Medi-Cal DRG Project. Overview Briefing: HFMA Southern California Chapter October 18, PDF Free Download

Medi-Cal DRG Project Overview Briefing: HFMA Southern California Chapter October 18, 2012 Dawn Weimar Government Healthcare Solutions Payment Method Development

Topics 1. Introduction 2. Background: Why and How 3. APR-DRGs: The New Payment Method 4. Hospital Impacts 5. Provider Education 6. Next Steps An Essential Disclaimer Changes remain possible to payment method structure and payment policy specification before implementation 2

Key Points In CY 2009, $4.5 billion was paid for FFS inpatient care DPHs & NDPHs not included in DRG Payment CAHs are included Expected to affect around $3 billion Effective beginning 7.1.13 for inpatient hospital admissions Base rates are trended forward, then frozen at the July 1, 2013 level Transition period: 3 years; 4 th yr fully implemented 3

Senate Bill 853 (October 2010) Current payment method: Contracted hospitals: Selective Provider Contracting Program (negotiated confidential per diem rates) Non-contracted hospitals: cost reimbursement In place almost 30 years New payment method based on Diagnosis Related Groups Affects inpatient claims only not outpatient Affects payment method, not payment level Expected to reward hospital efficiency Future funding levels based on number of stays, casemix, and legislative appropriations 4

Scope of the Project Included hospitals: All general acute care hospitals in and out of state Includes Medicare critical access hospitals Excluded hospitals: Designated public hospitals (SF General, UCLA, etc.) Non-Designated public hospitals Psychiatric hospitals Rehabilitation hospitals (including alcohol and drug rehab) But there will be a new per diem payment method for rehab stays 5

Scope of the Project Excluded services within included hospitals: Psychiatric stays, regardless of distinct-part location Managed care stays Rehabilitation stays and administrative days are outside the scope of DRG payment, but inside scope of this project (will be per diem) 6

DRG Payment Method Development Based on experience nationwide, this method may be in place for 15 20 years or more Building a flexible structure for future policy needs Policy goal is to promote access, quality and economy for the benefit of Medi-Cal beneficiaries Key points in developing recommendations Data-driven decision-making wherever possible Work to build understanding and trust Nothing is final until everything is final Keep focus on payment policy criteria One-on-one discussions are discouraged 7

Policy Development Process DHCS instructions: an open, transparent process April 2011 to February 2012 Monthly meetings of state workgroup, hospital consultation group Policy design document (PDD) is key document Sets the structure of the payment method Chapter 7 comprises the SDN business requirements that DHCS has sent to Xerox, Fiscal Intermediary Policy specification (specific rates, parameter values, etc.) still being finalized June 30, 2012: Contracting program transfers to DHCS July 1, 2013: DRG implementation: admissions as of 7.1.13 8

Medicaid and Medicare Are Very Different Medi-Cal FFS Stays, 2008 Medicare FFS Stays (National), 2008 Pediatrics 5% Psych-rehab 1% Obstetrics 28% Adult medsurg 34% Adult medsurg 97% Psych-rehab 3% Newborns 0% Obstetrics 0% Pediatrics 0% Newborns 32% 10 Source: OSHPD 2008 data

How Medicaid Pays for Inpatient Care As of October 2012 Per Stay -- CMS-DRGs CO*, IA, IL*, KS**, KY, MN, NC**, ND*, OH, UT, VT, WV** Per Stay -- AP or Tricare DRGs DC*, GA, IN, NE, NJ, VA, WA * Moving to APR-DRGs ** Moving to MS-DRGs * Moving to APR-DRGs Per Stay -- MS-DRGs MI, NH, NM, OK, OR, SD, TX*, WI Per Stay -- Other DE, MA*, NV, WY * Moving to APR-DRGs * Casemix adjustment based on APR-DRGs Per Stay -- APR-DRGs MT, NY, PA, RI. MS Per Diem AK, AZ, CA*, FL, HI, LA, MO, TN * Moving to APR-DRGs Cost Reimbursement AL, AR, CT, ID, ME, SC* Other (Regulated Charges) MD* * Interim payment using APR-DRGs * Casemix adjustment based on APR-DRGs 11

