What’s Happening in the Healthcare Industry ?

1. What’s Happening in the Healthcare Industry? David C. Salsberry, Executive Vice President/CFO JPS Health Network August 14, 2012

2. Healthcare Industry Discussion Outline • Nationwide…….Accountable Care Act • In Texas……1115 Waiver • Hot Topics in the Healthcare Industry…… • Where do we go from here….

3. ACA Supreme Court Ruling Individual Mandate vs Medicaid Expansion National Association of Public Hospitals and Health Systems Roberts Breyer Kagan Scalia Thomas Kennedy Alito Ginsburg Sotomayor Expansion Constitutional Expansion Coercive Penalty Coercive Remedy: No Loss of Existing Funds

4. The New “Status Quo” • Most of ACA remains in place • Exchanges • Insurance Reforms • Delivery System Reforms • Payment Changes • Revenue Raisers • Etc. • The foundation of the ACA’s affordable coverage is now unstable • Repositioning of power between the federal government and the states • No change to ACA provisions that assumed Medicaid coverage would occur without further legislative action

5. Pre-Decision:Congress’ Underlying Premise • Individual Mandate + Subsidies • Medicaid DSH cuts • Medicare DSH cuts • Mandatory Medicaid Expansion • Other provider payment cuts

6. Post Decision:Raw Deal for Hospitals • Individual Mandate + Subsidies • Medicaid DSH cuts • Medicaid Expansion • Optional • Medicare DSH cuts • Other provider payment cuts

7. Medicaid DSH Reductions Millions

8. Coverage Expansion in an Opt-Out State National Association of Public Hospitals and Health Systems 400% Citizens/ Legal Immigrants Citizens/ Legal Immigrants New Immigrants New Immigrants 133% 100% • Residual Uninsured • Undocumented immigrants • Those exempted from mandate/penalty • Those paying penalty

9. New Congressional Budget Office Estimates • “Optional” expansion saves Federal Government $84 billion over 10 years (largely from fewer people covered) • Only 1/3 of states will expand fully • In the aggregate, 3 million people will not be covered due to SCOTUS • 6-10 million fewer covered people than estimated in 2010. National Association of Public Hospitals and Health Systems

10. Options for states that opt out of the ACA’s Medicaid expansion? • Why would a state want to opt out? • Financial Risk • Concerns about the current system – Tom Suehs article • Can states opt out of the ACA’s Medicaid expansion? • Yes • CMS looking for incentives for states to participate • Impact on states’ ability to negotiate with CMS • Can states opt to implement the expansion for some period of years and then opt out? • National Association of Public Hospitals believes so • Impact on FMAP unclear for DSH and Waiver payments • States might also delay expansion

11. A Weary Populous? National Association of Public Hospitals and Health Systems

12. Can a GOP-Controlled Congress Repeal the ACA? • Reconciliation • Needs only 51 votes • Not subject to filibuster • Any items without a fiscal impact subject to a point of order (60 votes needed to overcome) • Used to adopt the ACA • Subject to Presidential veto

13. What does this mean for Texas Health Systems? • Significant federal funding is at stake • ACA Reimbursement cuts • DSH Program • Take a proactive role in encouraging Texas to adopt the Medicaid expansion • Watch for the impact on: • remaining uninsured • employers • Closely monitor the impact of political movements at the national level and the development of policies and program rules at the federal level

14. 1115 Waiver

15. Why Did Texas Adopt a Waiver? • Texas Medicaid budget shortfall • Managed care imperative • Collateral damage – elimination of UPL • CMS desire to move away from UPL programs and fund pay for performance • Increased access • Quality of care • Outcomes for a population

16. Waiver Purpose Transform current health care delivery system Become more transparent, accountable and ready to serve existing Medicaid beneficiaries, new Medicaid beneficiaries, and uncompensated care patients Enable the state to achieve Managed Care Goal and preserve funding for uncompensated care Overall goals Expand risk-based managed care statewide Support development and/or maintenance of a coordinated care delivery system through RHPs Improve outcomes while containing costs Protect and/or leverage financing to improve and prepare infrastructure for newly insured populations Transition to quality-based payment system across all providers Provide a mechanism for investments in delivery system reform 1115 Waiver Basics Paper

17. Key Constructs of the 1115a Waiver • Regional Health Partnership (RHP) • Payment program bringing providers and others together to look at the health of a population • New relationships • Care coordination component • At the same time preserves governing authority of participants • Roles • Anchor Entity • IGT Entities • Provider Participants • Collaborative Stakeholders • CMS/HHSC

18. Key Constructs - continued • Funding • How are funds generated? • Intergovernmental Transfer (IGTs) – generating federal matching funds (.42 cents of IGT returns $1.00 dollar of total funds) • How are funds paid? • 2 Pools – Uncompensated Care (UC) and Delivery System Redesign Incentive Pool (DSRIP) • Opportunity for patient care innovation • Increased care coordination and collaboration for a given region’s health outcomes • Work in process – CMS/HHSC has provided only a shell program with many details to follow • Participation is voluntary and not tied to ACA

19. RHP Principles RHPs are formed around the hospitals that used to receive Upper Payment Level (UPL) payments and one of these would serve as an anchor. Anchors serve as the single point of contact, coordinate RHP activities, and serve administrative functions. The anchor does not make decisions regarding other entities’ funds. Develop plans to address local delivery system concerns with a focus on improved access, quality, cost-effectiveness, and coordination. RHP regions should reflect delivery systems and geographic proximity. UC and DSRIP pools are dependent on RHP plan participation. Waiver funds still go directly to hospitals (not to counties) and “performing providers”.

