Deficit Cutting Recommendations From The Birth-Injury Program Stakeholder Meetings
Summary
A plan to reduce the Virginia Birth-Related Neurological Injury Compensation Program s actuarial deficit by nearly $100 million in only five years has emerged following 18 months of negotiation between key stakeholders. If implemented the recommendations would pare the Program s projected actuarial deficit in 2012 from nearly $159 million to about $59 million without reducing any benefits. Additionally the plan would cut the Program s actuarial deficit almost in half the first year of its implementation. A three-pronged approach is proposed that includes increasing physician and hospital fees, utilizing an alternative actuarial model and allowing the Program to implement a standardized fee schedule for payment of services. No benefits to claimants would be reduced by the recommendations. At least one new benefit, paying parents to care for the claimant in lieu of caregiver services, would be added. Comprising the group were representatives from the Medical Society of Virginia, Virginia Hospital and Healthcare Association, Virginia Society of Obstetrics and Gynecology, Property Casualty Insurers Association of America and the Virginia Birth-Injury Program. Initiating the meetings was a written request from Virginia Delegate Harvey Morgan, Chair of the House Commerce & Labor Committee. While the plan would dramatically reduce the Programs actuarial deficit, one of the three claimant representatives has not endorsed the results. The medical and insurance representatives have generally endorsed the plan. Despite the actuarial deficit, the Program currently has about $200 million in its reserve funds. Approximately 80 percent of all births in the Commonwealth are covered by the Program. Currently actuarial studies indicate the Program has enough financial reserves for about 20 years.
Negotiation Process
A mutually agreed upon negotiation process was developed and followed prior to the third meeting of the stakeholders group. The process was proposed and implemented by the agreed upon facilitators Mark Rubin, Senior Advisor and Deputy Counselor to the Governor, and Barbara Hulburt of the McCammon Group. A total of nine representatives and one staff member participated in the negotiations. They included three claimant family representatives, one representative each for hospitals, non-participating physicians, obstetricians and liability insurers. Two
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representatives were from the Birth-Injury Board of Directors. Additionally the Program s Executive Director participated. All representatives were seated at a lead table. Other interested parties were welcome to attend the meetings but not allowed in the discussion except through the open chair process. Whenever an observing party wished to address the group the person could sit in the open chair at the lead table and at an appropriate time would be recognized by the facilitator.
Actuarial Assistance
The stakeholders relied heavily on the research, information and advice of Robert Walling, Jr., FCAS, MAAA, a principal of Pinnacle Actuarial Resources, based in Bloomington, Illinois. Mr. Walling is nationally recognized for his knowledge and experience of patient compensation programs. He has consulted on such programs for Florida, Ohio and Virginia and on medical malpractice and insurance issues for many other organizations. Additionally, Pinnacle Actuarial Resources provides consulting services for more than 20 state insurance departments nationwide. Upon request by the stakeholders group, Mr. Walling provided seven lengthy consulting letters detailing the nature and impact of various options. He also supplied numerous impact charts and related documents and spent nearly 20 hours in conference calls with the group.
During the 2006 Virginia Assembly the Birth-Related Neurological Injury Compensation Program delivered a study regarding methods to reduce the Program s actuarial deficit. That study is 2006 House Document 11. Due to timing, a need for consensus and the complexity of the study, no legislation was generated. However a letter from Delegate Morgan, chair of the House Commerce and Labor Committee, requested the Program to convene meetings of all stakeholders to find a mutually acceptable remedy to the actuarial deficit. The meetings began in the spring of 2006 with two initial sessions facilitated by Marshall Cooke, Esq... Following these meetings several claimant families expressed their desire for an alternative facilitator. Complying with this request the Program postponed further meetings until an acceptable replacement was obtained. Filling the need were Mark Rubin, Senior Advisor and Deputy Counselor to the Governor, and Barbara Hulburt of the McCammon Group in Richmond. Mr. Rubin participated as a service to the process and not as a representative of the Governor s office. Both facilitators are well known for their mediation and facilitation expertise and success. The sessions re-started in September 2006 with the facilitators meeting with each individual stakeholder group. Following the individual stakeholder sessions all stakeholder meetings were convened in October and November 2006, lasting approximately five hours per meeting.
