State of Ohio Procurement



Supplement 5:

Workers’ Compensation Managed Care Information System (WC-MCIS)

BWC Fee Schedule Strategy

Background

In 2006 and previous years BWC utilized a variety of reimbursement methodologies across their complement of service settings. BWC utilized prospective payment systems for the professional/physician setting and the ambulatory surgical center (ASC) setting. However for the hospital based inpatient and outpatient service settings BWC employed a cost-based retrospective reimbursement methodology. In a retrospective reimbursement methodology the payment rate is determined after the service is provided to the patient. Therefore, payers that utilize a retrospective reimbursement methodology hold the cost of service risk because they have contracted with the provider to pay the cost of providing the service regardless of what that cost may be. Additionally, a retrospective reimbursement methodology makes it difficult to predict reimbursement outlays from one year to the next as the payment rate is determined after the service is rendered. This is exacerbated in the workers compensation environment when the volume and severity of claims for any given effective period is unknown.

BWC utilizes Managed Care Organizations (MCOs) for medical management of injured worker claims. Under this structure, BWC via the MCOs holds the risk for underwriting healthcare utilization (Price and Farley, Feb 28, 2005). When you combine the use of MCOs with a retrospective reimbursement methodology, then BWC holds both types of risk – utilization and cost of services. However, by utilizing a prospective reimbursement methodology, the cost of service risk is transferred from the insurer to the provider as under a prospective reimbursement methodology the provider is encouraged to improve efficiency and effectiveness of care. Therefore, the risk is divided between the two groups and each party holds the portion of the risk that they can effectively manage (Price and Farley, Feb 28, 2005).

In 2006, BWC contracted with Navigant Consulting, a leading healthcare firm, to complete a study of four service settings to determine if a prospective reimbursement methodology would be viable and executable.

In May 2007, Navigant Consulting completed their study of BWC reimbursement methodologies for the hospital inpatient, hospital outpatient, ambulatory surgical center (ASC) and professional/physician service settings. Included in the Recommendations and Assistance with Implementation of Medical Provider Payment Methodologies report were the following recommendations:

• Hospital inpatient – continuation of the IPPS methodology; recommended review of five issues regarding the inpatient hospital payment approach

• Hospital outpatient – recommends that BWC adopt a hospital outpatient prospective payment system (OPPS).

• ASC – recommends continuation of the existing BWC payment approach; to consider revised Medicare ASC PPS once implemented by Medicare.

• Professional Provider – continuation of the existing BWC professional services payment approach

BWC evaluated and has taken action on the above recommendations. Over the past three years, BWC has analyzed the reimbursement methodology and rates for each of the service settings. The Medical Services Division’s guiding principle has led the way for improvements and modifications to each reimbursement methodology.

The guiding principle: to ensure access to high-quality medical care and vocational rehabilitation services by establishing an appropriate benefit plan and terms of service with competitive fee schedule which, in turn, enhances medical/vocational provider network.

In addition to the guiding principle, BWC set parameters to ensure that the newly adopted hospital inpatient prospective payment systems would meet the requirements of BWC and their provider network. Specifically BWC indicated that prospective reimbursement methodologies should:

• Encourage cost containment measures to be implemented by health care providers

• Be able to be reasonably implemented and administered in terms of complexity and cost

• Be able to be reasonably maintained in terms of complexity and cost

• Be adaptable to the workers compensation environment

• Be concise enough for the rule making process

• Be acceptable to the provider community

At this point in time, BWC employs a prospective payment system for the service settings discussed in this strategy. The foundation for each of the prospective payment systems is the Medicare model. Although BWC has adopted Medicare prospective payment systems as the foundation for various fee schedules, BWC does not strictly follow the full payment systems as published by Medicare. For each system designated components have been excluded when it has been determined that the component or provision is not in alignment with the Medical Services Divisions philology or guiding principle. Additionally, BWC reimburses at a rate higher than Medicare for most services.

Hospital Inpatient

The BWC hospital inpatient methodology was adopted in 2007 and is based on Medicare’s Inpatient Prospective Payment System (IPPS) which utilizes Medicare Severity Diagnosis Related Groups (MS-DRGs). The Medicare IPPS was established in 1983. In 2008, Medicare moved to the MS-DRG classification because it allowed for a more robust severity of illness component. The MS-DRG classification system places clinically similar admissions (based on type of illness and severity level) with similar resource consumption levels together into groups. Each group is then assigned data points such as a relative weight and length of stay. The MS-DRG relative weight is then used in the reimbursement formula as it represents the average resources required to treat a patient in this clinical group. Other payment provisions are included in the IPPS such as methodology for outlier payments, adjustments for teaching hospitals, and adjustments for hospital that have a disproportionate uninsured population.

