Using APR DRGs to Verify Medicaid Payment and Improve Hospital Care: Let s Talk Methodology and Strategy

Using APR DRGs to Verify Medicaid Payment and Improve Hospital Care: Let s Talk Methodology and Strategy NJ Health Information Management Association June 22, 2018 Atlantic City NJ

Our Agenda Today Overview Let s Talk Methodology: Grouping and Pricing Let s Talk Strategy Importance The Approach of Documentation and Coding Your Hospital s Readiness For The Further Tools Information Note: This presentation describes the 3M APR DRG clinical classification methodology. Information The Impact about the New Jersey Medicaid inpatient hospital payment method shown here is from publicly available sources as of May 2018. Information is on the NJ website https://www.njmmis.com/hospitalinfo.aspx and questions may be directed to MAHS.hospitalissues@dhs.state.nj.us. This presentation has not been approved or disapproved by NJ DHS. 3M 2018. All Rights Reserved 2

Overview s

3M Health Information Systems 1 Over $200 billion a year Clinical classification methods developed by 3M are used to pay more than $200 billion/yr to providers by Medicare, Medicaid, and commercial payers 3 Widely used by payers APR DRGs used for inpatient payment in 33 states; EAPGs used for outpatient payment in 16 states (Medicaid and/or Blue Cross Blue Shield) 5 Leader in health care information Industry leader for coding, classification and payment systems used by CMS, MedPAC, 38 states, 200 payers, 80% of U.S. hospitals 2 CMS contractor for DRGs, APCs Staff created original Medicare DRGs Long-time CMS contractor for clinical logic underlying Medicare DRGs and APCs 4 Quality measures used in 16 states Public reporting and value based purchasing Reductions in potentially preventable ER visits, admissions, readmissions, complications 6 Population and Payment Solutions Process payer claims through 3M methodologies for 45 million lives a month Deep consulting expertise in 3M methodologies 7 Primary ICD-10 contractor Developed ICD-10 Procedure Coding System Primary CMS contractor for payment aspects of ICD-10 conversion for most provider types 8 4,000+ customers in 25 countries 3M groupers used in Belgium, Spain, 6 others 3M provides grouping and coding tools to 4,000+ payers and providers in 25 countries (outside U.S.) 3M M 2018. All Rights Reserved 4

First, the Headlines New Jersey Medicaid will move from AP-DRG v27 to APR DRG v34 effective with dates of discharge starting October 1, 2018 Despite the similarity in acronyms, APR DRGs are very different from AP DRGs Much more sophisticated in measuring patient severity Hospitals are not required to put the APR DRG on the claim or buy APR DRG software The NJ Approach Medicaid will assign the APR DRG based on claim information, especially diagnoses, present on admission, ICD-10-PCS procedure, procedure date, and birthweight For a Medicaid population, APR DRGs are far more appropriate than Medicare DRGs APR DRGs The Tools in use or planned for adoption by 28 Medicaid programs Payment by APR DRG rewards accurate coding and hospital efficiency, especially re length of of stay Entering birthweight is essential for accurate grouping of newborns The Impact APR DRGs are also useful benchmarking within the hospital and across hospitals and improving performance 3M 2018. All Rights Reserved 5

New Jersey: Present at the Creation 1978 NJ legislature authorized the nation s first prospective payment system 1980 NJ began paying all hospitals by DRG 1983 Medicare implemented payment by DRG, arguably the most influential innovation in the history of health care financing * The Approach 1988 3M developed All Patient DRGs (AP-DRGs) under contract to NY Medicaid for use with non-medicare populations 1991 3M released All Patient Refined DRGs (APR DRGs) The Tools 1994 NJ Medicaid implemented AP DRGs 2007 Medicare replaced CMS-DRGs with MS-DRGs 2010 3M stopped development updates of AP-DRGs The Impact 2015 U.S. implemented ICD-10-CM and ICD-10-PCS Health Affairs, Summer 1986 2018 NJ adopting APR DRGs 3M 2018. All Rights Reserved *Quinn K. After the revolution: DRGs at age 30. Annals of Internal Medicine. 2014;160:426-429. 6

