idaho workers’ compensation inpatient, outpatient, asc review may 2008
TRANSCRIPT
IdahoWorkers’ Compensation Inpatient, Outpatient, ASC Review
May 2008
© Ingenix, Inc. 2
Agenda
Overview Introductions History of project
The national hospital environment Deductible ratios Cost to charge ratios
Methodology considerations Objectives: What is desirable in a system? A commercial approach? How other states are tackling the problem How Medicare does it
How does today look? Inpatient Outpatient Need for More Data
Implications
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Project History
Introductions
In 2006, the Idaho Industrial Commission contracted with Ingenix to review physician fee schedules as well as hospital inpatient, outpatient and ambulatory surgical center charges and costs.
The physician project finished in 2007.
This presentation is the result of the numerous meetings during the last 12-18 months among IIC, Ingenix and stakeholders.
The purpose is to share information about possible approaches to a facility schedule. No decisions have yet been made by the Commission.
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The hospital environment
Workers’ compensation does not occur in a vacuum. Medicare has, and will continue, to make major payment
methodology changes– CCI Edits in April 2000– APC Outpatient payment system August 2000– DRG inpatient restructuring 2006-2008– New ASC payment methodology January 2008
Pay for performance– Third party payers are moving in this direction– Medicare performance measures
General move to Medicare-type system For most hospitals, workers’ compensation represents no more
than 3-5% of all claims
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The deductible ratio
Third party commercial payers demand larger discounts.
A hospital’s deductible ratio can be determined from Medicare Cost Reports. It is the amount of money a hospital expects to receive after all discounts.
From 2002-2006 the national median deductible ratio (the discount hospitals expect to provide) has increased from 46.5% to 52.2%.
In Idaho, the ratio has changed from 24.47 in 2002 to 32.92 in 2006.
The deductible ratio is a multiplier, so its impact is greater than a simple subtraction might indicate.
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Cost to charge ratio
Cost to charge ratio (Hospital cost) / (hospital charge) Example: A $1,000 MRI at a hospital with a cost to charge ratio
of 0.447. The estimated cost (to the hospital) for the MRI would be $447.
A measure of a hospital’s charge amount to the hospital’s cost of providing the service
Often called the RCC or CCR There are multiple different RCCs. For illustration, we
considering the facility-wide operating RCC. Calculated and published by Medicare from required hospital
cost reports.
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Why is the RCC important?
It is a meaningful, consistent way of determining whether hospital costs or charges are increasing at a faster pace.
ExamplesYear 1: MRI charge = $1,000. Hospital cost to perform is $500. The cost to charge ratio is 0.500 (500/1000)
Year 2: Hospital raises price of MRI to $1,200. Hospital cost to perform remains same. RCC is 0.416 (500/1200)
Year 3: Hospital costs go up to $800, but charge stays same. RCC is .666 (800/1200)
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Idaho & Montana RCC average comparison
Fiscal year MT ID
2008 .471 .509
2007 .465 .512
2006 .482 .513
2005 .495 .528
2004 .497 .540*
• Migration to Critical Access Hospitals became effective 2001-2003.• From 2004-2007, on a statewide basis, Idaho charges have
outpaced cost increases by 12%.
Source: CMS (Medicare) IPPS Impact File 2002-2007.
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Constant cost illustration
On a national basis, the cost to charge ratio generally has been declining.
Look at how the discounts affect hospitals. We’ll hold a hospital’s cost of the service steady at $1,000 for the last five years. In reality, costs have been going up.
Year Chg RCC Hospital Deductible Net to Cost Ratio Hospital
2002 $1,686 (.593) $1.000 .4649 $9022003 $1,886 (.532) $1,000 .4843 $9742004 $2,012 (.497) $1,000 .4995 $1,0072005 $2,020 (.495) $1,000 .5094 $9912006 $2,074 (.482) $1,000 .5216 $9922007 $2,150 (.465) $1,000 * not yet available
Hospital Cost = Charge * RCCNet to Hospital = (1 - Deductible ratio) * charge
Source: Almanac of Hospital Financial and Operating Indicators 2008
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Where does this leave workers’ compensation?
