Virginia Hospitals Our Lifeline Sean T Connaughton President

Virginia Hospitals: Our Lifeline Sean T. Connaughton President and Chief Executive Officer Virginia Hospital & Healthcare Association

About Virginia Hospitals

Virginia Hospital & Health Care Association About VHHA Strategic Focus • 30 member health systems • Principled, Innovative and Effective Advocacy • 107 community, psychiatric, rehabilitation and specialty hospitals • Improving Safety, Quality, Value and Service 33 VHHA staff, headquartered in Glen Allen • Transforming Data and Analytics Affiliates: • Broadening Membership and Members’ Impact • Cutting Edge Education and Communication • • VHHA Services Virginia Hospital Research and Education Foundation Virginia Business Coalition on Health Virginia Health Care Waste Management Cooperative Health Providers Insurance Alliance ASPR Hospital Preparation Program 1

About Virginia Hospitals • 30 health systems • 107 community, psychiatric, rehabilitation and specialty hospitals • 14, 421 hospital beds • 15 designated trauma centers • 49 percent are rural hospitals • 51 percent are urban hospitals • 77 percent of Virginia hospitals are not-for-profit 2

Virginia Hospitals Care For Their Patients and Communities • 3. 6 million emergency department visits, 1. 9 million outpatient visits, 781, 625 inpatient admissions, and more than 103, 000 babies delivered • $3 billion in community support • $627 million in free or discounted care • $135 million provided for subsidized health care services • $213 million paid in federal, state, and local taxes • $376 million spent on community programs such as mobile clinics, immunizations, health screenings, home health visits, etc. Charity care costs have increased 57 percent since 2008 2013 Data 3

Virginia Hospitals Fuel Our Economy • 115, 000 direct jobs • $8 billion in payroll • $17 billion spent on goods and services • Health care and social assistance represent roughly 500, 000 jobs, or 11. 4 percent of the workforce • The Virginia Labor Market Index data shows health care-related positions account for roughly 950, 000 jobs, or 23 percent of all Virginia jobs • $36 billion in economic activity 2013 Economic Data 4

Hospitals Are Among Our Largest Employers In 82 percent of rural localities, local hospitals are a top five employer. 5

Virginia Hospitals Face Challenges

Patient Payer Mix More than three-fifths of all inpatient admissions involve the uninsured, or Medicare and Medicaid enrollees. 12

Combined Cuts to Virginia Hospitals ACA cuts, when combined with 2 percent sequestration Medicare payment cuts and other related cuts to Virginia hospitals, will approach $1 billion per year by FFY 2021. Annual funding cuts of roughly $20 million (FFY 2011) will grow to $675 million in a few years (FFY 2021). 8

Virginia’s Population is Aging • • As more Virginians become Medicaid-eligible and enroll in the program, the proportion of hospital costs attributed to treating this population rises. Medicare payments fall short of hospitals’ cost of providing care and will continue to fall over time. Cummulative Population Change 2011 -2022 40% 35% 30% 25% 20% 15% 10% 5% 0% Projected Medicare Payments Relative to Costs 84% 83% 82% 80% 80% 79% 79% 2020 2021 2022 Y 2011 Y 2012 Y 2013 Y 2014 Y 2015 Y 2016 Y 2017 Y 2018 Y 2019 Y 2020 Y 2021 Y 2022 Medicare Medicaid All Other Medicare – projected growth in VA population over age 65 Medicaid – based on historical enrollment growth 2010 -2013 All Other – projected population growth for VA population - Population projections from the Demographics Research Group, Weldon Cooper Center, UVA. 2014 2015 2016 2017 2018 2019 Medicare payments include scheduled reductions under the ACA, value based purchasing, Hospital Readmission Reduction Program, Hospital Acquired Condition Reduction, ATRA coding adjustment, bad debt reimbursement reduction, LTCH budget neutrality Adjustment, IPPS prospective and retrospective coding adjustment, HHA prospective coding adjustment, 2 -midnight rule offset, and MACRA Source: Dobson Davanzo financial forecast model Sept. 2015 11

