Transcript MHA EXECUTIVE COMMITTEE RETREAT September 10

Modernizing Maryland’s Waiver
Anne Hubbard
Maryland Hospital Association
September 15, 2011
Agenda
1. Maryland’s Medicare Waiver: Then and Now
2. Factors influencing the need to Modernize the
Waiver
•
Health Reform
•
Total Patient Revenue— overview, benefits,
risks, and strategies
•
Maryland’s Admission Readmission
Revenue (ARR) payment
A Brief History Lesson
• 1971: Health Services Cost Review Commission enabling legislation
enacted
• 1974: Initial regulations governing rate review adopted
• 1977: Federal Health Care Financing Administration (now Centers for
Medicare and Medicaid Services “CMS”) grants Maryland its first
waiver from Medicare principles of reimbursement
• 1980: Congress requires the Secretary of Health and Human Services to
continue the Maryland waiver as long as certain conditions are met
• 1984: Legislation enacted prohibiting physician clinical services from
being included in hospital rates – no cross-subsidation allowed
• 1989: HSCRC and Maryland Hospital Association develop first set of
hospital financial condition targets and cost efficiency targets
A Brief History Lesson
• 1991: Introduction of the concept of “scaling” – reallocating payments
among Maryland hospitals to reward or penalize certain results
• 2007: Limiting payment for changes in patient volume or patient
severity of illness
• 2008: Linking payment to quality performance
• 2009: Linking payment to actual vs. expected rates of potentially
preventable hospital acquired conditions
• 2011: Incentivize hospitals to reduce readmissions
What is the Medicare Waiver?
• Maryland hospitals are exempt (have a “waiver”) from federal Medicare
and Medicaid rules governing hospital payment
• Health Services Cost Review Commission sets the rates that Medicare,
Medicaid and commercial payors must pay hospitals in Maryland (the
“all-payor” system)
• The Medicare Waiver “Test:” The criterion by which the State is
measured to determine if Medicare costs are in line. The State can do no
worse than the nation
What is the Medicare Waiver?
“Waives” payment under the CMS PPS System
and allows Medicare and Medicaid to pay
HSCRC rates
Continues today under Section 1814(b) of the
Social Security Act which requires:
▪All payors must participate
▪Pass a “waiver test” : the Maryland rate of
increase in payments per discharge must
remain below the national average rate of
increase since a CY 1980 Base Period
Benefits of the Waiver
Hospitals:
• Higher Medicare/Medicaid payments than under the federal
programs
• Equitable payment for uncompensated care
• Predictable
Payors:
• Lower costs, as shifting of costs from underfunded federal health
care programs to commercial insurers is not allowed (no “costshifting”)
• Predictable
Patients:
• Access
• Affordability
• Transparency
Medicare Waiver
Actual data lags 13 months between the time CMS
Office of the Actuary calculates the waiver test and
the period covered by the test
The letter compares the Maryland rate of increase
to the national rate of increase for the test period
Current period average payment per discharge
Rate of increase = Base period average payment per discharge
-1
Medicare Waiver
Aggregate rate of increase for
the period 1/1/1981 to
3/31/2010: Maryland 312.54%,
the nation 355.71%
Medicare Waiver
MARYLAND COST PER ADMISSION COMPARISON REPORT FOR THE
TWELVE MONTH SERVICE PERIOD ENDED MARCH 31, 2010
AND AGGREGATE RATES OF INCREASE FROM JANUARY 1,
1981
Maryland
A.
Average Reimbursement Per Admission at 1/1/81:
(a)
Twelve Months
Ended
B.
3/31/2010
$2,971.65
National
$2,293.09
(b)
(c )
(d)
(e)
Medicare
Part A
Payments
Medicare
Avg. Cost Per
Avg. Cost Per
Admissions
Admission
Admission
264,394
$12,259.22
$3,241,263,197
Maryland Rate of Increase:
303.55%
National Rate of Increase:
334.10%
Accumulated Medicare payments through March 31, 2011, for inpatient services, by date of
service, with discharges as surrogate for admissions. Sources: Provider Statistical & Reimbursement
Report for Maryland hospitals, and CMS Office of Medicare Cost
Estimates.
