1. STRATEGIC HEALTHCARE ANALYTICS Medi-Cal Transformation: Understanding the risks and opportunities presented by the unprecedented transformation of the Medi-Cal Program HOOPER HEALTHCARE CONSULTING ABSHER HEALTHCARE CONSULTING MANAGED CARE SUPPORT SYSTEMS Presentation to HFMA Southern California August 16, 2012

2. MEDI-CAL MANY MOVING PIECES Medi-Cal Transformation Managed Care in Rural Areas SPD Enrollment in Managed Care FFS to APRDRG Dual Eligible Pilots APRDRG Expansion to Managed Care Children’s Health Pilots AUGUST 1, 20122

3. MEDI-CAL MANY MOVING PIECES  Other Key Items Related to Medi-cal  Current Implementation of Low Income Health Program  Medicaid Expansion in 2014  California Health Benefit Exchange  Establishment of a Basic Health Plan for those between 133-200% of FPL? AUGUST 1, 2012 3

4. MEDI-CAL POPULATION RESPONSIBILITY AUGUST 1, 2012 4 Source: OSHPD Annual Financial Data Reports

5.  DHCS indicates that 22% of acute Inpatient Days would shift to Managed Care as the patients are Classified as an Aid Code of Seniors and Persons with Disabilities. This is from 2009 Data Set  Makes financial planning much more difficult than in years past to determine impact of the transition and financial planning related to Utilization  The range across facilities of a percentage of SPDs varies widely from low of ~5% to high of 80%  Managed Care to be expanded into rural counties, plus recent expansion between 2010-2012 in other counties. Currently Managed Care available in 28 counties AUGUST 1, 2012 5 MEDI-CAL POPULATION RESPONSIBILITY

6. CALIFORNIA MEDI-CAL FFS APRDRG  APRDRG – All Patient Refined DRG  Originally developed by 3M and National Association of Children’s Hospitals and Related Institutions  314 Base DRGs, with 4 levels of severity assigned  29 Base Neonate and Normal Newborn DRGs  12 Base Obstetrics DRGs  Will require separate submission of mother and well baby claims  No interim bills less than 30 days  Discontinuation of daily TAR process  Impact of Medi-Cal Recovery Audit Contractor Program?  Contract Awarded in April 2012  Beginning Scope is limited, but could expand AUGUST 1, 20126

7. CALIFORNIA MEDI-CAL APRDRG  Intended as a “budget neutral” payment method  DSH and Supplemental funding excluded  Elements of California’s APRDRG payment method  DRG with national weights  Wage index adjuster  Outliers  Policy Adjusters  Rural designation – Adjustment – Attempt to hold harmless at 5% corridor for group AUGUST 1, 20127

8. CALIFORNIA MEDI-CAL APRDRG  Program built based on 2009 database built by ACS/Xerox  Required significant integration of multiple data sources to assign the DRG  Will drive the financial exposure limits through transitional pricing corridors  Significant assumptions made including the methodology for eliminating the SPDs from the database and the exclusion of claims without a discharge  State will not update the data prior to implementation AUGUST 1, 20128

9. CALIFORNIA MEDI-CAL APRDRG  Policy Adjusters  1.25 for Neonate, Pediatric Care  1.75 for Neonatal Care provided at a CCS Approved Neonatal Surgery NICUs  DHCS has stated intent to monitor continued appropriateness of policy adjusters related to patient access  Transfers  No post-acute transfer adjustments  Transfers to acute care subject to per diem based payment based on average length of stay AUGUST 1, 2012 9

10. CALIFORNIA MEDI-CAL APRDRG  4-year phased implementation beginning July 1, 2013  Financial exposure mitigation through transitional pricing corridors:  +/- 5% maximum FY13-14  +/- 10% maximum FY14-15  +/- 15% maximum FY15-16  Full DRG payment FY16-17 and beyond AUGUST 1, 201210

11. DHCS DATABASE BUILDING BLOCKS 2009 Paid Claims All Medi-Cal FFS paid claims Excluded denials 2009 OSHPD Discharge File Match to paid claims Provided diagnostic information Assumptions Inferred newborn claims Exclusion of managed care eligible Exclusion of incomplete claims AUGUST 1, 201211

12. CRITICAL ANALYTICAL SHORTCOMINGS  Inadequacy of data used to build the program and potential ramifications – Inaccurate Base Rate Setting  Change in utilization of services since 2009  Limitations on losses or gains as a result of transition  Key payment drivers (i.e., adjusters, outliers, wage index)  Impact of moving large FFS populations to managed care  Pilot enrollment of dual eligible population; prospects for expansion  Rogers rate implications  Adoption by managed care plans AUGUST 1, 201212

13. MEDI-CAL APRDRG DHCS DATASET AUGUST 1, 2012 13  48% of FFS Revenue will come from Obstetrics, nursery and neonatal care  However a significant amount of care will still be delivered through the FFS system for adults and pediatric cases.

