use national comparisons where appropriate Engage all stakeholders early and often Seek consensus on principles of rate reform Consumer support can make the difference Consider transition support for disadvantaged providers Provide sufficient lead time between adoption and implementation Systems changes CMS approval 11/11/10Bachrach Health Strategies LLC

12. Payment reform offers alternative to across-the- board rate cuts CMMI will support demonstrations that enhance quality, contain costs & improve population health Multi-payer demonstrations preferred ACA authorizes specific Medicaid pilots Health homes for Medicaid enrollees w/ chronic condition Bundled payments around a hospitalization Global payments to safety net hospitals Pediatric ACOs To play, Medicaid must embrace sound payment practices 11/11/10Bachrach Health Strategies LLC