Prospective Payment System: Mr. Atkinson Program Review and Evaluation Health Budgets and Financial Policy

Overview Background PPS Future Next Steps/Issues for consideration

Why Prospective Payment System? Justify Budget Base Budgets on Outputs, not Inputs Provide incentives for good health care practices Rational Distribution of Funds Fund Business Plans Place Accountability for Care at MTF Quantify deviations from plan

How is PPS related to Business Plans? Currently Outputs from Business Plans used for initial allocation Inpatient Relative Weighted Products (RWPs) Mental Health Bed Days Outpatient Relative Value Units (RVUs)

Prospective Payment Budgeting Valuing Business Plans Value of MTF business plans Fee for Service rate for workload produced Rates based on price at which care can be purchased CMAC rates Not MTF costs Computed at MTF level but allocated to services Rolled up to Services

PPS – Where are we PPS applied in FY05 to initial allocation Based on Business Plans 25% Blend with traditional Budget PPS applied at mid-year review Based on most recent 12 months of actuals PPS FY06 allocation implications determined Based on recent Business Plans 50% blend with traditional budget

FY05 Mid Year Summary

Tracking FY06 by MTF

FY06 Mid Year Summary

Future of PPS

Why Expand PPS? Currently PPS only covers portion of MHS budget No value for Ancillary/Pharmacy Non-Industry Standard capture of workload in the MHS No value for Dental Care No value for Indirect Readiness Costs No value for Non-Benefit (“Readiness”) related functions Payment method rewards churn and earn behavior No distinction for outcomes/health management

Ancillary/Pharmacy Ancillary Pharmacy Where are we now How approach Ancillary data in MDR Ancillary tables in M2 How approach Review data Apply weight Determine payment method Pharmacy PDTS data available Ingredient Cost most likely will be used Fill Rate still needs to be determined

Non-Industry Standard Workload Capture Inpatient/Outpatient vs. Institutional/Professional Industry Based Workload Alignment (IBWA) Rounds capture 2yrs old (appx 40% complete) Full Inpatient professional workload capture began this year Facility component of ambulatory capture dependent on Enhanced SADR Full RVU Work RVU Practice RVU Malpractice RVU

Dental/Other Benefit Dental Other Benefits Starting to collect data in central systems Need to review data for consistency across Services Weights likely from CMS/ADA Payments still need to be determined Other Benefits HCPCs Data? Payment?

Non-Benefit Functions Education and Training Workload/Performance measures unknown Data collection does not exist Cost vs. Payment must be determined Indirect Readiness Similar to Indirect Medical Education Multiple method reviews to date with no success Other reviews continuing on AD provider/population/patient Direct Readiness Focus on DHP funding only Some related to enhanced medical care – Military unique RVU Other related to currently undefined/collected functions

Prospective Payment Structure Based on Fee for Service Benefits Pay for services provided not resources consumed Resources tied to workload Concerns Rewards additional workload No incentive for utilization/disease management No incentive for prevention FFS does not necessarily capture entire value of non-provider work

Prospective Payment Structure Based on Enrolled Population Utilization Incentive/Penalty Financial Bonus linked to trend in utilization MTFs keep some of savings generated by decreased utilization Similar to Managed Care Support Contract MTF partially at risk for utilization trend Adjusted for demographics Capitation Value per enrollee MTF at risk for entire health care costs Adjusted for demographics/health risk Concerns Catastrophic Cases Small Enrolled Population Both provide incentive for utilization management where Return on Investment (ROI) is near-term

Prospective Payment Structure Based on Outcomes Paying for Quality Financial incentives for outcomes, not just outputs Possible quality measures ORYX – (JCAHO) AHRQ – (HHS) Inpatient Quality Indicators Prevention Quality Indicators HEDIS – (NCQA) Potential for long-term investments in prevention/disease management

PPS Roadmap Satisfaction Workload Capitation Performance Institutional Inpatient Outpatient Ancillary Data Weights Rates Pharmacy Direct Readiness/ Other Workload Institutional Professional Risk Adjusters Reinsurance Plan Minimum Enrollment HEDIS Satisfaction ORYX Benefit (HCPCs) Indirect Capitation Performance Dental

PPS Roadmap Bundling Satisfaction Workload Capitation Performance Inpatient Outpatient Ancillary Data Weights Rates Pharmacy Direct Readiness/ Other Workload Institutional Professional Risk Adjusters Reinsurance Plan Minimum Enrollment HEDIS Satisfaction ORYX Benefit (HCPCs) Indirect Capitation Performance Dental Bundling

Next Steps Prospective Payment Monitor FY06 performance against plan Apply to future budgets FY07 - 75% FY08 - 100% Incorporate Ancillary, Pharmacy data Ancillary data now being collected Analyze during FY06, apply in FY07 (scorecard only) Concern about standardization and unbundling

Issues to Consider Non Provider specialty codes Last year workload accepted is FY06 Future years no workload credit Incorporate Inpatient Professional Services Professional services should be coding this year Initial focus External partnerships and circuit riders Need to expand to all inpatient care Begin with adjusting RWP rate down for rounds Approximately 40% complete (60% lost value) Began 1 Oct 2002 Accurate coding Need to ensure coding matches documentation Eventually audit adjustments to claims Timely data submission

Questions/Discussion

Backup Contact Info: Gregory.Atkinson@ha.osd.mil 703-681-1724

Valuing Business Plans Fee for Service Rates (FY06) Value per RWP - $6,491 Average amount allowed Including institutional and professional fees Excluding MH/SA Adjusted for local Wage index Value per Mental Health Bed day - $541 Value per RVU - $79 Segmented by Specialty Excluding Ancillary, Home Health, Facility Charges

Valuation Issues Capitation versus Fee for Service Fee for Service initially; moving to Capitation Indirect Medical Education Adjustment Use same methodology used for 3rd party collect OCONUS MTFs Not part of PPS, but being score carded in FY06 Remote MTFs Part of PPS Keesler not funded under PPS for FY06 Related to impact of hurricane, modified cost basis

Capitation Risk Adjustment: Predicting Costs for Each Person with Each Model 15,000+ ICD-9 Diagnoses Disease categories created by each model ACG CDPS CRG DCG Identical regression method Predicted costs Procedures Provider Type Dates of Service (just for CRGs) Risk adjustment models studied Adjusted Clinical Groups (ACGs) Chronic Disease Payment System (CDPS) Clinical Risk Groups (CRGs) Diagnostic Cost Groups (DCGs) Age & Sex information

Capitation Risk Adjustment: Costs and Predictive Ratios by Disease Disease Cohort N Mean Cost Predictive Ratios Age/ Sex ACG CDPS CRG DCG Diabetes 12,112 $6,513 0.52 0.97 Asthma 21,752 $3,184 0.54 0.99 0.86 Renal (CRF) 467 $25,038 0.13 0.82 0.87 0.75 0.81 PTSD 1,138 $6,005 0.36 0.83 0.80 All risk models predict cohort costs much better than age/sex

Timeline for Elements of PBP & PPS FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Pharmacy Ancillary Prof/Inst Mission Essential Capitation Indirect Performance Validate Data Develop Rates Business Plan Applied to BP Shadow Budget Data Collection DC Procedures Study Capitation Results Develop Cap Proposal Adjust Budgets (20%/50%) Develop Contract Site Visits/ Develop Codes