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Medicare Inpatient Hospital Payment: What Changes Can Your Hospital Expect?. Presenters. Claudia Sanders Sr. Vice President Policy Development WSHA. Caroline Steinberg Vice President Trends Analysis AHA. Will Callicoat Director Financial Policy WSHA. Topics.

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Presentation Transcript
presenters
Presenters

Claudia Sanders

Sr. Vice President Policy Development

WSHA

Caroline Steinberg

Vice PresidentTrends Analysis

AHA

Will Callicoat

Director Financial Policy

WSHA

topics
Topics
  • Why are Hospitals Concerned?
  • Background
  • Severity Adjustment Systems
  • Overall Impact
  • Policy Options
  • Impact on Washington Hospitals
  • Questions
why are hospitals concerned1
Why Are Hospitals Concerned?
  • Medicare as major payer
  • Specialty hospitals and proper payment
    • Prevent cream skimming
    • Appropriate payment by service
  • Predictability for future decisions
  • Transitions
many changes in proposed rule
Many Changes In Proposed Rule
  • Operating payment update
  • Wage index
  • New DRG system
  • Cuts for Behavioral Offset
  • Continuation of transition to cost based weights
  • Capital cuts
  • Quality requirements
medpac report to congress
MedPAC Report to Congress
  • Opportunity for patient selection
    • Some services pay better than others
    • Current system doesn’t adequately adjust for severity of illness
  • Strong evidence physician-owned limited-service hospitals benefit
  • “Improving payment accuracy” will make competition more equitable
medpac recommendations
MedPAC Recommendations
  • Use hospital specific relative values to set DRG weights
  • Use All Patient Refined DRGs (APR-DRGs)
  • Base DRG weights on costs
  • Use DRG specific outlier offsets to fund outlier pool
last year s proposed rule
Last Year’s Proposed Rule
  • New DRG Weights (FY 2007)
    • Cost-based weights vs. charge-based weights
  • New DRG Classifications (FY 2008 or earlier)
    • Consolidate severity-adjusted DRGs
    • Refine DRG weights based on severity of illness
last year s final rule
Last Year’s Final Rule
  • New DRG weights (FY 2007)
    • Used cost-based weights
    • Altered methodology
    • Fixed mathematical errors
    • Three year transition
  • Modest changes in DRG classifications (FY 2007)
    • Added 20 new DRGs, deleted 8, and modified 32
this year s fy 2008 proposed rule
This Year’s (FY 2008) Proposed Rule
  • Continues transition to cost-based weights
    • Moves from 1/3 to 2/3 cost-based blend
    • No methodological changes
  • Adopts Medicare Severity-adjusted DRGs (MS-DRGs)
    • Moves from 538 DRGs to 745 MS-DRGs
  • Cuts base payment rate by 2.4% in FY 2008 and FY 2009 – “behavioral offset”
    • Eliminates effect of coding changes on case mix
severity adjustment in the current payment system
Severity Adjustment in the Current Payment System
  • Paired DRGs with and without complications and comorbidities (335 base/538 total)
  • New DRGs added over time to capture greater complexity (e.g. bilateral hip replacement)
what alternatives are being considered
What Alternatives Are Being Considered?
  • MedPAC: All-Patient Refined DRGs
  • CMS (FY 2007 Proposed Rule): Consolidated Severity-adjusted DRGs
  • CMS (FY 2008 Proposed Rule): Medicare Severity-adjusted DRGs
apr drgs medpac recommendation
APR-DRGs(MedPAC Recommendation)
  • 1258 All Patient Refined DRGs (APR-DRGs)
    • 270 base and 863 severity-adjusted DRGs
  • Up to four tiers of payment
  • Complicated multi-step process for assigning APR-DRG assignment
cs drgs last year s fy 2007 proposed rule
CS-DRGs: Last Year’s FY 2007 Proposed Rule
  • Starts with APR-DRGs
  • Adapts to suit Medicare population
  • Consolidates APR-DRGs by having 3 severity of illness subclasses off a base DRG and a single subclass off each major diagnostic category
  • More aggressive consolidation where volumes are low
  • Results in 861 CS-DRGs
cs drgs issues identified in comments
CS-DRGs: Issues Identified in Comments
  • Uses proprietary grouper
    • Logic is not transparent
    • Logic is proprietary
  • Does not build on current DRGs
    • Does not recognize recent refinements of DRGs to capture complexity
ms drgs this year s fy 2008 proposed rule
MS-DRGs: This Year’s FY 2008 Proposed Rule
  • Rooted in current DRG system
  • Up to three tiers of payments
    • A major complication or comorbidity
    • A complication or comorbidity
    • No complication or comorbidity
  • 745 MS-DRGs
example current drg assignment
Example: Current DRG Assignment

