0. Senior Associate - KPMG LLP
HSCRC Rate System
Arin Foreman
Senior Associate - KPMG LLP
Jennifer Hulvey
Director of Reimbursement - Frederick Memorial Hospital
January 31, 2014

1. Discussion Topics Overview – Revenue Methodologies Rate Order
Annual Rate Order Adjustments
Unit Rate Compliance
Total Revenue Compliance
Reasonableness of Charges
Required Reporting
Terminology and Acronyms

2. Overview
HSCRC has developed methodologies to constrain healthcare costs in Maryland.
Hospitals currently elect one of the following:
Total Patient Revenue (TPR) System,
Charge per Case (CPC) System, or
Charge per Episode / Admission-Readmission Revenue (CPE / ARR)

3. Total Patient Revenue (TPR)
Inpatient and outpatient revenue is constrained by the TPR System
Implemented July 1, 2010 (Garrett County Memorial Hospital and Edward W. McCready Memorial Hospital transitioned to TPR prior to 07/01/10)
Approved revenue amount in a given year is a fixed cap
No adjustment for changes in volume
No adjustment for changes in Case Mix Index (CMI)
Available to sole community provider hospitals and hospitals operating in regions of the State that don’t share service areas with other hospitals

4. Charge per Case (CPC)
Inpatient Revenue is constrained by the Charge per Case system (CPC)
Fixed amount of revenue per inpatient case
Implemented July 1, 2005
Each hospital's allowed CPC is based on their Case Mix Index (CMI)
CMI measures the complexity of a hospital's cases

5. Charge per Episode (CPE)
Admission-Readmission Revenue arrangement (ARR):
Fixed amount of revenue per inpatient episode
Under ARR, hospitals assume the risks and rewards of managing hospital readmissions.
No revenue increase for additional readmissions (penalty)
No revenue decrease for reduced readmissions (reward)
Implemented July 1, 2011
Voluntary 3-year revenue constraint program replacing CPC
Excludes intra-hospital readmissions within 30 days
All cause readmissions
Each hospital's allowed CPE is based on Case Mix Index (CMI)

6. Which rate methodology is your hospital under?
TPR
CPE / ARR
Hospitals A-G
CPC

7. Rate Order Slide 1

8. Rate Order
Revenue Center: Hospitals have different revenue centers depending on the services they provide
Service Unit: The service unit is the same for all hospitals (i.e. every hospital charges for Operating Room services by the minute)
Unit Rates: Unit rates (prices) vary by hospital
These rates must be charged to all payers - no contract negotiations

9. RVUs
RVUs relate to the complexity (time and cost) of tests and procedures
The service units for RVU's (relative value units) are defined by the HSCRC in Appendix D
For example, a chest x-ray, single view, has the same RVU at all MD hospitals

10. The patient charge becomes a calculation…
2 RVU's x $ = $52.83

11. Updates to Rate Orders
Hospitals receive an updated rate order once per year - effective July 1st
Unit rates are updated for:

12. History of Update Factors
The following chart displays the previous five years’ update/inflation factors that have been applied to hospitals’ rates:

13. Rate Realignment
Charges are related to the underlying cost of providing the service
This does not change a hospital's total revenue; it just reallocates it among revenue centers
Costs for FY 2012 were used to realign FY 2014 rates

14. Rate Realignment

15. Rate Realignment
Using the M schedule from the most recent Annual Filing, the Revenue calculated in the previous step is realigned based on the Volume adjusted cost in each center. For example, if MSG has 15% of the costs, then 15% of the revenue will be allocated to that center.

