Provider Payment Agreement Act Add-On Rate Adjustment Discussion PPA Workgroup Meeting June 7, 2011

PPA Act Add-On Rate Adjustment Discussion Points Brief Overview of Provider Fee and Add-On Rate Development Current Status of Actual QE 9/30/10 Add-On Payments versus Target Payment Amounts –1 st Quarter Annualized –Is 1 st Quarter Representative? Possible SFY 2012 Solutions –Add-On Rate Cut –Provide New Funding

Brief Overview Projected revenue is based on net patient revenue (in the hospital financial survey). The rate increase (or “add-on”) is based on Medicaid claims submitted by hospitals and was projected using data in the disproportionate share hospital survey. FY 2011 Target and Rate Setting Based on last minute changes to the survey source identified in the legislation, along with a couple of hospital revisions, hospital provider payment revenue for FY11 was estimated to be $215,766,054, which is $13,241,355 less than originally budgeted. The $13M in state funds represents $49M in total Medicaid funds (with federal match included). The 11.88% rate was set such that the loss in revenue was shared between the Department and the hospitals. –$7,611,669 state, or $28M total, was applied to the hospital rate increase. –$5,629,686 state, or $21M total, was applied to the Department. This $7.6M reduction reduced the FY11 total funds hospital rate increase target to $200,431,482.

Brief Overview (cont.) Current Issue – FY12 Rate Setting How much the rate increase is worth depends directly on current year Medicaid and CMO claims for inpatient and outpatient services. Historical claims data was used in the projection with an adjustment factor (member enrollment and utilization growth) to reflect FY11 anticipated claims experience. Actual FY11 claims experience is running higher than projected during FY11 rate setting, as evidenced by the FY11 expense projections presented below. Projection Projected FY11 Expense Eligible for Rate Increase Corresponding FY11 RateEstimated Add-On CMS Submission$1,687,133, %$200M Q1 YTD Annualized (a/o June 3) $1,950,977, %$232M DCH Public Notice$1,910,690, %$200M

Brief Overview (cont.) As a result the rate increase in FY11 is on track to be significantly above the target. –If quarters 2-4 are the same as quarter 1 then the FY11 rate increase is $232,666,379 –This amounts to an overage of $32,234,897. In May a public notice was released proposing to set the rate at 10.49% beginning in July 2011 (start of FY12). –This rate is estimated to be the rate that would have achieved the hospital add-on target of $200M in FY11.

Current Status of 1 st Qtr Add-On Claims Payment Hospital Tax Add On Report Summary FFSCMOFFSCMOFFSCMOFFSCMO Run DateQ1 Q2 Q3 Q4 2011_03_11$28,861,248$20,052,984$19,788,142$7,870,335$7,086,304$5,292, _03_22$29,561,005$20,443,946$21,740,298$8,475,547$10,845,072$6,887, _04_11$29,995,352$26,014,018$22,764,544$22,362,274$14,195,715$12,893, _04_15$30,292,946$26,231,571$23,348,698$22,489,021$16,308,992$14,582,156$40,941$0 2011_04_22$30,448,966$26,281,011$23,609,382$22,740,525$17,694,403$15,922,110$501,231$ _04_29$30,582,642$26,291,960$23,922,700$22,884,893$18,748,048$17,244,024$1,326,557$99, _05_06$30,801,468$26,352,130$24,265,392$23,012,431$19,515,596$17,991,337$2,373,532$328, _05_16$30,934,621$26,545,101$24,551,059$23,388,518$20,179,787$19,564,475$3,698,732$1,905, _05_20$31,034,292$26,740,418$24,837,588$23,620,623$20,761,597$20,148,117$5,011,922$3,244, _05_26$31,186,589$26,934,243$25,260,677$23,797,150$21,488,639$20,543,925$6,411,377$4,279, _06_03$31,282,421$26,950,410$25,599,043$23,934,049$22,004,161$20,762,225$7,828,667$5,022,605 Combined FFS and CMO$58,232,831$49,533,092$42,766,386$12,851,272 Target $ 50,107,871 $ Over (Under) Target $8,124,960 $(574,779) $ (7,341,485) $ (37,256,599) % Over (Under) Target16.21%-1.15%-14.65%-74.35%

Current Status of 1 st Qtr Add-On Claims Payment (cont.) Annualizing the 1 st Quarter would result in an FY 2011 Add-On Overage of $32,234,897 Is 1 st Representative of Quarters 2-4? –Date of Payment / Date of Service for the 1 st Quarter is Generally Reflective of the Add-On Summary Report –Concerns of ACS Overpayment on X-over Claims Would not Likely Have a Substantial Impact on Add-On Payments Because of the “Lesser Than” X-over Pricing Logic (i.e., 11.88% X $0.00 = $0.00)

Possible Solutions Target FY 11 and FY 12 Amount Received by Hospitals Estimated FY12 Rate New State Funding Required Maintain FY11 target in FY12 $401MTBD*$0 FY11 identified target and FY12 break even $426MTBD*$9M Break even both years$441MTBD*$14M Hold harmless in FY12 without FY11 recoupment $458MTBD*$20M Note: DCH and consultant are currently updating the model and projecting FY12 expense

Open Discussion Implications of FFP Loss in Rate Cut vs Hold Harmless Funding DCH FY 2011 Year-End Accounting Issues Other Discussion Items