Region 2 Annual Fall institute John W. Gahan Jr. 1 New York State Department of Health

Region 2 Annual Fall instituteJohn W. Gahan Jr.

1New York State Department of Health

AgendaPre-Reform Rates

Updates/timeframesReform Rates

4/1/201010/1/2010 – Blended Rates

Potentially Preventable Readmissions (PPR’s)New Psych MethodologyFMAP Payment ReductionsDSH Audit Update and ProcessQuestions and Answers


Pre-Reform RatesInitial 2009 rates:

General items included Capital 2007 volume, etc. Worker Retention reconciliation

Updates to 2009 rates2008 and 2009 volume

Including LOS relief and added bed appeals2008 and 2009 actual capitalWorker Retention reconciliation – 2008 and 2009

Retro publicationOld appeals


Reform Rates4/1/2010 Rates:

Updated statewide base price for some minor corrections

New Transition amounts Divided by 2008 paid claims

Workers Comp/No Fault Rates trended 2010-11 budget delinked items effective 4/1/2010 Rebasing adjustment in Medicaid rates not

applicable to WC/NF rates ($154.5M)


Blended Rates effective 10/1/2010


DOH has established a single statewide base price that combines Medicaid FFS and MC based on updated 2008 data.

The blended base price per discharge will be established based on targeted statewide Medicaid inpatient hospital expenditures from both Medicaid FFS and MC, and the new reform rate variables (i.e. GME, WEF, case mix, etc.)

Phase II – Blend FFS and MC Effective October 1, 2010 and forward


Reform Rate Components

Statewide Base Price (SBP) $6,399 $6,171 $6,304

Institution-Specific Adj Factor

1.0196 1.0323 1.0266

Adjusted SBP $6,524 $6,370 $6,472

APR-DRG CMI 1.1516 0.7462 0.9272

Pmt/discharge (excl. GME) $7,513 $4,754 $6,001

Total GME/discharge $2,791 $1,739 $2,206

Non-Comparables $402 $86 $225

Avg. pmt/discharge $10,706 $6,579 $8,432

Total Spending $3.253B $2.313B $5.566B

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* The blended rate does not reflect actions enacted in the 2010-11 Budget, including Potentially Preventable Readmissions (PPRs).New York State Department of Health

The blended rate will result in increased FFS savings (from $225M) and increased payments to hospitals related to MC services, based on 2008 utilization (savings will still net to $225M).

$225 million (and the $154 million across-the-board reduction) in gross Medicaid savings will be retained across both FFS and MC sectors and does not “double-up”.

Funds will need to be shifted in the Budget to accommodate this dynamic.

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Funding Reallocations

New York State Department of Health

A Transition II Pool will be established to provide an additional $150 million over 3 years ($75M/$50M/$25M) to further assist hospitals to adjust operations consistent with state health care priorities and revenue streams.

Additional $37.5M for the period 10/20/10 through 3/31/11

Transition funds will be phased out consistent with Transition Pool I, however, these monies will be reinvested back into the base price.

Allocation of these funds will be consistent with Transition Pool I (setting a threshold floor percentage – 10.45%) based on FFS losses and allocated through FFS claims only.

Hospital Transition II Pool (Continued)


In year one, the blended base price will be reduced to generate $75M in additional savings.

The new base price will be $6,202 (from $6,304).

Includes public facilities, who were previously excluded from receiving funds from Transition Pool I.

Hospital Transition II Pool (Continued)


Reform Rate Components

Statewide Base Price (SBP) $6,399 $6,171 $6,202

Institution-Specific Adj Factor

1.0196 1.0323 1.0266

Adjusted SBP $6,524 $6,370 $6,367

APR-DRG CMI 1.1516 0.7462 0.9272

Pmt/discharge (excl. GME) $7,513 $4,754 $5,903

Total GME/discharge $2,791 $1,739 $2,188

Non-Comparables $402 $86 $225

Avg. pmt/discharge $10,706 $6,579 $8,316

Total Spending $3.253B $2.313B $5.490B

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* The blended rate does not reflect actions enacted in the 2010-11 Budget, including Potentially Preventable Readmissions (PPRs). The statewide base price includes a reduction of $100 to fund the full first yr. ($75M) of the transition II pool.


