Reimbursement Overview & Industry
Payment Trends For The Non Reimbursement
Oriented Finance Professional
Michael Klett, FHFMA, CPA
March 23, 2016
Western MI Chapter HFMA
1
Goals for Presentation
• Provide an overview of Medicare facility reimbursement process to
gain a basic understanding of today’s environment and the changing
landscape with health reform
• Even though I have worked to get out of the detail as much as possible
keep in mind most of the information is technical and not always
intuitive so please stop to ask questions as we go along
– Don’t worry this is not an exercise in Cost Reports!
• Where prudent I have tried to include a State/Region viewpoint and/or
the views of several (non-disclosed) hospitals only to help visualize the
order of magnitude of the payment issue being discussed and not to
advance any individual health system such as UMHS; all relevant data
is also publicly available
2
Agenda
• Historical Medicare benchmark data and the impetus to change
• Health Reform Summary & other legislation of interest
• Medicare Part A general overview
• Summary of Hospital Specific Payment Adjustors – PPS Focus
• Example DRG calculation
• Appendix
– Review Non Short Term Acute Care PPS Hospital types
– HFMA Certification
3
Medicare Benchmark Slides
4
Government Payments to Cost vs. Private Insurance
135%
125%
115%
Medicare
Medicaid
Private Ins
105%
95%
85%
75%
95 96 97 98 99 00 01 02 03 04 05 06 07 08
5
Medicare Historical Rate of Spending
6
Medicare Projected Rate of Spending before ACA cuts
7
Health Reform Changes
8
CMS timeline for APM, value payments
• CMS established timeline for continued transition from volume
based FFS payments to value based reimbursement.
• Alternative Payment Models (APM)
– Accountable Care Organizations (ACOs) / Bundled Payment Arrangements
• 30% by end of 2016
• 50% by end of 2018
• Payments tied to Value
– Quality/Value Based Adjustments
• 85% by 2016
• 90% by 2018
9
Health Reform – Where are we now?
Paradigm shift
• Last 25 years: focus on cost per episode
• Next: manage cost per beneficiary & Population Health
• Quality and utilization focus; Per episode cost still important
• Need to think in terms of both fee for service & fee for value
Already in law & other relevant market developments
• Little known: Productivity adjustments
• Alternative Payment Models: Accountable care organizations (new incentives), New
Payment Demonstrations (such as BPCI, CJR) & Merit Based Incentive Payment (MIPS)
• Payments tied to value: Value based purchasing – pay for performance, Hospital
readmission reduction (HRRP) & Hospital acquired conditions (HACRP) – new
penalties, CMS quality programs
• Coverage Reform: Insurance Exchange, Medicaid Expansion, Insurance Reform
•
Is it enough to “bend the cost curve”?
10
Medicare Productivity Adjustments
• Theory: Federal Government’s way to bend the cost curve with
small offsets to the market basket increase
– Cumulative cuts are bigger than you think!
– CMS actuaries estimated at time of ACA passage this impact would be
$205 B over 10 years
– 2015 study by George Mason University indicates 10 year estimate =
$380 B over 10 years
– Resources:
http://mercatus.org/sites/default/files/Capretta-Indexing-ACA.pdf
http://eppc.org/publications/an-aca-provision-youve-never-heard-of-couldend-up-being-very-costly/
11
Alternative Payment Models
12
Accountable Care Organization (ACO)
• Accountable care organizations (ACOs) are provider groups (typically hospitals
and physicians) that agree to be accountable for improving quality and cost
outcomes.
– Pioneer ACOs & MSSP (Medicare Shared Savings Program) ACOs Goals (Next
Generation ACO coming soon)
• integrated care for patients, resulting in quality improvements and reduced costs.
