Implementing Medicare Hospital Payment Systems Wednesday, September 12, 2007 Presented by: Will Fox, FSA, MAAA

Implementing Medicare Hospital Payment Systems Fee Schedule Examples Impact to Hospitals Impact to Indian Health Services Options and Recommendations

Fee Schedule Examples IPPS IPPS - LTC IPPS - Rehab IPPS - Psych SNF OPPS

Inpatient Prospective Payment System (IPPS) Diagnosis Related Groups (DRGs) Reflect patient severity/resource consumption Payment not equal among hospitals Reduced payment for transfers and Post-Acute transfers for some DRGs Outlier payments complex Add-on payments for new technology (none in FY2008)

IPPS Long Term Care Hospitals with a Medicare ALOS greater than 25 days DRGs Reflect patient severity/resource consumption DRGs are the same as IPPS, the relative weights are not Payment equal among hospitals Adjustments for short stays and high cost outliers

IPPS Rehabilitation Case Mix Groups (CMGs) Requires clinical assessment, not just a straight UB claim UB claim is populated with Revenue Code 0024 and Procedure Code equal to CMG (e.g., 1602) DSH and Teaching adjustments make payment not equal among hospitals Short Stay Outliers (<=3 days) = $2,809 High Cost Outliers – see attachment

IPPS Psych Adjusted Per Diem Adjustments include DRG, co-morbidities, age and day of stay UB claim has all data required Teaching adjustment makes payment not equal among hospitals

Skilled Nursing Facility (SNF) Per diem payment, each day is assigned a Resource Utilization Group Resource Utilization Groups (RUGs) Requires clinical assessment, not just a straight UB claim UB claim is populated with Revenue Code 0022 and Procedure Code equal to RUG (e.g., RUX) Payments are equal among hospitals

Outpatient Prospective Payment System (OPPS) Payment per service, not per day or per case Not all procedures are paid, some are “packaged” with a “significant” procedure For example, low cost drugs and supplies are included in the cost of a surgical or emergency room procedure

OPPS Continued Combination of fee schedules APC – Ambulatory Payment Category Lab – Medicare clinical lab schedule RBRVS – mostly for physical therapy

OPPS Continued Edits and Adjustments: Outpatient Code Editor (OCE) denies payment for invalid billing combinations (e.g., female patient with male procedure) Multiple procedure reduction - “T” Status claims reduced for second service

Medicare Advantages Known to hospitals Reasonable level of patient severity precision Cost based payment level Reduces administrative contracting costs Reduces claims administration costs After initial setup Less contracts to load, variances in provisions Lower rates than you would likely be able to contract for

Medicare Disadvantages Hospitals do not always have the information on a UB bill to use PPS Rehab CMGs SNF RUGs OPPS HCPCS Fee Schedules set for age 65+ patients Average payment methodology may not be appropriate for other populations

Changes in 2008 MS-DRGs for IPPS No other significant changes Move from 538 to 745 DRGs Has an impact on outlier and short stay payments No other significant changes IPPS Relative Weights transitioning to cost based

Impact to Hospitals Lower payments Reduced administrative costs No negotiations Assume payment process set up reliably, less audit/checking cost Fair and understandable payments Familiar with Medicare

Impact to IHS Groups Lower payments Reduced administrative costs No negotiations Less table loading/updating (in theory) Fair and understandable payments

Options and Recommendations Fiscal intermediary Historical relationship helps Not available to all Already have capability Outside vendor Many different components to mess up No positive recommendations Do it yourself Not recommended