1. AAHAM Winter Meeting MHA UPDATE December 21, 2012 Anne Hubbard, Assistant Vice President, Financial Policy & Advocacy Rachel Schaaf, Financial Policy Analyst 1

2. MHA Update Agenda Wavier Modernization Update RAC Update 2

3. The Triple Aim Improving the experience of care Improving the health of populations Reducing per capita costs of health care 3

4. Waiver Modernization The federal government’s “Triple Aim:” value over volume Value through –Care coordination –Population health management Hospital field’s readiness to manage value –Healthcare Financial Management Association survey 2011 –Maryland Hospital Association survey 2012 (37/46 acute care hospitals responded) 4

5. The Problem Hinges on one waiver test only A single variable Medicare only Inpatient measure only Hospital only No alignment of hospital/physician incentives No use of quality/safety/outcome metrics Experience of Care Population Health Per Person Cost vs. Current waiver test becoming an anachronism Current Waiver TestTriple Aim 5

6. Waiver Cushion 6 6

7. Current Test vs. New Test Medicare Inpatient Payment per Discharge Medicare Inpatient and Outpatient Payment per Beneficiary Cumulative Rate of Growth (1981 to present) Cumulative Rate of Growth (1981 to present) Annual Rate of Growth Base Year 1981 MD vs. National Base Year 1981 MD vs. National Growth Target MD vs. MD Growth Target MD vs. MD Current Test New Test 7 7 7

8. Waiver Demonstration Framework Structure –Two 3-year demonstrations – “3 + 3” Goal –What do we aspire to achieve? Test –For what will we be held accountable for achieving? How to Meet the Test and Goal –What tools will we use to achieve both? 8

9. The Structure Two three-year demonstrations – “3 + 3” First three-year demonstration –2013 – 2015 –More clear Second three-year demonstration –2016 – 2018 –Less clear 9

10. The “Goal” First three-year demonstration The Goal – –By the end of the first three years; –Limit the rate of growth in; –Total per capita inpatient and outpatient regulated hospital revenue; –To 3.57% or less 10

11. The “Goal” Based on 10-year historical average annual growth in Gross State Product (GSP) –GSP averaged 3.6% –Hospital regulated revenue averaged 6.8% But projected revenue growth (2013 – 2015) is 3.5% 11

12. The “Test” First three-year demonstration The Test – –By the end of the first three years; –Limit the rate of growth in; –Medicare per beneficiary inpatient and outpatient regulated hospital revenue; –To 2.62% or less 12

13. The “Test” Because Medicare already grows slower than the annual GSP average of 3.6%, a proportional reduction for Medicare will be made to guarantee savings –Limits Medicare increase to no more than 2.6% –Medicare spending equals 73% of total hospital spending trend –(3.6% x 73%) = 2.6% 13

14. The “Tools” Total Patient Revenue (TPR) – new models Admissions Readmissions (ARR) Volume Adjustments Primary Care Medical Home More links between payment and quality Accountable Care Organization options New “bundled” payment approaches Physician gain sharing 14

15. The “Transition” Protection from current waiver test Improved hospital annual updates Process to articulate second three years Insurance premium rate alignment Review uncompensated care policy Broaden HSCRC governance 15

16. MHA Objectives Retain as much of the waiver subsidy as possible Pursue innovation in care delivery Our “critical few” –Get out from under the existing waiver and payback provisions –Implement real care delivery tools –Protection from Medicaid assessments –Improved update –Differential used as lever to achieve success under new waiver 16

17. Next Steps State to submit proposal –Mid-December Federal government review and reply –January Hospitals must assess support Failure will be painful; new waiver may be painful Regardless, hospitals must prepare 17

18. Established as a three-year demonstration under Medicare Modernization Act The Tax Relief Act of 2006 required a permanent implementation The Recovery Audit Contractor (RAC) identifies potential issues and submits a letter to CMS requesting permission to review those issues. CMS either approves or disapproves their request RAC can look-back three-years from the date the claim was paid Maryland’s RAC is Performant (formerly DCS) RAC Background 18

19. INPATIENT HOSPITAL Renal and Urinary Tract Disorders -MS DRGs 657, 658, 660, 661, 663, 664, 666, 667-670, 673-675, 682-685, 691-700 MDC 5 – Conditions of the Circulatory System MDC 6 – Diseases and Disorders of the Digestive System Acute Inpatient Admission Respiratory Conditions – MD DRGs 177- 180, 190-198, 202-206 Cardiovascular Surgery Procedures – MS DRGs 246-254, 263-265 Dates of Death Hospital Infections – MS DRGs 094-096, 177-179, 488-489, 539-541, 602-603, 689-690, 856-858, 862-869, 871-872, 977 Musculoskeletal Disorders – MS DRGs 542-566 Other Musculoskeletal Disorders – MS DRGs 516 Issues RAC is Auditing in Maryland Hospitals Source: Performant Recovery 19

