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Anne Hubbard Maryland Hospital Association September 15, 2011 Modernizing Maryland’s Waiver.

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Presentation on theme: "Anne Hubbard Maryland Hospital Association September 15, 2011 Modernizing Maryland’s Waiver."— Presentation transcript:

1 Anne Hubbard Maryland Hospital Association September 15, 2011 Modernizing Maryland’s Waiver

2 Agenda 1.Maryland’s Medicare Waiver: Then and Now 2.Factors influencing the need to Modernize the Waiver Health Reform Total Patient Revenue— overview, benefits, risks, and strategies Maryland’s Admission Readmission Revenue (ARR) payment

3 A Brief History Lesson 1971: Health Services Cost Review Commission enabling legislation enacted 1974: Initial regulations governing rate review adopted 1977: Federal Health Care Financing Administration (now Centers for Medicare and Medicaid Services “CMS”) grants Maryland its first waiver from Medicare principles of reimbursement 1980: Congress requires the Secretary of Health and Human Services to continue the Maryland waiver as long as certain conditions are met 1984: Legislation enacted prohibiting physician clinical services from being included in hospital rates – no cross-subsidation allowed 1989: HSCRC and Maryland Hospital Association develop first set of hospital financial condition targets and cost efficiency targets

4 A Brief History Lesson 1991: Introduction of the concept of “scaling” – reallocating payments among Maryland hospitals to reward or penalize certain results 2007: Limiting payment for changes in patient volume or patient severity of illness 2008: Linking payment to quality performance 2009: Linking payment to actual vs. expected rates of potentially preventable hospital acquired conditions 2011: Incentivize hospitals to reduce readmissions

5 What is the Medicare Waiver? Maryland hospitals are exempt (have a “waiver”) from federal Medicare and Medicaid rules governing hospital payment Health Services Cost Review Commission sets the rates that Medicare, Medicaid and commercial payors must pay hospitals in Maryland (the “all-payor” system) The Medicare Waiver “Test:” The criterion by which the State is measured to determine if Medicare costs are in line. The State can do no worse than the nation

6 What is the Medicare Waiver?  “Waives” payment under the CMS PPS System and allows Medicare and Medicaid to pay HSCRC rates  Continues today under Section 1814(b) of the Social Security Act which requires: ▪All payors must participate ▪Pass a “waiver test” : the Maryland rate of increase in payments per discharge must remain below the national average rate of increase since a CY 1980 Base Period

7 Benefits of the Waiver Hospitals: Higher Medicare/Medicaid payments than under the federal programs Equitable payment for uncompensated care Predictable Payors: Lower costs, as shifting of costs from underfunded federal health care programs to commercial insurers is not allowed (no “cost- shifting”) Predictable Patients: Access Affordability Transparency

8 Medicare Waiver  Actual data lags 13 months between the time CMS Office of the Actuary calculates the waiver test and the period covered by the test  The letter compares the Maryland rate of increase to the national rate of increase for the test period Rate of increase = Current period average payment per discharge Base period average payment per discharge - 1

9 Medicare Waiver Aggregate rate of increase for the period 1/1/1981 to 3/31/2010: Maryland 312.54%, the nation 355.71%

10 Medicare Waiver MARYLAND COST PER ADMISSION COMPARISON REPORT FOR THE TWELVE MONTH SERVICE PERIOD ENDED MARCH 31, 2010 AND AGGREGATE RATES OF INCREASE FROM JANUARY 1, 1981 Maryland National A.Average Reimbursement Per Admission at 1/1/81:$2,971.65$2,293.09 (a)(b)(c )(d)(e) Twelve MonthsMedicare Avg. Cost Per Ended Part A PaymentsAdmissionsAdmission B.3/31/2010$3,241,263,197264,394$12,259.22$10,499.81 Maryland Rate of Increase:303.55% National Rate of Increase:334.10% Accumulated Medicare payments through March 31, 2011, for inpatient services, by date of service, with discharges as surrogate for admissions. Sources: Provider Statistical & Reimbursement Report for Maryland hospitals, and CMS Office of Medicare Cost Estimates.

