Cleveland Clinic Health System Obligated Group - FMSbonds.com

While it is believed that the 2003 Act will provide a measure of financial relief to hospitals, it is impossibleto predict the effect that the 2003 Act will have on Obligated Issuers, especially given the 2003 Act’s complexityand long phase-in period, as well as the potential for future amendment and alteration of the potential benefitsprovided by the 2003 Act.In addition, the current trend of federal Medicare legislation and regulation favors the replacement of costbased, provider-specific reimbursement with prospectively determined national payment rates. The net effect of thistrend could be lower revenues that would have a material adverse effect on the future financial condition and resultsof operations of the Obligated Issuers.The 2003 Act also included provisions creating a 3-year demonstration program using Recovery AuditContractors (“RACs”) to detect and correct improper payments in the Medicare fee for service program. The RACdemonstration program was designed to determine whether the use of RACs would be a cost-effective means ofadding resources to ensure correct payments were being made to providers and suppliers and, therefore, protect theMedicare Trust Fund. The demonstration program operated initially in New York, Florida, and California, and wasexpanded to Massachusetts and South Carolina, and ended on March 27, 2008. The Tax Relief and Health Care Actof 2006 makes the RAC program permanent and requires the Secretary of DHHS to expand the program to all 50states by no later than 2010. As implemented by CMS, RACs are required to identify both overpayments andunderpayments and are paid on a contingency fee basis.Medicare AdvantageMedicare beneficiaries may obtain Medicare coverage through a managed care Medicare Advantage plan(formerly known as a “Medicare+Choice” plan). A Medicare Advantage plan may be offered by a coordinated careplan (such as an HMO or PPO), a provider sponsored organization (“PSO”) (a network operated by health careproviders rather than an insurance company), a private fee-for-service plan, or a combination of a medical savingsaccount (“MSA”) and contributions to a Medicare Advantage plan. Each Medicare Advantage plan, except an MSAplan, is required to provide benefits approved by the Secretary of HHS. A Medicare Advantage plan will receive amonthly capitated payment from DHHS for each Medicare beneficiary who has elected coverage under the plan.Health care providers such as the Obligated Issuers must contract with Medicare Advantage plans to treat MedicareAdvantage enrollees at agreed upon rates or may form a PSO to contract directly with HHS as a MedicareAdvantage plan. Covered inpatient and emergency services rendered to a Medicare Advantage beneficiary by ahospital that is an out-of-plan provider (i.e., that has not entered into a contract with a Medicare Advantage plan)will be paid at Medicare fee-for-service payment rates as payment in full.As is the case for Medicare payments, there can be no assurance that Medicare Advantage or out ofnetwork Medicare fee-for-service payments for Medicare Advantage enrollees treated at the Obligated Issuer’sfacilities will be sufficient to cover the Obligated Issuers’ actual costs of providing such services to such enrollees.Future legislation or regulations may be created to encourage increased participation in the MedicareAdvantage program. The effect of such future legislation/regulation is unknown but could materially and adverselyaffect the Obligated Issuers.MedicaidMedicaid is a program of medical assistance, funded jointly by the federal government and the states, forcertain needy individuals and their dependants. Under Medicaid, the federal government provides limited funding tostates that have medical assistance programs that meet federal standards. Attempts to balance or reduce federal andstate budgets will likely negatively impact Medicaid spending. Payments made to health care providers under theMedicaid program are subject to change as a result of federal or state legislative and administrative actions,including changes in the methods for calculating payments, the amount of payments that will be made for coveredservices and the types of services that will be covered under the program. Such changes have occurred in the pastand may be expected to occur in the future, particularly in response to federal and state budgetary constraints. ThePresident has proposed approximately $18.2 billion in cuts to Medicaid over five years in the FY 2009 Budget.Most of the reduction in Medicaid spending would result from shifting costs from the federal government to thestates. These cuts are in addition to approximately $12 billion in cuts from the President’s proposals in the 200828