• Risk/Reward – Share in cost savings or loss
• Overall results have shown cost savings and improved results in quality measures
• Number of Medicare beneficiaries covered by ACOs expected to continue to grow
• 1st major population health management policy (far different than FFS)
• http://www.modernhealthcare.com/article/20140925/NEWS/309259938/
medicares-pioneer-program-down-to-19-acos-after-three-more-exit
• http://www.fiercehealthcare.com/story/confirmed-nine-pioneer-acos-will-exitprogram-including-university-michigan/2013-07-16
13
Bundled Payments for Care Improvement Initiative (BCPI)
Bundled Payments for Care Improvement Initiative (BCPI)– CMS Demonstration
Project
– CMS makes one payment for entire episode of care
– Participation is voluntary
– 4 different bundle models
– Provider proposes the bundle arrangement
• Must adhere to CMS guidelines
• Ability to select certain aspects
– DRGs, duration of episode, discounted target price
– https://innovation.cms.gov/initiatives/bundled-payments/
14
Comprehensive Care for Joint Replacement (CJR)
• Comprehensive Care for Joint Replacement (CJR) Bundled
Payment Model – 5 year demonstration project
– Represented significant shift from voluntary to designated participants
• CMS selected 67 geographical areas where this model will be implemented
– MI locations selected: Flint, Saginaw
• Participation will be mandatory for providers in the selected geographic areas
• Episode =Inpatient admit to 90 days post discharge; DRG 469, 470
• Hospital to be held financially responsible for episode of care
– FFS payments compared to CMS established target price
15
Merit Based Incentive Payment System (MIPS)
• Medicare Access & CHIP Reauthorization Act (MACRA) of 2015 –
Continues path to value
– Repeals Sustainable Growth Rate(SGR) Formula
– Introduced Merit Based Incentive Payment System (MIPS) for clinicians
– Provides bonus payments for participation in eligible alternative payment
models to encourage participation
• Current quality and value programs for physicians and
practitioners will be streamlined into MIPS
16
MIPS continued
• MIPS composite performance score will be based on 4 factors
• Quality
• Resource use
• Clinical practice improvement activities
• Meaningful use of certified EHR technology
•MIPS will not apply to 3 groups of physician/practitioners
– First year of Medicare participation
– Participants in eligible alternative payment models who qualify for the
bonus payment
– Below low volume threshold
17
MIPS continued
• MIPS Payment Adjustment Timeline – Adjustment will be Budget Neutral
(Winners & Losers)
– Annual update to physician fee schedule
• FY2016 through 2018 =.5% increase
• FY2019 = +/- 4% based on MIPS performance score
• FY2020 = +/- 5% based on MIPS performance score
• FY2021 = +/- 7% based on MIPS performance score
• FY2022 onward = +/- 9% based on MIPS performance score
18
Coverage Reform
19
Health Insurance Exchange(HIE)/Marketplace
What do we know so far?
•
Started 1/1/14
•
Estimated 6 million enrollees for the 2015 plan year; 35% under the age of 35
•
Approx. 350K in MI for 2016 plan year
•
Nationally expected that roughly half received a subsidy on the exchange
•
In 2014 estimated 3 million young adults under 26 were able to sign up under their family benefits that
were previously uncovered
•
Catastrophic, Bronze, Silver, Gold plans available and differences are generally % of patient
responsibility
Early Market Intelligence
•
Market turning to consumer driven and more retail oriented
•
Public vs. Private Exchanges
•
Blue Cross EPO/Narrow Network in MI started 1/1/15 to target those previously uninsured and
generally paid at Medicare + rates (not existing commercial rates)
o Sign of the Future?
20
Projection of HIE enrollment (Accenture)
21
HIE Penalties increased for 2016
• The ACA’s individual mandate requires most people to have
health insurance or pay a penalty; however, there are quite a
few exemptions.
• Those who don’t qualify for exemption must pay the greater of:
– 2.5% of annual household income. Using this method, the maximum
penalty is the national average premium for a bronze plan or about
$3,000 according to Exhibit 1 in this Commonwealth Fund analysis.
