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Healthcare Financial Management Association
(HFMA) Fall Institute
October 20, 2016
Proposed New TennCareLTC Payment Model
HMFA Fall Institute
Industry Data
LTC Medicaid Reimbursement Background
Existing Medicaid System
Proposed New Medicaid Reimbursement System
July Occupancy Survey
Statewide Census in July – 76.6%
Census Geographic Differences
July THCA District Census
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
79.0% 80.3%
73.3% 74.7%79.1%
76.8%
Nursing Home Census
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100
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Industry Trends
0
5,000
10,000
15,000
20,000
25,000
30,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Medicaid Patients 2000-2016
2000 Nursing Home Patient Population
73%
9%16%
2%
Medicaid Medicare Private Other
2016 Nursing Home Patient Population
60%22%
11%
4% 3%
Medicaid Medicare Private Pay Hospice Other
2016 Medicaid Patient Population
96.1%
3.9%
Level 1 Level 2
Nursing Home Patients Pending Financial Eligibility Determination
0
200
400
600
800
1000
1200
FY 2016-17TennCare Budget
Legislation – Budget
Governor Haslam’s proposed FY 2016-17 budget included a 1% Medicaid provider rate cut
THCA worked with the legislature to have the cut offset for the upcoming fiscal year
THCA will work with TennCare and the legislature during the FY 2017-18 budget process to have the cut removed permanently
FY 2016-17 Medicaid rate setting
FY 17 Average and Ceiling Level 1 Medicaid Rate
Average $176.14
Ceiling $188.61
Rates include $12.65 pass through
FY 17 Average and Ceiling Level 2 Medicaid Rate
Average $183.86
Ceiling $212.25
Rates include $12.65 pass through
FY 17 Weighted Average Level 1 & 2 Medicaid Rate
$176.52
Rate includes $12.65 pass through
FY 17 Average Medicaid Rates by THCA District
$179.46
$182.09
$173.15
$169.66
$174.69
$181.60
$100 $120 $140 $160 $180 $200
Nashville
Memphis
Knoxville
Jackson
East Tennessee
Chattanooga
FY 17 Medicaid Rate Pass Through
50,000+ Days $4.00
<50 Beds and CCRC $7.10
All Others $12.65
All pass through totals per Medicaid patient day.
Average Medicaid Payments Per Patient Day
020406080
100120140160180200
2013 2014 2015 2016 2017
Current Medicaid Reimbursement System
Rate Components
Cost Report
Cost Increase Factor
65th Percentile
Return on Equity
Cost Containment Incentive
Pass Through Payment
New Medicaid Reimbursement System
New Reimbursement System- Background
Old Medicaid Reimbursement System Acuity not reflected No quality component Capital reimbursement insufficient Pass-through decline Occupancy penalties
First Proposal to TennCare
"A Framework for aNew Medicaid Payment SystemFor Nursing Facilities in Tennessee"
November 2006
New Reimbursement System
Goals Approved by THCA’s Board of Directors
Movement from a facility-specific, cost-based methodology to a price model with a prospective nursing floor (floor could be variable based upon quality score) which differentiates payment based upon acuity of the Medicaid resident
Utilization of the Resource Utilization Groups (RUGs 48 or RUGs 66) classification system to identify patient acuity levels and differentiate payment for direct patient care services
New Reimbursement System
Goals Approved by THCA’s Board of Directors
Continued utilization of cost reports to establish initial Medicaid RUG payments as well used for rebasing
Establish four cost centers for nursing, care-related, indirect care (support services and administration), and property
Establish pass-throughs for property taxes and Medicaid share of provider taxes
New Reimbursement System Goals Approved by THCA’s Board of Directors
Implement a payment component of the Medicaid rate for property costs utilizing a “fair rental” approach based upon actual building appraisals
Meaningful incentive payments for facilities meeting certain accountability standards (pay for performance measures)
New Medicaid Reimbursement System
Required by the 2008 CHOICES legislation
THCA proposal to TennCare Major components
Nursing (acuity adjusted)QualityAdministration and other patient care Fair Rental Value (Capital)
New Reimbursement System- Background CHOICES – 2008
Global Medicaid Budget Rebalanced Long-Term Care – HCBS
Emphasis Acuity-Based Reimbursement Quality – Pay For Performance
Transition Delayed Until 2014 - Funding Issues
New Reimbursement System- Background Inadequate Funding
Nursing home rates frozen or cut State did not provide additional funding for
nursing home rate growth Declining Medicaid patient days freed up
funding for rate increases For FY 15, legislature passed a 1% rate cut
New Reimbursement System- Background
Bed Tax Not increased since 1992
Generated $265 million of the $400 million nursing home Medicaid budget (66%)
95% occupancy and 71% Medicaid patient population
FY 2013-14
Generated less than $240 million of the $880 million in nursing home Medicaid expenditures (27%)
79% occupancy and 61% Medicaid patient population
New Reimbursement System- Background
Previous bed tax was no longer an effective source of funding and a long-term solution was needed for TennCare and nursing homes
Contemporary approach Percentage of industry revenue
Other states
Sustainable
Permits growth over time as revenues increase
CMS Approved – uniform and less than 6%
New Reimbursement System- Background
FY 2016 – Provider assessment has increased revenues from $84 million (old bed tax) to over $122 million. This will total almost $350 million when federally matched.
