HOSPITAL PAYMENT MODERNIZATION CONNECTICUT’S OPPORTUNITY FOR CHANGE

1. HOSPITAL PAYMENT MODERNIZATIONCONNECTICUT’S OPPORTUNITY FOR CHANGE November 2013

2. Discussion Agenda Project Goals Overview of Conceptual Underpinnings of DRG and APC Suggested Evaluation Criteria Current Project Direction 1 1 MERCER

3. Project Goals 2 2 MERCER Design, develop and implement a complete rebuild of both hospital payment systems Implement new prospective payment systems that are ICD-10 capable Systems that are more precise in the recognition of acuity for both IP and OP hospital services Provide payment structures that promote proper delivery of health care in the most appropriate setting Promote more predictable and transparent payment processes for hospitals Revenue neutrality at the hospital level will be a primary goal Over time, migration to more equitable payment systems will likely not result in revenue neutrality at the hospital level. Implement payment methods that can support quality health outcomes and efficiency Create systems that establish a sound financial basis for the changing environment including state and federal policy goals

4. Conceptual Underpinnings – Inpatient DRG Systems Each DRG to contain patients with a similar pattern of resource intensity Each DRG to contain patients who are similar from a clinical perspective (i.e., each group should be clinically coherent) DRGs based on routinely collected information from hospital abstract systems A manageable number of DRGs, which encompass all patients seen on an inpatient basis Based on age, principal diagnosis, secondary diagnoses and the surgical procedures performed

5. Conceptual Underpinnings: Some Examples of DRG Pricing 4 4 Hospital Specific (or Peer Group, or Statewide) Base Rate $4,000 • Knee Replacement / Severity 1 Relative Weight 2.0347 • Hospital Payment $8,139 • Knee Replacement / Severity 4 Relative Weight 5.3662 • Hospital Payment $21,465 • Normal Delivery / Severity 1 / Relative Weight 0.4672 • Hospital Payment $1,869 MERCER

6. Conceptual Underpinnings: APR-DRG versus Medicare 5

7. Conceptual Underpinnings – Outpatient APC Systems 6 Ambulatory Payment Classifications (APCs) classify hospital outpatient services (some services, such as Laboratory, are excluded) APCs are conceptually similar and to DRGs in terms of the resources required to provide each service Will support ICD-10 Payment amounts for each APC are based on estimates of the costs associated with providing any of the services assigned to an APC Hospitals continue line item billing using HCPCS/CPT codes and claims administrator receives the claims and applies the appropriate APC payment rates to the HCPCS codes 6 MERCER

8. Conceptual Underpinnings: Some Examples of Fee Schedule APCs 7

9. Suggested Evaluation Criteria 8 Systems should: • Align payments to the services provided, including differences in acuity • Enable Incentives to provide efficient care in the most appropriate settings • Enhance payment predictability for providers and the State • Maintain access to high quality services • Provide transparent methodologies that are easy to understand and replicate • Be designed to be periodically updated • Accommodate future models and policies, including shared savings, health neighborhoods, incentive pools and episode bundling In the end, systems should promote high value, quality-driven health care services MERCER

10. Options Considered 9 Inpatient • Current Method (no change, keep recent Meld approach) • Current Method with Case Mix Adjustment added • DRG Method Outpatient • Current Method (fee schedule and cost to charge ratios) • Fee Schedule APC • Enhanced APG 9 MERCER MERCER

11. Project Direction: Move to DRG and APC Models 10 Incentives clear and aligned • Acuity considered Better able to link to policy initiatives • Can adjust payment levels easily (i.e. <100% to develop incentive pool) • Able to implement P4P Multi-payer initiatives possible Easier to administer for state and hospitals Easier to update Stakeholders are supportive 10 MERCER

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