1. 3M Global Information Technology 11 © 3M. All Rights Reserved. 3M Global Information Technology Florida Hospital Association 3M Health Information Systems July 13, 2012 3M Involvement in the Development of DRG Payment Systems

2. 3M Global Information Technology 22 © 3M. All Rights Reserved. Milestones in DRG Development  CMS Grant to Yale University - 1975  New Jersey Adoption of DRG All Payer System - 1981  Congress Passes DRG Payment for Medicare - 1982  CMS Begins DRG Payment – 1983  States Begin Adopting DRG Payment Approaches for Medicaid -1990  3M HIS Common Thread (AP, APR DRGs)

3. 3M Global Information Technology 33 © 3M. All Rights Reserved. APR Development Continued  3M APR incorporates 4 strands of research that 3M has been involved in: Medicare DRG updates which look at resource consumption primarily All Patient (AP) expanded CMS DRGs to non-Medicare population, but only useful with evaluation of resource consumption NACHRI (National Association of Children’s Hospitals and Related Institutions) – which added pediatric enhancements Yale Refined DRGs -1985 – Same limitations as CMS DRGs since they are based on Medicare population only. They are only useful when evaluating resource consumption in a limited population. There have been no updates since CMS refined the use of CCs in DRGs.

4. 3M Global Information Technology 44 © 3M. All Rights Reserved. NACHRI Pediatric DRG Modifications Medicare DRG Updates New York AP-DRG Expansion Yale DRG Refinements Initial Development of All Patient Refined DRGs (APR DRGs)

5. 3M Global Information Technology 55 © 3M. All Rights Reserved. Medicaid Fee-for-Service Payment Methods by State Payment per Stay: CMS-DRGs/MS -DRGs  CO, IA, IL, KS, KY, MI, MN, NC, ND, NH, NM, OR, SD, UT, WI, WV Payment per Stay: APR DRGs (Current and Schedu MS led)  NY, MA, RI, PA, MD, SC, MT, TX, CA, IL, LA, MS, NE, OH Payment per Stay: AP-DRGs or TRICARE-DRGs  DC, GA, IN, NJ, VA, WA Payment per Stay: Other  DE, WY Payment per Diem  AK, AZ, CA, FL, HI, MO, NV, OK, TN, VT Cost Reimbursement  AL, AR, CT, ID, ME

6. 3M Global Information Technology 66 © 3M. All Rights Reserved. Current Use (Includes Commitments) of 3M Patient Classification Systems as of June,2012 PPRs for Payment CRGs for Reporting PPE for Payment CRG/PPE for Reporting PPE for Reporting CRG/PPE for Payment

7. 3M Global Information Technology 77 © 3M. All Rights Reserved. All Patient Refined DRGs (APR DRGs) Foundation for Inpatient Pay for Performance  APR DRGs were developed by 3M HIS in conjunction with the National Association of Children’s Hospitals (NACHRI)  Used for severity adjustment in many quality assessment programs ( AHRQ, Premier P4P demos, NJ/CMS gain sharing, 20 States)  More than 50 percent of U.S. hospitals have the APR DRG software--most major hospital systems vendors have integrated it into their systems  RAND study for CMS ranked APR DRGs superior to all other classification systems in explaining variation in hospital resource use  A note on other payment groupers: AP DRGs are being sun-setted. CMS states that MS DRGs are not appropriate for non-Medicare populations. No competitor grouper has been used for IPPS.

8. 3M Global Information Technology 88 © 3M. All Rights Reserved. Key 3M HIS Classification and Payment Systems  All Patient Refined DRGs (APRs) for inpatient services  Ambulatory Patient Groups (EAPGs ) for outpatient services.  Clinical Risk Groups (CRGs): a population based risk adjustment tool to classify the health status of persons  Episode Grouper combines separate but clinically related items and services into an episode of care for an individual- available Q4 2012

9. 3M Global Information Technology 99 © 3M. All Rights Reserved. An Outcomes Based Approach to Pay for Performance  Pay for Performance links quality to payment –focus on major outcomes  Outcomes concern the results of care (did a preventable complication or readmission or unnecessary ER visit occur? How much did the care cost? )  Processes concern what the provider did or did not do (did facility follow prescribed clinical guidelines, evidence based protocols, etc.) -Examples  Payers and patients should hold providers accountable for treatment outcomes-if performance is accurately measured, fairly compared and transparently reported  But payers should not prescribe or dictate to providers how to deliver care. Medicare DRGs, the most successful American payment reform program,incented hospitals to focus on inpatient costs –without prescribing processes  So we focus on quality outcomes with largest payment impact  Inpatient complications (PPCs) but more than HACs or Never Events  Readmissions (PPRs) related to original stay, not all-cause  Expanded to ambulatory care: Admissions, ER Visits, Ancillary Services

10. 3M Global Information Technology 10 © 3M. All Rights Reserved. © 3M 2007. All rights reserved. Potentially Preventable Events 3M has systematically identified and classified encounters/events in five major service areas that are potentially preventable and lead to unnecessary services or contribute to poor quality of care. These represent a combination of overtreatment, complications, unnecessary services, as well as inappropriate care. They are collectively known as Potentially Preventable Events (PPEs) Although PPEs are generally preventable, they will never be totally eliminated even with optimal care. Therefore, proper risk adjustment and scoring is required in order to use PPEs in provider profiling and payment systems

11. 3M Global Information Technology 11 © 3M. All Rights Reserved. PPEs  Potentially Preventable Readmissions  Potentially Preventable Complications  Potentially Preventable Initial Admissions  Potentially Preventable Emergency Room Visits  Potentially Preventable Ancillary Services

12. 3M Global Information Technology 12 © 3M. All Rights Reserved. All Patient Refined DRGs (APR DRGs) Are Widely Used for Payment  APR DRGs have been adopted for inpatient payment by the dominant payer (Medicaid or Blue Cross)) in eleven states-eight more within next twelve months  The following Medicaid programs have implemented APR payment: MD, MA, MT, NY, PA, SC, RI and TX (9/2012).  The following Medicaid programs have announced APR conversions which will occur in 2013: CA, IL, IN, LA, MS, NE and OH  Stated another way, the eight largest Medicaid programs in the country will be converted to APRs by the end of next year