STATE OF CONNECTICUT HOSPITAL PAYMENT MODERNIZATION TRANSITION TO APR-DRGs MARCH 31, 2014

STATE OF CONNECTICUT HOSPITAL PAYMENT MODERNIZATIONTRANSITION TO APR-DRGsMARCH 31, 2014

Hartford, Connecticut

© 2012 Mercer (US) Inc.

Agenda

• Welcome and introductions.

• Goals and objectives.

• Background and guiding principles.

• Methodology overview.

• Data overview.

• Next steps.

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Medicaid Reform Strategies

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What is our conceptual framework?

DSS is motivated and guided by the Centers for Medicare and Medicaid Services (CMS) “Triple Aim”:

improving the patient experience of care (including quality and satisfaction)

improving the health of the population reducing the per capita cost of health care

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We are also influenced by a value-based purchasing orientation. The Centers for Medicare and Medicaid Services (CMS) define value-based purchasing as a method that provides for:

Linking provider payments to improved performance by health care providers. This form of payment holds health care providers accountable for both the cost and quality of care they provide. It attempts to reduce inappropriate care and to identify and reward the best-performing providers.

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Improving the Patient Experience Of Care

Issues Presented DSS Strategies Anticipated Result

Individuals face access barriers to gaining coverage for Medicaid services

• ConneCT• MAGI income eligibility• Integrated eligibility process with

Access Health CT

Streamlined eligibility process that optimizes use of public and private sources of payment

Individuals have difficulty in connecting with providers

• ASO primary care attribution process and member support with provider referrals

• Support for primary care providers (PCMH, EHR, ACA rate increase)

DSS will help to increase capacity of primary care network and to connect Medicaid beneficiaries with medical homes and consistent sources of specialty care

Individuals struggle to integrate and coordinate their health care

• ASO predictive modeling and Intensive Care Management (ICM)

• Duals demonstration• Health home initiative

Individuals with complex health profiles and/or co-occurring medical and behavioral health conditions will have needed support

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Improving the Health of Populations

Issues Presented DSS Strategies Anticipated ResultA significant percentage of Connecticut residents do not have health insurance

• Medicaid expansion• Integrated eligibility

determination with Access Health CT

Increased incidence of individuals covered by either Medicaid or an Exchange policy

Many Connecticut residents do not regularly use preventative primary care

• Primary Care Medical Home (PCMH) initiative in partnership with State Employee Health Plan PCMH

Increased regular use of primary care; early identification of conditions and improved support for chronic conditions

Many health indicators for Medicaid beneficiaries are in need of improvement, and Medicaid has the opportunity to influence other payers

• Behavioral health screening for children

• Rewards to Quit incentive-based tobacco cessation initiative

• Obstetrics and behavioral health P4P initiatives

Improvement in key indicators for Medicaid beneficiaries; greater consistency in program design, performance metrics and payment methods among public/private payers

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Reducing the Per Capita Cost of Care


Connecticut’s historical experience with managed care did not yield the cost savings that were anticipated

• Conversion to managed fee-for-service approach using ASOs

• Administrative fee withhold and performance metrics

DSS and OPM will have immediate access to data with which to assess cost trends and align strategies and performance metrics in support of these

Connecticut Medicaid’s fee-for-service reimbursement structure promotes volume over value

• PCMH performance incentives• Duals demonstration

performance incentives and shared savings

Evolution toward value-based reimbursement that relies on performance against established metrics

Connecticut Medicaid’s means of paying for hospital care is outmoded and imprecise

• Conversion of means of making inpatient payments to DRGs and making outpatient payments to APCs

DSS will be more equipped to assess the adequacy of hospital payments and will be able to move toward consideration of episode-based approaches

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Connecticut expends a high percentage of its Medicaid budget on a small percentage of individuals who require long-term services and supports; historically, this has primarily been in institutional settings

Consumers strongly prefer to receive these services at home

• Strategic Rebalancing Initiative (State Balancing Incentive Payments Program, Money Follows the Person, nursing home diversification funding, workforce analysis, My Place campaign)

• Duals demonstration payments for care coordination

Connecticut will achieve the stated policy goal of making more than half of its expenditures for long-term services and supports at lower cost in home and community-based settings

Reducing the Per Capita Cost of Care (cont'd.)

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Hospital Payment Modernization

• The State of Connecticut’s Medicaid fee-for-service (FFS) payment systems are aging and becoming less useful.

• At the same time, they are assuming increasing importance with the move to the Administrative Services Organization (ASO) model.

• With everything FFS, it is important that those schedules are fair, rational, well understood by all parties, and easily updateable.

• Need to support policy initiatives to improve incentives and link pay to performance.

• The current systems have been stressed by the move to ASO and the rate meld process.

• Major stakeholders like the Connecticut Hospital Association have suggested the same kind of modernization anticipated in this project.

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Project Goals and Objectives

• Implement payment methods that can support quality health outcomes and efficiency.

• Create systems that establish a sound financial basis for the changing environment, including state and federal policy goals.

