this would be a scenario where inflation is growing at a 3%. that would suggest a pretty substantial deterioration in the financial conditions since it is not keeping pace with inflation. if it stays flat, they would make it through the 10 years of the development agreement and only be required to dip into the backstop for about $200,000 in the last year of the agreement. in that relatively pessimistic scenario, we would be fine on the cap. the last scenario is just to get a sense of what would happen if there was a significant decline in cpmc's ebitda.

this depicts a 3% reduction in each year over the course of the development agreement. there is 3% medical inflation. there would be regular inflation happening in the world while cpmc is experiencing a consistent and dramatic decline in its ebitda. in that situation, the cap would come into a fact in europe -- come into effect in year six and the backstop commitment would be exhausted. you would have a decline in the total available funds under the base line commitment, of course. there hundreds of potentials of scenarios that are in between or beyond any of these examples. it is just to give an illustration of what the conditions have to before this backstop -- or for the 40% ebitda to come into effect or

not. >> this last charge is a new charge from your presentation from two weeks ago? this particular set of assumptions, my understanding is that 3% decline in ebitda, that is the assumption in the documents that were provided to the board of supervisors by the whistleblower, right? >> i do not think this particularly represents those assumptions. but then not a fact over 10 years is equivalent to the documents that the board received. on those documents, and i am not spend a whole lot of time looking at those documents, the ebitda number goes up and down over time. over that 10-year average, you would end up somewhere in the neighborhood. over the next -- >> over the

next 10 years, if it decreases by 32%, i think that reflects what you're talking about. i think the reason this is important, i know that cpmc has been attempting to discredit the documents we have in front of us. the problem with that, they are the only financial documents the board of supervisors have at this time. when i look at what is going to happen to charity care over the next 10 years, i do not have any reason to believe the numbers will be much better than this slide, slide 12, which is quite different from the previous two slides. i look forward to a conversation with cpmc. >> in response to that, i appreciate the comments on the financials that we have looked at. the analysis we have done on the

historical numbers, at this scenario would look very pessimistic. in fact, the scenarios we have seen do not show the 40% of ebitda cap exhausting the commitment by the end of the year. depending on what assumptions you make and depending on what reality looks like, you could have different situations. president chiu: under this slide, it shows that by europe's six, which is 2018 -- it shows that by year six, which is 2018, that happens to be the same year st. luke's could potentially close. the other thing i want to ask you, the projections you were shown, it is that more akin to slide number two? >> it is more akin to that. i cannot go into details on what the contents of those projections were.

as i said, but they showed was that you could get to the end of the development agreement without having the baseline commitment capped by a combination of the 040% of ebitda and the backstop commitment. the level of comfort was not the same, byt the net effect is that the baseline commitment would be mad. -- be met. we just looked at those financials visibly, we are trying to represent some scenarios without depicting what the projections were that cpmc shared with us. president chiu: if the financial projections are worse for the city, i think i would suggest that the 40% number and the

timeframe ought to be looked at by staff as you reconsider how those projections impact this particular idea. >> thank you. >supervisor mar: i want to thank our director, barbara garcia, for being here as well. >> good afternoon, supervisors. another element of the development agreement is the 10,000 new beneficiaries commitment. if i could have the overhead, please. under this commitment, cpmc would assume the hospital partner role in the managed-care model for 10,000 managed care beneficiaries. they would partner with at least two community based primary care providers. provide necessary hospital care

to attend thousandmedi-cal beneficiaries. this is subject to a cap and on reimbursed cost each year. 9.5 million-dollar cap is adjusted for inflation. to the extent that the cost for caring for these 10,000 beneficiaries exceeds the 95 million adjusted for inflation, a backstop funds can also be used for that purpose. it is important to note that this provision is not reliant on cpmc's financial health, but an analysis that was done with publicly available information independent of cpmc's financial status. this is a busy slide. you asked if the previous -- you had asked at the previous hearing for some additional information. this was an analysis that was conducted by the consultant. what this does is project be on

reimbursed cost that cpmc will incur over the 10-year life over the commitment. there are three key component and i will go over them in detail. enrollment, how many people are going to be enrolled in managed care partnership. the costs for caring for those enrollees. the revenue that cpmc would receive for caring for those enrollees. i will start at the top. enrollment phases and over the 10-year life of this commitment. it phases inconsistent with reform. as a first of to help reform, california has already enrolled in number of seniors and persons with disabilities into medi-cal managed care. the appellant agreement requires at least two partnerships -- the development agreement requires at least two partnerships. cpmc currently has a partnership with any medical

services. we model using their information, assuming that we could stand upon their existing role would cpmc. under this partnership, they would take 1500 seniors and persons with disabilities and 7000 non-seniors and persons with disabilities. there utilization is different, their reimbursement is different because they use services at different rates. in addition to the moment, there would be the tenderloin provider enrollment and that would be 1500 beneficiaries, 300 of those would be seniors and persons with disabilities. the fulton thousand enrollees would be in the cpmc system -- the full 10,000 enrollees would