DRG Algorithm: APR-DRGs Developed in early 1990s by 3M and National Association of Children s Hospitals (NACHRI) Intended to be suitable for all-patient population, especially obstetrics, newborns, NICU babies, general pediatrics, and children with complex medical needs Widely used for research, analysis and payment U.S. News & World Report, HealthGrades.com, MEDPAC, AHRQ, www.floridahealthfinder.gov, etc. Medicare MS-DRGs not suitable or intended for Medicaid We simply do not have enough data to establish stable and reliable DRGs and relative weights to address the needs of non-medicare payers for pediatric, newborn and maternity patients. (FFY 2008 Medicare Final Rule (8.2.07)) 12

Comparing DRG Algorithms Comparison of DRG Algorithms Algorithm Developer All-Patient Structure All- Patient Weights Marketed for Medicaid Medicaid Payer Use Other Payer Use Use for Analysis Use to Measure Quality CMS-DRGs 3M for CMS No No No Yes Yes Yes No MS-DRGs 3M for CMS No No No Yes Yes Yes Yes AP-DRGs 3M Yes Yes Yes Yes No No No APR-DRGs 3M/NACHRI Yes Yes Yes Yes Yes Yes Yes APS-DRGs Ingenix Yes Yes Yes No No Yes No Tricare DRGs 3M for Tricare Yes No No Yes Yes No No R-DRGs HSC Yes Yes Yes No No Yes No Thom-DRGs Thomson Yes Yes No No No Yes No Notes: 1. Xerox has no financial interest in any DRG grouping algorithm. 13

Characteristics of DRG Payment Payment per stay, with higher rates for sicker patients as determined by grouping diagnoses and major procedures Defines the product of a hospital, creating a common language for clinical and financial managers Enables access for sicker patients because hospital margins are evened out for patients of different severity Rewards hospitals that reduce cost Rewards complete coding of diagnoses and procedures Improves transparency and fairness Similar pay for similar care Enables State control over payments and policy priorities 14

Example of Purchasing Clarity in Medi-Cal 15

Structure of APR-DRG DRG 002-4 Base DRG - SOI APR-DRG APR-DRG Description Relative Weight 002-1 Heart &/Or Lung Transplant 9.5322 002-2 Heart &/Or Lung Transplant 11.3558 002-3 Heart &/Or Lung Transplant 16.027 002-4 Heart &/Or Lung Transplant 24.7273 141-1 Asthma 0.3506 141-2 Asthma 0.4946 141-3 Asthma 0.7464 141-4 Asthma 1.4218 560-1 Vaginal Delivery 0.307 560-2 Vaginal Delivery 0.3477 560-3 Vaginal Delivery 0.5057 560-4 Vaginal Delivery 1.3646 16

