How Health Care Reform Impacts the Company's General Counsel and the Senior Leadership Team The Impact of Health Care Reform, Fiscal Challenges and Enforcement Efforts on Employers, the Workforce, Third-Party Payers, Hospitals, Physicians, Consumers and Other Stakeholders May 17, 2012 Bruce Merlin Fried SNR Denton David E. Benkert Navigant S. Elizabeth Foster SNR Denton John T. Gilbertson SNR Denton Ross E. Stromberg PwC Ed Yu PwC 1
Agenda Welcome Elizabeth Foster, SNR Denton Introduction and Background John T. Gilbertson, SNR Denton Health Care Reform and Other Legislative Developments Bruce Merlin Fried, SNR Denton Healthcare Convergence - Ross E. Stromberg and Edmund Yu, Pricewaterhouse Coopers (PwC) Current Government Litigation and Enforcement Trends David E. Benkert, Navigant Question and Answers; Concluding Thoughts Panel 2
Introducing the Speakers Bruce Merlin Fried, SNR Denton. Mr. Fried is a partner in SNR Denton s Health and Life Sciences and Public Policy and Regulation practices. He has been recognized by Chambers USA: America s Leading Lawyers for Business and Expert Guides as one of the leading health care lawyers in the US. Bruce focuses on health care law and policy, counseling and representing health plans, physician organizations, hospital groups, consumer organizations, health care information technology and data companies, pharmaceutical and biotech companies, and other health care organizations with regard to Medicare, Medicaid, the Health Insurance Portability and Accountability Act, and other federal health care programs and policies. David E. Benkert, Navigant. Mr. Benkert is a Director in Navigant s Dispute and Investigations practice. David has over 29 years in professional accounting experience providing accounting, and investigative skills to attorneys and organizations in a variety of industries. David has made presentations to the Securities and Exchange Commission and other government regulators related to investigation findings and have provided expert testimony in arbitrations and State Courts matters. David s experience includes False Claims Act issues, Stark Anti-Kickback issues, accounting damages, fraud allegations, forensic accounting issues and regulatory enforcement actions. David has provided assistance to public and non-public companies as well as not-for-profit organizations and government regulators. Mr. Benkert s healthcare industry experience includes healthcare plans, hospital providers, ambulance providers, pharmaceutical companies, and medical group providers. S. Elizabeth Foster, SNR Denton. Ms. Foster is a partner and head of SNR Denton s Los Angeles Corporate Practice. She also has a significant presence in the Firm s Silicon Valley and New York offices. Elizabeth assists clients in a wide variety of industries, including Health & Life Sciences, with their corporate and securities matters including mergers and acquisitions, private equity, private investments in public equity (PIPEs) and capital markets transactions. She has advised clients throughout the US, Europe and Asia. Prior to joining SNR Denton, Elizabeth was a partner at Luce, Forward, Hamilton & Scripps LLP in San Diego. 3
Introducing the Speakers (continued) John T. Gilbertson, SNR Denton. Mr. Gilbertson has more than 20 years of experience in providing legal, compliance, financial, tax and consulting services to clients in the health sciences industries, including tax-exempt and for-profit hospitals/health systems, physician groups, integrated delivery systems, academic medical centers, medical research institutions, health plans, pharmaceutical benefit management companies, pharmaceutical manufacturers and medical device companies. Jack s background includes representation on a broad range of matters, including: regulatory compliance; fraud and abuse; tax exemption; contracting; joint ventures; mergers and acquisitions; the Foreign Corrupt Practices Act and anti-corruption; medical research; internal and government investigations; dispute resolution; arrangements with health care professionals; due diligence; risk assessment; governance; billing and collection; executive compensation; valuation; financing; quality measurement and reporting; government contracting; and Medicare and Medicaid reimbursement. Ross E. Stromberg, Pricewaterhouse Coopers. Mr. Stromberg concentrates on representation of health care systems, academic medical centers, and hospital providers, and he also represents physician groups, managed card organizations, and others serving the health care field such as device manufactures, pharma, and other suppliers. He has been at the forefront of hospital restructuring and medical foundation development. Prior to joining PWC, Ross Stromberg practiced health care law exclusively for over 44 years. Ross is a 1965 graduate of Boalt Hall School of Law, University of California, Berkeley. In 1990, Stromberg joined Jones Day as a partner and was named head of its national healthcare practice, a position he held for over 15 years. Stromberg is a frequent author and lecturer on health law and related topics and has coauthored several books on healthcare joint ventures and physician-hospital alignment. He is the Past Chair of Sutter Medical Center Santa Rosa, Past Chair of the Wildflowers Institute, Past Chair and current board member of Pediatric Dental Initiative (a tax exempt ASC serving indigent children requiring dental surgery), and is a current board member of Sutter West Bay Hospitals and Sutter Pacific Medical Foundation. Stromberg is a past President of the American Health Lawyers Association. 4
