KNG Health IPPS Modeling of BWC Claims for FYs 2016-2017 6/16/2016 Overview KNG Health Consulting, LLC (KNG Health) projected Ohio Bureau of Workers Compensation (Ohio BWC) inpatient hospital payments using Medicare final payment rules under the Inpatient Prospective Payment System (IPPS) for fiscal years (FYs) 2016 and 2017. Data Ohio BWC provided data for 2,800 hospital discharges occurring between February 5, 2015 and January 31, 2016. One discharge was excluded from our analysis, because the claim listed Multi-EOB as the payment type. After this exclusion, our final data file included 2,799 claims. Payments were modeled in accordance with the appropriate IPPS Final Rule and the FY 2016 Ohio BWC Hospital Inpatient Reimbursement Rule. Hospital information was taken from the tables and supplemental data files released by the Centers for Medicare & Medicaid Services (CMS), the Ohio BWC Inpatient Cost-to-Charge Ratio file, the Medicare Provider Specific File, and Medicare Hospital Cost Reports (2014). Figure 1 provides the source for each of the original data elements that were incorporated into this analysis. Approach Claims were sorted into three payment categories. The payment methodology was different for each category. 1. Exempt. Claims that were listed as exempt from Medicare severity diagnosis-relatedgroup (MS-DRG) payments (8.3% of claims in 2015). 2. Outliers. Claims that both did not fall into the prior category and qualified for outlier payments under the Medicare payment methodology (4.4% of claims in 2015). Claims qualified if operating and capital costs together exceeded operating and capital outlier thresholds together (see below for explanation of these costs and thresholds). 3. DRG. All other claims (87.3% of claims in 2015). A written explanation of the payment methodology is provided below. An alternative explanation using symbolic notation is provided at the end of this section. Payment for Exempt Claims For exempt claims, payment was based on estimated operating cost. Operating costs were estimated by multiplying the total provider billed amount by a hospital-specific operating costto-charge ratio (CCR). For hospitals without a specific hospital operating CCR, the proposed 2017 average CCR within the hospital s state and location type (Urban/Rural) was used (from CMS tables). For hospitals that were non-domestic or whose state was not identified, the proposed 2017 average urban CCR for Ohio was used. The estimated operating costs were
inflation-adjusted. Inflation adjustments were based on the approach used by CMS as specified in the proposed FY 2017 Rule. 1 Charges were first inflated by the two-year charge inflation factor (multiplied by 1.08985). For modeling FY 2016 payments, the square root of each of these two-year inflation factors was used. While only operating costs were used for Exempt claims, capital costs were used in other parts of the methodology (and inflated similarly throughout the methodology). After applying the inflation adjustments, operating costs were multiplied by a payment adjustment factor of 1.14. The payment was capped at 70% of the inflation-adjusted charges associated with the claim. Payment for DRG and Outlier Claims For DRG and Outliers, payments were estimated using the CMS IPPS methodology. Operating and capital standardized amounts were selected based on each hospital s wage index, compliance with hospital quality-reporting requirements, and meaningful use of electronic health records (EHR). Reductions related to federal budget sequestration were not applied. The following geographic adjustments were applied to the hospital-specific standardized amounts: The operating cost-of-living adjustment (COLA) was applied to the non-labor portion of the operating standardized amount. The wage index adjustment was applied to the labor portion of the operating standardized amount. The capital COLA adjustment and geographic adjustment factor were applied to the capital standardized amount. The following policy adjustments were applied to the hospital-specific standardized amounts: The operating Disproportionate Share (DSH), operating Indirect Medical Education (IME), Hospital Readmissions Reduction Program (HRRP) adjustment, and Value-Based Purchasing (VBP) adjustment were applied to the operating standardized amount. The capital DSH and capital IME adjustments were applied to the capital standardized amount. The Hospital-Acquired Condition adjustment was applied to both the operating and capital standardized amount. 1 Federal Register Vol. 81, No. 81
To compute the CMS operating and capital base payments, the operating and capital standardized amounts were multiplied by the MS-DRG weight corresponding to the DRG assigned to the claim. A hospital-specific fixed add-on payment for uncompensated care was added to the operating standardized amounts. We then determined the operating and capital fixed-loss outlier thresholds for each claim. The national operating fixed-loss threshold was adjusted for each hospital by the operating COLA adjustment and wage index. The capital fixed-loss thresholds were adjusted for each hospital by the capital COLA adjustment and the geographic adjustment factor. The operating base payment for each claim was added to hospital-specific operating fixed-loss threshold to compute a claim-specific operating fixed-loss amount. A claim-specific capital fixed-loss amount was computed similarly. Some DRG claims were treated at hospitals that do not participate in the Medicare program. As such hospitals are not included in the Impact File, geographic and policy adjustments cannot be applied. Payment for these claims was based on the (MS-DRG-adjusted) national standardized amount corresponding to the appropriate fiscal year. Final Payment for DRG Claims The final payment for DRG cases (non-outliers) was computed by adding a per-diem payment for direct medical education costs to the sum of the operating and capital base payments, then multiplying by a PAF. The FY 2017 PAF was calculated so as to make the aggregate payment to cost ratio for Ohio hospitals equal to 1.14, not including the effect on payments of quality initiative adjustments (HAC, VBP, HRRP), quality reporting compliance, or meaningful use of EHR. In calculating the PAF, charges were inflated as described above for Exempt cases, and costs were also deflated to account for changes in costs relative to charges. 2 In the Excel results, the costs presented reflect these charge inflation and cost-to-charge ratio deflation adjustments. This resulted in a FY 2017 PAF for DRG claims of 1.156. The FY 2016 PAF was given by Ohio BWC as 1.137. Final Payment for Outlier Claims For outlier claims, operating and capital outlier payments were determined separately. Outlier payments were equal to 80% of the difference between the cost and the outlier threshold. Outlier payments could not be negative. The operating and capital base payments were added to the operating and capital outlier payments. The final payment for outlier claims was computed by multiplying this sum by a PAF. The FY 2017 PAF was calculated as described above for DRG cases (non-outliers). This resulted in a FY 2017 PAF for Outlier claims of 1.774. The FY 2 The operating costs were multiplied by 0.94010 and capital costs were multiplied by 0.95128. These adjustments were taken from the FY 2017 IPPS Proposed Rule, and are based on the CMS methodology for determining the IPPS fixed-loss threshold.
