Implementation of a SeverityAdjusted DiagnosisRelated Groups Payment System in a Large Health Plan

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Implementation of a Severity-Adjusted
Diagnosis-Related GroupsPayment System in a
Large Health Plan

• Western Conference
• External Operations Conference
• June 10, 2009

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Agenda

• Hospital Payment History
• Goals
• Vendor
• What are APR-DRGs?
• Design Key components
• Implementation Challenges
• Results What have we accomplished?
• Assessment Lessons Learned
• The Future What is next?

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History, Goals, Vendor
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Wellmark Blue Cross Blue Shieldof Iowa and South
Dakota

• Membership 2.0 Million health customers
  (Iowa-1.7M) (South Dakota .3M)
• Commercial Under 65 Market Share 50 Iowa 35
  South Dakota
• Medical Benefit Revenue 3.2B
• Total Medical Costs 2.8B
• Total Administrative Costs 420M
• Employees 1,700

Wellmark Blue Cross and Blue Shield
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Hospital Payment History

• Universal Contract
• 1999
• Urban 12 per diems for inpatient based on
  AP-DRGs
• Rural per case for inpatient based on AP-DRGs
• Critical Access of charge for inpatient
• 2001
• Urbans moved to AP-DRG per case payment
• 2006
• APR-DRGs implemented for Iowa Hospitals
• 2008
• APR-DRGs implemented for South Dakota Hospitals

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Goals

• What we hoped to accomplish?
• Payment Equity
• Predictability for all parties
• Address issues related to outliers
• Address issues related to new technology
• Sensitive to changes in how care is delivered
• Allows for the opportunity to recognize and
  reward quality and efficiency

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Vendor

• What is their role?
• Original plans
• Data analysis
• National expertise
• Challenge our thinking
• Additional activities
• Created reports and tools
• Launched a SharePoint website
• Facilitate the discussions with the CFO workgroup
• Provide benchmarking data

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Vendor Wellmarks Choice

• Treo Solutions, Inc.
• Healthcare information services consultants
  located in Albany, New York
• Provide business intelligence and decision
  support for growing revenue, managing cost and
  improving quality
• Created Treo HIS, an information service allowing
  hospitals to access resource use, quality, market
  share and physician benchmarking data. 
• Clients include hospitals, health systems, health
  plans and government agencies

Wellmark, Inc. 2006
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CFO Workgroup(s)

• 12 representatives from Urban/Rural hospitals
• November, 2004 1st meeting
• Original Goal
• Feedback to Wellmark on implementation of a new
  AP-DRG version and other inpatient related issues
• Revised Goal
• Feedback to Wellmark on a hospital inpatient and
  outpatient payment strategy and how to
  communicate it
• 12 representatives from Critical Access hospitals
• November, 2005 1st meeting
• Early 2006 consolidated into a single group and
  have been meeting bi-monthly for the last 3 years

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What are All-Patient refined DRGs?
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APR-DRGs Introduction

• 314 base APR-DRGs
• Each APR-DRG is subdivided into four severity of
  illness subclasses
• Each APR-DRG is subdivided into four risk of
  mortality subclasses
• Combination of APR-DRG and subclasses results in
  1258 APR-DRGs

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APR-DRG Data Requirements

• Principal Diagnosis coded in ICD-9-CM
• Secondary Diagnoses coded in ICD-9-CM
• Procedures Coded in ICD-9-CM
• Age
• Sex
• Discharge Disposition

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APR-DRG Example
Secondary Diagnosis 9971 9973 5119 4140 4019
Standard Severity of Illness Level
Assignments 2 2 2 1 1
Modify Standard Severity of Illness Level of
Individual Secondary Diagnosis by
Age APR-DRG
Principal Diagnosis Non Operating
56 106 41041 Room
Procedures 9904
Severity Level 2 2 2
1 1
Set base Severity of Illness Subclass Equal to
the Highest Severity of Illness Level of any of
the Secondary Diagnoses Severity Level 2
Reduce Subclass of Major or Extreme by One Level
if Multiple High Severity of Illness Secondary
Diagnoses are not Present Severity Level 2
Increase Base Severity of Illness Subclass Based
on Interaction among Secondary Diagnoses and the
Interaction between the Base APR-DRG and
Principal Diagnosis, Age, and non-OR Procedures
Severity Level 3
Final Severity of Illness Subclasses Severity
Level 3
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APR-DRGs Example
APR DRG 165 Coronary Bypass w/ Cardiac Cath Or
Percutaneous Cath
LOS 9.00 Average Cost 28,761 Weight 5.54
LOS 6.66 Average Cost 21,992 Weight 4.24
Patient Severity level 1
Patient Severity level 3
LOS 7.79 Average Cost 24,436 Weight 4.71
LOS 13.64 Average Cost 37,214 Weight 7.17
Patient Severity level 2
Patient Severity level 4
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Design What are the key components?Implementa
tion Challenges Successes
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Design

