history and overview of the hscrc (health services cost review commission)

History and Overview of the HSCRC(Health Services Cost Review Commission)

Michael MyersGreater Baltimore Medical Center (GBMC)

January 31, 2014

2

Discussion Topics

I. Before the HSCRC

II. The Formation of the HSCRC and the “All Payor” System

III. Impact

IV. Current & Future Initiatives

V. Other General Information

32.

General Overview

• Uncertainty– Status of Healthcare Reform– Accountable Care Organizations

• Challenge– Performance Improvement– Re-capitalization– Maintaining acceptable operating margins

• Opportunity– Chance for this era of healthcare workers to make a profound and

lasting change

4

Maryland Healthcare EnvironmentPre-HSCRC (Late 60’s – Early 70’s)

• Significant amount of in-efficiency in delivery system– Over utilization– Length of stay for patients exceeded national averages– Excess capacity

• Weak financial performance for Maryland Hospitals

• Inconsistent access to hospital care for the poor and uninsured

• By 1971, hospital cost per case in Maryland exceeded the National average by 25%!

5

The Formation of the HSCRC• 1971 - Initial legislation enacted by the General Assembly

– Independent body within the Department of Health and Mental Hygiene– HSCRC given the authority to establish hospital rates

Legislative Mandate• Contain Hospital Costs

Total costs are reasonable

• Ensure Equity / Stability Charges (unit rates) are reasonably related to costs. Fair and equitable rates to everyone Hospitals are compensated fairly (Provide financial

stability) Predictability for payors and hospitals

• Maximize Access to Care All hospitals and payors share in responsibility of

caring for the poor and uninsured

• Provide Accountability System checks and balances Public disclosure

6



Legislative Mandate• Control Costs

Total costs are reasonable

• Ensure Equity Fair and equitable rates to everyone (charges are

reasonably related to costs) Hospitals are compensated fairly (Maintain solvency of

efficient hospitals)

• Maximize Access All hospitals share in responsibility of caring for the

poor and uninsured

• Provide Accountability System checks and balances Public disclosure

Regulatory Jurisdiction (Rates)

Includes: • Inpatient services• Outpatient services “at the hospital”

Excludes: • Physician/Professional Fee/Part B Activity• Other operating revenue• Non operating revenue

7



• 1974 – HSCRC began setting unit rates for hospitals after 3 yr phase in– Authority extended only to non-federal insurers

8




• 1977 – Maryland granted temporary “waiver” by federal govt. to test alternative payment approaches– Exempted the state from national Medicare and Medicaid reimbursement requirements

Maryland becomes an “All Payor” state

9





• 1980 – Medicare exemption became permanent (with stipulations) in Maryland– Continue to be the only state with this “waiver”

10

HSCRC’s Mandate

• Ensure Equity / Fairness / Stability

• Maximize Access to Care

• Contain Hospital Costs / Total Costs are Reasonable

• Provide Accountability

11

HSCRC’s Mandate





12

“All Payor” Hospital Rate Setting SystemUnit Rates

• HSCRC– Establish and approve rates for each unit of service (Room and Board,

imaging, lab, etc…)• Hospital specific

– Unit rates are to be reasonably related to underlying costs• Including social costs of uncompensated care (bad debt / charity)

• Hospitals– Required to charge all payors at HSCRC approved unit rates

• Payors (All)– Required to pay hospitals based on each hospitals approved unit rates

• Payors given the ability to deny payment of care for lack of medical necessity

13

“All Payor” Hospital Rate Setting SystemIllustration

Dear Mr. Jones35 year old Pneumonia Patient

UnitServices Units Rates Charges Room & Board 4 Days $500 $2,000 Emergency Room 1 Visit $125 $125 Operating Room 50 Mins. $20 $1,000 Lab 40 Tests $10 $400 X-Ray 5 Tests $100 $500

Please pay this Amount $4,025

(Non-Medicare)

Dear Mr. Smith75 year old Hip Fracture

UnitServices Units Rates Charges Room & Board 8 Days $500 $4,000 Emergency Room 1 Visit $125 $125 Operating Room 100 Mins. $20 $2,000 Lab 5 Tests $10 $50 X-Ray 10 Tests $100 $1,000


(Medicare)

14

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Medicare/Mcaid Comm. SelfPay Avg.

Cost Payments

Nation

Hospital Reimbursement Maryland vs. Rest of Nation

15

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation


5% Margin

16

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation


Charge to Cost Ratio (Illus.)

0%

50%

100%

150%

200%

250%

300%

Maryland Nation

Cost Mark-up

2.5 to 1

Mostly attributable to pricing needed

to maximize reimbursement

given need to cost shift.