11 Waiver Cushion Relative waiver test: How much could Maryland payments increase if the national rate of growth was zero?  March 31, 2010 most recent actual data. Relative waiver cushion = 10.46 percent

12 Medicare Waiver

13 Projecting beyond actual data  Maryland payment per discharge  Maryland discharge abstract provides another year of case-mix and volume data  Future payments projected using approved annual payment update (FY 2012) and estimates for FY 2013  National Medicare payments  Based on CMS assumptions and publicly available Medpar data

14 What’s Driving Down the Waiver Cushion and Why? Urgent U.S. health care coverage and cost concerns are driving change in Maryland and putting pressure on the Waiver. Health care provider reimbursement models are changing—the pace of change will accelerate and that will also put pressure on the Waiver. The Waiver needs to be modernized in order to adopt to the changing face of health care delivery.

15 Health Reform—Driving Change

16 Health Reform Driven by Long-Term Issues... Need for Better Access To Insurance Coverage zsdfgfdgs Substantial Opportunities to Improve Quality of Care and Patient Outcomes No Correlation Between Spending and Quality Exponential Growth in Healthcare Expenditures REFORM DRIVERS

17 Federal Health Reform “Bending the cost curve” Control the price of services (less than inflationary increases) Eliminate unnecessary use of services New delivery systems Accountable Care Organizations (ACOs) New payment models “Bundled” payment: aggregating payment for hospitals, physicians, post-acute providers “Gain-sharing”: allowing hospitals and physicians to share savings Increased emphasis on quality

18 Not All Hospitals Affected Equally “While the most efficiently operated health systems will take advantage of healthcare reform to leverage economies of scale, many not-for- profit hospitals, especially single site and small hospital systems, may struggle. Industry consolidation resulting in bigger health systems with greater access to credit—already encouraged by current market forces—likely will increase further under healthcare reform...” Moody’s Investors Service, Long-Term Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals, April 2010.

19 Paradigms Must Shift as Economic Incentives Change CURRENT STATE Source: Healthcare Financial Management Association Cost/ Efficiency Quality Physicians Collaboration Financial Risk Reduction Viewed as Discrete Projects Limited Links to Payment Drive Volume Limited Amount Required for Financial Success Revolves Around Cost Position FUTURE STATE System Approach to Continuous Process Improvement Drives Payment Drive Value All Stakeholders Must Work Together Revolves Around Utilization of Services Across Continuum

20 Payment Models

21 Financial Risk Spectrum J Ambulatory Care Manage, Vol. 32 No. 3 pp 241-251. Averill, et. al. Degree of bundling Level of financial (insurance) risk More bundled episode pmt transfers risk from insurer to provider -> TPR ARR

22 Overview of Methodology TPR = Regulated Total Gross Patient Revenue Does not include: Unregulated Services Bundling of Physician Payments TPR is 100% FIXED regardless of: Increase or decrease in volumes Change in Case Mix Intensity Inpatient/Outpatient Mix

23 Overview of Methodology TPR Adjusts for: Update Factor Quality Measures Changes in UCC Population Does Not Adjust For: Volume Changes Case Mix Changes

24 Methodology & Structural Considerations METHODOLOGY Incentive to transition to TPR Average volume growth for previous 3 years Average case mix growth for previous 3 years Exemption from negative scaling Exemption from state-wide readmission policy Outlier cases are inclusive in TPR STRATEGIC Expected volume growth or decline Program changes and CMI impact De-regulation of services and/or addition of new services One-day stays converting to observation ROC projections Market Share implications

25 Managing Under TPR Care Delivery Considerations Service Use Since volume growth and service mix changes do not produce additional revenues, appropriate service use is the key driver to TPR efficiency This includes service delivery across the entire continuum: Public health and preventative efforts Primary care and physician office services Ambulatory and ancillary services Acute inpatient services Home health care Assisted living, skilled nursing and hospice services Ultimately, reducing hospital expenses at the same level of revenue = TPR prosperity

26 Managing Under TPR Physician Relationships Physician Recruitment Greater focus on primary care vs. proceduralists, i.e., Thoracic Surgeon Recruit proceduralists that prevent transfers Invest in physicians who can demonstrate quality not volume Physician Compensation Modify incentives from strictly productivity based to service line efficiencies, expense control, and quality metrics Focus on office-based procedures vs. hospital procedures

27 Managing Under TPR Physician Relationships [cont’d] Relaxation of restrictive not-to-compete covenants. There is an undefined “tipping point” in the TPR agreement where the hospital cannot completely shift services to an unregulated environment Less reliance on inpatient consults and more emphasis on follow-up for post discharge Support physicians to better coordinate care in physician offices Aligns hospital and physician incentives to support independent practices and reduce the need to employ more physicians

