3. It might have good things but it doesn’t always work well . . .! HOW’S EVERYTHING?

7. Spending differs by payor and segment of the population Drugs (w/o Part D) Hospital Physician Admin Drugs Hospital Physician Admin Medicaid ($5000/yr*) * Children $1600/yr (17% of total) Adults $2100/yr (12%) Elderly $11,800/yr (26%) Disabled $13,500/yr (41% ) Medicare Traditional ($6000/yr) Nursing Homes Drugs Hospital Physician Admin Drugs Hospital Physician Admin Medicare Advantage ($7000/yr) Employer-Sponsored ($3500/yr) Other Other Other Other

9. Byzantine Medicare Inpatient Payment Determination Hospital Adjusted Operating & Capital Base Payment Rate 2009 Operating & Capital Base Payment Rate 2008 Update Wage Index MS-DRG Weight (Medical Severity Adjusted* Diagnosis Related Group weight **) Hospital Adjusted Base Payment Rate 2009 * Principal Diagnosis, Procedure, Complications & co-morbidities ** 745 individual DRG weights Direct (pass-through) & Indirect Medical (Interns, Residents/bed) Education Pmt. Disproportionate Share Payments (if Medicaid & SSI Pt Days >15% of total) Other Policy Payments (Critical Access Hospital>35 mi, Medicare-dependent>60%) Outlier Payments (Est. Cost > Loss Threshold) Reduction for Early Transfer (LOS <mean LOS-1)) Reduction if Quality Indicators not Provided PAYMENT RATE FOR AN INDIVIDUAL PATIENT’S ADMISSION Mean ‘08 Payment $9,278 all hospitals $13,499 large teaching $6,026 small rural

12. Complicated Medicare Physician Payment Determination Adjusted for geographical cost factors Conversion Factor 2009 Conversion Factor 2008 Update Relative Value Units (RVU)* -work -practice expense -malpractice expense Physician Payment Rates by procedure 2009 * Determined for 10,000 procedures as defined by Healthcare Common Procedure Coding System (HCPCS) UPDATE ADJUSTMENT FACTOR (UAF) SUSTAINABLE GROWTH RATE (SGR) Growth rate that reflects inflation, enrollment, real GDP per capita and policy changes Change required to recoup (or pay extra) the cumulative difference between actual changes and max allowable under SGR (=< 7%) Limitation

19. KaiserEDU.org Reading on U.S. Healthcare Costs $2.1 trillion/yr(16% of GDP) =$6 billion/day =$7000 per person/yr =$20/person/day $22,000/yr/ave family $60/ave family/day 20% non-physician 80% Physician Directed Cost too high?