SETTING THE RECORD STRAIGHT ON TIME’S ARTICLE “BITTER PILL”

Understanding a hospital bill can be frustrating for patients. Today’s hospital bill is a symptom of a broken payment system. Decades of regulations have made a complex billing system even more complex and frustrating for everyone involved. In fact, Medicare rules and regulations alone top more than 130,000 pages, much of which is devoted to submitting bills for payment. Clearly, this is an unworkable system for everyone involved. –Source: American Hospital Association

Hospital Underpayment

What hospitals charge and what hospitals are paid are two very different things. Medicare and Medicaid pay less than the cost of caring for patients. Additionally, as America’s health care safety net, hospitals see, treat and heal uninsured and underinsured patients every day. For Medicare, hospitals received payment of only 91 cents for every dollar spent by hospitals caring for

Medicare patients in 2011. –in FY12 KCC was paid 83 cents of cost to provide that care (Federal Government) For Medicaid, hospitals received payment of only 95 cents for every dollar spent by hospitals caring for

Medicaid patients in 2011. –in FY12 KCC was paid 76 cents of cost to provide that care (State Program with Federal Government Oversight)

Source: American Hospital Association Source: KCC Finance Department

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: “The American health care market has transformed tax-exempt ‘non-profit’ hospitals into the towns’ most profitable businesses and largest businesses presided over by the regions’ most richly compensated executives…” AHA FACT: One-quarter of hospitals lose money on operations and the average operating margin is 5.5 percent. In non-profit hospitals, these margins are used to make capital investments to ensure that hospitals keep pace with technological change such as adoption of electronic health records, meet myriad government regulations and have the resources and capacity to meet the growing demand for care from our aging population. Crain’s Detroit Business, March 11, 2013 A report from the Michigan Health and Hospital Association points to improved financial performance by Michigan hospitals. The state’s 134 community hospitals increased average operating margins in 2011 to 3.3 percent from 2.8 percent in 2010.

Karmanos Cancer Center The FY12 consolidated KCI/KCC operating margin was negative 1.3 percent, this includes a $4.5M investment in research. KCC FY12 operating margin was positive 0.6 percent.

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: The article suggests that Medicare is an adequate benchmark for payment. “Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, difference in regional costs of living and even the education of medical students.” AHA FACT: According to the federal Medicare Payment Advisory Commission (MedPAC), the overall Medicare margin is a negative 5.8 percent, and this does not take into account the costs that Medicare disallows, like paying physicians for on-call time. For outpatient services, the underpayment is even greater, with margins below negative 10 percent. Hospitals need a margin to maintain the essential public services all communities depend on.

Karmanos Cancer Center • KCC’s FY12 combined (inpatient and outpatient) Medicare margin was negative 16.6 percent

— Inpatient=Negative 14.8 percent — Outpatient=Negative 17.6 percent

• KCC’s FY12 Medicare and Medicaid population was over 63 percent — Medicare Loss=$12.577 Million — Medicaid Loss=$10.521 Million — Daily Loss=$63,300

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: The article states “Hospital profits are further boosted by the payments from the tens of millions of patients who…have no insurance or whose coverage does not apply because the patient has exceeded the coverage limits.” AHA FACT: Hospitals experience significant losses on care for uninsured and underinsured patients. In fact, hospitals in 2011, the latest year for which data are available, provided more that $41 billion in care for which no payment was received. Not-for-profit hospitals are required to have discount policies in place, and many patients receive financial assistance. The AHA calculates uncompensated care based on the costs of providing that care. The current figure of $41.1 billion dollars is 5.4 percent of total net revenue. Hospitals also are required to report charity care and bad debt to the IRS based on costs, not charges.

