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Payment Methodology – Hospital

Revised: 02-24-2017

This section outlines the Minnesota Health Care Programs (MHCP) payment methodologies for hospital services, including legislative changes:

  • • Critical Access Hospitals
  • • Outpatient Hospital Facility
  • • Non-emergency Service in Emergency Department
  • • Outpatient Hospital Legislative Ratable Reductions
  • • Inpatient Hospital Services
  • • Payment Rate for Certain Births
  • • Inpatient Hospital Legislative Ratable Reductions and Increase
  • • Quarterly Payment Adjustment
  • • Charge Limitation
  • • Appeals
  • Critical Access Hospitals

    Minnesota critical access hospitals (CAHs) are not paid on the outpatient hospital facility fee schedules for outpatient services. CAHs receive cost-based payments computed using information from the hospital’s cost report that is two years prior to the current rate year. Beginning with the hospital’s fiscal year ending in 2017, the cost-based payments will not be settled to actual costs. The cost-based payments are subject to legislative reductions and increases.

    Outpatient Hospital Facility

    Outpatient hospital facility services are paid according to the most recent Ambulatory Payment Classification (APC) system rates published by Centers for Medicare and Medicaid Services (CMS) in the Federal Register (effective August 1, 2000). This is listed in the column titled "Payment Rate."

    Nonemergency Service Performed in an Emergency Department (ED)

    MHCP does not cover visits to a hospital ED or pay for any services provided in a hospital ED that are not for emergency and emergency post-stabilization care or urgent care. The APC rate for the ED visit procedure code is compared to the lowest APC rate of the clinic visit procedure codes and the lowest APC rate is applied to the service line. If there is a reduction, the difference is reported on the remittance advice as claim adjustment group code CO and claim adjustment reason code 45.

    Outpatient Hospital Legislative Ratable Reductions

  • • 8 percent for outpatient hospital facility fees and emergency department facility fees that do not have a federal maximum allowable (January 2000)
  • • 0.5 percent for outpatient hospital facility services (July 2002)
  • • 5 percent for outpatient hospital facility services (March 2003)
  • • 10 percent for GAMC outpatient hospital facility services replacing the March 2003 reduction for GAMC (July 2003)
  • • 3 percent for outpatient hospital facility services (July 2008)
  • • 3 percent for MinnesotaCare basic care services outpatient hospital facility, excluding mental health facility services (July 2009)
  • • 4.5 percent for MA and GAMC basic care services outpatient hospital facility (July 2009 – June 30, 2011)
  • • 63 percent for GAMC outpatient hospital facility services (April 2010 – May 31, 2010)
  • • 3 percent for MA basic care services outpatient hospital facility (July 2011)
  • • 5 percent for basic care services outpatient hospital facility (September 2011 – June 30, 2013)
  • Note: The GAMC program ended February 28, 2011.
  • Total aggregate payment for outpatient hospital facility fee services shall not exceed the Medicare upper limit.

    Inpatient Hospital Services

    Payment rates for MHCP are prospectively established on a per admission or per day basis under a diagnosis related group (DRG) system. Rates are differentiated by eligibility and specialty (Medicare designated rehabilitation unit and neonatal transfer) and long-term care hospital. The rate setting methodology is based on the cost-finding and allowable cost principles of the Medicare program.

    The rates are established using a statewide base rate and base year claims data. Minnesota and local trade area hospitals that do not have five or more admissions in a base year, as well as any hospital located outside of Minnesota and the local trade area will be paid at the statewide average rate. Exceptions are specialty and long-term care hospital rates, which will be paid at the Minnesota and local trade area average rate.

    Effective November 1, 2014, inpatient rates for prospective payment system hospitals are rebased every two years on July 1. The initial base year is calendar year (CY) 2012 which was used to set payment rates for discharges on or after November 1, 2014, through the next rebasing scheduled to go into effective with discharges on or after July 1, 2017. Effective July 1, 2015, inpatient rates for critical access hospitals are paid on a per diem basis at either 85, 95 or 100 percent of the hospital’s base year costs. CAH inpatient rates will be rebased every two years. The initial base year is CY 2012 which was used to set payment rates for discharges on or after July 1, 2015, through the next rebasing scheduled to go into effect with discharges on or after July 1, 2017.

    Effective November 1, 2014, payments for inpatient rehabilitation hospitals and distinct part units is based on DRG system and a statewide rehabilitation specific base rate. Long-term hospitals continue to be paid on a per diem basis.

