Transcript Slide 1
3M Global Information Technology
APR DRG Based
Prospective Payment System
Design
Florida Hospital Association
3M Health Information Systems
July 13, 2012
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State and Federal Payers
Are being directed to reduce payments for Medical Care while increasing
their own roll of insured
Are chasing cost efficiencies obtained from primary care and outpatient
interventions with the expectation that inpatient hospitalization costs will
shrink
Are targeting weak payment methodologies that can be described as offering
poor incentives to control costs.
Identifying the need to reform payment and enforce cost containment opens
the door to budget cuts or hospital rationalization (closure).
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Payment Continuum
Provider
Minimal Risk
Provider
Insurance Risk
Provider
Performance Risk
Financial Risk
Payer
Payment Method
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Payment System Objective
“The ultimate objective of PPS is to set a reasonable
price for a known product.
"A strong link between payment and diagnosis, along
with the ability for hospitals to retain any amounts
below the prospective rate, will invite more active
medical participation in the financial and operating
routines of hospitals.“
HHS Report to Congress, 1982
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Objectives for a Payment System Reform
Additional payments for special Cases – Outliers and Transfers
Maintain or improve access to care
Protect hospitals so that quality is maintained
Extend protection against extraordinary case costs to a greater number of
cases by directing the same level of payments more efficiently
In effect, this is stop loss insurance which protects hospitals – and
maintains access and quality
Improve payment accuracy
Give providers incentives to become more efficient
Reward efficient hospitals
Give inefficient hospitals tools which facilitate communication between
hospital administration and physicians
Use the payment systems to create a foundation which supports continuous
quality improvement
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Separation of the Classification System and the
Establishment of Prices
The clinical model reflects the type of patients
The payment weights reflect the treatment processes and
methods
Allows stable clinical categories to be maintained while payments
are adjusted to reflect more accurate and complete data
Facilitates fine-tuning payments to accommodate other factors
not taken into account by the classification system
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MS-DRGs are not applicable to
non Medicare Population
MS-DRGs are fundamentally flawed for non Medicare populations,
failing to adequately account for: newborn birth weight, many
pediatric illnesses ( sickle cell anemia, cystic fibrosis, hemophilia,
lead poisoning, nutritional disorders, congenital anomalies), high risk
pregnancies, HIV-related co-morbidities.
These limitations are so extensive that a fair and equitable payment
system for a non Medicare population can not be achieved using the
MS-DRGs.
For example, hospital admissions for a typical Medicaid population
are composed of roughly 16% newborns, 20% pediatric and 25%
obstetric patients.
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The All Patient Refined DRGs
Need a set of categories that were capable of capturing
differences in the case mix and severity of the patient mix
at various types of participating hospitals
APR-DRGs
Developed for all patients
Sophisticated severity adjustment – Accurate payment and
supports communication
Captures differences in expected cost across all participating
hospitals – maintaining access and facilitating the measurement
of efficient practice patterns
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All Patient Refined DRGs (APR DRGs)
APR DRGs are an extension of DRGs to account for SOI and
ROM
314 base APR DRGs
Four severity of illness subclasses
Four risk of mortality subclasses
Assignment to a “Base” APR-DRG based on:
Principal Diagnosis, for Medical patients, or
Most Important Surgical Procedure (performed in an O.R.)
Assignment of SOI and ROM
Take into account the interaction among principal & secondary diagnoses, age, and,
in some cases, procedures
Both admission APR DRG & discharge APR DRG are computed
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Admission APR DRG requires the secondary diagnoses present on admission
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indicator
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All Patient Refined DRGs (APR DRGs)
APR DRGs were developed by 3M HIS in conjunction with
the National Association of Children’s Hospitals (NACHRI)
and encompass patients of all ages.
APR DRGs are assigned using standard administrative data.