Introducing the Speakers (continued) Ed Yu, Pricewaterhouse Coopers. Ed has over 30 years of experience in innovation, product development and operations across medical device/diagnostics, life sciences, pharmaceuticals, high-tech and alternative energy industries. His expertise focuses on innovation around business models and technologies in the changing healthcare ecosystem. He has helped clients transform operating models that enable them to collaborate across enterprise stakeholders to achieve sustainable profitable growth. Over the years, Ed has partnered with Fortune 100 as well as early-stage clients to deliver top/bottom-line results through best practices in portfolio management, product strategy, product development, co-creation, voice-of-the-customer, resource management, and technology management. Ed s experience with senior executive coaching and facilitating cross-functional teams has earned Best of the Best president s awards for thought leadership and superior team performance. He has spoken at many industry and academic conferences throughout his career. 5
Setting the Stage for Health Care Reform Overview of Key Policy Drivers Escalation in Health Care Costs: Total national health expenditures (NHE) increased from $1.377.3 trillion in 2000 to $2.593.7 trillion in 2010: NHE increased from 13.8% of Gross Domestic Product (GDP) in 2000 to 17.9% of GDP in 2010 NHE Increased by 88% from 2000 to 2010 while GDP increased only 45% (from $9.952 trillion to $14.527 trillion) Average cost of $8,402 per person for 2010 Increase in Total Government Health Care Spending: Total government expenditures on health care increased from $488.7 billion in 2000 to $1.163.7 trillion in 2010: Government spending Increased from 35.5% of NHE to 44.9% of NHE Federal Government health care spending increased by 185% (from $261 billion to $742.7 billion) State and local government health care spending increased by 85% (from $227.7 billion to $421.1 billion) Source: Centers for Medicare and Medicaid Services and The Henry J. Kaiser Family Foundation 6
Setting the Stage for Health Care Reform Overview of Key Policy Drivers (continued) Spending by Health Care Service or Product Personal Health Care: Hospital Care Physician and Clinical Services Other Professional Services Dental Services Other Health Residential and Personal Home Health Care Nursing Care and Retirement Facilities Prescription Drugs Durable Medical Equipment Other Medical Products Government Administration Government Public Health Activities Investment Total 2010 814.0 515.5 68.4 104.8 128.5 70.2 143.1 259.1 37.7 44.8 2,186.1 176.1 82.5 149.0 31.38% 19.88% 2.64% 4.04% 4.95% 2.71% 5.52% 9.99% 1.45% 1.73% 84.28% 6.79% 3.18% 5.74% Source: Centers for Medicare 2,593.7 and Medicaid Services 100.00% % 7
Setting the Stage for Health Care Reform Overview of Key Policy Drivers (continued) Increase in Medicare Spending (coverage for elderly ages 65 and over and certain persons with disabilities) Increased from $224.4 million in 2000 to $524.6 billion in 2010 Increase of 134% Medicare per enrollee expenditure increased from $5,661 in 2000 (39.62 million enrollees) to $11,105 in 2010 (47.24 million enrollees) Medicare represents 12.86% of the President s Budget for FY 2012 Increase in Medicaid Spending (coverage for low-income persons) Increased from $200.5 billion in 2000 to $401.4 billion in 2010 Increase of 100% Medicaid per enrollee expenditure increased from $6,316 in 2000 (31.74 million enrollees to $7,978 in 2010 (50.31 million enrollees) Medicaid (and Children s Health Insurance Program) represent 7.28% of the President s Budget for FY 2012 Source: Centers for Medicare and Medicaid Services and The Henry J. Kaiser Family Foundation 8
Setting the Stage for Health Care Reform Overview of Key Policy Drivers (continued) Increase in Uninsured Population: The number of individuals without health insurance coverage increased to 49.9 million in 2010 (16% of total population) Decrease in Employer-Sponsored Coverage Since 2000: In 2010, 55.3% of U.S. population under the age of 65 received insurance through employer (down from 56.1% in 2009) Increase in Employer s Health Care Costs: Average annual employer-sponsored group premiums more than doubled between 2001 and 2011: Individual coverage: Increase from $2,689 (2001) to $5,429 (2011) Family Coverage: Increase from $7,061 (2001) to $15,073 (2011) Average employer costs for health insurance per employee hour increased by 110% between 1999 and 2010 (from $1.60 per hour to $3.35 per hour) Median employer costs for health insurance as a percentage of payroll increased by 56% (from 8.2% to 12.8%) (1999 to 2010) Wages increased 42% (1999 to 2010) Source: U.S. Census Bureau and The Henry J. Kaiser Family Foundation 9
