Forecasting the Impact of Healthcare Reform Presented by: Richard L. Rollins

Forecasting the Impact of Healthcare Reform

Presented by:Richard L. Rollins

Rollins Capital Strategiesfor

West Virginia HFMA, January 23, 2014

Rollins Capital Strategies 2

AGENDA

•Change in Uninsured Population

•Expansion of Medicaid

•Change in Gross Revenue

•Bad Debts and Charity Care

•Medicare Payment Updates

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AGENDA (CONTINUED)•Other Adjustments

•Disproportionate Share

•Exchange Reimbursement

•Commercial and Other Payor Contractuals

•Summary

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PATIENT PROTECTION AND AFFORDABLE CARE ACT

• Signed Into Law 3-23-10

• The Anticipated Impact of PPACA is Profound and Far Reaching

• In Order to Plan for Impact, You Must Understand the Specific Changes That Will Occur

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CHANGE IN UNINSURED POPULATION

•Based on March, 2012 Congressional Budget Office Estimates, Prior to Supreme Court Decision

•Assumes That Medicaid Will be Expanded Per PPACA Requirements

CHANGE IN UNINSURED POPULATIONProjected Population 2013 2014 2015 2016 2017 2018Medicaid/CHIP 34,000,000 35,000,000 34,000,000 32,000,000 32,000,000 31,000,000

Employer 156,000,000 157,000,000 157,000,000 159,000,000 160,000,000 160,000,000

Non-Group/Other 25,000,000 25,000,000 27,000,000 28,000,000 28,000,000 31,000,000

Uninsured 56,000,000 56,000,000 56,000,000 56,000,000 57,000,000 58,000,000

Total 271,000,000 273,000,000 274,000,000 275,000,000 277,000,000 280,000,000

Source: March, 2012 CBO estimate on the impact on uninsured (Prior to Supreme Court decision)Assumes that State will expand Medicaid per PPACA Requirements

Projected Change in Uninsured 2013 2014 2015 2016 2017 2018Medicaid/CHIP - 13,000,000 15,000,000 17,000,000 16,000,000 16,000,000

Employer - (2,000,000) (2,000,000) (4,000,000) (5,000,000) (5,000,000)

Non-Group/Other - (1,000,000) (1,000,000) (2,000,000) (2,000,000) (3,000,000)

Exchange - 8,000,000 12,000,000 20,000,000 22,000,000 23,000,000

Uninsured - (18,000,000) (24,000,000) (30,000,000) (31,000,000) (31,000,000)

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REALLOCATION OF UNINSURED2013 2014 2015 2016 2017 2018

Medicare 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Medicaid 0.00% 72.22% 62.50% 56.67% 51.61% 51.61%Blue Cross 0.00% -9.55% -7.17% -13.38% -12.95% -14.79%Commercial 0.00% -2.01% -1.51% -2.81% -2.72% -3.11%Other Government 0.00% -3.54% -2.65% -4.95% -4.79% -5.48%Other 0.00% -1.56% -1.17% -2.19% -2.12% -2.42%Self Pay 0.00% -100.00% -100.00% -100.00% -100.00% -100.00%Exchange 0.00% 44.44% 50.00% 66.67% 70.97% 74.19%Total - - - - - -

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CHANGE IN GROSS REVENUE

•Assumes That Gross Revenue Will be Reallocated But Will Not Change in Total

•Assumes No Change in Historical Use Rates

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INPATIENT GROSS REVENUEBefore Reform 2013 2014 2015 2016 2017 2018Medicare $62,743,146 $67,468,549 $72,471,595 $77,766,935 $83,369,948 $89,296,774Medicaid 6,459,706 6,733,882 7,019,199 7,316,567 7,626,494 7,949,508Blue Cross 13,648,399 14,227,691 14,830,524 15,458,819 16,113,648 16,796,130Commercial 2,868,005 2,989,735 3,116,411 3,248,437 3,386,040 3,529,453Other Government 5,055,144 5,269,704 5,492,984 5,725,694 5,968,232 6,221,012Other 2,235,422 2,330,302 2,429,038 2,531,944 2,639,196 2,750,977Self Pay 4,961,721 5,172,316 5,391,469 5,619,879 5,857,934 6,106,043Total $97,971,543 $104,192,179 $110,751,219 $117,668,274 $124,961,492 $132,649,898

