CONFIDENTIAL 1 Just Around the Corner: Imminent Changes, Proposals & Milestones Affecting the Business of Healthcare – An Overview of Key Concepts Presented

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CONFIDENTIAL

Just Around the Corner: Imminent Changes, Proposals & Milestones Affecting the

Business of Healthcare – An Overview of Key Concepts

Presented by:

Scott Becker, Partner

www.mcguirewoods.com

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Business of Healthcare5 Key Concepts1

1. Overriding Goals

2. A Public Plan or Option

3. Covering the Uninsured (full access)

4. Paying for Healthcare Reform

5. Other Key Issues

1For ongoing and differing perspectives and updates, consider Ezra Klein, Washington Post, David Herzenhorn, New York Times, Karl Rove, Wall Street Journal, and Michael Tanner at the Cato Institute.

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Business of HealthcareI. Overriding Goals - Cost Containment, Full Access and High

Quality – Common Belief 2 of 3 can be readily achieved – 3 of 3 is difficult

A. President Obama has repeatedly said his two basic requirements for a health care bill are that it expand insurance coverage (access) and make medical care more affordable (cost containment).

B. Key Plans Being Debated – House of Representatives Plan (“House Plan”), Senate Finance Committee Plan (“Senate Finance Plan”) and Senate Health Education Labor and Pensions (“Help Plan”)

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Just Around the Corner: Imminent Changes, Proposals & Milestones Affecting the Business

of HealthcareI. Cost Containment, Full Access and High

Quality – Common Belief 2 or 3 can be readily achieved

C. Fraud and Abuse, Waste and Information Technology – These concepts are politically palatable but do not cover the costs

D. Rationing Care, Lower Reimbursement and/or Increased Taxes are Politically Tougher

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of HealthcareII. Public Plan – 3 Core Possible Types1

A. Medicare Plan Strong (“House Plan”) – Uses as infrastructure Medicare – Pays Medicare + 5% to providers – generally

B. New Program – Weak – acts like insurer but can’t access Medicare rates - negotiates

C. Trigger Plan (Senator Olympia Snowe; and some Republicans) - Commences Only if certain criteria met

1See article by Ezra Klein, Healthcare Reform For Beginners; The Many Flavors of the Public Plan, Washington Post

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of HealthcareII. Public Plan – 3 Core Possible Types

D. Payors view as competition and Providers (Providers paid 70 to 80% by Medicare as opposed to by commercial) have great concern regarding reimbursement (lower reimbursement and substantial migration) - See Lewin Group, The Impact of the House Health Care Reform Legislation on Coverage and Provider Incomes, Testimony before the Energy and Commerce Committee, U.S. House of Representatives by John Sheils, Vice President, The Lewin Group, June 25, 2009

i. Public Plan Premium Lower than Commercial (a) Family $738 vs. $917, (b) Individual $290 vs. $382

ii. 122 Million migration in 3rd yeariii. Hospital Income Drops by $31.1 Billioniv. Physician Income drops by $11.5 Billion – $16,000 per individual

physician

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Business of HealthcareII. Public Plan – 3 Core Possible Types

E. Four Perspectives on a Public PlanA. Karl Rove (Against) reports that “[t]he Lewin Group estimates 70% of people

with private insurance – 120 million Americans – will quickly lose what they now get from private companies and be forced onto the government-run tools as businesses decide it is more cost-effective for them to drop coverage.” Karl Rove, How to Stop Socialized health Care, Wall Street Journal http://online.wsj.com/article/SB124467554761003963.html (June 11, 2009).

B. Robert Reich (For) Why We Need a Public Health-Care Plan, Wall Street Journal, June 24, 2009 – “Which is precisely why the public option has become such a lightening rod. The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won’t consider it. No other issue in the current health-care debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capital Hill.

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of HealthcareOf course, they don’t want it. A public option would squeeze their profits and

force them to undertake major reforms. That’s the whole point. Critics say the public option is really a Trojan horse for a government takeover of all health insurance. But nothing could be further from the truth. It’s an option. No one has to choose it. Individuals and families will merely be invited to compare costs and outcomes. Presumably they will choose the public plan only if it offers them and their families the best deal—more and better health care for less. Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with the pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn’t the whole point of cost containment to provide the public with health care on more favorable terms? If the public plan negotiates better terms –thereby demonstrating that drug companies and other providers can meet them—private plans could seek similar deals.

