Medicare s RRP and HAC Programs

Medicare s RRP and HAC Programs Michigan Health and Hospital Association DataGen Susan McDonough Bill Shyne Lauren Davis January 25, 2017

Today s Objectives Overview of Medicare Readmission Reduction and Hospital Acquired Condition Programs Review Methodologies Review Michigan s RRP and HAC Reports

Medicare Quality Based Payment Reform (QBPR) Programs Mandated by the ACA of 2010 VBP Program (redistributive w/ winners and losers) Readmissions Reduction Program (remain whole or lose) HAC Reduction Program (remain whole or lose) National pay-for-performance programs Most acute care hospitals must participate; CAHs excluded Program rules, measures, and methodologies adopted well in advance (2013-2021)

General Medicare Quality Program Themes Payment adjustments based on facility-specific performance compared to national standards Performance metrics are determined using historical data Dynamic programs change every year Increasing financial exposure:

Medicare Readmission Reduction Program (RRP) Excess Readmission Ratios by Condition Excess Readmission Revenue by Condition Total Excess Readmission Revenue (all conditions) RRP Adjustment Factor Program Impact Program became effective FFY 2013 (October 1, 2012) Penalizes hospitals for exceeding expected readmission rates Expected rates based on national performance levels Program expands over time with addition of new conditions Penalty capped at 3% for 2015 and thereafter 1% in FFY 2013; 2% in FFY 2014; 3% in FFY 2015+ Measures are established in advance, usually in the IPPS rule

RRP Methodology Excess readmission ratios are calculated for multiple condition areas Changes in 2017+: Refined PN measure will add 2 types of claims: aspiration PN, and those with a principal diagnosis of sepsis (not severe sepsis) and a secondary diagnosis of Pneumonia (POA) CABG Improvement is not recognized Certain planned readmissions are not counted No offsets between categories

RRP Methodology Step 1: Calculate excess readmission ratios for each condition (subject to minimum case counts requirements) Predicted AMI Readmission Rate Expected AMI Readmission Rate 20.300 % 19.459 % = AMI Excess Ratio = AMI Excess Ratio 1. 0432 = AMI Excess Ratio Ratio less than 1 -Lower than expected readmission rate -Better quality Ratio greater than 1 -Higher than expected readmission rate -Lower quality -Penalty applies

RRP Methodology Step 2: Calculate total excess payments for each condition Total Payment for AMI Procedures (1 AMI Excess Ratio) = AMI Excess Dollars $60,000 (1 1. 0432) = AMI Excess Dollars $2, 592 = AMI Excess Dollars Step 3: Calculate total excess payments for all conditions AMI Excess Payments + HF Excess Payments + PN Excess Payments + COPD Excess Payments + THA TKA Excess Payments + CABG Excess Payments = Total Excess Dollars $2, 592 + $0 + $0 + $0 + $0 + $0 + $0 = Total Excess Dollars $2, 592 = Total Excess Dollars Excess Ratios are multiplied by revenue in each condition area to find excess readmission revenue by condition Sum of all conditions excess revenue = total excess readmission dollars Revenue = exposure More conditions = More exposure

RRP Methodology Step 4: Calculate Readmissions Adjustment factor (capped at.97 for FFY 2015+) 1 Total Excess Revenue Total Medicare IPPS Operating Revenue = Readmissions Adjustment Factor 1 $2, 592 $350, 000 = Readmissions Adjustment Factor 0.99259 = Readmissions Adjustment Factor (applied on a per-claim basis) Total excess readmission revenue is used to calculate adjustment factors

RRP Trends Continually evolving As measures are added, exposure to penalties increases As measures are added, hospitals are more likely to receive penalties