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INPATIENT GROSS REVENUEWith Reform 2013 2014 2015 2016 2017 2018Medicare $62,743,146 $67,468,549 $72,471,595 $77,766,935 $83,369,948 $89,296,774Medicaid 6,459,706 7,934,598 8,463,342 9,022,601 9,270,826 9,633,934Blue Cross 13,648,399 14,068,838 14,664,940 15,056,088 15,701,223 16,313,294Commercial 2,868,005 2,956,354 3,081,616 3,163,810 3,299,375 3,427,992Other Government 5,055,144 5,210,868 5,431,654 5,576,529 5,815,476 6,042,178Other 2,235,422 2,304,284 2,401,918 2,465,982 2,571,647 2,671,896Self Pay 4,961,721 3,509,786 3,080,839 2,609,229 2,672,040 2,842,468Exchange 0 738,902 1,155,315 2,007,099 2,260,957 2,421,362Total $97,971,543 $104,192,179 $110,751,219 $117,668,274 $124,961,492 $132,649,898

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OUTPATIENT GROSS REVENUEBefore Reform 2013 2014 2015 2016 2017 2018Medicare $91,539,225 $95,705,286 $100,065,922 $104,630,475 $109,220,939 $114,016,483Medicaid 22,897,532 23,939,627 25,030,392 26,172,165 27,320,419 28,519,972Blue Cross 47,713,106 49,884,588 52,157,488 54,536,676 56,929,369 59,428,956Commercial 9,170,502 9,587,863 10,024,716 10,481,998 10,941,876 11,422,299Other Government 11,821,515 12,359,526 12,922,665 13,512,139 14,104,958 14,724,262Other 2,894,288 3,026,011 3,163,885 3,308,208 3,453,349 3,604,975Self Pay 19,446,110 20,331,124 21,257,475 22,227,144 23,202,318 24,221,058Total $205,482,278 $214,834,025 $224,622,544 $234,868,806 $245,173,228 $255,938,005

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OUTPATIENT GROSS REVENUEWith Reform 2013 2014 2015 2016 2017 2018Medicare $91,539,225 $95,705,286 $100,065,922 $104,630,475 $109,220,939 $114,016,483Medicaid 22,897,532 28,659,352 30,724,359 32,919,691 33,833,351 35,201,643Blue Cross 47,713,106 49,260,174 51,504,624 52,943,839 55,295,820 57,513,674Commercial 9,170,502 9,456,652 9,887,527 10,147,288 10,598,611 11,019,832Other Government 11,821,515 12,128,254 12,680,855 12,922,178 13,499,918 14,014,873Other 2,894,288 2,923,740 3,056,955 3,047,323 3,185,796 3,291,277Self Pay 19,446,110 13,796,120 12,147,128 10,319,746 10,583,514 11,275,320Exchange 0 2,904,446 4,555,173 7,938,266 8,955,281 9,604,902Total $205,482,278 $214,834,025 $224,622,544 $234,868,806 $245,173,228 $255,938,005

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BAD DEBTS AND CHARITY CARE

•Assumes That the Change in Uninsured Will Translate to a Commensurate Change in Self Pay Gross Revenue

•This Will Then Translate to a Commensurate Reduction in Bad Debt and Charity Levels

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BAD DEBTS AND CHARITY CARE (CONTINUED)

•Assumes That Individuals Purchasing Coverage Through the Exchange Will Continue to Produce Bad Debts

•Primarily a Result of High Deductible/Coinsurance Plans

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BAD DEBTS AND CHARITY CARE2013 2014 2015 2016 2017 2018

Gross Revenue on Self Pay to Exchange - $8,197,534 $11,420,976 $14,918,048 $15,804,699 $16,209,373

Net Revenue on Self Pay to Exchange - $2,763,458 $3,763,765 $4,800,008 $4,948,665 $4,939,489

Exchange Coinsurance % 0.00% 30.00% 30.00% 30.00% 30.00% 30.00%

Exchange Coinsurance - 829,037 1,129,130 1,440,003 1,484,600 1,481,847

Exchange Uncollectible % 0.00% 25.00% 25.00% 25.00% 25.00% 25.00%

Exchange Bad Debts - 207,259 282,282 360,001 371,150 370,462

Reduction in Uncollectible Accounts - $7,990,275 $11,138,694 $14,558,047 $15,433,549 $15,838,851

Amount Allocated to Bad Debts - $7,239,162 $10,091,619 $13,189,542 $13,982,743 $14,349,945

