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Modernizing ICF Reimbursement

Live ChatOctober 19, 2017

Coy Jones, Public Consulting Group

Josh Anderson, Division of Medicaid Development and Administration, DODD

Overview

ICF Reimbursement Live Chat: October 19, 2017 3

ICF Reimbursement – Time for change

• The current ICF Reimbursement methodology is over 20 years old

• Much has changed for the better within our industry in that time:

• Smaller settings• More community involvement• More choice

• The proposed new reimbursement system better aligns funding with those changes


ICF Reimbursement – Major Changes

Current System

• Direct Care rate based on IAF assessments and “trigger” scoring

• 3 Peer Groups• Cost based capital

system

Proposed System

• Direct Care rate based on DDP assessments and cumulative scoring

• 5 Peer Groups• Fair Rental Value

system for capital reimbursement


ICF Reimbursement – Direct Care

Current System

• IAF “Trigger” method can result in large fluctuations and doesn’t account for total need of individual.

• Current weights and score based on 20 year old information

• IAFs conducted by providers which leads to inconsistency in scoring

Proposed System

• DDP Cumulative method accounts for total needs of individuals and results in incremental fluctuation in score.

• 2 week time study on a statistically valid random sample of ICFs conducted 1 year ago used as the basis for weights

• Initial DDPs conducted by DODD to ensure consistency in scoring


ICF Reimbursement – Peer Groups

Current System

• 3 peer groups• Peer Group 1: 9+ beds• Peer Group 2: 8 or fewer beds• Peer Group 3: 6 bed facilities

formed from DCs• Large variance within peer

groups• Inequitable ceilings because

of variance within the peer group

• Facilities with 6 or fewer beds are the most negatively effected

Proposed System

• 5 peer groups• Peer Group 1: 17+ beds• Peer Group 2: 9-16 beds• Peer Group 3: 7-8 beds• Peer Group 4: 6 or fewer beds• Peer Group 5: 6 bed facilities

formed from DCs• Less variance within peer

groups• More equitable ceilings

because of low variance within the peer group

• Facilities with 6 or fewer beds do substantially better


ICF Reimbursement – Capital

Current System

• Cost based system that does not account for true value of the facility

• Substantial $ goes to exorbitant lease arrangements for facilities generally not well maintained

Proposed System

• Fair Rental Value system designed to reimbursement on the true worth of the facility

• $ goes to facilities which have a newer effective age based on original construction date and improvements/renovations


ICF Reimbursement – Summary

Current System

• Cost coverage is inequitably distributed with some providers receiving higher reimbursement than their costs while others have experienced substantial losses for a long period of time

• Rollback or artificial ceiling adjustments needed annually to satisfy budget constraints

• Funding remains flat at FY17 level

Proposed System

• Cost coverage is more equitably distributed with those who have experienced substantial losses recovering much of those losses

• “Dials” set in new formula so that rollback or artificial ceiling adjustments are not needed for initial implementation

• 2% increase in funding accompanies implementation of new system

Direct Care


Acuity Groupings

• PCG revised our recommendations around how to define the acuity groupings to allow for a more even distribution of the ICF population within each level.

• We continue to recommend six acuity levels whose qualifying scores are determined by population percentiles. However, we recommend that the percentiles be defined across even sixths of the population.

• The defining percentiles would be:• Level 6: Lowest 16.67% of scores• Level 5: 16.67-33.33%• Level 4: 33.33%-50%• Level 3: 50%-66.67%• Level 2: 66.67%-83.33%• Level 1: 83.33%-100%


Requested Changes to Peer Group

7-Bed Homes Scoring• Changes in DODD regulations have established the threshold for

downsizing to 6-bed homes.• Given these requirements and the relative scarcity of 7-bed homes,

the workgroup requested that 7-bed homes be reclassified and be combined with 8-bed homes into Peer Group 3.

DDP Scoring Protocol• The workgroup also noted that some of the questions currently

scored within the medical domain—involving hearing, vision, and mobility—would be more appropriately grouped in the adaptive domain.