Impact of Reform on Transition Hospitals

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(Dollars in Millions)# of

HospitalsTotal

ImpactTransition

Funds* Net Impact

12/1/2009 Rate (FFS and MMC) 66 ($219.1) $75.0 ($144.1)

10/1/2010 Blended Rate (FFS and MMC) 78 ($322.8) $150.0 ($172.8)

10/1 Blended Rate (FFS and MMC) Original Transition ONLY 7 ($4.3) $4.4 $0.1

10/1 Blended Rate (FFS and MMC) Transition II ONLY 12 ($112.5) $23.7 ($88.8)

10/1 Blended Rate (FFS and MMC) Both Transition Pools 59 ($206.0) $121.9 ($84.1)

*Transition II allocation based on FFS losses only.New York State Department of Health

A Potentially Preventable Readmission (PPR) is a readmission within 15 days that is clinically related to the initial hospital admission

Excludes behavioral health at the initial admission; major or metastic malignancies; multiple trauma; burns; neonatal; obstetrical; and discharges with a status of “left against medical advice”

Includes readmissions for fee-for-service and Medicaid managed care

Will begin discussions with stakeholders to incorporate behavioral health PPRs beginning 4/1/12

Potentially Preventable Readmissions (10 NYCRR 86-1.37)


2010-11 Budget requires this proposal to generate $47M in full annual, gross, savings (in 2011-12)

$37.1M related to FFS readmissions; $9.9M related to MMC readmissions

To generate these savings, the following method is used:

Using 2007 data, a risk adjusted model identifies hospital specific “excess readmissions” (observed rate is in excess to the expected rate)

A readmission adjustment factor is computed using the ratio of aggregate payments related to the excess readmissions to the aggregate payments for all non-behavioral health discharges

This adjustment factor is prospectively applied to the applicable hospital’s case payment and per diem rates on discharges beginning 7/1/10; implemented in 10/1/2010 rates.

The reduction % will be applied to the statewide base price, DME, and non-comparables

PPRs - Methodology



Background Legislation

A new inpatient psychiatric reimbursement methodology was passed in the 2009-10 Medicaid reform legislation

Implementation date Initially planned for December 1, 2009 The executive budget delayed it to April 1, 2010 Revised start date is October 20, 2010

Task Force The psychiatric payment methodology was developed through a joint

initiative with representatives from DOH, OMH, GNYHA, HANYS Goal

Utilizing a Medicare-like approach, develop a reimbursement strategy to pay more appropriately for inpatient psychiatric admissions and address length of stay

Maintain Budget Neutrality The operating payments for inpatient psychiatric services under the

current system and under the new methodology will be budget neutral Transition

A $25 Million annual investment as a result of rebasing to 2005 costs will be used for transitioning to the new methodology


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Impetus for Change:Current System’s Weaknesses


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Cost base is 1981, non-Medicare payers Outdated Inpatient costs attributable to Medicaid patients not

recognizedSame per diem rate throughout the stay

Higher costs for initial work up, and lower costs later in the stay not recognized

No incentives for length of stay reduction (NYS is twice the national average)

Doesn’t recognize different levels of mental health care service provided

Doesn’t recognize observable , systematic cost differences in Office of Mental Health’s priority areas Rural hospitals, adolescents, presence of mental retardation,

and physical comorbiditiesPayments based on hospital-specific costs do not encourage

efficiency

New Methodology:Highlights


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Applicable to Article 28 exempt psychiatric inpatient hospitals and exempt units

Major constructive change in the way inpatient psychiatric rates are calculated and how Medicaid claims are paid after October 1, 2010

A modernized approach making reimbursement more adequate and equitable

New system will pay for the level of service rendered, address length of stay variance, and will be more consistent with how Medicare reimburses for this service

Inpatient psychiatric per diem rates will be based on 2005 Medicaid operating costs (per statute)

Additional investment of $25M annually over existing inpatient psychiatric expenditures as provided for in the 2009-10 budget to assist hospitals to transition to the new methodology