Amount Allocated to Charity Care - $751,113 $1,047,075 $1,368,506 $1,450,806 $1,488,906

Bad Debt % Before Reform 7.94% 7.94% 7.94% 7.94% 7.94% 7.94%

Bad Debt % With Reform 7.94% 5.65% 4.91% 4.17% 4.14% 4.22%

Charity Care % Before Reform .82% .82% .82% .82% .82% .82%

Charity Care % With Reform .82% .59% .51% .43% .43% .44%

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MEDICARE PAYMENT ADJUSTMENTS

•Medicare Payments Will be Reduced Regardless of the Change in Uninsured

•Adjustments Are Based on IPPS Final Rule

MEDICARE PAYMENT UPDATEInpatient 2013 2014 2015 2016 2017 2018Market Basket Before Reform (1) 3.60% 1.50% 1.90% 1.90% 1.90% 1.90%

Market Basket Adjustment -0.10% -0.30% -0.20% -0.20% -0.75% -0.75%

Productivity Adjustment (2) -0.70% -0.50% -0.60% -0.70% -0.70% -0.70%

Market Basket With Reform 2.80% 0.70% 1.10% 1.00% 0.45% 0.45%

(1) 2013 and 2014 based on IPPS Final Rule. 2015-2017 is assumed to equal average of last 3 years.(2) Productivity adjustment is based on the ten-year rolling average of the multi-year productivity factor published

by the Bureau of Labor and Statistics.

Outpatient 2013 2014 2015 2016 2017 2018Market Basket Before Reform (1) 2.60% 2.50% 2.70% 2.70% 2.70% 2.70%

Market Basket Adjustment -0.10% -0.30% -0.20% -0.20% -0.75% -0.75%

Productivity Adjustment (2) -0.70% -0.50% -0.60% -0.70% -0.70% -0.70%

Market Basket With Reform 1.80% 1.70% 1.90% 1.80% 1.25% 1.25%

MEDICARE INPATIENT PAYMENTBefore Reform 2013 2014 2015 2016 2017 2018Blended Amount (with Capital) $7,138.92 $7,246.01 $7,383.68 $7,523.97 $7,666.93 $7,812.60

Medicare Discharges 3,222 3,331 3,441 3,550 3,660 3,769

Medicare Case Mix Index 1.2878 1.2878 1.2878 1.2878 1.2878 1.2878

Inpatient Payment Before Reform $29,621,473 $31,086,686 $32,717,622 $34,399,310 $36,133,092 $37,920,339

With Reform 2013 2014 2015 2016 2017 2018Blended Amount (with Capital) $7,083.76 $7,133.35 $7,211.82 $7,283.93 $7,316.71 $7,349.64

Medicare Discharges 3,222 3,331 3,441 3,550 3,660 3,769

Medicare Case Mix Index 1.2878 1.2878 1.2878 1.2878 1.2878 1.2878

Inpatient Payment With Reform $29,392.601 $30,603,368 $31,956,079 $33,301,875 $34,482,587 $35,673,250

Difference Due to Reform ($228,872) ($483,318) ($761,542) ($1,097,435) ($1,650,505) ($2,247,089)

MEDICARE OUTPATIENT PAYMENTBefore Reform 2013 2014 2015 2016 2017 2018Contractual % Before Reform 75.23% 75.59% 75.90% 76.20% 76.49% 76.79%

Contractuals Before Reform $68,696,270 $72,172,417 $75,773,976 $79,553,541 $83,376,319 $87,379,660

Inpatient Payment Before Reform $22,842,955 $23,532,869 $24,291,946 $25,076,935 $25,844,619 $26,636,823

With Reform 2013 2014 2015 2016 2017 2018

Contractual % With Reform 75.43% 75.97% 76.46% 76.95% 77.56% 78.16%

Contractuals With Reform $68,873,041 $72,535,474 $76,333,796 $80,344,766 $84,542,884 $88,938,894

Inpatient Payment With Reform $22,666,184 $23,169,812 $23,732,126 $24,285,709 $24,678,055 $25,077,589

Difference Due to Reform ($176,771) ($363,057) ($559,820) ($791,225) ($1,166,565) ($1,559,234)

OTHER ADJUSTMENTSMedicare Readmission Adj. 2013 2014 2015 2016 2017 2018Medicare IP Payment With Reform $27,612,531 $30,867,491 $32,220,203 $33,565,998 $34,746,710 $35,937,373