16. UCC Uncompensated Care includes charity care and bad debt
The UCC policy allows hospitals to charge additional amounts in their rates to all payors to cover the shortfall produced by providing uncompensated care
Blend of:
Three-year average
Predicted UCC

17. UCC
Three-year average is based on the Hospital’s 3 most recent year’s Annual Filings
Predicted UCC uses a linear regression model
Independent variable (x): Actual Uncompensated Care
Dependent variables (y):
Inpatient Medicaid, Self Pay, and Charity Charges as a % of Total Charges
Inpatient Charges from non-Medicare Admissions through the ER as a % of Total Charges
Outpatient Medicaid, Self Pay, and Charity Charges from the ER as a % of Total Charges
Outpatient Charges from non-Medicare ER Visits as a % of Total Charges

18. UCC
UCC Pool – since Statewide UCC % is built into all hospitals’ rates, the UCC Pool acts as a settlement methodology to account for hospitals that experience more or less UCC than the State

19. Volume Adjustment
Rates are adjusted for volume increases and decreases
FY 2014 rates adjusted for volume changes occurring in FY 2013
Variable Cost Factor = 85% / Fixed = 15%
Volume increases - 15% of volume increase taken out of rates
Volume decreases - 15% is put into rates
Changes Effective Jan 1, 2014
Adjustment will be made on a concurrent basis (during the year in which the volume change occurs)
Variable Cost Factor = 50% / Fixed = 50%

20. Volume Adjustment

21. Assessments
Two assessments pass through hospitals in order to support “medically uninsurable” patients and Medicaid expansion
MHIP (Maryland Health Insurance Plan)
Health Care Coverage Fund
Medicaid Budget Deficit Assessment
State total spread to hospitals based on % of total revenue
Payer portion put into rates (all-payers) %
Hospital portion paid by hospital throughout year 14%
NSP I (Nursing Support Program) – grant funding
Applied directly to admissions center

22. Application of Assessments
This revenue produces the Rate Order Rates to be used in Unit Rate Compliance
NSP I is applied directly to the Admissions Center
Revenue after application of Current Year Price Variances and Penalties
Applied based on % of Revenue in that center

23. Quality Based Reimbursement
Implemented – July 2008
What’s Measured –
Source of Data – CMS QIO Clinical Warehouse
Measurement Period - Calendar Year
For example, results from CY 2013 will impact FY 2015 rates
% of Revenue at Risk: 0.5% (increasing to 1.0% in FY 2016 rates)
Other - Revenue Neutral - some hospitals "win" and some "lose“
net result to the state is $0

25. Maryland Hospital Acquired Conditions (MHAC)
Implemented – July 2009
What’s Measured - Potentially preventable complications (PPC's)
Diagnosis present on admission? If no, penalized
Source of Data - Quarterly discharge data submitted by hospitals
Measurement Period - Calendar year
For example, results from CY 2013 will impact FY 2015 rates
% of Revenue at Risk: 2.0% for attainment, 1.0% for improvement
Other - Revenue Neutral - some hospitals "win" and some "lose“
net result to the state is $0

27. Population Adjustment
Relevant for TPR hospitals only
HSCRC calculates population growth for each hospital’s primary and secondary service area by age cohort
An adjustment is made to the TPR Cap in order to account for the increase or decrease in the population

28. Case Mix Index (CMI) All Patient Refined Diagnostic Related Grouper
Each APR-DRG has a level of severity from 1 – 4 which is assigned based on in depth coding information such as age, weight, other pre-existing conditions, etc.
3-Level Case Mix Calculation
Level I (CPC Included) – Hospital-specific change in CMI
Level II (Trim) and III (Exclusions)
Revenue pass-through for exclusions and trim revenue
Statewide CMI change based on Level III

29. Example: Calculation of Relative Weight and CMI
Case Mix Index (CMI)
Calculation of Relative Weights
Establish Statewide Average Charge per Case (with remaining data set)
For each Cell (DRG by Severity)
DRG 002 Severity 3 $10,000 DRG 390 Severity 2 $3,000
Total State Average $5,000 Total State Average $5,000
Relative Weight
State Average State Average
Example: Calculation of Relative Weight and CMI

30. Based on Mix of Services Provided (Case Mix Index)
Case Mix Index (CMI)
Based on Mix of Services Provided (Case Mix Index)

31. Unit Rate Compliance
Hospitals must be in compliance with approved unit rates on a monthly (except TPR) and YTD (7/1 - 6/30) basis

32. Unit Rate Compliance
Although rate orders are effective July 1, hospitals usually receive them in Oct/Nov
Still need to be in compliance by June 30th
Approved rate (per rate order) = $15.00
Actual average charge for July-Dec = $10.00
Average charge for Jan-June must = $20.00 to be in compliance by June 30

