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Proposed Changes to Medicaid Hospital Rates. Presenters. Claudia Sanders Sr. Vice President, Policy Development WSHA. Will Callicoat Director, Financial Policy WSHA. James Pettersson Navigant Consulting. Topics. History of issue Process Navigant proposal and impact Hospital Issues

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Presentation Transcript
presenters
Presenters

Claudia Sanders

Sr. Vice President, Policy Development

WSHA

Will Callicoat

Director, Financial Policy

WSHA

James Pettersson

Navigant Consulting

topics
Topics
  • History of issue
  • Process
  • Navigant proposal and impact
  • Hospital Issues
  • Legislative Outlook
why revamp the system
Why revamp the system?
  • Hospitals unhappy about current system
    • Inadequate payments
    • Last updated in 2001 from 1998 costs
    • Concern about equity
  • State unhappy about the current system
    • 30 percent of its payments made on the basis of ratio of cost to charges
  • Legislative proviso to hire consultant
hospital task force members
Children’s

Empire

Franciscan

Good Samaritan

Harborview

Harrison Medical Center

Multicare

Providence – St. Peter

Southwest

Swedish

University

Valley Medical

Yakima Regional Medical

Yakima Valley Memorial

Hospital Task Force Members
process
Process
  • CEO and CFO Task Force Meetings
  • Round 1
    • Fall 2004 and Winter 2005
    • Fall 2005 following initial report
  • Round 2
    • CFO meetings in summer and fall 2006
    • CEO meeting in November 2006
results of first wsha discussions winter 2005
Results of First WSHA Discussions – Winter 2005
  • Agreement to stay together during 2005 session
  • Agreement to allocate increases differentially to hospitals below the line
  • Agreement to ask for restructuring of the system
  • Agreement on principles for a new Medicaid system
principles for new system
Principles for New System
  • Need to cover costs
  • Promote efficiency
  • Recognize differential costs beyond hospital’s control
  • Recognize cost of uncompensated care
  • Recognize needs of rural hospitals
principles for a new payment system continued
Principles for a New Payment System (continued)
  • Cushion large changes in revenue
  • Simple to administer and frequent updates
  • Use federal dollars
  • Not overpay out-of-state hospitals
wsha recent process
WSHA Recent Process
  • CFO task force for detailed work with Navigant Consultant
    • CFO/Specialist representation
    • Extensive input into process
    • Met 10 times with consultants
    • Many task force recommendations adopted
  • CEO task force for overall position
key project objectives
Key Project Objectives
  • Update system to reflect more recent cost and claims data
  • Implement more current AP-DRG grouper version
  • Make rates more consistent for similar services
  • Reduce use of RCC-based payment method
  • Proposed system to be budget neutral
  • Implementation for claims effective July 1, 2007
proposed inpatient prospective payment system1
Proposed Inpatient Prospective Payment System
  • Four Payment Methods for Different Types of Services
    • DRG-based payments
    • Per diem-based payments
    • Per case payments
    • RCC-based payments
proposed inpatient prospective payment system2
Proposed Inpatient Prospective Payment System
  • Payment Depends on Type of Service
    • Specialty services
      • Psychiatric, rehabilitation, detoxification and CUP program services
    • All other services
      • Stable AP-DRG classifications
      • Unstable AP-DRG classifications
    • Transplant services
    • Bariatric surgery services
drg based payment method
DRG-Based Payment Method
  • For payment of claims in stable AP-DRG classifications
  • Payment = Conversion Factor X Relative Weight
  • Outlier payments for qualifying claims
drg based payment method cont d
DRG-Based Payment Method (Cont’d)

Example Payment Calculation:

AP-DRG 165: Appendectomy W Complicated Principal Diag W/O CC

Relative Weight = 1.3784

Conversion Factor = $5,672.89

Payment = 1.3784 X $5,672.89 = $7,819.51

drg based payment method cont d1
DRG-Based Payment Method (Cont’d)
  • Conversion Factor
    • Statewide standardized average cost per discharge, adjusted for:
      • Regional wage differences
      • Facility-specific medical education costs
  • Relative Weights
    • Based on average costs of each AP-DRG
    • Stable weights based on statistical analysis
per diem based payment method
Per Diem-Based Payment Method
  • Claims In Unstable Classifications
    • Neonatal AP-DRGs
    • Burn AP-DRGs
    • Medical AP-DRGs
    • Surgical AP-DRGs
  • Specialty Cases
    • Psychiatric
    • Rehabilitation
    • Detoxification
    • CUP Program
per diem based payment method cont d
Per Diem-Based Payment Method (Cont’d)

Example Payment Calculation:

AP-DRG 624: Neonate, BWT >2499G, with Minor Abdominal Procedure (Unstable Neonatal)

Patient Length-of-Stay = 8 Days

Unstable Neonatal Per Diem Rate = $2,127.66

Payment = $2,127.66 X 8 Days = $17,021.28

per diem based payment method cont d1
Per Diem-Based Payment Method (Cont’d)
  • Per Diem Rate Calculations
    • Statewide standardized average per diem cost, adjusted for:
      • Regional wage differences
      • Facility-specific medical education costs
    • Statewide averages rates for all per diem services, except for:
      • Burn cases – based on Harborview costs
      • Psychiatric services – facility-specific
outlier methodology
Outlier Methodology
  • Outlier payment for claims with extraordinarily high costs compared to standard payment amount
  • Applies to qualifying DRG-based claims and per diem claims in unstable AP-DRG classifications
  • Outlier claims – estimated costs must exceed:
    • Outlier Threshold – 175% of calculated payment, and
    • $50,000
outlier methodology cont d
Outlier Methodology (Cont’d)
  • Outlier Payment:
    • (Costs – Threshold) X Marginal Cost Factor
  • Marginal Cost Factor:
    • 95% for neonatal and pediatric
    • 90% for burns
    • 85% for all other
outlier methodology cont d1
Outlier Methodology (Cont’d)

