State to begin one-size-fits-all Medicaid payments

Published: Monday, January 21, 2013 at 9:59 p.m.
Last Modified: Tuesday, January 22, 2013 at 9:44 a.m.

Medicaid reimbursement at hospitals throughout Florida aims to be more equitable, and implementing Diagnosis Related Groups for Medicaid reimbursement is intended to be a nudge in that direction — by replacing a hospital's per-diem rates with procedure-based rates.

In other words, a hospital that is now reimbursed $14,000 for a given procedure and one that's reimbursed $1,000 for the same procedure would get the same amount, said Justin Senior, Medicaid director at the Florida Agency for Health Care Administration.

Fair enough, but hardly easy.

Senior said the new system "looks at various procedures and pays a set rate for any given procedure everywhere in the state. That amount is determined by looking at the statewide and national average of the cost and complexity of the procedure."

The DRG system was endorsed last legislative session and is slated for implementation on July 1. It is modeled on the long-standing Medicare reimbursement system that pays hospitals for each "product," or procedure. Senior said that reimbursing Medicaid in a similar way gives hospitals incentives to spend less than the average cost on procedures to earn bigger margins.

"It should drive their costs down. Hospitals that consistently perform procedures at below average costs are going to have more opportunity to make money," Senior said. "If it costs them more, they need to figure out how to be more efficient."

He added that the agency does appreciate a certain cost variance for procedures based on their level of complexity. The system chosen to handle the actual number crunching — the company 3M's APR (all-patient-refined) — allows for those complexities, Senior said.

"It allows hospitals to pinpoint the complexity of the procedure they just performed" and assign a complexity code to it that corresponds to a dollar amount, Senior said. More than 25 hospitals nationwide have adopted 3M's APR DRGs.

"It injects some equity into hospitals and hopefully incentivizes them to reduce their costs and improve their efficiency," Senior said.

But according to the Safety Net Hospital Alliance of Florida, the changes foreseen by AHCA's proposed recommendations don't bode well for the state's 14 safety-net hospitals, which provide more than half the state's charity care and 70 percent of its graduate medical education. James Zingale, the director of research and fiscal analysis for the alliance, said the system "adversely affects safety-net hospitals."

These include many of the state's children's hospitals, one of which is Shands Hospital for Children at the University of Florida, Zingale said. "You have hospitals that are delivering procedures through NIC (neonatal intensive care) unit where the DRG doesn't capture the full cost of that setting."

Also, the state's six teaching hospitals risk being cut 10 percent, or $93 million, in five months, he said. According to AHCA's preliminary numbers, Medicaid reimbursement at Shands at the University of Florida would drop 16 percent, from $177.6 million to $149.5 million.

"It would be a very substantial hit for Shands both at Gainesville and Jacksonville," said Dr. David Guzick, president of the UF&Shands Health System and senior vice president for health affairs, adding that both hospitals take care of many of the state's uninsured patients. "It's not like we have a lot of room to make these cuts."

Meanwhile, many of the state's private hospitals would get more money, according to AHCA recommendations. North Florida Regional Medical Center would receive 44 percent more money in reimbursements, from $7.6 million to $11 million.

Transitioning to a DRG system represents a redistribution of dollars rather than comprehensive cuts, Guzick said.

"The main point is to figure out a way to take care of the 4 million uninsured people in Florida," he said, adding that it would be important to maintain "some recognition of the differential costs" associated with caring for the elderly, children and disabled.

Both Guzick and the Safety Net Hospital Alliance raise the issue of adjusters for specific costs — for example, those associated with graduate medical education. Guzick pointed out that the consultants had used them in the other states using a DRG-grouper system, but not in Florida.

The alliance wrote a letter to the AHCA in November asking that it include an adjustment for the costs associated with graduate medical education. The alliance estimated unreimbursed costs at these hospitals to be more than $350 million annually.

"It is imperative that the implementation of a new Medicaid DRG payment system include an adjustment for these costs," the letter said. "Any new DRG payment methodology that does not recognize this vital component will not only make it more difficult for our teaching hospitals to maintain their current programs, it would have the effect of distributing existing reimbursement for the cost of GME (graduate medical education) programs to all hospitals whether they have any residency programs or not."

Medicare reimburses hospitals for medical education, and Medicaid should do the same, the alliance said.

Senior of AHCA anticipates potential adjusters to be discussed in the upcoming legislative session that begins on March 5.

"We have prepared a fairly simple system, but we do expect that the Legislature is going to consider other policy adjusters."

Contact Kristine Crane at 338-3119 or

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