Setting the Stage for Health Care Reform Health Insurance Coverage Source: The Henry J. Kaiser Family Foundation 10
Setting the Stage for Health Care Reform - Average Health Insurance Costs by Industry Source: The Henry J. Kaiser Family Foundation 11
Setting the Stage for Health Care Reform - Average Health Insurance Costs as a Percentage of Payroll Source: The Henry J. Kaiser Family Foundation 12
States Positions in FL v. HHS WA OR ID MT WY ND SD MN WI MI VT NY KY NH MA CA NV UT CO NE KS IA MO IL IN KY OH WV MT VA RI CT NJ DE MD AZ NW OK AR TN SC NC MS AL GA TX LA AK FL Source: The Henry Kaiser Family Foundation HI States challenging the ACA (25 states) States both challenging and supporting the ACA (2 states) States supporting the ACA (11 states) States not taking a position in the litigation (12 states) 13
Health Care Reform and Other Legislative Developments Health Care Reform and Other Legislative Developments Bruce Merlin Fried, SNR Denton 14
The Affordable Care Act: The Basics Background - Authorizing Legislation: Health care reform legislation includes the Patient Protection and Affordable Care Act ( Public Law 111 148) and the Health Care and Education Reconciliation Act of 2010 ( Public Law 111 152) (hereinafter referred to cumulatively as the Affordable Care Act, ACA or the Act ). Key features: Expanded Coverage Cost Containment Insurance Industry Reform Move to Value Other System Reforms Tax Aspects But is it Constitutional? Implications of the Deficit Reduction on the ACA 15
ACA: Covering More People General: ACA is projected to reduce the number of uninsured by 32 million by 2019 (per Congressional Budget Office) Specific ACA features designed to cover additional people include: Individual Mandate (require most U.S. citizens and legal residents to have health insurance beginning in 2014) Ban Pre-Existing Conditions (for children in 2010; for others beginning in 2014) Cover Adult Children Dependents (up to the age of 26) Under Parents Policy High Risk Pools (individuals with pre-existing medical conditions eligible to enroll in high risk pools and receive subsidized premiums) Medicaid Expansion (including all non-medicare eligible individuals with incomes up to 133% of the federal poverty limit) 16
ACA: Covering More People (continued) Incentives to Cover Working People (beginning in 2014, impose penalties on employers with 50 or more full-time employees who do not provide affordable health care coverage for employees; penalties based on tax-credits received by certain employees who purchase insurance on their own through insurance exchanges) Small Business Tax Credits (for employers with less than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees) 17
ACA: Cost Containment Medicare Reductions Hospitals: Significant cost containment measures include: Reduce annual market basket updates Reduce Disproportionate Share Hospital (DSH) payments Reduce payments for certain readmissions and hospital acquired conditions Health Plans (Medicare Advantage): Set payments to different percentages of Medicare fee for service (FFS) (e.g., 95% of FFS rates in high payment areas) New Incentives Accountable Care Organizations (ACOs) Value Based Purchasing Independent Payment Advisory Board (IPAB) (15 members submit legislative proposals designed to reduce per capital rate of spending growth) 18
ACA: Cost Containment Commercial Insurers Rate Review: Rate review program to ensure that all rate increases that meet or exceed an established threshold are reviewed by a state or HHS to determine whether the rate increases are unreasonable (regulations finalized in May, 2011) Medical Loss Ratio (MLR): On December 2, 2011, Centers for Medicare and Medicaid Services (CMS) issued final regulations to ensure health insurance companies spend at least 80% of consumers health insurance premiums on medical care (not income, overhead and marketing). Insurance companies that fail to meet the new standard are required to provide a rebate to consumers 19