• Key Components Cost Based System
• Ratio of Cost to Charges
• Relative Weights
• Outlier Thresholds
• Transfers
• Short Stays
• Medical Education
• Behavioral Health, Rehab Skilled Care
• Base Rates
• Peer Groups

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Ratio of Costs to Charges (RCC)
Current RCCs will be included in the 90 day
notice for hospitals to validate for outlier
calculation use
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Relative Weight Development
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Relative Weight Development
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Relative Weight Development
If gt 5 cases and Relative Weight was in correct
sequence (1-4 severity increases), the Relative
Weight was used 122,333 Cases
If Relative Weight did not meet above criteria,
apply difference from previous year weights to
current year weights. If all cases within APR
were lt 5, use Blue Cross Benchmark dataset. If
all cases within APR lt 50, smooth weights using
3-year average 1,850 Cases
Monotonicity
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Outlier Threshold Development
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Outlier Payment Calculation
APR-DRG Cost Outlier Threshold
Hospital Claim
Hospital Specific RCC
Hospital Specific APR-DRG Specific Charge
Outlier Threshold
Hospital Charge gt Charge Outlier Threshold
Base Payment Base Rate Relative Weight
No
Yes
Base Outlier Payment Outlier Payment
Charge-Charge Threshold RCC
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Transfer Per Diem
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Transfers

• Acute care patient is admitted to one hospital
  and subsequently transferred and admitted to
  another acute care hospital
• Transferring hospital will be paid the lesser of
  the per diem times the number of days or the
  APR-DRG payment
• Receiving hospital will be paid the APR-DRG
  payment
• Transfer per diems have been established for
  Level 1 2 and Level 3 4 for each APR-DRG

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Short Stays

• Acute care cases assigned to an APR-DRG severity
  level 15 and the Patient Status Code is a 20,
  40, 41 or 42, patient expired
• Relative weights were adjusted to be monotonic
• Case will be paid the lesser of the per diem
  times the number of days or the APR-DRG payment

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Per Diem Services

• Behavioral Health (MHCD)
• APR-DRG assignment will determine cases
• A single per diem rate applies to each peer group
• Rehab Services
• APR-DRG assignment will determine cases
• A single per diem rate applies to each peer group
• Skilled Services
• Place of service or provider billing number will
  determine cases
• A single per diem rate applies to each peer group

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Medical Education Payment

• Intern and Resident direct costs reimbursed as a
  add-on payment and not included in base rate or
  per diem payment rates
• Payment will be based on percentage of total
  direct Medical Education expense
• Payment will be an add-on to the per case payment
  
• Payment amount will be reviewed annually and
  subject to change if hospitals Intern and
  Resident program changes

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Peer Groups
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Base Rates

• Developed based on historical payments for each
  peer group
• Two base rates will be established for each
  hospital, one for Indemnity/PPO business and one
  for HMO business
• Will exclude Medical Education payments for
  Intern and Resident programs
• Government shortfall and/or disproportionate
  share were used to determine the peer groups and
  base rates

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Implementation Challenges

• Communication internally externally
• Process will take longer than you think
• Fears of network disruption
• Health Plan has to take responsibility for the
  decisions
• New versions/update to the grouper
• Model office testing all the key components

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Results What have we accomplished?Assessment
What did we learn?
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Results Cases Payments

• Decrease in the of outlier cases and payments
• Better alignment between of cases and of
  payments

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Results Outliers

• Significant reduction in Minor, and Moderate
  category outliers
• Majority of outliers occur in the Major and
  Extreme category

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Results
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Results
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Results
Results Wellmark vs. Other Blues
Margin by Type of Service
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Results Wellmark vs. Other Blues
Margin by Severity
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Assessment Lessons Learned

• Focus on doing it right, not doing it quickly
• Data- use cost rather than charge, local rather
  than national
• Communicate, communicate, communicate
• Transparent process cost, key components,
  impact report, and annual reports post
  implementation
• Annual update process
• Benchmarking data is valuable
• Senior Leadership support within your Plan

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The future what is Next?
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What is Next?

• July 1, 2009 Require Present on Admission
• 2010 Report on, then implement payment
  policies
• Potential Preventable Complications
• Potentially Preventable Re-Admissions
• Ambulatory Care Sensitive Conditions
• July 1, 2010
• Implement Enhanced Ambulatory Patient Groupings
  (EAPGs) for outpatient services

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PPR Rate by Summary Service Line
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ACSCs - Severity 1 and 2
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Questions?
Mike Fay, Vice President, Health
Networks faymd_at_wellmark.com or [phone]
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