$10,499.81
Waiver Cushion
Relative waiver test: How much could Maryland
payments increase if the national rate of growth
was zero?
March 31, 2010 most recent actual data. Relative
waiver cushion = 10.46 percent
Medicare Waiver
Waiver Cushion
12.00%
10.00%
8.00%
6.00%
Waiver Cushion
4.00%
2.00%
0.00%
Medicare Waiver
Projecting beyond actual data
Maryland payment per discharge
Maryland discharge abstract provides another year of
case-mix and volume data
Future payments projected using approved annual
payment update (FY 2012) and estimates for FY 2013
National Medicare payments
Based on CMS assumptions and publicly available
Medpar data
What’s Driving Down the
Waiver Cushion and Why?
Urgent U.S. health care coverage and cost
concerns are driving change in Maryland and
putting pressure on the Waiver.
Health care provider reimbursement models are
changing—the pace of change will accelerate
and that will also put pressure on the Waiver.
The Waiver needs to be modernized in order to
adopt to the changing face of health care
delivery.
Health Reform—Driving Change
Health Reform
Driven by Long-Term Issues. . .
Exponential Growth
in Healthcare
Expenditures
Need for Better Access
To Insurance Coverage
REFORM DRIVERS
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Substantial
Opportunities to
Improve Quality of Care
and Patient Outcomes
No Correlation
Between Spending
and Quality
Federal Health Reform
“Bending the cost curve”
• Control the price of services (less than inflationary increases)
• Eliminate unnecessary use of services
New delivery systems
• Accountable Care Organizations (ACOs)
New payment models
• “Bundled” payment: aggregating payment for hospitals,
physicians, post-acute providers
• “Gain-sharing”: allowing hospitals and physicians to share
savings
Increased emphasis on quality
Not All Hospitals Affected Equally
“While the most efficiently operated
health systems will take advantage
of healthcare reform to leverage
economies of scale, many not-forprofit hospitals, especially single
site and small hospital systems,
may struggle.
Moody’s Investors Service,
Long-Term Challenges of
Healthcare Reform Outweigh
Benefits for Not-for-Profit
Hospitals, April 2010.
Industry consolidation resulting in
bigger health systems with greater
access to credit—already encouraged
by current market forces—likely
will increase further under
healthcare reform. . .”
Paradigms Must Shift as
Economic Incentives Change
Cost/
Efficiency
Quality
Physicians
Collaboration
Financial
Risk
CURRENT STATE
FUTURE STATE
Reduction Viewed as
Discrete Projects
System Approach to Continuous
Process Improvement
Limited Links to Payment
Drives Payment
Drive Volume
Drive Value
Limited Amount Required
for Financial Success
All Stakeholders Must
Work Together
Revolves Around
Cost Position
Revolves Around Utilization of
Services Across Continuum
Source: Healthcare Financial Management Association
Payment Models
Financial Risk Spectrum
Level of financial
(insurance) risk
More bundled episode
pmt transfers risk from
insurer to provider ->
ARR
TPR
Degree of bundling
J Ambulatory Care Manage, Vol. 32 No. 3 pp 241-251. Averill, et. al.