be in the c.p.i. system by 2016. the next category is cost. the number of times and enrollee is submitted to the hospital times the number of days times the cost per day. as i said, seniors and persons with disabilities utilize the hospital at different rates, as you can imagine. they have higher hospital utilization. an example is backed -- is that they have 36.5 admissions per 1000 enrollees for their senior and persons with disabilities population. that is largely because they do a really good job of managing care and getting folks the primary care and preventive care they need before hospitalization occurs. these projections are based on

historic utilization. we have used conservative assumptions across the 10 ers. we have projected net change in utilization over the 10-year period of this agreement. this samoa's out pent-up demand. -- smooths out pent-up demand. at the end of the agreement, people will have had regular access to health care and that pent-up demand will go away and utilization will likely go down. keeping it flashed across the 10 years moves those two things out. the cost data was derived from publicly available data that is reported to the state office of health wide planning and development. we projected cpmc's cost to grow at 3.5%, which is faster down the rate of inflation. we are conservatively assuming

that cpmc cost will increase faster than ablation -- inflation. the third category is revenue. we model does revenue using 2010 reimbursement rates. the per member per month rate at the hospital is paid regardless how frequently or infrequently the individual receives care. there are different rates for seniors and persons with disabilities. we used 2010 rates and we kept the rates flat for the full tenure so we do not overestimated the revenue that cpmc would receive for caring for this population. no reimbursement increase is projected in this chart. to get to cpmc's net cost, it is

cost-revenue. as you can see into starch, given the ramp up -- in this charge, given the ramp up, very little cost. it falls below the 9.5 million- dollar cap. by your 10, the cost is estimated at $9.2 million. the costs are generated for each year and not cumulative. the cap level of $9.5 million is projected to grow at inflation, 3% right now. this would leave about $3.2 million in flexibility to account for any extraordinary hospitalizations or catastrophic circumstances. we wanted to make sure that the allies could be covered under the cap, and we believe that is true. the 10,000 managed care lives was the number chosen because it

represents a third of the projected new beneficiaries under health reform, which is approximately the proportion of cpmc's hospital discharges in san francisco. the next highlight was on the skilled nursing facility bad. cpmc would continue to provide and maintain 100 skilled nursing facility beds for a period of 10 years. there would be 38 beds at the davis campus and 62 beds elsewhere. these would be new facility beds, not those already in operation. it maintains the existing stock. it is anticipated that cpmc would place those it is important to note that skilled facility bed to not have the same stringent -- stringent

safety standards at acute-care beds have and it's harder to maintain the beds with those high cost seismic safety standards and our own san francisco general hospital, when it is rebuilt, will have skilled nursing beds but the beds will continue to be in the old hospital building as opposed to the new hospital building. this is a trend not just noted here but as was noted is a national trend among hospitals nationwide. the last area we focus on is the community benefits on vulnerable populations. key in this area is the community care innovation fund, a $20 million fund that will serve to primary purposes. first, it will support clinics to get them ready for health reform.

75% of the fund will be devoted for this purpose. it will support not only tenderloin provider to provide care to the 10,000 managed lives but the clinic in general so they can be a better partner to other managed-care providers in the city as we prepare for health reform. the focus will be on san francisco's low-income and vulnerable neighborhoods. this chart provides a summary of the liquidated damages. i did go over them in detail but you can see for each of these provisions listed in the first column on the left, they are specific consequences in the event of a breach of any of these provisions.

supervisor chiu: can i ask a question of clarity? i have heard they are investing a significant amount of money and a been no reason to close st. luke's. if the financials we received last week were correct and they were able to get out of the contract, my calculation is they would escape a $30 million a year time is 15 years of obligations to the city, about $450 million. is that correct? >> that is correct. i would defer to legal counsel, but that is correct. supervisor chiu: it is a good question that is raised about why cpmc would want to pull the plug on save lives, but there is a financial incentive to make that happen. -- on st. luke's. >> i would like to provide an

update on the supreme court decision on health reform. the supreme court decision was expected last time and since then the supreme court has ruled in a 5-4 decision on the constitutionality of the affordable care act or health reform. it declared it unconstitutional and constitutional in part. and that held the individual mandate which means people will be required to have health insurance by january 1, 2014. it found to be it unconstitutionally coercive but created a provision that makes the medicaid and optional for states. california has been on the path to health reform through a waiver it received last year and has already stated its intention to implement the medicaid expansion. as a result of health reform, 80,000 uninsured san franciscans

will have health insurance. 30,000 will have metical and reduced reliance on charity care and the provisions in this development agreement that rely on health reform remain relevant. at this point, i would like to turn it over to catherine bought from the health services system. >> thank you for being here. >> thank you. i'm the director of the san francisco of services center. you have before you -- we have 107,000 members that are active employees and retirees and their dependents. we serve for employers, the city and county is the largest -- is the largest. the san francisco school district makes up 25% from the community college district makes a small percentage of our membership and the superior courts make up an even smaller percentage.

