Prospective Payment System:

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 • 25% Blend with traditional Budget • PPS FY06 allocation implications determined • Based on recent Business Plans • 50% blend with traditional budget

7. FY05 Mid Year Summary

8. Tracking FY06by 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 • Where are we now • 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 • 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. Institutional Inpatient Satisfaction ORYX Professional HEDIS Outpatient Institutional Professional Workload Performance Capitation Data Ancillary Weights Rates Pharmacy Risk Adjusters Data Rates Other Benefit (HCPCs) Reinsurance Plan Data Weights Rates Minimum Enrollment Dental Data Weights Indirect Readiness/ Other Rates Direct Readiness/ Other Data Weights Rates Data Weights Rates PPS Roadmap

20. Bundling Institutional Inpatient Satisfaction ORYX Professional HEDIS Outpatient Institutional Professional Workload Performance Capitation Data Ancillary Weights Rates Pharmacy Risk Adjusters Data Rates Other Benefit (HCPCs) Reinsurance Plan Data Weights Rates Minimum Enrollment Data Dental Weights Rates Indirect Readiness/ Other Direct Readiness/ Other Data Weights Rates Data Weights Rates PPS Roadmap

21. Next StepsProspective Payment • Monitor FY06 performance against plan • Apply to future budgets • FY07 - 75% • FY08 - 100% • 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: Gregory.Atkinson@ha.osd.mil 703-681-1724

25. Valuing Business PlansFee 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 • Average amount allowed • Including institutional and professional fees • Adjusted for local Wage index • Value per RVU - $79 • Average amount allowed • Segmented by Specialty • Excluding Ancillary, Home Health, Facility Charges • Adjusted for local Wage index

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. 15,000+ ICD-9 Diagnoses Disease categories created by each model ACG CDPS CRG DCG Identical regression method Predicted costs Capitation Risk Adjustment:Predicting Costs for Each Person with Each Model Procedures Provider Type Dates of Service (just for CRGs) Age & Sex information

28. Capitation Risk Adjustment: Costs and Predictive Ratios by Disease 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 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 Validate Data Develop Rates Business Plan