Presentation on theme: "Reimbursement Overview & Industry Payment Trends For The Non Reimbursement Oriented Finance Professional Michael Klett, FHFMA, CPA April 22, 2014 Financial."— Presentation transcript:
1 Reimbursement Overview & Industry Payment Trends For The Non Reimbursement Oriented Finance ProfessionalMichael Klett, FHFMA, CPAApril 22, 2014Financial Accounting & Reporting Committee
2 Goals for Presentation Provide an overview of Medicare facility reimbursement process to gain a basic understanding of today’s environment and the changing landscape with health reformEven though I have worked to get out of the detail as much as possible keep in mind most of the information is technical and not always intuitive so please stop to ask questions as we go alongWhere prudent I have tried to include a State of Michigan viewpoint and/or the views of several hospitals only to help visualize the order of magnitude of the payment issue being discussed and not to advance any individual health system such as UMHS; all relevant data is also publicly available
3 Agenda Medicare Part A general overview Summary of Hospital Specific Payment AdjustorsExample DRG calculationHistorical Medicare benchmark data and the impetus to changeHealth Reform SummaryHFMA certification as part of a career development path for success
5 Medicare OverviewInsurance for the aged, also covers disabled and patients with ESRD.Four parts:Part A Inpatient hospitalPart B Physician and outpatient hospitalPart C Medicare AdvantagePart D Prescription drugsFederally funded and managed, but ½ of cost paid by beneficiaries and third parties (mainly employer insurance)
7 Guiding Principles Playing field should be level for all hospitals Valid differences in cost should yield differences in paymentHospitals should be able to break even (payment = cost)For first 20 years Medicare payment was cost reimbursementMedicare cross subsidization ruleIncentives for improving efficiency, penalties for not improvingLast 25 years, focus on managing costs per episodeDirection Health Reform is taking us
8 Example Distribution of Payments Payment Component (in millions)Hospital AHospital BHospital CRoutine ReimbursementI/P DRG - Operating$49.8%$30.4%$29.0%I/P DRG - Capital$5.3%$4.0%$3.4%Outpatient Fee for Service$21.5%$32.9%$40.2%Psych and Rehab$4.2%$1.7%$0.0%Routine Subtotal$80.7%$69.1%$72.7%Complex ReimbursementIndirect Medical Education$7.9%$11.4%$9.7%Disproportionate Share$2.4%$5.6%$6.9%Outlier Payment$3.2%$5.8%$1.9%Organ Acquisition$0.8%3.0%Graduate Medical Education3.3%$$5.7%Bad Debts and Other0.9%$1.2%Nursing & Allied Health$0.1%0.2%Complex Subtotal$19.3%$30.9%$27.3%Grand Total Medicare Reimbursement$100.0%$$
9 What is a DRG?Diagnosis Related Group; MSDRG (MS = Medicare Severity; designed for elderly)A complex system that essentially classifies all hospital inpatient cases into 1 of approx DRGsDRGs are assigned by a grouper program based on ICD diagnoses, procedures, age, sex, and the presence of complications and comorbiditiesDRGs have been used since 1983 to determine how much Medicare pays a hospital, since patients within each category are similar clinically and are expected to use the same level of hospital resourcesGenerally Speaking yields 1 bundled payment for all charges in an I/P episode of careDRGs are part of the Prospective Payment System (PPS)A Prospective Payment System means generally speaking your rates are set annually by CMS and there is no later retrospective settlementWe will talk later about other items that are subject to a settlement like a tax returnOutpatient uses a similar system as of year 2000 only DRGs are replaced by APC “ambulatory payment classification”
10 More on DRGsBlue Cross has its own proprietary system using unique “relative weights” (more on relative weights later…)For non Medicare populations industry is moving in future towards an APR DRG System (All Patient Refined)APR-DRG count: 1,256; MS-DRG count: 746APR-DRGs jointly developed by 3M & National Association of Children’s Hospitals and Related Institutions (NACHRI)“The Pediatric portion of any severity illness system is critical if non- Medicare data is included in the provider comparisons. APR-DRGs have the most comprehensive and complete pediatric logic of any severity of illness system.”