Readmission Adj. Factor (1) 0.9979 0.9979 0.9979 0.9979 0.9979 0.9979

Adjusted Payment With Reform $27,554,545 $30,802,669 $32,152,540 $33,495,510 $34,673,742 $35,861,905

Difference Due to Reform ($57,986) ($64,822) ($67,663) ($70,488) ($72,968) ($75,468)

Value-Based Purchasing 2013 2014 2015 2016 2017 2018DRG Payments With Reform $27,612,531 $28,749,972 $30,020,761 $31,285,053 $32,394,259 $33,512,814

Reduction to Fund VBP -1.000000% -1.250000% -1.500000% -1.750000% -2.000000% -2.000000%

VBP Adjustment Factor (1) 1.002498% 1.253123% 1.503747% 1.754372% 2.004996% 2.004996%

Net Adjustment 0.002498% 0.003123% 0.003747% 0.004372% 0.004996% 0.004996%

Difference Due to Reform $690 $898 $1,125 $1,368 $1,618 $1,674

(1) 2013 and 2014 based on IPPS Final Rule. 2015-2017 assumes the same relationship of adjustment factor to reduction to fund in 2014.

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MEDICARE DISPROPORTIONATE SHARESource: IPPS Final Rule 2013 2014 2015 2016 2017 2018DSH Reimbursement Before Reform $1,360,948 $1,428,267 $1,503,200 $1,580,464 $1,660,122 $1,742,237Estimated Medicare DSH (in Billions) - 12.77 13.47 14.22 15.00 15.8225% of Total - 3.19 3.37 3.55 3.75 3.96Factor 1 (Remaining 75% Pool) - 9.58 10.11 10.66 11.25 11.87Assumed Annual Growth 0.00% 0.00% 5.50% 5.50% 5.50% 5.50%

Estimated % Uninsured 20.66% 13.92% 11.68% 9.45% 9.39% 9.64%Uninsured as % of Base Year 100.00% 67.36% 56.52% 45.75% 45.42% 46.66%Required reduction 0.00% -0.10% -0.20% -0.20% -0.20% -0.20%

Factor 2 100.00% 67.26% 56.32% 45.55% 45.22% 46.46%

Factor 3 (Factor 1 * Factor 2) - 6.44 5.69 4.86 5.09 5.51

Hospital Specific Factor 0.000000% 0.010505% 0.010505% 0.010505% 0.010505% 0.010505%Hospital Portion of Factor 3 - 676,833 597,886 510,210 534,368 579,237

25% of DSH Before Reform - 357,067 375,800 395,116 415,031 435,559

Medicare DSH (With Reform) - $1,033,900 $973,686 $905,326 $949,398 $1,014,796Difference Due to Reform - ($394,367) ($529,514) ($675,139) ($710,724) ($727,441)

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MEDICAID CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $29,357,238 $30,673,509 $32,049,591 $33,488,732 $34,946,913 $36,469,480

Gross Revenue With Reform 29,357,238 36,593,950 39,187,701 41,942,292 43,104,177 44,835,577

Contractual % Before Reform 84.43% 84.84% 85.24% 85.64% 86.04% 86.42%

Contractual % With Reform 84.43% 84.66% 85.05% 85.43% 85.84% 86.24%Contractual Before Reform 24,785,146 26,023,896 27,320,638 28,678,741 30,066,979 31,518,336

Contractual With Reform 24,785,146 30,980,731 33,328,181 35,829,335 37,002,047 38,665,915

Difference Due to Reform $0 $963,606 $1,130,568 $1,302,967 $1,222,196 $1,218,518

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MEDICAID DISPROPORTIONATE SHARE2013 2014 2015 2016 2017 2018

DSH Reimb. Before Reform $2,997,000 $2,997,000 $2,997,000 $2,997,000 $2,997,000 $2,997,000Decrease % Due to Reform (1) 0.00% 5.05% 5.94% 5.83% 17.14% 17.14%DSH Decrease Due to Reform - 151,349 178,022 174,725 513,686 513,686Medicaid DSH With Reform - $2,845,652 $2,818,978 $2,822,275 $2,483,314 $2,483,314Difference Due to Reform - ($151,349) ($178,022) ($174,725) ($513,686) ($513,686)