Overview of Methodology
TPR = Regulated Total Gross Patient Revenue
Does not include:
•Unregulated Services
•Bundling of Physician Payments
TPR is 100% FIXED regardless of:
•Increase or decrease in volumes
•Change in Case Mix Intensity
•Inpatient/Outpatient Mix
Overview of Methodology
TPR
Adjusts for:
Does Not Adjust For:
•Update Factor
•Quality Measures
•Changes in UCC
Population
•Volume Changes
•Case Mix Changes
Methodology & Structural
Considerations
METHODOLOGY
•Incentive to transition to TPR
•Average volume growth for previous 3 years
•Average case mix growth for previous 3 years
•Exemption from negative scaling
•Exemption from state-wide readmission policy
•Outlier cases are inclusive in TPR
STRATEGIC
•Expected volume growth or decline
•Program changes and CMI impact
•De-regulation of services and/or addition of new
services
•One-day stays converting to observation
•ROC projections
•Market Share implications
Managing Under TPR
Care Delivery Considerations
Service Use
Since volume growth and service mix changes do not
produce additional revenues, appropriate service use is the
key driver to TPR efficiency
This includes service delivery across the entire continuum:
•Public health and preventative efforts
•Primary care and physician office services
•Ambulatory and ancillary services
•Acute inpatient services
•Home health care
•Assisted living, skilled nursing and hospice services
Ultimately, reducing hospital expenses at the same level of
revenue = TPR prosperity
Managing Under TPR
Physician Relationships
Physician Recruitment
•Greater focus on primary care vs. proceduralists, i.e.,
Thoracic Surgeon
•Recruit proceduralists that prevent transfers
•Invest in physicians who can demonstrate quality not
volume
Physician Compensation
•Modify incentives from strictly productivity based to
service line efficiencies, expense control, and quality
metrics
•Focus on office-based procedures vs. hospital
procedures
Managing Under TPR
Physician Relationships [cont’d]
• Relaxation of restrictive not-to-compete covenants.
There is an undefined “tipping point” in the TPR
agreement where the hospital cannot completely shift
services to an unregulated environment
• Less reliance on inpatient consults and more
emphasis on follow-up for post discharge
• Support physicians to better coordinate care in
physician offices
• Aligns hospital and physician incentives to support
independent practices and reduce the need to employ
more physicians
Managing Under TPR
Financial Management / Budgeting
• Predictability
– 3 year focus on revenue
– Less importance on volume growth
– Not impacted by seasonal variation
– Estimate update factor
• Flexibility
– Banking of revenue
• Lower volumes
• Adjust pricing to offset changes in volumes
Managing Under TPR
Financial Management / Budgeting [cont’d]
• Financial Oversight
– Greater focus on expense reduction
– Enhance efficiencies not volumes
– Case mix changes do not affect TPR revenue base
– Documentation and coding still important to monitor
quality measures as well as ROC performance
– High standards of documentation and coding remain
important for RAC compliance
Managing Under TPR
Capital Formation / Allocation
• Priority to fund new programs to improve quality,
patient safety and enhance efficiency and reduce cost
• Reduces need to with focus on ambulatory care and
fund expensive expansion program
• Investments in technology and community wellness
programs
– Community Health Information Exchange [C-HIE]
• Community Case Management
– Large primary care practices, virtual medical homes.
• Hospital Case Management
– Emergency Room
Managing Under TPR
Capital Formation / Allocation [cont’d]
• Home health services
• Post acute care
• Expense management
– Reassign acute care staff to case management,
ambulatory care and community wellness to
improve efficiencies under TPR
• Invest in existing unregulated services to respond to
volume increases, i.e., home care
Operational Considerations/
Opportunities
Realign incentives for management
Focus on quality, patient safety, HCAHPS, and
expense management vs. volume growth
Future services or expansions require careful
consideration
Look towards most cost effective environment
Operational Challenges
•Under TPR, the hospital’s economic incentives are different
than most physician incentives who are compensated on
admissions and utilization of services – exactly the opposite
of hospital incentives
•Requires broad-based organizational culture change
•Approach to staffing
•Greater emphasis on people managing care
•Higher priority on new programs that reduce
unnecessary utilization and expense reduction
Operational Challenges, cont.
