Hospital leaders: new payment model can’t reduce low Medicaid payments

The state’s Medicaid system could consider a payment model classifying inpatient hospital stays according to diagnosis and resources required for treatment as a way to incentivize efficiencies. If it’s adopted, hospitals say it can’t result in smaller payments, because they’re now losing money with Medicaid patients.

The issue was discussed at a meeting of the Diagnosis Related Group Subcommittee of the Health Reform Legislative Task Force. The task force is composed of legislators considering changes to the state’s Medicaid program, which serves the state’s lowest income patients as well as the aged and those with disabilities.

In October, the task force received a report from The Stephen Group, a consulting firm it hired, which recommended Medicaid move to an all patient refined diagnosis related group model (APR-DRG), which assigns values to acute care inpatient health episodes based on factors such as diagnosis and resources required for treatment.

Legislators were told by Stephen Palmer of The Stephen Group and by representatives of 3M Health Information Systems that 28 state Medicaid programs, including the nine largest, and more than 40 commercial payers have implemented an APR-DRG model. The model’s purpose is to give incentives to health care providers to become more efficient and more focused on cost containment while also improving quality.

Any changes to the payment model cannot result in fewer dollars going to hospitals, argued Bo Ryall, president of the Arkansas Hospital Association, and Paul Cunningham, executive vice president. That’s because an AHA-sponsored study showed that 44 Arkansas hospitals lost $109 million treating Medicaid patients in 2013. That meant those facilities were reimbursed only 89% of their costs.

Hospitals are reimbursed a flat rate of $850 per day to treat inpatient Medicaid patients regardless of the severity of the illness. Medicaid also has reimbursed only 24 days of care per patient each fiscal year, though starting Jan. 1 it will begin reimbursing at a rate of $400 per day for the 25th and subsequent days.

Those reimbursements are the same whether a patient needs minor treatment or major surgery, Ryall and Cunningham said.

“If the goal of the DRG system is to move to a payment system that is tied to a diagnosis but is also tied to a reasonable payment for the services provided, then we think that is a reasonable discussion to have, but not such an easy task,” Ryall said. He later added, “If the goal of the DRG payment system is merely to reduce hospital payments, it’s hard for us to see how low hospital payments can go for Medicaid as opposed to what they are currently.”

Marcy Doderer, Arkansas Children’s Hospital CEO, told legislators that she had experience with an APR-DRG payment model while working in Texas. She said the model does promote cost containment but not better outcomes or better quality care.

“It is not a silver bullet. It is not a cure-all in terms of helping us not just create efficiency in our health system but ultimately actually improve the health of children in Arkansas,” she said. “The system does promote efficiency, i.e., it promotes cost containment, but it is not inherently designed to ensure the hospitals focus on improved clinical outcomes and the overall quality of care.”

She said the patient-centered medical home model, where primary care physicians coordinate care, does a better job of improving outcomes, therefore making the system more efficient.