ACA: Insurance Industry Reform Health Insurance Exchanges: Starting in 2014, individuals and small businesses will be able to purchase private health insurance through State-based competitive marketplaces called Affordable Insurance Exchanges... that will offer Americans competition, choice, and clout. Insurance companies will compete for business on a level playing field, driving down costs. Consumers will have a choice of health plans to fit their needs. Proposed regulations, July, 2011 Consumer Operated and Orients Plans (CO-OP): Regulations issued on December 13, 2011 (CO-OPs are designed to foster the creation of new consumer-governed, private, nonprofit health insurance issuers. In addition to improving consumer choice and plan accountability, the CO OP program also seeks to promote integrated models of care and enhance competition. ) Essential Health Benefits: Health care coverage must include certain items and services in 10 benefit categories (ambulatory, emergency, hospitalization, newborn/maternity, mental health/substance abuse, prescription drugs, rehabilitation, lab, preventive/wellness/chronic disease management and pediatric). DHHS issued a bulletin on December 16, 2011 20
ACA: Move to Quality and Value Accountable Care Organizations Medicare as a lever for Commercial ACOs Hospital value-based purchasing program (to pay hospitals based on performance under specified quality measures) Medicare Advantage bonus payments for plans that receive 4 or 5 star ratings under the quality performance measures Bundled payments (including, a pilot program for inpatient, physician, outpatient and postacute care) The Centers for Medicare and Medicaid Innovation (CMMI) is designed to improve health, enhance treatment and reduce costs by testing innovative care and payment model IT Incentives (continued from HITECH) 21
Other System Reforms Incentives for Primary Care Physicians Medicare: bonuses Medicaid: payments equal to 100% of Medicare payment rates CLASS Act Creating a federal Long Term Care Insurance program: Abandoned as unworkable. 22
ACA: Tax and Related Changes Provisions The ACA also includes various tax-related provisions that may impact employers, employees and certain specific industries. Reporting Cost of Employer-Sponsored Plan Coverage (employers required to report the cost of coverage under employer-sponsored group health plan (to show employees the value of health care benefits on W-2 (not taxable) (optional for 2011)) Health Insurance Premium Tax Credit (starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through the Exchanges) Flexible Spending Accounts (changes to reimbursement of certain items, including, limits FSA reimbursements for certain over-the-counter drugs) Employer Shared Responsibility Payment (beginning in 2014, certain employers must offer full-time employees (FTEs) health care coverage or a shared responsibility payment may apply) 23
ACA: Tax and Related Changes (continued) Provisions Aimed at Health Care Companies Computation of Medical Loss Ratio (amendments to Section 833 of the Internal Revenue Code which provides special rules for BCBS and certain other health insurance organizations) Limitation on compensation deduction (in effect for certain health insurance providers for tax years beginning after December 31. 2012) Prescription Drug Fee (annual fee payable by certain manufacturers and importers of brand name pharmaceuticals) Qualifying Therapeutic Discovery Projects Tax Credit (to promote investment in new and cost-saving therapies by providing tax credit to employers with less than 250 employees in an amount up to $5 million per taxpayer ($1 billion program in the aggregate)) Group Health Plans (new requirements for group health plans, including, nondiscrimination requirements) Patient-Centered Outcomes (funding program to assist in making informed health decisions by advancing clinical effectiveness research) See http://www.irs.gov/newsroom/article/0,,id=220809,00.html 24
ACA: The State of Litigation Supreme Court granted Certiorari in Florida v HHS arising from the 11 th Circuit decision (Florida v. U.S. Department of Health and Human Services, 648 F.3d 1235 (11th Cir. 2011)) Court heard arguments on March 26. 27 and 28, 2012 Issues: First, does the Anti-Injunction Act apply? Is the Individual Mandate constitutional under the Commerce Clause, or an unlawful expansion of Congressional authority? Are the provisions of the ACA severable? If the mandate is unconstitutional, what about the other provisions of the law? Where to draw the line? Is the expansion of the Medicaid program unconstitutionally coercive? A decision will be delivered by June 29, when the Court begins its summer recess. 25
ANTI-INJUNCTION ACT Source: Kaiser Health News, 11/18/2011 26
The Budget Control Act - Implications for ACA Implementation Congress Deficit Reduction Super Committee failed to recommend $1.2 trillion in savings. Sequestration kicks in, $1.2 trillion in automatic cuts beginning 2013. No cuts to current Medicaid Not more than a 2% cut to Medicare But other health programs are not protected Does this put ACA at risk? Administrative expenses for implementation IPAB CMMI Expansion of Medicaid Other Issues 27
Marketplace Response: Physicians, Hospitals and Insurers Healthcare Convergence - Ross E. Stromberg and Ed Yu, Pricewaterhouse Coopers (PwC) 28
