The document discusses emerging methodologies being developed by the HSCRC to incentivize population health management under a potential CMS model testing demonstration. It describes how existing methodologies like the Admission-Readmission Revenue program and Total Patient Revenue would need to be modified. New approaches under consideration include Population-Based Reimbursement and requesting authority for bundled payments, ACOs, and gain sharing. Significant effort will be required to translate these approaches to an all-payer environment in Maryland.

1. Emerging HSCRC Methodologies
Mary Beth Pohl James Case
Deputy Director, Manager
Research and Methodology KPMG LLP
HSCRC

2. Population Health Incentives under a CMS
Model Testing Demonstration Alter
HSCRC Methodology Focus
• Today’s Discussion:
– Incentives under the Medicare Waiver and under a new CMS model
testing demonstration
– Emerging tools & methodologies for success under a CMS model
testing demonstration
2

3. Healthcare Challenges During Waiver
Negotiations in the 1980s
• Inpatient costs were rising rapidly across the U.S.
– Driver: Medicare and Medicaid cost-based reimbursement
• Medicare, Medicaid, and Maryland did not recognize the costs
of providing care to uninsured as a reimbursable expense.
• Hospitals serving large proportions of non-paying patients
were threatened with insolvency.
– Issues of access for patients
3

4. What Financial Policy Incentives Does
the Medicare Waiver Promote?
• Lower utilization in the inpatient
setting on a per case basis
• Equity in payment across payers
Medicare Waiver Test = – Inability to cost shift, especially from
public to private payers
Expenditures Per Discharge
• Access to care, shared cost of
social goods
• Solvency of efficient and effective
hospitals
4

5. Medicare Waiver Successes and
Limitations
Successes Limitations
• Cumulative growth rate in the • Per discharge cost is the highest in the
Maryland inpatient charge per case has nation
outperformed the nation • Outpatient expenditures not well
constrained
• Maryland has incredible hospital access • The system is volume-based leading
to care for all patient populations to potential overutilization
• Maryland has been innovative in • Difficulty in aligning with physician
system design of care related to cost financial incentives
containment, quality, etc. • Cannot engage in certain CMS
initiatives under the ACA
5

6. What Financial Policy Incentives Does a CMS
Model Testing Demonstration Promote?
• Lower inpatient and outpatient utilization
per capita
• Inpatient and outpatient cost containment
• Equity in payment across payers
Model Testing =
– Inability to cost shift, especially from public to
Expenditures Per private payers
Population • Access to care, shared cost of social goods
• Solvency of efficient and effective
hospitals
• Alignment of incentives across hospital
and professional providers
6

7. The HSCRC’s Role in Enhancing
Population Health
• CMS continues to pursue hospital reimbursement models that
shift operational mindsets to serve populations in geographic
areas with low cost, high quality care.
– Three part aim:
Better health care (enhance patient experience, improve quality)
Better health (healthy lifestyles, wider use of preventative care)
Reduce cost
• Under a model testing demonstration, HSCRC methodologies
must align with drivers to improve population health.
7

8. Model Testing Methods
• Unit rates, annual update factor, and the variable cost factor
• Reasonableness of charges
• Hospital revenue constraint
– Admission-Readmission Revenue (“ARR”)
– Total Patient Revenue (“TPR”)
– Population-based Reimbursement (“PBR”)
• New authorities
– ACOs, Gain Sharing
– Bundled Payments
• Quality
8

9. Unit Rates Underlay HSCRC Methodologies
1980 1990 2000 2010 2012 2013
GIR (1985 – 2000)
TPR (1980 – Current)
CPC (2000 – Current)
ARR
(2012)
PBR
(TBD, 2013)
Unit Rates (1974 – Current)
9

10. Annual Update Factor and
Volume Adjustment
• Under a model testing demonstration, HSCRC regulatory
authority will continue to rely on the annual update factor and
variable cost factor as revenue control levers.
• HSCRC will need to recast application of the annual update
factor and variable cost factor under a population-based
constraint
– Maryland must develop a robust all payer database
10

11. HSCRC Must Also Recast Reasonableness
of Charges (ROC) Methodologies
• Tools to compare hospital charges continue to serve an
important role under a model testing demonstration
• HSCRC must recast the ROC to align with a population based
constraint
• HSCRC is also investigating data sources for national
comparisons
11