• Likewise, there were several questions involving use of medical personnel that were grouped in the adaptive domain, but should be reclassified as medical.

• It was also noted that a few questions, involving use of psychiatrists and psychologists, are more reflective of the behavioral domain.


Requested Changes to Peer Group

7-Bed Homes Scoring• PCG reviewed the implications of this change and determined that

the change would more closely align with ICF policy goals, without uniformly negative impacts to this small group of homes.

• In our updated analysis of fiscal impact, PCG has reclassified the 11 homes with 7 beds into Peer Group 3.

• The impact of our recommendations on these homes follows the same general trends as the rest of the facilities in the system.

• Reimbursement for roughly a third of the homes is unaffected by the recommendations.

• Three of the homes are positively impacted by the recommendations.• Four are negatively impacted.

Capital Costs


Methodology Review

PCG has completed analysis on the impacts of transitioning from a cost-based to a fair rental value (FRV) methodology for reimbursing capital costs.• PCG has proposed that DODD transition to a capital reimbursement

methodology that bases reimbursement on the real economic value of capital assets.

• The basic formula:

Current Asset Value

Rental Rate

Occupancy


Methodology Review: Fair Rental Value

Variables that affect Fair Rental Value• Current Asset Value (CAV), calculated using this formula: (Total Square Footage x Value per Square Foot) + Total Equipment

Value

• Square Footage• Capped between 200 and 800 feet per bed (1,000 for downsized

facilities)

• Value per Square Foot• Based on RS Means Construction Cost Estimator

• $175.90 for Peer Groups 1 & 2• $202.45 for Peer Groups 3 & 4


Methodology Review: Fair Rental Value

Additional Variables • Land Value

• 10% of CAV will be added to account for land value

• Depreciation• Once CAV is established, it is depreciated based on the age of the building to

establish the Depreciated Asset Value• 1.75% per year, based on the year of initial construction reported in

Attachment 9 of the Cost Report• Capped at 40 years

• Rental Rate• The rental rate simulates the cost of DODD “renting” the facility to provide

care for Medicaid recipients• 9% for all facilities, owned or rented

• Occupancy• Occupancy is the higher of reported inpatient days or 95% of total bed days

Distribution of Impact


Fiscal ImpactPCG conducted additional analysis to determine how positive and negative fiscal impacts are spread across providers.• Analysis focused on facilities that would see major swings in their

rates in order to understand what drives these changes.• Facilities were stratified into different tiers of “winners” and

“losers,” based on the change per diem dollar amount they would receive.

Threshold Tier Count$10 and higher Tier A 90$3.00 to $9.99 Tier B 48-$2.99 to $2.99 Tier C 68-$3.00 to -$9.99 Tier D 67

-$10.00 and lower Tier E 120


Fiscal Impact• Within these higher and lower tiers, it was also possible to identify

a smaller group of extreme winners and losers, made up of facilities that would see per diem gains and losses of more than $25.

• In many cases, these facilities had distinct features from the larger group.

Threshold Tier Count$25.00 and higher Tier A+ 45$10.00 to $24.99 Tier A 45$3.00 to $9.99 Tier B 48-$2.99 to $2.99 Tier C 68-$3.00 to -$9.99 Tier D 67

-$10.00 to $24.99 Tier E 97-$25.00 and lower Tier F 23


Impact Distribution: Overall Cost CoverageComparison of Overall Cost Coverage

• First striking feature is the relative inequality of the old system compared to the new.

• Second is how cost coverage is redistributed across the entire system in the new model.

TierOld Cost Coverage

New Cost Coverage

All Providers 96% 96%Tier A+ 80% 92%Tier A 93% 98%Tier B 94% 97%Tier C 99% 99%Tier D 100% 98%Tier E 100% 94%Tier F 100% 88%


Impact Distribution: Direct Care CoverageComparison of Direct Care Cost Coverage

• Except at the extremes, most tiers of winners and losers do not see dramatic increases and decreases in their direct care cost coverage.

