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Healthcare ReformHealthcare ReformThe current state of play and

business implicationsSession 3

July 21, 2009 1:00 PM

Audio will be available over the internet or you may dial:

1-866-642-1665 Pass code 3424411

AgendaAgenda

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Update on timing and processUpdate on timing and processHouse

• Tri-Committee draft (July 14)• Tri-Committee markups (mid-July)• Floor (late July)

Senate• HELP markup (ends mid-July)• Finance draft and markup (July)• HELP and Finance bills merged (August)• Floor (September)

Conference• Conference Committee and floor (September/October)

If Unsuccessful … • Reconciliation (October)• Medicare Package (December)

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TIMING

DevelopmentsDevelopments

House Moderate Democrat Blue Dogs Bark– The value of due process

House Leadership D’s Disavow “Deals”– The value of having the House at the table

Senate Moderates Fracture– The value of bipartisanship

Obama Engages– The value of the chief executive

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RECENT DEVELOPMENTS

Key health reform provisionsKey health reform provisions

Coverage1. Expanded eligibility for sub-populations

The young, the poor, early retirees, small business

2. Pooling mechanisms to ensure access Individual and employer mandates

3. Mandated benefit packages Basic vs. “cadillac” plans and controversial benefits

4. Market reforms Guaranteed access, cost-share limits, community

rating

5. “Public option” or “Coop Plan”

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COVERAGE

Key health reform provisions Key health reform provisions (cont.)(cont.)

Improve Quality1. Coordinated care and medical home models2. Comparative Effectiveness Research3. Prevention Trust Fund

Reduce Cost - Reform the Delivery System1. Payment bundling across episodes of care

(ACE and Care Transitions)2. Aligning provider incentives

(ACOs and Gainshare)3. Value-based purchasing4. Physician payment reform

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QUALITY – DELIVERY SYSTEMS

Key health reform provisions Key health reform provisions (cont.)(cont.)

Sources of Pay-For’s

1. Medicare Advantage Part C Plans ($270 billion total)– Capped MA payment and Competitive bidding

($170 billion)

– Coding intensity adjustments– Excise fee ($75-100 billion)

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PAYING FOR REFORM

Key health reform provisions Key health reform provisions (cont.)(cont.)

Sources of Pay-For’s (cont.)

2. Pharma ($100 billion total target)– Pharma “deal” (“$80 billion”)

• Voluntary donut hole rebates to beneficiary (“$30 billion”)• Excise tax ($50 billion)

– Medicaid rebates for Part D duals ($63 billion)– “Follow-on Biologics” ($9 billion)– Drug importation– Part D price negotiation– 340B expansions

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PAYING FOR REFORM

Key health reform provisions Key health reform provisions (cont.)(cont.)

Sources of Pay-For’s (cont.)

3. Devices ($30-60 billion total target) – High-growth, over-valued” sectors (DME)– Imaging ($4 billion)– Wheel chairs ($1 billion)– Incorporation into hospital deal?– Possible rebates– End federal preemption

4. Home Health ($57 billion total)– High-growth, “over-valued” sector– Market basket and productivity adjustments)

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PAYING FOR REFORM

Key health reform provisions Key health reform provisions (cont.)(cont.)

Sources of Pay-For’s (cont.)

5. Hospitals ($200 billion total target)– AHA/CHA/FAH “deal” ($155 billion)– Payment cuts ($135 billion) – Readmissions policy ($16 billion)– DSH reimbursement (75% reduction) ($106 billion)

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PAYING FOR REFORM

Key health reform provisions Key health reform provisions (cont.)(cont.)

Sources of Pay-For’s (cont.)

6. Shared – Multiple Providers– Share (50%) productivity adjustments– Not clear on medical liability reform– Fraud and abuse reforms– Physician payments (e.g., Physician Payment

Sunshine)– Increased funding for OIG and agency fraud efforts

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PAYING FOR REFORM

Detailed Review – AHA and Detailed Review – AHA and White House AgreementWhite House Agreement

Parties– American Hospital Association (AHA)– Catholic Hospital Association (CHA)– Federation of American Hospitals (FAH)– The White House– Senate Finance Committee

Not Parties– House negotiators– HHS

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“SIDE DEALS”

Detailed Review – AHA and Detailed Review – AHA and White House AgreementWhite House Agreement

Total savings of $155 billion

What AHA gave – 40% of DSH after 10 years ($50b)– productivity adjustments and update cuts

($84b)– readmissions pilot ($16b)

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“SIDE DEALS”

Detailed Review – AHA and Detailed Review – AHA and White House AgreementWhite House Agreement

What AHA gained -

– Deficit-neutral value-based purchasing– Time-limited ACE/bundling pilot – Specialty hospital ban – GME reform but not cuts (saves $57 billion)– Tax-exempt hospital protection– Phase in DSH cuts but not eliminate DSH (saves $70 billion)– 95% coverage trigger – avoid most UCC (saves $170

billion)– Coops and not medicare-rate public option (saves big)

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“SIDE DEALS”

Detailed Review – AHA and Detailed Review – AHA and White House AgreementWhite House Agreement