• Stakeholder communication should be of a shared vision of equity and transparency.

• Design, develop, and implement a complete rebuild of both hospital payment systems.

• Implement new prospective payment systems that are international statistical classification of diseases and related health problems (ICD-10) capable.

• Systems that are more precise in the recognition of acuity for both inpatient and outpatient hospital services.

• Provide payment structures that promote proper delivery of health care in the most appropriate setting.

• Promote more predictable and transparent payment processes for hospitals.

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Guiding Principles

• Maintain a long-term commitment to goals of improved accuracy, predictability, equity, timeliness, and transparency of hospital payments for all Medicaid beneficiaries in the State of Connecticut — however, expedite short-term focus on technology and mechanics of payment.

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Guiding Principles (cont’d)

• Focus on method of payment, not level of payment:– Project modeling will be based on state budget neutrality.– Initial implementation will target revenue neutrality for each hospital.

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Guiding Principles (cont'd.)

• Anticipate need for a phased-in approach with respect to various aspects of implementation.

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• Over arching policy direction of consistency with industry standard payment practices and, specifically, Medicare payment policy.

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• Use the best available data for system development:

– Rely on complete and accurate data sets for analysis and payment administration.

– Modify data requests and requirements, as necessary, to provide robust analytics.

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• Be mindful of the need to update payment systems as soon as possible, yet coordinate with other Connecticut Department of Social Services (DSS) priorities, such as implementation of ICD-10 in October 2014.

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• Develop the most robust and comprehensive system possible while allowing flexibility to handle exceptions in an equitable and efficient manner.

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Project Phases

• Phase One: Inpatient.• Phase Two: Outpatient.• The focus for this presentation is Phase One: Inpatient.

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Inpatient Timeline

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN 2015

FINANCIAL MODELING

SYSTEMS UPDATES

CMS PLANNING DOCS

REGULATIONS UPDATES

STATE PLAN AMENDMENT

PRESENT & FINALIZE RATES

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Methodology OverviewAPR-DRG Payment Methodology

All Patient Refined Diagnosis Related Groups (APR-DRG) Grouper:• Consistent with project goals and guiding principles.• ICD-10 capable.• Promotes more predictable and transparent payment processes for

hospitals.• Supports quality health outcomes and efficiency.

• Aligns with industry standard payment practices and, specifically, Medicare payment policy.

• Allows flexibility — updates for new technology and phase-in capability.

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Methodology Overview (cont’d)APR-DRG Rate Setting

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Topic Approach

Included hospitals. General acute care hospitals.

Excluded hospitals. Rehabilitation, psychiatric, long-term acute care, critical access hospitals, other specialty hospitals.

Out-of-state and border hospitals. DRGs based on statewide average.

Claim period for rate setting. CY 2012 paid claims.

Base rate determination. Hospital-specific base rates with revenue neutral targets.

Capital and operating costs. Capital and operating costs will be combined and included in base rates.

Outlier methodology. Cost outlier with statistical basis with minimum threshold.

Same day stays/short stay outliers. Average per diem for DRG.

Indirect medical education factor. Rate adjustment factor based on Medicare formula.


Methodology Overview (cont’d)APR-DRG Weight Setting

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Topic Approach

DRG grouper. APR-DRGs.

Claim period for weight setting. CY2012 paid claims.

DRG weight determinations for low-volume DRGs.

Based on 3M standard APR-DRG weights.

Cost reports to estimate costs. Medicare cost report with period ending in CY2012, adjusted to a common point.

Estimated cost of each claim. Revenue code-specific per diems and CCRs based on provider crosswalks.

Time limit to identify readmissions as part of the initial admission.

Claims with readmission within three days are combined into a single claim.


Methodology Overview (cont'd.)Hospital Revenue Map

Revenues included in APR-DRG payment:

• Current case rate payments.

• Capital pass through.

• Burn pass through.

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Methodology OverviewHospital Revenue Map (cont'd.)

Revenues not included in APR-DRG payment:

• Physician payments for hospital based physicians.

• Indemnity payments.

• Heart and liver transplants.

• Organ acquisition.

• Graduate medical education — direct.

• Adult behavioral health.

• Children’s behavioral health.

• All supplemental payments (disproportionate share hospital, etc.).

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Data OverviewDRG Reimbursement

• Data sources:– Cost reports.– Claim set.

• Costing process:– Routine line items.– Ancillary items.

• Weight setting:– Average cost per DRG versus overall average cost.

• Basic DRG payment example:– Inlier formula.– Outlier formula.

