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Idaho Workers’ Compensation Inpatient, Outpatient, ASC Review May 2008.

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Presentation on theme: "Idaho Workers’ Compensation Inpatient, Outpatient, ASC Review May 2008."— Presentation transcript:

1 Idaho Workers’ Compensation Inpatient, Outpatient, ASC Review May 2008

2 © Ingenix, Inc. 2 Agenda Overview  Introductions  History of project The national hospital environment  Deductible ratios  Cost to charge ratios Methodology considerations  Objectives: What is desirable in a system?  A commercial approach?  How other states are tackling the problem  How Medicare does it How does today look?  Inpatient  Outpatient  Need for More Data Implications

3 © Ingenix, Inc. 3 Project History  Introductions  In 2006, the Idaho Industrial Commission contracted with Ingenix to review physician fee schedules as well as hospital inpatient, outpatient and ambulatory surgical center charges and costs.  The physician project finished in  This presentation is the result of the numerous meetings during the last months among IIC, Ingenix and stakeholders.  The purpose is to share information about possible approaches to a facility schedule. No decisions have yet been made by the Commission..

4 © Ingenix, Inc. 4 The hospital environment Workers’ compensation does not occur in a vacuum.  Medicare has, and will continue, to make major payment methodology changes –CCI Edits in April 2000 –APC Outpatient payment system August 2000 –DRG inpatient restructuring –New ASC payment methodology January 2008  Pay for performance –Third party payers are moving in this direction –Medicare performance measures  General move to Medicare-type system  For most hospitals, workers’ compensation represents no more than 3-5% of all claims

5 © Ingenix, Inc. 5 The deductible ratio  Third party commercial payers demand larger discounts.  A hospital’s deductible ratio can be determined from Medicare Cost Reports. It is the amount of money a hospital expects to receive after all discounts.  From the national median deductible ratio (the discount hospitals expect to provide) has increased from 46.5% to 52.2%.  In Idaho, the ratio has changed from in 2002 to in The deductible ratio is a multiplier, so its impact is greater than a simple subtraction might indicate.

6 © Ingenix, Inc. 6 Cost to charge ratio  Cost to charge ratio  (Hospital cost) / (hospital charge)  Example: A $1,000 MRI at a hospital with a cost to charge ratio of The estimated cost (to the hospital) for the MRI would be $447.  A measure of a hospital’s charge amount to the hospital’s cost of providing the service  Often called the RCC or CCR  There are multiple different RCCs. For illustration, we considering the facility-wide operating RCC.  Calculated and published by Medicare from required hospital cost reports.

7 © Ingenix, Inc. 7 Why is the RCC important? It is a meaningful, consistent way of determining whether hospital costs or charges are increasing at a faster pace. Examples Year 1: MRI charge = $1,000. Hospital cost to perform is $500. The cost to charge ratio is (500/1000) Year 2: Hospital raises price of MRI to $1,200. Hospital cost to perform remains same. RCC is (500/1200) Year 3: Hospital costs go up to $800, but charge stays same. RCC is.666 (800/1200)

8 © Ingenix, Inc. 8 Idaho & Montana RCC average comparison Fiscal yearMTID * Migration to Critical Access Hospitals became effective From , on a statewide basis, Idaho charges have outpaced cost increases by 12%. Source: CMS (Medicare) IPPS Impact File

9 © Ingenix, Inc. 9 Constant cost illustration On a national basis, the cost to charge ratio generally has been declining. Look at how the discounts affect hospitals. We’ll hold a hospital’s cost of the service steady at $1,000 for the last five years. In reality, costs have been going up. YearChgRCCHospital DeductibleNet to CostRatioHospital 2002$1,686(.593)$ $ $1,886(.532)$1, $ $2,012(.497)$1, $1, $2,020(.495)$1, $ $2,074(.482)$1, $ $2,150(.465)$1,000 * not yet available Hospital Cost = Charge * RCC Net to Hospital = (1 - Deductible ratio) * charge Source: Almanac of Hospital Financial and Operating Indicators 2008