28 Managing Under TPR Financial Management / Budgeting Predictability –3 year focus on revenue –Less importance on volume growth –Not impacted by seasonal variation –Estimate update factor Flexibility –Banking of revenue Lower volumes Adjust pricing to offset changes in volumes

29 Managing Under TPR Financial Management / Budgeting [cont’d] Financial Oversight –Greater focus on expense reduction –Enhance efficiencies not volumes –Case mix changes do not affect TPR revenue base –Documentation and coding still important to monitor quality measures as well as ROC performance –High standards of documentation and coding remain important for RAC compliance

30 Managing Under TPR Capital Formation / Allocation Priority to fund new programs to improve quality, patient safety and enhance efficiency and reduce cost Reduces need to with focus on ambulatory care and fund expensive expansion program Investments in technology and community wellness programs –Community Health Information Exchange [C-HIE] Community Case Management –Large primary care practices, virtual medical homes. Hospital Case Management –Emergency Room

31 Managing Under TPR Capital Formation / Allocation [cont’d] Home health services Post acute care Expense management –Reassign acute care staff to case management, ambulatory care and community wellness to improve efficiencies under TPR Invest in existing unregulated services to respond to volume increases, i.e., home care

32 Operational Considerations/ Opportunities Realign incentives for management Focus on quality, patient safety, HCAHPS, and expense management vs. volume growth Future services or expansions require careful consideration Look towards most cost effective environment

33 Operational Challenges Under TPR, the hospital’s economic incentives are different than most physician incentives who are compensated on admissions and utilization of services – exactly the opposite of hospital incentives Requires broad-based organizational culture change Approach to staffing Greater emphasis on people managing care Higher priority on new programs that reduce unnecessary utilization and expense reduction

34 Operational Challenges, cont. Lack of primary care physicians and physician shortages Increased Medicare/Medicaid enrollments Maintain high inpatient market share and reduce admissions Lack of control over volumes in a growing and older community

35 Alignment with Healthcare Reform Hospital/Physician relationships are evolving under health care reform Accountable care organization [ACO] structures, bundled payments and gain sharing arrangements should be expanded Creation of clinical integration PHO model Self insured medical plan Focus on primary care medical home [PCMH] TPR aligns hospital/physician incentives with the goals of PCMH Regional care coordination contracts with payors Affiliation strategies Partnering with tertiary care facilities

36 Hospitals Currently Under TPR Calvert Memorial Hospital Carroll Hospital Center Chester River Hospital Center Dorchester General Hospital Garrett County Memorial Hospital The McCready Foundation Memorial Hospital at Easton Union Hospital of Cecil County Washington County Health System Western Maryland Health System

37 Admission-Readmission Revenue (ARR) Arrangement

38 Key Objectives 1.Types and Causes of Readmissions 2.Overview of ARR Policy 3.Financial Impact of ARR Policy

39 Readmissions Episode Policy Provides Clear Incentive No Readmissions PolicyEpisode-Based Payment Base Revenue

40 Definitions Readmission –Patient is admitted to the hospital within a specified period of time after having been discharged.  15-day window  30-day window –Reason for readmission  All causes (120,000)  Potentially preventable (60,000)

41 Definitions Readmission to what hospital –To the discharging hospital (Intra-hospital)  Accounts for 75 percent of all potentially preventable readmissions (PPR) –To another hospital in Maryland (inter-hospital) –To hospital outside of the state (inter-hospital)

42 MHA Supports HSCRC Admission-Readmission Revenue (ARR Proposal) Compares hospital performance to self in prior time period--rewards improvement Measures readmissions to same hospital (or system) Clear incentive to reduce readmissions Voluntary Hospital at risk for 100 percent of cost if readmissions increase Too much risk for some hospitals

43 Episode-Based Readmissions Policy Voluntary option at 100 percent risk –Allows the hospital to keep the existing revenue base –Revenue defined per episode of care, not charge- per-case  Hospital is at risk for increases in readmissions  Hospital benefits from reductions in readmissions  Model provides incentives to invest in care coordination beyond the hospital stay  Reductions in intra-hospital readmissions benefit payors: o Reduced inter-hospital readmissions o Reduced stays not in bundling (e.g., one-day stays) o Reduced admissions beyond episode period o Reduced ED visits through improved care coordination

44 Causes of Readmissions Multiple causes (All cause) –Planned procedure or treatment –Recurrence/worsening of condition –Potentially preventable  Complications stemming from condition or treatment  Social concerns (transportation, food, live alone)  Medication management/reconciliation  Patient compliance  Lack of coordination between hospital and community physicians  Fragmented, disorganized community care  Inadequate evidence-based chronic care