5% Margin

17

0%

50%

100%

150%

200%

250%

300%

Maryland Nation

Cost Mark-up

2.5 to 1


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Maryland


18

0%

50%

100%

150%

200%

250%

300%

Maryland Nation

Cost Mark-up

1.2 to 1 2.5 to 1


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Maryland

Mostly attributable to the cost of

uncomp. care, contractual

allowances, and profit


19

0%

50%

100%

150%

200%

250%

300%

Maryland Nation

Cost Mark-up

1.2 to 1 2.5 to 1


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Maryland





HSCRC Approved Discounts

• Medicare/Medicaid 6.0%• MCare/MCaid HMO’s 4.0%• Advance Financing 2.25%• Prompt Pay 1%-

2.25%

20

0%

50%

100%

150%

200%

250%

300%

Maryland Nation

Cost Mark-up

1.2 to 1 2.5 to 1


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Nation

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50


Cost Payments

Maryland





Pillar of HSCRC System

Ensure Equity and Fairness

21

HSCRC’s Mandate





22

HSCRC Impact – Maximizing Access

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

0

100

200

300

400

500

600

700

800

900

1000

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Perc

ent o

f Tot

al G

ross

Pat

ient

Rev

enue

Amou

nt in

Unc

ompe

nsat

ed C

are

(Mill

ions

)

Fiscal Year

Statewide Actual Uncompensated Care1977 - 2010

$ UCC (millions) % Total Revenue

23

HSCRC’s Mandate





24

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

'76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92

HSCRC Impact – Control CostsDifference in Cost per Case: Maryland vs. Nation

Model of Success

Maryland costs per case had improved dramatically from 25% higher than nation to

12% below in 1992

Source: Maryland Hospital Association

25

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

'76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92

HSCRC Impact – Control CostsDifference in Cost per Case: Maryland vs. Nation

Illustration

MD Nation % Diff’76 $1,000 $800 +25%’92 $1,640 $1,865 -12%

Source: Maryland Hospital Association

26

Maryland Hospitals vs. US HospitalsDifference in Net Operating Revenue per Case

-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Despite significant reduction in costs, operating profits

(1%-2%) at Maryland hospitals continued to lag

national levels.

27


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

HSCRC began to loosen rate constraints in mid/late ’90’s

and hospital profitability improved.

28


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

HSCRC began to loosen rate constraints in mid/late ’90’s

and hospital profitability improved.

29


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Federal Government implemented Balanced Budget Act (BBA) limiting Medicare growth to

inflation minus 1%

HSCRC Corrective Actions:• System Correction Factor

(2000)• 1% Across the Board Rate

Reduction (2001)• System Reinvention

Introduction of Charge per Case System (CPC)

• 1st Three Year Deal

30

Dear Mrs. Jones

UnitServices Units Rates Charges

Room & Board 4 Days $500 $2,000 Emergency Room 1 Visit $125 $125 Operating Room 50 Mins. $20 $1,000 Lab 40 Tests $10 $400 X-Ray 5 Tests $100 $500 Supplies/Drugs Usage $540


Patient Bill (Unit Rates)

$4,565

$13,830

$2,005

Charge per Case Target

$6,800

Must Average

Inpatient Charge Per Case System (CPC)Hospitals continue to charge at HSCRC established unit rates but are also must

comply with its HSCRC established Charge Per Case Target.

31


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

32


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Rate restraints on Maryland Hospitals had intended impact

of improvement relative to US but

Hospital profitability severely deteriorated.

33


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

34


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

HSCRC again loosened rate constraints and hospital profitability improved.

HSCRC implemented APR-DRG (Severity

Classification) methodology.

35


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

HSCRC again loosened rate constraints and hospital profitability improved.

HSCRC implemented APR-DRG (Severity

Classification) methodology.Rate Capacity by Case (Before APR’s)

Charge Case RatePer Mix Capacity

Case Case Index Per CasePneumonia 8,000$ 0.7800 6,240$

Rate Capacity by Case (After APR’s)Charge Case Rate

Per Mix CapacityCase Case Index Per Case

Pneumonia Minor (1) 8,000$ 0.4300 3,440$ Moderate (2) 8,000$ 0.5780 4,624$ Major (3) 8,000$ 0.8880 7,104$ Extreme (4) 8,000$ 1.5000 12,000$

36


-14.00%-12.00%-10.00%

-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

“Hallmark” of Maryland Rate Setting System

So there’s consensus for Maryland to be below nation

– but how far?Source: Maryland Hospital Association

Current Debate:• Where do we go now?• Impact of Healthcare

reform?

37

The Making of the HSCRC• 1971 - Initial legislation enacted by the General Assembly




• 1980 – Medicare exemption became permanent (with stipulations) in Maryland– Continue to be the only state with this “waiver”

There’s a “Catch” – There’s always a “Catch”?

