Reimbursement Overview & Industry Payment Trends For The Non

Reimbursement Oriented Finance Professional

Michael Klett, FHFMA, CPAApril 22, 2014

Financial Accounting & Reporting Committee

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Goals for Presentation

• Provide an overview of Medicare facility reimbursement process to gain a basic understanding of today’s environment and the changing landscape with health reform

• Even though I have worked to get out of the detail as much as possible keep in mind most of the information is technical and not always intuitive so please stop to ask questions as we go along

• Where prudent I have tried to include a State of Michigan viewpoint and/or the views of several hospitals only to help visualize the order of magnitude of the payment issue being discussed and not to advance any individual health system such as UMHS; all relevant data is also publicly available

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Agenda

• Medicare Part A general overview

• Summary of Hospital Specific Payment Adjustors

• Example DRG calculation

• Historical Medicare benchmark data and the impetus to change

• Health Reform Summary

• HFMA certification as part of a career development path for success

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Medicare Overview

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Medicare Overview

• Insurance for the aged, also covers disabled and patients with ESRD.

• Four parts:

Part A Inpatient hospital

Part B Physician and outpatient hospital

Part C Medicare Advantage

Part D Prescription drugs

• Federally funded and managed, but ½ of cost paid by beneficiaries and third parties (mainly employer insurance)

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Medicare Spending

4.4%

4.9%

6.3%

14.5%

23.6%

10.3%

36.1%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Home Care

Other

SNF

Rx Drugs

Practitioner

OP Hospital

IP Hospital

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Guiding Principles

• Playing field should be level for all hospitals

Valid differences in cost should yield differences in payment

• Hospitals should be able to break even (payment = cost)

For first 20 years Medicare payment was cost reimbursement

Medicare cross subsidization rule

• Incentives for improving efficiency, penalties for not improving

Last 25 years, focus on managing costs per episode

Direction Health Reform is taking us

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Example Distribution of Payments

Payment Component (in millions) Hospital A Hospital B Hospital C

Routine ReimbursementI/P DRG - Operating $ 246 49.8% $ 166 30.4% $ 155 29.0%I/P DRG - Capital $ 26 5.3% $ 22 4.0% $ 18 3.4%Outpatient Fee for Service $ 106 21.5% $ 179 32.9% $ 214 40.2%Psych and Rehab $ 21 4.2% $ 9 1.7% $ - 0.0%Routine Subtotal $ 399 80.7% $ 376 69.1% $ 387 72.7%

Complex ReimbursementIndirect Medical Education $ 39 7.9% $ 62 11.4% $ 52 9.7%Disproportionate Share $ 12 2.4% $ 31 5.6% $ 37 6.9%Outlier Payment $ 16 3.2% $ 32 5.8% $ 10 1.9%Organ Acquisition $ 4 0.8% $ 16 3.0% $ 9 1.7%Graduate Medical Education $ 16 3.3% $ 23 4.2% $ 30 5.7%Bad Debts and Other $ 4 0.9% $ 4 0.8% $ 6 1.2%Nursing & Allied Health $ 4 0.8% $ 1 0.1% $ 1 0.2%Complex Subtotal $ 95 19.3% $ 168 30.9% $ 145 27.3%Grand Total Medicare Reimbursement $ 494 100.0% $ 544 100.0% $ 532 100.0%

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What is a DRG?

• Diagnosis Related Group; MSDRG (MS = Medicare Severity; designed for elderly)

• A complex system that essentially classifies all hospital inpatient cases into 1 of approx. 750 DRGs

• DRGs are assigned by a grouper program based on ICD diagnoses, procedures, age, sex, and the presence of complications and comorbidities

• DRGs have been used since 1983 to determine how much Medicare pays a hospital, since patients within each category are similar clinically and are expected to use the same level of hospital resources

• Generally Speaking yields 1 bundled payment for all charges in an I/P episode of care

• DRGs are part of the Prospective Payment System (PPS)

• A Prospective Payment System means generally speaking your rates are set annually by CMS and there is no later retrospective settlement

• We will talk later about other items that are subject to a settlement like a tax return

• Outpatient uses a similar system as of year 2000 only DRGs are replaced by APC “ambulatory payment classification”

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More on DRGs

• Blue Cross has its own proprietary system using unique “relative weights” (more on relative weights later…)

• For non Medicare populations industry is moving in future towards an APR DRG System (All Patient Refined)

APR-DRG count: 1,256; MS-DRG count: 746

APR-DRGs jointly developed by 3M & National Association of Children’s Hospitals and Related Institutions (NACHRI)

– “The Pediatric portion of any severity illness system is critical if non-Medicare data is included in the provider comparisons. APR-DRGs have the most comprehensive and complete pediatric logic of any severity of illness system.”

