HFMA 2012 Insurance & Reimbursement Update March 22, 2012

1. HFMA 2012 Insurance & Reimbursement UpdateMarch 22, 2012 Marilyn Litka-Klein Vice President, Health Finance Michigan Health & Hospital Association 1

2. Agenda • Reimbursement Update • Medicare • Medicaid • General Finance • Retro

4. Federal Reform – Delivery System • Hospital marketbasket reduced FY 2010 for ten years ($7 billion in Michigan) • Value-based purchasing • FY 2013: devotes 1% of total hospital payments devoted to hospital performance; grows to 2% for 2017 and beyond; budget neutral • Bundled payment • FY 2013: national, voluntary, 5-year pilot program focused on 10 conditions • Accountable Care Organizations • FY 2012: allows hospitals, in cooperation with physicians, to form ACOs; resulting savings may be shared with providers • Rehospitalization • FY 2013: financial penalties for rehospitalizations above “expected” norm for 30-day window (CAHs excluded)

5. What’s at Stake Under VBP? • Program is self-funded by hospital “contribution” • Contribution based on Medicare FFS payment* • 1.0% reduction in FY 2013 • Reduction increased by 0.25% each year • 2.0% reduction for FY 2017 and beyond • VBP performance determines P4P amount • Budget-neutral • Redistributive • Best performers win, others break even or lose • VBP payments are netted against contributions * Payment reductions exclude IME, DSH low-volume hospitals and outliers

6. VBP National Performance Standards – FFY 2013 • National Benchmarks • Highest achievement levels • Average performance score for the top 10% of all hospitals • National Thresholds • Minimum achievement levels • Median performance score for all hospitals • Established from baseline period data • Vary by measure:

7. VBP Domains

8. Recent Medicare Reports & Information • Outpatient final rule, effective 1/1/12 • Detail impact by category of payment, soon • Medicare Revenue Forecast Analysis (2012 – 2021) • Lower annual rate updates than projected marketbasket • Payment reductions resulting from policies for readmissions that exceed a calculated threshold • Hospital-acquired conditions and quality-based payment changes through a value-based purchasing program

9. Anticipated Efficiency Measure – FFY 2015 • Medicare Spending per Beneficiary • ACA requires use of efficiency measures in FFY 2014 or thereafter • Must include total Part A and Part B spending per beneficiary Must include Medicare spending per beneficiary • Must include Medicare spending per beneficiary adjusted for age, sex, race, severity, and other factors as determined by the Secretary • CMS is also considering measures of hospital internal efficiency

10. Anticipated Efficiency Measure Three (3) Days Prior: One Episode Pre-op lab work Inpatient Stay Thirty (30) Days Post: Dr. Visit Dr. visit Dr. visit Dr. visit Rehab ED Visit

11. Concerns with Proposed Efficiency Measure • Does proposal satisfy ACA mandate for a measure of “spending per beneficiary?” • Holds hospitals accountable for all providers’ practice patterns • Should consider future IOM report and proposal for Medicare bundling demonstrations • Methodology cannot be replicated • No-one can check/audit CMS’ calculations • Industry does not have access to the data • CMS’ methodology may not adequately adjust for patient severity

12. ACA Readmission Payment Policy • Effective October 1, 2012 • Three condition areas to start: • Heart failure, heart attack, pneumonia care • Expansion by October 2014: • COPD, CABG, PTCA, other vascular procedures • May eventually apply to all-payer, all-conditions, all-cause readmissions • Observed-to-expected ratios based on statistical analysis and national benchmarks • Payment penalties for O/E ratios greater than 1

13. The Medicare Standard Analytic Files (SAFs) • All Medicare Part A and Part B claims for beneficiaries residing in the Hospital Referral Cluster (HRC) • Separate data files for inpatient (includes acute and post-acute inpatient), hospital outpatient, physicians, SNFs, Home Health, and DME • Unique beneficiary keys (encrypted) • Millions of records • Over 1,000 data fields per record

