Up Close and Personal: Medicaid 1115 Transformation Waiver

Up Close and Personal:Medicaid 1115 Transformation Waiver Michelle Apodaca, JD Vice President Texas Hospital Association John Berta Sr. Policy Analyst Texas Hospital Association August 23, 2012

Today’s Presentation • The Texas Budget • Medicaid Managed Care Expansion • Transformation Waiver • Background • Regional Partnerships • Transition Payments • UC Tool • Program Funding Protocol • DSRIP • Timeline

Factors Driving the Budget Shortfall • Structural deficit – business margins tax • Sales tax projections down over biennium • Sales taxes are 56% of state revenue • Teacher and state employee retirement and health care costs have skyrocketed • Increased demand for services as state population grows, ages • Loss of enhanced FMAP under federal stimulus act

Factors Driving the Medicaid Shortfall

The Texas Budget • 2012-13 Shortfall approximately $27B • Projected $72B in available revenue to fund an estimated $99B in current services • Current services impacted by Medicaid caseload growth, public school enrollment, etc. • Historically dire budget situation – 2003 shortfall was “only” $10B resulting in significant cuts • House and Senate both filed initial versions of budget that assumed no new revenue

FY 2012-13 is a Balanced Budget • Substantial $4.7B under-funding of Medicaid • Expected to be made up through supplemental appropriation in 2013 (Rainy Day Fund) • Implications on 2014-15 Budget • Spending reductions • Cost-containment initiatives • Medicaid managed care expansion statewide

2012-13 Hospital Rate Cuts • 8% rate cut for hospitals (added to 2% cut in 2010-11) • Rural and children’s hospitals paid at cost • Statewide hospital SDA implementation for 9/1 ($30M savings - $20M mitigation) • Expansion of Medicaid managed care ($386M GR in savings) • Medicaid cost savings implemented (non-emergent care, OB 39 weeks, O/P Xover)

Medicaid APR-DRGs • All Patient Refined DRGs • Acute Care Hospitals - 9/1/2012 • Children’s Hospitals – 9/1/2013 • HHSC views APR-DRG Methodology superior • Increased DRG assignments for Mothers and Newborns • 3M Proprietary Product

Medicaid Managed Care Expansion • Expand existing service delivery areas to contiguous counties (9/11) • Expand STAR+PLUS to Lubbock and El Paso (3/12) • Expand STAR and STAR+PLUS to South Texas (3/12) • Convert PCCM areas to the STAR program model (3/12) • Include in-patient hospital services in STAR+PLUS (no carve-out) (3/12)

Rural Hospitals – Rider 40 40. Payments to Hospital Providers. Until HHSC implements a new inpatient reimbursement system for Fee-for-Service (FFS) and Primary Care Case Management (PCCM) or managed care, including but not limited to health maintenance organizations (HMO) inpatient services, hospitals that meet one of the following criteria: 1) located in a county with 50,000 or fewer persons according to the U.S. Census, or 2) is a Medicare-designated Rural Referral Center (RRC) or Sole Community Hospital (SCH), that is not located in a metropolitan statistical area (MSA) as defined by the U.S. Office of Management and Budget, or 3) is a Medicare-designated Critical Access Hospital (CAH), shall be reimbursed based on the cost-reimbursement methodology authorized by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) using the most recent data. Hospitals that meet the above criteria, based on the 2000 decennial census, will be eligible for TEFRA reimbursement without the imposition of the TEFRA cap for patients enrolled in FFS and PCCM. For patients enrolled in managed care other than PCCM, including but not limited to health maintenance organizations (HMO), inpatient services provided at hospitals meeting the above criteria will be reimbursed at the Medicaid reimbursement calculated using each hospital's most recent FFS rebased full cost Standard Dollar Amount for the biennium.

Managed Care Expansion - Ramifications • Expansion of managed care statewide threatened supplemental Upper Payment Limit (UPL) payments • HHSC secured a Medicaid Section 1115 demonstration waiver to expand managed care statewide and to continue hospital Medicaid supplemental funding • Waiver provides the opportunity to initiallyreceive current levels of funding while providing for a transition to a hospital performance and quality-based payment system • HHSC will continue to facilitate the state matching share through local IGTs to secure federal matching funds

1115 Demonstration Waiver • Demonstration Waiver: an exemption from certain federal rules that allows policymakers to experiment with the Medicare and Medicaid programs on a pilot study basis. The Centers for Medicare and Medicaid Services • “Our concern would be if the demonstration turns into riots or damage” British Transport Police Authority

Medicaid 1115 Waiver - Background • Waiver Goals • Funding Sources • Regional Administration • Funding Uses • Uncompensated Care • Delivery System Reform • Key Waiver Documents =

Waiver Goals • Expand risk-based managed care statewide • Support the development and maintenance of a coordinated care delivery system • Improve outcomes while containing cost growth • Protect and leverage financing to improve and prepare the health care infrastructure to increase access to services • Transition to quality based payment systems in managed care and in hospital payments • Provide a mechanism for investments in delivery system reform including improved coordination in the current indigent care system in advance of health care reform

1115 Waiver Funding – Sources • Funds in the pools • Current trended UPL based on aggregate limit • New funds associated with UPL from former urban STAR managed care areas • New funds associated with managed care savings

Regional Health Partnerships (RHP) • The waiver will be implemented through Regional Health Partnerships that: • Are primarilyorganized by public/transferring hospitals and other local government entities; • Create regional assessment, planning and redesign infrastructure; and • Include private hospitals and health stakeholders in regional health assessments, system redesign, system investments and reporting on outcomes.