Background
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During the final 2006 session it was mutually agreed that there was not sufficient time to develop viable recommendations for legislation for the 2007 General Assembly. Additionally, all representatives agreed not to introduce any individual legislation regarding the Program to allow the groups work to continue in the spring. Reconvening in the spring, the group met five times before completing their tasks in September 2007. Meetings were held in April, May, June, July and September. Overall a total of 12 meetings were held with either the entire group or individual constituencies. More than 45 hours were spent in negotiation over a span of 18 months
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Key Discussion Issues
While dozens of issues arose from the discussions, following are very brief descriptions of some of the most critical and/or most discussed items. Definition of Actuarial Soundness There are various definitions of when actuarial soundness could be declared. The definitions may include significant reduction of the deficit; a deficit of zero; or a zero deficit and some level of excess reserves. However, based on comments from Rob Walling, the group generally concluded the minimum standard for actuarial soundness would be elimination of the deficit. Definition of Deficit There was a need to provide clarity on what the deficit actually means. According to actuaries, in this scenario the deficit is a reflection of the total amount of funds that should be on-hand to pay all expenses for all currently admitted claimants and the Incurred But Not Reported (IBNR) claims. IBNR claims are claimants born during the immediately preceding ten years from any given day that meet the definition for admission into the Program but have not been admitted as of that day. Moratorium on Admissions The possibility of declaring a moratorium on entering new claimants into the Program was discussed and researched. Options for a moratorium included suspending entries until a later date and then allowing delayed claimants to enter; or suspending entries for a period with no option for children born during the suspension to enter. With the second option families would have to utilize the tort system (as occurred prior to the establishment of the Birth-Injury Program.) It was determined that a moratorium would not help alleviate the deficit since the deficit is primarily based on the needs of current claimants. Instituting a moratorium would disrupt the ongoing income streams (since there would be no reason for providers to participate if there was no longer any coverage) and eliminate participating physicians tort immunity in qualifying cases. Increasing Participation Fees All parties agreed that participating fees for hospitals and physicians would need to be increased. These fees had last been increased through legislation in 2003 with the final implementation of the phased in increases due to occur in 2009, at that point the annual participation fee for physicians would be $5,500 per year. Hospitals would still pay $50 per live birth however the cap would increase to $200,000 per year. The issue for discussion became how much additional increase was acceptable? Increases proposed in the starting point plan recommended $6,200 per year for physicians and the hospital per birth fee rising from $50 to $55 per birth. These amounts had been drawn from recommendations in the 2006 House Document 11 study.
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Some suggested the fees should be increased in line with general inflation based on the original fee of $5,000 set in 1987. Additionally the idea of market-based fee submitted to and approved by the Virginia State Corporation Commission was discussed but not moved forward. At the conclusion of the meetings the originally proposed increases, reflected in recommendations below, were generally agreed upon as being acceptable to the industry stakeholders they would impact. Establishing a Fee Schedule for Payment of Medical Services Since virtually all insurers and public payers for health care services utilize some form of a reduced fee schedule as compared to charged rates, it was proposed to institute such a schedule for the Birth-Injury Program. Initial consideration was given to a schedule based on 110 percent of Virginia Medicaid levels, however after discussion that was moved to 120 percent of Medicaid. Establishing payment rates based on a percentage of Medicaid or Medicare schedules has been adopted by other states including California and Hawaii for their workers compensation benefits. According to a 2002 report by the Hawaii state auditor, currently 40 states regulate workers compensation medical reimbursements to providers using a fee schedule. Additionally, the only other birth-injury program in the U.S., the Florida Birth-Related Neurological Injury Compensation Association (NICA), utilizes the Florida Medicaid fee schedule for payment of medical and nursing services (Florida pays at 100 percent of Medicaid and according to studies, including the 2007 rankings by Public Citizen, Virginia Medicaid reimbursement rates are higher than in Florida.). Currently the Birth-Injury Program is required to pay prevailing community rates which is an outdated and vague standard. It also provides little guidance or ability to negotiate with providers since prevailing community rates can mean almost anything to anyone. With about 70 percent of all Program expenditures for in-home caregivers and nursing, that is where instituting the fee schedule would have the greatest impact and would decrease the deficit by more than $40 million over five years. Tying costs to the Medicaid fee schedule, at a rate of 120 percent, brings the Program s practice into the 21st century of healthcare administration, provides a dependable payment standard, allows for consistent and timely updates to the fee schedules and as demonstrated through actuarial analysis, leads to substantial cost savings. Concern was expressed by at least one claimant representative and some claimant family members that utilizing the proposed schedule could make it more difficult to obtain nursing/caregiver services. However it also was noted that all agencies currently supplying caregivers to claimants already accept the Medicaid rates and the Program would be paying 20 percent more than Medicaid. Additional concern was expressed regarding quality of nursing and caregivers. Following additional research it was determined that all agencies already must meet both the Medicaid quality standards for caregivers and all applicable laws for licensed nurses.
