Implementing Medicare

Hospital Payment Systems

Presented by:Will Fox, FSA, MAAA

Wednesday, September 12, 2007

Implementing Medicare Hospital Payment Systems

Fee Schedule Examples

Impact to Hospitals

Impact to Indian Health Services

Options and Recommendations

Fee Schedule Examples

IPPS

IPPS - LTC

IPPS - Rehab

IPPS - Psych

SNF

OPPS

Inpatient Prospective Payment System (IPPS)

Diagnosis Related Groups (DRGs)

─Reflect patient severity/resource consumption

Payment not equal among hospitals Reduced payment for transfers and

Post-Acute transfers for some DRGs Outlier payments complex Add-on payments for new technology

(none in FY2008)

IPPS Long Term Care

Hospitals with a Medicare ALOS greater than 25 days

DRGs─Reflect patient severity/resource

consumption─DRGs are the same as IPPS, the

relative weights are not Payment equal among hospitals Adjustments for short stays and high

cost outliers

IPPS Rehabilitation

Case Mix Groups (CMGs)

─Requires clinical assessment, not just a straight UB claim

─UB claim is populated with Revenue Code 0024 and Procedure Code equal to CMG (e.g., 1602)

DSH and Teaching adjustments make payment not equal among hospitals

Short Stay Outliers (<=3 days) = $2,809

High Cost Outliers – see attachment

IPPS Psych

Adjusted Per Diem─Adjustments include DRG, co-

morbidities, age and day of stay

─UB claim has all data required

Teaching adjustment makes payment not equal among hospitals

Skilled Nursing Facility (SNF)

Per diem payment, each day is assigned a Resource Utilization Group

Resource Utilization Groups (RUGs)

─Requires clinical assessment, not just a straight UB claim

─UB claim is populated with Revenue Code 0022 and Procedure Code equal to RUG (e.g., RUX)

Payments are equal among hospitals

Outpatient Prospective Payment System (OPPS)

Payment per service, not per day or per case

Not all procedures are paid, some are “packaged” with a “significant” procedure─For example, low cost drugs and

supplies are included in the cost of a surgical or emergency room procedure

OPPS Continued

Combination of fee schedules─APC – Ambulatory Payment Category

─Lab – Medicare clinical lab schedule

─RBRVS – mostly for physical therapy

OPPS Continued

Edits and Adjustments:─Outpatient Code Editor (OCE) denies

payment for invalid billing combinations (e.g., female patient with male procedure)

─Multiple procedure reduction - “T” Status claims reduced for second service

Medicare Advantages

Known to hospitals Reasonable level of patient severity

precision Cost based payment level Reduces administrative contracting costs Reduces claims administration costs

─After initial setup

─Less contracts to load, variances in provisions

Lower rates than you would likely be able to contract for

Medicare Disadvantages

Hospitals do not always have the information on a UB bill to use PPS─Rehab CMGs

─SNF RUGs

─OPPS HCPCS

Fee Schedules set for age 65+ patients─Average payment methodology may

not be appropriate for other populations

Changes in 2008

1. MS-DRGs for IPPS Move from 538 to 745 DRGs

Has an impact on outlier and short stay payments

2. No other significant changes IPPS Relative Weights transitioning to

cost based

Impact to Hospitals

1. Lower payments

2. Reduced administrative costs No negotiations

Assume payment process set up reliably, less audit/checking cost

3. Fair and understandable payments Familiar with Medicare

Impact to IHS Groups

1. Lower payments

2. Reduced administrative costs No negotiations

Less table loading/updating (in theory)

3. Fair and understandable payments

Options and Recommendations

1. Fiscal intermediary Historical relationship helps

Not available to all

Already have capability

2. Outside vendor Many different components to mess up

No positive recommendations

3. Do it yourself Not recommended