Let s Talk Methodology: Grouping and Pricing s

3M Clinical Classification Methodologies Methodologies to Define the Products of Health Care for Insight, Risk Adjustment, and Payment Methodology Unit of Analysis Can Be Used to Pay Incorporates APR DRG All Patient Refined Diagnosis Related Groups Inpatient admission Inpatient hospital Risk of mortality EAPG Enhanced Ambulatory Patient Groups Outpatient visit (physician, hospital, etc.) Outpatient hospital, ASC FSG Functional Status Groups Patient MCOs, LTSS providers* CRG Clinical Risk Groups Patient MCOs, ACOs FSG PFE Patient Focused Episodes Episode of care MCOs, ACOs, hospitals, physician groups CRG, APR DRG, EAPG, PPR Methodologies to Measure Quality for Public Reporting, Payment Adjustment, and Quality Improvement Methodology Unit of Analysis Measures Quality Of Clinical Risk Adjustor PPC Potentially Preventable (Inpatient) Complications Inpatient admission by APR DRG Inpatient care By inpatient using APR DRG PPR Potentially Preventable Readmissions Inpatient admissions by APR DRG Inpatient care, MCO, primary care providers By inpatient using APR DRG PPA Potentially Preventable (Hospital) Admissions Inpatient admission by APR DRG MCO, primary care providers, LTSS providers By covered individual using CRG PPV Potentially Preventable (ER) Visits Emergency room visit by EAPG MCO, primary care providers, LTSS providers By covered individual using CRG PPS Potentially Preventable (Outpatient) Services Tests and procedures by EAPG MCO, physicians, other professionals By covered individual using CRG ROM Risk of Mortality Inpatient admission by APR DRG Inpatient care By inpatient using APR DRG MCO=managed care organization. LTSS=long term services and supports, such as nursing facility and home and community based care. ASC=ambulatory surgical center. ACO=accountable care organizations and similar entities "Potentially Preventable Events (PPEs)" comprise PPRs, PPCs, PPAs, PPVs, PPSs "Population Focused Preventables" comprise PPAs, PPVs, PPSs * Functional status groups must be combined with Clinical Risk Groups to analyze or pay MCOs and LTSS providers 3M 2018. All Rights Reserved 8

Use of 3M Proprietary Methodologies by Major Payers The Approach The Tools The Impact 3M 2018. All Rights Reserved As of March 2018. Implemented or committed, Medicaid or other major payer (e.g., BCBS) 9

3M Clinical Classification Methodologies The Goal More health for the healthcare dollar The Approach The Tools 1) Clinical usefulness 2) Categorical models enable understanding 3) Focus on outcomes 4) Internally consistent set of tools Risk adjustment and payment: APR DRGs, EAPGs, CRGs, PFEs Quality measurement: PPRs, PPCs, PPAs, PPVs, PPSs, ROM The Impact Adopted by dozens of payers nationwide Documented evidence on savings and quality improvement 3M 2018. All Rights Reserved 10

Comparing Medicare DRGs, 3M AP-DRGs, and 3M APR DRGs Medicare Severity DRGs 3M AP-DRGs APR DRGs Developer 3M for CMS 3M 3M Version (in New Jersey) V35 until Sept. 30, 2018 V27 until Sept. 30, 2018 V34 as of Oct. 1, 2018 Population for development Medicare fee-for-service population All patient population All patient population OB, pediatrics, newborns* Very low prevalence (0.4% of stays) High prevalence (55% of Medicaid stays and 27% of all-payer stays nationwide) Development history Replaced CMS DRGs effective October 1, Based on CMS DRGs but with more 2007 to improve accuracy, especially re attention to OB, pediatrics, newborns. No severity of illness. Updated annually. development since January 2010 High prevalence (55% of Medicaid stays, and 27% of all-payer stays nationwide) Developed from scratch with emphasis on severity of illness, risk of mortality, standardized structure, and all patient population. Updated annually Number of DRGs 754 (752 + 2 error DRGs) 684 (682 + 2 error DRGs) 1,274 (318 base DRGs x 4 subclasses + 2 error) Severity of illness Standard list of CCs and MCCs across base DRGs Some base DRGs stand alone; some have base DRG + CC; some have base + CC + MCC No splits by age Standard list of CCs dating from CMS DRGs (pre 2007) Some DRGs split by age (<17 vs 18+) Each base DRG has four severities of illness: minor, moderate, major, extreme SOI calculation varies, depending on base DRG, interaction of comorbidities, and patient age Analysis of mortality None None DRG assignment is independent of mortality. Benchmark risk of mortality parameters calculated for each APR DRG. Present on admission (POA) indicator Used only for evaluation of HACs Used only for evaluation of HACs Used for APR DRG assignment * Prevalence of obstetrics, pediatrics, newborns calculated by 3M from the 2015 National Inpatient Sample 5 June 3M 2018. All Rights Reserved. 11

