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HSCRC Rate System Arin Foreman Senior Associate - KPMG LLP [email protected] Jennifer Hulvey Director of Reimbursement - Frederick Memorial Hospital [email protected] January 31, 2014 Discussion Topics Overview Revenue Methodologies Rate Order Annual Rate Order Adjustments Unit Rate Compliance Total Revenue Compliance Reasonableness of Charges Required Reporting Terminology and Acronyms Overview HSCRC has developed methodologies to constrain healthcare costs in Maryland. Hospitals currently elect one of the following: Total Patient Revenue (TPR) System, Charge per Case (CPC) System, or Charge per Episode / Admission-Readmission Revenue (CPE / ARR) Total Patient Revenue (TPR) Inpatient and outpatient revenue is constrained by the TPR System Implemented July 1, 2010 (Garrett County Memorial Hospital and Edward W. McCready Memorial Hospital transitioned to TPR prior to 07/01/10) Approved revenue amount in a given year is a fixed cap No adjustment for changes in volume No adjustment for changes in Case Mix Index (CMI) Available to sole community provider hospitals and hospitals operating in regions of the State that dont share service areas with other hospitals Charge per Case (CPC) Inpatient Revenue is constrained by the Charge per Case system (CPC) Fixed amount of revenue per inpatient case Implemented July 1, 2005 Each hospital's allowed CPC is based on their Case Mix

Index (CMI) CMI measures the complexity of a hospital's cases Charge per Episode (CPE) Admission-Readmission Revenue arrangement (ARR): Fixed amount of revenue per inpatient episode Under ARR, hospitals assume the risks and rewards of managing hospital readmissions. No revenue increase for additional readmissions (penalty) No revenue decrease for reduced readmissions (reward) Implemented July 1, 2011 Voluntary 3-year revenue constraint program replacing CPC Excludes intra-hospital readmissions within 30 days All cause readmissions Each hospital's allowed CPE is based on Case Mix Index (CMI) Which rate methodology is your hospital under? TPR Calvert Memorial Hospital Carroll Hospital Center Chester River Hospital Center Dorchester General Hospital Edward W. McCready Hospital GarrettCounty Memorial Hospital Memorial Hospital at Easton Meritus Medical Center Union Hospital of Cecil County Western MD Regional Medical Center CPC Atlantic General Hospital Fort Washington Medical Center Laurel Regional Hospital Prince Georges Hospital Center Southern Maryland Hospital Center CPE / ARR Anne Arundel Medical Center Baltimore Washington Medical Center Bon Secours Hospital Civista Medical Center Doctors Community Hospital Franklin Square Hospital Center Frederick Memorial Hospital Good Samaritan Hospital Greater Baltimore Medical Center Harbor Hospital Center Harford Memorial Hospital Holy Cross Hospital Howard County General Hospital Johns Hopkins Bayview Medical Center Johns Hopkins Hospital Kernan Hospital Maryland General Hospital

Mercy Medical Center Montgomery General Hospital Northwest Hospital Center Peninsula Regional Medical Center Shady Grove Adventist Hospital Sinai Hospital St. Agnes Hospital St. Joseph Medical Center St. Mary's Hospital Suburban Hospital Union Memorial Hospital University of Maryland Medical Center Upper Chesapeake Medical Center Washington Adventist Hospital RATE ORDER HEALTH SERVICES COST REVIEW COMMISSION NEW APPROVED CHARGE PER EPISODE TARGETS AND RATES for Frederick Memorial Hospital Effective: July 1, 2013 FINAL Charge per Episode (CPE) Target & Casemix Indexes Permanent CPE $10,543 Compliance CPE $10,607 Base CPE Casemix Index 1.011528 Revenue Center Med./Surg. Acute Pediatrics Admissions Emergency Services Clinic Services Psychiatric Day/Night Operating Room Same Day Surgery Labor and Delivery Laboratory Nuclear Medicine Renal Dialysis Leukapheresis TUMT MRI Scanner Hyperbaric Chamber (R) Service Unit Unit Rates Patient Days

Patient Days Admission MD RVU'S RVU'S Visits Minutes Per Patient RVU'S MD RVU'S HSCRC RVU'S Treatments JHH RVU'S Procedure RVU'S Hrs of Treatment $ 854.1740 $ 1,033.6924 $ 151.7719 $ 37.6217 $ 22.2031 $ 252.9133 $ 25.2681 $ 632.1710 $ 107.7558 $ 1.8902 $ 23.7300 $ 777.9715 $ 1,640.1178 $ 6,855.5597 $ 103.9810 $ 316.6025 (R) = Rebundled Service CHARGES for MEDICAL SUPPLIES and DRUGS SOLD Budgeted Annual Revenue Budgeted Volume 60,972 $ 805 18,967 636,025 333,241 2,417 1,065,699 8,641 87,994

15,824,464 75,401 1,184 1 1 87,038 1,607 52,080,697 832,122 2,878,658 23,928,342 7,398,983 611,291 26,928,189 5,462,590 9,481,864 29,911,402 1,789,266 921,118 1,640 6,856 9,050,298 508,780 $ 255,255,646 TOTAL Maximum Annual Overhead Mark up Med./Surg. Supplies Drugs Invoice Cost plus Invoice Cost plus 1.1206 , plus Overhead. 1.1206 , plus Overhead. $ $ 12,025,772 14,813,263 Rate Order Revenue Center: Hospitals have different revenue centers depending on the services they

provide Service Unit: The service unit is the same for all hospitals (i.e. every hospital charges for Operating Room services by the minute) Unit Rates: Unit rates (prices) vary by hospital These rates must be charged to all payers - no contract negotiations Revenue Center Service Unit Med./Surg. Acute New Born Nursery Admissions Psychiatric Day/Night Operating Room Radiology-Diagnostic Renal Dialysis Patient Days Patient Days Admission Visits Minutes RVU'S Treatments Unit Rates $ $ $ $ $ $ $ 854.1740 518.2096 151.7719 252.9133 25.2681 26.4154 777.9715 RVUs RVUs relate to the complexity (time and cost) of tests and procedures The service units for RVU's

