1. Prospective Payment Transformation July 13, 2012

2. Medicaid Programs: Daunting Challenges States Facing Unprecedented Deficits Medicaid Targeted As Enrollment and Costs Increase ACA Requirements-Immediate and Coming Payment System Transformation MMIS Transformation ICD-10 Conversion

3. If The Fiscal Crisis Does Not Sufficiently Challenge State Medicaid Programs, Then: The Patient Protection and Accountable Care Act (ACA) presents State Medicaid programs with new : –Demands on eligibility management, payment, operations, fraud –Support: increased federal matches, innovation demos and pilots –Major restructuring of the States’ relationship with CMS –Coordination with new insurance exchanges –Payment reform initiatives underway

4. DRG Use Types DRG systems are used for case-mix trending, utilization management and quality improvement, comparative reporting, prospective payment, and price negotiations. For all of these it is essential to know the accuracy with which the DRG system classifies patients, specifically for predicting resource use and also mortality.

5. Four most commonly used DRG systems Medicare CMS DRGs Medicare MS DRGs (Severity adjusted) All Patient Diagnosis-Related Groups (AP- DRGs) All Patient Refined Diagnosis-Related Groups (APR-DRGs - Severity adjusted)

6. There are major differences in the structure and statistical performance of the four systems for neonatal patients. The Medicare CMS DRGs are structurally the least well-developed and yield the poorest statistical performance. The APR-DRGs are structurally the most developed and yield the best statistical performance, both for cost and risk of mortality. The AP-DRGs and MS DRGS are intermediate to Medicare CMS DRGs and APR-DRGs. Reference: PEDIATRICS Vol. 103 No. 1 Supplement January 1999, pp. 302-318 SECTION 2: MEASUREMENT: Structure and Performance of Different DRG Classification Systems for Neonatal Medicine John H. Muldoon From the National Association of Children's Hospitals and Related Institutions, Alexandria, Virginia.

7. APR DRGs: Classification System APR DRG Structure Data Elements Coding and Documentation Comparison to other DRG systems

8. Center for Medicare/Medicaid Services “Our[CMS] primary focus of updates to the Medicare DRG classification system is on changes relating to the Medicare patient population, not the pediatric or neonatal patient populations. … We advise those non-Medicare systems that need a more up-to-date system to choose from other systems that are currently in use in this country, or to develop their own modifications. As previously stated, we do not have the data or the expertise to develop more extensive newborn and pediatric DRGs. Our mission in maintaining the Medicare DRGs is to serve the Medicare population.” Federal Register, Vol. 69, No. 96, May 18, 2004, p. 28210

9. How are APR-DRGs Different from Previous DRG versions? CMS DRGs do not adequately represent the non-Medicare population Formed using patient data from all payers, not just Medicare, resulting in a system more appropriate for Medicaid patients. The previous system could not be used for any type of mortality analysis because death was used to define the base DRG. The subclasses (cc’s) were formed based on resource intensity and did not address severity of illness or risk of mortality. There was no recognition of the impact of MULTIPLE secondary diagnoses. Significant review of procedure codes defined as non-OR

10. Outliers A large proportion of children’s hospital patients are long stay/high cost outliers. Fewer patients are short stay/low cost outliers. Children’s hospitals are at risk for financial losses for high outlier patients. Most hospitals are less likely to incur the same risks for long stay/high cost outliers. These hospitals may receive gains from low outlier patients not achieved by children’s hospitals

11. Estimates of the overall proportions of admissions, days, and costs that are for outlier patients. Children’s Hospitals: − High outliers: 11% cases, 39% days, 43% costs. − Low outliers: 6% cases, 2% days, 2% costs. General Hospital Pediatric Patients, age 0-17 yrs, excluding normal newborns: − High outliers: 4 ½% cases, 21% days, 24% costs. − Low outliers: 14 ½% cases, 6% days, 4% costs. General Hospital Adult Patients, age >17 yrs: − High outliers: 5% cases, 18% days, 15% costs. − Low outliers: 6% cases, 3% days, 3% c Source: Unpublished study of NACHRI

12. The Current Payer Situation State financial crises compel Medicaid leaders to propose aggressive, immediate cost containment programs Choices are (1)across-the-board cuts or (2) targeted payment system changes that promote quality and efficiency, or (3) combination of 1 and 2 Medicaid directors receptive to increase use of managed care—but seeking greater accountability from the MCPs CMS and State Medicaids are working together at much more interactive level on payment initiatives Commercial payers are watching state and federal VBP efforts – talking up ACOs-a few progressive Blues are engaged in significant payment transformation

13. The Right Classification & Payment Systems Population appropriate: NAHCRI co-developer of APR DRGs to ensure obstetrical and pediatric cases addressed Categorical model with clinically and financially meaningful groups: payers and providers can manage at enterprise, service line, DRG and patient level Risk adjustment for patient illness burden: 2008 CMS Rand study rates APR DRGs superior to all other system Accurate risk adjustment is essential to the outcomes quality based payment models

14. The Right Classification & Payment Systems All Patient Refined DRGs for inpatient services Enhanced Ambulatory Patient Groups (EAPGs ) for outpatient services Clinical Risk Groups: population based grouper used with managed care plans, all payer claims databases, ACOs Episode Grouper combines separate but clinically related items and services into an episode of care for an individual- in development for CMS –commercial available in Q1 2012

15. © 3M 2007. All rights reserved. Outcomes Measures  Link quality to payment  Process-providers determine best processes and practices  Outcomes  Focus on quality outcomes  Inpatient complications (PPCs)  Readmissions (PPRs)  Have added Admissions, Emergency Visits, Ancillary Services  Collectively the Potentially Preventable Events (PPE)  Measure provider PPE performance-compare risk adjusted PPE rates to state norm (average or best practice)  Provide performance reports to providers to foster improvement

16. Potentially Preventable Events Not all readmissions are preventableClinically related to initial discharge Result of poor quality care, discharge disposition and/or, follow-up care Potentially Preventable Readmissions (PPR) Potentially Preventable Complications (PPC) Potentially Preventable Initial Admissions (PPIA) Potentially Preventable Visits (PPV) Potentially Preventable Services(PPS)

17. Avoidable hospitalizations and associated physician costs 3M-developed list based on APR-DRGs More expansive than ACSCs Result of inadequate access to care or adhering to treatment Potentially Preventable Events Potentially Preventable Readmissions (PPR) Potentially Preventable Complications (PPC) Potentially Preventable Admissions (PPA) Potentially Preventable Visits (PPV) Potentially Preventable Services(PPS)

18. Avoidable ER visits 227 PPVs based on EAPGs 75% associated with top 10 Result of access to care Potentially Preventable Events Potentially Preventable Readmissions (PPR) Potentially Preventable Complications (PPC) Potentially Preventable Initial Admissions (PPIA) Potentially Preventable Visits (PPV) Potentially Preventable Services(PPS)

19. Avoidable harmful events or negative outcomes Never events, HAIs, and other complications Result of process of care/ treatment, not disease progression Potentially Preventable Events Potentially Preventable Readmissions (PPR) Potentially Preventable Complications (PPC) Potentially Preventable Initial Admissions (PPIA) Potentially Preventable Visits (PPV) Potentially Preventable Services(PPS)

20. Avoidable professional services performed outside of IP or HOPDs Based on EAPGs Critical to have appropriate risk adjustment underneath Potentially Preventable Events Potentially Preventable Readmissions (PPR) Potentially Preventable Complications (PPC) Potentially Preventable Initial Admissions (PPIA) Potentially Preventable Visits (PPV) Potentially Preventable Services (PPS)