11 Relative Weights & Case Mix Index (CMI) Each DRG is assigned a different “relative weight” which is multiplied by the DRG rate; the higher the relative weight the higher the paymentEach year the relative weights are recalculated by Medicare after reviewing prior year dataCase Mix Index (CMI) is the average DRG relative weight for all of a Hospital’s Medicare volumeWidely used in the industry to explain acuity differences between and among hospitals (as well as associated cost disparities)National average is around 1.37 per WikipediaGenerally speaking community hospital CMIs are lower than academic hospitalsTeaching Hospitals argue that CMI does not fully reflect relative differences in acuity and the difference could be greaterCommunity Hospitals argue that cost differentials between community and teaching are not proportional to differences in payment differentials
12 Impact of the Relative Weight to CMI & Payment COMMONLY PERFORMED TEACHING HOSPITAL DRGS & RELATIVE WEIGHTSFFY2013FFY2014Actual%DRGDRG DESCRIPTIONRELATIVE WEIGHTDiffHIGH ACUITY DRGS1HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W MCC-2.6%2HEART TRANSPLANT OR IMPLANT OF HEART ASSIST SYSTEM W/O MCC1.36079.8%652KIDNEY TRANSPLANT3.08253.1530.07052.3%3ECMO OR TRACH W MV 96+ HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R.-0.6%MORE ROUTINE/LOWER ACUITY DRGS765CESAREAN SECTION W CC/MCC1.21941.1125-8.8%766CESAREAN SECTION W/O CC/MCC0.85860.7766-9.6%774NORMAL DELIVERY W COMPLICATING DIAGNOSES0.72170.7137-1.1%775NORMAL DELIVERY W/O COMPLICATING DIAGNOSES0.57550.5625-2.3%193SIMPLE PNEUMONIA & PLEURISY W MCC1.48931.455194SIMPLE PNEUMONIA & PLEURISY W CC0.99960.9771195SIMPLE PNEUMONIA & PLEURISY W/O CC/MCC0.70780.6997CC = Complicating or Comorbid diagnosisMCC = Major Complicating or Comorbid diagnosis
14 Inpatient Payment Overview DRG-based payment = adjusted rate x DRG relative weightAll services during the inpatient stay covered by one amountAdjusted Rate = Medicare National Rate + impact of adjusters belowPsych and rehab units are separateAdjusters:area wage index (AWI)indirect medical education (IME)disproportionate share (DSH)Additional payments:outliersdirect graduate medical education (GME)organ acquisitionbad debts
15 Wage Index What does it pay for? Differences in cost of living (wage levels) impact costMethodology:Each hospital reports wage, benefit and worked hour data annually before audit by MedicareAverage compensation per hour computed for each metro area (uses MSA or CBSA approach)Each metro area assigned an Area Wage Index valueComplicated Reclassification System at Individual and Group Level (section 412 & 508)Medpac and Congress have considered small to massive changes to wage index systemLocal Rates have suffered through recession due to inability to keep pace with rest of countryExamples of Interest (national average = ):Ann Arbor Santa Cruz CADetroit Rural ALFlint Chicago, ILWarren/Troy Grand RapidsAA reclassified Flint reclassified
16 Indirect Medical Education (IME) What does it pay for?Teaching hospitals generally have higher costsPatient severity and complexity not adequately addressed by DRGs (most misunderstood part of IME)New technology and standby capacityInefficiencies, as residents provide much of the careMethodologyRatio of residents to beds is used to measure teaching intensityCurrent formula: ((1+R/B)^ ) x 1.35 = IMEResident count is cappedDifferences of teaching adjustments in the same townUM’s Resident to Bed ratio is about .84, IME add on is about 37%Medpac/Congress periodically reviews IME as significant savings opportunity
17 Disproportionate Share (DSH) What does it pay for?Hospitals with high indigent patient volumes incur more costs, and incur more uncompensated careDSH is a supplemental payment to help defer these higher costs and lossesMethodology:Based on ratio of indigent patient days to total patient days“Indigent” includesPatients enrolled in Medicaid (Eligible is key criteria)Medicare patients in Supplemental Security Income (SSI)15% all or nothing cut off; Enhanced or Super DSH when exceed 20.2%Excludes uninsuredMajor Changes to Hospital payouts due to Medicaid Expansion (In theory less need for DSH if less uninsured)States that do not participate in Medicaid Expansion will take a larger step back on Federal DSH since you can’t keep paceExample:UM ‘s DSH rate is about 36%, results in a 19% add on to rate
21 Graduate Medical Education (GME) What does it pay for?Intended to cover the direct operating costs of approved residency programs:resident salaries and benefitsPhysician supervision and teachingother direct costs and overhead allocable to GMEMethodology:hospitals receive a fixed amount per resident FTE, multiplied by Medicare % of patient daysFixed amount is hospital specific, based on 1985 cost per resident plus some adjustments for inflationResident FTE is cappedPaid as a Pass Through, i.e. Not paid at patient level on DRG like IME
22 Outliers, Organ Acquisition, & Bad Debt Individual cases may have very high costsOutlier payment provides partial recovery of costs not covered by DRG paymentPayment = 80% of cost in excess of a loss threshold - Still a losing propositionOrgan AcquisitionSupplemental payment for solid organ transplantsBased on cost of organ procurement and pre-transplant evaluation servicesPaid as a Pass Through, i.e. Not paid at patient level on DRG like IMEDoes not cover the I/P hospitalization (DRG) or follow up clinic visits (fee for service) and is commonly misunderstoodMedicare Bad Debt (MBD)If complex requirements are met hospitals can claim Medicare’s share of bad debt (limited to deductibles & coinsurance) and receive separate fundingBBA of 1997 first major hit; currently at 65% and falling!
