2018 -- S 2954

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LC005794

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- HEALTH AND SAFETY--

ALTERNATIVE PAYMENT INCENTIVE FOR CERTAIN ELIGIBLE HOSPITALS

     

     Introduced By: Senators Conley, Nesselbush, Crowley, and Cano

     Date Introduced: May 31, 2018

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

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     SECTION 1. Title 42 of the General Laws entitled "STATE AFFAIRS AND

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GOVERNMENT" is hereby amended by adding thereto the following chapter:

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CHAPTER 14.7

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TRANSITIONAL ALTERNATIVE PAYMENT INCENTIVE ACT

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     42-14.7-1. Short title.

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     This chapter shall be known and may be cited as the "Rhode Island Transitional

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Alternative Payment Incentive Act".

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     42-14.7-2. Findings.

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     The general assembly makes the following findings:

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     (1) The governor and many of the state agencies have been promoting care

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transformation and health care payment reform among providers and health insurers. The office

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of the health insurance commissioner (OHIC), for example, has been in the forefront of this

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effort.

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     (2) As part of its regulatory charter, OHIC has undertaken the mission of shifting health

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insurance contracting from the traditional fee-for-service payment model to, ultimately, risk-

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based contracts holding providers accountable for the health care quality and costs for a defined

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population under their care. One of OHIC's most important regulatory missions is to

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"significantly reduce the use of fee-for-service payment as a payment methodology, in order to

 

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mitigate fee-for-service volume incentives which unreasonably and unnecessarily increase the

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overall cost of care, and to replace fee-for-service payment with alternative payment

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methodologies that provide incentives for better quality and more efficient delivery of health

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services."

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     (3) While each health insurer has committed to some degree, to implement advanced

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alternative payment methods (APM), such as capitation financing, the shift has been sluggish and

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incremental. The pace of moving to capitation has been much slower than would be beneficial to

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the citizens of Rhode Island and is inconsistent with the public interest.

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     (4) The state and its agencies must continue to provide support, and pressure when

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necessary, to health insurers and providers to move more quickly to full provider accountability

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for quality and cost through comprehensive population based payment, for example through

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global capitation and full delegation.

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     (5) Since 2010, OHIC has effectively set hospital rate increases, pursuant to its regulatory

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authority - more specifically the provisions at regulation 2, § 10(d)(4)(E). At the time this process

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was instituted, there was no rationalization of rates among hospitals and there remains significant

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variability in the payment amounts paid by health insurers to hospitals in the state. This

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variability has never been rectified and has left a number of the state's hospitals with rates that are

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far below the average payment to all hospitals in the state.

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     (6) In 2012, OHIC and the Rhode Island executive office of health and human services

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(EOHHS) commissioned a study on hospital payment variation. A study report was issued in

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December of 2012 entitled "Variation in Payment for Hospital Care in Rhode Island" (the 2012

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report") that identified and quantified the variation in public and private payer payments to Rhode

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Island hospitals. This report utilized 2010 data, however, because of the limit on rate increases

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that has been in place since 2010, the percentage variation in private payer payments remains

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today. The 2012 analysis should be updated with more current data; until such time an update is

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available, the 2012 report shall be used to calculate the transitional APM incentive.

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     (7) The rates for these hospitals under the average payment level are unsustainable and

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therefore must be rectified. This must be done in a manner that does not unduly increase the costs

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of health care in Rhode Island and in a way that supports the public interest.

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     (8) This chapter establishes a unique hospital services pricing arrangement as an

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alternative to the traditional fee-for-service model, with its inherent cost increasing outcome - the

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transitional APM incentive. The purpose of the transitional APM incentive is twofold:

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     (i) To provide a strong incentive to make an expeditious shift to institutional services

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capitation-a goal that has been vigorously endorsed by the state and its agencies-and;

 

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     (ii) To mitigate any particular hospital's historic and significant rate disparity, resulting

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from the implementation of OHIC regulation 2, § 10 (d)(4) and only for the limited period of time

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it will take to transition to capitation.

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     42-14.7-3. Hospital eligibility for the transitional APM incentive.

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     (a) In order to be eligible for the transitional alternative payment method (APM)

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incentive, a hospital must meet the following conditions:

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     (1) The hospital is located in Rhode Island and has entered into commercial contracts

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with health insurance carriers, which require it to be at more than nominal contractual and

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financial risk for institutional and other health care services; and

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     (2) The hospital has formally requested their contracted health insurance carriers to

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capitate them for institutional services for their commercial populations under management; and

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     (b) All hospitals within the CharterCARE system including Roger Williams Medical

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Center and Our Lady of Fatima Hospital, are presumed to meet both of the two (2) conditions

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listed in subsections (a)(1) and (a)(2) of this section.

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     42-14.7-4. The transitional APM incentive.