33. Supply and Drug Compliance

34. CPE/CPC Price Corridors
Overcharges/undercharges that are within the allowed corridors go into next years rates (one time adjustment)

35. TPR Price Corridors
TPR unit rate compliance corridors are more relaxed
Hospitals are free to charge at levels up to 5% above / (below) the approved individual unit rates without penalty
This limit can be extended to 10% at the discretion of the Commission Staff

36. Penalties for Exceeding the Corridors
Penalties will be applied if rates exceed monthly corridors for consecutive periods (TPR excluded):
6 consecutive months for Supplies (MSS) and Drugs (CDS)
3 consecutive months for all other centers
Penalties are calculated at 20% of the sum (absolute value) of all charges in excess of the corridors
Penalties are subtracted from next years rates

37. Penalties for Exceeding the Corridors Cont.
Penalties will be applied if rates exceed year-end corridors
Penalties are calculated at 40% of the sum (absolute value) of all charges in excess of the corridors
Penalties are subtracted from next years rates

38. CPC and CPE Trim Exclusions
High charge cases
Exclusions
Zero and one day stay cases
Hospice Cases
Cases denied for medical necessity (when 100% of room and board charges denied)
Transplants (organ & bone)
Other Special Cases
Burn at Bayview
Chronic at Kernan
Shock Trauma
Special Oncology
Readmissions

39. Charge per Case (CPC) Compliance
Can only adjust Inpatient Routine Centers to achieve CPC compliance

40. Charge per Episode (CPE) Compliance
Can only adjust Inpatient Routine Centers to achieve CPE compliance

41. CPC/CPE Compliance Corridors
Overcharge Corridors:
0% to 1.0% No Penalty
1.0% to 1.5% % Penalty
1.5% to 2.0% % Penalty
2.0% and greater 40% Penalty
Undercharge Corridors:
0% to 2.0% No Penalty
2.0 to 3.0% 40% Penalty
3.0% and greater 100% Penalty

42. Reasonableness of Charges
“ROC” is the acronym for the HSCRC’s Reasonableness of Charges
Currently, there is no efficiency measure in place (suspended)
HSCRC is developing a new efficiency measure
Several parts of the “ROC” will probably remain in the new efficiency measure including peer groups and charge adjustments to account for differences at each hospital.

43. Required Monthly Reporting

44. Required Quarterly Reporting

45. Required Annual Reporting

46. Terminology & Acronyms
What It Represents
What It Means
% Occ
% of Occupancy
Calculated by dividing total patient days by (# of beds x 365 days).
ACS
Ambulatory Care Services
Services rendered to persons who are not confined overnight in a healthcare institution. Often referred to as “O/P” (Outpatient) services.
ACO
Accountable Care Organization
Are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve.
ADC
Average Daily Inpatient Census
Average number of I/Ps (Inpatients) (based on the daily inpatient census) present each day of a given period of time.
ADM
Admission
Formal acceptance by an institution of a patient who is provided with room and board, continuous nursing service and other institutional services while lodged in the institution.
APG
Ambulatory Payment Group
Classification system used to group ambulatory cases.

47. Terminology & Acronyms
What It Represents
What It Means
ALOS
Average Length of Stay
Average number of days of service rendered to each I/P discharged during a given period.
AOB
Average Occupied Beds
Total Inpatient Days divided by 365.
APR-DRG
All Payer Refined-Diagnosis Related Group
System used by 3M Health Information Systems as the basis of all-payer hospital payment system; used by many hospitals in the US to analyze comparative hospital performance.
ARR
Admission Readmission Revenue
Inpatient revenue measurement on a per episode basis.
ARMS
Alternative Rate Setting Methods
When a hospital is permitted to accept financial risk for the provision of services under certain conditions and circumstances.
CMI
Case Mix Index
Measure of complexity of patient population and/or treatment provided by an institution; tells how complex patients and services are.

