REIMBURSEMENT, CAPITATION AND RISK ADJUSTMENT

REIMBURSEMENT, CAPITATION AND RISK ADJUSTMENT HIV/AIDS BUREAU HEALTH RESOURCES AND SERVICES ADMINISTRATION HRSA HIV/AIDS Bureau 1

REIMBURSEMENT METHODOLOGIES Retrospective Cost Based Prospective

TYPES OF REIMBURSEMENT! RETROSPECTIVE REIMBURSEMENT! Provider sets the fee for service (FFS)! Provider reimbursed after services are rendered! COST BASED REIMBURSEMENT! Provider reimbursed according to actual allowable costs! Federally Qualified Health Centers (FQHCs) are a class of Medicaid /Medicare providers entitled to 100% of reasonable costs:! PROSPECTIVE! Reimbursement prior to delivery of services! Capitation HRSA HIV/AIDS Bureau 3

RETROSPECTIVE REIMBURSEMENT! Provider sets the fee for service (FFS)! Provider reimbursed after services are rendered! Usual, Customary & Reasonable Charges (UCR)! determined by payor (e.g. insurance company)! reasonable amount charged by majority of providers HRSA HIV/AIDS Bureau 4

RETROSPECTIVE REIMBURSEMENT! Discounted FFS:! Predetermined percentage in reduction of charges e.g. 80%! Fixed Fee Schedule: Establishes a payment for each type of service by CPT-4 Code HRSA HIV/AIDS Bureau 5

COST BASED REIMBURSEMENT! Reimbursed according to actual allowable costs! Costs must be reasonable & related to patient care - includes administrative & overhead costs! Medicare regulation 42CFR part 413! Federally Qualified Health Centers (FQHCs)- Medicaid /Medicare providers entitled to 100% reasonable costs:! 329s (Migrant Health Centers); 330s (Community Health Centers); 340s (Health Care for the Homeless); Tribal Organizations & Look-A-Like community based organizations HRSA HIV/AIDS Bureau 6

PROSPECTIVE! Reimbursement for services is established prior to the delivery of services! Diagnostic Related Group (DRG)! set fee for each diagnosis! no limit on number or length of services! Global Payment! one inclusive rate for a bundle of services e.g. maternity! All Inclusive Per Diem! payment by type of hospital admission! Capitation: see next page HRSA HIV/AIDS Bureau 7

WHAT IS CAPITATION?! A method of payment for health services in which a provider is paid a fixed amount, usually monthly for each member served without regard to the actual number or nature of services provided to the member! Capitation is:! a means of payment for expected services! a budgeting tool! a management tool! a control tool! a belief system HRSA HIV/AIDS Bureau 8

CAPITATION VERSUS FFS Element Capitation Fee for Service Concept Funding Incentive Prepayment of a fixed amount per patient usually monthly. Services are expenses against revenue. Based on number of enenrollees, not number of services. Control utilization and provide fewer and/or less costly services. Provide early detection and treatment to lower total cost of care. Fee (Revenue) for each service provided. Based on number of service units provided, and not related to number of patients. Provide more services or charge more per service. Sick patients require more services and generate more revenue. HRSA HIV/AIDS Bureau 9

CAPITATION: UTILIZATION AND COST FORMULA! UTILIZATION X COST / 12,000 = PMPM Number of units of service for each benefit for 1,000 members Average cost per unit of service 12 months x 1,000 members Per member per month HRSA HIV/AIDS Bureau 10

PRIMARY CARE CAPITATION Type of Service Util Per 1000 Per Unit Charge Per Member Per Month Office Visits 3,000 $ 50.00 $ 12.50 ER Visits 150 80.00 1.00 Laboratory 100 25.00.25 Other 200 15.00.25 Total 14.00 HRSA HIV/AIDS Bureau 11

ACTUARIAL DATA! Represents historical utilization trends of a defined population which are projected forward as a basis of predicting utilization and reimbursement! Commercial data is usually based on age, sex, region and CPT-4 code! Data is sometimes obtained for one population and converted to another population HRSA HIV/AIDS Bureau 12

METHODS OF SETTING CAPITATION RATES! Rates based on utilization and per unit cost! Fee for service equivalency! Percentage of fee for service equivalency! Community rates! Negotiation HRSA HIV/AIDS Bureau 13

CAPITATION RATES FEE FOR SERVICE! IN MEDICAID MANAGED CARE, STATES MAY:! Analyze historical FFS cost data to calculate monthly cost of providing services for each beneficiary class! Multiply the monthly cost by a discounted percentage (e.g. 95%) to provide state with a savings! Typically calculate costs by beneficiary class (e.g. AFDC, SSI); may include subgroups by age and sex! Seek competitive bids from health plans around the calculated rate or pay the calculated capitation to all participating plans HRSA HIV/AIDS Bureau 14

ISSUES WITH HISTORICAL STATE MEDICAID RATES! Historic provider fees often extremely low! Claims data does not include unreported visits! some providers do not submit claims! patient confidentiality reduces claims submissions (especially HIV/AIDS and mental illness)! lack of access to care decreases historic utilization rates! All benefits may not be included (e.g., pharmacy, case management)! Does not reflect changing demographics of HIV/AIDS epidemic! Does not reflect impact of changing therapies on cost and utilization of care HRSA HIV/AIDS Bureau 15

