What Physicians Should Know About Healthcare Reform for Their Practices

1. The seminar and/or webinar and materials that you will view were prepared for general information purposes only by the American Health Lawyers Association and are not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in the presentation, the webinar, or the materials presented be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in these materials or videos are not necessarily the opinions of PNC Bank or any of its affiliates, directors, officers or employees.

2. What Physicians Should Know About Healthcare Reform for Their Practices Julie Barnes Mike Cassidy Julie Kass

3. Agenda • Latest News on Health Reform • Health Reform Infrastructure • Medicare Payment Issues • Sustainable Growth Rate update • Clinical Integration 

4. Latest News on Health Reform • GOP controls House but not Senate • Repeal impossible; goal is to starve reform of resources through appropriations process • House and Senate must agree, budget impasse possible • States have more power to shape health care • Republicans control both branches in 20 states • Legal Challenges – Florida, Virginia, Michigan, California • Debt Reduction Task Forces – would set a budget target for Medicare spending, increase premiums or beneficiary cost-sharing, vouchers to limit growth

5. Health Reform Infrastructure • Insurance coverage is the compensation mechanism for the goals of health reform: • Quality Improvement (national strategy to improve quality of care, comparative effectiveness research, health IT, prevention and wellness) • Value-Based Payments (not fee-for-service) • Workforce Investment

6. Quality Prevention/Wellness National Quality Strategy Provider Accountability State Exchanges Patient Centered Outcomes Research Institute Workforce Delivery System Mandates Benefit Standards Premium Oversight Care Coordination New Patient Care Models Transparency Coverage Health IT Subsidies Payment Reform IPAB & MACPAC Center for Innovation Value over Volume Adjust Public Program Payments Fraud and Abuse Costs

7. Quality of Care • National Strategy for Improvement in Health Care (Jan. 1, 2011) • HHS to establish national strategy to improve delivery of health care services, patient outcomes, population health • Priorities will: • Focus on improving health outcomes, efficiency and patient centeredness • Have greatest potential for rapid improvement in quality and efficiency of patient care • Address gaps in quality, efficiency, outcomes

8. Quality of Care • Center for Innovation (a new HHS CMS agency) • Primary care practice & payment reform • Risk based comprehensive provider payment • Care coordination & non-FFS payments • Post acute care improvements • Best practices collaboration among providers • Comprehensive payments to Healthcare Innovation zones • groups of providers delivering comprehensive care through innovative methods for training health care professionals

9. Patient-Centered Outcomes Research Institute Foster evidence based-medicine by identifying research priorities and conducting research to compare clinical effectiveness of medical treatment • 21-member Board of Governors, including the Directors of the Agency for Healthcare Research and Quality (AHRQ) and the National Institutes of Health (NIH), and 19 members appointed by the Comptroller General • Not possible without HIT

10. Value-Based Payments • Hospital value-based purchasing program – percentage of Medicare payment tied to performance on quality measures • Hospitals with high rate of hospital acquired infections penalized • Hospitals with high volume of readmissions penalized • Reduced payments to low-quality and high-cost providers (more for primary care, less for CT scans)

11. Payment Reform Accountable Care Organizations • Pay for quality outcomes and cost efficiency thru clinical integration • Group of health care providers who are responsible for patient population, spending targets, clinical outcome improvements, and share savings

12. Workforce Investment National commission to review health care workforce and projected needs Competitive grants for state workforce development Improved federally supported student loans

13. Workforce Investment Physician Assistant Training $30.1M Personal and Home Care Aide State Training $4.2M State Health Workforce Dev $5.6M Nurse Managed Health Clinics $14.8M Advanced Nursing Education Expansion (ANEE) - $31M Primary Care Residency Expansion $167.3M

14. Medicare Reimbursement Issues in Health Reform

15. Current Medicare Reimbursement • Sustainable Growth Rate (SGR) • Current status of 23% reduction • Congress just passed one month extension of the postponement of 23% reduction • Additional 6% reduction proposed for 2011 • History and theory

16. 2011 MEDICARE PHYSICIAN FEE SCHEDULE Incentives for primary care and HPSA general surgeon Diagnostic imaging utilization assumptions Eliminate copays for preventive services Expand PQRI participation

17. PPACA REFORMS • Extend therapy cap exceptions • Extend technical component payment for pathology  • Extend ambulance add-ons • Authority for PAs to order hospital extended care  • Improved access to CNMs • Modification of imaging equipment utilization assumptions • Annual Wellness Visit (AWV)

18. Payment Procedure Reforms • 12 month claim submission • Overpayment reports and return • HH and DME policies • Enrollment • Face to face • Referral records • Expansion of services

19. Stark Imaging Self-Disclosure MRI, CT, PET 5/25 (or all if L5) Name, address, phone number Marketing opportunity

20. Provider Enrollment Screening • Risk categories (3) • Methods  • Crosschecking state licensure • Criminal background checks • Site visits • Fingerprinting • Data base comparison • Authorizes required compliance programs