Transition will gradually be phased into the statewide price over the period 10/20/2010-12/31/2014

Data Overview


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Legislation requires use of 2005 Medicaid costsICR: Best source for provider costSPARCS: Best source for all-payer case-level data

Basis to match case-level charges to ICRDevelopment of departmental ratios of cost to charges (RCCs)More complete reporting of charges compared to 2005 MMISMore secondary diagnoses reported compared to 2005 MMIS

MMIS: Best source to determine psychiatric casesOne year’s worth of data not reliable enough to estimate systematic determinants of cost

Model Development:Operating Payment Adjustments


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Facility-level adjustment: WEFTo account for wage differences in hospitals’ labor

marketsFor Oct. 1st: same as acute care Medicaid payment system

ECT rateUse the federal rate in effect during the first half of 2010:

$281Severity of illness:

Based on DRG relative weights Calculated specifically for psychiatric patients Uses hospital-specific relative value (HSRV) method

APR-DRGs to account for four severity levelsConsistent with acute care weight methodology

All other adjustments:Regression based

DRGs for Medicaid Psych Patientswith Cost Estimates, 2005-2006


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DRG Cases Days DRG Cases DaysDegenerative Nervous System Disorders Exc Mult Sclerosis 16 945 Organic Mental Health Disturbances

593

13,284

Nontraumatic Stupor & Coma 4 33 Childhood Behavioral Disorders 2,935

55,044

Postpartum & Post Abortion Diagnoses w/o Procedure 19 334 Eating Disorders

129

3,200

Other Antepartum Diagnoses 92 1,387 Other Mental Health Disorders 176

3,037

Mental Illness Diagnosis w O.R. Procedure 66 2,315 Drug & Alcohol Abuse or Dependence, Left Against Medical Advice

145

997

Schizophrenia 16,882 368,687 Alcohol & Drug Dependence w Rehab or Rehab/Detox Therapy

42

784

Major Depressive Disorders & Other/Unspecified Psychoses 11,776 156,455 Opioid Abuse & Dependence

686

6,186

Disorders of Personality & Impulse Control 200 1,796 Cocaine Abuse & Dependence 968

7,355

Bipolar Disorders 12,372 184,020 Alcohol Abuse & Dependence 629

4,899

Depression Except Major Depressive Disorder 5,662 56,479 Other Drug Abuse & Dependence 420

3,225

Adjustment Disorders & Neuroses Except Depressive Diagnoses 1,539 12,967 Non-Psychiatric DRGs

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2,512

Acute Anxiety & Delirium States 541 3,896

Note: Medicare DRG "psychoses" is split among "schizophrenia," "major depressive disorders & other/unspecified psychoses," and "bipolar disorders" under APR-DRG system.

Adjustment Factors for Day Intervals & Interrupted stays


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LOS Scale:Days 1-4 = 1.20Days 5-11 = 1.00Days 12-22 = 0.96Days 23 & over = 0.92

Interrupted Stays:Readmissions to same hospital within 30 daysPayment for first day will be considered day 4 of the

stay on the scale and pay @ 1.2Day 2 will move to 100%

Comorbidity Adjustment Factors


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Mental retardation as a secondary diagnosisAdjustment factor = 1.06

One other medial/physical comorbidityUses ICD-9-CM codes reported on the patient billConsiders secondary diagnoses that are

complicating conditions (CC/Major CC) under the MS-DRG system

Based on hierarchical condition categories (HCCs) used by various Medicare risk-adjustment methodologies

18 comorbidity groupsApplies the highest adjustment factor if there are

more than one comorbidity present

Comorbidity Categories


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Category Adjustment Factor

Cancers 1.09

Protein-Calorie Malnutrition 1.08

Disorders of Fluid/Electrolyte/Acid-Base Balance 1.06

Other Endocrine/Metabolic/Nutritional Disorders 1.14

Other Hepatitis and Liver Disease 1.09

Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders 1.10

Other Musculoskeletal and Connective Tissue Disorders 1.06

Blood Disorders 1.11

Other Developmental Disability 1.20

Brain/Head Injury 1.14

Cardio-Respiratory Failure and Shock 1.16

Acute Coronary Syndrome 1.40

Stroke/Occlusion/Cerebral Ischemia 1.21

Respiratory Illness 1.07

Other Eye Disorders 1.12

Renal Disease 1.10

Complications of Medical Care and Trauma 1.13

Major Organ Transplant Status 1.18


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Summary of Payment Model

Statewide Price Adjusted by

•Hospitals’ WEFs•Rural adj. factor=1.23

APR-DRG Weight (23 DRGs w/ 4

severity levels each)

