Inpatient Hospital Services Purpose of Notice
[40 Pa.B. 3620]
[Saturday, June 26, 2010]The Department of Public Welfare (Department) is announcing its intent to implement a revised Medical Assistance (MA) payment methodology for inpatient hospital services provided on a fee-for-service basis in acute care general hospitals. More specifically, the Department intends to change the classification system used for determining Diagnosis-Related Groups (DRGs), and to revise the manner in which it calculates a hospital's DRG base payment rate and outlier payments.
Background
Currently, under its Fee-for-Service program, the Department pays for acute care inpatient hospital services under a prospective DRG payment system. Under this system, a patient is classified into a DRG based on the patient's diagnoses, age, sex, the procedures performed and the patient's discharge status. The Department has computed a relative value for each DRG to reflect the relative costliness of that DRG. In addition, the Department has established a base DRG payment rate for each hospital. To determine the DRG payment amount for an inpatient stay at an acute care hospital, the Department multiplies the hospital's DRG base payment rate by the relative value of the DRG into which the patient stay has been classified. The DRG payment is considered to be payment in full for a hospital stay unless the stay qualifies as either a day or cost outlier, in which case the Department makes an additional payment.
In addition to the DRG payments, under the currently approved State Plan, the Department makes various types of supplemental payments to hospitals that meet certain criteria. Except for inpatient disproportionate share payments, which are required under Federal law, these supplemental payments are optional, and may be revised by the Department, depending upon, among other things, the Commonwealth's financial circumstances.
The Commonwealth is considering enactment of legislation authorizing the Department to impose an assessment on hospitals. If the legislation is enacted, the assessment is expected to generate approximately $376 million in additional State revenue. This revenue, together with the related Federal matching funds, will enable the Department to update and improve its DRG prospective payment system for inpatient acute care general hospital services. The additional revenue may also enable the Department to not only continue its existing supplemental payments, but establish other supplemental payments to hospitals that meet certain qualifications.1 Taking into account the DRG and supplemental payments, the Department projects that the assessment revenues and associated Federal matching funds may permit an overall increase in aggregate payments to MA acute care hospital providers in FY 2010-2011.
Proposed Changes
All Patient Refined-Diagnosis Related Group (APR DRG) Classification System
The DRG classification system currently used by the Department was developed and maintained by the U.S. Department of Health and Human Services (HHS) for use with the Medicare Program. In 2007, HHS adopted a new classification system called Medicare Severity Diagnosis-Related Groups (MS-DRGs) which was designed to meet the needs of the Medicare Program. Since the implementation of MS-DRGs, HHS has stopped maintaining and updating the DRG classification system currently used by the Department.
The Department anticipates that it may be increasingly difficult to maintain the current DRG classification system given that it is no longer supported by HHS. As a result, and based upon input from providers and their representatives, and the recommendation of the Hospital and Healthsystem Association of Pennsylvania (HAP), the Department is proposing the use of the All Patient Refined-Diagnosis Related Group (APR DRG) system for the classification of inpatient stays into DRGs. The APR DRG system follows the basic DRG logic for classification of patients based on diagnoses, procedures performed, sex, age and discharge status. APR DRG uses four severity-of-illness levels and four risk of mortality levels within each DRG to evaluate the interactions of multiple co-morbidities, age, procedures and principal diagnosis. The APR DRG system was designed for use with all patient populations and reflects the complete cross-section of patients seen in an inpatient acute care setting.
In conjunction with the adoption of the APR/DRG classification system, the Department intends to establish an observation rate for hospital cases for which an inpatient admission is not medically necessary but medical observation of a patient is required.
The Department believes the APR DRG system will appropriately address the classification of the MA population, while allowing hospitals to code claims accurately and completely. As such, the APR DRG system will support the efforts of the Commonwealth and hospitals to improve efficiency and quality of care in the inpatient setting.
Calculation of DRG Base Rate and Relative Values
In addition to implementing APR DRG payment methodology, the Department intends to update the relative values used in the APR DRG system, and modify the manner in which it determines a hospital's base DRG payment rate. The Department will determine new relative values for the APR DRG system.
Rather than determining a DRG base payment rate based on each hospital's costs and then inflating this rate, the Department will first determine a statewide average of MA fee-for-services cost per discharge standardized for case mix. In determining this Statewide average, the Department will use the most currently available hospital cost and statistical data. After it determines the Statewide average cost, the Department intends to adjust this average to reflect hospital characteristics that may significantly impact the costs that a hospital incurs in delivering inpatient services, and to ensure the resulting payment rates are consistent with the assessment revenue. These adjustments will take into account regional labor costs, teaching status, capital and MA patient levels and assessment revenue. The Department anticipates that once established, the DRG base payment rate will be in effect for at least 3 years. The Department expects that these changes will more closely reflect the resources expended by hospitals to treat MA patients.
Outlier Payments
Currently, the Department recognizes two categories of outlier cases for which it makes payments in addition to DRG payments: day outliers for lengthy inpatient hospital stays; and cost outlier payments for expensive burn and neonatal inpatient stays.2
The Department intends to revise its outlier policies by eliminating day outlier payments and authorizing high and low cost outlier payment adjustments for all DRGs if certain conditions are met. These changes will provide stop loss coverage for hospitals, ensure that the Department's payments are consistent with efficiency and economy and make the Department's outlier policies more in line with those of other health care payers and insurance carriers.
For high cost outlier cases, the Department is proposing to pay 80% of costs for an inpatient stay that exceeds a predetermined, universal cost outlier threshold for all qualified DRG payments after considering the DRG base payment. The Department is also proposing to pay 100% of costs for an inpatient stay that exceed a predetermined, universal cost outlier threshold for qualified burn, transplant and neonatal inpatient cases after considering the DRG base payment.
For low cost outlier cases (that is, cases where the DRG payment exceeds the hospital's cost of providing treatment by a predetermined universal low cost outlier threshold), the Department intends to limit payments by a percentage of the revenue that exceeds the total of the cost and the low cost outlier threshold.
Fiscal Impact
The revenue derived from the Statewide hospital assessment will offset the state fund costs associated with these changes to the hospital payment methodology; therefore, there is no State fund fiscal impact.
Public Comment
Interested persons are invited to submit written comments regarding this notice to: Department of Public Welfare, Office of Medical Assistance Programs, c/o Regulations Coordinator, Room 515, Health and Welfare Building, Harrisburg, PA 17120. Comments received within 30 days will be reviewed and considered for any subsequent revision of the notice.
Persons with a disability who require an auxiliary aid or service may submit comments using the Pennsylvania AT&T Relay Service at (800) 654-5984 (TDD users) or (800) 654-5988 (voice users).
HARRIET DICHTER,
SecretaryFiscal Note: 14-NOT-650. No fiscal impact; (8) recommends adoption.
[Pa.B. Doc. No. 10-1177. Filed for public inspection June 25, 2010, 9:00 a.m.] _______
1 The Department will publish a separate notice describing any proposed changes to the supplemental payments made to acute care general hospitals, psychiatric hospitals and rehabilitation hospitals.
2 See 55 Pa. Code § 1163.56 (relating to outliers), which specifies the current requirements and additional payment amounts for day and cost outliers.
