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PAGE: 1
Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
PANDEMIC OR PANACEA?
The Financial Impact of the ACA on the Modern
Health Care Industry
California Society of Healthcare Attorneys
Annual Meeting and Spring Seminar
DATE: April 13, 2014
TIME: 9:30 AM to 10:30 AM
PLACE: Resort at Squaw Creek
PRESENTERS:
Samuel Maizel, Esq., Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Esq., Garner Health Law Corporation

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
INTRODUCTION

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PAGE: 3
Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Distressed Hospitals in the U.S.
 Distressed hospitals are those operating with an EBITDA of
0% or less annually.
 This represents a significant number of America‟s hospitals,
as more than one-third of the nation‟s hospitals reported a
negative operating profit margin in 2012 (22.4% of
California‟s hospitals operated at a loss in 2010).
 Even with other resources, the number of hospitals with a
negative total margin exceeded one-quarter of all hospitals in
America.

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Distressed Hospitals in the U.S. Continued
 California‟s 373 hospitals had an average operating profit
margin of 2.63% in 2012.
 More than one-third of Massachusetts hospitals lost money in
2011. Overall the state‟s 65 acute care hospitals had only a
2.1% profit margin.
 New Jersey‟s hospitals had only a 0.3% profit margin in 2011.

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 The Affordable Care Act‟s reductions in payment rates to
hospitals and other providers have slowed the growth of
Medicare spending (compared with projections under prior
law).
 Reduced payments to hospitals and other providers under
Medicare will lessen their income or profits, but those
changes are likely to decrease demand by a relatively
small amount.
Congressional Budget Office (2014-2024)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Congressional Budget Office (2014-2024) Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
72 Federal Register 47130 (Aug. 22, 2007).
 CMS adopted a Medicare Severity DRG classification system
for the IPPS as a way to better identify severity of illness.
 MS-DRGs are also linked to (1) complications or comorbidities
(CCs) and (2) major complications or comorbidities (MCCs).
 As of 2014 the original 467 DRGs from the 1982 system were
expanded to include an IPPS with 1,622 MCCs and 3,529 CCs.
MS-DRGs

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
PERFORMANCE BASED
REIMBURSEMENT

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
78 Federal Register (No. 160) 50496-51040 (Aug. 19, 2013)
 Hospital Value-Based Purchasing Program
 Physician Value Based Purchasing Program
 Hospital Readmissions Reduction Program
 Hospital Acquired Conditions
 National Quality Forum‟s List of Serious Reportable Events
 Medicare Severity Diagnosis Related Groups (MS-DRGs)
Performance Based Reimbursement

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
“[W]e are very concerned that many of the quality measures upon
which federal pay-for-performance programs are based do not
produce accurate performance results, making them inappropriate
to use for public reporting and accountability programs.
Moreover, we believe the manner in which some of the payment
penalties are calculated lacks fairness and equity.”
American Hospital Association on Performance
Based Reimbursement

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
42 U.S.C. § 1395ww(o); 78 Federal Register 50677.
 The DRG system now includes value-based purchasing.
 CMS will start paying hospitals Medicare “bonuses” based upon
overall performance, adherence to quality measures and patient
satisfaction.
 This epic change is designed to transform a system that has
historically been based on cost into one that focuses primarily
on quality and performance.
Hospital Value-Based Purchasing (VBP) Program

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Funding for value-based purchasing comes from base operating
DRG reductions (1.25% in 2014, 1.5% in 2015, 1.75% in
2016, and 2% thereafter).
 Hospitals with poor performance ratings may be excluded from
bonus opportunities.
 The VBP Program is based on a hospital‟s total performance
score (TPS), which includes, in part:
 12 Clinical Process of Care measures (70% of TPS)
 8 Patient Experience of Care dimensions (30% of TPS)
Hospital VBP Program Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Hospital VBP Program Continued
Percentage Reduction and Estimated Total Withholding

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Hospital VBP Program Continued
2014 Quality Measures
In Fiscal Year 2015, Medicare
regulations will add two new
outcome measures and an
efficiency measure.
New measures will also be added
in Fiscal Year 2016.
 Acute MI
 Heart Failure
 Pneumonia
 Surgical Improvement
 Patient Experience of Care

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Hospital VBP Program Continued
From the AHA:
“[S]ome of the measures
selected for use in VBP are
deeply flawed, and do not
accurately reflect hospital
performance.”
“We believe CMS should assign
a lesser weight to scores from
the HCAHPS survey.”