(relative value units) are defined by the HSCRC in Appendix D For example, a chest x-ray, single view, has the same RVU at all MD hospitals APPENDIX D STANDARD UNIT OF MEASURE REFERENCES DIAGNOSTIC RADIOLOGY CPT CODE 71010 71015 71023 71030 DESCRIPTION Chest, single view, posteroanterior Stereo, frontal With fluoroscopy Chest, complete, minimum of 4 views RVU's 2 3 6 5 The patient charge becomes a calculation Revenue Center Service Unit Med./Surg. Acute New Born Nursery Admissions Psychiatric Day/Night Operating Room Radiology-Diagnostic Renal Dialysis Patient Days Patient Days Admission Visits Minutes RVU'S Treatments CPT CODE 71010 71015

71023 71030 DESCRIPTION Chest, single view, posteroanterior Stereo, frontal With fluoroscopy Chest, complete, minimum of 4 views Unit Rates $ $ $ $ $ $ $ 854.1740 518.2096 151.7719 252.9133 25.2681 26.4154 777.9715 RVU's 2 3 6 5 2 RVU's x $26.4154 = $52.83 Updates to Rate Orders Hospitals receive an updated rate order once per year effective July 1st Unit rates are updated for: Inflation (update factor) Rate realignment Change in approved mark-up (UCC) Volume adjustment Other one time adjustments (quality, assessments) Compliance Population Change in case mix (CMI) CPC/CPE x x x x x x x

TPR x x x x x x History of Update Factors The following chart displays the previous five years update/inflation factors that have been applied to hospitals rates: FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Inpatient 1.65% -1.00% 2.20% 1.68% 1.77% Outpatient 1.65% 2.59% 3.05% 2.53% 1.27% Rate Realignment Charges are related to the underlying cost of providing the service This does not change a hospital's total revenue; it just reallocates it among revenue centers Costs for FY 2012 were used to realign FY 2014 rates Rate Realignment Cases 1. Base Period CPC Compliance Target 2. Reversal of Previous One-Time Adjustments CPC Retros 14,957 X 3. Net Current Base Period Cases & Revenue (1) 4. Change in Casemix Index Base period Casemix Index (CMI) Permanent Period CMI

Total Casemix Change Other Net Casemix Change Net Allowable Casemix Revenue FYE 5. 6. 7 8 Approved Revenue CPC Target 10,000 = -293 15,299 X 9,707 15,299 9,539 149,573,461 -4,386,253 = 148,506,993 0.861135 0.846192 -1.735% 0.000% -1.735% Jun-11 145,929,989 Trims and Exclusions FYE Jun-11 Other Other Other Adjusted Permanent CPC Target & Revenue 0 0 0 145,929,989

Other Permanent CPC Target & Revenue Adjustments Other Permanent Permanent CPC Revenue to be Rate Realigned 0 145,929,989 Rate Realignment Using the M schedule from the most recent Annual Filing, the Revenue calculated in the previous step is realigned based on the Volume adjusted cost in each center. For example, if MSG has 15% of the costs, then 15% of the revenue will be allocated to that center. MSG PED PSY OBS DEF MIS NUR EMG CL ADM SDS DEL OR ANS LAB EKG RAD CAT RAT NUC RES Med./Surg. Acute Pediatrics Psychiatric Acute Obstetric Acute Definitive Observation Med./Surg. I.C.U. New Born Nursery Emergency Services Clinic Services Admissions Same Day Surgery Labor and Delivery Operating Room Anesthesiology Laboratory Electrocardiography Radiology-Diagnostic CT Scanner Radiology-Therapeutic Nuclear Medicine

Respiratory Therapy Units per Schedule M Revenue per Schedule M 44,794 1,236 4,830 4,850 7,173 5,744 5,373 673,807 242,609 16,270 9,704 63,147 1,112,319 777,116 10,704,414 422,366 281,506 641,186 7,420 85,424 2,984,919 31,840 1,094 3,224 3,570 6,689 9,156 3,396 17,037 4,807 1,472 2,371 2,806 17,482 1,880 16,894 1,063 6,603 2,708 260 1,778 4,248 Actual Inpatient Units 44,882

1,403 4,297 4,723 6,841 5,598 5,107 164,586 74 16,482 0 53,033 476,188 431,124 7,387,753 246,449 135,456 274,526 5,286 24,513 2,601,939 Actual Outpatient Units 0 0 0 0 0 0 0 524,236 252,246 0 9,810 10,576 824,950 347,512 3,616,255 202,721 158,983 386,008 1,160 56,364 325,142 Actual Total Units 44,882 1,403 4,297 4,723 6,841 5,598 5,107

688,822 252,320 16,482 9,810 63,609 1,301,138 778,636 11,004,008 449,170 294,439 660,534 6,446 80,877 2,927,081 Variable Cost 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 % Change In Units 0.2% 13.5% -11.0% -2.6% -4.6% -2.5% -5.0% 2.2% 4.0% 1.3% 1.1% 0.7% 17.0% 0.2% 2.8%

6.3% 4.6% 3.0% -13.1% -5.3% -1.9% Volume Adjusted Revenue Excluded Schedule M From Revenue Rate Realignment 31,902 1,242 2,868 3,476 6,379 8,923 3,228 17,417 4,999 1,491 2,397 2,827 20,449 1,884 17,367 1,131 6,906 0 226 1,684 4,165 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,594,307 0 0 0