Hospital inpatient admission to psychiatric hospital or units, rehabilitation hospitals or units, children’s hospitals, dedicated cancer hospitals and long-term care facilities are reimbursed via a cost plus methodology. These types of facilities are excluded from Medicare’s IPPS because a different payment methodology or prospective payment system was specifically designed for the service setting. However, due to the low volume of admissions for each of these settings at BWC, the individual Medicare payment methodologies have not been adopted. Instead, a retrospective cost plus methodology continues to be utilized for these facilities and facility units. In a cost plus methodology the facilities allowed charges multiplied by the facilities cost to charge ratio plus 12 percentage points to allow for some profitability. However, there is a cap imposed which is that the facilities cost to charge ration plus 12 percentage points cannot exceed .70. Therefore, payment for an admission cannot exceed 70 percent of allowed charges.

Hospital Outpatient

The BWC hospital outpatient methodology was adopted in 2011 and is based on Medicare’s Outpatient Prospective Payment System (OPPS) which was established in 200 and utilizes Ambulatory Payment Classifications (APCs), the Medicare Physician Fee Schedule (MPFS) and the Medicare Clinical Laboratory Fee Schedule (CLFS). The APC system places clinically similar procedures and services with similar resource consumption levels together into groups. Each group is assigned a relative weight which is the proxy for the average cost of providing that service or procedure. The relative weight is used in the reimbursement formula. Fee schedule provide a payment level per service. For example, the Medicare payment level for a blood draw or venipuncture is $3.00. Other payment provisions are included in the OPPS such as methodology for outlier payments, adjustments for rural hospitals, adjustments for dedicated cancer centers, and wage index adjustments for varying wage rates within states and across the country.

Ambulatory Surgical Center

The BWC ambulatory surgical center (ASC) methodology was adopted in 2009 and is based on Medicare’s Ambulatory Surgical Center Prospective Payment System (ASC PPS) which was established in 2008 and is based on Medicare’s OPPS. The ASC PPS utilizes a subset of OPPS services that have been deemed appropriate for the freestanding facility setting. That is only procedures that carry a low surgical risk are approved for the ASC setting as they ASC facility is not connected, physically, to a hospital inpatient setting where emergency services could be provided if the surgical outcome is complicated or unfavorable. The ASC PPS rates utilize the same APC grouping system. To account for the fact that ASC setting is typically a lower cost setting the payments under the ASC PPS are about 61% of those made in the hospital outpatient setting. For example, if a surgical procedure is reimbursed at $1,000 in the hospital outpatient setting, the payment rate for the same service in the ASC setting would be $610.00. There is only one adjustment provided for under the ASC PPS and that is a wage index adjustment similar to the one used in the OPPS.

Professional Provider

The BWC physician and provider methodology was adopted in 1997 and is based on Medicare’s Physician Fee Schedule (MPFS) which utilized Relative Based Relative Value System (RBRVS). The relative value units established by Medicare each year are the foundation of BWC’s physician and provider fee schedule. This fee schedule delineates payment for medical doctors, doctors of osteopathy, chiropractors, home health care providers, therapists, physician assistants, and many other provider types which are too numerous to list here.

Vocational Rehabilitation Providers

Due to the lack of a national payment system or code set for vocational rehabilitation services, BWC has developed an Ohio BWC unique vocational rehabilitation services fee schedule to reimburse providers. BWC utilizes the local code section of the Healthcare Common Procedure Coding System (HCPCS) to identify vocational rehabilitation services. The local codes, or the definition of services, are Ohio BWC specific. Rates for the fee schedule are determined after analysis of benchmark rate data from other payers and other workers compensation jurisdictions. It should be noted hospital based providers are reimbursed under the hospital outpatient reimbursement methodology not the vocation rehabilitation provider fee schedule.

Currently, BWC manages the various fee schedule independent of one another. But now that BWC has transitioned to prospective payment systems for all service settings, BWC has developed this document to serve as an overall strategy for the management of all fee schedules. Having a fee schedule strategy will allow BWC ensure that payment levels are adequate and appropriate for all providers and facilities in all service settings.

Fee Schedule Management

Currently fee schedule management is divided among several individuals in the Medical Services Division. One person has been established as the manager of the fee schedule and is responsible for the creation and management of the project plan. Various key individuals for all areas in the Medical Services Division participate on the various fee schedule teams to ensure that their area completes all required tasks for the maintenance of the fee schedules. The fee schedule maintenance periods are provided in table x.

|Fee Schedule |Rate Year |

|Hospital Inpatient |February through January |

|Hospital Outpatient |May through April |

|Ambulatory Surgical Center |May through April |

|Professional/Physician |January through December with an emergency rule|

| |for January code updates |

|Vocational Rehabilitation |Not annually reviewed |

Although performance data for each of the fee schedules is analyzed each year, each is reviewed independent of the other fee schedules. For example, an overall picture of reimbursement versus cost or charge is not calculated or discussed. As described below, BWC will begin to monitor fee schedules at a higher strategic level in addition to the detailed level which is already being executed. To build the fee schedule strategy the Medical Services Division has established a philosophy and metrics for fee schedule evaluation as described in the next sections.

Fee Schedule Evaluation

What is the BWC Philosophy?? The Medical Services Division’s guiding principle has influenced BWC’s fee schedule philosophy. Our philosophy revolves around creating a strong and effective provider network to ensure that Ohio injured workers have efficient, effective and high quality care. Since injured workers may receive treatment in a variety of healthcare settings, it is important for BWC to consider fee schedule management at all levels. Since delivery of service at various setting is connected, so too should the management examine the connectivity and interrelatedness of the individual fee schedules.

