Computational Characteristics of Dubai’s Inpatient IR-DRG Payment System Michael Trisolini, PhD, MBA Nicole Coomer, PhD Mahmoud Taha, MSc, MBA.

Computational Characteristics of Dubai’s Inpatient IR-DRG Payment System
Michael Trisolini, PhD, MBA Nicole Coomer, PhD Mahmoud Taha, MSc, MBA

Agenda Background Introduction to DRGs Payment with Inpatient DRGs
Calculating DRG Parameters Relative Weights (3M) Base Rate Outliers Adjusting DRG Payments Implementing DRGs Sensitivity Analyses Monitoring Projected Timeline

Phase I Timeline – February 2015 to July 2016 Implementation Planning
DHA Project Overview Phase I Timeline – February 2015 to July 2016 Current Situation Analysis Round Table Meeting Implementation Plan Planning Phase Five-year Plan for 2016 to 2020 Implementation Planning

DHA Project Overview (cont.)
Phase II Timeline – August 2016 to July 2018 Dubai Health Care Cost Index IR-DRG Parameters & Implementation IR-DRGs IR-DRG Monitoring Indicators Policy Briefs Training for DHA Staff Monitoring, Policy, Training

Five Year Blueprint for Phased Implementation
Step 1: Initial IR-DRG implementa-tion and operations Step 2: Enhancing IR-DRG implementa-tion Step 3: Additional payment models Implementation in phases promotes success for all stakeholders and minimizes change fatigue by providing time for needed adjustments to systems, staff, and operations.

Options for Bundling Inpatient Hospital Services
Hospital per service or per-procedure payment Hospital per-day reimbursement Hospital per-admission reimbursement: diagnosis-related groups (DRGs) DRGs bundled with physician reimbursement (Dubai IR-DRGs) Paying for quality, pay for performance (P4P), and value-based purchasing (VBP) Episode payments for hospital, physician, and post-acute care for an illness episode (often 90 days) Capitated payment for all health care services provided per patient per year

Introduction to DRGs Diagnosis-related groups (DRGs) bundle, or combine, inpatient hospital services into a single group for each inpatient stay The hospital services included in each DRG bundle represent the typical services provided across all hospitals for patients with the same reason for admission (principal diagnosis or complex procedure) Each inpatient hospital stay is assigned to one and only one DRG based on the patient’s age, sex, diagnoses, procedures provided to the patient, and sometimes other factors

What do DRGs Cover? Types of services covered by a DRG payment include: Physician care Nursing care Technician services Therapies Radiology Laboratory Pharmaceuticals Room Meals Etc.

Characteristics of DRGs
DRGs are: Cost homogenous Patients in each DRG have similar patterns of hospital resource use, and each DRG has one payment level Clinically coherent, with similar clinical characteristics such as organ system, etiology, or specialty Mutually exclusive Each inpatient hospital stay is assigned to only one DRG

DRGs as Hospital Casemix Measurement
DRGs are a way of measuring the casemix or relative severity of illness and cost of the different types of inpatient stays or “products” provided by a hospital DRGs adjust hospital prices and payments by measuring the casemix of patients treated by a hospital DRGs can group together different kinds of patients including clinically similar ICD-10 diagnosis codes, as long as they are also similar in cost or hospital resource use

DRGs as Hospital Casemix Measurement (cont.)
DRGs enable hospitals to be paid more if they treat sicker patients (more severely ill casemix of patients), rather than being paid more due to the reputation or “name” of the hospital Some DRG systems, including IR-DRGs, further sub-classify hospital stays by the severity of the patient’s illness The reason is that higher severity of illness means higher costs to the hospital which means higher payments are needed for the hospital

Severity Levels IR-DRG Severity of Illness (SOI) Classifications – Based on Secondary Diagnoses: Minor (1) – e.g., uncomplicated diabetes, difficulty breathing, hypertrophy of kidney Moderate (2) – e.g., diabetes with renal complications, emphysema, chronic renal failure Major (3) – e.g., diabetes with ketoacidosis, respiratory failure, acute renal failure These SOI levels turn 1 IR-DRG into 3 IR-DRGs with 3 different payment levels depending on the patient’s severity of illness

