In keeping with its goal of providing members with high-quality, lower-cost health care, Blue Cross Blue
Shield of NC developed the following methodology to best evaluate the quality and efficiency of partner
facilities. Based on evaluation results, BCBSNC will designate in-network facilities as Tier 1 or Tier 2 for
its 2014 Blue Select plan. This document describes the methodology used by BCBSNC for the Tiered
Network product (Blue Select) for 2014 and is provided for informational purposes only.
Designation Overview
BCBSNC will base its Tier 1 designation on quality and efficiency. Any facility that does not meet the
quality criteria will not be designated. Any practice that meets the quality criteria will also be assessed
on efficiency criteria to determine its tier status.
Please note, tier designation is made at the facility level and only includes In-network Facilities
contracted with BCBSNC. The initial driver of eligibility is the ability to meet the quality standards set
forth in BCBSNC’s Facility-level standards for the tiered network (described below). Facilities that are
unable to meet the quality standard for the network are designated with a Tier 2 status.
Facilities that qualify for Tier 1 based on their quality evaluation will then be evaluated against BCBSNC’s
efficiency criteria (described below) to determine if the organization meets the standards for Tier 1
status. Facilities that meet both the quality and efficiency standards are designated with a Tier 1 status.
Facilities that meet the quality standard, but do not attain the efficiency standard, are designated with a
Tier 2 status.
Tiered Network Product Quality Thresholds for Facilities
For facilities, BCBSNC has introduced a methodology that utilizes Hospital Compare, a database
administered by the Centers for Medicare and Medicaid Services (CMS). Leveraging data downloaded
on January 11, 2013 from the CMS website (http://medicare.gov/hospitalcompare/), each facility was
examined for their quality performance on twelve measures, listed below, as reported in the database.
Measure
1
Hospital 30-day mortality rate for heart attack.
Reporting Period
7/1/08 – 6/30/11
2
Hospital 30-day readmission rate for heart attack.
7/1/08 – 6/30/11
3
Hospital 30-day mortality rate for heart failure.
7/1/08 – 6/30/11
4
Hospital 30-day readmission rate for heart failure.
7/1/08 – 6/30/11
5
Hospital 30-day mortality rate for pneumonia.
7/1/08 – 6/30/11
6
Hospital 30-day readmission rate for pneumonia.
7/1/08 – 6/30/11
7
Heart failure patients given discharge instructions.
4/1/11 – 3/31/12
8
Heart attack patients given PCI within 90 minutes of arrival.
4/1/11 – 3/31/12
9
Heart attack patients given a prescription for a statin at discharge.
4/1/11 – 3/31/12
10
Pneumonia patients whose initial emergency room blood culture was
performed prior to the administration of the first hospital dose of antibiotics.
Pneumonia patients given the most appropriate initial antibiotic(s).
4/1/11 – 3/31/12
Weighted measure representing HCAHPS question "How do patients rate the
hospital, overall?" Response scale 1 (poor) to 10 (excellent). Weighted score
calculated by summing the products of (1*Percent rating 6 or lower),
(2*Percent rating 7 or 8), and (3*Percent rating 9 or 10). Resulting score falls
between 100 and 300, higher value is better.
4/1/11 – 3/31/12
11
12
4/1/11 – 3/31/12
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com
Facilities were awarded one point for each measure on which they reported data and performed
above the 25th percentile. Percentile distributions were calculated using data for all non-government
acute care facilities in North Carolina, plus two in Virginia that are considered eligible for the Tiered
product. Each facility’s earned points were summed and divided by the number of potential points; if
data were not reported for a measure due to low volume, the earned and potential points were both
reduced accordingly. Final scores ranged from 0 to 100% and represent the percent of measures for
which the facility meets the minimum quality standard. Facilities were required to score at or above
67% across measures to be deemed quality eligible allowing them to be assessed on efficiency
criteria to determine tier designation; those scoring below 67% were automatically designated Tier 2.
Please note that BCBSNC will examine quality scores on an annual basis to determine if a facility’s tier
designation should be reclassified based on updated quality information.
Tiered Network Product Efficiency Threshold for Facilities
With the quality standards in place, BCBSNC then analyzed claims to stratify facilities on the basis of
efficiency performance. The objective of this analysis was to identify “automatic” Tier 1 (no proposal
required) and proposal-eligible Tier 2 Facilities.
Facilities were assigned to categories based on bed size, total volume and the provision of certain
types of services including burns, trauma, maternity, hip and knee arthroplasty, spine surgery,
oncology, complex cardiology, and complex neurology. Bed size was obtained from the NC Division
of Health Services Regulation and service volume was determined from claims for current year 2012.
Peer clusters were established using Cluster Analysis, which identifies patterns of similarity in the
selected characteristics and then classifies Facilities into groups, called “Peer Clusters” here forward.
Cluster Variable
Hospital Beds
Total Volume
Maternity
Hip & Knee
Arthroplasty
Spine Surgery
Oncology
Complex
Cardiology
Complex
Neurology
Burns or Trauma
Defined as
Total hospital beds (Source: NC Division of
Health Services Regulation, downloaded
1/30/2013 from
www.ncdhhs.gov/dhsr/reports.htm)
Total volume
Volume of maternity cases / total volume
Volume of hip and knee arthroplasty cases
Dichotomous indicator if volume of spinal
surgery cases => 10
Volume of oncology cases
Volume of complex cardiology cases /total
volume
Volume of craniotomy cases / total volume
Dichotomous indicator if total volume of