Prorated Current Revenue 36,959,127 1,438,919 3,322,357 4,027,360 7,390,611 10,337,830 3,739,641 20,177,627 5,791,635 1,727,784 2,777,070 3,274,917 23,690,437 2,182,610 20,120,028 1,310,143 8,000,851 3,594,307 261,271 1,950,521 4,825,656 UCC Uncompensated Care includes charity care and bad debt The UCC policy allows hospitals to charge additional amounts in their rates to all payors to cover the shortfall produced by providing uncompensated care Blend of: Three-year average Predicted UCC UCC Three-year average is based on the Hospitals 3 most recent years Annual Filings Predicted UCC uses a linear regression model Independent variable (x): Actual Uncompensated Care Dependent variables (y): Inpatient Medicaid, Self Pay, and Charity Charges as a % of Total Charges Inpatient Charges from non-Medicare Admissions through the ER as a % of Total Charges Outpatient Medicaid, Self Pay, and Charity Charges from the ER as a % of Total Charges Outpatient Charges from non-Medicare ER Visits as a % of Total Charges UCC UCC Pool since Statewide UCC % is built into all hospitals rates, the UCC Pool acts as a settlement methodology to account for hospitals that experience more or less UCC than the State Hospital A

Hospital B Hospital C UCC Policy Result 15.00% 7.47% 3.50% Statewide UCC % 7.47% 7.47% 7.47% UCC Above / (Below) Average 7.53% 0.00% -3.97% Volume Adjustment Rates are adjusted for volume increases and decreases FY 2014 rates adjusted for volume changes occurring in FY 2013 Variable Cost Factor = 85% / Fixed = 15% Volume increases - 15% of volume increase taken out of rates Volume decreases - 15% is put into rates Changes Effective Jan 1, 2014 Adjustment will be made on a concurrent basis (during the year in which the volume change occurs) Variable Cost Factor = 50% / Fixed = 50% Volume Adjustment Total Clinic Volumes 706 32,345 Base Year: Inpatient 16,529 Other 15,109 Rate Year: 16,281 14,855 706 31,843

Change 248 254 0 502 Allowable (x 85%) 211 216 0 427 Volume Adj -0.23% Assessments Two assessments pass through hospitals in order to support medically uninsurable patients and Medicaid expansion MHIP (Maryland Health Insurance Plan) Health Care Coverage Fund Medicaid Budget Deficit Assessment State total spread to hospitals based on % of total revenue Payer portion put into rates (all-payers) 86% Hospital portion paid by hospital throughout year 14% NSP I (Nursing Support Program) grant funding Applied directly to admissions center Application of Assessments Revenue after application of Current Year Price Variances and Penalties Center MSG MIS ADM EMG OR ANS SDS LAB EKG

EEG RAD RAT NUC CAT IRC RES Revenue After Rate Allocation Realignment % $55,482,772 0.2654 14,115,942 0.0675 1,285,404 0.0061 21,129,159 0.1011 20,814,461 0.0996 839,189 0.0040 3,572,228 0.0171 15,617,999 0.0747 1,793,363 0.0086 4,754,200 0.0227 9,528,006 0.0456 479,995 0.0023 1,105,079 0.0053 2,516,377 0.0120 1,595,443 0.0076 2,463,807 0.0118 Applied based on % of Revenue in that center MHIP Adjustment $1,905,069 Final $505,662 128,651

11,715 192,568 189,700 7,648 32,557 142,340 16,344 43,329 86,837 4,375 10,072 22,934 14,541 22,455 NSP I is applied directly to the Admissions Center Allocated Center Adjustments Revenue Health Care Defict Total After Coverage Fund Assessment Allocated NSP I All $2,742,381 $5,797,825 Adjustment = Adjustment Adjustments $10,445,275 $727,909 $1,538,914 2,772,485 $58,255,257 185,195 391,531 705,376 14,821,318 16,864 35,653 64,232 218,580 1,568,216 277,205 586,055 1,055,828 22,184,987 273,076 577,326 1,040,103 21,854,564

11,010 23,276 41,934 881,124 46,866 99,082 178,505 3,750,733 204,901 433,193 780,434 16,398,433 23,528 49,742 89,615 1,882,977 62,373 131,866 237,568 4,991,768 125,003 264,276 476,116 10,004,122 6,297 13,314 23,985 503,980 14,498 30,651 55,221 1,160,300 33,014 69,796 125,744 2,642,121 20,932 44,252 79,725 1,675,168 32,324 68,338 123,117 2,586,923 This revenue produces the Rate Order Rates to be used in Unit Rate Compliance New Approved Volume MSG MIS ADM EMG OR

ANS SDS LAB EKG EEG RAD RAT NUC CAT IRC RES 50,436 6,400 13,147 618,489 899,322 765,657 7,205 10,041,667 686,384 405,224 311,206 17,019 79,507 549,763 54,954 1,619,264 Revenue 58,255,257 14,821,318 1,568,216 22,184,987 21,854,564 881,124 3,750,733 16,398,433 1,882,977 4,991,768 10,004,122 503,980 1,160,300 2,642,121 1,675,168 2,586,923 Rate 1,155.0333 2,315.8310 119.2831 35.8697 24.3012 1.1508 520.5736 1.6330

2.7433 12.3185 32.1463 29.6128 14.5937 4.8059 30.4831 1.5976 Quality Based Reimbursement Implemented July 2008 Whats Measured Measurement Period Clinical/Process HCAPS Outcome CY13 - going into FY15 rates 40% 50% 10% Measurement Period CY14 - going into FY16 rates 30% 40% 30% Source of Data CMS QIO Clinical Warehouse Measurement Period - Calendar Year For example, results from CY 2013 will impact FY 2015 rates % of Revenue at Risk: 0.5% (increasing to 1.0% in FY 2016 rates) Other - Revenue Neutral - some hospitals "win" and some "lose net result to the state is $0 HOSPITAL NAME B Southern Maryland Hospital Center Greater Baltimore Medical Center Prince Georges Hospital Center Sinai Hospital Atlantic General Hospital Northwest Hospital Center Peninsula Regional Medical Center Frederick Memorial Hospital Fort Washington Medical Center Suburban Hospital Calvert Memorial Hospital Bon Secours Hospital Harbor Hospital Center Chester River Hospital Center Union Memorial Hospital Meritus Hospital