    Determination of Payment

    Payments are made according to the following applicable formulas and an increase of two percent for the MinnesotaCare tax. Effective for discharges on or after November 1, 2014, payments are computed using 3M’s All Patient Refined Diagnosis Related Groups (APR-DRG) version 31. Payment rates for discharges on or after November 1, 2014, through the next rebasing are further adjusted by hospital-specific transition factors and DRG specific policy adjustment factors.

    MA Rate Per Admission = Wage-adjusted base rate multiplied by the APR-DRG relative value multiplied by the policy adjustment factor multiplied by the disproportionate share adjustment factor multiplied by the hospital specific transition adjustment factor.

    Cost Outlier Payment – High cost claims are paid using a Medicare-like cost-outlier payment. Claims with costs that exceed the DRG payment amount by $70,000 or more will receive an additional payment equal to 50 percent of the costs that exceed the DRG payment amount plus $70,000.

    Policy Adjuster Values 

     

     

    Adjuster Value

    Policy Adjuster

    DRGs Included

    Severity of Illness Factor

    11/1/14 to 6/3/15

    On or after 7/1/15

    Mental health

    740, 750 - 760

    1

    2.25

    2.35

    2

    2.05

    2.15

    3

    1.70

    1.75

    4

    1.55

    1.60

    Neonate

    580, 581, 583, 588, 589, 591, 593, 602, 603, 607-09, 611-14, 621-23, 625, 630, 631, 633, 634, 636, 639, 863

    1, 2, 3, 4

    1.00

    1.00

    Normal newborn

    626, 640

    1, 2, 3, 4

    1.00

    1.00

    Obstetric – vaginal

    560

    1, 2, 3, 4

    Non-metro 1.35

    Non-metro 1.35

    Metro 1.00

    Metro 1.00

    Obstetric – cesarean

    540

    1, 2, 3, 4

    1.00

    1.00

    Obstetric – other

    541, 542, 544-6, 561, 563-6

    1, 2, 3, 4

    1.00

    1.00

    Transplant

    001-003, 006, 440

    1, 2, 3, 4

    1.00

    1.00

    Trauma

    020, 055, 135, 308, 384, 910, 911, 912

    1, 2, 3, 4

    1.00

    1.00

    Other pediatric
    licensed children's hospital

    Not listed above and patient age < 18

    1, 2, 3, 4

    1.60

    1.15

    Other pediatric
    non-children's hospital

    Not listed above and patient age < 18

    1, 2, 3, 4

    1.15

    1.15

    Other Adult

    Not listed above and patient age ≥ 18

    1, 2, 3, 4

    1.00

    1.00

    MA Transfer Payment = MA rate per admission divided by (arithmetic mean length of stay of the diagnostic category) and multiplied by (number of days of covered hospital services plus one).

    An admission that directly precedes an admission to a hospital that provides extended psychiatric inpatient hospital services to MA recipients with mental illness according to a contracted rate per day with DHS is exempt from a transfer payment.

    A hospital may not receive an MA transfer payment that exceeds the applicable rate per admission unless the admission is a cost outlier.

    Medicare designated rehabilitation units are exempt from the transfer payment methodology.

    For an admission whose length of stay exceeds 180 days, the payment for the inpatient hospital services provided beyond 180 days will be the charges for those inpatient hospital services multiplied by the hospital’s operating cost-to-charge ratio for all admissions determined in the admission’s base year, and multiplied by the disproportionate population adjustment or the hospital payment adjustment. This is not applicable to a long-term care hospital.

    Out-of-Area Rate Per Admission = Statewide average wage adjusted base rate multiplied by the DRG relative value multiplied by the DRG specific policy adjustment factor.

    Payments, including third-party liability and recipient spenddown, established for out-of-area hospitals may not exceed the charges on a claim-specific basis. Out-of-area payments may also be established at cost in lieu of the rate.

    Long-Term Care Hospital MA Rate Per Day - [(allowable operating rate per day) plus (property rate per day)] multiplied by (disproportionate population adjustment) and multiplied by the (number of covered days) of inpatient services.

    Disproportionate Population Adjustment (DPA) Eligibility

    DPA is also known as disproportionate share hospital (DSH).