20. RHP Principles • Anchors will bring RHP participants and stakeholders together to develop plans for public input and review. • Participants with match funds will select incentive projects and identify hospitals to receive payments based on incentive projects. • Participating hospitals will report performance metrics and receive waiver incentive payments if metrics are reached. • RHPs shall provide opportunities for public input in plan development and review. • HHSC is seeking broad local plan engagement including: • County medical associations and/or societies • Local government partners • Other key stakeholders • RHP Plans include: • Regional health assessments • Participating local public entities • Identification of hospitals receiving incentives and yearly performance measures • Incentive projects by DSRIP categories

21. Medicaid 1115(a) Demonstration – Regional Health Collaborative Collaborative Stakeholders Anchor Entity Performing Providers - Collaborative Stakeholders are those with an interest and ability to enhance the effectiveness of the Waiver projects and programs. - Collaborative Stakeholders may include County Public Health Departments, Educational Institutions, County /local government, etc. - Collaborative Stakeholders may provide unique services (transplant network, burn unit, poison control, etc.) or established community engagement, among other things. - Collaborative Stakeholders may provide important insight and perspective into community needs and healthcare challenges. -Single point of contact for RHP, -Coordinate regional needs assessments, projects, and investments under the DSRIP, -Direct and financially support RHP -Provide funding and conduit for inter-governmental transfers (“IGT”) and funding distribution to Participating Providers, -Facilitate measurement and reporting of Plan outcomes and metrics, -Facilitate public forums, meetings and communications, -Assemble and submission of Plan to State and CMS for approval, -Communicate state and federal Waiver guidelines to Participating Providers and Collaborative Stakeholders. Participating Providers criteria: -The entity provides health care to Medicaid and uncompensated care patients in the plan region, -Commitment to build relationships and collaboration among RHP members, -Identify availability of funds and community resources necessary to support RHP programs and projects, -Enable additional cost offloads to support RHP and financial draws. The roles and responsibilities include: -Actively collaborate and provide meaningful participation in determination and completion of Plan, -Estimate IGT contribution over next 4 years and fund IGT obligations, -Commit to the measurement and reporting of project and program outcomes, -Identify and recruit stakeholders and providers in its communities who may enhance the effectiveness of the Plan. JPS DSRIP Committee Chair – Public Hospital CEO Members – Hospital CFO, CMO, COO SVP- Population Health, VP – Planning, VP – Academic Affairs, VP - HTS Public Hospital Board of Managers Regional Health Collaborative Steering Committee Regional Collaborative Committees Established by RHP to effectuate the intent of the programs and projects, and provide input to the development and review of Plans. Includes: Planning, Finance, Quality/Clinical, & Elected Officials

22. DFW RHP’s By County

24. Potential UC and DSRIP Funds • * Statewide totals approved in the 1115 Waiver • ** Preliminary estimates provided in draft funding mechanics and protocol distributed June 29, 2012

25. 1115 Waiver 2) Incentive DSRIP Pool (Delivery System Redesign Incentive Pool) Category 1 – Infrastructure Development – Delivery system transformation with investments in people, places, processes, and technology Category 2 – Program Innovation and Redesign – Includes the piloting, testing, and replicating of innovative care models Category 3 – Quality Improvement – Requires hospitals to achieve improvement in four of 7-10 hospital specific interventions • Category 4 – Population Focused Improvement – Requires hospitals to report on a predetermined set of measures across four domains: 1) the patient’s experience; 2) preventative health; 3) care coordination; and 4) health outcomes of at-risk populations

26. DSRIP Funding Framework Statewide Allocation Anderson and Roers, CPAs Region/ Provider Allocation Reporting Based Requirements Category 4 Allocation Quality Improvement Initiatives Category 1-3 Allocation Quality Improvement Initiatives Category 1-3 Allocation

27. March 31, 2012 State provides general projects and quality measures to be addressed in each RHP DSRIP. September 1, 2012 RHP Draft Plans September 1, 2012 RHP Draft Plans State Milestones RHP Plan - Milestones October 31, 2012 Final RHP Plans due to HHSC September 1, 2012 State provides RHP regions and DSRIP payment protocols October 31 April 30 May 31 June 30 July 31 Plan development /collaboration September 30 August 31 February 29 March 31 Public comment on Plan – September, 2012 -Identify participation providers -Engage planning resources -Conduct preliminary planning session -roles/responsibilities -deliverables -timeline March 31, 2012 Tarrant RHP Milestones

28. Hot Topics in the Healthcare Industry…….

29. Current Industry Challenges • Workforce Availability and Engagement • IT Investment - Electronic Medical Records • Developing More Effective Models of Care: • Family Medical Home Model (FMHM) • Accountable Care Organizations (ACO) • Financial Management • Pay for Performance • Cost Reduction – movement away from “best practices” approach to using Lean and Six Sigma approaches • Balance Sheet Management • Financial Reporting – reclassification of bad debt • Industry Uncertainty

30. Where do we go from here….

31. 4 Phases of Change

32. Thoughts on Leadership in Healthcare • We have to unlearn many things that no longer apply and take on new perspectives that are unfamiliar • Those who will have the greatest success will be those who stay nimble and keep those around them in the game • Understand…………every truly great accomplishment begins with the impossible