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Relative Weights & Case Mix Index (CMI)

• Each DRG is assigned a different “relative weight” which is multiplied by the DRG rate; the higher the relative weight the higher the payment

• Each year the relative weights are recalculated by Medicare after reviewing prior year data

• Case Mix Index (CMI) is the average DRG relative weight for all of a Hospital’s Medicare volume

Widely used in the industry to explain acuity differences between and among hospitals (as well as associated cost disparities)

National average is around 1.37 per Wikipedia

Generally speaking community hospital CMIs are lower than academic hospitals

Teaching Hospitals argue that CMI does not fully reflect relative differences in acuity and the difference could be greater

Community Hospitals argue that cost differentials between community and teaching are not proportional to differences in payment differentials

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Impact of the Relative Weight to CMI & Payment

COMMONLY PERFORMED TEACHING HOSPITAL DRGS & RELATIVE WEIGHTS    FFY2013 FFY2014 Actual %DRG DRG DESCRIPTION RELATIVE WEIGHT RELATIVE WEIGHT Diff Diff

HIGH ACUITY DRGS1HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W MCC 26.0295 25.3518 -0.6777 -2.6%2HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W/O MCC 13.9131 15.2738 1.3607 9.8%

652KIDNEY TRANSPLANT 3.0825 3.153 0.0705 2.3%3 ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R. 17.7369 17.6369 -0.1000 -0.6%

MORE ROUTINE/LOWER ACUITY DRGS765 CESAREAN SECTION W CC/MCC 1.2194 1.1125 -0.1069 -8.8%766 CESAREAN SECTION W/O CC/MCC 0.8586 0.7766 -0.0820 -9.6%774 NORMAL DELIVERY W COMPLICATING DIAGNOSES 0.7217 0.7137 -0.0080 -1.1%775 NORMAL DELIVERY W/O COMPLICATING DIAGNOSES 0.5755 0.5625 -0.0130 -2.3%193 SIMPLE PNEUMONIA & PLEURISY W MCC 1.4893 1.455 -0.0343 -2.3%194 SIMPLE PNEUMONIA & PLEURISY W CC 0.9996 0.9771 -0.0225 -2.3%195 SIMPLE PNEUMONIA & PLEURISY W/O CC/MCC 0.7078 0.6997 -0.0081 -1.1%

CC = Complicating or Comorbid diagnosisMCC = Major Complicating or Comorbid diagnosis

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Hospital specific payment adjusters

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Inpatient Payment Overview

• DRG-based payment = adjusted rate x DRG relative weight

All services during the inpatient stay covered by one amount

Adjusted Rate = Medicare National Rate + impact of adjusters below

Psych and rehab units are separate

• Adjusters:

area wage index (AWI)

indirect medical education (IME)

disproportionate share (DSH)

• Additional payments:

outliers

direct graduate medical education (GME)

organ acquisition

bad debts

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Wage Index

• What does it pay for?

Differences in cost of living (wage levels) impact cost

• Methodology:

Each hospital reports wage, benefit and worked hour data annually before audit by Medicare

Average compensation per hour computed for each metro area (uses MSA or CBSA approach)

Each metro area assigned an Area Wage Index value

Complicated Reclassification System at Individual and Group Level (section 412 & 508)

Medpac and Congress have considered small to massive changes to wage index system

Local Rates have suffered through recession due to inability to keep pace with rest of country

• Examples of Interest (national average = 1.0000):

Ann Arbor .9987 Santa Cruz CA 1.7276

Detroit .9201 Rural AL 0.7094

Flint 1.1072 Chicago, IL 1.0416

Warren/Troy .9481 Grand Rapids .9169

AA reclassified .9459 Flint reclassified 1.0001

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Indirect Medical Education (IME)

• What does it pay for?

Teaching hospitals generally have higher costs

Patient severity and complexity not adequately addressed by DRGs (most misunderstood part of IME)

New technology and standby capacity

Inefficiencies, as residents provide much of the care

• Methodology

Ratio of residents to beds is used to measure teaching intensity

Current formula: ((1+R/B)^.405 - 1) x 1.35 = IME

Resident count is capped

• Differences of teaching adjustments in the same town

UM’s Resident to Bed ratio is about .84, IME add on is about 37%

• Medpac/Congress periodically reviews IME as significant savings opportunity

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Disproportionate Share (DSH)

• What does it pay for?

