1. experience clarity // CPAs & ADVISORS TEXAS ASSOCIATION OF COMMUNITY HEALTH CENTERS October 7, 2014 T HE M EDICARE PPS FOR FQHC S – R EADY, S ET, G O !

2. PRESENTATION PRELUDE  Medicare payment change brings opportunity  Reconsider the importance of Medicare as a payer  Strategic thinking - how to grow this “book of business”  Recent HRSA policy clarification regarding HRSA’s role in financial and programmatic monitoring  Published September 3, 2014  Financial viability is an individual health center responsibility 2

3. MEDICARE: AN IMPORTANT PAYER  The Medicare program, while oftentimes small as a percentage of overall health center patient related revenues, is an important third-party payer of services  Generally the second best third-party payer after state Medicaid  9.9% of aggregate health center revenues per Table 9D of the 2013 UDS Report (8.5% - traditional Medicare + 1.4% Medicare managed care)

4. MEDICARE PPS – WHEN DOES THIS CHANGE HAPPEN?  Health care reform legislation mandates a transition from the current Medicare FQHC cost-based reimbursement system effective for cost reporting periods beginning on or after October 1, 2014

5. MEDICARE PPS – THE HEADLINE ISSUES  The Affordable Care Act mandated that the initial PPS rates be set based on 100% of the estimated amount of reasonable costs if the PPS had not been implemented (the 100% must be calculated before application of copayments, per visit limits, or productivity adjustments)  Final data set includes cost report periods ended June 30, 2011 through June 30, 2013  Impact analysis indicates an increase in total Medicare payments to FQHCs of approximately 32% (31.9%)  Does not take into account the “lesser of” provision (see next slide)

6. THE “LESSER OF” PROVISION  Medicare payment will be 80% of the lesser of the actual charge reported for the specific payment code or the PPS rate (for each claim)  Beneficiary coinsurance will be 20% of the lesser of the actual charge reported for the specific payment code or the PPS rate (for each claim) 6

7. MEDICARE PPS – THERE’S WORK TO DO  Final rule notes that if an assumption is made that FQHCs’ charge structures remain the same, approximately 65% of FQHCs would be paid LESS under the FQHC PPS rate methodology than they are currently paid  Establishment of health center unique G-code bundled charges is an art rather than a science

8. MEDICARE PPS – THE MYTHS  Implementation of the new PPS will not require much time and preparation – it’s mainly a finance (payment) change isn’t it?  Health centers will always be paid at the applicable PPS rate  The Medicare FQHC cost report will no longer have significance

9. CURRENT REASONABLE COST- BASED REIMBURSEMENT METHODOLOGY

10. CURRENT PAYMENT METHODOLOGY  An all-inclusive rate (AIR) is paid for all services provided on the same day to the same beneficiary, with certain exceptions as discussed earlier  Reimbursement is subject to an upper payment limit (adjusted annually based on the Medicare Economic Index, or MEI) and productivity standards  Application of these “caps and screens” generally results in payment that is less than “full” cost 10/28/2013

11. CURRENT PAYMENT METHODOLOGY  Medicare FQHC cost-based reimbursement is applicable to FQHC-core services only  Medicare FQHC reimbursement is based on a per-visit rate subject to an upper payment limit (the “cost cap”) o 2014 rural limit - $111.67 o 2014 urban limit - $129.02  Services provided by core service providers are paid based on a per-visit methodology

12. CURRENT PAYMENT METHODOLOGY  Medicare reimbursement for FQHC-core services ultimately determined through submission of Medicare FQHC cost report  Final Medicare program payment based on 80% of defined Medicare cost determined from the cost report  Medicare beneficiary copayments are based on 20% of covered charges  No reconciliation process for services reimbursed based on a Medicare fee schedule (Medicare covered services that fall outside of the FQHC benefit)

