Region 2 Annual Fall institute
John W. Gahan Jr.
New York State Department of Health
1
Agenda
 Pre-Reform Rates
 Updates/timeframes
 Reform Rates
 4/1/2010
 10/1/2010 – Blended Rates
 Potentially Preventable Readmissions (PPR’s)
 New Psych Methodology
 FMAP Payment Reductions
 DSH Audit Update and Process
 Questions and Answers
New York State Department of Health
2
Pre-Reform Rates
 Initial 2009 rates:
 General items included


Capital 2007 volume, etc.
Worker Retention reconciliation
 Updates to 2009 rates
 2008 and 2009 volume

Including LOS relief and added bed appeals
 2008 and 2009 actual capital
 Worker Retention reconciliation – 2008 and 2009

Retro publication
 Old appeals
New York State Department of Health
3
Reform Rates
 4/1/2010 Rates:
 Updated statewide base price for some minor
corrections
 New Transition amounts

Divided by 2008 paid claims
 Workers Comp/No Fault Rates trended


2010-11 budget delinked items effective 4/1/2010
Rebasing adjustment in Medicaid rates not applicable to
WC/NF rates ($154.5M)
New York State Department of Health
4
Blended Rates effective 10/1/2010
New York State Department of Health
5
Phase II – Blend FFS and MC Effective October 1,
2010 and forward
 DOH has established a single statewide base price that
combines Medicaid FFS and MC based on updated
2008 data.
 The blended base price per discharge will be
established based on targeted statewide Medicaid
inpatient hospital expenditures from both Medicaid
FFS and MC, and the new reform rate variables (i.e.
GME, WEF, case mix, etc.)
New York State Department of Health
6
Reform Rate Components
Statewide Base Price (SBP)
$6,399
$6,171
$6,304
Institution-Specific Adj Factor
1.0196
1.0323
1.0266
Adjusted SBP
$6,524
$6,370
$6,472
APR-DRG CMI
1.1516
0.7462
0.9272
Pmt/discharge (excl. GME)
$7,513
$4,754
$6,001
Total GME/discharge
$2,791
$1,739
$2,206
Non-Comparables
$402
$86
$225
Avg. pmt/discharge
$10,706
$6,579
$8,432
Total Spending
$3.253B
$2.313B
$5.566B
New York State Department of Health
* The blended rate does not reflect actions enacted in the 2010-11
Budget, including Potentially Preventable Readmissions (PPRs).
7
Funding Reallocations
 The blended rate will result in increased FFS savings (from
$225M) and increased payments to hospitals related to MC
services, based on 2008 utilization (savings will still net to
$225M).
 $225 million (and the $154 million across-the-board
reduction) in gross Medicaid savings will be retained across
both FFS and MC sectors and does not “double-up”.
 Funds will need to be shifted in the Budget to accommodate
this dynamic.
New York State Department of Health
8
Hospital Transition II Pool (Continued)
 A Transition II Pool will be established to provide an additional $150
million over 3 years ($75M/$50M/$25M) to further assist hospitals to
adjust operations consistent with state health care priorities and
revenue streams.

Additional $37.5M for the period 10/20/10 through 3/31/11
 Transition funds will be phased out consistent with Transition Pool
I, however, these monies will be reinvested back into the base price.
 Allocation of these funds will be consistent with Transition Pool I
(setting a threshold floor percentage – 10.45%) based on FFS losses
and allocated through FFS claims only.
New York State Department of Health
9
Hospital Transition II Pool (Continued)
 In year one, the blended base price will be reduced to generate $75M
in additional savings.