Hospitals with high indigent patient volumes incur more costs, and incur more uncompensated care

DSH is a supplemental payment to help defer these higher costs and losses

• Methodology:

Based on ratio of indigent patient days to total patient days

“Indigent” includes

• Patients enrolled in Medicaid (Eligible is key criteria)

• Medicare patients in Supplemental Security Income (SSI)

15% all or nothing cut off; Enhanced or Super DSH when exceed 20.2%

Excludes uninsured

Major Changes to Hospital payouts due to Medicaid Expansion (In theory less need for DSH if less uninsured)

States that do not participate in Medicaid Expansion will take a larger step back on Federal DSH since you can’t keep pace

• Example:

UM ‘s DSH rate is about 36%, results in a 19% add on to rate

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Sample DRG calculation& other adjustments

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Sample DRG Calculation #1

DRG Calculation Example 1: Knee/Hip Replacement (MSDRG 470)

Hospital A Hospital B Hospital C

National DRG Rate $ 5,631 $ 5,631 $ 5,621

DRG Weight 2.0866 2.0866 2.0866

Base Payment $ 11,750 $ 11,750 $ 11,728

Area Wage adjustment $ 4 $ 4 $ (241)

Indirect Medical Education $ 4,387 $ 1,549 $ 3,713

Disproportionate Share $ 1,852 $ 12 $ 1,969

Adjusters Subtotal $ 6,242 $ 1,565 $ 5,441

Adjusted Payment $ 17,993 $ 13,315 $ 17,170

Note: Data taken from FFY2013 PPS Pricer File

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Sample DRG Calculation # 2

DRG Calculation Example 2: Knee/Hip Replacement complications/comorbidities (MSDRG 469)

Hospital A Hospital B Hospital C

National DRG Rate $ 5,631 $ 5,631 $ 5,621

DRG Weight 3.4418 3.4418 3.4418

Base Payment $ 19,382 $ 19,382 $ 19,346

Area Wage adjustment $ 6 $ 6 $ (397)

Indirect Medical Education $ 7,235 $ 2,555 $ 6,125

Disproportionate Share $ 3,055 $ 20 $ 3,247

Adjusters Subtotal $ 10,296 $ 2,581 $ 8,975

Adjusted Payment $ 29,678 $ 21,963 $ 28,321

Note: Data taken from FFY2013 PPS Pricer File

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Graduate Medical Education (GME)

• What does it pay for?

Intended to cover the direct operating costs of approved residency programs:

• resident salaries and benefits

• Physician supervision and teaching

• other direct costs and overhead allocable to GME

• Methodology:

hospitals receive a fixed amount per resident FTE, multiplied by Medicare % of patient days

Fixed amount is hospital specific, based on 1985 cost per resident plus some adjustments for inflation

Resident FTE is capped

Paid as a Pass Through, i.e. Not paid at patient level on DRG like IME

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Outliers, Organ Acquisition, & Bad Debt

• Outliers

Individual cases may have very high costs

Outlier payment provides partial recovery of costs not covered by DRG payment

Payment = 80% of cost in excess of a loss threshold - Still a losing proposition

• Organ Acquisition

Supplemental payment for solid organ transplants

Based on cost of organ procurement and pre-transplant evaluation services

Paid as a Pass Through, i.e. Not paid at patient level on DRG like IME

Does not cover the I/P hospitalization (DRG) or follow up clinic visits (fee for service) and is commonly misunderstood

• Medicare Bad Debt (MBD)

If complex requirements are met hospitals can claim Medicare’s share of bad debt (limited to deductibles & coinsurance) and receive separate funding

BBA of 1997 first major hit; currently at 65% and falling!

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Outpatient Payments

• Several reimbursement schedules

Ambulatory Payment Classification (APC)

• Most services (surgery, imaging, cardiology, infusion, ED, etc.)