At the highest level (all fee schedules combined) and the lowest level (each individual fee schedule), BWC should examine and determine if the fee schedule or fee methodology payment is adequate. Many factors should be assessed to determine if payment is adequate. The following areas should be closely monitored and evaluated:

• Fee schedule efficiency

• Appropriate access to care

• Providers’ cost and profit levels

• Quality of care

• Fee schedule competiveness

These questions must be examined on an on-going basis in order to create a platform for good decision making as it relates to setting payment adjustment factors, conversion factors and fee schedule rates. To achieve a consistent fee schedule evaluation an annual fee schedule report template has been created. The report features an overall look at fee schedule performance, but is then broken down by individual fee schedules. For each fee schedule consistent evaluation will be performed as well as a review of site of service specific issues that have been identified. By performing an annual review of the health care environment and evaluation of fee schedules BWC will be able to ensure that their fee schedules are in alignment with the overall Medical Services philosophy.

Fee Schedules Efficiency

Fee schedule efficiency is important to monitor because it illustrates the impact of the fee schedule methodologies on the workers compensation environment.

Establish outcomes and satisfaction measures to relate to the management and maintenance of the fee schedule.

• Is each of the fee schedule methodology reflective of the BWC Medical Services division philosophy and guiding principle?

• Does the timing for each fee schedule release compliment the abilities and resources of BWC?

• Is the continued maintenance of five separate fee schedules required? Is this cost effective?

• Are fee schedule methodologies and fee schedule maintenance effectively communicated to customers?

• Are fee schedule philosophies aligned in order to prevent inefficiency and confusion?

The goal of monitoring the fee schedules at a global level to is drive simplicity and predictability of the fee schedule maintenance process. Also it allows BWC to ensure that changes in one fee schedule do not negatively impact another service setting. It will allow for all of the fee schedule managers to work together to create consistent policy, procedure, and educational materials for the MCOs and provider community.

Appropriate Access to Care

Injured worker access to appropriate care is paramount to an effective and efficient workers compensation program. Ohio BWC works to achieve competitive return to work rates. If an injured workers access to care is hindered, there is a significant opportunity for an increased drain on the system. Not only is there risk for a delay in his or her return to work, but there is a risk for increased severity of illness related to his/her injury.

BWC should monitor provider participation for all service areas. Year to year changes as well as significant trends should be analyzed. BWC should work to establish parameters so that they have a definition of what constitutes an access to care issue. It is also important to understand the differences between a service setting or locality access issue or a provider enrollment issue. Once this is established, then data analysis can be performed to allow BWC to know whether or not an access to care issue exists. The following questions should be reviewed yearly:

• Is there a consistent utilization all service areas?

• Is there is shift from utilization in one service area to another?

• If there was a utilization shift, was the shift expected or unexpected?

• Are the injured workers educated on their site of service options?

Further an assessment of the capacity and supply of providers can be completed. Hospital capacity and employment data can be gathered from the Bureau of Labor Statistics. A review of hospital participation in the BWC program should be performed. A review of the types of hospitals enrolled should be performed to ensure that adequate access to specialized services is available.

Providers Cost and Profit Level

Fee schedule evaluation must include an assessment of the providers’ cost and profit levels. Healthcare is a business. For any business to remain competitive and provide a quality product they must achieve an acceptable profit margin. It is important to evaluate the profit margin level for BWC encounters across the provider community. If BWC profit margins are not attainable for providers, there continued participation in the program is jeopardized.

A full assessment should be performed yearly to determine the relationship between BWC payments and the provider community’s cost level and profit level. Overall figures, as well as, category levels should be reviewed. National profit level data can be obtained from the MedPAC yearly report to Congress. Additional data may be available from hospital organizations such as the Healthcare Financial Managers Association (HFMA) the American Hospital Association (AHA) and American Medical Association (AMA).

Quality of Care

In order to serve the employer and employee community, Ohio BWC must ensure that injured workers receive quality care. Like access to care, quality care supports the return to work rate and helps to lower the cost of healthcare through fewer complications and iatrogenic conditions. This is supported, by the current healthcare trend in which numerous payers have begun to adopt pay for performance programs; thus linking quality of care to reimbursement rates either through reward or penalty methodologies.

BWC should determine which quality measures relate to the BWC population and should be reviewed. Currently, the Hospital Reimbursement and Review unit (HRR) monitors the inpatient readmission rate. The inpatient readmission rate is measured by how many inpatient discharges were followed by another inpatient admission (same or different facility) within 72 hours for the same clinical condition. It answered the question as to whether the patient was prematurely discharged from the first admission. There are numerous quality organizations that collect quality statistics for various healthcare settings. The quality data available from these organizations, such as the National Quality Forum (NQF), should be investigated and reviewed by BWC.

Further, BWC specific quality measures should be considered. Statistics surrounding return to work, and relapse rate, etc. may be helpful during this portion of the fee schedule assessment. Additionally, data from the Workers Compensation Research Institute may be useful.