10 © Ingenix, Inc. 10 Where does this leave workers’ compensation?  Nationally, many states have (or had) a system that pays some percentage of charge amount.  Those systems historically worked well where charges and costs were linked.  Medicare, Medicaid, insurers and other factors have diminished linkage between the cost of service and amount charged  When charges are less influenced by the cost of providing the service and more by other factors, percentage discount systems begin to feel the strain.  As the result, a significant number of states are looking at different payment methodologies

11 © Ingenix, Inc. 11 Objectives: What is it that needs to be done? What components are needed for a successful system?  Reduce any inequities so patients are treated in appropriate settings  Eliminate bottlenecks while maintaining system integrity.  Ensure providers are paid fairly  Create predictable payments for insurers  Craft a system that payers can manage  Create clarity in rules and the simplest possible system for dispute-resolution and on-going maintenance

12 © Ingenix, Inc. 12 How about a PPO or other commercial approach? Commercial payers often negotiate discounts through PPO or similar arrangements. Two issues with this in a workers’ compensation environment: 1.PPOs, by their very nature, limit access to care. A patient can go to a non-PPO provider, but the patient pays more in co-pays. In a workers’ compensation case, the patient pays nothing, so there is no mechanism to force a patient to a preferred provider. 2.Workers’ compensation represents a very small portion of any hospital’s business. It is very difficult to negotiate a volume discount when there is no volume.

13 © Ingenix, Inc Inpatient Splits by Payer Type Payer-TypeAvg Chg% of Volume Medicare$36, % Medicare HMO$29,4044.5% Medicaid$22, % Medicaid HMO$21,9143.0% Commercial (Self- Insured, BC/BS)$25, % Commercial HMO$23,7969.6% Commercial PPO$26,5786.0% Workers’ Compensation$41,1480.5% Champus (Tri-Care)$22,9250.5% Source: Ingenix All-Payer Database

14 © Ingenix, Inc. 14 Facility workers’ compensation approaches “Home Grown” (New York - Medicaid) –Based on either historic practice or local needs. –Pros: May be best approach for local conditions –Cons: Usually difficult to maintain and update, often have no built-in growth and/or control mechanisms No Schedules (Iowa, Missouri) –May be found in states with multiple payers. Market forces decide –Pros: May be most cost efficient if strong competition –Cons: May be most costly if little payer competition. Little or no standardization. Percentage discount schedules (Idaho, Vermont) –Relatively common –Pros: Easy to understand, implement –Cons: Holds no real cost containment methodology.

15 © Ingenix, Inc. 15 Facility workers’ compensation approaches, continued Fee schedule system (Nebraska) –Standardized approach based on a fee schedule system with flat or variable rates for different types of services. –Pros: May work well for well-defined services –Cons: Usually difficult to maintain and update, often have no built-in update methodology, may become complex with multiple schedules or tiers Commercial percentile reimbursement (Illinois) –Based on survey of commercial payer reimbursement rates –Pros: Maybe most up-to-date, based on survey / contribution / federal data, maybe most reflective of market conditions –Cons: May appear less transparent. May have insufficient data in some states or for less frequently used codes.

16 © Ingenix, Inc. 16 Facility workers’ compensation approaches, continued Cost-Plus System (Rhode Island, Oregon ) –Hospital charges are reduced to cost using RCC. Hospital is then reimbursed at cost plus some percentage –Pros: Easy to understand, update –Cons: Doesn’t prevent code/DRG migration. No outlier formula. Can be manipulated. There is no incentive to control costs. Baserate/relative weight system (Mississippi, Georgia) –Follows standardized payment methodology ala Medicare –Pros: Fairly easy to update, relatively transparent to all –Cons: Establishing appropriate baserates usually needs discussion Medicare (Texas, West Virginia) –Follows standard Medicare methodology –Pros: Medicare does most of the rate-setting work, transparent –Cons: Hospitals usually regard Medicare payments as too little

17 © Ingenix, Inc. 17 Some definitions  DRG: Diagnosis Related Group, a grouping for a specific inpatient case. There are many different types of DRG grouping systems; right now, we are using Medicare’s DRG groupings.  MS-DRG: Medicare's revised DRG system that does a better job of recognizing the severity of illness of a patient. Went into effect Oct. 1,  Baserate: A term that is similar to that of a conversion factor or multiplier that is used in hospital inpatient. The 2007 baserate was $4,874.  Relative weight: How expensive a case is in relation to other cases. CMS sets relative weights for DRGs based on the cost of the DRG compared with other DRGs.