Medi-Cal Stays, 2009 Top 20 by Total Cost APR-DRG Description Stays Days Charges Est. Cost Casemix National ALOS Average Cost per Stay 540-1 Cesarean Del 36,767 116,578 $895,069,993 $206,357,005 0.52 3.0 $5,613 560-1 Vaginal Del 68,222 133,236 $829,993,929 $191,713,182 0.31 2.0 $2,810 720-4 Septicemia & Disseminated Inf 4,855 56,175 $763,063,878 $167,482,211 2.73 9.6 $34,497 640-1 Normal Newborn, Bwt >2499G 139,196 297,543 $631,929,500 $146,658,208 0.10 2.1 $1,054 005-4 Trach, MV 96+ Hrs, w/o Ext Proc 678 33,055 $475,513,784 $100,128,923 11.47 34.1 $147,683 560-2 Vaginal Del 20,946 48,125 $320,122,814 $75,595,806 0.35 2.4 $3,609 540-2 Cesarean Del 8,714 35,322 $275,245,556 $63,960,846 0.63 4.1 $7,340 130-4 Resp Sys Diag w MV 96+ Hrs 878 20,146 $254,667,446 $57,615,744 5.39 17.4 $65,622 710-4 Inf & Parasit Dis Incl HIV w O.R. Proc 720 18,267 $231,849,292 $49,418,135 6.09 18.8 $68,636 634-1 Neo, Bwt >2499G w Maj Resp Cond 1,165 30,436 $204,226,884 $44,176,471 0.55 4.5 $37,920 720-3 Septicemia & Disseminated Inf 2,742 18,924 $176,718,683 $40,100,616 1.17 6.3 $14,625 194-3 Heart Failure 2,945 15,233 $153,063,934 $33,288,623 0.94 5.6 $11,303 139-3 Oth Pneumonia 2,804 15,583 $144,338,588 $32,838,843 0.89 5.5 $11,711 139-2 Oth Pneumonia 3,899 14,941 $117,597,728 $28,379,777 0.58 3.8 $7,279 133-4 Pulmon Edema & Resp Failure 1,175 8,392 $114,031,279 $25,568,272 1.97 7.1 $21,760 460-3 Renal Failure 2,191 11,643 $108,423,344 $24,436,578 0.85 5.1 $11,153 540-3 Cesarean Del 2,163 13,335 $106,424,329 $24,081,373 0.93 6.8 $11,133 194-2 Heart Failure 3,282 11,883 $108,817,664 $24,030,415 0.63 3.8 $7,322 140-3 COPD 2,351 11,628 $108,543,395 $23,845,083 0.85 5.2 $10,143 Cost refers to the estimated hospital cost of care 140-2 COPD 3,266 12,400 $103,554,831 $23,665,712 0.62 4.0 $7,246 Top 20 Total 308,959 922,845 $6,123,196,853 $1,383,341,821 0.58 3.9 $4,477 Top 20 as Percent of All 57% 42% 31% 30%

National Relative Weights Fit Medi-Cal Well 1.40 Comparison of National and Medi-Cal Weights Top 30 DRGs by Volume 18 Relative Weight: U.S S. Population, Charge-Ba ased 1.20 1.00 0.80 0.60 0.40 0.20 - - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 Relative Weight: Medi-Cal Population, Cost-Based (Re-centered to be on same scale as national) DRG 640-2 To improve clarity, APR-DRG 720-4 are not shown. Its relative weights are 2.79 national and 2.73 California

Key Payment Values Changes to the payment method structure and payment policy specification remain possible before implementation. Parameters DRG base price, non-remote rural DRG base price, remote rural Value Statewide-TBD Statewide-TBD Policy adjustor - DRG- at designated NICU 1.75 Policy adjustor - other NICU 1.25 Policy adjustor - age- pediatric, misc & respiratory 1.25 Transfer discharge statuses 02, 05, 65, 66 Pediatric age cutoff < 21 High side (provider loss) tiers and marginal cost (MC) percentages Low side (provider gain) tiers and marginal cost (MC) percentages $0 - $30,000: no outlier applied $30,001 to $100,000: MC = 0.60 > $100,000: MC = 0.80 $0 - $30,000: no outlier applied > $30,000: MC = 0.60 Wage area adjustments per Medicare Aug 2012 Documentation & coding adjustment TBD 20

How the Allowed Amount Is Calculated 1. Group each stay to APR-DRG 2. Look up relative weight by APR-DRG From a national database that fits CA well Some care categories increased by policy 3. Will vary by Medicare wage area Will be higher for remote rural hospitals Transition rates in effect 2013-14, 2014-15, 2015-16 4. Incorporate specific payment adjustments Age adjustor, outlier payments, transfers 21

How Claims Will Be Paid 22

1. Straight DRG 314 base APR-DRGs, each with four levels of severity DRG base price in Los Angeles wage area = $5,075 x 1.2282 Payment is final; no cost settlement Applies to 84% of cases DRG Description Rel. Wt. DRG Base Price DRG Base Payment 139-1 Oth Pneumonia 0.3886 $ 6,233 $ 2,422 139-2 Oth Pneumonia 0.5773 $ 6,233 $ 3,598 139-3 Oth Pneumonia 0.8937 $ 6,233 $ 5,570 139-4 Oth Pneumonia 1.7342 $ 6,233 $ 10,809 166-1 Coronary Bypass w/o Cath 2.5684 $ 6,233 $ 16,009 166-2 Coronary Bypass w/o Cath 2.8429 $ 6,233 $ 17,720 166-3 Coronary Bypass w/o Cath 3.6188 $ 6,233 $ 22,556 166-4 Coronary Bypass w/o Cath 6.1761 $ 6,233 $ 38,496 23