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
California Hospitals – VBP Year 2 (Nov. 2013)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Hospital VBP Program Continued
Potential Loss Under the Hospital VBP Program as of 2017
2%
Running Total Under the Medicare Program
2%

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
42 U.S.C. § 1395ww(q); 78 Federal Register 50653.
 In Fiscal Year 2013, HRRP could reduce a hospital‟s base
operating Medicare DRG payments with respect to
readmissions for three conditions:
 Acute myocardial infarction (AMI)
 Heart failure (HF)
 Pneumonia (PN)
 The statutory floor adjustment for 2013 was 0.99 (1%
reduction), 0.98 for FY 2014 and 0.97 for FY 2015 and
subsequent years.
Hospital Readmission Reduction Program (HRRP)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
HRRP Continued
Aggregate payments for excess
readmissions = [sum of base
operating DRG payments for AMI
x (Excess Readmission Ratio for
AMI-1] + [sum of base operating
DRG payments for HF x (Excess
Readmission Ratio for HF-1] +
[sum of base operating DRG
payments for PN x (Excess
Readmission Ratio for PN-1)].
Aggregate payments for all
discharges = sum of base
operating DRG payments for all
discharges.
Ratio = 1 – (Aggregate payments
for excess
readmissions/Aggregate
payments for all discharges.)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
From the American Hospital Association
 “The AHA is concerned about both the readmission measures
used in the HRRP, and the manner in which the payment
penalty is calculated.”
 “The penalty’s inverse relationship between the national
readmission rate and the magnitude of penalty also may
punish hospitals for making progress in reducing
readmissions.”
 “The measures also do not distinguish between related and
unrelated re-admissions, in spite of the ACA requirement that
unrelated readmissions be excluded.”

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
California Hospitals – HRRP 2014

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
HRRP: How Much Is At Risk?
Potential Loss Under the HRRP as of 2015
3%
Running Total Under the Medicare Program
5%

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
42 U.S.C. § 1395ww(p); 78 Federal Register 50523.
 The Deficit Reduction Act of 2005 (DRA) required a quality
adjustment in Medicare Severity Diagnosis Related Group
(MS-DRG) payments for certain hospital acquired
conditions.
 Hospitals do not receive the higher payment for cases
when one of the selected conditions is acquired during
hospitalization.
 Medicare reimburses provider as though the secondary
diagnosis is not present.
Hospital-Acquired Conditions (HAC)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Foreign Object Retained After Surgery
 Air Embolism
 Blood Incompatibility
 Pressure Ulcer Stages III & IV
 Falls and Trauma
 Catheter-Associated UTI
 Vascular Catheter-Associated Infection
 Surgical Site Infections
Hospital-Acquired Conditions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 “The AHA has concerns about the selection of quality measures
in the ACA-mandated HAC payment reduction program, as well
as the fairness of the payment penalty.”
 “Using the same measures in more than one pay-for-
performance program may subject hospitals to unfair double
payment penalties. Moreover, the different constructs of the
programs and the disparate ways in which good versus bad
performance is identified could send potentially conflicting
signals to patients and hospitals.”
From the American Hospital Association

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Hospital-Acquired Conditions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
HACs: How Much Is At Risk?
Potential Loss Under HAC
1%
Running Total Under the Medicare Program
6%

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
The American Taxpayer Relief Act of 2012 (Pub. L. 112-240)
 $1.2 trillion, across-the-board cuts to government agencies over
the next 10 years.
 Equal divide between defense and domestic discretionary
spending.
 Hospitals experienced a 2% cut in Medicare reimbursement.
Sequestration

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Sequestration: How Much Is At Risk?
Potential Loss Under Sequestration
2%
Running Total Under the Medicare Program
8%

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Pub. L. 99-272 (Apr. 7, 1986), amending 42 U.S.C. § 1395ww(d)(5)
 Congress established a measure to assess whether a hospital
services a significantly disproportionate number of low income
patients.
 This “disproportionate patient percentage” (DPP) is the “sole
variable in the „disproportionate share adjustment percentage‟
that ultimately determines the dollar amount of any enhanced
payment due to a DSH.” Metropolitan Hosp. v. U.S. Dept. of
Health and Human Services, 712 F.3d 248, 250 (6th Cir. 2013).
Disproportionate Share Adjustments