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As a part of the recommendation, any caregivers or nurses currently utilized by a family would be grandfathered in at their current rate of compensation until they discontinue working with the family. Birth-Weight Limitation The only other fund similar to Virginia s Birth Injury Program is the Florida Birth-Injury Neurological Compensation Association, or NICA. NICA was established by the Florida legislature in 1988, the year after Virginia s Program, and operates similarly. A key difference in entry requirements between the two programs is that Florida does not admit any child born weighing less than 2,500 grams for a single birth or 2,000 grams for multiple births. Implementing a similar provision in Virginia was discussed but at a much lower weight threshold of about 1,800 grams. While such a measure would help improve the actuarial soundness of the Program, stakeholders were split on their interest in adopting such a measure and therefore the idea was not incorporated into the final plan. Dr. Susan Lucas presented information noting that once admitted, premature infants do not necessarily cost the Program more than other claimants. However others noted that their concern was not cost once in the Program but meeting the statutory definition for entry. Adopting an Alternative Actuarial Methodology As noted the only program similar to Virginia s is in Florida. Through discussions with Rob Walling of Pinnacle Actuaries, it was suggested that the actuarial testing methodology used by Florida might be applied to the Virginia Program. Utilizing information supplied by the Virginia Program, Walling completed a study applying the Florida methodology resulting in a reduction in actuarial need of more than $40 million. According to Walling, both methods are actuarially sound and meet professional standards, however they take differing approaches. In Virginia, the actuarial studies as conducted through the State Corporation Commission have taken a wider view with use of more averaging methods. In Florida, the approach has been to look at each individual claimant s need in a very detailed manner and then determine the Program s based on these individual analyses. Protecting Claimant Benefits No benefits to claimants would be reduced through implementation of the recommendations. Benefits to claimant families would actually be increased due to the recommendations. Currently families may receive in-home care through the use of an agency or by being reimbursed for a caregiver they hire themselves. The stakeholders plan parents would allow payment of parents themselves for a portion of their prescribed in-home caregiver/nursing hours. This practice has been utilized by the Florida program with success and provides an additional alternative for receiving care.
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Adding a Parent Representative to the Program Board of Directors Mot stakeholders agreed to place a claimant parent on the Program s Board of Directors as a part of the overall legislative package. Some concerns were expressed regarding conflict of interest. The liability insurer s representative expressed concern regarding this recommendation. Mandatory Participation by Obstetricians and Hospitals One element under consideration was to require mandatory participation for all OBs and delivering hospitals. Currently, and since the formation of the Program, participation has been voluntary. According to actuarial information this would slightly improve the financial situation. While it would increase the number of claimants in the Program, the offset from additional funding would provide a positive financial impact. However, the idea was eliminated because of concerns regarding small OB providers who believe it may be unaffordable as they balance many market pressures. Deficit Reduction vs. Deficit Elimination It was the original goal to find consensus on eliminating the deficit. However after the lengthy process it was determined that completely eliminating the deficit through a consensus plan is not readily feasible in the near future. Therefore the final recommendations provide for an approximately two-thirds reduction in the deficit over a 10-year period. While not fully eliminating the deficit, the improvement would allow, according to actuarial estimations, the Program to meet its obligations for about 50 years rather than the 20 years estimated without the proposed changes.
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Final Recommendations for Reducing the Deficit
(For a complete actuarial description including accompanying charts please see the attached documentation developed by Pinnacle Actuarial Services.)
