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Implementing Medicare
Hospital Payment Systems
Presented by:Will Fox, FSA, MAAA
Wednesday, September 12, 2007
Implementing Medicare Hospital Payment Systems
Fee Schedule Examples
Impact to Hospitals
Impact to Indian Health Services
Options and Recommendations
Inpatient Prospective Payment System (IPPS)
Diagnosis Related Groups (DRGs)
─Reflect patient severity/resource consumption
Payment not equal among hospitals Reduced payment for transfers and
Post-Acute transfers for some DRGs Outlier payments complex Add-on payments for new technology
(none in FY2008)
IPPS Long Term Care
Hospitals with a Medicare ALOS greater than 25 days
DRGs─Reflect patient severity/resource
consumption─DRGs are the same as IPPS, the
relative weights are not Payment equal among hospitals Adjustments for short stays and high
cost outliers
IPPS Rehabilitation
Case Mix Groups (CMGs)
─Requires clinical assessment, not just a straight UB claim
─UB claim is populated with Revenue Code 0024 and Procedure Code equal to CMG (e.g., 1602)
DSH and Teaching adjustments make payment not equal among hospitals
Short Stay Outliers (<=3 days) = $2,809
High Cost Outliers – see attachment
IPPS Psych
Adjusted Per Diem─Adjustments include DRG, co-
morbidities, age and day of stay
─UB claim has all data required
Teaching adjustment makes payment not equal among hospitals
Skilled Nursing Facility (SNF)
Per diem payment, each day is assigned a Resource Utilization Group
Resource Utilization Groups (RUGs)
─Requires clinical assessment, not just a straight UB claim
─UB claim is populated with Revenue Code 0022 and Procedure Code equal to RUG (e.g., RUX)
Payments are equal among hospitals
Outpatient Prospective Payment System (OPPS)
Payment per service, not per day or per case
Not all procedures are paid, some are “packaged” with a “significant” procedure─For example, low cost drugs and
supplies are included in the cost of a surgical or emergency room procedure
OPPS Continued
Combination of fee schedules─APC – Ambulatory Payment Category
─Lab – Medicare clinical lab schedule
─RBRVS – mostly for physical therapy
OPPS Continued
Edits and Adjustments:─Outpatient Code Editor (OCE) denies
payment for invalid billing combinations (e.g., female patient with male procedure)
─Multiple procedure reduction - “T” Status claims reduced for second service
Medicare Advantages
Known to hospitals Reasonable level of patient severity
precision Cost based payment level Reduces administrative contracting costs Reduces claims administration costs
─After initial setup
─Less contracts to load, variances in provisions
Lower rates than you would likely be able to contract for
Medicare Disadvantages
Hospitals do not always have the information on a UB bill to use PPS─Rehab CMGs
─SNF RUGs
─OPPS HCPCS
Fee Schedules set for age 65+ patients─Average payment methodology may
not be appropriate for other populations
Changes in 2008
1. MS-DRGs for IPPS Move from 538 to 745 DRGs
Has an impact on outlier and short stay payments
2. No other significant changes IPPS Relative Weights transitioning to
cost based
Impact to Hospitals
1. Lower payments
2. Reduced administrative costs No negotiations
Assume payment process set up reliably, less audit/checking cost
3. Fair and understandable payments Familiar with Medicare
Impact to IHS Groups
1. Lower payments
2. Reduced administrative costs No negotiations
Less table loading/updating (in theory)
3. Fair and understandable payments
Options and Recommendations
1. Fiscal intermediary Historical relationship helps
Not available to all
Already have capability
2. Outside vendor Many different components to mess up
No positive recommendations
3. Do it yourself Not recommended