45 Barriers to Reducing Preventable Readmissions Transitional care (labor intensive) requires funding Physicians are not paid for care coordination Fragmented care, inadequate chronic care Medicare and most payors do not pay for care coordination and transitional care--an inherent problem with fee-for-service –DRG payments encourage efficiency within a given hospital stay –Do not reward efficiency for an entire episode of care Patient compliance

46 Intra Hospital PPRs by Reason Clinical Initiatives will address the highest Category of Readmissions, Medical Reasons based on Quality, Transition of Care and Ambulatory Sensitive Conditions

47 ARR Strategy Assemble multi-disciplinary team focused on readmissions Review year over year readmissions Review clinical trends Top initial admission and readmission service line and DRGs Types of initial admissions and readmissions Chronic conditions Complications Recurrence of similar condition Other clinical trends Admission source Physician Possible system issues

48 Benefits Innovation in payment model toward episode, away from volume Supports separate medical home effort Care coordination/transitional care improves quality, safety, and effectiveness of care Care coordination improves patient experience Reduced readmissions/ER visits saves cost Capacity freed up to accept newly insured under reform and aging population, avoiding system strain and investments to increase capacity.

49 Up-Front Financing and Return on Investment

50 Implementation Costs Cost Per Discharge Statewide Cost Hospital Setup Costs Project Management and Consulting$10,000 Nurse Training$5,000 Technology Setup$10,000 TOTAL Initial Cost$25,000 Operational Costs Nurse Time Per Discharge (in hours)0.50 Nurse Hourly Cost$65 Printing Cost Per Discharge$4 Technology$10 Follow up Phone Intervention Time0.30 Clinical Pharmacist Hourly Cost$100 TOTAL Per Discharge$77 *Total Number of Discharges697,053 Number of Hospitals49 Total Initial Cost$1,225,000 Total Operational Cost$53,324,555 First Year Annual Cost$54,549,555

51 Mature Cost Savings Potential--PPRs Several pilot programs have reduced readmissions. –Up to 25 percent reduction in “preventable readmissions” Approximate magnitude: –Assume potentially preventable readmissions of 8 percent –A 25 percent improvement = 2.0 percent of inpatient revenue –2.0 percent inpatient revenue = 1.4 percent of total revenue –PPR savings to payors and public = 0.56 percent

52 Additional System Savings--Not Bundled Reduced revenue not bundled (85 percent) –Reduced ER visits--0.1 percent total hospital revenue –Reduced inter-hospital readmissions (20 percent)-- 0.2 percent total hospital revenue –Readmission revenue not bundled (e.g., one-day stays)--0.2 percent –Reduced admissions beyond 15 day window--not quantified Savings to payors and public = 0.50 percent

53 Savings Summary Mature annual savings Reduces hospital costs and improves quality of care Hospital Revenue Payors Savings (Cost) PPR reduction(0.56%)0.56% Return visits not bundled(0.50%)0.50% Hospital cost savings0.70% Implementation cost0.44%(0.44%) Net impact0.08%0.62%

54 Summary Savings beyond these levels require build-out of medical home and chronic care models, telemedicine Bundling readmissions is an important reform opportunity It complements the reform initiatives for primary and chronic care Aims to improve care delivery with net cost reductions Require intense investments of care coordination, IT, and other resources

55 New Payment Methodologies Diminish the Waiver Cushion As more cases are shifted to outpatient and observation those that remain in inpatient are more expensive and complex, driving up the cost per admission. Waiver was based on inpatient admissions. More emphasis is now placed on outpatient services and observation. Inpatient admissions have seen marked decreases over the last decade while outpatient services have seen increases.

56 Future Vision Modernize Maryland’s Medicare waiver Align hospital and physician payment incentives All-payor rate setting All-provider rate setting? Expanding the waiver metrics to include cost and quality? New role for the Health Services Cost Review Commission?

57 Waiver Modernization The Waiver must be modernized so that Maryland can continue to operate the All Payor System. A modernized waiver must: Recognize the growth in outpatient and observation cases Recognize new payment methodologies and the critical role of quality measures Recognize the importance of providing patients with a continuum of care

58 Waiver Modernization: What’s Next? MHA has established an internal workgroup to determine hospital field priorities An external workgroup has also been established: DHMH – Secretary Joshua Sharfstein HSCRC – John Colmers, Chairman Payors – CareFirst and United

59 Questions?


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