1. Optimization of ED Disposition Processes Jeff Wajda DO,MS, FACEP LYNX Medical Systems – a Picis Company January 27, 2008

2. Topics I.Why consider bringing Care Management to the ED II.Trends and challenges supporting ED Care Management III.Key components of an ED Care Management Program IV.Quantifying the value of an ED Care Management Program Questions ©2008, LYNX Medical Systems. All rights reserved.

3. Why the ED Matters ED is principal source of key growing service lines Acuity is highest during the ED stay. Creates necessity to address the “medical necessity” of proposed inpatient service before the patient leaves the ED ED is high admission source of high cost admits (1 Day LOS etc.) EP documentation is vague and non-specific; great for discharged patients but insufficient for inpatient transition ED volume and Medicare population are growing Increasing regulatory scrutiny of admission decisions. The ED is in the crosshairs of regulatory efforts designed to reduce reimbursement ED admission disposition and documentation should be actively managed (The Need for ED Care Management) ©2008, LYNX Medical Systems. All rights reserved.

4. Why the ED Matters 73% of hospital CEOs describe their EDs as not profitable* 98% of hospital leaders identified the ED as necessary. <1% would close their EDs* ED admissions are not elective and are a critical part of the hospital’s mission* Source: Deloitte and Touche 2005 CEO Survey ©2008, LYNX Medical Systems. All rights reserved.

5. Complex Medicare Reimbursement Rules and More Scrutiny Condition Code 44 for inpatient-to-outpatient status changes Increasing payer requests to place patients in Obs status rather than inpatient status ED documentation which may not support intensity of service criteria supporting inpatient status POA coding, MS-DRG’s Increasing volume of back end appeals Core Measure Improvement Upcoming RAC audits focused on “Medical Necessity” and ED disposition ©2008, LYNX Medical Systems. All rights reserved.

6. Risk-Adjusted Mortality Index Hospital Quintile by Operating Income Bottom 4 th 3 rd 2 nd Top Observed vs. Expected Mortality Source: Thomson Reuters Projected Inpatient Database; 100 Top Hospitals® National Study 2007 (FY2005 – 2006 Medicare) Hospital Operating Performance Does Not Correlate with Clinical Performance ©2008, LYNX Medical Systems. All rights reserved.

7. Risk-Adjusted Complication Index Bottom 4 th 3 rd 2 nd Top Hospital Quintile by Operating Income Observed vs. Expected Complication Index Source: Thomson Reuters Projected Inpatient Database; 100 Top Hospitals® National Study 2007 (FY2005 – 2006 Medicare) ©2008, LYNX Medical Systems. All rights reserved.

8. Composite Core Measures Score Bottom 4 th 3 rd 2 nd Top Hospital Quintile by Operating Margin Composite Core Measures Performance Source: Thomson Reuters Projected Inpatient Database; 100 Top Hospitals® National Study 2007 (FY2005 – 2006 Medicare) ©2008, LYNX Medical Systems. All rights reserved.

10. ED Issues Number of Medicare Beneficiaries, 1970-2040 Source: Medicare Trustees Report 2006 ©2008, LYNX Medical Systems. All rights reserved.

15. ©1985-2008 LYNX Medical Systems. All rights reserved. CMS Focus – A Perfect Storm Getting it right

16. RAC

18. RAC Demonstration Project Three years and three states (CA, NY, FL) 838 Million in take-backs Largest proportion of take-backs (40%) were related to medical necessity Improper coding was responsible for 35% of take- backs Other deficiencies in physician documentation was responsible for 9% of take-backs 1.Appeals were successful in 4.9% of cases 2.Focus on short stay medical DRG’s as well as Laparoscopic Cholecystectomy, Pacemaker placement and Rehabilitation.

19. ED’s Impact on RAC Recovery Audit Contractors (RAC) retrospectively review medical necessity The majority of ED admits are short-stay Recovery Audit Contractor (RAC) targets short- stay admits resulting in denials and lost revenue Measurement: - Relative increase in observation status replacing medical 1 day LOS admits. Example of annual revenue at risk: 10% of 20,000 admits at RW of 1.0 (2,000) x (1.0) x ($10,000) = $8,400,000

20. Medical Necessity What is Physician Intent? Medicare Benefit Policy - Basic Coverage Rules (PUB. 100-02) Chapter 1 - Inpatient Hospital Services Covered Under Part A 10 - Covered Inpatient Hospital Services Covered Under Part A The physician or other practitioner responsible for a patient's care at the hospital is also responsible for deciding whether the patient should be admitted as an inpatient. Physicians should use a 24-hour period as a benchmark, i.e., they should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis. However, the decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number of factors, including the patient's medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital's by-laws and admissions policies, and the relative appropriateness of treatment in each setting. Factors to be considered when making the decision to admit include such things as: The medical predictability of something adverse happening to the patient; The need for diagnostic studies that appropriately are outpatient services (i.e., their performance does not ordinarily require the patient to remain at the hospital for 24 hours or more) to assist in assessing whether the patient should be admitted; and The availability of diagnostic procedures at the time when and at the location where the patient presents.

