* HFMA staff and volunteers determined that this product has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this product. ©2013 Executive Health Resources, Inc. All rights reserved. AHA Solutions, Inc., a subsidiary of the American Hospital Association, is compensated for the use of the AHA marks and for its assistance in marketing endorsed products and services. By agreement, pricing of endorsed products and services may not be increased by the providers to reflect fees paid to the AHA. Utilizing PEPPER and Data Analysis to Enhance Your Compliance Efforts Ralph Wuebker, MD, MBA Chief Medical Officer Executive Health Resources 1

Agenda Current PEPPER PEPPER changes? Data metrics suggestions Commercial payer data review 2

3 Valid Admissions – What Changed? OLD “Rules” Expectation of 24 hour stay Physician order a best practice NEW “Rules” Expectation of 2 midnight stay Physician order required Medical Necessity Certification

2-MN Exceptions Exceptions to a 2 MN Expectation –Inpatient Only List –Mechanical Ventilation Initiated During Present Visit Exceptions after 2 MN Expectation –Unexpected Death –Unexpected Transfers –Departure Against Medical Advice (AMA) –Unexpected Early Recovery 4

* HFMA staff and volunteers determined that this product has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this product. ©2013 Executive Health Resources, Inc. All rights reserved. AHA Solutions, Inc., a subsidiary of the American Hospital Association, is compensated for the use of the AHA marks and for its assistance in marketing endorsed products and services. By agreement, pricing of endorsed products and services may not be increased by the providers to reflect fees paid to the AHA. PEPPER Overview 5

6 PEPPER originated in 2003 Compares your Hospital to national (first priority), MAC/FI jurisdictional, and state statistics PEPPER statistic = # of targeted cases / # of related cases (must have 11 targeted cases per quarter to appear in PEPPER) Rolling 3 years of experience updated quarterly (CMS FY starts Oct 1) Payment error targets in the PEPPER: (1) MS-DRG Validation and (2) Medical Necessity Significantly expanded starting Q4-2010

7 What the Pepper is Not Does not monitor outpatient services, such as observation care or outpatient procedures – Except for 1 target that includes both inpatient and outpatient cardiac stents Does not include Medicare Advantage (HMO) claims or other payers Does not compare hospitals by size, demographics, or type of services

PEPPER Categories DRG validation and coding Short stay diagnoses Symptom based diagnoses Misc

9 DRG Validation Ratios (Example: Simple Pneumonia) Count of Discharges for MSDRGs 193, 194 (simple pneumonia with CC or MCC) Count of Discharges for MSDRGs 190, 191, 192 (COPD with or without CC/MCC) plus Count of Discharges for MSDRGs 193, 194, 195 (simple pneumonia with or without CC/MCC) Higher Severity DRGs All Related DRGs MS-DRG coding is tested in the PEPPER by looking at ratios of higher severity MSDRGs to the universe of related MSDRGs

10 DRG Validation and Coding By Quarter Understanding Your Q PEPPER XYZ Medical Center 2 Note: low threshold includes state outlier statistics

11 Medical Necessity Ratios for 1-Day or 2-Day Stays (Example: Disease Category A) Count of Discharges with (LOS 0-2) or (LOS 0-1) for DRGs relevant to Disease Category A excluding transfers, deaths, left AMA Count of all Discharges for DRGs relevant to Disease Category A Higher Concern Cases All Related Cases Medical Necessity is tested in the PEPPER by looking at ratios of cases with a higher probability of medical necessity concerns to the universe of related cases

12 Medical Necessity Short Stay Categories By Quarter Understanding Your Q PEPPER XYZ Medical Center

13 Medical Necessity Admission Rate Categories By Quarter Understanding Your Q PEPPER XYZ Medical Center

14 Medical Necessity Miscellaneous Categories By Quarter Understanding Your Q PEPPER XYZ Medical Center

* HFMA staff and volunteers determined that this product has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this product. ©2013 Executive Health Resources, Inc. All rights reserved. AHA Solutions, Inc., a subsidiary of the American Hospital Association, is compensated for the use of the AHA marks and for its assistance in marketing endorsed products and services. By agreement, pricing of endorsed products and services may not be increased by the providers to reflect fees paid to the AHA. PEPPER After “2 Midnights”

Changes Coming? No mention from CMS or TMF on planned/scheduled changes to PEPPER Probably low on the “priority list” Variation in hospital interpretation and processes will make for wide ranges in “normal ranges” 16

Potential PEPPER Changes Short stays diagnosis and groups likely to remain –1 midnight IP cases as a category? –2+ midnight IP cases at risk for “gaming” Symptom based diagnosis –Unclear potential impact Readmissions likely to remain PTCA with stent should go away 3 day SNF will continue to be focus area –But and audit area? 17