Nationally, many states have (or had) a system that pays some percentage of charge amount.
Those systems historically worked well where charges and costs were linked.
Medicare, Medicaid, insurers and other factors have diminished linkage between the cost of service and amount charged
When charges are less influenced by the cost of providing the service and more by other factors, percentage discount systems begin to feel the strain.
As the result, a significant number of states are looking at different payment methodologies
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Objectives: What is it that needs to be done?
What components are needed for a successful system? Reduce any inequities so patients are treated in appropriate
settings
Eliminate bottlenecks while maintaining system integrity.
Ensure providers are paid fairly
Create predictable payments for insurers
Craft a system that payers can manage
Create clarity in rules and the simplest possible system for dispute-resolution and on-going maintenance
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How about a PPO or other commercial approach?
Commercial payers often negotiate discounts through PPO or similar arrangements.
Two issues with this in a workers’ compensation environment:
1. PPOs, by their very nature, limit access to care. A patient can go to a non-PPO provider, but the patient pays more in co-pays. In a workers’ compensation case, the patient pays nothing, so there is no mechanism to force a patient to a preferred provider.
2. Workers’ compensation represents a very small portion of any hospital’s business. It is very difficult to negotiate a volume discount when there is no volume.
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2006 Inpatient Splits by Payer Type
Payer-Type Avg Chg % of Volume
Medicare $36,493 32.4%
Medicare HMO $29,404 4.5%
Medicaid $22,607 16.1%
Medicaid HMO $21,914 3.0%
Commercial (Self-Insured, BC/BS) $25,307 18.6%
Commercial HMO $23,796 9.6%
Commercial PPO $26,578 6.0%
Workers’ Compensation $41,148 0.5%
Champus (Tri-Care) $22,925 0.5%Source: Ingenix All-Payer Database
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Facility workers’ compensation approaches
“Home Grown” (New York - Medicaid)– Based on either historic practice or local needs. – Pros: May be best approach for local conditions– Cons: Usually difficult to maintain and update, often have no built-in
growth and/or control mechanisms
No Schedules (Iowa, Missouri)– May be found in states with multiple payers. Market forces decide– Pros: May be most cost efficient if strong competition– Cons: May be most costly if little payer competition. Little or no
standardization.
Percentage discount schedules (Idaho, Vermont)– Relatively common– Pros: Easy to understand, implement– Cons: Holds no real cost containment methodology.
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Facility workers’ compensation approaches, continued
Fee schedule system (Nebraska)
– Standardized approach based on a fee schedule system with flat or variable rates for different types of services.
– Pros: May work well for well-defined services
– Cons: Usually difficult to maintain and update, often have no built-in update methodology, may become complex with multiple schedules or tiers
Commercial percentile reimbursement (Illinois)
– Based on survey of commercial payer reimbursement rates
– Pros: Maybe most up-to-date, based on survey / contribution / federal data, maybe most reflective of market conditions
– Cons: May appear less transparent. May have insufficient data in some states or for less frequently used codes.
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Facility workers’ compensation approaches, continued
Cost-Plus System (Rhode Island, Oregon)
– Hospital charges are reduced to cost using RCC. Hospital is then reimbursed at cost plus some percentage
– Pros: Easy to understand, update– Cons: Doesn’t prevent code/DRG migration. No outlier formula. Can
be manipulated. There is no incentive to control costs.
Baserate/relative weight system (Mississippi, Georgia)– Follows standardized payment methodology ala Medicare– Pros: Fairly easy to update, relatively transparent to all– Cons: Establishing appropriate baserates usually needs discussion
Medicare (Texas, West Virginia)– Follows standard Medicare methodology– Pros: Medicare does most of the rate-setting work, transparent– Cons: Hospitals usually regard Medicare payments as too little
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Some definitions
DRG: Diagnosis Related Group, a grouping for a specific inpatient case. There are many different types of DRG grouping systems; right now, we are using Medicare’s DRG groupings.
