Medi-Cal DRG Project
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1 Medi-Cal DRG Project Simulation No. 1 of Possible DRG-Based Payment Method Hospital Consultation Meeting August 24, 2011 Government Healthcare Solutions Payment Method Development
2 An Essential Disclaimer At this time, no decisions have been made or even proposed by the Department of Health Care Services. This material is solely the responsibility of ACS, A Xerox Company, in its capacity as a consultant to DHCS. This simulation is for illustrative purposes only and also does not reflect an ACS recommendation. 2
3 Steps Toward Recommending Payment Policy 1. Criteria and context 2. Choice of APR-DRG relative weights 3. Taking into account the managed care transition 4. Initial simulation focuses on Medicaid care category 5. Impact evaluated on hospitals by geographic area and type of hospital to consider possibility of different base prices 6. Impact evaluated on hospitals in terms of magnitude of change => consider possibility of transition period 3 At this time, no payment policy decisions have been proposed or made by DHCS
4 Step 1: Criteria / Context for Inpatient Rates Medicaid goal is access to quality care for beneficiaries Assumed hospital goals are mission and margin Hospital mission (especially if tax-exempt) includes community service Hospital decisions to build, expand and promote services reflect relative margins by care category Medicaid payment rates matter most in care categories where Medicaid has significant market share Payment exceeding variable cost matters in the short term; payment exceeding total cost matters in the long term Planning for change negative or positive matters to hospitals 4 At this time, no payment policy decisions have been proposed or made by DHCS
5 National Market Shares by Care Category California data will be presented in September. Patterns are expected to be very similar. 5 At this time, no payment policy decisions have been proposed or made by DHCS
6 Steps 2-4: Initial Simulation 2) Choice of APR-DRG relative weights National weights based on NIS (including CA) Relative weights based on Medi-Cal historical data 3) Major transition between CY 2009 and FY 2013 Expansion of managed care by county and aid category MCO rates not part of FFS DRG payment project Need to model impact of DRG payment with view to FY ) Initial statewide simulation by Medicaid Care Category Do relative pay-to-cost ratios encourage access? If necessary, some states use budget-neutral policy adjustors to boost payment for specific care categories 6 At this time, no payment policy decisions have been proposed or made by DHCS
7 Steps 5-6: Evaluate Impact on Hosp Access 5) Evaluate impact by geographic area and hospital category Are groups of hospitals systematically advantaged or systematically disadvantaged? Does jeopardy to access (geographic or otherwise) justify different DRG base prices or other consideration? Medicare varies DRG base price for 29 wage areas in CA 6) Evaluate impact in terms of change management Hospitals typically need time to manage major changes Evaluate impacts in terms of magnitude of Medi-Cal payment change within overall financial picture Medicare (a significant larger payer for some, not all, services) typically allows transition period of several years 7 At this time, no payment policy decisions have been proposed or made by DHCS
8 Managed Care Transition Effect of the Managed Care Transition Dataset Stays Days Charges Est. Cost Baseline Payment Casemix Analytic dataset 508,149 2,046,913 $ 17,952,474,256 $ 4,576,942,149 $ 3,052,767, Transition to mgd care 123, ,134 $ 7,989,480,634 $ 2,039,413,226 $ 1,230,173, Simulation dataset 384,884 1,308,779 $ 9,962,993,622 $ 2,537,528,923 $ 1,822,594, ) All figures are draft, cannot be relied upon, and must not be attributed to any California state agency. 2) Payment figures exclude supplemental payments. Reflects criteria on aid category and beneficiary county Not a DHCS estimate Not a forecast does not reflect any changes in eligibility or other factors that can affect inpatient utilization Financial figures have not yet been inflated from CY 2009 to FY At this time, no payment policy decisions have been proposed or made by DHCS