The new base price will be $6,202 (from $6,304).
 Includes public facilities, who were previously excluded from
receiving funds from Transition Pool I.
New York State Department of Health
10
Reform Rate Components
Statewide Base Price (SBP)
$6,399
$6,171
$6,202
Institution-Specific Adj Factor
1.0196
1.0323
1.0266
Adjusted SBP
$6,524
$6,370
$6,367
APR-DRG CMI
1.1516
0.7462
0.9272
Pmt/discharge (excl. GME)
$7,513
$4,754
$5,903
Total GME/discharge
$2,791
$1,739
$2,188
Non-Comparables
$402
$86
$225
Avg. pmt/discharge
$10,706
$6,579
$8,316
Total Spending
$3.253B
$2.313B
$5.490B
New York State Department of Health
* The blended rate does not reflect actions enacted in the 2010-11
Budget, including Potentially Preventable Readmissions (PPRs).
The statewide base price includes a reduction of $100 to fund the full
11
first yr. ($75M) of the transition II pool.
Impact of Reform on Transition Hospitals
(Dollars in Millions)
# of
Hospitals
Total
Impact
Transition
Funds*
Net Impact
12/1/2009 Rate (FFS and MMC)
66
($219.1)
$75.0
($144.1)
10/1/2010 Blended Rate (FFS and MMC)
78
($322.8)
$150.0
($172.8)
10/1 Blended Rate (FFS and MMC)
Original Transition ONLY
7
($4.3)
$4.4
$0.1
10/1 Blended Rate (FFS and MMC)
Transition II ONLY
12
($112.5)
$23.7
($88.8)
10/1 Blended Rate (FFS and MMC)
Both Transition Pools
59
($206.0)
$121.9
($84.1)
*Transition II allocation based on FFS losses only.
New York State Department of Health
12
Potentially Preventable Readmissions
(10 NYCRR 86-1.37)
 A Potentially Preventable Readmission (PPR) is a readmission
within 15 days that is clinically related to the initial hospital
admission
 Excludes behavioral health at the initial admission; major or
metastic malignancies; multiple trauma; burns; neonatal;
obstetrical; and discharges with a status of “left against medical
advice”
 Includes readmissions for fee-for-service and Medicaid
managed care
 Will begin discussions with stakeholders to incorporate
behavioral health PPRs beginning 4/1/12
New York State Department of Health
13
PPRs - Methodology
 2010-11 Budget requires this proposal to generate $47M in full
annual, gross, savings (in 2011-12)

$37.1M related to FFS readmissions; $9.9M related to MMC readmissions
 To generate these savings, the following method is used:
 Using 2007 data, a risk adjusted model identifies hospital specific “excess
readmissions” (observed rate is in excess to the expected rate)

A readmission adjustment factor is computed using the ratio of aggregate
payments related to the excess readmissions to the aggregate payments for all
non-behavioral health discharges

This adjustment factor is prospectively applied to the applicable hospital’s
case payment and per diem rates on discharges beginning 7/1/10;
implemented in 10/1/2010 rates.

The reduction % will be applied to the statewide base price, DME, and noncomparables
New York State Department of Health
14
New York State Department of Health
15
Background
 Legislation
 A new inpatient psychiatric reimbursement methodology was passed in the 2009-10
Medicaid reform legislation
 Implementation date
 Initially planned for December 1, 2009
 The executive budget delayed it to April 1, 2010
 Revised start date is October 20, 2010
 Task Force
 The psychiatric payment methodology was developed through a joint initiative with
representatives from DOH, OMH, GNYHA, HANYS
 Goal
 Utilizing a Medicare-like approach, develop a reimbursement strategy to pay more
appropriately for inpatient psychiatric admissions and address length of stay
 Maintain Budget Neutrality
 The operating payments for inpatient psychiatric services under the current system
and under the new methodology will be budget neutral
 Transition
 A $25 Million annual investment as a result of rebasing to 2005 costs will be used for
transitioning to the new methodology
New York State Department of Health
16
Impetus for Change:
Current System’s Weaknesses
 Cost base is 1981, non-Medicare payers
 Outdated
 Inpatient costs attributable to Medicaid patients not recognized
 Same per diem rate throughout the stay
 Higher costs for initial work up, and lower costs later in the stay not
recognized
 No incentives for length of stay reduction (NYS is twice the national
average)
 Doesn’t recognize different levels of mental health care service
provided
 Doesn’t recognize observable , systematic cost differences in Office of
Mental Health’s priority areas
 Rural hospitals, adolescents, presence of mental retardation, and
physical comorbidities
 Payments based on hospital-specific costs do not encourage efficiency
New York State Department of Health
17
New Methodology:
Highlights
 Applicable to Article 28 exempt psychiatric inpatient hospitals and