• Tier A+ and Tier F both see dramatic shifts in cost coverage, begging the question: why?

TierOld Cost Coverage

New Cost Coverage

All Providers 98% 97%Tier A+ 79% 94%Tier A 94% 97%Tier B 96% 95%Tier C 102% 100%Tier D 102% 98%Tier E 102% 99%Tier F 101% 92%


Distribution of Impact: CapitalIn previous presentations, PCG analyzed ICF characteristics linked to capital reimbursementOwnership (Rented vs. Owned)

• Owned ICFs tend to fare better and compose the majority of Tiers A-C• Conversely, the losing tiers have a higher proportion of rented facilities• Gains and losses do not necessarily follow basic proportions of

ownership, as the highest tiers also have a significant proportion of rented facilities

Tier Count Rented Rented % Owned Owned %Tier A+ 45 15 33% 30 67%Tier A 45 15 33% 30 67%Tier B 48 10 21% 38 79%Tier C 68 17 25% 51 75%Tier D 67 28 42% 39 58%Tier E 97 74 76% 23 24%Tier F 23 15 65% 8 35%


Distribution of Impact: CapitalFacility Size

• On average, the facilities benefiting the most have substantially higher square footage per bed leading to higher capital reimbursement under the FRV methodology

• While other cost centers influence an ICF’s whole rate, higher square footage per bed is a predictor of improved reimbursement

Tier Average Sq/Ft BedTier A+ 622.5Tier A 606.8Tier B 591.4Tier C 514.3Tier D 462.1Tier E 423.9Tier F 404.8


Distribution of Impact: CapitalFacility Age

• Positively impacted facilities are slightly newer than their negatively impacted counterparts

• However, when accounting for renovations and additions, there is a clear trend:

• Positively impacted facilities have lower effective ages indicating more re-investment into capital assets

• Age adjustments for Tier A are nearly double that of Tier E facilities

Tier Actual Age Effective AgeAverage Age Adjustment

Tier A+ 27.0 21.5 5.5Tier A 25.6 21.3 4.3Tier B 27.3 22.1 5.2Tier C 27.8 22.9 4.8Tier D 28.9 25.2 3.7Tier E 28.4 25.9 2.6Tier F 31.2 27.2 3.9


Distribution of Impact: CapitalEfficiency Incentives

• Under the current methodology, 69% of all ICFs qualify for an efficiency incentive payment in their capital rate

• However, the majority of facilities that do not receive the efficiency incentive under the current methodology are the most negatively impacted (Tier E)

Tier % Receiving Eff. Inc.Tier A+ 84%Tier A 82%Tier B 88%Tier C 87%Tier D 81%Tier E 46%Tier F 48%


Distribution of Unreimbursed CostsUnreimbursed Costs within System

• On the whole, the proposed rate methodology covers an additional $6 million in costs that are current unreimbursed.

• The group impacted most negatively by the new methodology would bear on average $38 per bed day in unreimbursed costs. By contrast, the “winners” under the new system currently bear $70 per bed day in unreimbursed costs.

• Tier A+ continues to bear the second highest amount of unreimbursed costs, except for Tier F.

TierUnreimbursed

Costs (Old)Unreimbursed Costs (New)

Additional Reimbursed

Average Unreimbursed Cost Per Diem

All ($40,062,548) ($33,978,795) $6,083,753 ($0.85)Tier A+ ($19,504,838) ($8,019,434) $11,485,404 ($28.72)Tier A ($5,523,730) ($3,049,749) $2,473,981 ($16.36)Tier B ($6,217,588) ($5,554,975) $662,613 ($28.01)Tier C ($2,564,685) ($2,649,966) ($85,281) ($8.22)Tier D ($1,857,395) ($2,474,338) ($616,943) ($7.73)Tier E ($3,227,549) ($8,844,490) ($5,616,941) ($19.42)Tier F ($1,166,763) ($3,385,843) ($2,219,080) ($38.43)

Thanks for joining us!

A recording of this webinar will be posted next week in the webinar catalog found at dodd.ohio.gov/training

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