Comparative Reimbursement Analysis

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Managed Care Decomposition Analysis
MCDA

• Comparative Reimbursement Analysis
• and
• Contract Optimization

Prepared for Tampa General Hospital Tampa,
Fl July 26, 2000
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Introduction
In todays Managed Care environment, expected
reimbursement is a function of Managed Care
Organization (MCO) specific rules that are
executed at the patient-level based on each
patients characteristics as defined in the MCOs
contract. The goal of Managed Care Decomposition
Analysis (MCDA) is to clearly define and quantify
this expected reimbursement process in terms of
patient characteristics (master attributes) and
expected reimbursement (reimbursement attributes)
so that the healthcare executive may identify and
potentially optimize net income within existing
managed care contract parameters.
Managed Care has brought radical changes to the
healthcare industry with respect to how providers
are paid for patient services. Payments that
were once derived from significant charge-based
methodologies are being reduced by intricate
Managed Care Organization (MCO) contract
methodologies designed to pay providers for
profiles of services deemed clinically necessary.
Payments for hospitals are less based on the
charge master and more based on MCO contract
specifications.
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Market Space
Clinical Product Lines
Marketing Product Lines
Hospital Patient Population
Charge Master
Shift to Managed Care
Predicted MCPLs
MCO brings in New Patients and Proposed Contract
MCO Contract Master
Inherent MCPLs
MCO Contract Accepted (Payor Specific)
A hospital exists within a market space that is,
to a large extent, controlled by Managed Care
Organizations (MCOs) that represent various
groups of patients. The hospital executive is
motivated to increase market share while
negotiating favorable contract terms with respect
to fair payments for anticipated patient groups
(Managed Care Product Lines or MCPLs) that are
being offered by an MCO. The MCO is, of course,
motivated to negotiate favorable payment terms
such that cost and utilization of services are
reduced while still maintaining a certain level
of quality of care. In a nutshell, the hospital
wants to maximize payments and the MCO wants to
minimize payments. And, in todays environment,
it is the contract specifications that control
payments to the hospital. Through this process
of MCO contract negotiation, hospitals have been
left with a complex aggregation of contracts and
contract terms which generate payments based on
patient characteristics. Contracting systems
have been in use for some time within hospitals
to allow for product definition and related
contract payment specification. These systems
assist the hospital in terms of modeling
contracts based on specified product lines so
that expected reimbursement by MCO can be modeled
for both contract negotiation and contract
management. These systems, however, are payor
specific, i.e., each patient (and associated
characteristic) is modeled based on his payors
reimbursement method. MCDA takes a different
view in that payor boundaries are abolished so
that we can examine and model based on patient
characteristics irregardless of payor.
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How Contracts Are Interrelated
MCO Contract Master
Patient Characteristics
Reimbursement Characteristics
What are the MCPLs defined by the contracts?
How are the MCPLs reimbursed?
A patient or patient group can have more than one
characteristic.
A patient or patient group can have more than one
reimbursement possibility based on
characteristics.
Once an MCO contract is defined and executed,
its mathematical specifications are stored
within a contract management system so that as
patients come to the hospital, expected
reimbursement by MCO can be modeled and managed.
Basically, a patients clinical characteristics
(e.g. DRG 370-375 or REV Code 110-169) drive how
much an MCO will pay (e.g. 1230 per day or 950
per line item). Within MCDA, we define this
mathematical matrix as the MCO Contract Master.
At any point in time, this is the complete
definition of actual reimbursement methodology
that is in place for all MCOs. It is this MCO
Contract Master that we want to clearly define
and optimize in terms of patient characteristics
(as defined by contracts) and reimbursement
possibilities based on these characteristics. By
looking at the MCO Contract Master in total
(rather than limiting ourselves to payor-specific
models) we can identify specific areas within the
MCO contracts where changes to either patient
characteristic specification or payment
methodologies can yield favorable net income
increases. This is analogous to Charge Master
Redesign where charge descriptions are now
patient characteristics and price is MCO payment
methodology. MCDA makes certain that the optimum
MCO payment is achieved for given patients
characteristics. MCDA also makes certain that
the optimum patient characteristics (remember,
there can be more than one) are being used to
drive MCO payment.
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The Three Theoretical Stages of MCO
Management
Stage 1 Contract Negotiation Stage 2
Contract Monitoring Stage 3 Contract
Optimization
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Stage 1 Contract Negotiation
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Stage 2 Contract Monitoring
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Stage 3 Contract Optimization
OSI MCDA
Actual Patients
Alternative Characterization
Alternative Reimbursement
and/or
Possible Net Revenue
Impacts
OSI evaluates the
Financial impact, both gross and net, of
all findings.
MCO Contract Modifications
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MCO Contract Master
MCO Contract Master
Patient Characteristics Managed Care Product
Lines or MCPLs
Reimbursement Characteristics