(1) DSH decrease % based on AHA estimates

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EXCHANGE REIMBURSEMENT

•Will the Exchange Pay Based on Existing Commercial Rates, or

•Discounted Commercial Rates, or

•Rates Similar to Medicare or Medicaid

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EXCHANGE REIMBURSEMENT2013 2014 2015 2016 2017 2018

Exchange Revenue With Reform - $3,643,349 $5,710,488 $9,945,365 $11,216,238 $12,026,264

Medicare Contr. % With Reform (1) 0.00% 66.29% 67.05% 67.82% 68.69% 69.53%

Exchange Contr. With Reform - 2,415,145 3,828,605 6,745,360 7,704,282 8,361,482

Exchange Net Rev. With Reform - 1,228,204 1,881,883 3,200,006 3,511,956 3,664,782

Difference Due to Reform - $1,228,204 $1,881,883 $3,200,006 $3,511,956 $3,664,782

(1) For purposes of presentation, it is assumed the Exchange will pay based on Medicare like rates.

Rollins Capital Strategies 26

COMMERCIAL AND OTHER PAYOR CONTRACTUALS

•Ability to Cost Shift Will be Lessened

•Commercial Carriers Will Likely Attempt to Lessen Impact of Previous Cost Shifting

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BLUE CROSS CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $61,361,505 $64,112,279 $66,988,011 $69,995,494 $73,043,017 $76,225,086

Gross Revenue With Reform 61,361,505 63,329,013 66,169,564 67,999,927 70,997,043 73,826,969

Payment Incr. Before Reform 0.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Payment Incr. With Reform 0.00% 2.00% 2.00% 2.00% 2.00% 2.00%Contractual % Before Reform 8.61% 9.49% 10.36% 11.22% 12.07% 12.92%

Contractual % With Reform 8.61% 10.37% 12.09% 13.78% 15.44% 17.07%

Contractuals Before Reform 5,282,830 6,083,045 6,938,898 7,853,744 8,819,219 9,847,861

Contractuals With Reform 5,282,830 6.565,235 8,000,285 9,371,170 10,961,377 12,598,847

Difference Due to Reform $0 ($1,265,457) ($1,879,834) ($3,512,994) ($4,188,132) ($5,149,103)

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COMMERCIAL CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $12,038,507 $12,577,597 $13,141,127 $13,730,436 $14,327,916 $14,951,752

Gross Revenue With Reform 12,038,507 12,413,006 12,969,143 13,311,097 13,897,985 14,447,824

Payment Incr. Before Reform 0.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Payment Incr. With Reform 0.00% 2.00% 2.00% 2.00% 2.00% 2.00%Contractual % Before Reform 7.54% 8.43% 9.31% 10.18% 11.04% 11.90%

Contractual % With Reform 7.54% 9.32% 11.06% 12.77% 14.45% 16.09%

Contractuals Before Reform 907,449 1,059,907 1,223,105 1,397,690 1,582,254 1,779,036

Contractuals With Reform 907,449 1,156,396 1,434,378 1,699,869 2,007,954 2,325,094

Difference Due to Reform $0 ($261,081) ($383,258) ($721,518) ($855,630) ($1,049,986)

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OTHER GOVERNMENT CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $16,876,659 $17,629,231 $18,415,649 $19,237,833 $20,073,190 $20,945,274

Gross Revenue With Reform 16,876,659 17,339,122 18,112,510 18,498,707 19,315,395 20,057,051

Contractual % Before Reform 51.98% 52.91% 53.81% 54.70% 55.57% 56.43%

Contractual % With Reform 51.98% 52.91% 53.81% 54.70% 55.57% 56.43%Contractual Before Reform 8,773,082 9,327,082 9,909,931 10,523,243 11,155,056 11,818,643

Contractual With Reform 8,773,082 9,173,595 9,746,804 10,118,936 10,733,934 11,317,451

Difference Due to Reform $0 ($136,621) ($140,012) ($334,818) ($336,674) ($387,032)

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OTHER INSURANCE CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $5,129,710 $5,356,313 $5,592,923 $5,840,152 $6,092,545 $6,355,952

Gross Revenue With Reform 5,129,710 5,228,025 5,458,873 5,513,305 5,757,442 5,963,173

Payment Incr. Before Reform 0.00% 2.00% 2.00% 2.00% 2.00% 2.00%

Payment Incr. With Reform 0.00% 1.00% 1.00% 1.00% 1.00% 1.00%Contractual % Before Reform 41.84% 42.95% 44.05% 45.13% 46.18% 47.22%