Karmanos Cancer Center When given a diagnosis of cancer, most patients will qualify for Medicaid if they are uninsured. There are exceptions, all assets must be depleted before qualifying for Medicaid and an individual will never qualify if they are not a U.S. Citizen. FY12 KCC/KCI Consolidated Operations — Charity Care $216,000 — Bad Debt $6,058,760

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: The article compares the price of an item purchased at Amazon.com to that same item provided in a hospital emergency department, the clear implication being that the price should be the same. AHA FACT: The price a hospital patient sees reflects more than the individual item received. A dose of Tylenol provides a good example. In order to take medications in a hospital, even over-the-counter medicines, they must be prescribed by a doctor, that order gets transmitted to the pharmacy, the order gets filled by a pharmacist or pharmacy tech who retrieves just one Tylenol pill and individually packages that one pill, the pill gets transported from the pharmacy to the nursing unit where the patient resides, then the pill is retrieved by a registered nurse who personally gives the pill to the patient and then must document the administration of that pill in the patient medication administration record. All of this process to give a patient a single does of Tylenol in a hospital bed is regulated by agencies that accredit hospitals - a condition of participation in the Medicare program.

Karmanos Cancer Center KCC does not charge patients for several over-the-counter non-prescription items including certain ointments/creams, sore throat medications, cough drops and bowel test preps, totaling approximately $10,000/year. In addition KCC provides assistance to patients who cannot afford their prescriptions and/or co-pays through various programs.

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: Not-for-profit hospitals should not have a “profit.” AHA FACT: Even not-for-profit hospitals need a profit, meaning they must have revenues that exceed expenses – known as a positive margin in the not-for-profit world. Hospitals need a positive margin to help to finance the facilities and equipment needed to keep pace with advances in care and meet the rising demands our aging population. Additionally, hospitals need to be financially sound to borrow the additional funds needed to meet these investment needs. Chronic failure to have a positive margin leads to the deterioration of facilities and equipment, eventual bankruptcy, and closure. The net income of not-for-profit hospitals, however, by law may not be used to enrich individuals. All net income must be reinvested in the hospital or hospital system to the benefit of the community.

Karmanos Cancer Center • Together KCI and KCC generate revenue from patient services, professional fees, donations, grants and contracts,

special events, affiliations, investments • Expenses: salary, wages, fringe benefits, supplies, drug costs, purchased services, professional fees, lease costs,

insurance, bad debt, administrative infrastructure • Investments: faculty and staff, research, clinical treatment, medical education, safety and technology, clinical

facilities, capital equipment

Setting the Record Straight on TIME’s Article “Bitter Pill” Source: American Hospital Association TIME: The chargemaster is the “core document that is the basis of hundreds of billions of dollars in health care bills.” AHA FACT: While hospitals by law are required to maintain a uniform set of charges, the rates hospitals charge to the majority of patients are not based on the chargemaster. Medicare pays administratively determined set rates and, in most other states, so does Medicaid. Only in the case of severely ill and complex patients (referred to as outliers) do charges enter into the algorithm and even then, at discounted rates well below the chargemaster. Nationally, Medicaid and Medicare account for 47 percent* of care provided. Commercial insurers typically pay hospitals based on per diems, diagnosis related groups (DRGs) or fee schedules.

*KCC’s FY12 Medicare and Medicaid population was over 63 percent

Karmanos Cancer Center KCC does maintain a uniform set of charges. If a patient is uninsured or underinsured, they can complete a Charity Care Application. If they qualify based on KCC's Charity Care Policy, a discount is applied up to 100%. This policy is based on federal poverty guidelines and the patient's financial resources. Non US citizens cannot qualify for 100% charity.

American Hospital Association Hospital Billing and Collection Practices Guidelines

KCC Compliance

Helping Patients with Payment for Hospital Care – Communicating Effectively

Hospitals should provide financial counseling to patients about their hospital bills and should make the availability of such counseling widely known.

Hospitals should respond promptly to patients’ questions about their bills and to requests for financial assistance.

Hospitals should use a billing process that is clear, concise, correct and patient friendly.

Hospitals should make available for review by the public specific information in a meaningful format about what they charge for items and services.

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Helping Patients Qualify for Financial Assistance

Hospitals should have a written financial assistance policy that includes eligibility criteria, the basis for calculating charges and the method for applying for financial assistance.