Increase Income 1. Increase fees for physicians participating in the Program from $5,500 to $6,200, to be phased in over 5 years. 2. Increase fees for hospitals participating in the Program from $50 per birth in the prior year to $55 per birth in the prior year, to be phased in over five years. 3. Begin assessing physicians licensed in Virginia but not practicing in Virginia the same non-participating annual fee as paid by other Virginia licensed physicians. The nonparticipating fee in 2008 will be $290 and will top out at $300 in 2009, per prior legislation. There would be no increase to the actual fee. Total Annual Increase: $1.68 million by 2012
Reduce Costs Without Cutting Benefits Mandate the use of a fee schedule for services paid for by the Birth-Injury Program when the Program is the sole payer. The fee-schedule will be 120 percent of the allowable Virginia Medicaid rate. Impact on Actuarial Deficit: Decrease of $40+ million by 2012
Implement Advanced Actuarial Methodology In evaluating the actuarial status of the Birth-Injury Program, utilize an actuarial model closely based on the methodology developed by the Florida Neurological Injury Compensation Association. This methodology provides for a more individualized claimant focused approach. Impact on Actuarial Deficit: Decrease of $44 million
Total Impact Deficit by 2012: Without Recommendations With Recommendations: $159 million $59 million
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Participating Stakeholder Representatives
Mark Ames Claimant Family Representative Melanie Gerheart Virginia Society of Obstetrics and Gynecology Lee Ann Hershberger Claimant Family Representative Ann Hughes Medical Society of Virginia David Keeler Claimant Family Representative Christopher LaGow Property Casualty Insurers of America Susan Lucas, MD Board Member, Virginia Birth-Related Neurological Injury Compensation Program Susan Ward Virginia Hospital and Healthcare Association Melina Perdue, Board Chair (2006) Ralph Shelman, Board Chair (2007) Virginia Birth-Related Neurological Injury Compensation Program Board of Directors Facilitators Barbara Hulburt McCammon Group, Richmond, VA Mark Rubin Senior Advisor and Deputy Counselor to the Governor Participating Birth-Injury Program Staff George Deebo, Executive Director Virginia Birth-Related Neurological Injury Compensation Program Program Legal Counsel Carla Collins, Esq. Assistant Attorney General, VA Office of the Attorney General
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Other Attendees All meetings were open to other interested stakeholders and all claimant families. Among organizations sending representatives to some or all meetings were: -Virginia Trial Lawyers Association -Virginia Association of Health Plans - Virginia Commonwealth University Health System - University of Virginia Health System - Virginia Department of Medical Assistance Services Additionally other claimant family members regularly attended the sessions.
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Key Discussion Points During Stakeholder Meetings
June 7, 2006 Introduction to process and goals Make-up of insurance coverage of claimants Review of Program Benefits Review of current actuarial situation June 20, 2006 Concern over possibility of claimants losing benefits Recommendation to review past suggestions for solutions Definition of birth-injury under the current law Why providers do/do not participate October 24, 2006 Continuing to define the overall need, key issues and level of commitment towards finding acceptable solutions Idea of instituting a moratorium on new entries into the Program was discussed. A list of questions was developed for the Program s actuary to address at the next meeting. November 28, 2006 Rob Walling, Pinnacle Actuarial Services, letter and phone call addressing the group s questions and providing explanation of the Program s current actuarial status. Explanation that a moratorium would not help in the effort since the deficit is based on current claimants Agreement that there was too much ground to cover to attempt legislation at 2007 GA. Agreement that no individual stakeholder group would introduce any legislation in 2007 GA. April 2007 A Starting Point plan was presented with key elements drawn from the house study and in collaboration with the actuary. Additional questions for actuary generated Interest in examining the use of a birth-weight limitation as used by Florida Program May 2007 Additional discussion of Starting Point plan. Review by Rob Walling of Florida s actuarial methodology Decision to drop idea of moratorium since it provides no help Hospital Association to talk with self-insured facilities to learn more the value of participation in the Birth-Injury Program for self-insured facilities Walling letter re Dave Keeler recommendations
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June 2007 Discussion of 110 percent Medicaid fee schedule and implementing a plan to allow direct payment to family members for care of claimant Discussion of Medicaid waivers and how they currently impact the Program Discussion of feasibility of a General Fund Appropriation Second Keeler proposal addressed by Rob Walling, Pinnacle Actuaries July 2007 Discussion of role of property and casualty Insurers Possibility of establishing an inflationary adjustment mechanism. Impact of utilizing a fee schedule set at 110 percent of Medicaid What does actuarial soundness mean/when is it achieved? September 2007 Commitment to review methods to assure quality nursing under fee schedule Agreement by industry stakeholders for proposed fee increase, use of Florida s actuarial methodology and implementation of a fee schedule based on 120 percent of Medicaid. Review of draft legislation including items endorsed by majority of stakeholders
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Virginia Birth-Related Neurological Injury Compensation Program “Quick Facts” Claimants (as of Nov. 1, 2007) Admitted claimants Active claimants Provider Participation Participating physicians* Participating hospitals Virginia births covered 2006 Expenditures Benefits & administration Top claimant expenditures Nursing/home care
132 107
623* 31 85 percent (estimated) $11 million $6.2 million $1.4 million $849,000 $404,000 $232,000 $467,000 8.4 percent
(more than 200,000 hours/in-home care)
Housing (modifications) Transportation (vans & mileage) Medical care & equipment Therapy Claimant legal fees Administrative overhead rate 2006 Income, Reserves and Deficit Total fees and assessments collected Participating hospitals Participating physicians Mandated physician fees Mandated insurance fees Other Net investment income Total reserve funds Unfunded actuarial deficit** Covered Services Medical, Hospital and Therapy Housing and Transportation assistance
$21.5 million $2.9 million $2.8 million $3.7 million $11.9 million > $1 million $18.6 million $191 million $144 million In-Home Nursing/Residential Care Compensation for lost earnings (18 – 65)
*Highest number in history of Program. Approximately 800 physicians regularly deliver in Va. **Amount above current reserves Program should have on hand to meet lifetime expenses of admitted claimants.