Fee Schedule Competitiveness

It is important to BWC to remain competitive in relation to other payers in their market. If a payer is not competitive, then they lose their ability to secure access to care for their beneficiaries.

Determining if fee schedule rates are competitive requires an analysis of both the government and commercial payer market. Unfortunately, this is easier said than done. There is limited transparency in the United State’s health care market on the payer side. Recent healthcare legislation has focused more on healthcare transparency for the consumer. Numerous states have established laws that require hospitals to publish their prices for procedures. However, there is not a similar requirement for payers to publish how much they actually pay providers for the services rendered. As discussed earlier, MedPAC publishes payment level information within their annual report to Congress. This base set of benchmarks that can be used to help establish fee schedule parameters for the strategy; however, the downside is that the benchmarks may not be updated each year.

Additionally, BWC can compare their fee schedule rates to those released by other workers compensation jurisdictions. BWC should research how other programs are utilizing payment methodologies and the associated rates on a yearly basis. See Benchmarks for Rate Setting in the next section of this strategy.

Lastly, as mentioned earlier, BWC could commission a study of commercial/private payer rates that are Ohio specific. The results of such a study could be used to strengthen the BWC fee schedule strategy. However, such a study would be of a significant cost to BWC.

Establishing Fee Schedule Parameters

BWC must establish fee schedule parameters for each fee schedule that supports the over-arching philosophy for the combined fee schedules. There is an intricate interplay between all of the fee schedules. Therefore, rates must be established in such a way to that adequate access, high quality of care, and efficiency can be obtained for all service settings. During each update period, the fee schedule parameters should be examined and adjusted as warranted by research of the current healthcare environment. Changes to Medicare, Medicaid, and third party payer approaches will impact the parameters established by BWC. In this strategy established parameters for each fee schedule are discussed. As the parameters are maintained they can be used each year to determine the appropriate fee schedule amounts.

Setting Fees

The fee schedule rates are reviewed annually. In order to complete the review, the unit gathers rate data from a variety of sources including:

• Monopolistic workers’ compensation systems (North Dakota, Washington and Wyoming)

• Regional state data (Kentucky, Indiana, Michigan, Pennsylvania and West Virginia)

• Other payers data (private and other governmental agencies)

• Vendors of equipment and tools

The comparison process is complicated. Each service rate must be closely examined so that an “apples to apples” comparison can be made. Since there is not a national code set for vocational rehabilitation services this process is quite time consuming and labor intensive. Once the data is available for comparison a determination is made as to whether the rate should be increased, decreased or remain unchanged.

Fee Schedule Strategy Execution

The next section of this report will discuss the fee schedule and/or fee methodology for each service setting utilized by BWC .The known history and current status of the reimbursement methodology will be provided. Additionally future refinements for each reimbursement methodology will be discussed along with a timeline for implementation of such refinements.

Because the reimbursement methodologies are based on Medicare systems, changes to the Medicare payment systems impact BWC and the fee methodology maintenance process. Medicare revisions are typically published each year via and established rule making process. However, Congressional laws that are passed throughout the year may contain Medicare revisions. If the Medicare revisions have specific implementation dates, then Medicare may implement payment changes at times other than the yearly update time. BWC must monitor payment system changes as they are passed via Congress and implemented by Medicare. Although BWC may choose to not update their methodologies outside of the established rate years, monitoring the payment systems throughout the year will allow for a complete and robust analysis of each fee schedule and will facilitate discussions with provider and facility organizations.

BWC utilized many Medicare payment systems; however, BWC does not necessarily adopt every component of the unique payment systems. Each year the Medicare proposed rule for each payment system must be closely examined to identify the proposed changes. The proposed changes must then be analyzed and the impact assessed. Once the required information has been collected, BWC can then determine if the proposed changes are in alignment with its philosophy and guiding principle for fee schedule management. BWC can then adopt provisions with close management that they feel support the BWC philosophy. Those provisions that are not in alignment can be excluded from the BWC fee schedule rules.

Hospital Inpatient

Prior to the adoption of a prospective reimbursement methodology, hospital inpatient services were reimbursed via a cost-plus retrospective methodology. Specifically, facilities were reimbursed at their Medicaid cost to charge ratio (CCR) plus 12 percentage points up to 70% of allowed billed charges. Prior to Navigant’s confirmation that BWC move to a modified version of Medicare’s Inpatient Prospective Payment System (IPPS) BWC had moved through rulemaking via the BWC Board of Directors and JCARR to pass a revised hospital inpatient methodology. The implementation of IPPS (also known as Diagnosis Related Groups or DRGs) by BWC was effective with dates of service January 1, 2007.

Hospital inpatient care provided at rehabilitation facilities or facility units, psychiatric facilities or facility units, long term care hospital, critical care hospitals, children’s hospitals and Alliance of Dedicated Cancer Centers (ADDC) cancer hospitals are excluded from the IPPS methodology. These facilities are reimbursed under the cost plus methodology of Medicaid cost to charge ratio (CCR) plus 12 percentage points up to 70% of allowed billed charge. A default value for those facilities that do not have an Ohio Medicaid cost to charge ratio is calculated each year. This payment methodology is called the exempt payment methodology at BWC. Additionally, BWC utilizes a per diem methodology for inpatient care provided in a skilled nursing facility.