• Procedures and tests generally paid piece-meal

• Supplies, implants, anesthesia, recovery – packaged

• Drugs: some paid separately, some are packaged

Separate fee schedules for clinical lab, rehab therapy, renal dialysis

• Adjustors:

Area wage index: yes

IME and DSH: no

• Additional payments

Graduate medical education

Bad debts

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HOPD Issues

• To qualify for APC payments, sites must be designated as hospital-based outpatient departments (HOPD)

• Criteria and requirements for HOPD status:

Must be under same ownership and control as hospital

Integrated financials, clinical services, medical records, admin

Medical staff at site have privileges at the hospital

Must hold itself out to the public as part of the hospital

Cannot be more than 35 miles from the main campus

Must meet federal EMTALA, anti-dumping, non-discrimination rules

• If HOPD, hospital reimbursed the facility fee and physician receives professional fee. Sum of these payments > free standing physician fees

• Congress frequently reviews HOPD as savings opportunity

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Example Distribution of Payments

Payment Component (in millions) Hospital A Hospital B Hospital C

Routine ReimbursementI/P DRG - Operating $ 246 49.8% $ 166 30.4% $ 155 29.0%I/P DRG - Capital $ 26 5.3% $ 22 4.0% $ 18 3.4%Outpatient Fee for Service $ 106 21.5% $ 179 32.9% $ 214 40.2%Psych and Rehab $ 21 4.2% $ 9 1.7% $ - 0.0%Routine Subtotal $ 399 80.7% $ 376 69.1% $ 387 72.7%

Complex ReimbursementIndirect Medical Education $ 39 7.9% $ 62 11.4% $ 52 9.7%Disproportionate Share $ 12 2.4% $ 31 5.6% $ 37 6.9%Outlier Payment $ 16 3.2% $ 32 5.8% $ 10 1.9%Organ Acquisition $ 4 0.8% $ 16 3.0% $ 9 1.7%Graduate Medical Education $ 16 3.3% $ 23 4.2% $ 30 5.7%Bad Debts and Other $ 4 0.9% $ 4 0.8% $ 6 1.2%Nursing & Allied Health $ 4 0.8% $ 1 0.1% $ 1 0.2%Complex Subtotal $ 95 19.3% $ 168 30.9% $ 145 27.3%Grand Total Medicare Reimbursement $ 494 100.0% $ 544 100.0% $ 532 100.0%

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Medicare Benchmark Slides

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Government Payments to Cost vs. Private Insurance

95 96 97 98 99 00 01 02 03 04 05 06 07 0875%

85%

95%

105%

115%

125%

135%

MedicareMedicaidPrivate Ins

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Medicare Historical Rate of Spending

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Medicare Projected Rate of Spending before ACA cuts

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Health Reform Changes

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Health Reform – Where are we now?

• Paradigm shift

Last 25 years: focus on cost per episode

Next: manage cost per beneficiary & Population Health

• Per episode cost (more)

• Quality and utilization

• We need to change our thinking from fee for service to fee for value

• Already in the law (PPACA)

Productivity adjustments

Value based purchasing – pay for performance

Accountable care organizations – new incentives

Readmission and complication rates – new penalties

Insurance Exchange

Medicaid Expansion

• Is it enough to “bend the cost curve”?

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Accountable Care Organization (ACO)

• An ACO is a group or providers often affiliated with a hospital that are jointly responsible for the cost and quality of health care provided to Medicare beneficiaries because they receive bonuses when they provide exceptional or low-cost care and are penalized for low-quality or high-cost care

• ACA created the Medicare Shared Savings Program to “promote accountability on part of providers, coordination of items and services under Parts A & B, and investment in new processes to bring about high quality and efficient service”

• First 3 in MI were UMHS, DMC, and Genesys and started Jan 1, 2012 as part of the CMS Pioneer ACO program (nationwide total was 32; now down to 23)

• Many other groups have since formed under the second wave of ACOs called the MSSP ACO program. SE MI includes Oakwood, Beaumont, St.John/Providence, Henry Ford Health System, and Physician Organization of Michigan (POM)

• First major glimpse of population health management policy (far different than fee for service)

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Medicaid Expansion

• According to Advisory Board study 26 states + D.C. expanded

• Politically Charged Hot Potato

• Law of the Land in Michigan effective 4/1/14; “Healthy Michigan” is our state name for the program

• Intended to cover 400,000 MI residents

• Initial additional funding from Federal Government for 3 years to States to cover additional insured

• Medicaid eligibility now 133% of Federal Poverty Level (“FPL”) $15,000 Individual; $34,000 family of 4

• Every self pay patient under 250% FPL is entitled to a discount such that payment expectation will not require 115% of Medicare

– Compliance with this is causing signification resources to operationalize

– IRS has issued proposed rules to regulate self pay billing practices too

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Health Insurance Exchange(HIE)/Marketplace

What do we know so far?

