BlueCross BlueShield of Tennessee, Inc., an Independent Licensee of the BlueCross BlueShield Association. This document has been classified as public Information.

Hospital Contract Modernization:Business Rules

May 11th, 2011

Course Objectives

By the end of this training, you should understand:

How payment weights were developed under APR-DRGs

How BCBST will pay for regular cases

How BCBST will pay for non-regular cases—outliers, transfers, and short stays

How we calculate revenue-neutral base rates

The APR-DRG conversion package your facility has received

Agenda

Background

Brief review of APR-DRGs

Developing APR-DRG relative weights

BCBST’s APR-DRG payment methodology

Calculating revenue-neutral base rates

BCBST’s APR-DRG V27 Conversion Package for Facilities

Next steps

Questions?

Background

BCBST Commercial NtWrks P & S will be implemented for contract as the come due after July 1st 2011.

VSHP is implementing the APR-DRG methodology for all facilities effective July 1st, 2011.

Background

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Why modernize Facility Contracts ?

Outdated Contracts – particularly VSHP Outdated Relative Weights (VSHP) Payment may no longer correlate to the service. CMS stated in the April 13th, 2007 Federal Register,

“our primary focus in maintaining the CMS DRG is to serve the Medicare population. We do not have the data or the expertise to maintain the DRS in clinical areas that are not related to the Medicare population.”

Payments are better aligned with resources.

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Why All Patient Refined-DRGs {APR-DRGs}?

– Better address children services– Patient age is considered– Birth weight is considered for newborns – Updates to the APR-DRG are more current than the CMS MS-

DRG

BCBST enrolled age byline of business FY09

0 0.1 0.2 0.3 0.4

Age Group

1 - Initial visits andimmunizations (0 - 2)

2 - Pre-school / secondary visitsand immunizations (3 - 5)

3 - Growth years (6 - 18)

4 - Young adult (19 - 35)

5 - Mature adult (36 - 50)

6 - Older adult (51 - 65)

7 - Senior adult (66 +)

Medicaid

Comm

Brief Review of APR-DRGs

APR-DRGs are a clinical, rather than statistical model. Each case is classified based upon its own unique attributes.

APR-DRGs expand upon DRGs and AP-DRGs by assigning to each case a severity of illness (SOI) subclass.

The severity of illness represents the extend of physical decomposition and/or the loss of organ function.

APR-DRGs represent a Clinical Model

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APR-DRG Assignment, Two Distinct Clinical-Based Steps1. A patient is first assigned to a base APR-DRG (e.g.:

APR 139, Other Pneumonia) based upon the primary diagnosis.

2. The patient is then separately assigned two distinct subclasses: severity of illness and risk of mortality. Each subclass has four possible assignment levels:

1 = Minor 3 = Major 2 = Moderate 4 = Extreme

APR-DRG/Severity Assignment

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Each APR-DRG/Severity combination is assigned a relative weight representative of the level of effort and resource consumption required to take care of the classified patient (case).

This relative weight is the basis for payment for approximately 95% of all cases.

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Developing APR-DRG Relative Weights

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Changes in Business Rules due to APR-DRG Implementation

Outlier methodology changes to a cost based outlier.

Transfer payments have been expanded to include more discharge status codes.

Short Stays have been set at 20% of the Network APR-DRG Specific average length of stay for select APR-DRGs in the event of patient death.

Mother and Baby claims will be required to be billed separately.

Weight Development: Data Sets Used

Claims with admission dates between July 1, 2009 and June 30, 2010

BCBST commercial and VSHP claims, excluding:– Coordination of Benefit (COB) claims– Claims that grouped as errors– Claims without final status (no interim bills)– <$250 Allowed $ except neonate and delivery– Discharges that were transfers to another facility

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Used costs rather than charges for weight development

Costs per 2009 Medicare Cost Report (MCR) (using the most recently available MCR as of the October 2010 CMS filing)

Followed CMS as closely as possible for inclusions and exclusions (Schedule C)

Excluded: Schedule A-8-2 CMS excluded physician expenses Direct medical education A-8 adjustments to expenses Non-reimbursable cost centers

Weight Development: Costs

Weight Development: Cost Mapping

Costs are derived from line-level charges.

Charges are converted to costs using facility/departmental-specific Ratio of Cost to Charges (RCC).

These line-level costs are aggregated into case costs.

Each case is then grouped and assigned into one APR-DRG/SEV combination by facility.

These facility APR/SEV costs become the basis for computing relative weights.

BCBST developed one set of APR-DRG Relative weights for the entire network.

In general, weights are developed based on the average relative weight for all facilities for each APR-DRG and severity level combination.

These results are adjusted using a statistical method to ensure that the “costliness” of any one facility does not create over- or under-representation.