Regional Healthcare Partnerships

1115 Waiver Funds – Uses Two sub-parts to the funding pool: • Uncompensated Care (UC) – more payments from this pool in first years of five year waiver • Delivery System Reform Incentive Payments (DSRIP) – shifting to more payments from this pool in later waiver years

Waiver Funding Overview Waiver Pool Hospitals eligible for funding must commit to investing in system transformation Uncompensated Care Pool Delivery System Reform Incentive Pool Pays hospitals for achieving metrics that move toward the triple aim Pays hospitals for cost of care not compensated by Medicaid directly or through DSH Hospitals must participate in a regional healthcare partnership to receive funds from either pool Inpatient Category 1 – Infrastructure Development Outpatient Category 2 – Program Innovation & Redesign Pharmacy Category 3 – Quality Improvements Clinic Physician Category 4 – Population Focused Improvements

Waiver Funding - $29 Billion

Key Waiver Documents • Uncompensated Care (UC) Protocol • Tool for reimbursement of costs of care provided to individuals without coverage • CMS approved hospital and physician tools July 16, 2012 • Dental and Emergency Medical Services (EMS) tools in process • Program Funding and Mechanics Protocol • Organization and requirements of the RHP Plans • RHP Planning Protocol • Menu of projects, milestones and metrics/measures eligible for Delivery System • Reform Incentive Payment (DSRIP) are made from this document

Regional Healthcare Partnerships

RHP Parties • Anchor--The entity that generally makes intergovernmental transfers to help fund waiver payments and has primary administrative responsibilities on behalf of the RHP. • IGT entity--A governmental entity that provides an IGT to fund the waiver. IGT entities include hospital districts, counties, public hospitals, public health districts, local mental health authorities, and academic health science centers. • Performing providers--Medicaid providers that are responsible for performing a project in an RHP Plan. Performing providers are primarily hospitals but also include local mental health authorities, local health departments, and physician practice plans affiliated with an academic health science center.

RHP 4-year plan • The Regional Health Partnership would be responsible for developing a four-year coordinated regional health plan that: • Includes regional health assessments of needs, resources and potential improvements to serve as the basis for planning; • Outlines projects and interventions that support delivery system reforms tailored to the needs of the communities and populations served by the hospitals • Identifies the goals, rationale for projects, annual milestones, associated metrics and expected results from the interventions; • Incorporates private hospitals via RHP agreements that identify their roles, contributions and associated outcome metrics. • During the first year, regional entities develop and submit four-year plans.

RHP Plans and CMSExpectations • Planning process that demonstrates regional collaboration • Projects selected address community needs • Projects selected are the most transformative for the region • RHP Plan includes projects that tie the four DSRIP categories together to demonstrate outcomes

RHP Plan Template • RHPs complete Plan Template in collaboration with Performing Providers, Intergovernmental (IGT) Transfer Entities, and other stakeholders • The PFM Protocol and RHP Planning Protocol serve as the basis for RHP Plan development and DSRIP funding • Protocols and the RHP Plan Checklist are guides to complete RHP Template • RHP Plan electronic tool in development to meet PFM requirements.

Stakeholder Engagement • RHP Participant Engagement • Information for Performing Providers including hospitals, Community Mental Health Centers, Academic Health Science Centers and Local Health Departments. • Public Engagement • Processes used to solicit public input into RHP Plan and public review prior to plan submission, including county medical societies • Must include a description of public meetings and posting of RHP Plans for input • Plan for ongoing engagement with public stakeholders.

RHP Plans Process • Projects and DSRIP payments are documented in the RHP Plan in the region of the Performing Provider • Performing Provider submits project information to Anchor • Anchor compiles all projects for RHP Plan • Electronic tool in development to assist RHPS with meeting quantitative requirements • Qualitative requirements included in RHP Plan template

Transition Payments • Fiscal Year 2012 Only • Based on Historic Payments • 3 Quarters already Paid • 4th Quarter Payment • Likely January/February 2013 • May Occur sooner if UC Tool not submitted • Hospitals may choose to use UC Tool

Today’s Presentation • The Texas Budget • Medicaid Managed Care Expansion • Transformation Waiver • Background • Regional Partnerships • Transition Payments • UC Tool • Program Funding Protocol • DSRIP • Timelines • Conclusion