Currently, BWC uses Medicaid cost to charge ratios to determine cost for the hospital inpatient setting and to execute the exempt payment rates. BWC has utilized Medicaid data via agency data sharing. However, the use of Medicaid data results in the cost to charge ratio not being provided for those facilities that do not submit a cost report to Ohio Medicaid and for those facilities that are not Ohio hospitals. Therefore, BWC is forced to use a default figure for many providers. Therefore, it is recommended that BWC move to the use of Medicare cost to charge ratio data for the hospital inpatient setting. The Medicare data should be used for both the calculation of cost and for the exempt payment rates. The Medicare cost to charge ratios can be purchased from a healthcare data firm, calculated from the HCRIS data file (publically available at no cost), or taken from the Hospital Inpatient Provider Specific file (publically available via Medicare website at no cost). BWC should first research the data files provided at no cost to determine if their manipulation is executable at BWC with the current available staff.

The hospital inpatient rule is updated each year to allow for the adoption of the most current version of Medicare’s IPPS. Additionally, a yearly update allows for BWC to refine their reimbursement methodology and to engage in rate setting for this service setting. An example summary of annual updates is provided in table 1.

|BWC Hospital Inpatient Annual Updates (2007 to 2011) |

|Year |Description of Charges |Projected Impact |Key Issues |

|2007 |Adoption of IPPS (grouper version 24.0 DRGs) | | |

| |115% DRG rate | | |

| |Modified outlier methodology (percent of allowed | | |

| |charges methodology) | | |

| |115% of direct graduate medical education (DGME)add-on| | |

| |per diem | | |

|2008 |Conversion to version 25.0 MS-DRGs | | |

| |115% MS-DRG rate | | |

| |Modified outlier methodology | | |

| |115% DGME per-diem add-on | | |

|2009 |Update to version 26.0 MS-DRGs |Projected reduction in percent of |Device charge/cost impact on |

| |Update to payment adjustment factors |reimbursements to outlier cases |outlier methodology |

| |120% MS-DRG rate |from 23% to 11% | |

| |175% MS-DRG outlier rate | | |

| |120% DGME per-diem add-on | | |

| |Adoption of Medicare outlier methodology | | |

|2010 |Update to version 27.0MS-DRGs |Projected impact of 2.5% | |

| |120% MS-DRG rate | | |

| |175% MS-DRG outlier rate | | |

| |120% DGME per-diem add-on | | |

|2011 |Update to version 28.0 MS-DRGs |Projected impact of 5.7% |Analysis of the Affordable Care Act|

| |120% MS-DRG rate | |impact on Medicare IPPS and |

| |180% MS-DRG outlier rate | |adoption of the Documentation and |

| |120% DGME per-diem add-on | |Coding Adjustment |

| |Establish a BWC adjustment factor to eliminate | | |

| |Medicare cost saving measures under Documentation and | | |

| |Coding Adjustment and Affordable Care Act market | | |

| |basket yearly reduction. Total adjustment of 3.15%. | | |

Rate Setting

Each year the Medical Services team reviews data from the previous year to determine the adequacy of the hospital inpatient payment system at BWC. Various data elements are reviewed. Specifically, BWC closely monitors two ratios: payment to cost and payment to charge.

It is critical to tie in the activities in the hospital outpatient arena too. Although the hospital outpatient setting will be discussed in detail later in this report, it is important to note that BWC is adopting a modified version of OPPS in 2011 and is executing a transition plan to move the payment to cost ratio from 146% to approximately 115% over a three year period. Over the next few years BWC must achieve a balance between hospital inpatient and hospital outpatient so that access to quality care is not put at risk. BWC can find balance by setting payment adjustment factors for both settings that allow for payment to cost ratios within the commercial payer corridor.

Future Considerations

Outlier Cases

BWC should continue to monitor the percent of total payments that are distributed to outlier cases. As indicated by Navigant Consulting in their 2007 report to BWC, a reasonable outlier target is 3% of total cases and 6-8% of total payments (Deliverable #3 – Cost Benefit Analysis (page 8). The 2009 hospital inpatient experience shows that outliers accounted for 3% of the bills and 11% of the total payments. Given that BWC has a patient population unlike the general healthcare industry which this is acceptable performance of the current outlier provision.

Device Intensive MS-DRGs

BWC utilizes MS-DRGs which package the cost of the device, if applicable, into the payment for encounter; that is devices are not separately payable. Because BWC injured workers utilize devices and implants at a higher rate than the average population, BWC should continue to monitor data to ensure that device costs are adequately reimbursed.

Payments Higher than Billed Charges

There have been a few providers that have raised concerns regarding the payment of bills where the MS-DRG payment rate is higher than the allowed billed charges. From a reimbursement methodology perspective this is reasonable. Under prospective payment providers are encouraged to reduce cost and perform efficiently. When properly executed by the provider the result is a cost per encounter that is much lower than the national average. In turn, the payment would exceed costs as the payment is based on national statistics.

