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Is the end of Medi-Cal fee-for-service contracting in our future? Yes…and no

September 15, 2011

Pursuant to legislation (SB 853) enacted last year, the California Department of Health Care Services (DHCS) is planning to replace the Selective Provider Contracting Program (SPCP) with a case payment method by diagnostic-related group (DRG) for implementation by July 1, 2012.  To that end, in consultation with a workgroup convened by the California Hospital Association, the department is gathering input on the design of a Medicare-like DRG payment method.  The workgroup is scheduled to complete its work in November, 2011, at which point the DHCS will review all recommendations and make final decisions.

Who does it affect?

The new DRG payment method will apply to general acute care hospitals, including out-of-state hospitals and hospitals designated by Medicare as critical access hospitals.  County-owned and operated hospitals, psychiatric hospitals, rehabilitation hospitals (including alcohol and drug rehabilitation facilities) are excluded from the project. 

For the affected hospitals, the DRG payment method will apply to all inpatient fee-for-service (FFS) claims, except for the following, for which FFS payment will continue:

  • Psychiatric stays, regardless of whether they are in a distinct part unit or not
  • Rehabilitation stays, regardless of whether they are in a distinct part unit or not
  • Managed care stays
  • Swing bed stays
  • Other services as may be determined by the DHCS

Whether or not Medicare crossover (dual-eligible) claims will be affected remains to be decided.   

What is or will be the new Medi-Cal DRG?

The DHCS decided to adapt and use the All Patient Refined-Diagnostic-Related Group (APR-DRG) currently used or planned for use in calculating Medicaid payments by the states of Maryland, Montana, New York, Pennsylvania, Rhode Island, Colorado, North Dakota, South Dakota and South Carolina.  The APR-DRG is licensed by over 20 state and federal agencies and is used by over 1,600 hospitals nationwide.

APR-DRGs were chosen because – unlike the MS-DRG used by Medicare – the algorithm more ably manages cost data related to neonatal, pediatric and obstetric care.

The off-the-shelf version of the APR-DRG is comprised of 314 base DRGs, each containing four levels of severity (i.e., minor, moderate, major or extreme) and, unlike MS-DRGs, does not adjust for complications and comorbidities.  However, the payment rates will depend on decisions not yet made.  The variances under consideration include the following:

  • Inclusion of policy-based adjustments to certain care categories
  • Geographic wage variances to the APR-DRG base rate
  • Type-of-hospital variances to the APR-DRG base rate
  • Inclusion of a transition-to-full-implementation period for the new payment rates

Questions and Considerations

How will the DHCS manage the FFS payment rates for the excluded hospitals and services after the APR-DRG payment system is implemented; will a stripped-down version of the SPCP with the California Medical Assistance Commission negotiating rates with hospitals continue?

The DHCS will consider a number of “policy adjusters” to the payment method it finally adopts.  For example:

  1. How will the existing north/south Medi-Cal rate bais and other (e.g., wage) regional disparities be translated in the development of the APR-DRG base rate?
  2. Should the care and services provided by the state’s children’s hospitals be excluded?
  3. Should the supplemental payment program for private DSH hospitals be folded into the new payment method?
  4. Should adjustments be made for payments to hospitals with teaching programs?  (Should “tiered” rates be included?)

 

Your thoughts?

 

Comments

MEDI-CAL DRG BASED PAYMENTS

Submitted by Visitor on September 15, 2011 - 9:41am.
Question: Under current considerations, would a Medi-Cal beneficiary be able to seek services at any hospital, or will there still be hospitals that are contracted for Medi-Cal services where Medi-Cal patients must go to for their non-emergent care?

APR-DRGs

Submitted by Visitor on September 17, 2011 - 8:07am.
Children's hospitals should be excluded from DRGs. These hospitals have been excluded from Medicare DRGs since the inception of the Medicare IPPS. Therefore, they would be severly disadvantaged by a conversion which would essentially require the rework of their Health Information Management departments. Most hospitals have been dealing with DRGs for the last 25 or 30 years and have well established systems already in place to manage such a system. Children's hospitals have no such experience. Additionally, the State has no historical data base to support the rate setting process for these hospitals under a DRG type system. Until such a data base can be established, rate setting will be problematic at best and could easily create additional financial distress in many children's hospital which are already struggling financially.

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