18 © Ingenix, Inc. 18 Medicare inpatient payment methodology  MS-DRGs are a way of bundling services 745 MS-DRGs numbered from 001 to 999  Based on primary and secondary diagnosis codes and demographic information (sex, discharge status)  Calculating an MS-DRG Payment  Every MS-DRG is assigned a relative weight.  Relative weight x MS-DRG baserate = MS-DRG Payment  MS-DRG payments are split into two components, a wage indexed labor component and a non-labor component which is not index adjusted. The percentage split between the wage indexed and non- wage indexed depends on whether a hospital is classified as rural or urban.

19 © Ingenix, Inc. 19 Example breakdown  DRG 497, relative weight  Maine Medical Wage Index  Wage Adjusted DRG Portion $3,  Non-labor DRG Payment $1,  Total DRG baserate $4,  DRG Payment = $4, * $18,457  Disproportionate share amount $1,507  Indirect Medical Education amount $2,727  Total operating payment  $18,457 + $1,507 + $2,727 = $22,692  Total capital payment = $1,881  Total payment $24,574 Note that the “effective” baserate is $6,434. That is the total payment ($24,574) divided by the relative weight (3.8192)

20 © Ingenix, Inc. 20 Medicare payments  Amounts not included  Outlier amounts are not included in the Medicare calculation as outliers typically are one-time events and problematic to estimate in advance. Without knowing the specific facility and case, it’s difficult to calculate a precise outlier amount.  Other payments that occur at the cost report level are not included. These may include items such as graduate medical education and other specialized programs. Critical Access Hospitals – smaller, rural hospitals – are paid at 101% of reasonable cost.

21 © Ingenix, Inc. 21 A core Medicare issue for hospitals -- Underpayment  A 2005 Pennsylvania Health Care Cost Containment Council study found that Medicare underpaid hospitals by 16 percent.  A 2006 Milliman Inc. study for Blue Cross/Blue Shield in Washington found that Medicare underpaid Washington state hospitals by about 15 percent.  Data in the Milliman study also implied – on a statewide basis for Washington – that commercial insurers were paying 49.9% above Medicare.

22 © Ingenix, Inc. 22 Charge compression -- why it affects workers’ comp Charge compression is where hospitals have different markup ratios depending on how expensive the item is.  A bandage costs $1. A hospital charges $10. The markup ratio would be 10 ($1 x 10 = $10) while the RCC would be 0.10 ($1/$10 =.10)  A stainless steel replacement hip might cost $10,000 and a hospital charges $15,000. The markup ratio is 1.5 ($10,000 x 1.5 = $15,000) while the RCC is ($10,000/$15,000).  Charge compression comes about because both items are reported in the same place in the Medicare Cost Report.

23 © Ingenix, Inc. 23 RCCs work at the cost report level  On a national, Medicare-wide basis, charge compression averages out.  Broadly speaking, an MS-DRG’s relative weight is based on the national median cost of performing the service.  However, if a hospital doesn’t mirror the national average for types of cases on which MS-DRG weights are based, charge compression comes into play.  If everything were priced at the same markup ratio, charge compression would not be an issue. Hospitals don’t work that way, so charge compression has a greater impact on hospitals with expensive medical supply costs.