History of DRGs DRGs were first developed in the 1970s and first used for hospital payment by the U.S. Medicare system in 1983 and are now used in many high income countries A number of different DRG systems have been developed: U.S. Medicare DRGs – 1983 For elderly (age 65+) and disabled populations All Patient (AP) DRGs For a general population Medicare Severity (MS) DRGs – currently used by the U.S. Medicare system Added different severity adjusters (up to 3 levels per DRG based on secondary diagnoses) International Refined (IR) DRGs 3M product implemented in multiple countries

Country-Specific DRGs
U.S. Medicare DRGs U.S. All Payer DRGs Swiss DRGs Germany G-DRGs NordDRGs – Scandinavia and Estonia IR-DRGs – used in several countries and in the Emirate of Abu Dhabi, and are planned for Dubai starting in 2017

Number of DRGs The number of DRGs varies across the different DRG systems The first DRG system used in the U.S. Medicare system had 476 DRGs Some DRG systems now have over 1,000 DRGs, due to different classification systems and splitting some DRGs by severity of illness levels Adding more DRGs increases specificity, but also increases the complexity of the DRG system and the management resources required to implement and maintain the DRG system

IR-DRGs IR-DRGs were developed by the 3M company
Similar in concept to other DRG systems IR-DRGs group each hospital stay into only one DRG for casemix classification and payment purposes Same methods used for calculating DRG payment rates, including one base rate and relative weights for each DRG

IR-DRGs (cont.) IR-DRGs are also somewhat different from other DRG systems in several ways: Designed to encompass both inpatient and outpatient care, but can be used for inpatient care only as in Abu Dhabi, and as also planned for Dubai Based mainly on procedure codes rather than on diagnosis codes as in other DRG systems IR-DRGs can include three levels of severity of illness using the most severe secondary diagnosis on the claim

Goals of DRG Payment Goals of Bundling Services in DRGs for Hospital Inpatient Pricing and Payment Remove incentives for overtreatment or increasing volumes of care – laboratory tests, radiology, length of stay (LOS) in hospital – that exist in fee-for-service pricing and payment Financial rewards for efficient hospitals providing care that is less costly than the fixed DRG payment per inpatient stay Shift risk for the costs of overtreatment to the hospital Simplify hospital billing by reducing the number of units of service billed

Goals of DRG Payment (cont.)
Simplify utilization review and medical necessity review by health insurance companies by reducing the number of units of service billed Allows flexibility for adding on paying for quality incentives Allows flexibility for negotiations on DRG prices between health insurance companies and hospitals Capital costs can be passed-through to avoid discouraging investors Assist hospitals with internal planning and budgeting by defining the “products” of the hospital

How is DRG Payment Determined?
At the most basic level the DRG payment is a multiplication of two factors: DRG Payment = Base Rate x Relative Weight Base Rate An amount representing the average payment per admission for all hospitals in the base year. One base rate for all hospitals. Sometimes referred to as a standardized amount Relative Weight A unique relative weight is assigned to each DRG to reflect the average level of resources for an average patient in a DRG, relative to the average level of resources for all patients.

Calculating DRG Payments to Hospitals
Examples of calculating DRG payments based on the U.S. Medicare system: Base Rate = $5,370 Normal newborn birth (DRG 795) Relative Weight = Payment = $5,370 x = $889 Heart transplant with Major Complications or Comorbidities Relative Weight = Payment = $5,370 x = $130,380

Agenda Introduction to DRGs Payment with Inpatient DRGs

DRG Base Rate and Relative Weights
Terminology Costs The amount that a hospital expends to provide care for a patient. Charges The amount that a hospital bills a patient or insurer for providing care. Typically greater than costs. May or may not be correlated to costs. Payments The amount that a patient or insurer pays to the hospital for providing care. Typically greater than costs and less than charges.