Quick Summary: All Patient Refined DRGs Applicable sites of service: Hospital inpatient stay Data required: Hospital inpatient claims Definition: A system of classifying patients by their reason of admission, severity of illness, and risk of mortality. DRGs comprise patients who are similar clinically and in consumption of hospital resources. Uses: Payment, hospital management, reporting, risk adjustment for quality measures Example: Florida Medicaid began payment by APR DRG 7/1/13 3M 3M 2017. 2018. All All Rights Rights Reserved Reserved 12

Input and Output: APR DRGs INPUT Data source: hospital inpatient claims Diagnoses and POA indicators Procedures and dates Discharge status Age and gender 3M APR DRG Grouper Available in: Mainframe version Core Grouping Software Grouper Plus Content Services Coding & Reimbursement System 360 Encompass OUTPUT Major Diagnostic Category Base APR DRG (admission and discharge) Severity of Illness (admission and discharge) Risk of Mortality (admission) Relative weights Input Pearls Check completeness, accuracy, and formatting on diagnosis, present on admission, procedure and procedure date fields Appropriate birthweight coding is essential for accurate payment, especially for sick newborns Search for and verify extreme values of charges, payment, length of stay, and Px/Dx code counts 3M 2018. All Rights Reserved Output Pearls Check records with error codes Check APR DRGs 950-952 (procedure unrelated to diagnosis). These are valid DRGs but sometimes indicate coding issues Dx and Px affect fields show impact on grouping Not all input and output fields are shown. Input and output pearls are only the most important of many steps needed for valid analysis 13

18 Steps to Assign Severity of Illness and Risk of Mortality Severity of illness and risk of mortality subcategories are calculated separately and may differ SOI and ROM depend on the patient s reason for admission (i.e., the base APR DRG) No single CC or MCC list High SOI and ROM reflect multiple serious diseases and their interaction Assign the base APR DRG Phase I Determine level of each secondary diagnosis 6 Steps Phase II Determines a base subclass for the patient based on all of the patient s secondary diagnoses 3 Steps Phase III The final subclass for the patient is determined 9 Steps 5 June 3M 2018. All Rights Reserved. 16

NJ Medicaid APR DRG Pricing Calculations (as of May 2018) Sources: https://www.njmmis.com/downloaddocuments/apr-drgpublicusefile34.pdf and https://www.njmmis.com/downloaddocuments/apr-drgdescriptionandweights34.pdf accessed May 29, 2018 Hospitals should check website regularly and verify calculations with NJ DHS before Oct. 1, 2018 In general, payment for a stay = hospital rate x relative weight Example: APR DRG 190-1 (Acute Myocardial Infarction) = $5,067.50 x 1.27353 = $6,453.51 Hospital rates shown as unchanged from AP-DRG method $5,067.50 + hospital-specific addons Relative weights = 3M national standard weights x 1.6041 APR-DRG national relative value weights have been calibrated to seek overall budget neutrality while maintaining the hospital base rates in place during CY 2016 Outlier thresholds are DRG-specific Average LOS (used in transfer calculations) = national 3M benchmarks Comparisons with a hospital s own data need to be apples vs apples (geometric average, trimmed) 5 June 3M 2018. All Rights Reserved. 17

NJ Medicaid Information at www.njmmis.com APR DRG relative weights and thresholds Fiscal impact analysis by hospital 5 June 3M 2018. All Rights Reserved. Source: https://www.njmmis.com/hospitalinfo.aspx accessed May 29, 2018. Hospitals should check website regularly and verify information with NJ DHS before Oct. 1, 2018 18

