A renowned expert on health care and health care law, Linda Rouse O’Neill, Vice President of Government Affairs at HIDA shared this presentation at AORN's 60th Annual Congress in early March 2013. These slides provide an overview of the current (and future) state of health care in the U.S. including the sequestration, the Affordable Health Care Act, and other pressing issues that affect the health care industry.

1. Healthcare Reform and the Impact
on Healthcare Manufacturers
Linda Rouse O’Neill
Vice President, Government Affairs
March 5, 2013

2. Agenda
 Sequestration and Healthcare
 Status of Reform
 Medicaid and Insurance Exchanges
 Provider Impact
 Other Key Provisions
 Federal Gift Disclosure
 Lesser Known Provisions
 Opportunities in Uncertain Times

3. Sequestration and Healthcare

4. The fiscal cliff impacted healthcare in multiple
ways
 2% budget sequestration – Every year until 2021
 Congress postponed cuts until March 1, 2013
 Medicare - $123 billion total
Elements of the Cliff Feb-March Showdown
 Sequestration Mid-Feb Debt Limit
Mid-Feb POTUS State of the
 Physician Pay Cut Union Address
 2001/2003 Tax Cuts Mid-Feb President’s Budget Goes
to Congress
 Tax Extenders March 1 2% Budget Sequestration
 Payroll Tax Holiday Kicks In
March 27 Federal Funding
 Alternative Minimum Tax Appropriations Expire

5. Sequestration projected to cut $123 billion in
Medicare provider payments from 2013 to 2021
 CBO projects
a gradual
increase in
Medicare
reductions
 Congress
delayed start
date from
January 1 to
March 1, 2013
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6. Healthcare budget biopsy
Programs Impacted by Sequestration 2013 Cuts
Medicare $11 billion
Maternal and Child Health Block Grant $42 million
AIDS Drug Assistance Program $73 million
HIV Preventions and Testing $26 million
Breast and Cervical Cancer Testing $12 million
Childhood Immunization Grants $14 million
Public Health Emergency Preparedness Grants $48 million
Medicaid is exempt, but public health programs are not. This list is not a comprehensive list of programs impacted
by the budget sequestration.

7. Status of Reform

8. Status of the main provisions
Insurance Programs/Funding
 Individual Mandate – 2014  Accountable Care Organizations –
In Effect
? Medicaid Expansion – 2014  Centers for Medicare and
Medicaid Innovation – In Effect
 Health Insurance Exchanges -  CLASS Act for Long-Term Care
2014 Insurance – On Hold
 Employer Mandate - 2014  Independent Payment Advisory
Board – No Nominations Yet
 Guaranteed Coverage for Pre-  Comparative Effectiveness
existing Conditions - 2014 Research (PCORI) – In Effect
 Premium Tax Credits - 2014  Medicare Provider Cuts – 2012
 Ban on Coverage Limits – In  Medical Device Tax - 2013
Effect

9. Reform hinges on insured population

10. Medicaid: Breaking down the SCOTUS decision
 Federal government cannot penalize states that do
not expand Medicaid eligibility
 11 million as opposed to 16 million eligible individuals
Medicaid coverage expansion will unfold one-third at a time
33% States that expand in 2014
33% States that delay coverage expansion until 2015
33% States that delay longer than one year
Source: Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated
for the Recent Supreme Court Decision. Congressional Budget Office. July 2012.

11. Expectations for 2014
 Increased patient load
 Providers adopting “medical homes” to
coordinate care
 Potential impact on healthcare workforce
(i.e., exacerbate shortages)
 Expanded benchmark benefits
package = increased market access
to products and services
 ACA lists ten broad categories of “essential
health benefits” that will be mandatory cover
under Medicaid
 Medicaid must provide preventive services
with no cost-sharing

12. Status of Reform
Provider Impact

13. Payment Drivers are Changing
Mandatory
 Emphasis on Coming to a market near you!
quality  Value-based purchasing
 Readmissions policy
 Skin in the game
 Infection policies
 Reduced costs
Voluntary
 Accountable care
organizations (ACOs)
 Bundled payment pilot
program

14. Value-based Purchasing (VBP)
Rewards Quality
Value-based Purchasing1
Hospital Medicare reimbursement will be tied to performance on process
measures, outcomes for certain clinical conditions, and patient experience
measures.
More than 3,000 hospitals are required
to participate2
1% of Medicare hospital reimbursement is tied
to VBP in the first year, equivalent to $850 million.
Four quality measures will be added
October 1, 2013 (FY2014).
Now, more than ever, hospitals need help
maximizing their reimbursement
1 Centers for Medicare and Medicaid Services (CMS). www.cms.gov/hospital-value-based-purchasing/.
2 CMS. FY2013 Program: Frequently Asked Questions about Hospital VBP. March 9, 2012.