Context – – Senate Finance – only $131 billion

• DSH reimbursement (75% reduction) ($106b) plus readmissions ($25b)

– House – only $135 billion• payments cuts ($119b) and readmissions ($16b)

– White House - only $254 billion

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“SIDE DEALS”

Business Implications of AHA Business Implications of AHA and White House Agreementand White House Agreement

Payment levels – – Potentially substantial shift upward in margins

as UCC is compensated but DSH is not cut– Disproportionate impact on DSH-heavy

hospitals in urban and underserved areas– Substantial shift downward in margins due to

productivity and other cuts was likely to happen anyway

– Coop model likely favors higher hospital payments (less tied to Medicare rates)

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“SIDE DEALS”

Business Implications of AHA Business Implications of AHA and White House Agreementand White House Agreement

New price models – – Price pressure on device, drug, and other

suppliers is marginally reduced if bundling and value-based purchasing demos are time-limited and budget neutral

– Potential risk of foregoing a role in developing innovative payment systems to reward quality and end blunt price-setting

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“SIDE DEALS”

Detailed Review – Detailed Review – Device ProvisionsDevice Provisions

Total potential savings of $30-60 billion

What companies might be asked to give– Rebates– Loss of largely-indirect payment

recipient status18

“SIDE DEALS”

Detailed Review – Detailed Review – Device ProvisionsDevice Provisions

What device companies might gain– Time-limited pilots and demos

• ACOs, Bundling, Gainshare, ACE

– CER or imaging concessions– Political good will

What device companies won’t gain– Maintain federal preemption protection

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“SIDE DEALS”

Independent Medicare Advisory Independent Medicare Advisory Council Act of 2009Council Act of 2009

White House proposal, similar to Sen. Rockefeller’s bill Five member Council, insulated from influence, able to impose

cuts– Bipartisan, appointed by President, confirmed by Senate

• Medical or other expertise in healthcare policy Make annual recommendations to President to set payment

updates across all sites of service Budget neutral recommendations and authority to make

broader reforms to improve quality/efficiency President accepts/rejects recommendations within 30 days Congress accepts or passes joint resolution within 30 days CMS implements through rulemaking

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IMAC

IMAC can achieve savings that IMAC can achieve savings that President seeksPresident seeks

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IMAC

Medicare rulemaking in the context Medicare rulemaking in the context of healthcare reformof healthcare reform

Fix the Sustainable Growth Rate (SGR) formula

Focus on quality

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Proposed 2010 Physician Payment Rule

RULEMAKING

SGR ties payment updates to spending SGR ties payment updates to spending target; updates decrease when spending target; updates decrease when spending

exceeds inflationexceeds inflation

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Actual spending from 1996-2009 exceeded target by $70 B

RULEMAKING

The House and Senate take The House and Senate take differing approaches to SGR differing approaches to SGR

reformreform House

– Permanent fix tied to Medicare Economic Index– Different update factor for ACOs

Senate– 1 percent update for 2010-2011; then no update

for 2012• Revert to current law in 2013

– 1 percent update for 2010-2011• Revert to current law in 2012 with -3 percent floor, or -6

percent floor for areas that exceed 110 percent of national spending average

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RULEMAKING

CMS offers Congress tools to CMS offers Congress tools to moderate growth in physician moderate growth in physician

spendingspending Suggests revising definition of physician services– Removing Part B drugs from calculation

reduces year-over-year spending increases beginning in 2010

– Revising actual spending calculation could have impact

CMS required to apply -21 percent update unless Congress acts

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RULEMAKING

Reporting on quality is a Reporting on quality is a central themecentral theme House

– Extends payment for reporting PQRI through 2012

– Creates review process for PQRI submissions– Integrates “meaningful use” of HIT incentives

Senate– Extends current program, imposes penalties for

failure to report– Imposes penalties up to 5 percent for failure to

report

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RULEMAKING

CMS proposes expanding PQRICMS proposes expanding PQRI

Extends incentive to physician practice groups Proposes new measures

– High impact on healthcare– Support CMS/HHS priorities– Prevention, chronic conditions– High cost/high volume– Disparities– Improve care coordination– Reduce unwarranted geographic variation

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“We seek to achieve broad ability to assess quality of care furnished to Medicare beneficiaries … and ultimately compare performance among physicians…”

RULEMAKING

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What should you be doing What should you be doing now?now?

Assume FFS model transitions to payment for quality/efficiency– Larger market and “side deal” savings produce net payment cuts

Focus on your business plan, business model, with 3-year horizon

Reach out to customers and stakeholders to educate/engage

Consider roles of new decision makers, regulatory authorities– Requirements for annual cuts to Medicare program spend– Five-year review of payment policy, amounts

• Position of product/service within broader delivery system• Impact on quality of care, access• Value of innovation established through new metrics

BUSINESS IMPACT/IMPLICATIONS

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Vince Ventimiglia Senior Vice Presidentvincent.ventimiglia@bakerd.com202-312-7463

Ed Dougherty Senior Vice Presidentedward.dougherty@bakerd.com202-312-7425

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