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Hospital Finance 101

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Hospital Finance 101

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    1. Hospital Finance 101 We have all learned about leadership essentials, how to read hospital financial statements and about how trustees can influence health care policy development, but now its time to turn to how that money gets into those financials, and learn about hospital reimbursement Obviously you have CFOs and accountants in your organizations so this presentation is not intended to make you a reimbursement specialist, but to whatever extent you can take away key terms and concepts from this presentation to be better versed on hospital reimbursement, then this will be a success. Also, government health care programs are a driving force in the federal budget picture so this information will give you a better idea of how policy discussions in Washington affect your hospitals bottom line. Please note that some key concepts discussed in this presentation wont apply to all hospitals given the fact that there are different reimbursement systems but as it fits into the overall budget picture, youll have a better understanding of the politics of the process. We have all learned about leadership essentials, how to read hospital financial statements and about how trustees can influence health care policy development, but now its time to turn to how that money gets into those financials, and learn about hospital reimbursement Obviously you have CFOs and accountants in your organizations so this presentation is not intended to make you a reimbursement specialist, but to whatever extent you can take away key terms and concepts from this presentation to be better versed on hospital reimbursement, then this will be a success. Also, government health care programs are a driving force in the federal budget picture so this information will give you a better idea of how policy discussions in Washington affect your hospitals bottom line. Please note that some key concepts discussed in this presentation wont apply to all hospitals given the fact that there are different reimbursement systems but as it fits into the overall budget picture, youll have a better understanding of the politics of the process.

    2. Hospital Charges Hospitals CHARGE everyone the same ratesBUT No two payers PAY the same rates Government payers pay BELOW costs Commercial payers NEGOTIATE rates based on market share Charity care and underpayment impacts overall costs for everyone else Hospitals CHARGE everyone the same ratesBUT It is important to remember that Iowa Hospitals have many different Payers and, No two payers PAY the same rates, the Government payers pay BELOW our costs And Commercial payers NEGOTIATE their rates they pay us based on their market share. It is also important to note that Charity care and underpayment impact overall costs for everyone else.Hospitals CHARGE everyone the same ratesBUT It is important to remember that Iowa Hospitals have many different Payers and, No two payers PAY the same rates, the Government payers pay BELOW our costs And Commercial payers NEGOTIATE their rates they pay us based on their market share. It is also important to note that Charity care and underpayment impact overall costs for everyone else.

    3. Payment for Iowa Hospital Services We Need to recognize the impact of Medicare on Iowa hospitals. As the state with the largest percentage of citizens over the age 85 and 6th in national rankings in percent of aged 65 or older, Iowa hospitals see a lot of Medicare patients and are heavily dependent on Medicare as a source of revenue as this slide indicates. Hospitals in rural counties with higher proportions of elderly have even greater Medicare utilization and its not uncommon to some rural hospitals to have Medicare account for as much as 70% of their volume and accounting for closer to 50-60% of their revenue. We Need to recognize the impact of Medicare on Iowa hospitals. As the state with the largest percentage of citizens over the age 85 and 6th in national rankings in percent of aged 65 or older, Iowa hospitals see a lot of Medicare patients and are heavily dependent on Medicare as a source of revenue as this slide indicates. Hospitals in rural counties with higher proportions of elderly have even greater Medicare utilization and its not uncommon to some rural hospitals to have Medicare account for as much as 70% of their volume and accounting for closer to 50-60% of their revenue.

    4. Medicare Background Established as Title 18 in 1965 as Health Insurance for the Aged Expanded in 1972 to cover individuals under 65 with permanent disabilities Today, the program covers 46 million beneficiaries Medicares diverse population includes: 56% female/44% male beneficiaries 39% over age 75 77% living at home 32% with incomes below 150% of FPL The Federal health insurance program covers more than 46 million Americans: 39 million seniors and 7 million non-elderly people with disabilities. The Program has covered eligible beneficiaries without regarding to income or medical conditions since it was signed into law by President Johnson on July 30, 1965. It was enactment following several decades of debate on ways to meet health insurance needs of vulnerable Americans. In 1952 President Truman was first president to ask Congress to enact a program to insure elderly Americans. The Medicare banner was then taken up by President Kennedy in 1963, but it was not passed in Congress until 1965. Many of you may know that the legislation was signed in Trumans home town of Independence, MO and the former President and Mrs. Truman were presented the first two Medicare cards ever issued. Most individuals ages 65 and over are automatically entitled to Medicare hospital insurance if they or their spouse are eligible for Social Security after having contributed through a payroll tax throughout their working lives There are some really Interesting characteristics about the Medicare population: Breakdowns on age are important as policymakers contemplate the possibility of raising the eligibility age from 65 to 67 to be consistent with Social Security eligibility requirements Many live alone or with their spouse in urban areas only 6% are living in an institution such as a nursing home The Number of Medicare beneficiaries with low incomes has important implications for Medicaid, the other government-financed health care program. 150% of Federal poverty level (FPL) equates to about $13,500 for individual and $18,00 for couple Also it is important to note that there is a fair amount of out-of-pocket spending that goes along with the program, so about 90% of benes have other insurance coverage in addition to Medicare; most have employer-based supplemental coverage (31%) but about 26% have a Medigap policy. Although benes only make up about 15% of population, they account for 37% of national personal health expenditures. And the majority of the expenditures in Medicare are highly concentrated among few beneficiaries: In 2002, the top 5% of benes accounted for nearly half of total spending and the top quartile accounted for nearly 90% The Federal health insurance program covers more than 46 million Americans: 39 million seniors and 7 million non-elderly people with disabilities. The Program has covered eligible beneficiaries without regarding to income or medical conditions since it was signed into law by President Johnson on July 30, 1965. It was enactment following several decades of debate on ways to meet health insurance needs of vulnerable Americans. In 1952 President Truman was first president to ask Congress to enact a program to insure elderly Americans. The Medicare banner was then taken up by President Kennedy in 1963, but it was not passed in Congress until 1965. Many of you may know that the legislation was signed in Trumans home town of Independence, MO and the former President and Mrs. Truman were presented the first two Medicare cards ever issued. Most individuals ages 65 and over are automatically entitled to Medicare hospital insurance if they or their spouse are eligible for Social Security after having contributed through a payroll tax throughout their working lives There are some really Interesting characteristics about the Medicare population: Breakdowns on age are important as policymakers contemplate the possibility of raising the eligibility age from 65 to 67 to be consistent with Social Security eligibility requirements Many live alone or with their spouse in urban areas only 6% are living in an institution such as a nursing home The Number of Medicare beneficiaries with low incomes has important implications for Medicaid, the other government-financed health care program. 150% of Federal poverty level (FPL) equates to about $13,500 for individual and $18,00 for couple Also it is important to note that there is a fair amount of out-of-pocket spending that goes along with the program, so about 90% of benes have other insurance coverage in addition to Medicare; most have employer-based supplemental coverage (31%) but about 26% have a Medigap policy. Although benes only make up about 15% of population, they account for 37% of national personal health expenditures. And the majority of the expenditures in Medicare are highly concentrated among few beneficiaries: In 2002, the top 5% of benes accounted for nearly half of total spending and the top quartile accounted for nearly 90%

    5. Medicare in Iowa 2010 # of Medicare beneficiaries: 513,929 Percent of state population:17% # of Dual-eligibles: 73,246 # of Medicare Advantage enrollees 17,701(2004) 22,285 (2005) 64,737 (2010) Percent of total beneficiaries 12.6% Dual eligibles are individuals that receive health care coverage from both Medicare and Medicaid; can be characterized as elderly individuals with low incomes Note: Not much managed care in Iowa.Medicare in Iowa 2010 # of Medicare beneficiaries: 513,929 Percent of state population:17% # of Dual-eligibles: 73,246 # of Medicare Advantage enrollees 17,701(2004) 22,285 (2005) 64,737 (2010) Percent of total beneficiaries 12.6% Dual eligibles are individuals that receive health care coverage from both Medicare and Medicaid; can be characterized as elderly individuals with low incomes Note: Not much managed care in Iowa.

