Emerging HSCRC Methodologies

Mary Beth Pohl

Deputy Director,

Research and Methodology

HSCRC

James Case

Manager

KPMG LLP

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Population Health Incentives under a CMS Model Testing Demonstration Alter

HSCRC Methodology Focus

• Today’s Discussion:– Incentives under the Medicare Waiver and under a new CMS model

testing demonstration– Emerging tools & methodologies for success under a CMS model

testing demonstration

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Healthcare Challenges During Waiver Negotiations in the 1980s

• Inpatient costs were rising rapidly across the U.S. – Driver: Medicare and Medicaid cost-based reimbursement

• Medicare, Medicaid, and Maryland did not recognize the costs of providing care to uninsured as a reimbursable expense.

• Hospitals serving large proportions of non-paying patients were threatened with insolvency.– Issues of access for patients

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What Financial Policy Incentives Does the Medicare Waiver Promote?

• Lower utilization in the inpatient setting on a per case basis

• Equity in payment across payers– Inability to cost shift, especially from

public to private payers

• Access to care, shared cost of social goods

• Solvency of efficient and effective hospitals

Medicare Waiver Test = Expenditures Per Discharge

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Medicare Waiver Successes and Limitations

Successes• Cumulative growth rate in the

Maryland inpatient charge per case has outperformed the nation

• Maryland has incredible hospital access to care for all patient populations

• Maryland has been innovative in system design of care related to cost containment, quality, etc.

Limitations• Per discharge cost is the highest in the

nation• Outpatient expenditures not well

constrained• The system is volume-based leading

to potential overutilization• Difficulty in aligning with physician

financial incentives• Cannot engage in certain CMS

initiatives under the ACA

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What Financial Policy Incentives Does a CMS Model Testing Demonstration Promote?

• Lower inpatient and outpatient utilization per capita

• Inpatient and outpatient cost containment• Equity in payment across payers

– Inability to cost shift, especially from public to private payers

• Access to care, shared cost of social goods• Solvency of efficient and effective

hospitals• Alignment of incentives across hospital

and professional providers

Model Testing = Expenditures Per

Population

The HSCRC’s Role in Enhancing Population Health

• CMS continues to pursue hospital reimbursement models that shift operational mindsets to serve populations in geographic areas with low cost, high quality care.– Three part aim:

Better health care (enhance patient experience, improve quality)

Better health (healthy lifestyles, wider use of preventative care)

Reduce cost

• Under a model testing demonstration, HSCRC methodologies must align with drivers to improve population health.

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Model Testing Methods

• Unit rates, annual update factor, and the variable cost factor• Reasonableness of charges• Hospital revenue constraint

– Admission-Readmission Revenue (“ARR”)– Total Patient Revenue (“TPR”)– Population-based Reimbursement (“PBR”)

• New authorities– ACOs, Gain Sharing– Bundled Payments

• Quality

Unit Rates Underlay HSCRC Methodologies

1980 1990 2000 2010

TPR (1980 – Current)

CPC (2000 – Current)

2012

PBR (TBD, 2013)

Unit Rates (1974 – Current)

GIR (1985 – 2000)

2013

ARR (2012)

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Annual Update Factor and Volume Adjustment

• Under a model testing demonstration, HSCRC regulatory authority will continue to rely on the annual update factor and variable cost factor as revenue control levers.

• HSCRC will need to recast application of the annual update factor and variable cost factor under a population-based constraint– Maryland must develop a robust all payer database

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HSCRC Must Also Recast Reasonableness of Charges (ROC) Methodologies

• Tools to compare hospital charges continue to serve an important role under a model testing demonstration

• HSCRC must recast the ROC to align with a population based constraint

• HSCRC is also investigating data sources for national comparisons

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31 Hospitals Entered into ARR Agreements for FY 2012