– $695 per adult or $347.50 per child under 18. Using this method, the
maximum amount a family will pay is $2,085. (double 2015 amts)
• Resources: healthinsurance.org calculator,
https://www.healthcare.gov/fees/fee-for-not-being-covered/
22
23
Medicaid Expansion
• 31 states + D.C. expanded including Ohio, Indiana, & Michigan
• Initial goal 400,000 MI residents; Currently up to 610K
• Initial additional funding from Federal Government (2014-2016) @100% and
then @ 90% funding level (states have to figure out how to finance the 10%)
– MI waiver for stringent cost sharing requirements was approved Dec 2015
• Fear of what to do as a social policy once lack of full federal funding has
expired one of large barriers to initial passage for many states
• Medicaid eligibility now 138% of Federal Poverty Level (“FPL”)
 $15,000 Individual; $34,000 family of 4
• Additional pressure on self pay billing and collection practices
•
IRS 501® rules to regulate self pay billing practices and charity care; CHNA requirement
•
In MI, every self pay patient under 250% FPL is entitled to a discount of 115% of Medicare
24
Insurance Reform
• Consolidation of the “Big 5”
– When does 5 = 3?
• Aetna acquired Humana $37 B
• Anthem acquired Cigna $54 B
• United Healthcare
• Cost Sharing changes are increasing “Balance After Insurance”
expectations for hospitals and increasing the cost to collect
– Employer decisions in benefit design are involved here
25
Payments tied to value/quality
26
Value-Based Purchasing
•
A percentage of Hospital payment is tied to performance on quality measures related to common
and high-cost conditions such as cardiac, surgical and pneumonia care
 Started 10/1/12
 Designed to transform Medicare from a passive payer of claims to an “active purchaser of
care”
 VBP makes a portion of the hospital payment contingent on actual performance of specified
measures, rather than simply on the hospital’s reporting data for these same measures
(former system)
 Zero Sum Game (winners and losers but budget neutral for Medicare)
 Medicare started funding the incentive pool by withholding 1% of DRG rate (grows to 2% in
2017; plateau rate)
•
Initial measures cover following specific conditions or procedures:
 Acute Myocardial Infarction (AMI), Heart Failure, Pneumonia, Surgeries (as measured by
SCIP), Healthcare-associated infections
•
2015 included more structural changes including a population health metric
•
https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheetsitems/2015-10-26.html
27
Readmissions Reduction Program (HRRP)
•
10/1/12 Medicare implemented the readmission penalty
•
A Hospital’s adjustment factor is applied to the DRG rate and is calculated as follows:
Hospital’s aggregate payments for excess readmits
Hospital’s aggregate payments for all discharges
 Cap was 1% first year and grew to 3% (Plateau) in year three (Federal Fiscal Year 2015)
 Payment cut is applied to DRG price for all cases and not individual readmissions (often
misunderstood)
•
Readmission is defined as being admitted at the same or different hospital within a time period
prescribed for the applicable
 Hospitals can be penalized by care provided previously at other facility
 Significant industry feedback to CMS on how they should allow for expected readmissions
•
Year 1 impact to MI Hospitals was approx. $14 Million
•
Program is a revenue generator for government (not budget neutral)
•
https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps/readmissionsreduction-program.html
28
Hospital-Acquired Condition Reductions Program (HACRP)
• Started in 2015 (10/1/14) Medicare provided this incentive
to reduce HACs
• Reduction is 1%; penalty is either nothing (targeted to be top
75% of hospitals) or 1% payment cut
• Program is a revenue generator for government (not budget
neutral) $364 M FFY2016
• Various measures roll up into 1 of 2 domains for scoring
purposes
• https://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/HAC-Reduction-Program.html
29
Summary comments about Health Reform
•
Unsustainability of cost trends led us to the need for a dramatic change to the status quo
•
Providers, physicians, and suppliers are forced to do more with less
 Unparalleled pressure on expense management
•
Healthcare system continues to get more complex to manage
•
Lots of change already but more to come including
 Medicare’s 2 midnight rule in the infancy stage
 Medicare behavioral coding adjustments
 Declining Medicare DSH payments due to decreased uninsured
 How will Commercial Payers react to Medicare Payment Reform
 Aging Population with retirement of Baby Boomer generation
 Sequestration hanging around until at least 2021 (effective 2% across the board cut)
 Uninsured patients addressed from policy perspective however there is still anticipated to be an
uninsured population albeit at much lower level
 Solvency of Medicare trust funds and social security
30
What have we learned about health reform already?