14. Building Episodes • Load data file and create links and indexes • Identify all claims, across files, with the same beneficiary • Determine episode timeframe • Determine and apply exclusions – patient and claim level • Identify readmissions • Flag episode components • Sum payment fields within and across files Expect to devote significant programming and computing resources

15. Hospitals Need to Turn This:

16. Into This:

17. Identify DRGs of Interest “Sweet Spot”

18. Revised SSI Ratios Available • Used in Medicare DSH payment calculation. • Revised FY 2006 -2009 ratios available on CMS website: http://www.cms.gov/AcuteInpatientPPS/05_dsh.asp. • Includes dual eligible exhausted and Medicare advantage patient days in the Medicare fraction.

19. Michigan MAC Transition • Transition from fiscal intermediary National Government Services (NGS) for Pt A and Wisconsin Physician Services (WPS) as Pt B carrier. • Late January 2012 - Award protest by unsuccessful bidders – GAO decision confirming WPS as MAC. • No further information has been released regarding the transition. • MAC will perform Medicare FFS claims processing, enrollment, education, provider audits.

20. Medicare Reports & Information • Proposed Rules (IPPS, OPPS, SNF, IRF, IPF, HHA) • Final Rules (IPPS, OPPS, SNF, IRF, IPF, HHA) • Hospital Acquired Condition (HAC) Reports • Quarterly Value Based Purchasing (VBP) • Quality Indicators • QI Trends • 30-day mortality rates (updated annually by CMS) • 30-day readmission rates (updated annually by CMS) • HCAHPS • Recovery Audit Contractor (RAC) Reports • 1-day stays • Transfers to SNF

21. Projected Impact - FY 2012 Medicare Rules (in millions)

22. Michigan Medicare Inpatient Margin

23. Michigan Medicare Outpatient Margin

24. Proposed Rule - Reporting of Medicare Overpayments • Mid-February, CMS released a proposed rule regarding self-identified overpayments. • Report and return overpayments within 60 days after the date the overpayment was identified or date any corresponding cost report is due.

25. Reporting of Overpayments – Cont. • CMS examples: • Duplicate payments by FI • Payment for non-covered services • Payments exceeding the allowable amount for a covered service • Payer primary responsibility

26. Issues Identified to Date • Would errors by claims processors be attributed to hospitals? • Cost report reopening extended from 3 years to 10 years to correspond with proposed time frame for returning overpayments. • MHA reviewing proposed rule and will provide draft comments prior to 4/16 deadline.

27. Medicare Advantage Plans • As of January 2012, 29 plans in Michigan, with 415,000 or approximately 24% of Michigan’s 1.7 million Medicare beneficiaries enrolled • Up to 19 plans in some counties • Review MA payment rate for all plans • CAH entitled to Medicare cost reimbursement • Each MA plan may determine own utilization model and is not required to maintain electronic transactions • Many MA have instituted “RAC-like” utilization programs • Matrix of MA plans by county available at MHA website – updated quarterly, with MHA Monday Report article • See Feb. 6 Monday Report for latest info

28. Other Items on Horizon • Federal pension and health benefits $275M in 2010, up from $176 M in 2000 • 2/3 Pension, 1/3 Medical Benefits • These retirement programs have $5.7 Trillion unfunded liability, Social Security is $6.5 Trillion

29. Auto No Fault • Discussions continue with governor’s office and insurance industry • MHA opposes implementation of lifetime limits on total benefits • MHA opposes potential move to fee screen reimbursement • worker’s comp has been discussed • No guarantee for reduced auto insurance premiums

30. Michigan Politics • Government Budget – desire for quick adoption • House & Senate, and their leadership, do not always follow party direction • All Mi House members up for re-election - 62 R, 46 D • US House 14 seats, currently 9 R, 6 D • MI leadership with Camp & Upton • Supreme Court • Why is this important?

