Aligning Hospital Payment with Health Reform Recommendations to Reduce Hospital Readmissions May 2010

1. Aligning Hospital Payment with Health Reform Recommendations to Reduce Hospital ReadmissionsMay 2010 Dianne Feeney, Associate Director for Quality Initiatives MARYLAND HEALTH SERVICES COST REVIEW COMMISSION

2. HSCRC Quality Initiatives Quality Based Reimbursement (QBR)Maryland Hospital Acquired Conditions (MHAC)Maryland Preventable Hospital Readmissions (MHPR)

3. Quality Based Reimbursement Initiative • HSCRC has implemented payment adjustments to hospital rates for the QBR Initiative for hospitals in July 2009. • Hospital performance is measured on the identified measures for calendar year 2008. • For the initial year, measures include nineteen Hospital Quality Alliance (HQA)/Joint Commission/CMS process measures for: • heart attack, • heart failure, • pneumonia, and • surgical infection prevention. • Going forward, additional process measures will be added consistent with the measures added the Maryland Hospital Performance Evaluation Guide maintained by the Maryland Health Care Commission

4. Maryland Hospital Acquired Conditions Initiative • Implemented in July 2009 • Actual versus expected rates of performance on a broad set of 49 risk/severity adjusted potentially preventable complications is measured. • During fiscal year 2008, these hospital-based preventable complications were present in approximately 53,000 of the State’s total 800,000 inpatient cases represented approximately $500 million in potentially preventable hospital payments. • The initial of revenue “at risk” for FY 2010 (July 1, 2009 to June 30, 2010) will be determined in the Fall of 2009. • A technical payment workgroup is currently active and is deliberating the methodology for linking individual hospital performance on MHACs to financial incentives through the rate setting system. • Rewards and penalties will be applied to the hospitals updated rates using a scaling methodology (subject to further discussion and review of the technical payment workgroup) on a revenue neutral basis beginning FY 2011 (July 1, 2010 to June 30, 2011).

5. Maryland Hospital Preventable Readmissions • For Medicare, 18% of all Medicare patients discharged from the hospital have a readmission within 30 days of discharge, accounting for $15 billion in spending nationally (Medpac 2007). Maryland has the highest Medicare all cause readmission rate of 22.9% second only to the District of Columbia. • HSCRC’s MHPR initiative will reward efforts that reduce the number of readmissions and that also increase the quality of care and decrease cost. • Draft results of a analysis of 2007 readmission data using the 3M (Potentially Preventable Readmission (PPR) methodology: • The top performing hospitals had severity adjusted 15-day readmission rates just below 4% • The bottom performing hospitals had severity adjusted15-day readmission rates just above 12% • The overall 5-day readmission rate was 6.74% • The overall 30-day readmission rate was 9.81% • For readmission in 15 days, there were $430.4 million (5.3%) estimated associated charges • For readmissions in 30 days there were $656.9 million (8.0%) estimated associated charges

6. PPR Definition: A Potentially Preventable Readmission (PPR) is a readmission that is clinically-related to the initial hospital admission that may have resulted from a deficiency in the process of care and treatment or lack of post discharge follow-up Clinically-related: Clinically-related is defined as a requirement that the underlying reason for following a prior hospital readmission be plausibly related to the care rendered during or immediately following a prior hospital admission. PPR-Potentially Preventable Readmissions

7. Maryland Rates of PPRs - PPR rates consistent between two years -

9. Maryland Hospital Risk Adjusted PPR Rates30 Day Statewide PPR Rate for 2007 : 9.81 Risk Adjusted = Ah/Eh*9.81

10. Length of Stay and Charges for Initial Admissions Followed by a PPR within a 30 Day Readmission Time Interval - 2007

11. Ratio of Actual to Expected PPR Rate Suggest that Adjustments Should be Made for Age and Mental Health

12. Maryland PPR Impact in 2007 for a30 Day Readmission Time Interval (data do not fully reflect all adjustments needed) • 452,863 admissions were candidates for having a subsequent potentially preventable readmission • 44,417 admissions were followed by one or more PPRs • PPR rate is the percent of candidate admissions that were followed by one or more PPRs • PPR Rate 9.81 = 44,417 / 452,863 • 59,599 admissions were indentified as PPRs • PPRs account for $656.9 million in charges and 303,865 hospital bed days

13. Maryland Hospital Preventable Readmissions • HSCRC is currently working on additional analyses of PPR data • Anticipate implementing the MHPR initiative in 2010. • In addition to implementing payment incentives to lower readmission rates, to help hospitals to identify and adopt strategies to reduce readmissions, HSCRC also plans to form partnerships that support the alignment of efforts across all those who can influence the readmission outcome of care—hospitals, nursing homes, home health providers, payers, etc—through improved collaboration and integration in the delivery of health care.

14. Maryland Hospital Preventable Readmissions Draft Policy • First phase of a PPR-based payment policy in Maryland can be implemented with a structure similar to the payment structure used in linking payment to performance for MHACs. • PPR payment would be structured by scaling a magnitude of at-risk system revenue, either positive or negative, across all hospitals at the time of the application of the annual update factor in a revenue-neutral way. • Staff propose to using an allocation basis that is calculated as the actual number of weighted readmissions minus the expected number of weighted readmissions (weighted by the chain weight), divided by the total case mix weight associated with the included initial or only admission at the hospital. • The allocation basis is then arrayed in descending order thereby ranking hospitals from highest to lowest.

15. Maryland Hospital Preventable Readmissions

16. Maryland Hospital Preventable Readmissions Draft Policy • Implement a rate-based approach for measuring PPRs; • Use a 30 day Readmissions Window. • Adjust individual hospital PPR performance by adjustment factors relating to: a) age splits; b) presence of mental health/substance abuse secondary diagnoses; c) disproportionate share effects; and d) out of state migration. • Implement scaling of hospital payment adjustments so that a hospital’s performance on the PPR methodology, either positive or negative, is reflected at the time of its update factor. • The proposed initial “performance year” is mid-2010 through mid 2011 July 1, 2010 through April 30, 2011, with a base period of the the previous year to establish expected targets. • Provide a mechanism on an ongoing basis to receive input and feedback from the industry and other stakeholders to refine and improve the PPR logic. • Make a tracking tool reasonably accessible to hospitals so that they may track their performance throughout the measurement year