RRP Penalty Calculation Worksheet Estimated Program Penalties This table shows the actual program penalty adjustments applied in FFYs 2016-2017 (if applicable). The penalties/adjustment factors estimated below do not tie to the actual program due to the use of slightly different claims data and resulting revenue. Actual adjustment factors for the FFY 2018 Program are expected to be made public by CMS in the summer of 2017. Actual Capped Adjustment Factor 0.9952 Actual Penalty % Applied to Inpatient -0.48% Payments Estimated Inpatient Operating Payments $78,583,300 Subject to Adjustment * Estimated Impact on Inpatient Payments Maximum Readmission Penalty (3.0%) Condition Acute Myocardial Infarction (AMI) Heart Failure (HF) Pneumonia (PN) Total Hip/Total Knee Arthroplasty (THA/TKA) Chronic Obstructive Pulmonary Disease (COPD) Coronary Artery Bypass Graft (CABG) FFY 2016 Program ACTUAL Performance (Based on data from July 2011 - June 2014) Eligible Discharges 330 563 822 337 ($377,200) Estimated Impact $0 ($122,900) ($254,300) $0 $0 Does Not Apply % of Impact Eligible Discharges 0.9924-0.76% $79,282,000 ($602,500) % of Impact FFY 2018 Program ESTIMATED Performance (Based on data from July 2012 - June 2015) FFY 2018 TBD FFY 2018 TBD $80,903,100 % of Impact 0.00% 313 ($42,700) 7.09% 32.57% 568 ($233,500) 38.75% 67.43% 811 ($282,700) 46.92% 0.00% 898 $0 0.00% 0.00% 339 $0 0.00% 145 FFY 2017 Program ACTUAL Performance (Based on data from July 2012 - June 2015) Estimated Impact ($43,600) (Actual program will use July 2013 - June 2016 data) ($2,357,500) (2,378,500) (2,427,100) This section is intended to show the conditions that drive the payment penalties by Program year (if applicable) along with the maximum penalty (3.0%). The graph below provides estimates of the impact each condition has on this hospital compared to the maximum possible penalty (shown as a dashed line). The penalties are determined based on Excess Readmissions dollars for each condition. AMI HF PN THA/TKA COPD CABG $0 ($500,000) ($1,000,000) ($1,500,000) ($2,000,000) ($2,500,000) ($3,000,000) 611 Eligible Discharges 7.24% Estimated Impact

RRP Performance Scorecard Worksheet Performance Overview To review hospital performance over time, this table shows the Predicted and Expected Readmissions Rates and resulting Excess Readmissions Ratios for each of the conditions evaluated for each program year. While Predicted and Expected Rates are risk adjusted and vary by each condition and year due to changes in patient risk factors, Excess Ratios and resulting Excess Percents may be compared across years and conditions. Rates for FFY 2016 and ratios for FFYs 2016-2017 reflect actual program performance as provided by CMS. For FFY 2018, performance is held constant at the FFY 2017 levels. Condition AMI HF PN THA/TKA COPD FFY 2016 Program ACTUAL Performance (Based on data from July 2011 - June 2014) Predicted Rate Expected Rate = Excess Ratio Excess Readm. % Predicted Rate Expected Rate = Excess Ratio Excess Readm. % FFY 2018 Program ESTIMATED Performance (Based on data from July 2012 - June 2015) FFY 2017 Program ACTUAL Performance (Based on data from July 2012 - June 2015) (Actual program will use July 2013 - June 2016 data) [A] [A] [A] Predicted Rate Expected Rate = Excess Ratio Excess Readm. % 16.8% 17.7% = 0.9516 0.00% -- -- = 1.0286 2.86% -- -- = 1.0286 2.86% 24.1% 22.7% = 1.0619 6.19% -- -- = 1.1447 14.47% -- -- = 1.1447 14.47% 20.3% 17.2% = 1.1847 18.47% -- -- = 1.1152 11.52% -- -- = 1.1152 11.52% 4.8% 5.1% = 0.9540 0.00% -- -- = 0.8748 0.00% -- -- = 0.8748 0.00% 20.9% 21.6% = 0.9678 0.00% -- -- = 0.9550 0.00% -- -- = 0.9550 0.00% CABG Does Not Apply -- -- = 1.0342 3.42% -- -- = 1.0342 3.42%