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Business of HealthcareBut, say the critics, the public plan starts off with an unfair advantage

because it’s likely to have lower administrative costs. That may be true – Medicare’s administrative costs per enrollee are a small fraction of typical private insurance costs – but here again, why exactly is this unfair? Isn’t one of the goals of healthcare costs containment to lower administrative costs? If the public option pushes private plans to trim their bureaucracies and become more efficient, that’s fine.

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Business of HealthcareII. Public Plan – 3 Core Possible Types

E. Four Perspectives on a Public PlanC. The Commonwealth Fund (For) recently published a study in

which it compared estimated impacts of a public plan with (1) reimbursement at Medicare levels, (2) a public plan with reimbursement between Medicare and private levels, and (3) a purely private system.

Estimates indicate that premiums for the public plan choice in the Public Plan with Medicare Payment Rates path would initially be 25 percent below those currently available for a comparable benefit package in the private individual/small firm market and 16 percent lower under the Public Plan with Intermediate Payment Rates scenario.

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Business of HealthcarePrivate plan premiums would initially be 3 percent lower within the

exchange as it facilitates the process of choosing plans and reduces administrative costs, especially for individuals and small businesses.

Karen David, Cathy Schoen, and Stuart Guterman, Fork in the Road: Alternative Paths to a High Performance U.S. Health System, The Commonwealth Fund (June 2009).

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Business of HealthcareII. Public Plan – 3 Possible Types

D. David Burda Editor of Modern Healthcare (Against) comments June 29, 2009, Public Enemy Number 1 – – A New Public Insurance Program Likely Will Shortchange Providers.

i. With Medicare and Medicaid patients representing more than half all hospital business, how did hospitals do it? [Record profits in 2007] We’ll let MedPAC explain. In its March report, MedPAC said that starting in 2000, hospitals had “regained the upper hand in price negotiations (with private insurers) because of hospital consolidations and consumer backlash against managed care.” Consequently, the rates paid by private insurers to hospitals rose so much that by 2007, private payers were reimbursing hospitals on average more than $1.32 on the dollar, according to MedPAC. Or, hospitals’ profit margin on patients covered by private insurance was 32%.

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Business of HealthcareII. Public Plan – 3 Possible Types

ii. If you’re still not convinced it would be a financial disaster, consider this: The new public insurance program would compete with private insurer plans by charging less for health benefits. If the public plan is taking in less revenue per enrollee, it certainly is not going to pay out more per enrollee for care. The new plan would be an even worse payer than Medicare or Medicaid. Then, where would providers turn to charge more to cover the shortfalls? To the fewer private plans whose ranks were thinned by competition from the new public health insurance program? Good luck with that, as they would be far less generous as they fight for survival against the new government program.

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Business of Healthcare

II. Public Plan

3 Possible Types

G. Senator Max Baucus, (D), Chair of Senate Finance Committee, has resisted calls by many Democrats for a government-run insurance plan to compete with private payors.

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Business of HealthcareIII. Covering the Uninsured (full access)

A. Most generally agree with the concept as a goal

B. 3 Core Groups of Uninsured

i. Medicaid Eligible but not enrolled

ii. Working Poor

iii. People Choose not to buy coverage but aren’t Medicaid eligible or working poor (This includes, in part, (1) people who are eligible but for whom insurance may be very expensive (e.g., pre existing conditions) and (2) people who simply choose not to buy insurance)

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Business of HealthcareIII. Covering the Uninsured

C. Massachusetts Plan – Individual and Employer Mandates

i. Help sign up Medicaid eligible

ii. Subsidize working poor

iii. More expensive than expected

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D. Federal – Mandatory Coverage – Individual and Businesses

i. Subsidies to working poor, e.g., 300% to 400% of Federal poverty level ($66,000 a year) – (Senate Finance Plan – tax credits to low income individuals and to small businesses)

ii. Standardize Medicaid Eligibility – (e.g. 115% of Federal poverty level)

iii. Cannot deny coverage

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D. Federal – Mandatory Coverage iv. Employer Mandates – Excludes small business Wal-Mart Breaks with Business and Fosters Mandate“Wal-Mart Backs Drive to Make Companies Pay for Health Coverage”