* HFMA staff and volunteers determined that this product has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this product. ©2013 Executive Health Resources, Inc. All rights reserved. AHA Solutions, Inc., a subsidiary of the American Hospital Association, is compensated for the use of the AHA marks and for its assistance in marketing endorsed products and services. By agreement, pricing of endorsed products and services may not be increased by the providers to reflect fees paid to the AHA. 2 Midnight Rule Metrics 18

19 Measure the “Gray” or Uncertain Cases Cases that are clearly appropriate for Outpatient setting: –No physician expectation of 2 midnight stay –Scheduled Transfusion –Injection / Chemotherapy –Skin Biopsy –Tympanostomy Tube Placement –Dilation & Curettage Inpatient CareOutpatient Care Cases that are clearly appropriate for Inpatient setting or clinical need: –IP only list procedures –Coronary Artery Bypass Graft –Open Appendectomy –Acute Intracranial Bleed –Heart Valve Transplant –Respiratory Failure “Gray” Area – Cases that require individual assessment due to unclear Medical Necessity: -Cases with potential of delay, custodial care of convenience -Is 2 midnights of care reasonable and appropriate Gray Area is expanding

Metric Considerations There are few/no national standards for the 2 Midnight Rule Data trending will put you at the front of the pack Measuring “Obs rates” are probably less helpful than in the past Consider Audit Risk and Revenue Risk categories 20

Audit Risks What cases have the highest audit risk? –IP with LOS < 2MN Many hospitals use Post-Discharge Review to evaluate cases for self-audit Exceptions, Reasonable Expectation of 2 MN stay –IP with LOS 2-3 days Custodial, Delay and Convenience (CDC) Medically Necessary Hospital Services 21

Audit Metrics 1 midnight inpatient rate = 0 and 1 MN IP cases / All (IP and OBS) 0 and 1 MN cases –Refine by removing clear expectation cases IP only list procedures AMA Transfers Death Mechanical Ventilation Initiated During Present Visit –Further refine removing well documented “early recovery” cases Consider reviewing all 1 Midnight cases (pre or post bill) 22

Advanced Audit Metrics Consider special risk areas –2+ midnight Chest Pain with admission on Friday or Saturday Is there a possible delay in testing? –3+ midnight on SNF transfer high risk diagnosis Failure to thrive, fall, etc Or measure by physicians Is there gaming? –Hospital or physician ALOS is greater than norm for select diagnosis Is there care for convenience or custodial? Is 2 midnights of care reasonable and appropriate? 23

Revenue Risk Where are you most likely to miss revenue in the UR process? Without concurrent reviews hospitals risk losing dollars on observation/outpatient cases! Consider: INPT DRG > CC44 with 8 hours obs (APC) > CC 44 with less than 8 hours of obs (No APC) >Post discharge rebill 12x >Claimed denied after 1 year 24

Revenue Metrics 1.> 2 midnight OBS cases 2.Surgical “IP only” procedures billed as OP 3.CC 44 with no APC (<8 Obs hours) 4.Post DC audit Part B rebill 25

* HFMA staff and volunteers determined that this product has met specific criteria developed under the HFMA Peer Review Process. HFMA does not endorse or guarantee the use of this product. ©2013 Executive Health Resources, Inc. All rights reserved. AHA Solutions, Inc., a subsidiary of the American Hospital Association, is compensated for the use of the AHA marks and for its assistance in marketing endorsed products and services. By agreement, pricing of endorsed products and services may not be increased by the providers to reflect fees paid to the AHA. Commercial Payers 26

Commercial Payer Metrics Go beyond denial tracking, be proactive Cross reference: –Payers with highest obs rates –Payers with largest IP/OBS differential Top 3-4 is where to focus resources –Front end review –Appeals 27

Where to Start? 1.Include: 1.All private commercial plans 2.Medicare manage care 3.Medicaid manage care 2.Exclude surgical cases, OB, prenatal, and NICU 3.Average reimbursement for "Medical 0-2 day Inpatient Stay" and "Medical Observation 12+ Hour Stay" for each payor 4.Predominate reimbursement structure for each top payor contracts 5.Calculate Obs rate for each payer 28

Opportunity Analysis Sample PAYER SUMMARY GROUP NAME PAYER NAME CASES IPOBS MEDICAL IP PAYMENTS 0- 2 DAY STAY MEDICAL OBS PAYMENTS 12+ HOUR STAY OBS Rate Target OBS Rate Payment Diff.Opportunity MANAGED CAREPAYOR 11,5751,073502$6,469$1,49432%20%$4,975$930,414 MANAGED CAREPAYOR 23,6772,5871,090$5,869$4,06629%20%$1,803$640,065 MANAGED CAREPAYOR 32,6251,834791$6,102$7,15030%20%-$1,048-$278,765 MEDICARE HMOPAYOR $4,808$9,34318%12%-$4,535-$36,279 ©2013 Executive Health Resources, Inc. All rights reserved. 29

Questions? Ralph Wuebker, MD, MBA Chief Medical Officer 30