15. The Carrots and Sticks Approach
 Hospitals can earn back more than their 1% share in FY2013, or they can lose out on the 1% share by not meeting performance benchmarks.
 By 2016, 2% of hospital Medicare pay will be tied to VBP.
Measure Domains Total Measures
FY2013
• 12 Clinical Process of Care 20
• 8 Patient Experience of Care (Hospital Consumer
Assessment of Healthcare Providers and Systems –
HCAHPS)
FY2014
• 12 Clinical Process of Care 24
• 9 Patient Experience of Care (Hospital Consumer
Assessment of Healthcare Providers and Systems –
HCAHPS)
• 3 Mortality
CMS will assess each hospital’s improvement from the baseline period performance to the performance period.

16. Hospital readmissions reduction program is
underway
 Hospital payments reduced for
excess readmission rates within
30 days of discharge:
 Heart attack, heart failure, and
pneumonia
 FY2013-14, up to 2% across-the-
board cut/FY2015 up to 3%
 More than 2000 hospitals are
being penalized in FY2013
 Performance based on July 2, 2008 –
June 30, 2011 readmissions
 Reducing preventable readmissions;
encourage acute and post-acute
provider collaboration

17. Readmissions reduction - $280 million in 2013
 Hospitals hit hardest in New Jersey, New York, D.C.,
Arkansas, Kentucky, Mississippi, Illinois, and
Massachusetts
 Safety-net hospitals hit harder than others
 Highly recognized institutions are on the list:
 Hackensack University Medical Center
 North Shore University Hospital
 Beth Israel Deaconess Medical Center
 A teaching hospital of Harvard Medical School
 Massachusetts General Hospital
Source: Rau, Jordan. “Medicare To Penalize 2,217 Hospitals For Excess Readmissions.”
Kaiser Health News. August 13, 2012.
© 2012 Copyright Health Industry Distributors Association. All rights reserved.

18. NO END-GAME FOR HACs
 1% cut across-the-board to hospitals in the top
quartile of national infection rates (infections and
rates are to be determined in regulatory rulemaking
process)
 Begins in 2015; (no sunset date)
 Projected to save $1.4 billion over 10 years
 HHS required to submit a
report to Congress with
regard to establishing a HAC
policy in post-acute settings

19. MULTIPLE PENALTIES = 1 CONDITION*
Hospital-acquired Conditions Medicare Value-based 1% cut per health Medicaid preventable
(not eligible for higher purchasing reform policy conditions
payment) (not eligible for higher payment)
(FY2008) (FY2013)** (FY 2015)*** (July 1, 2012)
Catheter associated UTI X ? ? X
Surgical site infections X ? ? X
Vascular cath-assoc infection X ? ? X
Foreign object retained after surgery X ? X
Air embolism X ? X
Blood incompatibility X ? X
Pressure ulcer stages III or IV X ? X
Falls and trauma X ? X
DVT/PE after hip/knee replacement X ? X
Manifestations of poor glycemic control X ? X
Ventilator associated pneumonia ? ?
MRSA ? ?
Clostridium difficile ? ?
Central line assoc. blood stream infection X (New-FY2013) X (New-FY2013)
* This table is meant to provide a snapshot of HAC/HAI only. Details on all the HAI quality measures, which include specific surgeries and patient safety indicators that affect market basket updates and
value-based purchasing payments for hospitals, can be found on the Centers for Medicare and Medicaid Services (CMS) Web site at www.cms.gov.
** Value-based purchasing is in effect as of FY2013; CMS may adopt HACs measures as early as FY2015.
*** CMS has not yet proposed regulations to implement infection policies included in healthcare reform.

20. Hospital payment tied to performance
 % of hospital
pay tied to
performance
 ACO amount is
unknown and
depends on
physician
participation/
pay model
© 2012 Copyright Health Industry Distributors Association. All rights reserved.

21. What is an ACO?
Groups of healthcare providers who contract with a
payer to work together to coordinate care, meet
performance benchmarks on quality measures, and
reduce overall cost to provide care.
Specifically ACO providers agree to work together to:
Perform well
Coordinate Reduce Share in achieved
on quality
patient care spending cost savings
measures

22. Each ACO is unique
FEDERAL ACO PRIVATE SECTOR
PROGRAMS ACOS
Healthcare
32 - Pioneer 221- Medicare Providers
ACO Demo Shared Savings
Program
Insurers
6 - Physician Group
Practice Demo Advanced Payment
Model ACOs
The framework, or rules, for each ACO depends on the “payer”

23. Other Key Provisions

24. Gift disclosure final rule
 Covered devices are those requiring premarket (510k) or pre-
notification approval from FDA. Covered drugs are those requiring a
prescription.
 If sales of covered products are more than 10 percent of total (gross)
revenue, then company must report on gifts and transfers of value
related to all products it sells.
 If sales of covered products are less than 10 percent of revenue
then a distributor must only report on payments or transfers
associated with the sale of covered products.
 Distributors must now comply with federal gift disclosure reporting
requirements if they “Hold title” to covered products.