No additional data collection required
APR DRGs are designed to facilitate linking payment and
quality
Case mix/risk adjustment for both resource and quality
measures
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APR DRG 221 Major Small &
Large Bowel Procedures
Severity of Number of Percent of
Illness
Cases
Cases
1
912
23.0%
2
1,479
37.2%
3
1,050
26.4%
4
530
13.3%
Source: HCUP 2007 - Medicaid Discharges
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Average
Length
Average
of Stay
Charge
5.7 $34,381
7.9 $46,572
13.0 $81,354
26.4 $200,225
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PPS Components
Relative Weights
Base Rates
Outlier and Transfer Policy
Transfer Policy
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Relative Weights
Relative Weights are Unitless Numbers that Express
the Relative Resource Use for a Visit in One
Category in Relation to the Average Visit
Major Policy Decisions Include:
Based on Actual Costs or Charges
DRG Average vs Hospital Specific Relative Value
Geometric vs Arithmetic
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Top 10 APR DRGs by Total CM
Top 10
APR DRG
540
560
004
560
588
540
005
640
720
593
353,197
SOI
1
1
4
2
4
2
4
1
4
4
Relative Weight
0.79465
0.44592
30.00354
0.51331
33.88654
0.96069
22.14753
0.10582
4.16961
17.25955
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212,600
24.4%
Cases
Total CMI % Total CMI
54,628 43,410.14
5.0%
90,507 40,358.88
4.6%
875 26,253.10
3.0%
39,504 20,277.80
2.3%
562 19,044.24
2.2%
17,155 16,480.64
1.9%
704 15,591.86
1.8%
146,854 15,540.09
1.8%
1,980
8,255.83
0.9%
428
7,387.09
0.8%
descr
CESAREAN DELIVERY SOI 1
VAGINAL DELIVERY SOI 1
TRACHEOSTOMY W LONG TERM MV W EXTENSIVE PROC SOI 4
VAGINAL DELIVERY SOI 2
NEONATE BWT <1500G W MAJOR PROC SOI 4
CESAREAN DELIVERY SOI 2
TRACHEOSTOMY W LONG TERM MV W/O EXTENSIVE PROC SOI 4
NEONATE BRTWT >2499G, NORMAL NB OR NEONATE W OTH PRBLM SOI 1
SEPTICEMIA & DISSEMINATED INFECTIONS SOI 4
NEONATE BIRTHWT 750-999G W/O MAJOR PROC SOI 4
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Base Rates
Base Rate and Adjustments
The base rate is an amount, that when multiplied by an APRDRG specific relative weight, will yield a price for each APR-DRG
Major Policy Decisions Include:
What costs should be included or excluded in developing a
base rate
The way that the base rate is inflated over time
Amounts (if any) which are withheld from the initial base rate
to allow for improvements in coding after the system is
introduced
What adjustments to the base rate are needed to account for
exogenous factors that influence hospital costs
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Base Rate Objectives
Create fair base rates suitable for replication that can withstand review
Base variation in base rates upon variation in “efficient” costs
Efficient cost is a loose term but is treated here as the cost of production
after adjusting for those mission related factors beyond hospital control that
create systematic variation in the cost of providing care
Which costs should be included or excluded in developing a base rate?
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Base Rate Adjustments
Hospital Administrators subject to costs beyond their
control. DRG payment using averages without
recognition of legitimate cost differences can unfairly
penalize or reward different hospitals.
Which factors influence hospital costs? And to what
magnitude? How should these factors be recognized?
Hypothesize variables to measure efficient cost
variation and create base rate adjustments to account
for it
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Adjustments to Base DRG Budget
Potential causes for adjustment
geographic location
local wage rates
direct and indirect health professions education
Hospital mission (e.g., children’s, teaching)
cost and length of stay outliers
inflation adjustments
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Methods for Adjustment
Formula (e.g., Medicare teaching adjustment)
Pass-through of actual costs (e.g., direct medical
education)
Actual costs of base year trended forward
Hospital specific rates
Peer Grouping
location, size, teaching status
Blending of hospital specific, peer group, regional
and/or national rates
Standard allowance
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Variables Used to Measure “Efficient”
Cost Variation
Local/Regional Differentials:
Regional variations in the cost of doing business exist for all industries. Multiple
factors can drive cost variation. The wage index produced by Medicare was used as a
proxy through which to group hospitals facing similar regional cost pressures.