Hospitals should communicate this information to patients in a way that is easy to understand, culturally appropriate, and in the most prevalent languages used in their communities.

Hospitals should have understandable, written policies to help patients determine if they qualify for public assistance programs or hospital-based assistance programs.

Hospitals should widely publicize, e.g., post on the premises and on the website and/or distribute directly to patients, these policies and share them with appropriate community health and human services agencies and other organizations that assist people in need.

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American Hospital Association Hospital Billing and Collection Practices Guidelines

KCC Compliance

Ensuring Hospital Policies are Applied Accurately and Consistently

Hospitals should ensure that all financial assistance policies are applied consistently.

Hospitals should ensure that staff members who work closely with patients (including those working in patient registration and admitting, financial assistance, customer service, billing and collections as well as nurses, social workers, hospital receptionists and others) are educated about hospital billing, financial assistance and collection policies and practices.

Making Care More Affordable for Patients who Qualify for Financial Assistance

Hospitals should review all current charges and ensure that all charges for services and procedures are reasonable related to both the cost of the service and to meeting all of the community’s health care needs, including providing the necessary subsidies to maintain essential public services.

Hospitals should have policies to limit charges for emergency and other medically necessary care for those who qualify for financial assistance to no more than the amounts generally billed to individuals who have insurance covering such care.

Ensuring Fair Billing and Collection Practices

Hospital should ensure that patient accounts are pursued fairly and consistently, reflecting the public’s high expectations of hospitals.

Hospitals should have a written collections policy that includes the actions that may be taken in the event of nonpayment and ensures that reasonable efforts are made to determine whether an individual is eligible for financial assistance before undertaking significant collections actions.

Hospitals should define the standards and scope of practices to be used by outside collection agencies acting on their behalf, and should obtain adherence to these standards in writing from such agencies.

In comparison, let’s buy a car…

You will not see a cost or labor charges for each individual item that it took to build that car listed on the invoice.

Hospitals are required, by law, to provide every single detail of the services provided.

(page 24 of 53…for a 5 day stay in the ICU)

KCC’s Statement/Two-Minute Elevator Speech

We recognize hospital bills may be difficult to understand. Not only is this frustration expressed by some of our patients, but also by patients treated anywhere throughout the United States. All hospitals operate within a broken payment system made more complex due to decades of regulations. For example, payment reimbursements are pre-determined by the government for our Medicare and Medicaid patients and do not cover the cost of advanced cancer care. As such, other insurance companies are required to pay more in order to offset losses from these programs. We are deeply committed to ensure that state-of-the-art cancer treatment remains available at the Karmanos Cancer Center. This is possible by continually re-investing in key areas – a highly specialized health care team, cancer research and new technologies, all of which lead to better treatments and better outcomes for our patients. This is at the core of our mission.

Key Definitions • Chargemaster - Catalog of charges used for billing the services KCC provides to our patients. • Self-pay patient - A patient who has no health insurance coverage. • Charity Care Policy - A policy that assesses the financial assets of uninsured and/or underinsured patients to determine if

they qualify for Medicaid or a charity care discount. When given a diagnosis of cancer, most patients will qualify for Medicaid. The patient must meet Medicaid income guidelines, and be a US citizen. If a patient applies for a charity care discount, a complete treatment plan will be requested from the physician. If the patient's income is less than or equal to 200% of the Federal Poverty Level Guidelines ("FPL"), they may be eligible for 100% charity. Non US citizens do not qualify for 100% Charity Care. If the patient's income is more than 200% of the Federal Poverty Level guidelines, they could qualify for a discount based on their financial resources. Estimated charges are calculated off the charge master based on the treatment plan. Estimated charges are multiplied by .56%. (BCBSM Reimbursement Rate). This calculation determines the estimated patient responsibility.

• Medicare Cost Reports - CMS required annual report generally due within 6 months of a hospitals fiscal year-end. This report identifies many things, including the hospitals direct and indirect cost of providing patient care. The information used in cost reports has significant meaning and influences the decisions made by Congress when determining future components of, or even entire, PPS payments.