2016 PAF was given by Ohio BWC as 1.805. The per diem payment for direct medical education was not applied for outlier cases. Final Steps Projected payments for FY 2015 and FY 2016 are summarized by payment category, MS-DRG, hospital, hospital ownership, hospital teaching status, hospital location type, hospital state, and bed size category. The calculated PAFs are listed. All of the described calculations were performed within Stata, a statistical software package.
Appendix 1: Alternative Explanation of IPPS Payment Modeling for Ohio BWC Payment for Exempt Cases (PAF = 1.14 for Exempt Cases) Exempt = Payment for exempt group PAF = Payment Adjustment Factor drg = DRG Case, out = Outlier Case ICh = Two-Year Charge Inflation Adjustment op = Operating, cap = Capital Ch = Charge CCR = Cost/Charge Ratio Exempt = minimum[(paf * ICh * CCR op * Ch), (0.7 * ICh * Ch)] Payment for DRG and Outlier Cases (PAF = 1.7740477 for DRG Cases; PAF = 1.1564537 for Outlier Cases) H = Hospital-Specific Payment Amount O = Operating Standardized Amount (dependent on quality reporting compliance, EHR meaningful use, and wage index) L% = Labor Percentage of Operating Standardized Amount W = Wage Index N% = Non-Labor Percentage of Operating Standardized Amount COLA = Cost-of-Living Adjustment DSH = DSH Adjustment (Centered around 0) IME = IME Adjustment (Centered around 0) VBP = Value-Based Purchasing Adjustment (Centered around 1) C = Capital Standardized Amount GAF = Geographic Adjustment Factor HAC = Hospital-Acquired Conditions Adjustment HRRP = Hospital Readmissions Reduction Program Adjustment H op = O * (L% * W + N% * COLA op) * (1+DSH op+ime op) H cap = C * COLA cap * GAF * (1+DSH cap+ime cap) DRG = Payment for DRG group D = MS-DRG weight UCC = Uncompensated Care Add-On Payment LOS = Length of Stay DME = Direct Medical Education per diem payment DRG = [ [((H op * VBP * HRRP + H cap) * D + UCC] * HAC + (LOS * DME)) ] * PAF DRG F = National Fixed-Loss Threshold F op = Hosptial-Specific Operating Fixed-Loss Threshold F cap = Hospital-specific Capital Fixed-Loss Threshold F op = H op * D + UCC + F * [CCR op/(ccro p+ccr cap)] * (L% * W + N% * COLA op) F cap = H cap * D + F * [CCR cap/(ccro p+ccr cap)] * COLA cap * GAF OP = Outlier Payment OP = 0.8 * {maximum[(ich * CCR op * Ch - F op), 0] + maximum[(ich * CCR cp * Ch F cap), 0]} Outlier = Payment for Outlier group Outlier = [ [((H op * VBP * HRRP + H cap) * D + UCC] * HAC + OP ] * PAF out
Figure 1. Source for Data Elements Incorporated into Analysis Data Element Source Note Patient information Ohio BWC Claims file Medicare Provider Number Ohio BWC Inpatient Cost-to-Charge File, previous KNG Health work for Ohio BWC, and manual search based on hospital name a Medicare Standardized Amounts Tables 1A through 1E from Proposed FY 2017 CMS Rule b HAC Adjustment Provider Specific File (2016) c Geographic adjustments Impact File from Proposed FY 2017 CMS Rule b Policy adjustments (except HAC) Impact File from Proposed FY 2017 CMS Rule b MS-DRG Weights Table 5 from Proposed FY 2017 CMS Rules b Uncompensated Care Payment Impact File from Proposed FY 2017 CMS Rule b Hospital-Specific Cost-to-Charge Ratios (CCRs) Impact File from Proposed FY 2017 CMS Rule b Statewide Cost-to-Charge Ratios Tables 8A and 8B from Proposed FY 2017 CMS Rule b Hospital Location Type (Urban/Rural) Hospital Cost Report (2014) d Fixed-Loss Outlier Threshold IPPS Proposed FY 2017 Rule b Direct Medical Education Payment Ohio BWC Inpatient Cost-to-Charge File a Hospital ownership and beds Hospital Cost Report (2014) d Hospital teaching status Impact File from Proposed FY 2017 CMS Rule b Hospital state Based on first two digits of Medicare provider number Inflation Adjustment IPPS Proposed FY 2017 Rule b Links a) https://www.bwc.ohio.gov/downloads/blankpdf/hospinpatientcostcharge0216.xlsx b) https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps/fy2017-ipps-proposed-rule-home-page.html c) https://www.cms.gov/medicare/medicare-fee-for-service-payment/prospmedicarefeesvcpmtgen/psf_text.html d) https://www.cms.gov/research-statistics-data-and-systems/downloadable-public-use-files/cost-reports/cost-reports-by-fiscal-year.html 15245 Shady Grove Road Suite 365 Rockville MD 20850 www.knghealth.com