THE PERSPECTIVE FROM THE FRONT LINES

1. THE PERSPECTIVE FROM THE FRONT LINES The Health of Safety-Net Hospitals: How are They Faring? What’s the Outlook? Briefing by the Alliance for Health Reform & the Commonwealth Fund June 4, 2012 – Washington, DC Arthur A. Gianelli, MA, MBA, MPH President and CEO of the NuHealth System

2. The Train Has Left the Station • Regardless of the Supreme Court’s determination regarding the Affordable Care Act, certain dramatic changes are irreversible….

3. Reform is Here…. • Governments at all levels are resource-starved. • Pressure is on the entire health care delivery system to reduce cost and improve quality. • Payers at all levels are: • Pushing hospitals to “bend the cost curve” through improvement and by driving care to ambulatory settings. • Incentivizing improvement efforts through Accountable Care Organizations, bundled payments, health homes, and other risk-based strategies.

4. ….Regardless of What the Supreme Court Says • In response, hospitals are: • Reducing admissions (“demand destruction”) • Expanding primary care and care management • Developing alignment strategies with physicians • Integrating with other hospitals and insurance plans • Seeking capital from for-profit or private equity firms • Entering into quality-driven risk / shared savings contracts with payers “The odds of a hospital surviving on its own – without being part of [a] healthcare ecosystem – are low, leaving many partnering, forming clinical affiliations, merging, or selling.” --Molly Gamble “The Future of the American Hospital: Role and Relevancy in the Next Decade” Becker’s Hospital Review May 7, 2012

5. What is a Safety Net Provider? Source: Marion Lewin and Stuart Altman, eds. Institute of Medicine, America’s Health Care Safety Net: Intact but Endangered (Washington, DC: National Academy Press, March 2000). • Safety net providers have two distinguishing characteristics: • By legal mandate or explicitly adopted mission, they maintain an “open door”, offering patients access to services regardless of their ability to pay. • A substantial share of their patient mix is uninsured, Medicaid, and other vulnerable patients. • Examples include hospitals and FQHCs

6. Public Hospitals: A Snapshot Source: NAPH, America’s Public Hospitals and Health Systems, 2009: Results of the Annual NAPH Hospital Characteristics Survey.

7. Commercial Insurers Cross-Subsidize Government Payers Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1990 – 2010 Commercial cross-subsidization is directly responsible for hospital margins Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2010, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

8. Proposed Insurance Expansion Carries Risks for Public Hospitals Projected Impact of Affordable Care Act on Coverage Expansion • Most of the increase in coverage will come through expansion of the Medicaid program. • Medicaid under-reimburses hospital costs, which will necessitate sustained supplemental payments, commercial cross-subsidization, or large risk contracts. • In some states (like NY), Medicaid expansion due to ACA will be marginal. • In either case, public hospitals without strong commercial contracts will suffer. 8 Source: The Advisory Board Company

9. Public Hospitals: SWOT Analysis

10. Public Hospitals: SWOT Analysis

11. How Can Policymakers Help? • Focus Medicaid Dollars • Exchange network limits for safety-net provider commitments to take accountability for quality, cost containment, and population management. Partner with safety-net hospitals to manage dual eligibles. • Focus DSH Dollars • Focus DSH dollars on hospitals with highest Medicaid and uninsured; Connect to performance; Reverse ill-advised cost exemptions from DSH calculation (DSH Audit Rule). • Grant Section 1115 Waivers • Many safety-net providers need significant capital investment and operating support to make the transition to the new payment paradigm. Section 1115 waivers are an exceptional vehicle to accomplish system transformation (California “Bridges to Reform” waiver).

12. How Can Policymakers Help? • Organizational Flexibility • Policymakers at state and local levels can update public hospital statutes to permit greater organizational flexibility (exemptions from Civil Service, less costly pension system, ability to convert to NFP or more readily integrate). • Clear Up Anti-Trust Concerns • The ACA encourages collaboration, integration, and consolidation. Federal law and regulations must track this policy objective. State Action Anti-Trust protection, in particular, is a very powerful tool through which states can permit what would otherwise be anti-competitive activities among providers (11th Circuit Case). • Don’t Continuously Change Rules!!

13. Questions / Comments Please feel free to contact me at: Arthur A. Gianelli Address: 2201 Hempstead Turnpike East Meadow, NY 11554 Phone: 516.572.6011 E-Mail:agianell@numc.edu Website:www.nuhealth.net @Artgianelli, @NuHealthSystem