Laurel Regional Hospital Howard County General Hospital Franklin Square Hospital Center Washington Adventist Hospital St. Agnes Hospital Johns Hopkins Bayview Medical Center Shady Grove Adventist Hospital Good Samaritan Hospital Western Maryland Regional Medical Center Garrett County Memorial Hospital Montgomery General Hospital Civista Medical Center Carroll Hospital Center Union of Cecil Harford Memorial Hospital Holy Cross Hospital St. Joseph Medical Center Doctors Community Hospital Johns Hopkins Hospital University of Maryland Hospital Upper Chesapeake Medical Center Anne Arundel Medical Center Mercy Medical Center Memorial Hospital at Easton Dorchester General Hospital Baltimore Washington Medical Center Maryland General Hospital St. Mary's Hospital McCready Memorial Hospital Statewide Total GROSS INPATIENT CPC/CPE REVENUE C $146,082,502 $208,875,651 $175,673,564 $365,095,082 $35,569,941 $125,688,476 $235,561,632 $179,085,665 $20,591,728 $146,894,874 $57,014,942 $72,763,474 $120,286,962 $34,409,502 $223,141,625 $170,280,942 $55,032,232 $148,552,102 $244,662,796 $172,399,246 $223,703,417

$254,179,825 $205,252,257 $185,067,078 $162,173,440 $18,335,488 $86,987,493 $65,004,737 $133,858,715 $64,046,952 $46,419,174 $284,622,588 $200,080,034 $121,919,094 $844,917,135 $787,107,460 $117,444,944 $241,861,191 $188,060,788 $117,317,772 $37,355,818 $188,870,979 $119,697,303 $54,639,193 $5,196,783 $7,691,782,590 QBR FINAL SCORE D 0.4096 0.4099 0.4106 0.4338 0.4638 0.4873 0.5015 0.5338 0.5356 0.5494 0.5519 0.5848 0.5857 0.5951 0.6085 0.6102 0.6105 0.6168 0.6174 0.6174 0.6182 0.6294 0.6414 0.668 0.6787 0.6791 0.6795

0.7013 0.7114 0.7316 0.7368 0.7396 0.7441 0.7485 0.7501 0.7597 0.7786 0.7822 0.7911 0.7958 0.8005 0.83 0.8301 0.905 0.923 REVENUE NEUTRAL ADJUSTED PERCENT E -0.50% -0.50% -0.50% -0.45% -0.39% -0.34% -0.31% -0.24% -0.24% -0.21% -0.21% -0.14% -0.14% -0.12% -0.09% -0.09% -0.09% -0.07% -0.07% -0.07% -0.07% -0.05% -0.02% 0.03% 0.05% 0.05% 0.05% 0.09% 0.11% 0.15% 0.16%

0.17% 0.18% 0.18% 0.19% 0.21% 0.24% 0.25% 0.27% 0.27% 0.28% 0.34% 0.34% 0.49% 0.52% 0.00% REVENUE NEUTRAL ADJUSTED REVENUE IMPACT OF SCALING F -$730,413 -$1,043,091 -$874,760 -$1,644,016 -$138,255 -$427,868 -$733,199 -$438,613 -$49,672 -$312,708 -$118,445 -$101,996 -$166,388 -$40,954 -$204,173 -$149,860 -$48,093 -$110,601 -$179,143 -$126,231 -$160,121 -$123,467 -$49,115 $53,270 $80,092 $9,197 $44,300 $60,392 $150,391 $96,868 $74,855 $474,323 $350,770 $224,071 $1,578,877

$1,616,344 $283,917 $601,451 $499,890 $322,463 $106,058 $643,512 $408,057 $265,070 $27,012 $0 Maryland Hospital Acquired Conditions (MHAC) Implemented July 2009 Whats Measured - Potentially preventable complications (PPC's) Diagnosis present on admission? If no, penalized Source of Data - Quarterly discharge data submitted by hospitals Measurement Period - Calendar year For example, results from CY 2013 will impact FY 2015 rates % of Revenue at Risk: 2.0% for attainment, 1.0% for improvement Other - Revenue Neutral - some hospitals "win" and some "lose net result to the state is $0 HOSPITAL NAME B Greater Baltimore Medical Center Johns Hopkins Hospital Union of Cecil Harbor Hospital Center Suburban Hospital St. Joseph Medical Center Chester River Hospital Center Southern Maryland Hospital Center University of Maryland Hospital Sinai Hospital Montgomery General Hospital Garrett County Memorial Hospital Johns Hopkins Bayview Medical Center Calvert Memorial Hospital Frederick Memorial Hospital Meritus Hospital St. Agnes Hospital Peninsula Regional Medical Center Prince Georges Hospital Center Union Memorial Hospital Bon Secours Hospital Good Samaritan Hospital Howard County General Hospital Upper Chesapeake Medical Center Holy Cross Hospital Anne Arundel Medical Center Doctors Community Hospital Baltimore Washington Medical Center Western MD Regional Medical Center Mercy Medical Center

Carroll Hospital Center Northwest Hospital Center Harford Memorial Hospital McCready Memorial Hospital James Lawrence Kernan Hospital St. Mary's Hospital Civista Medical Center Franklin Square Hospital Center Memorial Hospital at Easton Shady Grove Adventist Hospital Maryland General Hospital Fort Washington Medical Center Washington Adventist Hospital Laurel Regional Hospital Dorchester General Hospital Atlantic General Hospital Statewide Total GROSS INPATIENT CPC/CPE REVENUE C $184,989,402 $843,010,098 $60,653,880 $116,221,680 $151,177,296 $180,611,979 $26,318,692 $145,134,232 $783,335,558 $362,977,920 $79,741,456 $17,951,439 $248,923,504 $57,493,422 $170,650,516 $165,746,592 $209,768,089 $219,461,838 $163,205,248 $215,726,275 $70,685,898 $172,932,011 $146,791,098 $115,418,544 $276,326,064 $250,956,754 $119,486,136 $184,662,660 $159,433,379 $191,948,526 $118,189,180 $121,348,486 $42,495,040 $4,512,494