2. Pediatric Adjustor Illustrates the Straight DRG modified for a pediatric patient Pediatric adjustor of 1.25 is applied Straight DRG Pediatric Adjustor Applied DRG Description Casemi x Rel. Wt. DRG Base Price DRG Base Payment Pediatric Adjustor Payment Rel. Wt. DRG Base Payment 139-1 Oth Pneumonia 0.3886 $ 6,233 $ 2,422 1.25 0.48575 $ 3,028 139-2 Oth Pneumonia 0.5773 $ 6,233 $ 3,598 1.25 0.721625 $ 4,498 139-3 Oth Pneumonia 0.8937 $ 6,233 $ 5,570 1.25 1.117125 $ 6,963 139-4 Oth Pneumonia 1.7342 $ 6,233 $ 10,809 1.25 2.16775 $ 13,512 24

3. Transfer Cases Payment adjustment follows Medicare model Applies to short-stay patients transferred for acute care; ( Transfer statuses 02-general hospital, 05-children s or cancer, 65-psych, 66- critical access) Transfer adjustment made only if LOS less than national ALOS - 1 day No post-acute transfer policy Example: DRG 190-3, Heart-attack LOS= 3 days; Transferred to another general hospital Step Explanation Amount DRG base payment $6,223 x 1.0665 $6,637 Transfer case Discharge status = 02 Yes National ALOS Look up from DRG table 4.87 Transfer adjustment ($6,337/4.87) * (3+1) $5,451 DRG payment $5,451 < $6,337 $5,451 25

4. Cost Outlier Case: Tier 1 Cost outlier payments supplement base payments in exceptional cases Same calculation model as Medicare, intended to make about 5% of payments as outliers; CA >10% Two tier Cost Outlier Thresholds: $30,000 and $100,000 Example: DRG 720-4 Septicemia with charges of $150,000 Step Explanation Amount DRG base payment $6,223 x 2.7338 $17,012 Estimated cost $150,000 x 39% $58,500 Estimated loss $58,500 - $17,012 $41,488 Cost outlier case $41,488 > $30,000 Yes Est. loss - cost outlier $41,488 - $30,000 $11,488 Cost outlier payment $11,488 x 60% $6,893 DRG payment $17,012 + $6,893 $23,905 26

4. Cost Outlier Case: Tier 1 & 2 Example: DRG 720-4 Septicemia with charges of $600,000 Step Explanation Amount DRG base payment $6,223 x 2.7338 $17,012 Estimated cost $600,000 x 39% $234,000 $234,000 - Estimated loss $17,012 $216,988 Cost outlier case Est. loss - cost outlier $216,988 > $30,000 Yes $216,988 - $30,000 $186,988 Cost Outlier Payment tier 1 for loss between $30,000 & $100,000 $70,000 x 60% $42,000 Tier 2 loss over $100,000 $216,988 - $100,000 $116,988 Example of two-tier cost outlier threshold: $30,000 and $100,000 Tier 1 paid at 60% for losses between $30,000 and $100,000 Tier 2 paid at 80% for losses greater than $100,000 Cost outlier payment tier 2 $116,988 x 80% $93,590 DRG payment 27 $17,012 + $42,000 + $93,590 $152,602

5. Interim Claims Hospitals can choose to submit interim claims if a stay exceeds 29 days. Hospitals are not required to submit interim claims under any circumstances Interim per diem intended to provide cash flow ($450 is for this illustration only. Example: Neonate 1200 g with respiratory distress syndrome (APR-DRG 602-4) Claim Type of Bill Days Interim Per Diem Payment 1st Interim claim 112 29 $450 $13,050 2nd interim claim 113 29 $450 $13,050 Calculate DRG Payment 80 $113,580 System pays DRG payment minus interim paid amounts 111 $87,480 Note: APR-DRG 602-4 base rate is $6,223 x 18.2517 = $113,580. 1. APR-DRG 602-4 base rate is $6,223 x 18.2517 = $113,580. 2. $450 is for illustrative purposes only. DHCS has not finalized a per diem rate for interim claims. 28