LOS ScaleDays 1-4=1.20

Days 5-11=1.00Days 12-22=0.96

Days 23 & over=0.92

Comorbidity Factor (to address both

physical & mental health)

18 comorbidity categories with various

payment factors

ECT$281 per treatment

adjusted for hospital’s WEF

Final total payment

Non-Operating Per Diem

(Capital + DME + Transition if applicable)

Payment FactorsAge:

(17 & under=1.08)(18 & over=1.00)

xMental

Retardation=1.06

Rate Components

Note: Physician fees will be paid separately

Payment Calculation ExampleParameter Variable Adjustment $ Amount

Statewide per diem rate 601.86$ Labor Cost Adj. Wage equalization factor (WEF) Opcert 700xxxx 1.02 Population Density Rural location 23% - 1.00 Composite facility-level adjustment factor 1.02 612.57$ APR-DRG APR-DRG relative weight based on HSRV methodology DRG 753-3 1.06 Pediatric case 9% - 1.00 Mental Retardation Diagnosis Present 6% - 1.00

1 Cancers 9% - 1.00 2 Protein-Calorie Malnutrition 8% - 1.00 3 Disorders of Fluid/Electrolyte/Acid-Base Balance 6% - 1.00 4 Other Endocrine/Metabolic/Nutritional Disorders 14% - 1.00 5 Other Hepatitis and Liver Disease 9% - 1.00 6 Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders 10% - 1.00 7 Other Musculoskeletal and Connective Tissue Disorders 6% 1 1.06 8 Blood Disorders 11% - 1.00 9 Other Developmental Disability 20% - 1.00

10 Brain/Head Injury 14% - 1.00 11 Cardio-Respiratory Failure and Shock 16% - 1.00 12 Acute Coronary Syndrome 40% - 1.00 13 Stroke/Occlusion/Cerebral Ischemia 21% - 1.00 14 Respiratory Illness 7% - 1.00 15 Other Eye Disorders 12% - 1.00 16 Renal Disease 10% 1 1.10 17 Complications of Medical Care and Trauma 13% - 1.00 18 Major Organ Transplant Status 18% - 1.00

Maximum adjustment 1.10 Composite patient-level adjustment factor 1.16

Facility & case-specific per-diem operating rate 709.62$ 1 Days 1 through 4 20% 4 4.80 5 Days 5 through 11 0% 6 6.00

12 Days 12 through 22 -4% - - 23 Day 23 and beyond -8% - -

LOS and adjusted LOS 10 10.80 Day adjustment factor 1.08

Payment based on per-diem rate 709.62$ 10 1.08 7,663.88$ ECT payment (adjusted by WEF) 281.00$ 1 1.02 286.00$ Direct GME payment 27.00$ 10 n/a 615.30$ Operating payment 7,949.88$

Capital payment 33.00$ 10 n/a 548.20$ Transition payment (TBD) -$ Total payment 8,498.08$

Payment Calculation

Operating Payments

Facility-level Adjustments: Same

for All Patients

Patient-level Adjustments:

Different for Each Patient

Comorbidity Adjustments: Apply the maximum of the

adjustments if patient has multiple

comorbidities

Length of Stay Adjustments

Day Groups

Summary of Adjustments


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Category Approx. Value of Adjustments (Million Dollars)

WEF 13.3

Rural Adjustment 4.6

APR-DRG Weights 0.3

Pediatric Patients (Under 17 yrs.) 4.9

Mental Retardation Comorbidity 0.4

Other Comorbidities - (use the highest if multiple) 1.5

LOS Scale 3.1

Total 28.1

Old vs. New Payment System


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Existing System New System• Case mix adjusted operating per diem based on hospital specific cost