13. METHODOLOGY TRANSITION CONSIDERATIONS  Medicare FQHC cost report reimbursement can be divided into three “buckets” – reimbursement for visits; vaccine administration costs; and bad debts  The PPS reimbursement system impacts two of the three “buckets” – reimbursement for visits and (potentially) for bad debts

14. MEDICARE BAD DEBTS; CMS FINAL RULE – 11/9/2012  Final rule reduced the amount of Medicare bad debts that are reimbursed for future cost reporting periods (reimbursement was at 100% of allowed Medicare bad debts – through cost reporting periods (CRPs) ending on or before August 31, 2013)  Medicare bad debt reimbursement for future CRPs as follows:  CRPs beginning on or after October 1, 2012 – 88%  CRPs beginning on or after October 1, 2013 – 76%  CRPs beginning on or after October 1, 2014 and subsequent – 65%

15. OVERVIEW OF FINAL RULE

16.  Final rule responds to public comments received in response to issuance of the proposed rule during September 2013  Final rule includes a single national encounter-based rate for professional services furnished per beneficiary per day 16

17. OVERVIEW OF FINAL RULE  Final rule continues current policy that provides for payment for multiple visits on the same day, with two exceptions  Mental health visits – yes  Visit due to subsequent illness or injury on the same day – yes  DSMT/MNT visit - no  Initial preventive physical examination – no (addressed in manuals only and not in regulation; manual language indicates service is a once in a lifetime benefit) 17

18. OVERVIEW OF FINAL RULE  Final rule includes a MEI-adjusted base payment rate of $158.85  Initial update to PPS payment rates will be effective January 1, 2016  Includes concept of a geographic adjustment factor based on the locality of the delivery site  Establishes two geographically adjusted PPS rates per period for each delivery site (see next slide) 18

19. OVERVIEW OF FINAL RULE  PPS rates will be established for  Patient that is not new to the FQHC and is not receiving an initial preventive physical examination (IPPE) or an annual wellness visit (AWV)  Patient that is new to the FQHC or service furnished is an IPPE, initial AWV or subsequent AWV (PPS rate will reflect the 34.16% increase in costs accounting for the greater intensity and resource use associated with these types of visits)  PPS rates will be established for each delivery site 19

20. OVERVIEW OF FINAL RULE  Establishes a new set of HCPCS G-codes (five payment codes) for FQHCs to report services – for purposes of parity when comparing PPS rates with health center charges (the “lesser of” provision)  Established Medicare patient (medical and mental health) o G0467 and G0470  A new patient visit (medical and mental health) o G0466 and G0469  An IPPE or AWV o G0468 20

21. OVERVIEW OF FINAL RULE  Reminder - the “lesser of” provision:  Medicare payment will be 80% of the lesser of the actual charge reported for the specific payment code or the PPS rate (for each claim)  Beneficiary coinsurance will be 20% of the lesser of the actual charge reported for the specific payment code or the PPS rate (for each claim) 21

22. OVERVIEW OF FINAL RULE  Commentary provided regarding the setting of charges for the new Medicare G-codes references Medicare reimbursement principle of uniformity of charges  Medicare will continue to pay 100% for preventive services (there will be no beneficiary coinsurance requirement) 22

23. OVERVIEW OF FINAL RULE  Annual Medicare FQHC cost reports will still be required  Reasonable costs of the following services will continue to be determined and paid through the Medicare FQHC cost report o Influenza and pneumococcal vaccines and their administration o Allowable graduate medical education costs o Bad debts (see later slide)  CMS notes that cost report information will be used to update cost estimates and to facilitate the potential development of a FQHC market basket (for update to PPS payment rates that will be effective January 1, 2017) 23

24. OVERVIEW OF FINAL RULE  Provides for “wrap-around” payments from Medicare Advantage (MA) organizations, where the FQHC has a written contract with the MA organization  Without application of the “lesser of” provision 24

