DRGBased Inpatient Hospital Payment System DRG Workgroup December 6 2012 Meeting Agenda Page 2 Agenda Evaluation of APRDRGs Preliminary Baseline Model Policy Adjustors Impact Coding and Documentation Improvement Adjustment ID: 743225
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Slide1
Arizona Health Care Cost Containment System
DRG-Based Inpatient Hospital Payment System
DRG Workgroup
December 6, 2012Slide2
Meeting Agenda
Page
2
Agenda
Evaluation of APR-DRGs
Preliminary Baseline Model
Policy Adjustors Impact
Coding and Documentation Improvement Adjustment
Transition Period
Questions and DiscussionSlide3
Evaluation of APR-DRGsSlide4
Evaluation of APR-DRGs
Page
4
Source
: Quinn, K, Courts, C.
Sound Practices in Medicaid Payment for Hospital Care
. CHCS: November 2010, updated with current information by Navigant.
Description
MS-DRGs V.29
(CMS - Maintained by 3M)
APR-DRGs V.29
(3M and NACHRI)
Intended Population
Medicare (age 65+ or under age 65 with disability)
All patient
(based on the Nationwide Inpatient Sample)
Overall
approach and treatment of complications and comorbidities (CCs)
Intended for use in Medicare Population.
Includes 335 base DRGs, initially separated by severity into “no CC”, “with CC” or “with major CC”. Low volume DRGs were then combined.
Structure unrelated to Medicare. Includes 314 base DRGs, each with four severity levels. The
is no CC or major CC list; instead, severity depends on the number and interaction of CCs.
Number of DRGs
746
1,256
Newborn
DRGs
7 DRGs, no use of birth weight
28 base DRGs, each with four levels of severity
(total 112)Slide5
Evaluation of APR-DRGs
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5
Description
MS-DRGs V.29
(CMS - Maintained by 3M)
APR-DRGs V.29
(3M and NACHRI)
Psychiatric DRGs
9 DRGs; most stays group to “psychoses”
24 DRGs, each with four levels of
severity (total 96)Payment Use by MedicaidMI, NH, NM, OK, OR, SD, TX, WIAZ, CA, CO, IL, MA, MD, MT, MS, ND, NY, PA, RI, SC, TXUnder consideration in numerous other statesPayment use by other payersCommercial plan useBCBSMA, BCBSTNOther usersMedicare, hospitalsHospitals, AHRQ, MedPAC, JCAHO, various state “report cards”Uses in measuring hospital qualityUsed as a risk adjustor in measuring readmissions. Used to reduce payment for hospital-acquired conditions.Used as risk adjustor in measuring mortality, readmissions, complications. Can also be used to reduce payment for hospital-acquired conditions.
Source
: Quinn, K, Courts, C.
Sound Practices in Medicaid Payment for Hospital Care
. CHCS: November 2010, updated with current information by Navigant.Slide6
Evaluation of APR-DRGs
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6
Validation of 3M national relative weights
Calculated Arizona Medicaid-specific APR-DRG relative weights to compare to 3M’s national weights
Arizona weights based on average cost per discharge by DRG from model, adjusted for wage index
Able to calculate stable relative weights for 604 out of total 1,256 DRG/SOI combinations
DRGs had to have at least 10 cases
DRGs had to have enough cases to pass stability test
SOI weights had to be ascending across same DRGSlide7
Evaluation of APR-DRGs
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7
Weight Correlation Analysis
Slide8
Evaluation of APR-DRGs
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Weight Correlation Analysis
Slide9
Preliminary Baseline ModelSlide10
Preliminary Baseline Model
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Preliminary Models for Discussion Purposes Only
Note that at this time,
no final decisions
have been made or proposed by AHCCCS
These preliminary analyses have been prepared by Navigant for
discussion purposes only
, and do not necessarily reflect recommendations by AHCCCS or Navigant
Actual new DRG payment system results may be significantly different from these preliminary projections due to payment methodology changes and future changes in patient volume and case mixSlide11
Preliminary Baseline Model
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11
Baseline Model Assumptions (refined since September meeting)
APR-DRG version 30 model using 3M national weights (adjusted by a factor of 0.75725 to achieve an average Arizona case mix index of 1.0)
Statewide standardized DRG base rate of $4,917.77, with labor portion adjusted by FFY 2013 Medicare wage index
Medicare-style outlier and transfer payment policy
Outlier fixed-loss threshold of $57,500 set to achieve approximately 6% outlier payments
No policy adjustors for select services or providersSlide12
Preliminary Baseline Model
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12
Baseline Model Assumptions – Claims/Encounter Data
Model based on FFY 2010 Arizona Medicaid FFS claims data and MCO encounter data collected from AHCCCS (dates of service from 10/1/2009 through 9/30/2010)
Includes in-state general acute providers, CAHs and select out-of-state providers
Excludes Medicare dual-eligibiles, federally-funded FFS claims, 638/IHS providers, and cases with “ungroupable” APR-DRG classifications