FINANCIAL RISK AND RISK SHARING

PREMIUM STRUCTURE Admin/OH (15-18%) Primary Care (14-18%) Specialty (14-18%) In-Patient (35-40%) Rx (8-12%) Ancillary (5-8%) HRSA HIV/AIDS Bureau 17

RISK SHARING! MCO assumes full risk for the defined set of covered services! MCO distributes risk by entering into contractual relationships with providers! full capitation: all covered services; shifts risk to contractor! partial capitation: subset of covered services! ffs: payments based on visits; MCO assumes all risk! Provider risk related to total cost for providing covered services HRSA HIV/AIDS Bureau 18

FINANCIAL RISK CAPITATION VS COST Patient 1 Patient 2 Patient 3 visits/ year 5 2 3 average $ 50 $ 40 $ 60 c o st/ visit total cost $250 $ 80 $180 capitation $180 $180 $180 loss/ gain ( $70) $100 ---- HRSA HIV/AIDS Bureau 19

ADVERSE SELECTION! Attracting Members who are sicker than the general population! As a result, medical costs are higher than budgeted! MCOs seek to avoid those individuals who are sicker than the average! Some MCOs may seek to avoid people with HIV Disease because of high cost of illness HRSA HIV/AIDS Bureau 20

FULL OR PARTIAL CAPITATION RATES! States must decide whether to put MCOs on full risk for defined set of covered services (full capitation) OR! Share some of the risk by offering partial capitation rates and carve out certain services to be reimbursed FFS! Benefits typically carved-out: pharmacy, particularly new therapies & mental health/substance abuse treatment! MCOs distribute risk by entering into contractual relationships with providers either on full to partial capitation! Risk related to total cost for providing covered services to enrolled population HRSA HIV/AIDS Bureau 21

HISTORICAL RATE SETTING FOR MEDICAID! Analyze historical FFS claims data to calculate monthly cost of providing services for each beneficiary class! Multiply the monthly cost by a discounted percentage (e.g., 95%) to provide state with a savings! Calculate costs to subgroups within beneficiary classes by age, sex or health status (e.g., disabled)! Seek competitive bids from health plans around the calculated rate or pay the calculated capitation to all participating plans HRSA HIV/AIDS Bureau 22

RISK ADJUSTED CAPITATION RATES! RISK ADJUSTMENT: Adjusting the standard rate to allow for greater intensity, frequency and cost of services for a particular subgroup! TWO APPROACHES:! Adopt special rates for HIV/AIDS! Institute global risk adjustment for all enrollees (or all disabled enrollees)! POTENTIAL HIV/AIDS ADJUSTERS:! clinical diagnosis, e.g. HIV+asymptomatic, HIV+symptomatic, AIDS! CD4 Count or Viral Load! Other co-morbidities (e.g. mental illness, substance abuse, or factors (e.g. homeless) HRSA HIV/AIDS Bureau 23

RISK ADJUSTED HIV/AIDS RATES! Some states are developing HIV/AIDS specific rates because:! High cost of new drug therapies & changing treatment protocols:! Insure access to quality specialized primary and specialty care.! Reduced provider participation without adequate payment! unpredictability of the state of HIV as an illness, and the associated treatment costs.! Concerns that MCOs avoid/underserve PLWH/A, deny treatment, avoid early diagnosis HRSA HIV/AIDS Bureau 24! Potential for poor quality, access, & plan performance with insufficient funding

EXAMPLES! AIDS RATES:! MD $1,812/$2,161 - excludes PIT, VLT! MA $2,300/$2,998 for active/advanced AIDS! CA $1,100 - $1,200 to AHF excludes inpatient! NY - rates being developed for Special Needs Plans! GLOBAL RISK ADJUSTMENT! Implemented: CO, MD! Planned: MI, MN, OR, WA HRSA HIV/AIDS Bureau 25

CHALLENGES TO SETTING RISK ADJUSTED RATES! Difficult to identify HIV+ recipients & claims! Historical per capita utilization rates may not predict future service because:! data unavailable for all planned services! based on a small number of patients/heavily influenced by high or low cost users! unable to account for case mix! Historical data on service costs my be:! offset by other grant funding streams/reflect crosssubsidization of programs! Time allocated for clinical encounters may be insufficient as complexity of medical management increases! Types & combinations of services used may change HRSA HIV/AIDS Bureau 26

OTHER RISK METHODOLOGIES! Comprehensive risk adjustment system! based on groups of diagnosis to predict risks (disability payment system)! Rate adjustment to MCOs! disproportionate number of HIV/AIDS patients! Stop loss/reinsurance! establishes an upper limit on payment of claims for an individual member (catastrophic insurance)! Risk corridors! establishes ceiling/floor of risk for MCO or provider! Carve outs - exclude high cost items e.g. RX HRSA HIV/AIDS Bureau 27

FINANCIAL ISSUES! How will your state reimburse health plans? Does it propose to use risk adjustment methods? If so, what variables will be used?! What services will be carved out of the capitation? Will protease inhibitors and other new pharmaceuticals be excluded?! Does your state plans to use other risk adjustment mechanisms such as stop loss or risk corridors?! How will participating providers be paid? How will MCOs protect participating providers from caring for PWA? HRSA HIV/AIDS Bureau 28