Hospital Impact: Key lessons learned from Ohio Medicaid's hospital payment overhaul

Since February 2014, the Ohio Department of Medicaid and OHA member leaders have pursued a complete restructuring of the hospital reimbursement system. (Getty/benkrut)

Ohio Medicaid continues its efforts to move from volume to value with its hospital reimbursement policies, but the process of remaking an entire hospital reimbursement system has been slower than anticipated, with implementation deferred to July 1.

The Ohio Department of Medicaid (ODM), through its fee-for-service program and five Medicaid managed care plans, pays hospitals in Ohio approximately $4.3 billion annually, covering 62% of the cost of care provided to 3 million Ohio Medicaid beneficiaries. Ohio is one of 13 states that use or are planning an Enhanced Ambulatory Patient Grouping (EAPG) outpatient prospective payment system—and other Medicaid agencies and commercial payers will join soon.

Other states should follow Ohio’s lead in reforming Medicaid to expand coverage and modernize payment systems, but they would be wise to learn from our experience before undertaking similar payment systems reform.

A joint effort

Finance executives from Ohio hospitals and leaders at the Ohio Hospital Association (OHA) have worked in collaboration with the ODM throughout this project and have helped to identify underlying data and hospital grouping issues that affected the timeline.

Since February 2014, the ODM and OHA member leaders have pursued a complete restructuring of the hospital reimbursement system, including adoption of new peer groupings, rebased inpatient diagnosis-related groups and hospital base rates, the first update to graduate medical education payments since the mid-1980s, and a conversion of its outpatient reimbursement system to an EAPG outpatient prospective payment system.

Recently, the OHA and ODM discovered a number of program development issues—the most significant of which involved the recovery of a large number of managed care claims missing from the department’s files—that have repeatedly pushed back the start date for the revised payment systems by a full year.

Lessons learned

As a state that adopted expanded Medicaid eligibility criteria beginning Jan. 1, 2014, Ohio provides lessons in understanding the need for careful review of the historic claims data used for modeling and studying the changing profile of Medicaid beneficiaries through expansion. Here are some key insights we have gleaned:

  1. Ensuring that paid claims databases are complete and consistent between providers and payers is paramount. The balance between the source data’s recency and accuracy is also crucial when forecasting the impact on various providers.
  2. Because Ohio expanded Medicaid coverage in 2014, the restructuring has to take into account the changing profile of Medicaid beneficiaries. But at the same time, the lag in dependable paid claims data from the postexpansion period has created issues with the reliability of provider impact forecasts.
  3. For states, Medicaid agencies and commercial payers adopting EAPG outpatient prospective payment systems, it is important to understand the 3M EAPG software covers a broader spectrum of diagnoses than the Medicare outpatient Ambulatory Payment Classification system, with 55 major categories and more than 550 severity-adjusted medical and surgical groupings. The software also employs 3M-created algorithms that deem when it is appropriate to package, consolidate and/or discount payments for related items, services and procedures.      
  4. It is also key to outline as early as possible how new payment systems will be phased in, whether the use of temporary stop-loss and stop-gain benchmarks are appropriate, and how and when peer groups and prospective payment system rates and weights will again be rebased or repriced to maintain future parity between hospitals and within budget targets.     

ODM and its advisers from Burns & Associates have conducted an exemplary process with consistent open lines of communication with both payers and providers. However, with nearly two years devoted to the project and nine months still to go before its scheduled launch, much uncertainty remains as to the final impact of the restructuring.

Ryan Biles is senior vice president for health economics and policy at the Ohio Hospital Association.