April/May 2000

Preparing for PPS

By Malcolm H. Morrison, PhD

In just a few months, the Health Care Financing Administration (HCFA) will initiate the medical rehabilitation prospective payment system (PPS). PPS will replace the Tax Equity and Fiscal Responsibility Act (TEFRA) payment system and represents a major change in how providers will be reimbursed by Medicare. The amount of reimbursement will now be based on patient acuity determined by a new patient classification system. Most rehab providers are initiating preparation for the new PPS.

While all the details are not yet available, the most important elements are already known and these will require certain actions by providers to meet Medicare requirements for data collection, patient classification, billing, and data reporting. For the most part, computer software will enable providers to properly meet these requirements. However, the available software also has limitations, which will reduce facilities’ capability to evaluate their case mix based on costs of care in comparison with Medicare reimbursement. The most important requirements under PPS are: to use the minimum data set (MDS)-PAC patient classification instrument; to include patient classification data in Medicare billing transmittals; to transmit MDS-PAC data to state data centers; and to use MDS-PAC data in outcomes reporting for accrediting organizations.

To ensure efficiency and profitability of operations, providers will also need to use both clinical and financial data to produce information on overall case mix, cost- outlier patients, patients requiring case management, and required resource use based on clinical severity of patients. More sophisticated uses of data also will include preadmission cost-forecasting; interim measurement of patient progress including costs and reimbursement to date; resource consumption; predicted outcomes; and linking patient acuity with cost-effective clinical pathways. The extent to which available software can meet both the requirements and the additional needed data collection, analytical, and reporting capabilities will continue to vary. Full capability to meet all needed functions will not be available in one software package.

Meeting Initial PPS Requirements

Since the MDS-PAC instrument will be mandatory under PPS, several options are available for providers to obtain software for the instrument. HCFA will make available a public use version of the MDS-PAC software including the patient classification grouper (Function Related Groups [FRGs]), which can be downloaded from the Internet. The HCFA version of the software will be relatively simple but will permit the coding of all MDS-PAC fields, the classification of each patient by the FRG-grouper, and transmission of this data to provider billing systems and to state data centers. This version of MDS-PAC software will be the most limited and will not necessarily support such functions as rapid preadmission assessments, cost-forecasting, patient costing, outcomes analysis, care plans, and case management. To perform such functions, data from this version will have to be downloaded to other software that has such analytical and reporting capabilities.

A second option for obtaining MDS-PAC software is to use the version that will be provided by the Uniform Data System for Medical Rehabilitation (UDSMR) of the State University of New York at Buffalo. UDSMR will make available the MDS-PAC software with the FRG-grouper to its subscribers, along with training in the use of the instrument. This version will support transmission of FRGs for patient billing, transmission of MDS-PAC data to state data centers, and collection and reporting of outcomes data through the UDSMR system. UDSMR will also continue to provide ORYX data reporting for subscribers purchasing this service. However, in order to obtain functions such as rapid preadmission assessments, cost-forecasting, patient costing, outcomes analysis linked to resource use and costs, care plans, and case management, use of additional software will be required. A few software vendors are planning to imbed the MDS-PAC instrument and FRG-grouper in their software packages, which will then enable transmission of FRG data to the patient billing system and export of MDS-PAC data to state data centers. Although some of these software packages may provide preadmission assessment capability, they will not support cost-forecasting, outlier identification, patient costs, outcomes analysis, or case management.

Through one of these options, rehab providers will be able to access and use the MDS-PAC instrument and software as required by HCFA. However, the requirements to use the MDS-PAC instrument should be viewed as just the beginning of the need for improved software functionality under the PPS.

Cost and Clinical Forecasting

While use of the MDS-PAC and the FRG-grouper are required under the PPS, it should not be assumed that merely using such software is sufficient for cost-effective management under the PPS system. Such an assumption is both incorrect and involves major risks for providers because all PPS systems limit reimbursement based on averages for patient classification groups.

It is well known that costs vary by patient severity and moreover that this cost variation can be significant even within patient classification groups. For this reason, under fixed PPS reimbursement, it is essential to know (preferably in advance) what the costs of care are (or will be) for patients and to compare these costs (again, preferably in advance) to reimbursement. No MDS-PAC software package (including those within vendor software) will have the capability to link clinical and cost data to provide forecasted, current, or postdischarge information on patient margins based on case mix. While the FRG patient classification groups may adequately characterize patient clinical acuity, this data alone is insufficient to assist facilities to recognize outlier patients, determine which patients require case management, and understand costs compared to reimbursement. For these reasons, MDS-PAC software falls far short of providing the information support required by PPS.

At present, there is no simple plug-and-play software solution to the problems of costing patients under PPS. There are, however, two major solutions to overcome this problem. The first involves linking clinical data exported from the MDS-PAC with cost data from general ledger financial reports (using a cost-allocation method) to produce reports showing the costs of patients by FRGs and patient clinical acuity compared to Medicare reimbursement. Using this data, customized computer programs can be developed to produce cost forecasts and even interim information on costs vs reimbursement during the patient’s stay. While not as accurate as precise patient costing, this approach provides a reasonable representation of patient costs and can be used to forecast costs, identify outliers, and target patients for case management.

The second solution involves the purchase of a cost-accounting software package that can identify and assign specific cost components to individual patients and then linking these costs (through customized programming) with MDS-PAC clinical data, producing cost and cost-forecasting reports as identified above. The advantage of this method is that it is more accurate because of the capability to assign costs to individual patients and the reduced use of cost allocation methods. A disadvantage is that cost-accounting systems can be relatively expensive, require time to install and implement, usually necessitate the use of specialized staff to operate, and require constant maintenance and adjustment.

Under almost any circumstances, however, the linkage of cost and clinical data is essential to manage effectively and efficiently under the PPS and customization of software and data reports will be required until such time as more complete PPS software is developed by vendors.

Electronic Medical Records and Decision Support

Often questions are raised about whether software is available that can provide a more complete electronic medical record (EMR) for rehabilitation patients, which would then be linked with cost-effective care plans providing the type of cost and clinical forecasting decision support necessary for PPS patient management. There are very few EMR applications available for medical rehabilitation patients, and significant customization is normally required to assure functionality in the rehabilitation setting. In addition, virtually none of these EMR applications include decision-support functions needed for managing under the new rehab PPS. Even though some systems contain sophisticated executive information system (EIS) modules, these are not capable of providing the costing, cost-forecasting, and clinical decision-support information needed for managing patients in the rehab PPS.

Although it certainly would be desirable to have an integrated clinical and financial software product, which would also provide needed PPS decision-support functionality, such a product is not available and is unlikely to become available in the near future. For this reason, the most practical approach to obtaining linked clinical and financial data for managing under the PPS is to develop customized programs using MDS-PAC and financial data from either the general ledger or a cost-accounting system.

What To Do Next

Preparing for the PPS involves the following steps:

• Identifying MDS-PAC software, installation, and training

• Providing protocols for MDS-PAC data transmission to billing systems and state data centers

• Developing customized software programs linking cost, clinical, and reimbursement data

• Determining the need for cost-accounting software and related customization requirements

• Evaluating the desirability and requirements for linking care plans with clinical and financial data

In carrying out these steps, it is critical to keep in mind that MDS-PAC software alone will not be sufficient to assure efficient management under PPS and that the only sound approach to support operational efficiency is through using clinical and financial data to forecast and evaluate patient case mix and costs and compare these to PPS reimbursement.

Malcolm H. Morrison, PhD, is president and CEO of Morrison Informatics Inc, a health care information technology consulting company specializing in postacute care in Mechanicsburg, Pa.

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