Excludes freestanding psychiatric provider cases and Maricopa psychiatric cases with
transitional
stays Slide13
Preliminary Baseline Model
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13
Baseline Model Assumptions – Funding Pool
Model funding pool for new DRG system based on combined reported FFS claim and MCO encounter data reported payments, with adjustments for rate reductions
0.9025 factor applied to reported payments to reflect 5% rate reductions that occurred on 10/1/2010 and 10/1/2011
DRG funding pool does not include static paymentsSlide14
Preliminary Baseline Model
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Baseline Model Assumptions – Funding Pool
Model designed such that simulated aggregate payments under new DRG system are equal to total DRG funding pool
For evaluation purposes, 2012 static payments have been allocated to the individual claims/encounter data in the analytical dataset
Allocation based on relative charges (excluding DSH and Safety Net Pool payments)
Model assumes no changes to static payments for each hospital under new systemSlide15
Preliminary Baseline Model
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15
Baseline Model Assumptions – Estimated Costs
Costs estimated at a detail line level by applying each provider’s cost center-specific cost-to-charge ratios (CCRs) to ancillary revenue code charges and cost per diems to routine revenue code days
CCRs and cost per diems calculated from hospital Medicare cost report data extracted from the HCRIS dataset with fiscal reporting periods matching the FFY 2010 claim/encounter dataset
Estimated costs inflated from FFY 2010 to FFY 2014 by a factor of 11.6%, based on changes in CMS input price index levels Slide16
Preliminary Baseline Model
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16
Preliminary Baseline Model ResultsSlide17
Outlier Payment Model Comparison
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17
Legacy
Per Diem Outlier Payment Model (APR-DRG 303-3)
Assumptions
Surgical Procedure, w/LOS = 16 Days
Surgical per diem = $1,520, base payment = $24,320
Surgical Tier Threshold =
$6,000
Surgical Outlier
CCR = .2112Claim Allowed Charges Are $470,000Cost/day = $6,204 – qualifies as an outlier claimClaim payment as outlier = $99,264 (an increase of $74,974 over base payment as a result of outlier status)Claim Allowed Charges Are $400,000Cost/day = $5,280Does not qualify as an outlier claimTotal claim payment = $24,320Claim Allowed Charges are $250,000Cost/day = $3,300Does not qualify as an outlier claimTotal claim payment = $24,320Slide18
Outlier Payment Model Comparison
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18
Simulated APR-DRG Outlier
Payment
Model (APR-DRG 303-3)
Assumptions
APR-DRG 303-3:
Dorsal & lumbar fusion procedure for curvature of back
Base
payment = $5,000 x 10.9743 = $54,871
Hospital-specific Outlier CCR = .30Outlier stop-loss = $57,500, with outlier threshold = $112,371Marginal cost factor = 80%Claim Allowed Charges Are $470,000Cost = $141,000 – exceeds threshold – qualifies for outlier paymentOutlier payment = ($141,000 – $112,371) x 80% = $22,903Total claim payment = $54,871 + $22,903 = $77,704Claim Allowed Charges Are $400,000Cost = $120,000 – exceeds threshold – qualifies for outlier paymentOutlier payment = ($120,000 – $112,371) x 80% = $6,103Total claim payment = $54,871 + $6,103 = $60,974Claim Allowed Charges are $250,000Cost = $75,000 – does not exceed threshold – no outlier paymentTotal claim payment = $54,871Slide19
Policy Adjustors ImpactSlide20
Policy Adjustors Impact
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Policy Adjustor Model Assumptions
Uses baseline model as starting point
Same claims/encounter data, funding pool and estimated costs
Same APR-DRGs, relative weights, transplant and outlier payment methodologies
Applied policy adjustors to DRG base payments for key Medicaid services
Statewide standardized DRG base rate of $4,387.28, with labor portion adjusted by FFY 2013 Medicare wage index Slide21
Policy Adjustors Impact
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Policy Adjustors by Service
Preliminary model policy adjustors applied to DRG base payments:
Normal newborn DRGs: 1.40 factor
Neonate DRGs: 1.15 factor
Obstetric DRGs: 1.45 factor
Psychiatric/Rehabilitation DRGs: 1.45 factor
Other pediatric cases (age 18 and under): 1.15 factor
Policy adjustors set for each service to achieve same pay-to-cost ratio as statewide average (including allocated static payments)
Exception: Psychiatric/Rehabilitation policy adjustor set to achieve current system spendingSlide22
Policy Adjustors Impact
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Preliminary Policy Adjustor Model ResultsSlide23
Policy Adjustors Impact
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Model comparison – Estimated Pay-to-Cost RatioSlide24
Policy Adjustors Impact
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Model comparison – Estimated Payment ChangeSlide25
Coding Documentation and Improvement AdjustmentSlide26
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Why do we need an adjustment?
