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

2. Overview
Background PPS
Future
Next Steps/Issues for consideration

3. 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

4. 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)

5. 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

6. 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

7. FY05 Mid Year Summary

8. Tracking FY06 by MTF

9. FY06 Mid Year Summary

10. Future of PPS

11. 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

12. 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

13. 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

14. 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?

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

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

22. 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

23. Questions/Discussion

24. Backup
Contact Info:

25. 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

26. 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

27. 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

28. 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

29. 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