Weight Development: HSRV Method(Hospital Specific Relative Values)

Relative Weight =APR/SEV

Average Cost APR/SEVAverage Cost for All Services

Relative Weight Equation

•Cost based

•Used both Commercial and VSHP populations

•APR/SEV cells with no cases used relationships a benchmark database with 20 million BCBS covered lives

•APR/SEV cells with small numbers of cases were compared to the benchmark to assess validity of results

Assign APR-DRG/SEV

and Weight

Assign Case Class

Apply AppropriatePayment

Methodology

How We Calculate Reimbursement Under the APR-DRG System

Payment Under the APR-DRG System

• Transfers• Short Stays• Outliers• Regular Cases

(hierarchical order)

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Assigning Case Class We needed to establish a hierarchy so cases would pay correctly.

Each case is assigned to a class from the following hierarchy:

– Transfers: Inpatient cases transferred from your hospital to another acute care hospital. Payment is per diem based.

– Short Stays: In the event of mortality, inpatient cases with a length of stay that is less than or equal to 20% of the APR-specific network average length of stay (rounded down), provided that such network average length of stay is equal to or greater than five days. Policy may not apply in APR-DRGs where the network average cost of an implantable exceeds 30% of the average cost for the case. Payment is per diem based.

– Outliers: Inpatient cases with a Hospital Case Cost that exceeds the Network Outlier Cost Threshold. Payment includes facility cost above threshold.

– Standard Cases: Any inpatient case other than an Transfer, Short Stay, or Outlier case.

BCBST’s APR-DRG Payment Methodology

APR-DRG 190 Myocardial Infarc

Severity level 1 Minor

APR/SEV Weight 0.8768

Base Rate $7,500

Length of Stay 3

Facility Charge $12,000

Transfer Allowed:Facility Per Diem ($1,874) x LOS (3) = $5,622

Regular APR-DRG Allowed:Case Weight (0.8768) x Facility Standard Rate ($7,500) = $6,576

Final Transfer Case Allowed: Lesser of:Regular APR-DRG Allowed ($6,576) OR Transfer Allowed ($5,622) OR Charge ($12,000)= $5,622

Payment Methodology:Transfer Case Example(Illustrative: does not represent final weights or thresholds)

APR-DRG 136 Respiratory Malignancy

Severity level 1 MinorAPR/SEV Weight 0.7314

Base Rate $7,500

Discharge Disposition 20

Facility Charge $4,500

Actual Length of Stay 2

Network average length of stay20% Network LOS (Short Stay threshold)

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Network APR per diem $1,205

Short Stay Allowed:Facility Per Diem ($1,205) x LOS (2) = $2,410

Payment Methodology:Short Stay Case Example(Illustrative: does not represent final weights or thresholds)

APR-DRG Severity level

APR/SEV Weight

Network Outlier Cost Threshold

Network Length of Stay (Short Stay Threshold)

Network average length of stay

1 1 11.200 $ 510,346 3 15

1 2 11.671 $ 510,346 3 15

1 3 14.032 $ 510,346 3 15

1 4 20.477 $ 510,346 3 15

2 1 12.706 $ 959,724 7 35

2 2 13.083 $ 959,724 7 35

2 3 19.924 $ 959,724 7 35

2 4 23.071 $ 959,724 7 35

Outliers: Inpatient cases with a Hospital Case Cost that exceeds the Network Outlier Cost Threshold

Cost per case will be calculated using facility-specific RCC from Worksheet C of each hospital’s MCR (calculated initially using FY2009 MCR)

Payment Methodology:Outlier Case Example(Illustrative: does not represent final weights or thresholds)

APR-DRG 225 Appendectomy

Severity level 4 Extreme

APR/SEV Weight 3.8046

Network Outlier Cost Threshold

$25,836

Base Rate $7,500

Facility Charges $124,968

Facility Applicable RCC 0.29

Case Cost:Facility Charges ($124,968) x Facility Applicable RCC (0.29) = $36,241

Outlier Allowed:Case Cost ($36,241) – Outlier Cost Threshold ($25,836) = $10,405

Regular APR-DRG Allowed:Case Weight (3.8046) x Facility Standard Rate ($7,500) = $28,535

Final Outlier Case Allowed:Regular APR-DRG Allowed ($28,535) + Outlier Allowed ($10,405) = $38,940

Payment Methodology:Outlier Case Example(continued)

APR-DRG 225 Appendectomy

Severity level 2 Moderate

APR/SEV Weight 1.0132

Facility Standard Rate $7,500Facility Charge $11,300

Regular APR-DRG Allowed:Facility Standard Rate ($7,500) x APR/SEV weight (1.0132) = $7,599

Final Standard Allowed: Lesser of:Regular APR-DRG Allowed ($7,599) OR Charge ($11,300) = $7,599

Payment Methodology:Regular Case Example(Illustrative: does not represent final weights or thresholds)

Calculating Revenue Neutral Base Rates

Concepts

1. Cases are classified into one of four case types based upon the following hierarchy:

Transfer Short Stay Outlier Regular case

2. Allowed dollars and APR-DRG weights from regular cases and the regular case portion of outlier cases are used to determine a base rate. Trend is added for mid-period contract changes.