•Lack of primary care physicians and physician shortages
•Increased Medicare/Medicaid enrollments
•Maintain high inpatient market share and reduce
admissions
•Lack of control over volumes in a growing and older
community
Alignment with Healthcare Reform
•Hospital/Physician relationships are evolving under health
care reform
•Accountable care organization [ACO] structures,
bundled payments and gain sharing arrangements
should be expanded
•Creation of clinical integration
•PHO model
•Self insured medical plan
•Focus on primary care medical home [PCMH]
•TPR aligns hospital/physician incentives with the goals
of PCMH
•Regional care coordination contracts with payors
•Affiliation strategies
•Partnering with tertiary care facilities
Hospitals Currently Under TPR
•Calvert Memorial Hospital
•Carroll Hospital Center
•Chester River Hospital Center
•Dorchester General Hospital
•Garrett County Memorial Hospital
•The McCready Foundation
•Memorial Hospital at Easton
•Union Hospital of Cecil County
•Washington County Health System
•Western Maryland Health System
Admission-Readmission Revenue (ARR)
Arrangement
Key Objectives
1. Types and Causes of Readmissions
2. Overview of ARR Policy
3. Financial Impact of ARR Policy
Readmissions Episode Policy Provides Clear Incentive
No Readmissions Policy
Episode-Based Payment
8
8
6Base Revenue
6
4
2
0
Revenue
10
Revenue
10
4
2
0
Definitions
• Readmission
– Patient is admitted to the hospital within a specified
period of time after having been discharged.
 15-day window
 30-day window
– Reason for readmission
 All causes (120,000)
 Potentially preventable (60,000)
Definitions
• Readmission to what hospital
– To the discharging hospital (Intra-hospital)
 Accounts for 75 percent of all potentially
preventable readmissions (PPR)
– To another hospital in Maryland (inter-hospital)
– To hospital outside of the state (inter-hospital)
MHA Supports HSCRC Admission-Readmission
Revenue (ARR Proposal)
• Compares hospital performance to self in prior time
period--rewards improvement
• Measures readmissions to same hospital (or system)
• Clear incentive to reduce readmissions
• Voluntary
• Hospital at risk for 100 percent of cost if readmissions
increase
• Too much risk for some hospitals
Episode-Based Readmissions Policy
• Voluntary option at 100 percent risk
– Allows the hospital to keep the existing revenue
base
– Revenue defined per episode of care, not chargeper-case
 Hospital is at risk for increases in readmissions
 Hospital benefits from reductions in readmissions
 Model provides incentives to invest in care coordination
beyond the hospital stay
 Reductions in intra-hospital readmissions benefit payors:
o Reduced inter-hospital readmissions
o Reduced stays not in bundling (e.g., one-day stays)
o Reduced admissions beyond episode period
o Reduced ED visits through improved care coordination
Causes of Readmissions
Multiple causes (All cause)
– Planned procedure or treatment
– Recurrence/worsening of condition
– Potentially preventable
 Complications stemming from condition or treatment
 Social concerns (transportation, food, live alone)
 Medication management/reconciliation
 Patient compliance
 Lack of coordination between hospital and community
physicians
 Fragmented, disorganized community care
 Inadequate evidence-based chronic care
Barriers to Reducing Preventable Readmissions
• Transitional care (labor intensive) requires funding
• Physicians are not paid for care coordination
• Fragmented care, inadequate chronic care
• Medicare and most payors do not pay for care
coordination and transitional care--an inherent
problem with fee-for-service
– DRG payments encourage efficiency within a given hospital stay
– Do not reward efficiency for an entire episode of care
• Patient compliance
Intra Hospital PPRs by Reason
Medical
59%
• Clinical Initiatives
will address the
Chronic /
highest Category of
Ambulatory
Readmissions,
Sensitive
25%
Medical Reasons
based on Quality,
Mental
Transition of Care
Health / Sub
and Ambulatory
Abuse
9%
Sensitive
Surgical
Conditions
7%
ARR Strategy
•Assemble multi-disciplinary team focused on readmissions
•Review year over year readmissions
•Review clinical trends
•Top initial admission and readmission service line and
DRGs
•Types of initial admissions and readmissions
•Chronic conditions
•Complications
•Recurrence of similar condition
•Other clinical trends
•Admission source
•Physician
•Possible system issues
Benefits
• Innovation in payment model toward episode, away
from volume
• Supports separate medical home effort
• Care coordination/transitional care improves quality,
safety, and effectiveness of care
• Care coordination improves patient experience
• Reduced readmissions/ER visits saves cost
• Capacity freed up to accept newly insured under
reform and aging population, avoiding system strain
and investments to increase capacity.