RRP Performance Scorecard Worksheet (con t) Estimated Revenue by Condition Condition-specific revenue is needed for the calculation of the payment adjustments under the program. If a hospital is determined to have excess readmissions for a condition (shown in the Performance Overview table earlier), condition-specific revenue is multiplied by the corresponding Excess Ratio to determine the Excess Revenue used to calculate payment penalties. The graph below displays Medicare inpatient base operating revenue to indicate relative exposure by condition and potential changes in exposure as revenue changes and as additional conditions/condition-specific revenues are added to the program. For the FFY 2018 estimate, revenue is held constant at FFY 2017 levels. $50,000,000 [D] [E] AMI HF PN THA/TKA COPD CABG AMI HF PN THA/TKA COPD CABG Condition Total for all Eligible Conditions Total Inpatient Base Operating Revenue Estimated Penalty Percent [Sum{C} D] Estimated Uncapped Adjustment Factor (1 - Penalty %) Estimated Capped Adjustment Factor (Capped at 0.9700) $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 FFY 2016 Program ACTUAL Performance (Based on data from July 2011 - June 2014) Condition Revenue [B] $6,257,490 $7,759,380 $5,387,528 $14,049,066 $3,040,370 Does Not Apply $271,224,443 Excess [C = A B] ** $0 $480,613 $994,975 $0 $0 FFY 2017 Program ACTUAL Performance (Based on data from July 2012 - June 2015) Condition Revenue [B] $6,008,373 $6,491,696 $9,871,105 $15,084,568 $2,932,607 $5,124,819 $261,182,418 Excess [C = A B] ** $171,725 $939,052 $1,136,860 FFY 2018 Program ESTIMATED Performance (Based on data from July 2012 - June 2015) $9,871,105 $15,084,568 $2,932,607 $5,124,819 $261,182,418-0.54% -0.93% -0.93% $0 $0 $175,438 Condition Revenue [B] $6,008,373 $6,491,696 0.9946 0.9907 0.9907 0.9946 0.9907 0.9907 (Actual program will use July 2013 - June 2016 data) Excess [C = A B] ** $171,725 $939,052 $1,136,860 $0 $0 $175,438 $36,493,834 $1,475,587 $45,513,168 $2,423,076 $45,513,168 $2,423,076

Readmissions Reduction Program: Hospital Case Study $0 -$50,000 -$100,000 -$150,000 -$200,000 -$250,000 -$300,000 -$350,000 -$400,000 -$450,000 -$500,000 -$429,600 -$237,200 -$290,500 FFY 2015 FFY 2016 FFY 2017 AMI HF PN THA/TKA COPD CABG 2015 2016 2017 AMI 1.0706 1.0152 0.972 HF 1.042 1.0774 1.0339 PN 0.988 0.9759 1.0537 THA/TKA 0.8489 0.9432 0.8851 COPD 1.0653 1.0525 1.0972 CABG N/A N/A 1.0705 Final RRP Adjustment Factor 0.9949 0.9972 0.9966 Estimated Annual Impact ($429,600) ($237,200) ($290,500) Hospital improves in performance from 2015 to 2017 in several measures Estimated negative annual impact increases from ($237,200) in 2016 to ($290,500) in 2017 due to the addition of CABG As CMS adds more measures to the program, hospital exposure increases and hospitals may experience larger losses in future program years

Michigan s RRP Revenue by Condition $2,500,000,000 $2,000,000,000 $131,777,900 $1,500,000,000 $276,431,900 $276,431,900 $411,667,000 CABG COPD THA/TKA $1,000,000,000 $411,667,000 $227,602,700 $227,602,700 $452,955,600 Pneumonia Heart Failure AMI $500,000,000 $384,059,300 $384,059,300 $384,059,300 $0 $276,606,200 $276,606,200 $276,606,200 2013-2014 2015-2016 2017-2018 Condition/Procedure 2013-2014 2015-2016 2017-2018 AMI $276,606,200 $276,606,200 $276,606,200 Heart Failure $384,059,300 $384,059,300 $384,059,300 Pneumonia $227,602,700 $227,602,700 $452,955,600 THA/TKA N/A $411,667,000 $411,667,000 COPD N/A $276,431,900 $276,431,900 CABG N/A N/A $131,777,900 Total Program Exposure $888,268,200 $1,576,367,100 $1,933,497,900 Increase in Exposure 77.5% 22.7%