all of our members are divided between three different health- care options. the kaiser hmo which is about 47% of our members with a global budget. the blue shield one has about 43% of our members and the difference between the to his his his his kaiser has a global budgets and we pay them a certain number of dollars per member per month and a divided up between the physician group and inpatient and outpatient. blue shield pays the physician group's a capitated amount per member per month. but then they also pay the hospitals fee-for-service so every emergency room visit, every medication in the hospital is paid as a fee for service cost, not on a capitated

basis. our physician group costs are somewhat predictable but hospital costs are completely unpredictable. the third office -- the third option is the city plan, also called plan one, and that is a self-insured product where the city plays every -- the city pays every claim fee-for- service. the majority of the health service enrollees' access hospital care through blue shield and a smaller number of city plan members also access to care as well. >> can i ask you to read pay -- you save the hospital costs are unpredictable and that could impact them?

>> we are hopefully designing an agreement to make it more predictable. that is one of the goals. hospital costs in particular -- prices are driving hospital costs of. it is pricing, not utilization. utilization is also a contributor. in 2011, the health service system looked at what calpers was doing. is the second-largest provider in the country and they successfully implemented and accountable care organization in sacramento. that is a collaboration between hospital systems and physician groups where they try to work together to bring costs down. it is counterintuitive for the hospitals are paid fee-for-

service. hospitals are grappling across the country with how they going to have a revenue stream if they're keeping people out of a hospital? they try to eliminate duplication and better coordinate care. our goal in creating to organizations was to create competition between the two. if you look at this slide, you can see blue shield and accountable care organization one and accountable care organization no. 2. in terms of how we negotiate rates, and this was true for

2013, it negotiates a single rate for both. if you are in the group, you play u.k. pay the same premium. their rate is negotiated with physician groups and they negotiate their rates with the hospitals. since it is a fee-for-service, blue shield is negotiating a percentage of the bill charges or a percentage of the retail price list. health and human services does not negotiate directly with them or the hospitals. they do on our behalf. however, we have developed a partnership with both accountable care organizations and we are monitoring and to get data on how many emergency room visits there are decreasing and whether their use of generics is it -- is decreasing.

we are monitoring and to make sure they meet the cost and quality metrics. in terms of health insurance costs, if you look at this pie chart, our budgets was $691 million. of that, to under $25 million went to kaiser and $221 million went to police shield. we have members all over the state of -- went to blue shield. we have members all over california, not just in san francisco. the other piece is attributed to the dental, vision, and long- term disability. that gives a breakdown of what our costs are. at our total cost will be close to $700 million, a substantial

amount of money for the county, school district and community college district and the courts. systemwide, there is a correction our average monthly premium increases in 2009, when i came to this position, or 9%. in 2010, they went up to 13%. 2010 was a bad year for all employers, but we felt it. we went down to 3% in 2011 and you will hear this later this month, we have negotiated rate increases under 3% for 2013. but what is key is the health services system had surplus funds from a blue shield credit and we literally paid down the

dependent costs to keep dependence on the product. at the reason it went down so far was because they agreed to flex spending which means we are paying the bills and we brought down the costs which gave a guarantee of more families in the project. those numbers are not just magical. they took work. in terms of possible cost increases, the hospital costs have increased 46% since 2008. those are caused by increased utilization of members and increased prices, the actual cost of care. >> this is a difficult and complicated system that we have, but if i could boil down what i think is going on here, the

federal government is encouraging all jurisdictions to use accountable care and if you have competition, it helps to bring down rates. could you tell us what successes we have had or set up have helped to slow the rate of increase in our premiums? it seemed like we had some pretty good progress between 2012 and 2011. >> today, the centers for medicaid and medicare services announced 89 additional accountable care organizations throughout the country. this is the leadership of secretary sibelius and president obama saying they are going to reimburse things differently. they're going to pay for quality outcomes and they're looking specifically at things like patient readmission. if they get dismissed after 30

days, perhaps they were not sick enough to begin with or needed better planning. if you can reduce that, you are reducing the hospital cost. similarly, controlling emergency department visits, after-hours, we are working with organizations to establish urgent care hours. the only place where there are effective urgent care ours is that san francisco general. we should be proud of that but after 6:00, the doctor says go to the emergency room. then we are paying an emergency room visit cost which is more expensive than a doctor's visit. at kaiser, you don't go to the emergency room, you call the advisers. they very rarely sent you to the very expensive emergency room. we have ni