21. Observations Regs APC Reg FR 11/30/01 page 59881 Observation is an ACTIVE TREATMENT to determine if a patients condition is going to require that he or she be admitted as an inpatient or if the condition clarifies itself, the patient may be discharged Observation Medicine Medicare Manual section 455 “services which are reasonable and necessary to evaluate an outpatient condition or determine need for inpatient care”

22. Medical Necessity Medicare and other payors have taken the position that medical necessity is implicit in every claim for payment, and that the physician is expected to know the rules of medical necessity and abide by them. A physician who bills Medicare for services which he should know are not medically necessary can be prosecuted for fraud by the OIG. Violators face penalties of up to $10,000 for each service, an assessment of up to three times the amount claimed, and exclusion from federal and state health care programs.

23. Medical Necessity Physician Intent – In a situation where a patient does not meet payor criteria for inpatient services, a physician may document their intentions as to why the patient needed inpatient services.

24. Physician Intent: Safety Physician Intent Issues regarding Safety (indications that the patient can not be safely discharged to home) Inability to perform Activities of Daily Living (ADL's) Inability to tolerate oral hydration Inability to ambulate secondary to acute medical condition Homeless status - high probability of life or limb threat as outpatient diagnostic workup is highly unlikely or impossible Follow-up status/outpatient evaluation - outpatient resources are not available to this patient Functional/Psychiatric Disease/Developmental Delay - patient currently unable to understand importance of necessary outpatient testing Substance Abuse Issues - alcohol abuse or other drug dependence make it unsafe for the patient to be discharged

25. Current State vs. Improved: Quantifying RAC Value 1. Total ED Encounters 82% Outpatients 82% Outpatients 15% Inpts. 3% Obs 3. Overcorrection/Reaction 82% Outpatients 82% Outpatients 11% Inpts. 6% Obs 2. Likely RAC Results (based on audit findings) 13% Inpts. 82% Outpatients 82% Outpatients 5% Obs 4. Optimized Disposition – Improved View 14% Inpts. 80% Outpatients 80% Outpatients 6% Obs Avg. Reimbursement $82,530,000 Avg. Reimbursement $82,530,000 Avg. Reimbursement $73,070,000 Avg. Reimbursement $73,070,000 Avg. Reimbursement $68,340,000 Avg. Reimbursement $68,340,000 Avg. Reimbursement $80,750,000 Avg. Reimbursement $80,750,000

26. ED’s Impact on MS-DRG 745 new severity-adjusted federal DRGs (MS-DRG) –Adjusted for patient acuity –Each condition has multiple values based on CCs Capturing accurate severity of illness at time of highest acuity leads to improvement in ED-CMI Measurement: –More accurate ED documentation leads to higher CMI. –ED CMI is the ED’s contribution to the over all CMI Example (Annual patients admitted with FUO) 300 Admits with DRG change from 864 to 872 (RW change) x (frequency) x (blended rate) = impact of correctly documenting sepsis (0.56) x (300) x ($10,000) = $1,680,000

27. CMI: Impact and Value.5 1.1 1.4 1.5 1.7 CurrentImproved 1.0 1.2 1.6 Current State – CMI for ED admissions CMI.7.82.5 1.1 1.4 1.5 1.7 CurrentImproved 1.0 1.2 1.6 Current State – CMI for ED admissions CMI.7.78 RW Increase x total annual admits x blended rate.08 x 12,300 x $5,000 = $4,797,000

28. ED’s Impact on POA Present on Admission (POA) or Hospital Acquired Condition (HAC) Best time to identify and document POA’s is in the ED Measurement: Example - annual revenue protection when POA is captured for decubitus ulcer) : (DRG RW difference) x (frequency) x (blended rate) (0.2) x (500) x ($10,000) = $1,000,000

29. POA Impact 10% 30% 50% 60% 80% Current*Improved 20% 40% 70% Rate of Admits from ED POA Capture 100% % ED Admits from SNF from ED 4% 9% 23% Suspect 50% of SNF patients (12%) with 1 of 3 POS conditions * improved capture as co-morbid condition capture rate x avg RW x admits x blended rate 5% x 0.2 x 12,300 x $5,000 = $615,000 Revenue preservation

30. Challenges Struggling to make timely and proper disposition decisions in the ED −Discharge to home or transfer to SNF −Assign Observation status −Inpatient admission Correct disposition decisions have a direct impact on revenue, hospital core measures and patient flow Greater CMS scrutiny of inpatient admissions further narrows the margin for error –Increasingly complex to get it right –Getting it wrong becoming more costly – revenue, compliance, quality Severity of illness and intensity of service is under- documented Medical Necessity is under-documented

31. ED Physician Documentation Proper ED physician documentation is not generated or insufficient to support: –Disposition decision (clinical vs. coding terminology) –Downstream inpatient coding and DRG assignment Misalignment with key stakeholders –ED physicians are often unaware or unconcerned about the financial ramifications of their disposition decision and with how their documentation impacts the hospital –ED physicians do not have the time or the financial incentives to modify behavior

32. Value of Optimized ED Disposition I.Protect and minimize revenue at risk from RAC audits II.Increase incremental revenue associated with appropriate DRG capture of ED admissions III.Revenue preservation when POA codes serve as a co-morbid condition IV.Increase incremental revenue from enhanced use of observation services * Examples are based on 80,000 ED visits and 12,300 admissions per year.

33. Value of Optimized ED Disposition Management -$20M -$10M 0 $5M $15M -$15M -$5M $10M -$25M POA Revenue Effect of RAC Effect of RAC over-reaction Key Annual Revenue Impact Value of Disposition Optimization Impact of Optimized Dispositioning Current Profile Over-reaction CMI Impact of RAC Risk Impact of RAC Risk POA CMI Unmanaged profile Optimal Profile

34. Thank you jeff_wajda@picis.com