Michigan s RRP Impact by Condition $0 2015 2016 2017 ($2,846,800) ($3,365,300) ($3,071,000) ($5,000,000) ($4,980,400) ($5,181,500) ($4,718,900) ($10,000,000) ($15,000,000) ($2,547,400) ($2,280,300) ($8,524,900) ($6,699,100) ($6,901,000) CABG COPD THA/TKA Pneumonia ($20,000,000) ($2,433,700) ($2,443,600) ($7,935,400) Heart Failure AMI ($25,000,000) ($3,363,500) ($30,000,000) Condition/Procedure 2015 2016 2017 AMI ($2,846,800) ($3,365,300) ($3,071,000) Heart Failure ($4,980,400) ($5,181,500) ($4,718,900) Pneumonia ($2,547,400) ($2,280,300) ($6,901,000) THA/TKA ($8,524,900) ($6,699,100) ($7,935,400) COPD ($2,433,700) ($2,443,600) ($3,363,500) CABG - - ($976,900) Total Impact ($21,333,200) ($19,969,800) ($26,966,700) Eligible providers and their characteristics are based on the FFY 2017 IPPS Final Rule.

Michigan s Readmission Rate Trends 4Q 2013 July 1, 2009 - June 30, 2012 4Q 2014 July 1, 2010 - June 30, 2013 State Rates 2Q 2015 July 1, 2011 - June 30, 2014 2Q 2016 July 1, 2012 - June 30, 2015 READM_30_AMI: Acute Myocardial Infarction (AMI) 30-Day Readmission Rate 18.2% 17.7% 16.9% 16.9% Readmission Rates READM_30_HF: Heart Failure (HF) 30-Day Readmission Rate READM_30_PN: Pneumonia (PN) 30-Day Readmission Rate READM_30_HIP_KNEE: Elective Total Hip/Knee Surgery (THA/TKA) 30-Day Readmission Rate READM_30_COPD: Chronic Obstructive Pulmonary Disease (COPD) 30-Day Readmission Rate 23.5% 23.0% 22.3% 22.3% 17.7% 17.5% 17.2% 17.5% 5.4% 5.2% 4.8% 4.7% No Data 20.9% 20.4% 20.4% READM_30_CABG: Coronary Artery Bypass Graft (CABG) 30-Day Readmission Rate No Data 14.9% 14.4%

Michigan s Readmission Rank Trends 4Q 2013 July 1, 2009 - June 30, 2012 4Q 2014 July 1, 2010 - June 30, 2013 State Rank 2Q 2015 July 1, 2011 - June 30, 2014 2Q 2016 July 1, 2012 - June 30, 2015 READM_30_AMI: Acute Myocardial Infarction (AMI) 30-Day Readmission Rate 29 of 51 28 of 51 32 of 51 33 of 50 Readmission Ranks READM_30_HF: Heart Failure (HF) 30-Day Readmission Rate READM_30_PN: Pneumonia (PN) 30-Day Readmission Rate READM_30_HIP_KNEE: Elective Total Hip/Knee Surgery (THA/TKA) 30-Day Readmission Rate READM_30_COPD: Chronic Obstructive Pulmonary Disease (COPD) 30-Day Readmission Rate 38 of 51 38 of 51 40 of 51 40 of 50 34 of 51 33 of 51 36 of 51 36 of 50 38 of 51 38 of 51 34 of 51 43 of 50 No Data 28 of 51 32 of 51 37 of 50 READM_30_CABG: Coronary Artery Bypass Graft (CABG) 30-Day Readmission Rate No Data 29 of 51 31 of 50

RRP Program Timeframes Program Timelines 2012 2013 2014 2015 2016 2017 2018 2019 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D FFY 2017 Program Performance Period (All Conditions) FFY 2017 Program Payment Adjustment FFY 2018 Program Performance Period (All Conditions) FFY 2018 Program Payment Adjustment FFY 2019 Program Performance Period (All Conditions) FFY 2019 Program Payment Adjustment