3. Transfers and short stays are priced at the network APR per diem rate.

4. Projected outlier add-on dollars are considered ‘pass-through’ in this equation due to the random occurrence of these types of cases.

5. Differences in projected allowed due to a change in the methodology for short stays and transfers will be adjustments to the base rate.

6. Revenue neutrality is accomplished at the product level: Commercial Network P and S, combined. VSHP TennCare, BlueCare, CoverTn, separately.

Example

Revenue Neutral Impact Report*

*Displayed for commercial only but will be distributed by product.

Data Period Allowed

•Cases are displayed by case type.

•The amount of trended current allowed is displayed by case type. Networks S and P (commercial) are shown separately and in total.

•Networks S and P are combined for budget neutrality.

Adjustments

•Trended allowed is adjusted (reduced) by the amount of the outlier add-on and allowed for short stay and transfer cases (per diem cases). The result is the regular case allowed.

•Weights for regular cases and the regular portion of outlier cases are aggregated and displayed.

‘Pure’ Base Rate

The regular case allowed divided by the regular case weights is the ‘pure’ base rate. This is the base rate prior to adjustments for differences between the current and future payments for transfer and short stay cases.

Pure Base Rate = Regular Case Allowed* / Regular Case Weights*

*including the regular case portion of outlier payments

Base Rate AnalysisPure Base Rate $5,263.16

Pure Projected Allowed

•Regular cases (including the regular case payment for outlier cases) are re-priced using the ‘pure’ base rate.

•Projected per diem payments for transfers and short stays are added to the regular cases*.

•The ‘pure’ projected allowed represents the amount of allowed that would have been paid without an adjustment for the differences in per diem cases.

*Projected per diem payments are subject to the ‘lesser of’ case payment or per diem when re-priced using the pure base rate.

Per Diem Adjustments

•The payment for transfers and short stay eligible cases will be a cost based per diem.

•Differences between the data period trended allowed and the projected transfer and short stay allowed will be adjustments to the base rate.

•In the revenue neutral calculation, the per diem payment will be capped at the lesser of calculated per diem or the regular case payment (derived by the APR/SEV assignment and pure base rate).

•Applying the final projected ‘lesser of case payment or per diem’ decision cannot be part of the base rate formula due to the fact that this decision requires the final base rate. Because of this, projected individual case payments may deviate slightly from the budget neutral allowed (this deviation can calculate as more allowed or less allowed depending on the case attributes).

•Overall, BCBST projects .1% in allowed over revenue neutral.

•The projected difference in the per diem payment and the data period allowed due to the change in methodology can be calculated and is credited in the base rate calculation: For Short Stays and Transfer Cases:

Adjustment to = [Trended Current Allowed – Pure / Regular Case Weightsbase rate Projected Allowed]

Final Base Rate

•Together, the ‘pure’ base rate and the adjustment for per diem shortfalls equal the final base rate.

•Network P and S differential base rates are calculated based upon a weighted average of regular case weights and cases.

Revenue Neutrality

•After the final base rate is determined, all regular cases and regular case payments for outliers are re-priced.

•Per diem payments and the outlier add-on portion of outlier cases are added and budget neutrality is achieved for the revenue neutral data period.

Variance

•Variance in total dollars should be -0-.

•For commercial contracts, variance in total dollars is -0- for combined Networks S and P.

•Variance in total dollars is possible between case types.

Re-priced Claims with Final Base Rate

•Applying the final projected ‘lesser of case payment or per diem’ decision may yield variation from budget neutral.

•In this example, the lesser of case payment or per diem yielded a $50 difference.

•Overall, BCBST projects .1% in allowed overrevenue neutral.

BCBST’s APR-DRG V27Conversion Package for Facilities

The BCBST conversion package contains the following:

•Contract Amendment – Deliver by the Field Reps

•Revenue Neutral Impact Report (RNI Report) – In the process of being distribute by email.

•RNI Report Supporting Documentation: “Calculating Revenue Neutral Regular Base Rates Under the APR-DRG V27.0 System” have already been distributed.

•Guide to Understanding the RNI Report•Annotated Example of the RNI Report•Weights, Thresholds, Per Diems

•Data Period Claims and File Description have already been distributed.

Next Steps

Questions?