APR DRG Grouper Settings 3M Grouper 3M APR DRG Default Setting NJ Medicaid Setting APR DRG version Version 34 Version 34 APR DRG relative weights V34.0 standard weights (national) V34.0 standard weights (national) x 1.6041 APR DRG ALOS benchmarks Number of diagnoses and procedure values accepted 3M offers four sets (arithmetic or geometric, trimmed or untrimmed) Unlimited V34.0 geometric trimmed (national) Check with NJ DHS Birthweight option 7 Entered or coded with cross check, default available Check with NJ DHS Admission DRG 1 - Compute Admission DRG/Discharge DRG excluding non-poa Complication of Care Check with NJ DHS Interpretation of W and U POA indicators 0 - W treated as N, U treated as N (default) Check with NJ DHS Missing/Invalid POA Interpretation 0 - Treat as non-poa Check with NJ DHS POA flag coding 0 - Accepts blank for exempt indicators Check with NJ DHS Medicaid Healthcare Acquired Condition (HCAC) Check with NJ DHS 5 June 3M 2018. All Rights Reserved. 19

Let s Talk Strategy s

What s Wrong with This Picture? 5 4 DRG 194 Congestive Heart Failure 3 2 LOS 1 Level 1 Minor Level 2 Moderate Level 3 Major Level 4 Extreme 21

Credibility with Physicians My patients are sicker! That may be true Physicians and hospitals are due credit for the clinical complexity of their patients: Higher severity of illness More difficult to treat Poor prognosis Increased risk of mortality Increased need for intervention (resources) There is no other way to begin a productive dialogue with physicians and other clinicians about using outcomes information to motivate quality improvement. ¹ ¹ Iezzoni L: The risks of risk adjustment. JAMA, 278(19): 1600-1607, 1997 5 June 3M 2018. All Rights Reserved.

Financial Opportunity Analysis Client Data Medicaid Client Data 1/2015 12/2015 - @ 65% Realization $3,500,000 Medicaid $3,000,000 $2,885,958 $2,500,000 $2,000,000 $1,737,529 $1,500,000 $989,048 $1,000,000 $500,000 $615,775 $409,254 $792,090 $178,715 $526,390 $0 Hospital A Hospital B Hospital C Hospital D Hospital E Hospital F Hospital G Hospital I *This is not a guarantee of results; actual results will depend on your organization. Please note that these calculations are based on your Medicaid patient population only. No other payor considerations are made in this calculation. Financial opportunity per case is based on 65% realization.

Importance of Documentation and Coding s

Documentation Flow This drives it all! Physician Documentation ICD-10-CM Codes Principal Diagnosis Secondary Diagnosis Principal Procedures Secondary Procedures DRG Assignment Severity-Level Profiles Risk-Adjusted Profiles Reimbursement Quality Measurements (Physicians/Hospitals) 25

Documentation Impacts Performance Indicators CMS or APR DRG Case Mix Index/Reimbursement CC Capture Rate Key DRG Ratios Hospital and Physician Performance Indicators Severity-of-Illness Risk-of-Mortality Utilization of Resources Regulatory Compliance Hospital Part B Physician 26

Documentation Documentation is a reflection of the care provided Reflects the severity of illness and the selection of: Principal diagnosis Secondary diagnoses Procedures performed Remember If it is not documented, it never happened 3M 2018. All Rights Reserved 27

