Cleveland Clinic Health System Obligated Group - FMSbonds.com

Clinic’s charity care policy, see “Charity Care” in footnote 3 to the audited consolidated financial statements inAppendix B.M. PAYOR MIX, MANAGED CARE AND COMMERCIAL INSURANCE ARRANGEMENTSPayor MixObligated Group revenues are comprised primarily of payments by third-party payors, including the federalgovernment under the Medicare program, the states under the Medicaid program, various health insurance plans andcommercial payors, and private individuals. The Obligated Group payor profile, as with national trends, reflects asubstantial, stable level of managed care and commercial payor volume. Each member of the Obligated Groupaccepts assignment on all eligible Medicare patients and, as a result, Medicare remains the most significant singlepayor.whole:The following table shows payor mix as a percent of inpatient discharges for the Obligated Group as aOBLIGATED GROUPPayor Mix StatisticsBased on Total Inpatient DischargesSix Months EndedYear Ended December 31,June 30,Payor 2005 2006 2007 2007 2008Managed Care and Commercial 34% 33% 33% 33% 33%Medicare 48 48 48 48 49Medicaid 11 11 11 11 11Self-Pay & Other 7 8 8 8 7Total 100% 100% 100% 100% 100%Medicare payments for inpatient hospital stays are generally based upon a fixed rate per case for eacheligible patient, and the payment amounts depend upon the patient’s diagnosis and treatment. In addition, Medicarereimburses members of the Obligated Group for certain defined “pass-through” costs. The Medicaid programapplies principles similar to those of the Medicare program, and the states make fixed payments for each eligibledischarge. See the discussion under “BONDHOLDERS’ RISKS – Federal Laws and Regulations” in the forepart ofthis Offering Circular.Managed Care and Commercial Insurance ArrangementsThe Ohio members of the Obligated Group participate in the Medicare and Medicaid programs, and eachhas commercial contracts with Medical Mutual of Ohio (formerly Blue Cross and Blue Shield of Ohio), AnthemBlue Cross and Blue Shield, Aetna/U.S. Healthcare, UnitedHealthcare, the Kaiser Plan and many other insurancecompanies. Florida Clinic participates in the Medicare and Medicaid programs and has commercial contracts with,among others, UnitedHealthcare, Blue Cross & Blue Shield of Florida, Cigna, Humana and Aetna/U.S. Healthcare.Most of these commercial insurance plans make direct payments to the members of the Obligated Group atestablished rates, subject to various limitations and deductibles, but many patients are also covered by HMOs, PPOsand other organizations that negotiate directly with members of the Obligated Group or through The ClevelandHealth Network (an affiliation of Northeast Ohio and Northwest Pennsylvania healthcare providers that includes theHealth System’s Ohio Regional Hospitals). This restricts, but does not eliminate, the ability of members of theObligated Group to increase revenues by increasing established rates.The two largest managed care payors for the Ohio members of the Obligated Group are Medical Mutual ofOhio and Anthem Blue Cross and Blue Shield (“Anthem”). The Cleveland Clinic and other Ohio RegionalHospitals within the Obligated Group have entered into contracts to provide hospital and physician services tomembers of Medical Mutual of Ohio and Anthem. In 2007, approximately 55% of the managed care andcommercial net patient service revenue of the Ohio members of the Obligated Group (or 34% of total ObligatedGroup net patient service revenue), was attributable to Medical Mutual of Ohio and Anthem.A-25