12. 31 Hospitals Entered into ARR Agreements for
FY 2012
• Mercy • Anne Arundel Medical Center
• LifeBridge - Sinai • Bon Secours
• LifeBridge - Northwest • St. Joseph Medical Center
• UMMS - Baltimore Washington Medical • MedStar - Franklin Square
Center • MedStar - Good Samaritan
• UMMS - Civista Medical Center • MedStar - Harbor Hospital
• UMMS - Harford Memorial Hospital • MedStar - St. Mary's Hospital
• UMMS - Kernan Hospital • MedStar - Montgomery General Hospital
• UMMS - Maryland General Hospital • MedStar - Union Memorial Hospital
• UMMS - Upper Chesapeake Medical Center • Holy Cross Hospital
• UMMS - University of Maryland Medical • Washington Adventist Hospital
Center • Shady Grove Adventist Hospital
• JHHS - Johns Hopkins Hospital • Peninsula Regional
• JHHS - Johns Hopkins Bayview Medical • Doctors
Center • GBMC
• JHHS - Howard County General Hospital • Frederick Regional Health System
• JHHS - Suburban Hospital • Saint Agnes
12

13. ARR is a Voluntary Revenue Constraint
Program Developed by the HSCRC
• ARR provides hospitals a financial incentive to more
effectively coordinate care and reduce unnecessary
readmissions to their facilities
– Inpatient: all-cause, all-DRG, 30-day readmissions window
– Current focus on readmissions within the facility or within
the hospital system for “linked system hospitals”
• Three year program beginning in FY 2012; currently
in Year 2 of three year agreements
13

14. ARR Builds Upon the Inpatient CPC
to Develop Bundled Weights
• In weight development, HSCRC bundles CPC weights into
Charge Per Episode (CPE) weights
– For a given DRG-SOI, CPE approved revenue is higher than CPC
equivalents
• When grouping hospital discharges, HSCRC credits hospitals
with all weight associated with a 30-day episode of care
window at the initial admission
– Readmissions receive no weight
• A hospitals financially “wins” by reducing readmissions on a
case mix adjusted basis by retaining 30-day CPE weight, while
reducing the costs associated with the readmission
14

15. Using Medicare Data, Maryland has the Nation’s
Highest Readmissions Rate
25.0%
MD
21.6%
Medicare Hospital Readmission Rate 2010
US
20.0%
18.2%
15.0%
10.0%
5.0%
0.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54
Source: Institute of Medicine Geographic Variation Data Base
15

16. Medicare Readmission Rates per 1,000 Beneficiaries
MD US
25
21.11
20.39
20 19.2 19.09 19.06
18.64 18.51
17.97
17.48 17.41
16.3 16.29 15.92
15
15.44 15.04
14.91 14.96 14.64
14.32 14.31 14.3 14.34 14.33
13.77 13.51 13.78
10
5
ARR Program
0
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Source: Delmarva Foundation
16

17. HSCRC Must Seek Exemption from
CMS Readmissions Program in FY 2014
• ACA provides Maryland an avenue to gain exemption from CMS’
Readmissions Reduction Program
– FY 2013 IPPS final rule gives Maryland a pass on applying for the exemptions
• Next year, HSCRC anticipates needing to submit an exemption
request demonstrating how Maryland’s ARR program meets or
exceeds Medicare’s program (savings and outcomes)
• HSCRC and CMS staff discussed Maryland’s program structure
– Maryland’s program viewed as “all carrot and no stick”
– Strong indication that HSCRC must move ARR into model with explicit
Medicare savings to exemption in FFY 2014
17

18. ARR Policy Likely to Evolve
• Modification 1: Modifying ARR into a Shared Savings Model
– Preliminary options:
• Scaling approach that is not revenue neutral while setting the bar at a
threshold in line with low readmission facilities – data challenges
• Target modification –level of modification required, need modeling
• Modification 2: Readmissions Payment Methodology for All
– Hospitals not under an alternative agreement will adhere to payment
methodologies of ARR
• Modification 3: Move one-day stay cases back into CPC/CPE
– ARR “wins” held neutral for decrease in one-day stay cases
Stay Tuned…
18