• Mercy• LifeBridge - Sinai• LifeBridge - Northwest• UMMS - Baltimore Washington MedicalCenter• UMMS - Civista Medical Center• UMMS - Harford Memorial Hospital• UMMS - Kernan Hospital• UMMS - Maryland General Hospital• UMMS - Upper Chesapeake Medical Center• UMMS - University of Maryland MedicalCenter• JHHS - Johns Hopkins Hospital• JHHS - Johns Hopkins Bayview MedicalCenter• JHHS - Howard County General Hospital• JHHS - Suburban Hospital

• Anne Arundel Medical Center• Bon Secours• St. Joseph Medical Center• MedStar - Franklin Square• MedStar - Good Samaritan• MedStar - Harbor Hospital• MedStar - St. Mary's Hospital• MedStar - Montgomery General Hospital• MedStar - Union Memorial Hospital• Holy Cross Hospital• Washington Adventist Hospital• Shady Grove Adventist Hospital• Peninsula Regional• Doctors• GBMC• Frederick Regional Health System• Saint Agnes

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ARR is a Voluntary Revenue Constraint Program Developed by the HSCRC

• ARR provides hospitals a financial incentive to more effectively coordinate care and reduce unnecessary readmissions to their facilities– Inpatient: all-cause, all-DRG, 30-day readmissions window

– Current focus on readmissions within the facility or within

the hospital system for “linked system hospitals”

• Three year program beginning in FY 2012; currently in Year 2 of three year agreements

ARR Builds Upon the Inpatient CPCto Develop Bundled Weights

• In weight development, HSCRC bundles CPC weights into Charge Per Episode (CPE) weights– For a given DRG-SOI, CPE approved revenue is higher than CPC

equivalents

• When grouping hospital discharges, HSCRC credits hospitals with all weight associated with a 30-day episode of care window at the initial admission– Readmissions receive no weight

• A hospitals financially “wins” by reducing readmissions on a case mix adjusted basis by retaining 30-day CPE weight, while reducing the costs associated with the readmission

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Using Medicare Data, Maryland has the Nation’s Highest Readmissions Rate

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 540.0%

5.0%

10.0%

15.0%

20.0%

25.0%

21.6%

18.2%

Medicare Hospital Readmission Rate 2010 MD

US

Source: Institute of Medicine Geographic Variation Data Base

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Medicare Readmission Rates per 1,000 Beneficiaries

Source: Delmarva Foundation

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 20120

5

10

15

20

25

21.1120.39

19.218.64 19.09 19.06

17.9717.48

18.5117.41

16.3 16.29 15.92

15.4414.91

14.32 14.3114.96 14.64 14.3 14.34

15.0414.33

13.77 13.51 13.78

MD US

ARR Program

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HSCRC Must Seek Exemption fromCMS Readmissions Program in FY 2014

• ACA provides Maryland an avenue to gain exemption from CMS’ Readmissions Reduction Program– FY 2013 IPPS final rule gives Maryland a pass on applying for the exemptions

• Next year, HSCRC anticipates needing to submit an exemption request demonstrating how Maryland’s ARR program meets or exceeds Medicare’s program (savings and outcomes)

• HSCRC and CMS staff discussed Maryland’s program structure – Maryland’s program viewed as “all carrot and no stick”– Strong indication that HSCRC must move ARR into model with explicit

Medicare savings to exemption in FFY 2014

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ARR Policy Likely to Evolve

• Modification 1: Modifying ARR into a Shared Savings Model– Preliminary options:

• Scaling approach that is not revenue neutral while setting the bar at a threshold in line with low readmission facilities – data challenges

• Target modification –level of modification required, need modeling

• Modification 2: Readmissions Payment Methodology for All– Hospitals not under an alternative agreement will adhere to payment

methodologies of ARR

• Modification 3: Move one-day stay cases back into CPC/CPE– ARR “wins” held neutral for decrease in one-day stay cases

Stay Tuned…

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Total Patient Revenue, a Global Budget Arrangement, is in Place for 10 Hospitals