MS-DRG: Medicare's revised DRG system that does a better job of recognizing the severity of illness of a patient. Went into effect Oct. 1, 2007.
Baserate: A term that is similar to that of a conversion factor or multiplier that is used in hospital inpatient. The 2007 baserate was $4,874.
Relative weight: How expensive a case is in relation to other cases. CMS sets relative weights for DRGs based on the cost of the DRG compared with other DRGs.
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Medicare inpatient payment methodology
MS-DRGs are a way of bundling services 745 MS-DRGs numbered from 001 to 999
Based on primary and secondary diagnosis codes and demographic information (sex, discharge status)
Calculating an MS-DRG Payment Every MS-DRG is assigned a relative weight. Relative weight x MS-DRG baserate = MS-DRG Payment
MS-DRG payments are split into two components, a wage indexed labor component and a non-labor component which is not index adjusted. The percentage split between the wage indexed and non-wage indexed depends on whether a hospital is classified as rural or urban.
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Example breakdown
DRG 497, relative weight 3.8192 Maine Medical Wage Index 0.9862 Wage Adjusted DRG Portion $3,022.18 Non-labor DRG Payment $1,852.31 Total DRG baserate $4,832.78 DRG Payment = $4,832.78 * 3.8192 $18,457 Disproportionate share amount $1,507 Indirect Medical Education amount $2,727 Total operating payment $18,457 + $1,507 + $2,727 = $22,692 Total capital payment = $1,881 Total payment $24,574
Note that the “effective” baserate is $6,434. That is the total payment ($24,574) divided by the relative weight (3.8192)
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Medicare payments
Amounts not included Outlier amounts are not included in the Medicare calculation as
outliers typically are one-time events and problematic to estimate in advance. Without knowing the specific facility and case, it’s difficult to calculate a precise outlier amount.
Other payments that occur at the cost report level are not included. These may include items such as graduate medical education and other specialized programs.
Critical Access Hospitals – smaller, rural hospitals – are paid at 101% of reasonable cost.
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A core Medicare issue for hospitals -- Underpayment
A 2005 Pennsylvania Health Care Cost Containment Council study found that Medicare underpaid hospitals by 16 percent.
A 2006 Milliman Inc. study for Blue Cross/Blue Shield in Washington found that Medicare underpaid Washington state hospitals by about 15 percent.
Data in the Milliman study also implied – on a statewide basis for Washington – that commercial insurers were paying 49.9% above Medicare.
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Charge compression -- why it affects workers’ comp
Charge compression is where hospitals have different markup ratios depending on how expensive the item is.
A bandage costs $1. A hospital charges $10. The markup ratio would be 10 ($1 x 10 = $10) while the RCC would be 0.10 ($1/$10 = .10)
A stainless steel replacement hip might cost $10,000 and a hospital charges $15,000. The markup ratio is 1.5 ($10,000 x 1.5 = $15,000) while the RCC is 0.667 ($10,000/$15,000).
Charge compression comes about because both items are reported in the same place in the Medicare Cost Report.
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RCCs work at the cost report level
On a national, Medicare-wide basis, charge compression averages out.
Broadly speaking, an MS-DRG’s relative weight is based on the national median cost of performing the service.
However, if a hospital doesn’t mirror the national average for types of cases on which MS-DRG weights are based, charge compression comes into play.
If everything were priced at the same markup ratio, charge compression would not be an issue. Hospitals don’t work that way, so charge compression has a greater impact on hospitals with expensive medical supply costs.
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Charge compression and implantables
Charge compression essentially skews the relative weight of an MS-DRG when expensive implantables are involved and the hospital’s services differ dramatically from the “average” hospital.
Proportionately, workers’ compensation cases tend to have a higher percentage of implantables, and they tend to be more expensive implantables.
