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Washington State Medicaid Inpatient Reimbursement System Study Phase 2 Study Methodology Redesign Update September 26, 2006. Section 1 » Follow-up On Issues Raised At August 30, 2006 Meeting Section 2 » Changes To Estimated Medicaid Costs And Updated Preliminary Relative Weights

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Washington State Medicaid Inpatient Reimbursement System Study Phase 2 Study Methodology Redesign Update September 26, 2006 - 1 -

Section 1 » Follow-up On Issues Raised At August 30, 2006 Meeting Section 2 » Changes To Estimated Medicaid Costs And Updated Preliminary Relative Weights Section 3 » Analysis Of Cost Per Discharge And Cost Per Day Section 4 » Conceptual Design Of Proposed Payment Methodology And Preliminary Fiscal Impact Modeling - 2 -

Follow-up on Issues Raised at August 30, 2006 Meeting - 3 -

Follow-up on Issues Raised at August 30, 2006 Meeting Key Issues From Matrix: Removing Statistical Outliers Treatment of Revenue Code 172 – Intermediate Care Chemical Using Pregnant Women Program Use of RCC-Based Method/Alternatives for Per Diem Payments Psychiatric and Rehabilitation Cases Outliers – Fixed Stop Loss v. Different of DRG Annual Updates to System - 4 -

Changes to Estimated Medicaid Costs and Relative Weights - 5 -

Changes to Estimated Medicaid Costs And RWs Revisions to Treatment of Revenue Code 172: Some suppliers\' accounted for moderate nursery as NICU on Medicare cost report Neonates with Revenue Code 172 are in these units Appropriate to outline to NICU in these cases Some suppliers likewise have 172 in "serious" NICUs Neonate may enter as 174 or 173, then move to 172, however stay in NICU Appropriate to delineate to NICU in these occasions - 6 -

Changes to Estimated Medicaid Costs and RWs Provider-Specific Revisions Mapping Revenue Codes For 172: Contacted all healing centers with NICUs investigated Medicare cost report Contacted most clinics with Revenue Code 172 that did not report NICU Adjusted Revenue Code Crosswalk on office particular premise to reflect fitting coordinating for Revenue Code 172 - 7 -

Changes to Estimated Medicaid Costs Adjustments For Revenue Code 172: Recalculated relative weights Revenue Code 172 changes are just changes influencing new weights As expected, just huge changes were to neonatal relative weights One new AP-DRG got to be steady Also modified cost per release and cost every day adds up to reflect mapping changes - 8 -

Analysis of Cost Per Discharge and Cost Per Day - 9 -

Analysis of Cost Per Discharge and Cost Per Day Total SFY 2005 Estimated Operating Costs Adjusted for Wage Index (1) Note: (1) Excludes unattached doctor\'s facilities and factual anomalies - 10 -

Analysis of Cost Per Discharge and Cost Per Day SFY 2005 Estimated Operating Costs Adjusted for Wage Index (1) : Acute Unstable DRGs Note: (1) Excludes detached doctor\'s facilities and measurable exceptions - 11 -

Analysis of Cost Per Discharge and Cost Per Day Acute Stable DRG Cost Per Discharge Will serve as reason for DRG transformation elements Based on SFY 2005 intense cases from stable DRGs Excludes claims resolved to be measurable anomalies amid the DRG relative weight count Includes FFS and HO claims from in-state intense doctor\'s facilities and DPUs, barring Critical Access Hospital and Medicare hybrid cases Operating costs balanced for Wage Index, Case Mix Index, and Indirect Medical Education Factor Capital costs balanced for Case Mix Index and Indirect Medical Education Note: Based on same FFS and HO claims from SFY 2005 that were utilized for stable relative weight computations - 12 -

Analysis of Cost Per Discharge and Cost Per Day Acute Stable DRG Combined Operating and Capital Cost Per Discharge: - 13 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Acute Unstable AP-DRGs Input from Panel recommended more definition Conducted extra examination of: Neonatal Burn Cranial MDC Medical AP-DRGs Surgical AP-DRGs Unstable v. low volume (under 10 cases) - 14 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Acute Unstable AP-DRGs (Con\'t) Analysis in view of SFY 2005 FFS and HO claims from in-state intense healing facilities and DPUs, barring and Critical Access Hospital and Medicare hybrid cases Claims prohibit measurable exceptions in light of normal cost every day (preparatory rejection depended on cost per release, per AP-DRG) Operating costs balanced for Wage Index and Indirect Medical Education Factor Capital costs balanced for Indirect Medical Education Factor - 15 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Unstable Neonatal AP-DRGs Identified as cases in shaky AP-DRGs in MDC 15 Total of 113 cases, 3,857 days, ALOS of 34.1 days (FFS and HO) 3,805 (99 percent) in 6 clinics (aggregate of 21 doctor\'s facilities have cases) Children\'s, Deaconess, Sacred Heart, Swedish, Tacoma General and University of Washington Weighted normal cost every day (working and capital) is $2,072 Weighted normal is $2,068 for the 6 doctor\'s facilities giving lion\'s share of administrations Weighted normal of every insecure claim is $1,956 - 16 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Unstable Burn AP-DRGs Identified as cases in flimsy AP-DRGs in MDC 22 Total of 67 cases, 1,130 days, ALOS of 16.9 days (FFS and HO) 1,062 (94 percent) at Harborview (aggregate of 13 doctor\'s facilities have claims) Weighted normal cost every day (working and capital) is $1,882 Harborview cost every day is marginally higher Weighted normal of every single precarious claim is $1,956 - 17 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Unstable Cranial AP-DRGs Identified as cases in AP-DRGs 730, 764 and 765 Total of 24 cases, 215 days, ALOS of 9.0 days (FFS and HO) Claims at 9 unique doctor\'s facilities (10 claims at Harborview) Weighted normal cost every day (working and capital) is $2,380 Harborview cost every day is somewhat lower Weighted normal of every single unsteady claim is $1,956 - 18 -