• Operating per diem is based on a statewide price adjusted by hospital’s WEF

•Pays the same operating per diem rate for each day of service

• Applies APR-DRG weight (4 severity levels)

• Applies payment adjustments for pediatric cases, mental retardation, rural hospitals, & physical comorbidities

• Operating per diem adjusted by the LOS scale to address varying costs at specific intervals

• Separate payment for Electroconvulsive Therapy (ECT)

• Reduced payments for readmissions: For readmissions to the same hospital within 30 days, the 1st day of the readmission will be treated as day 4 of the LOS scale with subsequent days continuing onward

• Capital and DME paid for each day of service

• 2005 DME per diem rate trended to Oct. 1, 2010• Capital: budgeted capital expenses divided by expected days for the rate year

Budget Neutrality(Based on 2006 Case Distribution)

Currently, the statewide average operating rate is about $637 per day

This price will be adjusted downward to about $602 to account for the SIWs, various payment factors and LOS scale in the new methodology so as to maintain budget neutrality

Therefore, the existing payments and new payments will be equal in the aggregate


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Existing Payments

New Payments

Operating Payments $575.1M

Risk-adjusted payments: $502.3M

ECT payments: $0.2MDME payments: $72.6M

Capital Payments As budgeted As budgeted

Fiscal ImpactWithout further adjustments, there would be

approximately $46m redistribution of payments

Mitigating factors:The State is investing additional $25M into the

systemTwo of the units with large losses already

closedAllocation of $25M investment:

New York State Department of Health 30

Period Transition Statewide Rate10/20/2010 – 12/31/2011 $25M $0

1/1/2012 – 12/31/2012 $17M $8M

1/1/2013 – 12/31/2013 $8M $17M

1/1/2014 – 12/31/2014 $0 $25M

Distribution Method of$25M Transition Fund

50% (12.5M) based on revenue lossTransition dollars will be allocated such that hospitals

will not lose more than approximately 5% revenue from the existing payments to the new payments in year 1

Same method as acute transition50% (12.5M) based on payment to cost ratio

Transition dollars will be allocated to hospitals whose costs are well above their revenues under the new methodology based on 2006 data

Thresholds for distribution will be published when final statewide rate is determined

Transition funds will be paid through rate adjustments


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Future UpdatesRebasing

There will be more frequent rebasing of cost data in the future, similar to the acute methodology, including updating the base year, service intensity weights, the payment factors, the LOS scale, and the ECT rate

Wage Equalization Factor (WEF)In the future, DOH will consider recalculating WEFs

for the inpatient psychiatric rates that will be based on psychiatric data only.

If psychiatric only WEFs are implemented, DOH will simultaneously recalculate and implement the acute WEFs to exclude the psychiatric wage and fringe data.


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FMAP Contingency ReductionsSection 313 of the Laws of 2010Gross amount of reduction for local shares @

$282MAll Medicaid payments to be reduced for claims

processed on or after 9/16/10 – 3/31/2011Cycle 727Check dated 9/27/10Released on 10/13/10

Exemptions:HEAL $’sFQHC’s Other Federal mandated payments (IHS, Refugees,

etc.)Reconciliation


DSH Audit UpdateProcess:Questionnaire:

Asking for data related and supporting the DSH assessment

Desk vs. Field AuditsHospitals selected for field audits have been

notifiedKPMG will schedule time at facility to review

more details of dataDeadlines are critical to meet


DSH Audit UpdateTimeframes for future years:

2008: Data to be provided before end of year – What should that

include? Information due by March 31, 2008 Working with KPMG to develop tool to collect Audits due to be completed 9/30/2011 Report due 12/31/2011

2009 – 2010 Similar time frames as 2008

2011 – Initial year which new method will actually apply Data issues at hospital level need to be corrected:

Charges on claims – critical to capture all costs related to Medicaid, Medicaid managed care and uninsured


New York State Department of Health 36

Documents

Region 2 Annual Fall institute John W. Gahan Jr. 1 New York State Department of Health