Uncompensated Care (UC) Pool • UC pool payments include: • Medicaid shortfall not covered by DSH; • Costs of services to uninsured patients not covered by DSH; and • Medicaid and uninsured non-hospital UC costs, including physician, clinic and pharmacy

UC Tool or UC Protocol • 1st Data Posted Aug. 8 • Updated Version posted Aug. 17 • 3rd version? • Multiple records for same hospital still a problem • Questions remain about hospital/physician partnerships • Deadline September 10 • THA submitted questions about the tool last week

Costs to be included in the Hospital UC Tool • Physician costs related to direct patient care services • Mid‐level professional costs related to direct patient care services • Pharmacy costs related to the “Texas Vendor Drug” program • Excess “Medicaid DSH” costs not reimbursed via the Medicaid DSH program

Physician UC Tool • Physician costs related to direct patient care services • Non‐capital equipment and supplies costs • Indirect costs via a provider‐specific indirect cost Rate • Costs related to Mid‐level professionals must NOT be included in the UC Application • Only organizations that received historical physician UPL payments may complete Physician Tool

UC Funding Issues • UC is not allocated by regions, based on costs from the UC tool • If the statewide cap UC is exceeded, UC payments will be reduced proportionately • IGT may cross regions for UC and DSRIP based on historical patient flow patterns. This will be addressed in the program rules

Program Funding and Mechanics Protocol • Provides the Organization and Requirements of the RHP Plans • Sets out proposed allocation of DSRIP and UC funding by RHP region • Separates RHP regions into tiers and sets minimum number of DSRIP projects for each tier

Major ItemsUnder CMS Negotiation • DSRIP requirements to be eligible for uncompensated care (UC) payments • Funding allocation methodologies • Valuation of projects including a setting a maximum value for a single project. • Minimum DSRIP requirements by RHP and Performing Providers • Pass 2 methodology • DSRIP project milestones and metrics • Increased emphasis on DSRIP Category 3

CMS Expectations • Planning process that demonstrates regional collaboration • Projects selected address community needs • Projects selected are the most transformative for the region • RHP plan includes projects that tie the four categories together to demonstrate outcomes

Administrative Issues • Administrative cost claiming for Anchors will be defined separately from the PFM Protocol • Governanceand resolution processes will be determined at the local level • CMS approval of all plans by March 1, 2013 • After RHP Plan submission, Performing Providers may begin projects at their own risk if it has not been approved by CMS

Funding Issues • UC is not allocated by regions, based on costs from the UC tool • If the statewide cap UC is exceeded, UC payments will be reduced proportionately • IGT may cross regions for UC and DSRIP based on historical patient flow patterns. This will be addressed in the program rules • THHSC will not request IGT until DSRIP performance has been reported • If the full IGT is not available, DSRIP is paid proportionately based on achieved performance

UC and DSRIP Participation • Hospitals receiving UC payments must report on a subset of DSRIP Category 4 measures: • Potentially Preventable Admissions (PPAs) • Potentially Preventable Readmissions (PPRs) • Potentially Preventable Complications (PPCs) • Small and rural hospitals are exempted from DSRIP Category 4 reporting for UC • Failure to report on the required measures by the last quarter of the year will result in forfeiture of UC payments in that quarter • Hospitals that only participate in UC shall not be eligible to receive DSRIP funding for required Category 4 reporting • UC hospitals must also participate in an annual RHP learning collaborative

RHP Plans • Projects and DSRIP payments are documented in the RHP Plan of the Performing Provider • A Performing Provider may only participate in the RHP Plan where it is physically located • RHP Plans must ensure that DSRIP payments for similar projects are not duplicative • RHP Plans must ensure that DSRIP payments do not duplicate funding of federal initiatives funded by the U.S. Department of Health & Human Services • RHPs are strongly encouraged to adhere to the UC and DSRIP benchmark allocation (50/50 in FY2016)

RHP Category 1 and 2Minimum Number of Projects • Currently there are 4 Tiers based on the percent of population < 200% of the FPL • HHSC to publish crosswalk of Region and Tier

Performing Providers Minimum Number of Projects • For a DSRIP hospital: • A minimum of 3 Category 3 interventions selected by the hospital • Small and rural hospitals are required a minimum of 1 Category 3 intervention • Report on all Category 4 measures but optional for small and rural hospitals • Participate in one of the following • Categories 1, 3, and 4 • Categories 2, 3, and 4 • Categories 1, 2, 3, and 4 • Non-hospital Performing Providers are required to implement a minimum of 1 Category 3 intervention

Allocation to RHPs • Each RHP shall be allocated DSRIP funds based on low income population and Medicaid burden using the following variables: • Percent of state population with income below 200 percent FPL • Percent of Texas Medicaid acute care payments in fiscal year 2011 • Percent of Texas Medicaid supplemental payments in fiscal year 2011

Up Close and Personal: Medicaid 1115 Transformation Waiver