• Started 1/1/14

• 8 million enrollees so far; 35% under the age of 35

• Expected that roughly half received a subsidy on the exchange

• Estimated 3 million young adults under 26 were able to sign up under their family benefits that were previously uncovered

• Catastrophic, Bronze, Silver, Gold plans available and differences are generally % of patient responsibility

Early Market Intelligence

• Market turning to consumer driven and more retail oriented

• Public vs. Private Exchanges

• Blue Cross EPO/Narrow Network starting 1/1/15 to target those previously uninsured and will generally be paid at Medicare like rates

Sign of the Future?

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Value-Based Purchasing

• A percentage of Hospital payment is tied to performance on quality measures related to common and high-cost conditions such as cardiac, surgical and pneumonia care

Started 10/1/12

Designed to transform Medicare from a passive payer of claims to an “active purchaser of care”

VBP makes a portion of the hospital payment contingent on actual performance of specified measures, rather than simply on the hospital’s reporting data for these same measures (former system)

Zero Sum Game (winners and losers but budget neutral for Medicare)

Medicare started funding the incentive pool by withholding 1% of DRG rate (grows to 2% in 2017)

• Initial measures cover following specific conditions or procedures:

Acute Myocardial Infarction (AMI)

Heart Failure

Pneumonia

Surgeries (as measured by SCIP)

Healthcare-associated infections

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Readmissions Reduction Program

• 10/1/12 Medicare implemented the readmission penalty

• A Hospital’s adjustment factor is applied to the DRG rate and is calculated as follows:

Hospital’s aggregate payments for excess readmits

Hospital’s aggregate payments for all discharges

Cap was 1% first year and grows to 3% in year three

Payment cut is applied to DRG price for all cases and not individual readmissions (often misunderstood)

• Readmission is defined as being admitted at the same or different hospital within a time period prescribed for the applicable

Hospitals can be penalized by care provided previously at other facility

Significant industry feedback to CMS on how they should allow for expected readmissions

• Year 1 impact to MI Hospitals was approx. $14 Million

• Program is a revenue generator for government (not budget neutral)

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“Never events” & Hospital-Acquired Conditions (HAC)

• Medicare will deny payment for HACs or “never” events• Original list of HACs:

1) Foreign object retained after surgery, 2) Air embolism, 3) Blood incompatibility, 4) Pressure ulcer, 5) Falls and Trauma, 6) Manifestations of poor glycemic control, 7) Vascular catheter associated infection, 8) Catheter-associated urinary tract infection, 9) Surgical site infection, 10) Deep vein thrombosis/pulmonary embolism

• Present on Admission (POA) indicator is mandatory for all I/P Acute Care Cases (based on time order for admission occurs)

• Unless documented Medicare will assume above list was an acquired condition while hospitalized and will not pay the higher DRG that is coded

• Starting in 2015 (10/1/14) Medicare will provide an incentive to reduce HACs

• Year 1 max reduction is 1%; penalty is either nothing (targeted to be top 75% of hospitals) or 1% payment cut

• 50% of teaching hospitals are expected to be hit by reduction

• Program is a revenue generator for government (not budget neutral)

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Summary comments about Health Reform

• Unsustainability of cost trends led us to the need for a dramatic change to the status quo

• Providers, physicians, and suppliers are forced to do more with less

Unparalleled pressure on expense management

• Healthcare system continues to get more complex to manage

• Lots of change already but more to come including

Fix needed to Sustainable Growth Rate and impact to physician payments

Medicare’s 2 midnight rule in the infancy stage

Declining Medicare DSH payments due to decreased uninsured

How will Commercial Payers react to Medicare Payment Reform

Aging Population with retirement of Baby Boomer generation

Sequestration hanging around until at least 2021 (effective 2% across the board cut)

Additional Productivity Adjustments

Uninsured patients addressed from policy perspective however there is still anticipated to be an uninsured population albeit at much lower level

Solvency of Medicare trust funds and social security

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What have we learned about health reform already?

• Our Industry is clearly tasked to do more with less

• We are forced to operate in an era of heightened regulation/oversight

• Price transparency pressure

• Decreasing reimbursement and change from fee for service to fee for value (utilization becomes key)

• Hospital merger & activity at unprecedented levels Administrative jobs in theory more scarce as such services are consolidated

• Employers are reviewing our performance through our payers Is it worth it to us and our employees to have Hospital X in our network?