RRP Reference Guide See RRP Reference Guide for more detail Conditions Methodology Performance Periods Quality Based Payment Reform (QBPR) Reference Guide Readmission Reduction Program (RRP) Overview Applicable conditions, performance timeframes, and other details for the FFY 2017, 2018, and 2019 programs The Readmission Reduction Program (RRP) adjusts Medicare Inpatient payments based on hospital readmission rates for several conditions. This program is punitive only and does not give hospitals credit for improvement over time or lower readmission rates than the nation. First, CMS compares hospital riskadjusted readmission rates to national rates to calculate excess readmission ratios for each condition. Next, CMS applies the excess ratio to aggregate payments for each condition to find excess readmission dollars by condition. The sum of all excess readmission dollars for all applicable conditions divided by all inpatient operating revenue determines program adjustment factors/impacts under the program. The basic program methodology is shown below: Excess Readmission Ratios by Condition Excess Readmission Revenue by Condition Total Excess Readmission Revenue (all conditions) RRP Adjustment Factor Program Impact The RRP program evaluates hospital readmission rates for several conditions. In FFY 2013/2014, hospitals were evaluated on AMI, Heart Failure, and Pneumonia. Additional conditions, COPD and THA/TKA, were added to the program in 2015, and CABG is added in 2017, along with an expansion to the Pneumonia measure. Readmission rates, aggregate payments by condition, and excess readmission dollars by condition are all defined by a predetermined list of procedure and/or diagnoses codes specific to each condition. Each condition excludes certain planned readmissions or regular, scheduled follow up care. A hospital must have an applicable period of three years of discharge data and at least 25 cases in order to calculate an excess readmission ratio for each applicable condition. Each condition increases the revenue exposed under the program and the potential for excess readmissions that results in penalties under the program. The total estimated revenue across all hospitals for each condition is shown in the graph to the right to indicate the relative magnitude of each condition under the program. Importantly, the two new measures added in FFY 2015 expanded the program substantially and increased the national revenue exposure under the program by 80%. The expansion in FFY 2017 increases the revenue at risk for excess readmissions for the nation by an additional 24%. However, the magnitude of Hospital specific revenue/exposure in each condition may vary. Applicable Conditions: Program Timelines THA/TKA: $11.81 Billion COPD: $6.15 Billion PN: $6.38 Billion HF: $9.19 Billion AMI: $6.83 Billion 2013 & 2014 Program CABG: $3.90 Billion Estimated U.S. Revenue by Condition PN Expansion: $5.74 Billion 2015 2016 2017 2018 2012 2013 2014 2019 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 2015 & 2016 Program 2017, 2018 & 2019 Program $50 $40 $30 $20 $10 $0 FFY 2017 Program Performance Period (All Conditions) FFY 2017 Program Payment Adjustment FFY 2018 Program Performance Period (All Conditions) FFY 2018 Program Payment Adjustment FFY 2019 Program Performance Period (All Conditions) FFY 2019 Program Payment Adjustment

Medicare Hospital Acquired Condition (HAC) Reduction Program Measure Scores Domain Scores Total HAC Score Top Quartile/1.0% Penalty Determination Annual Program Impact Program became effective FFY 2015 (October 1, 2014) Penalizes hospitals with the highest HAC rates Rates are per 1,000 patients Compared to all other eligible hospitals nationally 1% Penalty applied to all hospitals in the worst performing quartile 25% of hospitals will receive a penalty Applied to Total Medicare FFS Inpatient Dollars Penalty is in addition to existing HAC DRG demotion policy

HAC Reduction Program Methodology HAC measures are grouped into two domains: Domain 1 (AHRQ measures): PSI-90 Composite Measure Domain 2 (CDC measures): CAUTI and CLABSI SSI (colon surgery and abdominal surgery) 2016+ C-Diff and MRSA 2017+ Separate performance scores are calculated for each HAC measure 1 to 10 (where 1 = best; 10 = worst) Based on national deciles for all program eligible hospitals Improvement is not recognized Averages are calculated for each domain, then the domains are weighted together for a total score Domain Weight Domain 1 Domain 2 FFY 2015 35% 65% FFY 2016 25% 75% FFY 2017+ 15% 85% Total HAC Score determines worst performing quartile of hospitals to receive 1% payment penalty