FY 2016 – Over $102 million in acuity and quality payments paid to facilities. Equates to almost $17 per Medicaid patient day.
TennCare- Fully funded Medicaid rates
Paid for the increased pass through - $11.92 for most facilities
New Reimbursement System- Background
FY 2016 – Provider assessment modified to 4.75 percent of net industry revenues.
FY 2016 – Waiver groups established. Facilities with 50,000 or more Medicaid patient days pay the old bed tax of $2,225 per bed. Qualifying CCRCs and small facilities with 50 or fewer beds pay an assessment based on 3.0 percent of net industry revenues.
New Reimbursement System- Background
FY 2017 – Provider assessment maintained at 4.75 percent of net industry revenues.
FY 2017 50,000+ Days $1,460 per bed
<50 Beds and CCRC $9.68 (3% net industry revenue)
All others $16.23 (4.75% net industry revenue)
All assessments per non-Medicare days
Advantages of Price-Based Models
Levels the playing field – providers receive same rate (excluding capital) for a patient with the same acuity level in the same geographical region. Capital often varies based upon fair rental parameters
Predictable – states can more accurately predict and budget spending levels; providers have predictable revenue stream
Administratively simple – eliminates need for annual audits and desk reviews
Rebased less frequently – encourages efficiency and economy in service delivery
Concerns Regarding Pricing Systems
Simply a reallocation of existing funding
Are price levels high enough if no additional funding Price levels will be significantly lower than cost-based ceilings Even if cost coverage under existing cost-based system is relatively
high (say on average 95% of aggregate Medicaid allowable costs are covered by the rates), price levels will only be at or around the median
Will quality suffer given the increased incentive to control or decrease costs
Will lower cost providers, given increased funding through a pricing model, spend those resources on patient care and services, or will those dollars simply flow to the bottom line
Other States
Creating pricing systems with prospective “margin” caps especially in nursing (Maryland, Virginia, and soon to be Tennessee)
Limits margins of lowest cost providers on a prospective basis by establishing a spending floor based upon “projected costs” (costs from cost report trended to rate year)
Uses the savings from those impacted (typically about 30%-40% of providers) to boost price level
Typically allows for an increase in price of 3% to 5%, so, for example, from the median to 5% above the median
New Reimbursement System
Current proposal is a modified price-based system
Key components of THCA proposal Direct Care Indirect Care Capital (Fair Rental Value) Quality
New Reimbursement System
Reduce base rates with savings then allocated to a performance pool Base rates in most states are already inadequate
All providers are recovering from the quality pool is a hold back of reimbursement for expenses they have already incurred for care and services that should have been paid through the rate system
Providers who fare poorly on the measures will recover even less of their allowable costs, possibly forcing them to reduce costs which may result in performance declining even more
This concept needs to be based upon “margin” dollars, not core dollars for reimbursement of cost
New Reimbursement System
Sliding scale incentive payment in cost-based systems based upon both cost and quality scores Low cost but poor quality provides little to no incentive payment Low cost and good quality results in an incentive payment that is a
higher percentage of the difference between a provider’s cost and the ceiling
In pricing models with prospective spending floors, vary the floor based upon quality score The higher the quality score, the lower the floor percentage- higher
quality providers with lower costs can retain a higher margin High quality score-Prospective spending floor is 92% of price Average quality score-Prospective spending floor is 95% of price Low quality score-Prospective spending floor is 98% of price
What Does the Future Hold For Medicaid Rate Systems
Price models- a leveling of the playing field
Performance driven- low cost doesn’t guarantee a margin
Inflationary increases dependent on quality reporting and scores
Performance rewards and penalties-For example, base price levels adjusted up or down based upon performance scores-requires greater refinement of “defining what measures most appropriately measure quality”
Major Areas Yet To Be Finalized
Setting of price levels- dependent upon funding
FRV parameters
Funding allocation to quality
Spending floor levels
Major Areas Yet To Be Finalized
Costs to be included in direct care, non-case mix adjusted Nursing administration
Patient assessment coordinators
Staff development coordinators
Quality compliance nurses
Raw food
Social service and activities
Medical Director
Nursing supplies
Major Areas Yet To Be Finalized
Should direct care, non-case mix adjusted be subject to the spending floor
Phase-in methodology
Appraisals
Appraisals
All Medicaid facilities were appraised
November through April, 2016
Land values as well as age and quality of construction
Appraisals – Construction Year
Appraisals – Quality of Construction
New Medicaid Reimbursement System
Discussions with TennCare have been positive.
Current work areas: Data Modeling Rules
Implementation not until July1, 2017.
Healthcare Financial Management Association
(HFMA) Fall Institute
October 20, 2016