exempt units
Major constructive change in the way inpatient psychiatric rates are
calculated and how Medicaid claims are paid after October 1, 2010
A modernized approach making reimbursement more adequate and
equitable
New system will pay for the level of service rendered, address length of
stay variance, and will be more consistent with how Medicare
reimburses for this service
Inpatient psychiatric per diem rates will be based on 2005 Medicaid
operating costs (per statute)
Additional investment of $25M annually over existing inpatient
psychiatric expenditures as provided for in the 2009-10 budget to assist
hospitals to transition to the new methodology
Transition will gradually be phased into the statewide price over the
period 10/20/2010-12/31/2014
New York State Department of Health
18
Data Overview
Legislation requires use of 2005 Medicaid costs
 ICR: Best source for provider cost
 SPARCS: Best source for all-payer case-level data
 Basis to match case-level charges to ICR
 Development of departmental ratios of cost to charges (RCCs)
 More complete reporting of charges compared to 2005 MMIS
 More secondary diagnoses reported compared to 2005 MMIS
 MMIS: Best source to determine psychiatric cases
 One year’s worth of data not reliable enough to
estimate systematic determinants of cost
New York State Department of Health
19
Model Development:
Operating Payment Adjustments
 Facility-level adjustment: WEF
 To account for wage differences in hospitals’ labor markets
 For Oct. 1st: same as acute care Medicaid payment system
 ECT rate
 Use the federal rate in effect during the first half of 2010: $281
 Severity of illness:
 Based on DRG relative weights