• Our Industry is clearly tasked to do more with less
• We are forced to operate in an era of heightened regulation/oversight
• Price transparency pressure
• Decreasing reimbursement and change from fee for service to fee for
value (utilization becomes key)
• Hospital merger & activity at unprecedented levels
 Administrative jobs in theory more scarce as such services are consolidated
• Employers are reviewing our performance through our payers
 Is it worth it to us and our employees to have Hospital X in our network?
 Proliferation of referenced pricing models and “carve outs”
 Employers and payers will work to push down hospital payer rates
31
Medicare Overview
32
Medicare Overview
•
Insurance for the aged, also covers disabled and patients with ESRD.
•
Four parts:
•
 Part A
Inpatient hospital
 Part B
Physician and outpatient hospital
 Part C
Medicare Advantage
 Part D
Prescription drugs
Federally funded and managed, but ½ of cost paid by beneficiaries and third parties (mainly
employer insurance)
33
Medicare Spending
IP Hospital
36.1%
OP Hospital
10.3%
Practitioner
23.6%
Rx Drugs
SNF
Other
Home Care
0.0%
14.5%
6.3%
4.9%
4.4%
10.0%
20.0%
30.0%
40.0%
50.0%
34
Guiding Principles
•
Playing field should be level for all hospitals
 Valid differences in cost should yield differences in payment
•
Hospitals should be able to break even (payment = cost)
 For first 20 years Medicare payment was cost reimbursement
 Impetus for Change
 Medicare cross subsidization rule
•
Incentives for improving efficiency, penalties for not improving
 Last 25 years, focus on managing costs per episode
 Health Reform focus is on managing costs per attributed population and not utilization
35
Example Distribution of Payments
Payment Component (in millions)
Hospital A
Hospital B
Hospital C
Routine Reimbursement
I/P DRG - Operating
I/P DRG - Capital
Outpatient Fee for Service
Psych and Rehab
Routine Subtotal
$
$
$
$
$
246
26
106
21
399
49.8%
5.3%
21.5%
4.2%
80.7%
$
$
$
$
$
166
22
179
9
376
30.4%
4.0%
32.9%
1.7%
69.1%
$
$
$
$
$
155
18
214
387
Complex Reimbursement
Indirect Medical Education
Disproportionate Share
Outlier Payment
Organ Acquisition
Graduate Medical Education
Bad Debts and Other
Nursing & Allied Health
Complex Subtotal
Grand Total Medicare Reimbursement
$
$
$
$
$
$
$
$
$
39
7.9%
12
2.4%
16
3.2%
4
0.8%
16
3.3%
4
0.9%
4
0.8%
95 19.3%
494 100.0%
$
$
$
$
$
$
$
$
$
62 11.4%
31
5.6%
32
5.8%
16
3.0%
23
4.2%
4
0.8%
1
0.1%
168 30.9%
544 100.0%
$
$
$
$
$
$
$
$
$
52
9.7%
37
6.9%
10
1.9%
9
1.7%
30
5.7%
6
1.2%
1
0.2%
145 27.3%
532 100.0%
29.0%
3.4%
40.2%
0.0%
72.7%
36
What is a DRG?
•
Diagnosis Related Group; MSDRG (MS = Medicare Severity; designed for elderly)
•
A complex system that essentially classifies all hospital inpatient cases into 1 of approx.
750 DRGs
•
DRGs are assigned by a grouper program based on ICD diagnoses, procedures, age, sex,
and the presence of complications and comorbidities
•
DRGs have been used since 1983 to determine how much Medicare pays a hospital, since
patients within each category are similar clinically and are expected to use the same level
of hospital resources
•
Generally Speaking yields 1 bundled payment for all charges in an I/P episode of care
•
DRGs are part of the Prospective Payment System (PPS)
•
A Prospective Payment System means generally speaking your rates are set annually by
CMS and there is no later retrospective settlement
•
We will talk later about other items that are subject to a settlement like a tax return
•
Outpatient uses a similar system as of year 2000 only DRGs are replaced by APC
“ambulatory payment classification”
37
More on DRGs
• Blue Cross has its own proprietary system using unique
“relative weights” (more on relative weights later…)
• For non Medicare populations industry is moving in future towards an
APR DRG System (All Patient Refined)
 APR-DRG count: 1,250; MS-DRG count: 750
 APR-DRGs jointly developed by 3M & National Association of Children’s
Hospitals and Related Institutions (NACHRI)
– “The Pediatric portion of any severity illness system is critical if non-Medicare
data is included in the provider comparisons. APR-DRGs have the most
comprehensive and complete pediatric logic of any severity of illness system.”