As the result, in a workers’ compensation payment methodology, it may be desirable to have an implantable methodology that provides additional payment for more expensive implantables.
Otherwise, a hospital can’t sell enough $10 bandages to make up for the $10,000 hip, especially in a workers’ compensation environment.
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Outliers and payments
On a system-wide basis, two things affect the overall system expenditures for hospital inpatient: Baserate Outlier trigger point and outlier payment
If an outlier trigger point is some function of the normal payment amount, then the baserate affects where outliers are triggered.
System Cost = Routine payments + Outlier Payments
We will examine outliers and baserates more fully once we consider some data.
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How does today look?
To understand the existing environment, IIC and Ingenix looked at:
The Idaho State Fund supplied inpatient admissions for 2006 and for 2007. The 2006 data contained more elements allowing more analysis, but 2007 was sufficient for a results-check.
For outpatient, state fund data encompassed approximately
100,000 services provided in 24,000 claims
Ingenix’s proprietary all-payer inpatient database. This database consists of 50 million inpatient claims covering roughly 200 million people. Of these, approximately 500,000 represent workers’ compensation claims;
Various Medicare databases including Medicare’s 100 percent inpatient claim database and the Medicare Cost Report database.
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Inpatient overall observations
2006 2007
Total Claims 893 ~ 1,000*
Claims after scrubbing 784 726
Claims same DRGS in 2006/07 710
Total Charges $17.6M $16.7M
Total Paid $14.0M $12.7M
Paid/Charge 79.6% 75.8%
* There were claims without an inpatient/outpatient identifier, so it was impossible to establish what type of claim it was. These were excluded.
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2006-2007 Volume Comparisons
Table 13: Top 5 Volumes, 2007 compared with 2006
drg DRG title 2006 2007
243 MEDICAL BACK PROBLEMS 51 85
462 REHABILITATION 30 42
254 FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC
23 39
498 SPINAL FUSION EXCEPT CERVICAL W/O CC 48 39
500 BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC
48 35
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2006-2007 Charge/Paid comparisons
Table 14: Comparison of Charges, Paid between 2007 and 2006
DRG DRG title2007
Avg Chg
2006AvgChg
2007AvgPaid
2006 AvgPaid
498 SPINAL FUSION EXCEPT CERVICAL W/O CC $44,624 $45,519 $33,268 $36,774
544 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY
$27,783 $26,372 $20,806 $19,430
462 REHABILITATION $22,874 $16,262 $19,352 $13,080
243 MEDICAL BACK PROBLEMS $22,565 $18,325 $16,460 $14,678
520 CERVICAL SPINAL FUSION W/O CC $21,799 $23,261 $18,189 $19,331
219 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/O CC
$20,551 $18,669 $15,877 $15,719
445 TRAUMATIC INJURY AGE >17 W/O CC $12,867 $18,238 $7,855 $13,219
254 FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC
$11,286 $12,858 $8,953 $10,444
500 BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC
$11,082 $10,902 $9,327 $9,237
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Baserates
The effective baserate for 2007 was $14,995 which includes outliers.
The effective baserate for 2006 was $14,669 also including outliers.
The “effective” Medicare baserate under Medicare for Idaho hospitals for 2006 was approximately $5,452, but this does not include outlier payments.