9 Payment Simulation Parameters DRG Payment Simulation No. 1 Simulation Parameters Value Comment Baseline payment $ 1,822,594,274 Simulated payment $ 1,885,885,066 Intention is budget neutrality DRG base price $ 6,780 Single statewide DRG base price Documentation & coding adjustment None Relative weights APR V.28 National Policy adjustors--drg 1.25 Obstetrics 1.75 Normal newborn 2.00 Neonate Policy adjustors--age 1.50 Applies to Pediatric-Misc and Pediatric-Resp Transfer discharge statuses 02, 05, 65, 66 Cost outlier structure Symmatric high & low side Cost outlier pool 9.3% As percentage of total payments Cost outlier threshold $ 30,000 Marginal cost percentage 60% Note: Values are for purposes of illustration only and do not represent ACS recommendations or DHCS decisions. 9 At this time, no payment policy decisions have been proposed or made by DHCS
10 Change in Total Payments 10 At this time, no payment policy decisions have been proposed or made by DHCS
11 Pay to Cost Ratios 11 At this time, no payment policy decisions have been proposed or made by DHCS
12 Simulation Data for Charts Medicaid Care Category Stays Casemix Est. Cost Baseline Payment Simulated Payment Change % Change Baseline Pay / Cost\ Simulated Pay / Cost Simulated Outlier Pay Sim Outlier % of Pay Obstetrics 149, $ 668,794,340 $ 526,571,122 $ 527,488,894 $ 917,773 0% 79% 79% $ 2,552, % Normal newborn 137, $ 192,777,191 $ 166,698,434 $ 174,312,674 $ 7,614,240 5% 86% 90% $ 4,328, % Misc pediatric 26, $ 399,339,016 $ 262,259,071 $ 315,424,203 $ 53,165,132 20% 66% 79% $ 44,601, % Misc adult 25, $ 454,714,707 $ 280,966,062 $ 291,014,993 $ 10,048,931 4% 62% 64% $ 46,683, % Gastroent adult 13, $ 163,930,791 $ 110,979,300 $ 104,431,780 $ (6,547,520) -6% 68% 64% $ 7,952, % Resp pediatric 9, $ 99,295,954 $ 78,007,677 $ 71,856,155 $ (6,151,522) -8% 79% 72% $ 11,730, % Neonate 9, $ 357,769,696 $ 263,711,755 $ 280,857,175 $ 17,145,420 7% 74% 79% $ 46,130, % Circulatory adult 6, $ 100,291,860 $ 56,019,550 $ 63,275,950 $ 7,256,400 13% 56% 63% $ 6,040, % Resp adult 5, $ 82,821,310 $ 58,915,183 $ 48,806,744 $ (10,108,439) -17% 71% 59% $ 4,694, % Other 1, $ 17,794,057 $ 18,466,121 $ 8,416,498 $ (10,049,623) -54% 104% 47% $ 2,293, % Total 384, $ 2,537,528,923 $ 1,822,594,274 $ 1,885,885,066 $ 63,290,791 3% 72% 74% $ 177,009, % Notes: 1) This simulation is for purposes of illustration only and does not represent ACS recommendations or DHCS decisions. 2) Payment figures exclude supplemental payments. 3) "Other" comprises rehabilition and mental health 12 At this time, no payment policy decisions have been proposed or made by DHCS
13 Proposed Next Steps Try for consensus on approach Calculate CA relative weights as alternative to national Drill down into simulation results, e.g., patterns of outlier stays, individual stays with major dollar changes Updates as needed to hospital-specific CCRs, NPI consolidations, geographic and peer group assignments, etc. Re-do simulation, aiming for budget neutrality Evaluate impacts of simulation on various hospital groupings (e.g., wage area, hospital type) different base prices? Evaluate impacts of simulation in terms of percentage changes transition period? Consider documentation and coding adjustment 13 At this time, no payment policy decisions have been proposed or made by DHCS
14 For Further Information Medi-Cal DRG Project Technical Questions Kevin Quinn, Vice President, Payment Method Development ACS, A Xerox Company kevin.quinn@acs-inc.com Medi-Cal DRG Project Policy and Process Mark Sanui Safety Net Financing Division California Department of Health Care Services mark.sanui@dhcs.ca.gov Medi-Cal DRG Project Hospital Consultation Process Matt Absher, Director of Reimbursement Programs California Hospital Association mabsher@calhospital.org Some results in this analysis were produced using data obtained through the use of proprietary computer software created, owned and licensed by the 3M Company. All copyrights in and to the 3M TM Software are owned by 3M. All rights reserved. 14 At this time, no payment policy decisions have been proposed or made by DHCS
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