25. Gift disclosure final rule
What is in?
Payments, whether cash or in kind transfers, to all covered
recipients including: compensation; food, entertainment or gifts;
travel; consulting fees; honoraria; research funding or grants;
education or conference funding; physician ownership or investment
interests including stock and stock options; royalties or licenses; and
charitable contributions.
What is out?
Small payments or gifts of $10 or less would not need to be reported
unless the total annual payment amount to any covered recipient
exceeds $100.
Also: educational materials that directly benefit the patient
(anatomical models, wall charts, etc.), product samples for patient
use, in-kind items used in the provision of charity care, discounts
and rebates.

26. Key dates around the corner
 Key dates:
 August 1, 2013: Data collection begins.
 March 31, 2014: Required data must be submitted to CMS for
August 1 through December 31, 2013.
 September 30, 2014: CMS publicly posts information.

27. Device Tax – chances of repeal?
■ House and Senate bipartisan repeal legislation:
Reps. Paulsen (R-MN) and Kind (D-WI)
Senators Hatch (R-UT) and Klobuchar (D-MN)
Possible delay – Led by Senate Democrats?
4 Democrats on repeal bill
More House Democrats cosponsoring repeal this year

28. Lesser Known Measures to
Watch

29. Home and community-based LTC options
Long-term services and supports help older adults and people with
disabilities accomplish everyday tasks (e.g., bathing, getting dressed,
fixing meals, and managing a home).
Four provisions to incentivize states to shift long-term services and
supports spending toward non-institutional care.
 State Balancing Incentive Payments Program
 Money Follows the Person Rebalancing Demonstration
 Community First Choice Option
 Home and Community-Based Services State Plan Option

30. CER and the PCORI
■ The Patient-Centered Outcomes Research Institute is tasked with
overseeing comparative effectiveness research (CER)
■ CER will impact provider decisions about treatment options
■ Research findings will
 Guide provider best practices
 Drive new product development
 Influence reimbursement decisions
 Encourage the cessation of some current treatment options

31. Bundled payments – another step away from
FFS
 Pilot project where payments are bundled for acute
inpatient, physician, outpatient, post-acute services
 2 Payment Types, 4 Models: paid by condition
 500 healthcare organizations participating
January 1, 2013, HHS report to
Congress on HHS report to Congress on
national voluntary final results of program, as
pilot program program -
2015 well as a plan for expansion -
begins 2016

32. Opportunities in Uncertain
Times

33. Opportunity #1: Tie your marketing to specific
quality measures. For example…
 Patient experience
 Patients’ ratings of doctors, how well they communicate and
educate
 Care coordination and patient safety
 COPD, congestive heart failure
 EHR implementation by primary care providers
 Screening for risk of falls
 Preventive health
 Flu and pneumonia vaccination rates
 Colorectal cancer screening
 Blood pressure screening
 Caring for at-risk populations
 Diabetes control (SEVERAL measures)
 Blood pressure control

34. Many opportunities are also tied to other
healthcare reform provisions
 Reducing readmissions
 Preventing infections
 Mortality measures
 Patient satisfaction
 Safety and risk management

35. Opportunity #2: Adapt sales approaches for a
centralized, standardized world
 Offer evidence-based clinical data
 Be prepared to deal with value analysis teams
 Support providers’ standardization goals

36. Opportunity #3: Talk about saving
money in broader terms
 Providers won’t succeed if they cut spending in one
area only to add costs in another
 Show customers why spending for your products or
services will reduce system-wide costs

37. Selling in healthcare is changing fast
Yesterday/Today Today/Tomorrow
Consulting w/ Value Analysis
Selling to the hospital Teams
National, Multi-Source GPO
Contracts Local, Single-Source Contracts
Market Specificity Multi-Market Strategies & IDNS
Cost-plus Separate Logistics Fee
Price Selling Total Cost to Own
Free Access to Clinicians Vendor Credentialing
Clinician Demand Formularies
Emphasis on Unit Price Emphasis on Outcomes

38. QUESTIONS?
Linda Rouse O’Neill
Vice President, Government Affairs
rouse@hida.org