23 Outpatient Payments Several reimbursement schedules Ambulatory Payment Classification (APC)Most services (surgery, imaging, cardiology, infusion, ED, etc.)Procedures and tests generally paid piece-mealSupplies, implants, anesthesia, recovery – packagedDrugs: some paid separately, some are packagedSeparate fee schedules for clinical lab, rehab therapy, renal dialysisAdjustors:Area wage index: yesIME and DSH: noAdditional paymentsGraduate medical educationBad debts
24 HOPD Issues Congress frequently reviews HOPD as savings opportunity To qualify for APC payments, sites must be designated as hospital-based outpatient departments (HOPD)Criteria and requirements for HOPD status:Must be under same ownership and control as hospitalIntegrated financials, clinical services, medical records, adminMedical staff at site have privileges at the hospitalMust hold itself out to the public as part of the hospitalCannot be more than 35 miles from the main campusMust meet federal EMTALA, anti-dumping, non-discrimination rulesIf HOPD, hospital reimbursed the facility fee and physician receives professional fee. Sum of these payments > free standing physician feesCongress frequently reviews HOPD as savings opportunity
25 Example Distribution of Payments Payment Component (in millions)Hospital AHospital BHospital CRoutine ReimbursementI/P DRG - Operating$49.8%$30.4%$29.0%I/P DRG - Capital$5.3%$4.0%$3.4%Outpatient Fee for Service$21.5%$32.9%$40.2%Psych and Rehab$4.2%$1.7%$0.0%Routine Subtotal$80.7%$69.1%$72.7%Complex ReimbursementIndirect Medical Education$7.9%$11.4%$9.7%Disproportionate Share$2.4%$5.6%$6.9%Outlier Payment$3.2%$5.8%$1.9%Organ Acquisition$0.8%3.0%Graduate Medical Education3.3%$$5.7%Bad Debts and Other0.9%$1.2%Nursing & Allied Health$0.1%0.2%Complex Subtotal$19.3%$30.9%$27.3%Grand Total Medicare Reimbursement$100.0%$$
31 Health Reform – Where are we now? Paradigm shiftLast 25 years: focus on cost per episodeNext: manage cost per beneficiary & Population HealthPer episode cost (more)Quality and utilizationWe need to change our thinking from fee for service to fee for valueAlready in the law (PPACA)Productivity adjustmentsValue based purchasing – pay for performanceAccountable care organizations – new incentivesReadmission and complication rates – new penaltiesInsurance ExchangeMedicaid ExpansionIs it enough to “bend the cost curve”?