    For MA, Minnesota hospitals that are not critical access hospitals that meet the following are eligible for a DPA adjustment to the payment rate:

  • • A hospital that offers obstetric services must have at least two obstetricians (or any two physicians if the hospital is located in a non-MSA) with staff privileges who have agreed to provide obstetric services to MA recipients
  • • A hospital that did not offer nonemergency obstetric services as of December 21, 1987, or a hospital whose inpatients are predominately under 18 years old is not subject to the requirement in the item above
  • • A hospital must have an MA inpatient utilization rate that exceeds the mean for Minnesota and local trade area hospitals or a low-income inpatient utilization rate that exceeds 25 percent, determined as follows:
  • MA Inpatient Utilization Rate = (MA days) divided by (total inpatient days)
  • Low Income Utilization Rate = [(MA revenues plus any cash subsidies received by the hospital directly from state and local government) divided by (total inpatient revenues plus the cash subsidies amount)] plus [(inpatient charity care charges minus the cash subsidies amount) divided by (total inpatient charges)]
  • Also see Medicaid Disproportionate Share Hospital (DSH) Audit.

    Hearing Detection Fee Increase
    Payment rates are adjusted to include the increase to the fee for the early hearing detection and intervention program recipients that is paid by the hospital for MA recipients. This payment increase is in effect until the increase is fully recognized within the base year cost. Five dollars will be added to final payment. Ratable reductions do not apply but two percent rate increase will apply.

    Effective for admissions occurring on or after July 1, 2013, payment rates will be adjusted to include the increase to the fee for the early detection and intervention program recipients that is paid by the hospital for MA recipients. This payment increase is in effect until the increase is fully recognized within the base year cost. Fifteen dollars will be added to the final payment. Ratable reductions do not apply but two percent rate increase will apply.

    Charge Limitation

    Individual hospital payments, excluding DPA payments, for covered inpatient services in addition to third party liability for admissions occurring in a rate year will not exceed, in aggregate, the charges for covered inpatient services paid for the same period of time to a hospital. The limitation will be calculated separately for MA and separately from other services for a Medicare designated rehabilitation unit.

    Hospital-Acquired and Provider-Preventable Conditions

    No payment will be made for the care, additional treatment or procedures, readmission to the hospital after discharge, increased length of stay, change to a higher diagnosis category, or transfer to another hospital when the charges are attributable to a hospital-acquired or provider-preventable condition. In the event of a transfer to another hospital, the hospital where the hospital-acquired or provider-preventable condition was acquired is responsible for any cost incurred at the hospital to which the patient with the condition is transferred.

    Appeals

    A hospital may appeal a decision arising from the application of standards or methods of the payment system. An appeal can result in a change to the hospital's payment rate or payments. Both overpayments and underpayments that result from the submission of appeals will be implemented. Regardless of any appeal outcome, relative values will not be recalculated.

    The appeal will be heard by an administrative law judge according to Minnesota Statutes, chapter 14, or upon agreement by both parties, according to a modified appeals procedure established by the Commissioner and the office of administrative hearings. In any proceeding, the appealing party must demonstrate by a preponderance of the evidence that the Commissioner's determination is incorrect or not according to law.

    To appeal a payment rate or payment determination or a determination made from base year information, the hospital must file a written appeal request to the Commissioner within 60 days of the date the payment rate determination was mailed. The appeal request must specify the:

  • • Disputed items
  • • Authority in federal or state statute or rule upon which the hospital relies for each disputed item
  • • Name and address of the person to contact regarding the appeal
  • DHS – Payment Policy Division
    PO Box 64984
    St. Paul, MN 55164-0984

    Definitions

    Adjusted base year operating cost: A hospital's allowable base year operating cost adjusted by the hospital cost index.

    Admission: "The time of birth at a hospital or the act that allows a recipient to officially enter a hospital to receive inpatient hospital services under the supervision of a physician who is a member of the medical staff.

    Allowable base year operating cost: A hospital's base year inpatient hospital cost per discharge, admission or per day that is adjusted for case mix and excludes property costs.

    Base year: A hospital's fiscal year or years that is recognized by Medicare, or a hospital's fiscal year specified by the Commissioner if a hospital is not required to file information with Medicare from which cost and statistical data are used to establish rates.

    Charges: The usual and customary payment requested by the hospital of the public.

    Cost outlier: A claim with significantly higher costs.

    DischargeThe act that allows a recipient to officially leave a hospital.

    Fixed-loss amount: The amount added to the base DRG payment to establish the outlier threshold amount. For rates set using 2012 as the base year, the fixed loss amount is $70,000 dollars.

    Hospital-acquired or provider-preventable condition: A condition represented by an ICD diagnosis code, that is listed on the Centers for Medicare & Medicaid Services annual hospital-acquired conditions list that is not identified by the hospital as present on admission and is designated as a complicating condition or major complicating condition.

