Minutes. Maricopa County Special Health Care District Board of Directors Meeting Maricopa Medical Center Auditoriums 2, 3 and 4 May 20, :30 p.m.

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1 Minutes Maricopa County Special Health Care District Board of Directors Meeting Maricopa Medical Center Auditoriums 2, 3 and 4 May 20, :30 p.m. Present: Terence McMahon, Chairman, District 5 Mark Dewane, Vice Chairman, District 2 Mary A. Harden, R.N., Director, District 1 Susan Gerard, Director, District 3 Elbert Bicknell, Director, District 4 Others Present: Steve Purves, MIHS, President & Chief Executive Officer Kathy Benaquista, MIHS, Interim Chief Financial Officer Robert E. Fromm, Jr., M.D., M.P.H., MIHS, Chief Medical Officer Sherry Stotler, R.N., M.S.N., MIHS, Chief Nursing Officer Louis B. Gorman, MIHS, District Counsel Bill Sims, Sims Murray, Board Counsel Guest Presenters: Michael Zenobi, MIHS, Vice President Managed Care Operations Recorded by: Cynthia Cornejo, MIHS, Deputy Clerk of the Board Call to Order Chairman McMahon called the meeting to order at 2:30 p.m. Roll Call Ms. Cornejo called roll. Following roll call, it was that all five voting members of the Maricopa County were present, which represents a quorum. Pledge of Allegiance Director Bicknell led the Pledge of Allegiance. Call to the Public Chairman McMahon called for public comment. There were no comments from the public. Mission Statement Ms. Cornejo read the Mission Statement aloud.

2 General Session, Presentation, Discussion and Action: 1. Motion to Recess General Session and Convene in Executive Session MOTION: Vice Chairman Dewane moved to recess general session and convene in executive session at 2:31 p.m. Director Harden seconded. Motion passed by voice vote. General Session, Presentation, Discussion and Action: Chairman McMahon reconvened general session at 4:04 p.m. Break from 4:05 p.m. to 4:10 p.m. Revenues, Expenses, and Other Assumptions Ms. Benaquista stated that the fiscal year 2016 (FY16) budget was in the preliminary stages and was adjusted based on information received on a daily basis. The on-going margin improvement initiatives and revenue enhancement projects were factored into the upcoming budget, however, additional concerns needed to be addressed. Beginning in October 2015, the Center for Medicare and Medicaid Services (CMS) will implement a reduction in reimbursement for Medicare patients by $2.5 million, which was not included in the preliminary budget as of yet. She reviewed the previously Board-approved volumes and noted that there were no proposed revisions. The payer mix was difficult to predict, however, the utilization of Meritus patients was closely monitored, as increased utilization may have an impact on the payer mix. Other contributing factors to patient revenue included the renegotiated contract with Mercy Maricopa Integrated Care (MMIC) for behavioral health services and the implementation of a revised sliding fee scale for the Federally Qualified Health Centers Look Alike Clinics (FQHC LA). Both are anticipated to have a positive impact on patient revenue. The revenue enhancement project uncovered opportunities to improve reimbursement rates for Medicare and Meritus for FY16, however, the budget did not include the unanticipated reduction in reimbursement for Medicare patients or the potential five percent rate decrease from Arizona s Medicaid program, Arizona Health Care Cost Containment System (AHCCCS). Mr. Purves stated that the methodology to distribute the reduction across the state had not been determined. Maricopa Integrated Health System (MIHS) had submitted the reasons for exemption from the reduction to the appropriate authority. Director Gerard asked if the health plans would be affected by the reduction. Dr. Fromm said the Director of AHCCCS had broad discretion on how to distribute the reduction. Mr. Zenobi said AHCCCS was in the process of developing a plan to distribute the payment reduction and was expected to release that plan in early June. Ms. Benaquista continued, stating that there was an opportunity to increase net revenue by maximizing the commercial payer rates. Those contracts were in the process of renegotiation. She stated that salary increases were included at a one percent increase allow for market adjustments in key critical positions; however, those positions had not been identified. She noted that there might be a need to increase salaries further. Mr. Purves stated that significant salary adjustments were made in the information technology (IT) department to retain critical staff; however, there was also a need to reevaluate salaries in other key areas within the organization, such nursing and other clinical positions. 2