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Idaho’s charges were generally less
DRG DRG title2007 ID Avg Chg
2006 ID Avg Chg
Ingenix 2006 WC Avg Chg
498 SPINAL FUSION EXCEPT CERVICAL W/O CC 44,624 45,519 78,181
087 PULMONARY EDEMA & RESPIRATORY FAILURE 40,545 7,068 48,789
544 MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY
27,783 26,372 51,601
462 REHABILITATION 22,874 16,262 40,657
243 MEDICAL BACK PROBLEMS 22,565 18,325 15,739
520 CERVICAL SPINAL FUSION W/O CC 21,799 23,261 43,099
219 LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE >17 W/O CC
20,551 18,669 29,610
236 FRACTURES OF HIP & PELVIS 20,424 16,862 19,883
249 AFTERCARE, MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE
18,626 22,158 25,049
445 TRAUMATIC INJURY AGE >17 W/O CC 12,867 18,238 13,076
254 FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE >17 W/O CC
11,286 12,858 14,172
500 BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC
11,082 10,902 26,010
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Comparison of Top 5 Charges by Bed Size and Percentage Paid
Hospital type Total Charges Total Paid Percent
ID Hospital > 100 Beds $356,533 $285,000 79.9%
$255,715 $198,778 77.7%
$187,862 $159,683 85.0%
$148,070 $115,759 78.2%
$140,560 $102,023 72.6%
Out of state hospital $270,613 $148,567 54.9%
$217,911 $124,535 57.1%
$166,919 $150,227 90.0%
$121,682 $66,803 54.9%
$107,726 $76,942 71.4%
$103,927 $103,927 100.0%
ID Hospital < 100 Beds $78,558 $69,162 88.0%
$57,680 $22,568 39.1%
$53,766 $40,041 74.5%
$49,109 $46,221 94.1%
$48,683 $39,464 81.1%
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Outliers
In the 2006 data, there were 29 cases where the charges were greater than $75,000. In the 2007 data, there were 32 such cases although several of these had a zero paid amount indicating that they might be resubmissions or in adjudication.
A big difference, though, were the expensive cases.
Total Charges Total Paid
2006 cases $4.5 million $3.4 million
2007 cases $3.5 million $2.5 million
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Summary of inpatient year-over-year
Outlier cases play a significant role in the overall hospital inpatient cost. When a better rate is negotiated a better rate, the cost to the system is greatly reduced. .
While Idaho hospitals often are charging less than national averages for comparable workers’ compensation cases, the current payment policy generally is paying more than would be the case in other states.
Montana, for example, is looking at a baserate in the $7,500-$8,000 range. With additional payments for implantables and outliers, the effective Montana rate will likely be in the $9,000 range.
Mississippi uses a baserate that’s double Medicare (~$9,400) but has more restrictive rules on implantables and outliers.
The data tends tends to indicate that hospitals are continuing to increase their charges proportionally faster than the costs. This has been the historic pattern
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One possible approach
Selecting a baserate of 200% to (proposed 2009) national Medicare rate ($10,196) leaves approximately $3 million set-aside for outlier cases and funding for more expensive implantables.
Setting a baserate of 175% to proposed 2009 national Medicare ($8,923) would result in approximately $3.5 million set-aside for outlier cases and funding for more expensive implantables.
One advantage to selecting the national Medicare rate for rate-setting is that it is a well-published amount.
Rules to be crafted: Outlier policy Implantable policy
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Inpatient baserate comparisons
$5,099 Proposed 2009 unadjusted Medicare rate
$5,452 ID “effective” 2006 Medicare rate no outliers
$7,462 Georgia’s 2008 WC rate
$7,735 Montana proposed rate estimate
$8,923 175% of 2009 proposed national adjusted rate
$9,927 Mississippi 2008 rate (2x national Medicare)
$10,196 200% of 2009 proposed rate
$14,996 2007 Idaho effective rate, with outliers
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Medicare outpatient methodology
Medicare uses three methods of paying for hospital outpatient services:
APCs (Ambulatory Payment
Classification System) Fee schedule (labs, DME) Cost or by report basis
ASCs are migrating to APCs
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Understanding APCs
APCs bundle clinical similar services.Key facts
Relative weight x Baserate = Payment Current baserate is $63.70 60% of payment is wage indexed Hospital cost of any CPT cannot be
more than 2x that of any other CPT in an APC group
Certain items may be discounted by 50% if two or more are present
If CPT code not reported, there is no payment
ASCs are to be folded into APC system beginning in 2008.
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Hospital outpatient data overview
Idaho state data represents $22.4 million in total charges encompassing approximately 100,000 services provided. This translates to approximately 24,000 outpatient visits.
