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Mechanics of the New Waiver Test Brett McCone Managing Director, KPMG LLP.

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Presentation on theme: "Mechanics of the New Waiver Test Brett McCone Managing Director, KPMG LLP."— Presentation transcript:

1 Mechanics of the New Waiver Test Brett McCone Managing Director, KPMG LLP

2 Discussion Overview Background Financial Targets Quality/Utilization Targets Proposed Terms Questions and Answers 2

3 Background On October 10, 2013, the State of Maryland applied to the Center for Medicare and Medicaid Innovation (CMMI) for a demonstration project to improve outcomes, to enhance patient experience and to control costs. The application was approved on January 10, 2014 The resulting All-Payer Model (“the Model”) shifts the focus from historic price per encounter controls to a focus on overall revenue growth, including price and use. 3

4 Background Under the historic model, hospitals in the State of Maryland received a “waiver” from Medicare’s Inpatient and Outpatient Prospective Payments Systems (IPPS and OPPS) so as long as Maryland’s Medicare payment per admission grew below the national average. –The historic Waiver Test compared growth rates in Medicare payment per admission since the CY1980 base period (33 years!) –Price per Admission = Limited controls on utilization required under the test (at least on admisions) –No provision for outpatient price measurement Maryland’s previous Waiver was codified in Section 1814(b)(3) of the Social Security Act (SSA) 4

5 Background The New Model includes the following provisions: –Annual all-payer, per capita, total hospital cost growth limited to 3.58% –Maryland’s Medicare per beneficiary total hospital cost growth rate must be below the national Medicare per beneficiary average, resulting in $330m of Medicare savings over five years –80% of Maryland hospital revenue shifted into global payment models by year 5 –Maryland’s Medicare per beneficiary total cost growth rate cannot exceed the national average by more than 1 percentage point, and must be “break even” with the national average by year 4. 5

6 Background The Model includes the following provisions (cont.): –Maryland will reduce its 30-day Medicare readmission rate to the national average in five years –Annual Potentially Preventable Complication (PPC) reduction of 6.89%, for a cumulative 5 year reduction of 30%. –Maryland will propose a model extension at the start of Year 4 –Waives Section 1814(b)(3) of the SSA: Maryland’s historic Waiver Test If the Model is not extended, or terminated early, Maryland hospitals will transition to the national Medicare payment systems. …yes, we are working without a net. 6

7 Financial Targets 7

8 Financial Targets: All-Payer Test All-payer per capita growth rate of 3.58% is the ten year average annual growth rate in Maryland Gross State Product (GSP) per capita (2002 – 2012) 3.58% is fixed cap for years 1-3. In years 4 and 5, Maryland may adjust the all-payer cap for more recently available GSP data. 8

9 Financial Targets: All-Payer Test The all-payer per capita growth rate is expected to be calculated using: –Regulated, inpatient and outpatient hospital charges, from Maryland hospitals for Maryland residents receiving services. Summarized from the new monthly hospital charge submissions for Maryland and non-Maryland residents –Population growth from the Maryland Department of Planning. Interim population growth estimated from State projections 9

10 Financial Targets: All-Payer Test Illustrative example: 10

11 Financial Targets: All-Payer Test Compliance calculation – Example 1: 11

12 Financial Targets: All-Payer Test Compliance calculation – Example 2: 12

13 Financial Targets: All-Payer Test Points to consider –Timeliness and accuracy of monthly data reported MD Resident vs. Non-MD Resident charges –Population estimates versus actual experience –Variable changes in rates (assessments, UCC, etc.) –Use of charges versus payments (Not a significant risk unless the differential changes) Monitoring compared to other data sources (CRISP, etc.) 13

14 Financial Targets: Medicare Test From the October 11, 2013 Application: –“In addition to limiting…cost growth for all payers…Maryland will limit its Medicare per beneficiary total hospital cost (payment) growth…to produce $330m in Medicare savings over five years.” –“CMS will calculate Medicare savings by establishing a baseline that is the actual Medicare per beneficiary total hospital expenditures (payments) for Maryland Medicare fee- for-service beneficiaries in 2013 trended forward by the national average growth rate in Medicare per beneficiary hospital expenditures (payments) to each year of the model and comparing Maryland’s annual Medicare per beneficiary hospital expenditures…” 14