Contractual % With Reform 41.84% 43.51% 45.14% 46.73% 48.26% 49.75%

Contractuals Before Reform 2,146,063 2,300,777 2,463,768 2,635,512 2,813,701 3,001,131

Contractuals With Reform 2,146,063 2,274,910 2,464,308 2,576,124 2,778,677 2,966,963

Difference Due to Reform $0 ($102,422) ($134,591) ($267,459) ($300,078) (358,612)

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SELF PAY CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $24,407,831 $25,503,441 $26,648,944 $27,847,023 $29,060,253 $30,327,101

Gross Revenue With Reform 24,407,831 17,305,906 15,227,968 12,928,975 13,255,554 14,117,788

Contractual % Before Reform 18.00% 18.00% 18.00% 18.00% 18.00% 18.00%

Contractual % With Reform 18.00% 18.00% 18.00% 18.00% 18.00% 18.00%Contractual Before Reform 4,394,028 4,591,265 4,797,485 5,013,170 5,231,582 5,459,647

Contractual With Reform 4,394,028 3,115,502 2,741,420 2,327,543 2,386,336 2,541,560

Difference Due to Reform $0 ($6,721,771) ($9,364,911) ($12,232,421) ($12,959,453) ($13,291,226)

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SUMMARY2013 2014 2015 2016 2017 2018

Bad Debts - $7,239,162 $10,091,619 $13,189,542 $13,982,743 $14,349,945

Charity Care - 751,113 1,047,075 1,368,506 1,450,806 1,488,906

Medicare Inpatient (228,872) (483,318) (761,542) (1,097,435) (1,650,505) (2,247,089)

Medicare Outpatient (176,771) (363,057) (559,820) (791,225) (1,166,565) (1,559,234)

Medicare Readmission Adjustment (57,986) (64,822) (67,663) (70,488) (72,968) (75,468)

Value Based Purchasing 690 898 1,125 1,368 1,618 1,674

Medicare DSH - (394,367) (529,514) (675,139) (710,724) (727,441)

Medicaid 963,606 1,130,568 1,302,967 1,222,196 1,218,518

Medicaid DSH - (151,349) (178,022) (174,725) (513,686) (513,686)

Exchange Contractuals - 1,228,204 1,881,883 3,200,006 3,511,956 3,664,782

Blue Cross Contractuals - (1,265,457) (1,879,834) (3,512,994) (4,188,132) (5,149,103)

Commercial Contractuals - (261,081) (383,258) (721,518) (855,630) (1,049,986)

Other Government Contractuals - (102,422) (134,591) (267,459) (300,078) (358,612)

Other Insurance Contractuals - (136,621) (140,012) (334,818) (336,674) (387,032)

Self Pay Contractuals - (6,721,771) (9,364,911) (12,232,421) (12,959,453) (13,291,226)

Difference Due to Reform (462,940 $238,718 $153,101 ($815,835) ($2,585,096) ($4,635,052)

Rollins Capital Strategies 33

CHANGE IN UNINSURED POPULATION

• Question: What Happens if Commercial Insurance Cancellations are Higher and the Change in Uninsured is Lower Than CBO Estimate?

• Answer: Train Wreck

CHANGE IN UNINSURED AND EXCHANGE IF CBO ESTIMATES ARE INCORRECT

Assumptions 2013 2014 2015 2016 2017 2018Assumed Increase in Commercial Insurance Cancellations

- 100% 100% 100% 100% 100%

Assumed Decrease in CBO Estimate of Change in Uninsured

- 75% 75% 75% 75% 75%

Adjusted Change in Uninsured 2013 2014 2015 2016 2017 2018Medicaid/CHIP - 13,000,000 15,000,000 17,000,000 16,000,000 16,000,000

Employer - (4,000,000) (4,000,000) (8,000,000) (10,000,000) (10,000,000)

Non-Group/Other - (2,000,000) (2,000,000) (6,000,000) (4,000,000) (6,000,000)

Exchange - 5,000,000 6,000,000 12,000,000 12,500,000 13,750,000

Uninsured - (12,000,000) (15,000,000) (15,000,000) (14,500,000) (13,750,000)