Analysis of Cost Per Discharge and Cost Per Day Analysis of Claims in Unstable Medical and Surgical AP-DRGs Medical AP-DRGs Total of 1,010 cases, 6,917 days, ALOS of 6.8 days Average cost for each day $1,696 Surgical AP-DRGs Total of 603 cases, 5,264 days, ALOS of 8.7 days Average cost for every day $2,228 Above sums in view of FFS and HO claims Weighted normal of every single temperamental claim is $1,956 - 19 -

Analysis of Cost Per Discharge and Cost Per Day Acute Unstable Medical DRG Combined Operating and Capital Cost Per Day: - 20 -

Analysis of Cost Per Discharge and Cost Per Day Acute Unstable Surgical DRG Combined Operating and Capital Cost Per Day: - 21 -

Analysis of Cost Per Discharge and Cost Per Day Psychiatric, Rehabilitation and Detoxification Cost Per Day Amounts Will serve as reason for psychiatric installment per diems Based on SFY 2005 psychiatric cases Psychiatric – AP-DRGs 424 through 432 Rehabilitation – AP-DRG 462 Detoxification – AP-DRGs 743 through 751 Includes FFS and HO claims from in-state intense doctor\'s facilities and DPUs, barring Critical Access Hospital and Medicare hybrid cases Operating costs balanced for Wage Index and Indirect Medical Education Factor Capital costs balanced for Indirect Medical Education Factor - 22 -

Analysis of Cost Per Discharge and Cost Per Day Psychiatric Combined Operating and Capital Cost Per Day: - 23 -

Analysis of Cost Per Discharge and Cost Per Day Rehabilitation Operating Plus Capital Cost Per Day: - 24 -

Analysis of Cost Per Discharge and Cost Per Day Detoxification Operating Plus Capital Cost Per Day: - 25 -

Conceptual Design And Discussion Of Preliminary Impact Modeling Process - 26 -

Conceptual Design Key Elements AP-DRG Payments Per Diem Payments Outlier Payments Transfer Cases Payments For Specialty Cases Budget Neutrality Periodic Updates - 27 -

Conceptual Design AP-DRG Payments Cost-based Relative Weights – Based On SFY04/05 FFS And HO Data Statewide Operating/Capital Conversion Factor Based On Costs Of SFY 2005 FFS and HO Claims That Comprise Stable DRGs Weighted Average Cost Per Discharge Costs Adjusted For CMI, Regional Wage Differences And Indirect Medical Education Facility-Specific Adjustments To Statewide Conversion Factor Wage Adjustment Indirect And Direct Medical Education Inflation To Midpoint Of SFY 2008 - 28 -

Conceptual Design Per Diem Payments Unstable Neonatal – Statewide Weighted Average Unstable Burns – Harborview Cost Per Diem Unstable Medical AP-DRG – Statewide Weighted Average Unstable Surgical AP-DRG Statewide – Weighted Average - 29 -

Conceptual Design Per Diem Payments (Continued) Psychiatric – Facility Specific For: All Claims In Free-Standing Psychiatric Hospitals All Psychiatric Claims For Hospitals With Psychiatric DPUs, Or More Than 200 Psychiatric Days In 2005 Other Psychiatric Claims – Statewide Weighted Average Of Above Hospitals Medical Rehabilitation – Statewide Weighted Average Free-Standing Rehab – Facility Specific Rate Detoxification – Statewide Weighted Average - 30 -

Conceptual Design Per Diem Payments (Continued) Revised Cost Per Day Calculations Exclude Statistical Outliers (3 Standard Deviations) Based On Cost Per Day, For Each Category (Psychiatric, Rehabilitation, Neonatal, Etc.) All Statewide Weighted Average Amounts Based On SFY 2005 Costs, Adjusted For Wages And Indirect Medical Education Per Diem Rates Will Reflect Facility-Specific Wage Adjustments And Indirect And Direct Medical Education - 31 -

Conceptual Design Outlier Payments – AP-DRG Cases Outlier Threshold Is AP-DRG Payment Plus Stop Loss Threshold Amount (Preliminary Impacts Use $25,000 And $35,000) Outlier Payments Are 80% Of Estimated Costs Exceeding Outlier Threshold (90% For Burns) Estimated Costs Are Based On CCR Calculated From SFY2005 Medicaid Claims - 32 -

Conceptual Design Outlier Payments – Per Diem Cases Outlier Thres