– Michigan Medicaid converted 10/1/15 to APR-DRGs
38
Relative Weights & Case Mix Index (CMI)
•
Each DRG is assigned a different “relative weight” which is multiplied by the DRG rate; the higher
the relative weight the higher the acuity/resources needed and therefore higher payment
•
Each year the relative weights are recalculated by Medicare after reviewing prior year data
•
Case Mix Index (CMI) is the average DRG relative weight for all of a Hospital’s Medicare volume
 Widely used in the industry to explain acuity differences between and among hospitals (as
well as associated cost disparities)
 National average is 1.00
 Generally speaking community hospital CMIs are lower than academic hospitals
 Teaching Hospitals argue that CMI does not fully reflect relative differences in acuity and the
difference could be greater
 Community Hospitals argue that cost differentials between community and teaching are not
proportional to differences in payment differentials
39
Impact of the Relative Weight to CMI & Payment
DRG
COMMONLY PERFORMED TEACHING HOSPITAL DRGS & RELATIVE WEIGHTS
FFY2013
RELATIVE WEIGHT
HIGH ACUITY DRGS
DRG DESCRIPTION
1 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W MCC
2 HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W/O MCC
652 KIDNEY TRANSPLANT
3 ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R.
26.0295
13.9131
3.0825
17.7369
FFY2014
RELATIVE WEIGHT
Actual
Diff
%
Diff
25.3518
15.2738
3.153
17.6369
-0.6777
1.3607
0.0705
-0.1000
-2.6%
9.8%
2.3%
-0.6%
1.1125
0.7766
0.7137
0.5625
1.455
0.9771
0.6997
-0.1069
-0.0820
-0.0080
-0.0130
-0.0343
-0.0225
-0.0081
-8.8%
-9.6%
-1.1%
-2.3%
-2.3%
-2.3%
-1.1%
MORE ROUTINE/LOWER ACUITY DRGS
765 CESAREAN SECTION W CC/MCC
1.2194
766 CESAREAN SECTION W/O CC/MCC
0.8586
774 NORMAL DELIVERY W COMPLICATING DIAGNOSES
0.7217
775 NORMAL DELIVERY W/O COMPLICATING DIAGNOSES
0.5755
193 SIMPLE PNEUMONIA & PLEURISY W MCC
1.4893
194 SIMPLE PNEUMONIA & PLEURISY W CC
0.9996
195 SIMPLE PNEUMONIA & PLEURISY W/O CC/MCC
0.7078
CC = Complicating or Comorbid diagnosis
MCC = Major Complicating or Comorbid diagnosis
40
Hospital specific payment adjusters
41
Inpatient Payment Overview - PPS
•
DRG-based payment = adjusted rate x DRG relative weight
 All services during the inpatient stay covered by one amount
 Adjusted Rate = Medicare National Rate + impact of adjusters below
 Psych and rehab units are separate
•
Adjusters:
 area wage index (AWI)
 indirect medical education (IME)
 disproportionate share (DSH)
•
Additional payments:
 outliers
 direct graduate medical education (GME)
 organ acquisition
 bad debts
42
Wage Index
•
Theory
 Differences in cost of living (wage levels) impact cost
•
Methodology:
 Each hospital reports wage, benefit and worked hour data annually before audit by Medicare
 Average compensation per hour computed for each metro area (uses CBSA approach)
 Each metro area assigned an Area Wage Index value; National avg = 1.000
 Regional Rates have suffered through recession due to inability to keep pace with rest of country
 Complicated Reclassification System each with own distance and financial requirements

•
Individual
•
Group Level (§ 412 & §508)
•
Sensitive Issue in D.C.