HAC Reduction Program Trends Continually evolving Changes to measures Changes to domain weights Parameters set in IPPS rulemaking at least one year in Domain 1: AHRQ Claims Based Measures advance Central Line Associated Blood Stream Infection (CLABSI) Domain Weight 3 Catheter Associated Urinary Tract Infection (CAUTI) Surgical Site Infection (SSI) Pooled SIR 2 (FFY 2016+) SSI from Colon Surgery SSI from Abdominal Hysterectomy Clostridium difficile (C.diff.) SIR (FFY 2017+) Domain 2: CDC Chart Abstracted Measures Methicillin-resistant Staphylococcus Aureus (MRSA) (FFY 2017+) 65% (FFY 2015) 75% (FFY 2016+) 85% (FFY 2017+) PSI-90: Patient Safety Indicator Composite Ratio 1 PSI 15: Accidental Puncture or Laceration PSI 12: Postop PE Or DVT PSI 13: Postop Sepsis PSI 6: Iatrogenic Pneumothorax PSI 7: Central Venous Catheter-Related Blood PSI 3: Decubitus Ulcer PSI 14: Postop Wound Dehiscence PSI 8: Postop Hip Fracture Weight 49.2% 25.8% 7.4% 7.1% 6.5% 2.3% 1.7% 0.1% Domain Weight 3 35% (FFY 2015) 25% (FFY 2016+) 15% (FFY 2017+)

HAC Reduction Program Measure Calculation Worksheet

HAC Reduction Program Measure Calculation Worksheet (con t) Domain 2 Scoring Summary 3 SIR Decile HAI_1a: Central Line Associated Blood Stream Infection (CLABSI) (ICU-only) 0.882 81st-90th 9 Measure Points Domain 2 Score 3 FFY 2017 HAI_2a: Catheter Associated Urinary Tract Infection (CAUTI) (ICU-only) 0.472 31st-40th 4 Surgical Site Infection (SSI) Pooled Standardized Infection Ratio (SIR) * 2.122 91st-100th 10 HAI_5: Methicillin-resistant Staphylococcus Aureus (MRSA) 1.906 91st-100th 10 7.20 HAI_6: Clostridium difficile (C.diff.) 0.422 21st-30th 3

HAC Reduction Program Impact Calculation Worksheet

Payment Determination with Ties CMS Approach: Will not penalize more than 25% of hospitals DataGen Approach: Inclusive of ties at the 75 th percentile in order to be conservative

HAC Reduction Program: FFY 2018+ Scoring methodology change for FFY 2018+ Currently assigns points using a decile-based methodology to each measure and then calculates Total HAC Score by weighting each domain score and adding the domain scores together Methodology will evaluate hospitals based on a Z-score Continuous measure score rather than forcing measures into deciles Measure ratios are winsorized to remove effects of outliers (top and bottom 5%) Represents a hospital s distance from the national average for a measure, in terms of units of standard deviation A POSTIVE z-score is above the average, and reflects POOR performance A NEGATIVE z-score is below the average, and reflects GOOD performance Lower scores are still better Z-scores for Domain 2 will be averaged, Domain 1 will be assigned the PSI 90 z-score Domains will still be weighted together to determine Total HAC Score

HAC Model Z-Score Format PSI-90: Patient Safety Indicator Composite Performance Detail Patient Safety Indicator Measure 1 (Combined into PSI-90 Composite Ratio) Measure Weight PSI 15: Accidental Puncture or Laceration 43.9% PSI 12: Postop PE Or DVT 33.8% PSI 6: Iatrogenic Pneumothorax 7.5% PSI 13: Postop Sepsis 5.7% PSI 7: Central Venous Catheter-Related Blood 3.8% PSI 3: Pressure Ulcer 3.3% PSI 14: Postop Wound Dehiscence 1.8% PSI 8: Postop Hip Fracture 0.2% PSI-90 Composite Ratio 1 (Sum of Weighted Performance Ratios) Winsorized PSI-90 Composite Ratio 2 0.610 0.6500 Winsorized National Mean 3 Winsorized Standard Deviation 3 0.8829 0.1402 PSI-90 Z-Score 4 (Also Domain 1 Score) -1.6614 Base Ratio 0.610 A negative z-score REDUCES the chance of receiving a HAC penalty. 5th Percentile 0.6500 Mean 0.8829 95th Percentile 1.1900 PSI-90 Composite Ratio

