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Medicare Reimbursement for Hospital Services.ppt

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					Medicare Hospital Reimbursement

           University of Michigan
               Health System
                   presented by Thomas Marks
         Director, Hospital Accounting&Reimbursement
          Medicare Payment Systems
Institutional                           Other Providers
• Hospital inpatient                    •   Physician
     –   medical/surgical               •   Clinical laboratory
     –   psychiatric                    •   Physical/speech/occ therapy
     –   rehabilitation                 •   End stage renal dialysis
     –   long-term, childrens, cancer
                                        •   Ambulance (ground and air)
•   Hospital outpatient
                                        •   Durable medical equipment
•   Skilled nursing facility
                                        •   Home infusion
•   Hospice
                                        •   Home health agency
•   Ambulatory surgery center
                  Topics to Cover
• Brief historical perspective
• Medicare inpatient PPS
   – DRGs                          - Disproportionate share
   – Area wage adjustments         - Direct GME
   – Indirect medical education    - Organ acquisition
• Medicare outpatient PPS
   – APCs, structure and payment rules
   – HOPD status
• Settlements
• Medicare policy issues
              Historical Perspective
  In the beginning, there was the cost report.


                                             Lab fees &       Capital     Rehab
         Cost reimbursement        DRGs                        PPS
                                              esrd rate                    PPS




1965                                1984                                    2003
                                                    Outpat
                                          DGME                     APCs
                                                    screens



                              Prospective rates and fee for service
                              now prevail.
Historical Perspective (continued)

• What remains as cost-reimbursed:
   – inpatient psychiatric (although subject to a cap)
   – organ acquisition


• “Cost” is still important in Medicare policy
   – All payment systems are benchmarked to cost in the aggregate
   – Some payment systems provide extensive payment differentiation based on
     cost differences
   – Cost data is used to set weights and rates for prospective payments
                 Inpatient Payment
• DRG-based payment = adjusted rate x DRG relative weight
   – Operating and capital components are separate but similar
   – Psych and rehab units are excluded
• Adjusters:
   – area wage index
   – indirect medical education (IME)
   – disproportionate share (DSH)
• Additional payments:
   – outliers
   – direct graduate medical education (GME)
   – organ acquisition
   – bad debts
   UMHHC 2002 PPS Revenue

               2002 Inpatient PPS Revenue
in millions                         Operating Capital   Total

DRG base payment                    $    76.2 $ 7.3 $     83.5
Indirect medical education               38.0    2.8      40.8
Disproportionate share                    7.6    0.4       8.0
Outlier payment                          13.1    1.8      14.9
Direct graduate medical education         9.7    -         9.7
Organ acquisition                         7.0    -         7.0
Bad debts                                 0.6    -         0.6
Total revenue                       $   152.2 $ 12.3 $   164.6
         PPS Payment Differences
COMPARATIVE PAYMENT PER CASE (2001)
DRG 4, Spinal Procedures         UMHHC     St Joe AA     Foote

Operating base rate          $     4,251 $     4,251 $     4,251
Area wage index adjustment           327         327        (221)
Indirect medical education         2,318         641         -
Disproportionate share               387         -           145
Adjusted rate                      7,283       5,219       4,175

DRG weight                         2.318       2.318       2.318

Operating Payment            $    16,885 $    12,099 $     9,680
                   DRG Payments
• DRG structure
   – Currently 528 DRGs, intended to be groupings of clinically-similar
     diagnoses and procedures
   – Medical DRGs - generally based on principal diagnosis
   – Surgical DRGs - generally based on principal procedure
   – Complications/commorbidities and patient age may also be factors


• DRG Relative Weights
   – Average cost of cases in a DRG compared to average cost for all cases
   – Cost derived from charges on Medicare claims
   – Generally, a three-year lag between claims data (used to set weights) and
     payment dates
DRG Payments - Weights
Examples of Medicare DRGs and Weights

001   Craniotomy age > 17, with CC             3.7399
002   Craniotomy age > 17, w/out CC            1.9730
003   Craniotomy age 0-17                      1.9504
134   Hypertension                             0.5877
143   Chest pain                               0.5391
389   Full-term neonate with major problems    3.1648
390   Neonate with other significant problems  1.1201
480   Liver transplant                        10.3805
483   Tracheostomy except face/neck/mouth dx 17.0510
DRG Payments - Documentation
• All inpatient cases coded by Medical Information Systems