DRG Base Rate and Relative Weights (cont.)
The DRG base rate and the relative weights for each DRG are intended to reflect the costs of providing care Using costs for calculating the parameters requires accurate and timely cost reporting from hospitals to DHA to determine DRG level costs In the absence of DRG level costs, the parameters can be based on recent charges and fee-for-service hospital payments Recent charges should reflect, in part, the resources needed to treat a patient Recent fee-for-service payments should on average cover all of a hospital’s costs A transition to costs can occur in the long term

Calculating DRG Relative Weights
The IR-DRG relative weights for Dubai will be calculated by 3M Relative weights are calculated as the average charges for cases in each DRG divided by average charges for all cases The relative weights are intended to account for cost variations between DRGs that represent different types of patients and treatments (differences in casemix) The more costly DRGs, the DRGs for the more severely ill or complex patients, are assigned higher DRG relative weights and thus receive higher payments

Calculating DRG Relative Weights – An Example
Case DRG Charges Fee-for-Service (FFS) Payment 1 001 12,000 AED 10,000 AED 2 14,000 AED 3 17,000 AED 10,500 AED 4 13,500 AED 13,000 AED 5 002 20,500 AED 20,000 AED 6 28,000 AED 25,000 AED 7 19,000 AED 18,500 AED 8 23,000AED 22,500 AED 9 40,000 AED 23,500 AED *For illustrative purposes only, values are hypothetical.

Calculating DRG Relative Weights – An Example (cont.)
Number of Cases Total Charges Total Payments (FFS) Average Charges Average Payments (FFS) 001 4 56,500 AED 45,500 AED 14,125 AED 11,375 AED 002 5 130,500 AED 109,500 AED 26,100 AED 21,900 AED Total 9 187,000 AED 155,000 AED 20,778 AED 17,222 AED *For illustrative purposes only, values are hypothetical.

Calculating DRG Relative Weights – An Example (cont.)
Average Charges Relative Weight Formula Relative Weight 001 14,125 AED 14,125 AED 20,778 AED = 002 26,100 AED 26,100 AED 20,778 AED = Average Charges for All DRGs (001, 002) : 20,778 AED *For illustrative purposes only, values are hypothetical.

Updating DRG Relative Weights
The relative weights are adjusted or updated periodically (e.g. once per year) to account for changes in hospital costs Relative weights are updated using new charge data that becomes available. Collected on the claims as done currently with FFS claims Changes in relative charges reflect changes in the relative costs of providing care.

DRG Base Rate and Relative Weights
The base rate is set equal to the total payments for inpatient cases divided by the total number of inpatient cases for all hospitals All DRGs (001, 002) FFS Payment Total Number of Cases Average 155,000 AED 9 155,000 AED 9 =17,222 AED Base Rate *For illustrative purposes only, values are hypothetical.

Calculating DRG Payments to Hospitals
Examples of calculating DRG payments based on hypothetical DRGs: Base Rate = 17,222 AED DRG Payment = Base Rate x Relative Weight DRG Relative Weight DRG Payment Formula DRG Payment 001 0.68 17,222 AED * = 11,708 AED 002 1.26 17,222 AED x = 21,634 AED *For illustrative purposes only, values are hypothetical.

Updating the Base Rate The base rate is adjusted or updated periodically (e.g. once per year) to account for changes in hospital costs using an update factor The update factor in its simplest form is a cost index A market basket index measures the changes in cost, over time, of the same mix of goods and services purchased by hospitals These are prices paid by hospitals to suppliers of goods and services and thus the costs to the hospitals Sometimes called a “price index” Sometimes called a “cost index” DHA and DSC are establishing a healthcare cost index for Dubai

Updating the Base Rate - Example
Base Rate = 17,222 AED in Year 1 Update Factor = 3% for Year 2 Base Rate for Year 2 17,222 AED X 1.03 = 17,739 AED

Outlier DRG Payment Adjustments
Outlier payments are extra payments to hospitals, above the regular DRG payment, for hospital stays that incur unusually high costs Rare occurrences In a cost-based DRG system, to qualify for an outlier payment, a hospital stay must have costs above a very high, fixed threshold cost level If this cost threshold is exceeded, then an extra payment is made to the hospital at usually 80% of the amount by which the hospital’s costs exceed the outlier threshold of cost for that DRG In a non-cost-based DRG system length of stay is often used and a per diem amount can be paid for each day beyond the outlier threshold length of stay

Quality Adjustments to DRGs
DRG payments can be also be adjusted to increase payments or decrease payments for measured quality of care levels Can use a hospital’s scores on several individual quality measures Can use an overall hospital quality score with scores on multiple quality measures added together An extra payment for high quality or payment penalty for low quality can be built into the DRG payment model Quality of care scores and payment adjustments can also be a tool for negotiation between hospitals and health insurance companies

