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

2. 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

3. Overview of DRGs

4. 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.

5. 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.

6. 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 – Normal newborn
0.0969
Average DRG weight
DRG – Appendectomy
1.0240
High DRG weight
DRG – Heart transplant
*APR DRG v33 National Weight

7. 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.

8. 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

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

10. Wyoming Medicaid’s APR DRG Methodology

11. 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.

12. 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.

13. 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 claims.

14. 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

15. 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 claims.

16. 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

17. Overview of Wyoming Medicaid’s Supplemental Payment Programs

18. 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

19. 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

20. 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.

21. 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

22. 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.

23. 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.

24. 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

25. 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

26. DOCUMENTATION and CODING improvement (DCI) adjustment Policy

27. 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.

28. 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

29. 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

30. 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

31. 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.

32. 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

33. 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)

34. NEXT STEPS

35. 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 at

36. contacts Gwyn Volk Justin St. Andre Andrew Vidikan Director
Justin St. Andre
Associate Director
Andrew Vidikan
Managing Consultant
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.
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