• Cannot code what is not in the medical record

• Importance of documentation
   – All procedures must be defined
   – Existence of complications
   – Existence of commorbidities


• Several initiatives are underway to improve documentation
                   Area Wage Index
• What does it pay for?
   – Differences in cost of living (wage levels) impact cost per case


• Methodology:
   –   Each hospital reports wage, benefit and worked hour data annually
   –   Average compensation per hour computed for each metro area
   –   Each metro area assigned an Area Wage Index value
   –   Labor portion of DRG rate (about 71%) is adjusted


• Examples:
       Ann Arbor      1.1103          New York          1.4414
       Grand Rapids 0.9548            Hattiesburg MS    0.7441
  Indirect Medical Education (IME)
• Why does it exist?
   –   Teaching hospitals have higher costs
   –   IME is intended to level the playing field
   –   Statistical correlation between teaching intensity and cost per case
   –   Ratio of residents to beds is used to measure teaching intensity


• What does it pay for?
   – Patient severity and complexity not adequately addressed by DRGs
   – New technology and standby capacity
   – Inefficiencies, as residents provide much of the care
                    IME - Formula
• Methodology: Resident to bed ratio converted to a % add-on to the rate

• Formula as of 10/1/02: ((1+R/B)^.405 - 1) x 1.35 = IME

• Examples:              Hospital 1   Hospital 2   Hospital 3 (UM)
   FTE residents              10           100           635
   Available beds            200           400           680
   R/B ratio                  .05           .25           .93
   IME percentage            2.7%          12.8%         41.3%
   DRG rate                 4,500         4,500         4,500
   IME rate adjustment        121           576         1,858
            IME - Resident Count
Includes                             Excludes
• All trainees in approved           • Trainees in unapproved
  programs - residents, fellows        programs
• Rotations in most inpatient and    • Rotations in exempt psych and
  outpatient hospital facilities       rehab units
• Rotations in non-hospital,         • Rotations in other hospitals
  offsite locations if all costs     • Rotations in offsite locations
  borne by hospital (per contract)     where no contract exists
• Research rotations involving       • Bench research rotations
  patient care                       • Time not adequately
                                       documented
                IME - Other Rules
• Balanced Budget Act changes
   – Cap on allowable FTE: resident count cannot exceed 1996 base year
   – Three-year rolling average: Resident FTE is based on the capped count
     for the current and two most recent years
   – UM experience: have exceeded 1996 cap each year since 2000



• Available beds
   – Staffed beds excluding psych unit, rehab unit, nursery and observation
   – Closed beds excluded: need to show that beds cannot open in 72 hours
   – UM experience: opening a bed decreases IME by $50,000
  Disproportionate Share (DSH)
• What does it pay for?
   – Hospitals with high indigent patient volumes incur more costs, and incur
     more uncompensated care
   – DSH is a supplemental payment to help defer these higher costs and losses


• Methodology:
   – “Indigent” patient days divided by total patient days = DSH percentage,
     converted to a percentage add-on to the DRG payment.
   – “Indigent” is defined as...
       • Patients enrolled in Medicaid Title 19
       • Medicare patients eligible for Supplemental Security Income (SSI)
   – Excludes Title 5, county indigent care recipients, uninsured
                   DSH (continued)
• Formula:
   – DSH percentage > 20.2%: ((DSH % - .202) x .825) +.0588
   – DSH percentage > 15%: ((DSH % - .15) x .65) + .0250


• Example:             Hospital 1    Hospital 2 (UM)
  DSH percentage        20.0%             25.0%
  Threshold             15.0%             20.2%
  Over threshold         5.0%               4.8%
  DSH add-on             5.7%               9.8%
  DRG rate              4,500              4,500
  DSH rate                259                441
                  Outlier Payments
• What does it pay for?
   – Individual cases may have very high costs
   – Outlier payment provides partial recovery of costs not covered by DRG
• Methodology:
   – Charges converted to cost using hospital’s cost-to-charge ratio (CCR)
   – Cost is compared to a threshold: DRG payment + fixed threshold
   – Cost > threshold is reimbursed 80%
• Example:
   –   Charges=$150,000, CCR=0.50, DRG pymt=$10,000, threshold=$33,560
   –   Cost: $75,000 (150,000 charges x 0.50 ccr)
   –   Threshold: $43,560 (10,000 drg payment + 33,560 threshold)
   –   Outlier payment: (75,000-43,560) x 80% = $25,152
   –   Total payment for this case: DRG (10,000)+outlier (25,152) = $35,152
                         Direct GME
• What does it pay for?
    – Direct GME is intended to cover the direct costs of approved residency
      programs:
        • resident salaries and benefits
        • faculty supervision and teaching
        • other direct costs and overhead allocable to GME