1 Hospital Acquired Condition: Hospital Case Study Percentile 2 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2017 Total HAC Score Hospital improves in performance from 2015 to 2017 in domain 2 Total HAC score declines and hospital goes from no penalty in 2015 and 2016 to penalty in 2017, even with domain weight shifting towards domain 2 2015 2016 2017 Domain 1 Score 7 8 7.7 Domain 2 Score 6.5 5.7 5.5 Total HAC Score 6.65 6.85 6.6 75th Percentile Total HAC Score 7 Receives 1.0% Reduction? No 6.75 No 6.57 Yes Even if all hospitals improve, 1.0% penalty is always applied to worst performing quartile. A hospital must stay at pace with the pack in order to avoid getting a penalty

HAC Program Timeframes

Wyoming Montana Hawaii Alabama Kansas Arkansas Ohio North Dakota Minnesota Tennessee Idaho Nebraska Wisconsin Indiana Missouri Vermont Maine Kentucky Oklahoma Oregon South Dakota Colorado Texas Mississippi Iowa New Mexico Louisiana Illinois Alaska North Carolina Florida Virginia Arizona West Virginia Utah Pennsylvania Massachusetts South Carolina Michigan D.C. Georgia Washington New Hampshire California Rhode Island Nevada New Jersey New York Connecticut Delaware % Eligible Hospitals % Revenue Michigan s HAC Reduction Program Performance 60% 50% 40% 30% 20% 10% 0% Percentage of Revenue and Hospitals Affected by State % Eligible Hospitals % Revenue 0.5% 28.4% 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% HAC Reduction Program Performance FFY 2015 FFY 2016 FFY 2017 Statewide Impact ($14,148,600) ($13,184,800) ($22,140,600) Number of Penalty Hospitals 21 24 27 Percent of Hospitals Receiving Penalty 22.1% 25.3% 28.4% Percent of Total Revenue Affected 0.32% 0.29% 0.49% Eligible providers and their characteristics are based on the FFY 2017 IPPS Final Rule.

