Creative payment strategy helps ensure a future for teaching hospitals - Cover Story

Healthcare Financial Management, Nov, 1998 by Donald R. Vancil, A. Laurie W. Shroyer

MTH PAYMENT FORMULA

The MTH payment formula uses four components to calculate retrospective payment, including indigent days of care, Medicaid days of care, total patient days of care, and the medically indigent adjustment factor.

Indigent days of care (IDC). The IDC is the number of days of care for which patients met the income and asset qualifications to participate in the Colorado Medically Indigent program.

Medicaid days of care (MD). The MD is the number of days of care for which patients met the income and asset qualifications to participate in the Colorado Medicaid program.

Total patient days of care (TPD). The TPD is the number of total days of care for all patients.

Medically indigent adjustment factor (MIAF). The maximum MIAF allowable is capped by the Medicare upper payment limit.

The difference between Medicaid and Medicare payments (based upon the prospective payment system [PPS] payment difference) represents the maximum amount of funds that may be distributed as part of the MTH payment program. The PPS calculation is determined by subtracting the average Medicaid payment per case from the average Medicare payment per case (ie, currently the national Federal specific rate is used) for the period of review. Then, this amount is multiplied by the number of Medicaid patient discharges occurring during the review period. Finally, the hospital's weighted-average case-mix index (CMI) for all cases is used as an adjustment factor. Thus, the formula used is:

PPS difference = [((Medicare rate/discharge) - (Medicaid rate/discharge)) x Medicaid discharges x CMI].

Additionally, the level of the MIAF is based on a two-tiered classification of the intern and resident FTE: Level 1 payment is for hospitals with 151 to 190 intern and resident FTEs, and Level 2 payment is for hospitals with 110 to 150 intern and resident FTEs. Level 2 payments are 25 percent lower than Level 1 payments.

Finally, the amount allocated by the Colorado General Assembly to the Medicaid program for purposes of MTH payments has remained constant at $20,410,525 since FY93-94. Thus, the MIAF has been adjusted to address this funding shortfall. The MTH payments to qualifying institutions are proportionately prorated to stay within the state's budget limitations. The major teaching hospital rate (MTHR) is the amount of Medicaid funding allocated to these hospitals based on retrospective data. For example, the FY96-97 MTH payments were based on 1995 calendar year activity. These MTH payments are made monthly. Because the payments are based on retrospective data, no year-end reconciliation is necessary. The MTHR payment formula is: MTHR = [(IDC MD) TPD] x MIAF.

The primary source of the data used to document days of care is the Colorado Hospital Association's (CHA) annual report. This CHA report is used as an external data source rather than relying on Medicaid and Colorado Medically Indigent program internal databases. Both state programs operate on a July-to-June state fiscal year. Thus, the MTH program calculations are based on the CHA calendar-year-end reconciled reports.