• Methodology: hospitals receive a fixed amount per resident FTE,
   multiplied by Medicare % of patient days
    – Fixed amount is hospital specific, based on 1985 cost per resident
    – Medicare % of patient days includes days for patients enrolled in
      Medicare managed care plans
           Direct GME (continued)
• FTE Count: Same as IME except...
   – Bench research, and rotations in psych and rehab units are included
   – Residents beyond initial residency period are counted at 50% (fellows)
   Subject to 1996 cap
   Based on three-year rolling average


• UM Experience, FY2002:
   –   Resident FTE, unadjusted                            748 FTE
   –   Impact of initial residency period limit           -108 FTE
   –   Resident FTE, adjusted                              630 FTE
   –   Capped, three-year rolling average                  603 FTE
   –   Medicare payment per adjusted FTE                   $20,282
   –   Medicare cost per adjusted FTE                      $34,943
           Organ Acquisition Cost
• What does it pay for?
   – Covers all organ procurement activities:
       •   purchases from organ procurement agency
       •   excision from live donors and cadavers
       •   transportation, preservation
       •   administrative support
   – Also covers pre-transplant evaluations of prospective recipients/donors
       • clinic visits, tissue typing, diagnostic testing

• Methodology - cost reimbursement:
   – Medicare cost report used to determine cost for each organ type
   – Medicare pays its share of total cost based on ratio of Medicare usable
     organs / total usable organs
• UM results: average reimbursement > $40,000 per organ
                PPS-Exempt Units
• Psychiatric exempt unit
   – cost reimbursed subject to a per-discharge limit
   – limit = 75th percentile cost per discharge
• Rehabilitation exempt unit
   – through 2002: cost subject to per-discharge limit
   – beginning FY2003: prospective payment system
       • DRG-like groups called case-mix groups (CMGs)
       • 100 CMGs in total, four levels of severity for each CMG
       • Assignment based on...
           – impairment category (stroke, spinal cord injury, head trauma, etc)
           – functional scores (motor skills, cognitive skills)
           – patient age
       • Adjustments for Area Wage differences, DSH (no IME)
       • Additional payment for outlier cases
      Outpatient Reimbursement

UMHS MEDICARE OUTPATIENT (Millions)

                                         Charges Payments

Outpatient prospective payment (APCs)    $   80.4 $   42.4
Clinical laboratory                          11.7      2.7
Physical, speech, occupational therapy        3.5      1.9
Renal dialysis                                2.0      0.3
Air ambulance                                 1.3      0.9

                                         $   98.9 $   48.2
                     Outpatient PPS
• Ambulatory Payment Classifications (APCs)
   – Began effective 8/1/2000
   – Prior to 2000, cost reimbursed with adjustments


• Major differences from DRGs

   – measuring the payable encounter
       • inpatient: a single payment for each admission
       • outpatient: multiple payments possible for each visit


   – assigning the encounter to a payment group
       • inpatient: principal diagnosis
       • outpatient: procedure codes
      Outpatient PPS (continued)
• Current APC structure - number of APCs
      significant procedures      217
      other payable procedures    118
      ancillary tests              41
      visits                        8
      drugs and devices           174


