Cleveland Clinic Health System Obligated Group - FMSbonds.com

other third-party payors, including alternative delivery systems, are implementing their own prospective paymentsystems and/or required contractual terms designed to prevent “cost shifting” to such payors and are actively seekingto reduce their payment obligations to hospitals.Hospital Inpatient Capital CostsHospitals’ capital-related costs for treating Medicare inpatients, which include interest expense,depreciation, lease expense, property taxes, building costs and return on equity capital of proprietary providers, arereimbursed on the basis of a prospective capital rate (e.g., under the PPS system), adjusted for case mix, area wageindex, urban location, disproportionate share factors, outlier cases and other items. Certain operating costsassociated with Medicare patients, including deductible and coinsurance amounts not paid by Medicare patients, thecost of certain training and educational activities, limited research costs not otherwise covered by grants, the valueof service of non-paid workers, compensation of owners, payments for therapy services provided “underarrangements”, organ transplant services, and providers’ cost of compensation to provider-based physicians, may bereimbursed on a reasonable cost or prospective basis depending on the cost category. Medicare payments for capitalor operating costs rarely cover the actual costs incurred by a hospital. In addition to the basic payments, additionalpayments may be made for outlier cases that are extraordinarily costly or involve atypically long stays. TheObligated Group cannot predict how future adjustment of the cost-based methodologies or PPS rates may affect thefinancial condition of the Obligated Group. There can be no assurance that the prospective payments for capitalcosts will be sufficient to cover the actual capital-related costs of the Obligated Group allocable to Medicare patientstays or to provide adequate flexibility in meeting the Obligated Group’s future capital needs.Costs of Medical EducationMedicare pays for certain costs associated with both direct and indirect medical education (including thesalaries of residents and teachers and other overhead costs directly attributable to approved medical educationprograms for training residents, nurses and allied health professionals), but there are limits on the amount and typeof such program costs which can be reimbursed under Medicare. Accordingly, there can be no assurance thatpayments to the Obligated Issuers for providing medical education will be adequate to cover the costs attributable toits medical education programs.Skilled Nursing Facility Services, Home Health Reimbursement, and Inpatient Psychiatric andRehabilitationMedicare Part A covers nursing services furnished by or under the supervision of a registered professionalnurse, as well as physical, occupational, and speech therapy provided by skilled nursing facilities (“SNFs”) that arecertified for participation in the Medicare program. Certain “ancillary” services furnished to SNF patients are alsocovered under Medicare Part B. Medicare coverage of SNF services is limited to 100 days per benefit period afterdischarge from a Medicare participating hospital or critical access hospital, and is available only if the patient ishospitalized for at least three consecutive days, the need for SNF services is related to the reason for thehospitalization, and the patient is admitted to the SNF within 30 days following discharge from a Medicareparticipating hospital. For the first 20 days, Medicare pays for all covered services. Thereafter, the patient must payco insurance amounts for the remaining days of covered care per year.Medicare payments for SNF services are paid solely upon a case-mix adjusted per diem PPS for all routine,ancillary and capital-related costs. In addition to the limit on per diem PPS costs, SNF payments are also negativelyimpacted by Medicare regulations which require that post-hospitalization SNF services be “bundled” into thehospital’s DRG payment in certain circumstances. Where these regulations apply, the hospital and the SNF must, ineffect, divide the payment which otherwise would have been paid to the hospital alone for the patient’s treatment,and no additional funds are paid by Medicare for SNF care of the patient. This provision is having a negative effecton SNF utilization and payments, either because hospitals are finding it difficult to place patients in SNFs which willnot be paid as before or because hospitals are reluctant to discharge the patients to SNFs and lose part of theirpayment.There is no guarantee that SNF prospective payment rates, as they may change from time to time, willcover the Obligated Issuers’ actual costs of providing skilled nursing services to Medicare beneficiaries. In addition,24