“The Waiver Test”

On-going demonstration that the cumulative rate of growth in Medicare payments to Maryland hospitals is no greater than the cumulative rate of growth in Medicare payments to hospitals nationally over the same time period.

National MarylandMedicare MedicarePmt/Case Pmt/Case

Base Period (1981) 2,293$ 2,972$ Measurement Period (Sept 2010) 10,557$ 12,488$

Cummulative Growth Rate 360.4% 320.2% (Absolute Test)

Relative Margin Waiver Cushion 9.57% (HSCRC Calc)

38



• 1974 – HSCRC began setting unit rates for hospitals after 3 yr phase in– Authority extended only non-federal insurers


• 1980 – Medicare exemption became permanent in Maryland– Continue to be the only state with this “waiver”

Watch the Catch?“The Waiver Test”


Source: HSCRC

Relative Margin Waiver CushionJune 2006 – Projected June 2013

Projected FutureDeterioration

11.7%

11.0%

10.3%

9.1%

8.4% 8.5%

6.8% 6.6% 6.6%

5.8%

6.7%

7.6%

9.5%

10.5%10.2%

10.5%10.4%

9.6%

8.5%

6.7%

4.6%

2.6%2.2%

1.9%1.5% 1.4%

1.1%0.8%

0.5%

12.2%12.1%

11.3%

10.3%

8.5%

6.3%

4.3%

5.6%5.2%

4.8% 4.7%4.5%

4.1%3.8%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Maryland Relative Waiver Test2006 - 2013

Actual + Forecast Base + MSP + IPPS Increase

Last Waiver Letter

09/2010

ForecastActual

EstimatedCurrentPosition9/30/11

Potential adjustments to national trend

would improve results

39



• 1974 – HSCRC began setting unit rates for hospitals after 3 yr phase in– Authority extended only non-federal insurers


• 1980 – Medicare exemption became permanent in Maryland– Continue to be the only state with this “waiver”

Watch the Catch?“The Waiver Test”


Source: HSCRC

Relative Margin Waiver CushionMarch 1999 – September 2008

0%

5%

10%

15%

20%

25%

Maryland Medicare Waiver TestRelative Margin Waiver Cushion

March 1996 - September 2008

`

v

Tip Point10%

HSCRC Forecast

Overarching Concern for Maryland Hospitals

Changes to the healthcare delivery system will challenge the current waiver test.• Shift of cases to Observation increases the average

charge per admission in Maryland

• Impact of 2-midnight rule

• New payment initiatives (TPR, ARR, etc.) provide incentives to reduce utilization, increasing the average charge per admission

• Medicaid budget issues

The HSCRC Staff, MHA, Payors and CMS are reviewing the structure of the current Waiver Test.

40

The Triple Aim of Healthcare

• Improve Healthcare Outcomes – clinical outcomes

• Improve the Patient’s Healthcare Experience

• Reduce the Cost-of-Care – “bending the cost curve”

41

Initiatives Designed to Control Growth

• Charge per Visit: Implemented in 2011…formally disbanded in FY12– Charge per Case (CPC) like revenue constraint system for outpatient

services– Designed to constrain growth in outpatient utilization, particularly

supplies and drugs– Based on 3M’s Ambulatory Payment Groups (APGs), similar to

DRG/APRDRG grouping of inpatient cases; Outpatient visits are more diverse, and there are many more visits than inpatient admissions

– Challenge with assessing CPV on a “real time” basis

42


• Quality-Based Reimbursement– Maryland Hospital Acquired Condition (MHAC) program

• Identifies Potentially Preventable Complications using diagnosis and procedure data

• Calculates actual versus expected rates of complications• Hospitals are reward or penalized based on performance relative to their

peers– Quality Based Reimbursement (QBR) program

• Process of care measures (core measure) and patient satisfaction scores (HCAHPS)

• Similar to MHAC, hospitals are scaled based on relative performance Programs are changing, but even more revenue at risk

43


• Expansion of Total Patient Revenue (“TPR”) Methodology– In 2010, eight hospitals converted from CPC/CPV to TPR

• Currently 10 hospitals on TPR agreements– TPR provides hospitals with a “total” revenue base that is 100% fixed

• No change in revenue with increases or decreases in either volume or service mix

– Overall incentive to reduce service utilization and encourage improvements in population health

– If hospitals are successful in reducing utilization, AND, associated variable costs, profitability should increase

44


• Admission Readmission Revenue (“ARR”) Program – program formally eliminated in FY13– Designed as a hybrid to improve quality and reduce utilization– Supplements the CPC system and provides incentives to reduce

readmissions– Hospitals maintain a “fixed” level of revenue for current level of “all

cause” readmissions• No revenue increase for additional readmissions (penalty)• No revenue decrease for reduced readmissions (reward)