19. Total Patient Revenue, a Global Budget
Arrangement, is in Place for 10 Hospitals
• Establishes a global budget for all inpatient and outpatient
hospital services for a facility
– Annually, each TPR hospital global budget inflated by the annual
update factor, plus a population adjustment (capped); no case mix
adjustment
• Best serves hospitals with defined catchment areas
• HSCRC developing TPR monitoring tools
– More timely snapshots, merging case mix and financial information
• TPR hospitals in year 3 of three year agreements
– Discussions happening for next TPR agreements
19

20. Population-Based Reimbursement (“PBR”)
• In alignment with CMS’ goals to provide incentives for
hospitals treating populations, the HSCRC has begun
exploring concepts in Population Health Management
• The methodology is still in development but it’s concepts are
as follows.
20

21. PBR Methodology – In Development
• It is important to understand the components of the PBR
concept:
– Geographic area → controls activity (cases and visits) in identified zip
codes
– Hospital spending → includes both inpatient and outpatient services
– Major services lines → responsible only for services that they provide
• Excludes tertiary services
• Excludes specialty services
21

22. PBR Methodology – In Development
Geographic Area
• The defined geographic area must be an area that the PBR
hospital controls
• Control is defined at the zip code level on a percentage basis.
Options under consideration include a range:
– 25% to 75%
• Approximately 50% of the patient activity suggests the PBR
hospital has significant market penetration to influence patient
health
– Less than 50% may not provide significant control
22

23. PBR Methodology – In Development
Hospital Spending
• The PBR encompasses the HSCRC regulated charges in the
PBR zip codes for all hospitals
– It includes both inpatient and outpatient charges
• PBR zip code thresholds could be set using an equivalent case
23

24. PBR Methodology – In Development
Major Service Lines
• PBR hospitals would only be responsible for services they provide
– For example: If the PBR hospital did not provide obstetric services,
they would be excluded from the PBR.
– Currently testing methodologies for service exclusion:
• APR-DRG basis for inpatient services
• CPT/ICD-9 basis for outpatient services
• Other exclusions could include services outside the PBR hospital’s
control. For example:
– Tertiary services (example: certain services provided JHH and UMMC)
– Specialty services (example: certain services provided at Kernan)
24

25. Methods Requiring CMS Authorization
• Under a model testing demonstration, Maryland may request
authority for methods not currently available to the state
– ACOs
– Gain sharing
– Bundled payments
• Maryland’s all payer hospital system provides power of scale to
magnify system savings under ACOs, gain sharing, and bundled
payment initiatives
– We recognize the need of these methods to enhance TPR, PBR, and ARR
– However, translating these to an all payer environment is not well defined;
will require much activity to establish the programs
25

26. Bundled Payments
• Maryland hospitals were not permitted to participate in CMS’
Bundled Payment initiative
• One of the most valuable parts of applying for the bundled
payment initiative was access to the underlying data
26

27. Bundled Payments
• How could bundled payments work in Maryland without the
participation of physicians, post-acute providers, and other
provider entities?
• Bundled payments are not a new concept
– Charge per case
– Charge per episode
– Alternative Rate Methodologies (“ARM”)
27

28. Bundled Payments
• Alternative Rate Arrangements (“ARM”)
– The Commission may permit arrangements to accept financial risk for
the provision of hospital services under certain conditions and
circumstances.
• Capitated contracts
• Global pricing
• Case-rate pricing
• Procedure-based pricing
– Must be based on underlying cost
– Must be available to all payers on the same terms and conditions
28

29. Quality
• Under a new CMS model testing demonstration hospital and
system quality continues to be important
– CMS will require monitoring across a range of indicators including access
to care and patient experience
– CMS also will require reporting
• Continue to move forward initiatives to keep pace with CMS
quality programs
29

30. In Conclusion…
• The State is working with CMS to develop a CMS model
testing demonstration with incentives around population health
management.
• The HSCRC’s tools and methodologies must support the shift
in this operational mindset.
• It will take significant efforts from HSCRC and hospital staff
to develop thoughtful methods to succeed under this new
model testing approach.
30

31. Emerging HSCRC Methodologies
Mary Beth Pohl James Case
Deputy Director, Manager
Research and Methodology KPMG LLP
HSCRC
Mary.Pohl@maryland.gov jcase@kpmg.com