32 Accountable Care Organization (ACO) An ACO is a group or providers often affiliated with a hospital that are jointly responsible for the cost and quality of health care provided to Medicare beneficiaries because they receive bonuses when they provide exceptional or low- cost care and are penalized for low-quality or high-cost careACA created the Medicare Shared Savings Program to “promote accountability on part of providers, coordination of items and services under Parts A & B, and investment in new processes to bring about high quality and efficient service”First 3 in MI were UMHS, DMC, and Genesys and started Jan 1, 2012 as part of the CMS Pioneer ACO program (nationwide total was 32; now down to 23)Many other groups have since formed under the second wave of ACOs called the MSSP ACO program. SE MI includes Oakwood, Beaumont, St.John/Providence, Henry Ford Health System, and Physician Organization of Michigan (POM)First major glimpse of population health management policy (far different than fee for service)
33 Medicaid ExpansionAccording to Advisory Board study 26 states + D.C. expandedPolitically Charged Hot PotatoLaw of the Land in Michigan effective 4/1/14; “Healthy Michigan” is our state name for the programIntended to cover 400,000 MI residentsInitial additional funding from Federal Government for 3 years to States to cover additional insuredMedicaid eligibility now 133% of Federal Poverty Level (“FPL”)$15,000 Individual; $34,000 family of 4Every self pay patient under 250% FPL is entitled to a discount such that payment expectation will not require 115% of MedicareCompliance with this is causing signification resources to operationalizeIRS has issued proposed rules to regulate self pay billing practices too
34 Health Insurance Exchange(HIE)/Marketplace What do we know so far?Started 1/1/148 million enrollees so far; 35% under the age of 35Expected that roughly half received a subsidy on the exchangeEstimated 3 million young adults under 26 were able to sign up under their family benefits that were previously uncoveredCatastrophic, Bronze, Silver, Gold plans available and differences are generally % of patient responsibilityEarly Market IntelligenceMarket turning to consumer driven and more retail orientedPublic vs. Private ExchangesBlue Cross EPO/Narrow Network starting 1/1/15 to target those previously uninsured and will generally be paid at Medicare like ratesSign of the Future?
35 Value-Based Purchasing A percentage of Hospital payment is tied to performance on quality measures related to common and high-cost conditions such as cardiac, surgical and pneumonia careStarted 10/1/12Designed to transform Medicare from a passive payer of claims to an “active purchaser of care”VBP makes a portion of the hospital payment contingent on actual performance of specified measures, rather than simply on the hospital’s reporting data for these same measures (former system)Zero Sum Game (winners and losers but budget neutral for Medicare)Medicare started funding the incentive pool by withholding 1% of DRG rate (grows to 2% in 2017)Initial measures cover following specific conditions or procedures:Acute Myocardial Infarction (AMI)Heart FailurePneumoniaSurgeries (as measured by SCIP)Healthcare-associated infections
36 Readmissions Reduction Program 10/1/12 Medicare implemented the readmission penaltyA Hospital’s adjustment factor is applied to the DRG rate and is calculated as follows:Hospital’s aggregate payments for excess readmitsHospital’s aggregate payments for all dischargesCap was 1% first year and grows to 3% in year threePayment cut is applied to DRG price for all cases and not individual readmissions (often misunderstood)Readmission is defined as being admitted at the same or different hospital within a time period prescribed for the applicableHospitals can be penalized by care provided previously at other facilitySignificant industry feedback to CMS on how they should allow for expected readmissionsYear 1 impact to MI Hospitals was approx. $14 MillionProgram is a revenue generator for government (not budget neutral)
37 “Never events” & Hospital-Acquired Conditions (HAC) Medicare will deny payment for HACs or “never” eventsOriginal list of HACs:1) Foreign object retained after surgery, 2) Air embolism, 3) Blood incompatibility, 4) Pressure ulcer, 5) Falls and Trauma, 6) Manifestations of poor glycemic control, 7) Vascular catheter associated infection, 8) Catheter-associated urinary tract infection, 9) Surgical site infection, 10) Deep vein thrombosis/pulmonary embolismPresent on Admission (POA) indicator is mandatory for all I/P Acute Care Cases (based on time order for admission occurs)Unless documented Medicare will assume above list was an acquired condition while hospitalized and will not pay the higher DRG that is codedStarting in 2015 (10/1/14) Medicare will provide an incentive to reduce HACsYear 1 max reduction is 1%; penalty is either nothing (targeted to be top 75% of hospitals) or 1% payment cut50% of teaching hospitals are expected to be hit by reductionProgram is a revenue generator for government (not budget neutral)
38 Summary comments about Health Reform Unsustainability of cost trends led us to the need for a dramatic change to the status quoProviders, physicians, and suppliers are forced to do more with lessUnparalleled pressure on expense managementHealthcare system continues to get more complex to manageLots of change already but more to come includingFix needed to Sustainable Growth Rate and impact to physician paymentsMedicare’s 2 midnight rule in the infancy stageDeclining Medicare DSH payments due to decreased uninsuredHow will Commercial Payers react to Medicare Payment ReformAging Population with retirement of Baby Boomer generationSequestration hanging around until at least 2021 (effective 2% across the board cut)Additional Productivity AdjustmentsUninsured patients addressed from policy perspective however there is still anticipated to be an uninsured population albeit at much lower levelSolvency of Medicare trust funds and social security