$45,850,528 $53,846,970 $60,770,370 $241,738,193 $82,689,144 $195,270,023 $105,819,110 $16,249,592 $155,015,406 $53,359,459 $28,755,684 $33,780,340 $7,451,430,205 % OF AT RISK REVENUE FROM EXCESS MHAC COMPLICATIONS RANK D E 0.57% 0.19% -0.11% -0.28% -0.29% -0.30% -0.56% -0.58% -0.74% -0.81% -0.88% -0.95% -0.99% -1.00% -1.21% -1.24% -1.25% -1.27% -1.27% -1.32% -1.43% -1.44% -1.47% -1.50% -1.52% -1.52% -1.57% -1.74% -1.79% -1.81% -1.94% -2.03% -2.04% -2.04%

-2.18% -2.29% -2.32% -2.34% -2.38% -2.38% -2.45% -2.64% -2.71% -3.52% -4.61% -4.81% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

44 45 46 REVENUE NEUTRAL CONTINUOUS SCALING ADJUSTMENT F -2.000% -0.667% 0.011% 0.030% 0.030% 0.031% 0.058% 0.061% 0.077% 0.084% 0.091% 0.099% 0.102% 0.104% 0.126% 0.128% 0.129% 0.131% 0.131% 0.137% 0.148% 0.150% 0.152% 0.155% 0.157% 0.158% 0.162% 0.180% 0.186% 0.188% 0.201% 0.211% 0.211% 0.211% 0.226% 0.237% 0.240% 0.243% 0.246% 0.247% 0.254% 0.274% 0.281% 0.365% 0.478%

0.499% 0.000% Total rewards MHAC SCALED REVENUE G -$3,699,788 -$5,624,996 $6,711 $34,321 $44,801 $56,707 $15,345 $87,916 $600,328 $305,313 $72,878 $17,763 $254,934 $59,675 $214,461 $212,423 $270,799 $287,864 $214,412 $295,490 $104,957 $258,929 $223,289 $179,397 $434,082 $396,311 $194,144 $332,979 $296,248 $361,044 $237,380 $255,679 $89,713 $9,531 $103,643 $127,748 $145,938 $586,291 $203,634 $481,892 $269,043 $44,482 $435,272 $194,922 $137,545 $168,549 $0

$9,324,784 Population Adjustment Relevant for TPR hospitals only HSCRC calculates population growth for each hospitals primary and secondary service area by age cohort An adjustment is made to the TPR Cap in order to account for the increase or decrease in the population Case Mix Index (CMI) All Patient Refined Diagnostic Related Grouper Each APR-DRG has a level of severity from 1 4 which is assigned based on in depth coding information such as age, weight, other pre-existing conditions, etc. 3-Level Case Mix Calculation Level I (CPC Included) Hospital-specific change in CMI Level II (Trim) and III (Exclusions) Revenue pass-through for exclusions and trim revenue Statewide CMI change based on Level III Case Mix Index (CMI) Calculation of Relative Weights Establish Statewide Average Charge per Case (with remaining data set) For each Cell (DRG by Severity) Example: Calculation of Relative Weight and CMI State Average State Average DRG 002 Severity 3 $10,000 DRG 390 Severity 2 $3,000 Total State Average $5,000 Total State Average $5,000 Relative Weight 2.0000

0.6000 Case Mix Index (CMI) Based on Mix of Services Provided (Case Mix Index) Example: DRG Description Normal Delivery Chest Pain Heart Failure Pneumonia Hysterectomy Hip Replacement Stroke Splenectomy Index Weight x Cases = 0.4020 0.5342 1.0144 0.7800 0.8699 2.2500 1.1914 3.1411 Subtotal / Total Cases 730 490 385 385 240 273 150 3 2,656 Average CMI Total Index 293 262 391 300 209 614 179 9 2,257 2,656 0.850 Unit Rate Compliance

Revenue Center Med./Surg. Acute New Born Nursery Admissions Psychiatric Day/Night Operating Room Radiology-Diagnostic Renal Dialysis $ Col. 1 Col. 2 Gross Revenues Units of Measure 4,000,000 120,000 200,000 70,000 2,500,000 850,000 150,000 Col. 3 Actual Rate Charged (Col 1/Col 2) 4,630 $ 229 1,300 285 90,000 33,000 220 Col. 4 HSCRC Approved Rate Col. 5 Charge Variance (Col 3-Col 4) x Col 2 863.9309 $ 854.1740 $

524.0175 518.2096 153.8462 151.7719 245.6140 252.9133 27.7778 25.2681 25.7576 26.4154 681.8182 777.9715 45,174 1,330 2,697 (2,080) 225,871 (21,708) (21,154) Col. 6 Variance Percentage (Col 3-Col 4) / Col 4 1.1% 1.1% 1.4% -2.9% 9.9% -2.5% -12.4% Hospitals must be in compliance with approved unit rates on a monthly (except TPR) and YTD (7/1 - 6/30) basis Unit Rate Compliance Although rate orders are effective July 1, hospitals usually receive them in Oct/Nov Still need to be in compliance by June 30th Approved rate (per rate order) = $15.00 Actual average charge for July-Dec = $10.00 Average charge for Jan-June must = $20.00 to be in compliance by June 30 Supply and Drug Compliance MSS (Supplies) A B C D E F G H