Payment was $17.5 million or 78.6 percent.
As may be expected in terms of volume, physical therapy, emergency department and clinic visits represented the 10 highest volume codes.
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Revenue codes presented an issue
Volume Charge Amounts Paid Amounts
Revenue Codes 158,938 $ 9,258,728 $ 8,423,741
CPTs/HCPCS 26,779 $ 9,496,840 $ 6,533,266
Codes with No Weights 5,492 $ 300,519 $ 247,490
"N" Status Codes 7,351 $ 444,519 $ 317,667
"A" Status Codes 61,389 $ 2,941,347 $ 2,034,582
259,949 $ 22,441,956 $ 17,556,748
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Idaho CPT/HCPCS distribution
Percent Charge Percent Services
Fee schedule items 13.1% 60.7%
Codes with No Weights 1.3% 5.4%
Status N Codes 2.0% 7.3%
Codes with Weights (Q-X) 42.3% 26.5%
Revenue Codes, no status code 41.3% n/a
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Baserate comparison
Total Relative Weights 87,445 Effective baserate CPT Codes $74.71 Effective baserate with CPT & Revenue Codes $171.04 Effective baserate, CPT, Revenue & "N" Status Codes $174.68 National 2008 Medicare Base Rate $63.70 % to Medicare, All 274.2%
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ASCsMedicare’s proposal
ASCs would be covered by APC rules/methodology
ASC baserate would be 65% of the hospital baserate (~$41)
ASCs would be allowed to perform any/all services currently allowed in an outpatient setting
Implementation started Jan. 1, 2008. Transition period is four years.
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Ambulatory Surgical Centers
Volume ChargesPaid
CPTs with Weights 1,956 $3,425,560 $2,586,338
CPTs Without Weights 693 $338,211 $301,914
Total 2,649 $3,763,771 $2,888,253
Total Relative Weights ASCs 42,469
Effective baserate CPT Codes $60.90
Effective baserate all codes $68.01
National 2008 Medicare Base Rate ASCs $41.41
% to Medicare,All 164.3%
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One possible inpatient approach
Selecting a baserate of 175% to national Medicare rate ($8,687) leaves approximately $3.5 million set-aside for outlier cases and funding for more expensive implantables.
One advantage to selecting the national Medicare rate for rate-setting is that it is a well-published amount.
Rules to be crafted: Outlier policy Implantable policy
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Outpatient payments
For outpatient, analysis projects that current payment for non-fee schedule items is ~ 275% of the effective Medicare rate. This is a base rate of $174.68 compared with $65.33. This encompasses most surgeries, clinic visits etc.
For fee schedule items (therapy codes etc) maintaining current policy would eliminate need for extensive schedule development which would not significantly affect overall payment amounts either way.
For ASCs, implementing Medicare would bring a base rate of $68.01.
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Implications for hospitals
Inpatient: a likely shift of money from surgical to medical and/or trauma admissions.
Outpatient: Most likely a higher
payment for E&M, some surgical, and therapies. Probably no major impact on fee schedule items (lab codes etc.)
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Implications for payers
More predictability in payments. Current system is function of where, how many and at what charge. Proposed system would be “how many.”
Adds some level of complexity in claims process for inpatient as MS-DRG will have to be assigned.
Provides for better estimates of future hospital cost increases.
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Implications for ASCs
Likely to result in some revenue shifting as some types of surgeries will be revalued higher or lower than before. Impact will depend on ASC and types of surgeries.
Puts ASCs on equal footing compared with hospitals.
Likely to add some complexity to ASC billing and payment transactions.
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What do stakeholders usually want?
A great deal of common ground: Clarity in rules Fairness in payments Simplest “possible” system that serves every
groups’ needs
Hospitals often want: Prompt payments Outlier provisions Reasonable reimbursement
Payers often want: Predictable payments Cost-containment methodology
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Contact
Eric Anderson
Senior Project Analyst
Ingenix
9200 Worthington Rd. Suite 300
Westerville, OH 43082