However, it is also understandable that employers would be concerned about paying an amount higher than was billed. Even after additional information about the MS-DRG system is provided to employers, this may still be a hard concept to live with when you are the one having the expense included in your experience. However, the overall figures show that the implementation of a prospective system has been extremely effective in controlling hospital inpatient costs per injured worker claim. The graph below compares the BWC cost per injured worker claim to the consumer price index – medical for 2005-2009.

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BWC adopted prospective payment in 2007, and as you can see in the graph above, the cost per injured worker claim was considerably lower than 2005 and 2006 and has remained somewhat stable from 2007 – 2009. This is in contrast to the consumer price index – medical which has continued to increase significantly each year.

Therefore, even though there is a small percentage of bills that have a payment higher than the allowed billed charges (7%), the overall savings from this methodology far outweigh this occurrence with 93% of bills reimbursed below allowed billed charges and with as significant discount of an average of 40% of allowed billed charges.

However, the North Carolina workers compensation program utilizes MS-DRGs (IPPS) with a stop loss on both ends. This allows the program to not pay an amount greater than the billed charges, but to also ensure the providers that they will not pay less than a designated amount; the designated amount for North Carolina is 75% of billed charges. Ohio BWC may want to explore the methodology further if they feel there is a need to address this concern.

Medicare Issues

Documentation and Coding Adjustment

The Documentation and Coding Adjustment is a budget neutrality effort mandated by the Transitional Medical Assistance, Abstinence Education and Qualifying Individuals Programs Extension Act of 2007. When CMS moved from the DRG system to the MS-DRG system to incorporate a severity of illness component to IPPS the case mix across the nation rose. As the case mix rises, so do payments. CMS has performed a study that they believe indicates that the increase in case mix was not due to a “true” severity increase, but rather that the increase results from enhancements in physician documentation and code reporting at hospitals. Therefore, CMS is executing required reductions to the standardized amount (IPPS conversion factor) in 2011 and 2012 to maintain budget neutrality. Regardless of whether or not a facility experienced a case mix index increase, their payment rate will be decreased in 2011 and 2012. Since this is a cost saving measure executed by CMS, the recommendation is that the reduction not be executed at Ohio BWC. Ohio BWC does not impose budget neutrality from one year to the next. Further the case mix from 2008 to 2009 actually decreased; opposite from the Medicare experience.

Affordable Care Act Provisions

The impact of the Affordable Care Act (ACA) on the Medicare payment systems is significant for BWC. Each payment system will be impacted in different ways. The major impacts for the hospital inpatient setting are the mandatory decrease to the market basket and the changes to the wage index calculation and provisions. Appendix X provides a summary of the ACA provisions and their associated impact.

Value Based Purchasing Plan

CMS has many demonstration projects in place at this time. The results of these demonstration projects will be used to further refine the CMS Value Based Purchasing (VBP) Program (Visit . to read the CMS plan). Currently, BWC reviews value based performance incentives and determines their individual applicability to BWC, and further determines their inclusion in the payment mechanism.

Hospital Outpatient

In the Recommendations and Assistance with Implementation of Medical Provider Payment Methodologies report was Navigant’s recommendation that BWC move forward with implementing OPPS/APCs as the reimbursement methodology for hospital outpatient services. In 2009 BWC generated an implementation plan for the adoption of a modified version of Medicare’s OPPS. Although the original implementation date was set for May 1, 2010, the implementation was delayed until January 1, 2011 to answer the concerns of some hospitals regarding annual budgets and the impact of this methodology change on their fiscal year projections.

The hospital outpatient rule is updated each year to allow for the adoption of the most current version of Medicare’s OPPS and to address any new Medicare provisions. Additionally, a yearly update allows for BWC to refine their reimbursement methodology for this service setting. Not every provision is adopted. As an example in 2017 BWC is not adopting the Section 603 provision for Provider Based billing until further evaluation can be performed.

Future Considerations

Outlier Add-On Payment

BWC should review monitor outlier performance metrics yearly. Under Medicare’s OPPS, outlier add-on payments are calculated at the line item level. This is very different than the hospital inpatient setting where the outlier add-on payment is made at the bill level. Therefore, BWC should monitor which APCs are most often receiving an outlier payment. Are they surgery related? Are they device-intensive procedures? A review of outlier data will help BWC understand which cases are the BWC-specific outlier cases. If there is a significant volume in one area, BWC could explore if a payment adjustment is warranted to ensure uninterrupted access to care.

Device Intensive Procedures

Under Medicare’s OPPS device payment is either packaged or separately reimbursed through the pass-through device provision. There are numerous criteria for new devices to qualify for pass-through (cost-based) payment. Once a device that has been assigned pass-through status has been assigned to a pass-through APC for 2-3 years, it becomes a packaged supply. Packaging a device means that the payment for the device is not separately made, but instead is part of the reimbursement rate assigned to the procedure or service with which it is performed. Packaging device cost helps to control the cost of care, reduce the impact of high-markups rates on devices, and to encourage facilities to strive to improve their purchasing contracts for devices and implantable supplies.