39 What have we learned about health reform already? Our Industry is clearly tasked to do more with lessWe are forced to operate in an era of heightened regulation/oversightPrice transparency pressureDecreasing reimbursement and change from fee for service to fee for value (utilization becomes key)Hospital merger & activity at unprecedented levelsAdministrative jobs in theory more scarce as such services are consolidatedEmployers are reviewing our performance through our payersIs it worth it to us and our employees to have Hospital X in our network?Proliferation of referenced pricing models and “carve outs”Employers and payers will work to push down hospital payer rates
40 HFMA Certification & career development discussion
41 Sometimes strong competencies and seniority are not enough How can the healthcare finance professional best succeed in the new era…Sometimes strong competencies and seniority are not enoughWe need to adjust with the times and technologyStay on top of industry trends/changes and refine skill setUnique skillsets and certifications are highly desirable (HFMA certification, lean certifications, service excellence, etc.)Partner with operations becomes key and need to remove barriersMeet & exceed transparency expectations that have been set higher than ever (especially centered around the use of judgment calls)Become more skilled in PowerPoint as it has become the expected tool for story telling
42 More impacts to the finance professional Budgets are tight like never before with strong FTE controlsIn order to better manage staffing issues some hospitals are asking employees to cross train where priorities & competencies of staff alignLines between departments and roles will likely be blurred based on the market demand for more efficiencySome firms are having finance oriented work being performed overseas at substantial savingsBuilding and maintaining professional networks is likely more important than ever and HFMA involvement facilitates this
43 What have we learned from other industries? Auto, Airline, Real Estate, & Book industries have undergone dramatic changes and have taught us many thingsNeed to reset/change with the times & simultaneously be able to meet demand for future in an era of constant changeNew market demands efficiencyBe prepared for heightened regulation/government oversightNot everyone was left standingWe are likely in the early to middle stages of healthcare’s transformation even though it may feel further along
44 Why Become HFMA Certified (CHFP)? Validate your skills and knowledgeEnhance your credibility in the industrySupport your professional developmentDemonstrate a high level of commitment to the fieldPeer Pressure!Is there alignment between the reason why current certified members sat for the exam and your own career development path?
45 What HFMA certification can do for you Becoming certified distinguishes you as a leader and high-level professional in the healthcare finance industry. It reflects a deep personal commitment and sense of accountability that inspires credibility and confidence in your professional knowledge. Through HFMA Certification Programs, you can show your dedication to high standards in the industry.
46 More on certificationHFMA CHFP is intended for mid-level healthcare professionals with a minimum of 3-5 years experience. CHFP certification demonstrates your qualifications to senior management, co- workers, and the industry highlighting your commitment to the profession and to maintaining up-to-date skills and knowledge.
47 Candidate requirements Recommended: 3-5 years, hospital/healthcare system operations management experience including financial responsibility or senior accountant/analyst with knowledge (not expertise) of revenue cycle operationsCurrent full HFMA membership to hold the designationStudent members ineligible to hold designation
48 Certification Exam Overview Online exam offered at Castle Worldwide sites150 multiple choice questions in a 4 hour window (yes there are calculations! This is a finance exam)Fee to sit for exam is approx. $400for more information including terrific 9 page FAQ guideScoring is similar to ACT & results known immediatelyHFMA online study materials cost approx. $200 (not required)Our HFMA chapter offers a rebate for passing candidates for select # of candidates (as budget allows; unknown amount for FY4/30/15)
51 Case Study 1 Medicare IME AssumptionsLarge 750 bed teaching hospitalHospital operating at full capacity and often not able to service all of its demandIncrease in 250 licensed beds approved through Certificate of NeedNo material change in number of residents trainedNo material change in Medicare payer mixOutcomesDoes this bed change impact existing Mcr reimbursement on a per case basis with no change in payer mix?If so, is it favorable or unfavorable?Impacts to cash flow and interim rates?Impacts to reimbursement upon settlement on cost report?Financial Reporting issues?
52 Case Study 2 Medicaid Capital AssumptionsLarge teaching hospitalRelocation of its Children and Women’s services from a nearly fully depreciated facility to a new $750 million facilityMedicaid Payer Mix for impacted Children and Women’s services is roughly 3 to 1 the overall institutional Medicaid payer mixAssume initial volumes are similar to historical levelsOutcomesDoes this impact Medicaid Reimbursement?If so, does it impact standard operating DRG payments and/or Capital payments?What impact would there be to a hospital that uses the minimal number of CMS provided capital cost centers?What impact would there be to the hospital if it had a unique cost center established to record all capital costs relative to the new facility?