1. Sustaining Safety Net Hospitals Supporting Access, Quality & Efficiency Alliance for Health Reform Washington, DC June 4, 2012

2. 2 Characteristics of Safety Net Hospitals Disproportionately larger numbers of: Medicaid patients Uninsured patients Underinsured patients Disproportionately fewer: Privately insured patients Minimal reserves and low operating margins However, no bright line cut off for safety net hospital (SNH) status

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4. 4 Data reflects all hospitals with 1000 or more total discharges in 2009. SOURCES: AHRQ HCUP SID, THCIC PUDF

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6. 6 Core SNHs: Key Revenue Streams Medicaid Single largest payer and getting larger By 2019, expected to cover 25% of all Americans Low rates and getting lower Incentives often irrational Medicaid DSH Payments Covers uncompensated care burden Not well targeted to safety net hospitals ACA reduces significantly starting in 2014

7. 7 Medicaid Payment Policies Considerations for SNHs Overarching Goals Sustain SNHs Support delivery system reform at SNHs Ensure access to high-quality, coordinated & efficient care The Landscape Today Federal and State budget deficits are putting downward pressure on Medicaid rates Across-the-board increases to Medicaid payment rates generally not feasible –Methodological changes may be –Increases to primary care rates are, at least in 2013 and 2014

8. 8 Strategic Investment in Medicaid Rates Target hospitals with higher Medicaid and lower commercial volume Link to performance Ensure transparency and accountability Avoid lump sum payments Incentivize care delivery in the right settings Target needed services with limited access Cross-walk strategies to managed care models

9. 9 Medicaid DSH Payments Intended to support hospitals serving a disproportionate share of low-income patients, but states have flexibility Subject to state-wide and hospital-specific DSH caps Hospital DSH cap based on uncompensated care costs of Medicaid and uninsured patients Federal matching dollars approximately $11.5 Billion today ACA reduces federal DSH monies starting in 2014; 50% cut by 2019, with largest DSH reductions to states With lowest uninsured rates With lowest levels of uncompensated care That do not target high Medicaid/uninsured hospitals

10. 10 Targeting Medicaid DSH Payments First Priority: uncompensated care costs of uninsured patients Over 20 M people will remain uninsured post- ACA Allocate DSH funds along sliding scale Allocate DSH funds based on actual services to actual patients, valued at percentage of Medicaid rate Second Priority: uncompensated care costs of underinsured Unclear if sufficient DSH funds available Who should be considered underinsured post-ACA? Third Priority: difference between Medicaid costs & revenue Should this be a factor at all?

11. 11 For More Information Contact: Deborah Bachrach Special Counsel Manatt Health Solutions DBachrach@Manatt.com 212-790-4594

12. Background & Data Sources The information in this presentation is based on a paper funded by the Commonwealth Fund and prepared for the Commonwealth Fund Commission on a High Performance Health System, Toward a High Performance Health Care System for Vulnerable Populations: Funding for Safety Net Hospitals, March 2012. Hospital Data reflects all hospitals with 1,000 or more total discharges in 2009 in eight selected states (N = 1,234). Data for seven states (Arizona, California, Florida, Iowa, New York, West Virginia and Wisconsin) reflects full-year 2009. Data for Texas reflects 2009Q4 adjusted to full-year estimate. Data Sources: –2009 AHRQ HCUP State Inpatient Database (AZ,CA,FL,IA,NY,WI,WV) –2009Q4 Texas Health Care Information Collection (THCIC), Inpatient Public Use Data File 12