BWC should monitor the payment to cost ratio for device intensive procedures. Each year Medicare updates the list of device-intensive procedures and publishes the list in the Final Rule available in the Federal Register as well as on posting the file on their website (cms.). BWC should monitor which procedures then to be high cost device intensive procedures for the BWC. For example, implantation of neurostimulators should be closely monitored. High-cost device-intensive procedures may also show to be prevalent in the review of outliers.

If trending show that the payment to cost levels are not adequate under the adopted payment adjustment factors for device-intensive procedures, then BWC could consider an additional adjustment for specific APCs.

Medicare Issues

Value Based Purchasing Measures

Similar to the hospital inpatient setting, the current value based purchasing measure executed for the hospital outpatient setting is a pay for reporting program where hospitals that fail to submit quality data receive a reduction in their market basket increase for the designated year. The current reduction level is 2% as mandated by the Medicare Modernization Act of 2003.

Affordable Care Act Provisions

The impact of the Affordable Care Act (ACA) on the Medicare payment systems is significant for BWC. Each payment system will be impacted in different ways. The major impacts for the hospital outpatient setting are the mandatory decrease to the market basket and the changes to the wage index calculation and provisions. Appendix X provides a summary of the ACA provisions and their associated impact. It is also important to remember that ACA provisions for the Clinical Lab Fee Schedule and Medicare Physician Fee Schedule impact the hospital outpatient setting as each of these fee scheduled is utilized under OPPS. Therefore, consideration should be given to these fee schedules during the analysis process.

Ambulatory Surgical Center (ASC)

BWC has utilized a prospective reimbursement methodology for the ASC service setting for several years. From 1996 to 2008 BWC utilized the ASC Groups reimbursement system published and used by Medicare for the ASC setting. However, the ASC Group rates set by BWC had not been updated from 2005 to 2008. Clearly the cost of providing care had changed between 2005 and 2008; therefore, BWC was faced with a significant challenge of brining the ASC fee schedule up to date.

As previously listed, in the Recommendations and Assistance with Implementation of Medical Provider Payment Methodologies report was Navigant’s recommendation that BWC move forward with adoption of the revised ASC prospective payment methodology once released by Medicare. Beginning January 1, 2008, Medicare adopted ASC-PPS their revised reimbursement methodology for the ASC setting which is based on their OPPS. The Medicare conversion to ASC PPS includes a four year transition period. BWC adopted the ASC PPS rates in 2009 (second year of transitions) and has updated the rates each year to be in alignment with Medicare’s transition period.

The ASC rule is updated each year to allow for the adoption of the most current release of Medicare’s ASC-PPS rates. Additional, a yearly update allows for BWC to refine their reimbursement methodology for this service setting.

Rate Setting

In 2009 BWC adopted the fees published in the ASC-PPS. Rather than implementing the complete ASC-PPS and associated provisions, BWC has chosen to only implement the revised rates during the Medicare transition period. Additionally BWC has committed to working with the Ohio Association of ASCs (OAASCs) to obtain cost data. If the partnership is successful BWC will have Ohio ASC specific cost data to assist with setting a payment adjustment factor that is adequate to maintain the ASC provider network. In lieu of facility specific cost data BWC can utilize an estimated cost to charge ratio (CCR) as discussed earlier in this report. Based on 2009 hospital outpatient data, the estimated CCR for ASC facilities is .21. Using this estimated CCR, the resulting payment to cost ratio is 73%. Therefore, it is clear that BWC is reimbursing below cost and the payment adjustment factor for ASC services should be increased over the next four years so that ASC payment rates are in alignment with hospital inpatient and hospital outpatient levels.

Increasing the payment adjustment factor will allow the payment to cost ratio to be within the commercial payer corridor by the end of the four year transition period (2012 to 2015).

Future Considerations

Use of Integrated Outpatient Code Editor (IOCE)

Medicare utilizes the IOCE to process ASC bills. One of the most beneficial aspects of utilizing the IOCE for BWC ASC bills is the execution of the National Correct Coding Initiative (NCCI) edits. This allows BWC to audit bills on a large-scale basis to ensure that coding standards are followed for this setting. One of the challenges for moving ASC bills to the IOCE process is that ASC bills are submitted via the CMS 1500 format rather than the CMS-1450 (UB-04) format that is utilized in the hospital setting. Systems re-design or modification would be required to convert the CMS 1500 format to a readable format for the IOCE. Prior to the execution of this project a cost analysis is warranted to ensure that the return on investment is favorable for BWC.

Alignment with Hospital Outpatient Payment Adjustment Factor (PAF)

Currently there is a disparity in payments between similar services performed in the ASC setting versus the hospital outpatient setting. BWC has adopted the OPPS methodology for the hospital outpatient setting and in doing so has forecasted to reduce payments by approximately 22% or 30 million dollars over a 3 ¼ years period.

As discussed earlier in this report, in theory, the ASC and OPPS payment adjustment factors should be the same as the reduction for ASC cost effective has been taken by Medicare in the conversion factor for the ASC PPS. However, without cost data, BWC cannot validate this theory. As mentioned above, BWC has committed to partnering with the OAASC to work in obtaining Ohio ASC cost data. This along with cost to charge ratio estimates as discussed previously, can be used to determine the appropriate payment adjustment factor for the ASC setting.