I J Invoice Cost Markup Amount - per rate order Invoice Cost with Markup Actual Revenue Overhead Collected Approved Overhead - per rate order Months of Rate Year Approved Overhead for Period Overhead Variance % Variance $ AxB D-C F x G / 12 E-H I/H 2,400,000 $ 1.1206 2,689,440 3,800,000 1,110,560 12,025,772 1 1,002,148 108,412 10.82% CDS (Drugs) 1,700,000 1.1206 1,905,020 3,100,000 1,194,980 14,813,263 1 1,234,439 (39,459) -3.20% CPE/CPC Price Corridors Revenue Center All Inpatient Room & Board Admissions Emergency Services Clinic Services Psychiatric Day/Night Operating Room Operating Room - Clinic Anesthesiology

Same Day Surgery Labor and Delivery Laboratory Electrocardiography Electroencephalography Radiology - Diagnostic Radiology - Therapeutic Nuclear Medicine Monthly Upper Lower 10% 10% 10% 10% 4% 4% 4% 4% 4% 10% 6% 10% 6% 10% 6% 10% 4% 10% 6% 4% 6% 10% 6% 10% 6% 10% 6% 10% 6% 10% 6% 10% Year End Upper Lower 10% 10% 10% 10% 2% 2% 2% 2%

2% 5% 3% 5% 3% 5% 3% 5% 2% 5% 3% 2% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% Revenue Center CT Scanner Interventional Cardiology Respiratory Therapy Pulmonary Physical Therapy Occupational Therapy Speech Therapy Renal Dialysis Audiology MRI Scanner Lithotripsy Ambulance Hyperbaric Chamber Observation Med/Surg Supplies Drugs Monthly Upper Lower 6% 10% 6% 10% 6% 10% 6% 10% 6% 10%

6% 10% 6% 10% 10% 10% 6% 10% 6% 10% 6% 10% 6% 10% 6% 10% 4% 4% 30% 30% 30% 30% Year End Upper Lower 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 5% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 2% 2% 30% 30%

30% 30% Overcharges/undercharges that are within the allowed corridors go into next years rates (one time adjustment) TPR Price Corridors TPR unit rate compliance corridors are more relaxed Hospitals are free to charge at levels up to 5% above / (below) the approved individual unit rates without penalty This limit can be extended to 10% at the discretion of the Commission Staff Penalties for Exceeding the Corridors Penalties will be applied if rates exceed monthly corridors for consecutive periods (TPR excluded): 6 consecutive months for Supplies (MSS) and Drugs (CDS) 3 consecutive months for all other centers Penalties are calculated at 20% of the sum (absolute value) of all charges in excess of the corridors Penalties are subtracted from next years rates Penalties for Exceeding the Corridors Cont. Penalties will be applied if rates exceed year-end corridors Penalties are calculated at 40% of the sum (absolute value) of all charges in excess of the corridors Penalties are subtracted from next years rates CPC and CPE Trim Exclusions Trim High charge cases Exclusions Zero and one day stay cases Hospice Cases Cases denied for medical necessity (when 100% of room and board charges denied) Transplants (organ & bone) Other Special Cases Burn at Bayview Chronic at Kernan Shock Trauma Special Oncology Readmissions Charge per Case (CPC) Compliance Actual Revenue and Cases - YTD Less: Exclusions (A)

Inpatient Revenue $ 200,000,000 (B) Inpatient Cases 21,000 15,000,000 2,750 (C) Actual CPC (A/B) $ 9,567 (D) Actual CMI 0.9290 (E) HSCRC CMI - per rate order 0.9310 (F) Increase (Decrease) in CMI (D/E-1) -0.21% Less: Trim 1,900,000 (G) HSCRC-Approved CPC - per rate order $ 9,627 Less: Assessments 8,500,000 (H)

Allowed CPC based on actual CMI (FxG) $ 9,606 (I) Overcharge (undercharge) in CPC (C-H) $ (J) Overcharge (undercharge) in Revenue (IxB) $ (715,322) (K) % Variance (I/H) Included CPC Revenue and Cases Actual CPC $ 174,600,000 $ 18,250 9,567 Can only adjust Inpatient Routine Centers to achieve CPC compliance (39) -0.41% Charge per Episode (CPE) Compliance Actual Revenue and Cases - YTD $ Less: Exclusions (A) Inpatient Revenue 200,000,000 (B) Inpatient Cases 21,000 (15,000,000)

Less: Readmissions (C) Actual CPE (A/B) $ 10,518 (D) Actual CMI 1.0100 (2,750) (E) HSCRC CMI - per rate order 1.0120 (1,650) (F) Increase (Decrease) in CMI (D/E-1) -0.20% Less: Trim (1,900,000) (G) HSCRC-Approved CPE - per rate order $ 10,607 Less: Assessments (8,500,000) (H) Allowed CPE based on actual CMI (FxG) $ 10,586

(I) Overcharge (undercharge) in CPE (C-H) $ (J) Overcharge (undercharge) in Revenue (IxB) $ (1,128,223) (K) % Variance (I/H) Included CPE Revenue and Cases Actual CPE $ 174,600,000 $ 16,600 10,518 Can only adjust Inpatient Routine Centers to achieve CPE compliance (68) -0.64% CPC/CPE Compliance Corridors Overcharge Corridors: 0% to 1.0% 1.0% to 1.5% 1.5% to 2.0% 2.0% and greater No Penalty 20% Penalty 30% Penalty 40% Penalty Undercharge Corridors: 0% to 2.0% No Penalty 2.0 to 3.0% 40% Penalty 3.0% and greater 100% Penalty Reasonableness of Charges ROC is the acronym for the HSCRCs Reasonableness of Charges

