BNAF; Good News on Medicaid Rate Adjustments

January 19, 2016

Date:   January 19, 2016

To:       Chief Financial Officers of PPS and CPE Hospitals

From: Andrew Busz, Policy Director, Finance
Claudia Sanders, Senior Vice President, Policy Development
Tom Evert, Chief Financial Officer

Staff Contact: Andrew Busz, or (206) 216-2533

We are interested in informing hospitals about the Washington State Health Care Authority’s adjustments to February 1 payment rates. Working with WSHA, the Health Care Authority (HCA) has agreed to increase inpatient rates for the next quarter by about 18 percent, in order to restore errors it made in cutting rates during the last two quarters.

This change applies to Prospective Payment System hospitals directly and to Certified Public Expenditure (CPE) hospitals during the calculations of the hold harmless grant payments.

On January 14 or 15, hospitals should have received notices from HCA informing them of new payment rates effective on February 1, 2016. The notices reflect updates to the budget neutrality adjustment factor (BNAF).

1.  For inpatient rates, the notices should show the inpatient budget neutrality adjustment factor will be 1.0895. This is about an 18 percent increase over rates previously in effect, where the factor was 0.9190.

a. The new adjustment corrects errors made in prior calculations which resulted in a rate reduction of more than 8 percent.  This new adjustment corrects the errors AND increases the rates for a three‑month period in order to pay hospitals back for prior incorrect reductions.
b. Correcting the effect of these errors provides hospitals approximately $60 million more in Medicaid payments over the next several quarters in comparison to the rates/payments that would otherwise have been in place if the errors had not been corrected.
c. HCA made these corrections as a result of discussions with WSHA, analysis from our consultant, Bruce Deal at Analysis Group Inc., and investigation into detailed claims data from three of our member hospitals. As a result of presenting our analysis to HCA, the agency realized its prior rate calculations included faulty data. It turns out that encounter data from some of the health plans did not accurately reflect the covered charges. As a result, the state’s consultant made incorrect assumptions about the amounts that plans were paying for outlier cases in the payment system comparisons. In addition, certain calculations for CPE hospitals were using incorrect data.
d. Starting May 1, we expect the budget neutrality factor will return to about one (1.0) since it will no longer be necessary to provide payback for the November 1 error. That would mean rates will drop from the level established for February through April 2016 by about 8 percent and return to near the levels that were in effect at the start of the new rebasing system on July 1, 2014.

  1. For outpatient rates, the notices show no change in rates.

a. HCA believes hospitals may be receiving more than they should in outpat ient payments compared to the payment system in place prior to rebasing. If that finding holds, HCA may impose additional cuts in the May 1 adjustment. These would offset much of the prior increase in outpatient payments made under an earlier adjustment factor. The agency, however, believes it needs additional data verification before it takes any action.

HCA implemented new payment systems for inpatient and outpatient services on July 1, 2014. At the time, HCA was concerned the new systems were more sensitive to coding entries, and the changes could result in hospitals being paid more than under the prior system. To ensure budget neutrality, HCA set up a system to compare the aggregate amounts paid under the new system to amounts that would have been paid under the old system. HCA analyzes payment information on a quarterly basis and then makes corrections as needed through a budget neutrality adjustment factor. The first comparison and adjustment was made August 2015 for claims paid from July 1, 2014 through December 2014; the second was November 1, 2014 for claims paid through June 2015; and the latest will be February 1, 2016 for claims paid through September 30, 2015.

For additional background, see our prior bulletin.

WSHA previously recommended that hospitals appeal Medicaid inpatient and outpatient payment rates effective November 1, 2015.  Based on the adjustments made, we believe the state has addressed the main issues we raised with the November 1 cuts.  Because the budget neutrality adjustment process is a series of adjustments to ensure budget neutrality for the time period since July 2014, WSHA will continue to review quarterly information and any adjustments made by HCA. We believe there will be additional opportunities for HCA to make any needed adjustments.

Next Steps
WSHA and Analysis Group will continue to work with HCA and Navigant to review the methodology and calculations for the budget neutrality adjustment factor. We will be working with a few selected member hospitals on outpatient claims to determine if we can validate the data being used in the analysis.


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