    6. Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget. Total Medicare spending reached $432 billion in 2010 or 12% of overall Federal Spending. The only larger categories were Social Security at 19%, and Defense at 23%. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term is going to require significant changes. Because of size of the federal budget deficit and concerns about Medicares long-term financing insolvency its imperative for hospital advocates to have a solid understanding of the Medicare system and the policies that could affect how your facilities are paid. This is as especially important as Congress attempts to balance the sustainability of our system, with their budgeting priorities. Because of its size, the program can and often does, exert influence on how health care is organized and delivered in the US Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget. Total Medicare spending reached $432 billion in 2010 or 12% of overall Federal Spending. The only larger categories were Social Security at 19%, and Defense at 23%. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term is going to require significant changes. Because of size of the federal budget deficit and concerns about Medicares long-term financing insolvency its imperative for hospital advocates to have a solid understanding of the Medicare system and the policies that could affect how your facilities are paid. This is as especially important as Congress attempts to balance the sustainability of our system, with their budgeting priorities. Because of its size, the program can and often does, exert influence on how health care is organized and delivered in the US

    7. CBO: August 2007 The future growth rates for Medicare and Medicaid will be the primary determinant for the nations long-term fiscal balance. They are also a primary source of budget uncertainty. Over the past 4 decades, per-beneficiary costs under Medicare and Medicaid have increased about 2.5 percentage points faster per year than has per capita GDP. Should those costs continue to increase at that rate, federal spending on those two programs alone would rise from 4.6 percent of GDP in 2007 to about 20 percent by 2050. That percentage represents about the same share of the economy that the entire federal budget does today. Even if health care grows 2.0 percentage points above per capita GDPa rate consistent with that experienced in Medicare and Medicaid over the past 15 yearsthe share of GDP absorbed by the two major health care programs wold reach 17 percent of the economy by the middle of the century. (At a rate growth of 1.0 percent above per capita GDP, the share of those programs would be about 11 percent of GDP by 2050.) However, if the costs to the federal government of the 2 health care programs grew at the same rate as incomean assumption that isolates just the effects of demographic changes on the programsthe growth in spending by 2050 would be much smaller, rising to about 7 percent of GDP. Many believe that technological change has been the dominant driver of growth in spending with advances bringing improvements to length and quality of life. Yet there are those that argue that health care resources are not used wisely and that unnecessary utilization is driving up costs. Because healthcare spending is so large and such a driver in federal, state, local and even personal budgets, it cannot be ignored in any setting. Our National healthcare expenditures amounted to $2.5 trillion dollars in personal heath care in the US in 2009, this accounted for 17.3% of our GDP, which was up from 16.2% of our GDP in 2008, in 1965 it was only 5%.CBO: August 2007 The future growth rates for Medicare and Medicaid will be the primary determinant for the nations long-term fiscal balance. They are also a primary source of budget uncertainty. Over the past 4 decades, per-beneficiary costs under Medicare and Medicaid have increased about 2.5 percentage points faster per year than has per capita GDP. Should those costs continue to increase at that rate, federal spending on those two programs alone would rise from 4.6 percent of GDP in 2007 to about 20 percent by 2050. That percentage represents about the same share of the economy that the entire federal budget does today. Even if health care grows 2.0 percentage points above per capita GDPa rate consistent with that experienced in Medicare and Medicaid over the past 15 yearsthe share of GDP absorbed by the two major health care programs wold reach 17 percent of the economy by the middle of the century. (At a rate growth of 1.0 percent above per capita GDP, the share of those programs would be about 11 percent of GDP by 2050.) However, if the costs to the federal government of the 2 health care programs grew at the same rate as incomean assumption that isolates just the effects of demographic changes on the programsthe growth in spending by 2050 would be much smaller, rising to about 7 percent of GDP. Many believe that technological change has been the dominant driver of growth in spending with advances bringing improvements to length and quality of life. Yet there are those that argue that health care resources are not used wisely and that unnecessary utilization is driving up costs. Because healthcare spending is so large and such a driver in federal, state, local and even personal budgets, it cannot be ignored in any setting. Our National healthcare expenditures amounted to $2.5 trillion dollars in personal heath care in the US in 2009, this accounted for 17.3% of our GDP, which was up from 16.2% of our GDP in 2008, in 1965 it was only 5%.

    8. Medicare spending is concentrated in certain services, and has shifted over time. Combined inpatient and outpatient services were 45% of Medicare payments in 1999 and now hospitals are only receiving 35% of Overall Medicare Spending. Note the decrease in the graph here in Hospital Inpatient payments. So as payments to hospitals are the largest portion of the Medicare outlays its no wonder that this area is often examined as one where savings or reductions in growth can occur. Medicare has implemented four major pieces of healthcare legislation in the past 10 years that Ill highlight now. Medicare spending is concentrated in certain services, and has shifted over time. Combined inpatient and outpatient services were 45% of Medicare payments in 1999 and now hospitals are only receiving 35% of Overall Medicare Spending. Note the decrease in the graph here in Hospital Inpatient payments. So as payments to hospitals are the largest portion of the Medicare outlays its no wonder that this area is often examined as one where savings or reductions in growth can occur. Medicare has implemented four major pieces of healthcare legislation in the past 10 years that Ill highlight now.

    9. Legislative Action Balanced Budget Act of 1997 (BBA) $116 billion cut nationally $600+ million impact on Iowa hospitals over 6 years (1998-2002) Balanced Budget Refinement Act of 1999 (BBRA) Restored $100 million to Iowa hospitals from BBA $295 billion in total Medicare payments cuts to program in amount of over $100 billion over a 5 year period of time Congress was more concerned about balancing budget after seeing sky rocketing health care costs, and a larger percentage of national expenditures dedicated to Medicare. Regardless of what impact this has on the healthcare system, and ultimately, beneficiaries. -Mention- we often use the word cut but they are really reductions in the growth of the program by implementing new payment policies, slowing the rate of inflation updates and other mechanisms that results in lower outlays for the program BBRA passed less than 2 years later to restore $17 billion over a five year period to Medicare and Medicaid through both legislative and regulatory means. More than half, or estimated $8.75 billion targeted to hospitals to modify various changes in Medicare reimbursement from BBA Still calculated BBA had impact of over $500 million on Iowa hospitals $295 billion in total Medicare payments cuts to program in amount of over $100 billion over a 5 year period of time Congress was more concerned about balancing budget after seeing sky rocketing health care costs, and a larger percentage of national expenditures dedicated to Medicare. Regardless of what impact this has on the healthcare system, and ultimately, beneficiaries. -Mention- we often use the word cut but they are really reductions in the growth of the program by implementing new payment policies, slowing the rate of inflation updates and other mechanisms that results in lower outlays for the program BBRA passed less than 2 years later to restore $17 billion over a five year period to Medicare and Medicaid through both legislative and regulatory means. More than half, or estimated $8.75 billion targeted to hospitals to modify various changes in Medicare reimbursement from BBA Still calculated BBA had impact of over $500 million on Iowa hospitals

    10. Legislative Action cont. Benefits Improvement Protection Act of 2000 (BIPA) Restored $35 billion nationally from BBA $86+ million over 5 years to Iowa hospitals Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) $273 million to Iowa hospitals over 5 years National impact $400 billion-$600 billion The Impact of BBA was still being felt after the 1999 restorations so Congress went a step further with BIPA in 2000. 3 years later, another major piece of Medicare legislation came along, MMA, that brought an outpatient prescription drug benefit to Medicare enrollees but also addressed a number of longstanding Medicare payment inequity issues advocated for by IHA -See the impact on Iowa hospitals- Important to note though that even with the restorations, payments to Iowa hospitals are less today as a result of actions taken in 1997The Impact of BBA was still being felt after the 1999 restorations so Congress went a step further with BIPA in 2000. 3 years later, another major piece of Medicare legislation came along, MMA, that brought an outpatient prescription drug benefit to Medicare enrollees but also addressed a number of longstanding Medicare payment inequity issues advocated for by IHA -See the impact on Iowa hospitals- Important to note though that even with the restorations, payments to Iowa hospitals are less today as a result of actions taken in 1997

    11. Medicare Background Medicare consists of 4 parts: Part A, the Hospital Insurance program Part B, Supplementary Medical insurance Part C, Medicare Managed Care Part D, the Outpatient Prescription Drug Benefit Here are the 4 Parts to our Medcare program today. Their was only 2 parts to Medicare when it was originally enacted but legislation in 1997 added Part C and in 2003 part D was added. We will now examine the components of each one of these.Here are the 4 Parts to our Medcare program today. Their was only 2 parts to Medicare when it was originally enacted but legislation in 1997 added Part C and in 2003 part D was added. We will now examine the components of each one of these.