    Hospital outlier index: A hospital adjustment factor used to calculate outlier payments to prevent the artificial increase in cost outlier payments from the base year to the rate year resulting from charge or cost increases above the Medicare estimated projected increases.

    Inpatient hospital costs: A hospital's base year inpatient hospital service costs determined allowable under the cost finding methods of Medicare including direct and indirect medical education costs.

    Labor-related share An adjustment to the payment rate by a factor that reflects the relative differences in labor costs among geographic areas.

    Local trade area hospital: A hospital that is located in a state other than Minnesota, but in a contiguous county.

    Long-term hospital: A Minnesota hospital or a local trade area hospital that meets the requirements under Code of Federal Regulations, title 42, part 412, section 23(e).

    Marginal cost factor: A percentage of the estimated costs that are greater than the outlier threshold amount and recognized for payment. For rates set using 2012 as the base year, the marginal cost factor is 50 percent.

    Operating costs: All allowable operating costs.

    Outlier threshold amount: Amount equal to the sum of the hospital’s standard payment rate and the fixed-loss amount.

    Out-of-area hospital: A hospital that is located in a state other than Minnesota, excluding local trade area hospitals.

    Policy Adjuster: An adjustment made to a specific range or subset of APR-DRGs based on category of service, age, or hospital type to allow for a payment adjustment to the specific APR-DRG claims.

    Property Costs: Inpatient hospital costs not subject to the hospital cost index, including depreciation, interest, rents and leases, property taxes and property insurance.

    Policy Adjustment Factor: The base value of the specific policy adjuster as adopted by the department.

    Rate year: A calendar year from January 1 through December 31 in which the discharge occurred.

    Rehabilitation Hospital: Inpatient hospital services that are provided by a hospital or unit designated by Medicare as a rehabilitation hospital or rehabilitation distinct part. The term “rehabilitation hospital” encompasses rehabilitation hospitals and rehabilitation distinct parts.

    Relative value: Weighted adjustments applied to the APR-DRG to reflect the resources required to provide a given service. The relative values of APR-DRG hospitals and rehabilitation hospitals are based on APR-DRG “standard” national weights, developed by 3M based on Healthcare Cost and Utilization Project (HCUP) National Inpatient Sample (NIS) discharge data.

    Transfer: The movement of a recipient after admission from one hospital directly to another hospital with a different provider number or to or from a rehabilitation hospital.

    Transitional Period: The initial period for APR-DRG hospitals in Minnesota or local trade areas for discharges occurring on or after November 1, 2014, until the next re-basing.

    Transition Adjustment Factor: A facility-specific payment adjustment factor that is incorporated into the payment methodology for PPS hospitals during the transitional period. The factor mathematically limits the aggregate change in payment for a hospital to an increase up to five percent or a decrease up to 3.2 percent when compared to the hospital’s aggregate payments in the base year.

    Wage Index: An adjustment to compensate for area differences in hospital wage levels by a factor reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. For areas with frontier state status the “Pre-floor Wage Index” is used.

    Legal References

    Minnesota Rules 9500.1090 to 9500.1140 Hospital Medical Assistance Reimbursement
    Minnesota Statutes 256.9685
    Establishment of Inpatient Hospital Payment System
    Minnesota Statutes 256.9686
    Definitions
    Minnesota Statutes 256.969
    Payment Rates
    Minnesota Statutes 256.9691
    Technology Assistance Review Panel
    Minnesota Statutes 256.9692
    Effect of Integration Agreement of Division of Cost
    Minnesota Statutes 256.9693
    Inpatient Treatment for Mental Illness
    Minnesota Statutes 256.9695
    Appeals of Rates; Prohibited Practices for Hospitals; Transition Rates
    Minnesota Statutes 256B.32
    Facility fee for hospital emergency room and clinic visit
    Minnesota Statutes 256B.0625
    , Subd. 1a Services provided in a hospital emergency room
    Minnesota Statutes 256B.75
    Hospital Outpatient Reimbursement
    Minnesota Statutes 256B.766
    Reimbursement for Basic Care Services
    Minnesota Statutes 256D.03
    , Subd. 4 GAMC Payment Rates for July 2003
    Minnesota Statutes 256D.031
    , subd.5 GAMC Payment Rates for April and May 2010
    Minnesota Statutes 144.125
    , subd 1 Hearing Detection Fee Increase

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