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     (a) On or before July 1 of each calendar year, all health insurers (as defined in § 42-14.6-

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3) shall calculate and submit to OHIC, the insurer's fee-for-service base rates for each eligible

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hospital, by a percentage calculated under this chapter, in an amount sufficient to account for the

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difference between the eligible hospital's average private payer payments and the average

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payments made to all Rhode Island acute care hospitals, for the twelve (12) month period

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immediately preceding March 31 of each calendar year (referred to herein as "the transitional

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APM incentive"). The health insurer shall provide each eligible hospital the transitional APM

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incentive amount, at the same time it is submitted to OHIC. Upon the enactment of this chapter,

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each health insurer shall amend all of its contracts, with all hospitals, and include in its hospital

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contracts the terms required by this chapter. The hospital rates developed under this chapter shall

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not be subject to the provisions of OHIC regulation 2, § 10(d)(4)(E).

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     (b) OHIC shall review and verify the transitional APM incentive calculation within thirty

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(30) days of receipt from the health insurer. OHIC's verification of the calculation shall be based

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solely on a determination of the accuracy of the calculations submitted by each health insurer. If

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applicable, OHIC shall take into account the findings of any independent third party engaged by

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the eligible hospital, as provided for below. The rates shall be implemented within thirty (30)

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days after the date of OHIC's verification. The transitional APM incentive, as implemented

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pursuant to this chapter shall become the base rate for the eligible hospital and may not be

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reduced without the eligible hospital's written consent. Notwithstanding the foregoing, the

 

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eligible hospital may request that the data and calculation provided by the health insurer to OHIC,

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pursuant to this subsection, be submitted to an independent third party chosen by the eligible

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hospital, for the purpose of verifying health insurer's calculation of the transitional APM

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incentive. The independent third party shall not disclose any health insurer's confidential

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information of the other than its conclusion as to whether it agrees with the health insurer's

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calculation or, if it does not agree, its reasons, and identifying what it believes to be the

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appropriate transitional APM incentive, for the eligible hospital.

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     (c) The transitional APM incentive amount for any contract year shall not be

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implemented if the health plan's commercial line of business population under management by

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the low rate hospital reaches fifty percent (50%) under an institutional service capitation

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arrangement, for the immediately preceding contract year, then the transitional APM incentive

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will end for after subsequent contract year. If, in that subsequent contract year or any contract

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year thereafter, the population under institutional services capitation to the low rate hospital, falls

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below fifty percent (50%) for the health plan's commercial line of business, the health plan shall

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apply the transitional APM incentive or, after negotiation and agreement with the hospital,

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implement an alternative set of mutually-agreed-upon rates. Nothing in these provisions shall

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result in a lower reimbursement rate to any hospital in any contract year.

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     42-14.7-5. Calculation of the transitional APM incentive.

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     (a) The transitional APM incentive shall be calculated based on the percentage difference

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between the following:

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     (1) The hospital's average payment per encounter from private payers; and

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     (2) The average payment per encounter from private payers for all Rhode Island acute

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care hospitals, utilizing the data set forth in the most recent version of the 2012 report as

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described in § 42-14.7-2(f).

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     (b) The 2012 report identifies an inpatient and an outpatient mix-adjusted average private

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payer payment per encounter for each of the eleven (11) acute care hospitals in Rhode Island. In

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general, the formulas are as follows:

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     (1) Inpatient payments divided by inpatient discharges and divided by "all patient refined

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diagnostic related groups" (APR DRG) case mix index equals inpatient average mix-adjusted

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payment.

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     (2) Outpatient payments divided by outpatient visits and divided by enhanced ambulatory

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patient grouping" (EAPG) service mix index equals outpatient average mix-adjusted payment.

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     (c) Using the values set forth in the 2012 report, the transitional APM incentive

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percentage should be calculated using the following four (4) steps:

 

LC005794 - Page 4 of 6

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     (1) The average inpatient and outpatient payments, derived using the formulas noted

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above, as updated to the current year by applying the percentage rate increases utilized by OHIC

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in its annual rate review process.

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     (2) The average as determined for the updated inpatient and outpatient average payments.

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     (3) Each hospital's inpatient and outpatient payments are recomputed using the average

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values from subsection (c)(2) of this section, and combined.

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     (4) The percentage difference between the amount derived in subsection (c)(3) of this

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section and the hospital's actual private payer payments is then calculated.

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     (d) If the percentage described in subsection (c)(4) of this section is a positive value

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(payments at the average exceed actual payments), the percentage shall be utilized, for the

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transitional APM incentive. Hospitals with negative percentages (actual payments exceed the

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average) shall not eligible for the incentive.

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     42-14.7-6. Severability.

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     If any provision of this chapter or its application to any person or circumstance is held

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invalid, the invalidity shall not affect other provisions or applications of this chapter which can be

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given effect without the invalid provision or application, and for this purpose the provisions of

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this chapter are severable.

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     SECTION 2. This act shall take effect upon passage.

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LC005794

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LC005794 - Page 5 of 6

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- HEALTH AND SAFETY--

ALTERNATIVE PAYMENT INCENTIVE FOR CERTAIN ELIGIBLE HOSPITALS

***

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     This act would establish a formula to create a transitional alternative payment method

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incentive to be used in calculating reimbursement rates that must be paid by health insurance

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carriers to eligible Rhode Island hospitals.

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     This act would take effect upon passage.

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LC005794

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