Medicaid Hospital Financing 101 Stacy Wilson President February 13, 2017

Overview Background Direct Medicaid payments Supplemental payments Inpatient services Outpatient services Supplemental payments Disproportionate Share Hospital (DSH) program Medicaid 1115 Transformation Waiver payments Incentive payments SFY 2016-17 Block grants and per beneficiary allotments

# Inpatient Beds (Staffed, 2014) Level 1 (Comprehensive) CHAT Members Hospital Location # Inpatient Beds (Staffed, 2014) Trauma Designation Children’s Health Dallas 418 Level 1 (Comprehensive) The Children’s Hospital of San Antonio San Antonio 180 Level 3 (Advanced) Cook Children’s Medical Center Fort Worth 363 Level 2 (Major) Covenant Children’s Hospital Lubbock 73 Level 2 Dell Children’s Medical Center Austin 248 Level 1 Driscoll Children’s Hospital Corpus Christi 162 Level 3 El Paso Children’s Hospital El Paso 122 N/A Texas Children’s Hospital Houston 629

Hospitals in Texas 724 hospitals in Texas Major employer in community 653 general and special 57 private psychiatric 14 State-owned 9 psychiatric 1 psychiatric for youth Texas Center for Infectious Disease 3 university hospitals Major employer in community Economic driver Source: Texas Department of State Health Services

Hospital Ownership Sources: Kaiser Family Foundation; Texas Organization of Rural and Community Hospitals

EMTALA 1986 Emergency Medical Treatment and Labor Act (EMTALA) Medicare-participating hospitals must medically screen individuals seeking emergency services regardless of ability to pay Patients with an emergency medical condition must: Receive treatment to stabilize the condition or Be transferred to a facility that can treat the condition Once condition is stabilized or person is admitted EMTALA obligations end

Texas Medicaid Jointly funded by state and federal governments Texas program started in 1967 Administered by Texas Health and Human Services Commission (HHSC) Entitlement program Government cannot limit number of eligible people who can enroll Medicaid must pay for covered services 4.1M Texans enrolled (10/2016) Source: Texas Health and Human Services Commission

Texas Medicaid – Coverage Texas Medicaid serves: Children Related caretakers of dependent children Pregnant women Elderly People with disabilities  Texas Medicaid does not serve: Non-disabled, childless adults

Medicaid Cost Drivers Source: Texas Health and Human Services Commission

Lower per-person costs Average annual growth rate, 2000-2009 Source: Center on Budget and Policy Priorities

Children’s Hospitals Depend on Medicaid Source: Texas Hospital Inpatient Discharge Public Use Data File, 2014; Center for Health Statistics, DSHS.

Texas Medicaid – Funding Sources ~$0.44 State & Local Government Funds Hospitals, Doctors, Other Providers State general revenue Local hospital district taxes County taxes Other government funds Federal Funds FMAP = Federal Medical Assistance Percentage = $1.00 ~$0.56

Funding Sources (cont’d) Feds pay different share for every state Based on relationship of state’s average per capita income to national average States that are better off get smaller federal share Minimum federal share 50%; current max is 74.63% (Miss.) Texas is 29th

FMAP Reduced Over Time

How we pay for healthcare

Direct Service Payments

Inpatient Rates Prospective Payment System (PPS) Standard Dollar Amounts (SDAs) Percentage of average cost of IP admission General; Children’s; Rural (facility-specific) All Patient Refined Diagnosis-Related Group (APR- DRG) weights Add-ons: geographic wage, teaching, trauma (not for children’s), safety net; no add-ons for rural hospitals because facility-specific rate Inpatient payment does not cover all of a hospital’s cost in providing services

Inpatient Reimbursement IP Methodology SDA Add-Ons APR-DRG Weight Inpatient Reimbursement

Outpatient Rates Percentage of cost High-volume (at least $200K in 2004) 54% high-volume Imaging and clinical lab are paid on a fee schedule – limited to 125% of acute care Medicaid fee Non-emergent ER visits = 65% emergent fee for rurals; 125% of acute care Medicaid fee for office visit for others Hospital Type High-Volume Non-high Volume Children’s State-owned Rural 76% of cost 100% of cost 72.70% of cost All others 72% of cost 68.44% of cost