One time settlement for budget neutrality/rural floor appeal in 2012
43
Wage Index Factors of Interest
CBSA Code
Urban Area
FFY2015
FFY2016
Wage Index
Wage Index
State
Home
Reclass
Home
Reclass
11460
Ann Arbor, MI
MI
1.0111
0.9545
0.9959
0.9408
12980
Battle Creek, MI
MI
0.9870
0.9536
1.0264
0.9702
13020
Bay City, MI
MI
0.9697
0.9545
1.0051
0.8916
19804
Detroit-Dearborn-Livonia, MI
MI
0.9253
0.9253
0.9137
22420
Flint, MI
MI
1.0974
0.9922
1.1353
1.0117
24340
Grand Rapids-Wyoming, MI
MI
0.8819
0.8819
0.8885
0.8779
28020
Kalamazoo-Portage, MI
MI
0.9959
0.9606
1.0361
0.9735
29620
Lansing-East Lansing, MI
MI
1.0617
1.0021
1.0621
0.9948
33220
Midland, MI
MI
0.8183
34740
Muskegon, MI
MI
0.9573
35660
Niles-Benton Harbor, MI
MI
0.8697
40980
Saginaw, MI
MI
0.8911
47664
23
Warren-Troy-Farmington Hills, MI
MI
MI
0.9474
Michigan
0.8474
0.9009
0.9255
0.9132
0.8275
0.8584
0.8748
0.9586
0.8183
44
Wage Index Future Concerns
• Small to massive changes to wage index system have been
studied. The implied goal is to clear out the halls of Congress
and create a fair system. What is fair?
– IOM: Bureau of Labor Statistics wage survey data
– Acumen: Commuting based wage index using zip code approach
– Nearest Neighbor
• Impacted hospitals have proven willing and able to flex strong
lobbying/advocacy muscle
45
Indirect Medical Education (IME)
•
Theory
 Teaching hospitals generally have higher costs
 Patient severity and complexity not adequately addressed by DRGs (most misunderstood
part of IME)
 New technology and standby capacity
 Inefficiencies, as residents provide much of the care
•
Methodology
 Ratio of residents to beds is used to measure teaching intensity
 Current formula: ((1+R/B)^.405 - 1) x 1.35 = IME
 Resident count is capped
•
Differences of teaching adjustments can be dramatic
 UMHS Resident to Bed ratio is about .84, IME add on is about 37%
•
Medpac/Congress periodically reviews IME as significant savings opportunity
46
Disproportionate Share (DSH)
•
Theory
 Hospitals with high indigent patient volumes incur more costs, and incur more uncompensated
care
 DSH is a supplemental payment to help defer these higher costs and losses
•
Methodology:
 Based on ratio of indigent patient days to total patient days
 “Indigent” includes
• Patients enrolled in Medicaid (Eligible is key criteria)
•
Medicare patients in Supplemental Security Income (SSI)
 15% all or nothing cut off; Enhanced or Super DSH when exceed 20.2%
 Excludes uninsured
•
Example:
 UM ‘s historical DSH rate is about 36%, results in a 19% add on to rate
47
DSH Continued
• Major Changes to Hospital payouts due to ACA
1. In theory less need for DSH if less uninsured
2. Effective 10/1/13 hospitals are paid 25% under historical formula and
75% under the new uncompensated care (UCC) payment pool that is set
annually by CMS
3. CMS will remove annually from the UCC pool an amount set to
approximate the reduction in uninsured
4. Total CMS payments for DSH under new formula are less than historical
formulas and will only decrease further as more States expand Medicaid
• States that do not participate in Medicaid Expansion will take a larger step