Currently, there is no efficiency measure in place (suspended) HSCRC is developing a new efficiency measure Several parts of the ROC will probably remain in the new efficiency measure including peer groups and charge adjustments to account for differences at each hospital. Required Monthly Reporting Name of Report Volumes and Revenues Description Inpatient and Outpatient volumes and revenue by rate center. Recently expanded to report In-State vs Out of State and Medicare Unaudited Financial Statements Income Statement and Balance Sheet Listing of rate centers with rates outside of allowed corridors and plan to come into Price variance letter, Schedule compliance, Supplemental Births, Supply & SB, Schedeule CSS Drug Compliance Frequency Due Date Monthly 30 days after end of month 30 days after end of month Monthly 30 days after end of month Monthly Required Quarterly Reporting Name of Report Description Inpatient Case Mix Data, Outpatient Case Mix Data Inpatient Hospice Report Patient specific data including demographics, diagnoses & procedures, financial data

Report patients and related charges when 100% of room & board charges are written offfor medical necessity Listing of hospice patients with related charges and payments. Not applicable to all hospitals AR1, AR2, AR3 Denied Admissions Frequency Quarterly Due Date See production schedule on HSCRC website Quarterly 45 days after end of quarter Quarterly 45 days after end of quarter Income, expense and utilization reporting for Global Pricing/Capitation arrangements. Not applicable to all hospitals Quarterly 30 days after end of quarter Required Annual Reporting Name of Report Description Frequency Due Date Annual Cost Report Expenses, FTE's, revenues and volume for rate centers and HSCRC defined overhead (OH) centers. Must reconcile to audited financial statements. OH is allocated to rate centers Annually 120 days after end of

fiscal year Audited Financial Statements Audited Financial Statements Annually Credit and Collection Policy Hospital's Credit and Collection policy Annually Trustee Disclosure AR1, AR2, AR3 List of trustees with business addresses, individual disclosure form for each trustee doing > $10,000 business with the Annually hospital Income, expense and utilization reporting for Global Pricing/Capitation arrangements. Not applicable to all Annually hospitals 120 days after end of fiscal year 120 days after end of fiscal year 120 days after end of fiscal year 120 days after end of fiscal year Special Audit Report Performed by independent auditing firm, audits various components of the monthly, quarterly and annual reports submitted to HSCRC. HSCRC defines the audit procedures. Annually 140 days after end of fiscal year Community Benefit Report Listing of expenses incurred providing community benefits (direct and indirect expenses net of offsetti ng revenue) Annually December 15

Federal IRS Form 990 Interns and Residents Wage and Salary Report Federal IRS Form 990 Annually Listing of interns and residents that rotated to hospital during the FY. Includes the medical school graduated from. Not Annually applicable to all hospitals Based on one pay period, groups employees into HSCRC defined categories, calculates an average rate of pay Annually January 15 January 15 June 1 Terminology & Acronyms Acronym % Occ What It Represents What It Means % of Occupancy Calculated by dividing total patient days by (# of beds x 365 days). ACS Ambulatory Care Services Services rendered to persons who are not confined overnight in a healthcare institution. Often referred to as O/P (Outpatient) services. ACO Accountable Care Organization Are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve. ADC Average Daily Inpatient Census

Average number of I/Ps (Inpatients) (based on the daily inpatient census) present each day of a given period of time. ADM Admission Formal acceptance by an institution of a patient who is provided with room and board, continuous nursing service and other institutional services while lodged in the institution. APG Ambulatory Payment Group Classification system used to group ambulatory cases. Terminology & Acronyms Acronym What It Represents What It Means ALOS Average Length of Stay Average number of days of service rendered to each I/P discharged during a given period. AOB Average Occupied Beds Total Inpatient Days divided by 365. APR-DRG All Payer Refined-Diagnosis Related Group System used by 3M Health Information Systems as the basis of all-payer hospital payment system; used by many hospitals in the US to analyze comparative hospital performance. ARR Admission Readmission Revenue Inpatient revenue measurement on a per episode basis. ARMS

Alternative Rate Setting Methods When a hospital is permitted to accept financial risk for the provision of services under certain conditions and circumstances. Case Mix Index Measure of complexity of patient population and/or treatment provided by an institution; tells how complex patients and services are. CMI Terminology & Acronyms Acronym What It Represents What It Means CMS Center for Medicare and Medicaid Services The federal agency that runs the Medicare program. In addition, CMS works with the states to run the Medicaid program. CMS works to make sure that the beneficiaries in these programs are able to get high quality health care. CON Certificate of Need CPC Charge Per Case Inpatient revenue measurement on a per case basis. CPT Current Procedural Terminology Numeric coding system maintained by the American Medical Association (AMA). Coding scheme for outpatient procedures and services. Formal state application and approval process for adding new beds and services. Terminology & Acronyms Acronym

What It Represents What It Means DME Direct Medical Education Direct expenses (salaries, benefits, etc.) related to qualified intern, residents and fellows in teachingrelated programs. DSH Disproportionate Share EIPA Equivalent Inpatient Admission Statistic that combines inpatient admissions and total outpatient visits as one unit of measure. EIPD Equivalent Inpatient Days Statistic that combines inpatient days and outpatient ambulatory visits in a weighted method. EIPC Equivalent Inpatient Cases Statistic that combines inpatient cases and outpatient ambulatory visits in a weighted method. Providing services to a disproportionately large share of low-income patients. Under Medicaid, states augment payments to hospitals with high DSH. Medicare inpatient hospital payments are also adjusted for this added burden. Terminology & Acronyms Calculation of EIPAs: Total Inpatient Revenue Total Inpatient Admissions Inpatient Unit Revenue Total Outpatient Revenue Total Outpatient Visits Outpatient Unit Revenue Inpatient / Outpatient Unit Ratio $ 63,304.8 A 6,637 B 9.54 C = A / B

$ 29,845.7 D 47,274 E 0.63 F = D / E 15.11 G = C / F Total Inpatient Admissions 6,637 H Outpatient Visits 3,129 I Terminology & Acronyms Acronym E&M What It Represents Evaluation and Management What It Means Universal codes to bill for patient visits or consultations conducted at a clinic, emergency room or physicians office. FS Financial Statements Balance sheet, income statement, funds statement, statement of changes in financial position or any supporting statement or other presentation of financial data derived from accounting records. FTE Full Time Equivalents An objective measurement of the personnel employment of an institution in terms of full time labor capability. HSCRC bases FTEs on # of hours worked. Medicare bases FTEs on # of hours paid. Terminology & Acronyms Acronym GL GME HCPCS What It Represents What It Means