Key Recommendations From Birth-Injury Program Stakeholder Group
I. Increase Revenues
Increase Physician Participation Fees - Phase-in annual fees to $6,200 (2012). Increase Hospital Participation Fees – Phase-in annual fees to $55 per birth (2012). Begin Assessing Physicians Licensed But Not Practicing In Virginia the annual non-participation fee now paid by all other physicians. Total estimated annual increase of $1.68 million by 2012.
II. Stabilize Costs
Implement Fee Schedule for all services at 120 percent of Medicaid allowance when the Program is the primary payer. Estimated reduction in actuarial need by 2012 is more than $40 million
III. Implement Actuarial Methodology
Implement Florida Program’s Actuarial methodology - Allows for greater degree of detail examination. Estimated reduction in required reserves by 2012 is $44 million
Total Deficit by 2012: Without changes: With changes: $159 million* $59 million*
No changes in benefits or levels Addition of nursing options to allow payment to parents for care Current nurses “grandfathered” in at current rates Parent representative added to Board of Directors All nursing agencies already participate with Medicaid (Program will not be utilizing their Medicaid contracts)
*Based on available actuarial information.
Benefits issues:
Q & A Regarding Birth-Injury Program Recommendations
►How do the recommendations improve the Birth-Injury Program’s actuarial status? The recommendations reduce the Program’s actuarial deficit by nearly $100 million in five years. This is accomplished through increased hospital and physician fees, implementation of a fee schedule and adoption of an alternative actuarial methodology. Without the recommendations it’s expected the deficit will reach $159 million in five years and $190 million in 10 years ►How were the recommendations developed? A group of key stakeholder representatives, including claimant family representatives, met regularly over a period of 18 months with a professional and objective facilitator. There was strong general agreement on the final recommendations, although one claimant representative did not endorse use of the fee schedule. Other claimant representatives expressed some concern over the impact of the fee schedule but did not express opposition to the overall plan. ►Will any benefits be eliminated or cut? No. Under these recommendations no benefits will be cut or eliminated. All benefits stay the same. ►Will the fee schedule impact medical services from physicians and hospitals? No, all claimants are already covered by a primary insurer and would continue to receive medical and hospital care through those insurers. The fee schedule would primarily be used for paying nursing agencies. These types of services are rarely covered by health insurers. ►Will the fee schedule make it harder to obtain nurses/caregivers or diminish care? It’s unlikely because all agencies already accept fees well below the proposed fee schedule (i.e. Medicaid). The Program’s rates would be 20 percent higher than Medicaid rates. Additionally all agencies utilized must use caregivers/nurses meeting all applicable state and federal quality standards. This includes all levels of nurses and other caregivers. However, it’s impossible to predict every circumstance. ►Do other states utilize similar fee schedules? The only other birth-injury program, in Florida, pays the state Medicaid rate. According to studies, about 40 states use a fee schedule based on either Medicare and/or Medicaid rates for their workers compensation system. ►How do Virginia’s Medicaid rates compare to Florida? According to a 2007 study by Public Citizen, Virginia’s Medicaid reimbursement rates as a whole are higher than those of Florida (www.citizen.org). As noted, the Virginia Program would be paying rates 20 percent higher than Medicaid. ►Besides nursing agencies what other options are there for obtaining caregivers? If the recommendations are implemented there would be three options. First, the use of traditional nursing agencies. Second, families can hire their own caregivers and be reimbursed for the cost. And third, the recommendations would add the option for parents to be paid directly to care for their child within certain limitations.
►Is the alternative actuarial methodology considered actuarially accurate and acceptable? According to actuarial experts, the proposed methodology meets all professional standards and is equally valid. ►Why are the results so different between the actuarial methods? According to actuaries, the methods take different but equally valid approaches to estimating the need. The method traditionally utilized in Virginia takes a broader view of possible needs using aggregate numbers. The Florida based method carefully evaluates the medical cost for each individual claimant and then estimates the overall need.