Medicaid plan would shake up the way hospitals are paid

A draft copy of Medicaid reform legislation closely resembles a proposal that Gov. Pat Quinn made last month. However, it appears that it would reform the way some medical providers are paid and potentially avoid immediate cuts to their rates.

The plan would transition hospitals to a payment plan known as an All Patient Refined Diagnosis Related Groups (APR-DRG) system, according to a draft version of the amendment obtained by Illinois Issues. The legislation covers more than 400 pages.

Quinn’s office did not respond to questions about the draft amendment.

APR-DRGs were created by 3M Health Information Systems for the Center for Medicaid and Medicare Services. “The design and development of the [Diagnosis Related Groups (DRGs)] began in the late '60s at Yale University,” said an overview of DRGs from 3M. “The initial motivation for developing the DRGs was to create an effective framework for monitoring the quality of care and the utilization of services in a hospital setting. The first large-scale application of the DRGs was in the late '70s in the state of New Jersey. The New Jersey State Department of Health used DRGs as the basis of a prospective payment system in which hospitals were reimbursed a fixed DRG specific amount for each patient treated.” The system takes into consideration the complexity of the health issues facing patients that hospitals are treating.

Starting in October 2012,The Department of Health and Family Services would determine the reimbursement rates for inpatient services at hospitals under the APR-DRG payment plan, but Hospitals would still get paid current rates. DHFS would work with the Illinois Hospital Association and a "hospital technical advisory group" on a path to transitioning to the APR-DRG rates by the end of Fiscal Year 2014.

Danny Chun, vice president of corporate communications and marketing for the Illinois Hospital Association, would not comment on specifics of the amendment but said rate cuts to medical providers should be a “last resort.” “There are other options and alternatives that we have been talking to everybody about over the past weeks and months that we think can generate substantial savings and revenues,” Chun said.

Quinn’s original plan would have cut provider reimbursement rates by $675 million. Quinn also proposed a $1-a-pack cigarette tax increase to protect the program and providers from deeper cuts. Such a tax increase would likely be moved in separate legislation.

The draft amendment calls for savings in areas that Quinn outlined in his original proposal. Under the plan:

• The Department of Healthcare and Family Services would no longer be required to provide adult dental care or eyeglasses. This does not mean that it would necessarily eliminate eyeglasses. It could also offer to scale back the program by offering replacements less often.

• Illinois Cares RX, a program that provides prescription drug health to seniors, would be eliminated.

• All patients would be limited to four prescriptions a month. Three of them could be brand name drugs. Patients would pay a $2 copay for generic drugs. They currently have no copay for generics.

• Coverage for group therapy in nursing homes, adult chiropractic care and in patient detox programs would be eliminated.

• Repairs to or replacement of medical equipment, such as wheelchairs and prosthetic devices, would require prior approval from DHFS. The proposal also contains provisions targeting fraud and calls for the state to contract with a vendor to help DHFS verify the eligibility of Medicaid patients.

Sen. Dale Righter, a member of a legislative working group charged with finding Medicaid savings, said he had not seen the amendment. He said he expects Quinn to file his plan by the end of the week. Righter said the rates paid to Medicaid providers have been a pivotal part of negotiations. “I know there is still a lot of talk going on about [provider reimbursements], and I think we’re going to learn a lot more in the next couple of days,” he said.

That's not to say, however, that provider rate cuts would not be a part of the final legislation. Another possibility being considered would spare so-called safety net hospitals — which take a high rate of Medicaid patients and are often in underserved communities — from rate cuts while other hospitals would have to bite the bullet on reductions. Those close to negotiations say the overall plan is still a work in progress and that Quinn’s final proposal would likely see changes from the amendment that is currently circulating.

Righter, a Republican from Mattoon, said it is unlikely that the working group will present competing legislation. “I don’t think it will shake out that way. There will be competing ideas out there, but I don’t think you’re going to see a governor’s bill and a working group’s bill, I don’t think it will break out like that.” 

By Jamey Dunn and Ashley Griffin
Illinois Issues Blog - The official blog of Illinois Issues magazine, published by the Center for State Policy and Leadership at the University of Illinois Springfield

(Originally posted here on 5/16/12)