trauma or burns => 5
DRGs/MDCs defining service line
N/A
All
MDC 14
DRGs 209, 558, 471, 789, 818, 558, 471,
817
DRGs 756, 755, 558, 807, 884, 806, 865,
864
MDC 17, DRGs 010, 011, 146, 147, 172,
173, 203, 257, 258, 259, 260, 274, 303,
306, 307, 318, 319, 336, 337, 338, 346,
354, 355, 357, 363, 366, 367
DRGs 104, 105, 106, 107, 108, 109, 115,
545, 546, 547, 548, 549, 850, 851, 852
DRGs 001, 002, 530, 738, 739, 879
Burns=MDC 22; Trauma=MDC 25
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com
Next, two metrics of efficiency performance were constructed based on inpatient and outpatient claims
for Facilities within each peer cluster. Data preparation and analytical approaches for the evaluation are
described below.
Inpatient Costs
Analyses were conducted on inpatient case data for services performed between January 2012 –
December 2012. Analysis includes Inpatient allowed facility costs only (i.e. no professional or ancillary
costs) for the following lines of business: Blue Options (Group Underwritten, ASO, State Health Plan,
CDHP), Blue Advantage (Individual, CDHP). Analysis excludes denials, Medicare crossovers, COB, and
State Health Plan retirees. To reduce the effect of outliers, allowed costs were truncated at the 95th
percentile by AP-DRG. Analysis is limited to those AP-DRGs performed at least 30 times at a minimum of
two facilities statewide.
Two inpatient cost metrics were computed for each facility called “observed” and “expected” costs.
Expected costs were determined by calculating the average cost for each AP-DRG within a peer cluster if
there were at least 30 cases in a minimum of 2 facilities; if there was insufficient volume within a peer
cluster, the expected costs reflect the average cost for Facilities statewide. Observed costs are
equivalent to the allowed costs. Observed and expected costs were summed for all cases with sufficient
AP-DRG volume.
Outpatient Costs
Analyses were conducted on inpatient case data for services performed between January 2012 –
December 2012. Analysis includes Outpatient allowed facility costs (POS=22, POS=23) only (i.e. no
professional or ancillary costs) for the following lines of business: Blue Options (Group Underwritten,
ASO, State Health Plan, CDHP), Blue Advantage (Individual, CDHP). Analysis excludes denials, Medicare
crossovers, COB, and State Health Plan retirees.
To reduce the effect of outliers, claims with allowed costs below the 5th percentile by CPT were dropped
and allowed costs were truncated at the 95th percentile by CPT. CPTs were limited to those CPTs
performed at least 30 times in at least 2 facilities statewide. CPTs were further limited to those CPTs
where CPT code is required according to BCBSNC policy titled “Provider Update: Effective April 10, 2012
– BCBSNC Requires CPT and HCPCS Codes to be Included on UB-04 Claim Submissions”. Analysis excludes
CPTs associated with the following revenue code groupings: Pharmacy, IV Therapy, Laboratory,
Pathology, Blood and Blood Components Administration, Processing, and Storage for Blood and Blood
Components, Physical Therapy , Occupational Therapy, Speech Therapy - Language Pathology, FreeStanding Clinic, Hemodialysis - Outpatient or Home, Peritoneal Dialysis - Outpatient or Home,
Continuous Ambulatory Peritoneal Dialysis (CAPD) - Outpatient or Home, Continuous Cycling Peritioneal
Dialysis (CCPD) - Outpatient or Home, Miscellaneous Dialysis, and Other Therapeutic Services.
Observed and expected costs were also calculated for each facility’s outpatient costs. Expected costs
were determined by calculating the average cost for each CPT within a peer cluster if there were at least
30 cases in a minimum of 2 facilities; if there was insufficient volume within a peer cluster, the expected
costs reflect the average cost for Facilities statewide. Observed costs are equivalent to the allowed
costs. Observed and expected costs were summed for all cases with sufficient CPT volume.
Both Inpatient and Outpatient costs were forward-adjusted to reflect each facility’s new fee schedule
increases for the next calendar year once the final summary amounts were tabulated.
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com
For example, if a facility had a $100,000 inpatient observed costs based on calendar year 2012 data, and
had a 4% fee schedule increase effective 4/1/2013, then the Inpatient observed amount for that facility
would be increased to $104,000 for comparison purposes.
Note: Increases are prorated to reflect when the increase went into effect during the calendar year. To
forward-adjust the expected cost metrics, the peer cluster weighted average increase was blended with
the statewide weighted average increase by facility based on how much each group contributed to the
development of that facility’s expected costs.
Once the observed and expected cost metrics were forward-adjusted, the observed cost metric was
divided by the expected cost metric for both inpatient and outpatient to create efficiency ratios. The
efficiency ratios were normalized to ensure that the weighted average for both inpatient and outpatient
in any given peer cluster was 1.0. Finally, each facility’s inpatient and outpatient normalized efficiency
factors were blended using the aggregate allowed Inpatient and Outpatient charges for their peer
cluster.
For example, if peer cluster six had 60% of allowed charges associated with inpatient and 40%
associated with outpatient the inpatient normalized efficiency factor blend would be 60% inpatient/
40% outpatient.
Note: If the normalized efficiency factor for a facility is 1.10 that would imply the facility is 10% less
efficient than the peer cluster average.
Those facilities that fell at or below the lowest 20% of a peer clusters combined normalized efficiency
factor were deemed automatic Tier 1 and all other facilities were deemed to be proposal-eligible Tier 2.
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com
Appendix
Hospital By Peer Cluster
Peer Cluster 1 Hospitals