    12. Medicare Part A Covers inpatient hospital, skilled nursing facility care, hospice and some home health. Accounts for 39% of Medicare spending (2007) Financed largely (86%) by a 2.9% payroll tax (1.45% paid by both employee and employer) Also known as the Hospital Insurance Trust Fund Fund reserves projected to be exhausted by 2019, funds less and less of program each year Federal Hospital Insurance (HI) trust fund finances Medicare Part A which covers primarily institutional type services such as hospital inpatient, skilled nursing facility, hospice and some home health care services Primary source of income for Part A fund is 1.45% payroll tax paid by both employers and employees. A Report issued by the Office of the Actuary on the predicted life of HI trust fund: will be depleted by 2017, at that point, will be paying out more than it collects in taxes Shortfall due to rising medical costs, increased utilization, more beneficiaries served, fewer workers paying the Medicare tax, addition of Rx benefit. This information plays into the decisions by Congress on how to shore up the program to ensure its available for future generations that have already contributed to the financing throughout their working lives Care is not provided at no expense to beneficiary: Inpatient hospital: deductible per stay, co-pay beginning on day 61 increases after day 90 SNF: no co-pay for first 20 days; co-pay beginning on 21st day Federal Hospital Insurance (HI) trust fund finances Medicare Part A which covers primarily institutional type services such as hospital inpatient, skilled nursing facility, hospice and some home health care services Primary source of income for Part A fund is 1.45% payroll tax paid by both employers and employees. A Report issued by the Office of the Actuary on the predicted life of HI trust fund: will be depleted by 2017, at that point, will be paying out more than it collects in taxes Shortfall due to rising medical costs, increased utilization, more beneficiaries served, fewer workers paying the Medicare tax, addition of Rx benefit. This information plays into the decisions by Congress on how to shore up the program to ensure its available for future generations that have already contributed to the financing throughout their working lives Care is not provided at no expense to beneficiary: Inpatient hospital: deductible per stay, co-pay beginning on day 61 increases after day 90 SNF: no co-pay for first 20 days; co-pay beginning on 21st day

    13. Medicare Part B Covers physician and outpatient hospital care, lab tests, medical supplies and some home health. Financed by beneficiary premiums (24%), general revenue (75%), income investments (2%) Accounts for 33% of Medicare benefit spending Medicare Part B covers outpatient type services in the physician office setting and hospital outpatient department. The Program is beginning to pay more preventive care in the last several years mammograms, PSA testing, the Welcome to Medicare physical, which was new in 2005, and smoking cessation programs are not included. In contrast to Part A, Part B is financed by premiums paid by individuals on the program and general tax revenues. Part B is voluntary, individuals must make an effort to sign up for coverage when they reach age 65 and pay the premium. Previously all beneficiaries paid the same Part B premium : in 2005 the monthly premium was $78.20 The MMA however included a provision that for the first time, introduced means-testing so that premiums will be higher for those with greater income levels, this began in 2007. Medicare Part B covers outpatient type services in the physician office setting and hospital outpatient department. The Program is beginning to pay more preventive care in the last several years mammograms, PSA testing, the Welcome to Medicare physical, which was new in 2005, and smoking cessation programs are not included. In contrast to Part A, Part B is financed by premiums paid by individuals on the program and general tax revenues. Part B is voluntary, individuals must make an effort to sign up for coverage when they reach age 65 and pay the premium. Previously all beneficiaries paid the same Part B premium : in 2005 the monthly premium was $78.20 The MMA however included a provision that for the first time, introduced means-testing so that premiums will be higher for those with greater income levels, this began in 2007.

    14. Medicare Part C Managed care plans that provide Part A and Part B benefits Formerly called Medicare+Choice; now called Medicare Advantage 10.3 million beneficiaries are enrolled in Medicare managed care plans Parts A & B of Medicare known as traditional Medicare or fee-for-service whereas Part C is the managed care version of Medicare allows benes to receive their Medicare coverage from private health plans that contract with the federal government to deliver Medicare benefits Beneficiary cost sharing: private plans must cover both Part A & B services but cost sharing may differ as long as the average projected liability per person is the same or smaller than if the bene had been in traditional fee-for-service Benes enrolled in MA may also receive some benefits and services not covered by traditional Medicare such as routine physicals, hearing aids and exams, routine eye care and eyeglasses, dental care and dentures Not much managed care in Iowa because of the payments made to the plans but MMA restructured the program to allow for PPO participation on a regional basis which is supposed to bring more options to beneficiaries in rural areas that have not traditionally had access to private health plans to receive their Medicare benefits With MMA effective January 1, 2006 more activity by health plans in the state but no indication that well see a big movement of beneficiaries from FFS to managed care Parts A & B of Medicare known as traditional Medicare or fee-for-service whereas Part C is the managed care version of Medicare allows benes to receive their Medicare coverage from private health plans that contract with the federal government to deliver Medicare benefits Beneficiary cost sharing: private plans must cover both Part A & B services but cost sharing may differ as long as the average projected liability per person is the same or smaller than if the bene had been in traditional fee-for-service Benes enrolled in MA may also receive some benefits and services not covered by traditional Medicare such as routine physicals, hearing aids and exams, routine eye care and eyeglasses, dental care and dentures Not much managed care in Iowa because of the payments made to the plans but MMA restructured the program to allow for PPO participation on a regional basis which is supposed to bring more options to beneficiaries in rural areas that have not traditionally had access to private health plans to receive their Medicare benefits With MMA effective January 1, 2006 more activity by health plans in the state but no indication that well see a big movement of beneficiaries from FFS to managed care

    15. Medicare Part D Outpatient prescription drug benefit, effective 1-1-06 Accounts for 9% benefit payments Benefit offered by private insurance plans Financed through beneficiary premiums (8%), payments from states (11%) and general revenues (81%) Estimates of average monthly Part D premium was be $35 in 2006, now in 2010 (in Iowa) Minimum Premium: $22.80 Maximum Premium: $104.10 Weighted Average: $41.59 Part D of the Medicare Program is a New benefit created by MMA Allows beneficiaries the option of enrolling in drug coverage through a prescription drug plan or Medicare managed care plan with Medicare paying 75% of the premium Additional benefits for Medicare beneficiaries with low incomes to pay up to, on average, 95% of their drug costs. Fact that the program is primarily supported by federal tax dollars has been the subject of much debate, with allegations occurring over the true cost of the benefit. Although Rx coverage is commonplace in many health plans today, the fact that its just becoming available to the Medicare population is amazing but think back to when Medicare was implemented in 1965, drug coverage was not commonplace. Adding prescription drug coverage as well as more preventive benefits brings Medicare up-to-date with private health insurance coverage but at a price. Given debate over federal budget deficit, put in context where spending on this benefit ranks in comparison to spending on other Medicare benefits and payments to providers. Part D of the Medicare Program is a New benefit created by MMA Allows beneficiaries the option of enrolling in drug coverage through a prescription drug plan or Medicare managed care plan with Medicare paying 75% of the premium Additional benefits for Medicare beneficiaries with low incomes to pay up to, on average, 95% of their drug costs. Fact that the program is primarily supported by federal tax dollars has been the subject of much debate, with allegations occurring over the true cost of the benefit. Although Rx coverage is commonplace in many health plans today, the fact that its just becoming available to the Medicare population is amazing but think back to when Medicare was implemented in 1965, drug coverage was not commonplace. Adding prescription drug coverage as well as more preventive benefits brings Medicare up-to-date with private health insurance coverage but at a price. Given debate over federal budget deficit, put in context where spending on this benefit ranks in comparison to spending on other Medicare benefits and payments to providers.