back on Federal DSH since you can’t keep pace with the rest of the country
• Debate on what data CMS should use as proxy for uncompensated care data
• Industry opposition of how the UCC pool was first calculated by CMS
48
Sample DRG calculation
& other adjustments
49
Sample DRG Calculation #1
DRG Calculation Example 1: Knee/Hip Replacement (MSDRG 470)
National DRG Rate
DRG Weight
Base Payment
Area Wage adjustment
Indirect Medical Education
Disproportionate Share
Value Based Purchasing *
Hosp Acquired Conditions **
Readmission Penalty *
Adjusters Subtotal
Adjusted Payment
Hospital A
$
5,906
2.08
$
12,285
$
(361)
$
903
$
1,778
$
27
$
$
(8)
$
2,339
$
14,624
Hospital B
$
5,906
2.08
$ 12,285
$
(361)
7% $
1,504
14% $
360
$
(1)
$
$
(34)
$
1,469
$ 13,754
12%
3%
Note: Data taken from FFY2016 PPS Rates
* New adjustment under ACA effective 10/1/12
* New adjustment under ACA effective 10/1/14
50
Sample DRG Calculation #2
DRG Calculation Example 2: Knee/Hip Replacement complications/comorbidities (MSDRG 469)
National DRG Rate
DRG Weight
Base Payment
Area Wage adjustment
Indirect Medical Education
Disproportionate Share
Value Based Purchasing *
Hosp Acquired Conditions **
Readmission Penalty *
Adjusters Subtotal
Adjusted Payment
Hospital A
$
5,906
3.3
$
19,490
$
(573)
$
1,432
$
2,089
$
42
$
$
(12)
$
2,978
$
22,469
Hospital B
$
5,906
3.3
$ 19,490
$
(573)
$
2,387
$
444
$
(1)
$
$
(53)
$
2,203
$ 21,693
Note: Data taken from FFY2016 PPS Rates
* New adjustment under ACA effective 10/1/12
* New adjustment under ACA effective 10/1/14
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Graduate Medical Education (GME)
•
What does it pay for?
 Intended to cover the direct operating costs of approved residency programs:
• resident salaries and benefits
• Physician supervision and teaching
• other direct costs and overhead allocable to GME
•
Methodology:
 hospitals receive a fixed amount per resident FTE, multiplied by Medicare % of patient days
 Fixed amount is hospital specific, based on 1985 cost per resident plus some adjustments for
inflation
 Resident FTE is capped
 Not as big a target in D.C. as IME
 Paid as a Pass Through, i.e. Not paid at patient level on DRG like IME
52
Outliers, Organ Acquisition, & Bad Debt
•
Outliers
 Individual cases may have very high costs
 Outlier payment provides partial recovery of costs not covered by DRG payment
 Payment = 80% of cost in excess of a loss threshold - Still a losing proposition
•
Organ Acquisition
 Supplemental payment for solid organ transplants
 Based on cost of organ procurement and pre-transplant evaluation services
 Paid as a Pass Through, i.e. Not paid at patient level on DRG like IME
 Does not cover the I/P hospitalization (DRG) or follow up clinic visits (fee for service) and is
commonly misunderstood
•
Medicare Bad Debt (MBD)
 If complex requirements are met hospitals can claim Medicare’s share of bad debt (limited to
deductibles & coinsurance) and receive separate funding
 BBA of 1997 first major hit; currently at 65% and falling!
53
Outpatient Payments
•
Several reimbursement schedules
 Ambulatory Payment Classification (APC)
• Most services (surgery, imaging, cardiology, infusion, ED, etc.)