Calculated specifically for psychiatric patients
Uses hospital-specific relative value (HSRV) method
 APR-DRGs to account for four severity levels
 Consistent with acute care weight methodology
 All other adjustments:
 Regression based
New York State Department of Health
20
DRGs for Medicaid Psych Patients
with Cost Estimates, 2005-2006
DRG
Degenerative Nervous System Disorders Exc Mult
Sclerosis
Nontraumatic Stupor & Coma
Cases
Days
16
4
Postpartum & Post Abortion Diagnoses w/o
Procedure
19
Other Antepartum Diagnoses
92
Mental Illness Diagnosis w O.R. Procedure
66
Schizophrenia
16,882
Major Depressive Disorders & Other/Unspecified
Psychoses
11,776
Disorders of Personality & Impulse Control
Bipolar Disorders
DRG
945 Organic Mental Health Disturbances
33 Childhood Behavioral Disorders
334 Eating Disorders
1,387 Other Mental Health Disorders
Drug & Alcohol Abuse or Dependence, Left Against
Medical Advice
Alcohol & Drug Dependence w Rehab or
368,687
Rehab/Detox Therapy
2,315
156,455 Opioid Abuse & Dependence
200
1,796 Cocaine Abuse & Dependence
12,372
184,020 Alcohol Abuse & Dependence
Depression Except Major Depressive Disorder
5,662
56,479 Other Drug Abuse & Dependence
Adjustment Disorders & Neuroses Except Depressive
Diagnoses
1,539
12,967 Non-Psychiatric DRGs
Acute Anxiety & Delirium States
New York State Department of Health
541
Cases
Days
593
13,284
2,935
55,044
129
3,200
176
3,037
145
997
42
784
686
6,186
968
7,355
629
4,899
420
3,225
209
2,512
3,896
Note: Medicare DRG "psychoses" is split among "schizophrenia," "major depressive disorders &
other/unspecified psychoses," and "bipolar disorders" under APR-DRG system.
21
Adjustment Factors for Day Intervals &
Interrupted stays
 LOS Scale:
 Days 1-4 = 1.20
 Days 5-11 = 1.00
 Days 12-22 = 0.96
 Days 23 & over = 0.92
 Interrupted Stays:
 Readmissions to same hospital within 30 days
 Payment for first day will be considered day 4 of the stay on
the scale and pay @ 1.2
 Day 2 will move to 100%
New York State Department of Health
22
Comorbidity Adjustment Factors
 Mental retardation as a secondary diagnosis
 Adjustment factor = 1.06
 One other medial/physical comorbidity
 Uses ICD-9-CM codes reported on the patient bill
 Considers secondary diagnoses that are complicating
conditions (CC/Major CC) under the MS-DRG system
 Based on hierarchical condition categories (HCCs) used
by various Medicare risk-adjustment methodologies
 18 comorbidity groups
 Applies the highest adjustment factor if there are more
than one comorbidity present
New York State Department of Health
23
Comorbidity Categories
Category
Adjustment Factor
Cancers
1.09
Protein-Calorie Malnutrition
1.08
Disorders of Fluid/Electrolyte/Acid-Base Balance
1.06
Other Endocrine/Metabolic/Nutritional Disorders
1.14
Other Hepatitis and Liver Disease
1.09
Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders
1.10
Other Musculoskeletal and Connective Tissue Disorders
1.06
Blood Disorders
1.11
Other Developmental Disability
1.20
Brain/Head Injury
1.14
Cardio-Respiratory Failure and Shock
1.16
Acute Coronary Syndrome
1.40
Stroke/Occlusion/Cerebral Ischemia
1.21
Respiratory Illness
1.07
Other Eye Disorders
1.12
Renal Disease
1.10
Complications of Medical Care and Trauma
1.13
Major Organ Transplant Status
1.18
New York State Department of Health
24
Summary of Payment Model
Rate Components
•
•
Statewide Price
Adjusted by
Hospitals’ WEFs
Rural adj. factor=1.23
LOS Scale
Days 1-4=1.20
Days 5-11=1.00
Days 12-22=0.96
Days 23 & over=0.92
APR-DRG Weight
(23 DRGs w/ 4 severity
levels each)
ECT
$281 per treatment
adjusted for hospital’s
WEF
Payment Factors
Age:
(17 & under=1.08)
(18 & over=1.00)
x
Mental Retardation=1.06
Non-Operating
Per Diem
(Capital + DME +
Transition if applicable)
Comorbidity Factor
(to address both physical &
mental health)
18 comorbidity categories
with various payment
factors
Final total payment
Note: Physician fees will be paid separately
New York State Department of Health
25
Payment Calculation Example
Parameter Variable
Statewide per diem rate
Facility-level
Labor Cost Adj.
Wage equalization factor (WEF)
Adjustments: Same Population Density Rural location
for All Patients
Composite facility-level adjustment factor
APR-DRG
APR-DRG relative weight based on HSRV methodology
Pediatric case
Mental Retardation Diagnosis Present
1
Cancers
2
Protein-Calorie Malnutrition
3
Disorders of Fluid/Electrolyte/Acid-Base Balance
4
Other Endocrine/Metabolic/Nutritional Disorders
5
Other Hepatitis and Liver Disease
6
Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders
7
Other Musculoskeletal and Connective Tissue Disorders
Patient-level
Comorbidity
8
Blood Disorders
Adjustments:
Adjustments: Apply
9
Other Developmental Disability
Different for Each
the maximum of the
10
Brain/Head Injury
Patient
adjustments if patient
11
Cardio-Respiratory Failure and Shock
has multiple
12
Acute Coronary Syndrome
comorbidities
13
Stroke/Occlusion/Cerebral Ischemia
14
Respiratory Illness
15
Other Eye Disorders
16
Renal Disease
17
Complications of Medical Care and Trauma
18
Major Organ Transplant Status
Maximum adjustment
Composite patient-level adjustment factor
Facility & case-specific per-diem operating rate
1
Days 1 through 4
5
Days 5 through 11
Day Groups
Length of Stay
12
Days 12 through 22
Adjustments
23
Day 23 and beyond
LOS and adjusted LOS
Day adjustment factor
Payment based on per-diem rate
ECT payment (adjusted by WEF)
Operating Payments
Direct GME payment
Payment Calculation