General Ledger A ledger containing accounts in which all the transactions of a business enterprise or accounting unit are classified either in detail or in summary form. Graduate Medical Education Generally defined as the clinical training following graduation from medical school. This clinical training, which ranges from three to seven years in length (internship and/or residency), has traditionally taken place in teaching hospitals or academic medical centers (AMCs). This is funded in Marylands rate-setting system and is the cost of graduate medical education (GME) generally for interns and residents trained in Maryland hospitals. Healthcare Common Procedure Coding System Alpha numeric billing codes used to identify and bill for items and services not included in the CPT Codes. Terminology & Acronyms Acronym What It Represents What It Means HIPAA Health Insurance Portability and Accountability Act Designed for patient confidentiality, data security and standardization. HMO Health Maintenance Organization A health care provider or group of medical service providers who contracts with insurers or self-insured employers to provide a wide variety of managed health care services to enrolled workers through participating panel providers. HSCRC Health Services Cost Review Commission I/P

Inpatient ICC Inter-Hospital Cost Comparison Rate-regulating and rate-setting body in the State of Maryland. Patient who is provided with room and board, and continuous general nursing services in a hospital. Defined as an admission and an overnight stay. Cost comparison methodology used in full rate application process. Terminology & Acronyms Acronym What It Represents What It Means ICD-9 International Classification of Diseases 9th Revision Clinically Modified Classification of codes that represent diagnoses, conditions and symptoms. ICD-10 International Classification of Diseases 10th Revision Clinically Modified Classification of codes that represent diagnoses, conditions and symptoms. October 2014 IME Indirect Medical Education Indirect Medical Education expenses are generally described as those additional costs incurred as a result of the teaching process (e.g., extra tests ordered by interns / residents or the extra costs of supervision). MCO Managed Care Organization A type of Medicare managed care plan where a group of doctors, hospitals and other health care providers agree to give health care to Medicare beneficiaries for a set amount of money from Medicare every month. You

usually must get your care from the providers in the plan. MHA Maryland Hospital Association State organization of Maryland hospitals. Terminology & Acronyms Acronym What It Represents What It Means MHCC Maryland Health Care Commission An independent regulatory agency whose mission is to plan for health system needs, promote informed decision-making, increase accountability and improve access in a rapidly changing health care environment by providing timely and accurate information on availability, cost and quality of services to policy makers, purchasers, providers and the public. MHIP Maryland Health Insurance Plan State-managed health insurance program for Maryland residents who are unable to obtain health insurance from other sources. Each hospital is assessed at 1% of its net patient revenue to operate the program. NOR Net Operating Revenue Operating gross revenue less any contractual or other revenue deductions. Terminology & Acronyms Acronym What It Represents What It Means NSP Nursing Support Program Nursing Support Program developed to help address the

nursing workforce shortage. Each rate-regulated hospital is eligible for a percentage of rate increase to help pay for programs to recruit and / or retain nurses (NSPI and NSPII). O/P Outpatient Patient involved in an emergency visit, diagnostic test or clinic visit procedure or service and is not admitted to the hospital. Total Allowed Revenue Permanent revenue represents revenue that a hospital is entitled to on a permanent and ongoing basis. The opposite of permanent revenue is one-time revenue which is only approved for a one year period. PIP Periodic Interim Payment When a hospital receives cash payments from thirdparty payers (Usually Medicare) in constant amounts each period. The total of these payments received over a year is an estimated cost of providing services to patients covered by the plan. PLF Price Leveling Factor Permanent Revenue Factor used to inflate and / or adjust charges from a historical / current period to a current / future period. Terminology & Acronyms Acronym What It Represents What It Means RAC Recovery Audit Contractor Approved CMS contractors who have been commissioned to review the Medicare claims of acute care facilities to deem if services were necessary or appropriate. ROC

Reasonableness of Charges (Suspended) HSCRCs Reasonableness of Charges Report. This report is the Commissions tool for assessing the reasonableness of each hospitals charges on a per case basis relative to their peer group. RVU Relative Value Unit Index number assigned to various procedures based upon the relative amount of labor, supplies and capital needed to perform the procedure. Predominantly for ancillary activities and clinic visits (by time and complexity). Terminology & Acronyms Acronym What It Represents What It Means TPR Total Patient Revenue An agreement which establishes a revenue cap for qualifying hospitals. A qualifying hospital is typically located in a rural area and has a well-defined catchment area with a stable population. UB-04 Uniformed Billing 2004 Standard form used for the billing of facility-based / inpatient services, effective July 2007. UCC Uncompensated Care Care provided for which compensation is not received (bad debts and charity care). W&S Wage & Salary Report Job-specific pay information for hospitals. This is used in the calculation of the Labor Market Adjustment for HSCRC ROC and Full Rate Settings.

QBR Quality Based Reimbursement New HSCRC reimbursement methodology which adjusts reimbursement for identified quality measurements. Terminology & Acronyms Acronym What It Represents What It Means PPC Potentially Preventable Complications 64 Complications that are highly preventable as defined by 3M. PPR Potentially Preventable Readmissions MHAC Maryland Hospital Acquired Conditions Readmission scenarios deemed preventable. Subset of PPC. Considered as never events. P4P Pay for Performance Initiative which gives incentive to provider to improve quality of care. ODS Zero and One-Day Length of Stay Patients admitted and discharged by a hospital with a length of stay less than or equal to one. CPE Charge per Episode An ARR hospitals approved revenue constraint as determined by dividing approved included revenue by

the count of ARR Episodes of Care QUESTIONS??

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