WYOMING Medicaid APR DRG Implementation HFMA Wyoming Chapter 2018 Spring Conference March 16, 2018

agenda Overview of DRGs Wyoming Medicaid’s APR DRG Methodology Overview of Wyoming Medicaid’s Supplemental Payment Programs Impact of APR DRGs on Supplemental Payment Programs Documentation and Coding Improvement Adjustment Policy Next Steps

Overview of DRGs

What are DRGs? Diagnosis-related groups (DRGs) are used by providers and payers to classify patients into clinically-related “groups” for inpatient services. If two patients had the same DRG, they had similar diagnoses and procedures Example: DRG #225 – Appendectomy DRGs allow providers and payers to categorize complex patient claims data for analysis and payment.

DRG Per Discharge Payment DRGs are used by healthcare payers to set prices for inpatient hospital services. Allow payers to prospectively determine a unique rate for each provider Do not vary based on patient length of stay or provider costs unless extraordinary circumstances result in an “outlier” payment Since DRG payments are fixed, they are consistent with maintaining the financial incentive for hospitals to manage their cost structure and provide services in an efficient manner.

DRG Relative Weights Payers determine a “relative weight” for each DRG that represents the “relative” resource requirements for the service: DRG relative weight of 1.0 indicates average resource requirements (relative to all other inpatient services) Weight examples: Example APR DRG Example Weight* Low DRG weight DRG 640-1 – Normal newborn 0.0969 Average DRG weight DRG 225-2 – Appendectomy 1.0240 High DRG weight DRG 002-4 – Heart transplant 21.2277 *APR DRG v33 National Weight

Typical DRG Payment Calculation Claim Payment Hospital Base Payment Outlier Payment (If claim qualifies) = + Hospital Base Payment Hospital Base Rate DRG Relative Weight Policy Adjustors (if applicable to claim) = x x Note: DRG base payments are sometimes reduced on transfer and partial eligibility claims.

Grouper Versions Leading DRG Groupers Today APR DRGs Are The Most Comprehensive Contain a severity of illness level range of 1-4 within each DRG (resulting in 1,256 different DRGs under version 33) Medicare-Severity DRGs (MS-DRGs): publicly available product designed for elderly population with 754 groups All-Patient Refined DRGs (APR DRGs): 3M propriety product designed for all patient populations

DRGs In State Medicaid Programs APR DRGs MS-DRGs AP or Tricare DRGs Per Stay/Per Diem/Cost Reimbursement/Other * * * * Indicates Moving Toward

Wyoming Medicaid’s APR DRG Methodology

Key areas of focus during Development of APR DRG payment methodology Recognize importance of Wyoming providers in care delivery and payments Recognize role of out-of-state providers in delivering specialty care not available in-state Support payment levels for critical access hospitals Contain outlier payments as percentage of total payments Maintain methodology for the Qualified Rate Adjustment (QRA) and private provider tax payment programs Implementation of APR DRGs is intended to be budget neutral.

APR DRG Model uses SFY 2016 and 2017 data Stays Case Mix Charges LOC Payment Capital Total 16 9,310 0.6539 $277,560,925 $70,747,117 $2,586,970 $73,334,087 17 7,746 0.6353 $206,116,257 $54,829,409 $2,152,381 $56,981,790 17,056 0.6455 $483,677,182 $125,576,526 $4,739,351 $130,315,877 Note: Claims grouped using APR DRG Grouper Version 32 to process ICD-9 and ICD-10 claims. The claim count in SFY 2017 is lower than SFY 2016 because the SFY 2017 dataset does not include the claims runout after June 30, 2017, as it is taken from the QRA-related analyses which are based on dates of payment. Model summary dollars do not reflect supplemental payments or any third party liability. LOC payment totals include outlier payments.

APR DRG Base Rate determination SFY19 APR DRG base rates use a combination of provider-specific rates and a peer group In-State Level II Trauma Centers – two provider-specific rates Free-standing Psychiatric Hospitals – one provider-specific rate All Other Participating Providers – one peer-group rate Category Level II Trauma Provider A Trauma Provider B Free-Standing Psych All Other Providers Base Rate $9,223.30 $7,239.50 $7,034.52 $8,747.93 Stays 2,831 2,684 688 10,853 APR-DRG Case Mix 0.5662 0.6867 0.5577 0.6615 Model Outlier Percent w/o capital 4.2% 7.8% 2.7% 8.1% Note: Based on SFY 2016-2017 claims.