Carolinas Medical Center

North Carolina Baptist Hospital

Duke University Hospital
Peer Cluster 2 Hospitals

University Of North Carolina Hospital

Carolina East Medical Center

Frye Regional Medical Center

Carolinas Med Center-Mercy

Gaston Memorial Hospital

Duke Health Raleigh Hospital

High Point Regional Hospital

Durham Regional Hospital

Southeastern Regional Medical Center

FirstHealth Moore Regional Hospital
Peer Cluster 3 Hospitals

Cape Fear Valley Medical Center

New Hanover Regional Medical Center

Carolinas Medical Center-Northeast

Vidant Medical Center

Forsyth Memorial Hospital

Presbyterian Hospital

Memorial Mission Hospital 

Rex Hospital

WakeMed, Raleigh Campus

Moses H Cone Memorial Hospital
Peer Cluster 4 Hospitals

Caldwell Memorial Hospital

Margaret R Pardee Memorial Hospital

Carolinas Medical Center-Pineville

Morehead Memorial Hospital

Carteret County General Hospital

Nash General Hospital

Catawba Valley Medical Center

Rowan Regional Medical Center

Haywood Regional Medical Center

WakeMed, Cary Hospital

Vidant Edgecomb Hospital

Wayne Memorial Hospital

Iredell Memorial Hospital Inc

Wilson Medical Center

Lake Norman Regional Medical Center
Peer Cluster 5 Hospitals

Alamance Regional Medical Center

Lexington Memorial Hospital

Albemarle Hospital

Maria Parham Hospital

Angel Medical Center

Martin General Hospital

Ashe Memorial Hospital

Murphy Medical Center Inc

Vidant Beaufort Hospital

Northern Hospital Of Surry County

Betsy Johnson Regional Hospital

Onslow Memorial Hospital

Bladen County Hospital

Outer Banks Hospital

Blue Ridge Regional Hospital

Park Ridge Health

Brunswick Novant Medical Center

Presbyterian Hospital Huntersville

Carolinas Medical Center-Lincoln

Presbyterian Hospital Matthews

Carolinas Medical Center-Union

Randolph Hospital

Carolinas Medical Center-University

Vidant Roanoke-Chowan Hospital
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com

Central Carolina Hospital

Rutherford Hospital Inc

Charles A Cannon Jr Memorial Hosp

Sampson Regional Medical Center

Chesapeake Regional Medical Center

Scotland Memorial Hospital

Cleveland Regional Medical Center

Stanly Regional Medical Center

CMC Blue Ridge Morganton

The McDowell Hospital

Columbus Regional Healthcare System

Thomasville Medical Center

Davis Regional Medical Center

Transylvania Community Hospital

Granville Medical Center

Vidant Chowan Hospital

Halifax Regional Medical Center Inc

Vidant Duplin Hospital

Harris Regional Hospital

Watauga Medical Center

Hugh Chatham Memorial Hospital

Wilkes Regional Medical Center

Johnston Memorial Hospital
Peer Cluster 6 Hospitals

Alleghany County Memorial Hospital

Medical Park Hospital

Anson Community Hospital

Pender Memorial Hospital

Vidant Bertie Hospital

Person Memorial Hospital

Chatham Hospital

Pioneer Community Hosp of Stoke

Davie County Hospital

Vidant Pungo Hospital

Dosher Memorial Hospital

Sandhills Regional Medical Center

FirstHealth Montgomery Mem Hosp

St Luke's Hospital

Franklin Regional Medical Center

Swain County Hospital

Highlands Cashiers Hospital

Valdese General Hospital Inc

Kings Mountain Hospital

Washington County Hospital

Lenoir Memorial Hospital

Yadkin Valley Community Hospital
PO Box 2291 ● Durham, NC 27702-2291
An Independent Licensee of the Blue Cross Blue Shield Association
www.bcbsnc.com