Teaching Mission:
Teaching hospitals bear hidden patient care costs through their roles in research,
training, providing new technologies and unmeasured severity within the patients they
treat. The resbed ratio published by CMS was used as a proxy for the costliness of
teaching to group hospitals
Indigent Burden:
Disproportionate Share (DSH) has long been a necessary variable to test for as a
source of hospital cost variation. Once again the CMS variable was used to group
hospitals within similar ranges
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Variables Used to Measure “Efficient”
Cost Variation
Mission Related Binary Variables Considered:
Lavel 1 Trauma Center (1/0)
Level 2 Trauma Center (1/0)
Burns Center (1/0)
Pediatric Trauma Center (1/0)
Does the hospitals claims data constitute 2% (or greater) of all
pediatric claims and also 2% of the highest severity level (3 and 4)
pediatric claims. If so the hospital is designated an “Intense
Pediatric” provider
All of the above have been hypothesized as adding incrementally
greater cost to the provision of care not reflected in patient level
case mix variation.
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Outliers
Additional payments for special Cases – Outliers and Transfers
Maintain or improve access to care
Protect hospitals so that quality is maintained
Stop loss insurance which protects hospitals – and maintains access
and quality
More accurately classifying cases as inlier cases, allows better
identification of the outlier cases that really need stop loss protection
Allows payment policy to lower the outlier pool size (amount all
hospitals have to pay for the insurance) while still maintaining the
same level of risk (outlier threshold) thus increasing the amount paid
out in the base rate to all hospitals
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Prospective Payment and Budgeting - Long
Stay and Cost - Purpose
Key objective - financial protection for provider
Has quality dimension in that the pressure from a
catastrophic case is reduced by an appropriate outlier
policy
It is critical that the outlier policy not encourage providers
to keep cases until outlier status is reached
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Prospective Payment and Budgeting –
Long Stay and Cost - Identification
Limiting risk implies fixed threshold (RAND)
Fixed threshold is often coupled with statistical threshold
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Transfers
Not all hospitals have technologies to handle
complex cases. Reasonable option for a hospital to
stabilize and transfer a case that is beyond its
technical capabilities to another hospital. The
transferring hospital does not provide most of the
care for these cases, and should not receive the full
DRG rate.
Transfer cases are really only a special kind of
short stay outlier
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Identifying Transfer Cases is based on Discharge
Status
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Transition Strategies
Issue: Transition strategy needed to
protect against unanticipated expenditures and to
protect hospitals' cash flow
minimize disruption of normal hospital operations to
allow hospitals to adjust to new system
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Transition Strategies
Approaches
Immediate Financial Protection
Risk Corridors
Initial Payment Limits
Blended Rate Policies
Allow Response to Incentives
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Benefits of a DRG
Resource Allocation and Payment System
Provides a Rational and Scientific Method to Allocate
Scarce Resources to Providers
Creates financial incentive for hospitals to provide
efficient care
Provides a fair basis for allocating a limited budget to
hospitals
Creates a language for communicating the financial
implications of clinical decisions
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Focuses on the needs of patients
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Benefits of a DRG
Resource Allocation and Payment System
Provides clinically meaningful information to
promote care management and quality
improvement
Provides a means of identifying “reasonably
efficient” hospitals
Is easily understood and administratively
straightforward
Not a burden for hospitals
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Summary
Understanding a hospital’s case mix using APR-DRGs address
the serious problem of measuring differences in resources
needed to treat various types of inpatient cases
Allows for a more equitable allocation of monetary resources
The information produced using these kinds of severity-base
analysis for measuring hospitals’ output can be applied to
hospitals’ treatment of inpatient cases; facilitating planning,
utilization review, and quality assurance activities
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Summary
Critical aspect of a DRG system is the extent to which it supports
communication between hospital administrators and the clinicians with
privileges at the hospital. And the key to successful communication with
physicians is that the DRG system recognizes severity of illness.
APR-DRGs have sophisticated clinical logic which uses clinically
coherent patterns of secondary diagnoses in a consistent four level
severity framework to recognize the severity of each patient.
APR-DRGs are an effective tool which facilitates communication
between hospital administration and physicians.
Support efforts by both the Payer and the hospitals to improve both
efficiency and quality of care.
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Questions?
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