48. Terminology & Acronyms
What It Represents
What It Means
CMS
Center for Medicare and Medicaid Services
The federal agency that runs the Medicare program. In addition, CMS works with the states to run the Medicaid program. CMS works to make sure that the beneficiaries in these programs are able to get high quality health care.
CON
Certificate of Need
Formal state application and approval process for adding new beds and services.
CPC
Charge Per Case
Inpatient revenue measurement on a per case basis.
CPT
Current Procedural Terminology
Numeric coding system maintained by the American Medical Association (AMA). Coding scheme for outpatient procedures and services.

49. Terminology & Acronyms
What It Represents
What It Means
DME
Direct Medical Education
Direct expenses (salaries, benefits, etc.) related to qualified intern, residents and fellows in teaching- related programs.
DSH
Disproportionate Share
Providing services to a disproportionately large share of low-income patients. Under Medicaid, states augment payments to hospitals with high DSH. Medicare inpatient hospital payments are also adjusted for this added burden.
EIPA
Equivalent Inpatient Admission
Statistic that combines inpatient admissions and total outpatient visits as one unit of measure.
EIPD
Equivalent Inpatient Days
Statistic that combines inpatient days and outpatient ambulatory visits in a weighted method.
EIPC
Equivalent Inpatient Cases
Statistic that combines inpatient cases and outpatient ambulatory visits in a weighted method.

50. Terminology & Acronyms
Calculation of EIPAs:
Total Inpatient Revenue
$ 63,304.8 A
Total Inpatient Admissions
6,637 B
Inpatient Unit Revenue
9.54
C = A / B
Total Outpatient Revenue
$ 29,845.7 D
Total Outpatient Visits
47,274 E
Outpatient Unit Revenue
0.63
F = D / E
Inpatient / Outpatient Unit Ratio
15.11
G = C / F H
Outpatient Visits
3,129 I
EIPAs
9,766
J = H + I

51. Terminology & Acronyms
What It Represents
What It Means
E & M
Evaluation and Management
Universal codes to bill for patient visits or consultations conducted at a clinic, emergency room or physician’s office. FS
Financial Statements
Balance sheet, income statement, funds statement, statement of changes in financial position or any supporting statement or other presentation of financial data derived from accounting records.
FTE
Full Time Equivalents
An objective measurement of the personnel employment of an institution in terms of full time labor capability.
HSCRC bases FTEs on # of hours worked.
Medicare bases FTEs on # of hours paid.

52. Terminology & Acronyms
What It Represents
What It Means GL
General Ledger
A ledger containing accounts in which all the transactions of a business enterprise or accounting unit are classified either in detail or in summary form.
GME
Graduate Medical Education
Generally defined as the clinical training following graduation from medical school. This clinical training, which ranges from three to seven years in length (internship and/or residency), has traditionally taken place in teaching hospitals or academic medical centers (AMCs). This is funded in Maryland’s rate-setting system and is the cost of graduate medical education (GME) generally for interns and residents trained in Maryland hospitals.
HCPCS
Healthcare Common Procedure Coding System
Alpha numeric billing codes used to identify and bill for items and services not included in the CPT Codes.

53. Terminology & Acronyms
What It Represents
What It Means
HIPAA
Health Insurance Portability and Accountability Act
Designed for patient confidentiality, data security and standardization.
HMO
Health Maintenance Organization
A health care provider or group of medical service providers who contracts with insurers or self-insured employers to provide a wide variety of managed health care services to enrolled workers through participating panel providers.
HSCRC
Health Services Cost Review Commission
Rate-regulating and rate-setting body in the State of Maryland.
I/P
Inpatient
Patient who is provided with room and board, and continuous general nursing services in a hospital. Defined as an admission and an overnight stay.
ICC
Inter-Hospital Cost Comparison
Cost comparison methodology used in full rate application process.