    16. Medicare Payment Methodologies Costs/Charges Fee Schedule Prospective Payment System (PPS) Hospital inpatient (1983) Home Health (1997/2000) Skilled Nursing Facility (1998) Hospital outpatient (2000) Inpatient Rehabilitation (2001) Long-Term Care Acute Hospitals (2002) Inpatient Psychiatric (2004) When the Medicare program was established, hospitals were reimbursed the lesser of their charge or reasonable cost of providing care to Medicare inpatients. Keep in mind were talking 1965 when most care was provided on an inpatient basis Concerns about rapidly rising Medicare expenditures and the role of cost reimbursement as a contributing factor led to a new method of payment for inpatient care. Beginning in 1983, hospitals transitioned to a Prospective Payment System (PPS) for inpatient services. The rationale for a PPS was to create an incentive for providers to operate in a more cost-efficient manner by basing payment for services on a fixed price per discharge. This new system expected to result in incentives for hospital management to: Improve productivity, use less expensive inputs where possible, influence physicians to reduce the LOS, limit inpatient volume and use less expensive mix of services to treat each patient, and specialize in treating cases that hospital could produce efficiently The PPS was also to adopt cost-saving technologies while avoiding cost-increasing technologies. The PPS provides for reimbursement of operating costs. If the hospitals costs for providing care are less than the prospectively determined rate, it would keep the excess but if the costs of care exceeded the fixed rate, the hospital would lose on that case. The PPS is a system of averages designed that some cases are profitable and others are losers but in the end, the total reimbursement covers operating costs for the hospital. But as well learn and have already seen with the Medicare margins, payment policies dont always reflect this fact and providers often end up providing care and receiving Medicare reimbursement that is less than the cost of that care Because of concerns with the growth of Medicare spending, Congress mandated PPS for virtually all institutional services paid by the program Fee schedule between cost and PPS; sets a fee in advance of the service being provided. When the Medicare program was established, hospitals were reimbursed the lesser of their charge or reasonable cost of providing care to Medicare inpatients. Keep in mind were talking 1965 when most care was provided on an inpatient basis Concerns about rapidly rising Medicare expenditures and the role of cost reimbursement as a contributing factor led to a new method of payment for inpatient care. Beginning in 1983, hospitals transitioned to a Prospective Payment System (PPS) for inpatient services. The rationale for a PPS was to create an incentive for providers to operate in a more cost-efficient manner by basing payment for services on a fixed price per discharge. This new system expected to result in incentives for hospital management to: Improve productivity, use less expensive inputs where possible, influence physicians to reduce the LOS, limit inpatient volume and use less expensive mix of services to treat each patient, and specialize in treating cases that hospital could produce efficiently The PPS was also to adopt cost-saving technologies while avoiding cost-increasing technologies. The PPS provides for reimbursement of operating costs. If the hospitals costs for providing care are less than the prospectively determined rate, it would keep the excess but if the costs of care exceeded the fixed rate, the hospital would lose on that case. The PPS is a system of averages designed that some cases are profitable and others are losers but in the end, the total reimbursement covers operating costs for the hospital. But as well learn and have already seen with the Medicare margins, payment policies dont always reflect this fact and providers often end up providing care and receiving Medicare reimbursement that is less than the cost of that care Because of concerns with the growth of Medicare spending, Congress mandated PPS for virtually all institutional services paid by the program Fee schedule between cost and PPS; sets a fee in advance of the service being provided.

    17. Structural Elements of a PPS Classification System e.g. MS-DRGs for inpatient; APCs for outpatient Base Rate Unadjusted national payment rate (standardized amount) Must report on Quality measures to receive payment updates to rate (3.3% in 2008) If do not report measures, receive cut to rate (-2% in 2008) Facility Adjustments Differences in area wages Urban versus rural setting Medical education Disproportionate share of low income patients Patient Adjustments Intensity of service Excessive case costs outliers Partial treatment transfer cases A Key feature of a PPS system is to prospectively determine a fixed payment rate for a specific bundle of services for clinically similar patients. This requires objectively measured resource utilization . Certain elements need to be present in a PPS system and well cover those parts individually in the next few slides. Regardless of the payer using a PPS system, they have the ability to make decisions about these various components based on their own spending objectives. They can set up a system to pay less than costs or have policies that are intended to address specific circumstances to reflect facility as well as patient differences. The PPS in itself can increase predictability in health care spending this is easier for budgeting to know in advance what youll get paid and adjust your costs accordingly to fit within the payment parameters. A Key component to any PPS system is a reliable and useful patient classification system.A Key feature of a PPS system is to prospectively determine a fixed payment rate for a specific bundle of services for clinically similar patients. This requires objectively measured resource utilization . Certain elements need to be present in a PPS system and well cover those parts individually in the next few slides. Regardless of the payer using a PPS system, they have the ability to make decisions about these various components based on their own spending objectives. They can set up a system to pay less than costs or have policies that are intended to address specific circumstances to reflect facility as well as patient differences. The PPS in itself can increase predictability in health care spending this is easier for budgeting to know in advance what youll get paid and adjust your costs accordingly to fit within the payment parameters. A Key component to any PPS system is a reliable and useful patient classification system.

    18. Medicare-Severity Diagnosis Related Groups (MS-DRGs) Identify patients with similar conditions who receive similar treatments Assignment is based on factors such as the patients diagnosis, complications, surgical procedure, age, sex New payment system beginning in 2008 (50-50 blend in 08) Moves from 546 DRGs categories to 745 new severity adjusted DRGs: 335 Base DRGs, 106 split into 2 subgroups, 152 spit into 3 subgroups Each MS-DRG is assigned a relative weight to compare its resource utilization to the average [DRG127, Heart Failure & Shock Weight 1.0490 (split into 3 MS-DRGS)] MS-DRG 291 with MCC Weight 1.4850 MS-DRG 292 with CC Weight 1.0216 MS-DRG 293 without CC/MCC Weight .7317 Basis of payment under inpatient PPS is classification of each patients case into a DRG assigned based on information contained on beneficiary bill, including principle DX, up to 8 additional diagnoses, any procedures performed during the stay, bene age, sex and discharge status. Bill is processed through a GROUPER program which assigns the case to a DRG. DRG assignment determines how much payment the hospital receives. Each DRG assigned a relative weight that reflects the resources used in furnishing hospital services to a patient within that group. The weight is applied to determine the amount that will be paid for each discharge, regardless of the number of days the bene was hospitalized or the specific services furnished. Moving to cost-based weights. In FY2008, 2/3 cost-weight. In 09, 100% cost. Each Medicare discharge is assigned to only one DRG. Each DRG represents the average resources requires to care for cases in that particular DRG, relative to the national average resources consumed per case by the average hospital. Cases with DRG weight of 2.0 on average would require 2x as many resources as the average case for the average hospital. Social Security Act mandates CSM adjust the weights annually, or recalibrate, to reflect changes in treatment patterns, new technology ad other factors affecting the use of hospital resources. CC=complication or co-morbidity; MCC=major complication or co-morbidity 3,326 codes listed that count as CCs and 1584 codes listed as MCCs Implemented a 1.2% cut for behavioral offsetupcoding For 2008, 50 percent of weight will based on using weight for current DRG and rest for MS-DRG. In FY2009, 100% based on DRG weightsBasis of payment under inpatient PPS is classification of each patients case into a DRG assigned based on information contained on beneficiary bill, including principle DX, up to 8 additional diagnoses, any procedures performed during the stay, bene age, sex and discharge status. Bill is processed through a GROUPER program which assigns the case to a DRG. DRG assignment determines how much payment the hospital receives. Each DRG assigned a relative weight that reflects the resources used in furnishing hospital services to a patient within that group. The weight is applied to determine the amount that will be paid for each discharge, regardless of the number of days the bene was hospitalized or the specific services furnished. Moving to cost-based weights. In FY2008, 2/3 cost-weight. In 09, 100% cost. Each Medicare discharge is assigned to only one DRG. Each DRG represents the average resources requires to care for cases in that particular DRG, relative to the national average resources consumed per case by the average hospital. Cases with DRG weight of 2.0 on average would require 2x as many resources as the average case for the average hospital. Social Security Act mandates CSM adjust the weights annually, or recalibrate, to reflect changes in treatment patterns, new technology ad other factors affecting the use of hospital resources. CC=complication or co-morbidity; MCC=major complication or co-morbidity 3,326 codes listed that count as CCs and 1584 codes listed as MCCs Implemented a 1.2% cut for behavioral offsetupcoding For 2008, 50 percent of weight will based on using weight for current DRG and rest for MS-DRG. In FY2009, 100% based on DRG weights