Quality Adjustments to DRGs – Examples
Germany – penalty for not submitting quality data France – extra payments for quality improvements (e.g. reducing MRSA infections) England – up to 1.5% penalty if quality standards not met; no extra payment if the patient is readmitted within 30 days U.S. Medicare Penalty for excess readmissions for acute myocardial infarctions, heart failure, and pneumonia Value-based purchasing incentive for higher quality performance scores Penalty for hospital acquired conditions (HACs) Penalty for not using an electronic health record (EHR)

Paying for Quality Formula for Inpatient Payment
Prior to Pay for Quality the IR-DRG formula is: Pay for Quality adds an additional multiplier: α < 0 if the hospital has low quality (Q) relative to others, quality adjustment decreases payment α = 0 if the hospital has average quality (Q) relative to others, no quality adjustment α > 0 if the hospital has high quality (Q) relative to others, quality adjustment increases payment

Paying for Quality Example
Range of Possible Effects of Quality on Inpatient Payment BaseRate=8,000 AED, RelativeWeight=3.267 *For illustrative purposes only, values are hypothetical.

Negotiation and DRGs Negotiation of DRG payments between hospitals and health insurance companies is possible under a DRG system Used in Abu Dhabi Reduces the need to implement complex DRG payment adjustments and some pass-throughs Relative weights remain fixed Different base rates are established for different hospitals through hospital and health insurance company negotiations Negotiations can be limited to a range of possible base rates by DHA

Negotiation Sensitivity Analyses
To assess the system for biases and understand the potential effects of allowing a negotiation band on the Dubai health care system. Conducted at the hospital, insurer, and healthcare sector levels Using the EClaim Link data and the relative weights, base rate, and outliers developed to reflect the unique system that exists in Dubai Simulated negotiation in the market All hospitals receive minimum payment in band All hospitals receive maximum payment in band Distribution of payments based on current ratio of payments to charges in the EClaim Link data Similar to sensitivity analyses discussed above

Implementing DRGs ICD-10 and CPT coding – A DRG system crucially depends upon accurate coding of inpatient hospital stays, so hospital coding needs to be first reviewed and upgraded if needed Standardizing terminology – Defining key measures of hospital use and cost It is important to define what constitutes an inpatient stay Is one overnight in the hospital required to define an inpatient stay? What about patients kept overnight for “observation”?

Implementing DRGs Phase-in Transition Period – Experience other countries strongly suggests a DRG transition period of 2-3 years or more. Start with shadow budgeting -- Include DRGs on claims for information only and not for payment for 9-18 months or more, while continuing fee-for-service payment to hospitals DRG payment to hospitals phased in as 50% or less of total payment to hospitals initially, while the rest of the hospital payment remains fee-for-service DRG payment to hospitals increased to 100% of total payment to hospitals only after shadow budgeting and percentage of total payment phase-in Phased implementation allows hospitals, insurance companies and other stakeholders time to understand the details and impact of the new payment system on them, and time to adjust their systems, staff, and operations.

Three Tools for Quality Improvement in Dubai
1. Information only Start with information only, confidential feedback of quality measurement results to hospitals and clinics, with blinded comparisons to peers 2. Public reporting Next develop public reporting of quality measurement results with public comparison of hospitals and clinics to peers 3. Pay for quality Then add paying for quality, where quality measurement results affect payment levels for hospitals and clinics Three Tools for Quality Improvement in Dubai

Quality Measurement Phase 1
Begin quality measurement for information only using 3M quality measures Include measures focused on patient safety and hospital readmissions, since IR-DRGs provide financial incentives to increase hospital admissions and reduce quality Potentially preventable complications (PPCs) Potentially preventable hospital readmissions (PPRs)

Quality Measurement Phase 2

Background Introduction to DRGs Payment with Inpatient DRGs Calculating DRG Parameters Relative Weights (3M) Base Rate Outliers Adjusting DRG Payments Implementing DRGs Sensitivity Analyses Monitoring Projected Timeline Altijani H Hussin Health Economics Consultant Dubai Health Authority

Sensitivity Analyses To assess the Dubai IR-DRG system for biases and understand the potential effects of the IR-DRG implementation on the Dubai health care system. Conducted at the hospital, insurer, IR-DRG, and healthcare sector levels Using the EClaim Link data and the relative weights, base rate, and outliers developed to reflect the unique system that exists in Dubai Additional analyses will examine the effects of a negotiating band (discussed later)

Sensitivity Analyses (cont.)
Overall System Compare overall total payments made to all hospitals in Dubai under the current fee-for-service (FFS) discounted charges payment system to overall total payments that all hospitals would receive using the IR-DRG system. Geographic Areas Compare overall total payments made to all hospitals in different geographic areas of Dubai (e.g. Jumeirah Vs. Karama) under the current FFS payment system and under the IR-DRG payment system. Selected with the DHA.