• Excluded from APCs, paid under separate fee schedule
      clinical laboratory
      rehab therapy
      renal dialysis
      orthotics and prosthetics
       Outpatient PPS (continued)
• Payment
   –   Each APC assigned a relative weight
   –   CMS sets a national conversion factor, adjusted for area wage index
   –   Adjusted conversion factor x weight = payment
   –   Outlier payments may be available (not lucrative)
   –   No provision for IME, DSH
• Packaged services (bundling) - not separately paid
   –   most drugs and devices
   –   medical supplies
   –   anesthesia, recovery
   –   observation, with some exceptions
   –   procedures deemed to be incidental (ex: pulse oximetry)
Outpatient PPS (continued)
 Examples - APC Rates
 mid-level clinic visit                 $53.88
 high-level ER visit                    241.37
 cataract procedure w/ IOL            1,236.48
 level I endoscopy, upper airway         51.18
 level III endoscopy, upper airway      177.79
 electrocardiogram                       20.47
 level I plain film except teeth         42.56
 CT scan with contrast material         250.53
 chemotherapy by infusion               200.42
 level 1 radiation therapy               87.82
 cochlear implant                    20,442.02
      Outpatient PPS (continued)
• Special payment rules
   – surgical discounting: if more than one procedure is performed during a
     visit, the most expensive procedure paid 100%, others paid 50%
   – drugs:
       • in initial years of APCs, cancer drugs and several other higher-cost drugs were
         paid separately
       • beginning on 1/1/03, many cancer drugs are now packaged into the infusion
         payment and the payment for higher-cost drugs was reduced
   – devices:
       • the OPPS legislation provided that expensive devices receiving FDA approval
         within three years would be paid separately.
       • Initially, there were hundreds of these devices, now a handful
       Outpatient PPS (continued)
• Transitional Payment
   – Hospitals adversely affected by APCs receive a transitional payment to
     cover part of the difference between pre-APC payment and APC payment
   – Transition payment is being phased-out over three years (ends 12/31/03)


• UMHHC experience - Projected FY2003
   –   reimbursement based on pre-APC rules $56.2M
   –   reimbursement under APCs              42.6M
   –   APC loss before transitional payment 13.6M
   –   transitional payment                   5.3M
   –   remaining APC loss                   $ 8.3M
                       HOPD Status
• To qualify for APCs, sites must be designated as hospital-
  based outpatient departments (HOPD)

• Criteria and requirements for HOPD status:
   –   Must be under common ownership and control
   –   Integrated financial operations, clinical services, medical records, admin
   –   Medical staff at site have privileges at the hospital
   –   Must hold itself out to the public as part of the hospital
   –   Cannot be more than 35 miles from the main campus
   –   Must meet federal EMTALA, anti-dumping, non-discrimination rules


• All but a handful of UMHS sites are HOPD
                  Other Outpatient
•   Clinical laboratory - Medicare fee schedule
•   Rehab therapy - Medicare fee schedule
•   Renal dialysis - composite rate per visit
•   Common features
    – no differentiation between hospital based and independents
    – no differentiation based on teaching status or other factors
                        Settlements
• Many elements of hospital reimbursement are based on
  aggregate data covering the full fiscal year
   – Resident counts for IME and Direct GME
   – Medicaid-eligible patient days for DSH
   – Cost data for organ acquisition and outpatient transitional payment
   A retrospective settlement is required

• Hospitals receive cash via biweekly interim payments

• Settled to “actual” after year-end
           Settlements (continued)
• Settlement Process and typical timeline
   –   Hospital year-end                             6/30/02
   –   Cost report submitted                        11/30/02
   –   Tentative settlement by intermediary          3/31/03
   –   Audit by intermediary and final settlement    9/30/04
   –   Appeal filed by hospital if necessary         3/31/05
   –   Appeal settled if possible                    9/30/06
   –   Legal proceedings if necessary                  ???
   Medicare Policy-Broad Issues
• How large can Medicare grow?
   – current federal deficits
   – cost trend in health care
   – aging of the population


• Competing priorities - distributing federal dollars
   –   prescription drug benefit
   –   funding for the uninsured and underinsured
   –   between provider types - hospital vs physician vs home health vs ...
   –   within the hospital line:
        • urban vs rural
        • teaching vs non-teaching
       Medicare Policy-UM Issues
• Concerns
   – GME funding, especially IME (IME rates are “inherently too high”)
   – Pressure to eliminate rate differentiation
      • HOPD versus freestanding counterparts
      • Disparities between hospitals
   – Area wage adjustment and occupational mix


• Opportunities
   –   Inpatient severity of illness adjustments
   –   IME-type adjustment for outpatient
   –   Rebasing GME caps on resident FTEs
   –   Additional payment for new technology
                              Resources
• HHC Reimbursement
   – Department number: 647-3321
   – Director: Tom Marks, 6-7990 (tmarks@umich.edu)


• Centers for Medicare and Medicaid Services (CMS)
   – Website: http://cms.hhs.gov
   – Provider data: http://cms.hhs.gov/providers/
       • recent regulations
       • statistics
       • public use files
   – Other data: links to beneficiary and coverage information, publications by
     the Agency, Medicare manuals, research, statistics and more
Questions ???

				
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