    19. Example of a decision-tree used to assign a case to a DRG. Using ICD-9 diagnosis codes that describe the patients condition and reason for hospitalization, a program called a DRG grouper also looks at other factors such as age. Then the grouper looks to determine if there were complications during the patients stay, which is a condition that increases the lengthy of stay while a co morbidity is a preexisting condition that increases the LOS As you can imagine, resources used to treat a patient with a complication or co morbidity would be greater than a patient without these additional factors, so the relative weight is higher, resulting in a higher payment amount. Next component of PPS is the base rate Example of a decision-tree used to assign a case to a DRG. Using ICD-9 diagnosis codes that describe the patients condition and reason for hospitalization, a program called a DRG grouper also looks at other factors such as age. Then the grouper looks to determine if there were complications during the patients stay, which is a condition that increases the lengthy of stay while a co morbidity is a preexisting condition that increases the LOS As you can imagine, resources used to treat a patient with a complication or co morbidity would be greater than a patient without these additional factors, so the relative weight is higher, resulting in a higher payment amount. Next component of PPS is the base rate

    20. Iowa Wage Values Here are Iowa wage index values Labor markets defined as urban or rural CMS uses census data to determine urban locations that are essentially metropolitan areas Medicare defines any area outside an urban area as rural so all remaining rural hospitals are lumped together to create a statewide rural WI Even though the wage index is supposed to measure labor market differences, lumping all rural hospitals together raises question of whether or not they all compete for the same labor pool WI are updated annually each October 1 at the start of the FFY, but important to note its based on 4 year old data So payments being made today arent necessarily reflective of current hospital labor costs Here are Iowa wage index values Labor markets defined as urban or rural CMS uses census data to determine urban locations that are essentially metropolitan areas Medicare defines any area outside an urban area as rural so all remaining rural hospitals are lumped together to create a statewide rural WI Even though the wage index is supposed to measure labor market differences, lumping all rural hospitals together raises question of whether or not they all compete for the same labor pool WI are updated annually each October 1 at the start of the FFY, but important to note its based on 4 year old data So payments being made today arent necessarily reflective of current hospital labor costs

    21. Example using numbers Illustrates differences of wage ind Wage adjusted rate x weight for MS-DRG 293 HF (without CC) Dsm=$3437.07 Rural IowaExample using numbers Illustrates differences of wage ind Wage adjusted rate x weight for MS-DRG 293 HF (without CC) Dsm=$3437.07 Rural Iowa

    22. Inpatient PPS Other Issues Disproportionate Share Hospitals (DSH) Adjustment to partially offset losses from uncompensated care Based on hospitals share of Medicare patients and Medicare SSI patients Hospital must meet 15% DSH threshold Adjustment is capped for certain categories of hospitals Hospitals treating disproportionate share of low income patients receive additional payment intended to partially offset revenue losses from providing uncompensated care 2 methods to qualify but primary one is complex statutory formula that varies based on hospital location as rural or urban and whats called the DSH payment percentage. DSH percentage determined by taking the patient days attributable to federal supplemental security income/SSI beneficiaries divided by total Medicare inpatient days plus by Medicaid days divided by total patient days. Hospital whose DSH percentage exceeds 15% is eligible for adjustment. DSH adjustment depends on size and location of hospital and low income patient share. Hospitals treating disproportionate share of low income patients receive additional payment intended to partially offset revenue losses from providing uncompensated care 2 methods to qualify but primary one is complex statutory formula that varies based on hospital location as rural or urban and whats called the DSH payment percentage. DSH percentage determined by taking the patient days attributable to federal supplemental security income/SSI beneficiaries divided by total Medicare inpatient days plus by Medicaid days divided by total patient days. Hospital whose DSH percentage exceeds 15% is eligible for adjustment. DSH adjustment depends on size and location of hospital and low income patient share.

    23. Inpatient PPS Other Issues Outliers Additional payment for high cost cases Transfers Reduced payments for short stay patients in selected DRGs and transferred to post-acute care or other PPS hosptial. New Technology Additional payment for new technology costs Besides operating payment, hospitals have opportunity to get other payments for treating Medicare patients -Several listed here- Outliers payment for high cost patients. Foundation of PPS calls for offset of losses in some cases and gains in others but may be some with extremely high costs too large to offset. Current law outlier payments between 5-6% of total inpatient PPS payments. Outlier cases identified by comparing charges adjusted to reflect costs by a cost-to-charge ratio (CCR) to a threshold that includes DRG payment plus fixed loss payment. If cost exceeds threshold, Hospital gets 80% of loss above threshold as outlier payment Besides operating payment, hospitals have opportunity to get other payments for treating Medicare patients -Several listed here- Outliers payment for high cost patients. Foundation of PPS calls for offset of losses in some cases and gains in others but may be some with extremely high costs too large to offset. Current law outlier payments between 5-6% of total inpatient PPS payments. Outlier cases identified by comparing charges adjusted to reflect costs by a cost-to-charge ratio (CCR) to a threshold that includes DRG payment plus fixed loss payment. If cost exceeds threshold, Hospital gets 80% of loss above threshold as outlier payment