45

Current Initiatives

• New Waiver Test– Effective January 1st, 2014, Maryland has a new five-year “waiver”

agreement w/CMS• Limits the Maryland all-payer rate of growth on a per capita basis to

3.58% per year – includes hospital regulated inpatient and outpatient services

• Must generate Medicare specific savings of $330 million during the five-year agreement

• Must reduce Maryland Medicare readmission rate to the National rate• Must reduce Maryland hospital-acquired conditions (MHAC’s) by 30%

46

Current Initiatives

• Global Budget Model– Provides fixed revenue base on an annual basis for inpatient and

outpatient regulated revenue• May be adjusted in the future to more accurately reflect market share• Receive annual inflation adjustments• Possibility for population and aging adjustments

– Changes the long-standing incentives that have been in-place regarding volume

– Forces hospitals to rethink, and possibly redesign, strategic and operating plans

These agreements will be a work-in-progress

47

Future Initiatives

• Capitated and Other Bundled Service Arrangements– Provide payment upfront for a defined population of patients and/or a

specific service

• Gainsharing Models– Have the ability to partner with physicians to share in cost savings and

utilization management

48

HSCRC’s Mandate





49

HSCRC Impact – AccountabilityReasonableness of Charges (ROC) and Rate Adjustments

• ROC used by HSCRC and hospitals to evaluate cost effectiveness on a per case basis relative to a peer group.– Adjustments to cost (CMI, Labor, Markup, Medical Education, etc.)– Four peer groups: Major Teaching, Minor Teaching, Non-Teaching, Academic Medical

Center (JHH and UMMC)• HSCRC approves rate adjustments to hospitals annually

– Across the board inflation adjustments + Hospital specific changes in case mix– Other adjustments (program, prior year corrections, etc..)– Annual rate adjustments are “scaled,” based on relative ROC performance

• Higher “cost” hospitals receive a lower update; Lower “cost” hospitals receive a higher update• Hospitals reserve the right ask for additional rates if current rate structure is

not adequate. (Favorable ROC Position)– File “Full” rate application or “Partial” rate application (CON approved capital)

• HSCRC reserves the right to take corrective actions against high cost hospitals (Unfavorable ROC Position), via spenddowns or Full Rate Setting

50

HSCRC Impact – AccountabilityDisclosure of Information and Performance

• High degree of availabilty– Maryland system is based on most comprehensive and timely

information available

• Multiple reporting requirements of Hospitals• Monthly revenue and utilization• Annual filings• Community Benefit Report• Reporting by payer and in-state vs. out-of-state• New data tape submission requirements – now monthly

• Public Disclosure Report prepared annually by the HSCRC

Communication between hospitals and HSCRC becomes even more important in new

environment

Additional Information

51

52

HSCRC Organization Chart

CommissionersJohn Colmers, Chairman

(7 Member Panel appointed by Governor)

Executive StaffDonna Kinzer: Executive Dir.

Stephen Ports: Principal Deputy Dir.

Rate SettingJerry Schmith Deputy Director

Research & MethodologySule Calikoglu, Ph.D.

Deputy Director

Legal Dept.Stan Lustman / Leslie Schulman

Assistant Attorney General

53

HSCRC Current Commissioners(Seven member panel appointed by Governor)

John Colmers – Chairman 2011Former Secretary, MD Dept of Budget and Management

Herbert Wong, Ph.D. – Vice Chairman 2005Senior Economist, Agency for Healthcare Research & Quality

Stephen F. Jencks, M.D., M.P.H. 2012Institute for Healthcare Improvement

George H. Bone, M.D. 2010Private Practice Physician

Bernadette C. Loftus 2011Associate Executive Director, The Permanente Medical Group

Thomas R. Mullen 2011President, Mercy Health Services

Jack C. Keane 2011Independent Consultant

Appointed

54

HSCRC 2014 Meeting Schedule

February 5March 12

April 9May 14June 11July 9

August 13September 10

October 15November 12December 10

55

HSCRC and Other Health Care Links

• Health Services Cost Review Commission (HSCRC)– www.hscrc.state.md.us

• Maryland Hospital Association (MHA)– www.mdhospitals.org

• Healthcare Financial Management Association (HFMA)– www.hfma.org

• HighMark (Medicare Fiscal Intermediary)– www.highmarkmedicareservices.com

http://www.hscrc.state.md.us/

http://www.mdhospitals.org/

http://www.hfma.org/

http://www.highmarkmedicareservices.com/

Closing Comments

56

history and overview of the hscrc (health services cost review commission)

Documents

costs hospitals

equitable rates

hospital costs total

hospital care

department of health

mental hygienehscrc

general information22

accountability system