mechanics of the new waiver test

Mechanics of the New Waiver Test

Brett McConeManaging Director,

KPMG LLP

Discussion Overview• Background• Financial Targets• Quality/Utilization Targets• Proposed Terms• Questions and Answers

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Background• On October 10, 2013, the State of Maryland applied

to the Center for Medicare and Medicaid Innovation (CMMI) for a demonstration project to improve outcomes, to enhance patient experience and to control costs.

• The application was approved on January 10, 2014• The resulting All-Payer Model (“the Model”) shifts the

focus from historic price per encounter controls to a focus on overall revenue growth, including price and use.

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Background• Under the historic model, hospitals in the State of Maryland

received a “waiver” from Medicare’s Inpatient and Outpatient Prospective Payments Systems (IPPS and OPPS) so as long as Maryland’s Medicare payment per admission grew below the national average.– The historic Waiver Test compared growth rates in Medicare payment per

admission since the CY1980 base period (33 years!)– Price per Admission = Limited controls on utilization required under the

test (at least on admisions)– No provision for outpatient price measurement

• Maryland’s previous Waiver was codified in Section 1814(b)(3) of the Social Security Act (SSA)

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Background• The New Model includes the following provisions:

– Annual all-payer, per capita, total hospital cost growth limited to 3.58%

– Maryland’s Medicare per beneficiary total hospital cost growth rate must be below the national Medicare per beneficiary average, resulting in $330m of Medicare savings over five years

– 80% of Maryland hospital revenue shifted into global payment models by year 5

– Maryland’s Medicare per beneficiary total cost growth rate cannot exceed the national average by more than 1 percentage point, and must be “break even” with the national average by year 4.

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Background• The Model includes the following provisions (cont.):

– Maryland will reduce its 30-day Medicare readmission rate to the national average in five years

– Annual Potentially Preventable Complication (PPC) reduction of 6.89%, for a cumulative 5 year reduction of 30%.

– Maryland will propose a model extension at the start of Year 4– Waives Section 1814(b)(3) of the SSA: Maryland’s historic

Waiver Test• If the Model is not extended, or terminated early, Maryland hospitals

will transition to the national Medicare payment systems.• …yes, we are working without a net.

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Financial Targets

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Financial Targets: All-Payer Test• All-payer per capita growth rate of 3.58% is the ten

year average annual growth rate in Maryland Gross State Product (GSP) per capita (2002 – 2012)

• 3.58% is fixed cap for years 1-3. In years 4 and 5, Maryland may adjust the all-payer cap for more recently available GSP data.

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Financial Targets: All-Payer Test• The all-payer per capita growth rate is expected to

be calculated using:– Regulated, inpatient and outpatient hospital charges,

from Maryland hospitals for Maryland residents receiving services.• Summarized from the new monthly hospital charge submissions

for Maryland and non-Maryland residents

– Population growth from the Maryland Department of Planning.• Interim population growth estimated from State projections

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Financial Targets: All-Payer Test• Illustrative example:

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(Dollars in Thousands)

Base Period Charges 15,000$ A

Less: Non-MD resident Charges 1,200 B

Net MD Base Period Charges 13,800$ C = A-B

Annual Revenue Growth Ceiling Factor 1.0358 D

Revenue Ceiling prior to Population Adjustment 14,294$ E = C*D

Maryland Annual Population Growth Factor (Estimated) 1.0060 F

Revenue Ceiling for Maryland Residents 14,380$ G = E*F

Source: HSCRC February 5, 2014 Staff Recommendations; Six month base estimates annualized.

Financial Targets: All-Payer Test• Compliance calculation – Example 1:

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Base Period Charges (CY2013) 15,000$ A

Less: Non-MD resident Charges (CY2013) 1,200 B






Actual MD Resident Charges (CY2014) 14,100$ H

Actual MD Resident Charges Adjusted for Estimated MD Population Growth 14,016 I = H/F

Actual Growth Factor Adjusted for MD Population Growth 1.0156 J = I/C

Actual Growth Factor Above Below/Revenue Ceiling Growth Factor -1.95% K = J/D-1

Financial Targets: All-Payer Test• Compliance calculation – Example 2:

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Base Period Charges (CY2013) 15,000$ A

Less: Non-MD resident Charges (CY2013) 1,200 B






Actual MD Resident Charges (CY2014) 14,100$ H

% Actual MD Resident Charges Above / (Below) Revenue Ceiling -1.95% I = H/G -1

Financial Targets: All-Payer Test• Points to consider

– Timeliness and accuracy of monthly data reported• MD Resident vs. Non-MD Resident charges

– Population estimates versus actual experience– Variable changes in rates (assessments, UCC, etc.)– Use of charges versus payments (Not a significant risk

unless the differential changes)

• Monitoring compared to other data sources (CRISP, etc.)