24 © Ingenix, Inc. 24 Charge compression and implantables  Charge compression essentially skews the relative weight of an MS-DRG when expensive implantables are involved and the hospital’s services differ dramatically from the “average” hospital.  Proportionately, workers’ compensation cases tend to have a higher percentage of implantables, and they tend to be more expensive implantables.  As the result, in a workers’ compensation payment methodology, it may be desirable to have an implantable methodology that provides additional payment for more expensive implantables.  Otherwise, a hospital can’t sell enough $10 bandages to make up for the $10,000 hip, especially in a workers’ compensation environment.

25 © Ingenix, Inc. 25 Outliers and payments On a system-wide basis, two things affect the overall system expenditures for hospital inpatient:  Baserate  Outlier trigger point and outlier payment If an outlier trigger point is some function of the normal payment amount, then the baserate affects where outliers are triggered. System Cost = Routine payments + Outlier Payments We will examine outliers and baserates more fully once we consider some data.

26 © Ingenix, Inc. 26 How does today look? To understand the existing environment, IIC and Ingenix looked at:  The Idaho State Fund supplied inpatient admissions for 2006 and for The 2006 data contained more elements allowing more analysis, but 2007 was sufficient for a results-check.  For outpatient, state fund data encompassed approximately 100,000 services provided in 24,000 claims  Ingenix’s proprietary all-payer inpatient database. This database consists of 50 million inpatient claims covering roughly 200 million people. Of these, approximately 500,000 represent workers’ compensation claims;  Various Medicare databases including Medicare’s 100 percent inpatient claim database and the Medicare Cost Report database.

27 © Ingenix, Inc. 27 Inpatient overall observations Total Claims893~ 1,000* Claims after scrubbing Claims same DRGS in 2006/07710 Total Charges$17.6M$16.7M Total Paid$14.0M$12.7M Paid/Charge 79.6%75.8% * There were claims without an inpatient/outpatient identifier, so it was impossible to establish what type of claim it was. These were excluded.

28 © Ingenix, Inc Volume Comparisons Table 13: Top 5 Volumes, 2007 compared with 2006 drgDRG title MEDICAL BACK PROBLEMS REHABILITATION FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC SPINAL FUSION EXCEPT CERVICAL W/O CC BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC 4835

29 © Ingenix, Inc Charge/Paid comparisons Table 14: Comparison of Charges, Paid between 2007 and 2006 DRGDRG title 2007 Avg Chg 2006 Avg Chg 2007 Avg Paid 2006 Avg Paid 498SPINAL FUSION EXCEPT CERVICAL W/O CC$44,624$45,519$33,268$36, MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY $27,783$26,372$20,806$19, REHABILITATION$22,874$16,262$19,352$13, MEDICAL BACK PROBLEMS$22,565$18,325$16,460$14, CERVICAL SPINAL FUSION W/O CC$21,799$23,261$18,189$19, LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/O CC $20,551$18,669$15,877$15, TRAUMATIC INJURY AGE >17 W/O CC$12,867$18,238$7,855$13, FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC $11,286$12,858$8,953$10, BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC $11,082$10,902$9,327$9,237

30 © Ingenix, Inc. 30 Baserates  The effective baserate for 2007 was $14,995 which includes outliers.  The effective baserate for 2006 was $14,669 also including outliers.  The “effective” Medicare baserate under Medicare for Idaho hospitals for 2006 was approximately $5,452, but this does not include outlier payments.

31 © Ingenix, Inc. 31 Idaho’s charges were generally less DRGDRG title 2007 ID Avg Chg 2006 ID Avg Chg Ingenix 2006 WC Avg Chg 498SPINAL FUSION EXCEPT CERVICAL W/O CC44,62445,51978, PULMONARY EDEMA & RESPIRATORY FAILURE40,5457,06848, MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY 27,78326,37251, REHABILITATION22,87416,26240, MEDICAL BACK PROBLEMS22,56518,32515, CERVICAL SPINAL FUSION W/O CC21,79923,26143, LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/O CC 20,55118,66929, FRACTURES OF HIP & PELVIS20,42416,86219, AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE 18,62622,15825, TRAUMATIC INJURY AGE >17 W/O CC12,86718,23813, FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC 11,28612,85814, BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC 11,08210,90226,010