Likely Impacts on Hospitals The following are in approximate declining order of importance: 1. Change in payment per hospital up or down Effect of Transition Period $10,500 $9,000 $7,500 $6,000 $4,500 High Base Low base $3,000 $1,500 $- Base Yr1 Yr2 Yr3 Yr4 30

Impacts: Financial Management 1. Change in payment per hospital up or down (continued) Managing LOS and cost per day are rewarded Increase revenue by increasing casemix and volume Increase margins by increasing efficiency No cost settlement process

Likely Impacts on Hospitals 2. Decrease in daily TAR for stays paid by DRG Continue TAR on the medical necessity of the admission (not for deliveries and newborns) (Sick babies do require a TAR) Discontinue daily TAR on general acute care admissions Discontinue TAR on days related to induction of labor Continue TAR for procedures Continue daily TAR for administrative days and rehabilitation Continue DPH & NDPH follow current process 32

Likely Impacts on Hospitals 3. Increased importance of diagnosis/procedure coding APR-DRG severity assignment: No single complications/comorbidities list Depends on interaction of primary diagnosis with multiple secondary diagnoses and procedures APR-DRG granularity => opportunities to increase severity of illness Logic and experience (e.g., Medicare, MD, PA) => measured casemix will increase Newborn casemix expected to increase in particular (due to birth weight coding, inferred newborn claims) Overall, documentation and coding adjustment built into DRG base price Hospitals must ensure that coding is complete, accurate and defensible 33

Likely Impacts on Hospitals 4. Mother and newborn to be billed on separate claims 5. Sick newborns should be billed with single client ID Otherwise, interim claims will get confused 6. Interim claims not accepted for 29 days or less System will adjust payment on final claim 34

Likely Impacts on Hospitals 7. Administrative days continue to be billed separately New sub-acute pediatric admin level 2 (rev code 190) New adult admin level 2 (rev code 199) 8. Four-byte DRG code (e.g., 123-4) 9. Rehabilitation days to be billed separately New statewide per diem 35

Likely Impacts on Hospitals 10. Present-on-admission indicators required 11.Payment will be reduced when health-care acquired conditions affect DRG assignment Fiscal impact expected to be negligible 12. Erroneous surgeries should be reported using E codes 13. Blood factor and BMT search and acquisition billed separately 36

Provider Education New DHCS webpage devoted to APR-DRG information www.dhcs.ca.gov/provgovpart/pages/drg.aspx FAQ (Frequently Asked Questions) DRG pricing calculator Policy Design Document (coming soon) 38

Provider Education Provider Training to watch for: California hospitals can obtain free access to DRG grouping webpage through 3M Health Information Systems CHA members can go to the members section of the CHA website at www.calhospital.org. Hospitals that are not CHA members may contact Jack Ijams at jhijams56@mmm.com. Provider Bulletins: files.medical.ca.gov/pubsdoco/newsroom/newsroom_20872_1.asp Provider Training Sessions via WebEx & provided throughout the state in early 2013 Claim submission TAR procedures 39

Be Informed Now: Go to the new DHCS DRG webpage www.dhcs.ca.gov/provgovpart/pages/drg.aspx and register to receive your base rates Ongoing: Check the DHCS DRG website for updates Late 2012: registered hospitals will receive: Base rates Summarized simulated claims data Hospital-specific claims information available upon request Spring 2013 Provider Training Claim submission TAR procedures June 2013 revised Provider Manual published 41

For Further Information Medi-Cal DRG Project Jon Wunderlich Assistant Deputy Director, Healthcare Financing California Department of Health Care Services jonathan.wunderlich@dhcs.ca.gov 916.440.7800 Medi-Cal DRG Project Dawn Weimar, Project Director, Payment Method Development Xerox dawn.weimar@xerox.com 262.365.3592 Some results in this analysis were produced using data obtained through the use of proprietary computer software created, owned and licensed by the 3M Company. All copyrights in and to the 3M TM Software are owned by 3M. All rights reserved. 42

Medi-Cal DRG Project. Overview Briefing: HFMA Southern California Chapter October 18, 2012