1. WASHINGTON STATE HEALTH CARE AUTHORITY WSHA Rebasing Task Force Meeting July 15, 2013

2. TABLE OF CONTENTS Section 1»Updates to Inpatient Models Section 2» Inpatient Specialty Service Per Diems Section 3» Outpatient Model Results Section 4» Next Steps Page 2

3. UPDATES TO INPATIENT MODELS

4. Inpatient Model Changes » Models use 3M APR-DRG “standard” national weights » All Transplant/CUP/Bariatric services and psychiatric/LTAC provider claims with acute DRGs carved out of the DRG system » Direct Medical Education portion of Medical Education adjustments revised to match the current HCA outpatient GME adjustments ›Inpatient DME adjustments have not changed since 2007 ›HCA regularly updates the outpatient GME adjustment (based on direct medical education costs as a percent of total costs) using the most recently available Medicare cost report ›Inpatient DME adjustments follow the same methodology as the outpatient GME adjustment Page 4

5. UPDATES TO INPATIENT MODELS Page 5 ApproachProsCons Standard Slightly better correlation to Washington specific weights Method for calculating more consistent with historical HCA method Easier to understand, explain and replicate Does not rely on additional statistical assumptions Not materially different than HSRV method Method relies on provider submitted charges, and does not account for differences in individual hospital charge master values, which may distort weights if individual provider services tend to dominate few DRG classifications HSRV Recommended by 3M High correlation to Washington specific weights Weights have been adjusted to remove impact of hospitals with significant differences in charge master values – to more closely approximate results had they been based on average costs Not materially different than Standard method Difficult to understand, explain and replicate If charges within hospitals are not proportionately related to their costs, the methodology may not improve the correlation of weights to costs of services when compared to the Standard method Pros and Cons of “Standard” versus “HSRV” National Weights

6. UPDATES TO INPATIENT MODELS Inpatient Model Changes – Outlier Assumptions » Outlier fixed loss threshold set to $50,000 to achieve approximately 11-12% outlier payments as a percent of total » Handout 1: Outlier marginal cost factor of 95% applied to patients age 17 and under (80% for all other services) » Handout 2: Outlier marginal cost factor of 95% applied to claims with severity of illness (SOI) level of 3 or 4 (80% for all other services) Page 6

7. UPDATES TO INPATIENT MODELS Page 7 ApproachProsCons SOI-Tiered Marginal Cost Factor (95% for SOI 3&4, 80% for SOI 1&2) Generally increases outlier payments to hospitals that experience higher outliers Better consideration of higher variation in the costs of services that group to higher SOI classifications Partially mitigates financial risk associated with caring for highly complex cases to all hospitals – consistent with creating appropriate incentives for maintaining or improving access to care Does not attribute opportunity to specific provider types – any hospital with highly complex cases may be eligible for enhanced MCF Relies on 3M SOI determination Service-Tiered Marginal Cost Factor (95% for Peds, 90% for Burns, 80% for all other) Consistent with enhancing payment for pediatric and neonatal services – and maintaining or improving access to care Partially mitigates financial risk associated with caring for complex burn cases, and for hospitals that specialize in pediatric or neonatal service lines Does not target enhanced outlier payments to the most complex cases, which tend to be less homogeneous relative to resource requirements – when compared to the SOI-tiered approach Pros and Cons of “SOI-Tiered” versus “Service-Tiered” MCF

8. UPDATES TO INPATIENT MODELS Inpatient Model Changes – Inlier Assumptions » Charge cap on claim payments (modeled payments limited to billed charges, inflated to SFY 2014) » Latest models (along with prior model versions) include an “inlier” adjustment, which is like an inverse outlier payment: Inlier threshold = claim costs + $50,000 If the claim payment exceeds the Inlier threshold, then the inlier reduction = (Claim payment – Inlier threshold) * Marginal cost factor Page 8

9. INPATIENT SPECIALTY SERVICE PER DIEMS Page 9

10. INPATIENT SPECIALTY SERVICE PER DIEMS Current System Inpatient Specialty Service Per Diems » Under the current system, psychiatric per diem rates are based on the greater of provider specific per diem rate and the statewide average cost per day ›Provider specific rates for freestanding/DPU psych hospitals and non-DPU hospitals with at least 200 days based on the provider-specific average Medicaid cost per day, adjusted for wage index, IME and DME ›Rates for non-DPU hospitals with less than 200 days based on the weighted average Medicaid cost per day for the providers listed above, adjusted for wage index, IME and DME » Under the current system, rehabilitation and substance abuse per diem rates are based on statewide standardized amounts, adjusted for wage index, IME and DME Page 10

11. INPATIENT SPECIALTY SERVICE PER DIEMS Inpatient Model Specialty Service Per Diems » Inpatient models currently contain a baseline approach for psychiatric, rehabilitation and substance abuse services using standardized per diem rates adjusted for wage index (without further adjustments) › For evaluation purposes only – not HCA’s recommended approach » Options for additional adjustments: ›Medical education ›Provider costs ›Tiers for freestanding vs. DPU vs. non-DPU providers Page 11

12. OUTPATIENT MODEL RESULTS Page 12

13. OUTPATIENT MODEL Potential Outpatient Model Adjustments » Model currently does not contain adjustments except for teaching and wage index » Potential service level policy adjusters include: ›Drug EAPG or high cost drug/chemotherapy adjustment ›Ancillary packaging adjustments Page 13

14. NEXT STEPS Page 14

15. NEXT STEPS » Inpatient model: ›Specialty per diem rates ›Out-of-state hospital approach ›Coding and documentation improvement » Outpatient model: ›Potential policy adjusters ›DME/therapy approach ›Excluded services Page 15