1. Sonnenschein Sonnenschein Nath & Rosenthal LLP AHA CONFERENCE CALL SERIES Medicare Advantage Session 1: Background and Fundamentals

2. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 2 Medicare Modernization Act of 2003 – An Overview The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) provides, among other things: –a new drug benefit, Part D; –a new emphasis on managed care and other choices in Medicare Part C; –more preventive benefits, and –a new focus on care for the chronically ill and “dual eligibles.” The MMA moves Medicare from a “defined benefit” towards a “defined contribution” market oriented program. For beneficiaries: MA means choice/confusion in accessing Medicare, improved benefits/reduced cost (at least initially), ease in accessing Part D drug coverage. For providers: MA means new market pressures, additional “oversight/management,” payer mix shift, potential opportunities. For MA organizations: MA means additional revenues, new markets, new niche health plans.

3. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 3 Rise and Fall and Rise of MA Plans Note: All data are from December of the given year, except 2005 data are from July. Number of plans include Medicare HMOs, PPOs (non-demonstration), and PSO contracts; excludes PFFS, demonstrations, and cost contracts. SOURCE: CMS, Medicare Managed Care Contract (MMCC) Plans Monthly Summary Report. Number of Plans:

4. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 4 Medicare Advantage Enrollment HHS 30% CBO 16% ActualProjected Note: All actual data are from December of the given year, except 2005 data are from July. SOURCE: Actual: CMS, Medicare Managed Care Contract (MMCC) Plans Monthly Summary Report. Projections: President’s FY 2006 Budget, Office of Management and Budget, February 7, 2005; CBO from CBO Medicare Baseline, March 2005. 16% 5% 12%

5. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 5 MA Coordinated Care Plans All Coordinated Care plans must: –Have a defined network of clinicians and providers able to provide covered benefits to all enrollees; –Coordinate care - more for same (HMOs, PSOs) and less for others (PPOs); –Meet network access standards, including providing services 24/7, when necessary; and –Deliver services in a culturally competent manner accessible to individuals with limited English proficiency. Health Maintenance Organizations (HMOs) –Beneficiaries must obtain services from network, with limited exception. –Usually little or no out-of-pocket costs for beneficiaries. –May offer Point of Service option, which permits beneficiaries to go out-of-network for designated services, typically with higher out-of- pocket costs to beneficiary.

6. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 6 MA Coordinated Care Plans Provider Sponsored Organizations (PSOs) – Approximately 6 in operation. –Organized/operated by provider with majority financial interest. –Substantial portion of care delivered through provider. –Provider bears substantial financial risk. Preferred Provider Organizations (PPOs), local or regional. –Beneficiaries obtain services from: a network of health care providers, or non-network providers, typically with greater beneficiary cost- sharing. –Local PPOs serve an area that is not a region. –No new local PPOs allowed in 2006 and 2007. –Regional PPOs must be available to all beneficiaries in a region.

7. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 7 MA and Part D Regions Source: CMS

8. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 8 MA Coordinated Care Plans MA Plans for Special Needs Individuals (MA-SNPs) –Can limit their enrollment to particular groups of Medicare beneficiaries who: are also eligible for Medicaid (dual eligibles); or are (or are expected to be) institutionalized for at least 90 days, or have severe or disabling chronic conditions. –Eligibility and networks may be tailored to special needs of enrollees.

9. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 9 Other Types of MA Plans Private Fee-For-Service (PFFS) plans –Historically mostly rural, but coming to urban areas. –Beneficiaries may go to any willing provider. Participation is open to all qualified providers willing to accept the plan’s payment terms and conditions. –Medicare pays the PFFS plan a MA premium to cover Medicare benefits. –Payment issues are complex for providers. Tune in to Session 2 on payment issues. Medical Savings Account plans – None currently.

10. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 10 Beneficiary Eligibility Must be entitled to Medicare Part A and enrolled under Medicare Part B to be eligible for MA. ESRD beneficiaries are excluded unless ESRD develops while individual enrolled in MA plan. Eligibility for MA-SNPs is limited to beneficiaries who are: –Eligible for both Medicare and Medicaid; or –Are, or expect to be, institutionalized for at least 90 days in a SNF or NF; or May reside in the community if receiving the same level of care available in a SNF or NF. –Severely or chronically ill or disabled.

11. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 11 How Beneficiaries Enroll For 2006, beneficiaries may choose between MA plans and original Medicare during an annual election period (AEP) between November 15, 2005 and May 15, 2006. (In the future the AEP will be between November 15 and December 31. Once a beneficiary has made their choice they are generally “locked-in” (and can’t change plans) until the next AEP. –Enrollment remains open for new beneficiaries, those who move to new areas, those who become MA-SNP eligible. Enrollment is effective on the first day of the calendar year or the first day of the month following the election.

12. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 12 Beneficiary Education CMS conducts a “coordinated beneficiary education campaign” to coincide with the AEP to inform beneficiaries of their choices. This includes: –distribution of “Medicare & You” handbook; –local health fairs; and –advertisements. Typically, MA plans promote heavily during this period.

13. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 13 MA Benefits MA plans must cover all Part A and Part B benefits, except hospice, and supplemental benefits, if any. MA plans must provide any supplemental benefits included in their bid submission, such as vision, dental, chiropractic, etc. Point of Service (“POS”) benefits -- Most types of MA plans can offer a POS option. –allows enrollee to go “out of network” in choosing a provider, typically with greater enrollee cost sharing. MA organizations with coordinated care plans must have at least one plan that offers Part D drug benefits in the service area.

14. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 14 MA Benefits and Coverage Decisions Supplemental Benefits Mandatory Supplemental Benefits – benefits available to all enrollees as part of the plan. Optional Supplemental Benefits – additional benefits enrollees have discretion in purchasing. Coverage Decisions -- MA plans must comply with national and local coverage determinations (LCD). Regional PPOs whose region includes more than one local coverage policy area may select one source of LCDs to apply uniformly across the region. –If selecting this option, the MA organization must make information on selected local coverage policies readily available to enrollees and providers, including through the internet.

15. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 15 MA Marketing MA organizations may not: –offer cash inducements for enrollment; –engage in discriminatory activity (i.e., redlining); –conduct door-to-door solicitations; –use providers to distribute printed information comparing the benefits of different health plans unless the materials have the concurrence of all MA organizations involved and CMS’ approval; or –accept applications in provider offices. MA marketing materials must be approved by CMS.

16. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 16 Grievances and Appeals MA enrollees have significant grievance (having to do with organizational performance), and appeal (having to do with denial or delay of care) rights. Enrollees must be given a written explanation of their rights and the grievance and appeal procedures. In some instances, providers may pursue grievances or appeals on behalf of beneficiaries. Review of complaints must be timely; expedited timeframes apply where beneficiary health requires. Upon request, the MA organization reconsiders decisions which are not fully favorable to the beneficiary. Beneficiaries may seek additional review through independent review entities, administrative law judges and judicial review, subject to certain restrictions.

17. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 17 The NODMAR Notice of Discharge and Medicare Appeal Rights (NODMAR) When an MA plan has authorized in-patient hospital coverage, the MA plan (or a hospital with delegated responsibility) must issue a NODMAR to the enrollee when: –The enrollee expresses dissatisfaction with the impending discharge, or –The patient is not being discharged but the MA plan won’t continue coverage. An enrollee wishing to appeal the MA plan’s discharge decision must request immediate review from a Quality Improvement Organization (QIO). During review, the MA organization is financially responsible for the in-patient care.

18. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 18 Preemption of State Law The MMA provides that federal laws and regulations regarding MA plans preempt state laws and regulations. The only exception is with regard to state insurance licensure and fiscal solvency requirements. States may not impose a tax on any MA premium.

19. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 19 AHA’s Medicare Advantage Teleconference Series Session 1: Background and Fundamentals –Tuesday, September 20, 4 pm EST –Thursday, September 22, 4 pm EST Session 2: Payment Issues for Providers –Wednesday, September 28, 4 pm EST –Monday, October 3, 4 pm EST Session 3: Regulatory Issues for Providers –Tuesday, October 11, 4 pm EST –Friday, October 14, 3 pm EST Special Session: Issues Unique to Small or Rural Providers –Friday, October 21, 3 pm EST –Monday, October 24, 2 pm EST

20. Sonnenschein Sonnenschein Nath & Rosenthal LLP © American Hospital Association 20 Contact info: Ellen Pryga, Director, Policy –American Hospital Association –202.626.2267 –epryga@aha.orgepryga@aha.org Bruce Merlin Fried, Esq. –Sonnenschein –202-408-9159 –bfried@sonnenschein.combfried@sonnenschein.com Janice Ziegler, Esq. –Sonnenschein –202-408-9158 –jziegler@sonnenschein.comjziegler@sonnenschein.com