21. Additional Medicaid Integrity Registration for clearinghouses, agents, and alternative payees Prohibit off-shore payment

22. RAC Expansion State Medicaid Programs Appeals process Medicare Parts C and D

23. PQRI Expansion • Permanent – PQRS • Payment penalties 2015 • Informal appeals process • Integrate PQRI and EHR

24. Current Medicare Reimbursement CLINICAL INTEGRATION and HEALTH CARE REFORM

25. Physician Response to Health Care Reform • Reimbursement cuts create physician uncertainty • Individual practice mergers • Ability to provide ancillary services • Integration with Hospitals • Direct Employment • Other Arrangements • New Reform models

26. Why Hospital/Physician Integration Now? Health reform increases emphasis on linking physician pay with performance Pressure to improve both efficiency and quality of care Changing demographics of physicians and patients Need to expand ability of hospitals to work closely with members of its medical staff Hospitals want more monitoring and enforcement tools than through typical medical staff organization Certain integration models can justify joint negotiations with payors by competing providers that would otherwise be unlawful under the antitrust laws

27. Hospital/Physician Integration Models Physician-owned hospitals Hospital Employment Pay-For-Performance Accountable Care Organizations

28. Fraud and Abuse Hurdles Stark self-referral law Anti-kickback statute CMP for payments intended to reduce or limit care State laws

29. PPACA Provisions Affecting Stark Overpayments Stark self-disclosure authority Stark in office ancillary disclosure requirement Restrictions on physician investments in hospitals

30. Model 1: Physician-Owned Hospital • Amendments to Rural Provider and Whole-Hospital Ownership Exceptions • To qualify for the exceptions, a physician-owned hospital must have physician ownership or investment effective March 23, 2010 and effective Medicare provider agreement as of December 31, 2010 • The aggregate percentage of the total value of ownership in the hospital, or an entity whose assets include the hospital, held by physician owners and investors cannot increase after March 23, 2010 • Subject to a very limited exception process, hospitals cannot expand the number of operating rooms, procedure rooms, or licensed beds in place as of date of enactment. • Hospitals must meet other specified requirements regarding conflicts of interest, bona fide investments and patient safety issues

31. Model 2: Traditional Employment Hospital purchases practice and employs physicians by hospital or subsidiary Ancillary services billed by hospital, possibly as provider-based Cannot compensate physicians for ancillaries

32. Model 2: Traditional Employment PROS CONS Expensive Can be time-consuming Physicians must agree to be hospital employee Requires careful drafting of contracts to avoid potential compliance issues Risks associated with hospital billing for physician services • Avoids potential Anti-Kickback and Stark issues because of employment exception and safe harbor • Highest level of integration with physicians

33. Employment in Group Practice Subsidiary PROS CONS Must meet “group practice” requirements under Stark, which has many requirements Limits ability of hospital to subsidize subsidiary and physicians • Physicians can manage the Group Practice subsidiary like their own private practice • Allows physicians to share in ancillary revenue

34. Model 3: Pay For Performance • Underlying premise • Money drives performance • Common factors • Performance targets or criteria • Objective standards and performance measures • Financial incentives at risk and allocated to providers meeting/exceeding targets

35. Gainsharing and Payment Reforms PPACA extends gainsharing demonstration and pushes pilot programs for bundled payments, Post Acute Care (PAC) payments, Accountable Care Organizations (formerly known as PHOs) Need/encouragement of hospital & physician integration and coordination is fundamentally at odds with 30 years of anti-kickback and Stark

36. Gainsharing • OIG guidance raised concerns about gainsharing arrangements under anti-kickback statute and CMP against hospitals paying physicians to reduce or limit care to beneficiaries. • No specific Stark exception – does that matter? • Potential compliance problems: • Gainsharing incentives may limit physicians’ ability to exercise independent professional judgment • Gainsharing incentives could induce physicians to refer patients to the hospital with which they have the most lucrative arrangement • Arrangement might be used to disguise kickbacks

37. Gainsharing Limited short-term financial incentives available to physicians Hard to build in quality incentives Challenging to design from a compliance standpoint Limited ability for physicians to implement wider changes to improve productivity Lacks a true focus on improvement in quality

38. Model 4: Accountable Care Organizations Typical ACO includes a hospital, primary care physicians, specialists, others FFS payment, but can share savings from quality gains ACO members held jointly accountable for care so members share in any cost savings that stem from the quality gains Antitrust challenges with ACOs Need/encouragement of hospital & physician integration and coordination is fundamentally at odds with 30 years of anti-kickback and Stark

39. What Physicians Should Do Now • Learn More: www.healthcare.gov • Prepare for clinical integration • Revise contracts • Navigate legal barriers • Review and advise about FTC / DOJ / CMS guidance on ACOs

40. Questions

41. The seminar and/or webinar and materials that you will view were prepared for general information purposes only by the American Health Lawyers Association and are not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in the presentation, the webinar, or the materials presented be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in these materials or videos are not necessarily the opinions of PNC Bank or any of its affiliates, directors, officers or employees.