HAC Reduction Program Reference Guide See HAC Program Reference Guide for more detail Program Measures Domain Weights Measure Scoring Performance Periods Penalty Determination Quality Based Payment Reform (QBPR) Reference Guide Hospital Acquired Condition (HAC) Reduction Program Overview Applicable conditions, performance timeframes, and other details for the FFY 2017, 2018, and 2019 programs The Hospital Acquired Condition (HAC) Reduction Program sets payment penalties each year for hospitals in the top quartile (worst performance) of HAC rates for the country. The HAC reduction program is punitive only and does not give hospitals credit for improvement over time. Under the program, hospitals are scored measure by measure based on their decile ranking (z-score for 2018+) nationwide. Scores for similar measures are combined into domain scores. Domain scores are then weighted together into a Total HAC score. The Total HAC score is used to determine the top quartile (worst performance) for payment penalty in each year. The HAC payment penalty is 1.0% of total Medicare Fee-For-Service (FFS) revenue and does not change year to year. The basic program methodology is shown below: Top Quartile/1.0% Penalty Measure Scores Domain Scores Total HAC Score Annual Program Impact Determination Domain 1: AHRQ Claims Based Measures Domain 2: CDC Chart Abstracted Measures 3 (2017) (NEW 2018+) PSI-90: Patient Safety Indicator Composite Ratio 1 Weight PSI-90: Patient Safety and Adverse Events Composite 2 Weight Domain Weight Central Line Associated Blood Stream Infection (CLABSI) Domain Weight PSI 15: Accidental Puncture or Laceration 43.9% PSI 13: Postop Sepsis 24.1% Catheter Associated Urinary Tract Infection (CAUTI) PSI 12: Postop PE Or DVT 33.8% PSI 11: Postop Respiratory Failure 21.5% Surgical Site Infection (SSI) Pooled SIR 4 PSI 6: Iatrogenic Pneumothorax 7.5% PSI 12: Postop PE Or DVT 18.4% SSI from Colon Surgery PSI 13: Postop Sepsis 5.7% PSI 9: Periop Hemorrhage Or Hematoma Rate 15.0% SSI from Abdominal Hysterectomy PSI 7: Central Venous Catheter-Related Blood 3.8% PSI 6: Iatrogenic Pneumothorax 9.7% Clostridium difficile (C.diff.) SIR PSI 10: Postop Acute Kidney Injury Requiring PSI 3: Decubitus Ulcer 3.3% 4.9% Methicillin-resistant Staphylococcus Aureus (MRSA) Dialysis PSI 14: Postop Wound Dehiscence 1.8% PSI 3: Decubitus Ulcer 3.6% PSI 8: Postop Hip Fracture 0.2% PSI 14: Postop Wound Dehiscence 0.9% PSI 8: Postop Hip Fracture 0.9% PSI 15: Accidental Puncture or Laceration 0.8% 15% 85% Measure Scoring Decile Ranges - 2017 Only National HAC Ratio Measure Points Percentile Range (Lower is Better) 1st-10th 1 pt. 11th-20th 2 pts. 21st-20th 3 pts. 31st-40th 4 pts. 41st-50th 5 pts. 51st-60th 6 pts. 61st-70th 7 pts. 71st-80th 8 pts. 81st-90th 9 pts. 91st-100th 10 pts. (2017) For each program measure, HAC ratios for all program-eligible hospitals nationwide (NEW FOR 2018+) HAC ratios for all program-eligible hospitals nationwide will be are separated into deciles for scoring (lowest decile = best performers). Hospitals are assigned winsorized z-scores. A z-score represents how different a hospital awarded points based on their national decile. When multiple hospitals have the same ratio performed compared to the national average, in terms of standard deviations from and the ratio crosses more than one decile, the lowest decile determines the measure score. the mean (poor performance = positive z-score (worse than the national average) and good performance = negative z-score (better than the national average). Windsorization is intended to remove the effects of extreme outliers. CMS chose to do this by setting all z-score values below the 5th percentile, to the 5th percentile value and above the 95th percentile, to the 95th percentile value. In order to receive a score on a measure, hospitals must meet minimum requirements. For Domain 1, a hospital must have 3 or more cases in at least one of the component PSI measures that make up the PSI-90 composite measure. For Domain 2, a hospital must have 1 or more predicted infections. *Measures not meeting the minimum scoring requirements are dropped from the domain score calculation. If a domain does not contain at least one eligible measure, then the Total HAC score is determined based solely on the other domain. Beginning 2017, hospitals will receive a score of 10 for any Domain 2 measure that is not submitted, unless provided with a waiver. Other Program Calculations Program Timelines 2013 2014 2015 2016 2017 2018 2019 M J J M J J M J J M A M J J A S M J J M J J M J J J F M A A S O N D J F M A A S O N D J F M A A S O N D J F O N D J F M A A S O N D J F M A A S O N D J F M A A S O N D FFY 2017: Domain 1 Performance Period FFY 2017 Program FFY 2017: Domain 2 Payment Adjustment Performance Period FFY 2018: Domain 1 Performance Period FFY 2018: Domain 2 Performance Period FFY 2018 Program Payment Adjustment FFY 2019: Domain 1 Performance Period FFY 2019: Domain 2 Performance Period FFY 2019 Program Payment Adjustment

Other Quality Data Sources Hospital Compare Quality Net Other

Key Reminders for Hospitals Payment levels are at stake Historical data will continue to drive these programs Program targets move with national performance, so hospitals must keep pace with the pack Complexity of program measures Overlap with other quality based payment reform programs VBP & HAC: PSI-90, CAUTI, CLABSI, Surgical Site Infection (SSI), MRSA and C- Diff Measures VBP & RRP: AMI, HF, and PN HACs will have a worst performing 25%

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