Example Outlier Calculation:

Assumptions:

Claim Charges = $150,000

Hospital Ratio of Costs-to-Charges = .42

Estimated claim costs = $63,000 ($150,000 X .42)

Calculated DRG-Based Payment = $15,000

Outlier Threshold = $26,250 ($15,000 X 175%)

outlier methodology cont d2
Outlier Methodology (Cont’d)

Example Outlier Calculation (Cont’d):

Estimated claim cost of $63,000 exceeds both the Outlier Threshold ($26,250) and $50,000.

Outlier Payment = ($63,000 - $26,250) X .85 = $31,238

Total Payment = $15,000 + $31,238 = $46,238

other payment methods
Other Payment Methods
  • Bariatric Surgery – Per case rate based on average cost
  • Transplant Services – RCC-based payment
  • Transfer payments for DRG-based claims
    • Calculated average payment per day
    • Add one day of payment
budget neutrality
Budget Neutrality
  • Payments under proposed system equal to current system, in aggregate
  • Adjusted calculated rates to achieve budget neutrality
    • Cost coverage same for each rate category
      • DRG-based, each per diem category, etc.
    • Payments in aggregate same as current system
other payment policy recommendations
Other Payment Policy Recommendations
  • Updating Rates in Future Periods
    • Update conversion factors and per diem rates annually using CMS Input Price Index
    • Review outliers annually
    • Rebase system every three years
      • Recalculate rates and weights using new cost and claims data
      • Implement new AP-DRG version
other payment policy recommendations cont d
Other Payment Policy Recommendations (Cont’d)
  • Potential Transition Methodology
    • Transition for one-year period
    • Reduce projected increases and decreases
    • Apply only to hospitals with significant changes
other payment policy recommendations cont d1
Other Payment Policy Recommendations (Cont’d)
  • Payments to Out-of-State Hospitals
    • Identify hospitals critical to care for Washington residents
      • Ability to meet specific service needs
      • Historical utilization
      • Not based solely on geographic location
    • Treat “Critical” hospitals same as in-state
    • Pay all others at lowest in-state rates
impact model and budget neutrality
Impact Model And Budget Neutrality
  • Developed impact model using SFY 2005 FFS Medicaid claims
    • Projected payments under proposed system
    • Compared projected payments to estimated costs
    • Compared projected payments to estimated payments under current system
impact model and budget neutrality cont d
Impact Model And Budget Neutrality (Cont’d)
  • Assumptions in Model
    • Increased SFY 2005 payments based on historical trends - approximately 6% per year
    • Increased SFY 2005 charges based on historical trends - approximately 8% per year
    • Increased SFY 2005 costs using CMS PPS Input Price Index - approximately 3% per year
impact of changes1
Impact Of Changes

Estimated State Fiscal Year 2008 Cost Coverage by Hospital:

Weighted Average: 94.6%

impact of changes cont d
Impact Of Changes (Cont’d)

Estimated Payment Change Percentage:

impact of changes cont d1
Impact Of Changes (Cont’d)

SFY 2008 Estimated Outlier Payments and Total Estimated Cost Coverage

Estimated

Outlier Payments

Total Estimated

Cost Coverage

proposal vs wsha principles
Proposal vs. WSHA Principles
  • Meets many of the principles WSHA adopted
  • But, system is budget neutral
  • Redistribution of inadequate funds
issues with impact assumptions
Issues with Impact Assumptions
  • Navigant assumed the following increases:
    • Charges by 8%
    • Payments by 6.5%
    • Costs by about 3%
    • Cost coverage 92% to 95%
  • No volume or case mix changes
  • Hospitals need to look at the impact with their own data
issues with impact assumptions1
Issues with Impact Assumptions
  • No assumption on change in Healthy Options payments
  • Hospitals and plans free to negotiate rates between the parties
  • Yet, 30 percent of Washington Medicaid hospital care is paid by Healthy Options plans
  • Hospitals may want to consider how this proposal will impact their rates from the plans
hospital issues with navigant proposal
Hospital Issues with Navigant Proposal
  • Psychiatric services
  • Children’s services
  • Outlier cases
  • Limited transition
wsha s top priority budget issue
WSHA’s Top Priority Budget Issue
  • Increase Medicaid hospital payments
    • $60 million in additional funds
    • To be used to remedy problems with Navigant proposal for inpatient payment
    • To be used to provide an inflation increase for inpatient and outpatient services
chance for success
Chance for Success
  • We have a good chance to secure new funds but not if we each ask for our own solution
  • We need to support one common message to the legislature
we need your help
We need your help!
  • Talk to legislators now about the general issue
    • Hospitals need a yearly increase to keep up with inflation – we have not had a significant increase since 2000
    • While we support the general concepts of the new Medicaid inpatient payment proposal, some adjustments are needed
next steps
Next Steps
  • Navigant Consulting will help us examine some alternatives to the state’s proposal
  • Medicaid CFO task force meeting on December 11 and 20
  • Medicaid CEO Task force meeting on January 5
  • WSHA position by start of session, January 8
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