HCA Holdings 2012 Annual Report Download - page 16

Managed Medicare
Under the Managed Medicare program, the federal government contracts with private health plans to
provide members with Medicare Part A, Part B and Part D benefits. Managed Medicare plans can be structured
as HMOs, PPOs or private fee-for-service plans. The Medicare program allows beneficiaries to choose
enrollment in certain managed Medicare plans. MMA increased reimbursement to managed Medicare plans and
expanded Medicare beneficiaries’ health care options. Since 2003, the number of beneficiaries choosing to
receive their Medicare benefits through such plans has increased. However, the Medicare Improvements for
Patients and Providers Act of 2008 imposed new restrictions and implemented focused cuts to certain managed
Medicare plans. In addition, the Health Reform Law reduces, over a three year period starting in 2012, premium
payments to managed Medicare plans such that CMS’ managed care per capita premium payments are, on
average, equal to traditional Medicare. The Health Reform Law also implements fee payment adjustments based
on service benchmarks and quality ratings. The Congressional Budget Office (“CBO”) has estimated that, as a
result of these changes, payments to plans will be reduced by $138 billion between 2010 and 2019, while CMS
has estimated the reduction to be $145 billion. In addition, the Health Reform Law expands the RAC program to
include managed Medicare plans. In light of the recent economic downturn and the Health Reform Law,
managed Medicare plans may experience reduced premium payments, which may lead to decreased enrollment
in such plans.
Medicaid
Medicaid programs are funded jointly by the federal government and the states and are administered by
states under approved plans. Most state Medicaid program payments are made under a PPS or are based on
negotiated payment levels with individual hospitals. Medicaid reimbursement is often less than a hospital’s cost
of services. The Health Reform Law requires states to expand Medicaid coverage to all individuals under age 65
with incomes up to 133% of the federal poverty level (“FPL”) by 2014. Further, the Health Reform Law requires
states to apply a “5% income disregard” to the Medicaid eligibility standard, so that Medicaid eligibility will
effectively be extended to those with incomes up to 138% of the FPL. However, on June 28, 2012, the United
States Supreme Court struck down the portion of the Health Reform Law that would have allowed HHS to
penalize states that do not implement the law’s Medicaid expansion provisions with the loss of existing federal
Medicaid funding. As a result, some states may choose not to implement the Medicaid expansion.
Because most states must operate with balanced budgets and because the Medicaid program is often the
state’s largest program, states can be expected to adopt or consider adopting legislation designed to reduce their
Medicaid expenditures. The recent economic downturn has increased the budgetary pressures on most states, and
these budgetary pressures have resulted and likely will continue to result in decreased spending, or decreased
spending growth, for Medicaid programs in many states.
Certain states in which we operate have adopted broad-based provider taxes to fund the non-federal share of
Medicaid programs. Many states have also adopted, or are considering, legislation designed to reduce coverage,
enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance
or expand the states’ Medicaid systems. The Health Reform Law requires states to at least maintain Medicaid
eligibility standards established prior to the enactment of the law for adults until January 1, 2014 and for children
until October 1, 2019. However, states with budget deficits may seek a waiver from this requirement to address
eligibility standards that apply to adults making more than 133% of the FPL.
The Health Reform Law prohibits the use of federal funds under the Medicaid program to reimburse
providers for medical assistance provided to treat certain provider-preventable conditions. On June 6, 2011, CMS
issued a final rule implementing this prohibition for services with dates beginning July 1, 2012. The final rule
requires each state Medicaid program to deny payments to providers for the treatment of health care-acquired
conditions designated by CMS as well as other provider-preventable conditions that may be designated by the
state.
12