Impact of Documentation on Data Quality Clinical Terms (Documentation needs clarification) Continue home medications such as nitrates, beta-blockers, furosemide, phenytoin 1. History of CHF, will continue furosemide, ACE inhibitors 2. CXR reveals cardiomegaly, patient treated with diuretics, progress notes reveal no overt CHF 3. Ejection fraction 24%, JVD, lungs bibasilar rales Cardiac enzymes elevated, elevated troponin, EKG positive 1. LUL infiltrate 2. + sputum culture, productive cough 1. SOB, po 2 55, pco 2 64, ph 7.32, O 2 sat 88%, Bi-PAP, O 2 2. Respiratory distress, cyanosis, HR, labored respirations Emaciated, albumin, weight loss, BMI 16.5, non-healing wounds, nutritional consult, ordered supplements, consider TPN Dry mucus membranes, poor skin turgor, will rehydrate Diagnostic Statement (Accurate code may be assigned) Document specific diagnosis such as CAD, atrial fibrillation, chronic systolic heart failure, angina, HTN, seizure disorder Heart failure (specify type such as systolic, diastolic, combined systolic and diastolic; specify acuity such as acute, chronic, acute on chronic) Acute myocardial infarction (specify type such as STEMI or NSTEMI; specific artery involved such as LAD, left circumflex; exact date of any recent AMI) Pneumonia (specify type and organism, if known or suspected, such as Klebsiella pneumonia must link responsible pathogen to the pneumonia; document cause such as aspiration pneumonia) Respiratory failure (specify acuity, if known or suspected: acute, chronic or acute on chronic; document if acute respiratory failure is hypoxemic, hypercapnic or both) Malnutrition (specify type such as protein calorie, protein energy; document severity such as mild, moderate or severe or 1 st, 2 nd or 3 rd degree) Dehydration 3M 2018. All Rights Reserved 28

The Need Physician Documentation is received in CLINICAL terms Breakdown between the two separate dialects Documentation for coding, profiling & compliance requires specificity in DIAGNOSIS terms You need processes in place to bridge the GAP! 29

General Rule for Coding a Secondary Diagnosis Secondary diagnoses or other diagnoses require at least one of the following: Clinical evaluation Therapeutic treatment Diagnostic procedures Extended length of hospital stay Increased nursing care and/or monitoring Rules do not change under APR DRGs 5 June 3M 2018. All Rights Reserved.

Complete Coding for Accurate Severity and Mortality Classification To obtain accurate credit for the clinical complexity of your patient mix it is imperative that you code all documented diagnoses that meet the UHDDS coding guidelines to accurately reflect the APR DRG classification! It is not enough to code only diagnoses that will get you to the correct DRG payment It is not enough to stop coding when you reach the UB diagnoses and procedure limits Incomplete documentation or coding can have a huge impact on your severity and mortality classification Clinical and/or Administrative Quality of Care can impact severity classification 5 June 3M 2018. All Rights Reserved. 31

Impact of Secondary Diagnoses on 3M APR DRGs Option 1 Option 2 Option 3 Option 4 MS-DRG MS-DRG 195 MS-DRG 195 MS-DRG 194 MS-DRG 193 PDx: Viral pneumonia Viral pneumonia Viral pneumonia Viral pneumonia SDx: None CHF CHF Malnutrition Hypotension CHF Malnutrition Hypotension Acute respiratory failure APR DRG APR DRG 139 SOI Subclass 1 ROM Subclass 1 APR DRG 139 SOI Subclass 2 ROM Subclass 2 Driver: CHF APR DRG 139 SOI Subclass 3 ROM Subclass 3 Driver: Malnutrition and Hypotension APR DRG 139 SOI Subclass 4 ROM Subclass 4 Driver: Acute respiratory failure 5 June 3M 2018. All Rights Reserved. 32

Your Hospital s Readiness s

Questions to Ask Do my data accurately demonstrate the quality of care my hospital provides? Does my hospital s quality allow me to build a solid brand awareness, compete with my competitors and grow market share? Can I afford the financial fall-out from not capturing complete and accurate quality data in my market? Do I have the ability to model my data for identification of focus areas? Do we currently stop searching the Medicaid chart when we find a CC? Do we understand the key differences in how APR DRGs assign severity? Do we know whether NJ Medicaid will capture birthweight by value code, diagnosis, or both? Are we set up to capture and code birthweight accurately? 5 June 3M 2018. All Rights Reserved.