20. INPATIENT HOSPITAL Continued Neurological Disorders – MS DRGs 068-074, 103, 312 Vertigo & Other Labyrinth Disorders – MS DRG 149 Cardiac Catheterization for Ischemic Heart Disease – MS DRGs 286- 287 Chest Pain – MS DRG 313 Syncope – MS DRG 312 Transient Ischemic Attack – MS DRG 069 Chronic Obstructive Pulmonary Disease – MS DRGs 190-192 Heart Failure and Shock – MS DRGs 291-293 Atherosclerosis – MS DRGs 302-303 Issues RAC is Auditing in Maryland Hospitals Source: Performant Recovery 20

21. OUTPATIENT HOSPITAL Initial Infusion Services Colonoscopy – Excess Units Cataract Removal – Excess Units ECGs with Cardiac Cath Procedures Medical Unlikely Edits Vitamin D Assay Testing Rituximab – J12 Adenosine 6mg & 30mg– Units Reported Issues RAC is Auditing in Maryland Hospitals Source: Performant Recovery 21

22. There are 12 hospitals actively reporting in AHA’s RAC Trac software. Maryland results are based on this data. The data is cumulative through September 2012 All audits seen by Maryland hospitals are for One-Day Stays 77 percent of hospitals report having denials overturned during the discussion period Maryland RAC Audit Results Source: AHA RAC Trac 22

23. Maryland RAC Audit Results Source: AHA RAC Trac $ 74 Million $7 Million $1.5 Million $5.5 Million $18 Million $ 26 Million 23

24. 60 percent of medical records reviewed by RAC did not contain any overpayment. Region A is higher at 65 percent with no overpayment. 61 percent of medical necessity denials reported were for one-day stays provided in the wrong setting. Hospitals are appealing 40 percent of RAC denials and have a 74 percent overturn rate but three-fourths of all appeals are still in process. Region A has the highest average value of a medical record requested at $10,019. 96 percent of all denials were complex, requiring a medical record for review. Nationwide RAC Audit Results Source: AHA Quarterly RAC Report 24

25. Nationwide vs. Region A RAC Audit Denials Source: AHA Quarterly RAC Report 25

26. There are four levels of appeals in the RAC program, the ALJ decides appeals at the third level. The ALJ may either conduct a hearing or make a decision after reviewing the evidence in the case file (an on-the-record review). The ALJ decision may be fully, partially or unfavorable to the appellant. The issue with ALJ appeals is the same standards are not always applied. Administrative Law Judge (ALJ) Appeals Source: OIG Improvements are Needed at the Administrative Law Judge Level of Medicare Appeals 26

27. CMS did a study of all ALJ appeals and found that 85 percent of appeals decided by ALJs were filed by providers. ALJs reversed prior-level decisions for 56 percent of appeals, deciding fully in favor of appellants. The majority of appeals fully in favor of the appellant were for hospitals, 72 percent. ALJ appeals are randomly assigned thus not providing clinical expertise and generally deferring to the physician’s opinion on treatment. There are no written policies on how ALJs should handle suspected fraud. Administrative Law Judge (ALJ) Appeals Source: OIG Improvements are Needed at the Administrative Law Judge Level of Medicare Appeals 27

28. CMS needs to develop policies and provide training to ALJ staff. CMS needs to clarify policies that are interpreted differently. CMS needs to make case files consistent across the levels of appeal. They should specify how the documents should be organized and identify a checklist or other method for identifying the documents in the case files. CMS needs to revise regulations to provide additional guidance to ALJs about accepting new evidence. CMS needs to implement a process to monitor appeals of providers under federal investigation. CMS needs to establish a filing fee to prevent frequent fliers from appealing all cases. CMS needs to implement a quality assurance process to review ALJ decisions. CMS needs to evaluate if specialization among ALJs would improve efficiency. CMS needs to develop policies on handling suspected fraud. CMS needs to maintain a better presence at ALJ appeals. Changes Needed at the ALJ Level Source: OIG Improvements are Needed at the Administrative Law Judge Level of Medicare Appeals 28

29. All hospitals have a different structure. Most have some form of a RAC Coordinator handling all inquiries and appeals. Some also have Nurses that are handling the filing of their appeals or auditing cases prior to appeal. Others contract with outside agencies to file their appeals. Many hospitals are having success having denials overturned in the discussion period. One hospital had 50 percent of denials overturned during the discussion period. One strategy being implemented is to ask for the appropriate physician to review the claim. Do not allow a psychiatrist to review a cardiology claim. How are Maryland Hospitals Handling RAC? 29

30. ALJs recently began allowing Observation services to be billed if denied for inappropriate level of care. The ALJ decision MUST specify that payment should be rendered for observation level of care. If the ALJ does not specify then the hospital may only bill for observation if there was an order for observation in the chart. How are Maryland Hospitals Handling RAC? 30

31. Questions? Anne Hubbard – 410-540-5081- ahubbard@mhaonline.orgahubbard@mhaonline.org Rachel Schaaf – 443-561-2038 - Rschaaf@mhaonline.org Rschaaf@mhaonline.org 31