• Procedures and tests generally paid piece-meal
• Supplies, implants, anesthesia, recovery – packaged
• Drugs: some paid separately, some are packaged
 Separate fee schedules for clinical lab, rehab therapy, renal dialysis
•
Adjustors:
 Area wage index: yes
 IME and DSH: no
•
Additional payments
 Graduate medical education
 Bad debts
54
HOPD Issues
•
To qualify for APC payments, sites must be designated as hospital-based outpatient departments
(HOPD)
•
Criteria and requirements for HOPD status:
 Must be under same ownership and control as hospital
 Integrated financials, clinical services, medical records, admin
 Medical staff at site have privileges at the hospital
 Must hold itself out to the public as part of the hospital
 Cannot be more than 35 miles from the main campus
 Must meet federal EMTALA, anti-dumping, non-discrimination rules
•
If HOPD, hospital reimbursed the facility fee and physician receives professional fee. Sum of these
payments > free standing physician fees
• Congress frequently reviews HOPD & “E&M” (evaluation & management or
clinic visits) as savings opportunity
– Bipartisan Budget Act enacted site neutral payment reductions for new off
campus HOPDs; “Grandfathering” protection effective 11/2/2015 for existing
units
55
Appendix
56
Additional Hospital Types
57
Critical Access Hospitals
• Upside: Old School Cost Reimbursement (actually 101% of cost)
• Target Hospital: Small Rural Hospitals
• Not a PPS Hospital
• Conditions of Participation (need to meet all):
– Rural
– Maintain no more than 25 I/P beds
– Annual average LOS not to exceed 96 hours
– Meet location requirement:
• 35+ miles from other hospital (including CAH) or
• 15+ miles from other hospital (including CAH) in mountainous terrain or
• Prior to 2006 certified as CAH based on state designation as a “necessary
provider”
58
Sole Community Hospitals
• Upside: Paid the higher of a hospital specific rate (indexed for
inflation) based on baseline of 1987, 1996, or 2006 or the Federal
DRG rate
– Paid at whichever rate yields the highest aggregate payment
• Target Hospital: Larger Rural Hospitals/Remote
• Still a PPS Hospital
• Conditions of Participation (need to meet 1):
– Located 35+ miles from other hospitals (excluding CAH)
– Other distance tests can be met under 35 if additional factors are not met
• Need to be designated a rural hospital but some loopholes if urban
• Still eligible for VBP, Readmission reduction program, and HAC
59
Rural Referral Centers
•
Upside: relaxed requirements for Geographic Reclassifications
•
Target Hospital: High Volume/high acuity Rural Hospitals
•
Still a PPS Hospital
•
Conditions of Participation:
•
Rural and
1.
275 beds or
2.
50% or more of Medicare patients are referred from other hospitals or doctors not on
staff, 60% or more of Medicare patients live more than 25 miles away, and 60% or more
of all Medicare services are furnished to patient live 25+ miles away or
3.
5,000 discharges and CMI in excess of lower of median CMI for all urban hospitals
nationwide or median CMI for regional urban hospital excluding teaching – and –
1.
More than 50% of Medicare staff are specialists or
2.
60% + of discharges are for patients who live more than 25 miles away or
3.
At lest 40% of all Inpatients are referred from other hospitals or doctors not on staff
60
Medicare Dependent Hospital
• Upside: Cost Reimbursement
• Target Hospital: Smaller Rural Hospitals with high Medicare mix
• Still a PPS Hospital
• Conditions of Participation:
– Rural
– Less than 100 beds
– Not a SCH or other alternate payment hospital
– At least 60% Medicare payer mix
• Currently set to expire 3/31/15
61
HFMA Certification discussion
62
Why Become HFMA Certified (CHFP) or Fellow (FHFMA)?
• Validate your skills and knowledge
• Enhance your credibility in the industry
• Support your professional development
• Demonstrate a high level of commitment to the field
• Peer Pressure!
 Is there alignment between the reason why current certified members sat
for the exam and your own career development path?
63
What HFMA certification can do for you
Becoming certified distinguishes you as a leader and high-level
professional in the healthcare finance industry. It reflects a deep
personal commitment and sense of accountability that inspires
credibility and confidence in your professional knowledge. Through
HFMA Certification Programs, you can show your dedication to high
standards in the industry.
64
More on certification
• HFMA CHFP is intended for mid-level healthcare professionals
with a minimum of 3-5 years experience. CHFP certification
demonstrates your qualifications to senior management, coworkers, and the industry highlighting your commitment to the
profession and to maintaining up-to-date skills and knowledge.
65
Candidate requirements
• Recommended: 3-5 years, hospital/healthcare system
operations management experience including financial
responsibility or senior accountant/analyst with knowledge (not
expertise) of revenue cycle operations
• Current full HFMA membership to hold the designation
• Student members ineligible to hold designation
66