    24. Special Medicare Rural Status Rural Referral Centers 6 in Iowa Based on bed size, patient distance from hospital Sole Community Hospitals 7 in Iowa Criteria based on distance to other hospitals Medicare Dependent Hospitals 6 in Iowa Based on hospitals share of Medicare patients In addition to regular operating and capital payments already addressed, Congress has created several special payment categories in Medicare to address issues associated with delivery of care in rural area Intent to provide additional payments to qualifying hospitals to maintain access to care for Medicare beneficiaries in rural areas RRCs Have operating costs more similar to urban hospitals than smaller community hospitals Benefits: no cap on DSH payments; more favorable geographic reclassification considered Examples of these larger rural hospitals are Mason City, Ottumwa, Fort Dodge, Clinton, West Burlington, and Marshalltown. SCHs Hospital must be sole source of inpatient services reasonably available to Medicare benes in the geographic area Must be located more than 35 miles from other like hospitals or located in a rural area and meet other distance and patient service criteria Payment benefit highest of federal national rate or hospital specific rate based on hospitals FY 1996 costs per discharge Also have opportunity for 5% volume decline adjustment MDHs In place since 1990; current statute was set to sunset program in FY2006 Grassley legislation Must be located in rural area, have < 100 beds, not a SCH and at least 60% of days/discharges attributed to Part A patients during 1987 base year or beginning in 2001, base eligibility on 2 of last 3 audited cost reports to determine 60% threshold Payment originally highest of federal rate or hospitals FY82 or FY87 cost per discharge but change in 1993 to limit benefit to 50% by which hospital rate exceeds federal rate Low hospital costs and rates have created a situation where many qualify but just dont receive the benefit. In addition to regular operating and capital payments already addressed, Congress has created several special payment categories in Medicare to address issues associated with delivery of care in rural area Intent to provide additional payments to qualifying hospitals to maintain access to care for Medicare beneficiaries in rural areas RRCs Have operating costs more similar to urban hospitals than smaller community hospitals Benefits: no cap on DSH payments; more favorable geographic reclassification considered Examples of these larger rural hospitals are Mason City, Ottumwa, Fort Dodge, Clinton, West Burlington, and Marshalltown. SCHs Hospital must be sole source of inpatient services reasonably available to Medicare benes in the geographic area Must be located more than 35 miles from other like hospitals or located in a rural area and meet other distance and patient service criteria Payment benefit highest of federal national rate or hospital specific rate based on hospitals FY 1996 costs per discharge Also have opportunity for 5% volume decline adjustment MDHs In place since 1990; current statute was set to sunset program in FY2006 Grassley legislation Must be located in rural area, have < 100 beds, not a SCH and at least 60% of days/discharges attributed to Part A patients during 1987 base year or beginning in 2001, base eligibility on 2 of last 3 audited cost reports to determine 60% threshold Payment originally highest of federal rate or hospitals FY82 or FY87 cost per discharge but change in 1993 to limit benefit to 50% by which hospital rate exceeds federal rate Low hospital costs and rates have created a situation where many qualify but just dont receive the benefit.

    25. Outpatient PPS Outpatient PPS replaced previous cost-based system on August 1, 2000 Hospitals receive predetermined payments for individual services or procedures Payments are based on APC assignment which divides outpatient services into 661 groups Services within each APC are clinically similar and require similar resources Each APC is assigned a relative weight based on the median cost of the services within the APC No recognition of medical education or disproportionate share Covered inpatient PPS Next major PPS is outpatient Remember hospital OP care is 5% of Medicare spending and growing component as I/P care is shifted to the outpatient setting Identical concept as I/P PPS Uses predetermined payment amounts Uses ambulatory patient classifications as the classification system Like DRGs, each APC represents clinically similar services and resource utilization Relative weights assigned that represent median cost of providing services within that APC Covered inpatient PPS Next major PPS is outpatient Remember hospital OP care is 5% of Medicare spending and growing component as I/P care is shifted to the outpatient setting Identical concept as I/P PPS Uses predetermined payment amounts Uses ambulatory patient classifications as the classification system Like DRGs, each APC represents clinically similar services and resource utilization Relative weights assigned that represent median cost of providing services within that APC

    26. Cost Reimbursement CAH program created by BBA of 1997 82 Iowa Hospitals Criteria for designation: located in a rural area Is more than 35 miles from a similar hospital Provides 24 hour emergency services Has no more than 25 beds, operated as either acute or swing beds MMA change allows 10 bed distinct part psych or rehab units Has an annual average length of stay less than 96 hours Turn to address cost reimbursement Dj vu of sorts way Medicare began in 1965 and here again 40 years later have more hospitals in Iowa that are reimbursed under this method now than PPS because of CAH program BBA 1997 program enacted; allows rural hospitals to choose cost-based payment for O/P & acute services if hospital agrees to limits of 15 acute patients, 25 total patients (including swing beds), limit LOS to 4 days and states can declare necessary providers by removing the need for hospitals to be isolated from other providers BBRA 1999 LOS changed to AVERAGE of 4 days; states can declare hospitals rural, allow CAHs in MSAs BIPA 2000 implements on-call physician costs; cost-based reimbursement for swing bed MMA 2003 inpatient limit expanded from 15 10 25 acute beds; allowed 10 bed rehab & psych units that do not go toward bed limit; increased payment to 101% of costs; starting in 2006, states cant designate NPs Examples of how Congress has been involved in modifying a program Turn to address cost reimbursement Dj vu of sorts way Medicare began in 1965 and here again 40 years later have more hospitals in Iowa that are reimbursed under this method now than PPS because of CAH program BBA 1997 program enacted; allows rural hospitals to choose cost-based payment for O/P & acute services if hospital agrees to limits of 15 acute patients, 25 total patients (including swing beds), limit LOS to 4 days and states can declare necessary providers by removing the need for hospitals to be isolated from other providers BBRA 1999 LOS changed to AVERAGE of 4 days; states can declare hospitals rural, allow CAHs in MSAs BIPA 2000 implements on-call physician costs; cost-based reimbursement for swing bed MMA 2003 inpatient limit expanded from 15 10 25 acute beds; allowed 10 bed rehab & psych units that do not go toward bed limit; increased payment to 101% of costs; starting in 2006, states cant designate NPs Examples of how Congress has been involved in modifying a program

    28. Other Medicare issues on horizon Value-Based Purchasing Pay 4 Performance No payment for hospital acquired conditions No payment for Never events?

    29. Medicaid Overview Title 19 of the Social Security Act provides medical assistance for low-income recipients Funded by a combination of State and federal funds. Approximately 2 for 1 federal match Medicaid is an entitlement program everyone who meets the eligibility criteria must be served. 470,000 Iowans Enrolled (2007) Turn now to other major government payer Close to 10% of hospital revenue statewide Approximately 15% of state budgetTurn now to other major government payer Close to 10% of hospital revenue statewide Approximately 15% of state budget

    30. Medicaid Overview Enrollees meet income limits + other criteria In general, Medicaid covers four groups: Pregnant women and children. Members of families with dependent children. Age 65 and over. Blind and Disabled. Categorically eligible must be in one of these groups to be eligible Never see childless adult between 18-64 on the program regardless of income Categorically eligible must be in one of these groups to be eligible Never see childless adult between 18-64 on the program regardless of income

    31. Medicaid Overview Under Federal law, some eligibility categories and services are mandatory and some are optional. Mandatory examples Children, pregnant women, disabled, hospital, physician, nursing home, early screening and treatment services for children. Optional examples Eligibility at higher income levels than required (Medicaid expansion, people in institutions), working disabled, prescription drugs, chiropractor, podiatrist, durable medical equipment. Federal law mandates certain people are covered and provided with specific benefits but states have option of adding to this, if they want to commit the financial resources to share in the cost Iowa covers most optional services Federal law mandates certain people are covered and provided with specific benefits but states have option of adding to this, if they want to commit the financial resources to share in the cost Iowa covers most optional services

    32. Most spending in smallest category of eligible's Although children represent largest enrollment category, receive the least amount of services Elderly/Disabled on the program cost the most individuals in nursing homes Most spending in smallest category of eligible's Although children represent largest enrollment category, receive the least amount of services Elderly/Disabled on the program cost the most individuals in nursing homes

    33. Medicaid Hospital Payment Inpatient Services DRGs Outpatient Services APGs First in the nation outpatient PPS Moved to APCs in 2008 Critical Access Hospitals retrospective cost-based reimbursement at 100% for inpatient, outpatient and swing bed care Inflation factor determined by legislation PPS rebasing and recalibration occurs every 3 years Political process very much at play in setting hospital inflation factors based on available funds No hospital update for last 5 years Payments already below costs No recognition of increased costs during that period has created even bigger gaps between payments and costs Rebasing effective October 1, 2005 Use more recent cost data to set base rate Costs increased over last 3 years since process last occurred by legislature directed it to be budget neutral Wont recognize increases unless something changes Political process very much at play in setting hospital inflation factors based on available funds No hospital update for last 5 years Payments already below costs No recognition of increased costs during that period has created even bigger gaps between payments and costs Rebasing effective October 1, 2005 Use more recent cost data to set base rate Costs increased over last 3 years since process last occurred by legislature directed it to be budget neutral Wont recognize increases unless something changes