Growing Medicaid Shortfall 1, 1 Cost of Care Percent of Inpatient Costs Reimbursed Medicaid Cost to Payment Ratio 1 0, 9 0, 8 0, 79 0, 76 0, 72 0, 78 0, 75 0, 72 0, 7092 0, 68 0, 7 0, 64 2012 2013 0, 6842 0, 6592 0, 6 0, 5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2014 2015 2016 State Fiscal Year Medicaid reimbursements do not cover the actual costs of health care services. 10

Inadequate Provider Reimbursements Virginia hospitals had a Medicaid shortfall of $341 million and a Medicare shortfall of $683 million in 2013. 13

Charity Care Costs Rising Financial Assistance Provided by Virignia's Hospitals and Health Systems $700 $600 $500 $400 $300 $200 $100 $0 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 Virginia hospitals’ charity care costs have increased 57 percent since 2008. 15

Bad Debt Costs Increasing Growth in health savings account (HSA) high deductible health plans (HDHP) is leading to increasing bad debt costs for hospitals. 14

Inadequate Provider Reimbursements Neither Medicare or Medicaid reimburse providers for the full cost of care. 9

What This Means For Virginia Moody’s Investors Service has reported hospital revenue growth and operating margins have recently hit at all-time lows. Fitch Ratings wrote that the Affordable Care Act has accelerated the transition of patients out of the hospital and into clinics by tightening reimbursements and emphasizing technology. One-third of Virginia’s acute care hospitals operated in the red in 2013, including 17 of 37 (46 percent) of rural hospitals. These trends are leading to increased consolidation. Nineteen Virginia hospitals have been acquired by, or merged with, another health system. One Virginia hospital recently closed. Virginia hospitals and health systems continue to work creatively to reduce costs, increase quality, and provide access to care. However, if these challenges are not addressed, hospitals may be forced to downsize staff and reduce services to remain in business. 16

Financial Forecast Under Status Quo Policies 17

Financial Forecast Under Status Quo Policies 18

Virginia Hospitals: Our Lifeline

Virginia Hospitals: Our Lifeline Campaign • Research shows a majority of Virginians favorably view local hospitals and health care providers. However, research also shows that a majority of Virginians believe their local hospital is financially stable • It is vital to inform the public about the scope of the problem first to set the stage for finding policy solutions. • The Virginia Hospitals: Our Lifeline campaign is a public awareness effort focused on educating legislators, stakeholders and the public about the importance of hospitals and the serious challenges facing them. • The campaign is supported by broadcast (television and radio), print (newspapers and magazines), outdoor (billboard), transit (bus), and digital (online and social media) advertising to communicate about Virginia’s local hospitals and health systems. • The effort also entails significant outreach to our elected officials, stakeholders and the public. Visit ISupport. Virginia. Hospitals. com to learn more! 24

Virginia Hospitals: Our Lifeline Campaign 26

How You Can Help • Visit ISupport. Virginia. Hospitals. com to register your support for Virginia hospitals and sign up for Voter. VOICE • Sign up to participate in the Hospital Grassroots Network (individuals) or the Hospital Support Network (businesses, stakeholder groups, etc. ) • Follow VHHA on social media and share posts 27

Opportunities for Collaboration

Hospital Role in Behavioral Health • Hospital emergency departments are treating more patients with behavioral health issues • There has been 50% increase of ED visits by Medicare patients with behavioral health issues between 2006 and 2010 • This is in part due to declining capacity and funding for community and inpatient behavioral health services and the shift from state-provided institutional care to community-based care • Declining funding and capacity lead to increase in untreated behavioral health issues, which in turn lead to increased ED visits • Behavioral health patients often have co-occurring medical conditions, but are less likely to follow treatment recommendations • Overutilization of hospitals for behavioral health patients is not the best use of limited hospital resources 29

Opportunities to Collaborate To address these challenges, hospitals and VACBP members must work together! • VACBP members can help educate hospital staff on mental health services that are available in the community and how to access those services • VACBP members and hospitals alike can advocate for additional state and federal funding to support the behavioral health care needs of patients • Decision makers must be educated about the “real costs” of behavioral health budget cuts • Stay up to date on hospital and healthcare issues at: www. isupportvirginiahospitals. com 30

Thank You!