• DRG
• UB-92 REV Code
• CPT-4 Code
• ICD-9-CM Code
• Covered Charges
• APCs
• Age/Sex

• Percent of Charges
• Per Diem
• Time Sensitive Per Diem
• Discharge Amount
• Line Item Amount

How much?
What?
The hospital exists in the center of a
theoretical market space. Each contract is
negotiated between the hospital and a given MCO
based on predicted patients or MCPL's. MCPL's
can be defined by the following patient
characteristics or Master Attributes   DRG UB
-92 REV Code CPT-4 Code ICD-9-cm
Code Covered Charges   A particular contract
defines how an MCO agrees to reimburse each MCPL
based on one of the following reimbursement
characteristics or Reimbursement
Attributes   Percent of Charges Per
Diem Time Sensitive Per Diem Discharge
Amount Line Item Amount
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Managed Care Decomposition Analysis
MCO Contract Master
Actual Patients
MCDA Data Base
Contract Rules
Patient Characteristics
Reimbursement Characteristics
Managed Care Product Lines
Expected Reimbursement
Master Attributes
Reimbursement Attributes
What is being purchased?
How is it being purchased?
Each contract defines, for a particular MCO, the
"items being purchased" (patient characteristics,
MCPL's, or Master Attributes) and the "amount
paid" (reimbursement characteristics or
Reimbursement Attributes) All MCO contracts taken
together form the MCO Contract Master.     To
summarize, we are allowing the actual patients
and the contract rules to define the MCO Contract
Master and the MCDA database. This allows us to
analyze all logical interrelationships between
actual patient Master Attributes and actual
Reimbursement Attributes for the purpose of MCO
contract optimization.
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Managed Care Decomposition Analysis
Contract 2
Contract 3
Contract n
Contract 1
MCO Contract Master
MCDA defines this as
Reimbursement Characteristics
Patient Characteristics
Process 1. Standardize the hospitals MCO
contracts to allow for modeling and future
comparative analysis 2. Reveal alternative
reimbursement scenarios that, if implemented,
would increase net income 3. Reveal
alternative patient characterizations that, if
implemented, would increase net income 4.
Quantify all alternative scenarios in terms of
net income
OSI consultants completely define the hospitals
MCO Contract Master through extensive data
collection from the Hospital Contract Management
System augmented by a thorough Managed Care
contract review. The hospital's actual patient
population can then be evaluated (using
proprietary OSI software) against the MCO
Contract Master to create an MCDA database. An
MCDA matrix is created such that each patient in
the sample to be studied is completely
characterized and defined by Master Attributes
and associated Reimbursement Attributes. By
studying the interrelationships between the
various patient attributes, both Master and
Reimbursement, OSI can recommend specific
contract modifications and quantify resulting
positive incremental changes to the bottom-line.
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Example
Aetna Open Choice pays 1040 per day for DRG
370-375
Old Contract
Step 6- If DRG 370-375, Per Diem1040.00
MCDA Contract Optimization
New Contract
Step 6- If DRG 370, Per Diem1230.00 Step 7- If
DRG 371, Per Diem1145.00 Step 8- If DRG 372-375,
Case Rate 2130.00
CHANGE IN NET49,500