Principal Diagnosis

Simple Pneumonia and Pleurisy

Age

18 and Over

17 and Under

DRG 91

Simple Pneumonia & Pleurisy Age 0 - 17

Comorbidities and/or Complications

Yes

No

DRG 89

Simple Pneumonia & Pleurisy Age>17 With CC

DRG 90

Simple Pneumonia & Pleurisy Age>17 Without CC

example ms drg assignment
Example: MS-DRG Assignment*

Principal Diagnosis

Simple Pneumonia and Pleurisy

Comorbidities and/or Complications

Yes

No

MS-DRG 195

Simple Pneumonia & Pleurisy

Without CC

MS-DRG 194

Simple Pneumonia & Pleurisy

With CC

MS-DRG 193

Simple Pneumonia & Pleurisy With MCC

* Proposed for FY 2008

distribution of cases by severity level
Distribution of Cases by Severity Level

Current vs. MS-DRGs

In a DRG w/CC

MS- DRG w/MCC

MS-DRG w/CC

Not in a DRG

w/CC or MCC

Not in a DRG

w/CC

Source: Moran Company

fixes several problems identified with last year s proposal
Fixes Several Problems Identified with Last Year’s Proposal
  • Builds on current DRG system rather than APR-DRGs
    • Easier to understand; transparent
    • Benefits from past refinements to DRGs lost in CS-DRG system
    • Captures complexity as well as severity
  • Logic of MS-DRG grouper will be open to all
impact of severity adjustment
Impact of Severity Adjustment
  • Total dollars stay the same — money just shifts
  • How an individual hospital does depends on its patients’ characteristics
  • A hospital with the national average mix of severity levels would see no change in payment
impact of severity adjustment1
Impact of Severity Adjustment
  • Reductions for less severe cases
  • Increases for more severe cases
  • On average, payments:
    • Decrease for small and rural hospitals
    • Increase for large, urban and teaching hospitals
  • Specific severity adjustment systems differ in the level of dollars redistributed
percent change in payment by hospital type
Percent Change in Payment by Hospital Type

Non-

Minor

teaching

Teaching

Change to MS-DRGs Only

500+

50-99

25-50

Rural

Major

Other

Large

Urban

Urban

400-499

100-199

200-299

300-399

Under 25

Teaching

By Bed Size

Source: Moran Company analysis of MedPAR and cost report data. Uses 2/3 cost-based weights.

percent of u s hospitals by range in gain or loss
Percent of U.S. Hospitals by Range in Gain or Loss

Lose

5-9.9%

Gain 1-4.9%

Lose 1-4.9%

Gain or Lose

Less than 1%

Change to MS-DRGs Only

Lose 10%

or More

Hospitals

With Losses

51%

Gain 5-9.9%

Hospitals

with Gains

22%

Roughly the

Same

27%

percent of washington state hospitals by range in gain or loss
Percent of Washington State Hospitals by Range in Gain or Loss

Lose 5-9.9%

Gain 5-9.9%

Gain 1-4.9%

Gain or Lose

Less than 1%

Lose 1-4.9%

Change to MS-DRGs Only

Hospitals

With Gains

8%

Hospitals

With Losses

57%

Roughly the

Same

35%

as good as it s going to get
As Good as It’s Going to Get?
  • CMS likely to implement a severity-adjusted system
  • MS-DRGs fix several issues identified with last year’s CS-DRGs
  • Additional refinement poses risks
    • Greater levels of redistribution
    • More complexity
  • Arguments against “behavioral offset” stronger with this system
policy options1
Policy Options
  • Oppose severity adjustment
  • Delay and develop alternative
  • Support MS-DRGs with:
    • Delay
    • Transition
    • Protection from losses
  • Support immediate implementation
aha position
AHA Position
  • AHA strongly against “behavioral offset”
    • A cut of $24 billion over 5 years
  • Advocacy steps to date:
    • Impact data sent to all members
    • HALO letter to CMS opposing cut
    • “Dear Colleague” letter circulating
  • Workgroup of state association executives to look at MS-DRGs
hospital specific impact analysis
Hospital Specific Impact Analysis
  • An impact analysis was e-mailed to CFOs on April 26, 2007
  • New impact forthcoming
  • Includes all changes, including MS- DRGs
  • Contact Will at [email protected] or 206-216-2533 if you would like a copy
change in case mix
Change in Case Mix
  • Increase/decrease was affected by:
    • Increase in cost based weights (now 67% based on costs and 33% on charges)
    • Change to MS-DRGs
  • WSHA is sending a breakdown showing changes related to each variable
next steps and future
Next Steps and Future
  • Need advocacy on cuts for capital and behavioral offset
  • WSHA will send additional information on impacts
  • Final rule in August and new system in October
  • Impact on service lines or specialty hospitals?
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