25. MEDICARE PPS RATES AND CALCULATIONS

26. MEDICARE FQHC PPS REIMBURSEMENT  National Medicare FQHC PPS base payment rate of $158.85 per beneficiary per day  Adjusted for geographic location  1.3416X higher for new patient visit, IPPE, initial AWV or subsequent AWV  Total payment (Medicare reimbursement and patient coinsurance) would not exceed the lesser of the “Medicare visit” charge or PPS rate

27. MEDICARE FQHC PPS REIMBURSEMENT – A SIMPLISTIC EXAMPLE  Assume example health center is located in rural Texas (listing of geographic adjustment factors identifies “rest of Texas” =.961)  Daily PPS rate for established patients would then be $158.85 X.961 = $152.65  What if the health center’s G-code charge = $110.00?  What if the health center’s G-code charge = $170.00?  How is Medicare payment and patient coinsurance calculated?

28. MEDICARE FQHC PPS REIMBURSEMENT – A SIMPLISTIC EXAMPLE  Assume example health center is located in rural Texas (listing of geographic adjustment factors identifies “rest of Texas” =.961)  Daily PPS rate for a new patient would then be $158.85 X.961 X 1.3416 = $204.80  What if the health center’s G-code charge = $175.00?  What if the health center’s G-code charge = $235.00?  How is Medicare payment and patient coinsurance calculated?

29. MEDICARE FQHC PPS REIMBURSEMENT  Establishment of charges for HCPCS G-codes will require thought and analysis  Final rule indicates that a charge for a specific payment code would reflect the sum of regular rates charged to both beneficiaries (Medicare) and other paying patients for a typical bundle of services that would be furnished per diem to a Medicare beneficiary  Final rule notes that establishing Medicare per diem rates that are substantially in excess of the usual rates charged to other paying patients for a similar bundle of services could be subject to section 1128 of the Social Security Act

30. MEDICARE FQHC PPS REIMBURSEMENT  Establishment of charges for HCPCS G-codes will require thought and analysis  Final rule includes references to charge setting requirements in section 330(k)(3)(G) of the Public Health Services Act and HRSA guidance o Related to the costs of operation o Consideration of locally prevailing rates o See also Section V (Fee Schedule) of HRSA’s draft sliding fee policy information notice dated July 9, 2012  HRSA’s 19 key program requirements also includes reference to “maximizing collections and reimbursement for costs of providing health care services”

31. MEDICARE PPS IMPLEMENTATION THOUGHTS

32. PREPARING FOR THE MEDICARE PPS  Presumably health center management seeks a “revenue neutral” or better outcome with implementation of the new Medicare payment methodology  Assessment of anticipated health center financial outcome is a recommended prerequisite to development of implementation plan specifics (see next slide)

33. ASSESSING YOUR SITUATION  Assumptions for discussion/illustration  Recalculated cost per visit = $125.00  Current Medicare reimbursement based on cost limit = $112.00  Medicare average charge per visit = $102.00  Assumed PPS rate of $153.00 (from the earlier example)  In order to be revenue neutral for the visits “bucket”, the health center’s average charge will need to increase by approximately 8%  Full recognition of PPS reimbursement will not occur unless the health center’s average charge is increased to $153.00 (a 50% charge increase in this example)

34. NEXT STEPS  Issues to consider include the following  Provider coding practices  Charge structure and charge capture issues o Development of a sound and fact-based methodology for establishment of G-code charges  Recordkeeping for capture of reimbursement of Medicare bad debts (FQHC services – beneficiary coinsurance)  Education for members of the health center’s Board of Directors and leadership team  Other

35. FINAL THOUGHTS

36.  Proper planning should enhance a health center’s chance for a successful PPS implementation experience  Most likely this is not a “one and done” implementation process – periodic reevaluation and adjustments may be required

37. DISCLAIMER The information contained in this presentation is not intended to cover all situations or all rules & policies. Reimbursement laws, regulations & policies are subject to change.

38. 910 E. St. Louis St. Springfield, MO 65801-1190 Office: 417.865.8701 Fax: 417.865.0682 www.bkd.com Michael B. Schnake, CPA, CGFM Partner mschnake@bkd.com