Operating payment
Capital payment
Transition payment (TBD)
Total payment
Opcert 700xxxx
23%
DRG
9%
6%
9%
8%
6%
14%
9%
10%
6%
11%
20%
14%
16%
40%
21%
7%
12%
10%
13%
18%
20%
0%
-4%
-8%
753-3
1
1
-
1.02
1.00
1.02
1.06
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.06
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.10
1.00
1.00
1.10
1.16
$ 709.62
$ 281.00
$ 27.00
10
1
10
4.80
6.00
10.80
1.08
1.08
1.02
n/a
$
10
n/a
33.00
4
6
10
Adjustment
$
$ Amount
601.86
$
612.57
$
709.62
$
$
$
$
$
$
$
7,663.88
286.00
615.30
7,949.88
548.20
8,498.08
Summary of Adjustments
Category
Approx. Value of Adjustments (Million Dollars)
WEF
13.3
Rural Adjustment
4.6
APR-DRG Weights
0.3
Pediatric Patients (Under 17 yrs.)
4.9
Mental Retardation Comorbidity
0.4
Other Comorbidities - (use the highest if multiple)
1.5
LOS Scale
3.1
Total
28.1
New York State Department of Health
27
Old vs. New Payment System
Existing System
• Case mix adjusted operating per diem
based on hospital specific cost
New System
• Operating per diem is based on a statewide price
adjusted by hospital’s WEF
• Applies APR-DRG weight (4 severity levels)
• Applies payment adjustments for pediatric cases,
mental retardation, rural hospitals, & physical
comorbidities
•Pays the same operating per diem rate for
each day of service
• Operating per diem adjusted by the LOS scale to
address varying costs at specific intervals
• Separate payment for Electroconvulsive Therapy (ECT)
• Reduced payments for readmissions: For readmissions
to the same hospital within 30 days, the 1st day of the
readmission will be treated as day 4 of the LOS scale with
subsequent days continuing onward
• Capital and DME paid for each day of
service
New York State Department of Health
• 2005 DME per diem rate trended to Oct. 1, 2010
• Capital: budgeted capital expenses divided by expected
days for the rate year
28
Budget Neutrality
(Based on 2006 Case Distribution)
 Currently, the statewide average operating rate is about $637 per day
 This price will be adjusted downward to about $602 to account for the
SIWs, various payment factors and LOS scale in the new methodology
so as to maintain budget neutrality
 Therefore, the existing payments and new payments will be equal in
the aggregate
Operating Payments
Capital Payments
New York State Department of Health
Existing Payments
New Payments
$575.1M
Risk-adjusted payments: $502.3M
ECT payments: $0.2M
DME payments: $72.6M
As budgeted
As budgeted
29
Fiscal Impact
 Without further adjustments, there would be
approximately $46m redistribution of payments
 Mitigating factors:
 The State is investing additional $25M into the system
 Two of the units with large losses already closed
 Allocation of $25M investment:
Period
Transition
Statewide Rate
10/20/2010 – 12/31/2011
$25M
$0
1/1/2012 – 12/31/2012
$17M
$8M
1/1/2013 – 12/31/2013
$8M
$17M
1/1/2014 – 12/31/2014
$0
$25M
New York State Department of Health
30
Distribution Method of
$25M Transition Fund
 50% (12.5M) based on revenue loss
 Transition dollars will be allocated such that hospitals will
not lose more than approximately 5% revenue from the
existing payments to the new payments in year 1
 Same method as acute transition
 50% (12.5M) based on payment to cost ratio
 Transition dollars will be allocated to hospitals whose costs
are well above their revenues under the new methodology
based on 2006 data
 Thresholds for distribution will be published when final
statewide rate is determined
 Transition funds will be paid through rate adjustments
New York State Department of Health
31
Future Updates
 Rebasing
 There will be more frequent rebasing of cost data in the
future, similar to the acute methodology, including updating
the base year, service intensity weights, the payment factors,
the LOS scale, and the ECT rate
 Wage Equalization Factor (WEF)
 In the future, DOH will consider recalculating WEFs for the
inpatient psychiatric rates that will be based on psychiatric
data only.
 If psychiatric only WEFs are implemented, DOH will
simultaneously recalculate and implement the acute WEFs to
exclude the psychiatric wage and fringe data.
New York State Department of Health
32
FMAP Contingency Reductions
 Section 313 of the Laws of 2010
 Gross amount of reduction for local shares @ $282M
 All Medicaid payments to be reduced for claims processed
on or after 9/16/10 – 3/31/2011
 Cycle 727
 Check dated 9/27/10
 Released on 10/13/10
 Exemptions:
 HEAL $’s
 FQHC’s
 Other Federal mandated payments (IHS, Refugees, etc.)
 Reconciliation
New York State Department of Health
33
DSH Audit Update
 Process:
 Questionnaire:
 Asking for data related and supporting the DSH
assessment
 Desk vs. Field Audits
 Hospitals selected for field audits have been notified
 KPMG will schedule time at facility to review more
details of data
 Deadlines are critical to meet
New York State Department of Health
34
DSH Audit Update
 Timeframes for future years:
 2008:





Data to be provided before end of year – What should that include?
Information due by March 31, 2008
Working with KPMG to develop tool to collect
Audits due to be completed 9/30/2011
Report due 12/31/2011
 2009 – 2010
 Similar time frames as 2008
 2011 – Initial year which new method will actually apply
 Data issues at hospital level need to be corrected:
 Charges on claims – critical to capture all costs related to
Medicaid, Medicaid managed care and uninsured
New York State Department of Health
35
New York State Department of Health
36