APR-DRGs: Severity and Mortality Variances Death Rate Variance (EPR) Severity of Illness Variance (EPR) 4.6% 0.3% -11.7% -6.9% 2016 2015 2014-1.7% 3.7% 2016 2015 2014-10.6% 2013-1.8% 2013-20.0% -10.0% 0.0% 10.0% 20.0% Lower Than Expected Higher Than Expected (Favorable) State Average (Unfavorable) -10.0% -5.0% 0.0% 5.0% 10.0% Lower Than Expected Higher Than Expected (Unfavorable) State Average (Favorable) Source: 3M TM APR DRG Classification System and MEDPAR; Expected deaths are based on the State average death rate, risk adjusted by the 3M APR DRG Classification System. EPR (Excludes and Psychology and Rehabilitation) patients 5 June 3M 2018. All Rights Reserved. 38

Keys to Success Checklist Educate hospital leadership and staff on the importance of APR DRGs and how each person s role impacts APR DRG outcomes Perform financial impact analysis on Medicaid where should I focus? Expand CDI Program to include Medicaid reviews Provide education for coding, CDI and medical staff on APR DRG requirements Assess completeness of physician documentation for Medicaid (perform internal or external APR DRG documentation audit) Assess coding accuracy (do not assume coding has captured all code-able diagnoses) Implement data monitoring to measure Medicaid APR DRG performance 5 June 3M 2018. All Rights Reserved. 39

What Do Hospitals Need to Do Differently? Expand CDI Program to include Medicaid documentation reviews Assure productivity standards or push on reducing AR does not impact quality/quantity of coding all secondary diagnoses Educate coding, CDI and medical staff on documentation needs for supporting accurate severity reflection Perform coding, documentation, CDI audits for accuracy Analyze data monthly and incorporate severity system parameters into performance dashboards! Review APR DRG severity case mix index, comparisons to state or national benchmarks to determine focus areas such as service lines 5 June 3M 2018. All Rights Reserved.

Questions s

Acronyms ALOS: average length of stay AP-DRG: 3M All Patient DRG The APR DRG: Goal3M All Patient Refined DRG AR: accounts receivable CC: complication or comorbidity (CMS DRGs, AP-DRGs, MS DRGs) CDI: clinical documentation improvement CMS DRGs: Centers for Medicare and Medicaid Services DRGs (before Oct. 1, 2007) DRG: diagnosis related group HAC: hospital acquired condition (CMS terminology for Medicare) HCAC: health care acquired condition (CMS terminology for Medicaid) MCC: major complication or comorbidity (MS-DRGs) MDC: The major Impact diagnostic category (roll-up within every DRG grouper) MS-DRG: Medicare Severity DRG (effective Oct. 1, 2007) POA: present on admission indicator on hospital inpatient claims UHDDS: Uniform Hospital Discharge Data Set 3M 2018. All Rights Reserved 45

Resources on All Patient Refined DRGs 3M public website 3M APR DRG Classification System and 3M APR DRG Software, fact sheet The Goal APR DRG eguide 3M HIS Internal Support Site (Available to licensees) APR DRG Methodology Overview APR DRG Classification System Reference Guide APR DRG Definitions Manual APR DRG Software Installation and User s Guide APR DRG Weights and Trims with Code Descriptions Articles and Books Averill RF, Goldfield NI, Muldoon J, Steinbeck BA, Grant TM. A closer look at All Patient Refined DRGs. The Journal Impact of AHIMA. 2002;73(1);46-50. Goldfield N. The evolution of Diagnosis-Related Groups. Quality Management in Health Care. 2010;19(1):3-16. Quinn K. After the revolution: DRGs at age 30. Annals of Internal Medicine. 2015;160:426-429. 3M 2018. All Rights Reserved 46

s For More Information Margaret A. McGann, MS Client Relationship Executive New Jersey 3M Health Information Systems Office: 267.477.10990 Mobile: 215.237.5769 mamcgann@mmm.com Kevin Quinn, MA, EMT-P Senior Health Economist, Clinical & Economic Research 3M Health Information Systems 406.438.1286 kquinn@mmm.com Deborah A. Mason, RHIT, RN, BBA, MJ, CPUR Strategic Sales Executive, Consulting Services 3M Health Information Systems Office: 678.332.3721 Mobile: 678.358.4462 damason1@mmm.com With thanks to Gregg Perfetto Clinical documentation improvement, coding and reimbursement, and related products and consulting: www.3m.com/3m/en_us/health-information-systems-us/providers For information on 3M Health Information Systems: www.3m.com/his