Up-Front Financing
and
Return on Investment
Implementation Costs
Cost Per Discharge
Hospital Setup Costs
Project Management and Consulting
Nurse Training
Technology Setup
TOTAL Initial Cost
Operational Costs
Nurse Time Per Discharge (in hours)
Nurse Hourly Cost
Printing Cost Per Discharge
Technology
Follow up Phone Intervention Time
Clinical Pharmacist Hourly Cost
TOTAL Per Discharge
Statewide Cost
$10,000 *Total Number of Discharges
$5,000 Number of Hospitals
$10,000
$25,000
Total Initial Cost
697,053
49
$1,225,000
Total Operational Cost
$53,324,555
0.50 First Year Annual Cost
$65
$54,549,555
$4
$10
0.30
$100
$77
Mature Cost Savings Potential--PPRs
• Several pilot programs have reduced
readmissions.
– Up to 25 percent reduction in “preventable
readmissions”
• Approximate magnitude:
– Assume potentially preventable readmissions of
8 percent
– A 25 percent improvement = 2.0 percent of inpatient
revenue
– 2.0 percent inpatient revenue = 1.4 percent of total
revenue
– PPR savings to payors and public = 0.56 percent
Additional System Savings--Not Bundled
• Reduced revenue not bundled (85 percent)
– Reduced ER visits--0.1 percent total hospital revenue
– Reduced inter-hospital readmissions (20 percent)-0.2 percent total hospital revenue
– Readmission revenue not bundled (e.g., one-day
stays)--0.2 percent
– Reduced admissions beyond 15 day window--not
quantified
• Savings to payors and public = 0.50 percent
Savings Summary
Mature annual savings
Hospital
Revenue
Payors Savings
(Cost)
PPR reduction
(0.56%)
0.56%
Return visits not bundled
(0.50%)
0.50%
Hospital cost savings
0.70%
Implementation cost
0.44%
(0.44%)
Net impact
0.08%
0.62%
Reduces hospital costs and improves
quality of care
Summary
• Savings beyond these levels require build-out of medical
home and chronic care models, telemedicine
• Bundling readmissions is an important reform
opportunity
• It complements the reform initiatives for primary and
chronic care
• Aims to improve care delivery with net cost reductions
• Require intense investments of care coordination, IT,
and other resources
New Payment Methodologies
Diminish the Waiver Cushion
• As more cases are shifted to outpatient and
observation those that remain in inpatient
are more expensive and complex, driving up
the cost per admission.
• Waiver was based on inpatient admissions.
More emphasis is now placed on outpatient
services and observation. Inpatient
admissions have seen marked decreases
over the last decade while outpatient
services have seen increases.
Future Vision
• Modernize Maryland’s Medicare waiver
• Align hospital and physician payment incentives
• All-payor rate setting
All-provider rate setting?
• Expanding the waiver metrics to include cost and quality?
• New role for the Health Services Cost Review Commission?
Waiver Modernization
The Waiver must be modernized so that
Maryland can continue to operate the All Payor
System. A modernized waiver must:
• Recognize the growth in outpatient and
observation cases
• Recognize new payment methodologies and
the critical role of quality measures
• Recognize the importance of providing
patients with a continuum of care
Waiver Modernization: What’s Next?
• MHA has established an internal workgroup to
determine hospital field priorities
• An external workgroup has also been
established:
• DHMH – Secretary Joshua Sharfstein
• HSCRC – John Colmers, Chairman
• Payors – CareFirst and United
Questions?