Role of Government Enforcement Policies Current Government Litigation and Enforcement Trends David E. Benkert, Navigant Litigation Trends Government Enforcement Activity and Practices Corporate Compliance Environment 29
Current Litigation and Regulatory Enforcement Updates Litigation Trends Increase in governmental intervention in qui tam cases Over the past couple of years we have seen 3% to 5% increase New qui tam matters have risen noticeably Whistleblowers will tend to focus on qui tam issues and FCPA issues because recoveries tend to be greater Top Healthcare Litigation Issues Reimbursement Issues Off-Label Issues Foreign Corrupt Practices Act Anti-kick back statutes 30
Current Litigation and Regulatory Enforcement Updates New SEC Whistleblower Rules Individuals who voluntarily submit original information that leads to successful prosecution with monetary penalties may be eligible for financial reward Individuals are not required to report the issues to the company prior to reporting to SEC Total claims must exceed $1 million Increased protection for whistleblowers Since August of 2011 the SEC has received over 1,000 whistleblower submissions 31
Current Litigation and Regulatory Enforcement Update Government Enforcement Activity and Practices Increased Use of Civil Investigative Demand (CID) by government regulators CID is an investigatory tool that permits federal investigators to demand production of documents, records, and require written responses to questions CID can be issued before initiating a lawsuit, and often before a potential defendant is able to conduct its own discovery The government can share CID information with qui tam relators and federal agencies, including federal prosecutors who are conducting criminal investigations Intensified efforts on prosecuting White Collar Crime of individuals not just corporations 32
Current Litigation and Regulatory Enforcement Update Physician Payment (Sunshine Act) Transparency Provisions of the Affordable Care Act Section 6002 Requires reporting of certain payments or other transfers of value to covered recipients (e.g., physicians) and teaching hospitals Requires reporting of physician ownership and investment interests in an applicable manufacturer or applicable group purchasing organization (GPO) To be reported separately Both will be subject to public posting on the HHS -- website will be downloadable, searchable and easily aggregated 33
Current Litigation and Regulatory Enforcement Update Regulations proposed by the Centers for Medicare & Medicaid Services (CMS) on December 19, 2011; Comment period closed on February 17, 2012 Section 6002 statutory timing of implementation First report on payments and ownership interests due March 31, 2013, based on transactions that occurred in 2012 Public Posting of 2012 amounts by HHS to begin September 30, 2013 Depends on timing of finalization of rule and feasibility We hope to finalize this rule as soon as possible during calendar year 2012 and, depending upon the publication date of the final rule, we are considering requiring the collection of data for part of 2012, to be reported to CMS by the statutory date of March 31, 2013. (76 Fed. Reg. at 78743) 34
Current Litigation and Regulatory Enforcement Update I only had a salad and you are reporting $125.00 Sunshine Act Implementation Issues Certain transfer of values are clearly defined by contracts Allocation issues of other transfers of value Development of valuation parameters and benchmarks Proactive communication of parameters and methodology Processes of mitigating reporting issues and processes for restating calculations that are inaccurate 35
Current Litigation and Regulatory Enforcement Update Corporate Integrity Agreements Overview Corporate Integrity Agreements are detailed and restrictive programs, usually lasting up to 5 years that require companies to agree to adopt and monitor specific remedial steps Over 75% of the entities that signed a CIA were individuals, private companies or a combination of both 71% of CIAs reviewed were associated with a False Claims Act (FCA) case or investigation 94% of CIAs reviewed in Navigant s study mandated an Independent Review Organization (IRO) Life sciences company s compensation policies for sales personnel are considered to be a critical components of these agreements 36
Wrap Up Question and Answers Concluding Thoughts 37
Wrap Up Question and Answers Concluding Thoughts 38
Speakers Contact Information Bruce Merlin Fried Partner SNR Denton T +1 202 408 9159 Bruce.Fried@snrdenton.com David E. Benkert Director Navigant T +1 213-452-4513 dbenkert@navigant.com John T. Gilbertson Senior Counsel SNR Denton T +1 213 892 2913 john.gilbertson@snrdenton.com S. Elizabeth Foster Partner SNR Denton T +1 213 892 2808 elizabeth.foster@snrdenton.com Ed Yu Principal PricewaterhouseCoopers LLP T +1 909 971 6800 ed.yu@us.pwc.com Ross E. Stromberg Director PricewaterhouseCoopers LLP T +1 415 498 7368 ross.e.stromberg@us.pwc.com 39