Coding and documentation improvements are a necessary and appropriate response by providers to the requirements under the APR-DRG model
.
Because the same level of coding rigor was not required for payment purposes under the legacy per diem model, we assume that case mix in our simulation models is understated.
We expect that case mix will increase in future periods, beyond actual increases in patient acuity.
Increases cannot be predicted with precision – and may be significant.
Coding and Documentation Improvement AdjustmentSlide27
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Coding and Documentation Improvement Adjustment
Patient Record
Version
1 Coding
Version 2 Coding
DX 1 – V3000
– Live newborn
Include
Include
DX 2 – 745.4 – Ventricle septal defectIncludeIncludeDX 3 – V290 – ObservationExcludeIncludeDX 4 – 745.5 – Ostium secoundum type arial septal defectExcludeIncludeDX 5 – 774.6 – Unspecified fetal and neonatal jaundiceExcludeIncludeSame MS-DRG assignment - 389, Full Term Neonate w/Major ProblemsDifferent APR-DRG Assignments – 640 - Neonate Birthwt > 2499G, Normal Newborn or Neonate w Other ProblemSOI = 2RW = 0.1880Example payment = $940SOI = 3RW = 0.5074Example payment = $2,537Coding requirements are significantly different for APR-DRGs, even when compared to the requirements under the Medicare MS-DRG model.Slide28
Coding and Documentation Improvement Adjustment
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Calculated Model Case Mix
Calculated case mix for two large urban trauma providers with similar Medicaid volume:
Provider
Breakout by Severity of Illness (SOI) Level
Total
SOI 1
SOI 2
SOI 3
SOI 4 FFY 2010 Cases Case Mix FFY 2010 Cases Percent of Total FFY 2010 Cases Percent of Total FFY 2010 Cases Percent of Total FFY 2010 Cases Percent of TotalA8,031 1.01 4,283 53%2,652 33%905 11%191 2%B8,401 1.52 3,037 36%3,178 38%1,594 19%592 7%Slide29
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Coding and Documentation Improvement Adjustment
Examples of Actual Case Mix Increases from DRG Grouper Change
In October 2007, CMS in its Medicare Inpatient Prospective Payment System (IPPS) replaced its CMS-DRG grouper with the MS-DRG grouper
CMS subsequently estimated that the extent of case mix increase from coding improvements above real case mix for FFY 2008-2009 was
5.8
%
Medicare inpatient Documentation and Coding Adjustment preemptively reduces rates;
2.0%
FFY 2012 and
1.9% in FFY 2013In July 2010, the Pennsylvania Department of Public Welfare (DPW) in its Medicaid IPPS replaced its CMS-DRG grouper with the APR-DRG grouperDPW subsequently estimated that total case mix increases for SFY 2011 was 12.1%Slide30
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Coding and Documentation Improvement Adjustment
Paid Casemix
Higher
Lower
Bump from
CD
I
Rate of Paid Casemix Increases Return to Pre-Implementation Levels
System Implementation
Rate of Increase Without APR-DRG ImplementationSlide31
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31
Coding and Documentation Improvement Adjustment
Example Adjustment Parameters
State adjusts rates for FFY 2015 to reflect 3% reduction in Relative
Weights/Casemix
Analyze
first year under APR-DRGs.
If
actual CMI in
FFY 2015
is less than “expected”, State adjusts rates upward in following year to compensate for 3% reduction.If actual CMI in FFY 2015 is greater than “expected”, but falls within the “corridor”, State adjusts rates upward in the following year to compensate for amount of 3% reduction not used up by casemix increases.If actual CMI in FFY 2015 is greater than combined “expected” and “corridor”, State adjusts rates in the following year downward to compensate for additional cost to the state resulting from casemix increases.State can make similar adjustments for FFY 2016 and subsequent years, if necessary.Aggregate CMI1.06Slide32
Transition PeriodSlide33
Transition Period
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Example Transition Period
Payments are made through DRG methodology
Transition is created through adjustment to hospital base rates
Limits individual hospital’s payment change to:
+/- 10% of simulated payment change amount in year 1
+/- 20% of simulated payment change amount in year 2
+/- 40% of simulated payment change amount in year 3
Rebase using cases paid under APR-DRGs and coded under ICD-10 in year 4
Will allow hospitals time to adjust, improve efficiency, and reduce cost growthActual transition period may differ from exampleSlide34
Questions and DiscussionSlide35
Questions and Discussion
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35
Questions and comments may be addressed to
Jean Ellen Schulik at
JeanEllen.Schulik@azahcccs.gov
(602) 417-4335
DRG Project Website:
http://
www.azahcccs.gov/commercial/ProviderBilling/DRGBasedPayments.aspx