Device Intensive Procedures

Since ASC payment is based on the same APC structure utilized under OPPS, devices are also packaged in the ASC setting. Therefore, a similar device intensive procedure analysis should be performed. This in addition to cost data, if obtainable, would allow BWC to determine if there are device intensive procedures that fall far below the payment to cost ratio benchmark. In doing so, BWC may choose to adjust the payment for certain procedures so that access to care for these services remains uninterrupted.

Medicare Issues

Value Based Purchasing Measures

Similar to the hospital outpatient setting, the current value based purchasing measure executed for the ASC setting is a pay for reporting program where hospitals that fail to submit quality data receive a reduction in their market basket increase for the designated year. The current reduction level is 2% as mandated by the Medicare Modernization Act of 2003. ASC will start to participate in this program in 2012. Although the MMA called for adoption of pay for reporting in 2008, the requirement for the ASCs was delayed until the ASCs had moved through the ASC PPS transition period (2008-2011). Medicare will present a plan to implement quality data reporting in the ASC setting to Congress by January 1, 2011.

Affordable Care Act Provisions

The impact of the Affordable Care Act (ACA) on the Medicare payment systems is significant for BWC. Each payment system will be impacted in different ways. The major impacts for the ASC setting are the mandatory decrease to the CPI-U based on the productivity adjustment. The productivity adjustment was effective in the ASC setting January 1, 2011.

Professional/Physician Setting

BWC has utilized a prospective reimbursement methodology for the Professional Provider setting for several years. Since 1997 BWC has utilized the RBRVS system. In 2008-2009 Medical Policy completed a comprehensive review of the Professional Provider fee schedule as the rates had not been updated or maintained for over 4 years.

The Professional Provider rule is updated annually. In the annual update, BWC adopts the most current release of Medicare’s RBRVS rates and an emergency provision allows for the adoption of the new CPT and HCPCS Level II codes on January 1. This emergency provision is required to reduce the administrative burden for providers. Failure to include this update resulting in requiring providers to report “deleted” codes specifically for BWC which is quite burdensome and costly. The yearly review and update of the RBRVS system allows for BWC to refine their reimbursement methodology for this service setting

Rate Setting

Each year Medical Policy reviews the conversion factor (CF) for each medical specialty utilized in the workers compensation environment. The conversion factor is based on a specific service group (i.e. surgery, anesthesia, general medicine, etc.) Conversion factors are calculated, while following an established payment adjustment factor above Medicare.

Future Considerations

Physician Based National Correct Coding Initiative (NCCI) Edits

BWC plans to implement the physician based NCCI edits during the later part of 2011. BWC will utilize a customized set of edits incorporated into the Thompson Clinical Editing software. Medicare developed the NCCI edits to promote national correct coding methodologies. The use of such edits helps payers to control improper coding which leads to inappropriate payment. The edits are based on coding policies with foundation in the coding conventions defined in the American Medical Association’s CPT manual, national and local policies and edits, coding guidelines developed by national societies, analysis of standard medical and surgical practices and a review of current coding practices. BWC has customized the NCCI edits so that they are applicable to the workers compensation environment.

Units of Service Editing

The units of service for any given procedure, service or supply must be closely monitored by the payer. Each facility utilizes different reporting schemes for the unit of service. However, BWC has begun to limit the unit of service at the code level based on Medicare’s Medically Unlikely Edits (MUEs) and Maximum Allowed Units (primarily for DME). CMS developed MUEs to reduce the paid claims error rate. The published MUE for a code is the maximum units of service that a provider would be allowed to report under most circumstances for a single patient on a single date of service. What is very challenging for BWC is that not all HCPCS and CPT codes have a MUE. Therefore, Medical Policy must examine each of those codes and internally determine an appropriate maximum unit of service.

Pricing Items without a RVU under RBRVS

Most services and procedures are assigned a RVU under the RBRVS system. However, there are some services that are priced at the carrier level by the Medicare Administrative Contractors (MACs). For these services and procedures, BWC must develop their own payment rate. This requires a considerable amount of research and analysis.

Use of Local Codes

The workers compensation is a unique environment. There are services provided in this setting that are not included in the benefit packages for Medicare beneficiaries, Medicaid beneficiaries, or commercial health plans. Therefore, BWC must create and utilize local codes for such services. This makes rate setting very challenging as the amount of benchmark data available is scarce. Before utilizing local codes, BWC completes a thorough evaluation of national coding systems to ensure that the local code is in fact needed. In 2010, BWC included S-codes (non-Medicare codes) on the Professional Provider fee schedule. These codes are used in the commercial market and Medicaid market but not by Medicare. This is a good example of utilizing existing codes rather than “re-creating the wheel”.

Vocational Rehabilitation Setting

A new fee schedule methodology was developed effective February 1, 2015. This methodology includes different fee schedule rates for certain services based on complexity. It also includes outcome payments that are made after services are complete. It should be noted that both the procedure codes and modifiers used in this fee schedule are BWC-specific codes. Further information about the fee schedule and methodology can be found here:

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