Wall Street Journal, July 1, 2009, Janet Adamy and Ann Zimmerman” “We are for an employer mandate which is fair and broad in its coverage, “ said the letter, signed by Wal-Mart Chief Executive Mike Duke. Andrew Stern, president of the Service Employees International Union, also signed the letter, along with John Podesta, who led President Obama’s transaction team and its chief executive of the Center for American Progress, a liberal-learning think tank.

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Business of Healthcare“Wal-Mart Backs Drive to Make Companies Pay for Health

Coverage” Wall Street Journal, July 1, 2009, Janet Adamy and Ann Zimmerman” The National Retail Federation, the industry’s main lobby, said it was “flabbergasted” by Wal-Mart’s move. “We have been one of the foremost opponents to employer mandate,” said Neil Trautwein, vice president with the Washington-based trade group. “We are surprised and disappointed by Wal-Mart’s choice to embrace an employer mandate in exchange for a promise of cost savings.”

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Business of Healthcare“Wal-Mart Backs Drive to Make Companies Pay for Health

Coverage” Wall Street Journal, July 1, 2009, Janet Adamy and Ann Zimmerman – “Mr. Trautwein said an employer mandate is “the single most destructive thing you could do to the health-care system shy of a single-payor system,” under which the government handles health-care administration…. The group believes forcing companies to provide insurance will raise costs for its members.

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Business of Healthcare“Wal-Mart Backs Drive to Make Companies Pay for Health Coverage”

Wall Street Journal, July 1, 2009, Janet Adamy and Ann Zimmerman – “Under the plans being discussed in Congress, small businesses would either be exempt from the mandate or face a less-onerous requirement. The U.S. Chamber of Commerce said most of its members oppose an employer mandate, and it doesn’t think Wal-Mart’s stance will change that. “The kind that the groups in this letter support is the worst incarnation the most dangerous policy,” said James Gelfand, senior manager of health policy for the group, which represents three million businesses.

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Business of HealthcareIV. Paying for Healthcare Reform

A. Employee healthcare benefits are not currently taxed – – tax these benefits – the Baucus proposal – Democractic Opposition, some Republicans favor

i. “Working people in many cases have given up raises in pay and instead have gotten health benefits,” said Senator Barbara Boxer, Democrat of California, who is up for re-election next year. So it seems unfair to now tax their benefits. I think that would be changing the rules in the middle of the game in a way that is so harmful and would set them back, so I have a real problem with that.”

See NY Times, July 9, 2009, Democrats Divided over a Proposal to Tax Health Benefits, by David M. Herzenhorn

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IV. Paying for Healthcare ReformB. 10 years – 1 Trillion DollarsC. Pledges and Taxes

i. 155 BB Hospitalsii. 80 BB Pharmaiii. 320 BB Tax healthcare benefits – Baucus Plan – Tax Benefits

over a threshold amount of benefits – $17,000 a Year, or higher threshold, e.g., $25,000 a year (Raises 90 BB in taxes)

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IV. Paying for Healthcare Reform

D. Urban states, lots of employees would bear heavy burden of taxing employee benefits

E. Increased tax rate for high earners

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V. Other Key Issues

Insurance Market Reform

A. Cannot bar people with preexisting conditions; limited variation in rating

B. Small group market reform

C. Insurance exchange – Web Portal

D. Benefits Rules and Minimum Benefits – four categories – lowest, low, medium and high

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Business of HealthcareV. Other Key Issues

Insurance Market ReformE. Subsidies to buy insurance or provide coverageF. Standardize Medicaid Eligibility RulesG. 55 to 64 Medicare Coverage OptionsH. Employee and Employer mandates for full time

employees, require at least “low option”, 50% of costsI. Preventative and Healthy Lifestyle

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CONFIDENTIAL 1 Just Around the Corner: Imminent Changes, Proposals & Milestones Affecting the Business of Healthcare – An Overview of Key Concepts Presented