31. Michigan Politics – Cont. • Insurance industry & “public” desired changes to no-fault • But no promise of lower auto insurance premiums • Medicaid consumes too much of budget • But hospital tax funds majority of hospital payments • Concern that GME residents leave state after training • Failed to recognize source of future doctors • Failed to recognize care provided to Michigan residents

32. Legislators Responds to Constituents • E-mail letters/analyses • MHA is your voice in Lansing and D.C. • But, legislators prefer to respond to constituents • Only contact from MHA – “Is this really what my constituents want?”

33. FY 2013 Budget • Executive budget recommendations released by Governor Snyder Feb 9 • Recent testimony – House Appropriations Subcommittee • Deliberations began this week in Senate

34. FY 2013 Medicaid Budget • Funds current enrollment • Additional $17 million cut to GME, increasing the total cut to $32 million from FY 2011 • Elimination of $29.5 million Rural/SCH pool • Concurrent work by House & Senate

35. Statewide DRG Rate • Hospital workgroup provided input July 2011 • February 11 MSA provided a concept paper regarding the move to a statewide DRG rate with adjustments for teaching, outliers and wage index • MHA and hospitals to provide additional input • Earliest implementation Jan 1, 2013

36. DSH Audits • Beginning with audits of FY 2011 DSH payments, hospitals subject to DSH recoveries if DSH payments exceeded actual DSH room • DSH concept paper reviewed would update state calculation with more recent CR • Hospitals desire to review MSA date before DSH payments made

37. Integrated Care – Dual Eligibles • Michigan is one of 15 states • Approximately 200,000 individuals • $8 billion total, split 50/50 Medicare/Medicaid • MDCH Draft plan released 3/5, comments due 4/4 • March 12 Monday Report article, March 19 Advisory Bulletin • Public forums 3/29 Detroit • Michigan split into 3 geographic regions • Implementation July 2013 – June 2014

38. MDCH Draft Plan Released • Draft plan includes two contracts which would coordinate beneficiary care: • Existing prepaid inpatient health plans (PIHPs) for behavioral health services. • Integrated care organization (ICOs) for physical health services. • Michigan split into 3 geographic regions. • Implementation July 2013 – June 2014.

39. Draft Plan - Issues • No guarantee of Medicare payment rates. • Separate contracts with the PIHP & the ICO are proposed • both required to “coordinate” care, with neither ultimately responsible for care of the individual. • Reporting and payments for Medicare bad debts, DSH and 340 (b) drug pricing unresolved. • ICOs would negotiate innovative reimbursement arrangements with providers. • No clear direction provided on utilization management, including inpatient versus observation status.

40. HMOs & Observation • Some HMOs have issued policy change that stays less than 24 hours for patients meeting inpatient criteria will be paid as observation • Recent MHA meeting with MAHP to review this issue • Future meetings with MSA

41. Medicaid Interim Payments • MSA evaluating the continuation of interim payments (MIP) based on recommendation from a recent Michigan auditor general report. • MSA will convene a smaller workgroup to obtain input and will complete its review by September.

42. Bridges / Eligibility Issues • MHA Feb. 28 letter to Steve Fitton focused on: • Delays in Medicaid eligibility resulting in significant increases in hospital A/R • Resumption of Bridges Workgroup Meetings • Ability of hospital contractors to have outstation DHS workers • Meeting at MDCH & MDHS early April

43. Bridges Issues - Cont. • Directors of MDCH and MDHS meeting with MHA leadership in early April. • Please email me if your hospital is experiencing significant delays in Medicaid eligibility due to Bridges issues.

44. Source: 2010 American Hospital Association Annual Survey of Hospitals

45. Source: 2010 American Hospital Association Annual Survey of Hospitals

47. Health Plans by Enrollment

48. Medicare *Enrollment as of Nov. 2011

49. Medicaid *Enrollment as of Sept. 2011

50. MHA Keystone Center Michigan Collaboratives