Proliferation of referenced pricing models and “carve outs”

Employers and payers will work to push down hospital payer rates

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HFMA Certification & career development discussion

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How can the healthcare finance professional best succeed in the new era…

• Sometimes strong competencies and seniority are not enough

• We need to adjust with the times and technology

• Stay on top of industry trends/changes and refine skill set

• Unique skillsets and certifications are highly desirable (HFMA certification, lean certifications, service excellence, etc.)

• Partner with operations becomes key and need to remove barriers

• Meet & exceed transparency expectations that have been set higher than ever (especially centered around the use of judgment calls)

• Become more skilled in PowerPoint as it has become the expected tool for story telling

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More impacts to the finance professional

• Budgets are tight like never before with strong FTE controls

• In order to better manage staffing issues some hospitals are asking employees to cross train where priorities & competencies of staff align

• Lines between departments and roles will likely be blurred based on the market demand for more efficiency

• Some firms are having finance oriented work being performed overseas at substantial savings

• Building and maintaining professional networks is likely more important than ever and HFMA involvement facilitates this

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What have we learned from other industries?

• Auto, Airline, Real Estate, & Book industries have undergone dramatic changes and have taught us many things Need to reset/change with the times & simultaneously be

able to meet demand for future in an era of constant change

New market demands efficiency

Be prepared for heightened regulation/government oversight

Not everyone was left standing

• We are likely in the early to middle stages of healthcare’s transformation even though it may feel further along

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Why Become HFMA Certified (CHFP)?

• Validate your skills and knowledge

• Enhance your credibility in the industry

• Support your professional development

• Demonstrate a high level of commitment to the field

• Peer Pressure! Is there alignment between the reason why current certified

members sat for the exam and your own career development path?

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What HFMA certification can do for youBecoming certified distinguishes you as a leader and high-level professional in the healthcare finance industry. It reflects a deep personal commitment and sense of accountability that inspires credibility and confidence in your professional knowledge. Through HFMA Certification Programs, you can show your dedication to high standards in the industry.

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More on certification

• HFMA CHFP is intended for mid-level healthcare professionals with a minimum of 3-5 years experience. CHFP certification demonstrates your qualifications to senior management, co-workers, and the industry highlighting your commitment to the profession and to maintaining up-to-date skills and knowledge.

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Candidate requirements

• Recommended: 3-5 years, hospital/healthcare system operations management experience including financial responsibility or senior accountant/analyst with knowledge (not expertise) of revenue cycle operations

• Current full HFMA membership to hold the designation

• Student members ineligible to hold designation

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Certification Exam Overview

• Online exam offered at Castle Worldwide sites

• 150 multiple choice questions in a 4 hour window (yes there are calculations! This is a finance exam)

• Fee to sit for exam is approx. $400

• www.hfma.org/chfp for more information including terrific 9 page FAQ guide

• Scoring is similar to ACT & results known immediately

• HFMA online study materials cost approx. $200 (not required)

• www.hfma.org/certificationselfstudy

• Our HFMA chapter offers a rebate for passing candidates for select # of candidates (as budget allows; unknown amount for FY4/30/15)

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Exam Content

1. Revenue Cycle Functions 21-25%

2. Disbursement Functions 4-8%

3. Budgeting/Forecasting Functions 18-22%

4. Internal Control Functions 15-19%

5. Financial Reporting Functions 16-20%

6. Contract Management Functions 13-17%

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Appendix

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Assumptions

• Large 750 bed teaching hospital

• Hospital operating at full capacity and often not able to service all of its demand

• Increase in 250 licensed beds approved through Certificate of Need

• No material change in number of residents trained

• No material change in Medicare payer mix

Outcomes

• Does this bed change impact existing Mcr reimbursement on a per case basis with no change in payer mix?

• If so, is it favorable or unfavorable?

• Impacts to cash flow and interim rates?

• Impacts to reimbursement upon settlement on cost report?

• Financial Reporting issues?

Case Study 1 Medicare IME

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Assumptions

• Large teaching hospital

• Relocation of its Children and Women’s services from a nearly fully depreciated facility to a new $750 million facility

• Medicaid Payer Mix for impacted Children and Women’s services is roughly 3 to 1 the overall institutional Medicaid payer mix

• Assume initial volumes are similar to historical levels

Outcomes

• Does this impact Medicaid Reimbursement?

• If so, does it impact standard operating DRG payments and/or Capital payments?

• What impact would there be to a hospital that uses the minimal number of CMS provided capital cost centers?

• What impact would there be to the hospital if it had a unique cost center established to record all capital costs relative to the new facility?

Case Study 2 Medicaid Capital