State Funding for Hospital Payments 2015 Legislature provided $500M in Medicaid rates $129M in Medicaid rate add-on for safety net hospitals (10% set-aside for high performers) $67M for trauma add-on (added to $44M current funding) $25M for rural payments Non-urgent ER (45% to 65%) OP and lab/imaging services at 100% of costs Funded by trauma dollars (except $5M for rural hospital outpatient rates) . NEXT STEPS Work with HHSC on fair and equitable methodologies to reimburse hospitals

Supplemental Payments

Medicaid DSH Established by OBRA 1981 Paid to hospitals that care for “disproportionate share” of Medicaid and low-income patients Amount of funds available set by federal law annually Each eligible hospital has specific limit or cap Paid to approximately 180 Texas hospitals

DSH Eligibility Enrolled as a Medicaid hospital in Texas Have received at least one Medicaid payment for an inpatient claim (other than for a dually eligible patient) that was adjudicated during the DSH data year Apply

Conditions of Participation Must have: At least two physicians with privileges to provide non-emergency OB services to Medicaid enrollees Medicaid IP utilization rate of at least 1% Trauma hospital or seeking designation Agreement to be audited Doesn’t apply to children's hospitals or hospitals operating not offering non-emergency OB services as of 12/22/87

Qualification Hospital must have one of the following: A specified Medicaid inpatient utilization rate; or A low-income utilization rate that exceeds 25%; or A specified amount of total Medicaid days

Medicaid DSH Paid for services provided two years earlier Funded through: Intergovernmental transfers provided by public hospitals Future DSH reductions to pay for coverage expansion under ACA

Proposed DSH Cuts (in billions)

Medicaid 1115 Transformation Waiver

Waiver Components Three components of waiver: Expansion of Medicaid managed care statewide Uncompensated Care Pool Delivery System Reform Incentive Payment Pool

Managed Care

Waiver Funding (in billions) DY 1 (2011-12) DY 2 (2012-13) DY 3 (2013-14) DY 4 (2014-15) DY 5 (2015-16) DY 6/6A (2016-12/17) Total UC $3.7 $3.9 $3.534 $3.348 $3.1 $3.875 $21.457 DSRIP $.5 $2.3 $2.666 $2.852 $15.293 Total/DY $4.2 $6.2 $7.75 $36.75 % UC 88% 63% 57% 54% 50% % DSRIP 12% 37% 43% 46%

Hospital Payments 2016 (in billions)

The times they are a- changing?

Medicaid Funding Summary

Medicaid Operation & Financing State Federal Financing Medicare Medicaid Open- ended Financing Medicaid Per Beneficiary Allotment Block Grant Federal

Illustration: Medicaid Reform Proposal

Medicaid: Federal Spending

CHAT’s Legislative Priorities

Increase Medicaid Outpatient Rates Outpatient services Closer to people’s homes so less time away from work or school to receive services Provided at a lower cost than inpatient services Ensures inpatient capacity Reimbursement Limited to around 70% of allowable costs Not increased since 2007 Important to increase baseline if moving to block grant or per capita cap Incentivize appropriate use of outpatient services with increased reimbursement

Continue Safety Net Add-On CHAT hospitals Pediatric safety net for all Texas children 80,000 inpatient discharges in 2014 Personnel and equipment to treat most medically complex conditions $128M in trauma funds for safety-net add-on for 2016-17; 10% used as quality incentive awards Children's hospitals $24M in safety net add-on payments $8M in incentive payments Trauma funds depleted Use general revenue to make up any gap in funding for 2018-19

CHAT Hospitals Provided Inpatient Care to Children Living in 245 of Texas' 254 Counties, 2014 Counties with Discharges Sources: 2014 Public Use Data File, THCIC – DSHS and Texas State Data Center Counties without Discharges Approximately 4,000 children, less than one-tenth of 1% of the state's 7.1 million children, lived in the remaining 9 counties.

Questions?