32 © Ingenix, Inc. 32 Comparison of Top 5 Charges by Bed Size and Percentage Paid Hospital typeTotal ChargesTotal PaidPercent ID Hospital > 100 Beds$356,533$285, % $255,715$198, % $187,862$159, % $148,070$115, % $140,560$102, % Out of state hospital$270,613$148, % $217,911$124, % $166,919$150, % $121,682$66, % $107,726$76, % $103, % ID Hospital < 100 Beds$78,558$69, % $57,680$22, % $53,766$40, % $49,109$46, % $48,683$39, %

33 © Ingenix, Inc. 33 Outliers In the 2006 data, there were 29 cases where the charges were greater than $75,000. In the 2007 data, there were 32 such cases although several of these had a zero paid amount indicating that they might be resubmissions or in adjudication. A big difference, though, were the expensive cases. Total ChargesTotal Paid 2006 cases $4.5 million$3.4 million 2007 cases $3.5 million$2.5 million

34 © Ingenix, Inc. 34 Summary of inpatient year-over-year  Outlier cases play a significant role in the overall hospital inpatient cost. When a better rate is negotiated a better rate, the cost to the system is greatly reduced..  While Idaho hospitals often are charging less than national averages for comparable workers’ compensation cases, the current payment policy generally is paying more than would be the case in other states.  Montana, for example, is looking at a baserate in the $7,500-$8,000 range. With additional payments for implantables and outliers, the effective Montana rate will likely be in the $9,000 range.  Mississippi uses a baserate that’s double Medicare (~$9,400) but has more restrictive rules on implantables and outliers.  The data tends tends to indicate that hospitals are continuing to increase their charges proportionally faster than the costs. This has been the historic pattern

35 © Ingenix, Inc. 35 One possible approach Selecting a baserate of 200% to (proposed 2009) national Medicare rate ($10,196) leaves approximately $3 million set-aside for outlier cases and funding for more expensive implantables. Setting a baserate of 175% to proposed 2009 national Medicare ($8,923) would result in approximately $3.5 million set-aside for outlier cases and funding for more expensive implantables. One advantage to selecting the national Medicare rate for rate-setting is that it is a well-published amount. Rules to be crafted:  Outlier policy  Implantable policy

36 © Ingenix, Inc. 36 Inpatient baserate comparisons $5,099Proposed 2009 unadjusted Medicare rate $5,452ID “effective” 2006 Medicare rate no outliers $7,462Georgia’s 2008 WC rate $7,735Montana proposed rate estimate $8,923175% of 2009 proposed national adjusted rate $9,927Mississippi 2008 rate (2x national Medicare) $10,196200% of 2009 proposed rate $14, Idaho effective rate, with outliers

37 © Ingenix, Inc. 37 Medicare outpatient methodology Medicare uses three methods of paying for hospital outpatient services:  APCs (Ambulatory Payment Classification System)  Fee schedule (labs, DME)  Cost or by report basis ASCs are migrating to APCs

38 © Ingenix, Inc. 38 Understanding APCs APCs bundle clinical similar services. Key facts  Relative weight x Baserate = Payment  Current baserate is $63.70  60% of payment is wage indexed  Hospital cost of any CPT cannot be more than 2x that of any other CPT in an APC group  Certain items may be discounted by 50% if two or more are present  If CPT code not reported, there is no payment ASCs are to be folded into APC system beginning in 2008.

39 © Ingenix, Inc. 39 Hospital outpatient data overview  Idaho state data represents $22.4 million in total charges encompassing approximately 100,000 services provided. This translates to approximately 24,000 outpatient visits.  Payment was $17.5 million or 78.6 percent.  As may be expected in terms of volume, physical therapy, emergency department and clinic visits represented the 10 highest volume codes.