• Establishes a global budget for all inpatient and outpatient hospital services for a facility– Annually, each TPR hospital global budget inflated by the annual

update factor, plus a population adjustment (capped); no case mix adjustment

• Best serves hospitals with defined catchment areas• HSCRC developing TPR monitoring tools

– More timely snapshots, merging case mix and financial information

• TPR hospitals in year 3 of three year agreements– Discussions happening for next TPR agreements

Population-Based Reimbursement (“PBR”)

• In alignment with CMS’ goals to provide incentives for hospitals treating populations, the HSCRC has begun exploring concepts in Population Health Management

• The methodology is still in development but it’s concepts are as follows.

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PBR Methodology – In Development

• It is important to understand the components of the PBR concept:– Geographic area → controls activity (cases and visits) in identified zip

codes– Hospital spending → includes both inpatient and outpatient services– Major services lines → responsible only for services that they provide

• Excludes tertiary services• Excludes specialty services

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PBR Methodology – In DevelopmentGeographic Area• The defined geographic area must be an area that the PBR

hospital controls• Control is defined at the zip code level on a percentage basis.

Options under consideration include a range:– 25% to 75%

• Approximately 50% of the patient activity suggests the PBR hospital has significant market penetration to influence patient health– Less than 50% may not provide significant control

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PBR Methodology – In Development

Hospital Spending• The PBR encompasses the HSCRC regulated charges in the

PBR zip codes for all hospitals– It includes both inpatient and outpatient charges

• PBR zip code thresholds could be set using an equivalent case

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PBR Methodology – In DevelopmentMajor Service Lines• PBR hospitals would only be responsible for services they provide

– For example: If the PBR hospital did not provide obstetric services, they would be excluded from the PBR.

– Currently testing methodologies for service exclusion:• APR-DRG basis for inpatient services • CPT/ICD-9 basis for outpatient services

• Other exclusions could include services outside the PBR hospital’s control. For example:– Tertiary services (example: certain services provided JHH and UMMC)– Specialty services (example: certain services provided at Kernan)

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Methods Requiring CMS Authorization

• Under a model testing demonstration, Maryland may request authority for methods not currently available to the state– ACOs– Gain sharing– Bundled payments

• Maryland’s all payer hospital system provides power of scale to magnify system savings under ACOs, gain sharing, and bundled payment initiatives– We recognize the need of these methods to enhance TPR, PBR, and ARR– However, translating these to an all payer environment is not well defined;

will require much activity to establish the programs

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Bundled Payments

• Maryland hospitals were not permitted to participate in CMS’ Bundled Payment initiative

• One of the most valuable parts of applying for the bundled payment initiative was access to the underlying data

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Bundled Payments

• How could bundled payments work in Maryland without the participation of physicians, post-acute providers, and other provider entities?

• Bundled payments are not a new concept– Charge per case– Charge per episode– Alternative Rate Methodologies (“ARM”)

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Bundled Payments

• Alternative Rate Arrangements (“ARM”) – The Commission may permit arrangements to accept financial risk for

the provision of hospital services under certain conditions and circumstances.

• Capitated contracts• Global pricing• Case-rate pricing• Procedure-based pricing

– Must be based on underlying cost– Must be available to all payers on the same terms and conditions

Quality

• Under a new CMS model testing demonstration hospital and system quality continues to be important– CMS will require monitoring across a range of indicators including access

to care and patient experience– CMS also will require reporting

• Continue to move forward initiatives to keep pace with CMS quality programs

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In Conclusion…

• The State is working with CMS to develop a CMS model testing demonstration with incentives around population health management.

• The HSCRC’s tools and methodologies must support the shift in this operational mindset.

• It will take significant efforts from HSCRC and hospital staff to develop thoughtful methods to succeed under this new model testing approach.

Emerging HSCRC Methodologies

Mary Beth Pohl

Deputy Director,

Research and Methodology

HSCRC

James Case

Manager

KPMG LLP

jcase@kpmg.comMary.Pohl@maryland.gov