15 Financial Targets: Medicare Test Baseline = CY2013 Medicare hospital payments for Maryland Medicare beneficiaries –Medicare hospital payments = Inpatient and outpatient hospital payments Medicare claim type 60 (Inpatient) and claim type 40 (Outpatient), TOB = 11X Includes: short term general hospitals, multiple hospital component in a medical complex, Alcohol/drug hospitals Excludes reference lab (unregulated) Excludes 72x bill type (ESRD clinics) Refer to CMS application, page 53 for guidance –Maryland Medicare beneficiaries = All Maryland residents who are (Medicare) fee-for-service beneficiaries enrolled in Part A and/or Part B –Includes all geographic service locations: in-state and out-of-state 15

16 Financial Targets: Medicare Test 16

17 Financial Targets: Medicare Test A CY2013 baseline will also be established for the national average The savings test will compare the actual growth rate of the Maryland hospital payment per beneficiary versus the applied national (actual) growth rate to the baseline Maryland hospital payment per beneficiary. The growth rate differential applied to the Maryland beneficiary total will compute the annual savings The October 11, 2013 application reflects savings targets (p. 16) that assume no savings in year 1 and approximately 0.5% below the national trend in years 2-5. The assumptions and charts on the next several pages reflect illustrative, example calculations. The figures are NOT EXACT and are examples only. 17

18 Financial Targets: Medicare Test Assumptions: –Maryland Medicare beneficiaries remain fixed for all periods at 845,000 Table 2.8 at Reports/MedicareMedicaidStatSupp/2013.htmlhttp://cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and- Reports/MedicareMedicaidStatSupp/2013.html –Example Maryland per beneficiary base = $6,545 Source: 10/11/13 CMS application –Fixes national payment per beneficiary growth at 1.0% per year (general assumption for illustrative purposes) Scenarios: –“A” Targeted growth rates to achieve CMS application annual targets –“B” Straight line savings beginning in CY2015 to achieve $330m savings target –“C” Straight line savings beginning in CY2014 to achieve $330m savings target –“D” Straight line savings beginning in CY2014 with a fixed 0.5% savings per year 18

19 Scenario “A” Targeted growth rates to achieve CMS application annual targets 19

20 Scenario “B” Straight line savings beginning in CY2015 to achieve $330m savings target 20

21 Scenario “C” Straight line savings beginning in CY2014 to achieve $330m savings target 21

22 Scenario “D” Straight line savings beginning in CY2014 with a fixed 0.5% savings per year 22

23 Financial Targets: Medicare Test Points to consider: –Uncertainty of national growth rate –Impact of the ACA (coverage expansion, etc.) –Localized clinical epidemic –Inclusion of unregulated services in the hospital measure –MD vs. national percentage of Medicare Part B to Medicare Part A beneficiaries –Relationship of All Payer ceiling to Medicare savings 23

24 Quality Targets: Readmissions Maryland maintains its waiver from the CMS Hospital Readmission Reduction Program. To do so, Maryland will reduce 30-day Medicare readmission rate to the national average in five years –Most recent Medicare readmission rates: Maryland = 20.5% vs. national = 18.5% Based on the most recent data, a 0.5 percentage point reduction in the rate each year of the agreement is required Appendix B of the application (p. 55) outlines the readmission calculation –Monthly readmissions rate = Readmissions during the 30 day period / index admissions that occurred during the month –Readmission occurs if first day of a stay occurred within 30 days of the last service date of an index admission 24

25 Quality Targets: MHAC/PPC Maryland maintains its waiver from the CMS Hospital Acquired Conditions Program. Maryland will achieve an annual, aggregate reduction of 6.89% in 65 Potentially Preventable Complications (PPCs) –PPCs, not MHACs –30% reduction over 5 years 25

26 Proposed Terms During the five year period, there are specific events that will lead to further review by CMS and potentially early termination. (Application p. 17) They are: –Failure to achieve (Medicare) savings for two consecutive years –Failure to meet the cumulative (Medicare) savings target by $100m or more at any point during the life of the model –Annual growth in Maryland Medicare per beneficiary total cost that is more than 1% point greater than the national average –Determination of significant quality of care deterioration Should any of these occur, CMS will provide notice to Maryland. –Maryland has 90 days to respond, with CMS having 90 days to accept the response or request a corrective action plan, due in 30 days. –If the corrective action plan is not implemented successfully within 1 year of notification, CMS may terminate the agreement. –See flowchart in Application, page

27 Questions and Answers 27

28 Thank You Brett McCone Managing Director, KPMG LLP


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