14. STATE DATA VS. HOSPITAL DATA  What changes in case mix and services rendered to Fee- For-Service beneficiaries occurred in subsequent years?  State has signaled that they will not create databases for 2010, 2011, or 2012  Has there been any change in the Fee-for-Service population at a given hospital? AUGUST 1, 201214

15. HOSPITAL DATA: 2009 VS. 2010 AUGUST 1, 201215

16. 2009 APRDRG PRICING – NON SPDS Critical to review services by Care Category to measure efficiencies, areas to improve in, and to consider adjusting AUGUST 1, 201216

17. CALIFORNIA MEDI-CAL APRDRG: MANAGED CARE  Rogers Rate: Plans to pay out of network providers at DRG rates  Plans to be paid based on projected expenses related to DRGs  Plausible that plans will shift to DRG based payment  Have seen this play out in other states  Potential Implications? AUGUST 1, 2012 17

18. DUAL ELIGIBLE PILOT PROJECTS  Dual Eligibles  Who are they?  There are 1.1 million dual eligibles in CA  What services are they utilizing?  What will be the impact on Utilization?  DHCS projects a 20% decrease in inpatient utilization by dual eligible beneficiaries enrolled in Medi-Cal HMOs  The state estimates $675 million in general fund savings in year 1 of demonstration AUGUST 1, 201218

19. DUAL ELIGIBLE PILOT PROJECT AUGUST 1, 201219  Implementation begins no earlier than March 2013 and no later than June 2013  CA plans to start with following 8 counties: Los Angeles, Orange, San Diego, San Mateo, San Bernardino, Riverside, Alameda and Santa Clara  CMS has announced that they will likely limit Dual Pilots Nationwide to about 2 Million Enrollees (States have thus far proposed 3 Million Enrollees)  Possibility that some counties may not proceed as anticipated given CMS statements and increasing political pressure  Rate Setting and Contract Negotiations with plans September – October 2012  Beneficiary and Provider Outreach – October 2012-June 2013

20. DUAL ELIGIBLE PILOT PROJECT AUGUST 1, 2012 20

21. DUAL ELIGIBLE PILOT PROJECT AUGUST 1, 2012 21 What can hospitals do to monitor and act strategically?

22. DUAL ELIGIBLE PILOT PROJECT: CALIFORNIA STATISTICS AUGUST 1, 2012 The initial enrollment will include 685,000 beneficiaries Medicare FFS Days 22

23. Health Benefit Exchanges THE PERFECT STORM? AUGUST 1, 2012 23 Medicare DSH Cuts Medi-Cal DSH Cuts Medi-Cal DSH Cuts Medi-Cal Expansion Medi-Cal DRG Dual Eligible Pilots Quality Assurance Fee Medi-Cal Managed Care Changing Payor Mix Impact on Supplemental Funding

24. STRATEGIC HEALTHCARE ANALYTICS  Our Industry is data rich, but we continue to face many challenges using data effectively  With declining reimbursements, and growing demands from payers, effective, actionable analytics become all the more important  Integrating and analyzing data from disparate systems/sources can be the key to creating useful analytics AUGUST 1, 2012 24

25. UTILIZING ANALYTICS Service line specific analysis Workgroup input Appeals process Trade group input Cost containment strategies Data capture and coding Projecting fiscal impact DRG vs. HMO Reimbursement Budgeting Operational Improvements Strategic Planning Advocacy AUGUST 1, 201225

26. WHERE DO YOU GO FROM HERE? AUGUST 1, 201226

27. CONTACT INFORMATION AUGUST 1, 2012 27 Bryan Hooper Hooper Healthcare Consulting, LLC Email:bhooper@hhcllc.us.com Phone: (714) 871-3494 Matt Absher Absher Healthcare Consulting, LLC Email: matt@absherconsulting.com Phone: (530) 231-5305