40 © Ingenix, Inc. 40 Revenue codes presented an issue VolumeCharge AmountsPaid Amounts Revenue Codes158,938 $ 9,258,728 $ 8,423,741 CPTs/HCPCS26,779 $ 9,496,840 $ 6,533,266 Codes with No Weights5,492 $ 300,519 $ 247,490 "N" Status Codes7,351 $ 444,519 $ 317,667 "A" Status Codes61,389 $ 2,941,347 $ 2,034, ,949 $ 22,441,956 $ 17,556,748

41 © Ingenix, Inc. 41 Idaho CPT/HCPCS distribution Percent Charge Percent Services Fee schedule items13.1%60.7% Codes with No Weights 1.3%5.4% Status N Codes2.0%7.3% Codes with Weights (Q-X)42.3%26.5% Revenue Codes, no status code41.3%n/a

42 © Ingenix, Inc. 42 Baserate comparison  Total Relative Weights87,445  Effective baserate CPT Codes$74.71  Effective baserate with  CPT & Revenue Codes$  Effective baserate, CPT,  Revenue & "N" Status Codes$  National 2008 Medicare Base Rate$63.70  % to Medicare, All274.2%

43 © Ingenix, Inc. 43 ASCs Medicare’s proposal ASCs would be covered by APC rules/methodology ASC baserate would be 65% of the hospital baserate (~$41) ASCs would be allowed to perform any/all services currently allowed in an outpatient setting Implementation started Jan. 1, Transition period is four years.

44 © Ingenix, Inc. 44 Ambulatory Surgical Centers VolumeChargesPaid CPTs with Weights 1,956 $3,425,560 $2,586,338 CPTs Without Weights 693 $338,211 $301,914 Total 2,649 $3,763,771 $2,888,253 Total Relative Weights ASCs 42,469 Effective baserate CPT Codes$60.90 Effective baserate all codes$68.01 National 2008 Medicare Base Rate ASCs$41.41 % to Medicare,All164.3%

45 © Ingenix, Inc. 45 One possible inpatient approach Selecting a baserate of 175% to national Medicare rate ($8,687) leaves approximately $3.5 million set-aside for outlier cases and funding for more expensive implantables. One advantage to selecting the national Medicare rate for rate-setting is that it is a well-published amount. Rules to be crafted:  Outlier policy  Implantable policy

46 © Ingenix, Inc. 46 Outpatient payments  For outpatient, analysis projects that current payment for non-fee schedule items is ~ 275% of the effective Medicare rate. This is a base rate of $ compared with $ This encompasses most surgeries, clinic visits etc.  For fee schedule items (therapy codes etc) maintaining current policy would eliminate need for extensive schedule development which would not significantly affect overall payment amounts either way.  For ASCs, implementing Medicare would bring a base rate of $68.01.

47 © Ingenix, Inc. 47 Implications for hospitals  Inpatient: a likely shift of money from surgical to medical and/or trauma admissions.  Outpatient: Most likely a higher payment for E&M, some surgical, and therapies. Probably no major impact on fee schedule items (lab codes etc.)

48 © Ingenix, Inc. 48 Implications for payers  More predictability in payments. Current system is function of where, how many and at what charge. Proposed system would be “how many.”  Adds some level of complexity in claims process for inpatient as MS-DRG will have to be assigned.  Provides for better estimates of future hospital cost increases.

49 © Ingenix, Inc. 49 Implications for ASCs  Likely to result in some revenue shifting as some types of surgeries will be revalued higher or lower than before. Impact will depend on ASC and types of surgeries.  Puts ASCs on equal footing compared with hospitals.  Likely to add some complexity to ASC billing and payment transactions.

50 © Ingenix, Inc. 50 What do stakeholders usually want? A great deal of common ground:  Clarity in rules  Fairness in payments  Simplest “possible” system that serves every groups’ needs Hospitals often want:  Prompt payments  Outlier provisions  Reasonable reimbursement Payers often want:  Predictable payments  Cost-containment methodology

51 © Ingenix, Inc. 51 Contact Eric Anderson Senior Project Analyst Ingenix 9200 Worthington Rd. Suite 300 Westerville, OH


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