APR DRG Policy Adjustors increase the provider base Payment No more than one policy adjustor per claim is used. MMIS will use max logic to select the largest multiplier. Adjustor Type Adjustor Defined Factor* Service Line Obstetrics 1.50 Normal Newborn 1.90 Mental Health 1.20 Substance Abuse Age Less than 19 years 1.30 *Factor default value equals 1.0

APR DRG Outlier Policy After base APR DRG payment, a claim with estimated cost (cost-to-charge ratio times submitted charges) above an outlier threshold receives an additional outlier payment at 75 percent of estimated cost above this threshold Outlier threshold = two times the standard deviation (SD) by hospital type Hospital Type SD Outlier Threshold Acute Care Hospital $19,665.52 $39,331.04 Critical Access Hospital $6,441.76 $12,883.52 Children’s Hospital $92,985.26 $185,970.52 Psychiatric Hospital $3,094.36 $6,188.72 Note: Based on SFY 2016-2017 claims.

APR DRG Transition Period To prepare for APR DRG reimbursement, the Department will provide hospitals with “shadow pricing” prior to implementation to allow for further understanding of DRG-based payment versus level of care The Department is using a “corridor payment approach” in the first year of implementation (SFY 2019) to support the transition Base rates are set so that estimated payments will not increase by more than five percent or decrease by more than four percent Providers outside of the corridor but at or above 100 percent of estimated costs are not eligible for a corridor adjustment The Department will monitor payments on a quarterly basis

Overview of Wyoming Medicaid’s Supplemental Payment Programs

Wyoming Supplemental Payment Programs Four Wyoming Supplemental Payment Programs Disproportionate Share Hospital (DSH) Payments Nursing Facility Supplemental Payments Qualified Rate Adjustments (QRA) Private Hospital Supplemental Payments

Disproportionate Share Hospital (DSH) Payments Disproportionate Share Hospital (DSH) payments may be available to hospitals that serve a disproportionate share of low income patients DSH funds help to cover hospital costs for Medicaid recipients and uninsured individuals DSH payments have a separate funding source and are not included in the UPL calculation Wyoming is considered a low-DSH state where the total allotment (Federal + State share) is approximately $500,000 each year The supplemental payments available through the Wyoming DSH Program are much lower compared to the QRA and Private Hospital Supplemental Payment Programs: Wyoming’s FFY 2017 DSH payments totaled $496,860 to 11 hospitals The most recent year’s QRA and Private Hospital Supplemental Payments totaled more than $31 million to 30 hospitals

Nursing Facility Supplemental Payments And UPL Calculations Nursing facilities and rehabilitation hospitals are not included in the transition to APR DRGs. Similar to hospitals, supplemental payments are available to Wyoming nursing facilities Aggregate nursing facility Medicaid and supplemental payments may not exceed the provider category UPL. Nursing Facilities must comply with federal requirements that aggregate Medicaid payments under fee-for-service are less than what Medicare would have paid, known as the “Upper Payment Limit” or UPL. The nursing facility UPL gap is calculated as the difference between Medicare’s payment for nursing facility services and the payment for the same services by Medicaid.

Current Supplemental Payment Programs Qualified Rate Adjustment (QRA) Began in SFY 2004, 21 hospitals participating in SFY 2018 Applies to Wyoming non-state governmental hospitals that are owned or operated by a non-state governmental entity Funded by intergovernmental transfers (IGTs), performed by the non-state governmental entity Payments are made annually Private Hospital Supplemental Payments Began in SFY 2017, nine hospitals participating in SFY 2018 Funded by a private hospital tax assessment, which all in-state private hospitals must pay quarterly Payments are made quarterly All Medicaid claims-based and supplemental payments under fee-for-service must comply with federal Upper Payment Limit (UPL) requirements. a

Federal Upper Payment Limit Requirements All hospital Medicaid and supplemental payments must comply with federal requirements that aggregate Medicaid payments under fee-for-service are less than what Medicare would have paid, known as the “Upper Payment Limit” or UPL. States must submit a comparison of Medicaid payments to the UPL annually to demonstrate compliance (“UPL demonstration”). This demonstration must be done separately for inpatient and outpatient hospital services paid via fee-for-service for each of the following hospital types: Private hospitals Non-state government owned hospitals Government hospitals Wyoming performs its UPL calculations to estimate Medicare costs using: Most recently available Medicare cost report for each hospital Claims that correspond to the provider cost report fiscal year Hospital-specific supplemental payments may be reduced across all hospitals within a hospital type, if necessary, to maintain compliance with UPL regulations.

Supplemental Payment Calculation (performed separately for inpatient and outpatient hospital services) Medicaid Deficit $ Estimated Costs Total Claim Payments _ = Supplemental Payment Medicaid Deficit $ = Note: Medicaid annual claim payments plus supplemental payments cannot exceed a provider’s annual billed charges.