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Financial Targets: Medicare Test• From the October 11, 2013 Application:

– “In addition to limiting…cost growth for all payers…Maryland will limit its Medicare per beneficiary total hospital cost (payment) growth…to produce $330m in Medicare savings over five years.”

– “CMS will calculate Medicare savings by establishing a baseline that is the actual Medicare per beneficiary total hospital expenditures (payments) for Maryland Medicare fee-for-service beneficiaries in 2013 trended forward by the national average growth rate in Medicare per beneficiary hospital expenditures (payments) to each year of the model and comparing Maryland’s annual Medicare per beneficiary hospital expenditures…”

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Financial Targets: Medicare Test• Baseline = CY2013 Medicare hospital payments for Maryland

Medicare beneficiaries– Medicare hospital payments = Inpatient and outpatient hospital payments

• Medicare claim type 60 (Inpatient) and claim type 40 (Outpatient), TOB = 11X• Includes: short term general hospitals, multiple hospital component in a medical

complex, Alcohol/drug hospitals• Excludes reference lab (unregulated)• Excludes 72x bill type (ESRD clinics)• Refer to CMS application, page 53 for guidance

– Maryland Medicare beneficiaries = All Maryland residents who are (Medicare) fee-for-service beneficiaries enrolled in Part A and/or Part B

– Includes all geographic service locations: in-state and out-of-state

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Financial Targets: Medicare Test

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Total Hospital Payment perUS MC Beneficiary

Total Payment perMaryland MC Beneficiaries

Inpatient Cost: All fee-for-service claims with a claim code = "60"

Outpatient Cost: All fee-for-service claims with a claim code = "40" Serial Numbers: 0001-0879 (Short-term general and specialty hospitals where TOB = 11x)

0900-0999 (Multiple hospital component in a medical complex, numbers retired, where TOB = 11x)1200-1224 (Alcohol/drug hospitals, excluded from PPS-numbers retired, where TOB = 11x)

National Inpatient Hospital Payments Outpatient Hospital PaymentsUS MC Part A Beneficiaries US MC Part B Beneficiaries

Maryland Inpatient Hospital Payments Outpatient Hospital PaymentsMaryland MC Part A Beneficiaries Maryland MC Part B Beneficiaries

Financial Targets: Medicare Test• A CY2013 baseline will also be established for the national average• The savings test will compare the actual growth rate of the Maryland

hospital payment per beneficiary versus the applied national (actual) growth rate to the baseline Maryland hospital payment per beneficiary.

• The growth rate differential applied to the Maryland beneficiary total will compute the annual savings

• The October 11, 2013 application reflects savings targets (p. 16) that assume no savings in year 1 and approximately 0.5% below the national trend in years 2-5.

• The assumptions and charts on the next several pages reflect illustrative, example calculations. The figures are NOT EXACT and are examples only.

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Financial Targets: Medicare Test• Assumptions:

– Maryland Medicare beneficiaries remain fixed for all periods at 845,000• Table 2.8 at

http://cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareMedicaidStatSupp/2013.html

– Example Maryland per beneficiary base = $6,545• Source: 10/11/13 CMS application

– Fixes national payment per beneficiary growth at 1.0% per year (general assumption for illustrative purposes)

• Scenarios:– “A” Targeted growth rates to achieve CMS application annual targets– “B” Straight line savings beginning in CY2015 to achieve $330m savings target– “C” Straight line savings beginning in CY2014 to achieve $330m savings target– “D” Straight line savings beginning in CY2014 with a fixed 0.5% savings per year

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Scenario “A” Targeted growth rates to achieve CMS application annual targets

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$0.0

$49.5

$82.5

$115.5

$82.5

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

CY2014 CY2015 CY2016 CY2017 CY2018

Annu

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Rate of Growth and$330m Savings Projection

Maryland (imputed) U.S. Annual Savings (in millions)