    34. Other Iowa Payers Wellmark States largest insurer offering indemnity, PPO, HMO, Medicare supplemental and products to over 1.2 million Iowans Contracts with providers for service Contracts modeled after Medicare rates Has approximately 70% business in Iowa United Healthcare Coventry Principal Medicare in drivers seat as nations largest payer so many commercial insurance plans and Medicaid plans follow their lead in utilizing DRGs or even APCs Given under payments in government programs using PPS, presents challenges in assuring payment from other payers is adequate and at least to some extend makes up for the Medicare and Medicaid shortfalls But again, payment levels are set and policy determined based on the payers spending targets Medicare in drivers seat as nations largest payer so many commercial insurance plans and Medicaid plans follow their lead in utilizing DRGs or even APCs Given under payments in government programs using PPS, presents challenges in assuring payment from other payers is adequate and at least to some extend makes up for the Medicare and Medicaid shortfalls But again, payment levels are set and policy determined based on the payers spending targets

    35. Employer Based Health Coverage Largest Employer 1964: General Motors Covered all employees, families, retirees Largest Employer 1974: AT&T Covered all employees, families, retirees Largest Employer Today: Wal-Mart 1/3 employees on Medicaid, etc. 1/3 employees have no coverage 1/3 employees have high deductible plans perfect storm being created in the health insurance industry Majority of hospital care paid by someone other than beneficiary of care Medicare 31%, Medicaid 17%, private health insurance 34% High rates of increases in health insurance premiums for past 5 years Annual premiums for 2004 - $3700 for individual policy; $9950 for family Employers not able to absorb premium increases and making decisions regarding benefit: - pass increases on to employee through benefit reductions, increased premium contributions, higher deductible & co-pay - eliminate coverage all together Growing concern about overall increase in healthcare costs Creating pressure for an alternative Rise of consumer driven healthcare Return decision-making to the individual, using education and health decision tools Consumer controls demand for care because of direct involvement in deciding when, where, how, to access care, coupled with financial incentive to become engaged in the process With the idea that the new approach will lead to a lowering of overall health care costsperfect storm being created in the health insurance industry Majority of hospital care paid by someone other than beneficiary of care Medicare 31%, Medicaid 17%, private health insurance 34% High rates of increases in health insurance premiums for past 5 years Annual premiums for 2004 - $3700 for individual policy; $9950 for family Employers not able to absorb premium increases and making decisions regarding benefit: - pass increases on to employee through benefit reductions, increased premium contributions, higher deductible & co-pay - eliminate coverage all together Growing concern about overall increase in healthcare costs Creating pressure for an alternative Rise of consumer driven healthcare Return decision-making to the individual, using education and health decision tools Consumer controls demand for care because of direct involvement in deciding when, where, how, to access care, coupled with financial incentive to become engaged in the process With the idea that the new approach will lead to a lowering of overall health care costs

    36. The Uninsured 7-9% of Iowans (one of lowest in nation) 97% of Children Covered 250,000 270,000 People Generally Speaking 1/3 Are Self Insured 1/3 Have Access to Insurance 1/3 Truly Without Access to Coverage -Notes on Issue- The United States Census Bureau annually reports statistics on the uninsured. According to its most recent figures, in 2008 there were 46.3 million people in the US (15.4% of the population) who were without health insurance for at least part of that year. This is up slightly from 2007, when there were 45.7 million people in the US (15.3% of the population) who were without health insurance for at least part of that year. According to the Census Bureau, the difference is in the uninsured rates between the two years is not statistically significant.[1] The percentage of the non-elderly population who are uninsured has been generally increasing since the year 2000. However, the 2007 figures were down slightly from the Census Bureau reports for the previous year, because 3 million more people received coverage under government programs. The Census Bureau reports that in 2007 nearly 37 million of the uninsured were employment-age adults (ages 18 to 64) and more than 27 million worked at least part time. Approximately 61% of the roughly 45 million uninsured live in households with incomes under $50,000 (13.5 million below $25,000 and 14.5 million at $25,000 to $49,000). And 38% live in households with incomes of $50,000 or more (8.5 million at $50,000 to $74,999 and 9.1 million at $75,000 or more). Today,45.7 million Americans lack adequate medical care as a result of the economic recession and high unemployment rates plaguing the United States As stated by the Census Bureau, people of Hispanic origin were the most affected by being uninsured; nearly a third of Hispanics lack health insurance. In 2004, about 33% of Latinos were uninsured as opposed to 10% of white, non-Latinos However, this rate decreased slightly from 2006 to 2007, from 15.3 to 14.8 million, a decrease of 2 percentage points (34.1% to 32.1%). -Notes on Issue- The United States Census Bureau annually reports statistics on the uninsured. According to its most recent figures, in 2008 there were 46.3 million people in the US (15.4% of the population) who were without health insurance for at least part of that year. This is up slightly from 2007, when there were 45.7 million people in the US (15.3% of the population) who were without health insurance for at least part of that year. According to the Census Bureau, the difference is in the uninsured rates between the two years is not statistically significant.[1] The percentage of the non-elderly population who are uninsured has been generally increasing since the year 2000. However, the 2007 figures were down slightly from the Census Bureau reports for the previous year, because 3 million more people received coverage under government programs. The Census Bureau reports that in 2007 nearly 37 million of the uninsured were employment-age adults (ages 18 to 64) and more than 27 million worked at least part time. Approximately 61% of the roughly 45 million uninsured live in households with incomes under $50,000 (13.5 million below $25,000 and 14.5 million at $25,000 to $49,000). And 38% live in households with incomes of $50,000 or more (8.5 million at $50,000 to $74,999 and 9.1 million at $75,000 or more). Today,45.7 million Americans lack adequate medical care as a result of the economic recession and high unemployment rates plaguing the United States As stated by the Census Bureau, people of Hispanic origin were the most affected by being uninsured; nearly a third of Hispanics lack health insurance. In 2004, about 33% of Latinos were uninsured as opposed to 10% of white, non-Latinos However, this rate decreased slightly from 2006 to 2007, from 15.3 to 14.8 million, a decrease of 2 percentage points (34.1% to 32.1%).

    37. Uninsured Are Not Self Pay All Iowa Hospitals Share IHA Principles Care Not Denied Based Upon Resources Written Financial Aid Policies Discounts Up To 1000% of Poverty Level Refrain From Aggressive Collection Policies No Sale of Home No body Liens No Bankruptcies -Notes on Issue- The Emergency Medical Treatment and Active Labor Act (EMTALA) is a U.S. Act of Congress passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act (COBRA). It requires hospitals and ambulance services to provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to pay. There are no reimbursement provisions. As a result of the act, patients needing emergency treatment can be discharged only under their own informed consent or when their condition requires transfer to a hospital better equipped to administer the treatment.-Notes on Issue- The Emergency Medical Treatment and Active Labor Act (EMTALA) is a U.S. Act of Congress passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act (COBRA). It requires hospitals and ambulance services to provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to pay. There are no reimbursement provisions. As a result of the act, patients needing emergency treatment can be discharged only under their own informed consent or when their condition requires transfer to a hospital better equipped to administer the treatment.

