From Theory to Reality A Manufacturer’s View of Health Reform SEPAC March 2012

Accountable Care Act  Three Aims Expand Coverage Improve Quality Lower Costs  CMS Theme Move from a “Volume” payer to a “Value” payer

Where Are We in 2012?  Expanded Coverage Cover pre-existing conditions, extend dependent coverage to 26  Delivery System and Payment Reforms Value Based Purchasing ACOs Bundled payments Physicians report quality measures, invest in IT  Legal Challenge Supreme court to rule on individual mandate

Massachusetts Experiment 2006 model for Obamacare  Coverage increased from 88% to 96%  But… ER visits did not decrease Premiums soared  Still… Letting states experiment with reforms is a powerful tool

Hospital Margins Under Pressure  Price Pressure Public payer growth, quality-based payment,  Payer Mix Medicare and Medicaid demand implications  Case Mix Aging population is sicker costlier, surgery moving to ambulatory setting

Payment Risk for Hospitals Provision Percent Reduction in DRG Payment by Provision Hospital Update Reduction 0.25% 0.10% 0.30%0.20% 0.75% Value-Based Purchasing 1.00%1.25%1.50%1.75%2.00% Hospital Acquired Conditions 1.00% Hospital Readmissions 1.00%2.00%3.00% Total At Risk 0.25% 0.10%2.10%3.55%5.70%5.95%6.75%

Can’t Repeal Aging

Or the Poor 40 States have filed to cut hospital reimbursement rates in 2012

Medicare and Medicaid Spending to Double

How Much Cost-Shifting Left? Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Discharges by Payer The Advisory Board Company 40% 37% 5% Commercial Medicaid Medicare Self Pay

Medical and Surgical Case Mix 61% 73% 76% 39% 73% 27% 24%

Full Beds, Wrong Patients

Health Reform Task Force  Review implications of reform law for customers and identify opportunities to align Bard products/processes  Conducted primary research with customers  Validate assumptions with outside experts

Findings  No end in sight to cost pressure  ACOs are not for everybody (32 to date)  Payment penalties a secondary worry  Need data to prove value of new products  Suppliers need to share risk  Aligning with physicians, other systems and payers  Growth of exchanges alter relations with insurers

Trends to Watch DC gridlock and regulatory uncertainty −Taxes −FDA user fees Enormous effort to reduce fraud and waste Insurers buying hospitals and physician groups Highmark - West Penn Allegheny Supreme court decision and election year politicking

Thanks Glenn!