3 Revenues, Expenses, and Other Assumptions, cont. Ms. Benaquista reiterated that the budget included a one percent increase of the total salary budget and would be allocated based on need and would not be used as a merit increase for all employees. Supply expenses were anticipated to increase in FY16 due to inflation, particularly in pharmaceutical costs; however, purchases services costs were budgeted to decrease. She noted that Proposition 117 changed how the property tax evaluations were calculated. Director Bicknell asked if Proposition 117 changed the amount available to the District. Ms. Benaquista explained that the dollar amount would remain the same; however, the calculation on the valuation changed. She stated that the proposed FY16 budget included to maximum levy amount of $67.3 million. She reviewed anticipated Federal and State funding and highlighted a correction to AHCCCS Medical Education; the FY16 budget should be $21.81 million. She reviewed the projection volume comparisons for acute and behavioral health and stated that the volumes were trending close to budget. Chairman McMahon said that admissions were decreasing; however, the FY16 budget was anticipating an increase. Ms. Benaquista explained the budgeted volumes were based on projections through February, admissions through April were decreasing; however, the decreases were not significant to cause concern. She continued to review the projected volumes and payer mix. Should the full tax levy be assessed, there would be a 0.3% increase in the tax rate. There were many initiatives implemented to improve MIHS s largest controllable expense, salaries. A review of the full time employee (FTE) dashboard reflected how those initiatives affected the FY16 budget, with a reduction of approximately 190 FTEs compared to FY14 for an estimated $17 million eliminated from the cost structure. Director Bicknell referred to the increased cost in contract labor and asked if the one percent salary increase was applied to contract labor. Ms. Benaquista stated the one percent increase for salary expenses was to be allocated to payroll employees. The increased cost for contract labor was due the higher skill set required, such as IT and revenue cycle employees. She reviewed the expense assumptions and highlighted a slight reduction in the Arizona State Retirement System (ASRS) contribution rate and the overall projected inflation for nonemployee related expenses. Chairman McMahon asked if the inflation rate was with industry standards. Ms. Benaquista said that healthcare inflation rates were substantially higher than other industries, with pharmaceuticals being a major factor. She reviewed the income statement for Maricopa Medical Center (MMC) and highlighted net patient services revenue and the assumptions included in the increase of nearly $35 million. The increase was not related to volume; however, the contributing factors to the increase included the renegotiated contract for behavioral health services, the Meritus reimbursement increase, revenue cycle improvements. The budget did not include the decrease of $2.5 million from Medicare or the potential reduction in reimbursement from AHCCCS. She reviewed operating expenses and noted the FY16 budget for salaries and contract labor was nearly $20 million less than FY14. The majority of the variance in the supplies budget was due to inflation. The decrease in purchased services was due the conclusion of consulting services, such as PricewaterhouseCoopers. 3

4 Revenues, Expenses, and Other Assumptions, cont. Ms. Benaquista highlighted the increased depreciation due to the transfer of property. She reviewed nonoperating revenues and expenses. She referred to the normalized excess revenue over expense, which removed the $52 million payment from Safety Net Care Pool (SNCP) to demonstrate the improvement in operating expenses year over year. Mr. Purves said that there had been significant improvement in the financial status since FY14, with a positive cash flow for the current fiscal year. Ms. Benaquista reviewed the operating budget for the FQHC LA Clinics and stated that the Maricopa Health Centers Governing Council was looking at options to reduce losses. She noted the expenses were calculated based on the assumption that every available position was filled, which was unrealistic. Mr. Purves said the FQHC LA clinics and ambulatory centers had different contributing factors for volume and expenses. The volume may increase by 3.4%; however, the expenses may only increase slightly. Ms. Benaquista reviewed the budget assumptions for the health plans, which anticipated minimal growth and factored in the reduction in AHCCCS rates. Mr. Zenobi addressed the profitability of the Maricopa Health Plan (MHP) and noted that there was a capped allowance on how much a plan can earn; the maximum was four and a half percent. The MHP budgeted over $10 million net income and the Maricopa Care Advantage Plan (MCA) was budgeted to loss of $2.8 million. A strategic option to control the losses in the MCA was to remove supplemental benefits, which may reduce the number of new enrollees. Ms. Benaquista said that, combined, the health plans budgeted $7.4 million profit for FY16. The renegotiated administrative contract was a contributing factor. Mr. Purves noted the consolidated income statement did not include the health plans. Ms. Benaquista stated that the budgets for MIHS and the health plans were independently developed; however, both budgets projected inflation in pharmacy costs. For the health plans, the pharmacy costs were the main driver for medical expense, with a 13% increase. 3. Concluding Items a. Old Business: March 11, 2015 Formal Meeting Bond Issuance When the time is appropriate, please provide the Board with a list of needs/proposal of projects along with accompanying Board resolution to issue bonds. March 25, 2015 Uncompensated Care In the next days, present the Board with Financial Assistance Policy, Structure, Philosophy and Implementation b. Board Member Requests for Future Agenda Items or Reports 4

5 3. Concluding Items, cont. c. Comments i. Chairman and Member Closing Comment ii. President & Chief Executive Officer Summary of Current Events Mr. Purves thanked the MIHS staff for the hard work and dedication exhibited in the development of the budget. Adjourn MOTION: Vice Chairman Dewane moved to adjourn the May 20, 2015 Special Health Care District Board of Directors Finance Meeting Budget Study Session. Director Bicknell seconded. Motion passed by voice vote. Meeting adjourned at 5:25 p.m. Terence M. McMahon, Chairman Special Health Care District Board of Directors 5