Total - - - - - -

35

REALLOCATION OF UNINSURED2013 2014 2015 2016 2017 2018

Medicare 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Medicaid 0.00% 108.33% 100.00% 113.33% 110.34% 116.36%Blue Cross 0.00% -28.66% -22.93% -53.51% -55.35% -66.71%Commercial 0.00% -6.02% -4.82% -11.24% -11.63% -14.02%Other Government 0.00% -10.62% -8.49% -19.82% -20.50% -24.71%Other 0.00% -4.69% -3.76% -8.76% -9.07% -10.93%Self Pay 0.00% -100.00% -100.00% -100.00% -100.00% -100.00%Exchange 0.00% 41.67% 40.00% 80.00% 86.21% 100.00%Total - - - - - -

36

INPATIENT GROSS REVENUEWith Reform 2013 2014 2015 2016 2017 2018Medicare $62,743,146 $67,468,549 $72,471,595 $77,766,935 $83,369,948 $89,296,774Medicaid 6,459,706 7,934,598 8,463,342 9,022,601 9,270,826 9,633,934Blue Cross 13,648,399 13,909,985 14,499,356 14,653,358 15,288,797 15,830,458Commercial 2,868,005 2,922,973 3,046,821 3,079,182 3,212,710 3,326,532Other Government 5,055,144 5,152,031 5,370,325 5,427,364 5,662,721 5,863,343Other 2,235,422 2,278,266 2,374,797 2,400,021 2,504,097 2,592,814Self Pay 4,961,721 4,063,963 3,947,326 4,114,554 4,367,758 4,658,490Exchange 0 461,814 577,657 1,204,260 1,284,635 1,447,553Total $97,971,543 $104,192,179 $110,751,219 $117,668,274 $124,961,492 $132,649,898

37

OUTPATIENT GROSS REVENUEWith Reform 2013 2014 2015 2016 2017 2018Medicare $91,539,225 $95,705,286 $100,065,922 $104,630,475 $109,220,939 $114,016,483Medicaid 22,897,532 28,659,352 30,724,359 32,919,691 33,833,351 35,201,643Blue Cross 47,713,106 48,635,761 50,851,760 51,351,002 53,662,271 55,598,393Commercial 9,170,502 9,325,441 9,750,337 9,812,577 10,255,345 10,617,364Other Government 11,821,515 11,896,981 12,439,045 12,332,217 12,894,879 13,305,484Other 2,894,288 2,821,470 2,950,025 2,786,438 2,918,243 2,977,580Self Pay 19,446,110 15,974,455 15,563,508 16,273,445 17,299,974 18,478,997Exchange 0 1,815,279 2,277,587 4,762,960 5,088,228 5,742,061Total $205,482,278 $214,834,025 $224,622,544 $234,868,806 $245,173,228 $255,938,005

38

BAD DEBTS AND CHARITY CARE2013 2014 2015 2016 2017 2018

Gross Revenue on Self Pay to Exchange - $5,465,023 $7,138,110 $7,459,024 $7,392,520 $7,189,614

Net Revenue on Self Pay to Exchange - $1,842,305 $2,352,353 $2,400,004 $2,314,698 $2,190,902

Exchange Coinsurance % 0.00% 30.00% 30.00% 30.00% 30.00% 30.00%

Exchange Coinsurance - 552,692 705,706 720,001 694,409 657,271

Exchange Uncollectible % 0.00% 25.00% 25.00% 25.00% 25.00% 25.00%

Exchange Bad Debts - 138,173 176,426 180,000 173,602 164,318

Reduction in Uncollectible Accounts - $5,326,850 $6,961,683 $7,279,024 $7,218,918 $7,025,297

Amount Allocated to Bad Debts - $4,826,108 $6,307,262 $6,594,771 $6,540,315 $6,364,895

Amount Allocated to Charity Care - $500,742 $654,422 $684,253 $678,603 $660,402

Bad Debt % Before Reform 7.94% 7.94% 7.94% 7.94% 7.94% 7.94%

Bad Debt % With Reform 7.94% 6.41% 6.04% 6.05% 6.16% 6.29%

Charity Care % Before Reform .82% .82% .82% .82% .82% .82%

Charity Care % With Reform .82% .67% .63% .63% .64% .65%

39

EXCHANGE REIMBURSEMENT2013 2014 2015 2016 2017 2018

Exchange Revenue With Reform - $2,277,093 $2,855,244 $5,967,219 $6,372,862 $7,189,614