IR-DRG Compare overall payments and per admission payments made by IR-DRG under the current FFS system and under the proposed IR-DRG system. If specific IR-DRGs have very large increases or decreases in payments made between the two different payment systems, then further analyze those IR-DRGs. Hospital Compare overall payments and per admission IR-DRG payments made to individual hospitals in Dubai by hospital under the current FFS payment system and under the IR-DRG system. If specific hospitals are seeing large gains or decreases in total payments under the IR-DRG system then perform further analyses of the EClaim Link data at the hospital level examining the case-mix of the hospital.

Insurer Compare overall payments made to hospitals in Dubai and overall and per admission IR-DRG payments made by health insurance company under both the current FFS payment system and under the IR-DRG system. If specific insurers are seeing large increases or decreases in payments they make to hospitals under the IR-DRG system then perform further analysis at the individual health insurance company level to determine the cause of the large differences.

Sensitivity Analyses – An Example
Compare overall total payments made to all hospitals in Dubai under the current fee-for-service (FFS) discounted charges payment system to overall total payments that all hospitals would receive using the IR-DRG system. DRG Number of Cases Total FFS Payments DRG Rate Total DRG Payments Difference (DRG-FFS) 001 4 45,500 AED 11,708 AED 46,832 AED 1,332 AED 002 5 109,500 AED 21,634 AED 108,168 AED -1,332 AED All 9 155,000 AED n/a 0 AED

Need for Monitoring IR-DRGs by DHA
Incentives for increasing the number of hospital admissions to increase hospital revenue from additional IR-DRG payments Incentives for decreasing services and quality of care for patients to reduce hospital costs per admissions to increase profits in relation to the fixed IR-DRG payment per admission Incentives for upcoding procedure codes and diagnosis codes in hospital claims to insurance companies to move to IR-DRG with higher payment rate (increase severity adjuster)

Dubai health sector-wide
Types of Monitoring All hospitals – Dubai health sector-wide Individual hospitals IR-DRGs

Monitoring 1 – All Hospitals, Dubai Health Sector-wide
Trends over time – hospital admissions, readmissions, average length of stay, transfers of patients to other hospitals New hospital openings, hospital closures Patient safety events – hospital acquired conditions (HACs), patient safety indicators (PSIs), never events, hospital acquired infections (HAIs) Changes in procedure codes, diagnosis codes, average case-mix Medical records audits of procedure codes, diagnosis codes

Monitoring 2 – Individual Hospitals
Trends over time – individual hospital payments, individual hospital case-mix, individual hospital occupancy rate, average length of stay, number of ICU days Starting or stopping admissions for specific IR-DRGs Changes in numbers of outpatient procedures, outpatient visits, ED visits Medical records audits of procedure codes, diagnosis codes, that are included in the claims data and used to assign IR-DRGs and severity of illness (SOI) levels for payment

Monitoring 3 – Individual IR-DRGs
Trends over time Number of times billed per month overall for high volume IR-DRGs, Number of times billed per month by each individual hospital for high volume IR-DRGs, Changes in severity of illness levels (SOI) billed for high volume DRGs Starting or stopping billing for specific IR-DRGs

DRG codes on eClaimLink
Projected Timeline 1st, Feb, 2017 Shadow Billing Phase I DRG codes on eClaimLink 1st, July, 2017 Shadow Billing Phase II Estimated DRG price added to claims Not affecting payments 1st, April, 2018 DRG Prices Phase Affecting hospital payments

Computational Characteristics of Dubai’s Inpatient IR-DRG Payment System Michael Trisolini, PhD, MBA Nicole Coomer, PhD Mahmoud Taha, MSc, MBA.

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Computational Characteristics of Dubai’s Inpatient IR-DRG Payment System Michael Trisolini, PhD, MBA Nicole Coomer, PhD Mahmoud Taha, MSc, MBA.

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