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Data Overview (cont'd.)State of Connecticut Cost Reports

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Data Overview (cont'd.)Data Set — Claim FiltersClaims from 1/1/2012–12/31/2012

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Medicaid Number

Medicare Number Name

Beginning Claim Count

Discharge Status 30 Ungroupable

Psych and Rehab DRGs

Final Claim Count

4041612 70001 Hospital of Saint Raphael 2,775 66 1 384 2,324

4041620 70002 Saint Francis Hospital 8,030 86 12 834 7,0984041638 70003 Day Kimball Hospital 1,336 3 4 325 1,0044221800 70004 Sharon Hospital 179 - 2 - 1774041653 70005 Waterbury Hospital 3,373 15 15 543 2,8004041661 70006 Stamford Hospital 3,271 42 22 246 2,9614041679 70007 Lawrence & Memorial Hospital 3,244 67 6 333 2,8384041687 70008 Johnson Memorial Hospital 577 1 - 126 4504041703 70010 Bridgeport Hospital 5,859 120 11 490 5,2384041711 70011 Charlotte Hungerford Hospital 1,154 13 2 183 956

4041729 70012 Rockville General Hospital 267 1 - 1 2654041752 70015 New Milford Hospital 297 - - - 2974041760 70016 Saint Mary's Hospital 3,274 15 5 211 3,0434041778 70017 Midstate Medical Center 2,254 20 7 105 2,1224041786 70018 Greenwich Hospital 446 2 - 2 4424041794 70019 Milford Hospital 284 - - - 2844041810 70020 Middlesex Hospital 2,405 4 9 317 2,0754041828 70021 Windham Community Memorial Hospital 967 - 4 1 9624041836 70022 Yale-New Haven Hospital 18,763 292 47 1,761 16,663

4041851 70024 William W. Backus Hospital 2,355 26 2 231 2,0964041869 70025 Hartford Hospital 8,879 81 9 1,876 6,9134041885 70027 Manchester Memorial Hospital 2,119 33 4 624 1,4584041893 70028 Saint Vincent's Medical Center 4,895 90 28 1,110 3,6674041901 70029 Bristol Hospital 1,627 3 10 321 1,2934041927 70031 Griffin Hospital 1,282 - 2 109 1,1714041935 70033 Danbury Hospital 3,284 54 11 237 2,9824041943 70034 Norwalk Hospital 3,046 20 3 124 2,8994041950 70035 Hospital of Central Connecticut 4,519 26 10 283 4,200

4041968 70036 John Dempsey Hospital 2,254 105 1 262 1,8864159960 73300 Connecticut Children's Medical Center 3,508 47 - 12 3,449 Total 96,523 1,232 227 11,051 84,013


Data Overview (cont'd.)Cost of Claims

• Hospital provided revenue code crosswalk — used if available.

• Routine cost centers — used per diems for revenue codes less than 220.

• Ancillary cost centers — used CCRs for revenue codes greater than or equal to 220.

• Claim costs inflated to common period.

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Data Overview (cont'd.)Revenue Code Crosswalk Example

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Data Overview (cont'd.)Costing Example

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Data Overview (cont'd.)DRG Weight Setting Table

• Weights determined using average cost of inlier claims.

• Standard 3M APR-DRG weights used for low-volume DRGs.

• Weight set normalized after inclusion of external low-volume DRG weights.

• Clinical cohesiveness addressed for DRG severity of illness mismatches.

• Statistical cost outlier.

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Data Overview (cont'd.)DRG Statistics

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Data OverviewDRG Statistics (cont'd.)

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Data Overview (cont'd.)Basic DRG Payment Parameters

• Inlier DRG:– Hospital base rate.– Indirect medical education.– DRG weight.

• Outlier:– Billed charges.– CCRs.– Outlier threshold.– Outlier payment percentage.

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Data Overview (cont'd.)DRG Payment Example

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DRG Payment DeterminationHospital base rate $5,710.54

IME adjustment X 1.153205

DRG weight X 7.3086

DRG payment = $48,130.22

Outlier Add On DeterminationTotal charges $500,000.00 Non-covered charges - $3,000.00 Allowed charges $497,000.00

Hospital cost to charge ratio X 0.289271 Estimated cost = $143,767.69

DRG outlier threshold - $129,050.22 Marginal cost = $14,717.47

Outlier payment percentage X 80%Outlier add on = $11,773.98


Next Steps

• Operational changes.

• Timeline.

• Website.

• Questions.

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Next Steps (cont’d.)Operational Changes

• Physician billing number requirements.

• Elimination of interim claims.

• Reduced need for annual cost settlement.

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Next Steps (cont’d.)Inpatient Timeline

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN 2015

FINANCIAL MODELING

SYSTEMS UPDATES

CMS PLANNING DOCS

REGULATIONS UPDATES

STATE PLAN AMENDMENT

PRESENT & FINALIZE RATES

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Next Steps (cont’d.)Reimbursement Modernization Website

Connecticut Department of Social Services website:

http://www.ct.gov/dss/cwp/view.asp?a=4598&q=538256

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Questions?

Please address any additional questions in writing to: Kate McEvoy, DSS Medicaid Director25 Sigourney StreetHartford, CT 06106-5033

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Services provided by Mercer Health & Benefits LLC.

Documents

STATE OF CONNECTICUT HOSPITAL PAYMENT MODERNIZATION TRANSITION TO APR-DRGs MARCH 31, 2014