Medicare Contr. % With Reform 0.00% 66.29% 67.05% 67.82% 68.69% 69.53%

Exchange Contr. With Reform - 1,509,466 1,914,303 4,047,216 4,377,433 4,998,712

Exchange Net Rev. With Reform - 767,627 940,941 1,920,003 1,995,429 2,190,902

Difference Due to Reform - 767,627 940,941 1,920,003 1,995,429 2,190,902

40

BLUE CROSS CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $61,361,505 $64,112,279 $66,988,011 $69,995,494 $73,043,017 $76,225,086

Gross Revenue With Reform 61,361,505 62,545,746 65,351,116 66,004,360 68,951,068 71,428,851

Payment Incr. Before Reform 0.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Payment Incr. With Reform 0.00% 2.00% 2.00% 2.00% 2.00% 2.00%Contractual % Before Reform 8.61% 9.49% 10.36% 11.22% 12.07% 12.92%

Contractual % With Reform 8.61% 10.37% 12.09% 13.78% 15.44% 17.07%

Contractuals Before Reform 5,282,830 6,083,045 6,938,898 7,853,744 8,819,219 9,847,861

Contractuals With Reform 5,282,830 6.484,035 7,901,330 9,096,158 10,645,495 12,189,599

Difference Due to Reform $0 ($1,967,523) ($2,599,327) ($5,233,549) ($5,918,225) ($7,137,973)

41

SELF PAY CONTRACTUALS2013 2014 2015 2016 2017 2018

Gross Revenue Before Reform $24,407,831 $25,503,441 $26,648,944 $27,847,023 $29,060,253 $30,327,101

Gross Revenue With Reform 24,407,831 20,038,418 19,510,834 20,387,999 21,667,732 23,137,487

Contractual % Before Reform 18.00% 18.00% 18.00% 18.00% 18.00% 18.00%

Contractual % With Reform 18.00% 18.00% 18.00% 18.00% 18.00% 18.00%Contractual Before Reform 4,394,028 4,591,265 4,797,485 5,013,170 5,231,582 5,459,647

Contractual With Reform 4,394,028 3,607,423 3,512,444 3,670,356 3,900,741 4,165,334

Difference Due to Reform $0 ($4,481,180) ($5,853,069) ($6,116,211) ($6,061,679) ($5,895,302)

42

SUMMARY2013 2014 2015 2016 2017 2018

Bad Debts - $4,826,108 $6,307,262 $6,594,771 $6,540,315 $6,364,895

Charity Care - 500,742 654,422 684,253 678,603 660,402

Medicare Inpatient (228,872) (483,318) (761,542) (1,097,435) (1,650,505) (2,247,089)

Medicare Outpatient (176,771) (363,057) (559,820) (791,225) (1,166,565) (1,559,234)

Medicare Readmission Adjustment (57,986) (64,822) (67,663) (70,488) (72,968) (75,468)

Value Based Purchasing 690 898 1,125 1,368 1,618 1,674

Medicare DSH - (394,367) (529,514) (675,139) (710,724) (727,441)

Medicaid 963,606 1,130,568 1,302,967 1,222,196 1,218,518

Medicaid DSH - (151,349) (178,022) (174,725) (513,686) (513,686)

Exchange Contractuals - 767,627 940,941 1,920,003 1,995,429 2,190,902

Blue Cross Contractuals - (1,967,523) (2,599,327) (5,233,549) (5,918,225) (7,137,973)

Commercial Contractuals - (410,339) (536,221) (1,087,305) (1,223,445) (1,472,817)

Other Government Contractuals - (174,887) (208,127) (441,585) (473,452) (555,964)

Other Insurance Contractuals - (273,243) (280,025) (669,636) (673,348) (774,064)

Self Pay Contractuals - (4,481,180) (5,853,069) (6,116,211) (6,061,679) (5,895,302)

Difference Due to Reform (462,940 ($1,705,104) ($2,539,013) ($5,853,936) ($8,026,435) ($10,522,647)

43

SUMMARY• Potential Impact of PPACA is Profound and Far

Reaching• To Cope With Impact, Hospitals Will Need to Change

the Way They Operate• To Plan for the Needed Changes, a Hospital Must

Understand the Impact That PPACA Will Have on Their Operations

• A Hospital Will Need to Plan Strategies and Operational Changes to Mitigate Impact

Rollins Capital Strategies 44

Questions & Answers

Rollins Capital Strategies 45

Richard L. Rollins

Rollins Capital Strategies

Roswell, Georgia

(919)618-4698

[email protected]