Wonky Stuff

State Regulations 1 TAC chapter 355 §355.8052 Inpatient Hospital Reimbursement §355.8056 State-Owned Teaching Hospital Reimbursement Methodology §355.8058 Inpatient Direct Graduate Medical Education (GME) Reimbursement §355.8060 Reimbursement Methodology for Freestanding Psychiatric Facilities §355.8061 Outpatient Hospital Reimbursement §355.8065 Disproportionate Share Hospital Reimbursement Methodology §355.8066 Hospital-Specific Limit Methodology

DSH Qualification Medicaid Inpatient Utilization Rate Total Medicaid inpatient days Total inpatient census days Divide Total Medicaid inpatient days by total inpatient census days for DSH year Different for hospitals inside/outside MSA or PMSA – outside is greater than the mean; inside is at least one standard deviation above the mean Rural hospitals must have a MIUR that exceeds the mean MIUR of all Medicaid hospitals. Urban hospitals must have an MIUR that is at least one standard deviation above the mean MIUR for all Medicaid hospitals.

DSH Qualification Low-Income Utilization Rate Medicaid inpatient hospital payments + Total state and local payments Gross inpatient revenue x inpatient cost-to-charge ratio + Total inpatient charity charges - Total state and local payments Gross inpatient revenue

DSH Qualification Total Medicaid IP Days Each day individual is an inpatient in the hospital (excludes dual eligibles) Must have total Medicaid IP days that are at least one standard deviation above the mean total Medicaid IP days for all Medicaid hospitals (except for hospitals in less-populated counties)

Hospital Specific Limits/Caps DSH hospital-specific limit (HSL) Medicaid costs – payments + Uninsured costs – payments UC hospital-specific limit Calculated like DSH limit but also includes pharmacy, clinic, and physician costs No cap on Delivery System Reform Incentive Payment project payments (other than CMS-approved value)

DSH Compensation Up to three passes of funding to try to maximize federal dollars Pass 2 funding occurs to re-distribute funds that cannot be paid to a hospital that has reached its HSL Pass 3 funds available to rural public hospitals who are below their HSL

DSH Payment After distribution of DSH payments to state-owned hospitals up to their caps, HHSC divides remaining funds into three DSH funding pools Pool 2 Lesser of: (a) remaining DSH funds after Pool 1 and matching federal funds or (b) federal funds from DSH IGTs in Pool 3 Available to all non-state-owned hospitals Pool 1 GR and associated federal funds Available to all non-state-owned hospitals Pool 3 DSH IGTs Available to transferring hospitals only Urban publics Class 1* fund state share of Pass 1 and 2 payments to private hospitals from Pool 2 Each urban public Class 2 funds state share of Pass 1 & Pass 2 payments to that hospital from Pool 2 Each non-urban public hospital funds half of state share of Pass 1 & Pass 2 payments to that hospital from Pool 2 – other half funded by GR Each non-urban public must make up its shortfall if GR (Pool 1) is not half of state share of Pass 1 & 2 payments to that hospital If Urban Class 1 public doesn’t fund full IGT, IGT shortfall distributed across all DSH payments supported by IGT If Urban Class 2 public doesn’t fund full IGT, DSH payment to that hospital reduced to amount supported by IGT If GR from Pool 1 doesn’t cover one-half, non-urban public entity to make up difference; if doesn’t, DSH reduced to amount supported by IGT * Urban publics are divided into two classes: Class 1 = Dallas County, El Paso County, Harris County, Tarrant County, Travis County, and Bexar County Hospital Districts. Class 2 = UMC-Lubbock and Ector County Hospital District

Uncompensated Care UC Pool State-Owned Hospitals Large Public Hospitals* Small Public Hospitals** Private Hospitals Physician Group Practices Gov’t Ambulance Providers Public Dental Practices Allocation to each pool is “UC need,” defined as: State-owned = Amount ≤ Maximum UC payment amount Large Publics = Sum of HSLs – DSH payments + IGT for private hospitals’ DSH payments Small Publics = Sum of HSLs – DSH payments + Rider 38 set-aside Privates = Sum of HSLs – DSH payments + Rider 38 set-aside Physician Groups = UC costs on UC application Government Ambulances = Federal share of UC costs on UC application Dental Practices = Allowable costs – payments * Urban-Class 1 hospitals under DSH rules ** Urban-Class 2 and non-urban hospitals under DSH rules