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Hospitals in the United States provided $41.1 billion in
uncompensated care in 2011, including “bad debt” (services
for which a hospital expected to be paid but was not paid) and
charity care (services for which a hospital never expected to
be paid and was not paid, usually because the patient
qualified under the hospital‟s charity care policies).
 Americans rely heavily on hospital emergency departments.
In 2011 there were over 129 million emergency department
visits, and this number has increased 22% in the past decade.
Disproportionate Share Reductions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Medicare recognized the impact of the financial burden felt by
those hospitals treating a disproportionate number, especially
those in lower income, urban and rural neighborhoods.
 Medicare provided supplemental payments to these
hospitals, called Disproportionate Share (“DSH”) payments.
 DSH payments total over $20 billion annually.
Disproportionate Share Reductions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Starting in Fiscal Year 2014, hospitals that usually receive
Medicare DSH payments will receive these monies in two
separate payments:
 (1) 25% of the amount the hospital previously received
under Medicare DSH; and
 (2) “an additional payment for the DSH hospital‟s
proportion of uncompensated care, determined as the
product of three factors.”
Disproportionate Share Reductions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
These three factors, which now make up 75% of the Medicare
DSH funds to which a hospital may be entitled, include:
 (1) 75% payment of the payments that would otherwise be
made [under the old DSH methodology];
 (2) 1 minus the percentage change in the percent of
individuals under the age of 65 who are uninsured (minus
0.1 percentage point for FY 2014, and minus 0.2
percentage point for FY 2015 through FY 2017); and
Disproportionate Share Reductions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 (3) a hospital‟s uncompensated care amount relative to the
uncompensated care amounts of all DSH hospitals
expressed as a percentage.
Disproportionate Share Reductions Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Disproportionate Share Reductions (2014-2020)

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
THE IMPACT ON HOSPITALS

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Today‟s epic change in hospital reimbursements is designed to
transform a system that has historically been based on cost into
one that focuses primarily on quality and performance.

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 These cuts create a daunting challenge for the many financially
distressed hospitals in America that simply lack the resources to
establish an infrastructure designed to treat Medicare patients
in this era of change.
 In 2010 the estimated difference between the hospital industry‟s
cost of care to Medicare and Medicaid beneficiaries and their
reimbursement was over $27 billion.
The Impact on Hospitals

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 It has been estimated that Medicare profit margins were
approximately minus 4.5 percent (-4.5%) for all hospitals in
2010, and will decline to minus 7 percent (-7%) in 2012.
 More than half of the urban safety-net hospitals in America lost
money in 2009, and generally their operating margin was
minus .06 percent (–0.06%).
 However, it is estimated that the Affordable Care Act will force
an additional 10% of the urban safety-net hospitals to lose
money and reduce their median operating margin to minus
2.02 percent (-2.02%).
The Impact on Hospitals Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
 Brooklyn, New York estimates that 20% of its patients are
uninsurable.
 In some regions of Central California, an estimated 40% of the
residents were undocumented, immigrant farm workers.
 Hospitals in New York previously received $2.84 billion
annually in DSH payments. Under the Affordable Care
Act, these DSH payments have begun to decrease in
2014, and by 2019 these payments will be reduced by more
than half.
The Impact on Hospitals Continued

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
7 million uninsured
nonelderly Californians
Source:
Kaiser Family Foundation
Uninsured Californians and Access to Coverage

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Samuel Maizel
Pachulski Stang Ziehl & Jones LLP
Sam is a partner with Pachulski Stang Ziehl & Jones LLP, the nation‟s largest
restructuring and insolvency law firm. Sam‟s practice includes advising and
representing businesses on bankruptcy matters and financial restructuring in and out of
court, with an emphasis on the healthcare industry.
Before joining Pachulski Stang, Sam represented the Federal Government in
bankruptcy, district, and appellate courts nationwide as a trial attorney in the US
Department of Justice‟s Commercial Litigation Branch. Sam has also served in the US
Army‟s Judge Advocate General‟s Corps, including service in Operation Desert
Shield/Desert Storm, for which he was awarded the Bronze Star Medal.
Sam has lectured extensively, is widely published, and has been interviewed on
television and radio on bankruptcy topics.
Additional information can be found at www.pszjlaw.com.

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Craig B. Garner
Garner Health Law Corporation
Craig is an attorney and health care consultant, specializing in issues pertaining to
modern American health care and the ways it should be managed in its current climate
of reform.
Craig‟s law practice focuses on health care mergers and acquisitions, regulatory
compliance and counseling for providers. Craig is also an adjunct professor of law at
Pepperdine University School of Law, where he teaches courses on Hospital Law and
the Affordable Care Act.
Between 2002 and 2011, Craig was the Chief Executive Officer of Coast Plaza Hospital
in Norwalk, California. Craig is also a Fellow Designate with the American College of
Healthcare Executives, a Member of the State Bar of California, Business Law
Section, Health Law Committee and a Vice Chair of the Healthcare Reform Educational
Task Force of the American Health Lawyers Association.
Additional information can be found at www.garnerhealth.com.

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Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Pandemic or Panacea?
The Financial Impact of the ACA
Samuel Maizel, Pachulski Stang Ziehl & Jones LLP
Craig B. Garner, Garner Health Law Corporation
Thank You