Base CY2014 CY2015 CY2016 CY2017 CY2018Maryland $6,545 $6,610 $6,618 $6,646 $6,674 $6,781

Maryland @ U.S. Growth Rate $6,545 $6,610 $6,677 $6,743 $6,811 $6,879Maryland (above)/below U.S. $0 $59 $98 $137 $98

Total MD Medicare Beneficiaries 845,000 845,000 845,000 845,000 845,000 Annual Savings (in millions) $0.0 $49.5 $82.5 $115.5 $82.5

Cummulative Medicare Savings (in millions) $49.5 $132.0 $247.5 $330.0

Base CY2014 CY2015 CY2016 CY2017 CY2018Maryland (imputed) 0.00% 1.00% 0.11% 0.42% 0.43% 1.61%

U.S. 0.00% 1.00% 1.00% 1.00% 1.00% 1.00%MD (above)/below National 0.00% 0.00% 0.89% 0.58% 0.57% -0.61%

Medicare Hospital Cost Per Beneficiary

Medicare Hospital Payment Growth Rate

Scenario “B” Straight line savings beginning in CY2015 to achieve $330m savings target

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$0.0

$32.5

$65.5

$99.0

$132.9

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

CY2014 CY2015 CY2016 CY2017 CY2018

Annu

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U.S. 0.00% 1.00% 1.00% 1.00% 1.00% 1.00%MD (above)/below National 0.00% 0.00% 0.58% 0.58% 0.58% 0.58%



Scenario “C” Straight line savings beginning in CY2014 to achieve $330m savings target

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$21.5

$43.4

$65.6

$88.2

$111.2

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

CY2014 CY2015 CY2016 CY2017 CY2018

Annu

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Scenario “D” Straight line savings beginning in CY2014 with a fixed 0.5% savings per year

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$27.7

$55.7

$84.2

$113.1

$142.5

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

CY2014 CY2015 CY2016 CY2017 CY2018

Annu

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Rate of Growth andMedicare Savings Projection

Maryland (fixed) U.S. Annual Savings (in millions)





Base CY2014 CY2015 CY2016 CY2017 CY2018Maryland (fixed) 0.00% 0.50% 0.50% 0.50% 0.50% 0.50%




Financial Targets: Medicare Test• Points to consider:

– Uncertainty of national growth rate– Impact of the ACA (coverage expansion, etc.)– Localized clinical epidemic– Inclusion of unregulated services in the hospital measure– MD vs. national percentage of Medicare Part B to

Medicare Part A beneficiaries– Relationship of All Payer ceiling to Medicare savings

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Quality Targets: Readmissions• Maryland maintains its waiver from the CMS Hospital Readmission

Reduction Program.• To do so, Maryland will reduce 30-day Medicare readmission rate to the

national average in five years– Most recent Medicare readmission rates:

• Maryland = 20.5% vs. national = 18.5%

• Based on the most recent data, a 0.5 percentage point reduction in the rate each year of the agreement is required

• Appendix B of the application (p. 55) outlines the readmission calculation– Monthly readmissions rate = Readmissions during the 30 day period / index

admissions that occurred during the month– Readmission occurs if first day of a stay occurred within 30 days of the last

service date of an index admission24

Quality Targets: MHAC/PPC• Maryland maintains its waiver from the CMS

Hospital Acquired Conditions Program.• Maryland will achieve an annual, aggregate

reduction of 6.89% in 65 Potentially Preventable Complications (PPCs)– PPCs, not MHACs– 30% reduction over 5 years

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Proposed Terms• During the five year period, there are specific events that will lead to further

review by CMS and potentially early termination. (Application p. 17) They are:– Failure to achieve (Medicare) savings for two consecutive years– Failure to meet the cumulative (Medicare) savings target by $100m or more at any point

during the life of the model– Annual growth in Maryland Medicare per beneficiary total cost that is more than 1%

point greater than the national average– Determination of significant quality of care deterioration

• Should any of these occur, CMS will provide notice to Maryland.– Maryland has 90 days to respond, with CMS having 90 days to accept the response or

request a corrective action plan, due in 30 days.– If the corrective action plan is not implemented successfully within 1 year of notification,

CMS may terminate the agreement.– See flowchart in Application, page 18.

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Questions and Answers

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Thank You

Brett McConeManaging Director,

KPMG LLP410 949 8538

[email protected]

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mechanics of the new waiver test

Documents

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resulting allpayer model

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