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

1. 2/11/2012 Wellmark, Inc. 2006 Implementation of a Severity-Adjusted Diagnosis-Related GroupsPayment System in a Large Health Plan Western Conference External Operations Conference June 10, 2009

2. Wellmark, Inc. 2006 2 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?

3. History, Goals, & Vendor Wellmark, Inc. 2006 3

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5. Wellmark, Inc. 2006 5 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

6. Wellmark, Inc. 2006 6 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

7. Wellmark, Inc. 2006 7 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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9. Wellmark, Inc. 2006 9 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

10. What are All-Patient refined – DRGs? Wellmark, Inc. 2006 10

11. Wellmark, Inc. 2006 11 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

12. Wellmark, Inc. 2006 12 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

13. Wellmark, Inc. 2006 13 APR-DRG Example

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15. Design: What are the key components?Implementation: Challenges & Successes Wellmark, Inc. 2006 15

16. Wellmark, Inc. 2006 16 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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24. Wellmark, Inc. 2006 24 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

25. Wellmark, Inc. 2006 25 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

26. Wellmark, Inc. 2006 26 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

27. Wellmark, Inc. 2006 27 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 hospital’s Intern and Resident program changes

28. Wellmark, Inc. 2006 28 Peer Groups

29. Wellmark, Inc. 2006 29 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

30. Wellmark, Inc. 2006 30 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

31. Results: What have we accomplished?Assessment: What did we learn? Wellmark, Inc. 2006 31

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38. Wellmark, Inc. 2006 38 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

39. The future:  what is Next? Wellmark, Inc. 2006 39

40. Wellmark, Inc. 2006 40 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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