    38. Iowa Hospital Losses (Cost) - $115 Million annually in Medicare - $196 Million annually in Medicaid (Medicaid pays below Medicare rates) - $231 Million annually in Charity Care - $326 Million in Bad Debt -$39 Million in Community Health Improvement Services -Notes on Issue- In the United States, charity care (also known as uncompensated care) is health care provided for free or at reduced prices to low income patients. The percentage of doctors providing charity care dropped from 76% in 1996-97 to 68% in 2004-2005. Potential reasons for the decline include changes in physician practice patterns and increasing financial pressures. One estimate put the cost of uncompensated care for 2004 at $41 billion, of which $34.6 billion was funded through a patchwork of government programs. Over half of all government reimbursement for uncompensated care comes from the federal government; most of that is provided through Medicare and Medicaid. These federal funds are a primary source of support for health care providers that serve the uninsured. Increasing demand for free and low-cost health care services by uninsured patients and Medicaid beneficiaries is, along with increased competition, placing a growing financial strain on safety-net health care providers. Some safety-net providers are responding by trying to limit their charity care exposure and attract more paying customers. -Data Sources- Medicare HANYS Medicare Margins Report from HCRIS Master File 1Q 2010 (March Release) FY08 data. Medicaid FY09 (7/1/08 6/30/09) PS&R Data from IME Charity Care & Bad Dept 2009 AHA Annual Survey-Notes on Issue- In the United States, charity care (also known as uncompensated care) is health care provided for free or at reduced prices to low income patients. The percentage of doctors providing charity care dropped from 76% in 1996-97 to 68% in 2004-2005. Potential reasons for the decline include changes in physician practice patterns and increasing financial pressures. One estimate put the cost of uncompensated care for 2004 at $41 billion, of which $34.6 billion was funded through a patchwork of government programs. Over half of all government reimbursement for uncompensated care comes from the federal government; most of that is provided through Medicare and Medicaid. These federal funds are a primary source of support for health care providers that serve the uninsured. Increasing demand for free and low-cost health care services by uninsured patients and Medicaid beneficiaries is, along with increased competition, placing a growing financial strain on safety-net health care providers. Some safety-net providers are responding by trying to limit their charity care exposure and attract more paying customers. -Data Sources- Medicare HANYS Medicare Margins Report from HCRIS Master File 1Q 2010 (March Release) FY08 data. Medicaid FY09 (7/1/08 6/30/09) PS&R Data from IME Charity Care & Bad Dept 2009 AHA Annual Survey

    39. Iowa PPS Hospital Total Medicare Margins (%) This chart shows the trend of Medicare margins over the last 9 years see the effect of the BBA in 1997 and how margins are starting to turn back upward but no where near the level they were at prior to the BBA At 5.5% for 2003 down from 6.4% in 1997 -Notes on Chart- The Medicare Margins Model shows the trends in Medicare margins from 1997 through 2008. The margins are shown graphically for hospitals and for various comparison group. Medicare margins are shown for the following areas/units: inpatient, outpatient, Graduate Medical Education, psychiatric unit, rehabilitation unit, skilled nursing unit, and swing beds. Data Source: The source for the Medicare margin information in this model is the Healthcare Cost Report Information System (HCRIS) database provided by CMS. The HCRIS database includes Medicare Cost Report data for all hospitals in the U.S. and is updated on a quarterly basis. This chart shows the trend of Medicare margins over the last 9 years see the effect of the BBA in 1997 and how margins are starting to turn back upward but no where near the level they were at prior to the BBA At 5.5% for 2003 down from 6.4% in 1997 -Notes on Chart- The Medicare Margins Model shows the trends in Medicare margins from 1997 through 2008. The margins are shown graphically for hospitals and for various comparison group. Medicare margins are shown for the following areas/units: inpatient, outpatient, Graduate Medical Education, psychiatric unit, rehabilitation unit, skilled nursing unit, and swing beds. Data Source: The source for the Medicare margin information in this model is the Healthcare Cost Report Information System (HCRIS) database provided by CMS. The HCRIS database includes Medicare Cost Report data for all hospitals in the U.S. and is updated on a quarterly basis.

    40. Hospital Bad Debt/Charity (charges)

    42. Impact of Shortfalls/Losses Impacts ability to attract physicians Impacts ability to retain nurses, clinical staff Impacts health care costs for private sector Impacts ability to provide charity care and to support IowaCare program Impacts technology/infrastructure Impacts wellness/preventive programs Impacts communitiesdiminishes hospital economic impact

    43. Iowa Hospitals Economic Impact Conducted annually by IHA since 2003 Main Objective: Derive the direct economic impact and total economic impact of the five health sectors and the total health sector Use data system derived by Oklahoma State University using existing data sets Main Objective of Reports Derive the direct economic impact and total economic impact of the five health sectors and the total health sector for the state of Iowa and each county.Main Objective of Reports Derive the direct economic impact and total economic impact of the five health sectors and the total health sector for the state of Iowa and each county.

    44. Health Sector Components Hospitals Doctors and Dentists (all practitioners and staff) Nursing Homes & Assisted Living Other Medical and Health Services (includes home health care, county health departments, hospice, durable medical equipment suppliers, etc.) Pharmacies (Includes all pharmacy personnel) Direct Economic Activities Employment and income (sum of payroll and employee benefits expense) are the important direct economic activities created from the health sector. The health sector is divided into the following five components: - on slide- Direct Economic Activities Employment and income (sum of payroll and employee benefits expense) are the important direct economic activities created from the health sector. The health sector is divided into the following five components: - on slide-

    45. Economic Impact Is Measured In Terms Of: Employment Income (Salary & Benefits) Taxable Retail Sales (Please note it does not include total retail sales) Sales Tax Collections (6% Statewide Sales Tax)

    46. Secondary Impact Is Measured Through Use of Multipliers: Employment Multiplier: Indicates total jobs created due to one job in the health sector. Income Multiplier: Indicates total income generated in the county due to one dollar worth of income in the health sector. Income and Employment Multipliers The health sector and the employees in the health sector purchase a large amount of goods and services from local businesses. These impacts are referred to as secondary impacts or benefits to the economy. In economics, this measure is called the multiplier effect. In the report provided, two multipliers are utilized. The employment multiplier is the ratio between direct employment and the direct, indirect, and induced employment. For example, an employment multiplier of 2.0 indicates that if one job is created by an industry, one additional job is created in other sectors due to business (indirect) and household (induced) spending. The income multiplier is the ratio between direct income and the direct, indirect, and induced income. For example, an income multiplier of 1.54 indicates that for each dollar created in that sector, 0.54 additional dollars are created throughout the area due to business (indirect) and household (induced) spending.Income and Employment Multipliers The health sector and the employees in the health sector purchase a large amount of goods and services from local businesses. These impacts are referred to as secondary impacts or benefits to the economy. In economics, this measure is called the multiplier effect. In the report provided, two multipliers are utilized. The employment multiplier is the ratio between direct employment and the direct, indirect, and induced employment. For example, an employment multiplier of 2.0 indicates that if one job is created by an industry, one additional job is created in other sectors due to business (indirect) and household (induced) spending. The income multiplier is the ratio between direct income and the direct, indirect, and induced income. For example, an income multiplier of 1.54 indicates that for each dollar created in that sector, 0.54 additional dollars are created throughout the area due to business (indirect) and household (induced) spending.

    47. Iowa Health Care: What Does It Mean For Our State Economy? Health care is more than clinics, the hospital and doctors 3,007,856 - Iowa 2009 population 1,671,900 Iowa 2009 employment Iowa health care is: 189,318 health care jobs (11.3% of all employment in Iowa!) $8.9 billion in worker income These health jobs fuel the local economy through: 354,307 total jobs (21.2% of all employment in Iowa!) $14.3 billion in total economic impact $4.6 billion in taxable retail sales $273 million in state sales tax paid to State of Iowa Data source: Iowa Population: U.S. Census Bureau, Population Division - Last updated July 26, 2010 Iowa Employment: Iowa Workforce Development, June 2009 Data source: Iowa Population: U.S. Census Bureau, Population Division - Last updated July 26, 2010 Iowa Employment: Iowa Workforce Development, June 2009

    48. Iowa Hospital Economic Impact Iowa hospitals provide: 74,027 direct jobs with 147,980 total jobs either directly or indirectly tied to hospitals $3.7 billion in direct worker income with $6.1 billion in worker income directly or indirectly tied to hospitals $2.0 billion in retail sales, generating $117.1 million in state sales tax revenue

    49. Life Without Hospitals? Health Care, Education, & Workers Are the Keys to Economic Development No Hospitals = No Physicians No Hospitals = No New Business Payment issues are critical to specialists and access to diverse services

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