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Aug. 14, 2015
Mr. Ben Ayres
Bureau of Medicaid Policy & Actuarial Services
Medical Services Administration
P.O. Box 30479
Lansing, MI 48909-7979
Email: ayresb@michigan.gov
RE: Project Number 1532 - Inpatient Prospective Capital Payments
Dear Mr. Ayres:
On behalf of its member hospitals, the Michigan Health & Hospital Association (MHA) is
appreciative of the opportunity to provide comments to the Medical Services Administration (MSA)
regarding the above referenced proposed policy. We also appreciate the MSA’s collaboration with
hospitals as part of the hospital reimbursement reform initiative. We believe that the policy and
technical input provided during this process allowed the MSA to address many operational and policy
issues prior to implementing changes, resulting in a better outcome for all parties.
Use of FFS and HMO Claims Data
The MSA had initially proposed to include both Medicaid fee-for-service (FFS) and managed care
organization (MCO) data for calculating the hospital-specific capital rates effective Jan. 1, 2015.
However, due to advocacy efforts by the MHA and hospitals, the MSA opted to not implement this
policy change and instead used only FFS data to develop the Jan. 1, 2015 capital rates, consistent with
historical policy. The MHA is appreciative of the nine-month delay in use of the MCO data particularly
since hospitals would have had inadequate time to adapt to a January 2015 change and its estimated
financial impact of a $35 million decrease. In addition, we were opposed to a Jan. 1, 2015,
implementation since the majority of the financial benefit of reducing capital payments to hospitals
would have accrued to the MCOs and not to the state.
The fiscal year (FY) 2016 Medicaid budget assumes savings of $35 million as a result of using both
FFS and MCO data to develop the Oct. 1, 2015 hospital capital rates. As a result, the MSA recently
released the above-referenced proposed policy to implement this change effective Oct 1.
Prospective Capital Rate
The MSA adopted a prospective capital payment system effective Jan. 1, 2015, which the MHA
supports since a prospective capital payment system adds increased certainty to the payments hospitals
will receive for their FFS capital cost. Based on the above-referenced proposed policy, the MSA may
adjust capital amounts due to significant changes in capital costs that are not reflected in the cost report
used to establish the rate. Hospitals may request a capital rate adjustment by submitting a written
request to the Michigan Department of Health and Human Services Hospital and Clinic Reimbursement
MHA Comments – MSA Proposed Policy 1532
Aug. 14, 2015
Page 2
division. The MHA and hospitals support this provision as hospitals continue to make significant
investments in improving their buildings and other infrastructure and need recognition of the related
capital costs. Without this provision the capital costs related to significant changes would not be
reflected in data used by the MSA until two years later.
Healthy Michigan Plan Implementation and Data
For developing the FY 2016 capital rates, the MSA proposes to use data from hospital cost reports
ending during FY 2014, consistent with the MSA’s use of FY 2014 data for other FY 2016 purposes
including Medicaid Access to Care Initiative and disproportionate share hospital payment allocations.
Since the Healthy Michigan Plan (HMP) was implemented April 1, 2014, hospital cost reports for FY 2014
include data for the HMP population for six months or less with the amount of data inconsistent
depending upon the hospitals’ FYE. Hospitals with FYEs Dec. 31, 2013 and March 31, 2014 would have
no HMP data while those with FYEs June 30 and Sept. 30, 2014, would have three and six months of
HMP data respectively. The HMP adults have different medical needs than individuals historically
covered by an MCO. In past years, the MCO population was comprised primarily of maternity, newborn
and pediatric patients. With the implementation of HMP, today’s MCO population includes many adults
which have more acute medical needs resulting in higher inpatient hospital charges and costs and
capital costs compared to those of the traditional Medicaid MCO population.
Therefore, the MHA requests that the MSA identify a method to adjust the data to reflect a full
twelve months of data for all hospitals.
Cost Report Data Lines Used to Calculate Capital Rate
During the data review process in late 2014, some hospitals reported that there was a mismatch in
routine cost report lines between the Medicare and Medicaid cost report forms. This issue resulted in an
understatement in MCO capital cost in the MSA’s calculation, particularly for specialty units such as
Pediatric Intensive Care Unit (ICU), Burn ICU, Surgical ICU, and Neonatal ICU. The MHA urges the MSA to
ensure that accurate data is used in the capital rate calculation.
Again, the MHA appreciates the opportunity to provide input to the MSA. Again, we appreciate the
MSA’s efforts and involvement with hospitals to collaborate on the above policy changes. If you have
questions or require additional information, please contact me.
Sincerely,
Vickie R. Kunz, Senior Director
Health Finance