54. Terminology & Acronyms
What It Represents
What It Means
ICD-9
International Classification of Diseases – 9th Revision Clinically Modified
Classification of codes that represent diagnoses, conditions and symptoms.
ICD-10
International Classification of Diseases – 10th Revision Clinically Modified
Classification of codes that represent diagnoses, conditions and symptoms. October 2014
IME
Indirect Medical Education
Indirect Medical Education expenses are generally described as those additional costs incurred as a result of the teaching process (e.g., extra tests ordered by interns / residents or the extra costs of supervision).
MCO
Managed Care Organization
A type of Medicare managed care plan where a group of doctors, hospitals and other health care providers agree to give health care to Medicare beneficiaries for a set amount of money from Medicare every month. You usually must get your care from the providers in the plan.
MHA
Maryland Hospital Association
State organization of Maryland hospitals.

55. Terminology & Acronyms
What It Represents
What It Means
MHCC
Maryland Health Care Commission
An independent regulatory agency whose mission is to plan for health system needs, promote informed decision-making, increase accountability and improve access in a rapidly changing health care environment by providing timely and accurate information on availability, cost and quality of services to policy makers, purchasers, providers and the public.
MHIP
Maryland Health Insurance Plan
State-managed health insurance program for Maryland residents who are unable to obtain health insurance from other sources. Each hospital is assessed at 1% of its net patient revenue to operate the program.
NOR
Net Operating Revenue
Operating gross revenue less any contractual or other revenue deductions.

56. Terminology & Acronyms
What It Represents
What It Means
NSP
Nursing Support Program
Nursing Support Program developed to help address the nursing workforce shortage. Each rate-regulated hospital is eligible for a percentage of rate increase to help pay for programs to recruit and / or retain nurses (NSPI and NSPII).
O/P
Outpatient
Patient involved in an emergency visit, diagnostic test or clinic visit procedure or service and is not admitted to the hospital.
Permanent Revenue
Total Allowed Revenue
Permanent revenue represents revenue that a hospital is entitled to on a permanent and ongoing basis. The opposite of permanent revenue is one-time revenue which is only approved for a one year period.
PIP
Periodic Interim Payment
When a hospital receives cash payments from third- party payers (Usually Medicare) in constant amounts each period. The total of these payments received over a year is an estimated cost of providing services to patients covered by the plan.
PLF
Price Leveling Factor
Factor used to inflate and / or adjust charges from a historical / current period to a current / future period.

57. Terminology & Acronyms
What It Represents
What It Means
RAC
Recovery Audit Contractor
Approved CMS contractors who have been commissioned to review the Medicare claims of acute care facilities to deem if services were necessary or appropriate.
ROC
Reasonableness of Charges (Suspended)
HSCRC’s Reasonableness of Charges Report. This report is the Commission’s tool for assessing the reasonableness of each hospital’s charges on a per case basis relative to their peer group.
RVU
Relative Value Unit
Index number assigned to various procedures based upon the relative amount of labor, supplies and capital needed to perform the procedure. Predominantly for ancillary activities and clinic visits (by time and complexity).

58. Terminology & Acronyms
What It Represents
What It Means
TPR
Total Patient Revenue
An agreement which establishes a revenue cap for qualifying hospitals. A qualifying hospital is typically located in a rural area and has a well-defined catchment area with a stable population.
UB-04
Uniformed Billing 2004
Standard form used for the billing of facility-based / inpatient services, effective July 2007.
UCC
Uncompensated Care
Care provided for which compensation is not received (bad debts and charity care).
W&S
Wage & Salary Report
Job-specific pay information for hospitals. This is used in the calculation of the Labor Market Adjustment for HSCRC ROC and Full Rate Settings.
QBR
Quality Based Reimbursement
New HSCRC reimbursement methodology which adjusts reimbursement for identified quality measurements.

59. Terminology & Acronyms
What It Represents
What It Means
PPC
Potentially Preventable Complications
64 Complications that are highly preventable as defined by 3M.
PPR
Potentially Preventable Readmissions
Readmission scenarios deemed preventable.
MHAC
Maryland Hospital Acquired Conditions
Subset of PPC. Considered as “never events”.
P4P
Pay for Performance
Initiative which gives incentive to provider to improve quality of care.
ODS
Zero and One-Day Length of Stay
Patients admitted and discharged by a hospital with a length of stay less than or equal to one.
CPE
Charge per Episode
An ARR hospital’s approved revenue constraint as determined by dividing approved included revenue by the count of ARR Episodes of Care

60. Questions??