Example Supplemental Payment calculation Billed Charges (A) Estimated Costs (B) Total DRG Payments (C) Medicaid Deficit (D = B - C) Supplemental Payment (E = D) Federal Portion (F = E x 0.5) $100,000 $76,000 $70,000 $6,000 $6,000* $3,000 Providers are responsible for providing funds to either the Provider Tax or QRA Program to draw down federal matching funds *Note: In this example, no additional reduction to the supplemental payment was necessary to meet federal UPL requirements

DRGs Impact on Supplemental Payment Programs The Department is not changing the methodology for calculating QRA and private hospital tax supplemental payments In the first year of DRGs, the corridor payment approach limits swings in hospital-specific DRG payments The Department will closely monitor hospital-specific DRG and supplemental payments levels as DRGs are implemented

DOCUMENTATION and CODING improvement (DCI) adjustment Policy

Wyoming Medicaid’s DCI adjustment policy Background Documented case mix is expected to increase upon APR DRG implementation due to better claims documentation; this can result in higher than projected expenditures. Payors typically implement DCI policies when implementing APR DRGs to account for increases in documented case mix. Decision Implement a prospective DCI adjustment factor of 5 percent to all hospital base rates. Rationale Supports budget neutrality and avoids retrospective provider “clawbacks” including the administrative burden of claims reprocessing or recoupment.

DCI ANALYSIS - Overview Payers expect hospitals to make sure their documentation and coding are complete and accurate upon APR DRG implementation to maximize payments Payers often look to hospital case mix changes as a proxy to estimate changes in anticipated payments, understanding that due to outlier, capital and other payment components, the change in case mix is not always equal to a change in payment States that have already implemented a DRG methodology (e.g., MS-DRGs) will experience less DCI when moving to APR DRGs as compared to states moving from a non-DRG methodology to APR DRGs Hospital Case Mix: Sum of the relative values for the DRG weights provided in a hospital divided by the number of DRGs

State experience regarding DCI Many states do not publish their assumptions related to DCI or they arrive at their assumptions through negotiations with hospital leaders Examples of states that separately identified DCI changes from changes in “real” case mix upon implementation of APR DRGs include: Wisconsin Washington Alabama (APR DRGs not yet implemented) Florida

Wyoming Medicaid DCI To estimate the potential DCI impact, Navigant: Reviewed Wyoming Medicaid coding, including comparing the number of diagnosis codes per claim for Wyoming Medicaid’s discharges with a geographically similar state’s ICD10 Medicaid discharges (October 1, 2015 – March 31, 2017). Reviewed DCI-related assumptions and experience in other states Reviewed inpatient case mix assumptions over time

DCI ANALYSIS – Wyoming Detailed Coding Review Key Missing Variables Birth Weight* Underpopulated Variables Diagnosis Code Procedure Code Variables Coded as Expected or Little Relative Impact Age Discharge Status Sex Key claim variables used in APR grouping are often missing or under-populated in Wyoming Medicaid claims as compared to those from the state selected for comparison: * Not required for APR DRG assignment but when reported can change the DRG assignment.

DCI ANALYSIS – diagnosis codes The primary diagnosis is given the heaviest weight in DRG assignment, but all diagnosis codes can impact DRG assignment Wyoming Medicaid’s inpatient claims contain a lower population of primary and secondary diagnosis codes as compared to those from the state selected for comparison

Case Study Florida transitioned from an inpatient, cost-based per diem reimbursement methodology to APR DRGs in July of 2013 Prospective APR DRG rates included a 5 percent DCI adjustment In the first year following implementation, no additional DCI adjustments were made In the second year, overall case mix increased by 6.6 percent Florida responded by adjusting hospital DRG rates to account for the higher than anticipated DCI (no adjustments to the first year’s claims)

NEXT STEPS

Next steps APR DRG Go-Live (October 2018 – January 2019) APR DRG First APR DRG Full Training APR DRG Shadow Pricing APR DRG Go-Live (October 2018 – January 2019) Questions or comments in the meantime? Please contact Sara Rogers via email at sara.rogers@wyo.gov

contacts Gwyn Volk Justin St. Andre Andrew Vidikan Director 312.252.3349 gwyn.volk@Navigant.com Justin St. Andre Associate Director 312.583.6982 justin.st.andre@Navigant.com Andrew Vidikan Managing Consultant 312.583.2173 andrew.vidikan@Navigant.com Some information provided in this presentation is obtained through use of proprietary computer software and data created, owned and licensed by the 3M Company. All copyrights in and to the 3MTM Software are owned by 3M. All rights reserved. navigant.com